As filed with the Securities and Exchange Commission on June 15, 1998
Registration No. __________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
FRANKLIN RECEIVABLES LLC
REGISTRANT
FCC RECEIVABLES CORP.
CO-REGISTRANT
(Exact name of Registrant as specified in governing instruments)
REGISTRANT - DELAWARE REGISTRANT 94-3301790
CO-REGISTRANT - DELAWARE CO-REGISTRANT 94-3219968
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
47 WEST 200 SOUTH, SUITE 500
SALT LAKE CITY, UTAH 84101
(801) 238-6700
(Address of principal executive offices)
JENNIFER J. BOLT
FRANKLIN RECEIVABLES LLC
FCC RECEIVABLES CORP.
47 WEST 200 SOUTH, SUITE 500
SALT LAKE CITY, UTAH 84101
(801) 238-6700
(Name and address of agent for services)
Copy to:
DAN METTE, ESQ. REED D. AUERBACH, ESQ.
WEIL, GOTSHAL & MANGES LLP STROOCK & STROOCK & LAVAN LLP
767 FIFTH AVENUE 180 MAIDEN LANE
NEW YORK, NEW YORK 10153 NEW YORK, NEW YORK 10038
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement as determined by
market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, 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 of 1933, please 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. [ ]
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------
Title of Securities Amount being Proposed maximum Proposed maximum Amount of
being registered offering price per aggregate offering registration fee
registered unit price(1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Backed Securities $1,000,000 100% $1,000,000 $295.00
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
INTRODUCTORY NOTE
This Registration Statement contains (i) a form of Prospectus relating to the
offering of series of Asset Backed Notes and/or Asset Backed Certificates by
various Franklin Auto Trusts created from time to time by either Franklin
Receivables LLC or FCC Receivables Corp. and (ii) two forms of Prospectus
Supplement relating to the offering by Franklin Auto Trusts of the particular
series of Asset Backed Certificates or of Asset Backed Notes and Asset Backed
Certificates described therein. Each form of Prospectus Supplement relates only
to the securities described therein and is a form which, among others, may be
used by either Franklin Receivables LLC or FCC Receivables Corp. to offer Asset
Backed Notes and/or Asset Backed Certificates under this Registration Statement.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
- --------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED JUNE 15, 1998
PROSPECTUS SUPPLEMENT
(To Prospectus dated , 1998)
$[__________]
FRANKLIN AUTO TRUST 1998-[ ]
$[___] Class A-[ ] [ %] [Floating Rate] [__% Money Market] Asset Backed Notes
$ [_______] Class [__] - [__] [____%] [Floating Rate] Asset Backed Certificates
--------------
[Add other offered Classes of Securities]
The Franklin Auto Trust 199[8]-[ ] (the "Trust") will be formed pursuant
to a [Pooling and Servicing] [Trust] Agreement to be entered into by and among
[Franklin Receivables LLC] [FCC Receivables Corp.], as seller (the "Seller") [,
Franklin Capital Corporation, as servicer ("Servicer")] and [_______]
([_______]), as Owner Trustee, and will issue $[ ] aggregate principal amount of
Class A-[__] [__%] Money Market Asset Backed Notes (the "Class A-[__] Notes"),
$[ ] aggregate principal amount of Class A-[_] Floating Rate Asset Backed Notes
(the "Class A-[_] Notes") and $[ ] aggregate principal amount of Class A-[_]
[__%] Asset Backed Notes (the "Class A-[_] Notes," and together with the Class
A-[_] Notes and the Class A-[_] Notes, the "Notes"). The Notes will be issued
pursuant to an Indenture, to be dated as of [_______] (the "Indenture"), between
the Trust and [_______], as Indenture Trustee and as Indenture Collateral Agent
(the "Indenture Trustee" and the "Indenture Collateral Agent"). The Trust also
will issue $[_______] aggregate principal amount of class [__][ %] [Floating
Rate] Asset Backed Certificates (the "Certificates," and together with the
Notes, the "Securities"). [The Trust will also issue $[__________] aggregate
principal amount of Class [__] Asset Backed Certificates, which are not being
offered hereby and will be retained by the Seller.]
The assets of the Trust will include a pool of motor vehicle retail
installment sale contracts (the "Initial Receivables") secured by new and used
automobiles, light trucks and vans financed thereby (the "Initial Financed
Vehicles"), certain amounts received under each Initial Receivable after the
later of (x) [ 199_] and (y) the date of its origination but in no event later
than the date of issuance of the Securities (the "Initial Cutoff Date"),
security interests in the Initial Financed Vehicles, [the Certificate Policy]
and certain other property, as more fully described herein.
(Cover continued on next page)
FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE SECURITIES, SEE "RISK FACTORS" AT PAGE S-[ ]
HEREIN AND AT PAGE [ ] IN THE ACCOMPANYING PROSPECTUS.
THE NOTES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES REPRESENT INTERESTS IN,
THE TRUST ONLY AND DO NOT REPRESENT OBLIGATIONS OF OR INTERESTS IN THE SELLER,
THE SERVICER, FRANKLIN RESOURCES, INC., FRANKLIN CAPITAL CORPORATION OR ANY OF
THEIR RESPECTIVE AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Underwriter[s] have agreed to purchase the Securities at % of the
principal amount thereof, subject to the terms and conditions set forth in the
Underwriting Agreement referred to herein under "Underwriting." The aggregate
proceeds to the Trust, before deducting expenses payable by or on behalf of the
Trust estimated at $ , will be $ .
The Underwriter[s] propose to offer the Securities from time to time in
negotiated transactions or otherwise, at prices determined at the time of sale.
For further information with respect to the plan of distribution and any
discounts, commissions or profits that may be deemed underwriting discounts or
commissions, see "Underwriting" herein.
The Notes and the Certificates are offered by the Underwriter[s] when, as
and if issued by the Trust, delivered to and accepted by the Underwriter[s], and
subject to [its] [their] right to reject orders in whole or in part. It is
expected that delivery of the Securities in book-entry form will be made through
the facilities of The Depository Trust Company ("DTC") on the Same Day Funds
Settlement System and, in the case of the Notes, Cedel Bank, societe anonyme
("Cedel") and the Euroclear System ("Euroclear") on or about [_______], 199[_].
[GOLDMAN SACHS & CO.]
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS [_______], 199[ ].
<PAGE>
(Continued from preceding page)
[From time to time on or before the Distribution Date in [______ 199_],
additional motor vehicle retail installment sale contracts (the "Subsequent
Receivables," and together with the Initial Receivables, the "Receivables")
secured by new and used automobiles and light trucks financed thereby (the
"Subsequent Financed Vehicles," and together with the Initial Financed Vehicles,
the "Financed Vehicles"), certain amounts received under the Subsequent
Receivables on and after the related Subsequent Cutoff Dates (as defined
herein), security interests in the Subsequent Financed Vehicles and certain
other property, as more fully described herein, are intended to be purchased by
the Trust from amounts deposited in a pre-funding account established with the
Indenture Collateral Agent (the "Pre-Funding Account") on the date of issuance
of the Securities. Subsequent Receivables with an aggregate principal balance of
up to $[_______] may be acquired by the Trust.]
The Notes will be secured by the assets of the Trust pursuant to the
Indenture. [Interest on the Class A-[ ] Notes will accrue at the per annum
interest rates specified above.] [The per annum rate of interest on the Class
A-[ ] Notes for each monthly interest period will equal one-month LIBOR (as
defined herein) plus 0.[_]%, subject to a maximum rate equal to 12% per annum.]
Interest on the Notes will generally be payable on the [_______] day of each
month (each, a "Distribution Date"), commencing in [__________, 199_]. Principal
on the Notes will be payable on each Distribution Date to the extent described
herein, except that no principal will be paid on a Class of Notes until each
Class of Notes having a lower numerical Class designation has been paid in full.
[The Certificates represent fractional undivided interests in the Trust.
Interest, to the extent of the Certificate Rate of [__% per annum], [Floating
Rate equal to ____] will be distributed to the Certificateholders on each
Distribution Date. Distributions of interest on the Certificates will be
subordinated in priority of payment to interest on and principal of the Notes.
No principal will be paid on the Certificates until all of the Notes have been
paid in full. The Final Scheduled Distribution Date for the Class A-[ ] Notes
will be [_____, 199 ], [the _____ 200__ Distribution Date]. The Final Scheduled
Distribution Date for the Certificates will be the [_____, 200__] Distribution
Date. However, payment in full of a Class of Notes or the Certificates may occur
earlier than such dates as described herein. In addition, the Class A-[ ] Notes
will be subject to redemption in whole, but not in part, and the Certificates
will be subject to prepayment in whole, but not in part, on any Distribution
Date on which the Servicer exercises its option to purchase the Receivables. The
Servicer may purchase the Receivables when the aggregate principal balance of
the Receivables shall have declined to [10]% or less of the Original Pool
Balance.]
Full and timely payment of the Guaranteed Note Distributions in respect of
the Notes and the Guaranteed Certificate Distributions in respect of the
Certificates (each as defined herein) on each Distribution Date is
unconditionally and irrevocably guaranteed pursuant to financial guaranty
insurance policies (the "Policies") to be issued by
There currently is no secondary market for the Notes or the Certificates.
The Underwriter[s] expect to make a market in the Securities but have no
obligation to do so. There is no assurance that any such market will develop or
continue or that it will provide Securityholders with sufficient liquidity of
investment.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE SECURITIES. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE SECURITIES MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED A FINAL PROSPECTUS SUPPLEMENT AND
THE FINAL PROSPECTUS. TO THE EXTENT ANY STATEMENTS IN THIS PROSPECTUS SUPPLEMENT
CONFLICT WITH STATEMENTS IN THE PROSPECTUS, THE STATEMENTS IN THIS PROSPECTUS
SUPPLEMENT SHALL CONTROL.
S-2
<PAGE>
[UNDERWRITERS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
INCLUDING OVER ALLOTMENT, STABILIZING AND SHORT COVERING TRANSACTIONS IN THE
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, DURING AND AFTER THE OFFERING.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING" HEREIN.]
THE SECURITIES OFFERED BY THIS PROSPECTUS SUPPLEMENT WILL CONSTITUTE A
SEPARATE SERIES OF SECURITIES BEING OFFERED BY THE DEPOSITOR PURSUANT TO ITS
PROSPECTUS DATED [_______], 1998, OF WHICH THIS PROSPECTUS SUPPLEMENT IS A PART
AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING WHICH IS NOT CONTAINED HEREIN, AND
PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT IN FULL. IN PARTICULAR, INVESTORS SHOULD CONSIDER CAREFULLY THE
FACTORS SET FORTH UNDER "RISK FACTORS" IN THE PROSPECTUS AND IN THIS PROSPECTUS
SUPPLEMENT.
UNTIL [_______], 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT RELATES. THIS
DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
S-3
<PAGE>
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Notes or Definitive Certificates are issued,
unaudited monthly and annual reports containing information concerning the
Receivables will be sent on behalf of the Trust to Cede & Co., as registered
holder of the Notes and the Certificates and the nominee of DTC. See "Certain
Information Regarding the Securities -- Statements to Securityholders" and "--
Book-Entry Registration" in the accompanying Prospectus (the "Prospectus"). Such
reports will not constitute financial statements prepared in accordance with
generally accepted accounting principles. None of the Seller, the Servicer,
Franklin Capital, [Franklin Resources] or the Insurer intends to send any of its
financial reports to Securityholders. The Servicer, on behalf of the Trust, will
file with the Securities and Exchange Commission ("the Commission") periodic
reports concerning the Trust to the extent required under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations of the Commission thereunder.
AVAILABLE INFORMATION
The financial statements of [_______] (the "Insurer") are included in, or
as exhibits to, the following documents which have been filed with the
Commission by [_______] ("[Holdings]"):
[(a) Annual Report on Form 10-K for the year ended [ ], and
(b) Quarterly Report on Form 10-Q for the period ended [ ].]
Investors are encouraged to review such document, including such financial
statements, as well as all financial statements of the Insurer included in
documents filed by [Holdings] pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this Prospectus Supplement and prior
to the termination of the offering of the Securities for information about the
Insurer.]
S-4
<PAGE>
SUMMARY OF TERMS
The following summary of principal economic terms does not purport to be
complete and is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
Prospectus. Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings ascribed to such terms elsewhere in this Prospectus
Supplement or the Prospectus.
Issuer............................ Franklin Auto Trust, [199_]-[ ] (the "Trust"
or the "Issuer"), a Delaware business trust
to be formed pursuant to a Trust Agreement,
dated as of [____, 199 ] (the "Trust
Agreement"), among the Seller and the Owner
Trustee.
Seller............................ [Franklin Receivables LLC, a Delaware
limited liability company] [FCC Receivables
Corp., a Delaware corporation] (the
"Seller") and wholly-owned subsidiary of the
Franklin Capital Corporation. See "The
Sellers" in the Prospectus.
Servicer.......................... Franklin Capital Corporation (in its
individual capacity, "Franklin Capital" and,
as servicer, the "Servicer"), a Utah
corporation and wholly-owned subsidiary of
the Franklin Resources, Inc., a Delaware
corporation ("Franklin Resources"). See
"Franklin Capital Corporation" and "Franklin
Resources, Inc." in the Prospectus.
Insurer........................... [_______] (the "Insurer"), a [___] financial
guaranty insurance company. See "The
Insurer" herein.
Indenture Trustee................. [_______] (the "Indenture Trustee"). See
"The Notes - The Indenture Trustee" in the
Prospectus.
Owner Trustee..................... [_______] (the "Owner Trustee"). See "The
Trusts - The Owner Trustee" in the
Prospectus. Initial Cutoff Date With respect
to each Initial Receivable, the later of (x)
[_____, 199 ] and (y) the date of its
origination but in no event later than the
Closing Date.
Closing Date...................... [______].
The Notes......................... The Trust will issue Class A-[ ] [____%]
[_____% Money Market Rate] [Floating Rate]
Asset-Backed Notes (the "Class A-[ ] Notes")
in the aggregate original principal amount
of $[_______], Class A-[ ] [__%] [__% Money
Market Rate] [Floating Rate] Asset-Backed
Notes (the Class A-[ ] Notes) in the
aggregate original principal amount of
$[_____] and [specify others]. The Class
A-[_] Notes and the Class A-[_] Notes [and
specify others] (collectively, the "Notes")
will be issued pursuant to an Indenture,
dated as of [_________, 199 ], among the
Issuer, the Indenture Trustee and [ ], as
Indenture Collateral Agent (the "Indenture
Collateral Agent"). The Notes will be
offered for purchase in denominations of
$[1,000] and integral multiples thereof in
book-entry form only. Persons acquiring
beneficial interests in the Notes will hold
their
S-5
<PAGE>
interests through DTC in the United States
or Cedel Bank, societe anonyme ("Cedel") or
the Euroclear System ("Euroclear") in
Europe. See "Certain Information Regarding
the Securities -- Book-Entry Registration"
in the Prospectus and Annex I thereto.
The Notes will be secured by the assets of
the Trust (other than the Certificate
Distribution Account and the Certificate
Policy) pursuant to the Indenture.
The Certificates.................. The Trust will issue [____%] [Floating Rate]
Asset Backed Certificates (the
"Certificates") with an aggregate initial
Certificate Balance (as defined herein) of
$[_______] [specify others]. The
Certificates will represent fractional
undivided interests in the Trust. The
Certificates will be issued pursuant to the
Trust Agreement. The Certificates will be
offered for purchase in denominations of
$[1,000] and integral multiples thereof in
book-entry form only (other than the
Certificates sold to the Seller, as
described in "The Trust -- General" herein).
See "Certain Information Regarding the
Securities -- Book-Entry Registration" in
the Prospectus.
Trust Property.................... Each Note will represent an obligation of,
and each Certificate will represent a
fractional undivided interest in, the Trust.
The Trust's assets (the "Trust Property")
will include, among other things, certain
motor vehicle retail installment sale
contracts (the "Initial Receivables"),
secured by new and used automobiles and
light trucks (the "Initial Financed
Vehicles"), certain monies received
thereunder after the Initial Cutoff Date
and, with respect to Initial Receivables
which are Precomputed Receivables, monies
received thereunder on or prior to the
Initial Cutoff Date that are due after the
Initial Cutoff Date, an assignment of the
security interests in the Initial Financed
Vehicles securing the Initial Receivables,
the related Receivables Files (as defined in
the related Trust Documents), all rights to
proceeds from claims on certain physical
damage, credit life and disability insurance
policies covering the Initial Financed
Vehicles or the Obligors, as the case may
be, all rights to liquidation proceeds with
respect to the Initial Receivables, certain
proceeds from the exercise of rights against
Dealers under agreements between Franklin
Capital and such Dealers, certain bank
accounts, all proceeds of the foregoing, the
Certificate Policy, and certain rights under
the Trust Documents. The Initial Receivables
will be purchased by the Seller from
Franklin Capital pursuant to a purchase
agreement (the "Purchase Agreement") between
the Seller and Franklin Capital on or prior
to the date of issuance of the Securities.
The Trust Property also will include an
assignment of the Seller's rights against
Franklin Capital under the Purchase
Agreement upon the occurrence of certain
breaches of representations and warranties.
[The Initial Receivables transferred to the
Trust on the Closing Date will also include
certain motor vehicle retail installment
sale contracts originated by Franklin
Capital, some of which may
S-6
<PAGE>
be originated after [______, 199 ] (the
"Statistical Calculation Date") but on or
prior to the Closing Date.]
[Additional motor vehicle retail installment
sale contracts (the "Subsequent
Receivables") secured by new or used
automobiles, and light trucks (the
"Subsequent Financed Vehicles"), certain
monies received thereunder on or after the
applicable Subsequent Cutoff Date (as
defined below) and, with respect to
Subsequent Receivables which are Precomputed
Receivables, monies received thereunder on
or prior to the related Subsequent Cutoff
Date which are due after such Subsequent
Cutoff Date, an assignment of the security
interests in the Subsequent Financed
Vehicles securing the Subsequent
Receivables, the related Receivables Files,
all rights to proceeds from claims on
certain physical damage, credit life and
disability insurance policies covering the
Subsequent Financed Vehicles or the
Obligors, as the case may be, all rights to
liquidation proceeds with respect to the
Subsequent Receivables, certain proceeds
from the exercise of rights against Dealers
under agreements between Franklin Capital
and such Dealers, certain bank accounts and
all proceeds of the foregoing are intended
to be purchased by the Trust from the Seller
from time to time on or before the [_______,
199 ] Distribution Date, from funds on
deposit in the Pre-Funding Account. The
Subsequent Receivables will be purchased by
the Seller from Franklin Capital pursuant to
one or more subsequent purchase agreements
(each, a "Subsequent Purchase Agreement")
between the Seller and Franklin Capital. The
Trust Property also will include an
assignment of the Seller's rights against
Franklin Capital under each Subsequent
Purchase Agreement upon the occurrence of
certain breaches of representations and
warranties thereunder. The purchase by the
Trust of the Subsequent Receivables is
subject to the satisfaction of certain
conditions, as described under "The
Receivables" herein. The Initial Receivables
and the Subsequent Receivables are
hereinafter referred to as the
"Receivables," and the Initial Financed
Vehicles and the Subsequent Financed
Vehicles are hereinafter referred to as the
"Financed Vehicles."]
Receivables....................... The Receivables consist of motor vehicle
retail installment sale contracts originated
by Dealers and then acquired by Franklin
Capital. See "Franklin Capital Corporation
-- General" in the Prospectus.
The statistical information presented in
this Prospectus Supplement is based on the
Initial Receivables as of the Statistical
Calculation Date. The Initial Receivables
transferred to the Trust on the Closing Date
will include certain other motor vehicle
retail installment sale contracts, some of
which may be originated after the
Statistical Calculation Date but on or prior
to the Closing Date. While the statistical
distribution of the final characteristics of
all Initial Receivables transferred to the
Trust on the Closing Date will vary from the
statistical information presented in
S-7
<PAGE>
this Prospectus Supplement, the Seller and
the Servicer do not believe that the
characteristics of the Initial Receivables
as of their respective Initial Cutoff Dates
will vary materially from the information
presented herein with respect to the Initial
Receivables as of the Statistical
Calculation Date.
The Initial Receivables have, as of the
Statistical Calculation Date, a weighted
average annual percentage rate ("APR") of
approximately [_______]%, a weighted average
original maturity of [_______] months and a
weighted average remaining maturity of
[_______] months. The Initial Receivables
have an aggregate principal balance of
$[_______] as of the Statistical Calculation
Date. See "The Receivables." Each of the
Initial Receivables also will have a
remaining term of not more than [_______]
months and not less than [_______] months as
of the Statistical Calculation Date.
[Following the Closing Date, the Trust will
be obligated to purchase from time to time
on or before the end of the Funding Period
(as defined below), subject to the
availability thereof, Subsequent Receivables
consisting of retail automobile installment
sale contracts acquired by the Seller from
Franklin Capital. The aggregate principal
balance of the Subsequent Receivables is
anticipated by Franklin Capital to equal
approximately $[_______]. In connection with
each purchase of Subsequent Receivables, the
Trust will be required to pay to the Seller
a cash purchase price equal to the principal
amount thereof from the Pre-Funding Account.
Under the Purchase Agreement, the Seller
will be obligated, subject to the
satisfaction of certain conditions described
herein, to purchase from Franklin Capital
Subsequent Receivables, and under the Sale
and Servicing Agreement, dated as of
[________, 199 ], among the Seller, the
Servicer and the Owner Trustee (the "Sale
and Servicing Agreement"), the Seller will
be obligated to sell such Subsequent
Receivables to the Trust and the Trust will
be obligated, subject to the satisfaction of
certain conditions described herein, to
purchase such Subsequent Receivables from
the Seller. Franklin Capital will designate
as a cutoff date (each, a "Subsequent Cutoff
Date") (i) the last day of the month
preceding the month in which Subsequent
Receivables are conveyed to the Seller by
Franklin Capital and reconveyed by the
Seller to the Trust or (ii) if any such
Subsequent Receivable is originated in the
month of conveyance, the date of
origination. Subsequent Receivables will be
conveyed to the Seller and then reconveyed
by the Seller to the Trust on designated
dates (each, a "Subsequent Transfer Date")
occurring during the Funding Period. The
Trust may purchase the Subsequent
Receivables only from the Seller and not
from any other person, and the Seller may
purchase the Subsequent Receivables only
from Franklin Capital. The Subsequent
Receivables must satisfy certain eligibility
criteria specified herein and in the Sale
and Servicing Agreement. See "The
Receivables -- Eligibility Criteria"
herein.]
S-8
<PAGE>
Terms of the Notes................ The principal terms of the Notes will be as
described below:
A. Distribution Dates.......... Payments of interest and principal on the
Notes will be made on the [_______] day of
each month or, if the [_______] day is not a
Business Day, on the next following Business
Day (each, a "Distribution Date") commencing
[______, 199 ]. Each reference to a "Payment
Date" in the accompanying Prospectus shall
refer to a Distribution Date. Payments will
be made to holders of record of the Notes
(the "Noteholders") as of the Business Day
immediately preceding such Distribution Date
(a "Record Date"). A "Business Day" is a day
other than a Saturday, Sunday or other day
on which commercial banks located in the
states of California, Utah or New York are
authorized or obligated to be closed.
B. Interest Rates.............. The Class A-[ ] Notes will bear interest at
a [fixed per annum rate] set forth on the
cover page hereof. The Class A-[ ] Notes
will bear interest at a [floating rate equal
to the London interbank offered rates for
one-month U.S. dollar deposits ("LIBOR")
plus 0. [_______]%, subject to a maximum
rate equal to 12% per annum.] [The Class
A-[_] Notes will bear interest at the [___%
Money Market] rate set forth on the cover
page hereof.] [specify others] Each such
interest rate for a Class of Notes is
referred to as the "Interest Rate."
C. Interest.................... Interest on the principal amount of the
Notes of each Class outstanding immediately
prior to a Distribution Date will accrue at
the applicable Interest Rate from and
including the most recent Distribution Date
on which interest has been paid (or, in the
case of the first Distribution Date, from
and including the Closing Date) to, but
excluding, the following Distribution Date
(each, an "Interest Period"). Interest on
the Notes for any Distribution Date due but
not paid on such Distribution Date will be
due on the next Distribution Date together
with, to the extent permitted by law,
interest on such amount at the applicable
Interest Rate. The amount of interest
distributable on the Notes on each
Distribution Date will equal interest
accrued during the related Interest Period.
Interest on the Class A-[ ] Notes, and
[other Class A-[ ] Note] will be
calculated on the basis of a [360-day year
and the actual number of days elapsed in the
applicable Interest Period] [360-day year
consisting of twelve 30-day months.] See
"Description of the Notes -- Payments of
Interest" herein.
D. Principal................... Principal of the Notes will be payable on
each Distribution Date in an amount equal to
the Noteholders' Principal Distributable
Amount for the calendar month (the "Monthly
Period") preceding such Distribution Date.
The Noteholders' Principal Distributable
Amount will equal the sum of (x) the
Noteholders' Percentage of the Principal
Distributable Amount and (y) any unpaid
portion of the amount described in clause
(x) with respect to a prior Distribution
Date. The "Principal Distributable Amount"
with respect to any Distribution Date will
be an amount equal to the sum of the
S-9
<PAGE>
following amounts with respect to the
related Monthly Period, computed, with
respect to Simple Interest Receivables, in
accordance with the simple interest method,
and, with respect to Precomputed
Receivables, in accordance with the
actuarial method: (i) that portion of all
collections on Receivables allocable to
principal, including full and, with respect
to Simple Interest Receivables, partial
principal prepayments, received during such
Monthly Period (including, with respect to
Precomputed Receivables, amounts withdrawn
from the Payahead Account but excluding
amounts deposited into the Payahead Account)
with respect to such Monthly Period, (ii)
the principal balance of each Receivable
that was repurchased by Franklin Capital,
the Seller or the Servicer as of the last
day of such Monthly Period, (iii) [at the
option of the Insurer,] the outstanding
principal balance of those Receivables that
were required to be repurchased by the
Seller and/or Franklin Capital during such
Monthly Period but were not so repurchased,
(iv) the principal balance of each
Receivable that became a Liquidated
Receivable during such Monthly Period and
(v) the aggregate amount of Cram Down Losses
during such Monthly Period. See "Description
of the Purchase Agreements and the Trust
Documents -- Distributions" herein.
[The Noteholders' Percentage will be [100%]
until the Class A-[ ] Notes have been paid
in full and thereafter will be zero.] [No
principal will be paid on a Class of Notes
until the principal of all Classes of Notes
having a lower numerical Class designation
has been paid in full.] [The Noteholder's
percentage will equal the percentage
equivalent of a fraction the numerator of
which is the outstanding principal amount of
the Notes and the denominator of which is
the aggregate outstanding principal amount
of the Securities.] In addition, the
outstanding principal amount of the Notes of
any Class, to the extent not previously
paid, will be payable on the respective
Final Scheduled Distribution Date for such
Class.
E. Optional Redemption......... The Class A-[ ] Notes, to the extent still
outstanding, may be redeemed in whole, but
not in part, on any Distribution Date on
which the Servicer exercises its option to
purchase the Receivables, which, subject to
certain provisions in the Sale and Servicing
Agreement, can occur after the Pool Balance
declines to [10]% or less of the Original
Pool Balance, at a redemption price equal to
the unpaid principal amount of the Notes of
such Class plus accrued and unpaid interest
thereon. See "Description of the Notes --
Optional Redemption" herein. The Original
Pool Balance will equal [the sum of (i)] the
aggregate principal balance of the Initial
Receivables as of the Initial Cutoff Date
[plus (ii) the aggregate principal balances
of all Subsequent Receivables added to the
Trust as of their respective Subsequent
Cutoff Dates].
F. Mandatory Redemption........ [Each Class of Notes will be redeemed in
part on the Mandatory Redemption Date (as
defined under "Pre-Funding
S-10
<PAGE>
Account" below) in the event that any
portion of the Pre-Funded Amount remains on
deposit in the Pre-Funding Account after
giving effect to the purchase of all
Subsequent Receivables, including any such
purchase on such date. The aggregate
principal amount of each Class of Notes to
be redeemed will be an amount equal to such
Class's pro rata share (based on the
respective current principal amount of each
Class of Notes and the Certificate Balance)
of the Pre-Funded Amount on such date (such
Class's "Note Prepayment Amount").]
[The Notes may be accelerated and subject to
immediate payment at par upon the occurrence
of an Event of Default under the Indenture.
So long as no Insurer Default shall have
occurred and be continuing, an Event of
Default under the Indenture will occur only
upon delivery by the Insurer to the
Indenture Trustee of notice of the
occurrence of certain events of default
under the Insurance and Indemnity Agreement,
dated as of [_______, 199_] (the "Insurance
Agreement"), among the Insurer, the Trust,
the Seller and the Servicer. In the case of
such an Event of Default, the Notes will
automatically be accelerated and subject to
immediate payment at par. See "Description
of the Notes -- Events of Default" herein.
The Note Policy does not guarantee payment
of any amounts that become due on an
accelerated basis, unless the Insurer
elects, in its sole discretion, to pay such
amounts in whole or in part. See "The
Policies -- Note Policy" herein.]
Terms of the Certificates......... The principal terms of the Certificates will
be as described below:
A. Distribution Dates.......... Distributions with respect to the
Certificates will be made on each
Distribution Date, commencing [______,199_].
Distributions will be made to holders of
record of the Certificates (the
"Certificateholders" and, together with the
Noteholders, the "Securityholders") as of
the related Record Date.
B. Certificate Rate ............ [ ]% per annum payable monthly at
one-twelfth of the annual rate, calculated
on the basis of a 360-day year consisting of
twelve 30-day months.
C. Subordination of
Certificates................. The Certificates will not receive any
distribution with respect to a Distribution
Date until the full amount of the
Noteholders' Distributable Amount with
respect to such Distribution Date has been
deposited in the Note Distribution Account.
D. Interest.................... On each Distribution Date, the Owner Trustee
will distribute to Certificateholders their
pro rata share of interest distributable
with respect to such Certificates. The
amount of interest distributable on the
Certificates on each Distribution Date will
equal interest accrued during the related
Interest Period at the Certificate Rate on
the Certificate Balance immediately prior to
such Distribution Date. Interest on the
S-11
<PAGE>
Certificates for any Distribution Date due
but not paid on such Distribution Date will
be due on the next Distribution Date
together with, to the extent permitted by
law, interest on such amount at one-twelfth
of the Certificate Rate. Distributions of
interest on the Certificates are subordinate
to payments of interest and principal on the
Notes, as described above under
"Subordination of Certificates." See
"Description of the Certificates --
Distributions of Interest" herein.
E. Principal................... On each Distribution Date on or after the
date on which the Class A-[ ] Notes have
been paid in full, principal of the
Certificates will be payable in an amount
equal to the Certificateholders' Principal
Distributable Amount for the Monthly Period
preceding such Distribution Date. The
Certificateholders' Principal Distributable
Amount will equal the sum of (x) the
Principal Distributable Amount and (y) any
unpaid portion of the amount described in
clause (x) with respect to a prior
Distribution Date[; provided, however, that
the Certificateholders' Principal
Distributable Amount on the Distribution
Date on which the Class A-[ ] Notes are paid
in full will be reduced by the amount
necessary to pay the Class A-[ ] Notes in
full]. See "Description of the Purchase
Agreements and the Trust Documents --
Distributions" herein.
The remaining Certificate Balance, if any,
will be payable in full on the Final
Scheduled Distribution Date for the
Certificates.
F. Optional Prepayment.......... If the Servicer exercises its option to
purchase the Receivables as described above,
the Certificateholders shall receive an
amount equal to the remaining Certificate
Balance together with accrued interest at
the Certificate Rate, and the Certificates
will be retired.
G. Mandatory Prepayment........ [The Certificates will be prepaid in part on
the Mandatory Redemption Date in the event
that any portion of the Pre-Funded Amount
remains on deposit in the Pre-Funding
Account after giving effect to the purchase
of all Subsequent Receivables, including any
such purchase on such date. The aggregate
principal amount of Certificates to be
prepaid will be an amount equal to the
Certificateholders' pro rata share (based on
the respective current principal amount of
each Class of Notes and the Certificate
Balance) of the Pre Funded Amount (the
"Certificate Prepayment Amount").]
[Pre-Funding Account.............. On the Closing Date, a cash amount equal to
approximately $[_______] (the "Initial
Pre-Funded Amount") will be deposited in an
account (the "Pre-Funding Account") which
will be established with the Indenture
Collateral Agent. The Pre-Funding Account
will be an asset of the Trust and will be
pledged to the Indenture Collateral Agent
for the benefit of the Indenture Trustee, on
behalf of the Noteholders, and the Insurer.
The "Funding Period" is the period from the
Closing Date until the earliest of the date
on which (i) the
S-12
<PAGE>
amount on deposit in the Pre-Funding Account
is less than $[100,000], (ii) a Servicer
Default occurs under the Sale and Servicing
Agreement, or (iii) the Distribution Date in
[_______, 199 ]. The Initial Pre-Funded
Amount as reduced from time to time during
the Funding Period by the amount thereof
used to purchase Subsequent Receivables in
accordance with the Sale and Servicing
Agreement is referred to herein as the
"Pre-Funded Amount." The Seller expects that
the Pre-Funded Amount will be reduced to
less than $100,000 on or before the end of
the Funding Period. Any Pre-Funded Amount
remaining at the end of the Funding Period
will be payable to the Noteholders and
Certificateholders as described herein. The
"Mandatory Redemption Date" is the earlier
of (i) the Distribution Date in [_______,
199 ] or (ii) if the last day of the Funding
Period occurs on or prior to the
Determination Date (as defined herein)
occurring in July or [_____, 199 ], the
Distribution Date relating to such
Determination Date.]
[Capitalized Interest Account..... On the Closing Date, a cash amount may be
deposited in an account (the "Capitalized
Interest Account") which will be established
with the Indenture Collateral Agent. The
Capitalized Interest Account will be an
asset of the Trust, and will be pledged to
the Indenture Collateral Agent for the
benefit of the Indenture Trustee, on behalf
of the Noteholders, the Owner Trustee, on
behalf of the Certificateholders, and the
Insurer. The amount, if any, deposited in
the Capitalized Interest Account will be
applied on the Distribution Dates occurring
in [_______], [_______] and [199_] of
[_______] to fund an amount (the "Monthly
Capitalized Interest Amount") equal to the
amount of interest accrued for each such
Distribution Date at the weighted average
Interest Rates and Certificate Rate on the
portion of the Securities having a principal
balance in excess of the principal balances
of the Receivables (which portion will equal
the Pre-Funded Amount). Any amounts
remaining in the Capitalized Interest
Account on the Mandatory Redemption Date and
not used for such purposes are required to
be paid directly to the Seller on such date.
See "Description of the Purchase Agreements
and the Trust Documents -- Accounts."]
[Spread Account................... On the Closing Date, the Seller will make an
initial deposit of an amount to be agreed
upon by the Seller and the Insurer to an
account (the "Spread Account") which will be
established with the Indenture Collateral
Agent for the benefit of the Indenture
Trustee, on behalf of the Noteholders, the
Owner Trustee, on behalf of the
Certificateholders, and the Insurer pursuant
to a certain Spread Account Agreement dated
as of [________, 199 ] (the "Spread Account
Agreement"). The Spread Account will not be
an asset of the Trust. The amount initially
deposited in the Spread Account is referred
to as the "Spread Account Initial Deposit."
On each Distribution Date, additional
amounts may be required to be deposited into
the Spread Account from payments on the
Receivables as described under
S-13
<PAGE>
"Description of the Purchase Agreements and
the Trust Documents -- Distributions"
herein. Amounts, if any, on deposit in the
Spread Account will be available to the
extent provided in the Spread Account
Agreement to fund any Deficiency Claim
Amount otherwise required to be made on a
Distribution Date. The aggregate amount
required to be on deposit at any time in the
Spread Account (the "Specified Spread
Account Requirement") will be determined in
accordance with the Insurance Agreement and
the Spread Account Agreement. The Specified
Spread Account Requirement may increase or
decrease over time as a result of floors,
caps and triggers set forth in the Insurance
Agreement or the Spread Account Agreement.
Amounts in the Spread Account on any
Distribution Date (after giving effect to
all distributions made on such Distribution
Date, as reconciled on such Distribution
Date) in excess of the Specified Spread
Account Requirement for such Distribution
Date will be released to the Seller. Amounts
on deposit or to be deposited in the Spread
Account may be distributed to persons other
than the Insurer or the Securityholders
without the consent of the Securityholders.
In addition, the Seller and the Insurer may
amend the Spread Account Agreement (and any
provisions in the Insurance Agreement
relating to the Spread Account) in any
respect (including, without limitation,
reducing or eliminating the Specified Spread
Account Requirement and/or reducing or
eliminating the funding requirements of the
Spread Account or permitting such funds to
be used for the benefit of persons other
than Securityholders) without the consent
of, or notice to, the Indenture Trustee, the
Owner Trustee or the Securityholders.
Notwithstanding any reduction in or
elimination of the funding requirements of
the Spread Account or the depletion thereof,
the Insurer will be obligated on each
Distribution Date to fund the full amount of
each Guaranteed Note Distribution and each
Guaranteed Certificate Distribution
otherwise required to be made on such
Distribution Date.]
[The Policies..................... On the Closing Date, the Insurer will issue
a financial guaranty insurance policy (the
"Note Policy") to the Indenture Trustee and
a financial guaranty insurance policy (the
"Certificate Policy") to the Owner Trustee
pursuant to the Insurance Agreement.
Pursuant to the Note Policy, the Insurer
will unconditionally and irrevocably
guarantee to the Noteholders payment of the
Guaranteed Note Distributions (as defined
herein) for each Distribution Date. Pursuant
to the Certificate Policy, the Insurer will
unconditionally and irrevocably guarantee to
the Certificateholders payment of the
Guaranteed Certificate Distributions (as
defined herein). See "The Policies" and
"Description of the Purchase Agreements and
the Trust Documents -- Distributions"
herein.]
Collection Account................ The Servicer will establish one or more
accounts in the name of the Indenture
Collateral Agent (the "Collection Account")
for the benefit of the Indenture Trustee, on
behalf of the
S-14
<PAGE>
Noteholders[, the Owner Trustee, on behalf
of the Certificateholders, and the Insurer].
All payments from Obligors that are received
by the Servicer on behalf of the Trust will
be deposited in the Collection Account no
later than two Business Days after receipt
thereof except under certain conditions
described herein. Pursuant to the Sale and
Servicing Agreement, the Indenture Trustee
will, on each Distribution Date, apply the
Distribution Amount with respect to such
Distribution Date to the following (in the
priority indicated): (i) to the Owner
Trustee and the Indenture Trustee, any
accrued and unpaid trustee fees and expenses
and any accrued and unpaid fees and expenses
of the Indenture Collateral Agent (in each
case, to the extent such fees have not been
previously paid by the Servicer or the
Franklin Resources), (ii) to the Servicer,
the Servicing Fee for the related Monthly
Period and any overdue Servicing Fees, (iii)
into the Note Distribution Account, the
Noteholders' Interest Distributable Amount,
(iv) into the Note Distribution Account, the
Noteholders' Principal Distributable Amount,
(v) into the Certificate Distribution
Account, the Certificateholders' Interest
Distributable Amount and, after the Class
A-[ ] Notes have been paid in full, the
Certificateholders' Principal Distributable
Amount, (vi) to the Insurer, amounts owing
and not paid to it under the Insurance
Agreement, (vii) to the Spread Account, up
to the Specified Spread Account Requirement
for such Distribution Date, and (viii) the
remaining balance, if any, to the Seller.
See "Description of the Purchase Agreements
and the Trust Documents -- Distributions"
herein and "Description of the Purchase
Agreements and the Trust Documents
--Collections" in the Prospectus.
Tax Status........................ In the opinion of Weil, Gotshal & Manges
LLP, special federal tax counsel to the
Trust, for federal income tax purposes the
Notes will be characterized as debt and the
Trust will not be characterized as an
association (or a publicly traded
partnership) taxable as a corporation. Each
Noteholder, by the acceptance of a Note,
will agree to treat the Notes as debt. Each
Certificateholder, by the acceptance of a
Certificate, will agree to treat the Trust
as a [partnership in which the
Certificateholders are partners] [division]
for federal income tax purposes. See
"Certain Federal Income Tax Consequences"
herein and "Federal Income Tax Consequences"
in the Prospectus.
ERISA Considerations.............. Subject to the conditions and considerations
discussed under "ERISA Considerations," the
Notes are eligible for purchase by pension,
profit-sharing or other employee benefit
plans as well as individual retirement
accounts and certain types of Keogh Plans
(each, a "Benefit Plan").
The Certificates may not be acquired
(directly or indirectly) by or on behalf of
any Benefit Plan or any entity (including an
insurance company general account) whose
underlying assets include plan assets of a
Benefit Plan by reason of a
S-15
<PAGE>
plan's investment in the entity. See "ERISA
Considerations" herein and in the
Prospectus.
[Legal Investment................. The Class A-[ ] Notes will be eligible
securities for purchase by money market
funds under Rule 2a-7 under the Investment
Company Act of 1940, as amended.]
Ratings........................... It is a condition to issuance that the Class
A-[ ] Notes be rated [__] by Standard &
Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc. ("S&P"), and
[___] by Moody's Investors Service, Inc.
("Moody's" and together with S&P, the
"Rating Agencies"), that the Class A-[ ]
Notes, the Class A-[ ] Notes be rated [___]
by S&P and [___] by Moody's and the
Certificates be rated [___] by S&P and [__]
by Moody's. The ratings by the Rating
Agencies of the Securities will be based
primarily on the Policies. There is no
assurance that the ratings initially
assigned to the Notes and the Certificates
will not subsequently be lowered or
withdrawn by the Rating Agencies. See "Risk
Factors -- Ratings on Securities" herein.
S-16
<PAGE>
RISK FACTORS
Prospective Noteholders and Certificateholders should consider, in
addition to the factors described under "Risk Factors" in the Prospectus, the
following risk factors in connection with the purchase of the Notes or the
Certificates.
[PREPAYMENT FROM THE PRE-FUNDING ACCOUNT; ABILITY TO ORIGINATE SUBSEQUENT
RECEIVABLES
To the extent that the Pre-Funded Amount has not been fully applied to the
purchase of Subsequent Receivables by the Trust by the end of the Funding
Period, the Noteholders and the Certificateholders will receive a prepayment of
principal on the Mandatory Redemption Date in an amount equal to their pro rata
share (based on the current principal balance of each Class and the Certificate
Balance) of the Pre-Funded Amount (exclusive of investment earnings) remaining
in the Pre-Funding Account following the purchase of any Subsequent Receivables
on the last Subsequent Transfer Date in the Funding Period. Any reinvestment
risk from the prepayment of the Securities from the Pre-Funded Amount at the end
of the Funding Period will be borne by the Noteholders and the
Certificateholders. See "Yield and Prepayment Considerations" in the Prospectus.
The conveyance of Subsequent Receivables to the Trust during the Funding
Period is subject to the conditions described herein under "The Receivables --
Eligibility Criteria." Each Subsequent Receivable must satisfy the eligibility
criteria specified herein and in the Sale and Servicing Agreement. The ability
of the Trust to invest in Subsequent Receivables is dependent upon the ability
of Franklin Capital to originate through Dealers a sufficient amount of motor
vehicle retail installment sale contracts that meet the requirements in the
Subsequent Purchase Agreement and in the Sale and Servicing Agreement for
transfer on a Subsequent Transfer Date. The ability of Franklin Capital to
originate through Dealers sufficient Subsequent Receivables may be affected by a
variety of social and economic factors. Economic factors include interest rates,
unemployment levels, the rate of inflation and consumer perception of economic
conditions generally. Neither Franklin Capital nor the Seller has any basis to
predict whether or the extent to which economic or social factors will affect
the availability of Subsequent Receivables. In addition, Franklin Capital has
limited performance history, which makes it difficult to predict the rate of its
originations. Nevertheless, although no assurances can be given, Franklin
Capital currently anticipates originating sufficient Receivables satisfying the
criteria set forth in the Sale and Servicing Agreement so as to require the
application of the entire Pre-Funded Amount to the purchase of Subsequent
Receivables by the end of the Funding Period. See "The Receivables" herein.]
REINVESTMENT RISKS FROM PREPAYMENTS
The weighted average life of the Securities will be reduced by full
prepayments on the Receivables and partial prepayments on the Simple Interest
Receivables. A partial prepayment in respect of a Precomputed Receivable less
than the amount required to prepay such Receivable in full will be treated as a
Payahead until such later Monthly Period with respect to which such Payahead may
be applied to either the scheduled payment in respect of such Monthly Period or
to prepay such Receivable in full. The Receivables are prepayable at any time
without penalty. Prepayments (or, for this purpose, equivalent payments to the
Trust) may result from payments by Obligors, liquidations due to default, the
receipt of proceeds from physical damage or credit insurance, repurchases by the
Seller or Franklin Capital as a result of certain uncured breaches of the
warranties made by it with respect to the Receivables, the application of the
remaining Pre-Funded Amount, if any, on the Mandatory Redemption Date to prepay
the Securities, purchases by the Servicer as a result of certain uncured
breaches of the covenants made by it in the Sale and Servicing Agreement with
respect to the Receivables, or the Servicer exercising its option to purchase
all of the remaining Receivables when the Pool Balance is less than [10]% of the
Original Pool Balance.
The Servicer has limited historical experience with respect to
prepayments, has not prepared data on prepayment rates and is not aware of
publicly available industry statistics that set forth principal prepayment
experience for motor vehicle retail installment sale contracts similar to the
Receivables. For these reasons, none of Franklin Resources, Franklin Capital,
the Servicer or the Seller can make any prediction as to the actual prepayment
rates that will be experienced on the Receivables.
S-17
<PAGE>
The amounts paid to Securityholders with respect to any Distribution Date
will include all prepayments on the Receivables received thereon during the
related Monthly Period which are not amounts representing Payaheads. As a
result, the Securities may be paid in full prior to their respective Final
Scheduled Distribution Dates. The Securityholders will bear all reinvestment
risk resulting from the timing of payments of principal on the Securities. See
"Yield and Prepayment Considerations" in the Prospectus.
CONCENTRATION OF RECEIVABLES
Economic conditions where Obligors reside may affect the delinquency, loan
loss and repossession experience of the Trust with respect to the Receivables.
As of the Statistical Calculation Date, Obligors with respect to [ ]% of the
Initial Receivables (based on the principal balance of the Initial Receivables
and mailing addresses of the Obligors thereon as of the Statistical Calculation
Date) were located in California. Economic conditions in California are often
volatile and from time to time have been adversely affected by natural
disasters, contractions in the defense industry and declining real estate
values. No predictions, however, can be made regarding future economic
conditions in California or any other states where Obligors reside. [Disclosure
other significant geographic and other factors] See "The Receivables" herein and
in the Prospectus.
SUBORDINATION OF CERTIFICATES; LIMITED ASSETS
Distributions of interest and principal on the Certificates will be
subordinated in priority of payment to interest and principal due on the Notes.
[Consequently, the Certificateholders will not receive any distributions with
respect to a Monthly Period until the full amount of interest and principal
payable on the Notes on such Distribution Date has been deposited in the Note
Distribution Account. The Certificateholders will not receive any distributions
of principal before the Distribution Date on which the Class A-[ ] Notes have
been paid in full.]
If the Notes are accelerated following an Event of Default under the
Indenture, the Notes must be paid in full prior to the distribution of any
amounts on the Certificates.
The Trust will not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables[, the
Pre-Funding Account, the Capitalized Interest Account, the Spread Account and
the Policies.] Holders of the Notes and the Certificates must rely for repayment
upon payments on the Receivables [and, if and to the extent available, amounts
on deposit in the Pre-Funding Account, the Capitalized Interest Account, and the
Spread Account and payments of claims made under the Policies. The Pre-Funding
Account and the Capitalized Interest Account will only be maintained until the
Distribution Date on or immediately following the last day of the Funding
Period. The Pre-Funded Amount on deposit in the Pre-Funding Account will be used
solely to purchase Subsequent Receivables and is not available to cover losses
on the Receivables. The Capitalized Interest Account is designed to cover
obligations of the Trust relating to that portion of its assets not invested in
Receivables and is not designed to provide protection against losses on the
Receivables. Amounts on deposit or to be deposited in the Spread Account may be
distributed to persons other than Securityholders. Similarly, although the
Policies will be available on each Distribution Date to cover shortfalls in
distributions of the Noteholders' Distributable Amount and the
Certificateholders' Distributable Amount on such Distribution Date, if the
Insurer defaults in its obligations under the applicable Policy, the Trust will
depend on current distributions on the Receivables and, amounts, if any,
available therefor in the Spread Account to make payments on the Notes and the
Certificates. See "The Insurer" and "The Policies" herein.]
RATINGS ON SECURITIES
A rating is not a recommendation to purchase, hold or sell Notes or
Certificates. The ratings of the Notes and Certificates address the likelihood
of the payment of principal and interest on the Securities pursuant to their
terms. There is no assurance that a rating will remain in effect for any given
period of time or that a rating will not be lowered or withdrawn entirely by a
Rating Agency if in its judgment circumstances in the future so warrant. In the
event that any ratings initially assigned to the Notes and the Certificates were
subsequently lowered or withdrawn for any reason, including by reason of a
downgrading of the claims-paying ability of the Insurer, no person or entity
will be obligated to provide any additional credit enhancement with respect to
the Notes or the Certificates. Any reduction or withdrawal of a rating of the
Insurer likely would result in a reduction
S-18
<PAGE>
or withdrawal of a ratings of the Notes or Certificates, and may have an adverse
effect on the liquidity and market price of the Notes and the Certificates.
EVENTS OF DEFAULT UNDER THE INDENTURE
So long as no Insurer Default shall have occurred and be continuing,
neither the Indenture Trustee nor the Noteholders may declare an Event of
Default under the Indenture. So long as an Insurer Default shall not have
occurred and be continuing, an Event of Default will occur only upon delivery by
the Insurer to the Indenture Trustee of notice of the occurrence of certain
events of default under the Insurance Agreement. Upon the occurrence of an Event
of Default under the Indenture (so long as an Insurer Default shall not have
occurred and be continuing), the Insurer will have the right, but not the
obligation, to cause the liquidation, in whole or in part, of the Trust
Property, which will result in redemption, in whole or in part, of the Notes,
and prepayment, in whole or in part, of the Certificates. Following the
occurrence of an Event of Default, the Indenture Trustee and the Owner Trustee
will continue to submit claims under the Policies as necessary to enable the
Trust to continue to make payments of the Noteholders' Distributable Amount and
the Certificateholders' Distributable Amount on each Distribution Date. However,
following the occurrence of an Event of Default, the Insurer may elect to pay
all or any portion of the outstanding amount of the Notes, plus accrued interest
thereon, and may elect to cause the prepayment, in whole or in part, of the
Certificates.
USE OF PROCEEDS
The net proceeds to be received by the Trust from the sale of the
Securities will be used to pay to the Seller, and in turn, Franklin Capital, the
purchase price for the Receivables, [to make the deposits of the Pre-Funded
Amount into the Pre-Funding Account and to make the initial deposits into the
Capitalized Interest Account and the Spread Account.]
THE TRUST
The following information supplements and, to the extent inconsistent
therewith, supersedes the information contained in the accompanying Prospectus.
Prospective Securityholders should consider, in addition to the information
below, the information under "The Trusts" in the accompanying Prospectus.
GENERAL
The Issuer, Franklin Auto Trust, 199[_] - [_], is a business trust formed
under the laws of the State of Delaware pursuant to the Trust Agreement for the
transactions described in this Prospectus Supplement. After its formation, the
Trust will not engage in any activity other than (i) acquiring, holding and
managing the Receivables and the other assets of the Trust and proceeds
therefrom, (ii) issuing the Notes and the Certificates, (iii) making payments on
the Notes and the Certificates and (iv) engaging in other activities that are
necessary, suitable or convenient to accomplish the foregoing or are incidental
thereto or connected therewith.
[The Trust will initially be capitalized with equity equal to $[ ].
Certificates with an aggregate original Certificate Balance of $[_____] will be
sold to the Seller, and Certificates representing the remainder of the
Certificate Balance will be sold to third party investors that are expected to
be unaffiliated with the Seller, the Servicer, Franklin Resources or their
affiliates. The equity of the Trust, together with the proceeds of the initial
sale of the Notes, will be used by the Trust to purchase the Initial Receivables
from the Seller pursuant to the Sale and Servicing Agreement and to fund the
deposits in the Pre-Funding Account, the Capitalized Interest Account and the
Spread Account.]
The Trust's principal offices are in [_______], in care of [_______], as
Owner Trustee, at the address listed below under "-- The Owner Trustee."
S-19
<PAGE>
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the Trust as of the
Initial Cutoff Date, as if the issuance and sale of the Notes and Certificates
had taken place on such date:
Class A-[ ] Notes..................................... $[ ]
Class A-[ ] Notes..................................... $[ ]
Class A-[ ] Notes..................................... $[ ]
Certificates.......................................... $[ ]
Total............................................. $[ ]
====
THE OWNER TRUSTEE
[_______] is the Owner Trustee under the Trust Agreement, is a [_______]
[banking] corporation and its principal offices are located at [_______]. The
Seller, Franklin Resources, the Servicer and their respective affiliates may
maintain commercial banking relations with the Owner Trustee and its affiliates.
The Owner Trustee will perform limited administrative functions under the Trust
Agreement, including making distributions from the Certificate Distribution
Account. The Owner Trustee's liability in connection with the issuance and sale
of the Certificates and the Notes is limited solely to the express obligations
of the Owner Trustee set forth in the Trust Agreement and the Sale and Servicing
Agreement.
THE TRUST PROPERTY
The Trust Property will include, among other things, the following: (a)
motor vehicle retail installment sale contracts secured by new and used motor
vehicles and light trucks; (b) all payments received thereunder after the
Initial Cutoff Date or the Subsequent Cutoff Date, as the case may be, and, with
respect to Precomputed Receivables, certain monies received thereunder on or
prior to the related Cutoff Date that are due after such Cutoff Date; (c) such
amounts as from time to time may be held in the Collection Account, [the
Pre-Funding Account, the Capitalized Interest Account and the Payahead Account]
[Distribution Account]; (d) an assignment of the security interests of Franklin
Capital in the Financed Vehicles; (e) certain proceeds from the exercise of
rights against Dealers under agreements between Franklin Capital and such
Dealers (the "Dealer Agreements"); (f) an assignment of the right to receive
proceeds from claims on certain physical damage, credit life and disability
insurance policies covering the Financed Vehicles or the Obligors; (g) the
rights of the Seller under the Purchase Agreement [and any Subsequent Purchase
Agreements]; (h) the Receivables Files; [(i) the Certificate Policy]; and (j)
certain other rights under the Trust Documents.
The Initial Receivables were, and the Subsequent Receivables were or will
be, originated by [Dealers in accordance with Franklin Capital's requirements
under agreements with Dealers for assignment to Franklin Capital, have been or
will be so assigned, and evidence or will evidence the indirect financing made
available to the Obligors.] [Franklin Capital] [acquired in bulk from
__________] [acquired from Franklin Bank] [meeting the requirements of Franklin
Capital's underwriting criteria and will be _________________.] The Dealers
generally assign the Receivables without recourse, except that Dealer Agreements
may provide for repurchase or recourse against the Dealer in the event of a
breach of a representation or warranty by the Dealer. Although Franklin
Capital's rights under the Dealer Agreements have not been assigned to the
Trust, and the Trust will not have any rights against any Dealer, Franklin
Capital has assigned or will assign to the Seller, and the Seller has assigned
or will assign to the Trust, the proceeds from any Receivable repurchased by a
Dealer as a result of a breach of a representation or warranty in the related
Dealer Agreement. See "The Trusts" in the Prospectus.
The "Pool Balance" at any time represents the aggregate principal balance
of the Receivables at the end of the preceding Monthly Period, after giving
effect to all payments (other than Payaheads remaining in the Payahead Account)
received from Obligors and any Purchase Amounts to be remitted by Franklin
Capital, the Seller or Servicer, as the case may be, for such Monthly Period and
all losses, including Cram Down Losses, realized on Receivables liquidated
during such Monthly Period. The Pool Balance on the Closing Date (the "Original
Pool Balance") will be approximately $[_______]. As described elsewhere herein,
the Original Pool
S-20
<PAGE>
Balance may include certain other Initial Receivables, some of which may be
originated after the Statistical Calculation Date but on or prior to the Closing
Date. In addition, prior to the Closing Date certain Initial Receivables may be
removed and additional Initial Receivables substituted therefor. All of the
Initial Receivables, however, must satisfy the eligibility criteria set forth
under "The Receivables -- Eligibility Criteria" herein.
[The initial aggregate principal balance of the Receivables includes
$[_______] that represents amounts owing from obligors on [_______] Receivables,
aggregating $[_______] as of the Statistical Calculation Date, in respect of
force-placed insurance. Prior to August 1997, Franklin Capital from time to time
acquired insurance for the accounts of Obligors who failed to maintain required
insurance of their vehicles. An amount in respect of the premiums for such
force-placed insurance was added to the principal balance of the related
Receivables. In the event that an Obligor later obtains his own insurance, any
unearned premiums rebated by the insurer are applied as a prepayment of the
related Receivables. As of the date hereof, it is no longer Franklin Capital'
policy to force-place insurance.]
Each Certificate will represent a fractional undivided interest in the
Trust Property. Pursuant to the Indenture, the Trust will grant a security
interest in the Trust Property (other than the Certificate Distribution Account
and Certificate Policy) in favor of the Indenture Collateral Agent for the
benefit of the Indenture Trustee on behalf of the Noteholders and for the
benefit of the Insurer in support of the obligations owing to it under the
Insurance Agreement. Any proceeds of such security interest in the Trust
Property would be distributed according to the Indenture, as described below
under "Description of the Purchase Agreements and the Trust Documents
- --Distributions." The Insurer would be entitled to such distributions only after
payment of amounts owing to, among others, holders of the Notes and
Certificates.
THE RECEIVABLES
The following information supplements the information contained under "The
Receivables" in the accompanying Prospectus.
GENERAL
The Receivables were, or will be, [purchased by Franklin Capital in the
ordinary course of business from Dealers] [originated by Franklin Capital]
[purchased in bulk by Franklin Capital from third-party lenders] [acquired from
its affiliate Franklin Bank]. The Receivables will consist of motor vehicle
retail installment sale contracts. See "Risk Factors -- Nature of Receivables;
Underwriting Process; Sufficiency of Interest Rates to Cover Losses," "Franklin
Capital Corporation -- General" and "-- Credit Evaluation Procedures" in the
Prospectus.
ELIGIBILITY CRITERIA
The Receivables were or will be selected according to several criteria,
including those specified under "The Receivables -- General" in the accompanying
Prospectus. In addition, the Initial Receivables were selected from Franklin
Capital's portfolio of motor vehicle retail installment contracts based on
several criteria, including the following: (i) each Initial Receivable has an
APR equal to or greater than [____]%; (ii) each Initial Receivable has an
original term to maturity of not more than [____] months; (iii) as of the
Initial Cutoff Date, the most recent Scheduled Payment of each Initial
Receivable was made by or on behalf of the Obligor or was not contractually
delinquent more than [30] days; (iv) no Initial Financed Vehicle has been
repossessed without reinstatement as of the Initial Cutoff Date; and (v) as of
the Initial Cutoff Date, no Obligor on any Receivable was the subject of a
bankruptcy proceeding commenced following the execution of the related contract.
[For purposes of clause (iii), a Receivable is considered [30] days delinquent
as of the end of the month following the date on which a second consecutive
Scheduled Payment has not been made.]
[During the Funding Period, pursuant to the Purchase Agreement, the Seller
is obligated to purchase from Franklin Capital and, pursuant to the Sale and
Servicing Agreement, sell to the Trust, Subsequent Receivables. The aggregate
principal balance of the Subsequent Receivables is anticipated by Franklin
Capital to equal approximately $[_______]. On each Subsequent Transfer Date,
Franklin Capital will convey the Subsequent
S-21
<PAGE>
Receivables to the Seller pursuant to the Subsequent Purchase Agreement executed
by Franklin Capital and the Seller on the Subsequent Transfer Date and including
as an exhibit a schedule identifying the Subsequent Receivables transferred on
such date. The Seller will convey the Subsequent Receivables to the Trust on
such Subsequent Transfer Date pursuant to the Sale and Servicing Agreement and
the applicable Subsequent Transfer Agreement executed by the Seller and the
Owner Trustee on the Subsequent Transfer Date and including as an exhibit a
schedule identifying the Subsequent Receivables transferred on such date. In
connection with each purchase of Subsequent Receivables the Trust will be
required to pay to the Seller a cash purchase price equal to the outstanding
principal balance of the Subsequent Receivables as of their respective
Subsequent Cutoff Dates, which price the Seller will pay to Franklin Capital.
The purchase price will be withdrawn from the Pre-Funding Account and paid to
the Seller for payment to Franklin Capital.
Any conveyance of Subsequent Receivables is subject to the following
conditions, among others: (i) each such Subsequent Receivable and/or Subsequent
Financed Vehicle must satisfy the eligibility criteria specified under "The
Receivables -- General" in the Prospectus and the criteria set forth in clauses
(ii) through (v) of the second preceding paragraph, in each case, as of the
respective Subsequent Cutoff Date of such Subsequent Receivable; (ii) the
Insurer (so long as no Insurer Default shall have occurred and be continuing)
shall have approved the transfer of such Subsequent Receivables to the Trust;
(iii) neither Franklin Capital nor the Seller will have selected such Subsequent
Receivables in a manner that either believes is adverse to the interests of the
Insurer or the Securityholders; (iv) Franklin Capital and the Seller will
deliver certain opinions of counsel to the Owner Trustee, the Indenture Trustee,
the Insurer and the Rating Agencies with respect to the validity of the
conveyance of such Subsequent Receivables; and (v) the Rating Agencies shall
confirm that the ratings on the Securities have not been and will not be
withdrawn or reduced as a result of the transfer of such Subsequent Receivables
to the Trust. Because the Subsequent Receivables may be originated after the
Initial Receivables, following their conveyance to the Trust the characteristics
of the Receivables, including the Subsequent Receivables, may vary from those of
the Initial Receivables.
In addition, the obligation of the Trust to purchase the Subsequent
Receivables on a Subsequent Transfer Date is subject to the condition that the
Receivables in the Trust, including the Subsequent Receivables to be conveyed to
the Trust on such Subsequent Transfer Date, meet the following criteria: (i) the
weighted average APR of the Receivables in the Trust is not less than [____]%;
(ii) the weighted average remaining term of the Receivables on such Subsequent
Cutoff Date is not greater than [____] months; and (iii) not more than [_____]%
of the Receivables have Obligors whose mailing addresses are in California. As
to clauses (i) and (ii) in the immediately preceding sentence, such criteria
will be based on the characteristics of the Initial Receivables on the Initial
Cutoff Date and the Receivables, including the Subsequent Receivables, on the
related Subsequent Cutoff Date, and as to clause (iii) in the immediately
preceding sentence, such criteria will be based on the mailing addresses of the
Obligors of the Initial Receivables on the Initial Cutoff Date and the
Subsequent Receivables on the related Subsequent Cutoff Dates.
Except for the criteria described in the preceding paragraphs, there are
no required characteristics of the Subsequent Receivables. Therefore, following
the transfer of Subsequent Receivables to the Trust, the aggregate
characteristics of the entire pool of Receivables included in the Trust,
including the composition of the Receivables, the geographic distribution, the
distribution by remaining principal balance, the distribution by APR, the
distribution by remaining term, the distribution of Precomputed Receivables and
Simple Interest Receivables and the distribution of the Receivables secured by
new and used motor vehicles, may vary from those of the Initial Receivables.]
COMPOSITION
The statistical information presented in this Prospectus Supplement,
including the summary statistical information set forth below, is based on the
Initial Receivables as of [_____, 199 ] (the "Statistical Calculation Date").
Prior to the Initial Cutoff Date, certain Initial Receivables may be removed and
additional Initial Receivables substituted therefor. Regularly scheduled
payments and prepayments of the Receivables (which are prepayable at any time)
between the Statistical Calculation Date and the Initial Cutoff Date will affect
the balances and percentages set forth below. A Current Report on Form 8-K
containing a detailed description (the "Detailed Description") of the Initial
Receivables will be available to purchasers of the Securities upon request at
the time of the initial issuance of the Securities and will be filed with the
Securities and Exchange Commission
S-22
<PAGE>
within 15 days after such issuance. The Detailed Description will specify the
information set forth below as of the Initial Cutoff Date.
While the statistical distribution of the final characteristics of all
Initial Receivables transferred to the Trust on the Closing Date will vary from
the statistical information presented in this Prospectus Supplement, the Seller
and the Servicer do not believe that the characteristics of the Initial
Receivables on the Closing Date will vary materially.
COMPOSITION OF THE INITIAL RECEIVABLES AS OF THE STATISTICAL CALCULATION DATE
<TABLE>
<CAPTION>
Weighted Average Aggregate Principal Number of Weighted Average Weighted Average Average Principal
APR of Receivables Balance Receivables Remaining Term Original Term Balance
------------------ --------- ----------- ---------------- --------------- --------
<S> <C> <C> <C> <C> <C>
[ ]% $[ ] [ ] [ ] months [ ] months $[ ]
</TABLE>
The geographic distribution, the distribution of Initial Receivables
which are Precomputed Receivables and Simple Interest Receivables, the
distribution of the Initial Receivables secured by new and used motor vehicles,
the distribution by remaining principal balance, the distribution by APR and the
distribution by remaining term, in each case of the Initial Receivables as of
the Statistical Calculation Date, are set forth below.
GEOGRAPHIC DISTRIBUTION OF THE INITIAL RECEIVABLES AS OF THE STATISTICAL
CALCULATION DATE
<TABLE>
<CAPTION>
Percentage
Aggregate of Aggregate
Number of Principal Principal
State(1) Receivables Balance Balance(2)
-------- ----------- ------- ----------
<S> <C> <C> <C>
[Arizona................................................
California..............................................
Kansas..................................................
Nevada..................................................
New Mexico..............................................
Oregon..................................................
Utah....................................................
Washington..............................................
List other states]
Total............................................ [ ] $[ ] 100.0%
= === ======
</TABLE>
- ----------------
(1) Based on billing addresses of the Obligors as of the Statistical
Calculation Date.
(2) Percentages may not add to 100.00% because of rounding.
DISTRIBUTION BY INTEREST ALLOCATION METHOD OF THE INITIAL RECEIVABLES AS OF THE
STATISTICAL CALCULATION DATE
<TABLE>
<CAPTION>
Percentage
Aggregate of Aggregate
Number of Principal Principal
Interest Allocated Method Receivables Balance Balance
------------------------- ----------- ------- -------
<S> <C> <C> <C>
Actuarial Receivables(1).............................. [ ] [ ] [ ]%
Rule of 78's Receivables(1)
Simple Interest Receivables........................... [ ] [ ] [ ]%
Total.......................................... [ ] $[ ] 100.0%
= === ======
</TABLE>
- ---------------------
S-23
<PAGE>
(1) Precomputed Receivables.
DISTRIBUTION OF THE INITIAL RECEIVABLES BY NEW AND USED FINANCED VEHICLES
AS OF THE STATISTICAL CALCULATION DATE
Percentage
Aggregate of Aggregate
Number of Principal Principal
Collateral Type Receivables Balance Balance
--------------- ----------- ------- -------
New.................................. [ ] $[ ] [ ]%
Used................................. [ ] [ ] [ ]%
Total......................... [ ] $[ ] 100.0%
= === ======
DISTRIBUTION BY REMAINING PRINCIPAL BALANCE OF THE INITIAL RECEIVABLES
AS OF THE STATISTICAL CALCULATION DATE
Percentage
Aggregate of Aggregate
Range of Remaining Number of Principal Principal
Principal Balance Receivables Balance Balance
----------------- ----------- ------- -------
....................[ ] $[ ] [ ]%
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
Total ....................[ ] $[ ] 100.0%
====== === ======
S-24
<PAGE>
DISTRIBUTION BY ANNUAL PERCENTAGE RATE OF THE INITIAL RECEIVABLES AS OF THE
STATISTICAL CALCULATION DATE
Percentage
Aggregate of Aggregate
Annual Percentage Number of Principal Principal
Rate Range Receivables Balance Balance
---------- ----------- ------- -------
[ ___% to ___%]...................... [ ] $[ ] [ ]%
......................
......................
......................
......................
......................
......................
......................
......................
......................
......................
......................
......................
......................
......................
......................
......................
......................
......................
......................
......................
Total ...................... [ ] $[ ] 100.0%
= === ======
DISTRIBUTION BY REMAINING TERM OF THE INITIAL RECEIVABLES AS OF THE STATISTICAL
CALCULATION DATE
Percentage
Aggregate of Aggregate
Number of Principal Principal
Range of Remaining Terms Receivables Balance Balance(1)
------------------------ ----------- ------- ----------
[ ___ to ___ months]................. [ ] $[ ] [ ]%
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
Total ........................ [ ] $[ ] 100.0%
= === ======
- --------------
(1) Percentages may not add to 100.00% because of rounding.
S-25
<PAGE>
DELINQUENCY AND LOSS EXPERIENCE
Franklin Capital began operations in November 1993. The table below sets
forth the delinquency and loss experience as of the end of each of the periods
indicated. The information set forth in the following table may be affected by
the size, rapid growth and relative lack of seasoning of the Receivables.
Accordingly, no assurances can be given that the delinquency and loss experience
presented in the tables below will be indicative of such experience on the
Receivables.
Franklin Capital Corp.
Historical Delinquency and Loss Experience
<TABLE>
<CAPTION>
DELINQUENCY EXPERIENCE AS OF AS OF
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 MARCH 31 MARCH 31
1994(1) 1995 1996 1997 1997 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Portfolio Outstanding
at end of period(2) $160,635,623 $225,575,436 $174,589,677 $154,271,605 $161,091,523 $159,666,795
Delinquencies at end
of period(3)
30-59 days $2,442,313 $ 9,217,070 $4,129,543 $1,929,654 $2,607,686 $1,314,686
60-89 days 733,619 3,252,750 1,969,257 729,097 1,245,291 476,022
90 days or more 400,740 3,761,131 2,067,850 1,326,175 1,831,901 999,355
- -----------------------------------------------------------------------------------------------------------------------------------
Total delinquencies $3,576,672 $16,230,951 $8,166,650 $3,984,926 $5,684,878 $2,790,063
- -----------------------------------------------------------------------------------------------------------------------------------
Total delinquencies as
a percentage of
portfolio outstanding
at end of period 2.2% 7.2% 4.7% 2.6% 3.5% 1.7%
===================================================================================================================================
CREDIT/LOSS EXPERIENCE DURING FISCAL YEARS ENDED DURING SIX MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 MARCH 31 MARCH 31
1994(1) 1995 1996 1997 1997 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Average portfolio
outstanding during
period(2),(4) $66,586,803@ $225,203,667@ $196,747,716 $162,745,276 $169,247,701 $154,112,781
Average number of loans
outstanding during period n/a n/a n/a 14,780 15,036 14,832
Number of repossessions
during period n/a n/a n/a 760 429 312
Repossessions as a
percentage of average
number of loans
outstanding during period n/a n/a n/a 5.1% 5.7%* 4.2%*
Gross charge-off(5) $210,842 $7,039,263 $12,082,834 $6,580,261 $3,775,078 $1,723,875
Recoveries(6) 4,242 649,374 1,408,190 1,854,461 1,067,076 549,363
- -----------------------------------------------------------------------------------------------------------------------------------
Net losses $206,600 $6,389,889 $10,674,644 $4,725,800 $2,708,002 $1,174,512
- -----------------------------------------------------------------------------------------------------------------------------------
Net losses as a percentage
of average portfolio
outstanding during the period 0.3% 2.8% 5.4% 2.9% 3.2%* 1.5%*
===================================================================================================================================
Key - * Annualized
@ Simple average using Franklin Capital figures
</TABLE>
Notes
1. Franklin Capital commenced lending operations in December 1993 and
consequently 1994 data represents 9 months of activity
2. For Simple interest contracts, Portfolio Outstanding represents the
outstanding principal balance plus the insurance receivable (if any). For Rule
of 78's contracts, Portfolio Outstanding represents the gross receivable less
unearned discount, unearned insurance receivable (if any), and unearned
insurance interest receivable (if any). Portfolio Outstandings are reduced by
any rejected or unapplied payments, but such amounts are not subtracted from the
balances of delinquent contracts. Starting in February 1996, Portfolio
Outstanding also includes unearned dealer reserve.
3. The period of delinquency is based on the number of days scheduled payments
are contractually past due. Includes receivables on hand that have not been
charged-off.
4. Average calculated on a daily basis, except as noted
5. Gross charge-offs represents the outstanding balance (calculated as per 2
above) of contracts charged off in the period less proceeds from the disposition
of the collateral, net of any repossessions expenses, and unearned dealer
reserve.
6. Recoveries represents amounts received on previously charged off contracts
S-26
<PAGE>
[THE INSURER
The following information has been obtained from [________________]
(hereinafter in this "[______]") and has not been verified by the Seller, the
Servicer or the Underwriter(s). No representations or warranty is made by the
Seller, the Servicer or the Underwriter(s) with respect thereto.
GENERAL
[To come from Insurer]
[REINSURANCE]
[To come from Insurer]
RATING OF CLAIMS-PAYING ABILITY
[______________________________]
CAPITALIZATION
The following table sets forth the capitalization of [_________] and its
wholly owned subsidiaries on the basis of generally accepted accounting
principles as of [______ 199_] (in thousands):
[INSURANCE REGULATION
[_________] is licensed and subject to regulation as a financial guaranty
insurance corporation under the laws of the State of New York, its state of
domicile. In addition, [___________] and its insurance subsidiaries are subject
to regulation by insurance laws of the various other jurisdictions in which they
are licensed to do business. As a financial guaranty insurance corporation
licensed to do business in the State of New York, [__________] is subject to
Article 69 of the New York Insurance Law which, among other things, limits the
business of each such insurer to financial guaranty insurance and related lines,
requires that each such insurer maintain a minimum surplus to policyholders,
establishes contingency, loss and unearned premium reserve requirements for each
such insurer, and limits the size of individual transactions ("single risks")
and the volume of transactions ("aggregate risks") that may be underwritten by
each such insurer. Other provisions of the New York Insurance Law, applicable to
non-life insurance companies such as [__________], regulate, among other things,
permitted investments, payment of dividends, transactions with affiliates,
mergers, consolidations, acquisitions or sales of assets and incurrence of
liabilities for borrowings.
The Policies are not covered by the Property/Casualty Insurance Security
Fund specified in Article 76 of the New York Insurance Law.]
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the terms of the Indenture, a form of
which has been filed as an exhibit to the Registration Statement. The following
summary describes certain terms of the Notes and the Indenture. The summary does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all the provisions of the Notes and the Indenture. The
following summary supplements, and to the extent inconsistent therewith
replaces, the description of the general terms and provisions of the Notes of
any given series and the related Indenture set forth in the accompanying
Prospectus, to which description reference is hereby made.
S-27
<PAGE>
The Notes will be offered for purchase in denominations of $1,000 and
integral multiples thereof in book-entry form only. Persons acquiring beneficial
interests in the Notes will hold their interests through DTC in the United
States or Cedel or Euroclear in Europe. See "Certain Information Regarding the
Securities --Book-Entry Registration" in the Prospectus and Annex I thereto.
PAYMENTS OF INTEREST
Interest on the principal amount of each Class of Notes will accrue at the
applicable Interest Rate and will be payable to the Noteholders of such Class
monthly on each Distribution Date, commencing [_______, 199__]. Interest will
accrue from and including the most recent Distribution Date on which interest
has been paid (or, in the case of the first Distribution Date, from and
including the Closing Date) to but excluding the following Distribution Date
(each, an "Interest Period"). Interest on the Class A-[__] Notes will be
calculated on the basis of a 360-day year and the actual number of days elapsed
in the related Interest Period. Interest on the Class A-[__] Notes will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
Interest accrued as of any Distribution Date but not paid on such Distribution
Date will be due on the next Distribution Date, together with, to the extent
permitted by law, interest on such amount at the applicable Interest Rate. In
the event that the interest rate for the Class A-[__] Notes for any Interest
Period calculated without giving effect to the maximum rate would exceed the
interest rate for such Interest Period after giving effect to the maximum rate,
the amount of such excess will not be due as additional interest to the Class
A-[__] Noteholders on the related Distribution Date nor will it be carried
forward and payable as additional interest to the Class A-[__] Noteholders on
any subsequent Distribution Date. Interest payments on the Notes will be made
from the Distribution Amount (as defined herein) after payment of accrued and
unpaid trustees' fees and other administrative fees of the Trust and payment of
the Servicing Fee. See "Description of the Purchase Agreements and the Trust
Documents -- Distributions" herein.
[Interest on the Class A-[__] Notes will accrue during each Interest
Period at a rate per annum equal to the sum of LIBOR plus 0.[__]%, subject to a
maximum rate equal to 12% per annum.]
[DETERMINATION OF LIBOR
Pursuant to the Indenture, the Indenture Trustee will determine LIBOR (as
defined below) for purposes of calculating the Interest Rate for the Class
A-[__] Notes for each given Interest Period on the second business day prior to
the commencement of each Interest Period (each, a "LIBOR Determination Date").
For purposes of calculating LIBOR, a business day means a Business Day and a day
on which banking institutions in the City of London, England are not required or
authorized by law to be closed.
"LIBOR" means, with respect to any Interest Period, the London interbank
offered rate for deposits in U.S. dollars having a maturity of one month
commencing on the related LIBOR Determination Date (the "Index Maturity") which
appears on Telerate Page 3750 (as defined below) as of 11:00 a.m., London time,
on such LIBOR Determination Date. If such rate does not appear on the Telerate
Page 3750, the rate for that day will be determined on the basis of the rates at
which deposits in U.S. dollars, having the Index Maturity and in a principal
amount of not less than U.S. $1,000,000, are offered at approximately 11:00
a.m., London time, on such LIBOR Determination Date to prime banks in the London
interbank market by the Reference Banks (as defined below). The Indenture
Trustee will request the principal London office of each of such Reference Banks
to provide a quotation of its rate. If at least two such quotations are
provided, the rate for that day will be the arithmetic mean, rounded upward, if
necessary, to the nearest 1/100,000 of 1% (.0000001), with five one-millionths
of a percentage point rounded upward, of all such quotations. If fewer than two
such quotations are provided, the rate for that day will be the arithmetic mean,
rounded upward, if necessary, to the nearest 1/100,000 of 1% (.0000001), with
five one-millionths of a percentage point rounded upward, of the offered per
annum rates that one or more leading banks in New York City, selected by the
Indenture Trustee, are quoting as of approximately 11:00 a.m., New York City
time, on such LIBOR Determination Date to leading European banks for United
States dollar deposits for the Index Maturity; provided that if the banks
selected as aforesaid are not quoting as mentioned in this sentence, LIBOR in
effect for the applicable Interest Period will be LIBOR in effect for the
previous Interest Period.
"Telerate Page 3750" means the display page so designated on the Dow Jones
Telerate Service (or such other page as may replace that page on that service
for the purpose of displaying comparable rates or prices).
S-28
<PAGE>
"Reference Banks" means four major banks in the London interbank market
selected by the Indenture Trustee.]
PAYMENTS OF PRINCIPAL
Principal payments will be made to the Noteholders on each Distribution
Date in an amount equal to the Noteholders' Principal Distributable Amount for
the calendar month (the "Monthly Period") preceding such Distribution Date. The
Noteholders' Principal Distributable Amount will equal the sum of (x) the
Noteholders' Percentage of the Principal Distributable Amount and (y) any unpaid
portion of the amount described in clause (x) with respect to a prior
Distribution Date. The "Principal Distributable Amount" with respect to any
Distribution Date will be an amount equal to the sum of the following amounts
with respect to the related Monthly Period, computed, with respect to Simple
Interest Receivables, in accordance with the simple interest method, and, with
respect to Precomputed Receivables, in accordance with the actuarial method: (i)
that portion of all collections on Receivables allocable to principal, including
full and, with respect to Simple Interest Receivables, partial principal
prepayments, received during such Monthly Period (including, with respect to
Precomputed Receivables, amounts withdrawn from the Payahead Account but
excluding amounts deposited into the Payahead Account) with respect to such
Monthly Period, (ii) the principal balance of each Receivable that was
repurchased by Franklin Capital, the Seller or the Servicer as of the last day
of such Monthly Period, (iii) at the option of the Insurer, the outstanding
principal balance of those Receivables that were required to be repurchased by
the Seller and/or Franklin Capital during such Monthly Period but were not so
repurchased, (iv) the principal balance of each Receivable that became a
Liquidated Receivable during such Monthly Period, and (v) the aggregate amount
of Cram Down Losses during such Monthly Period. Principal payments on the Notes
will be made from the Distribution Amount after payment of accrued and unpaid
trustees' fees and other administrative fees of the Trust, payment of the
Servicing Fee and after distribution of the Noteholders' Interest Distributable
Amount. See "Description of the Purchase Agreements and the Trust Documents --
Distributions" herein.
[The Noteholder's percentage will equal the percentage equivalent of a
fraction the numerator of which is the outstanding principal amount of the Notes
and the denominator of which is the aggregate outstanding principal amount of
the Securities.] [The Noteholders' Percentage will be 100% until the Class
A-[__] Notes have been paid in full and thereafter will be zero. Principal
payments on the Notes will be applied on each Distribution Date sequentially, to
the Class A-1 Notes, the Class A-2 Notes and the Class A-3 Notes, [list others]
in that order, until the respective principal amount of each such Class of Notes
has been paid in full so that no principal will be paid on a Class of Notes
until the principal of all Classes of Notes having a lower numerical Class
designation has been paid in full.] In addition, the outstanding principal
amount of the Notes of any class, to the extent not previously paid, will be
payable on the respective Final Scheduled Distribution Date for such class. The
actual date on which the aggregate outstanding principal amount of any class of
Notes is paid may be earlier than the Final Scheduled Distribution Date for such
Class, depending on a variety of factors.
[MANDATORY REDEMPTION
Each class of Notes will be redeemed in part on the Mandatory Redemption
Date in the event that any portion of the Pre-Funded Amount remains on deposit
in the Pre-Funding Account after giving effect to the purchase of all Subsequent
Receivables, including any such purchase on such date. The aggregate principal
amount of each class of Notes to be redeemed will be an amount equal to such
class's pro rata share (based on the respective current principal amount of each
class of Notes and the Certificate Balance) of the remaining Pre-Funded Amount
on such date (such class's "Note Prepayment Amount").]
OPTIONAL REDEMPTION
The Class A-[__] Notes, to the extent still outstanding, may be redeemed
in whole, but not in part, on any Distribution Date on which the Servicer
exercises its option to purchase the Receivables. The Servicer may purchase the
Receivables when the Pool Balance has declined to [10]% or less of the Original
Pool Balance, as described in the accompanying Prospectus under "Description of
the Purchase Agreements and the Trust Documents -- Termination." Such redemption
will effect early retirement of the Notes of such Class. The redemption price
will be equal to the unpaid principal amount of the Notes of such Class, plus
accrued and unpaid interest thereon (the "Redemption Price").
S-29
<PAGE>
EVENTS OF DEFAULT
Unless an Insurer Default shall have occurred and be continuing, "Events
of Default" under the Indenture will consist of those events defined in the
Insurance Agreement as Insurance Agreement Indenture Cross Defaults, and will
constitute an Event of Default under the Indenture only if the Insurer shall
have delivered to the Indenture Trustee, and not rescinded, a written notice
specifying that any such Insurance Agreement Indenture Cross Default constitutes
an Event of Default under the Indenture. "Insurance Agreement Indenture Cross
Defaults" consist of: (i) a demand for payment being made under either of the
Policies; (ii) certain events of bankruptcy, insolvency, receivership or
liquidation of the Trust; (iii) the Trust becoming taxable as an association (or
publicly traded partnership) taxable as a corporation for federal or state
income tax purposes; (iv) on any Distribution Date, the sum of the Available
Funds with respect to such Distribution Date plus the amount (if any) on deposit
in the Spread Account being less than the sum of the amounts described in
clauses 1-7 under "Description of the Purchase Agreements and the Trust
Documents -- Distributions" herein; and (v) any failure to observe or perform in
any material respect any other covenants or agreements in the Indenture, or any
representation or warranty of the Trust made in the Indenture or in any
certificate or other writing delivered pursuant thereto or in connection
therewith proving to have been incorrect in any material respect when made, and
such failure continuing or not being cured, or the circumstance or condition in
respect of which such misrepresentation or warranty was incorrect not having
been eliminated or otherwise cured, for 30 days after the giving of written
notice of such failure or incorrect representation or warranty to the Trust and
the Indenture Trustee by the Insurer.
Upon the occurrence of an Event of Default, so long as an Insurer Default
shall not have occurred and be continuing, the Insurer will have the right, but
not the obligation, to cause the Indenture Collateral Agent to liquidate the
Trust Property in whole or in part, on any date or dates following the
acceleration of the Notes due to such Event of Default as the Insurer, in its
sole discretion, shall elect, and to deliver the proceeds of such liquidation to
the Indenture Trustee for distribution in accordance with the terms of the
Indenture. The Insurer may not, however, cause the Indenture Collateral Agent to
liquidate the Trust Property in whole or in part if the proceeds of such
liquidation would not be sufficient to pay all outstanding principal of and
accrued interest on the Notes, unless such Event of Default arose from a claim
being made on the Note Policy or from certain events of bankruptcy, insolvency,
receivership or liquidation of the Trust. Following the occurrence of any Event
of Default, the Indenture Trustee and the Owner Trustee will continue to submit
claims under the Policies for any shortfalls in the Guaranteed Note
Distributions on the Notes and the Guaranteed Certificate Distributions on the
Certificates. Following any Event of Default under the Indenture, the Insurer
may elect to pay all or any portion of the outstanding amount of the Notes, plus
accrued interest thereon. See "The Policies" herein.
If an Insurer Default has occurred and is continuing, "Events of Default"
under the Indenture will consist of the Events of Default described in the
accompanying Prospectus under "The Notes -- The Indenture," and the Indenture
Trustee will have the rights under the Indenture described therein.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the terms of the Trust
Agreement, a form of which has been filed as an exhibit to the Registration
Statement. The following summary describes certain terms of the Certificates and
the Trust Agreement. The summary does not purport to be complete and is subject
to, and qualified in its entirety by reference to, all the provisions of the
Certificates and the Trust Agreement. The following summary supplements, and to
the extent inconsistent therewith replaces, the description of the general terms
and provisions of the Certificates of any given series and the related Trust
Agreement set forth in the Prospectus, to which description reference is hereby
made.
The Certificates will be offered for purchase in denominations of $[1,000]
and integral multiples thereof in book-entry form only. Persons acquiring
beneficial interests in the Certificates will hold their interest through DTC.
See "Certain Information Regarding the Securities -- Book-Entry Registration" in
the Prospectus.
S-30
<PAGE>
DISTRIBUTIONS OF INTEREST
Interest on the Certificate Balance immediately prior to a Distribution
Date will accrue at the Certificate Rate for the related Interest Period, and
will be distributable to Certificateholders of record on each Distribution Date,
commencing [_______, 199__]. Interest for each Interest Period will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
Interest distributions due for any Distribution Date but not distributed on such
Distribution Date will be due on the next Distribution Date together with, to
the extent permitted by law, interest on such amount at the Certificate Rate.
Interest distributions with respect to the Certificates will be made from the
Distribution Amount after the payment of accrued and unpaid trustees' fees and
other administrative fees of the Trust, the payment of the Servicing Fee and the
distribution of the Noteholders' Distributable Amount. See "Description of the
Purchase Agreements and the Trust Documents --Distributions" herein.
DISTRIBUTIONS OF PRINCIPAL
Certificateholders will be entitled to distributions of principal [on each
Distribution Date on or after the date on which the Class A-[__] Notes have been
paid in full] in an amount equal to the Certificateholders' Percentage of the
Principal Distributable Amount, as defined under "Description of the Notes --
Payments of Principal"; [provided, however, that the amount distributable as
principal on the Distribution Date on which the Class A-[__] Notes are paid in
full will be reduced by the amount necessary to pay the Class A-[__] Notes in
full.] Distributions with respect to principal payments will be made from
Available Funds after payment of accrued and unpaid trustees' fees and other
administrative fees of the Trust, payment of the Servicing Fee and the
distribution of the Noteholders' Distributable Amount and the
Certificateholders' Interest Distributable Amount. See "Description of the
Purchase Agreements and the Trust Documents -- Distributions" herein.
MANDATORY PREPAYMENT
[The Certificates will be prepaid in part on the Mandatory Redemption Date
in the event that any portion of the Pre-Funded Amount remains on deposit in the
Pre-Funding Account after giving effect to the purchase of all Subsequent
Receivables, including any purchase on such date. The aggregate principal amount
of the Certificates to be prepaid will be an amount equal to the
Certificateholders' pro rata share (based on the respective current principal
amount of each class of Notes and the Certificate Balance) of the remaining
Pre-Funded Amount (the "Certificate Prepayment Amount").]
Upon the occurrence of an Event of Default under the Indenture (so long as
an Insurer Default shall not have occurred and be continuing), the Insurer will
have the right, but not the obligation, to cause the liquidation of the Trust
Property, in whole or in part, on any date or dates as the Insurer, in its sole
discretion, shall elect, as described under "Description of the Notes -- Events
of Default." Any such liquidation, in whole or in part, may cause a full or
partial prepayment of the Certificates.
OPTIONAL PREPAYMENT
If the Servicer exercises its option to purchase the Receivables when the
Pool Balance declines to [10]% or less of the Original Pool Balance,
Certificateholders will receive an amount in respect of the Certificates equal
to the outstanding Certificate Balance together with accrued interest at the
Certificate Rate, which distribution will effect early retirement of the
Certificates. See "Description of the Purchase Agreements and the Trust
Documents -- Termination" in the Prospectus.
[WEIGHTED AVERAGE LIFE CONSIDERATIONS
The rate of payment of principal of each Class of Notes and in respect of
the Certificate Balance will depend on the rate of payment (including
prepayments) of the principal balance of the Receivables. As a result, final
payment of any Class of Notes could occur significantly earlier than the Final
Scheduled Distribution Date for such class of Notes. The final distribution in
respect of principal of the Certificates also could occur prior to the Final
Scheduled Distribution Date for the Certificates. Reinvestment risk associated
with early payment of the Notes and the Certificates will be borne exclusively
by the Noteholders and the Certificateholders, respectively.
S-31
<PAGE>
Prepayments on automotive receivables can be measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement, the
Absolute Prepayment Model ("ABS"), represents an assumed rate of prepayment each
month relative to the original number of receivables in a pool of receivables.
ABS further assumes that all the receivables are the same size and amortize at
the same rate and that each receivable in each month of its life will either be
paid as scheduled or be prepaid in full. For example, in a pool of receivables
originally containing 10,000 receivables, a 1% ABS rate means that 100
receivables prepay each month. ABS does not purport to be an historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of receivables, including the Receivables.
The table captioned "Percent of Initial Note Principal Balance or Initial
Certificate Balance at Various ABS Percentages" (the "ABS Table") has been
prepared on the basis of the following assumptions: (i) the Trust includes four
pools of Receivables with the characteristics set forth in the following table;
(ii) the Receivables prepay in full at the specified constant percentage of ABS
monthly, with no defaults, losses or repurchases; (iii) each scheduled monthly
payment on the Receivables is made on the last day of each month and each month
has 30 days; (iv) the initial principal amount of each class of Notes and the
initial Certificate Balance are as set forth on the cover page hereof; (v)
interest accrues during each Interest Period at the applicable Interest Rate and
Certificate Rate; (vi) LIBOR remains constant at 5.50% per annum; (vii) payments
on the Notes and distributions on the Certificates are made on the [____] day of
each month whether or not a Business Day; (viii) the Securities are purchased on
the Closing Date; (ix) the scheduled monthly payment for each Receivables has
been calculated on the basis of the assumed characteristics in the following
table such that each Receivable will amortize in amounts sufficient to repay the
principal balance of such Receivable by its indicated remaining term to
maturity; (x) the first due date for each Receivable is in the month after the
assumed cutoff date for such Receivable as set forth in the following table;
(xi) the entire Pre-Funded Amount is used to purchase Subsequent Receivables;
and (xii) the Servicer does not exercise its option to purchase the Receivables.
<TABLE>
<CAPTION>
Pool Aggregate APR Assumed Cutoff Original Term Remaining Term
Principal Date to Maturity to Maturity
Balance (in Months) (in Months)
<S> <C> <C> <C> <C> <C>
1 $ % / /98
2 $ % / /98
3 $ % / /98
4 $ % / /98
Total
</TABLE>
The ABS Table indicates, based on the assumptions set forth above, the
percentages of the initial principal amount of each class of Notes and of the
Certificate Balance of the Certificates that would be outstanding after each of
the Distributions Dates shown at various percentages of ABS and the
corresponding weighted average lives of such Securities. The actual
characteristics and performance of the Receivables will differ from the
assumptions used in constructing the ABS Table. The assumptions used are
hypothetical and have been provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the Receivables will prepay at a constant
level of ABS until maturity, that all of the Receivables will prepay at the same
level of ABS or that LIBOR will remain constant at the level assumed or at any
other level. Moreover, the diverse terms of Receivables could produce slower or
faster principal distributions than indicated in the ABS Table at the various
constant percentages of ABS specified, even if the original and remaining terms
to maturity of the Receivables are as assumed. Any difference between such
assumptions and the actual characteristics and performance of the Receivables,
or actual prepayment experience, will affect the percentages of initial balances
outstanding over time and the weighted average lives of each class of Notes and
the Certificates.
S-32
<PAGE>
PERCENT OF INITIAL NOTE PRINCIPAL BALANCE OR
INITIAL CERTIFICATE BALANCE AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
Class A-[_] Notes Class A-[_ ] Notes
--------------------------------------- ------------------------------------------
Distribution Date [0.5% 1.0% 1.7% 2.5%] [ 0.5% 1.0% 1.7% 2.5%]
- ----------------- ----- ---- ---- ----- ------ ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
[Closing Date...................... 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
08/20/98...........................
09/20/98...........................
10/20/98...........................
11/20/98...........................
12/20/98...........................
01/20/99...........................
02/20/99...........................
03/20/99...........................
04/20/99...........................
05/20/99...........................
06/20/99...........................
07/20/99...........................
08/20/99...........................
09/20/99...........................
10/20/99...........................
11/20/99...........................
12/20/99...........................
01/20/00...........................
02/20/00...........................
03/20/00...........................
04/20/00...........................
05/20/00...........................
06/20/00...........................
07/20/00...........................
08/20/00...........................
09/20/00...........................
10/20/00...........................
11/20/00...........................
12/20/00...........................
01/20/01...........................
02/20/01...........................
03/20/01...........................
04/20/01...........................
05/20/01...........................
06/20/01...........................
07/20/01...........................
08/20/01...........................
09/20/01...........................
10/20/01...........................
11/20/01...........................
12/20/01...........................
01/20/02]..........................
Weighted Average Life (years)(2)...
</TABLE>
- ----------------------
(1) The Class A-[_] Final Scheduled Distribution Date is [________, 199_];
payment in full of the Class A-[_] Notes on such date is guaranteed by
the Note Policy to the extent described herein.
(2) The weighted average life of a Security is determined by (i)
multiplying the amount of each principal payment on a Security by the
number of years from the date of the issuance of the Security to the
related Distribution Date, (ii) adding the results and (iii) dividing
the sum by the related initial principal amount of the Security.
S-33
<PAGE>
PERCENT OF INITIAL NOTE PRINCIPAL BALANCE OR
INITIAL CERTIFICATE BALANCE AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
Class A-[_] Notes Certificates
--------------------------------------- ----------------------------------------
Distribution Date 0.5% 1.0% 1.7% 2.5% 0.5% 1.0% 1.7% 2.5%
- ----------------- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
[Closing Date........................ 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
08/20/98.............................
09/20/98.............................
10/20/98.............................
11/20/98.............................
12/20/98.............................
01/20/99.............................
02/20/99.............................
03/20/99.............................
04/20/99.............................
05/20/99.............................
06/20/99.............................
07/20/99.............................
08/20/99.............................
09/20/99.............................
10/20/99.............................
11/20/99.............................
12/20/99.............................
01/20/00.............................
02/20/00.............................
03/20/00.............................
04/20/00.............................
05/20/00.............................
06/20/00.............................
07/20/00.............................
08/20/00.............................
09/20/00.............................
10/20/00.............................
11/20/00.............................
12/20/00.............................
01/20/01.............................
02/20/01.............................
03/20/01.............................
04/20/01.............................
05/20/01.............................
06/20/01.............................
07/20/01.............................
08/20/01.............................
09/20/01.............................
10/20/01.............................
11/20/01.............................
12/20/01.............................
01/20/02.............................
02/20/02.............................
03/20/02.............................
04/20/02.............................
05/20/02.............................
06/20/02.............................
07/20/02.............................
08/20/02.............................
09/20/02.............................
10/20/02.............................
11/20/02.............................
12/20/02.............................
01/20/03]............................
Weighted Average Life (years)(1).....
</TABLE>
- ----------------------
(1) The weighted average life of a Security is determined by (i)
multiplying the amount of each principal payment on a Security by the
number of years from the date of the issuance of the Security to the
related Distribution Date, (ii) adding the results and (iii) dividing
the sum by the related initial principal amount of the Security.]
S-34
<PAGE>
DESCRIPTION OF THE PURCHASE AGREEMENTS AND THE TRUST DOCUMENTS
The following summary describes certain terms of the Purchase Agreement
and any Subsequent Purchase Agreement (together, the "Purchase Agreements"), and
the Sale and Servicing Agreement, any Subsequent Transfer Agreement and the
Trust Agreement (together, the "Trust Documents"). Forms of the Purchase
Agreements and the Trust Documents have been filed as exhibits to the
Registration Statement. The summary does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all the provisions of
the Purchase Agreements and the Trust Documents. The following summary
supplements, and to the extent inconsistent therewith replaces, the description
of the general terms and provisions of the Purchase Agreements and the Trust
Documents (as such terms are used in the Prospectus) set forth in the
Prospectus, to which description reference is hereby made.
SALE AND ASSIGNMENT OF RECEIVABLES; SUBSEQUENT RECEIVABLES
Certain information with respect to the sale of the Initial Receivables
by Franklin Capital to the Seller pursuant to the Purchase Agreements and the
conveyance of the Initial Receivables from the Seller to the Trust on the
Closing Date pursuant to the Sale and Servicing Agreement is set forth under
"Description of the Purchase Agreements and the Trust Documents -- Sale and
Assignment of Receivables" in the accompanying Prospectus. [In addition, during
the Funding Period, pursuant to the Sale and Servicing Agreement, the Seller
will be obligated to sell to the Trust Subsequent Receivables having an
aggregate principal balance equal to approximately $[__________] (such amount
being equal to the initial Pre-Funded Amount) to the extent that such Subsequent
Receivables are available.]
[During the Funding Period, on each Subsequent Transfer Date, subject
to the conditions described under "The Receivables -- Eligibility Criteria," the
Seller will sell and assign to the Trust, without recourse, the Seller's entire
interest in the Subsequent Receivables designated by the Seller as of the
related Subsequent Cutoff Date and identified in a schedule attached to a
Subsequent Transfer Agreement relating to such Subsequent Receivables executed
on such date by the Seller. Upon the conveyance of Subsequent Receivables to the
Trust on a Subsequent Transfer Date, (i) the Pool Balance will increase in an
amount equal to the aggregate principal balances of the Subsequent Receivables
and (ii) an amount equal to the aggregate principal balances of such Subsequent
Receivables will be withdrawn from the Pre-Funding Account and paid to or upon
the order of the Seller.]
ACCOUNTS
The Servicer will establish and maintain one or more accounts, in the
name of the Indenture Collateral Agent, for the benefit of the Indenture
Trustee, on behalf of the Noteholders, the Owner Trustee, on behalf of the
Certificateholders, and the Insurer, into which all payments made on or with
respect to the Receivables will be deposited (the "Collection Account"). The
Servicer will be required to remit collections to the Collection Account within
two Business Days of receipt thereof. Such collections may be remitted less any
payments owed thereon to the Servicer. However, at any time that and for so long
as (i) there exists no Event of Servicer Termination, (ii) there exists no
Insurer Default and the Insurer has furnished its prior written consent, and
(iii) each other condition to making deposits less frequently than every two
Business Days as may be specified by the Rating Agencies is satisfied, the
Servicer will not be required to deposit such amounts into the Collection
Account until on or immediately before the applicable Distribution Date. Pending
deposit into the Collection Account, collections may be invested by the Servicer
at its own risk and for its own benefit and will not be segregated from its own
funds.
The Servicer will also establish and maintain an account, in the name
of the Indenture Collateral Agent, for the benefit of the Indenture Trustee, on
behalf of the Noteholders, and the Insurer in which amounts released from the
Collection Account for distribution to Noteholders will be deposited and from
which all distributions to Noteholders will be made (the "Note Distribution
Account"). The Servicer will establish and maintain an account, in the name of
the Indenture Collateral Agent, for the benefit of the Owner Trustee, on behalf
of the Certificateholders, and the Insurer in which amounts released from the
Collection Account for distribution to Certificateholders will be deposited and
from which all distributions to Certificateholders will be made (the
"Certificate Distribution Account").
S-35
<PAGE>
[On the Closing Date, a cash amount equal to approximately
$[__________] (the "Initial Pre-Funded Amount") will be deposited in an account
(the "Pre-Funding Account") which will be established with the Indenture
Collateral Agent. The Pre-Funding Account will be an asset of the Trust and will
be pledged to the Indenture Collateral Agent for the benefit of the Indenture
Trustee, on behalf of the Noteholders, and the Insurer. The "Funding Period" is
the period from the Closing Date until the earliest of the date on which (i) the
amount on deposit in the Pre-Funding Account is less than $[________], (ii) a
Servicer Default occurs under the Sale and Servicing Agreement, or (iii) the
Distribution Date in [__________, 199__]. The Initial Pre-Funded Amount as
reduced from time to time during the Funding Period by the amount thereof used
to purchase Subsequent Receivables in accordance with the Sale and Servicing
Agreement is referred to herein as the "Pre-Funded Amount." The Seller expects
that the Pre-Funded Amount will be reduced to less than $[________] on or before
the end of the Funding Period. Any Pre-Funded Amount remaining at the end of the
Funding Period will be payable to the Noteholders and Certificateholders as
described herein. The "Mandatory Redemption Date" is the earlier of (i) the
Distribution Date [__________, 199_]or (ii) if the last day of the Funding
Period occurs on or prior to the Determination Date (as defined herein)
occurring in [_____] or [________, 199__], the Distribution Date relating to
such Determination Date.
On the Closing Date, a cash amount may be deposited in an account (the
"Capitalized Interest Account") which will be established with the Indenture
Collateral Agent. The Capitalized Interest Account will be an asset of the
Trust, and will be pledged to the Indenture Collateral Agent for the benefit of
the Indenture Trustee, on behalf of the Noteholders, the Owner Trustee, on
behalf of the Certificateholders, and the Insurer. The amount, if any, deposited
in the Capitalized Interest Account will be applied on the Distribution Dates
occurring in [______], [______] and [______] of [199_] to fund an amount (the
"Monthly Capitalized Interest Amount") equal to the amount of interest accrued
for each such Distribution Date at the weighted average Interest Rates and
Certificate Rate on the portion of the Securities having a principal balance in
excess of the principal balances of the Receivables (which portion will equal
the Pre-Funded Amount). Any amounts remaining in the Capitalized Interest
Account on the Mandatory Redemption Date and not used for such purposes are
required to be paid directly to the Seller on such date. See "Description of the
Purchase Agreements and the Trust Documents -- Accounts."]
[In addition, the Servicer will also establish and will maintain the
Payahead Account in the name of the Indenture Collateral Agent for the benefit
of the Indenture Trustee, on behalf of the Noteholders, the Owner Trustee, on
behalf of the Certificateholders, and the Insurer.]
All such Accounts shall be Eligible Deposit Accounts (as defined in the
Prospectus) acceptable to the Insurer (so long as no Insurer Default has
occurred and is continuing).
SERVICING COMPENSATION AND TRUSTEES' FEES
The Servicer is entitled under the Sale and Servicing Agreement on each
Distribution Date to a servicing fee (the "Servicing Fee") for the related
Monthly Period equal to the sum of (i) one-twelfth of [____]% (the "Servicing
Fee Rate") multiplied by the Pool Balance as of the first day of such Monthly
Period (the "Base Servicing Fee") and (ii) the investment earnings (net of
losses) on the Collection Account. The Servicer may retain the Base Servicing
Fee from collections on the Receivables. The Servicer will retain from
collections a supplemental servicing fee (the "Supplemental Servicing Fee") for
each Monthly Period equal to any late fees, prepayment fees, rebates and other
administrative fees and expenses collected during the Monthly Period plus
reinvestment proceeds on any payments received in respect of Receivables.
On each Distribution Date under the Agreement, the Indenture Trustee is
entitled to a fee for its services as Indenture Trustee and Indenture Collateral
Agent during the prior Monthly Period equal to an amount agreed upon by the
Indenture Trustee and the Servicer. On each Distribution Date under the
Agreement, the Owner Trustee is entitled to a fee for its services as Owner
Trustee during the prior Monthly Period equal to an amount agreed upon by the
Owner Trustee and the Servicer.
S-36
<PAGE>
CERTAIN ALLOCATIONS
On or about the [____] Business Day immediately preceding each
Distribution Date (the "Determination Date"), the Servicer will be required to
deliver the Servicer's Certificate to the Indenture Trustee, the Owner Trustee
and the Insurer specifying, among other things, the amount of aggregate
collections on the Receivables and the aggregate Purchase Amount of Receivables
to be purchased by the Seller, the Servicer or Franklin Capital, all with
respect to the preceding Monthly Period.
On the [_____] Business Day immediately preceding each Distribution
Date (the "Deficiency Claim Date") the Indenture Trustee and/or the Owner
Trustee, as applicable, will (based solely on the information contained in the
Servicer's Certificate delivered on the related Determination Date) deliver to
the Indenture Collateral Agent, the Insurer and the Servicer a Deficiency Notice
specifying the Deficiency Claim Amount, if any, for such Distribution Date. Such
Deficiency Notice will direct the Indenture Collateral Agent to remit such
Deficiency Claim Amount from amounts on deposit in the Spread Account (to the
extent of funds available therein) for deposit in the Collection Account.
On each Distribution Date, the Indenture Trustee will (based solely on
the information contained in the Servicer's Certificate delivered on the related
Determination Date) cause to be made the following transfers and distributions
in the amounts set forth in the Servicer's Certificate for such Distribution
Date:
(i) from the Collection Account to the Payahead Account in
immediately available funds, the aggregate Payaheads collected during
the preceding Monthly Period;
(ii) from the Payahead Account (a) to the Collection Account,
in immediately available funds, the portion of Payaheads constituting
scheduled payments on Precomputed Receivables or that are to be applied
to prepay a Precomputed Receivable in full and (b) to the Seller, in
immediately available funds, all investment earnings on funds in the
Payahead Account with respect to the preceding Monthly Period;
(iii) during the Funding Period, from the Capitalized Interest
Account (a) to the Collection Account, in immediately available funds,
the Monthly Capitalized Interest Amount for such Distribution Date and
(b) to the Seller, in immediately available funds, all investment
earnings on funds in the Capitalized Interest Account with respect to
the preceding Monthly Period or, if such Distribution Date is the
Mandatory Redemption Date, all remaining funds in the Capitalized
Interest Account after distributions of interest on Securities on such
date; and
(iv) during the Funding Period, from the Pre-Funding Account
(a) if such Distribution Date is the Mandatory Redemption Date, to the
Collection Account, in immediately available funds, the Pre-Funded
Amount (exclusive of investment earnings), after giving effect to the
purchase of Subsequent Receivables if any, on the Mandatory Redemption
Date and (b) to the Seller, in immediately available funds, all
investment earnings on funds in the Pre-Funding Account with respect to
the preceding Monthly Period or, if such Distribution Date is the
Mandatory Redemption Date, all remaining funds in the Pre-Funding
Account.
To the extent that collections on a Precomputed Receivable in the
related Monthly Period exceed the scheduled payment and late fees or other fees,
if any, for such Monthly Period but are insufficient to prepay the Precomputed
Receivable in full, such collections will be treated as "Payaheads."
The scheduled payment with respect to a Precomputed Receivable is that
portion of the payment required to be made by the related Obligor during each
calendar month sufficient to amortize the principal balance thereof under the
actuarial method over the term of the Receivable and to provide interest at the
APR of such Receivable.
S-37
<PAGE>
DISTRIBUTIONS
On each Distribution Date, the Servicer is required to instruct the
Indenture Trustee to distribute the Distribution Amount in the following order
of priority:
1. To the Indenture Trustee and the Owner Trustee, any
accrued and unpaid trustees' fees and any accrued and
unpaid fees of the Indenture Collateral Agent (in
each case, to the extent such fees have not been
previously paid by the Servicer or Franklin Capital).
2. To the Servicer, the Servicing Fee for the related
Monthly Period, any Supplemental Servicing Fees for
such month and certain other amounts relating to
mistaken deposits, postings or checks returned for
insufficient funds to the extent the Servicer has not
reimbursed itself in respect of such amount to the
extent not retained by the Servicer.
3. To the Note Distribution Account, the Noteholders'
Interest Distributable Amount.
4. To the Note Distribution Account, the Noteholders'
Principal Distributable Amount, to be distributed as
described under "Description of the Notes --Payments
of Principal."
5. To the Certificate Distribution Account, the
Certificateholders' Interest Distributable Amount.
6. To the Certificate Distribution Account, the
Certificateholders' Principal Distributable Amount.
7. To the Insurer, any amounts owing to the Insurer
under the Insurance Agreement and not paid.
8. To the Indenture Collateral Agent, up to the
Specified Spread Account Requirement for deposit in
the Spread Account.
9. To the Seller, any remaining funds.
If the Notes are accelerated following an Event of Default under the
Indenture, amounts collected will be distributed in the order described above.
In the event that the Servicer's Certificate indicates that the
Distribution Amount will be insufficient on any Distribution Date to cover the
distributions required pursuant to clauses 1 through 4 above on such
Distribution Date, the Indenture Trustee shall furnish to the Insurer no later
than [12:00 noon] New York City time on the related Draw Date a completed notice
of claim in the amount of the Note Policy Claim Amount. Amounts paid by the
Insurer pursuant to any such notice of claim shall be deposited by the Insurer
into the Note Distribution Account for payment to Noteholders on the related
Distribution Date.
In the event that the Servicer's Certificate indicates that the
Distribution Amount will be insufficient on any Distribution Date to cover the
distributions required by clauses 1 through 6 above on such Distribution Date,
the Owner Trustee shall furnish to the Insurer no later than [12:00 noon] New
York City time on the related Draw Date a completed notice of claim in the
amount of the Certificate Policy Claim Amount. Amounts paid by the Insurer
pursuant to any such notice of claim shall be deposited by the Insurer into the
Certificate Distribution Account for payment to Certificateholders on the
related Distribution Date.
S-38
<PAGE>
For the purposes hereof, the following terms shall have the following
meanings:
"Amount Financed" means, with respect to a Receivable, the aggregate
amount advanced under such Receivable toward the purchase price of the Financed
Vehicle and related costs, including amounts advanced in respect of accessories,
insurance premiums, service, car club and warranty contracts, other items
customarily financed as part of retail automobile installment sale contracts or
promissory notes, and related costs.
"Available Funds" means, with respect to any Determination Date, the
sum of (i) the Collected Funds for such Determination Date (including amounts
withdrawn from the Payahead Account but excluding amounts deposited into the
Payahead Account), plus (ii) all Purchase Amounts deposited in the Collection
Account during the related Monthly Period, plus (iii) the Monthly Capitalized
Interest Amount with respect to the related Distribution Date.
"Certificate Balance" equals, initially, $[____________] and,
thereafter, equals the initial Certificate Balance, reduced by all amounts
allocable to principal previously distributed to Certificateholders.
"Certificateholders' Distributable Amount" means, with respect to any
Distribution Date, the sum of the Certificateholders' Principal Distributable
Amount and the Certificateholders' Interest Distributable Amount.
"Certificateholders' Interest Carryover Shortfall" means, with respect
to any Distribution Date, the excess of the Certificateholders' Interest
Distributable Amount for the preceding Distribution Date, over the amount in
respect of interest on the Certificates that was actually deposited in the
Certificate Distribution Account on such preceding Distribution Date, plus
interest on such excess, to the extent permitted by law, at the Certificate Rate
from such preceding Distribution Date to but excluding the current Distribution
Date.
"Certificateholders' Interest Distributable Amount" means, with respect
to any Distribution Date, the sum of the Certificateholders' Monthly Interest
Distributable Amount for such Distribution Date and the Certificateholders'
Interest Carryover Shortfall for such Distribution Date.
"Certificateholders' Monthly Interest Distributable Amount" means, with
respect to any Distribution Date, interest accrued during the related Interest
Period at the Certificate Rate on the Certificate Balance immediately preceding
such Distribution Date, calculated on the basis of a 360-day year consisting of
twelve 30-day months.
"Certificateholders' Monthly Principal Distributable Amount" means,
with respect to any Distribution Date, the Certificateholders' Percentage of the
Principal Distributable Amount.
"Certificateholders' Percentage" means [(i) for each Distribution Date
prior to the Distribution Date on which the Class A-[_] Notes are paid in full,
zero, (ii) on the Distribution Date on which the Class A-[_] Notes are paid in
full, the percentage equivalent of a fraction, the numerator of which is the
excess, if any, of (x) the Principal Distributable Amount for such Distribution
Date over (y) the outstanding principal amount of the Class A-[_] Notes
immediately prior to such Distribution Date, and the denominator of which is the
Principal Distributable Amount for such Distribution Date, and (iii) for each
Distribution Date thereafter to and including the Distribution Date on which the
Certificate Balance is reduced to zero, 100%] [the percentage equivalent of a
fraction, the numerator of which is the outstanding principal amount of the
Certificates and the denominator of which is the outstanding principal amount of
the Securities].
"Certificate Policy Claim Amount" for any Distribution Date, shall
equal the lesser of (i) the sum of the Certificateholders' Interest
Distributable Amount and the Certificateholders' Principal Distributable Amount
for such Distribution Date and (ii) the excess, if any, of the amount required
to be distributed pursuant to clauses 1 through 6 above over the Distribution
Amount with respect to such Distribution Date.
"Certificateholders' Principal Carryover Shortfall" means, as of the
close of any Distribution Date, the excess of the Certificateholders' Principal
Distributable Amount for the preceding Distribution Date, over the amount in
respect of principal that was actually deposited in the Certificate Distribution
Account on such Distribution Date.
S-39
<PAGE>
"Certificateholders' Principal Distributable Amount" means, with
respect to any Distribution Date (other than the Final Scheduled Distribution
Date for the Certificates), the sum of the Certificateholders' Monthly Principal
Distributable Amount for such Distribution Date and the Certificateholders'
Principal Carryover Shortfall as of the close of the preceding Distribution
Date; provided, however, that the Certificateholders' Principal Distributable
Amount shall not exceed the Certificate Balance. In addition, on the Final
Scheduled Distribution Date for the Certificates, the Certificateholders'
Principal Distributable Amount will equal the Certificate Balance on such
Distribution Date.
"Collected Funds" means, with respect to any Determination Date, the
amount of funds in the Collection Account representing collections on the
Receivables during the related Monthly Period, including all Net Liquidation
Proceeds collected during the related Monthly Period (but excluding any Purchase
Amounts).
"Cram Down Loss" means, with respect to a Receivable if a court of
appropriate jurisdiction in an insolvency proceeding shall have issued an order
reducing the amount owed on such Receivable or otherwise modifying or
restructuring the scheduled payments to be made on such Receivable, an amount
equal to (i) the excess of the principal balance of such Receivable immediately
prior to such order over the principal balance of such Receivable as so reduced
and/or (ii) if such court shall have issued an order reducing the effective rate
of interest on such Receivable, the net present value (using as the discount
rate the higher of the APR on such Receivable or the rate of interest, if any,
specified by the court in such order) of the scheduled payments as so modified
or restructured. A "Cram Down Loss" shall be deemed to have occurred on the date
of issuance of such order.
"Deficiency Claim Amount" means, with respect to any Determination
Date, the excess, if any, of the sum of the amounts payable on the related
Distribution Date pursuant to clauses 1 through 7 above over the amount of
Available Funds with respect to such Determination Date.
"Deficiency Notice" means a written notice delivered by the Indenture
Trustee or the Owner Trustee, as applicable, to the Insurer, the Servicer and
any other person required under the Insurance Agreement, specifying the
Deficiency Claim Amount for such Distribution Date.
"Distribution Amount" means, with respect to any Distribution Date the
sum of (i) the Available Funds for the immediately preceding Determination Date
plus (ii) the Deficiency Claim Amount, if any, received (from an Insurer
Optional Deposit or the Spread Account or otherwise) by the Indenture Trustee
with respect to such Distribution Date.
"Insurer Optional Deposit" means, with respect to any Distribution
Date, an amount delivered by the Insurer, at its sole option, other than the
Policies for deposit into the Collection Account for any of the following
purposes: (i) to provide funds in respect of the payment of fees or expenses of
any provider of services to the Trust with respect to such Distribution Date; or
(ii) to include such amount as part of the Distribution Amount for such
Distribution Date to the extent that without such amount a draw would be
required to be made on a Policy.
["Liquidated Receivable" means, with respect to any Determination Date,
a Receivable as to which, as of the last day of the related Monthly Period, (i)
90 days have elapsed since the Servicer repossessed the Financed Vehicle, (ii)
the Servicer has determined in good faith that all amounts it expects to recover
have been received, (iii) 10% or more of a scheduled payment shall have become
150 or more days delinquent, or (iv) the Financed Vehicle has been sold and the
proceeds received.]
"Net Liquidation Proceeds" means, with respect to Liquidated
Receivables, (i) proceeds from the disposition of the underlying automobile
securing the Liquidated Receivables, less reasonable Servicer out-of-pocket
costs, including repossession and resale expenses not already deducted from such
proceeds, and any amounts required by law to be remitted to the Obligor, (ii)
any insurance proceeds, or (iii) other monies received from the Obligor or
otherwise.
"Noteholders' Distributable Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Principal Distributable Amount
and the Noteholders' Interest Distributable Amount.
S-40
<PAGE>
"Noteholders' Interest Carryover Shortfall" means, with respect to any
Distribution Date and a Class of Notes, the excess of the Noteholders' Interest
Distributable Amount for such Class for the preceding Distribution Date, over
the amount in respect of interest that was actually deposited in the Note
Distribution Account with respect to such Class on such preceding Distribution
Date, plus interest on the amount of interest due but not paid to Noteholders of
such Class on the preceding Distribution Date, to the extent permitted by law,
at the Interest Rate borne by such Class of Notes from such preceding
Distribution Date to but excluding the current Distribution Date.
"Noteholders' Interest Distributable Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Monthly Interest Distributable
Amount for each Class of Notes for such Distribution Date and the Noteholders'
Interest Carryover Shortfall for each Class of Notes for such Distribution Date.
"Noteholder Monthly Interest Distributable Amount" means, with respect
to any Distribution Date and any Class of Notes, interest accrued during the
applicable Interest Period at the Interest Rate borne by such Class of Notes on
the outstanding principal amount of such Class immediately prior to such
Distribution Date, calculated on the basis of a 360-day year and (a) the actual
number of days elapsed, in the case of the Class A-[_] Notes and the Class A-[_]
Notes and (b) twelve 30-day months, in the case of the Class A-[_] Notes.
"Noteholders' Monthly Principal Distributable Amount" means, with
respect to any Distribution Date, the Noteholders' Percentage of the Principal
Distributable Amount.
"Note Policy Claim Amount" for any Distribution Date, shall equal the
lesser of (i) the sum of the Noteholders' Interest Distributable Amount and
Noteholders' Principal Distributable Amount for such Distribution Date and (ii)
the excess, if any, of the amount required to be distributed pursuant to clauses
1 through 4 above over the Distribution Amount with respect to such Distribution
Date.
"Noteholders' Percentage" means [(i) for each Distribution Date to the
Distribution Date on which the Class A-3 Notes are paid in full, 100%, (ii) on
the Distribution Date on which the Class A-[_] Notes are paid in full, the
percentage equivalent of a fraction, the numerator of which is the outstanding
principal amount of the Class A-[_] Notes immediately prior to such Distribution
Date, and the denominator of which is the Principal Distributable Amount for
such Distribution Date, and (iii) for any Distribution Date thereafter, zero.]
[The Noteholder's percentage will equal the percentage equivalent of a fraction
the numerator of which is the outstanding principal amount of the Notes and the
denominator of which is the aggregate outstanding principal amount of the
Securities.
"Noteholders' Principal Carryover Shortfall" means, as of the close of
any Distribution Date, the excess of the Noteholders' Principal Distributable
Amount for the preceding Distribution Date over the amount in respect of
principal that was actually deposited in the Note Distribution Account on such
Distribution Date.
"Noteholders' Principal Distributable Amount" means, with respect to
any Distribution Date (other than the Final Scheduled Distribution Date for any
Class of Notes), the sum of the Noteholders' Monthly Principal Distributable
Amount for such Distribution Date and the Noteholders' Principal Carryover
Shortfall as of the close of the preceding Distribution Date. The Noteholders'
Principal Distributable Amount on the Final Scheduled Distribution Date for any
Class of Notes will equal the sum of (i) the Noteholders' Monthly Principal
Distributable Amount for such Distribution Date, (ii) the Noteholders' Principal
Carryover Shortfall as of the close of the preceding Distribution Date, and
(iii) the excess of the outstanding principal amount of such Class of Notes, if
any, over the amounts described in clauses (i) and (ii).
"Principal Balance" means, with respect to any Receivable, as of any
date, the Amount Financed minus (i) that portion of all amounts received
(including Payaheads applied to scheduled payments) on or prior to such date and
allocable to principal in accordance with the terms of the Receivable, and (ii)
any Cram Down Loss in respect of such Receivable.
"Principal Distributable Amount" means, with respect to any
Distribution Date, the amount equal to the sum of the following amounts with
respect to the related Monthly Period, computed, with respect to Simple Interest
S-41
<PAGE>
Receivables, in accordance with the simple interest method, and, with respect to
Precomputed Receivables, in accordance with the actuarial method: (i) that
portion of all collections on Receivables allocable to principal, including full
and, with respect to Simple Interest Receivables, partial principal prepayments,
received during such Monthly Period (including, with respect to Precomputed
Receivables, amounts withdrawn from the Payahead Account but excluding amounts
deposited into the Payahead Account) with respect to such Monthly Period, (ii)
the principal balance of each Receivable that was repurchased by Franklin
Capital, the Seller or the Servicer as of the last day of such Monthly Period,
(iii) at the option of the Insurer, the outstanding principal balance of those
Receivables that were required to be repurchased by the Seller and/or Franklin
Capital during such Monthly Period but were not so repurchased, (iv) the
principal balance of each Receivable that became a Liquidated Receivable during
such Monthly Period and (v) the aggregate amount of Cram Down Losses during such
Monthly Period.
"Purchase Amount" means, with respect to a Receivable, the Principal
Balance and accrued interest on the Receivable (including one month's interest
thereon, in the month of payment, at the APR less, so long as Franklin Capital
is the Servicer, the Servicing Fee and other servicing compensation and
expenses), after giving effect to the receipt of any moneys collected (from
whatever source) on such Receivable, if any.
STATEMENTS TO SECURITYHOLDERS
On or prior to each Distribution Date, the Indenture Trustee will be
required to forward a statement to the Noteholders and the Owner Trustee will be
required to forward a statement to the Certificateholders on such Distribution
Date. Such statements will be based on the information in the related Servicer's
Certificate setting forth certain information required under the Trust
Documents. Each such statement to be delivered to Noteholders will include the
following information as to the Notes, and each such statement to be delivered
to Certificateholders will include the following information as to the
Certificates, with respect to such Distribution Date or the period since the
previous Distribution Date, as applicable:
(i) the amount of the distribution allocable to interest on
or with respect to the Notes and the Certificates:
(ii) the amount of the distribution allocable to principal
with respect to the Notes and the Certificates;
(iii) the amount of the distribution payable pursuant to a
claim on the Note Policy or the Certificate Policy, as the case may be,
or out of amounts on deposit in the Spread Account;
(iv) the aggregate outstanding principal amount and the Note
Pool Factor for each Class of Notes and the Certificate Balance and the
Certificate Pool Factor for the Certificates, in each case, after
giving effect to all payments reported under (ii) above on such date;
(v) the Noteholders' Interest Carryover Shortfall, the
Noteholders' Principal Carryover Shortfall, the Certificateholders'
Interest Carryover Shortfall and the Certificateholders' Principal
Carryover Shortfall, if any, and the change in such amounts from the
preceding statement;
(vi) the amount of the Servicing Fee paid to the Servicer with
respect to the related Monthly Period;
(vii) for each such date during the Funding Period, the
remaining Pre-Funded Amount, the amount in the Pre-Funding Account and
the amount remaining in the Capitalized Interest Account; and
S-42
<PAGE>
(viii) for the final Subsequent Transfer Date, the amount of
any remaining Pre-Funded Amount that has not been used to fund the
purchase of Subsequent Receivables and is being passed through as
payments of principal of the Notes and Certificates.
Each amount set forth pursuant to subclauses (i) through (vi) with
respect to Certificates or Notes will be expressed as a dollar amount per $1,000
of the initial principal amount of the Notes or initial Certificate Balance, as
applicable.
Unless and until Definitive Notes or Definitive Certificates are
issued, such reports will be sent on behalf of the Trust to Cede & Co., as
registered holder of the Notes and the Certificates and the nominee of DTC. See
"Certain Information Regarding the Securities -- Statements to Securityholders"
in the Prospectus.
Within the required period of time after the end of each calendar year,
the Indenture Trustee and the Owner Trustee, as applicable, will furnish to each
person who at any time during such calendar year was a Noteholder or
Certificateholder, a statement as to the aggregate amounts of interest and
principal paid to such Noteholder or Certificateholder, information regarding
the amount of servicing compensation received by the Servicer and such other
information as the Seller deems necessary to enable such Noteholder or
Certificateholder to prepare its tax returns.
SPREAD ACCOUNT
On the Closing Date, the Seller will make an initial deposit of an
amount to be agreed upon by the Seller and the Insurer (the "Spread Account
Initial Deposit") to the Spread Account which will be established with the
[__________], as Collateral Agent for the benefit of the Indenture Trustee on
behalf of the Noteholders, the Owner Trustee, on behalf of the
Certificateholders, [and the Insurer] pursuant to a certain Spread Account
Agreement dated as of [________, 199_], (the "Spread Account Agreement"). The
Spread Account will not be an asset of the Trust. On each Distribution Date, the
Indenture Trustee will be required to deposit additional amounts into the Spread
Account from payments on the Receivables as described under "-- Distributions"
above. Amounts, if any, on deposit in the Spread Account will be available to
the extent provided in the Spread Account Agreement to fund any Deficiency Claim
Amount otherwise required to be made on a Distribution Date. The aggregate
amount required to be on deposit at any time in the Spread Account (the
"Specified Spread Account Requirement") will be determined in accordance with
[the Insurance Agreement] and the Spread Account Agreement. The Specified Spread
Account Requirement may increase or decrease over time as a result of floors,
caps and triggers set forth in the Insurance Agreement or the Spread Account
Agreement, even if no withdrawals are made from the Spread Account. Amounts on
deposit in the Spread Account on any Distribution Date (after giving effect to
all distributions made on such Distribution Date) in excess of the Specified
Spread Account Requirement for such Distribution Date will be released to the
Seller. Amounts on deposit or to be deposited in the Spread Account may be
distributed to persons other than the Insurer or the Securityholders without the
consent of the Securityholders.
Amounts held from time to time in the Spread Account will continue to
be held for the benefit of holders of the Securities and the Insurer. Funds in
the Spread Account will be invested in Eligible Investments. Investment income
(net of investment losses and expenses) on amounts in the Spread Account will
not be available for distribution to holders of Securities, and will only be
distributed to the Seller.
[In addition, the Seller, the Insurer and the Indenture Collateral
Agent may amend the Spread Account Agreement (and any provisions in the
Insurance Agreement relating to the Spread Account) in any respect (including,
without limitation, reducing or eliminating the Specified Spread Account
Requirement and/or reducing or eliminating the funding requirements of the
Spread Account or permitting such funds to be used for the benefit of persons
other than Securityholders) without the consent of, or notice to, the Indenture
Trustee, the Owner Trustee or the Securityholders. The Indenture Collateral
Agent shall not withhold or delay its consent with respect to any amendment that
does not adversely affect the Indenture Collateral Agent. Notwithstanding any
reduction in or elimination of the funding requirements of the Spread Account or
the depletion thereof, the Insurer will be obligated on each Distribution Date
to fund the full amount of each Guaranteed Note Distribution and each Guaranteed
Certificate Distribution
S-43
<PAGE>
otherwise required to be made on such Distribution Date. If the Insurer breaches
its obligations, any losses on the Receivables will be borne by the
Securityholders.]
SERVICER DEFAULT; RIGHTS UPON SERVICER DEFAULT
Notwithstanding anything to the contrary set forth under "Description
of the Purchase Agreements and the Trust Documents -- Servicer Default" in the
Prospectus, a "Servicer Default" under the Sale and Servicing Agreement will
consist of (i) any failure by the Servicer to deliver to the Owner Trustee or
the Indenture Trustee any deposit or payment required to be so made, which
failure continues unremedied for [__] Business Days after written notice from
the Owner Trustee or the Indenture Trustee or the Insurer is received by the
Servicer or after discovery of such failure by the Servicer, (ii) any failure by
the Servicer duly to observe or perform in any material respect any other
covenant or agreement in the Sale and Servicing Agreement which failure
materially and adversely affects the rights of Certificateholders or Noteholders
and which continues unremedied for 60 days after the giving of written notice of
such failure (1) to the Servicer by the Owner Trustee or the Indenture Trustee
or the Insurer or (2) to the Servicer and to the Owner Trustee and the Indenture
Trustee by holders of Certificates or Notes evidencing not less than 25% in
aggregate principal amount of the outstanding Certificates or Notes,
respectively (or such longer period, not in excess of 120 days, as may be
reasonably necessary to remedy such default; provided that such default is
capable of remedy within 120 days or less and the Servicer delivers an officer's
certificate to the Owner Trustee, the Indenture Trustee and the Insurer to such
effect and to the effect that the Servicer has commenced, or will promptly
commence, and diligently pursue all reasonable efforts to remedy such default);
(iii) certain events of insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings with respect to the Servicer or the
Seller and certain actions by the Servicer or the Seller indicating its
insolvency, reorganization pursuant to bankruptcy proceedings, or inability to
pay its obligations; and (iv) unless an Insurer Default has occurred and is
continuing, certain defaults under the Insurance Agreement.
As long as a Servicer Default under the Sale and Servicing Agreement
remains unremedied, the Insurer or, if an Insurer Default exists, either the
Indenture Trustee or the Noteholders holding not less than a majority of the
principal amount of Notes outstanding may terminate all of the rights and
obligations of the Servicer under the Sale and Servicing Agreement. All
authority, power, obligations and responsibilities of the Servicer under the
Sale and Servicing Agreement will automatically then pass to the Indenture
Trustee, as backup servicer, or a successor servicer appointed by the Insurer in
accordance with the Sale and Servicing Agreement.
["Insurer Default" shall mean the occurrence and continuance of any of
the following events:
(a) the Insurer shall have failed to make a payment required
under the Policy in accordance with its terms;
(b) the Insurer shall have (i) filed a petition or commenced
any case or proceeding under any provision or chapter of the United
States Bankruptcy Code or any other similar federal or state law
relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization, (ii) made a general assignment for the benefit of its
creditors, or (iii) had an order for relief entered against it under
the United States Bankruptcy Code or any other similar federal or state
law relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization which is final and nonappealable; or
(c) a court of competent jurisdiction, the New York Department
of Insurance or other competent regulatory authority shall have entered
a final and nonappealable order, judgement or decree (i) appointing a
custodian, trustee, agent or receiver for the Insurer or for all or any
material portion of its property or (ii) authorizing the taking of
possession by a custodian, trustee, agent or receiver of the Insurer
(or the taking of possession of all or any material portion of the
property of the Insurer).]
S-44
<PAGE>
WAIVER OF PAST DEFAULTS
Notwithstanding anything to the contrary set forth under "Description
of the Purchase Agreements and the Trust Documents -- Waiver of Past Defaults"
in the Prospectus, the Insurer may, on behalf of all holders of Securities,
waive any default by the Servicer in the performance of its obligations under
the Sale and Servicing Agreement and its consequences. No such waiver will
impair the Securityholders' rights with respect to subsequent defaults.
AMENDMENT
Notwithstanding anything to the contrary set forth under "Description
of the Purchase Agreement and the Trust Documents -- Amendment" in the
Prospectus, the Agreement may be amended by the Seller, the Servicer and the
Owner Trustee with the consent of the Indenture Trustee, (which consent may not
be unreasonably withheld) and with the consent of the Insurer (so long as no
Insurer Default has occurred and is continuing), but without the consent of the
Securityholders, to cure any ambiguity, or to correct or supplement any
provision therein which may be inconsistent with any other provision therein;
provided that such action shall not adversely affect in any material respect the
interests of any Securityholder; provided, further, that if an Insurer Default
has occurred and is continuing, such action shall not materially adversely
affect the interests of the Insurer. An amendment shall be deemed not to
adversely affect the interests of any such holder if either each Rating Agency
rating such Securities confirms in writing that such amendment will not result
in a reduction or withdrawal of such rating or none of the Rating Agencies
rating such Securities, within 10 days' after receipt of notice of such
amendment, shall have notified the Seller, the Servicer or the Trust in writing
that such amendment will result in a reduction or withdrawal of the then current
rating of the Securities. The Seller, the Servicer and the Owner Trustee may
also amend the Sale and Servicing Agreement with the consent of the Insurer, the
consent of the Indenture Trustee, the consent of Noteholders holding a majority
of the principal amount of the Notes and the consent of Certificateholders
holding a majority of the principal amount of Certificates outstanding to add,
change or eliminate any other provisions with respect to matters or questions
arising under such Agreement or affecting the rights of the Noteholders or the
Certificateholders; provided that such action will not (i) increase or reduce in
any manner the amount of, or accelerate or delay the timing of, collections of
payments on Receivables or distributions that are required to be made for the
benefit of the Noteholders or Certificateholders or (ii) reduce the aforesaid
percentage of the Noteholders or Certificateholders required to consent to any
such amendment, without, in either case, the consent of the holders of all Notes
and Certificates outstanding; provided, further, that if an Insurer Default has
occurred and is continuing, such action shall not materially adversely affect
the interest of the Insurer. The Seller and Servicer must deliver to the Owner
Trustee, the Indenture Trustee and the Insurer upon the execution and delivery
of the Sale and Servicing Agreement and any amendment thereto an opinion of
counsel, satisfactory to the Indenture Trustee, that all financing statements
and continuation statements have been filed that are necessary to fully protect
and preserve the Trustee's interest in the Receivables.
[THE POLICIES
NOTE POLICY
Simultaneously with the issuance of the Notes, the Insurer will deliver
the Note Policy to the Indenture Trustee for the benefit of each Noteholder.
Under the Note Policy, the Insurer will unconditionally and irrevocably
guarantee to the Indenture Trustee for the benefit of each Noteholder the full
and complete payment of (i) Guaranteed Note Distributions (as defined below) on
the Notes and (ii) the amount of any Guaranteed Note Distribution which
subsequently is avoided in whole or in part as a preference payment under
applicable law. In the event the Indenture Trustee fails to make a claim under
the Note Policy, Noteholders do not have the right to make a claim directly
under the Note Policy, but may sue to compel the Indenture Trustee to do so.
"Guaranteed Note Distributions" means payments which are scheduled to
be made on the Notes during the term of the Note Policy in accordance with the
original terms of the Notes when issued and without regard to any subsequent
amendment or modification of the Notes that has not been consented to by the
Insurer, which payments are (i) the Noteholders' Interest Distributable Amount
and (ii) the Noteholders' Principal Distributable Amount; Guaranteed
S-45
<PAGE>
Note Distributions do not include payments which become due on an accelerated
basis as a result of (a) a default by the Trust, (b) an election by the Trust to
pay principal on an accelerated basis, (c) the occurrence of an Event of Default
under the Indenture or (d) any other cause, unless the Insurer elects, in its
sole discretion, to pay in whole or in part such principal due upon
acceleration, together with any accrued interest to the date of acceleration. In
the event the Insurer does not so elect, the Note Policy will continue to
guarantee Guaranteed Note Distributions due on the Notes in accordance with
their original terms. Guaranteed Note Distributions shall not include (x) any
portion of a Noteholders' Interest Distributable Amount due to Noteholders
because the appropriate notice and certificate for payment in proper form was
not timely Received (as defined below) by the Insurer, (y) any portion of a
Noteholders' Interest Distributable Amount due to Noteholders representing
interest on any Noteholders' Interest Carryover Shortfall accrued from and
including the date of payment of the amount of such Noteholders' Interest
Carryover Shortfall pursuant to the Note Policy, or (z) any Note Prepayment
Amounts unless, in each case, the Insurer elects, in its sole discretion, to pay
such amount in whole or in part.
Payment of claims on the Note Policy made in respect of Guaranteed Note
Distributions will be made by the Insurer following Receipt by the Insurer of
the appropriate notice for payment on the later to occur of (i) 12:00 noon, New
York City time, on the third Business Day following Receipt of such notice for
payment, and (ii) 12:00 noon, New York City time, on the date on which such
payment was due on the Notes.
If payment of any amount avoided as a preference under applicable
bankruptcy, insolvency, receivership or similar law is required to be made under
the Note Policy, the Insurer shall cause such payment to be made no earlier than
the first to occur of (a) the [fourth] Business Day following Receipt by the
Insurer from the Indenture Trustee of (i) a certified copy of the order (the
"Order") of the court or other governmental body which exercised jurisdiction to
the effect that the Noteholder is required to return principal or interest paid
on the Notes during the term of the Note Policy because such payments were
avoidable as preference payments under applicable bankruptcy law, (ii) a
certificate of the Noteholder that the Order has been entered and is not subject
to any stay and (iii) an assignment duly executed and delivered by the
Noteholder, in such form as is reasonably required by the Insurer and provided
to the Noteholder by the Insurer, irrevocably assigning to the Insurer all
rights and claims of the Noteholder relating to or arising under the Notes
against the Trust or otherwise with respect to such preference payment, or (b)
the date of Receipt (as defined below) by the Insurer from the Indenture Trustee
of the items referred to in clauses (i), (ii) and (iii) above if, at least
[four] Business Days prior to such date of Receipt, the Insurer shall have
received written notice from the Indenture Trustee that such items were to be
delivered on such date and such date was specified in such notice. Such payment
shall be disbursed to the receiver, conservator, debtor-in-possession or trustee
in bankruptcy named in the Order and not to the Indenture Trustee or any
Noteholder directly (unless a Noteholder has previously paid such amount to the
receiver, conservator, debtor-in-possession or trustee in bankruptcy named in
the Order, in which case such payment shall be disbursed to the Indenture
Trustee for distribution to such Noteholder upon proof of such payment
reasonably satisfactory to the Insurer). In connection with the foregoing, the
Insurer shall have the rights provided in the Indenture.]
[CERTIFICATE POLICY
Simultaneously with the issuance of the Certificates, the Insurer will
deliver the Certificate Policy to the Owner Trustee for the benefit of each
Certificateholder. Under the Certificate Policy, the Insurer will
unconditionally and irrevocably guarantee to the Owner Trustee for the benefit
of each Certificateholder the full and complete payment of (i) Guaranteed
Certificate Distributions (as defined below) with respect to the Certificates
and (ii) the amount of any Guaranteed Certificate Distribution which
subsequently is avoided in whole or in part as a preference payment under
applicable law. In the event that the Owner Trustee fails to make a claim under
the Certificate Policy, Certificateholders do not have the right to make a claim
directly under the Certificate Policy but may sue to compel the Owner Trustee to
do so.
"Guaranteed Certificate Distributions" means the distributions to be
made on the Certificates with respect to a Distribution Date during the term of
the Certificate Policy in accordance with the original terms of the Certificates
when issued and without regard to any amendment or modification of the
Certificates or the Trust Agreement which has not been consented to by the
Insurer, which distributions are equal to (i) the Certificateholders' Interest
Distributable
S-46
<PAGE>
Amount with respect to such Distribution Date and (ii) the Certificateholders'
Principal Distributable Amount with respect to such Distribution Date; provided,
however, that Guaranteed Certificate Distributions shall not include (x) any
portion of a Certificateholder's Interest Distributable Amount due to
Certificateholders because the appropriate notice and certificate for payment in
proper form was not timely Received (as defined below) by the Insurer, (y) any
portion of a Certificateholder's Interest Distributable Amount due to
Certificateholders representing interest on any Certificateholders' Interest
Carryover Shortfall accrued from and including the date of payment of the amount
of such Certificateholders' Interest Carryover Shortfall pursuant to the
Certificate Policy, or (z) any Certificate Prepayment Amount, unless, in each
case, the Insurer elects, in its sole discretion, to pay such amount in whole or
in part.]
Payment of claims on the Certificate Policy made in respect of
Guaranteed Certificate Distributions will be made by the Insurer following
Receipt by the Insurer of the appropriate notice for payment on the later to
occur of (i) 12:00 noon New York City time, on the [third] Business Day
following Receipt (as defined below) of such notice for payment, or (ii) 12:00
noon, New York City time, on the date on which such payment was due on the
Certificates.
[If payment of any amount avoided as a preference under applicable
bankruptcy, insolvency, receivership or similar law is required to be made under
the Certificate Policy, the Insurer shall cause such payment to be made no
earlier than the first to occur of (a) the [fourth] Business Day following
Receipt by the Insurer from the Owner Trustee of (i) a certified copy of the
order (the "Order") of the court or other governmental body which exercised
jurisdiction to the effect that the Certificateholder is required to return the
amount of any Guaranteed Certificate Distributions distributed with respect to
the Certificates during the term of the Certificate Policy because such
distributions were avoidable as preference payments under applicable bankruptcy
law, (ii) a certificate of the Certificateholder that the Order has been entered
and is not subject to any stay and (iii) an assignment duly executed and
delivered by the Certificateholder, in such form as is reasonably required by
the Insurer and provided to the Certificateholder by the Insurer, irrevocably
assigning to the Insurer all rights and claims of the Certificateholder relating
to or arising under the Certificates against the debtor which made such
preference payment or otherwise with respect to such preference payment, or (b)
the date of Receipt by the Insurer from the Owner Trustee of the items referred
to in clauses (i), (ii) and (iii) above if, at least [four] Business Days prior
to such date of Receipt, the Insurer shall have Received written notice from the
Owner Trustee that such items were to be delivered on such date and such date
was specified in such notice. Such payment shall be disbursed to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in the Order
and not to the Owner Trustee or any Certificateholder directly (unless a
Certificateholder has previously paid such amount to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the Order in which case
such payment shall be disbursed to the Owner Trustee for distribution to such
Certificateholder upon proof of such payment reasonably satisfactory to the
Insurer). In connection with the foregoing, the Insurer shall have the rights
provided in the Sale and Servicing Agreement.]
[OTHER PROVISIONS OF THE POLICIES
The terms "Receipt" and "Received" with respect to a Policy shall mean
actual delivery to the Insurer and to its fiscal agent, if any, prior to 12:00
noon, New York City time, on a Business Day; delivery either on a day that is
not a Business Day or after 12:00 noon, New York City time, shall be deemed to
be Received on the next succeeding Business Day. If any notice or certificate
given under a Policy by the Indenture Trustee or the Owner Trustee, as the case
may be, is not in proper form or is not properly completed, executed or
delivered, it shall be deemed not to have been Received, and the Insurer or its
fiscal agent shall promptly so advise the Indenture Trustee or the Owner Trustee
and the Indenture Trustee or the Owner Trustee may submit an amended notice.
Under the Policies, "Business Day" means any day other than a Saturday,
Sunday, legal holiday or other day on which commercial banking institutions in
Wilmington, Delaware, the City of New York or ______, California, Salt Lake
City, Utah or any other location of any successor Servicer, successor Owner
Trustee or successor Indenture Collateral Agent are authorized or obligated by
law, executive order or governmental decree to be closed.
The Certificate Insurer's obligations under the respective Policies in
respect of Guaranteed Note Distributions and Guaranteed Certificate
Distributions shall be discharged to the extent funds are transferred to the
S-47
<PAGE>
Indenture Trustee or the Owner Trustee as provided in the related Policy whether
or not such funds are properly applied by the Indenture Trustee or the Owner
Trustee.
The Insurer shall be subrogated to the rights of each Noteholder or
Certificateholder to receive payments of principal and interest to the extent of
any payment by the Insurer under the related Policy.
Claims under the Policies constitute direct, unsecured and
unsubordinated obligations of the Insurer ranking not less than pari passu with
other unsecured and unsubordinated indebtedness of the Insurer for borrowed
money. Claims against the Insurer under each other financial guaranty insurance
policy issued thereby constitute pari passu claims against the general assets of
the Insurer. The terms of the Policies cannot be modified or altered by any
other agreement or instrument, or by the merger, consolidation or dissolution of
the Trust. The Note Policy may not be canceled or revoked prior to distribution
in full of all Guaranteed Note Distributions, and the Certificate Policy may not
be canceled or revoked prior to distribution in full of all Guaranteed
Certificate Distributions. THE POLICIES ARE NOT COVERED BY THE PROPERTY/CASUALTY
INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
The Policies are governed by the laws of the State of New York.]
It is a condition to issuance that the Class A-[_] Notes be rated [___]
by S&P and [___] by Moody's, and that the Class A-[_] Notes, the Class A-[_]
Notes and the Certificates be rated [___] by S&P and [___] by Moody's. The
ratings by the Rating Agencies of the Securities will be based primarily on the
issuances of the Policies. A rating is not a recommendation to purchase, hold or
sell Securities. In the event that the rating initially assigned to any of the
Securities is subsequently lowered or withdrawn for any reason, including by
reason of a downgrading of the claims-paying ability of the Insurer, no person
or entity will be obligated to provide any additional credit enhancement with
respect to the Securities. Any reduction or withdrawal of a rating may have an
adverse effect on the liquidity and market price of the Securities. See
"Ratings" in the Prospectus.
S-48
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
PROSPECTIVE NOTEHOLDERS AND CERTIFICATEHOLDERS ARE ADVISED TO CONSULT
THEIR TAX ADVISORS WITH REGARD TO THE FEDERAL INCOME TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP, OR DISPOSITION OF INTERESTS IN THE NOTES OR CERTIFICATES,
AS WELL AS THE TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCALITY,
FOREIGN COUNTRY OR OTHER TAXING JURISDICTION.
Weil, Gotshal & Manges LLP, special tax counsel to the Trust, is of the
opinion that for federal income tax purpose the Notes will be characterized as
debt and the Trust will not be characterized as an association (or a publicly
traded partnership) taxable as a corporation. Opinions of counsel are not
binding on the Internal Revenue Service (the "IRS") and there can be no
assurance that the IRS could not successfully challenge this conclusion.
Moreover, no ruling will be sought from the IRS with respect to the transaction
described herein. All potential investors and Certificateholders are advised to
review "FEDERAL INCOME TAX CONSEQUENCES -- TRUSTS TREATED AS PARTNERSHIPS OR AS
DIVISIONS" in the Prospectus for a discussion of the anticipated federal income
tax consequences of the purchase, ownership and disposition of the Notes and
Certificates.
STATE TAX CONSIDERATIONS
Potential Noteholders and Certificateholders should consider the state
and local income tax effects on them of the purchase, ownership and disposition
of the Notes and Certificates. State and local income tax laws may differ
substantially from the corresponding federal law, and this discussion does not
purport to describe any aspect of the income tax laws of any state or locality.
Therefore, potential Noteholders and Certificateholders should consult their own
tax advisors with respect to the various state and local tax consequences of an
investment in the Notes and Certificates.
ERISA CONSIDERATIONS
Section 406 of ERISA, and/or Section 4975 of the Code, prohibits a
pension, profit-sharing or other employee benefit plan, as well as individual
retirement accounts and certain types of Keogh Plans (each a "Benefit Plan")
from engaging in certain transactions with persons that are "parties in
interest" under ERISA or "disqualified persons" under the Code with respect to
such Benefit Plan. A violation of these "prohibited transaction" rules may
result in an excise tax or other penalties and liabilities under ERISA and the
Code for such persons. Title I of ERISA also requires that fiduciaries of a
Benefit Plan subject to ERISA make investments that are prudent, diversified
(except if prudent not to do so) and in accordance with governing plan
documents.
Certain transactions involving the purchase, holding or transfer of the
Securities might be deemed to constitute prohibited transactions under ERISA and
the Code if assets of the Trust were deemed to be assets of a Benefit Plan.
Under a regulation issued by the United States Department of Labor (the "Plan
Assets Regulation"), the assets of the Trust would be treated as plan assets of
a Benefit Plan for the purposes of ERISA and the Code only if the Benefit Plan
acquires an "Equity Interest" in the Trust and none of the exceptions contained
in the Plan Assets Regulation is applicable. An equity interest is defined under
the Plan Assets Regulation as an interest other than an instrument which is
treated as indebtedness under applicable local law and which has no substantial
equity features. The Seller believes that the Notes should be treated as
indebtedness without substantial equity features for purposes of the Plan Assets
Regulation. However, without regard to whether the Notes are treated as an
Equity Interest for such purposes, the acquisition or holding of Notes by or on
behalf of a Benefit Plan could be considered to give rise to a prohibited
transaction if the Trust, the Owner Trustee or the Indenture Trustee, the owner
of collateral, or any of their respective affiliates is or becomes a party in
interest or a disqualified person with respect to such Benefit Plan. In such
case, certain exemptions from the prohibited transaction rules could be
applicable depending on the type and circumstances of the plan fiduciary making
the decision to acquire a Note. Included among these exemptions are: Prohibited
Transaction Class Exemption ("PTCE") 90-1, regarding investments by insurance
company pooled separate
S-49
<PAGE>
accounts; PTCE 95-60, regarding investments by insurance company general
accounts; PTCE 91-38, regarding investments by bank collective investment funds;
PTCE 96-23, regarding transactions affected by in-house asset managers; and PTCE
84-14, regarding transactions effected by "qualified professional asset
managers."
The Certificates may not be acquired by (a) an employee benefit plan
(as defined in Section 3(3) of ERISA) that is subject to the provisions of Title
I of ERISA, (b) a plan described in Section 4975(e)(1) of the Code or (c) any
entity whose underlying assets include plan assets by reason of a plan's
investment in the entity. By its acceptance of a Certificate, each
Certificateholder will be deemed to have represented and warranted that it is
not subject to the foregoing limitation. For additional information regarding
treatment of the Certificates under ERISA, see "ERISA Considerations" in the
accompanying Prospectus.
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements.
A plan fiduciary considering the purchase of Notes should consult its
tax and/or legal advisors regarding whether the assets of the Trust would be
considered plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
UNDERWRITING
Under the terms and subject to the conditions contained in the
Underwriting Agreement, the Seller has agreed to cause the Trust to sell to the
Underwriters named below (the "Underwriters"), for whom [______] is acting as
representative, and the Underwriters have severally but not jointly agreed to
purchase the following respective number of Notes and Certificates.
Principal Amount Principal Amount
Underwriter of Notes of Certificates
----------- -------- ---------------
The Underwriters have informed the Servicer and the Seller that they do
not expect discretionary sales by the Underwriters to exceed [5]% of the
principal amount of the Securities being offered hereby.
The Seller has been advised by the Underwriters that the Underwriters
propose to offer the Securities from time to time for sale in negotiated
transactions or otherwise, at prices determined at the time of sale. The
Underwriters may effect such transactions by selling Securities to or through
dealers and such dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Underwriters and any purchasers
of Securities for whom they may act as agents. The Underwriters and any dealers
that participate with the Underwriters in the distribution of the Securities may
be deemed to be underwriters, and any discounts or commissions received by them
and any profit on the resale of Securities by them may be deemed to be
underwriting discounts or commissions, under the Securities Act of 1933, as
amended.
The Servicer and Seller have jointly agreed to indemnify the several
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or contribute to payments which the Underwriters may be required
to make in respect thereof.
[In connection with the offering of the Securities, the Underwriter(s) may
purchase and sell the Securities in the open market. These transactions may
include over-allotment and stabilizing transactions and purchases to cover
S-50
<PAGE>
short positions created by the Underwriter(s) in connection with the offering.
Stabilizing transactions consist of certain bids or purchases for the purpose of
preventing or retarding a decline in the market price of the Securities; and
short positions involve the sale by the Underwriter(s) of a greater number of
Securities than it is required to purchase from the Seller contemporaneously
with the offering. The Underwriter(s) may also impose a penalty bid, whereby
selling concessions allowed to broker-dealers in respect of the Securities sold
in the offering may be reclaimed by the Underwriter(s) if such Securities are
repurchased by the Underwriter(s) in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Securities, which may be higher than the price that might otherwise prevail in
the open market; and these activities, if commenced, may be discontinued at any
time. These transactions may be effected in the over-the-counter market or
otherwise.]
The Indenture Trustee and the Indenture Collateral Agent may from time to
time invest the funds in the Collection Account, the Pre-Funding Account, the
Capitalized Interest Account, the Payahead Account, the Spread Account, as the
case may be, in Eligible Investments acquired from the Underwriters.
EXPERTS
The consolidated balance sheets of [________] as of [___________] and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for each of the three years in the period ended [_______ 199_],
incorporated by reference herein, have been audited by [__________,] independent
certified public accountants, and are incorporated herein in reliance upon the
authority of that firm as experts in accounting and auditing.
LEGAL OPINIONS
In addition to the legal opinions described in the Prospectus, certain
federal income tax and other matters will be passed upon for the Seller and the
Trust by Weil, Gotshal & Manages LLP. Certain legal matters relating to the
Securities will be passed upon for the Servicer by Weil, Gotshal & Manges LLP.
Certain legal matters relating to the Securities will be passed upon for the
Underwriters by Stroock & Stroock & Lavan LLP. Certain legal matters will be
passed upon for the Insurer by [________], the Insurer. The Insurer is
represented by [______].
S-51
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
- --------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED JUNE 15, 1998
PROSPECTUS SUPPLEMENT
(To Prospectus dated , 1998)
$[_________]
FRANKLIN AUTO TRUST 1998-[ ]
$[ ] Class A-[ ] [ %] [Floating Rate] [__% Money Market] Asset Backed Notes
$ [________] Class A-[ ][____%] [Floating Rate] Asset Backed Certificates
[Add other offered Classes of Securities]
The Franklin Auto Trust 199[8]-[ ] (the "Trust") will be formed pursuant
to a [Pooling and Servicing] [Trust] Agreement to be entered into by and among
[Franklin Receivables LLC] [FCC Receivables Corp.], as seller (the "Seller") [,
Franklin Capital Corporation, as servicer ("Servicer")] and [________]
([________]), as Owner Trustee, and will issue $[ ] aggregate principal amount
of Class A-[__] [__%] Money Market Asset Backed Notes (the "Class A-[__]
Notes"), $[ ] aggregate principal amount of Class A-[_] Floating Rate Asset
Backed Notes (the "Class A-[_] Notes") and $[ ] aggregate principal amount of
Class A-[_] [__%] Asset Backed Notes (the "Class A-[_] Notes," and together with
the Class A-[_] Notes and the Class A-[_] Notes, the "Notes"). The Notes will be
issued pursuant to an Indenture, to be dated as of [ ] (the "Indenture"),
between the Trust and [________], as Indenture Trustee and as Indenture
Collateral Agent (the "Indenture Trustee" and the "Indenture Collateral Agent").
The Trust also will issue $[ ] aggregate principal amount of Class [__][ %]
[Floating Rate] Asset Backed Certificates (the "Certificates," and together with
the Notes, the "Securities"). [The Trust will also issue $[__________] aggregate
principal amount of Class [__] Asset Backed Certificates, which are not being
offered hereby and will be retained by the Seller.]
The assets of the Trust will include a pool of motor vehicle retail
installment sale contracts (the "Initial Receivables") secured by new and used
automobiles and light trucks financed thereby (the "Initial Financed Vehicles"),
certain amounts received under each Initial Receivable after the later of (x)
[_____ 199_] and (y) the date of its origination but in no event later than the
date of issuance of the Securities (the "Initial Cutoff Date"), security
interests in the Initial Financed Vehicles, and certain other property, as more
fully described herein.
(Cover continued on next page)
FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE SECURITIES, SEE "RISK FACTORS" AT PAGE S-[ ]
HEREIN AND AT PAGE [ ] IN THE ACCOMPANYING PROSPECTUS.
THE NOTES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES REPRESENT INTERESTS IN,
THE TRUST ONLY AND DO NOT REPRESENT OBLIGATIONS OF OR INTERESTS IN THE SELLER,
THE SERVICER, FRANKLIN RESOURCES, INC., FRANKLIN CAPITAL CORPORATION OR ANY OF
THEIR RESPECTIVE AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Underwriter[s] have agreed to purchase the Securities at ___% of the
principal amount thereof, subject to the terms and conditions set forth in the
Underwriting Agreement referred to herein under "Underwriting." The aggregate
proceeds to the Trust, before deducting expenses payable by or on behalf of the
Trust estimated at $________, will be $_________.
The Underwriter[s] propose to offer the Securities from time to time in
negotiated transactions or otherwise, at prices determined at the time of sale.
For further information with respect to the plan of distribution and any
discounts, commissions or profits that may be deemed underwriting discounts or
commissions, see "Underwriting" herein.
The Notes and the Certificates are offered by the Underwriter[s] when, as
and if issued by the Trust, delivered to and accepted by the Underwriter[s], and
subject to [its] [their] right to reject orders in whole or in part. It is
expected that delivery of the Securities in book-entry form will be made through
the facilities of The Depository Trust Company ("DTC") on the Same Day Funds
Settlement System and, in the case of the Notes, Cedel Bank, societe anonyme
("Cedel") and the Euroclear System ("Euroclear") on or about [________], 199[_].
[GOLDMAN SACHS & CO.]
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS [________], 199[ ].
<PAGE>
(Continued from preceding page)
[From time to time on or before the Distribution Date in [______ 199_],
additional motor vehicle retail installment sale contracts (the "Subsequent
Receivables," and together with the Initial Receivables, the "Receivables")
secured by new and used automobiles and light trucks financed thereby (the
"Subsequent Financed Vehicles," and together with the Initial Financed Vehicles,
the "Financed Vehicles"), certain amounts received under the Subsequent
Receivables on and after the related Subsequent Cutoff Dates (as defined
herein), security interests in the Subsequent Financed Vehicles and certain
other property, as more fully described herein, are intended to be purchased by
the Trust from amounts deposited in a pre-funding account established with the
Indenture Collateral Agent (the "Pre-Funding Account") on the date of issuance
of the Securities. Subsequent Receivables with an aggregate principal balance of
up to $[________] may be acquired by the Trust.]
The Notes will be secured by the assets of the Trust pursuant to the
Indenture. [Interest on the Class A-[ ] Notes will accrue at the per annum
interest rates specified above.] [The per annum rate of interest on the Class
A-[ ] Notes for each monthly interest period will equal one-month LIBOR (as
defined herein) plus 0.[_]%, subject to a maximum rate equal to 12% per annum.]
Interest on the Notes will generally be payable on the [_______] day of each
month (each, a "Distribution Date"), commencing in [__________, 199_]. Principal
on the Notes will be payable on each Distribution Date to the extent described
herein, except that no principal will be paid on a Class of Notes until each
Class of Notes having a lower numerical Class designation has been paid in full.
[The Certificates represent fractional undivided interests in the Trust.
Interest, to the extent of the Certificate Rate of [_____% per annum], [Floating
Rate equal to _____] will be distributed to the Certificateholders on each
Distribution Date. Distributions of interest on the Certificates will be
subordinated in priority of payment to interest on and principal of the Notes.
No principal will be paid on the Certificates until all of the Notes have been
paid in full. The Final Scheduled Distribution Date for the Class A-[ ] Notes
will be [____, 199 ], [the _______ 200_ Distribution Date]. The Final Scheduled
Distribution Date for the Certificates will be the [____, 200 ] Distribution
Date. However, payment in full of a Class of Notes or the Certificates may occur
earlier than such dates as described herein. In addition, the Class A-[ ] Notes
will be subject to redemption in whole, but not in part, and the Certificates
will be subject to prepayment in whole, but not in part, on any Distribution
Date on which the Servicer exercises its option to purchase the Receivables. The
Servicer may purchase the Receivables when the aggregate principal balance of
the Receivables shall have declined to [10]% or less of the Original Pool
Balance.]
There currently is no secondary market for the Notes or the Certificates.
The Underwriter[s] expect to make a market in the Securities but have no
obligation to do so. There is no assurance that any such market will develop or
continue or that it will provide Securityholders with sufficient liquidity of
investment.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE SECURITIES. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE SECURITIES MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED A FINAL PROSPECTUS SUPPLEMENT AND
THE FINAL PROSPECTUS. TO THE EXTENT ANY STATEMENTS IN THIS PROSPECTUS SUPPLEMENT
CONFLICT WITH STATEMENTS IN THE PROSPECTUS, THE STATEMENTS IN THIS PROSPECTUS
SUPPLEMENT SHALL CONTROL.
[UNDERWRITERS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
INCLUDING OVER ALLOTMENT, STABILIZING AND SHORT COVERING TRANSACTIONS IN THE
SECURITIES, AND THE IMPOSITION OF A PENALTY
S-2
<PAGE>
BID, DURING AND AFTER THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING" HEREIN.]
THE SECURITIES OFFERED BY THIS PROSPECTUS SUPPLEMENT WILL CONSTITUTE A
SEPARATE SERIES OF SECURITIES BEING OFFERED BY THE DEPOSITOR PURSUANT TO ITS
PROSPECTUS DATED [________], 1998, OF WHICH THIS PROSPECTUS SUPPLEMENT IS A PART
AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING WHICH IS NOT CONTAINED HEREIN, AND
PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT IN FULL. IN PARTICULAR, INVESTORS SHOULD CONSIDER CAREFULLY THE
FACTORS SET FORTH UNDER "RISK FACTORS" IN THE PROSPECTUS AND IN THIS PROSPECTUS
SUPPLEMENT.
UNTIL [________], 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT RELATES. THIS
DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
S-3
<PAGE>
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Notes or Definitive Certificates are issued,
unaudited monthly and annual reports containing information concerning the
Receivables will be sent on behalf of the Trust to Cede & Co., as registered
holder of the Notes and the Certificates and the nominee of DTC. See "Certain
Information Regarding the Securities -- Statements to Securityholders" and "--
Book-Entry Registration" in the accompanying Prospectus (the "Prospectus"). Such
reports will not constitute financial statements prepared in accordance with
generally accepted accounting principles. None of the Seller, the Servicer,
Franklin Capital or [Franklin Resources] intends to send any of its financial
reports to Securityholders. The Servicer, on behalf of the Trust, will file with
the Securities and Exchange Commission ("the Commission") periodic reports
concerning the Trust to the extent required under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations of the
Commission thereunder.
S-4
<PAGE>
SUMMARY OF TERMS
The following summary of principal economic terms does not purport to be
complete and is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
Prospectus. Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings ascribed to such terms elsewhere in this Prospectus
Supplement or the Prospectus.
Issuer............................ Franklin Auto Trust, [199_]-[ ] (the "Trust"
or the "Issuer"), a Delaware business trust
to be formed pursuant to a Trust Agreement,
dated as of [_______, 199__] (the "Trust
Agreement"), among the Seller and the Owner
Trustee.
Seller............................ [Franklin Receivables LLC, a Delaware
limited liability company] [FCC Receivables
Corp., a Delaware corporation] (the
"Seller") and wholly-owned subsidiary of the
Franklin Capital Corporation. See "The
Sellers" in the Prospectus.
Servicer.......................... Franklin Capital Corporation (in its
individual capacity, "Franklin Capital" and,
as servicer, the "Servicer"), a Utah
corporation and wholly-owned subsidiary of
the Franklin Resources, Inc., a Delaware
corporation ("Franklin Resources"). See
"Franklin Capital Corporation" and "Franklin
Resources, Inc." in the Prospectus.
Indenture Trustee................. [________] (the "Indenture Trustee"). See
"The Notes - The Indenture Trustee" in the
Prospectus.
Owner Trustee..................... [________] (the "Owner Trustee"). See "The
Trusts - The Owner Trustee" in the
Prospectus.
Initial Cutoff Date............... With respect to each Initial Receivable, the
later of (x) [________, 199 ] and (y) the
date of its origination but in no event
later than the Closing Date.
Closing Date...................... [________].
The Notes......................... The Trust will issue Class A-[ ] [__%] [___%
Money Market Rate] [Floating Rate]
Asset-Backed Notes (the "Class A-[ ] Notes")
in the aggregate original principal amount
of $[________], Class A-[ ] [__%] [__% Money
Market Rate] [Floating Rate] Asset-Backed
Notes (the Class A-[ ] Notes) in the
aggregate original principal amount of
$[_____] and [specify others]. The Class
A-[_] Notes and the Class A-[_] Notes [and
specify others] (collectively, the "Notes")
will be issued pursuant to an Indenture,
dated as of [______, 199 ], among the
Issuer, the Indenture Trustee and
[________], as Indenture Collateral Agent
(the "Indenture Collateral Agent"). The
Notes will be offered for purchase in
denominations of $[1,000] and integral
multiples thereof in book-entry form only.
Persons acquiring beneficial interests in
the Notes will hold their interests through
DTC in the United States or Cedel Bank,
societe anonyme ("Cedel") or the Euroclear
System ("Euroclear") in Europe. See "Certain
Information
S-5
<PAGE>
Regarding the Securities -- Book-Entry
Registration" in the Prospectus and Annex I
thereto.
The Notes will be secured by the assets of
the Trust (other than the Certificate
Distribution Account) pursuant to the
Indenture.
The Certificates.................. The Trust will issue [____%] [Floating Rate]
Asset Backed Certificates (the
"Certificates") with an aggregate initial
Certificate Balance (as defined herein) of
$[________] [and specify others]. The
Certificates will represent fractional
undivided interests in the Trust. The
Certificates will be issued pursuant to the
Trust Agreement. The Certificates will be
offered for purchase in denominations of
$[1,000] and integral multiples thereof in
book-entry form only (other than the
Certificates sold to the Seller, as
described in "The Trust -- General" herein).
See "Certain Information Regarding the
Securities -- Book-Entry Registration" in
the Prospectus.
Trust Property.................... Each Note will represent an obligation of,
and each Certificate will represent a
fractional undivided interest in, the Trust.
The Trust's assets (the "Trust Property")
will include, among other things, certain
motor vehicle retail installment sale
contracts (the "Initial Receivables"),
secured by new and used automobiles and
light trucks (the "Initial Financed
Vehicles"), certain monies received
thereunder after the Initial Cutoff Date
and, with respect to Initial Receivables
which are Precomputed Receivables, monies
received thereunder on or prior to the
Initial Cutoff Date that are due after the
Initial Cutoff Date, an assignment of the
security interests in the Initial Financed
Vehicles securing the Initial Receivables,
the related Receivables Files (as defined in
the related Trust Documents), all rights to
proceeds from claims on certain physical
damage, credit life and disability insurance
policies covering the Initial Financed
Vehicles or the Obligors, as the case may
be, all rights to liquidation proceeds with
respect to the Initial Receivables, certain
proceeds from the exercise of rights against
Dealers under agreements between Franklin
Capital and such Dealers, certain bank
accounts, all proceeds of the foregoing, and
certain rights under the Trust Documents.
The Initial Receivables will be purchased by
the Seller from Franklin Capital pursuant to
a purchase agreement (the "Purchase
Agreement") between the Seller and Franklin
Capital on or prior to the date of issuance
of the Securities. The Trust Property also
will include an assignment of the Seller's
rights against Franklin Capital under the
Purchase Agreement upon the occurrence of
certain breaches of representations and
warranties. [The Initial Receivables
transferred to the Trust on the Closing Date
will also include certain motor vehicle
retail installment sale contracts originated
by Franklin Capital, some of which may be
originated after [_______,199 ]
(the "Statistical Calculation Date") but on
or prior to -- the Closing Date.]
S-6
<PAGE>
[Additional motor vehicle retail installment
sale contracts (the "Subsequent
Receivables") secured by new or used
automobiles and light trucks (the
"Subsequent Financed Vehicles"), certain
monies received thereunder on or after the
applicable Subsequent Cutoff Date (as
defined below) and, with respect to
Subsequent Receivables which are Precomputed
Receivables, monies received thereunder on
or prior to the related Subsequent Cutoff
Date which are due after such Subsequent
Cutoff Date, an assignment of the security
interests in the Subsequent Financed
Vehicles securing the Subsequent
Receivables, the related Receivables Files,
all rights to proceeds from claims on
certain physical damage, credit life and
disability insurance policies covering the
Subsequent Financed Vehicles or the
Obligors, as the case may be, all rights to
liquidation proceeds with respect to the
Subsequent Receivables, certain proceeds
from the exercise of rights against Dealers
under agreements between Franklin Capital
and such Dealers, certain bank accounts and
all proceeds of the foregoing are intended
to be purchased by the Trust from the Seller
from time to time on or before the [_____,
199 ] Distribution Date, from funds on
deposit in the Pre-Funding Account. The
Subsequent Receivables will be purchased by
the Seller from Franklin Capital pursuant to
one or more subsequent purchase agreements
(each, a "Subsequent Purchase Agreement")
between the Seller and Franklin Capital. The
Trust Property also will include an
assignment of the Seller's rights against
Franklin Capital under each Subsequent
Purchase Agreement upon the occurrence of
certain breaches of representations and
warranties thereunder. The purchase by the
Trust of the Subsequent Receivables is
subject to the satisfaction of certain
conditions, as described under "The
Receivables" herein. The Initial Receivables
and the Subsequent Receivables are
hereinafter referred to as the
"Receivables," and the Initial Financed
Vehicles and the Subsequent Financed
Vehicles are hereinafter referred to as the
"Financed Vehicles."]
Receivables....................... The Receivables consist of motor vehicle
retail installment sale contracts originated
by Dealers and then acquired by Franklin
Capital. See "Franklin Capital Corporation
-- General" in the Prospectus.
The statistical information presented in
this Prospectus Supplement is based on the
Initial Receivables as of the Statistical
Calculation Date. The Initial Receivables
transferred to the Trust on the Closing Date
will include certain other motor vehicle
retail installment sale contracts, some of
which may be originated after the
Statistical Calculation Date but on or prior
to the Closing Date. While the statistical
distribution of the final characteristics of
all Initial Receivables transferred to the
Trust on the Closing Date will vary from the
statistical information presented in this
Prospectus Supplement, the Seller and the
Servicer do not believe that the
characteristics of the Initial Receivables
as of their respective Initial Cutoff Dates
will vary materially
S-7
<PAGE>
from the information presented herein with
respect to the Initial Receivables as of the
Statistical Calculation Date.
The Initial Receivables have, as of the
Statistical Calculation Date, a weighted
average annual percentage rate ("APR") of
approximately [____]%, a weighted average
original maturity of [________] months and a
weighted average remaining maturity of
[________] months. The Initial Receivables
have an aggregate principal balance of
$[________] as of the Statistical
Calculation Date. See "The Receivables."
Each of the Initial Receivables also will
have a remaining term of not more than
[________] months and not less than
[________] months as of the Statistical
Calculation Date.
[Following the Closing Date, the Trust will
be obligated to purchase from time to time
on or before the end of the Funding Period
(as defined below), subject to the
availability thereof, Subsequent Receivables
consisting of retail automobile installment
sale contracts acquired by the Seller from
Franklin Capital. The aggregate principal
balance of the Subsequent Receivables is
anticipated by Franklin Capital to equal
approximately $[________]. In connection
with each purchase of Subsequent
Receivables, the Trust will be required to
pay to the Seller a cash purchase price
equal to the principal amount thereof from
the Pre-Funding Account. Under the Purchase
Agreement, the Seller will be obligated,
subject to the satisfaction of certain
conditions described herein, to purchase
from Franklin Capital Subsequent
Receivables, and under the Sale and
Servicing Agreement, dated as of [_______,
199 ], among the Seller, the Servicer and
the Owner Trustee (the "Sale and Servicing
Agreement"), the Seller will be obligated to
sell such Subsequent Receivables to the
Trust and the Trust will be obligated,
subject to the satisfaction of certain
conditions described herein, to purchase
such Subsequent Receivables from the Seller.
Franklin Capital will designate as a cutoff
date (each, a "Subsequent Cutoff Date") (i)
the last day of the month preceding the
month in which Subsequent Receivables are
conveyed to the Seller by Franklin Capital
and reconveyed by the Seller to the Trust or
(ii) if any such Subsequent Receivable is
originated in the month of conveyance, the
date of origination. Subsequent Receivables
will be conveyed to the Seller and then
reconveyed by the Seller to the Trust on
designated dates (each, a "Subsequent
Transfer Date") occurring during the Funding
Period. The Trust may purchase the
Subsequent Receivables only from the Seller
and not from any other person, and the
Seller may purchase the Subsequent
Receivables only from Franklin Capital. The
Subsequent Receivables must satisfy certain
eligibility criteria specified herein and in
the Sale and Servicing Agreement. See "The
Receivables -- Eligibility Criteria"
herein.]
S-8
<PAGE>
Terms of the Notes................ The principal terms of the Notes will be as
described below:
A. Distribution Dates.......... Payments of interest and principal on the
Notes will be made on the [________] day of
each month or, if the [________] day is not
a Business Day, on the next following
Business Day (each, a "Distribution Date")
commencing [________, 199 ]. Each reference
to a "Payment Date" in the accompanying
Prospectus shall refer to a Distribution
Date. Payments will be made to holders of
record of the Notes (the "Noteholders") as
of the Business Day immediately preceding
such Distribution Date (a "Record Date"). A
"Business Day" is a day other than a
Saturday, Sunday or other day on which
commercial banks located in the states of
California, Utah or New York are authorized
or obligated to be closed.
B. Interest Rates.............. The Class A-[ ] Notes will bear interest at
a [fixed per annum rate] set forth on the
cover page hereof. The Class A-[ ] Notes
will bear interest at a [floating rate equal
to the London interbank offered rates for
one-month U.S. dollar deposits ("LIBOR")
plus 0. [__]%, subject to a maximum rate
equal to 12% per annum.] [The Class A-[_]
Notes will bear interest at the [___% Money
Market] rate set forth on the cover page
hereof.] [specify others] Each such interest
rate for a Class of Notes is referred to as
the "Interest Rate."
C. Interest.................... Interest on the principal amount of the
Notes of each Class outstanding immediately
prior to a Distribution Date will accrue at
the applicable Interest Rate from and
including the most recent Distribution Date
on which interest has been paid (or, in the
case of the first Distribution Date, from
and including the Closing Date) to, but
excluding, the following Distribution Date
(each, an "Interest Period"). Interest on
the Notes for any Distribution Date due but
not paid on such Distribution Date will be
due on the next Distribution Date together
with, to the extent permitted by law,
interest on such amount at the applicable
Interest Rate. The amount of interest
distributable on the Notes on each
Distribution Date will equal interest
accrued during the related Interest Period.
Interest on the Class A-[ ] Notes, and
[other Class A-[ ] Note] will be
calculated on the basis of a [360-day year
and the actual number of days elapsed in the
applicable Interest Period] [360-day year
consisting of twelve 30-day months.] See
"Description of the Notes -- Payments of
Interest" herein.
D. Principal................... Principal of the Notes will be payable on
each Distribution Date in an amount equal to
the Noteholders' Principal Distributable
Amount for the calendar month (the "Monthly
Period") preceding such Distribution Date.
The Noteholders' Principal Distributable
Amount will equal the sum of (x) the
Noteholders' Percentage of the Principal
Distributable Amount and (y) any unpaid
portion of the amount described in clause
(x) with respect to a prior Distribution
Date. The "Principal Distributable Amount"
with respect to any Distribution Date will
be an amount equal to the sum of the
S-9
<PAGE>
following amounts with respect to the
related Monthly Period, computed, with
respect to Simple Interest Receivables, in
accordance with the simple interest method,
and, with respect to Precomputed
Receivables, in accordance with the
[actuarial method]: (i) that portion of all
collections on Receivables allocable to
principal, including full and, with respect
to Simple Interest Receivables, partial
principal prepayments, received during such
Monthly Period (including, with respect to
Precomputed Receivables, amounts withdrawn
from the Payahead Account but excluding
amounts deposited into the Payahead Account)
with respect to such Monthly Period, (ii)
the principal balance of each Receivable
that was repurchased by Franklin Capital,
the Seller or the Servicer as of the last
day of such Monthly Period, (iii) the
outstanding principal balance of those
Receivables that were required to be
repurchased by the Seller and/or Franklin
Capital during such Monthly Period but were
not so repurchased, (iv) the principal
balance of each Receivable that became a
Liquidated Receivable during such Monthly
Period and (v) the aggregate amount of Cram
Down Losses during such Monthly Period. See
"Description of the Purchase Agreements and
the Trust Documents --Distributions" herein.
[The Noteholders' Percentage will be [100%]
until the Class A-[ ] Notes have been paid
in full and thereafter will be zero.] [No
principal will be paid on a Class of Notes
until the principal of all Classes of Notes
having a lower numerical Class designation
has been paid in full.] [The Noteholder's
percentage will equal the percentage
equivalent of a fraction the numerator of
which is the outstanding principal amount of
the Notes and the denominator of which is
the aggregate outstanding principal amount
of the Securities.] In addition, the
outstanding principal amount of the Notes of
any Class, to the extent not previously
paid, will be payable on the respective
Final Scheduled Distribution Date for such
Class.
E. Optional Redemption......... The Class A-[ ] Notes, to the extent still
outstanding, may be redeemed in whole, but
not in part, on any Distribution Date on
which the Servicer exercises its option to
purchase the Receivables, which, subject to
certain provisions in the Sale and Servicing
Agreement, can occur after the Pool Balance
declines to [10]% or less of the Original
Pool Balance, at a redemption price equal to
the unpaid principal amount of the Notes of
such Class plus accrued and unpaid interest
thereon. See "Description of the Notes --
Optional Redemption" herein. The Original
Pool Balance will equal [the sum of (i)] the
aggregate principal balance of the Initial
Receivables as of the Initial Cutoff Date
[plus (ii) the aggregate principal balances
of all Subsequent Receivables added to the
Trust as of their respective Subsequent
Cutoff Dates].
F. Mandatory Redemption........ [Each Class of Notes will be redeemed in
part on the Mandatory Redemption Date (as
defined under "Pre-Funding Account" below)
in the event that any portion of the
S-10
<PAGE>
Pre-Funded Amount remains on deposit in the
Pre-Funding Account after giving effect to
the purchase of all Subsequent Receivables,
including any such purchase on such date.
The aggregate principal amount of each Class
of Notes to be redeemed will be an amount
equal to such Class's pro rata share (based
on the respective current principal amount
of each Class of Notes and the Certificate
Balance) of the Pre-Funded Amount on such
date (such Class's "Note Prepayment
Amount").]
[The Notes may be accelerated and subject to
immediate payment at par upon the occurrence
of an Event of Default under the Indenture.]
Terms of the Certificates......... The principal terms of the Certificates will
be as described below:
A. Distribution Dates.......... Distributions with respect to the
Certificates will be made on each
Distribution Date, commencing [______,
199_]. Distributions will be made to holders
of record of the Certificates (the
"Certificateholders" and, together with the
Noteholders, the "Securityholders") as of
the related Record Date.
B. Certificate Rate............ [___]% per annum payable monthly at
one-twelfth of the annual rate, calculated
on the basis of a 360-day year consisting of
twelve 30-day months.
C. Subordination of
Certificates................ The Certificates will not receive any
distribution with respect to a Distribution
Date until the full amount of the
Noteholders' Distributable Amount with
respect to such Distribution Date has been
deposited in the Note Distribution Account.
[Other Subordination].
D. Interest.................... On each Distribution Date, the Owner Trustee
will distribute to Certificateholders their
pro rata share of interest distributable
with respect to such Certificates. The
amount of interest distributable on the
Certificates on each Distribution Date will
equal interest accrued during the related
Interest Period at the Certificate Rate on
the Certificate Balance immediately prior to
such Distribution Date. Interest on the
Certificates for any Distribution Date due
but not paid on such Distribution Date will
be due on the next Distribution Date
together with, to the extent permitted by
law, interest on such amount at one-twelfth
of the Certificate Rate. Distributions of
interest on the Certificates are subordinate
to payments of interest and principal on the
Notes, as described above under
"Subordination of Certificates." See
"Description of the Certificates --
Distributions of Interest" herein.
E. Principal................... On each Distribution Date on or after the
date on which the Class A-[ ] Notes have
been paid in full, principal of the
Certificates will be payable in an amount
equal to the Certificateholders' Principal
Distributable Amount for the Monthly Period
preceding such Distribution Date. The
S-11
<PAGE>
Certificateholders' Principal Distributable
Amount will equal the sum of (x) the
Principal Distributable Amount and (y) any
unpaid portion of the amount described in
clause (x) with respect to a prior
Distribution Date[; provided, however, that
the Certificateholders' Principal
Distributable Amount on the Distribution
Date on which the Class A-[ ] Notes are paid
in full will be reduced by the amount
necessary to pay the Class A-[ ] Notes in
full]. See "Description of the Purchase
Agreements and the Trust Documents --
Distributions" herein.
The remaining Certificate Balance, if any,
will be payable in full on the Final
Scheduled Distribution Date for the
Certificates.
F. Optional Prepayment......... If the Servicer exercises its option to
purchase the Receivables as described above,
the Certificateholders shall receive an
amount equal to the remaining Certificate
Balance together with accrued interest at
the Certificate Rate, and the Certificates
will be retired.
G. Mandatory Prepayment........ [The Certificates will be prepaid in part on
the Mandatory Redemption Date in the event
that any portion of the Pre-Funded Amount
remains on deposit in the Pre-Funding
Account after giving effect to the purchase
of all Subsequent Receivables, including any
such purchase on such date. The aggregate
principal amount of Certificates to be
prepaid will be an amount equal to the
Certificateholders' pro rata share (based on
the respective current principal amount of
each Class of Notes and the Certificate
Balance) of the Pre Funded Amount (the
"Certificate Prepayment Amount").]
[Pre-Funding Account.............. On the Closing Date, a cash amount equal to
approximately $[_______] (the "Initial
Pre-Funded Amount") will be deposited in an
account (the "Pre-Funding Account") which
will be established with the Indenture
Collateral Agent. The Pre-Funding Account
will be an asset of the Trust and will be
pledged to the Indenture Collateral Agent
for the benefit of the Indenture Trustee, on
behalf of the Noteholders. The "Funding
Period" is the period from the Closing Date
until the earliest of the date on which (i)
the amount on deposit in the Pre-Funding
Account is less than $[100,000], (ii) a
Servicer Default occurs under the Sale and
Servicing Agreement, or (iii) the
Distribution Date in [_____, 199 ]. The
Initial Pre-Funded Amount as reduced from
time to time during the Funding Period by
the amount thereof used to purchase
Subsequent Receivables in accordance with
the Sale and Servicing Agreement is referred
to herein as the "Pre-Funded Amount." The
Seller expects that the Pre-Funded Amount
will be reduced to less than $100,000 on or
before the end of the Funding Period. Any
Pre-Funded Amount remaining at the end of
the Funding Period will be payable to the
Noteholders and Certificateholders as
described herein. The "Mandatory Redemption
Date" is the earlier of (i) the Distribution
Date in [_____, 199 ] or (ii) if the last
day of the Funding Period occurs on or prior
to
S-12
<PAGE>
the Determination Date (as defined herein)
occurring in July or [_____, 199 ], the
Distribution Date relating to such
Determination Date.]
[Capitalized Interest Account..... On the Closing Date, a cash amount may be
deposited in an account (the "Capitalized
Interest Account") which will be established
with the Indenture Collateral Agent. The
Capitalized Interest Account will be an
asset of the Trust, and will be pledged to
the Indenture Collateral Agent for the
benefit of the Indenture Trustee, on behalf
of the Noteholders, the Owner Trustee, on
behalf of the Certificateholders. The
amount, if any, deposited in the Capitalized
Interest Account will be applied on the
Distribution Dates occurring in [________],
[________] and [199_] of [________] to fund
an amount (the "Monthly Capitalized Interest
Amount") equal to the amount of interest
accrued for each such Distribution Date at
the weighted average Interest Rates and
Certificate Rate on the portion of the
Securities having a principal balance in
excess of the principal balances of the
Receivables (which portion will equal the
Pre-Funded Amount). Any amounts remaining in
the Capitalized Interest Account on the
Mandatory Redemption Date and not used for
such purposes are required to be paid
directly to the Seller on such date. See
"Description of the Purchase Agreements and
the Trust Documents -- Accounts."]
[Spread Account................... On the Closing Date, the Seller will make an
initial deposit of an amount equal to
$_______ to an account (the "Spread
Account") which will be established with the
Indenture Collateral Agent for the benefit
of the Indenture Trustee, on behalf of the
Noteholders, the Owner Trustee, on behalf of
the Certificateholders pursuant to a certain
Spread Account Agreement dated as of [_____,
199 ] (the "Spread Account Agreement"). The
Spread Account will not be an asset of the
Trust. The amount initially deposited in the
Spread Account is referred to as the "Spread
Account Initial Deposit." On each
Distribution Date, additional amounts may be
required to be deposited into the Spread
Account from payments on the Receivables as
described under "Description of the Purchase
Agreements and the Trust Documents --
Distributions" herein. Amounts, if any, on
deposit in the Spread Account will be
available to the extent provided in the
Spread Account Agreement to fund any
Deficiency Claim Amount otherwise required
to be made on a Distribution Date. The
aggregate amount required to be on deposit
at any time in the Spread Account (the
"Specified Spread Account Requirement") will
be determined in accordance with the Spread
Account Agreement. The Specified Spread
Account Requirement may increase or decrease
over time as a result of floors, caps and
triggers set forth in the Spread Account
Agreement. Amounts in the Spread Account on
any Distribution Date (after giving effect
to all distributions made on such
Distribution Date, as reconciled on such
Distribution Date) in excess of the
Specified Spread Account Requirement for
such Distribution
S-13
<PAGE>
Date will be released to the Seller. Amounts
on deposit or to be deposited in the Spread
Account may be distributed to persons other
than the Securityholders without the consent
of the Securityholders.
[In addition, the Seller and the [Indenture
Trustee] [Owner Trustee] may amend the
Spread Account Agreement in any respect
(including, without limitation, reducing or
eliminating the Specified Spread Account
Requirement and/or reducing or eliminating
the funding requirements of the Spread
Account or permitting such funds to be used
for the benefit of persons other than
Securityholders) without the consent of, or
notice to, [the Indenture Trustee] [the
Owner Trustee] or the Securityholders.]
Credit Enhancement................ [In the event of defaults and delinquencies
on the Receivables, certain distributions of
interest and principal on the Certificates
will be subordinated in priority of payment
to interest and principal due on the Notes
to the extent described herein.]
[Distributions of interest and principal on
the Class [B] Certificates will be
subordinated in priority of payment to
interest and principal due on the Class [A]
Certificates to the extent described herein
in the event of defaults and delinquencies
on the Receivables, except with respect to
payments of interest and principal received
from the Class [B] Spread Account. The Class
[B] Certificates will not receive any
distributions of interest with respect to a
Monthly Period until the full amount of
interest on the Notes and the Class [A]
Certificates relating to such Monthly Period
has been deposited in the Note Distribution
Account and the Class [A] Distribution
Account, [except with respect to payments of
monies from the Class [B] Spread Account,]
and the Class [B] Certificateholders will
not receive any distributions of principal
with respect to such Monthly Period until
the full amount of interest on and principal
of the Notes and the Class [A] Certificates
relating to such Monthly Period has been
deposited in the Note Distribution Account
and the Class [A] Distribution Account[,
except with respect to payments of monies
from the Class [B] Spread Account.]
Distributions of interest and principal on
the Class [C] Certificates will be
subordinated in priority of payment to
interest and principal due on the Securities
in the event of defaults and delinquencies
on the Receivables. [Describe any other
credit enhancement facility.]
[Spread Account
and Class [B] Spread
Account].......................... There will be [no] [an] initial deposit of
[funds] [$______] to the Spread Account [or
Class [B] Spread Account] by the Seller or
Servicer. On the initial Distribution Date
and on each Distribution Date thereafter, if
necessary, the Class [C] Certificateholders'
pro rata portion of interest and principal
payments received by the Trust with respect
to the Receivables ("Class [C]
Distributions") shall be allocated as
described below. First, the Class [C]
Distributions shall be deposited into the
Spread Account, until the amount in the
S-14
<PAGE>
Spread Account reaches an amount equal to
the Specified Spread Account Balance.
[Second, Class [C] Distributions, unless
required to fund deposits to the Spread
Account, shall then be deposited in the
Class [B] Spread Account until the amount in
the Class [B] Spread Account reaches an
amount equal to the Specified Class [B]
Spread Account Balance.] Thereafter, Class
[C] Distributions otherwise distributable to
the Class [C] Certificates will be deposited
first in the Spread Account [and then in the
Class [B] Spread Account in each case] to
the extent necessary to maintain the Spread
Account [or the Class [B] Spread Account] at
an amount equal to the Specified Spread
Account Balance [or the Specified Class [B]
Spread Account Balance, as applicable]. At
any time, the [Indenture] Trustee shall
permit all or any portion of the Class [C]
Distributions, as requested by the Seller to
be excluded thereafter from the foregoing
deposit requirements, provided that, at the
time of such request, the Seller presents
evidence to the [Indenture] Trustee that the
ratings of the Securities shall not be
reduced or withdrawn as a request of such
requested exclusion. [Furthermore, upon a
request from the Seller, the [Indenture]
Trustee shall permit a reduction in the
Specified Class [B] Spread Account Balance;
provided, however, that the Seller presents
written evidence to the [Indenture] Trustee
that the ratings of the Securities shall not
be reduced or withdrawn as a result of such
requested reduction.] If any such portion of
the Class [C] Distributions becomes excluded
from such deposit requirements it shall
remain excluded even if the amounts in the
Spread Account [or the Class [B] Spread
Account] thereafter fall below the Specified
Spread Account Balance [or the Specified
Class [B] Spread Account Balance,
respectively.] Amounts in the Spread Account
[or the Class [B] Spread Account] on any
Distribution Date (after giving effect to
all Securityholder distributions made on
such Distribution Date) in excess of the
Spread Account Balance [or the Specified
Class [B] Spread Account Balance, as
applicable], for such Distribution Date
generally will be payable to the Class [C]
Certificateholders.
The "Specified Spread Account Balance" with
respect to any Distribution Date will be
equal to the [Insert requirements for
maintaining and releasing amounts from
Spread Account]. The Spread Account will be
maintained with the [Indenture] Trustee as a
segregated trust account, but will not be
part of the Trust. [The "Specified Class [B]
Spread Account Balance" with respect to any
Distribution Date will be equal to [Insert
requirements for maintaining and releasing
amounts from the Class [B] Spread Account].
The Class [B] Spread Account will be
maintained with the [Indenture] Trustee as a
segregated trust account, but will not be
part of the Trust.] Amounts will be
withdrawn from the Spread Account for
distribution first [to the Noteholders to
the extent of shortfalls in the amounts
available to make required distributions of
interest and principal on the Notes, second]
to the Class [A] Certificateholders to the
extent of shortfalls in the amounts
available to make required distributions of
interest on the
S-15
<PAGE>
Class [A] Certificates [and then to the
Class [B] Certificateholders to the extent
of shortfalls in the amounts available to
make required distributions of interest on
the Class [B] Certificates.] Following the
payment of [interest and principal on the
Notes and] interest on the Class [A]
Certificates [and the Class [B]
Certificates], any remaining amounts will be
withdrawn from the Spread Account for
distribution to Class [A] Certificateholders
to the extent of shortfalls in the amounts
available to make required distributions of
principal on the Class [A] Certificates [and
then to Class [B] Certificateholders to the
extent of shortfalls in the amounts
available to make required distributions of
principal on the Class [B] Certificates].
[Following withdrawals from the Spread
Account for distribution to the Noteholders,
the Class [A] Certificateholders and the
Class [B] Certificateholders, amounts will
be withdrawn from the Class [B] Spread
Account for distribution to the Class [B]
Certificateholders to the extent of
shortfalls in the amounts available to make
required distributions of interest and
principal on the Class [B] Certificates. The
Noteholders, the Class [A]
Certificateholders and, except as described
below, the Class [C] Certificateholders
shall have no rights to receive
distributions from the Class [B] Spread
Account.] Finally, amounts will be withdrawn
from the Spread Account [or the Class [B]
Spread Account] for distribution to Class
[C] Certificateholders to the extent of
shortfalls in the amounts available to make
required distributions of interest and
principal on the Class [C] Certificates, but
only to the extent such withdrawal would not
reduce the Spread Account [or the Class [B]
Spread Account] below the Specified Spread
Account Balance [and the Specified Class [B]
Spread Account Balance, respectively].
Collection Account................ The Servicer will establish one or more
accounts in the name of the Indenture
Collateral Agent (the "Collection Account")
for the benefit of the Indenture Trustee, on
behalf of the Noteholders[, the Owner
Trustee, on behalf of the
Certificateholders]. All payments from
Obligors that are received by the Servicer
on behalf of the Trust will be deposited in
the Collection Account no later than two
Business Days after receipt thereof except
under certain conditions described herein.
Pursuant to the Sale and Servicing
Agreement, the Indenture Trustee will, on
each Distribution Date, apply the
Distribution Amount with respect to such
Distribution Date to the following (in the
priority indicated): (i) to the Owner
Trustee and the Indenture Trustee, any
accrued and unpaid trustee fees and expenses
and any accrued and unpaid fees and expenses
of the Indenture Collateral Agent (in each
case, to the extent such fees have not been
previously paid by the Servicer or the
Franklin Resources), (ii) to the Servicer,
the Servicing Fee for the related Monthly
Period and any overdue Servicing Fees, (iii)
into the Note Distribution Account, the
Noteholders' Interest Distributable Amount,
(iv) into the Note Distribution Account, the
Noteholders' Principal Distributable Amount,
(v) into the Certificate Distribution
Account, the
S-16
<PAGE>
Certificateholders' Interest Distributable
Amount and, after the Class A-[ ] Notes have
been paid in full, the Certificateholders'
Principal Distributable Amount, (vi) to the
Spread Account, up to the Specified Spread
Account Requirement for such Distribution
Date, and (vii) the remaining balance, if
any, to the Seller. See "Description of the
Purchase Agreements and the Trust Documents
--Distributions" herein and "Description of
the Purchase Agreements and the Trust
Documents -- Collections" in the Prospectus.
Tax Status........................ In the opinion of Weil, Gotshal & Manges
LLP, special federal tax counsel to the
Trust, for federal income tax purposes the
Notes will be characterized as debt and the
Trust will not be characterized as an
association (or a publicly traded
partnership) taxable as a corporation. Each
Noteholder, by the acceptance of a Note,
will agree to treat the Notes as debt. Each
Certificateholder, by the acceptance of a
Certificate, will agree to treat the Trust
as a [partnership in which the
Certificateholders are partners] [division]
for federal income tax purposes. See
"Certain Federal Income Tax Consequences"
herein and "Federal Income Tax Consequences"
in the Prospectus.
ERISA Considerations.............. Subject to the conditions and considerations
discussed under "ERISA Considerations," the
Notes are eligible for purchase by pension,
profit-sharing or other employee benefit
plans as well as individual retirement
accounts and certain types of Keogh Plans
(each, a "Benefit Plan").
The Certificates may not be acquired
(directly or indirectly) by or on behalf of
any Benefit Plan or any entity (including an
insurance company general account) whose
underlying assets include plan assets of a
Benefit Plan by reason of a plan's
investment in the entity. See "ERISA
Considerations" herein and in the
Prospectus.
[Legal Investment................. The Class A-[ ] Notes will be eligible
securities for purchase by money market
funds under Rule 2a-7 under the Investment
Company Act of 1940, as amended.]
Ratings........................... It is a condition to issuance that the Class
A-[ ] Notes be rated [__] by Standard &
Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc. ("S&P"), and
[___] by Moody's Investors Service, Inc.
("Moody's" and together with S&P, the
"Rating Agencies"), that the Class A-[ ]
Notes, the Class A-[ ] Notes be rated [___]
by S&P and [___] by Moody's and the
Certificates be rated [___] by S&P and [__]
by Moody's. There is no assurance that the
ratings initially assigned to the Notes and
the Certificates will not subsequently be
lowered or withdrawn by the Rating Agencies.
See "Risk Factors -- Ratings on Securities"
herein.
S-17
<PAGE>
RISK FACTORS
Prospective Noteholders and Certificateholders should consider, in
addition to the factors described under "Risk Factors" in the Prospectus, the
following risk factors in connection with the purchase of the Notes or the
Certificates.
[LIMITED ASSETS; SUBORDINATION
Distributions of interest and principal on the [Notes and the] Class [A]
Certificates will be dependent upon the Total Available Amount (as defined
herein) and the funds, if any, in the Spread Account. [Distributions of interest
and principal on the Certificates will be subordinated in priority of payment to
interest and principal due on the Notes in the event of defaults and
delinquencies on the Receivables.] [Distributions of interest and principal on
the Class B Certificates will be subordinated to the extent described herein in
priority of payment to interest and principal due on the Notes and the Class [A]
Certificates in the event of defaults and delinquencies on the Receivables,
[except with respect to payments of interest and principal from the Class [B]
Spread Account.] Distribution of interest and principal on the Class [C]
Certificates will be subordinated in priority of payment to interest and
principal and any interest and principal carryover shortfalls due on the
Securities in the event of defaults and delinquencies on the Receivables. See
"Description of the Purchase Agreements and the Trust Documents--Distributions."
Credit enhancement with respect to the Securities will be provided by the
subordination described above, the funds, if any, in the Spread Account [and,
with respect to the Class [B] Certificates, the funds, if any, in the Class [B]
Spread Account]. The funds in the Spread Account [and the Class [B] Spread
Account] will consist of amounts otherwise distributable to holders of the Class
[C] Certificates that are required under the Trust Documents to be deposited in
the Spread Account [and the Class [B] Spread Account]. The amount available for
distribution to Securityholders on any Distribution Date and the time necessary
for the Spread Account [and the Class [B] Spread Account] to reach the Specified
Spread Account Balance [and the Specified Class [B] Spread Account,
respectively,] after the Closing Date will be affected by the delinquency, net
loss, repossession, and prepayment experience of the Receivables and, therefore,
cannot be accurately predicted. In addition, the amounts required to be on
deposit in the Spread Account [and the Class [B] Spread Account] with respect to
any Distribution Date will be limited to the Specified Spread Account Balance
[and the Specified Class [B] Spread Account Balance, respectively], for such
Distribution Date. Amounts on deposit in the Spread Account [and the Class [B]
Spread Account] on any Distribution Date (after giving effect to all withdrawals
therefrom with respect to such date) in excess of the Specified Spread Account
Balance [and the Specified Class [B] Spread Account Balance, respectively,] for
such Distribution Date will be payable to the holders of the Class [C]
Certificates and will no longer be subject to any claims or rights of any
Securityholders, regardless of whether there are sufficient funds paid on the
Receivables or on deposit in the Spread Account [and the Class [B] Spread
Account] on any succeeding Distribution Date to distribute to holders of the
Securities the amounts to which they are entitled on such Distribution Date.
[Add other considerations to any other credit enhancements.]
[PREPAYMENT FROM THE PRE-FUNDING ACCOUNT; ABILITY TO ORIGINATE SUBSEQUENT
RECEIVABLES
To the extent that the Pre-Funded Amount has not been fully applied to the
purchase of Subsequent Receivables by the Trust by the end of the Funding
Period, the Noteholders and the Certificateholders will receive a prepayment of
principal on the Mandatory Redemption Date in an amount equal to their pro rata
share (based on the current principal balance of each class and the Certificate
Balance) of the Pre-Funded Amount (exclusive of investment earnings) remaining
in the Pre-Funding Account following the purchase of any Subsequent Receivables
on the last Subsequent Transfer Date in the Funding Period. Any reinvestment
risk from the prepayment of the Securities from the Pre-Funded Amount at the end
of the Funding Period will be borne by the Noteholders and the
Certificateholders. See "Yield and Prepayment Considerations" in the Prospectus.
The conveyance of Subsequent Receivables to the Trust during the Funding
Period is subject to the conditions described herein under "The Receivables --
Eligibility Criteria." Each Subsequent Receivable must satisfy the eligibility
criteria specified herein and in the Sale and Servicing Agreement. The ability
of the Trust to
S-18
<PAGE>
invest in Subsequent Receivables is dependent upon the ability of Franklin
Capital to originate through Dealers a sufficient amount of motor vehicle retail
installment sale contracts that meet the requirements in the Subsequent Purchase
Agreement and in the Sale and Servicing Agreement for transfer on a Subsequent
Transfer Date. The ability of Franklin Capital to originate through Dealers
sufficient Subsequent Receivables may be affected by a variety of social and
economic factors. Economic factors include interest rates, unemployment levels,
the rate of inflation and consumer perception of economic conditions generally.
Neither Franklin Capital nor the Seller has any basis to predict whether or the
extent to which economic or social factors will affect the availability of
Subsequent Receivables. In addition, Franklin Capital has limited performance
history, which makes it difficult to predict the rate of its originations.
Nevertheless, although no assurances can be given, Franklin Capital currently
anticipates originating sufficient Receivables satisfying the criteria set forth
in the Sale and Servicing Agreement so as to require the application of the
entire Pre-Funded Amount to the purchase of Subsequent Receivables by the end of
the Funding Period. See "The Receivables" herein.]
REINVESTMENT RISKS FROM PREPAYMENTS
The weighted average life of the Securities will be reduced by full
prepayments on the Receivables and partial prepayments on the Simple Interest
Receivables. A partial prepayment in respect of a Precomputed Receivable less
than the amount required to prepay such Receivable in full will be treated as a
Payahead until such later Monthly Period with respect to which such Payahead may
be applied to either the scheduled payment in respect of such Monthly Period or
to prepay such Receivable in full. The Receivables are prepayable at any time
without penalty. Prepayments (or, for this purpose, equivalent payments to the
Trust) may result from payments by Obligors, liquidations due to default, the
receipt of proceeds from physical damage or credit insurance, repurchases by the
Seller or Franklin Capital as a result of certain uncured breaches of the
warranties made by it with respect to the Receivables, the application of the
remaining Pre-Funded Amount, if any, on the Mandatory Redemption Date to prepay
the Securities, purchases by the Servicer as a result of certain uncured
breaches of the covenants made by it in the Sale and Servicing Agreement with
respect to the Receivables, or the Servicer exercising its option to purchase
all of the remaining Receivables when the Pool Balance is less than [10]% of the
Original Pool Balance.
The Servicer has limited historical experience with respect to
prepayments, has not prepared data on prepayment rates and is not aware of
publicly available industry statistics that set forth principal prepayment
experience for motor vehicle retail installment sale contracts similar to the
Receivables. For these reasons, none of Franklin Resources, Franklin Capital,
the Servicer or the Seller can make any prediction as to the actual prepayment
rates that will be experienced on the Receivables.
The amounts paid to Securityholders with respect to any Distribution Date
will include all prepayments on the Receivables received thereon during the
related Monthly Period which are not amounts representing Payaheads. As a
result, the Securities may be paid in full prior to their respective Final
Scheduled Distribution Dates. The Securityholders will bear all reinvestment
risk resulting from the timing of payments of principal on the Securities. See
"Yield and Prepayment Considerations" in the Prospectus.
CONCENTRATION OF RECEIVABLES
Economic conditions where Obligors reside may affect the delinquency, loan
loss and repossession experience of the Trust with respect to the Receivables.
As of the Statistical Calculation Date, Obligors with respect to [___]% of the
Initial Receivables (based on the principal balance of the Initial Receivables
and mailing addresses of the Obligors thereon as of the Statistical Calculation
Date) were located in California. Economic conditions in California are often
volatile and from time to time have been adversely affected by natural
disasters, contractions in the defense industry and declining real estate
values. No predictions, however, can be made regarding future economic
conditions in California or any other states where Obligors reside. [Disclosure
other significant geographic and other factors] See "The Receivables" herein and
in the Prospectus.
SUBORDINATION OF CERTIFICATES; LIMITED ASSETS
Distributions of interest and principal on the Certificates will be
subordinated in priority of payment to interest and principal due on the Notes.
[Consequently, the Certificateholders will not receive any distributions
S-19
<PAGE>
with respect to a Monthly Period until the full amount of interest and principal
payable on the Notes on such Distribution Date has been deposited in the Note
Distribution Account. The Certificateholders will not receive any distributions
of principal before the Distribution Date on which the Class A-[ ] Notes have
been paid in full.]
If the Notes are accelerated following an Event of Default under the
Indenture, the Notes must be paid in full prior to the distribution of any
amounts on the Certificates.
The Trust will not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables[, the
Pre-Funding Account, the Capitalized Interest Account and the Spread Account.]
Holders of the Notes and the Certificates must rely for repayment upon payments
on the Receivables [and, if and to the extent available, amounts on deposit in
the Pre-Funding Account, the Capitalized Interest Account and the Spread
Account. The Pre-Funding Account and the Capitalized Interest Account will only
be maintained until the Distribution Date on or immediately following the last
day of the Funding Period. The Pre-Funded Amount on deposit in the Pre-Funding
Account will be used solely to purchase Subsequent Receivables and is not
available to cover losses on the Receivables. The Capitalized Interest Account
is designed to cover obligations of the Trust relating to that portion of its
assets not invested in Receivables and is not designed to provide protection
against losses on the Receivables. Amounts on deposit or to be deposited in the
Spread Account may be distributed to persons other than Securityholders.
RATINGS ON SECURITIES
A rating is not a recommendation to purchase, hold or sell Notes or
Certificates. The ratings of the Notes and Certificates address the likelihood
of the payment of principal and interest on the Securities pursuant to their
terms. There is no assurance that a rating will remain in effect for any given
period of time or that a rating will not be lowered or withdrawn entirely by a
Rating Agency if in its judgment circumstances in the future so warrant. In the
event that any ratings initially assigned to the Notes and the Certificates were
subsequently lowered or withdrawn for any reason no person or entity will be
obligated to provide any additional credit enhancement with respect to the Notes
or the Certificates. Any reduction or withdrawal of a rating may have an adverse
effect on the liquidity and market price of the Notes and the Certificates.
EVENTS OF DEFAULT UNDER THE INDENTURE
[Specify Events of Default under the Indenture]
USE OF PROCEEDS
The net proceeds to be received by the Trust from the sale of the
Securities will be used to pay to the Seller, and in turn, Franklin Capital, the
purchase price for the Receivables, [to make the deposits of the Pre-Funded
Amount into the Pre-Funding Account and to make the initial deposits into the
Capitalized Interest Account and the Spread Account.]
THE TRUST
The following information supplements and, to the extent inconsistent
therewith, supersedes the information contained in the accompanying Prospectus.
Prospective Securityholders should consider, in addition to the information
below, the information under "The Trusts" in the accompanying Prospectus.
GENERAL
The Issuer, Franklin Auto Trust, 199[_] - [_], is a business trust formed
under the laws of the State of Delaware pursuant to the Trust Agreement for the
transactions described in this Prospectus Supplement. After its formation, the
Trust will not engage in any activity other than (i) acquiring, holding and
managing the Receivables and the other assets of the Trust and proceeds
therefrom, (ii) issuing the Notes and the Certificates, (iii) making
S-20
<PAGE>
payments on the Notes and the Certificates and (iv) engaging in other activities
that are necessary, suitable or convenient to accomplish the foregoing or are
incidental thereto or connected therewith.
[The Trust will initially be capitalized with equity equal to $[ ].
Certificates with an aggregate original Certificate Balance of $[_____] will be
sold to the Seller, and Certificates representing the remainder of the
Certificate Balance will be sold to third party investors that are expected to
be unaffiliated with the Seller, the Servicer, Franklin Resources or their
affiliates. The equity of the Trust, together with the proceeds of the initial
sale of the Notes, will be used by the Trust to purchase the Initial Receivables
from the Seller pursuant to the Sale and Servicing Agreement and to fund the
deposits in the Pre-Funding Account, the Capitalized Interest Account and the
Spread Account.]
The Trust's principal offices are in [________], in care of [________], as
Owner Trustee, at the address listed below under "-- The Owner Trustee."
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the Trust as of the
Initial Cutoff Date, as if the issuance and sale of the Notes and Certificates
had taken place on such date:
Class A-[ ] Notes..................................... $[ ]
Class A-[ ] Notes..................................... $[ ]
Class A-[ ] Notes..................................... $[ ]
Class A-[_] Certificates]............................. $[ ]
Class B-[_] Certificates]............................. $[ ]
Class C-[_] Certificates]............................. $[ ]
Total............................................. $[ ]
====
THE OWNER TRUSTEE
[________] is the Owner Trustee under the Trust Agreement, is a [________]
[banking] corporation and its principal offices are located at [________]. The
Seller, Franklin Resources, the Servicer and their respective affiliates may
maintain commercial banking relations with the Owner Trustee and its affiliates.
The Owner Trustee will perform limited administrative functions under the Trust
Agreement, including making distributions from the Certificate Distribution
Account. The Owner Trustee's liability in connection with the issuance and sale
of the Certificates and the Notes is limited solely to the express obligations
of the Owner Trustee set forth in the Trust Agreement and the Sale and Servicing
Agreement.
THE TRUST PROPERTY
The Trust Property will include, among other things, the following: (a)
motor vehicle retail installment sale contracts secured by new and used motor
vehicles and light trucks; (b) all payments received thereunder after the
Initial Cutoff Date or the Subsequent Cutoff Date, as the case may be, and, with
respect to Precomputed Receivables, certain monies received thereunder on or
prior to the related Cutoff Date that are due after such Cutoff Date; (c) such
amounts as from time to time may be held in the Collection Account, [the
Pre-Funding Account, the Capitalized Interest Account and the Payahead Account]
[Distribution Account]; (d) an assignment of the security interests of Franklin
Capital in the Financed Vehicles; (e) certain proceeds from the exercise of
rights against Dealers under agreements between Franklin Capital and such
Dealers (the "Dealer Agreements"); (f) an assignment of the right to receive
proceeds from claims on certain physical damage, credit life and disability
insurance policies covering the Financed Vehicles or the Obligors; (g) the
rights of the Seller under the Purchase Agreement [and any Subsequent Purchase
Agreements]; (h) the Receivables Files; and (i) certain other rights under the
Trust Documents.
The Initial Receivables were, and the Subsequent Receivables were or will
be, originated by [Dealers in accordance with Franklin Capital's requirements
under agreements with Dealers for assignment to Franklin
S-21
<PAGE>
Capital, have been or will be so assigned, and evidence or will evidence the
indirect financing made available to the Obligors.] [Franklin Capital] [acquired
in bulk from __________] [acquired from Franklin Bank] [meeting the requirements
of Franklin Capital's underwriting criteria and will be _________________.] The
Dealers generally assign the Receivables without recourse, except that Dealer
Agreements may provide for repurchase or recourse against the Dealer in the
event of a breach of a representation or warranty by the Dealer. Although
Franklin Capital's rights under the Dealer Agreements have not been assigned to
the Trust, and the Trust will not have any rights against any Dealer, Franklin
Capital has assigned or will assign to the Seller, and the Seller has assigned
or will assign to the Trust, the proceeds from any Receivable repurchased by a
Dealer as a result of a breach of a representation or warranty in the related
Dealer Agreement. See "The Trusts" in the Prospectus.
The "Pool Balance" at any time represents the aggregate principal balance
of the Receivables at the end of the preceding Monthly Period, after giving
effect to all payments (other than Payaheads remaining in the Payahead Account)
received from Obligors and any Purchase Amounts to be remitted by Franklin
Capital, the Seller or Servicer, as the case may be, for such Monthly Period and
all losses, including Cram Down Losses, realized on Receivables liquidated
during such Monthly Period. The Pool Balance on the Closing Date (the "Original
Pool Balance") will be approximately $[________]. As described elsewhere herein,
the Original Pool Balance may include certain other Initial Receivables, some of
which may be originated after the Statistical Calculation Date but on or prior
to the Closing Date. In addition, prior to the Closing Date certain Initial
Receivables may be removed and additional Initial Receivables substituted
therefor. All of the Initial Receivables, however, must satisfy the eligibility
criteria set forth under "The Receivables -- Eligibility Criteria" herein.
[The initial aggregate principal balance of the Receivables includes
$[________] that represents amounts owing from obligors on [________]
Receivables, aggregating $[________] as of the Statistical Calculation Date, in
respect of force-placed insurance. Prior to August 1997, Franklin Capital from
time to time acquired insurance for the accounts of Obligors who failed to
maintain required insurance of their vehicles. An amount in respect of the
premiums for such force-placed insurance was added to the principal balance of
the related Receivables. In the event that an Obligor later obtains his own
insurance, any unearned premiums rebated by the insurer are applied as a
prepayment of the related Receivables. As of the date hereof, it is no longer
Franklin Capital' policy to force-place insurance.]
Each Certificate will represent a fractional undivided interest in the
Trust Property. Pursuant to the Indenture, the Trust will grant a security
interest in the Trust Property in favor of the Indenture Collateral Agent for
the benefit of the Indenture Trustee on behalf of the Noteholders. Any proceeds
of such security interest in the Trust Property would be distributed according
to the Indenture, as described below under "Description of the Purchase
Agreements and the Trust Documents -- Distributions."
THE RECEIVABLES
The following information supplements the information contained under "The
Receivables" in the accompanying Prospectus.
GENERAL
The Receivables were, or will be, [purchased by Franklin Capital in the
ordinary course of business from Dealers] [originated by Franklin Capital]
[purchased in bulk by Franklin Capital from third-party lenders] [acquired from
its affiliate Franklin Bank]. The Receivables will consist of motor vehicle
retail installment sale contracts. See "Risk Factors--Nature of Receivables;
Underwriting Process; Sufficiency of Interest Rates to Cover Losses," "Franklin
Capital Corporation -- General" and "-- Credit Evaluation Procedures" in the
Prospectus.
ELIGIBILITY CRITERIA
The Receivables were or will be selected according to several criteria,
including those specified under "The Receivables -- General" in the accompanying
Prospectus. In addition, the Initial Receivables were selected from Franklin
Capital's portfolio of motor vehicle retail installment contracts based on
several criteria, including
S-22
<PAGE>
the following: (i) each Initial Receivable has an APR equal to or greater
than [__]%; (ii) each Initial Receivable has an original term to maturity of not
more than [__] months; (iii) as of the Initial Cutoff Date, the most recent
Scheduled Payment of each Initial Receivable was made by or on behalf of the
Obligor or was not contractually delinquent more than [30] days; (iv) no Initial
Financed Vehicle has been repossessed without reinstatement as of the Initial
Cutoff Date; and (v) as of the Initial Cutoff Date, no Obligor on any Receivable
was the subject of a bankruptcy proceeding commenced following the execution of
the related contract. [For purposes of clause (iii), a Receivable is considered
[30] days delinquent as of the end of the month following the date on which a
second consecutive Scheduled Payment has not been made.]
[During the Funding Period, pursuant to the Purchase Agreement, the Seller
is obligated to purchase from Franklin Capital and, pursuant to the Sale and
Servicing Agreement, sell to the Trust, Subsequent Receivables. The aggregate
principal balance of the Subsequent Receivables is anticipated by Franklin
Capital to equal approximately $[_____]. On each Subsequent Transfer Date,
Franklin Capital will convey the Subsequent Receivables to the Seller pursuant
to the Subsequent Purchase Agreement executed by Franklin Capital and the Seller
on the Subsequent Transfer Date and including as an exhibit a schedule
identifying the Subsequent Receivables transferred on such date. The Seller will
convey the Subsequent Receivables to the Trust on such Subsequent Transfer Date
pursuant to the Sale and Servicing Agreement and the applicable Subsequent
Transfer Agreement executed by the Seller and the Owner Trustee on the
Subsequent Transfer Date and including as an exhibit a schedule identifying the
Subsequent Receivables transferred on such date. In connection with each
purchase of Subsequent Receivables the Trust will be required to pay to the
Seller a cash purchase price equal to the outstanding principal balance of the
Subsequent Receivables as of their respective Subsequent Cutoff Dates, which
price the Seller will pay to Franklin Capital. The purchase price will be
withdrawn from the Pre-Funding Account and paid to the Seller for payment to
Franklin Capital.
Any conveyance of Subsequent Receivables is subject to the following
conditions, among others: (i) each such Subsequent Receivable and/or Subsequent
Financed Vehicle must satisfy the eligibility criteria specified under "The
Receivables -- General" in the Prospectus and the criteria set forth in clauses
(ii) through (v) of the second preceding paragraph, in each case, as of the
respective Subsequent Cutoff Date of such Subsequent Receivable; (ii) neither
Franklin Capital nor the Seller will have selected such Subsequent Receivables
in a manner that either believes is adverse to the interests of the
Securityholders; (iii) Franklin Capital and the Seller will deliver certain
opinions of counsel to the Owner Trustee, the Indenture Trustee and the Rating
Agencies with respect to the validity of the conveyance of such Subsequent
Receivables; and (iv) the Rating Agencies shall confirm that the ratings on the
Securities have not been and will not be withdrawn or reduced as a result of the
transfer of such Subsequent Receivables to the Trust. Because the Subsequent
Receivables may be originated after the Initial Receivables, following their
conveyance to the Trust the characteristics of the Receivables, including the
Subsequent Receivables, may vary from those of the Initial Receivables.
In addition, the obligation of the Trust to purchase the Subsequent
Receivables on a Subsequent Transfer Date is subject to the condition that the
Receivables in the Trust, including the Subsequent Receivables to be conveyed to
the Trust on such Subsequent Transfer Date, meet the following criteria: (i) the
weighted average APR of the Receivables in the Trust is not less than [_____]%;
(ii) the weighted average remaining term of the Receivables on such Subsequent
Cutoff Date is not greater than [_____] months; and (iii) not more than [_____]%
of the Receivables have Obligors whose mailing addresses are in California. As
to clauses (i) and (ii) in the immediately preceding sentence, such criteria
will be based on the characteristics of the Initial Receivables on the Initial
Cutoff Date and the Receivables, including the Subsequent Receivables, on the
related Subsequent Cutoff Date, and as to clause (iii) in the immediately
preceding sentence, such criteria will be based on the mailing addresses of the
Obligors of the Initial Receivables on the Initial Cutoff Date and the
Subsequent Receivables on the related Subsequent Cutoff Dates.
Except for the criteria described in the preceding paragraphs, there are
no required characteristics of the Subsequent Receivables. Therefore, following
the transfer of Subsequent Receivables to the Trust, the aggregate
characteristics of the entire pool of Receivables included in the Trust,
including the composition of the Receivables, the geographic distribution, the
distribution by remaining principal balance, the distribution by APR, the
distribution by remaining term, the distribution of Precomputed Receivables and
Simple Interest Receivables and the distribution of the Receivables secured by
new and used motor vehicles, may vary from those of the Initial Receivables.]
S-23
<PAGE>
COMPOSITION
The statistical information presented in this Prospectus Supplement,
including the summary statistical information set forth below, is based on the
Initial Receivables as of [ , 199 ] (the "Statistical Calculation Date"). Prior
to the Initial Cutoff Date, certain Initial Receivables may be removed and
additional Initial Receivables substituted therefor. Regularly scheduled
payments and prepayments of the Receivables (which are prepayable at any time)
between the Statistical Calculation Date and the Initial Cutoff Date will affect
the balances and percentages set forth below. A Current Report on Form 8-K
containing a detailed description (the "Detailed Description") of the Initial
Receivables will be available to purchasers of the Securities upon request at
the time of the initial issuance of the Securities and will be filed with the
Securities and Exchange Commission within 15 days after such issuance. The
Detailed Description will specify the information set forth below as of the
Initial Cutoff Date.
While the statistical distribution of the final characteristics of all
Initial Receivables transferred to the Trust on the Closing Date will vary from
the statistical information presented in this Prospectus Supplement, the Seller
and the Servicer do not believe that the characteristics of the Initial
Receivables on the Closing Date will vary materially.
COMPOSITION OF THE INITIAL RECEIVABLES AS OF THE STATISTICAL CALCULATION DATE
<TABLE>
<CAPTION>
Weighted Average Aggregate Principal Number of Weighted Average Weighted Average Average Principal
APR of Receivables Balance Receivables Remaining Term Original Term Balance
------------------ --------- ----------- ---------------- --------------- --------
<S> <C> <C> <C> <C> <C>
[ ]% $[ ] [ ] [ ] months [ ] months $[ ]
</TABLE>
The geographic distribution, the distribution of Initial Receivables
which are Precomputed Receivables and Simple Interest Receivables, the
distribution of the Initial Receivables secured by new and used motor vehicles,
the distribution by remaining principal balance, the distribution by APR and the
distribution by remaining term, in each case of the Initial Receivables as of
the Statistical Calculation Date, are set forth below.
GEOGRAPHIC DISTRIBUTION OF THE INITIAL RECEIVABLES AS OF THE STATISTICAL
CALCULATION DATE
<TABLE>
<CAPTION>
Percentage
Aggregate of Aggregate
Number of Principal Principal
State(1) Receivables Balance Balance(2)
-------- ----------- ------- ----------
<S> <C> <C> <C>
[Arizona................................................
California..............................................
Kansas..................................................
Nevada..................................................
New Mexico..............................................
Oregon..................................................
Utah....................................................
Washington..............................................
List other states]
Total............................................ [ ] $[ ] 100.0%
= === ======
</TABLE>
(1) Based on billing addresses of the Obligors as of the Statistical
Calculation Date.
(2) Percentages may not add to 100.00% because of rounding.
S-24
<PAGE>
DISTRIBUTION BY INTEREST ALLOCATION METHOD OF THE INITIAL RECEIVABLES AS OF
THE STATISTICAL CALCULATION DATE
<TABLE>
<CAPTION>
Percentage
Aggregate of Aggregate
Number of Principal Principal
Interest Allocated Method Receivables Balance Balance
------------------------- ----------- ------- -------
<S> <C> <C> <C>
Actuarial Receivables(1).............................. [ ] [ ] [ ]%
Rule of 78's Receivables(1)
Simple Interest Receivables........................... [ ] [ ] [ ]%
Total.......................................... [ ] $[ ] 100.0%
= === ======
</TABLE>
(1) Precomputed Receivables.
DISTRIBUTION OF THE INITIAL RECEIVABLES BY NEW AND USED FINANCED VEHICLES
AS OF THE STATISTICAL CALCULATION DATE
<TABLE>
<CAPTION>
Percentage
Aggregate of Aggregate
Number of Principal Principal
Collateral Type Receivables Balance Balance
--------------- ----------- ------- -------
<S> <C> <C> <C>
New................................................... [ ] $[ ] [ ]%
Used.................................................. [ ] [ ] [ ]%
Total.......................................... [ ] $[ ] 100.0%
= === ======
</TABLE>
DISTRIBUTION BY REMAINING PRINCIPAL BALANCE OF THE INITIAL RECEIVABLES
AS OF THE STATISTICAL CALCULATION DATE
<TABLE>
<CAPTION>
Percentage
Aggregate of Aggregate
Range of Remaining Number of Principal Principal
Principal Balance Receivables Balance Balance
----------------- ----------- ------- -------
<S> <C> <C> <C>
..............................[ ] $[ ] [ ]%
..............................
..............................
..............................
..............................
..............................
..............................
..............................
..............................
..............................
..............................
..............................
..............................
..............................
Total ..............................[ ] $[ ] 100.0%
====== === ======
</TABLE>
S-25
<PAGE>
DISTRIBUTION BY ANNUAL PERCENTAGE RATE OF THE INITIAL RECEIVABLES AS OF THE
STATISTICAL CALCULATION DATE
<TABLE>
<CAPTION>
Percentage
Aggregate of Aggregate
Annual Percentage Number of Principal Principal
Rate Range Receivables Balance Balance
---------- ----------- ------- -------
<S> <C> <C> <C>
[ ___% to ___%] ................................ [ ] $[ ] [ ]%
................................
................................
................................
................................
................................
................................
................................
................................
................................
................................
................................
................................
................................
................................
................................
................................
................................
................................
................................
................................
Total ................................ [ ] $[ ] 100.0%
= === ======
</TABLE>
DISTRIBUTION BY REMAINING TERM OF THE INITIAL RECEIVABLES AS OF THE
STATISTICAL CALCULATION DATE
<TABLE>
<CAPTION>
Percentage
Aggregate of Aggregate
Number of Principal Principal
Range of Remaining Terms Receivables Balance Balance(1)
------------------------ ----------- ------- ----------
<S> <C> <C> <C>
[ ___ to ___ months].................................. [ ] $[ ] [ ]%
....................................
....................................
....................................
....................................
....................................
....................................
....................................
....................................
....................................
....................................
....................................
Total .................................... [ ] $[ ] 100.0%
= === ======
</TABLE>
- ---------------------
(1) Percentages may not add to 100.00% because of rounding.
S-26
<PAGE>
DELINQUENCY AND LOSS EXPERIENCE
Franklin Capital began operations in November 1993. The table below sets
forth the delinquency and loss experience as of the end of each of the periods
indicated. The information set forth in the following table may be affected by
the size, rapid growth and relative lack of seasoning of the Receivables.
Accordingly, no assurances can be given that the delinquency and loss experience
presented in the tables below will be indicative of such experience on the
Receivables.
Franklin Capital Corp.
Historical Delinquency and Loss Experience
<TABLE>
<CAPTION>
DELINQUENCY EXPERIENCE AS OF AS OF
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 MARCH 31 MARCH 31
1994(1) 1995 1996 1997 1997 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Portfolio Outstanding
at end of period(2) $160,635,623 $225,575,436 $174,589,677 $154,271,605 $161,091,523 $159,666,795
Delinquencies at end
of period(3)
30-59 days $2,442,313 $ 9,217,070 $4,129,543 $1,929,654 $2,607,686 $1,314,686
60-89 days 733,619 3,252,750 1,969,257 729,097 1,245,291 476,022
90 days or more 400,740 3,761,131 2,067,850 1,326,175 1,831,901 999,355
- -----------------------------------------------------------------------------------------------------------------------------------
Total delinquencies $3,576,672 $16,230,951 $8,166,650 $3,984,926 $5,684,878 $2,790,063
- -----------------------------------------------------------------------------------------------------------------------------------
Total delinquencies as
a percentage of
portfolio outstanding
at end of period 2.2% 7.2% 4.7% 2.6% 3.5% 1.7%
===================================================================================================================================
CREDIT/LOSS EXPERIENCE DURING FISCAL YEARS ENDED DURING SIX MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 MARCH 31 MARCH 31
1994(1) 1995 1996 1997 1997 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Average portfolio
outstanding during
period(2),(4) $66,586,803@ $225,203,667@ $196,747,716 $162,745,276 $169,247,701 $154,112,781
Average number of loans
outstanding during period n/a n/a n/a 14,780 15,036 14,832
Number of repossessions
during period n/a n/a n/a 760 429 312
Repossessions as a
percentage of average
number of loans
outstanding during period n/a n/a n/a 5.1% 5.7%* 4.2%*
Gross charge-off(5) $210,842 $7,039,263 $12,082,834 $6,580,261 $3,775,078 $1,723,875
Recoveries(6) 4,242 649,374 1,408,190 1,854,461 1,067,076 549,363
- -----------------------------------------------------------------------------------------------------------------------------------
Net losses $206,600 $6,389,889 $10,674,644 $4,725,800 $2,708,002 $1,174,512
- -----------------------------------------------------------------------------------------------------------------------------------
Net losses as a percentage
of average portfolio
outstanding during the period 0.3% 2.8% 5.4% 2.9% 3.2%* 1.5%*
===================================================================================================================================
Key - * Annualized
@ Simple average using Franklin Capital figures
</TABLE>
Notes
1. Franklin Capital commenced lending operations in December 1993 and
consequently 1994 data represents 9 months of activity
2. For Simple interest contracts, Portfolio Outstanding represents the
outstanding principal balance plus the insurance receivable (if any). For Rule
of 78's contracts, Portfolio Outstanding represents the gross receivable less
unearned discount, unearned insurance receivable (if any), and unearned
insurance interest receivable (if any). Portfolio Outstandings are reduced by
any rejected or unapplied payments, but such amounts are not subtracted from the
balances of delinquent contracts. Starting in February 1996, Portfolio
Outstanding also includes unearned dealer reserve.
3. The period of delinquency is based on the number of days scheduled payments
are contractually past due. Includes receivables on hand that have not been
charged-off.
4. Average calculated on a daily basis, except as noted
5. Gross charge-offs represents the outstanding balance (calculated as per 2
above) of contracts charged off in the period less proceeds from the disposition
of the collateral, net of any repossessions expenses, and unearned dealer
reserve.
6. Recoveries represents amounts received on previously charged off contracts
S-27
<PAGE>
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the terms of the Indenture, a form of
which has been filed as an exhibit to the Registration Statement. The following
summary describes certain terms of the Notes and the Indenture. The summary does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all the provisions of the Notes and the Indenture. The
following summary supplements, and to the extent inconsistent therewith
replaces, the description of the general terms and provisions of the Notes of
any given series and the related Indenture set forth in the accompanying
Prospectus, to which description reference is hereby made.
The Notes will be offered for purchase in denominations of $1,000 and
integral multiples thereof in book-entry form only. Persons acquiring beneficial
interests in the Notes will hold their interests through DTC in the United
States or Cedel or Euroclear in Europe. See "Certain Information Regarding the
Securities --Book-Entry Registration" in the Prospectus and Annex I to the
Prospectus.
PAYMENTS OF INTEREST
Interest on the principal amount of each Class of Notes will accrue at the
applicable Interest Rate and will be payable to the Noteholders of such Class
monthly on each Distribution Date, commencing [_______, 199__]. Interest will
accrue from and including the most recent Distribution Date on which interest
has been paid (or, in the case of the first Distribution Date, from and
including the Closing Date) to but excluding the following Distribution Date
(each, an "Interest Period"). Interest on the Class A-[__] Notes will be
calculated on the basis of a 360-day year and the actual number of days elapsed
in the related Interest Period. Interest on the Class A-[__] Notes will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
Interest accrued as of any Distribution Date but not paid on such Distribution
Date will be due on the next Distribution Date, together with, to the extent
permitted by law, interest on such amount at the applicable Interest Rate. In
the event that the interest rate for the Class A-[__] Notes for any Interest
Period calculated without giving effect to the maximum rate would exceed the
interest rate for such Interest Period after giving effect to the maximum rate,
the amount of such excess will not be due as additional interest to the Class
A-[__] Noteholders on the related Distribution Date nor will it be carried
forward and payable as additional interest to the Class A-[__] Noteholders on
any subsequent Distribution Date. Interest payments on the Notes will be made
from the Distribution Amount (as defined herein) after payment of accrued and
unpaid trustees' fees and other administrative fees of the Trust and payment of
the Servicing Fee. See "Description of the Purchase Agreements and the Trust
Documents -- Distributions" herein.
[Interest on the Class A-[__] Notes will accrue during each Interest
Period at a rate per annum equal to the sum of LIBOR plus 0.[__]%, subject to a
maximum rate equal to 12% per annum.]
[DETERMINATION OF LIBOR
Pursuant to the Indenture, the Indenture Trustee will determine LIBOR (as
defined below) for purposes of calculating the Interest Rate for the Class
A-[__] Notes for each given Interest Period on the second business day prior to
the commencement of each Interest Period (each, a "LIBOR Determination Date").
For purposes of calculating LIBOR, a business day means a Business Day and a day
on which banking institutions in the City of London, England are not required or
authorized by law to be closed.
"LIBOR" means, with respect to any Interest Period, the London interbank
offered rate for deposits in U.S. dollars having a maturity of one month
commencing on the related LIBOR Determination Date (the "Index Maturity") which
appears on Telerate Page 3750 (as defined below) as of 11:00 a.m., London time,
on such LIBOR Determination Date. If such rate does not appear on the Telerate
Page 3750, the rate for that day will be determined on the basis of the rates at
which deposits in U.S. dollars, having the Index Maturity and in a principal
amount of not less than U.S. $1,000,000, are offered at approximately 11:00
a.m., London time, on such LIBOR Determination Date to prime banks in the London
interbank market by the Reference Banks (as defined below). The Indenture
Trustee will request the principal London office of each of such Reference Banks
to provide a quotation of its rate. If at least two such quotations are
provided, the rate for that day will be the arithmetic mean, rounded upward, if
necessary, to the nearest 1/100,000 of 1% (.0000001), with five
S-28
<PAGE>
one-millionths of a percentage point rounded upward, of all such quotations. If
fewer than two such quotations are provided, the rate for that day will be the
arithmetic mean, rounded upward, if necessary, to the nearest 1/100,000 of 1%
(.0000001), with five one-millionths of a percentage point rounded upward, of
the offered per annum rates that one or more leading banks in New York City,
selected by the Indenture Trustee, are quoting as of approximately 11:00 a.m.,
New York City time, on such LIBOR Determination Date to leading European banks
for United States dollar deposits for the Index Maturity; provided that if the
banks selected as aforesaid are not quoting as mentioned in this sentence, LIBOR
in effect for the applicable Interest Period will be LIBOR in effect for the
previous Interest Period.
"Telerate Page 3750" means the display page so designated on the Dow Jones
Telerate Service (or such other page as may replace that page on that service
for the purpose of displaying comparable rates or prices).
"Reference Banks" means four major banks in the London interbank market
selected by the Indenture Trustee.]
PAYMENTS OF PRINCIPAL
Principal payments will be made to the Noteholders on each Distribution
Date in an amount equal to the Noteholders' Principal Distributable Amount for
the calendar month (the "Monthly Period") preceding such Distribution Date. The
Noteholders' Principal Distributable Amount will equal the sum of (x) the
Noteholders' Percentage of the Principal Distributable Amount and (y) any unpaid
portion of the amount described in clause (x) with respect to a prior
Distribution Date. The "Principal Distributable Amount" with respect to any
Distribution Date will be an amount equal to the sum of the following amounts
with respect to the related Monthly Period, computed, with respect to Simple
Interest Receivables, in accordance with the simple interest method, and, with
respect to Precomputed Receivables, in accordance with the actuarial method: (i)
that portion of all collections on Receivables allocable to principal, including
full and, with respect to Simple Interest Receivables, partial principal
prepayments, received during such Monthly Period (including, with respect to
Precomputed Receivables, amounts withdrawn from the Payahead Account but
excluding amounts deposited into the Payahead Account) with respect to such
Monthly Period, (ii) the principal balance of each Receivable that was
repurchased by Franklin Capital, the Seller or the Servicer as of the last day
of such Monthly Period, (iii) the outstanding principal balance of those
Receivables that were required to be repurchased by the Seller and/or Franklin
Capital during such Monthly Period but were not so repurchased, (iv) the
principal balance of each Receivable that became a Liquidated Receivable during
such Monthly Period, and (v) the aggregate amount of Cram Down Losses during
such Monthly Period. Principal payments on the Notes will be made from the
Distribution Amount after payment of accrued and unpaid trustees' fees and other
administrative fees of the Trust, payment of the Servicing Fee and after
distribution of the Noteholders' Interest Distributable Amount. See "Description
of the Purchase Agreements and the Trust Documents -- Distributions" herein.
[The Noteholder's percentage will equal the percentage equivalent of a
fraction the numerator of which is the outstanding principal amount of the Notes
and the denominator of which is the aggregate outstanding principal amount of
the Securities.] [The Noteholders' Percentage will be 100% until the Class
A-[__] Notes have been paid in full and thereafter will be zero. Principal
payments on the Notes will be applied on each Distribution Date sequentially, to
the Class A-1 Notes, the Class A-2 Notes and the Class A-3 Notes, [list others]
in that order, until the respective principal amount of each such Class of Notes
has been paid in full so that no principal will be paid on a Class of Notes
until the principal of all Classes of Notes having a lower numerical Class
designation has been paid in full.] In addition, the outstanding principal
amount of the Notes of any class, to the extent not previously paid, will be
payable on the respective Final Scheduled Distribution Date for such class. The
actual date on which the aggregate outstanding principal amount of any Class of
Notes is paid may be earlier than the Final Scheduled Distribution Date for such
Class, depending on a variety of factors.
[MANDATORY REDEMPTION
Each class of Notes will be redeemed in part on the Mandatory Redemption
Date in the event that any portion of the Pre-Funded Amount remains on deposit
in the Pre-Funding Account after giving effect to the purchase of all Subsequent
Receivables, including any such purchase on such date. The aggregate principal
amount of each class of Notes to be redeemed will be an amount equal to such
class's pro rata share (based on
S-29
<PAGE>
the respective current principal amount of each class of Notes and the
Certificate Balance) of the remaining Pre-Funded Amount on such date (such
class's "Note Prepayment Amount").]
OPTIONAL REDEMPTION
The Class A-[__] Notes, to the extent still outstanding, may be redeemed
in whole, but not in part, on any Distribution Date on which the Servicer
exercises its option to purchase the Receivables. The Servicer may purchase the
Receivables when the Pool Balance has declined to [10]% or less of the Original
Pool Balance, as described in the accompanying Prospectus under "Description of
the Purchase Agreements and the Trust Documents -- Termination." Such redemption
will effect early retirement of the Notes of such Class. The redemption price
will be equal to the unpaid principal amount of the Notes of such Class, plus
accrued and unpaid interest thereon (the "Redemption Price").
EVENTS OF DEFAULT
"Events of Default" under the Indenture will consists of: (i) certain
events of bankruptcy, insolvency, receivership or liquidation of the Trust; (ii)
the Trust becoming taxable as an association (or publicly traded partnership)
taxable as a corporation for federal or state income tax purposes; (iii) on any
Distribution Date, the sum of the Available Funds with respect to such
Distribution Date plus the amount (if any) on deposit in the Spread Account
being less than the sum of the amounts described in clauses 1-6 under
"Description of the Purchase Agreements and the Trust Documents --
Distributions" herein; and (iv) any failure to observe or perform in any
material respect any other covenants or agreements in the Indenture, or any
representation or warranty of the Trust made in the Indenture or in any
certificate or other writing delivered pursuant thereto or in connection
therewith proving to have been incorrect in any material respect when made, and
such failure continuing or not being cured, or the circumstance or condition in
respect of which such misrepresentation or warranty was incorrect not having
been eliminated or otherwise cured, for 30 days after the giving of written
notice of such failure or incorrect representation or warranty to the Trust and
the Indenture Trustee by the [__].
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the terms of the Trust
Agreement, a form of which has been filed as an exhibit to the Registration
Statement. The following summary describes certain terms of the Certificates and
the Trust Agreement. The summary does not purport to be complete and is subject
to, and qualified in its entirety by reference to, all the provisions of the
Certificates and the Trust Agreement. The following summary supplements, and to
the extent inconsistent therewith replaces, the description of the general terms
and provisions of the Certificates of any given series and the related Trust
Agreement set forth in the Prospectus, to which description reference is hereby
made.
The Certificates will be offered for purchase in denominations of $[1,000]
and integral multiples thereof in book-entry form only. Persons acquiring
beneficial interests in the Certificates will hold their interest through DTC.
See "Certain Information Regarding the Securities -- Book-Entry Registration" in
the Prospectus.
DISTRIBUTIONS OF INTEREST
Interest on the Certificate Balance immediately prior to a Distribution
Date will accrue at the Certificate Rate for the related Interest Period, and
will be distributable to Certificateholders of record on each Distribution Date,
commencing [_______, 199__]. Interest for each Interest Period will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
Interest distributions due for any Distribution Date but not distributed on such
Distribution Date will be due on the next Distribution Date together with, to
the extent permitted by law, interest on such amount at the Certificate Rate.
Interest distributions with respect to the Certificates will be made from the
Distribution Amount after the payment of accrued and unpaid trustees' fees and
other administrative fees of the Trust, the payment of the Servicing Fee and the
distribution of the Noteholders' Distributable Amount. See "Description of the
Purchase Agreements and the Trust Documents --Distributions" herein.
S-30
<PAGE>
DISTRIBUTIONS OF PRINCIPAL
Certificateholders will be entitled to distributions of principal [on each
Distribution Date on or after the date on which the Class A-[__] Notes have been
paid in full] in an amount equal to the Certificateholders' Percentage of the
Principal Distributable Amount, as defined under "Description of the Notes --
Payments of Principal"; [provided, however, that the amount distributable as
principal on the Distribution Date on which the Class A-[__] Notes are paid in
full will be reduced by the amount necessary to pay the Class A-[__] Notes in
full.] Distributions with respect to principal payments will be made from
Available Funds after payment of accrued and unpaid trustees' fees and other
administrative fees of the Trust, payment of the Servicing Fee and the
distribution of the Noteholders' Distributable Amount and the
Certificateholders' Interest Distributable Amount. See "Description of the
Purchase Agreements and the Trust Documents -- Distributions" herein.
MANDATORY PREPAYMENT
[The Certificates will be prepaid in part on the Mandatory Redemption Date
in the event that any portion of the Pre-Funded Amount remains on deposit in the
Pre-Funding Account after giving effect to the purchase of all Subsequent
Receivables, including any purchase on such date. The aggregate principal amount
of the Certificates to be prepaid will be an amount equal to the
Certificateholders' pro rata share (based on the respective current principal
amount of each class of Notes and the Certificate Balance) of the remaining
Pre-Funded Amount (the "Certificate Prepayment Amount").]
OPTIONAL PREPAYMENT
If the Servicer exercises its option to purchase the Receivables when the
Pool Balance declines to [10]% or less of the Original Pool Balance,
Certificateholders will receive an amount in respect of the Certificates equal
to the outstanding Certificate Balance together with accrued interest at the
Certificate Rate, which distribution will effect early retirement of the
Certificates. See "Description of the Purchase Agreements and the Trust
Documents -- Termination" in the Prospectus.
[WEIGHTED AVERAGE LIFE CONSIDERATIONS
The rate of payment of principal of each Class of Notes and in respect of
the Certificate Balance will depend on the rate of payment (including
prepayments) of the principal balance of the Receivables. As a result, final
payment of any class of Notes could occur significantly earlier than the Final
Scheduled Distribution Date for such class of Notes. The final distribution in
respect of principal of the Certificates also could occur prior to the Final
Scheduled Distribution Date for the Certificates. Reinvestment risk associated
with early payment of the Notes and the Certificates will be borne exclusively
by the Noteholders and the Certificateholders, respectively.
Prepayments on automotive receivables can be measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement, the
Absolute Prepayment Model ("ABS"), represents an assumed rate of prepayment each
month relative to the original number of receivables in a pool of receivables.
ABS further assumes that all the receivables are the same size and amortize at
the same rate and that each receivable in each month of its life will either be
paid as scheduled or be prepaid in full. For example, in a pool of receivables
originally containing 10,000 receivables, a 1% ABS rate means that 100
receivables prepay each month. ABS does not purport to be an historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of receivables, including the Receivables.
The table captioned "Percent of Initial Note Principal Balance or Initial
Certificate Balance at Various ABS Percentages" (the "ABS Table") has been
prepared on the basis of the following assumptions: (i) the Trust includes four
pools of Receivables with the characteristics set forth in the following table;
(ii) the Receivables prepay in full at the specified constant percentage of ABS
monthly, with no defaults, losses or repurchases; (iii) each scheduled monthly
payment on the Receivables is made on the last day of each month and each month
has 30 days; (iv) the initial principal amount of each class of Notes and the
initial Certificate Balance are as set forth on the cover page hereof; (v)
interest accrues during each Interest Period at the applicable Interest Rate and
Certificate Rate; (vi) LIBOR remains constant at 5.50% per annum; (vii) payments
on the Notes and
S-31
<PAGE>
distributions on the Certificates are made on the [____] day of each month
whether or not a Business Day; (viii) the Securities are purchased on the
Closing Date; (ix) the scheduled monthly payment for each Receivables has been
calculated on the basis of the assumed characteristics in the following table
such that each Receivable will amortize in amounts sufficient to repay the
principal balance of such Receivable by its indicated remaining term to
maturity; (x) the first due date for each Receivable is in the month after the
assumed cutoff date for such Receivable as set forth in the following table;
(xi) the entire Pre-Funded Amount is used to purchase Subsequent Receivables;
and (xii) the Servicer does not exercise its option to purchase the Receivables.
<TABLE>
<CAPTION>
Pool Aggregate APR Assumed Cutoff Original Term Remaining Term
Principal Date to Maturity to Maturity
Balance (in Months) (in Months)
<S> <C> <C> <C> <C> <C>
1 $ % / /98
2 $ % / /98
3 $ % / /98
4 $ % / /98
-----------
Total
</TABLE>
The ABS Table indicates, based on the assumptions set forth above, the
percentages of the initial principal amount of each class of Notes and of the
Certificate Balance of the Certificates that would be outstanding after each of
the Distributions Dates shown at various percentages of ABS and the
corresponding weighted average lives of such Securities. The actual
characteristics and performance of the Receivables will differ from the
assumptions used in constructing the ABS Table. The assumptions used are
hypothetical and have been provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the Receivables will prepay at a constant
level of ABS until maturity, that all of the Receivables will prepay at the same
level of ABS or that LIBOR will remain constant at the level assumed or at any
other level. Moreover, the diverse terms of Receivables could produce slower or
faster principal distributions than indicated in the ABS Table at the various
constant percentages of ABS specified, even if the original and remaining terms
to maturity of the Receivables are as assumed. Any difference between such
assumptions and the actual characteristics and performance of the Receivables,
or actual prepayment experience, will affect the percentages of initial balances
outstanding over time and the weighted average lives of each class of Notes and
the Certificates.
S-32
<PAGE>
PERCENT OF INITIAL NOTE PRINCIPAL BALANCE OR
INITIAL CERTIFICATE BALANCE AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
Class A-[_] Notes Class A-[_ ] Notes
--------------------------------------- ------------------------------------------
Distribution Date [0.5% 1.0% 1.7% 2.5%] [ 0.5% 1.0% 1.7% 2.5%]
- ----------------- ----- ---- ---- ----- ------ ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
[Closing Date...................... 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
08/20/98...........................
09/20/98...........................
10/20/98...........................
11/20/98...........................
12/20/98...........................
01/20/99...........................
02/20/99...........................
03/20/99...........................
04/20/99...........................
05/20/99...........................
06/20/99...........................
07/20/99...........................
08/20/99...........................
09/20/99...........................
10/20/99...........................
11/20/99...........................
12/20/99...........................
01/20/00...........................
02/20/00...........................
03/20/00...........................
04/20/00...........................
05/20/00...........................
06/20/00...........................
07/20/00...........................
08/20/00...........................
09/20/00...........................
10/20/00...........................
11/20/00...........................
12/20/00...........................
01/20/01...........................
02/20/01...........................
03/20/01...........................
04/20/01...........................
05/20/01...........................
06/20/01...........................
07/20/01...........................
08/20/01...........................
09/20/01...........................
10/20/01...........................
11/20/01...........................
12/20/01...........................
01/20/02]..........................
Weighted Average Life (years)(2)...
</TABLE>
- ----------------------
(1) The Class A-[_] Final Scheduled Distribution Date is [________, 199_].
(2) The weighted average life of a Security is determined by (i) multiplying
the amount of each principal payment on a Security by the number of years
from the date of the issuance of the Security to the related Distribution
Date, (ii) adding the results and (iii) dividing the sum by the related
initial principal amount of the Security.
S-33
<PAGE>
PERCENT OF INITIAL NOTE PRINCIPAL BALANCE OR
INITIAL CERTIFICATE BALANCE AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
Class A-[_] Notes Certificates
--------------------------------------- ----------------------------------------
Distribution Date 0.5% 1.0% 1.7% 2.5% 0.5% 1.0% 1.7% 2.5%
- ----------------- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
[Closing Date........................ 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
08/20/98.............................
09/20/98.............................
10/20/98.............................
11/20/98.............................
12/20/98.............................
01/20/99.............................
02/20/99.............................
03/20/99.............................
04/20/99.............................
05/20/99.............................
06/20/99.............................
07/20/99.............................
08/20/99.............................
09/20/99.............................
10/20/99.............................
11/20/99.............................
12/20/99.............................
01/20/00.............................
02/20/00.............................
03/20/00.............................
04/20/00.............................
05/20/00.............................
06/20/00.............................
07/20/00.............................
08/20/00.............................
09/20/00.............................
10/20/00.............................
11/20/00.............................
12/20/00.............................
01/20/01.............................
02/20/01.............................
03/20/01.............................
04/20/01.............................
05/20/01.............................
06/20/01.............................
07/20/01.............................
08/20/01.............................
09/20/01.............................
10/20/01.............................
11/20/01.............................
12/20/01.............................
01/20/02.............................
02/20/02.............................
03/20/02.............................
04/20/02.............................
05/20/02.............................
06/20/02.............................
07/20/02.............................
08/20/02.............................
09/20/02.............................
10/20/02.............................
11/20/02.............................
12/20/02.............................
01/20/03]............................
Weighted Average Life (years)(1).....
</TABLE>
- ----------------------
(1) The weighted average life of a Security is determined by (i) multiplying
the amount of each principal payment on a Security by the number of years
from the date of the issuance of the Security to the related Distribution
Date, (ii) adding the results and (iii) dividing the sum by the related
initial principal amount of the Security.
S-34
<PAGE>
DESCRIPTION OF THE PURCHASE AGREEMENTS AND THE TRUST DOCUMENTS
The following summary describes certain terms of the Purchase Agreement
and any Subsequent Purchase Agreement (together, the "Purchase Agreements"), and
the Sale and Servicing Agreement, any Subsequent Transfer Agreement and the
Trust Agreement (together, the "Trust Documents"). Forms of the Purchase
Agreements and the Trust Documents have been filed as exhibits to the
Registration Statement. The summary does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all the provisions of
the Purchase Agreements and the Trust Documents. The following summary
supplements, and to the extent inconsistent therewith replaces, the description
of the general terms and provisions of the Purchase Agreements and the Trust
Documents (as such terms are used in the Prospectus) set forth in the
Prospectus, to which description reference is hereby made.
SALE AND ASSIGNMENT OF RECEIVABLES; SUBSEQUENT RECEIVABLES
Certain information with respect to the sale of the Initial Receivables
by Franklin Capital to the Seller pursuant to the Purchase Agreements and the
conveyance of the Initial Receivables from the Seller to the Trust on the
Closing Date pursuant to the Sale and Servicing Agreement is set forth under
"Description of the Purchase Agreements and the Trust Documents -- Sale and
Assignment of Receivables" in the accompanying Prospectus. [In addition, during
the Funding Period, pursuant to the Sale and Servicing Agreement, the Seller
will be obligated to sell to the Trust Subsequent Receivables having an
aggregate principal balance equal to approximately $[__________] (such amount
being equal to the initial Pre-Funded Amount) to the extent that such Subsequent
Receivables are available.]
[During the Funding Period, on each Subsequent Transfer Date, subject
to the conditions described under "The Receivables -- Eligibility Criteria," the
Seller will sell and assign to the Trust, without recourse, the Seller's entire
interest in the Subsequent Receivables designated by the Seller as of the
related Subsequent Cutoff Date and identified in a schedule attached to a
Subsequent Transfer Agreement relating to such Subsequent Receivables executed
on such date by the Seller. Upon the conveyance of Subsequent Receivables to the
Trust on a Subsequent Transfer Date, (i) the Pool Balance will increase in an
amount equal to the aggregate principal balances of the Subsequent Receivables
and (ii) an amount equal to the aggregate principal balances of such Subsequent
Receivables will be withdrawn from the Pre-Funding Account and paid to or upon
the order of the Seller.]
ACCOUNTS
The Servicer will establish and maintain one or more accounts, in the
name of the Indenture Collateral Agent, for the benefit of the Indenture
Trustee, on behalf of the Noteholders, the Owner Trustee, on behalf of the
Certificateholders, into which all payments made on or with respect to the
Receivables will be deposited (the "Collection Account"). The Servicer will be
required to remit collections to the Collection Account within two Business Days
of receipt thereof. Such collections may be remitted less any payments owed
thereon to the Servicer. However, at any time that and for so long as (i) there
exists no Event of Servicer Termination, and (ii) each other condition to making
deposits less frequently than every two Business Days as may be specified by the
Rating Agencies is satisfied, the Servicer will not be required to deposit such
amounts into the Collection Account until on or immediately before the
applicable Distribution Date. Pending deposit into the Collection Account,
collections may be invested by the Servicer at its own risk and for its own
benefit and will not be segregated from its own funds.
The Servicer will also establish and maintain an account, in the name
of the Indenture Collateral Agent, for the benefit of the Indenture Trustee, on
behalf of the Noteholders, in which amounts released from the Collection Account
for distribution to Noteholders will be deposited and from which all
distributions to Noteholders will be made (the "Note Distribution Account"). The
Servicer will establish and maintain an account, in the name of the Indenture
Collateral Agent, for the benefit of the Owner Trustee, on behalf of the
Certificateholders, in which amounts released from the Collection Account for
distribution to Certificateholders will be deposited and from which all
distributions to Certificateholders will be made (the "Certificate Distribution
Account").
[On the Closing Date, a cash amount equal to approximately
$[__________] (the "Initial Pre-Funded Amount") will be deposited in an account
(the "Pre-Funding Account") which will be established with the Indenture
S-35
<PAGE>
Collateral Agent. The Pre-Funding Account will be an asset of the Trust and will
be pledged to the Indenture Collateral Agent for the benefit of the Indenture
Trustee, on behalf of the Noteholders. The "Funding Period" is the period from
the Closing Date until the earliest of the date on which (i) the amount on
deposit in the Pre-Funding Account is less than $[________], (ii) a Servicer
Default occurs under the Sale and Servicing Agreement, or (iii) the Distribution
Date in [__________, 199__]. The Initial Pre-Funded Amount as reduced from time
to time during the Funding Period by the amount thereof used to purchase
Subsequent Receivables in accordance with the Sale and Servicing Agreement is
referred to herein as the "Pre-Funded Amount." The Seller expects that the
Pre-Funded Amount will be reduced to less than $[________] on or before the end
of the Funding Period. Any Pre-Funded Amount remaining at the end of the Funding
Period will be payable to the Noteholders and Certificateholders as described
herein. The "Mandatory Redemption Date" is the earlier of (i) the Distribution
Date [__________, 199_]or (ii) if the last day of the Funding Period occurs on
or prior to the Determination Date (as defined herein) occurring in [_____] or
[________, 199__], the Distribution Date relating to such Determination Date.
On the Closing Date, a cash amount may be deposited in an account (the
"Capitalized Interest Account") which will be established with the Indenture
Collateral Agent. The Capitalized Interest Account will be an asset of the
Trust, and will be pledged to the Indenture Collateral Agent for the benefit of
the Indenture Trustee, on behalf of the Noteholders, the Owner Trustee, on
behalf of the Certificateholders. The amount, if any, deposited in the
Capitalized Interest Account will be applied on the Distribution Dates occurring
in [______], [______] and [______] of [199_] to fund an amount (the "Monthly
Capitalized Interest Amount") equal to the amount of interest accrued for each
such Distribution Date at the weighted average Interest Rates and Certificate
Rate on the portion of the Securities having a principal balance in excess of
the principal balances of the Receivables (which portion will equal the
Pre-Funded Amount). Any amounts remaining in the Capitalized Interest Account on
the Mandatory Redemption Date and not used for such purposes are required to be
paid directly to the Seller on such date. See "Description of the Purchase
Agreements and the Trust Documents -- Accounts."]
[In addition, the Servicer will also establish and will maintain the
Payahead Account in the name of the Indenture Collateral Agent for the benefit
of the Indenture Trustee, on behalf of the Noteholders, the Owner Trustee, on
behalf of the Certificateholders.]
All such Accounts shall be Eligible Deposit Accounts (as defined in the
Prospectus).
SERVICING COMPENSATION AND TRUSTEES' FEES
The Servicer is entitled under the Sale and Servicing Agreement on each
Distribution Date to a servicing fee (the "Servicing Fee") for the related
Monthly Period equal to the sum of (i) one-twelfth of [____]% (the "Servicing
Fee Rate") multiplied by the Pool Balance as of the first day of such Monthly
Period (the "Base Servicing Fee") and (ii) the investment earnings (net of
losses) on the Collection Account. The Servicer may retain the Base Servicing
Fee from collections on the Receivables. The Servicer will retain from
collections a supplemental servicing fee (the "Supplemental Servicing Fee") for
each Monthly Period equal to any late fees, prepayment fees, rebates and other
administrative fees and expenses collected during the Monthly Period plus
reinvestment proceeds on any payments received in respect of Receivables.
On each Distribution Date under the Agreement, the Indenture Trustee is
entitled to a fee for its services as Indenture Trustee and Indenture Collateral
Agent during the prior Monthly Period equal to an amount agreed upon by the
Indenture Trustee and the Servicer. On each Distribution Date under the
Agreement, the Owner Trustee is entitled to a fee for its services as Owner
Trustee during the prior Monthly Period equal to an amount agreed upon by the
Owner Trustee and the Servicer.
S-36
<PAGE>
CERTAIN ALLOCATIONS
On or about the [____] Business Day immediately preceding each
Distribution Date (the "Determination Date"), the Servicer will be required to
deliver the Servicer's Certificate to the Indenture Trustee and the Owner
Trustee specifying, among other things, the amount of aggregate collections on
the Receivables and the aggregate Purchase Amount of Receivables to be purchased
by the Seller, the Servicer or Franklin Capital, all with respect to the
preceding Monthly Period.
On the [_____] Business Day immediately preceding each Distribution
Date (the "Deficiency Claim Date") the Indenture Trustee and/or the Owner
Trustee, as applicable, will (based solely on the information contained in the
Servicer's Certificate delivered on the related Determination Date) deliver to
the Indenture Collateral Agent and the Servicer a Deficiency Notice specifying
the Deficiency Claim Amount, if any, for such Distribution Date. Such Deficiency
Notice will direct the Indenture Collateral Agent to remit such Deficiency Claim
Amount from amounts on deposit in the Spread Account (to the extent of funds
available therein) for deposit in the Collection Account.
On each Distribution Date, the Indenture Trustee will (based solely on
the information contained in the Servicer's Certificate delivered on the related
Determination Date) cause to be made the following transfers and distributions
in the amounts set forth in the Servicer's Certificate for such Distribution
Date:
(i) from the Collection Account to the Payahead Account in
immediately available funds, the aggregate Payaheads collected during
the preceding Monthly Period;
(ii) from the Payahead Account (a) to the Collection Account,
in immediately available funds, the portion of Payaheads constituting
scheduled payments on Precomputed Receivables or that are to be applied
to prepay a Precomputed Receivable in full and (b) to the Seller, in
immediately available funds, all investment earnings on funds in the
Payahead Account with respect to the preceding Monthly Period;
(iii) during the Funding Period, from the Capitalized Interest
Account (a) to the Collection Account, in immediately available funds,
the Monthly Capitalized Interest Amount for such Distribution Date and
(b) to the Seller, in immediately available funds, all investment
earnings on funds in the Capitalized Interest Account with respect to
the preceding Monthly Period or, if such Distribution Date is the
Mandatory Redemption Date, all remaining funds in the Capitalized
Interest Account after distributions of interest on Securities on such
date; and
(iv) during the Funding Period, from the Pre-Funding Account
(a) if such Distribution Date is the Mandatory Redemption Date, to the
Collection Account, in immediately available funds, the Pre-Funded
Amount (exclusive of investment earnings), after giving effect to the
purchase of Subsequent Receivables if any, on the Mandatory Redemption
Date and (b) to the Seller, in immediately available funds, all
investment earnings on funds in the Pre-Funding Account with respect to
the preceding Monthly Period or, if such Distribution Date is the
Mandatory Redemption Date, all remaining funds in the Pre-Funding
Account.
To the extent that collections on a Precomputed Receivable in the
related Monthly Period exceed the scheduled payment and late fees or other fees,
if any, for such Monthly Period but are insufficient to prepay the Precomputed
Receivable in full, such collections will be treated as "Payaheads."
The scheduled payment with respect to a Precomputed Receivable is that
portion of the payment required to be made by the related Obligor during each
calendar month sufficient to amortize the principal balance thereof under the
actuarial method over the term of the Receivable and to provide interest at the
APR of such Receivable.
S-37
<PAGE>
DISTRIBUTIONS
On each Distribution Date, the Servicer is required to instruct the
Indenture Trustee to distribute the Distribution Amount in the following order
of priority:
1. To the Indenture Trustee and the Owner Trustee, any
accrued and unpaid trustees' fees and any accrued and
unpaid fees of the Indenture Collateral Agent (in
each case, to the extent such fees have not been
previously paid by the Servicer or Franklin Capital).
2. To the Servicer, the Servicing Fee for the related
Monthly Period, any Supplemental Servicing Fees for
such month and certain other amounts relating to
mistaken deposits, postings or checks returned for
insufficient funds to the extent the Servicer has not
reimbursed itself in respect of such amount to the
extent not retained by the Servicer.
3. To the Note Distribution Account, the Noteholders'
Interest Distributable Amount.
4. To the Note Distribution Account, the Noteholders'
Principal Distributable Amount, to be distributed as
described under "Description of the Notes --Payments
of Principal."
5. To the Certificate Distribution Account, the
Certificateholders' Interest Distributable Amount.
6. To the Certificate Distribution Account, the
Certificateholders' Principal Distributable Amount.
7. To the Indenture Collateral Agent, up to the
Specified Spread Account Requirement for deposit in
the Spread Account.
8. To the Seller, any remaining funds.
If the Notes are accelerated following an Event of Default under the
Indenture, amounts collected will be distributed in the order described above.
SUBORDINATION AND SPREAD ACCOUNTS
[The rights of the Class [B] Certificateholders to receive
distributions with respect to the Receivables generally will be subordinated to
the rights of the Noteholders and the Class [A] Certificateholders in the event
of defaults and delinquencies on the Receivables as provided in the Trust
Documents, except as described herein. The rights of the Class [C]
Certificateholders to receive distributions with respect to the Receivables
generally will be subordinated to the rights of the Securityholders in the event
of defaults and delinquencies on the Receivables as provided in the Trust
Documents.]
The protection afforded to the Securityholders through subordination
will be effected both by the preferential right of the Securityholders to
receive current distributions with respect to the Receivables [and by the
establishment of the Spread Account] [and, with respect to the Class [B]
Certificates, by the establishment of the Class [B] Spread Account]. In
addition, the Spread Account [and the Class [B] Spread Account] will be
available in the event of defaults and delinquencies on the Receivables to make
distributions on the Class [C] Certificates, generally to the extent of amounts
remaining after distributions have been made to the Securityholders. [No funds]
[$_______] will
S-38
<PAGE>
be deposited in the Spread Account [or the Class [B] Spread Account] [until the
initial Distribution Date] [on the Closing Date].]
[On the initial Distribution Date and each Distribution Date
thereafter, if necessary, the Class [C] Distributions shall first be deposited
into the Spread Account until the amount in the Spread Account reaches an amount
equal to the Specified Spread Account Balance. [After the amount in the Spread
Account equals the Specified Spread Account Balance, the Class [B] Spread
Account then will be funded by deposits on each Distribution Date with amounts
otherwise distributable to Class [C] Certificateholders; unless such amounts
shall be required to fund the Spread Account or until the amount in the Class
[B] Spread Account reaches an amount equal to the Specified Class [B] Spread
Account Balance.] Thereafter, Class [C] Distributions will be deposited first in
the Spread Account [and then in the Class [B] Spread Account, in each case] to
the extent necessary to maintain the amounts in such accounts at the Specified
Spread Account Balance [and the Specified Class [B] Spread Account Balance, as
applicable]. At any time on or after the date on which the Spread Account [or
the Class [B] Spread Account] equals the specified Spread Account Balance [or
the Specified Class [B] Spread Account Balance, respectively], the [Indenture]
Trustee shall permit all or any portion of the Class [C] Distributions, as
requested by the Seller, thereafter to be excluded from the foregoing deposit
requirements, provided that, at the time of such request, the Seller presents
evidence to the [Indenture] Trustee that the ratings of the Securities shall not
be reduced or withdrawn as a result of such requested exclusion. [Furthermore,
upon a request from the Seller, the [Indenture] Trustee shall permit a reduction
in the Specified Class [B] Spread Account Balance; provided, however, that the
Seller presents written evidence to the [Indenture] Trustee that the ratings of
the Securities shall not be reduced or withdrawn as a result of such requested
reduction.] If any such portion of the Class [C] Distributions becomes excluded
from such deposit requirements it shall remain excluded even if the amounts in
the Spread Account [or the Class [B] Spread Account] thereafter fall below the
Specified Spread Account Balance [or the Specified Class [B] Spread Account
Balance, respectively].
[The Spread Account [and the Class [B] Spread Account] will not be a
part of the Trust and will be segregated trust accounts held by the [Indenture]
Trustee. On each Distribution Date, (i) if the amounts on deposit in the Spread
Account [or the Class [B] Spread Account] are less than the Specified Spread
Account Balance [or the Specified Class [B] Spread Account Balance,
respectively], the [Indenture] Trustee will be required, after payment of any
amounts required to be distributed to holders of the Securities and the payment
or retention of the Services Fee due with respect to the related Monthly Period
(including any unpaid Servicer Fee with respect to prior Monthly Periods), to
withdraw from the Collection Account and deposit first in the Spread Account
[and then in the Class [B] Spread Account] the amount remaining in the
Collection Account (subject to the possible exclusion of interest and/or
principal referred to in the preceding paragraph) that would otherwise be
distributed to the holders of the Class [C] Certificates, or such lesser portion
thereof as is sufficient to restore the amounts in the Spread Account [or the
Class [B] Spread Account] to the Specified Spread Account Balance [or the
Specified Class [B] Spread Account Balance, respectively], and (ii) if the
amounts on deposit in the Spread Account [or the Class [B] Spread Account] on
such Distribution Date (after giving effect to all deposits or withdrawals
therefrom on such Distribution Date) is greater than or equal to the Specified
Spread Account Balance [or the Specified Class [B] Spread Account Balance,
respectively,] for such Distribution Date, the [Indenture] Trustee will release
and distribute any such excess to the holders of the Class [C] Certificates.
Upon any such distribution to Class [C] Certificateholders, the Offered
Certificateholders will have no rights in, or claims to, such amounts.]
[Amounts held from time to time in the Spread Account will continue to
be held for the benefit of holders of the Securities and holders of the Class
[C] Certificates in order to effectuate the subordination of the rights of the
holders of the Class [C] Certificates to the rights of the holders of the
Securities. [Amounts held from time to time in the Class [B] Spread Account will
continue to be held for the benefit of holders of the Class [B] Certificates in
order to effectuate the subordination of the rights of the holders of the Class
[C] Certificates to the rights of the holders of the Class [B] Certificates. The
Class [A] Certificateholders shall have no rights to receive distributions from
the Class [B] Spread Account. The Class [C] Certificateholders shall have rights
to receive distributions from the Class [B] Spread Account only to the extent
described herein.] Funds in the Spread Account [and the Class [B] Spread
Account] shall be invested as provided in the Trust Documents in Eligible
Investments. Investment income (net of investment losses and expenses) on
amounts in the Spread Account [and the Class [B] Spread Account] will not be
available for distribution to holders of Securities, and will only be
distributed to the Seller.]
S-39
<PAGE>
["Eligible Investments" for monies deposited in the Spread Account,
[the Class [B] Spread Account and the Pre-Funding Account] are limited to
investments acceptable to the rating agency or agencies then rating the
Securities as being consistent with the then-current rating of the Securities.]
[The time necessary for the Spread Account [and the Class [B] Spread
Account] to reach and maintain the Specified Spread Account Balance [or the
Specified Class [B] Spread Account Balance, respectively,] at any time after the
date of issuance of the Certificates will be affected by the delinquency, net
loss, repossession and prepayment experience of the Receivables and, therefore,
cannot be accurately predicted, nor can there by any assurance that the balance
of such accounts will reach the Specified Spread Account Balance [and the
Specified Class [B] Spread Account Balance].
[Upon any distribution to the Class [C] Certificateholders of amounts
from the Spread Account [or the Class [B] Spread Account], the Securityholders
will not have any rights in, or claims to, such amounts, regardless of whether
there are sufficient funds paid on the Receivables or on deposit in the Spread
Account [and the Class [B] Spread Account] or any succeeding Distribution Date
to distribute to holders of the Securities the amount to which they are entitled
on such Distribution Date. Amounts on deposit in the Spread Account [and/or the
Class [B] Spread Account], to the extent available, will be withdrawn and
deposited in the Collection Account for the benefit of [the Noteholders,] the
Class [A] Certificateholders, [Class [B] Certificateholders] or the Class [C]
Certificateholders, as described below, in the following order of priority on
each Distribution Date:
[(i) an amount equal to the excess of the Noteholder Distributable
Amount plus the Noteholder Interest Carryover Shortfall plus the
Noteholder Principal Carryover Shortfall over the Total Available
Amount will be withdrawn from the Spread Account and deposited for the
benefit of the Noteholders;]
(ii) an amount equal to the excess of the Class [A] Interest
Distributable Amount plus the Class [A] Interest Carryover Shortfall
over the Total Available Amount [remaining after the distribution
referred to in clause (i)] will be withdrawn from the Spread Account
and deposited for the benefit of the Class [A] Certificateholders;
[(iii) an amount equal to the excess of the Class [B] Interest
Distributable Amount plus the Class [B] Interest Carryover Shortfall
over the portion of Total Available Amount remaining after the
distribution referred to in clauses (i) and (ii) will be withdrawn from
the Spread Account and deposited for the benefit of the Class [B]
Certificateholders;]
(iv) an amount equal to the excess of the Class [A] Principal
Distributable Amount plus the Class [A] Principal Carryover Shortfall
over the portion of Total Available Amount remaining after the
distributions referred to in clauses (i) [through (iii)] will be
withdrawn from the Spread Account and deposited for the benefit of the
Class [A] Certificateholders;
[(v) an amount equal to the excess of the Class [B] Principal
Distributable Amount plus the Class [B] Principal Carryover Shortfall
over the portion of Total Available Amount remaining after the
distributions referred to in clauses (i) through (iv) will be withdrawn
from the Spread Account and deposited for the benefit of the Class [B]
Certificateholders;]
[(vi) an amount equal to the excess of the sum of (1) the Class [B]
Interest Distributable Amount, (2) the Class [B] Interest Carryover
Shortfall, (3) the Class [B] Principal Distributable Amount and (4) the
Class [B] Principal Carryover Shortfall over the portion of Total
Available Amount remaining after the distributions referred to in
clauses (i) through (v) will be withdrawn from the Class [B] Spread
Account and deposited in the Class [B] Distribution Account for the
benefit of Class [B] Certificateholders only;]
S-40
<PAGE>
(vii) to the extent such withdrawal will not reduce the Spread Account
below the Specified Spread Account Balance [and the Class [B] Spread
Account below the Specified Class [B] Spread Account Balance], an
amount equal to the excess of the Class [C] Principal Distributable
Amount plus the Class [C] Principal Carryover Shortfall over the
portion of Total Available Amount remaining after the distributions
referred to in clauses (i) through [vi] will be withdrawn from the
Spread Account [and, if necessary, from the Class [B] Spread Account]
and deposited for the benefit of the Class [C] Certificateholders; and
(viii) to the extent such withdrawal will not reduce the Spread Account
below the Specified Spread Account Balance [and the Class [B] Spread
Account below the Specified Class [B] Spread Account Balance], an
amount equal to the excess of the Class [C] Interest Distributable
Amount over the portion of Total Available Amount remaining after the
distributions referred to in clauses (i) through [viii] will be
withdrawn from the Spread Account [and, if necessary, from the Class
[B] Spread Account] and deposited for the benefit of the Class [C]
Certificateholders.
The subordination of any Certificates, the Spread Account [and with
respect to the Class [B] Certificates, the Class [B] Spread Account] described
above are intended to enhance the likelihood of receipt by certain
Securityholders of the full amount of principal and interest on the Receivables
due them and to decrease the likelihood that such Securityholders will
experience losses. However, in certain circumstances, the Spread Account [and/or
the Class [B] Spread Account] could be depleted and shortfalls could result.]
For the purposes hereof, the following terms shall have the following
meanings:
"Amount Financed" means, with respect to a Receivable, the aggregate
amount advanced under such Receivable toward the purchase price of the Financed
Vehicle and related costs, including amounts advanced in respect of accessories,
insurance premiums, service, car club and warranty contracts, other items
customarily financed as part of retail automobile installment sale contracts or
promissory notes, and related costs.
"Available Funds" means, with respect to any Determination Date, the
sum of (i) the Collected Funds for such Determination Date (including amounts
withdrawn from the Payahead Account but excluding amounts deposited into the
Payahead Account), plus (ii) all Purchase Amounts deposited in the Collection
Account during the related Monthly Period, plus (iii) the Monthly Capitalized
Interest Amount with respect to the related Distribution Date.
"Certificate Balance" equals, initially, $[____________] and,
thereafter, equals the initial Certificate Balance, reduced by all amounts
allocable to principal previously distributed to Certificateholders.
"Certificateholders' Distributable Amount" means, with respect to any
Distribution Date, the sum of the Certificateholders' Principal Distributable
Amount and the Certificateholders' Interest Distributable Amount.
"Certificateholders' Interest Carryover Shortfall" means, with respect
to any Distribution Date, the excess of the Certificateholders' Interest
Distributable Amount for the preceding Distribution Date, over the amount in
respect of interest on the Certificates that was actually deposited in the
Certificate Distribution Account on such preceding Distribution Date, plus
interest on such excess, to the extent permitted by law, at the Certificate Rate
from such preceding Distribution Date to but excluding the current Distribution
Date.
"Certificateholders' Interest Distributable Amount" means, with respect
to any Distribution Date, the sum of the Certificateholders' Monthly Interest
Distributable Amount for such Distribution Date and the Certificateholders'
Interest Carryover Shortfall for such Distribution Date.
"Certificateholders' Monthly Interest Distributable Amount" means, with
respect to any Distribution Date, interest accrued during the related Interest
Period at the Certificate Rate on the Certificate Balance immediately preceding
such Distribution Date, calculated on the basis of a 360-day year consisting of
twelve 30-day months.
S-41
<PAGE>
"Certificateholders' Monthly Principal Distributable Amount" means,
with respect to any Distribution Date, the Certificateholders' Percentage of the
Principal Distributable Amount.
"Certificateholders' Percentage" means [(i) for each Distribution Date
prior to the Distribution Date on which the Class A-[_] Notes are paid in full,
zero, (ii) on the Distribution Date on which the Class A-[_] Notes are paid in
full, the percentage equivalent of a fraction, the numerator of which is the
excess, if any, of (x) the Principal Distributable Amount for such Distribution
Date over (y) the outstanding principal amount of the Class A-[_] Notes
immediately prior to such Distribution Date, and the denominator of which is the
Principal Distributable Amount for such Distribution Date, and (iii) for each
Distribution Date thereafter to and including the Distribution Date on which the
Certificate Balance is reduced to zero, 100%] [the percentage equivalent of a
fraction, the numerator of which is the outstanding principal amount of the
Certificates and the denominator of which is the outstanding principal amount of
the Securities].
"Certificateholders' Principal Carryover Shortfall" means, as of the
close of any Distribution Date, the excess of the Certificateholders' Principal
Distributable Amount for the preceding Distribution Date, over the amount in
respect of principal that was actually deposited in the Certificate Distribution
Account on such Distribution Date.
"Certificateholders' Principal Distributable Amount" means, with
respect to any Distribution Date (other than the Final Scheduled Distribution
Date for the Certificates), the sum of the Certificateholders' Monthly Principal
Distributable Amount for such Distribution Date and the Certificateholders'
Principal Carryover Shortfall as of the close of the preceding Distribution
Date; provided, however, that the Certificateholders' Principal Distributable
Amount shall not exceed the Certificate Balance. In addition, on the Final
Scheduled Distribution Date for the Certificates, the Certificateholders'
Principal Distributable Amount will equal the Certificate Balance on such
Distribution Date.
["Class [A] Certificate Balance" means the sum of (i) the [Class [A]
Percentage] of the [Initial] Pool Balance [plus (ii) ___ of the original
Pre-Funded Amount] and, thereafter, shall equal the initial Class [A]
Certificate Balance, reduced by all amounts distributed to Class [A]
Certificateholders and allocable to principal.]
["Class [A] Distributable Amount" means, with respect to a Distribution
Date, an amount equal to the sum of: (i) the Class [A] Principal Distributable
Amount, plus (ii) the Class [A] Interest Distributable Amount [add adjustment,
if any, for the initial period]s.]
["Class [A] Interest Carryover Shortfall" means, as of the close of
business on any Distribution Date, the excess of the Class [A] Interest
Distributable Amount for such Distribution Date plus any outstanding Class [A]
Interest Carryover Shortfall from the preceding Distribution Date plus interest
on such outstanding Class [A] Interest Carryover Shortfall, to the extent
permitted by law, at the Class A Pass-Through Rate from such preceding
Distribution Date through the current Distribution Date, over the amount of
interest that the Class [A] Certificateholders actually received on such current
Distribution Date.]
["Class [A] Interest Distributable Amount" means thirty (30) days'
interest at the Class [A] Pass-Through Rate (calculated on the basis of a year
consisting of twelve 30-day months) on the Class [A] Certificate Balance as of
the last day of the preceding Monthly Period [add adjustment, if any, for the
initial period].]
["Class [A] Principal Carryover Shortfall" means as of the close of
business on any Distribution Date, the excess of the Class [A] Principal
Distribution Amount plus any outstanding Class [A] Principal Carryover Shortfall
from the preceding Distribution Date over the amount of principal that the Class
[A] Certificateholders actually received on such current Distribution Date.
["Class [A] Principal Distributable Amount" means the sum (without
duplication) of the [Class [A] Percentage] of: (a) the principal portion of all
scheduled payments received during the preceding Monthly Period; (b) except to
the extent included in (a) above, the principal portion of all prepayments in
full (and certain partial prepayments) received during the preceding Monthly
Period; (c) the principal balance of each Receivable that was purchased by the
Seller or the Servicer under an obligation that arose during the preceding
Monthly Period (except to the extent included in (a) or
S-42
<PAGE>
(b) above) or which was purchased by the Servicer pursuant to the Optional
Purchase during the preceding Monthly Period; and (d) the principal balance of
each Receivable that was liquidated by the Servicer during the preceding Monthly
Period, net of the principal balance of any accounts previously reported as
liquidated which have been reinstated.]
["Class [B] Certificate Balance" means, the sum of (i) the [Class [B]
Percentage] of the [Initial] Pool Balance, plus (ii) ___ of the original
Pre-Funded Amount and, thereafter, shall equal the initial Class [B] Certificate
Balance, reduced by all amounts distributed to Class [B] Certificateholders and
allocable to principal.]
["Class [B] Distributable Amount" means with respect to a Distributable
Date shall be an amount equal to the sum of: (i) the Class [B] Principal
Distributable Amount, plus (ii) the Class [B] Interest Distributable Amount [add
adjustment, if any, for initial period].]
["Class [B] Interest Carryover Shortfall" means, as of the close of
business on any Distribution Date, the excess of the Class [B] Interest
Distributable Amount for such Distribution Date plus any outstanding Class [B]
Interest Carryover Shortfall from the preceding Distribution Date plus interest
on such outstanding Class [B] Interest Carryover Shortfall, to the extent
permitted by law, at the Class [B] Pass-Through Rate from such preceding
Distribution Date through the current Distribution Date, over the amount of
interest that the Class [B] Certificateholders actually received on such current
Distribution Date.]
["Class [B] Interest Distributable Amount" means an amount equal to
thirty (30) days' interest at the Class [B] Pass-Through Rate (calculated on the
basis of a year consisting of twelve 30-day months) on the Class B Certificate
Balance as of the last day of the preceding Monthly Period [add adjustment, if
any, for the initial period].]
["Class [B] Principal Carryover Shortfall" means as of the close of
business on any Distribution Date, the excess of the Class [B] Principal
Distribution Amount plus any outstanding Class [B] Principal Carryover Shortfall
from the preceding Distribution Date over the amount of principal that the Class
[B] Certificateholders actually received on such current Distribution Date.]
["Class [B] Principal Distributable Amount" means an amount equal to the
sum (without duplication) of the [Class [B] Percentage] of the amounts set forth
under (i)(a) through (i)(d) above with respect to the Class [A] Principal
Distributable Amount.]
["Class [C] Distributable Amount" means with respect to a Distribution
Date an amount equal to the sum of the Class [C] Principal Distributable Amount,
plus the Class [C] Interest Distributable Amount.]
["Class [C] Interest Distributable Amount" means an amount equal to the
total amount of scheduled principal and interest due on the Receivables and
actually received by the [Indenture] Trustee for the related Monthly Period
minus (i) the Servicing Fee, [(ii) the sum of (x) the Noteholders' Distributable
Amount, (y) Noteholders Interest Carryover Shortfall and (z) the Noteholders'
Principal Carryover Shortfall,] (iii) the sum of (x) the Class [A] Interest
Distributable Amount and (y) the Class [A] Interest Carryover Shortfall, if any,
[(iv) the sum of the Class [B] Interest Distributable Amount and (y) the Class
[B] Interest Carryover Shortfall, if any,] (v) the sum of (x) the Class [A]
Principal Distributable Amount and (y) the Class [A] Principal Carryover
Shortfall, if any, [(vi) the sum of (x) the Class [B] Principal Distributable
Amount and (y) the Class [B] Principal Carryover Shortfall, if any,] and (vii)
the sum of (x) the Class [C] Principal Distributable Amount and (y) the Class
[C] Principal Carryover Shortfall, if any.]
["Class [C] Principal Carryover Shortfall" means, as of the close of
business on any Distribution Date, the excess of the Class [C] Principal
Distribution Amount plus any outstanding Class [C] Principal Carryover Shortfall
on the preceding Distribution Date over the amount of principal that the Class
[C] Certificateholders actually received on such current Distribution Date.]
S-43
<PAGE>
["Class [C] Principal Distributable Amount" means an amount equal to the
sum (without duplication) of the [Class [C] Percentage] of the amounts set forth
under (i)(a) through (i)(d) above with respect to the Class [A] Principal
Distributable Amount.]
"Collected Funds" means, with respect to any Determination Date, the
amount of funds in the Monthly Account representing collections on the
Receivables during the related Monthly Period, including all Net Liquidation
Proceeds collected during the related Monthly Period (but excluding any Purchase
Amounts).
"Cram Down Loss" means, with respect to a Receivable if a court of
appropriate jurisdiction in an insolvency proceeding shall have issued an order
reducing the amount owed on such Receivable or otherwise modifying or
restructuring the scheduled payments to be made on such Receivable, an amount
equal to (i) the excess of the principal balance of such Receivable immediately
prior to such order over the principal balance of such Receivable as so reduced
and/or (ii) if such court shall have issued an order reducing the effective rate
of interest on such Receivable, the net present value (using as the discount
rate the higher of the APR on such Receivable or the rate of interest, if any,
specified by the court in such order) of the scheduled payments as so modified
or restructured. A "Cram Down Loss" shall be deemed to have occurred on the date
of issuance of such order.
"Deficiency Claim Amount" means, with respect to any Determination Date,
the excess, if any, of the sum of the amounts payable on the related
Distribution Date pursuant to clauses 1 through 6 above over the amount of
Available Funds with respect to such Determination Date.
"Deficiency Notice" means a written notice delivered by the Indenture
Trustee or the Owner Trustee, as applicable, to the Servicer, specifying the
Deficiency Claim Amount for such Distribution Date.
"Distribution Amount" means, with respect to any Distribution Date the
sum of (i) the Available Funds for the immediately preceding Determination Date
plus (ii) the Deficiency Claim Amount, if any, received (from the Spread Account
or otherwise) by the Indenture Trustee with respect to such Distribution Date.
["Liquidated Receivable" means, with respect to any Determination Date, a
Receivable as to which, as of the last day of the related Monthly Period, (i) 90
days have elapsed since the Servicer repossessed the Financed Vehicle, (ii) the
Servicer has determined in good faith that all amounts it expects to recover
have been received, (iii) 10% or more of a scheduled payment shall have become
150 or more days delinquent, or (iv) the Financed Vehicle has been sold and the
proceeds received.]
"Net Liquidation Proceeds" means, with respect to Liquidated Receivables,
(i) proceeds from the disposition of the underlying automobile securing the
Liquidated Receivables, less reasonable Servicer out-of-pocket costs, including
repossession and resale expenses not already deducted from such proceeds, and
any amounts required by law to be remitted to the Obligor, (ii) any insurance
proceeds, or (iii) other monies received from the Obligor or otherwise.
"Noteholders' Distributable Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Principal Distributable Amount
and the Noteholders' Interest Distributable Amount.
"Noteholders' Interest Carryover Shortfall" means, with respect to any
Distribution Date and a Class of Notes, the excess of the Noteholders' Interest
Distributable Amount for such Class for the preceding Distribution Date, over
the amount in respect of interest that was actually deposited in the Note
Distribution Account with respect to such Class on such preceding Distribution
Date, plus interest on the amount of interest due but not paid to Noteholders of
such Class on the preceding Distribution Date, to the extent permitted by law,
at the Interest Rate borne by such Class of Notes from such preceding
Distribution Date to but excluding the current Distribution Date.
"Noteholders' Interest Distributable Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Monthly Interest Distributable
Amount for each Class of Notes for such Distribution Date and the Noteholders'
Interest Carryover Shortfall for each Class of Notes for such Distribution Date.
S-44
<PAGE>
"Noteholder Monthly Interest Distributable Amount" means, with respect to
any Distribution Date and any Class of Notes, interest accrued during the
applicable Interest Period at the Interest Rate borne by such Class of Notes on
the outstanding principal amount of such Class immediately prior to such
Distribution Date, calculated on the basis of a 360-day year and (a) the actual
number of days elapsed, in the case of the Class A-[_] Notes and the Class A-[_]
Notes and (b) twelve 30-day months, in the case of the Class A-[_] Notes.
"Noteholders' Monthly Principal Distributable Amount" means, with
respect to any Distribution Date, the Noteholders' Percentage of the Principal
Distributable Amount.
"Noteholders' Percentage" means [(i) for each Distribution Date to the
Distribution Date on which the Class A-3 Notes are paid in full, 100%, (ii) on
the Distribution Date on which the Class A-[_] Notes are paid in full, the
percentage equivalent of a fraction, the numerator of which is the outstanding
principal amount of the Class A-[_] Notes immediately prior to such Distribution
Date, and the denominator of which is the Principal Distributable Amount for
such Distribution Date, and (iii) for any Distribution Date thereafter, zero.]
[The Noteholder's percentage will equal the percentage equivalent of a fraction
the numerator of which is the outstanding principal amount of the Notes and the
denominator of which is the aggregate outstanding principal amount of the
Securities.
"Noteholders' Principal Carryover Shortfall" means, as of the close of
any Distribution Date, the excess of the Noteholders' Principal Distributable
Amount for the preceding Distribution Date over the amount in respect of
principal that was actually deposited in the Note Distribution Account on such
Distribution Date.
"Noteholders' Principal Distributable Amount" means, with respect to any
Distribution Date (other than the Final Scheduled Distribution Date for any
Class of Notes), the sum of the Noteholders' Monthly Principal Distributable
Amount for such Distribution Date and the Noteholders' Principal Carryover
Shortfall as of the close of the preceding Distribution Date. The Noteholders'
Principal Distributable Amount on the Final Scheduled Distribution Date for any
Class of Notes will equal the sum of (i) the Noteholders' Monthly Principal
Distributable Amount for such Distribution Date, (ii) the Noteholders' Principal
Carryover Shortfall as of the close of the preceding Distribution Date, and
(iii) the excess of the outstanding principal amount of such Class of Notes, if
any, over the amounts described in clauses (i) and (ii).
"Principal Balance" means, with respect to any Receivable, as of any
date, the Amount Financed minus (i) that portion of all amounts received
(including Payaheads applied to scheduled payments) on or prior to such date and
allocable to principal in accordance with the terms of the Receivable, and (ii)
any Cram Down Loss in respect of such Receivable.
"Principal Distributable Amount" means, with respect to any Distribution
Date, the amount equal to the sum of the following amounts with respect to the
related Monthly Period, computed, with respect to Simple Interest Receivables,
in accordance with the simple interest method, and, with respect to Precomputed
Receivables, in accordance with the actuarial method: (i) that portion of all
collections on Receivables allocable to principal, including full and, with
respect to Simple Interest Receivables, partial principal prepayments, received
during such Monthly Period (including, with respect to Precomputed Receivables,
amounts withdrawn from the Payahead Account but excluding amounts deposited into
the Payahead Account) with respect to such Monthly Period, (ii) the principal
balance of each Receivable that was repurchased by Franklin Capital, the Seller
or the Servicer as of the last day of such Monthly Period, (iii) the outstanding
principal balance of those Receivables that were required to be repurchased by
the Seller and/or Franklin Capital during such Monthly Period but were not so
repurchased, (iv) the principal balance of each Receivable that became a
Liquidated Receivable during such Monthly Period and (v) the aggregate amount of
Cram Down Losses during such Monthly Period.
"Purchase Amount" means, with respect to a Receivable, the Principal
Balance and accrued interest on the Receivable (including one month's interest
thereon, in the month of payment, at the APR less, so long as Franklin Capital
is the Servicer, the Servicing Fee and other servicing compensation and
expenses), after giving effect to the receipt of any moneys collected (from
whatever source) on such Receivable, if any.
S-45
<PAGE>
"Total Available Amount" means, for a Distribution Date (being the funds
available for distribution to [Noteholders and] Certificateholders of each class
with respect to such Distribution Date in accordance with the priorities
described herein [other than amounts transferred from the Spread Account [and
the Class B Spread Account]]) shall be the Collected Funds.
STATEMENTS TO SECURITYHOLDERS
On or prior to each Distribution Date, the Indenture Trustee will be
required to forward a statement to the Noteholders and the Owner Trustee will be
required to forward a statement to the Certificateholders on such Distribution
Date. Such statements will be based on the information in the related Servicer's
Certificate setting forth certain information required under the Trust
Documents. Each such statement to be delivered to Noteholders will include the
following information as to the Notes, and each such statement to be delivered
to Certificateholders will include the following information as to the
Certificates, with respect to such Distribution Date or the period since the
previous Distribution Date, as applicable:
(i) the amount of the distribution allocable to interest on or
with respect to the Notes and the Certificates:
(ii) the amount of the distribution allocable to principal
with respect to the Notes and the Certificates;
(iii) the amount of the distribution payable out of amounts on
deposit in the Spread Account;
(iv) the aggregate outstanding principal amount and the Note
Pool Factor for each Class of Notes and the Certificate Balance and the
Certificate Pool Factor for the Certificates, in each case, after
giving effect to all payments reported under (ii) above on such date;
(v) the Noteholders' Interest Carryover Shortfall, the
Noteholders' Principal Carryover Shortfall, the Certificateholders'
Interest Carryover Shortfall and the Certificateholders' Principal
Carryover Shortfall, if any, and the change in such amounts from the
preceding statement;
(vi) the amount of the Servicing Fee paid to the Servicer with
respect to the related Monthly Period;
(vii) for each such date during the Funding Period, the
remaining Pre-Funded Amount, the amount in the Pre-Funding Account and
the amount remaining in the Capitalized Interest Account; and
(viii) for the final Subsequent Transfer Date, the amount of
any remaining Pre-Funded Amount that has not been used to fund the
purchase of Subsequent Receivables and is being passed through as
payments of principal of the Notes and Certificates.
Each amount set forth pursuant to subclauses (i) through (vi) with
respect to Certificates or Notes will be expressed as a dollar amount per $1,000
of the initial principal amount of the Notes or initial Certificate Balance, as
applicable.
Unless and until Definitive Notes or Definitive Certificates are
issued, such reports will be sent on behalf of the Trust to Cede & Co., as
registered holder of the Notes and the Certificates and the nominee of DTC. See
"Certain Information Regarding the Securities--Statements to Securityholders" in
the Prospectus.
Within the required period of time after the end of each calendar year,
the Indenture Trustee and the Owner Trustee, as applicable, will furnish to each
person who at any time during such calendar year was a Noteholder or
S-46
<PAGE>
Certificateholder, a statement as to the aggregate amounts of interest and
principal paid to such Noteholder or Certificateholder, information regarding
the amount of servicing compensation received by the Servicer and such other
information as the Seller deems necessary to enable such Noteholder or
Certificateholder to prepare its tax returns.
SPREAD ACCOUNT
On the Closing Date, the Seller will make an initial deposit of an
amount equal to $______ (the "Spread Account Initial Deposit") to the Spread
Account which will be established with the [__________], as Collateral Agent for
the benefit of the Indenture Trustee on behalf of the Noteholders, the Owner
Trustee, on behalf of the Certificateholders, pursuant to a certain Spread
Account Agreement dated as of [________, 199_], (the "Spread Account
Agreement"). The Spread Account will not be an asset of the Trust. On each
Distribution Date, the Indenture Trustee will be required to deposit additional
amounts into the Spread Account from payments on the Receivables as described
under "-- Distributions" above. Amounts, if any, on deposit in the Spread
Account will be available to the extent provided in the Spread Account Agreement
to fund any Deficiency Claim Amount otherwise required to be made on a
Distribution Date. The aggregate amount required to be on deposit at any time in
the Spread Account (the "Specified Spread Account Requirement") will be
determined in accordance with the Spread Account Agreement. The Specified Spread
Account Requirement may increase or decrease over time as a result of floors,
caps and triggers set forth in the Spread Account Agreement, even if no
withdrawals are made from the Spread Account. Amounts on deposit in the Spread
Account on any Distribution Date (after giving effect to all distributions made
on such Distribution Date) in excess of the Specified Spread Account Requirement
for such Distribution Date will be released to the Seller. Amounts on deposit or
to be deposited in the Spread Account may be distributed to persons other than
the Securityholders without the consent of the Securityholders.
Amounts held from time to time in the Spread Account will continue to
be held for the benefit of holders of the Securities. Funds in the Spread
Account will be invested in Eligible Investments. Investment income (net of
investment losses and expenses) on amounts in the Spread Account will not be
available for distribution to holders of Securities, and will only be
distributed to the Seller.
[In addition, the Seller and the Indenture Collateral Agent may amend
the Spread Account Agreement in any respect (including, without limitation,
reducing or eliminating the Specified Spread Account Requirement and/or reducing
or eliminating the funding requirements of the Spread Account or permitting such
funds to be used for the benefit of persons other than Securityholders) without
the consent of, or notice to, the Indenture Trustee, the Owner Trustee or the
Securityholders. The Indenture Collateral Agent shall not withhold or delay its
consent with respect to any amendment that does not adversely affect the
Indenture Collateral Agent.]
SERVICER DEFAULT; RIGHTS UPON SERVICER DEFAULT
Notwithstanding anything to the contrary set forth under "Description
of the Purchase Agreements and the Trust Documents -- Servicer Default" in the
Prospectus, a "Servicer Default" under the Sale and Servicing Agreement will
consist of (i) any failure by the Servicer to deliver to the Owner Trustee or
the Indenture Trustee any deposit or payment required to be so made, which
failure continues unremedied for [__] Business Days after written notice from
the Owner Trustee or the Indenture Trustee is received by the Servicer or after
discovery of such failure by the Servicer, (ii) any failure by the Servicer duly
to observe or perform in any material respect any other covenant or agreement in
the Sale and Servicing Agreement which failure materially and adversely affects
the rights of Certificateholders or Noteholders and which continues unremedied
for 60 days after the giving of written notice of such failure (1) to the
Servicer by the Owner Trustee or the Indenture Trustee or (2) to the Servicer
and to the Owner Trustee and the Indenture Trustee by holders of Certificates or
Notes evidencing not less than 25% in aggregate principal amount of the
outstanding Certificates or Notes, respectively (or such longer period, not in
excess of 120 days, as may be reasonably necessary to remedy such default;
provided that such default is capable of remedy within 120 days or less and the
Servicer delivers an officer's certificate to the Owner Trustee and the
Indenture Trustee to such effect and to the effect that the Servicer has
commenced, or will promptly commence, and diligently pursue all reasonable
efforts to remedy such default); and (iii) certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings with respect to the Servicer or the Seller and certain actions by
the Servicer
S-47
<PAGE>
or the Seller indicating its insolvency, reorganization pursuant to bankruptcy
proceedings, or inability to pay its obligations.
As long as a Servicer Default under the Sale and Servicing Agreement
remains unremedied, either the Indenture Trustee or the Noteholders holding not
less than a majority of the principal amount of Notes outstanding may terminate
all of the rights and obligations of the Servicer under the Sale and Servicing
Agreement. All authority, power, obligations and responsibilities of the
Servicer under the Sale and Servicing Agreement will automatically then pass to
the Indenture Trustee, as backup servicer, or a successor servicer appointed by
the Owner Trustee in accordance with the Sale and Servicing Agreement.
WAIVER OF PAST DEFAULTS
Notwithstanding anything to the contrary set forth under "Description
of the Purchase Agreements and the Trust Documents -- Waiver of Past Defaults"
in the Prospectus, the [Owner Trustee] may, on behalf of all holders of
Securities, waive any default by the Servicer in the performance of its
obligations under the Sale and Servicing Agreement and its consequences. No such
waiver will impair the Securityholders' rights with respect to subsequent
defaults.
AMENDMENT
Notwithstanding anything to the contrary set forth under "Description
of the Purchase Agreement and the Trust Documents -- Amendment" in the
Prospectus, the Agreement may be amended by the Seller, the Servicer and the
Owner Trustee with the consent of the Indenture Trustee, (which consent may not
be unreasonably withheld), but without the consent of the Securityholders, to
cure any ambiguity, or to correct or supplement any provision therein which may
be inconsistent with any other provision therein; provided that such action
shall not adversely affect in any material respect the interests of any
Securityholder. An amendment shall be deemed not to adversely affect the
interests of any such holder if either each Rating Agency rating such Securities
confirms in writing that such amendment will not result in a reduction or
withdrawal of such rating or none of the Rating Agencies rating such Securities,
within 10 days' after receipt of notice of such amendment, shall have notified
the Seller, the Servicer or the Trust in writing that such amendment will result
in a reduction or withdrawal of the then current rating of the Securities. The
Seller, the Servicer and the Owner Trustee may also amend the Sale and Servicing
Agreement with the consent of the Indenture Trustee, the consent of Noteholders
holding a majority of the principal amount of the Notes and the consent of
Certificateholders holding a majority of the principal amount of Certificates
outstanding to add, change or eliminate any other provisions with respect to
matters or questions arising under such Agreement or affecting the rights of the
Noteholders or the Certificateholders; provided that such action will not (i)
increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on Receivables or distributions that are
required to be made for the benefit of the Noteholders or Certificateholders or
(ii) reduce the aforesaid percentage of the Noteholders or Certificateholders
required to consent to any such amendment, without, in either case, the consent
of the holders of all Notes and Certificates outstanding. The Seller and
Servicer must deliver to the Owner Trustee and the Indenture Trustee upon the
execution and delivery of the Sale and Servicing Agreement and any amendment
thereto an opinion of counsel, satisfactory to the Indenture Trustee, that all
financing statements and continuation statements have been filed that are
necessary to fully protect and preserve the Trustee's interest in the
Receivables.
It is a condition to issuance that the Class A-[_] Notes be rated
[____] by S&P and [___] by Moody's, and that the Class A-[_] Notes, the Class
A-[_] Notes and the Certificates be rated [___] by S&P and [___] by Moody's. A
rating is not a recommendation to purchase, hold or sell Securities. In the
event that the rating initially assigned to any of the Securities is
subsequently lowered or withdrawn for any reason, no person or entity will be
obligated to provide any additional credit enhancement with respect to the
Securities. Any reduction or withdrawal of a rating may have an adverse effect
on the liquidity and market price of the Securities. See "Ratings" in the
Prospectus.
S-48
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
PROSPECTIVE NOTEHOLDERS AND CERTIFICATEHOLDERS ARE ADVISED TO CONSULT
THEIR TAX ADVISORS WITH REGARD TO THE FEDERAL INCOME TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP, OR DISPOSITION OF INTERESTS IN THE NOTES OR CERTIFICATES,
AS WELL AS THE TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCALITY,
FOREIGN COUNTRY OR OTHER TAXING JURISDICTION.
Weil, Gotshal & Manges LLP, special tax counsel to the Trust, is of the
opinion that for federal income tax purpose the Notes will be characterized as
debt and the Trust will not be characterized as an association (or a publicly
traded partnership) taxable as a corporation. Opinions of counsel are not
binding on the Internal Revenue Service (the "IRS") and there can be no
assurance that the IRS could not successfully challenge this conclusion.
Moreover, no ruling will be sought from the IRS with respect to the transaction
described herein. All potential investors and Certificateholders are advised to
review "FEDERAL INCOME TAX CONSEQUENCES -- TRUSTS TREATED AS PARTNERSHIPS OR AS
DIVISIONS" in the Prospectus for a discussion of the anticipated federal income
tax consequences of the purchase, ownership and disposition of the Notes and
Certificates.
STATE TAX CONSIDERATIONS
Potential Noteholders and Certificateholders should consider the state
and local income tax effects on them of the purchase, ownership and disposition
of the Notes and Certificates. State and local income tax laws may differ
substantially from the corresponding federal law, and this discussion does not
purport to describe any aspect of the income tax laws of any state or locality.
Therefore, potential Noteholders and Certificateholders should consult their own
tax advisors with respect to the various state and local tax consequences of an
investment in the Notes and Certificates.
ERISA CONSIDERATIONS
Section 406 of ERISA, and/or Section 4975 of the Code, prohibits a
pension, profit-sharing or other employee benefit plan, as well as individual
retirement accounts and certain types of Keogh Plans (each a "Benefit Plan")
from engaging in certain transactions with persons that are "parties in
interest" under ERISA or "disqualified persons" under the Code with respect to
such Benefit Plan. A violation of these "prohibited transaction" rules may
result in an excise tax or other penalties and liabilities under ERISA and the
Code for such persons. Title I of ERISA also requires that fiduciaries of a
Benefit Plan subject to ERISA make investments that are prudent, diversified
(except if prudent not to do so) and in accordance with governing plan
documents.
Certain transactions involving the purchase, holding or transfer of the
Securities might be deemed to constitute prohibited transactions under ERISA and
the Code if assets of the Trust were deemed to be assets of a Benefit Plan.
Under a regulation issued by the United States Department of Labor (the "Plan
Assets Regulation"), the assets of the Trust would be treated as plan assets of
a Benefit Plan for the purposes of ERISA and the Code only if the Benefit Plan
acquires an "Equity Interest" in the Trust and none of the exceptions contained
in the Plan Assets Regulation is applicable. An equity interest is defined under
the Plan Assets Regulation as an interest other than an instrument which is
treated as indebtedness under applicable local law and which has no substantial
equity features. The Seller believes that the Notes should be treated as
indebtedness without substantial equity features for purposes of the Plan Assets
Regulation. However, without regard to whether the Notes are treated as an
Equity Interest for such purposes, the acquisition or holding of Notes by or on
behalf of a Benefit Plan could be considered to give rise to a prohibited
transaction if the Trust, the Owner Trustee or the Indenture Trustee, the owner
of collateral, or any of their respective affiliates is or becomes a party in
interest or a disqualified person with respect to such Benefit Plan. In such
case, certain exemptions from the prohibited transaction rules could be
applicable depending on the type and circumstances of the plan fiduciary making
the decision to acquire a Note. Included among these exemptions are: Prohibited
Transaction Class Exemption ("PTCE") 90-1, regarding investments by insurance
company pooled separate
S-49
<PAGE>
accounts; PTCE 95-60, regarding investments by insurance company general
accounts; PTCE 91-38, regarding investments by bank collective investment funds;
PTCE 96-23, regarding transactions affected by in-house asset managers; and PTCE
84-14, regarding transactions effected by "qualified professional asset
managers."
The Certificates may not be acquired by (a) an employee benefit plan
(as defined in Section 3(3) of ERISA) that is subject to the provisions of Title
I of ERISA, (b) a plan described in Section 4975(e)(1) of the Code or (c) any
entity whose underlying assets include plan assets by reason of a plan's
investment in the entity. By its acceptance of a Certificate, each
Certificateholder will be deemed to have represented and warranted that it is
not subject to the foregoing limitation. For additional information regarding
treatment of the Certificates under ERISA, see "ERISA Considerations" in the
accompanying Prospectus.
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements.
A plan fiduciary considering the purchase of Notes should consult its
tax and/or legal advisors regarding whether the assets of the Trust would be
considered plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
UNDERWRITING
Under the terms and subject to the conditions contained in the
Underwriting Agreement, the Seller has agreed to cause the Trust to sell to the
Underwriters named below (the "Underwriters"), for whom [______] is acting as
representative, and the Underwriters have severally but not jointly agreed to
purchase the following respective number of Notes and Certificates.
Principal Amount Principal Amount
Underwriter of Notes of Certificates
----------- -------- ---------------
The Underwriters have informed the Servicer and the Seller that they do
not expect discretionary sales by the Underwriters to exceed [5]% of the
principal amount of the Securities being offered hereby.
The Seller has been advised by the Underwriters that the Underwriters
propose to offer the Securities from time to time for sale in negotiated
transactions or otherwise, at prices determined at the time of sale. The
Underwriters may effect such transactions by selling Securities to or through
dealers and such dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Underwriters and any purchasers
of Securities for whom they may act as agents. The Underwriters and any dealers
that participate with the Underwriters in the distribution of the Securities may
be deemed to be underwriters, and any discounts or commissions received by them
and any profit on the resale of Securities by them may be deemed to be
underwriting discounts or commissions, under the Securities Act of 1933, as
amended.
The Servicer and Seller have jointly agreed to indemnify the several
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or contribute to payments which the Underwriters may be required
to make in respect thereof.
S-50
<PAGE>
The Indenture Trustee and the Indenture Collateral Agent may from time to
time invest the funds in the Collection Account, the Pre-Funding Account, the
Capitalized Interest Account, the Payahead Account, the Spread Account, as the
case may be, in Eligible Investments acquired from the Underwriters.
[In connection with the offering of the Securities, the Underwriter(s) may
purchase and sell the Securities in the open market. These transactions may
include over-allotment and stabilizing transactions and purchases to cover short
positions created by the Underwriter(s) in connection with the offering.
Stabilizing transactions consist of certain bids or purchases for the purpose of
preventing or retarding a decline in the market price of the Securities; and
short positions involve the sale by the Underwriter(s) of a greater number of
Securities than it is required to purchase from the Seller contemporaneously
with the offering. The Underwriter(s) may also impose a penalty bid, whereby
selling concessions allowed to broker-dealers in respect of the Securities sold
in the offering may be reclaimed by the Underwriter(s) if such Securities are
repurchased by the Underwriter(s) in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Securities, which may be higher than the price that might otherwise prevail in
the open market; and these activities, if commenced, may be discontinued at any
time. These transactions may be effected in the over-the-counter market or
otherwise.]
EXPERTS
The consolidated balance sheets of [________] as of [___________] and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for each of the three years in the period ended [_______ 199_],
incorporated by reference herein, have been audited by [__________,] independent
certified public accountants, and are incorporated herein in reliance upon the
authority of that firm as experts in accounting and auditing.
LEGAL OPINIONS
In addition to the legal opinions described in the Prospectus, certain
federal income tax and other matters will be passed upon for the Seller and the
Trust by Weil, Gotshal & Manages LLP. Certain legal matters relating to the
Securities will be passed upon for the Servicer by Weil, Gotshal & Manges LLP.
Certain legal matters relating to the Securities will be passed upon for the
Underwriters by Stroock & Stroock & Lavan LLP.
S-51
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
- --------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED JUNE 15, 1998
Prospectus
FRANKLIN AUTO TRUSTS
Asset Backed Certificates
Asset Backed Notes
--------------
FRANKLIN RECEIVABLES LLC
Seller
or
FCC RECEIVABLES CORP.
Seller
FRANKLIN CAPITAL CORPORATION
Servicer
The Asset Backed Certificates (the "Certificates") and the Asset Backed
Notes (the "Notes" and, collectively with the Certificates, the "Securities")
described herein may be sold from time to time in one or more series, in
amounts, at prices and on terms to be determined at the time of sale and to be
set forth in a supplement to this Prospectus (a "Prospectus Supplement"). Each
series of Securities will include either one or more classes of Certificates or,
if Notes are issued as part of a series, one or more classes of Notes and one or
more classes of Certificates, as set forth in the related Prospectus Supplement.
At the time of issuance, each class of Securities of each series will be rated
investment grade by at least one Rating Agency (as defined herein).
The Certificates and the Notes, if any, of any series of Securities will
be issued by a trust (a "Trust") to be formed with respect to such series by
Franklin Receivables LLC or FCC Receivables Corp. (each the "Seller," as
specified in the related Prospectus Supplement, or collectively the "Sellers"),
each a wholly-owned subsidiary of Franklin Capital Corporation ("Franklin
Capital," or in its capacity as servicer, the "Servicer"). The assets of each
Trust (the "Trust Property") will include a pool of motor vehicle retail
installment sale contracts ("Receivables") originated (i) indirectly by Franklin
Capital or an affiliate thereof through the purchase thereof from motor vehicle
dealers or (ii) if specified in the related Prospectus Supplement, directly by
Franklin Capital or acquired in bulk and other purchases from third-party
lenders and/or its affiliate, Franklin Bank ("Franklin Bank"), and secured by
new and used automobiles and light trucks, certain monies received thereunder on
or after the Initial Cutoff Date set forth and defined in the related Prospectus
Supplement, security interests in motor vehicles financed thereby and certain
other property, all as more fully described herein and in the related Prospectus
Supplement. Each Trust will be formed pursuant to either (i) a Pooling and
Servicing Agreement (the "Pooling and Servicing Agreement") to be entered into
among the related Seller, the Servicer in its individual capacity and as
Servicer, and the trustee (the "Owner Trustee") and any other party, if any,
specified in the related Prospectus Supplement or (ii) a Trust Agreement (the
"Trust Agreement") to be entered into between the related Seller and the Owner
Trustee. If the Trust is formed pursuant to a Trust Agreement, a Sale and
Servicing Agreement (the "Sale and Servicing Agreement") will be entered into
among the related Seller, the Servicer, in its individual capacity and as
Servicer, the Trust and any other party, if any, specified in the related
Prospectus Supplement. In either case, the Pooling and Servicing Agreement or
the Trust Agreement and the Sale and Servicing Agreement are collectively
referred to herein as the "Trust Documents." The Notes, if any, of a
THE DATE OF THIS PROSPECTUS IS JUNE __, 1998
<PAGE>
series will be issued and secured pursuant to an Indenture (the "Indenture")
between the Trust and the Indenture Trustee specified in the related Prospectus
Supplement (the "Indenture Trustee").
Each class of Securities will represent the right to receive distributions
or payments in the amounts, at the rates, and on the dates set forth in the
related Prospectus Supplement. The rate of distributions in respect of principal
on Certificates and payment in respect of principal on Notes, if any, of any
class will depend on the priority of payment of such class and the rate and
timing of payments (including prepayments, liquidations and repurchases of
Receivables) on the related Receivables. A rate of payment lower or higher than
that anticipated may affect the weighted average life of each class of
Securities in the manner described herein and in the related Prospectus
Supplement.
There currently is no secondary market for the Securities. There can be no
assurance that any such market will develop or, if it does develop, that it will
continue. Unless otherwise set forth in the related Prospectus Supplement, the
Securities will not be listed on any securities exchange.
FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE SECURITIES, SEE "RISK FACTORS" AT PAGE 15 HEREIN
AND AS MAY BE SET FORTH IN THE RELATED PROSPECTUS SUPPLEMENT.
--------------------
THE CERTIFICATES REPRESENT INTERESTS IN AND THE NOTES REPRESENT
OBLIGATIONS OF THE RELATED TRUST ONLY AND DO NOT REPRESENT INTERESTS IN OR
OBLIGATIONS OF THE SERVICER, THE SELLERS, FRANKLIN CAPITAL OR ANY OF THEIR
RESPECTIVE AFFILIATES. NONE OF THE SECURITIES OR ANY OF THE RELATED
RECEIVABLES ARE ISSUED OR GUARANTEED BY ANY GOVERNMENT OR GOVERNMENT
AGENCY.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
--------------------
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of securities offered hereby unless accompanied by a
Prospectus Supplement.
-2-
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR THE RELATED
PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SELLERS, THE SERVICER,
FRANKLIN CAPITAL, FRANKLIN RESOURCES, INC. OR ANY UNDERWRITER. THIS PROSPECTUS
AND THE RELATED PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OFFERED THEREBY TO ANYONE IN ANY
JURISDICTION IN WHICH THE PERSON MAKING SUCH OFFER AND SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS AND THE RELATED PROSPECTUS
SUPPLEMENT NOR ANY SALE MADE THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME
SINCE THE DATE HEREOF.
--------------------
AVAILABLE INFORMATION
Franklin Receivables LLC and FCC Receivables Corp. have filed with the
Securities and Exchange Commission (the "Commission") a Registration Statement
(together with all amendments and exhibits thereto, referred to herein as the
"Registration Statement") under the Securities Act of 1933, as amended, with
respect to the Securities offered pursuant to this Prospectus. Each Trust is
subject to the informational requirements of the Exchange Act, and in accordance
therewith each Seller files on behalf of each related Trust reports and other
information required under the Prospectus and related Prospectus Supplement with
the Commission. Reports and other information with respect to each Trust and the
Registration Statement, can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission at Seven World Trade Center, Suite 1300, New York, New York 10048 and
at the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such materials and the Registration Statement may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition, the
Registration Statement may be accessed electronically at the Commission's site
on the World Wide Web located at http://www.sec.gov. at which users can view the
Registration Statement through the Electronic Data Gathering Analysis and
Retrieval ("EDGAR"), system.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Servicer on behalf of each Trust with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), subsequent to the date of
this Prospectus and prior to the termination of the offering of the related
Securities shall be deemed to be incorporated by reference into this Prospectus
and the related Prospectus Supplement and to be a part hereof and thereof from
the respective dates of filing of such documents. Any statement contained herein
or in a document all or any portion of which is deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus and the related Prospectus Supplement to the extent that a
statement contained herein or in any other subsequently filed document which
also is deemed to be incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus or
the related Prospectus Supplement.
The Servicer will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the written or verbal
request of any such person, a copy of any or all of the information that has
been incorporated herein by reference (not including exhibits to that
information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that
-3-
<PAGE>
the Prospectus incorporates). Requests for such copies should be directed to
Attorney, Les Kratter, 777 Mariners Island Boulevard, San Mateo, California
94404 (telephone (605) 312-4018).
-4-
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and by reference to the
information with respect to the Securities contained in the related Prospectus
Supplement to be prepared and delivered in connection with the offering of each
series of Securities. Certain capitalized terms used in this Prospectus Summary
are defined elsewhere herein. A listing of the pages on which some of such terms
are defined is found in the "Index of Terms."
ISSUER....................... With respect to each series of Securities, a trust
(the "Trust"), to be formed by a Seller pursuant
to a Pooling and Servicing Agreement among the
related Seller, the Servicer and the Owner Trustee
and any other party, if any, specified in the
related Prospectus Supplement, or a Trust
Agreement between the related Seller and the Owner
Trustee specified in the related Prospectus
Supplement. The term "Owner Trustee" is used
herein solely for purposes of reference and
nothing herein shall characterize each Trust as an
"owner trust" except as specified in the related
Prospectus Supplement.
SELLER....................... Franklin Receivables LLC, a Delaware limited
liability company or FCC Receivables Corp., a
Delaware Corporation (each the "Seller", as
specified in the related Prospectus Supplement, or
collectively, the "Sellers"). The Sellers are
wholly-owned subsidiaries of Franklin Capital
Corporation.
SERVICER..................... Franklin Capital Corporation, a Utah corporation.
The Servicer is a wholly-owned subsidiary of
Franklin Resources, Inc., a Delaware corporation
("Franklin Resources"). Franklin Resources is a
financial services company headquartered in San
Mateo, California.
OWNER TRUSTEE................ The Owner Trustee will be specified in the related
Prospectus Supplement with respect to any series
of Securities.
INDENTURE TRUSTEE............ The Indenture Trustee for any series of Notes will
be specified in the related Prospectus Supplement.
SECURITIES OFFERED........... The Securities offered from time to time may
include one or more series of Certificates and/or
one or more series of Notes, as described herein
and in the related Prospectus Supplement.
THE CERTIFICATES............. Any series of Securities may include one or more
classes of Certificates, as specified in the
related Prospectus Supplement. The Certificates
may consist of one or more classes, each of which
will be issued pursuant to a Pooling and Servicing
Agreement or Trust Agreement. Only a certain class
or certain classes of such Certificates, however,
may be offered hereby and by the related
Prospectus Supplement, as specified in the related
Prospectus Supplement. Each Certificate will
represent a fractional undivided ownership
interest in the related Trust. Each offered
Certificate may also represent a fractional
undivided interest in monies on deposit, if any,
in a trust account (as defined below, the
"Pre-Funding Account") to be established with the
Owner Trustee
-5-
<PAGE>
or Indenture Trustee, as specified in the related
Prospectus Supplement, and any other account
established for the benefit of holders of
Certificates ("Certificateholders"), as specified
in the related Prospectus Supplement.
Unless otherwise specified in the related
Prospectus Supplement, the offered Certificates
shall be issued in fully registered form in
denominations of $1,000 and integral multiples of
$1,000 in excess thereof and will be available in
book-entry form only. Unless the related
Prospectus Supplement specifies that the
Certificates are offered in definitive form,
Certificateholders will be able to receive
Definitive Certificates (as defined herein) only
in the limited circumstances described herein or
in the related Prospectus Supplement. See "Certain
Information Regarding the Securities-Book-Entry
Registration."
Each class of offered Certificates (other than
certain Strip Certificates (as defined below))
will have a stated Certificate Balance (as defined
for each class in the related Prospectus
Supplement) and will accrue interest on such
Certificate Balance at a specified rate (with
respect to each class of Certificates, the
"Pass-Through Rate"). Each class of offered
Certificates may have a different Pass-Through
Rate, which may be fixed, variable or adjustable,
or any combination of the foregoing. The related
Prospectus Supplement will specify the
Pass-Through Rate for each class of offered
Certificates, or the initial Pass-Through Rate and
the method for determining subsequent Pass-Through
Rates.
A series of Securities may include two or more
classes of Certificates which may differ as to
timing of distributions, sequential order,
priority of payment, seniority, allocation of
loss, Pass- Through Rate or amount of
distributions in respect of principal or interest,
or as to which distributions of principal or
interest on any class may or may not be made upon
the occurrence of specified events or on the basis
of collections from designated portions of the
Receivables (as defined herein) related to such
series. In addition, a series may include one or
more classes of Certificates entitled to (i)
distributions in respect of principal with
disproportionate, nominal or no interest
distributions, or (ii) interest distributions with
disproportionate, nominal or no distributions in
respect of principal (such Certificates, "Strip
Certificates").
With respect to any series of Securities including
one or more classes of Notes, distributions in
respect of the Certificates may be subordinated in
priority of payment to payments on the Notes of
such series, to the extent specified in the
related Prospectus Supplement.
In connection with each Trust, the related Seller
may, with respect to any series of Securities,
retain one or more classes of Certificates, which
may or may not be evidenced by physical
certificates.
-6-
<PAGE>
THE NOTES.................... Any series of Securities may include one or more
classes of Notes, as specified in the related
Prospectus Supplement, each of which will be
issued pursuant to an Indenture (as defined
herein).
Unless otherwise specified in the related
Prospectus Supplement, Notes will be available for
purchase in denominations of $1,000 and integral
multiples of $1,000 in book-entry form only.
Unless otherwise specified in the related
Prospectus Supplement, holders of Notes
("Noteholders") will be able to receive Definitive
Notes (as defined herein) only in the limited
circumstances described herein or in the related
Prospectus Supplement. See "Certain Information
Regarding the Securities-Book-Entry Registration."
Each class of Notes will have a stated principal
amount and will bear interest at a rate or rates
(with respect to each class of Notes, the
"Interest Rate"), as specified in the related
Prospectus Supplement, which may be different for
each class of Notes and may be fixed, variable,
adjustable or any combination of the foregoing.
The related Prospectus Supplement will specify the
Interest Rate for each class of Notes or the
method for determining the Interest Rate. Each
Note may also represent a fractional undivided
interest in monies on deposit, if any, in the
Pre-Funding Account to be established with the
Indenture Trustee as specified in the related
Prospectus Supplement and any other account
established for the benefit of Noteholders, as
specified in the related Prospectus Supplement.
A series may include two or more classes of Notes
which differ as to the timing and priority of
payment, seniority, allocations of loss, Interest
Rate or amount of payments of principal or
interest, or as to which payments of principal or
interest may or may not be made upon the
occurrence of specified events or on the basis
collections from designated portions of the
Receivables for such series. In addition, a series
may include one or more classes of Notes entitled
to (i) principal payments with disproportionate,
nominal or no interest payments or (ii) interest
payments with disproportionate, nominal or no
principal payments (such Notes, "Strip Notes").
TRUST PROPERTY............... The Trust property will include certain motor
vehicle retail installment sale contracts
initially transferred to the Trust (the "Initial
Receivables"), as specified in the related
Prospectus Supplement, secured by new or used
automobiles and light trucks (the "Initial
Financed Vehicles"), certain monies received
thereunder on or after a date as specified in the
related Prospectus Supplement (the "Initial Cutoff
Date"), security interests in the Initial Financed
Vehicles securing the Initial Receivables, certain
bank accounts and the proceeds thereof, all
proceeds of the foregoing, any proceeds from
claims on certain insurance policies, and certain
rights under the related Trust Documents (as
defined herein). If specified in the related
Prospectus Supplement, motor vehicle retail
installment sale contracts to be sold to the Trust
after the date of issuance of the Securities and
on or before a date specified in the related
Prospectus
-7-
<PAGE>
Supplement (the "Subsequent Receivables"), secured
by additional new or used automobiles and light
trucks (the "Subsequent Financed Vehicles"),
certain monies received thereunder on or after a
date or dates as specified in the related
Prospectus Supplement (the "Subsequent Cut-Off
Date"), security interests in the Subsequent
Financed Vehicles securing the Subsequent
Receivables, certain bank accounts and the
proceeds thereof may be purchased by the Trust
from the related Seller from funds on deposit in
the related Pre-Funding Account. The Initial
Receivables and any Subsequent Receivables related
to each series of Securities are hereinafter,
collectively, referred to as the "Receivables" and
the Initial Financed Vehicles and the Subsequent
Financed Vehicles related to each series of
securities are hereinafter, collectively, referred
to as the "Financed Vehicles."
RECEIVABLES.................. The Receivables will be purchased by the Sellers
from Franklin Capital Corporation (in its
individual capacity, "Franklin Capital") pursuant
to a Purchase Agreement (the "Purchase Agreement")
between the related Seller and Franklin Capital
providing for such purchase. The Receivables
comprising the property of the Trust consist of
motor vehicle retail installment sale contracts,
with such characteristics, including their
weighted average annual percentage rate and their
weighted average remaining maturity, as shall be
specified in the related Prospectus Supplement.
The Receivables arise or will arise from loans
originated by motor vehicle dealers ("Dealers")
and purchased by Franklin Capital pursuant to
agreements with the Dealers or other third parties
for subsequent sale to the related Seller. If so
specified in the related Prospectus Supplement,
the Receivables will also include motor vehicle
retail installment sale contracts or loans
originated directly by Franklin Capital or
acquired in bulk and other purchases from
third-party lenders and/or its affiliate the
Franklin Bank. The Receivables for any Trust will
be selected from the contracts owned by the
related Seller based on the criteria specified in
the related Sale and Servicing Agreement or
Pooling and Servicing Agreement, as applicable,
and as described herein and in the related
Prospectus Supplement.
PRE-FUNDING ACCOUNT.......... If and to the extent so specified in the related
Prospectus Supplement, all or a portion of the net
proceeds from the offering of the Securities of a
series (such amount, the "Pre-Funded Amount") may
be deposited in a segregated account (the
"Pre-Funding Account") with the Owner Trustee or
Indenture Trustee, as the case may be, for the
benefit of the Securityholders. During the period
specified in the related Prospectus Supplement
(the "Funding Period") the Pre-Funded Amount will
be reduced as it is used to purchase Subsequent
Receivables subject to the satisfaction of certain
conditions specified under "Description of the
Purchase Agreements and Trust
Documents-Eligibility Criteria" herein and
otherwise in accordance with the Trust Documents.
For a Trust that elects to be characterized as a
grantor trust under federal income tax laws, the
maximum length of the Funding Period will not
exceed 90
-8-
<PAGE>
days from the date of issuance of the Securities
and otherwise the maximum length of the Funding
Period will not exceed the period set forth in the
related Prospectus Supplement. In any event, the
amount of the initial Pre-Funded Amount and the
maximum length of the Funding Period is intended
not to exceed the aggregate principal balance of
Subsequent Receivables satisfying the eligibility
criteria that Franklin Capital anticipates it will
be able to acquire and convey to the Trust during
the Funding Period.
Prior to the conveyance of any Subsequent
Receivables to the Trust, Franklin Capital will be
required to give notice to the Trustee(s), the
Rating Agencies (as defined herein) and any
third-party credit enhancement provider of the
Subsequent Receivables to be conveyed to the
related Seller and from the related Seller to the
Trust. Upon the satisfaction of the conditions set
forth in the Trust Documents, including the
receipt by the Owner Trustee and/or Indenture
Trustee, as applicable, of an executed assignment,
an Officer's Certificate (as defined therein) and
a legal opinion, the Owner Trustee and/or
Indenture Trustee, as applicable, will release
from the Pre-Funding Account the necessary funds
to purchase the Subsequent Receivables to be
conveyed to the Trust on such date. If any
Pre-Funded Amount remains on deposit in the
Pre-Funding Account at the end of the Funding
Period, such amount, in the amounts and in the
manner specified in the related Prospectus
Supplement, will be used to prepay some or all
classes of the Notes and/or Certificates.
REVOLVING PERIOD AND
AMORTIZATION PERIOD;
RETAINED INTEREST............ If the related Prospectus Supplement so provides,
there may be a period commencing on the date of
issuance of a class or classes of Notes or
Certificates of a series and ending on the date
set forth in the related Prospectus Supplement
(the "Revolving Period") during which no principal
payments will be made to one or more classes of
Notes or Certificates of the related series as are
identified in such Prospectus Supplement. All
collections of principal otherwise allocated to
such classes of Notes or Certificates may be (i)
utilized by the Trust during the Revolving Period
to acquire additional Receivables which satisfy
the standards described under "The Receivables -
General" herein and the criteria set forth in the
related Prospectus Supplement, (ii) held in an
account and invested in Eligible Investments (as
defined herein) for later distribution to
Securityholders, (iii) applied to pay principal to
those Notes or Certificates, if any, specified in
the related Prospectus Supplement as then are in
amortization, or (iv) otherwise applied as
specified in the related Prospectus Supplement.
An "Amortization Period" is the period during
which an amount of principal is payable to holders
of a series of Securities which, during the
Revolving Period, were not entitled to such
payments. If so specified in the related
Prospectus Supplement, during an Amortization
Period all or a portion of principal collections
on the
-9-
<PAGE>
Receivables may be applied as specified above for
a Revolving Period and, to the extent not so
applied, will be distributed to the classes of
Notes or Certificates specified in the related
Prospectus Supplement as then being entitled to
payments of principal. In addition, if so
specified in the related Prospectus Supplement,
amounts deposited in certain accounts for the
benefit of one or more classes of Notes or
Certificates may be released from time to time or
on a specified date and applied as a payment of
principal on such classes of Notes or
Certificates. The related Prospectus Supplement
will set forth the circumstances which will result
in the commencement of an Amortization Period.
Each Trust which has a Revolving Period may also
issue to the related Seller a certificate
evidencing an undivided beneficial interest (the
"Retained Interest") in the Trust not represented
by the other Securities issued by such Trust. As
further described in the related Prospectus
Supplement, the value of such Retained Interest
will fluctuate as the amount of Trust Property
fluctuates and the amount of Notes and
Certificates of the related series of Securities
outstanding is reduced.
YIELD AND PREPAYMENT
CONSIDERATIONS............... The weighted average life of the Securities of the
related series will be reduced by full or partial
prepayments on the related Receivables. The
Receivables will generally be prepayable at any
time without penalty. Prepayments (or, for this
purpose, equivalent payments to the related Trust)
may result from payments by the retail purchasers
obligated under the Receivables (each, an
"Obligor"), liquidations due to default, the
receipt of proceeds from physical damage or credit
insurance, repurchases by (if no other party is
described in the related Prospectus Supplement as
obligated to make such repurchases) Franklin
Capital and the related Seller as a result of
certain uncured breaches of representations and
warranties made with respect to the Receivables,
such repurchases by (if no other party is
described in the related Prospectus Supplement as
obligated to make sure purchases) the Servicer as
a result of certain uncured breaches of the
covenants made by it with respect to the
Receivables, if so specified in the related
Prospectus Supplement, amounts on deposit, if any,
in the Pre-Funding Account at the end of the
Funding Period being applied to the payment of
principal of the Securities, the Servicer
exercising its option, if any, described in the
related Prospectus Supplement to purchase all of
the remaining Receivables of a Trust or, if and to
the extent provided in the related Prospectus
Supplement, the receipt of satisfactory bids for
the purchase of the Receivables of the related
Trust in the manner and on the respective terms
and conditions specified in the related Prospectus
Supplement.
DISTRIBUTION ACCOUNT......... With respect to each series of Securities, the
Owner Trustee or the Indenture Trustee will
establish and maintain one or more separate
accounts (each, a "Distribution Account") for the
benefit of the Certificateholders and the
Noteholders, if any, in the manner
-10-
<PAGE>
specified in each related Prospectus Supplement.
On each Distribution Date (as specified in the
related Prospectus Supplement, the "Distribution
Date"), the Owner Trustee or the Indenture
Trustee, as the case may be, will be required to
pass through and distribute to the
Certificateholders, or pay to the Noteholders, as
the case may be, on the date specified in the
related Prospectus Supplement from amounts held in
the Distribution Account, the amounts of interest,
principal or otherwise distributable with respect
to the applicable classes of Certificates and
Notes as specified in the related Prospectus
Supplement.
SUBORDINATION AND
CREDIT ENHANCEMENT........... In the event of defaults and delinquencies on the
Receivables, certain distributions of interest
and/or principal with respect to one or more
classes of Securities may be subordinated in
priority of payment to distributions due on other
classes of Securities as specified in the related
Prospectus Supplement. In addition, to the extent
specified in the related Prospectus Supplement,
one or more classes of Securities may be entitled
to the benefits of a spread account, a reserve
account, accelerated payments of principal
relative to the amortization of the related
Receivables, a policy or policies of insurance, a
letter or letters of credit, surety bonds, credit
or liquidity facilities, guaranteed investment
contracts, swaps or other interest rate protection
agreements, repurchase obligations, yield
supplement agreements, other agreements with
respect to third party payments or other support,
cash deposits or other arrangements, which may be
subject to certain limitations and exclusions as
described in the related Prospectus Supplement.
CERTAIN LEGAL ASPECTS OF
THE RECEIVABLES.............. In connection with the sale of the Receivables to
a Trust, the security interests in the Financed
Vehicles securing the Receivables and the
Subsequent Receivables will be assigned by the
related Seller to such Trust. Due to
administrative burden and expense, the
certificates of title to the Financed Vehicles
will not be amended to reflect the assignment of
such security interests to the Trust. In the
absence of such an amendment, the Trust may not
have a perfected security interest in the Financed
Vehicles securing the Receivables in some states.
See "Certain Legal Aspects of the Receivables."
REPURCHASES AND
PURCHASES OF CERTAIN
RECEIVABLES.................. The Seller will be obligated to repurchase any
Receivable sold to the Trust as to which a
security interest in the Financed Vehicle securing
such Receivable shall not have been perfected in
favor of Franklin Capital if the Owner Trustee or
the Indenture Trustee, as the case may be,
determines such breach shall materially adversely
affect the interest of the Trust in such
Receivable and if such failure or breach shall not
have been cured by the second (or, if the related
Seller elects, the first) month following the
discovery by or notice of such breach. The Seller
also will be obligated to repurchase any
Receivable if the Indenture Trustee or the Owner
Trustee, as the
-11-
<PAGE>
case may be, determines the interest of the Trust
therein is materially adversely affected by a
breach of any other representation or warranty
made by the related Seller with respect to the
Receivable, and if the breach has not been cured
by the last day of the second (or, if the related
Seller elects, the first) month following the
discovery by or notice to the related Seller of
the breach.
SERVICING.................... The Servicer will be required to remit collections
(net of the Servicing Fee, the Supplemental
Servicing Fee and reimbursement for Advances, if
any (each as defined herein or in the related
Prospectus Supplement) included in such
collections) to one or more Collection Accounts
established with the Owner Trustee or the
Indenture Trustee as specified in the related
Prospectus Supplement. As specified in the related
Prospectus Supplement, the Servicer will receive
from the Trust or retain each month a fee for
servicing the Receivables in an amount specified
in the related Prospectus Supplement out of the
collections on the Receivables. See "Description
of The Purchase Agreements and The Trust
Documents-Servicing Compensation."
ADVANCES..................... If and to the extent specified in the related
Prospectus Supplement, the Servicer may be
required to advance (each, an "Advance") monthly
payments of interest or monthly payments of
principal and interest in respect of a delinquent
Receivable or Servicer approved deferrals of
monthly payments that the Servicer, in its sole
discretion, determines are recoverable from
subsequent payments on or with respect to such
Receivable or from other Receivables. The Servicer
shall be entitled to reimbursement of Advances
from subsequent payments on or with respect to the
Receivables to the extent described in the related
Prospectus Supplement.
OPTIONAL PURCHASE............ With respect to each series of Securities, the
Servicer may purchase all of the Receivables held
by the related Trust as of the last day of any
month in which the Pool Balance (as defined in the
related Prospectus Supplement) of such Trust at
the close of business on the Distribution Date (as
defined herein or in the related Prospectus
Supplement) in such month is 10% or less (or such
other percentage specified in the related
Prospectus Supplement) of the Original Pool
Balance (as defined in the related Prospectus
Supplement) (calculated after giving effect to the
principal balance of any Subsequent Receivables as
of their respective Subsequent Cutoff Dates). See
"Description of The Purchase Agreements and The
Trust Documents- Termination."
TAX STATUS................... With respect to a Trust issuing Certificates and
Notes, the Prospectus Supplement may specify that
the related Trust will be treated as either (i) a
partnership, or (ii) a division of its single
Certificateholder. In either event, upon the
issuance of the related series of Securities,
Weil, Gotshal & Manges LLP, federal tax counsel
("Federal Tax Counsel"), will deliver an opinion
(subject to the assumptions set forth therein) to
the effect that, for federal income tax purposes:
(i) any Notes of such series will be
-12-
<PAGE>
characterized as debt and (ii) such Trust will not
be characterized as an association (or a publicly
traded partnership) taxable as a corporation. In
respect of any such series, each Noteholder, if
any, by the acceptance of a Note of such series,
will agree to treat such Note as indebtedness for
federal income tax purposes, and each
Certificateholder, by the acceptance of a
Certificate of such series, will agree to treat
such Trust as either a partnership in which such
Certificateholder is a partner or as a division,
as the case may be, for federal income tax
purposes. Alternative characterizations of such
Trust and such Certificates are possible, but
would not result in materially adverse tax
consequences to Certificateholders.
If the Prospectus Supplement specifies that the
related Trust will be treated as a grantor trust,
upon the issuance of the related series of
Certificates, Federal Tax Counsel will deliver an
opinion (subject to the assumptions set forth
therein) to the effect that such Trust will be
treated as a grantor trust for federal income tax
purposes and will not be subject to federal income
tax.
If the Prospectus Supplement specifies that a
Trust issuing Securities will not be treated as a
partnership, but rather will be regarded as a
security device for the issuance of debt, upon
issuance of the related Series of Securities,
Federal Tax Counsel will deliver an opinion
(subject to the assumptions set forth therein) to
the effect that, for federal income tax purposes,
the Securities of the related series will be
treated as indebtedness for federal income tax
purposes and that the Trust will not be
characterized as an association (or publicly
traded partnership) taxable as a corporation. In
respect of any such series, the related Seller
will agree and each Securityholder, by acquiring
an interest in a Security, will be deemed to agree
to treat the Securities as indebtedness for
federal, state and local income or franchise tax
purposes. Alternative characterizations of such
Trust and such Securities are possible and
potential investors should consult their tax
advisors before purchasing such Securities.
If the Prospectus Supplement specifies that a
Trust issuing securities will be treated as a
"financial asset securitization investment trust"
("FASIT") within the meaning of the Code, upon
issuance of the related Series of Securities,
Federal Tax Counsel will deliver an opinion
(subject to the assumptions set forth therein) to
the effect that, for federal income tax purposes,
the Securities will constitute "regular interests"
in a FASIT.
See "Federal Income Tax Consequences" for
additional information concerning the application
of federal income tax laws.
ERISA
CONSIDERATIONS............... Subject to the considerations discussed under
"ERISA Considerations" herein and in the related
Prospectus Supplement, and to the extent specified
in the related Prospectus Supplement, any Notes
included in the offered Securities may be eligible
for purchase by employee benefit plans or other
retirement arrangements that are
-13-
<PAGE>
subject to either Title I of the Employee
Retirement Income Security Act of 1974, as amended
("ERISA") or Section 4975 of the Internal Revenue
Code of 1986, as amended (such plans or
arrangements, "Plans"). Certain Certificates may
be eligible for purchase by Plans as specified in
the related Prospectus Supplement. See "ERISA
Considerations" herein and in the related
Prospectus Supplement.
RATINGS...................... As a condition of issuance, the offered Securities
of each series will be rated investment grade,
that is, in one of the four highest rating
categories, by at least one nationally recognized
rating agency (a "Rating Agency"), as specified in
the related Prospectus Supplement. The ratings
will be based on the Receivables related to each
series, the terms of the Securities, and the
subordination and any credit enhancement provided
therefor. There is no assurance that the ratings
initially assigned to such Securities will not be
subsequently lowered or withdrawn by the Rating
Agencies. In the event the rating initially
assigned to any Securities is subsequently lowered
for any reason, no person or entity will be
obligated to provide any credit enhancement unless
otherwise specified in the related Prospectus
Supplement.
-14-
<PAGE>
RISK FACTORS
LIMITED LIQUIDITY
There is currently no market for the Securities of any series. There can
be no assurance that a secondary market for the Securities will develop or, if
such a market does develop, that it will provide Securityholders with liquidity
of investment or that it will continue for the life of the Securities. See "Plan
of Distribution."
NATURE OF RECEIVABLES; UNDERWRITING PROCESS; SUFFICIENCY OF INTEREST RATES TO
COVER LOSSES
Although Franklin Capital believes that it carefully reviews and evaluates
each credit before acceptance, no assurance can be given that the standards
employed by Franklin Capital will be sufficient to protect the Securityholders
from loss due to default by the Obligors, who may not meet in all cases the
credit standards of other lenders. The Receivables supporting a particular
series of Notes or Certificates may include obligations of borrowers with little
credit history (often referred to as "non-prime" obligations) or negative credit
history ("sub-prime" obligations). Because of the greater credit risk associated
with non-prime and sub-prime motor vehicle retail installment sale contracts,
the interest rates charged on such contracts are generally higher than those
rates charged on prime motor vehicle retail installment sale contracts. The
range of APRs (as defined herein) of the Receivables will be set forth in the
related Prospectus Supplement. There can be no assurance, however, that the
interest rates on the Receivables in a particular pool will be sufficient to
cover losses on other Receivables in such pool. See "Franklin Capital
Corporation-General."
RISK OF LOSS
No Trust will have any significant assets or sources of funds other than
the Receivables and, to the extent provided in the related Prospectus
Supplement, a Pre-Funding Account and/or any credit enhancement specified in the
related Prospectus Supplement. The Notes, if any, of any series will represent
obligations solely of, and the Certificates of any series will represent
interests solely in, the related Trust, and neither the Notes nor the
Certificates of any series will be insured or guaranteed by the Sellers, the
Servicer, the applicable Owner Trustee, the applicable Indenture Trustee or,
except as specified in the related Prospectus Supplement, any other person or
entity. Consequently, Securityholders must rely for payment upon payments on the
related Receivables and, if and to the extent available, amounts on deposit in
the Pre-Funding Account, if any, and any credit enhancement, if any, specified
in the related Prospectus Supplement. To the extent specified in the related
Prospectus Supplement, distributions with respect to some or all classes of
Certificates may be subordinated in priority of payment to distributions on the
Notes, if any, of such series and distributions on other classes of Certificates
of such series. Any such subordination or credit enhancement will not cover all
contingencies, and losses in excess of such coverage will be required to be
borne directly by the affected Securityholders. In addition, holders of certain
classes of Securities of a series may have the right to take actions that are
detrimental to the interests of the Securityholders of certain other classes of
Securities of such series, as specified in the related Prospectus Supplement.
See "Description of the Purchase Agreements and Trust Documents-Credit
Enhancement" and "-Amendment."
RISK OF UNPERFECTED SECURITY INTERESTS IN FINANCED VEHICLES
As part of the sale and assignment of Receivables to a Trust, security
interests in the related Financed Vehicles will be assigned by the related
Seller to such Trust. In most states, such an assignment is an effective
conveyance of a security interest without amendment of any such security
interest noted on a motor vehicle's certificate of title, and the assignee
succeeds thereby to the assignor's rights as secured party. Such notation of a
secured party's security interest is generally effected in such states by
depositing with the applicable state motor vehicle registrar or similar state
authority, the motor vehicle's certificate of title, an application containing
the name and address of such secured party, and the necessary registration fees.
-15-
<PAGE>
Due to the administrative burden and expense that would be entailed in
doing so, the certificates of title for the Financed Vehicles related to any
Trust will not be endorsed to identify the related Trustee as the secured party,
and will not be deposited with the motor vehicle registrar or other state
authorities in any state. In the absence of such action, the Owner Trustee or
the Indenture Trustee, as the case may be, may not have a perfected security
interest in the Financed Vehicles related to such Trust in certain states and,
in the event that another person obtains a perfected security interest in such a
Financed Vehicle subsequent to the transfer of the Receivables to the related
Trust, such person might acquire rights in such Financed Vehicle prior to the
rights of the Trust. The related Seller and/or another party, if any, designated
in the related Prospectus Supplement will covenant to repurchase any Receivable
if, on the date of transfer of a Receivable to a Trust, a valid, existing and
enforceable first priority security interest shall not have been perfected in
favor of Franklin Capital, which shall have been assigned to the Trust, in the
related Financed Vehicle. If such Trust does not have a perfected security
interest in a Financed Vehicle, its ability to realize on such Financed Vehicle
in the event of a default may be adversely affected. To the extent the security
interest is perfected, such Trust will have a prior claim over subsequent
purchasers of such Financed Vehicles and holders of subsequently perfected
security interests. However, as against liens for repairs of Financed Vehicles
or for taxes unpaid by an Obligor under a Receivable, or through fraud or
negligence, such Trust could lose the priority of its security interest or its
security interest in a Financed Vehicle. Except as described above, neither the
related Seller nor Franklin Capital will have any obligation to repurchase a
Receivable as to which any of the occurrences result in such Trust's losing the
priority of its security interest or its security interest in such Financed
Vehicle after the date such security interest was conveyed to such Trust.
Federal and state consumer protection laws impose requirements upon creditors in
connection with extensions of credit and collections of retail installment loans
and certain of these laws make an assignee of such a loan (such as such Trust)
liable to the related borrower for any violation by the lender. The related
Seller will be obligated to repurchase any Receivable which fails to comply with
such requirements. See "Certain Legal Aspects of the Receivables-Security
Interests in Vehicles."
INSOLVENCY RISKS
Franklin Capital intends that any transfer of Receivables to a Seller will
constitute a sale, rather than a pledge of the Receivables to secure
indebtedness of Franklin Capital. However, if Franklin Capital were to become a
debtor under the federal bankruptcy code or similar applicable state laws
(collectively, the "Insolvency Laws"), a creditor or trustee in bankruptcy
thereof, or Franklin Capital as debtor-in-possession, might argue that such sale
of Receivables was a pledge of Receivables rather than a sale and/or that the
assets and liabilities of the related Seller should be consolidated with the
assets and liabilities of Franklin Capital. This position, if presented to or
accepted by a court, could result in a delay in or reduction of distributions to
Securityholders. In addition, a delay in or reduction of distributions to
Securityholders could result if the related Seller were to become a debtor under
any Insolvency Law and a creditor or trustee-in-bankruptcy of such debtor or
such debtor itself were to take the position that the sale of Receivables to
such Trust should instead be treated as a pledge of such Receivables to secure a
borrowing of such debtor. In addition, if the transfer of any Receivables is
recharacterized as a pledge, and a tax lien, other governmental lien, or other
lien created by operation of law is imposed on the property of the Servicer, the
holder of such lien may have priority over the Trust's interest in such
Receivables.
SOCIAL, ECONOMIC AND OTHER FACTORS AFFECTING THE RECEIVABLES
Economic conditions in states where Obligors reside may affect the
delinquency, loan loss and repossession experience of a Trust with respect to
the related Receivables. The related Prospectus Supplement will set forth any
restrictions imposed by any Trust on concentrations of Receivables thereunder.
The performance by such Obligors may be affected by a variety of social and
economic factors. Economic factors include, but are not limited to, interest
rates, unemployment levels, the rate of inflation and consumer perception of
economic conditions, generally. However, the related Seller is unable to
determine and has no basis to predict whether or to what extent economic or
social factors will affect the performance by any Obligors, or the availability
of Subsequent Receivables in cases where Subsequent Receivables are to be
transferred to a Trust as specified in the related Prospectus Supplement. See
"Franklin Capital Corporation."
-16-
<PAGE>
PREPAYMENTS ON RECEIVABLES AFFECT ON YIELD OF SECURITIES
The weighted average life of the Securities of the related series will be
reduced by full or partial prepayments on the related Receivables. The
Receivables will generally be prepayable at any time without penalty.
Prepayments (or, for this purpose, equivalent payments to the related Trust) may
result from payments by Obligors, liquidations due to default, the receipt of
proceeds from physical damage or credit insurance, repurchases by (if no other
party is described in the related Prospectus Supplement as obligated to make
such repurchases) Franklin Capital and the related Seller as a result of certain
uncured breaches of representations and warranties made with respect to the
Receivables, purchases by (if no other party is described in the related
Prospectus Supplement as obligated to make such repurchases) the Servicer as a
result of certain uncured breaches of the covenants made by it with respect to
the Receivables, if so specified in the related Prospectus Supplement, amounts
on deposit in the Pre-Funding Account at the end of the Funding Period being
applied to the payment of principal of the Securities, the Servicer exercising
its option to purchase all of the remaining Receivables of a Trust or, if and to
the extent provided in the related Prospectus Supplement, the receipt of
satisfactory bids for the purchase of the Receivables of the related Trust in
the manner and on the respective terms and conditions specified in the related
Prospectus Supplement.
Franklin Capital has not as of the date of this Prospectus prepared data
on prepayment rates. Franklin Capital can make no prediction as to the actual
prepayment rates that will be experienced on the Receivables. Franklin Capital,
however, believes that the actual rate of prepayments will result in a
substantially shorter weighted average life than the scheduled weighted average
life of the Receivables. Generally, the amounts paid to Securityholders will
include all prepayments (which are not amounts representing Payaheads) on the
Receivables. The Securityholders will bear all reinvestment risk resulting from
the timing of payments on the Securities. See "Yield and Prepayment
Considerations."
RISK OF SERVICER COMMINGLING FUNDS
With respect to each Trust, unless otherwise provided in the related
Prospectus Supplement, the Servicer will deposit all payments (net of certain
fees) on the related Receivables (from whatever source) and all proceeds of such
Receivables collected during each Monthly Period (as defined in the related
Prospectus Supplement) into the Collection Account of such Trust within two
business days of receipt thereof. However, in the event that the Servicer, or
any successor Servicer, satisfies certain requirements for monthly or less
frequent remittances and the Rating Agencies (as such term is defined in the
related Prospectus Supplement, the "Rating Agencies") affirm their ratings of
the related Securities at the initial level and provided that (i) there exists
no Servicer Default (as defined herein and in the related Prospectus
Supplement), (ii) the credit enhancement provider, if any, consents, and (iii)
each other condition to making such monthly or less frequent deposits as may be
specified by the Rating Agencies and described in the related Prospectus
Supplement is satisfied, the Servicer will not be required to deposit such
amounts into the Collection Account of such Trust until on or before the
business day preceding each Distribution Date. If such requirements are
satisfied, the Servicer will deposit the aggregate Purchase Amount of
Receivables purchased by it into the applicable Collection Account on or before
the business day preceding each Distribution Date. Pending deposit into such
Collection Account, collections may be invested by the Servicer at its own risk
and for its own benefit and will not be segregated from funds of the Servicer.
If the Servicer were unable to remit such funds, the applicable Securityholders
might incur a loss. To the extent set forth in the related Prospectus
Supplement, the Servicer may, in order to satisfy the requirements described
above, obtain a letter of credit or other security for the benefit of the
related Trust to secure timely remittances of collections on the related
Receivables and payment of the aggregate Purchase Amount with respect to
Receivables purchased by the Servicer. See "Description of the Purchase
Agreements and Trust Documents-Collections."
RISKS OF SECURITYHOLDERS UPON SERVICER DEFAULT
Unless otherwise provided in the related Prospectus Supplement with
respect to a series of Securities that includes Notes, in the event a Servicer
Default occurs, the Indenture Trustee or the Noteholders with respect to such
series may remove the Servicer without the consent of the Owner Trustee or any
of the Certificateholders
-17-
<PAGE>
with respect to such series. The Owner Trustee or the Certificateholders with
respect to such series will not have the ability to remove the Servicer if a
Servicer Default occurs. In addition, the Noteholders of such series have the
ability, with certain specified exceptions, to waive defaults by the Servicer,
including defaults that could materially adversely affect the Certificateholders
of such series. See "The Notes-The Indenture."
BOOK-ENTRY REGISTRATION
Unless otherwise specified in the related Prospectus Supplement, each
class of Securities of a given series will be initially represented by one or
more certificates registered in the name of Cede & Co. ("Cede"), or any other
nominee for The Depository Trust Company ("DTC") set forth in the related
Prospectus Supplement, and will not be registered in the names of the holders of
the Securities of such series or their nominees. Unless otherwise specified in
the related Prospectus Supplement, persons acquiring beneficial ownership
interests in any Series of Securities may hold their interests through DTC in
the United States or, in the case of any series of Notes, Cedel Bank, societe
anonyme ("Cedel") or the Euroclear System ("Euroclear") in Europe. Because of
this, unless and until Definitive Securities for such series are issued, holders
of such Securities will not be recognized by the Owner Trustee or any applicable
Indenture Trustee as "Certificateholders", "Noteholders" or "Securityholders",
as the case may be (as such terms are used herein or in the related Pooling and
Servicing Agreement or related Indenture and Trust Agreement, as applicable).
Hence, until Definitive Securities are issued, holders of such Securities will
only be able to exercise the rights of Securityholders indirectly through DTC
and its participating organizations. See "Certain Information Regarding the
Securities-Book-Entry Registration."
THE TRUSTS
Each Seller will establish a Trust with respect to each series of
Securities by selling and assigning the Trust Property, as described below, to
the Owner Trustee pursuant to the Trust Documents. Prior to the sale and
assignment of the related Receivables pursuant to the related Trust Documents,
such Trust will have no assets or obligations. Each Trust will not engage in any
business activity other than acquiring, holding and, if so specified in the
related Prospectus Supplement, selling the Trust Property, issuing Certificates
and Notes, if any, of such series and distributing payments thereon.
Each Certificate will represent a fractional undivided ownership interest
in, and each Note, if any, will represent an obligation of, the related Trust.
The property of the Trust will include, among other things, (a) motor vehicle
retail installment sale contracts, as specified in the related Prospectus
Supplement, between Dealers and retail purchasers (the "Obligors") of new or
used automobiles and light trucks and (b) all payments received thereunder on or
after the Initial Cutoff Date or Subsequent Cutoff Date, as the case may be, as
specified in the related Prospectus Supplement. The Receivables were or will be
originated by Dealers in accordance with Franklin Capital's requirements under
agreements with Dealers for assignment to Franklin Capital, have been or will be
so assigned, and evidence or will evidence the indirect financing made available
to the Obligors. If specified in the related Prospectus Supplement, the
Receivables may be originated directly by Franklin Capital or acquired by
Franklin Capital in bulk and other purchases from third-party lenders or the
Franklin Bank. On or before the closing date specified in the related Prospectus
Supplement, Franklin Capital will sell the Initial Receivables to the related
Seller for sale to the Trust. Subsequent Receivables, if any, will be conveyed
to the Trust during the applicable Funding Period, as provided in the related
Prospectus Supplement. Any such Subsequent Receivables will constitute property
of the Trust.
The property of each Trust also will include, to the extent set forth in
the Prospectus Supplement, (i) such amounts as from time to time may be held in
separate trust accounts (such as the "Collection Account," the "Certificate
Account" and the "Payahead Account," as may be specified in the related
Prospectus Supplement) established and maintained pursuant to the Trust
Documents, and the proceeds of such accounts; (ii) security interests in the
related Financed Vehicles and any accessions thereto; (iii) amounts payable to
the Servicer under any dealer recourse obligations (as specified in the related
Prospectus Supplement) (in the event of breach of the
-18-
<PAGE>
warranties of such Dealer); (iv) the right to proceeds of credit life, credit
disability, and physical damage insurance policies covering the related Financed
Vehicles; (v) the rights of the related Seller under the Trust Documents; (vi)
certain rebates of premiums and other amounts relating to certain insurance
policies and other items financed under the Receivables, and (viii) any and all
proceeds of the foregoing. To the extent specified in the related Prospectus
Supplement, a Payahead Account, a Pre-Funding Account, a reserve account or
other form of credit enhancement may be a part of the property of any given
Trust or may be held by the Owner Trustee or an Indenture Trustee for the
benefit of holders of the related Securities.
The Servicer will service the Receivables held by each Trust, and will be
compensated for acting as the Servicer. See "Description of the Purchase
Agreements and the Trust Documents- Servicing Compensation." To facilitate
servicing and to minimize administrative burden and expense, the Servicer will
retain physical possession of the Receivables and documents relating thereto as
custodian for the Owner Trustee or the Indenture Trustee, as the case may be.
Due to the administrative burden and expense, the certificates of title to the
Financed Vehicles will not be amended to reflect the assignment of the security
interest in the Financed Vehicles to any Owner Trustee or Indenture Trustee. In
the absence of such amendment, an Owner Trustee or Indenture Trustee may not
have a perfected security interest in the related Financed Vehicles in certain
states. See "Certain Legal Aspects of the Receivables- Security Interest in
Vehicles." The Owner Trustee and any Indenture Trustee will not be responsible
for the legality, validity or enforceability of any security interest in any
Financed Vehicle.
If the protection provided to the holders of any Securities by the
subordination of any Securities or by any credit enhancement is insufficient,
such Securityholders would have to look for payment on their Securities to the
Obligors on the related Receivables, the proceeds from the repossession and sale
of the related Financed Vehicles which secure such Receivables, and the
proceeds, if any, from Dealer Recourse Obligations. In such event, certain
factors, such as the Owner Trustee's or the Indenture Trustee's not having
perfected security interests in the related Financed Vehicles in certain states,
may affect such Trust's ability to repossess and sell the collateral securing
the Receivables, and thus may reduce the proceeds to be distributed to
Securityholders. See "Certain Legal Aspects of the Receivables."
THE OWNER TRUSTEE
The Owner Trustee for each Trust will be specified in the related
Prospectus Supplement. The Owner Trustee's liability in connection with the
issuance and sale of the Securities of such series will be limited solely to the
express obligations of such Owner Trustee set forth in the related Trust
Documents. An Owner Trustee may resign at any time, in which event the related
Seller or its successor will be obligated to appoint a successor trustee which
is eligible under the related Trust Documents. The related Seller also may
remove the Owner Trustee if the Owner Trustee ceases to be eligible to continue
as Owner Trustee under the related Trust Documents or if the Owner Trustee
becomes insolvent. In such circumstances, the related Seller will be obligated
to appoint a successor trustee eligible under the related Trust Documents. Any
resignation or removal of an Owner Trustee and appointment of a successor
trustee will be subject to any conditions or approvals specified in the related
Prospectus Supplement and will not become effective until acceptance of the
appointment by the successor trustee.
THE RECEIVABLES
GENERAL
Unless the related Prospectus Supplement specifies that some or all of the
Receivables were or will be originated directly by Franklin Capital or are to be
acquired in bulk and other purchases from third-party lenders or its affiliate
the Franklin Bank, the Receivables held by each Trust will be purchased by
Franklin Capital in its ordinary course of business from Dealers pursuant to its
underwriting standards. Franklin Capital's underwriting standards emphasize a
review of the borrower's creditworthiness and ability to repay his or her
obligations underlying the related motor vehicle retail installment sale
contract, as well as the asset value of the related motor
-19-
<PAGE>
vehicle. Unless the related Prospectus Supplement specifies otherwise, similar
underwriting standards will have been applied to Receivables originated by
Franklin Bank or any third-party lender from which Receivables are acquired.
Each of the Receivables to be held by Trust (i) will be originated in the United
States, (ii) will be secured by new or used automobiles and light trucks, (iii)
will provide for level monthly payments which fully amortize the amount financed
over its original term to maturity (except for the last payment which may be
minimally different), (vi) will be either a Precomputed Receivable or Simple
Interest Receivable (each as defined below), and (v) will satisfy the other
criteria, if any, set forth in the related Prospectus Supplement. No selection
procedures believed to be adverse to the Securityholders of any series will be
utilized in selecting the Receivables from qualifying non-prime motor vehicle
retail installment sale contracts owned by Franklin Capital. Any obligation of a
Trust to purchase Subsequent Receivables shall be subject to such additional
conditions as may be specified in the related Prospectus Supplement.
"Precomputed Receivables" consist of either (i) monthly actuarial
receivables ("Actuarial Receivables") or (ii) receivables that provide for
allocation of payments according to the "sum of periodic balances" or "sum of
monthly payments" method, similar to the "Rule of 78's" ("Rule of 78's
Receivables"). An Actuarial Receivable provides for amortization of the loan
over a series of fixed, level-payment monthly installments. Each monthly
installment, including the monthly installment representing the final payment on
the Receivable, consists of an amount of interest equal to 1/12 of the Annual
Percentage Rate ("APR") of the loan multiplied by the unpaid principal balance
of the loan, and an amount of principal equal to the remainder of the monthly
payment. A Rule of 78's Receivable provides for the payment by the borrower of a
specified total amount of payments, payable in equal monthly installments on
each due date, which total represents the principal amount financed and add-on
interest in an amount calculated on the stated APR for the term of the
receivable. The rate at which such amount of add-on interest is earned and,
correspondingly, the amount of each fixed monthly payment allocated to reduction
of the outstanding principal are calculated in accordance with the "Rule of
78's".
"Simple Interest Receivables" are receivables that provide for the
amortization of the amount financed under each receivable over a series of fixed
level monthly payments. However, unlike the monthly payment under an Actuarial
Receivable, each monthly payment consists of an installment of interest which is
calculated on the basis of the outstanding principal balance of the receivable
multiplied by the stated APR and further multiplied by the period elapsed since
the preceding payment of interest was made based on a 30 day month and a 360 day
year. As regular payments are received under a Simple Interest Receivable, the
amount received is applied first to interest accrued to the date of payment and
the balance is applied to reduce the unpaid principal balance. Accordingly, if a
borrower pays a fixed monthly installment before its scheduled due date, the
portion of the payment allocable to interest for the period since the preceding
payment was made will be less than it would have been had the payment been made
as scheduled, and the portion of the payment applied to reduce the unpaid
principal balance will be correspondingly greater. Conversely, if a borrower
pays a fixed monthly installment after its scheduled due date, the portion of
the payment allocable to interest for the period since the preceding payment was
made will be greater than it would have been had the payment been made as
scheduled, and the portion of the payment applied to reduce the unpaid principal
balance will be correspondingly less. In either case, the borrower pays a fixed
monthly installment until the final scheduled payment date, at which time the
amount of the final installment is increased or decreased as necessary to repay
the then outstanding principal balance.
If a Rule of 78's Receivable is prepaid, the borrower is required to pay
earned interest on such Receivable and is not required to pay any "unearned"
add-on interest included in the gross Receivable. If a Simple Interest
Receivable is prepaid, the borrower is required to pay interest only to the date
of prepayment. The amount of a rebate in respect of "unearned" add-on interest
under a Rule of 78's Receivable generally will be less than the amount of a
rebate on an Actuarial Receivable and generally will be less than the remaining
scheduled payments of interest that would have been due under a Simple Interest
Receivable for which all payments were made on schedule.
Unless otherwise specified in the related Prospectus Supplement, each
Trust will account for the Rule of 78's Receivables as if such Receivables were
Actuarial Receivables. Amounts received upon prepayment in full of a Rule of
78's Receivable in excess of the then outstanding Principal Balance of such
Receivable and accrued
-20-
<PAGE>
interest thereon (calculated pursuant to the actuarial method) and not rebated
to the borrower as described above will not be paid to Noteholders or passed
through to Certificateholders but will be paid to the Servicer as additional
servicing compensation.
Information with respect to the Receivables held by each Trust will be set
forth in the related Prospectus Supplement, including, to the extent
appropriate, the composition, distribution by APR, states of origination and
portion secured by new and used automobiles and light trucks.
DELINQUENCIES, CHARGE-OFF POLICIES AND NET LOSSES
Certain information concerning Franklin Capital's delinquency and loss
experience with respect to its portfolio of retail installment sale contracts
for new and used automobiles and light trucks acquired will be set forth in the
related Prospectus Supplement.
Franklin Capital measures delinquency on a contractual basis which
classifies the accounts into 30, 60, 90 and 120+ categories based on monthly
payment cycles elapsed from the date a payment is due under the motor vehicle
retail installment sale contract (the "due date"). Amounts delinquent must not
exceed $25.00 in the aggregate, after application of any portion of such
installment payment necessary to satisfy any prior shortfalls, for a contract to
be considered current.
Franklin Capital's collectors are assigned to specific delinquent accounts
and attempt to contact the delinquent borrower by telephone and letter, based on
the duration of the delinquency and history of the account. Repossession
procedures typically begin when a motor vehicle retail installment sale contract
becomes forty-five (45) to sixty (60) days delinquent, however, repossession
procedures for sub-prime contracts will typically begin earlier. Repossession is
carried out by independent contractors in conformity with specific procedures
adopted by Franklin Capital.
Franklin Capital's policy is to charge off a delinquent account as
follows: (i) when a repossessed motor vehicle is sold; (ii) other than in the
case of bankruptcy, at the end of the month in which it becomes and remains 120
days delinquent and the motor vehicle is in Franklin Capital's possession for at
least 45 days, the loan balance will be reduced to a value based on the blue
book value of the motor vehicle and the balance of the loan will be charged off;
(iii) in the case of bankruptcies, actual charge-off will not take place unless
and until (a) the motor vehicle is repossessed and sold or (b) if the borrower
resumes payments under a court-approved plan, once three payments have been
made, the loan will be removed from bankruptcy status and returned to current
status and any reduction or forgiveness of the balance of the loan by a
bankruptcy court, a "cram-down" loss, will be taken as a charge-off; or (iv) in
all other cases the loan will be charged-off at the end of the month in which it
becomes and remains 120 days delinquent.
Policies for charging-off an account do not differ based upon whether a
receivable is owned by Franklin Capital or sold to a Trust. The proceeds of
resale of repossessed financed motor vehicles generally will be applied first to
the expenses of repossession and resale and then to the satisfaction of the
indebtedness on the related Receivable.
Franklin Capital follows specific procedures with respect to extensions of
the contract maturity date. Generally, an extension requires the demonstration
of financial difficulties based on extraordinary circumstances and the approval
of management. In addition, contracts are not rewritten unless Franklin Capital
determines that this is the only method to realize some recovery on the
contract.
YIELD AND PREPAYMENT CONSIDERATIONS
Interest paid on the Receivables will be passed through or paid, as the
case may be as specified in the related Prospectus Supplement, to
Securityholders on each Distribution Date as defined in and set forth in the
-21-
<PAGE>
related Prospectus Supplement, in an amount equal to one-twelfth of the
applicable annual Pass-Through Rate applied to the applicable Certificate
Balance or the applicable annual Interest Rate on the applicable Note Balance as
of the date specified in the Prospectus Supplement. In the event of prepayments
on Receivables, Securityholders will nonetheless be entitled to receive interest
for the full month in which such prepayment occurs.
All the Receivables are generally prepayable at any time. If prepayments
are received on the Receivables, the actual weighted average life of the
Receivables may be shorter than the scheduled weighted average life (i.e., the
weighted average life assuming that payments will be made as scheduled, and that
no prepayments will be made). (For this purpose, the term "prepayments" also
includes liquidations due to default, as well as receipt of proceeds from credit
life, credit disability, and casualty insurance policies.) Weighted average life
means the average amount of time during which each dollar of principal on a
Receivable is outstanding. The payment characteristics of the Receivables held
by a Trust will be specified in the related Prospectus Supplement.
The rate of prepayments on the Receivables may be influenced by a variety
of economic, social, and other factors, including the fact that an Obligor may
not sell or transfer a Financed Vehicle without the consent of the Servicer.
Franklin Capital has not as of the date of this Prospectus prepared data on
prepayment rates. Franklin Capital can make no prediction as to the actual
prepayment rates that will be experienced on the Receivables. Franklin Capital,
however, believes that the actual rate of prepayments will result in a
substantially shorter weighted average life than the scheduled weighted average
life of the Receivables. Any reinvestment risks resulting from a faster or
slower incidence of prepayment of Receivables will be borne by the
Securityholders of the related Trust. See "Description of the Purchase
Agreements and the Trust Documents-Termination" regarding (i) the Servicer's
option to purchase all of the Receivables of a Trust as of the last day of any
month in which the Pool Balance of such Trust at the close of business on the
last day of any Monthly Period is 10% (or such other percentage specified in the
related Prospectus Supplement) or less of the Original Pool Balance (calculated
after giving effect to the principal balance of any Subsequent Receivables as of
their respective Subsequent Cutoff Dates) and (ii) the sale of the Receivables
if so specified in the related Prospectus Supplement if satisfactory bids for
the purchase of the Receivables are received.
Since the rate of payment of principal on the Receivables will depend on
future events and a variety of other factors, no assurance can be given as to
such rate or the rate of principal prepayments. The extent to which the yield to
maturity of a class of Securities may vary from the anticipated yield may depend
upon the degree to which it is purchased at a discount or premium, and the
degree to which the timing of payments thereon is sensitive to prepayments,
liquidations and purchases of the Receivables. Further, an investor should
consider the risk that, in the case of any class of Securities purchased at a
discount, a slower than anticipated rate of principal payments (including
prepayments) on the Receivables could result in an actual yield to such investor
that is lower than the anticipated yield and, in the case of a class of
Securities purchased at a premium, a faster than anticipated rate of principal
payments on the Receivables could result in an actual yield to such investor
that is lower than the anticipated yield.
CERTIFICATE AND NOTE FACTORS AND TRADING INFORMATION
The Servicer will compute each month a "Certificate Factor" for each class
of Certificates which will be a fraction, expressed as a seven-digit decimal,
the numerator of which will be the Certificate Balance of a class of
Certificates as of the close of business on the Distribution Date as specified
in the related Prospectus Supplement in that month and the denominator of which
will be the respective original outstanding principal balances of such class of
Certificates of such series. The Certificate Factor will not change as a result
of the addition of Subsequent Receivables. The Servicer will compute each month
a "Note Factor" for each class of Notes, if any, which will be a fraction,
expressed as a seven-digit decimal, the numerator of which will be the remaining
outstanding principal balance with respect to such Notes as of each Payment Date
as specified in the related Prospectus Supplement and the denominator of which
will be the original outstanding principal balance of such class of Notes. Each
Certificate Factor and each Note Factor will be 1.0000000 as of the Initial
Cutoff Date for
-22-
<PAGE>
such series; thereafter, the Certificate Factor and the Note Factor will decline
to reflect reductions in the Certificate Balance of the applicable class of
Certificates and the Note Factor will decline to reflect reductions in the
outstanding principal balance of the applicable class of Notes, as the case may
be, as a result of scheduled payments collected, prepayments and liquidations of
the Receivables (and also as a result of a prepayment arising from application
of amounts on deposit in the Pre-Funding Account). The amount of a
Certificateholder's pro rata share of the Certificate Balance for the related
class of Certificates can be determined on any date by multiplying the original
denomination of the holder's Certificate by the applicable Certificate Factor as
of the close of business on the most recent Distribution Date. The amount of a
Noteholder's pro rata share of the aggregate outstanding principal balance of
the applicable class of Notes can be determined by multiplying the original
denomination of such Noteholder's Note by the then applicable Note Factor.
Pursuant to each Trust and pursuant to the related Trust Documents, the
Securityholders thereunder will be entitled to receive monthly reports
concerning the payments received on the Receivables, additions of Subsequent
Receivables, if any, and the reduction in the Pre-Funded Amount, if any, the
Certificate Balance, the Note Balance, the Certificate Factor or Certificate
Factors for each class of Certificates, the Note Factor or Note Factors for each
class of Notes and various other items of information with respect to such
series. Securityholders of record during any calendar year will be furnished
information for tax reporting purposes not later than the latest date permitted
by law. See "Certain Information Regarding the Securities-Statements to
Securityholders."
USE OF PROCEEDS
The net proceeds to be received by each Seller from the sale of each
related series of Securities will be applied to the purchase of the related
Receivables from Franklin Capital and, if specified in the related Prospectus
Supplement, to the deposit of the related Pre-Funded Amount, if any, in the
related Pre-Funding Account and/or to provide for other forms of credit
enhancement specified in the related Prospectus Supplement.
THE SELLERS
FRANKLIN RECEIVABLES LLC
Franklin Receivables LLC ("Franklin LLC"), a wholly-owned subsidiary of
Franklin Capital, was formed in the State of Delaware in June 1998. Franklin LLC
was organized for limited purposes, which include purchasing receivables from
Franklin Capital and transferring such receivables to third parties and any
activities incidental to and necessary or convenient for the accomplishment of
such purposes. The principal executive offices of Franklin LLC are located at 47
West 200 south, Suite 500, Salt Lake City, Utah 84101. The telephone number of
such offices is (801) 38-6700.
Franklin LLC has taken and will take steps in structuring the transactions
contemplated hereby and in the related Prospectus Supplement that are intended
to make it unlikely that the voluntary or involuntary application for relief by
Franklin Capital under any Insolvency Law will result in the consolidation of
the assets and liabilities of Franklin LLC with those of Franklin Capital. These
steps include the creation of Franklin LLC as a separate, limited-purpose
subsidiary pursuant to a limited liability company agreement, operational
agreement or other similar organizational documents containing certain
limitations (including restrictions on the nature of Franklin LLC's business and
a restriction on Franklin LLC's ability to commence a voluntary case or
proceeding under any Insolvency Law). Franklin LLC's organizational documents
will include a provision that requires that one of its members be a
special-purpose entity the board of directors of which has at least one director
who qualifies under its organizational documents as an "Independent Director."
-23-
<PAGE>
FCC RECEIVABLES CORP.
FCC Receivables Corp. ("FCC Corp."), a wholly-owned subsidiary of the
Franklin Capital, was incorporated in the State of Delaware in February 1995.
FCC Corp. was organized for limited purposes, which include purchasing
receivables from Franklin Capital and transferring such receivables to third
parties and any activities incidental to and necessary or convenient for the
accomplishment of such purposes. The principal executive offices of FCC Corp.
are located at 47 West 200 South, Suite 500, Salt Lake City, Utah 84101. The
telephone number of such offices is (801) 238-6700.
FCC Corp. has taken and will take steps in structuring the transactions
contemplated hereby and in the related Prospectus Supplement that are intended
to make it unlikely that the voluntary or involuntary application for relief by
Franklin Capital, under any Insolvency Law will result in the consolidation of
the assets and liabilities of FCC Corp. with those of Franklin Capital. These
steps include the creation of the FCC Corp., as a separate, limited-purpose
subsidiary pursuant to Articles of Incorporation containing certain limitations
(including restrictions on the nature of FCC Corp.'s business and a restriction
on FCC Corp.'s ability to commence a voluntary case or proceeding under any
Insolvency Law without the unanimous affirmative vote of all of its directors).
FCC Corp.'s Articles of Incorporation include a provision that requires FCC
Corp. to have at least one director who qualifies under the Articles of
Incorporation as an "Independent Director."
If, notwithstanding the foregoing measures a court concluded that the
assets and liabilities of a Seller should be consolidated with the assets and
liabilities of Franklin Capital in the event of the application of any
Insolvency Law to Franklin Capital or a filing were made under any Insolvency
Law by or against a Seller, or if an attempt were made to litigate any of the
foregoing issues, delays in the distributions on the Securities (and possible
reductions in the amount of such distributions) could occur.
FRANKLIN CAPITAL CORPORATION
GENERAL
The material below describes Franklin Capital's business operation as of
the date hereof, which may change, as specified in the related Prospectus
Supplement.
Franklin Capital Corporation ("Franklin Capital"), a subsidiary of
Franklin Resources, Inc., is a Utah corporation which commenced operations in
November 1993 to expand Franklin Resources' automotive lending activities.
Franklin Capital conducts its business primarily in the Western region of the
United States and originates its loans through a network of automotive
dealerships representing a wide variety of makes and models. Franklin Capital
offers several different loan programs to finance new and used motor vehicles.
Franklin Capital also acquires credit card receivables from its affiliate
Franklin Bank. As of March 31, 1998, Franklin Capital's total assets included
$164 million of gross motor vehicle retail installment sale contracts, $57
million of gross credit card receivables and $4 million of television satellite
dish financing receivables. Franklin Capital indirectly originates and services
motor vehicle retail installment sale contracts for itself and for its
affiliate, Franklin Bank. Franklin Capital provides indirect financing (by the
purchase of motor vehicle retail installment sale contracts from automotive
dealers) of automotive purchases by individuals with prime, non-prime and
sub-prime credit.
Prime. The prime market segment is comprised of individuals who are deemed
to be relatively low credit risks due to, among other things, the dependable
manner in which they have handled previous credit, an extensive and favorable
prior credit history and/or their extensive financial resources. Because of the
lower credit risk associated with prime motor vehicle retail installment sale
contracts, the interest rates charged on such contracts are generally lower than
those rates charged on non-prime or sub-prime motor vehicle retail installment
sale contracts.
-24-
<PAGE>
Non-prime. The non-prime market segment is comprised of individuals who
are deemed to be moderate credit risks due to, among other things, weaknesses in
prior credit history, limited prior credit history and/or limited financial
resources. Because of the greater credit risk associated with non-prime motor
vehicle retail installment sale contracts, the interest rates charged on such
contracts are generally higher than those rates charged on prime motor vehicle
retail installment sale contracts.
Sub-prime. The sub-prime market segment is comprised of individuals who
are deemed to be relatively high credit risks due to, among other things, the
poor manner in which they have handled previous credit as reflected in their
prior credit history or limited credit history. Because of the greater credit
risk associated with sub-prime motor vehicle retail installment sale contracts,
the interest rates charged on such contracts are generally much higher than
those rates charged on prime or non-prime motor vehicle retail installment sale
contracts. The range of APRs of the Receivables will be set forth in the related
Prospectus Supplement. There can be no assurance, however, that the interest
rates on the Receivables in a particular pool will be sufficient to cover losses
on other Receivables in such pool.
Franklin Capital serves as an alternative source of financing to
automotive dealers by offering them a portfolio of different motor vehicle
financing programs, each developed to target a different credit tier of
borrower, thereby providing automotive dealers a one-stop lending alternative
for their prime, non-prime and sub-prime borrowers. Franklin Capital currently
purchases the majority of its motor vehicle retail installment sale contracts
through a network of approximately 240 new and/or used car dealers ("Dealers")
located in the following eight states: Arizona, California, Kansas, Nevada, New
Mexico, Oregon, Utah, and Washington. Most of Franklin Capital's existing
Dealers are located in California and sell both new and used motor vehicles. The
related Prospectus Supplement will specify the geographic distribution of the
specific Receivables included in the related Trust.
In the future, Franklin Capital may directly offer to consumers loans for
the purchase of motor vehicles. The related Prospectus Supplement will disclose
whether any Receivables to be sold to a Trust include loans originated directly
by Franklin Capital. Unless the related Prospectus Supplement provides
otherwise, the underwriting guidelines to be applied by Franklin Capital when
originating automobile loans will be the same as those it applies when reviewing
credit applications received from Dealers.
Franklin Capital has developed certain procedures and controls to
investigate and analyze each credit applicant in an effort to eliminate those
applicants whose credit characteristics indicate too great a probability of
loss. This procedure includes an investigation, verification, and evaluation
process of credit bureau reports as well as the general credit information
provided by both Dealer and applicant. In addition, Franklin Capital uses
collection procedures and systems that are designed to ensure that the borrowers
clearly understand their credit obligations. For example, Franklin Capital uses
a monthly billing system in order to continually remind borrowers of their
monthly payment obligations and has established a "welcoming" process that
educates each borrower, both verbally and in writing, of its obligations.
DEALER RELATIONSHIPS
Franklin Capital solicits business from Dealers through its marketing
representatives. The Franklin Capital marketing representatives mainly target
new and used dealerships. Used car only dealerships are contracted on an
exception basis. Before Franklin Capital will do business with a Dealer, a
marketing representative is required to physically visit the potential dealer in
order to evaluate its operations. Additionally, for Dealers in respect of which
Franklin Capital has recourse for the entire dealer reserve (as described
below), Franklin Capital will obtain a Dun and Bradstreet report annually to
evaluate the Dealer's ability to pay back the reserve with respect to loans
which prepay during a specified period of time. Once selected, if a Dealer is
interested in Franklin Capital's financing program, the Dealer and Franklin
Capital enter into a non-exclusive written dealer agreement (a "Dealer
Agreement"). Purchases of loans are generally without recourse to the Dealer,
except that Franklin Capital has recourse for breaches of representations and
warranties including, among others, that (i) the financed motor vehicle is
properly registered showing Franklin Capital as lienholder; (ii) unless
-25-
<PAGE>
otherwise specified in the related motor vehicle retail installment sale
contract, the full down payment specified in the contract was received by the
Dealer in cash; (iii) certain representations and warranties by the Dealer
regarding the contract, the financed motor vehicle, the contract process and
manner of sale are true and correct; and (iv) the Dealer has complied with
applicable laws and may have recourse to the extent of some or all of the
"dealer reserve," constituting the Dealer's profit for the lending transaction.
Franklin Capital's representatives train Dealer's personnel in Franklin
Capital's finance programs. This training is continuous since dealerships
generally experience a relatively high degree of personnel turnover. The
training provided by Franklin Capital is designed to assist Dealers in
identifying consumers who will qualify for financing by Franklin Capital and
structuring transactions that meet Franklin Capital's requirements.
In the event that an individual elects to finance the purchase of a motor
vehicle through a Dealer, the Dealer will submit a borrower's credit application
to Franklin Capital and other financing sources for a review of the borrower's
credit worthiness and proposed transaction terms. Such reviews generally take
into account, among other things, the individual's credit history and capacity
to pay, residence and job stability. After reviewing the credit application,
each finance source will notify the Dealer whether it is willing to purchase the
contract and, if so, under what conditions. If more than one finance source has
offered to purchase the contract, the Dealer typically will select the source
based on its relationship with the lender, an analysis of the "buy rate" or
interest rate, discounts, fees, and/or other terms and conditions stipulated by
the finance source.
LOAN ORIGINATION
Current Loan Programs. Franklin Capital currently offers eight different
loan programs (each priced according to the credit risk involved) designed to
meet the needs of different prime, non-prime, and sub-prime borrowers. Franklin
Capital's current financing programs include: (i) two programs (the "Platinum"
and "Gold") targeted to prime-quality borrowers with excellent credit history;
(ii) three programs (the "Silver," "Copper" and "Bronze") designed to meet the
needs of certain non-prime borrowers with slightly less credit worthiness than
Platinum and Gold borrowers; (iii) one program (the "First-Time Buyer" program)
for non-prime borrowers with limited or no credit history; and (iv) two programs
("Subprime 1" and "Subprime 2"), for borrowers who have negative credit history.
Pre-1996 Programs. Prior to January 1996, Franklin Capital offered four
loan programs entitled "Premier," "Preferred," "Standard" and "First-time Buyer"
which were targeted at a mix of prime and non-prime borrowers ("Pre-1996
Programs"). The Pre-1996 Programs were discontinued in December 1995. Franklin
Capital anticipates that a portion of the Receivables of the first Trust will
include motor vehicle retail installment sale contracts originated under the
Pre-1996 Programs. Subsequent Trusts may have some Receivables originated under
the Pre-1996 Programs. The related Prospectus Supplement will disclose the
percentage of Receivables, if any, originated under the Pre-1996 Programs
included in the related Trust.
CREDIT EVALUATION PROCEDURES
Each motor vehicle retail installment sale contract is purchased after a
review in accordance with Franklin Capital's current underwriting procedures
described below. These procedures are intended to assess the ability of all
applicants for a proposed motor vehicle retail installment sale contract to make
payments under such contract and the adequacy of the motor vehicle as
collateral.
Following its commencement of business in 1993, Franklin Capital
substantially expanded Franklin Resources' automotive lending business. Franklin
Capital experienced increased losses beginning in 1994 and as a result revised
its original credit underwriting procedures. The revised procedures were first
implemented in January, 1996. Set forth below is a description of the current
underwriting procedures, followed by a description of those applied prior to
1996.
-26-
<PAGE>
Current Underwriting Procedures. The Dealers require an applicant to
complete an application which generally includes such information as the
applicant's income, deposit accounts, liabilities, credit and employment history
and other personal information. The application is reviewed for completeness and
compliance with Franklin Capital's guidelines. Franklin Capital generally
requires verification of certain applicant and/or Dealer provided information
prior to funding a loan. Franklin Capital evaluates applicants by considering,
based on information provided in the application and the credit bureau reports
referred to below, certain credit factors, including, among others, such
applicant's credit bureau score, length and quality of credit history,
loan-to-value ratio, down payment percentage, employment history, residency
history, debt-to-income ratio and payment-to-income ratio. Of the foregoing
factors, Franklin Capital places primary emphasis on an applicant's credit
bureau score.
Each of the various current loan programs offered by Franklin Capital sets
forth specific criteria for the different credit factors reviewed by Franklin
Capital (including the credit bureau score) which must be met in order for the
applicant to qualify for a particular loan program. Franklin Capital's
underwriters are given a degree of discretion to purchase motor vehicle retail
installment sale contracts with credit factors outside specified ranges of the
credit criteria. Exceptions outside of the specified ranges require authorized
approval and must be documented. In addition, authorized approval is required
for approval (even those which fit the specified underwriting criteria for those
programs) of all contracts: (i) with outstanding balances greater than $35,000;
and (ii) under the Subprime 1 and Subprime 2 programs.
The Subprime 1 and Subprime 2 programs were designed for borrowers with
negative credit histories but who are in the process of reestablishing good
credit. The Borrower may have experienced severe credit problems in the past
including bankruptcy and repossession, but has reestablished good credit. The
Borrower must demonstrate stable employment and residency and should not have
experienced any recent credit problems.
Pre-1996 Underwriting Procedures. Prior to January 1996 the underwriting
criteria was judgmental. The approval process relied heavily on the
underwriter's experience and a set of general underwriting guidelines and no
credit bureau score was used. Underwriters could make exceptions to the
underwriting criteria without additional authorization. Cursory verification of
Dealer and applicant information was performed. Except for applicants who were
first-time buyers, the maximum permitted loan-to-value ratio was 125% of dealer
invoice on new cars or Kelly Blue Book value on used cars. Borrowers were
offered loans under the various programs based on the depth of credit history
and stability of the applicant.
The first-time buyer program was designed for an applicant with minimal if
any credit history, but who had demonstrated some stability in income. The
amount financed was limited to the dealer invoice amount or the wholesale Kelly
Blue Book value. Borrowers had to provide proof of 18 months of continuous
full-time employment and 18 months at the same residence. The borrower was not
likely to have any credit history, but may have recently opened low credit limit
retail credit lines or bankcards. The Dealer was required to provide
documentation to verify the applicant's status as a first-time buyer.
LOSS EXPOSURE MANAGEMENT
Franklin Capital believes it has designed its finance programs to limit
the loss exposure on each transaction. The degree of exposure in any transaction
is a function of (i) determining the borrower's intent to pay; (ii) determining
the borrower's ability to pay; (iii) the extent of credit granted compared to
the value of the automobile; and (iv) the possibility of physical damage to the
automobile. Franklin Capital seeks to control loss exposure by: (i) careful
analysis of the applicant's credit history; (ii) determining whether the
applicant has sufficient disposable income to meet existing obligations,
including the obligation resulting from the proposed transaction; (iii) limiting
the credit it is willing to extend based upon its assessment of the value of the
underlying collateral and the applicant's other credit characteristics; and (iv)
contractually requires physical damage insurance to be maintained at all times
to protect its financial interest.
-27-
<PAGE>
Additionally, to insure performance within established guidelines,
Franklin Capital monitors each underwriter"s performance by tracking the amount
and type of contracts purchased by each underwriter and the ongoing performance
of each underwriter"s contracts. To monitor compliance with underwriting
guidelines, both Franklin Capital"s credit committee and an internal auditor
from Franklin Resources separately sample files post-funding on a monthly basis.
Upon purchase of a motor vehicle retail installment sale contract,
Franklin Capital"s procedures require the acquisition of a security interest in
the motor vehicle financed. Unless otherwise specified in the related Prospectus
Supplement, all contracts purchased by Franklin Capital from Dealers are fully
amortizing and provide for equal payments over the term of the contract
(typically 24 to 84 months) other than the final payment which may be minimally
different. The portions of such payments allocable to principal and interest
are, for payoff and deficiency purposes, determined in accordance with the law
of the state in which the contract was originated.
Each applicant for a motor vehicle retail installment sale contract
is required to obtain insurance with respect to the motor vehicle being
financed. Franklin Capital made the decision to stop tracking the maintenance of
insurance and ceased force placing insurance in August 1997. Franklin Capital
does not, currently have lender's comprehensive single interest insurance
coverage which generally covers losses due to physical damage, in the event that
the insurance coverage maintained by a motor-vehicle owner is terminated. If so
specified in the related Prospectus Supplement, Franklin Capital or any
subsequent servicer may force place insurance. In such event, certain amounts in
respect of a Receivable as to which insurance has been forced placed after the
applicable Cutoff Date or Subsequent Cutoff Date, as applicable, may not be
property of the Trust and may be payable to Franklin Capital to the extent
specified in the related Prospectus Supplement.
CONTRACT PROCESSING, PURCHASE, SERVICING AND ADMINISTRATION
Once a loan application has been approved, Franklin Capital completes a
series of processes and procedures which are designed to (i) substantiate the
accuracy of information critical to Franklin Capital's original credit decision;
(ii) verify that the contract submitted by the Dealer complies with both the
conditions under which the credit approval was granted and Franklin Capital's
transaction structure criteria; and (iii) confirm that the documentation
complies with Franklin Capital's loss management requirements. The extent of
applicant verification is dependent on the perceived credit risk of the
borrower. The prime loans receive minimum verification; the non-prime loans are
more thoroughly investigated and the sub-prime loans are subjected to extensive
verification. Only senior management may waive the verification requirement.
Upon a contract being released for purchase, Franklin Capital issues funds
to the Dealer, and initiates a welcoming process through which Franklin Capital
begins to educate the borrower about their financial obligations upon the
purchase of their contract. This process is designed to ensure that borrowers
clearly understand their credit obligations, including their responsibility to
maintain insurance coverage on the financed motor vehicle.
SERVICING
Franklin Capital's servicing and administration activities have been
designed to address non-prime and sub-prime credits as well as prime credits.
Through such services, Franklin Capital (i) collects payments; (ii) accounts for
and posts all payments received; (iii) responds to borrower inquiries; (iv)
takes action to maintain the security interest granted in the financed motor
vehicle; (v) investigates delinquencies and communicates with the borrower to
obtain timely payments; (vi) reports tax information to the borrower; (vii)
monitors the contract and its related collateral; and (viii) when necessary,
attempts to repossess and dispose of the financed motor vehicle.
Franklin Capital maintains a Customer Service Department, currently
staffed with a supervisor and seven customer service representatives.
Additionally, an automated voice response system is generally available 24
-28-
<PAGE>
hours a day, seven days a week. This system allows borrowers to get payment,
current balance, payment posting and payment instruction information. Customer
service will notify the collections department should information come to their
attention that suggests a borrower is going to have a payment problem. Franklin
Capital currently utilizes a monthly billing statement system (rather than
payment coupon books) to remind borrowers of their monthly payment obligations,
including the due date for next payment, any past due amount, and late charges
or other fees. This system also serves as an early warning mechanism in the
event a borrower has failed to notify Franklin Capital of an address change.
Under special circumstances, Franklin Capital may, provided the borrower
has made 12 regular payments and is current, defer a payment by extending the
original contract maturity date by one month. Deferrals require the approval of
the Collections Department Manager. Borrowers are assessed a fee on all
deferrals.
For the past two years Franklin Capital has offered borrowers with simple
interest contract who have been current for the entire year and have not had an
extension in the prior twelve months a Holiday extension, allowing them to skip
their December or January payment. Interest continues to accrue on the contract
and the borrower will have to keep making payments until the principal balance
of the loan is paid in full. Franklin Capital anticipates that it will continue
to offer this promotion each December but is under no obligation to do so.
For borrowers who need to coordinate their payments with the timing of
their incomes, Franklin Capital will allow them to modify the due date of their
loan.
DELINQUENCY CONTROL AND COLLECTION STRATEGY
Franklin Capital's collection procedure is organized on a
"cradle-to-grave" basis, with an individual collector working the same accounts
from origination through to any decision to repossess. As the accounts are
assigned randomly, each collector will be responsible for accounts from all of
the different loan programs that Franklin Capital offers, with the exception
that all sub-prime accounts are the responsibility of one experienced collector.
Franklin Capital believes that this cradle-to-grave approach avoids
miscommunication with delinquent borrowers, hinders subterfuge by experienced
bill dodgers, and generally gives collectors a greater feeling of ownership of
and responsibility for the collection process.
Franklin Capital's collection efforts are centralized in its Salt Lake
City headquarters. The focus of the collection effort is to make telephone
contact with the delinquent borrower and secure a promise to pay. While letters
are employed in the process, they are intended to supplement the calling effort,
not to replace it. The riskier the account the sooner contact is initiated.
Regardless of program type, all accounts that become delinquent on their first
payment date are called immediately upon the first day of delinquency in order
to avert a potential first payment default. Franklin Capital's collection
procedure usually begins with the borrower (and, if applicable, any co-borrower)
being contacted to inform him or her of the delinquency and the amount past due,
and an attempt is made to obtain a promise to pay, generally within 3 to 5
business days of the call. If the borrower fails to make payment on the date
agreed, the borrower is again contacted to discuss the delinquency and to obtain
another promise to pay. Collectors will continue to contact delinquent borrowers
until such delinquency has been satisfactorily resolved. Upon an account
becoming 30 days past due, the borrower (and, if applicable, any co-borrower) is
sent a collection letter that either threatens to accelerate the debt and
repossess the motor vehicle, or gives the borrower the option to pay amounts
past due, pay off the entire loan or surrender the motor vehicle. If the
borrower does not respond to the collection letter, within 30 to 45 days after
delinquency, Franklin Capital may have a local attorney send the borrower a
letter threatening legal action. Finally, for all non-sub-prime contracts
delinquent 45 to 60 days, Franklin Capital will generally make a decision to
repossess the motor vehicle (sub-prime contracts are handled more aggressively
with a decision to repossess generally made prior to the 45th day of
delinquency).
Franklin Capital rarely grants rewrites, and the situations have been
limited to ones in which a rewrite has been deemed to be the only method by
which Franklin Capital would be able to realize some recovery on the loan.
-29-
<PAGE>
REPOSSESSION
Once a decision has been made to repossess a motor vehicle, Franklin
Capital will engage an outside repossession agency to recover the motor vehicle.
Generally, state law grants delinquent borrowers the right to redeem the motor
vehicle (i.e., pay off the loan in full plus any related repossession expenses)
within 10 days of repossession by the lender. In California, a borrower has a
right both to redemption and to reinstatement (i.e., if the borrower makes the
necessary payments to bring the loan current, Franklin Capital must return the
motor vehicle to the borrower, who must continue making payments under the
loan). The combined redemption and reinstatement period in California is 20 days
and the borrower may request a 10 day extension to this period. Accordingly,
Franklin Capital may have to wait 10 days (and up to 30 days in California)
before it can sell the motor vehicle. Furthermore, in California Franklin
Capital may not accelerate a contract if the borrower breaches its contractual
obligations (including the maintenance of insurance) if the borrower continues
to make monthly payments of principal and interest on the contract. Repossessed
motor vehicles are generally resold by Franklin Capital through auctions.
If the net proceeds from the sale of the motor vehicle are not sufficient
to pay-off the outstanding loan balance, the loan is transferred to the Recovery
Department which is responsible for collecting any remaining deficiency balance
directly from the borrower to the extent permitted by law.
If the borrower fails to respond to request for payment, the account may
be referred to a local attorney who will file suit and obtain a judgment.
Franklin Capital will execute the judgment until the account is paid in full or
the borrower files for bankruptcy.
If at any time during the collection process a borrower files bankruptcy,
the account is immediately transferred to the Bankruptcy Department. The
Bankruptcy Department is responsible for asserting Franklin Capital"s rights in
bankruptcy court.
FRANKLIN RESOURCES, INC.
Franklin Resources, Inc. ("Franklin Resources") and its predecessors have
been engaged in the financial services business since 1947. Franklin Resources
was organized in Delaware in November 1969. Franklin Resources"s principal
executive and administrative offices are at 777 Mariners Island Boulevard, San
Mateo, California 94404. As of March 31, 1998, Franklin Resources employed
approximately 7500 employees on a worldwide basis, consisting of officers,
investment management, distribution, administrative, sales and clerical support
staff. Franklin Resources also employs additional temporary help as necessary to
meet unusual requirements.
Franklin Resources is the parent company of Franklin Capital and
principally a holding company primarily engaged, through various subsidiaries,
in providing investment management, marketing, distribution, transfer agency and
other administrative services to the open-end investment companies of the
Franklin Templeton Group and to U.S. and international managed and institutional
accounts. Franklin Resources, through its subsidiaries, also provides investment
management and related services to a number of closed-end investment companies
whose shares are traded on various major U.S. and some international stock
exchanges. In addition, Franklin Resources, through its subsidiaries, provides
investment management, marketing and distribution services to certain sponsored
investment companies organized in the Grand Duchy of Luxembourg, which are
distributed in marketplaces outside of North America and to certain investment
funds and portfolios in Canada as well as to certain other international
portfolios in the United Kingdom and elsewhere.
As of March 31, 1998, total assets under management in the Franklin
Templeton Group were $242 billion. This makes the Franklin Templeton Group one
of the largest investment management complexes in the United States. As of March
31, 1998, Franklin Resources had total assets of $3 billion, total liabilities
of $1 billion and total shareholder equity of $2 billion.
-30-
<PAGE>
Franklin Resources, through certain subsidiaries, also provides advisory
services, variable annuity products, and sponsors and manages public and private
real estate programs. Other subsidiaries offer consumer banking services,
insured deposits, dealer auto loans, and credit cards. Franklin Resources also
provides custodial, trustee and fiduciary services to individual retirement
account and profit sharing or money purchase plans and to qualified retirement
plans and private trusts. From time to time, Franklin Resources also
participates in various investment management joint ventures. On a consolidated
worldwide basis, Franklin Resources provides U.S. and international individual
and institutional investors with a broad range of investment products and
services designed to meet varying investment objectives, which affords its
clients the opportunity to allocate their investment resources among various
alternative investment products as changing worldwide economic and market
conditions warrant.
THE CERTIFICATES
GENERAL
With respect to each Trust, one or more classes of Certificates of a given
series may be issued pursuant to Trust Documents to be entered into among the
related Seller, the Servicer, the Owner Trustee, the Indenture Trustee, if any,
and any other party identified in the related Prospectus Supplement, forms of
which have been filed as exhibits to the Registration Statement of which this
Prospectus forms a part. The following summary does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all of the
material provisions of such forms of Trust Documents.
Unless otherwise specified in the related Prospectus Supplement, each
class of Certificates may initially be represented by a single Certificate
registered in the name of Cede & Co., the nominee of DTC (together with any
successor depository selected by the related Seller, the "Depository"). See
"Certain Information Regarding the Securities-Book-Entry Registration." Unless
higher denominations are specified in the related Prospectus Supplement, the
Certificates evidencing interests in a Trust will be available for purchase in
denominations of $1,000 initial principal amount and integral multiples thereof,
except that one Certificate evidencing an interest in such Trust may be issued
in a denomination that is less than $1,000 initial principal amount.
Certificates may be transferred or exchanged without the payment of any service
charge other than any tax or governmental charge payable in connection with such
transfer or exchange. The Owner Trustee will initially be designated as the
registrar for the Certificates.
DISTRIBUTIONS OF INTEREST AND PRINCIPAL
The timing and priority of distributions, seniority, allocations of loss,
Pass-Through Rate and amount of or method of determining distributions with
respect to principal and interest (or, where applicable, with respect to
principal only or interest only) on the Certificates of any series will be
described in the related Prospectus Supplement. Distributions of interest on the
Certificates will be made on the dates specified in the related Prospectus
Supplement (each, a "Distribution Date") and, except to the extent specified in
the related Prospectus Supplement, will be made prior to distributions with
respect to principal. A series may include one or more classes of Strip
Certificates entitled to (i) distributions in respect of principal with
disproportionate, nominal or no interest distribution, or (ii) interest
distributions, with disproportionate, nominal or no distributions in respect of
principal. Each class of Certificates may have a different Pass-Through Rate,
which may be a fixed, variable or adjustable Pass-Through Rate (and which may be
zero for certain classes of Strip Certificates), or any combination of the
foregoing. The related Prospectus Supplement will specify the Pass-Through Rate
for each class of Certificate, or the initial Pass-Through Rate and the method
for determining the subsequent Pass-Through Rate. Unless otherwise specified in
the related Prospectus Supplement, interest on the Certificates will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
Distributions in respect of the Certificates may be subordinated to all or
certain payments in respect of the Notes, if any, to the extent described in the
related Prospectus Supplement. Distributions in respect of principal of any
class of Certificates will be made on a pro rata basis among all of the
Certificateholders of such class.
-31-
<PAGE>
In the case of a series of Certificates which includes two or more classes
of Certificates, the timing, sequential order, priority of payment or amount of
distributions in respect of principal, and any schedule or formula or other
provisions applicable to the determination thereof, of each such class shall be
as set forth in the related Prospectus Supplement.
In addition, if the related Prospectus Supplement so provides, one or more
classes of Certificates issued by a Trust may receive interest distributions
only during the Revolving Period or an Amortization Period to the extent
described in such Prospectus Supplement.
THE NOTES
GENERAL
A series of Securities may include one or more classes of Notes issued
pursuant to the terms of an Indenture, a form of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
Notes will be issued as a part of any series if and as specified in the related
Prospectus Supplement. The following summary does not purport to be complete and
is subject to, and is qualified in its entirety by reference to, all of the
provisions of the Notes and the Indenture, a form of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part, and
the following summary may be supplemented by the related Prospectus Supplement.
Each class of Notes will initially be represented by a single Note
registered in the name of Cede & Co., the nominee of DTC. See "Certain
Information Regarding the Securities-Book-Entry Registration." Unless higher
denominations are specified in the related Prospectus Supplement, Notes will be
available for purchase in denominations of $1,000 and integral multiples
thereof. Notes may be transferred or exchanged without the payment of any
service charge other than any tax or governmental charge payable in connection
with such transfer or exchange. The Indenture Trustee will initially be
designated as the registrar for the Notes of any series.
PRINCIPAL AND INTEREST ON THE NOTES
The timing and priority of payment, seniority, allocations of loss,
Interest Rate and amount of or method of determining payments of principal and
interest on the Notes will be described in the related Prospectus Supplement.
The right of holders of any class of Notes to receive payments of principal and
interest may be senior or subordinate to the rights of holders of any class or
classes of Notes of such series, or any class of Certificates, as described in
the related Prospectus Supplement. Except to the extent provided in the related
Prospectus Supplement, payments of interest on the Notes will be made prior to
payments of principal thereon. A series may include one or more classes of Strip
Notes entitled to (i) principal payments with disproportionate, nominal or no
interest payment, or (ii) interest payments with disproportionate, nominal or no
principal payments. Each class of Notes may have a different Interest Rate,
which may be a fixed, variable or adjustable Interest Rate (and which may be
zero for certain classes of Strip Notes), or any combination of the foregoing.
The related Prospectus Supplement will specify the Interest Rate for each class
of Notes, or the initial Interest Rate and the method for determining the
Interest Rate. One or more classes of Notes of a series may be redeemable under
the circumstances specified in the related Prospectus Supplement.
In the case of a series of Securities which includes two or more classes
of Notes, the sequential order and priority of payments in respect of principal
and interest on any of the dates specified for payments in the related
Prospectus Supplement (each, a "Payment Date"), and any schedule or formula or
other provisions applicable to the determination thereof, of each such class
will be set forth in the related Prospectus Supplement.
In addition, if the related Prospectus Supplement so provides, one or more
classes of Notes issued by a Trust may receive interest payments only during the
Revolving Period or an Amortization Period to the extent described in such
Prospectus Supplement.
-32-
<PAGE>
THE INDENTURE
A form of Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The Sellers will provide a copy
of the applicable Indenture (without exhibits) upon request to any holder of
Notes issued thereunder.
Modification of Indenture Without Noteholder Consent. With respect to each
Trust, without the consent of the related Noteholders, and with notice to the
applicable Rating Agencies, the Indenture Trustee and the Owner Trustee (on
behalf of such Trust), and with (if so provided in the related Prospectus
Supplement) the consent of the third party credit enhancement provider, if any
(so long as no Insurer Default (as defined in the related Prospectus Supplement)
has occurred and is continuing) unless the related Prospectus Supplement
provides otherwise, may enter into one or more supplemental indentures for any
of the following purposes: (i) to correct or amplify the description of the
collateral or add additional collateral; (ii) to evidence and provide for the
assumption of the Note and the Indenture obligations by a permitted successor to
the Trust; (iii) to add additional covenants for the benefit of the related
Noteholders, or to surrender any rights or power conferred upon the Trust: (iv)
to convey, transfer, assign, mortgage or pledge any property to or with the
Indenture Trustee; (v) to cure any ambiguity or correct or supplement any
provision in the Indenture or in any supplemental indenture; (vi) to evidence
and provide for the acceptance of the appointment of a successor Indenture
Trustee or to add to or change any of the provisions of the Indenture as shall
be necessary and permitted to facilitate the administration by more than one
trustee; (vii) to modify, eliminate or add to the provisions of the Indenture in
order to comply with the Trust Indenture Act of 1939, as amended; and (viii) to
add any provisions to, change in any manner, or eliminate any of the provisions
of, the Indenture or modify in any manner the rights of Noteholders under such
Indenture; provided that any action specified in this clause (viii) shall not
adversely affect in any material respect the interests of any related
Noteholder. An amendment described in such clause (viii) shall be deemed not to
adversely affect the interests of any Noteholder if either each Rating Agency
rating such Notes confirms in writing that such amendment will not result in a
reduction or withdrawal of the rating or none of the applicable Rating Agencies
rating such Notes, within 10 days" after receipt of notice of such amendment,
shall notify the related Seller, the Servicer or the Trust in writing that such
amendment will result in a reduction or withdrawal of the current ratings of the
Notes.
Modifications of Indenture With Noteholder Consent. With respect to each
Trust, with the consent of the holders representing a majority of the aggregate
principal balance of the outstanding related Notes (a "Note Majority"), with the
consent of the third party credit enhancement provider, if any (so long as no
Insurer Default (as defined in the related Prospectus Supplement) has occurred
and is continuing) unless the related Prospectus Supplement provides otherwise,
and with notice to the applicable Rating Agencies, the Indenture Trustee may
execute a supplemental indenture to add provisions to change in any manner or
eliminate any provisions of, the related Indenture, or modify in any manner the
rights of the related Noteholders.
Unless the related Prospectus Supplement provides otherwise, without the
consent of the third party credit enhancement provider, if any (so long as no
Insurer Default (as defined in the related Prospectus Supplement) has occurred
and is continuing), and the holder of each outstanding related Note affected
thereby, however, no supplemental indenture may: (i) change the due date of any
installment of principal of or interest on any Note or reduce the principal
amount thereof, the interest rate thereon or the redemption price with respect
thereto, change the provisions of the Indenture relating to the application of
collections on or the proceeds of the sale of, the collateral for the Notes to
payment of principal of or interest on the Notes or change any place of payment
where or the coin or currency in which any Note or any interest thereon is
payable, (ii) impair the right to institute suit for the enforcement of certain
provisions of the Indenture regarding payment, (iii) reduce the percentage of
the aggregate principal amount of the outstanding Notes the consent of the
holders of which is required for any such supplemental indenture or the consent
of the holders of which is required for any waiver of compliance with certain
provisions of the Indenture or of certain defaults thereunder and their
consequences as provided for in the Indenture, (iv) modify or alter the
provisions of the Indenture regarding the voting of Notes held by the Trust, the
related Seller, an affiliate of either of them or any obligor on the Notes, (v)
reduce the percentage of the aggregate outstanding amount of the Notes the
consent of the holders of which is required to direct the Indenture
-33-
<PAGE>
Trustee on behalf of the Trust to sell or liquidate the Receivables if the
proceeds of such sale would be insufficient to pay the principal amount and
accrued but unpaid interest on the outstanding Notes, (vi) decrease the
percentage of the aggregate principal amount of the Notes required to amend the
sections of the Indenture which specify the applicable percentage of aggregate
principal amount of the Notes necessary to amend the Indenture or certain other
related agreements, (vii) modify any of the provisions of the Indenture in such
manner as to affect the calculation of the amount of any payment of interest on
any Distribution Date or principal due on any Note on any Distribution Date
(including the calculation of any of the individual components of such
calculation) or to affect the rights of the Noteholders to the benefit of any
provision for the mandatory redemption of the Notes contained in the Indenture
or (viii) permit the creation of any lien ranking prior to or on a parity with
the lien of the Indenture with respect to any of the collateral for the Notes
or, except as otherwise permitted or contemplated in the Indenture, terminate
the lien of the Indenture on any such collateral or deprive the holder of any
Note of the security provided by the lien of the Indenture.
Events of Default; Rights Upon Event of Default. With respect to each
Trust, unless otherwise specified in the related Prospectus Supplement, "Events
of Default" under the Indenture will consist of: (i) a default for five days or
more in the payment of any interest on any Note after the same becomes due and
payable; (ii) a default in the payment of the principal or of any installment of
the principal of any Note when the same becomes due and payable; (iii) a default
in the observance or performance of any covenant or agreement of the Trust made
in the Indenture and the continuation of any such default for a period of 30
days after notice thereof is given to the Trust by the Indenture Trustee or to
the Trust and the Indenture Trustee by the holders of at least 25% in aggregate
principal amount of the related Notes then outstanding (or for such longer
period, not in excess of 90 days, as may be reasonably necessary to remedy such
default; provided that such default is capable of remedy within 90 days or less
and the Owner Trustee delivers an officer's certificate to the Indenture Trustee
to the effect that the Trust has commenced, or will promptly commence and
diligently pursue, all reasonable efforts to remedy such default); (iv) any
representation or warranty made by the Trust in the Indenture or in any
certificate delivered pursuant thereto or in connection therewith having been
incorrect in a material respect as of the time made, and such breach not having
been cured within 30 days after notice thereof is given to the Trust by the
Indenture Trustee or to the Trust and the Indenture Trustee by the holders of a
least 25% in aggregate principal amount of the Notes then outstanding (or for
such longer period, not in excess of 90 days as may be reasonably necessary to
remedy such default; provided that such default is capable of remedy within 90
days or less and the Owner Trustee delivers an officer's certificate to the
Indenture Trustee to the effect that the Trust has commenced, or will promptly
commence and diligently pursue, all reasonable efforts to remedy such default)
or (v) certain events of bankruptcy, insolvency, receivership or liquidation of
the Trust. However, the amount of principal due and payable on any class of
Notes on any Payment Date (prior to the final scheduled Payment Date, if any,
for such class) will generally be determined by the amount available to be
deposited in the Note Distribution Account for such Payment Date. Therefore, the
failure to pay principal on a class of Notes generally will not result in the
occurrence of an Event of Default unless such class of Notes has a final
scheduled Payment Date, and then not until such final scheduled Payment Date for
such class of Notes.
Unless otherwise specified in the related Prospectus Supplement, if an
Event of Default should occur and be continuing with respect to the Notes of any
series, the related Indenture Trustee or a Note Majority may declare the
principal of the Notes to be immediately due and payable. Such declaration may
be rescinded by a Note Majority if (i) the Trust has paid to the Indenture
Trustee a sum sufficient to pay all amounts then due with respect to the Notes
(without giving effect to such acceleration) and certain amounts payable to the
Indenture Trustee and (ii) all Events of Default (other than nonpayment of the
principal of the Notes due solely as a result of such acceleration) have been
cured or waived.
Unless otherwise specified in the related Prospectus Supplement, if the
Notes of any series have been declared due and payable following an Event of
Default with respect thereto, the related Indenture Trustee may institute
proceedings to collect amounts due or foreclose on Trust Property, exercise
remedies as a secured party, sell the related Receivables or elect to have the
Trust maintain possession of such Receivables and continue to apply collections
on such Receivables as if there had been no declaration of acceleration. The
Indenture Trustee, however, will be prohibited from selling the related
Receivables following an Event of Default, other than a
-34-
<PAGE>
default in the payment of any principal or a default for five days or more in
the payment of any interest on any Note, unless (i) the holders of all the
outstanding related Notes consent to such sale; (ii) the proceeds of such sale
are sufficient to pay in full the principal of and the accrued interest on such
outstanding Notes at the date of such sale; or (iii) the Indenture Trustee
determines that the proceeds of the Receivables would not be sufficient on an
ongoing basis to make all payments on the Notes as such payments would have
become due if such obligations had not been declared due and payable, and the
Indenture Trustee obtains the consent of the holders representing 66-2/3% of the
aggregate principal balance of the outstanding related Notes. In the event the
Notes are accelerated and the Receivables are sold, no distributions will be
made on the Certificates until all of the interest on and principal of the Notes
has been paid in full. In such event, all the funds, if any, on deposit in any
reserve account or received from another source of credit support will be
available to first pay interest on and principal of the Notes.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, if an Event of Default occurs and is continuing with respect
to a series of Notes, the Indenture Trustee will be under no obligation to
exercise any of the rights or powers under the Indenture at the request or
direction of any of the holders of such Notes, if the Indenture Trustee
reasonably believes it will not be adequately indemnified against the costs,
expenses and liabilities which might be incurred by it in complying with such
request. Subject to the provisions for indemnification and certain limitations
contained in the Indenture, a Note Majority in a series will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Indenture Trustee with respect to the Notes or exercising any
trust or power conferred on the Indenture Trustee and a Note Majority may, in
certain cases, waive any default with respect thereto, except a default in the
payment of principal or interest or a default in respect of a covenant or
provision of the Indenture that cannot be modified without the waiver or consent
of all of the holders of such outstanding Notes.
No holder of a Note of any series will have the right to institute any
proceeding with respect to the related Indenture unless (i) such holder
previously has given to the Indenture Trustee written notice of a continuing
Event of Default, (ii) the holders of not less than 25% in principal amount of
the outstanding Notes of such series have made written request of the Indenture
Trustee to institute such proceeding in its own name as Indenture Trustee, (iii)
such holder or holders have offered the Indenture Trustee reasonable indemnity,
(iv) the Indenture Trustee has for 60 days failed to institute such proceeding,
(v) no direction inconsistent with such written request has been given to the
Indenture Trustee during such 60-day period by the holders of a majority in
principal amount of such outstanding Notes, and (vi) in the case of a series of
Notes with respect to which a guaranty insurance policy has been issued, unless
otherwise specified in the related Prospectus Supplement, an Insurer Default (as
defined in the related Prospectus Supplement) has occurred and is continuing.
If an Event of Default occurs and is continuing and if it is known to the
Indenture Trustee, the Indenture Trustee will mail to each Noteholder notice of
the Event of Default within 90 days after it occurs. Except in the case of a
failure to pay principal of or interest on any Note, the Indenture Trustee may
withhold the notice if and so long as it determines in good faith that
withholding the notice is in the interests of the Noteholders.
In addition, each Indenture Trustee and the related Noteholders, by
accepting the related Notes, will covenant that they will not at any time
institute against the related Trust and the Seller any bankruptcy,
reorganization or other proceeding under any federal or state bankruptcy or
similar law.
No recourse may be taken, directly or indirectly, with respect to the
obligations of a Trust, the related Seller, the Servicer, the Owner Trustee or
the Indenture Trustee on the related Notes or under the Indenture or any
certificate or other writing delivered in connection therewith, against (i) the
related Seller, the Servicer, the Indenture Trustee or the Owner Trustee in its
individual capacity or (ii) any partner, owner, beneficiary, agent, officer,
director, employee or agent of the related Seller, the Servicer, such Trust, the
Owner Trustee or the Indenture Trustee or of any successor or assignee of the
related Seller, the Servicer, the Indenture Trustee or the Owner Trustee in its
individual capacity, except as any such person may have expressly agreed (it
being understood that the Indenture Trustee and the Owner Trustee will have no
such obligations in their individual capacity) and except that any such partner,
owner or beneficiary shall be fully liable, to the extent provided by
-35-
<PAGE>
applicable law, for any unpaid consideration for stock, unpaid capital
contribution or failure to pay any installment or call owing to such entity.
Certain Covenants. Each Indenture will provide that the related Trust may
not consolidate with or merge into any other entity, unless (i) the entity
formed by or surviving such consolidation or merger is organized under the laws
of the United States, any state or the District of Columbia, (ii) such entity
expressly assumes the Trust's obligation to make due and punctual payments upon
the Notes and the performance or observance of every agreement and covenant of
the Trust under the Indenture, (iii) no Default or Event of Default shall have
occurred and be continuing immediately after such merger or consolidation, (iv)
none of the applicable Rating Agencies, after 10 days' prior notice, shall have
notified the related Seller, the Servicer or the Trust in writing that such
transaction will result in a reduction or withdrawal of the then current ratings
of the Notes, (v) unless the related Prospectus Supplement provides otherwise,
the third party credit enhancement provider, if any, has consented to such
merger or consolidation except that no such consent shall be required if an
Insurer Default (as defined in the related Prospectus Supplement) has occurred
and is continuing, (vi) the Trust has received an opinion of counsel to the
effect that such transaction would have no material adverse federal tax
consequence to the Trust or to any Certificateholder or Noteholder, (vii) any
action necessary to maintain the lien and security interest created by the
Indenture has been taken and (viii) the Trust has delivered to the Indenture
Trustee an officers' certificate of the Trust and an opinion of counsel each
stating that such transaction and the supplemental indenture executed in
connection with such transaction comply with the Indenture and that all
conditions precedent relating to the transaction have been complied with
(including any filing required by the Exchange Act).
Also, each Trust may not convey or transfer all or substantially all its
properties or assets to any other entity, unless (i) the entity that acquires
the assets of the Trust (A) agrees that all right, title and interest conveyed
or transferred shall be subject and subordinate to the rights of Noteholders,
(B) unless otherwise agreed, expressly agrees to indemnify, defend and hold
harmless the Trust against and from any loss, liability or expense arising under
or related to the Indenture and the Notes, (C) expressly agrees to make all
filings with the Securities and Exchange Commission (and any other appropriate
entity) required by the Exchange Act in connection with the Notes and (D) is
organized under the laws of the United States or any state; and (ii) the
criteria specified in clauses (ii) through (vii) of the preceding paragraph have
been complied with.
Each Trust will not, among other things, (i) except as expressly permitted
by the Indenture, the Purchase Agreement, the Trust Documents or certain related
documents for such Trust (collectively, the "Related Documents"), sell,
transfer, exchange or otherwise dispose of any of the assets of the Trust, (ii)
claim any credit on or make any deduction from the principal and interest
payable in respect of the related Notes (other than amounts withheld under the
Internal Revenue Code of 1986, as amended, or applicable state law) or assert
any claim against any present or former holder of such Notes because of the
payment of taxes levied or assessed upon the collateral for the Notes, (iii)
except as contemplated by the Related Documents, dissolve or liquidate in whole
or in part, (iv) permit the validity or effectiveness of the related Indenture
to be impaired or permit any person to be released from any covenants or
obligations with respect to the related Notes under such Indenture except as may
be expressly permitted thereby, (v) permit any lien, charge, excise, claim,
security interest, mortgage or other encumbrance to be created on or extend to
or otherwise arise upon or burden the collateral for the Notes or any part
thereof, or any interest therein or proceeds thereof except as expressly
permitted by the Related Documents or (vi) permit the lien of the Indenture not
to constitute a valid first priority security interest in the Receivables.
No Trust may engage in any activity other than as specified under the
section of the related Prospectus Supplement entitled "The Trust." No Trust will
incur, assume or guarantee any indebtedness other than indebtedness incurred
pursuant to the related Notes and the related Indenture or otherwise in
accordance with the Related Documents.
Annual Compliance Statement. Each Trust will be required to file annually
with the related Indenture Trustee a written statement as to the fulfillment of
its obligations under the Indenture.
-36-
<PAGE>
Indenture Trustee's Annual Report. The Indenture Trustee will be required
to mail each year to all related Noteholders a brief report relating to, among
other things, its eligibility and qualification to continue as Indenture Trustee
under the related Indenture, any amounts advanced by it under the Indenture, the
amount, interest rate and maturity date of certain indebtedness owing by the
Trust to the Indenture Trustee in its individual capacity, the property and
funds physically held by the Indenture Trustee as such and any action taken by
it that materially affects the Notes and that has not been previously reported.
Satisfaction and Discharge of Indenture. The Indenture will be discharged
with respect to the collateral securing the related Notes upon the delivery to
the related Indenture Trustee for cancellation of all such Notes or, with
certain limitations, upon deposit with the Indenture Trustee of funds sufficient
for the payment in full of all of such Notes.
Trust Indenture Act. The Indenture will comply with applicable provisions
of the Trust Indenture Act of 1939, as amended.
THE INDENTURE TRUSTEE
The Indenture Trustee for a series of Notes will be specified in the
related Prospectus Supplement. The Indenture Trustee for one series of Notes may
serve as the Owner Trustee with respect to another series of Securities. The
Indenture Trustee may resign at any time, in which event the related Seller will
be obligated to appoint a successor trustee eligible under the Indenture which,
unless the related Prospectus Supplement provides otherwise, shall be acceptable
to the third party credit enhancement provider, if any, so long as no Insurer
Default (as defined in the related Prospectus Supplement) has occurred and is
continuing. The Seller may also remove the Indenture Trustee, with the consent
of the third party credit enhancement provider, if any, if the Indenture Trustee
ceases to be eligible to continue as such under the Indenture or if the
Indenture Trustee becomes insolvent. In such circumstances, the related Seller
will be obligated to appoint a successor trustee eligible under the Indenture
which, unless the related Prospectus Supplement provides otherwise, shall be
acceptable to the third party credit enhancement provider, if any, so long as no
Insurer Default (as defined in the related Prospectus Supplement) has occurred
and is continuing. Any resignation or removal of the Indenture Trustee and
appointment of a successor trustee will be subject to any conditions or
approvals, including the approval of the issuer of any credit enhancement, if
any, specified in the related Prospectus Supplement and will not become
effective until acceptance of the appointment by a successor trustee.
CERTAIN INFORMATION REGARDING THE SECURITIES
INDEXED SECURITIES
To the extent so specified in any Prospectus Supplement, any class of
Securities of a given series may consist of Securities ("Indexed Securities") in
which the principal amount payable at the final scheduled Distribution Date (the
"Indexed Principal Amount") is determined by reference to a measure (the
"Index") which will be related to (i) the difference in the rate of exchange
between United States dollars and a currency or composite currency (the "Indexed
Currency") specified in the applicable Prospectus Supplement (such Indexed
Securities, "Currency Indexed Securities"); (ii) the difference in the price of
a specified commodity (the "Indexed Commodity") on specified dates (such Indexed
Securities, "Commodity Indexed Securities"); (iii) the difference in the level
of a specified stock index (the "Stock Index"), which maybe based on U.S. or
foreign stocks, on specified dates (such Indexed Securities, "Stock Indexed
Securities"); or (iv) such other objective price or economic measures as are
described in the applicable Prospectus Supplement. The manner of determining the
Indexed Principal Amount of an Indexed Security and historical and other
information concerning the Indexed Currency, the Indexed Commodity, the Stock
Index or other price or economic measures used in such determination will be set
forth in the applicable Prospectus Supplement, together with information
concerning tax consequences to the holders of such Indexed Securities.
-37-
<PAGE>
If the determination of the Indexed Principal Amount of an Indexed
Security is based on an Index calculated or announced by a third party and such
third party either suspends the calculation or announcement of such Index or
changes the basis upon which such Index is calculated (other than changes
consistent with policies in effect at the time such Indexed Security was issued
and permitted changes described in the applicable Prospectus Supplement), then
such Index shall be calculated for purposes of such Indexed Security by an
independent calculation agent named in the applicable Prospectus Supplement on
the same basis, and subject to the same conditions and controls, as applied to
the original third party. If for any reason such index cannot be calculated on
the same basis and subject to the same conditions and controls as applied to the
original third party, then the Indexed Principal Amount of such Indexed Security
shall be calculated in the manner set forth in the applicable Prospectus
Supplement. Any determination of such independent calculation agent shall in the
absence of manifest error be binding on all parties.
Interest on an Indexed Security will be payable based on the amount
designated in the applicable Prospectus Supplement (the "Face Amount"). The
applicable Prospectus Supplement will describe whether the principal amount of
the related Indexed Security, if any, that would be payable upon redemption or
repayment prior to the applicable final scheduled Distribution Date will be the
Face Amount of such Indexed Security, the Indexed Principal Amount of such
Indexed Security at the time of redemption or repayment or another amount
described in such Prospectus Supplement.
BOOK-ENTRY REGISTRATION
Unless otherwise specified in the related Prospectus Supplement, persons
acquiring beneficial ownership interests in the Securities of each Series may
hold their interests through DTC in the United States or, in the case of any
series of Notes, Cedel or Euroclear in Europe. Each Class of Certificates will
be registered in the name of Cede as nominee for DTC. Cedel and Euroclear will
hold omnibus positions with respect to the Notes and, if the related Prospectus
Supplement so provides, the Certificates on behalf of Cedel Participants and
Euroclear Participants, respectively, through customers" securities accounts in
Cedel's and Euroclear's name on the books of their respective depositories
(collectively, the "Depositories") which in turn will hold such positions in
customers" securities accounts in the Depositories' names on the books of DTC.
For additional information regarding clearance and settlement procedures see
Annex I hereto.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC accepts securities for deposit from its participating
organizations ("Participants") and facilitates the clearance and settlement of
securities transactions between Participants in such securities through
electronic book-entry changes in accounts of Participants, thereby eliminating
the need for physical movement of certificates. Participants include securities
brokers and dealers, banks and trust companies and clearing corporations and may
include certain other organizations. Indirect access to the DTC system is also
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly ("indirect participants"). The rules applicable to DTC
and its participants are on file with the Commission.
Certificate owners and Note owners who are not Participants but desire to
purchase, sell or otherwise transfer ownership of Securities may do so only
through Participants (unless and until Definitive Certificates or Definitive
Notes, each as defined below, are issued). In addition, Certificate owners and
Note owners will receive all distributions of principal of, and interest on, the
Securities, from the Owner Trustee or the Indenture Trustee, as applicable,
through DTC and Participants. Certificate owners and Note owners will not
receive or be entitled to receive certificates representing their respective
interests in the Securities, except under the limited circumstances described
below and such other circumstances, if any, as may be specified in the related
Prospectus Supplement.
-38-
<PAGE>
Unless and until Definitive Securities are issued, it is anticipated that
the only Certificateholder of the Certificates and the only Noteholder of the
Notes, if any, will be Cede & Co., as nominee of DTC. Certificate owners and
Note owners will not be recognized by the Owner Trustee as Certificateholders or
by the Indenture Trustee as Noteholders as those terms are used in the related
Trust Documents or Indenture. Certificate owners and Note owners will be
permitted to exercise the rights of Certificateholders or Noteholders, as the
case may be, only indirectly through Participants and DTC.
With respect to any series of Securities issued in book-entry form, while
such Securities are outstanding (except under the circumstances described
below), under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
among Participants on whose behalf it acts with respect to the Securities and is
required to receive and transmit distributions of principal of, and interest on,
the Securities. Participants with whom Certificate owners or Note owners have
accounts with respect to Securities are similarly required to make book-entry
transfers and receive and transmit such distributions on behalf of their
respective Certificate owners and Note owners. Accordingly, although Certificate
owners and Note owners will not possess Securities, the Rules provide a
mechanism by which Certificate owners and Note owners will receive distributions
and will be able to transfer their interests.
Transfers between Participants will occur in accordance with DTC Rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Because of time zone differences, credits of securities received in Cedel
or Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date, and any such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedel Participants on such business day. Cash received in Cedel or
Euroclear as a result of sales of Notes and, if the related Prospectus
Supplement so provides, Certificates by or through a Cedel Participant or
Euroclear Participant to a DTC Participant will be received with value on the
DTC settlement date but will be available in the relevant Cedel or Euroclear
cash account only as of the business day following settlement in DTC.
Cross-market transfers between persons directly holding Notes and, if the
related Prospectus Supplement so provides, Certificates or indirectly through
DTC, on the one hand, and directly or indirectly through Cedel Participants or
Euroclear Participants, on the other, will be effected in DTC in accordance with
DTC Rules on behalf of the relevant European international clearing system by
its Depository; however, such cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in such system in accordance with its rules and procedures and
within its established deadline (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its Depository to take action to effect
final settlement on its behalf by delivering or receiving securities in DTC, and
making or receiving payment in accordance with normal procedures for same day
funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions to the Depositories.
With respect to any series of Securities, Certificates and Notes (if any)
will be issued in registered form to Certificate owners and Note owners, or
their nominees, rather than to DTC (such Certificates and Notes being referred
to herein as "Definitive Certificates" and "Definitive Notes," respectively),
only if (i) the related Seller advises the Owner Trustee or the Indenture
Trustee, as the case may be, in writing that DTC is no longer willing or able to
discharge properly its responsibilities as nominee and depository with respect
to the Certificates or the Notes and the related Seller is unable to locate a
qualified successor, (ii) the related Seller at its sole option has advised the
Owner Trustee or the Indenture Trustee, as the case may be, in writing that it
elects to terminate the book-entry system through DTC or (iii) after the
occurrence of an Event of Default, the holders representing a majority of the
Certificate Balance (a "Certificate Majority") or a Note Majority advises the
Owner Trustee or the Indenture Trustee, as the case may be, through DTC that
continuation of a book-entry system is no longer in their best interests. Upon
issuance of Definitive Certificates or Definitive Notes to Certificate owners or
Note owners,
-39-
<PAGE>
such Certificates or Notes will be transferable directly (and not exclusively on
a book-entry basis) and registered holders will deal directly with the Owner
Trustee or the Indenture Trustee, as the case may be, with respect to transfers,
notices and distributions.
DTC has advised the Sellers that, unless and until Definitive Certificates
or Definitive Notes are issued, DTC will take any action permitted to be taken
by a Certificateholder or a Noteholder under the related Trust Documents or
Indenture only at the direction of one or more Participants to whose DTC
accounts the Certificates or Notes are credited. DTC has advised the Sellers
that DTC will take such action with respect to any fractional interest of the
Certificates or the Notes only at the direction of and on behalf of such
Participants beneficially owning a corresponding fractional interest of the
Certificates or the Notes. DTC may take actions, at the direction of the related
Participants, with respect to some Certificates or Notes which conflict with
actions taken with respect to other Certificates or Notes.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in Cedel in any of 28
currencies, including United States dollars. Cedel provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to Cedel is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York the "Euroclear Operator"), under contract
with Euroclear Clearance Systems, S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. Indirect access to Euroclear is
also available to other firms that clear through, or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of Euroclear, and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and
-40-
<PAGE>
Conditions only on behalf of Euroclear Participants and has no record of or
relationship with persons holding through Euroclear Participants.
Distributions with respect to Notes and, if the related Prospectus
Supplement so provides, Certificates held through Cedel or Euroclear will be
credited to the cash accounts of Cedel Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by its Depository. Such distributions will be subject to tax reporting
in accordance with relevant United States tax laws and regulations. Cedel or the
Euroclear Operator, as the case may be, will take any other action permitted to
be taken by a beneficial holder of Notes and, if the related Prospectus
Supplement so provides, Certificates under the Agreement on behalf of a Cedel
Participant or Euroclear Participant only in accordance with its relevant rules
and procedures and subject to its Depository's ability to effect such actions on
its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of interests in the Notes and, if the related
Prospectus Supplement so provides, the Certificates among Direct Participants of
DTC, Cedel and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
NEITHER THE TRUST, THE SELLERS, THE SERVICER, FRANKLIN CAPITAL, FRANKLIN
RESOURCES, THE OWNER TRUSTEE, THE INDENTURE TRUSTEE, NOR ANY OF THE UNDERWRITERS
WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO ANY PARTICIPANTS, CEDEL
PARTICIPANTS OR EUROCLEAR PARTICIPANTS OR THE PERSONS FOR WHOM THEY ACT AS
NOMINEES WITH RESPECT TO (1) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC,
CEDEL, EUROCLEAR OR ANY PARTICIPANT, (2) THE PAYMENT BY DTC, CEDEL, EUROCLEAR OR
ANY PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE
PRINCIPAL BALANCE OF, OR INTEREST ON, THE NOTES AND, IF THE RELATED PROSPECTUS
SUPPLEMENT SO PROVIDES, THE CERTIFICATES, (3) THE DELIVERY BY ANY PARTICIPANT,
CEDEL PARTICIPANT OR EUROCLEAR PARTICIPANT OF ANY NOTICE TO ANY BENEFICIAL OWNER
WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE AGREEMENT TO BE GIVEN TO
NOTEHOLDERS AND, IF THE RELATED PROSPECTUS SUPPLEMENT SO PROVIDES,
CERTIFICATEHOLDERS OR (4) ANY OTHER ACTION TAKEN BY DTC OR ITS NOMINEE AS THE
NOTEHOLDER AND, IF THE RELATED PROSPECTUS SUPPLEMENT SO PROVIDES, THE
CERTIFICATEHOLDER.
Issuance of Certificates and Notes in book-entry form rather than as
physical certificates or notes may adversely affect the liquidity of
Certificates or Notes in the secondary market and the ability of the Certificate
owners or Note owners to pledge them. In addition, since distributions on the
Certificates and the Notes will be made by the Owner Trustee or the Indenture
Trustee to DTC unless and until Definitive Certificates and Definitive Notes are
issued and DTC will credit such distributions to the accounts of its
Participants, with the Participants further crediting such distributions to the
accounts of indirect participants or Certificate owners or Note owners,
Certificate owners and Note owners may experience delays in the receipt of such
distributions.
STATEMENTS TO SECURITYHOLDERS
On or prior to each Distribution Date, the Servicer will prepare and
provide to the Owner Trustee a statement to be delivered to the related
Certificateholders on such Distribution Date. On or prior to each Payment Date,
the Servicer will prepare and provide to the Indenture Trustee a statement to be
delivered to the related Noteholders on such Payment Date. Such statements will
be based on the information in the related Servicer's certificate setting forth
certain information required under the Trust Documents (the "Servicer's
Certificate"). Each such statement to be delivered to Certificateholders will
include the following information as to the Certificates with respect to such
Distribution Date or the period since the previous Distribution Date, as
applicable, and each such statement to be delivered to Noteholders will include
the following information as to the Notes with respect to such Payment Date or
the period since the previous Payment Date, as applicable:
-41-
<PAGE>
(i) the amount of the distribution allocable to interest on or with
respect to each class of Securities;
(ii) the amount of the distribution allocable to principal on or with
respect to each class of Securities;
(iii) the Certificate Balance and the Certificate Factor for each class of
Certificates and the aggregate outstanding principal balance and, if applicable,
the Note Factor for each class of Notes, after giving effect to all payments
reported under (ii) above on such date;
(iv) the amount of the Servicing Fee paid to the Servicer with respect to
the related Monthly Period or Periods, as the case may be;
(v) the Pass-Through Rate, Interest Rate or other applicable rate of
return, if any, for the next period for any class of Certificates or Notes with
variable or adjustable rates;
(vi) the amount, if any, distributed to Certificateholders and Noteholders
applicable to payments under any credit enhancement; and
(vii) such other information as may be specified in the related Prospectus
Supplement.
Unless higher denominations are specified in the related Prospectus
Supplement, each amount set forth pursuant to subclauses (i), (ii), (iv), (vi)
and (vii) with respect to Certificates or Notes will be expressed as a dollar
amount per $1,000 of the initial Certificate Balance or the initial principal
balance of the Notes, as applicable.
Unless and until Definitive Certificates or Definitive Notes are issued,
such reports with respect to a series of Securities will be sent on behalf of
the related Trust to the Owner Trustee, the Indenture Trustee and Cede & Co., as
registered holder of the Certificates and the Notes and the nominee of DTC.
Certificate owners and Note owners may receive copies of such reports upon
written request, together with a certification that they are Certificate owners
or Note owners, as the case may be, and payment of any expenses associated with
the distribution of such reports, from the Owner Trustee or the Indenture
Trustee, as applicable. See - "Statements to Securityholders" and "-Book-Entry
Registration" above.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of a Trust, the Owner Trustee and the
Indenture Trustee, as applicable, will mail to each holder of a class of
Securities who at any time during such calendar year has been a Securityholder,
and received any payment thereon, a statement containing certain information for
the purposes of such Securityholder's preparation of federal income tax return.
See "Federal Income Tax Consequences."
LIST OF SECURITYHOLDERS
At such time, if any, as Definitive Certificates have been issued, the
Owner Trustee will, upon written request by three or more Certificateholders or
one or more holders of Certificates evidencing not less than 25% of the
Certificate Balance, within five Business Days after provision to the Owner
Trustee of a statement of the applicants' desire to communicate with other
Certificateholders about their rights under the related Trust Documents or the
Certificates and a copy of the communication that the applicants propose to
transmit, afford such Certificateholders access during business hours to the
current list of Certificateholders for purposes of communicating with other
Certificateholders with respect to their rights under the Trust Documents. The
Trust Documents will not provide for holding any annual or other meetings of
Certificateholders.
At such time, if any, as Definitive Notes have been issued, the Indenture
Trustee will, upon written request by three or more Noteholders or one or more
holders of Notes evidencing not less than 25% of the aggregate principal balance
of the related Notes, within five Business Days after provision to the Indenture
Trustee of a statement of the applicants' desire to communicate with other
Noteholders about their rights under the related
-42-
<PAGE>
Indenture or the Notes and a copy of the communication that the applicants
propose to transmit, afford such Noteholders access during business hours to the
current list of Noteholders for purposes of communicating with other Noteholders
with respect to their rights under the Indenture. The Indenture will not provide
for holding any annual or other meetings of Noteholders.
DESCRIPTION OF THE PURCHASE AGREEMENTS AND THE
TRUST DOCUMENTS
The following summary describes certain terms of the Purchase Agreements
(each a "Purchase Agreement") pursuant to which the Sellers will purchase
Receivables from Franklin Capital and certain terms of either (i) the Pooling
and Servicing Agreements or (ii) the Sale and Servicing Agreements and the Trust
Agreements (in either case collectively referred to as the "Trust Documents")
pursuant to which the Sellers will sell and assign such Receivables to a Trust
and Franklin Capital will agree to service such Receivables on behalf of the
Trust, and pursuant to which such Trust will be created and Certificates will be
issued. Forms of the Purchase Agreement and the Trust Documents have been filed
as exhibits to the Registration Statement of which this Prospectus forms a part.
Each Seller will provide a copy of such agreements (without exhibits) upon
request to a Securityholder described therein. This summary does not purport to
be complete and is subject to, and qualified in its entirety by reference to,
all of the provisions of the forms of Purchase Agreement and the Trust
Documents.
SALE AND ASSIGNMENT OF RECEIVABLES
On or prior to the Closing Date with respect to a series of Securities
specified in the related Prospectus Supplement, Franklin Capital will enter into
a Purchase Agreement with the related Seller pursuant to which Franklin Capital
will, on or prior to such Closing Date, sell and assign to the related Seller,
without recourse, its entire interest in and to the related Receivables,
including its security interest in the Financed Vehicles securing such
Receivables and its rights to receive all payments on, or proceeds with respect
to, such Receivables to the extent paid or payable after the applicable Cutoff
Date. Pursuant to the Purchase Agreement, unless another party is identified in
the related Prospectus Supplement as having so agreed, Franklin Capital will
agree that, upon the occurrence of a breach of a representation or warranty
under the related Trust Documents with respect to any of the Receivables of a
Trust which causes the related Seller to be obligated to repurchase a
Receivable, the Owner Trustee will be entitled to require Franklin Capital to
repurchase such Receivables from the Trust. Such rights of the Trust under the
Purchase Agreement will constitute part of the property of the Trust and may be
enforced directly by the Owner Trustee and, unless the related Prospectus
Supplement provides otherwise, the third party credit enhancement provider, if
any. In addition, the Owner Trustee will pledge such rights to the Indenture
Trustee as collateral for the Notes, if any, and such rights may be enforced
directly by the Indenture Trustee.
On the Closing Date, the related Seller will sell and assign to the Owner
Trustee, without recourse, the related Seller's entire interest in the related
Receivables and the proceeds thereof, including its security interest in the
Financed Vehicles. Each Receivable transferred by the related Seller to the
Trust will be identified in a schedule appearing as an exhibit to the related
Trust Documents (the "Schedule of Receivables"). Concurrently with such transfer
and assignment, the Owner Trustee will execute and deliver the related
certificates representing the Certificates to or upon the order of the related
Seller, and the Owner Trustee will execute and the Indenture Trustee will
authenticate and deliver the Notes, if any, to or upon the order of the related
Seller. The net proceeds received from the sale of the Certificates and the
Notes of a given series will be applied to the purchase of the related
Receivables from the related Seller and, to the extent specified in the related
Prospectus Supplement, to the deposit of the Pre-Funded Amount into the
Pre-Funding Account.
ELIGIBILITY CRITERIA
In the Purchase Agreement, Franklin Capital will represent and warrant to
the related Seller, and in the Trust Documents the related Seller will represent
and warrant to the Owner Trustee and/or the Indenture Trustee,
-43-
<PAGE>
as the case may be, among other things, that (i) the information provided with
respect to the Receivables is correct in all material respects; (ii) the Obligor
on each Receivable is required to maintain physical damage insurance in
accordance with the Servicer's normal requirements; (iii) at the date of
issuance of the Certificates and any Notes, the Initial Receivables and on the
applicable Subsequent Transfer Date, if any, the related Subsequent Receivables,
as the case may be, are, to the best of its knowledge, free and clear of all
security interests, liens, charges and encumbrances and no offsets, defenses, or
counterclaims against it have been asserted or threatened; (iv) at the date of
issuance of the Certificates and any Notes, and on the applicable Subsequent
Transfer Date, if any, each of the Initial Receivables or Subsequent
Receivables, as the case may be, is or will be secured by a first perfected
security interest in the Financed Vehicle in favor of Franklin Capital; and (v)
each Receivable, at the time it was originated, complied, and at the date of
issuance of the Certificates and any Notes, and on the applicable Subsequent
Transfer Date, if any, the related Subsequent Receivables, as the case may be,
complies in all material respects with applicable federal and state laws,
including consumer credit, truth in lending, equal credit opportunity and
disclosure laws.
If the related Prospectus Supplement specifies that Subsequent Receivables
are to be acquired by a Trust, then during the related Funding Period, pursuant
to the Purchase Agreement, the related Seller will be obligated to purchase from
Franklin Capital and, pursuant to the Agreement, sell to the Trust Subsequent
Receivables. The aggregate principal balance of the Subsequent Receivables will
be in an amount that Franklin Capital anticipates will equal the amount
deposited in the Pre-Funding Account on the date of the issuance of the related
series. On each Subsequent Transfer Date, Franklin Capital will sell and assign
to the related Seller, without recourse, its entire interest in the Subsequent
Receivables identified in a schedule attached to a supplemental conveyance
relating to such Subsequent Receivables executed by Franklin Capital and the
related Seller. In connection with each purchase of Subsequent Receivables, the
Trust will be required to pay to the related Seller a cash purchase price equal
to the outstanding principal balance of each Subsequent Receivable as of its
Subsequent Cutoff Date, which price the related Seller will pay to Franklin
Capital. The purchase price will be withdrawn from the Pre-Funding Account and
paid to the related Seller for payment to Franklin Capital so long as the
representations and warranties set forth in the preceding paragraph and under
"The Receivables -- General" apply to each Subsequent Receivable to be conveyed,
and the conditions set forth below are satisfied. Franklin Capital will convey
the Subsequent Receivables to the related Seller on each such Subsequent
Transfer Date pursuant to the Purchase Agreement and the applicable Subsequent
Transfer Agreement (each, a "Subsequent Transfer Agreement") executed by
Franklin Capital and the related Seller on the Subsequent Transfer Date and
including as an exhibit a schedule identifying the Subsequent Receivables
transferred on such date. The related Seller will convey the Subsequent
Receivables to the Trust on such Subsequent Transfer Date pursuant to the
Agreement and the applicable Subsequent Transfer Assignment (each, a "Subsequent
Transfer Assignment") executed by the related Seller and the Trustee on the
Subsequent Transfer Date and including as an exhibit a schedule identifying the
Subsequent Receivables transferred on such date.
Any conveyance of Subsequent Receivables will be subject to the following
conditions, among others specified in the related Prospectus Supplement: (i)
each such Subsequent Receivable must satisfy the eligibility criteria specified
in the preceding paragraph as of its Subsequent Cutoff Date and such additional
criteria as may be specified in the related Prospectus Supplement; (ii) if and
to the extent specified in the related Prospectus Supplement, the third-party
credit enhancement provider, if any, shall have approved the transfer of such
Subsequent Receivables to the Trust; and (iii) neither Franklin Capital nor the
related Seller will have selected such Subsequent Receivables in a manner that
either believes is adverse to the interests of the Securityholders.
As of the last day of the second (or, if the related Seller elects, the
first) month following the discovery by the related Seller or receipt by the
related Seller of notice from the Servicer, the Owner Trustee, the Indenture
Trustee or the third party credit enhancement provider, if any, of a breach of
any representation or warranty of the related Seller which the Owner Trustee, or
the Indenture Trustee, as the case may be, determines materially and adversely
affects the interests of the Securityholders in a Receivable, the related
Seller, unless it cures the breach, will be required to purchase the Receivable
from the Owner Trustee and Franklin Capital will be required to purchase the
Receivable from the related Seller, at a price equal to the amount of
outstanding principal and accrued interest of the Receivable (including one
month's interest thereon, in the month of payment, at the APR
-44-
<PAGE>
less, so long as Franklin Capital is the Servicer, the Servicing Fee and other
fees and expenses), after giving effect to the receipt of any moneys collected
(from whatever source) on such Receivable, if any (such price is hereinafter
referred to as the "Purchase Amount"). The "second month" shall mean the month
following the month in which discovery occurs or notice is given, and the "first
month" shall mean the month in which discovery occurs or notice is given. The
purchase obligation will constitute the sole remedy available to the
Securityholders, the Owner Trustee and the Indenture Trustee, if any, and the
third party credit enhancement provider, if any, for any such uncured breach.
CUSTODY OF RECEIVABLE FILES
Pursuant to the Trust Documents, the Servicer will service and administer
the Receivables. The Trust Documents will also designate the Servicer as
custodian to maintain possession, as the Owner Trustee's and Indenture
Trustee's, if any, agent, of the motor vehicle retail installment sale contracts
and any other documents relating to the Receivables. The documents will not be
physically segregated from other similar documents that are in the Servicer's
possession and will not be stamped or marked to reflect the transfer to a Trust.
However, Uniform Commercial Code financing statements reflecting the sale and
assignment of the Receivables to the related Seller and by the related Seller to
the Owner Trustee will be filed, and Franklin Capital's accounting records and
computer systems will be marked to reflect such sale and assignment. See
"Certain Legal Aspects of the Receivables-Security Interests in Vehicles."
ACCOUNTS
With respect to each Trust that issues Notes, the Servicer will establish
and maintain with the related Indenture Trustee one or more accounts, in the
name of the Indenture Trustee on behalf of the related Noteholders and
Certificateholders, into which all payments made on or with respect to the
related Receivables will be deposited (the "Collection Account"). The Servicer
will establish and maintain with such Indenture Trustee an account, in the name
of such Indenture Trustee on behalf of such Noteholders, into which amounts
released from the Collection Account and any Pre-Funding Account, reserve
account or other credit enhancement for payment to such Noteholders will be
deposited and from which all distributions to such Noteholders will be made (the
"Note Distribution Account"). The Servicer will establish and maintain with the
related Owner Trustee an account, in the name of such Owner Trustee on behalf of
such Certificateholders, into which amounts released from the Collection Account
and any Pre-Funding Account, reserve account or other credit or cash flow
enhancement for distribution to such Certificateholders will be deposited and
from which all distributions to such Certificateholders will be made (the
"Certificate Distribution Account", and together with the Note Distribution
Account, the "Distribution Accounts"). With respect to each Trust that does not
issue Notes, the Servicer will also establish and maintain the Collection
Account and any other Trust Account specified in the related Prospectus
Supplement in the name of the related Owner Trustee on behalf of the related
Certificateholders.
The Servicer will also establish an additional account (the "Payahead
Account") in the name of the Owner Trustee or the Indenture Trustee, into which
early payments by or on behalf of the Obligors which constitute neither
scheduled payments, full prepayments, nor certain partial prepayments as
described below ("Payaheads") will be deposited until such time as the payment
falls due. Unless otherwise specified in the related Prospectus Supplement, if
the Trust elects to be treated as a grantor trust, the Payahead Account will not
be an asset of such Trust, but will be pledged to the Owner Trustee for the
benefit of Certificateholders and any third-party credit enhancement provider
and all Investment Earnings thereon will be for the benefit of, and will be
distributable to, the applicable Seller.
In addition, the Servicer will establish as additional segregated trust
accounts, if specified in the related Prospectus Supplement, a Pre-Funding
Account and one or more spread accounts or reserve or other accounts in the name
of the Owner Trustee or the Indenture Trustee on behalf of the Securityholders.
For any series of Securities, funds in the Collection Account, the Note
Distribution Account, the Certificate Distribution Account and any Payahead
Account and any Pre-Funding Account, reserve account and
-45-
<PAGE>
other accounts identified as such in the related Prospectus Supplement
(collectively, the "Accounts") will be invested as provided in the related Sale
and Servicing Agreement or Pooling and Servicing Agreement in Eligible
Investments. "Eligible Investments" are limited to (a) direct obligations of,
and obligations fully guaranteed as to timely payment by, the United States of
America; (b) demand deposits, time deposits or certificates of deposit of any
depository institution or trust company incorporated under the laws of the
United States of America or any state thereof or the District of Columbia (or
any domestic branch of a foreign bank), provided, that at the time of the
investment, the commercial paper or other short-term senior unsecured debt
obligations of such depository institution or trust company shall have a minimum
credit rating satisfying each of the Rating Agencies rating such Securities; (c)
commercial paper having a minimum credit rating satisfying each of the Rating
Agencies rating such Securities; (d) investments in money market funds having a
minimum credit rating satisfying each of the Rating Agencies rating such
Securities; (e) repurchase obligations with respect to any security that is a
direct obligation of, or fully guaranteed by, the United States of America
entered into with a depository institution or trust company (acting as
principal) referred to in clause (b) above; and (f) other investments acceptable
to the Rating Agencies rating such Securities which are consistent with the
rating of such Securities. The related Prospectus Supplement will specify
whether and the extent to which investment earnings on funds deposited in the
Accounts, net of losses and investment expenses (collectively, "Investment
Earnings"), will be deposited in the applicable Collection Account on each
Distribution Date and treated as collections of interest on the related
Receivables or distributed to the Servicer, as additional servicing
compensation, the related Seller or any other person. Investment Earnings on a
Pre-Funding Account will be deposited in the applicable Collection Account on
each Distribution Date and treated as collections of interest on the
Receivables.
The Accounts will be maintained as Eligible Deposit Accounts. "Eligible
Deposit Account" means either (a) a segregated account with an Eligible
Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States of America or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), having corporate trust powers and
acting as trustee for funds deposited in such account, so long as any of the
securities of such depository institution have a credit rating from each Rating
Agency in one of its generic rating categories which signifies investment grade.
"Eligible Institution" means, with respect to a Trust, (a) the corporate trust
department of the related Indenture Trustee or the related Owner Trustee, as
applicable, or (b) a depository institution organized under the laws of the
United States of America or any one of the states thereof or the district of
Columbia (or any domestic branch of a foreign bank), (i) which has either (A) a
long-term unsecured debt rating acceptable to the Rating Agencies or (B) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies and (ii) whose deposits are insured by the FDIC.
Notwithstanding the foregoing, if the Servicer meets the rating or other
requirements, if any, specified in the related Prospectus Supplement, the
Servicer may maintain the Accounts in its own name and may commingle funds
therein with its own funds, and remit funds monthly to the Owner Trustee or
Indenture Trustee.
SERVICING PROCEDURES
The Servicer will be required to make reasonable efforts to collect all
payments due with respect to the Receivables and will be required to continue
such collection procedures as it follows with respect to its own motor vehicle
retail installment sale contracts, in a manner consistent with the Trust
Documents. Consistent with its normal procedures, the Servicer may, in its
discretion, arrange with the Obligor on a Receivable to extend or modify the
payment schedule, but no such arrangement will, for purposes of any Sale and
Servicing Agreement or Pooling and Servicing Agreement, modify the original due
dates (other than to permit payment on a different date in the same month in
which the original due date falls) or the amount of the scheduled payments
(unless the obligor is in default or, in the judgment of the Servicer, such
default is imminent) or extend the final payment date of any Receivable beyond
the Final Scheduled Distribution Date (as such term is defined with respect to
any Receivables Pool in the related Prospectus Supplement). Some of such
arrangements may result in the Servicer being required to purchase the
Receivable for the Purchase Amount, while others may result in the Servicer
being required to make Advances. If the Servicer determines that eventual
payment in full of a Receivable is unlikely, the Servicer will follow its normal
practices and procedures to realize upon the Receivable, including the
-46-
<PAGE>
repossession and disposition of the Financed Vehicle securing the Receivable at
a public or private sale, or the taking of any other action permitted by
applicable law.
COLLECTIONS
The Servicer will be required to deposit all payments on Receivables
received (net of amounts in respect of the Servicing Fee, the Supplemental
Servicing Fee and reimbursement for Advances, if any, included in such payments)
and all proceeds of Receivables collected during each Monthly Period (net of
amounts in respect of the Servicing Fee, the Supplemental Servicing Fee and
reimbursement for Advances, if any, included in such proceeds) into the
Collection Account as specified in the related Prospectus Supplement. However,
at any time that and for so long as (i) there exists no Servicer Default, (ii)
the credit enhancement provider, if any, consents and (iii) each other condition
to making deposits less frequently than daily as may be specified by the Rating
Agencies or set forth in the related Prospectus Supplement is satisfied, the
Servicer will not be required to deposit such amounts into the Collection
Account until on or before the applicable Distribution Date or Payment Date.
Pending deposit into the Collection Account, collections may be invested by the
Servicer at its own risk and for its own benefit and will not be segregated from
its own funds. If the Servicer were unable to remit such funds, Securityholders
might incur a loss. To the extent set forth in the related Prospectus
Supplement, the Servicer may in order to satisfy the requirements described
above, obtain a letter of credit or other security for the benefit of the
related Trust to secure timely remittances of collections on the related
Receivables and payment of the aggregate Purchase Amount with respect to
Receivables purchased by the Servicer. If the conditions specified above are
satisfied, the Servicer and the related Seller, as the case may be, will be
required to remit the aggregate Purchase Amount of Receivables to be purchased
from the Trust to the Collection Account on the Business Day immediately
preceding the Distribution Date.
For purposes of the Trust Documents, collections on a Receivable made
during a Monthly Period are required to be applied first to the scheduled
payment thereof. To the extent that such collections on a Receivable during a
Monthly Period exceed the scheduled payment on such Receivable, the collections
(other than Payaheads) are required to be applied to prepay the Receivable in
full. In the case of Precomputed Receivables, if the collections are
insufficient to prepay the Receivable in full, they generally are required to be
treated as Payaheads until such later Monthly Period as such Payaheads may be
applied either to the scheduled payment or to prepay the Receivable in full.
ADVANCES
If and to the extent specified in the related Prospectus Supplement, the
Servicer may be required to advance (each, an "Advance") monthly payments of
interest or monthly payments of principal and interest in respect of a
delinquent Receivable or Servicer approved deferrals of monthly payments that
the Servicer, in its sole discretion, expects to receive from subsequent
payments on or with respect to such Receivable or from other Receivables. The
Servicer shall be entitled to reimbursement of Advances from subsequent payments
on or with respect to the Receivables to the extent described in the related
Prospectus Supplement.
SERVICING COMPENSATION
The Servicer is entitled under the Trust Documents to receive or retain,
as specified in the related Prospectus Supplement on each Distribution Date a
servicing fee (the "Servicing Fee") for the related Monthly Period at the rate
specified in the related Prospectus Supplement (the "Servicing Fee Rate")
multiplied by the Pool Balance as of the first day of such Monthly Period. The
Servicer is also entitled to retain from collections a supplemental servicing
fee (the "Supplemental Servicing Fee") for each Monthly Period equal to any late
fees, prepayment fees, rebates and other administrative fees and expenses
collected during the Monthly Period plus reinvestment proceeds on any payments
received in respect of Receivables. If specified in the related Prospectus
Supplement, the Servicer may be entitled to additional compensation from
investment earnings (net of losses) on certain accounts or otherwise. The
Servicer, in its discretion at its election, may defer receipt of all or any
portion of the Servicing Fee, the Supplemental Servicing Fee or any additional
compensation from investment
-47-
<PAGE>
earnings for any Monthly Period to and until a later Monthly Period for any
reason, including in order to avoid a shortfall in any payments due on any
Securities. Any such deferred amount shall be payable to (or may be retained
from subsequent collections by) the Servicer on demand.
The Servicing Fee and the Supplemental Servicing Fee and any other amounts
specified in the related Prospectus Supplement (collectively, the "Servicer
Fee") are intended to compensate the Servicer for performing the functions of a
third-party servicer of the Receivables as an agent for the Securityholders,
including collecting and posting all payments, responding to inquiries of
Obligors on the Receivables, investigating delinquencies, reporting tax
information to Obligors, paying costs of collections and policing the
collateral. The Servicer Fee will also compensate the Servicer for administering
the Receivables, including accounting for collections, furnishing monthly and
annual statements to the Owner Trustee and any Indenture Trustee with respect to
distributions and generating federal income tax information for the Trust. The
Servicer Fee also will reimburse the Servicer for certain taxes, the Trustee's
fees, accounting fees, outside auditor fees, data processing costs and other
costs incurred in connection with administering the Receivables.
MANDATORY PREPAYMENT
To the extent a Pre-Funding Account is specified in the related Prospectus
Supplement, the Securities will be prepaid in part on the Distribution Date on
which the Funding Period ends (or on the Distribution Date immediately following
the last day of the Funding Period, if the Funding Period does not end on a
Distribution Date) in the event that any amount remains on deposit in the
Pre-Funding Account after giving effect to the purchase of Subsequent
Receivables, if any, on such Distribution Date. The aggregate principal amount
of Securities to be prepaid will be an amount equal to the amount then on
deposit in the Pre-Funding Account in such portions as specified in the related
Prospectus Supplement. In such event, if and to the extent specified in the
related Prospectus Supplement, a limited recourse mandatory prepayment premium
(the "Prepayment Premium") may be payable by the Trust to the offered
Securityholders if the aggregate principal amount of the offered Securities to
be prepaid pursuant to such mandatory prepayment exceeds such threshold amount
as will be specified in the related Prospectus Supplement. The amount of such
Prepayment Premium, if any, will be specified in the related Prospectus
Supplement. A Trust's obligation to pay the Prepayment Premium shall be limited
to funds which are received from the related Seller under the Purchase Agreement
as liquidated damages for the failure to deliver Subsequent Receivables. No
other assets of the Trust will be available for the purpose of making such
payment. The ratings of any series of Securities with respect to which a
Prepayment Premium is payable does not evaluate the Prepayment Premium or the
likelihood that the Prepayment Premium will be paid.
DISTRIBUTIONS
With respect to each Trust, beginning on the Distribution Date or Payment
Date, as applicable, specified in the related Prospectus Supplement,
distributions of principal and interest (or, where applicable, of principal or
interest only) on each class of Securities entitled thereto will be made by the
Owner Trustee or the Indenture Trustee, as applicable, to the Securityholders.
The timing, calculation, allocation, order, source and priorities of, and
requirements for, all distributions to each class of Certificateholders and all
payments to each class of Noteholders will be set forth in the related
Prospectus Supplement.
REVOLVING PERIOD AND AMORTIZATION PERIOD; RETAINED INTEREST
If the related Prospectus Supplement so provides, there may be a period
commencing on the date of issuance of a class or classes of Notes or
Certificates of a series and ending in the date set forth on the related
Prospectus Supplement (the "Revolving Period") during which no principal
payments will be made to one or more classes of Notes or Certificates of the
related series as are identified in such Prospectus Supplement. All collections
of principal otherwise allocated to such classes of Notes or Certificates may be
(i) utilized by the Trust during the Revolving Period to acquire additional
Receivables which satisfy the criteria described under "The Receivables -
General" herein and the criteria set forth in the related Prospectus Supplement,
(ii) held in an account and invested in Eligible Investments for later
distribution to Securityholders, (iii) applied to those Notes or
-48-
<PAGE>
Certificates, if any, specified in the related Prospectus Supplement as then are
in amortization, or (iv) otherwise applied as specified in the related
Prospectus Supplement.
An "Amortization Period" is the period during which an amount of principal
is payable to holders of a series of Securities which, during the Revolving
Period, were not entitled to such payments. If so specified in the related
Prospectus Supplement, during an Amortization Period all or a portion of
principal collections on the Receivables may be applied as specified above for a
Revolving Period and, to the extent not so applied, will be distributed to the
classes of Notes or Certificates specified in the related Prospectus Supplement
as then being entitled to payments of principal. In addition, if so specified in
the related Prospectus Supplement, amounts deposited in certain accounts for the
benefit of one or more classes of Notes or Certificates may be released from
time to time or on a specified date and applied as a payment of principal on
such classes of Notes or Certificates. The related Prospectus Supplement will
set forth the circumstances which will result in the commencement of an
Amortization Period.
Each Trust which has a Revolving Period may also issue to the related
Seller a certificate evidencing a Retained Interest in the Trust not represented
by the other Securities issued by such Trust. As further described in the
related Prospectus Supplement, the value of such Retained Interest will
fluctuate as the amount of Trust Property fluctuates and the amount of Notes and
Certificates of the related series of Securities outstanding is reduced.
NET DEPOSITS
As an administrative convenience, unless otherwise specified in the
related Prospectus Supplement, the Servicer will be permitted to make the
deposit of collections, aggregate Advances and Purchase Amounts on the related
Receivables for any Trust for or with respect to the related Monthly Period net
of distributions to be made to the Servicer for such Trust with respect to such
Monthly Period. The Servicer may cause to be made a single, net transfer from
the Collection Account to the related Payahead Account, if any, or vice versa.
The Servicer, however, will account to the Trustee, any Indenture Trustee, the
third party credit enhancement provider, if any, the Noteholders, if any, and
the Certificateholders with respect to each Trust as if all deposits,
distributions and transfers were made individually. With respect to any Trust
that issues both Certificates and Notes, if the related Payment Dates do not
coincide with Distribution Dates, all distributions, deposits or other
remittances made on a Payment Date will be treated as having been distributed,
deposited or remitted on the Distribution Date for the applicable Monthly Period
for purposes of determining other amounts required to be distributed, deposited
or otherwise remitted on such Distribution Date.
CREDIT ENHANCEMENT
The amounts and types of credit enhancement, and the provider of any
credit enhancement, if any, with respect to each class of Securities will be set
forth in the related Prospectus Supplement. If and to the extent provided in the
related Prospectus Supplement, credit enhancement may be in the form of the
subordination of one or more classes of Securities, a spread account or other
type of reserve account, accelerated payments of principal relative to the
amortization of the related Receivables, financial guaranty insurance policy or
surety bond, letter of credit, credit or liquidity facility, repurchase
obligation, third party payment or other support, cash deposit or such other
arrangement, or any combination of two or more of the foregoing, as may be
described in the related Prospectus Supplement. A Trust may also include a
guaranteed investment contract or reinvestment agreement pursuant to which funds
held in one or more accounts will be invested at a specified rate. If any class
of Certificates or Notes of a series has a floating interest rate, or if any of
the Receivables has a floating interest rate, the related Trust may include an
interest rate swap contract, an interest rate cap agreement or similar contract
providing limited protection against interest rate risks. If specified in the
applicable Prospectus Supplement, credit enhancement for a series of Securities
may cover one or more other series of Securities.
The presence of credit enhancement is intended to enhance the likelihood
of receipt by the credit enhanced Securityholders of the full amount of
principal and interest due thereon and to decrease the likelihood
-49-
<PAGE>
that such Securityholders will experience losses. The credit enhancement for a
class of Securities will not provide protection against all risks of loss and
may not guarantee repayment of the entire principal and interest thereon. If
losses occur which exceed the amount covered by any credit enhancement or which
are not covered by any credit enhancement, Securityholders will bear their
allocable share of deficiencies. In addition, if a form of credit enhancement
covers more than one series of Securities, Securityholders of any such series
may be subject to the risk that such credit enhancement will be exhausted by the
claims of Securityholders of other series.
EVIDENCE AS TO COMPLIANCE
The Trust Documents will provide that a firm of independent public
accountants will furnish to the Owner Trustee and the Indenture Trustee, if any,
and the third party credit enhancement provider, if any, on or before April 30
of each year, beginning in the calendar year following the establishment of the
related Trust, a statement as to compliance by the Servicer during the preceding
twelve months ended December 31 (or, for the initial report with respect to any
Securities for such longer or shorter period as shall have elapsed from the date
of issuance of the related Securities) with certain standards relating to the
servicing of the Receivables, the Servicer's accounting and computer systems
with respect thereto, and certain other matters.
The Trust Documents will also provide for delivery to the Owner Trustee
and the Indenture Trustee, if any, and the third party credit enhancement
provider, if any, on or before December 31 of each year, commencing in the
calendar year following the establishment of the related Trust, of a certificate
signed by an officer of the Servicer stating that the Servicer has fulfilled its
obligations under the applicable Trust Documents throughout the preceding twelve
months ended April 30 (or, for the initial report with respect to any Securities
for such longer or shorter period as shall have elapsed from the date of
issuance of the related Securities) or, if there has been a default in the
fulfillment of any such obligation, describing each such default.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the Owner Trustee or the
Indenture Trustee, as the case may be.
CERTAIN MATTERS REGARDING THE SERVICER
The Trust Documents will provide that the initial Servicer may not resign
from its obligations and duties as Servicer thereunder, except upon a
determination that the Servicer's performance of such duties is no longer
permissible under applicable law. No such resignation will become effective
until the Owner Trustee or, if Notes have been issued, the Indenture Trustee, or
a successor servicer has assumed the Servicer's servicing obligations and duties
under the Trust Documents, and the third-party credit enhancer, if any, does not
elect to waive the obligations of the Servicer to perform the duties which
render it legally unable to act or does not elect to delegate those duties to
another person.
The Trust Documents will further provide that neither the Servicer, nor
any of its directors, officers, employees, and agents will be under any
liability to any Trust or any Securityholders for taking any action or for
refraining from taking any action pursuant to the Trust Documents, or for errors
in judgment; provided, however, that neither the Servicer nor any such person
will be protected against any liability that would otherwise be imposed by
reason of willful misfeasance, bad faith or negligence (except for errors in
judgment) in the performance of duties, or by reason of reckless disregard of
obligations and duties thereunder. In addition, the Trust Documents will provide
that the Servicer is under no obligation to appear in, prosecute or defend any
legal action that is not incidental to the Servicer's servicing responsibilities
under the Trust Documents and that, in its opinion, may cause it to incur any
expense or liability. The Servicer may, however, undertake any reasonable action
that it may deem necessary or desirable in respect of the Trust Documents, the
rights and duties of the parties thereto and the interests of the
Securityholders thereunder. In such event, the legal expenses and costs of such
action and any liability resulting therefrom will be expenses, costs and
liabilities of the Servicer, and the Servicer will not be entitled to be
reimbursed therefor out of any Account held by the Owner Trustee or the
Indenture Trustee, as applicable.
-50-
<PAGE>
Any entity into which the Servicer or the Sellers, as the case may be, may
be merged or consolidated, or any entity resulting from any merger, conversion
or consolidation to which the Servicer or the Sellers, as the case may be, is a
party, or any entity succeeding to the business of the Servicer or the Sellers,
as the case may be, which assumes the obligations of the Servicer or the
Sellers, as the case may be, will be the successor of the Servicer or the
Sellers, as the case may be, under the Trust Documents. The Servicer may at any
time perform its duties as Servicer through one or more subservicers, but no
such delegation shall relieve the Servicer of its obligations under the Trust
Documents.
SERVICER DEFAULT
"Servicer Default" under the Pooling and Servicing Agreements or the Sale
and Servicing Agreements, as the case may be, will consist of (i) any failure by
the Servicer and/or any other party identified in the related Prospectus
Supplement as so obligated to deliver to the Owner Trustee or the Indenture
Trustee, as applicable, to make any required distributions therefrom, which
failure continues unremedied for five business days after written notice from
the Owner Trustee or Indenture Trustee is received by the Servicer or after
discovery of such failure by the Servicer, (ii) any failure by the related
Seller or the Servicer duly to observe or perform in any material respect any
other covenant or agreement in the Trust Documents which failure materially and
adversely affects the rights of Securityholders and which continues unremedied
for 60 days after the giving of written notice of such failure (1) to the
related Seller or the Servicer, as applicable, by the Owner Trustee or the
Indenture Trustee, or (2) to the related Seller or the Servicer, as applicable,
and to the Owner Trustee or the Indenture Trustee by Securityholders evidencing
not less than 25% of a class of Securities constituting at least 25% of the then
Pool Balance for such series; (or such longer period, not in excess of 120 days,
as may be reasonably necessary to remedy such default; provided that such
default is capable of remedy within 120 days or less and the Servicer delivers
an officer's certificate to the Owner Trustee and, if applicable, Indenture
Trustees to such effect and to the effect that the Servicer has commenced, or
will promptly commence and diligently pursue, all reasonable efforts to remedy
such default); and (iii) certain events of insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings with respect to the
Servicer indicating its insolvency, reorganization pursuant to bankruptcy
proceedings, or acknowledgement in writing of its inability to pay its
obligations.
RIGHTS UPON SERVICER DEFAULT
In the case of any Trust that has issued Notes, as long as a Servicer
Default under a Sale and Servicing Agreement remains unremedied, the related
Indenture Trustee or holders of Notes of the related series evidencing more than
50% of principal amount of such Notes then outstanding may terminate all the
rights and obligations of the Servicer under such Sale and Servicing Agreement,
whereupon such Indenture Trustee or a successor servicer appointed by such
Indenture Trustee will succeed to all the responsibilities, duties and
liabilities of the Servicer under such Sale and Servicing Agreement and will be
entitled to similar compensation arrangements. In the case of any Trust that has
not issued Notes, as long as a Servicer Default under the related Sale and
Servicing Agreement or Pooling and Servicing Agreement remains unremedied, the
related Owner Trustee or holders of Certificates of the related series
evidencing more than 50% of the principal amount of such Certificates then
outstanding may terminate all the rights and obligations of the Servicer under
such Sale and Servicing Agreement or Pooling and Servicing Agreement, whereupon
such Owner Trustee will succeed to all the responsibilities, duties and
liabilities of the Servicer under such Sale and Servicing Agreement or Pooling
and Servicing Agreement and will be entitled to similar compensation
arrangements. If, however, a bankruptcy trustee or similar official has been
appointed for the Servicer, and no Servicer Default other than such appointment
has occurred, such trustee or official may have the power to prevent such
Indenture Trustee, such Noteholders, such Owner Trustee or such
Certificateholders from effecting a transfer of servicing. In the event that
such Indenture Trustee or Owner Trustee is unwilling or unable to so act, it may
appoint, or petition a court of competent jurisdiction for the appointment of, a
successor with a net worth of at least $50,000,000 and whose regular business
includes the servicing of motor vehicle retail installment sale contracts. Such
Indenture Trustee or Trustee may make such arrangements for compensation to be
paid, which in no event may be greater than the servicing compensation to the
Servicer under such Sale and Servicing Agreement or Pooling and Servicing
Agreement. Notwithstanding the foregoing, if and to the extent specified in the
related Prospectus Supplement, a third-party credit enhancement
-51-
<PAGE>
provider may exercise the rights and remedies of the Owner Trustee, Indenture
Trustee, Noteholders and Certificateholders specified above.
WAIVER OF PAST DEFAULTS
With respect to each Trust that has issued Notes, the holders of Notes
evidencing at least a majority in principal amount of the then-outstanding Notes
of the related series (or the holders of the Certificates of such series
evidencing not less than a majority of the outstanding Certificate Balance, in
the case of any Servicer Default which does not adversely affect the related
Indenture Trustee or such Noteholders) may, on behalf of all such Noteholders
and Certificateholders, waive any default by the Servicer in the performance of
its obligations under the related Sale and Servicing Agreement and its
consequences, except a Servicer Default in making any required deposits to or
payments from any of the Accounts in accordance with such Sale and Servicing
Agreement. With respect to each Trust that has not issued Notes, holders of
Certificates of such series evidencing not less than a majority of the principal
amount of such Certificates then outstanding may, on behalf of all such
Certificateholders, waive any default by the Servicer in the performance of its
obligations under the related Sale and Servicing Agreement or Pooling and
Servicing Agreement, except a Servicer Default in making any required deposits
to or payments from the Certificate Distribution Account or the related Accounts
in accordance with such Sale and Servicing Agreement or Pooling and Servicing
Agreement. No such waiver will impair such Noteholders' or Certificateholders'
rights with respect to subsequent defaults. Notwithstanding the foregoing, if
and to the extent specified in the related Prospectus Supplement, a third-party
credit enhancement provider may exercise the rights and remedies of the Owner
Trustee, Indenture Trustee, Noteholders and Certificateholders specified above.
AMENDMENT
Unless otherwise specified in the related Prospectus Supplement, each of
the Agreements may be amended by the parties thereto, without the consent of the
related Noteholders or Certificateholders, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such Agreements or of modifying in any manner the rights of such Noteholders of
Certificateholders; provided that such action will not materially and adversely
affect the interest of any such Noteholder or Certificateholder. An amendment
shall be deemed not to adversely affect the interests of any such holder if
either each Rating Agency rating such Securities confirms in writing that such
amendment will not result in a reduction or withdrawal of such rating or none of
Rating Agencies rating such Securities, within 10 days" after receipt of notice
of such amendment, shall have notified the related Seller, the Servicer or the
Trust in writing that such amendment will result in a reduction or withdrawal of
the then current rating of the Securities. Unless otherwise specified in the
related Prospectus Supplement, the Purchase Agreements, Pooling and Servicing
Agreements and Sale and Servicing Agreements may also be amended by the related
Seller, the Servicer, the related Owner Trustee and any related Indenture
Trustee with the consent of the holders of Notes evidencing at least a majority
in principal amount of then outstanding Notes, if any, of the related series and
the holders of the Certificates of such series evidencing at least a majority of
the principal amount of such Certificates then outstanding, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of such Agreements or of modifying in any manner the rights of such
Noteholders or Certificateholders; provided, however, that no such amendment may
(i) increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on the related Receivables or distributions
that are required to be made for the benefit of such Noteholders or
Certificateholders or (ii) reduce the aforesaid percentage of the Notes or
Certificates of such series which are required to consent to any such amendment,
without the consent of the holders of all the outstanding Notes or Certificates,
as the case may be, of such series.
In addition, holders of certain classes of Securities of a series may have
the right to take actions that are detrimental to the interests of the
Securityholders of certain other classes of Securities of such series, as
specified in the related Prospectus Supplement. In certain cases, the senior
classes of securities may have the exclusive right to remove the Servicer, waive
defaults or control the disposition of collateral. In addition, because of the
relative size of the senior classes to the subordinate classes in most
senior/subordinate structures, the senior
-52-
<PAGE>
classes may effectively have voting control over the Trust on matters that
require the vote of all classes of securities. In no event, however, will any
class of securities have the right to affect the interest rate or payment
priorities of another class of securities.
Notwithstanding any of the foregoing, if and to the extent specified in
the related Prospectus Supplement, the consent of the third-party credit
enhancement provider, if any, for the related series may be required to any such
amendment.
INSOLVENCY EVENT
Each Trust Agreement will provide that the applicable Trustee does not
have the power to commence a voluntary proceeding in bankruptcy with respect to
the related Owner Trust without the unanimous prior approval of all
Certificateholders of such Trust and the delivery to such Trustee by each such
Certificateholder of a certificate certifying that such Certificateholder
reasonably believes that such Trust is insolvent.
PAYMENT OF NOTES
Upon the payment in full of all outstanding Notes of a given series and
the satisfaction and discharge of the related Indenture, the related Owner
Trustee will succeed to all the rights of the Indenture Trustee, and the
Certificateholders of such series will succeed to all the rights of the
Noteholders of such series, under the related Sale and Servicing Agreement,
except as otherwise provided therein.
TERMINATION
With respect to each Trust, the obligations of the Servicer, the related
Seller, the related Owner Trustee and the related Indenture Trustee, if any,
pursuant to the Pooling and Servicing Agreement or Sale and Servicing Agreement,
as applicable, will terminate upon the latest of (i) the maturity or other
liquidation of the last related Receivable and the disposition of any amounts
received upon liquidation of any such remaining Receivables, (ii) the payment to
Noteholders, if any, and Certificateholders of the related series of all amounts
required to be paid to them pursuant to the Pooling and Servicing Agreement or
Sale and Servicing Agreement, as applicable, and the payment of any fees or
other amounts owing to the third party credit enhancement provider, if any, for
such Trust, and (iii) the occurrence of either event described below or such
other events provided in the related Prospectus Supplement.
The related Prospectus Supplement will specify whether the Servicer will
be permitted at its option to purchase from each Trust, as of the end of any
applicable Monthly Period, when the then outstanding Pool Balance with respect
to the Receivables held by such Trust is 10% (or such other percentage specified
in the related Prospectus Supplement) or less of the Original Pool Balance
(calculated after giving effect to the principal balance of any Subsequent
Receivables as of their respective Cutoff Dates), all remaining related
Receivables at a price equal to the aggregate of the Purchase Amounts thereof as
of the end of such Monthly Period. If specified in the related Prospectus
Supplement, any such repurchase may require the consent of the third-party
credit enhancement provider, if any, of the related series.
If and to the extent provided in the related Prospectus Supplement with
respect to a Trust, the Owner Trustee or, if Notes are outstanding, the
Indenture Trustee, will, within ten days following a Distribution Date as of
which the Pool Balance is equal to or less than the percentage of the Original
Pool Balance (calculated after giving effect to the principal balance of any
Subsequent Receivables as of their respective Subsequent Cutoff Dates) specified
in the related Prospectus Supplement, solicit bids for the purchase of the
Receivables remaining in such Trust, in the manner and subject to the terms and
conditions set forth in such Prospectus Supplement. If the Owner Trustee or
Indenture Trustee, as applicable, receives satisfactory bids as described in
such Prospectus Supplement, then the Receivables remaining in such Trust will be
sold to the highest bidder. If specified in the related Prospectus Supplement,
any such sale may require the consent of the third-party credit enhancement
provider, if any, of the related series.
-53-
<PAGE>
As more fully described in the related Prospectus Supplement, any
outstanding Notes of the related series will be redeemed concurrently with
either of the events specified above and the subsequent distribution to the
related Certificateholders of all amounts required to be distributed to them
pursuant to the applicable Trust Agreement or Pooling and Servicing Agreement
will effect early retirement of the Certificates of such series.
DUTIES OF THE OWNER TRUSTEE AND INDENTURE TRUSTEE
The Owner Trustee and any Indenture Trustee will make no representations
as to the validity or sufficiency of the Trust Documents, the Certificates
(other than the authentication of the Certificates) or the Notes or any
Receivables or related documents, and is not accountable for the use or
application by the Servicer of any funds paid to the Sellers or the Servicer in
respect of the Certificates, the Notes or the Receivables. The Owner Trustee and
any Indenture Trustee have not independently verified the Receivables. If no
Event of Default has occurred, the Owner Trustee or the Indenture Trustee is
required to perform only those duties specifically required of it under the
Trust Documents. Generally, those duties are limited to the receipt of the
various certificates, reports or other instruments required to be furnished to
the Owner Trustee or the Indenture Trustee under the Trust Documents, in which
case it is only required to examine them to determine whether they conform to
the requirements of the Trust Documents. The Owner Trustee and any Indenture
Trustee shall not be charged with knowledge of a breach of a representation or
warranty, or a failure by the Servicer to perform its duties under the Trust
Documents which failure constitutes an Event of Default unless the Owner Trustee
or the Indenture Trustee obtains actual knowledge of such breach or such failure
as specified in the Trust Documents.
The Owner Trustee and any Indenture Trustee are under no obligation to
exercise any of the rights or powers vested in them by the Trust Documents or to
make any investigation of matters arising thereunder or to institute, conduct or
defend any litigation thereunder or in relation thereto at the request, order or
direction of any of the Securityholders, unless such Securityholders have
offered to the Owner Trustee or the Indenture Trustee, as the case may be,
reasonable security or indemnity against the costs, expenses and liabilities
that may be incurred therein or thereby. No Securityholder will have any right
under the Trust Documents to institute any proceeding with respect to such Trust
Document or any related agreement, unless such holder previously has given to
the Owner Trustee or the Indenture Trustee written notice of default and unless
the Securityholders then outstanding evidencing not less than 25% of a class of
Securities constituting at least 25% of the then Pool Balance for such series
have made written request upon the Owner Trustee or the Indenture Trustee to
institute such proceeding in its own name as Owner Trustee or Indenture Trustee
thereunder and have offered to the Owner Trustee or Indenture Trustee reasonable
indemnity and the Owner Trustee or Indenture Trustee for 30 days has neglected
or refused to institute any such proceeding.
THE OWNER TRUSTEE AND THE INDENTURE TRUSTEE
The Owner Trustee and any Indenture Trustee for each Trust will be
specified in the related Prospectus Supplement. The Owner Trustee or the
Indenture Trustee, in its individual capacity or otherwise, may hold Securities
in its own name or as pledgee. For the purpose of meeting the legal requirements
of certain jurisdictions, the Servicer and the Owner Trustee acting jointly (or
in some instances, the Owner Trustee acting alone) with (unless the related
Prospectus Supplement provides otherwise) the consent of the third party credit
enhancement provider, if any, so long as no Insurer Default (as defined in the
related Prospectus Supplement) has occurred and is continuing, shall have the
power to appoint co-trustees or separate trustees of all or any part of the
Trust. In the event of such appointment, all rights, powers, duties, and
obligations conferred or imposed upon the Owner Trustee by the Trust Documents
shall be conferred or imposed upon the Owner Trustee and such separate trustee
or co-trustee jointly, or, in any jurisdiction in which the Owner Trustee shall
be incompetent or unqualified to perform certain acts, singly upon such separate
trustee or co-trustee who shall exercise and perform such rights, powers, duties
and obligations solely at the direction of the Owner Trustee.
The Owner Trustee and any Indenture Trustee may resign at any time, in
which event the related Seller with (unless the related Prospectus Supplement
provides otherwise) the consent of the third party credit enhancement provider,
if any, so long as no Insurer Default (as defined in the related Prospectus
Supplement) has
-54-
<PAGE>
occurred and is continuing, will be obligated to appoint a successor trustee.
The related Seller with (unless the related Prospectus Supplement provides
otherwise) the consent of the third party credit enhancement provider, if any
(so long as no Insurer Default (as defined in the related Prospectus Supplement)
has occurred and is continuing), may also remove the Owner Trustee if the Owner
Trustee ceases to be eligible to continue as such under the Trust Documents,
becomes legally unable to act or becomes insolvent. In such circumstances, the
related Seller will be obligated to appoint a successor trustee. Any resignation
or removal of the Owner Trustee and appointment of a successor trustee does not
become effective until acceptance of the appointment by the successor trustee.
Any Indenture Trustee may be removed as set forth in the related Prospectus
Supplement.
The Trust Documents will provide that the Servicer will pay the Owner
Trustee's and any Indenture Trustee's fees. The Trust Documents will further
provide that the Owner Trustee and any Indenture Trustee will be entitled to
indemnification by the related Seller and the Servicer for, and will be held
harmless against, any loss, liability, fee, disbursement or expense incurred by
the Owner Trustee or any Indenture Trustee not resulting from its own willful
misfeasance, bad faith or negligence (other than by reason of a breach of any of
its representations or warranties set forth in the Trust Documents). The Trust
Documents will further provide that the Servicer will indemnify the Owner
Trustee and any Indenture Trustee for certain taxes that may be asserted in
connection with the transaction.
INDEMNIFICATION OF THE INSURER
The Trust Documents may provide that the third party credit enhancement
provider with respect to a Trust will be indemnified by the related Seller and
the Servicer for, and held harmless against, any loss, liability, fee,
disbursement or expense incurred by such third party credit enhancement provider
not resulting from its own willful misfeasance, bad faith or negligence (other
than by reason of a breach of any of its representations or warranties set forth
in the Trust Documents) and arising out of or resulting from the use, ownership
or operation by the Servicer or any affiliate thereof of a Financial Vehicle.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
GENERAL
The Contracts are "chattel paper" as defined in the Uniform Commercial
Code as in effect in California and the other states in which the Contracts are
originated ("UCC"). Pursuant to the UCC, an ownership interest in chattel paper
may be perfected by possession of the chattel paper or filing a UCC-1 financing
statement with the Secretary of State or other central filing office in the
appropriate state as required by the applicable UCC.
Franklin Capital will take or cause to be taken such action as is required
to perfect the Trust's rights in the Contracts and will represent and warrant
that the Trust, subject to the interest of the provider of credit enhancement,
if any, has good title, free and clear of liens and encumbrances, to each
Contract on the Closing Date. Under the Trust Documents, Franklin Capital, as
Servicer, will have possession of the Contracts following the sale of the
Contracts to the Trust and will hold the Contracts as custodian and agent of the
Owner Trustee and Indenture Trustee, if any. The Contracts will not be
physically marked to indicate the ownership interest thereof by the Trust. UCC-1
financing statements will also be filed with the California and Utah Secretary
of State to perfect by filing and give notice of the Trust's ownership interest
in the Contracts. Franklin Capital will agree in the Trust Documents to take all
necessary action to preserve and protect the Trust's ownership interest in the
Contracts. Each Seller will represent and warrant that each Contract is secured
by a Financed Vehicle.
SECURITY INTERESTS IN VEHICLES
All of the Financed Vehicles were registered in the states where the
related Contracts were originated. Security interests in motor vehicles
registered in the State of California may be perfected by depositing with the
California Department of Motor Vehicles a properly endorsed certificate of title
showing the secured party as legal
-55-
<PAGE>
owner or an application for an original registration together with an
application for registration of the secured party as legal owner. Security
interests in motor vehicles registered in most other states are perfected,
generally, in a similar manner. The related Seller will represent and warrant to
each related Trust in the Trust Documents that all steps necessary to obtain a
perfected first priority security interest with respect to the Financed Vehicles
securing the Contracts have been taken. If the Servicer fails, because of
clerical error or otherwise, to effect or maintain such notation for a Financed
Vehicle, the Trust may not have a first priority security interest in such
Financed Vehicle. Each Receivable in a pool, unless that related Prospectus
Supplement indicates otherwise, typically prohibits the sale or transfer of the
Financed Vehicle without the Servicer's consent.
Perfection of security interests in the motor vehicles is generally
governed by the motor vehicle registration laws of the state in which the motor
vehicle is registered. In California and the other states in which the
Receivables have been originated, a security interest in a motor vehicle
generally may be perfected only by causing such motor vehicle's certificate of
title to be amended to note the security interest of the secured party. Such
notation of a secured party's security interest is generally effected in
California and such other states by depositing with the applicable state motor
vehicles registrar, or similar authority, along with any necessary registration
fees, the motor vehicle's certificate of title and an application containing the
name and address of the secured party.
Pursuant to the Purchase Agreement, Franklin Capital will assign its
security interests in the Financed Vehicles securing the Receivables to the
related Seller and, pursuant to the Trust Documents, the related Seller will
assign its security interests in the Financed Vehicles securing the Receivables
to the Owner Trustee. However, because of the administrative burden and expense,
the Servicer, the related Seller and the Owner Trustee will not amend any
certificate of title to identify the Trust as the new secured party on the
certificates of title relating to the Financed Vehicles. Also, the Servicer will
continue to hold any certificates of title relating to the Financed Vehicles in
its possession as custodian for the Owner Trustee pursuant to the Trust
Documents.
Under the law of California and most other states, assignments such as
those under the Purchase Agreement and the Trust Documents are an effective
conveyance of a security interest without amendment of any security interest
noted on a motor vehicle's certificate of title, and the assignee succeeds
thereby to the assignor's rights as secured party. In the absence of fraud or
forgery by the motor vehicle owner or the Servicer or administrative error by
state or local agencies, the notation of the Servicer's security interest on the
certificates of title or the Servicer's possession of the certificate of title
will be sufficient to protect the Trust against the rights of subsequent
purchasers of a Financed Vehicle or subsequent lenders who take a security
interest in a Financed Vehicle. If there are any Financed Vehicles as to which a
perfected security interest was not obtained, the Trust's security interest
would be subordinate to, among others, subsequent purchasers of the Financed
Vehicles, lienholders and holders of perfected security interests. Such a
failure, however, would constitute a breach of Franklin Capital's warranties
under the Purchase Agreement and of the related Seller's warranties under the
Trust Documents and would create an obligation of Franklin Capital and/or
another party, if any, designated, in the related Prospectus Supplement, under
the Purchase Agreement and of the related Seller and/or another party, if any,
designated, in the related Prospectus Supplement, under the Trust Documents to
purchase the related Receivable unless the breach is cured. The related Seller
will assign its rights under the Purchase Agreement to the Trust. By not
identifying the Trust as the secured party on the certificate of title, the
security interest of the Trust in the Financed Vehicle could be defeated through
fraud or negligence.
Under the laws of most states, the perfected security interest in a motor
vehicle would continue for four months after a motor vehicle is moved to a state
other than the state in which it is initially registered and thereafter until
the motor vehicle owner re-registers the motor vehicle in the new state. A
majority of states, including California, generally require surrender of a
certificate of title to re-register a motor vehicle; accordingly, a secured
party must surrender possession if it holds the certificate of title to the
motor vehicle, or, in the case of motor vehicles registered in states providing
for the notation of a security interest on the certificate of title but not
possession by the secured party, the secured party would receive notice of
surrender if the security interest is noted on the certificate of title. Thus,
the secured party would have the opportunity to re-perfect its security interest
in the motor vehicle in the state of relocation. In states that do not require a
certificate of title for
-56-
<PAGE>
registration of a motor vehicle, re-registration could defeat perfection. In the
ordinary course of servicing receivables, Franklin Capital takes steps to effect
re-perfection upon receipt of notice of re-registration or information from the
Obligor as to relocation. Similarly, when an Obligor sells a motor vehicle,
Franklin Capital must surrender possession of the certificate of title or will
receive notice as a result of its security interest noted thereon and
accordingly will have an opportunity to require satisfaction of the related
Receivable before release of the security interest. Under the Trust Documents,
the Servicer is obligated to take appropriate steps, at the Servicer's expense,
to maintain perfection of security interests in the Financed Vehicles.
Under the laws of California, Texas and most other states, liens for
repairs performed on, and for storage of, a motor vehicle and liens for certain
unpaid taxes take priority over even a perfected security interest in a Financed
Vehicle. The Internal Revenue Code of 1986, as amended, also grants priority to
certain federal tax liens over the security interest of a secured party. The
laws of certain states and federal law permit the confiscation of motor vehicles
under certain circumstances if used in unlawful activities, which may result in
the loss of a secured party's perfected security interest in the confiscated
motor vehicle. Franklin Capital will represent to each Seller and the related
Seller will represent to each related Trust that each security interest in a
Financed Vehicle is or will be prior to all other present liens (other than tax
liens and liens that arise by operation of law) upon and security interests in
such Financed Vehicle. However, liens for repairs or taxes, or the confiscation
of a Financed Vehicle, could arise or occur at any time during the term of a
Receivable. No notice will be given to the Owner Trustee, the Indenture Trustee,
if any, or any Securityholders in the event such a lien arises or confiscation
occurs.
REPOSSESSION
In the event of a default by motor vehicle purchasers, the holder of the
motor vehicle retail installment sale contract has all the remedies of a secured
party under the UCC, except where specifically limited by other laws. In
addition to the provisions of the UCC, under California law the Contracts
originated in California are subject to the provisions of its Rees-Levering
Motor Vehicle Sales and Finance Act (the "Rees-Levering Act"). Contracts
originated in other states are subject to retail installment sale laws and
similar laws of those states. The provisions of the Rees-Levering Act and
similar laws of other states control in the event of a conflict with the
provisions of the UCC. The UCC remedies of a secured party include the right to
repossession by self-help means, unless such means would constitute a breach of
the peace. Unless a motor vehicle is voluntarily surrendered, self-help
repossession by outside agencies is the method employed by Franklin Capital in
the majority of instances in which a default occurs and is accomplished by
retaking possession of the financed motor vehicle. The Rees-Levering Act and
similar laws of other states place restrictions on repossession sales, including
notice to the debtor of the intent to sell and of the debtor's right to redeem
the motor vehicle. In addition, the UCC requires commercial reasonableness in
the conduct of the sale. In cases where the Obligor objects or raises a defense
to repossession, or if otherwise required by applicable state law, a court order
must be obtained from the appropriate state court, and the motor vehicle must
then be repossessed in accordance with that order. In certain states under
certain circumstances after the motor vehicle has been repossessed, the Obligor
may reinstate the contract by paying the delinquent installments on the contract
and other amounts due.
NOTICE OF SALE; REDEMPTION RIGHTS
In the event of default by the Obligor, some jurisdictions require that
the Obligor be notified of the default and be given a time period within which
the Obligor may cure the default prior to repossession. Generally, this right of
reinstatement may be exercised on a limited number of occasions in any one-year
period.
The UCC and other state laws require the secured party to provide the
Obligor with reasonable notice of the date, time, and place of any public sale
and/or the date after which any private sale of the collateral may be held. In
some states the Obligor has the right to redeem the collateral prior to actual
sale by paying the secured party the unpaid principal balance of the obligation
plus reasonable expenses for repossessing, holding, and preparing the collateral
for disposition and arranging for this sale, plus, in some jurisdictions,
reasonable attorneys' fees, or, in some other states, by payment of delinquent
installments or the unpaid balance.
-57-
<PAGE>
Repossessed motor vehicles are generally resold by Franklin Capital through
automobile auctions which are attended principally by automotive dealers.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of the repossessed motor vehicles generally will be
applied to the expenses of resale and repossession and then to the satisfaction
of the indebtedness of the Obligor on the Receivable. While some states impose
prohibitions or limitations on deficiency judgments if the net proceeds from
resale do not cover the full amount of the indebtedness, a deficiency judgment
can be sought in those states that do not prohibit or limit such judgments.
Under California law the proceeds from the resale of the motor vehicle securing
the debtor's loan are required to be applied first to the expenses of resale and
repossession, and if the remaining proceeds are not sufficient to repay the
indebtedness, the creditor may seek a deficiency judgment for the balance. The
priority of application of proceeds of sale as to repossessed motor vehicles
under Contracts originated in most other states is similar. However, the
deficiency judgment would be a personal judgment against the Obligor for the
shortfall, and a defaulting Obligor can be expected to have very little capital
or sources of income available following repossession. Therefore, in many cases,
it may not be useful to seek a deficiency judgment or, if one is obtained, it
may be settled at a significant discount.
Occasionally, after resale of a motor vehicle and payment of all expenses
and indebtedness, there is a surplus of funds. In that case, the UCC requires
the lender to remit the surplus to any other holder of any lien with respect to
the motor vehicle or, if no such lienholder exists or there are remaining funds,
the UCC requires the lender to remit the surplus to the former Obligor.
INSOLVENCY MATTERS
Franklin Capital intends that any transfer of Receivables to the Sellers
will constitute a sale, rather than a pledge of the Receivables to secure
indebtedness of Franklin Capital. However, if Franklin Capital were to become a
debtor under the federal bankruptcy code or similar applicable state laws
(collectively, the "Insolvency Laws"), a creditor or trustee in bankruptcy
thereof, or Franklin Capital as debtor-in-possession, might argue that such sale
of Receivables was a pledge of Receivables rather than a sale and/or that the
assets and liabilities of the Seller should be consolidated with the assets and
liabilities of Franklin Capital. Each Seller has taken and will take steps in
structuring the transactions contemplated hereby and by any Prospectus
Supplement that are intended to minimize the risk that the voluntary or
involuntary application for relief under any Insolvency Law would result in the
assets and liabilities of the related Seller being consolidated with the assets
and liabilities of any other person. Nevertheless, if Franklin Capital were to
become a debtor under any Insolvency Laws, and such positions - that the
transfer of Receivables was a pledge rather than a sale or otherwise should be
treated as part of its bankruptcy estate and/or that the assets and liabilities
of the related Seller should be consolidated - were presented to or accepted by
a court, then delays in payments to Securityholders could occur or reductions in
the amounts of such payments could result. In addition, if a Seller were to
become a debtor under any Insolvency Law and a creditor or trustee-in-bankruptcy
of such debtor or such debtor itself were to take the position that the sale of
Receivables to such Trust should instead be treated as a pledge of such
Receivables to secure a borrowing of such debtor, delays in payments of
collections of Receivables to the related Securityholders could occur or
reductions in the amounts of such payments could result. In addition, if the
transfer of any Receivables is recharacterized as a pledge, a tax lien, other
governmental lien, or other lien created by operation of law on the property of
the Servicer, the holder of such lien may have priority over the Trust's
interest in such Receivables. See "The Sellers."
In addition, in a case recently decided by the United States Court of
Appeals for the Tenth Circuit, Octagon Gas System, Inc. v. Rimmer, such Circuit
Court found that "accounts", a defined term under the Uniform Commercial Code,
sold prior to a bankruptcy should be treated as part of the bankruptcy estate of
the seller of such accounts. If Franklin Capital or a Seller were to become a
debtor in a bankruptcy proceeding and a court applied the reasoning of the
Circuit Court reflected in the case described above, delays in payments to
Securityholders could occur or reductions in the amounts of such payments could
result.
-58-
<PAGE>
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related
regulations impose substantial requirements upon lenders and servicers involved
in consumer finance. These laws include the Truth-in-Lending Act, the Equal
Credit Opportunity Act, the Federal Trade Commission Act, the Fair Credit
Reporting Act, the Fair Debt Collection Practices Act, the Magnuson-Moss
Warranty Act, the Federal Reserve Board's Regulations B and Z, state adaptations
of the National Consumer Act and of the Uniform Consumer Credit Code, the
Rees-Levering Act and state motor vehicle retail installment sale acts, retail
installment sale acts and other similar laws. Also, state laws impose finance
charge ceilings and other restrictions on consumer transactions and require
contract disclosures in addition to those required under federal law. These
requirements impose specific statutory liabilities upon creditors who fail to
comply with their provisions. In some cases, this liability could affect an
assignee's (such as the Trust's) ability to enforce consumer finance contracts
such as the Receivables.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade Commission
(the "FTC Rule"), the provisions of which are generally duplicated by the
Uniform Consumer Credit Code, state statutes or the common law in certain
states, has the effect of subjecting a seller (and certain related lenders and
their assignees, such as the Trust) in a consumer credit transaction and any
assignee of the seller to all claims and defenses which the obligor in the
transaction could assert against the seller of the goods. Liability under the
FTC Rule is limited to the amounts paid by the obligor under the contract, and
the holder of the contract may also be unable to collect any balance remaining
due thereunder from the obligor.
Most of the Receivables will be subject to the requirements of the FTC
Rule. Accordingly, the Owner Trustee, as holder of the Receivables, will be
subject to any claims or defenses that the purchaser of the Financed Vehicle may
assert against the seller of the Financed Vehicle. Such claims are limited to a
maximum liability equal to the amounts theretofore paid by the obligor on the
Receivable. Under most state motor vehicle dealer licensing laws, sellers of
motor vehicles are required to be licensed to sell motor vehicles at retail
sale. Furthermore, Federal Odometer Regulations promulgated under the Motor
Vehicle Information and Cost Savings Act require that all sellers of new and
used motor vehicles furnish a written statement signed by the seller certifying
the accuracy of the odometer reading. If a seller is not properly licensed or if
an Odometer Disclosure Statement was not provided to the purchaser of the
related financed motor vehicle, the obligor may be able to assert a defense
against the seller of the motor vehicle.
Courts have imposed general equitable principles on secured parties
pursuing repossession of collateral or litigation involving deficiency balances.
These equitable principles may have the effect of relieving an obligor from some
or all of the legal consequences of a default.
In several cases, obligors have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. Courts have generally upheld the notice provisions of the UCC and
related laws as reasonable or have found that the repossession and resale by the
creditor do not involve sufficient state action to afford constitutional
protection to consumers.
In addition to those parties, if any, identified in the related Prospectus
Supplement, Franklin Capital and each Seller will warrant under the Purchase
Agreement and the Trust Documents, that each Receivable complies with all
requirements of law in all material respects. Accordingly, if an Obligor has a
claim against the Trust for violation of any law and the Owner Trustee or the
Indenture Trustee, as the case may be, determines such claim materially and
adversely affects the Trust's interest in a Receivable, such violation would
constitute a breach of warranty under the Purchase Agreement and the Trust
Documents and would create an obligation of Franklin Capital, the related Seller
and the party, if any, identified in the related Prospectus Supplement, to
repurchase the Receivable unless the breach is cured.
-59-
<PAGE>
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a lender to
resale upon collateral or enforce a deficiency judgment. For example, in a
proceeding under the federal bankruptcy law, a court may prevent a lender from
repossessing a motor vehicle, and, as part of the rehabilitation plan, reduce
the amount of the secured indebtedness to the market value of the motor vehicle
at the time of bankruptcy (as determined by the court), leaving the party
providing financing as a general unsecured creditor for the remainder of the
indebtedness. A bankruptcy court may also reduce the monthly payments due under
a contract or change the rate of interest and time of repayment of the
indebtedness.
TRANSFERS OF VEHICLES
The Receivables in a pool, unless the related Prospectus Supplement
indicates otherwise, typically prohibit the sale or transfer of the motor
vehicle securing a Receivable without the Servicer's consent and permit the
Servicer to accelerate the maturity of the Receivable upon a sale or transfer
without its consent. The Servicer generally will not consent to a sale or
transfer without prepayment of the Receivable. However, in certain circumstances
the Servicer may enter into a transfer of equity agreement with the secondary
purchaser for the purpose of effecting the transfer of the Financed Vehicle.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
of the purchase, ownership and disposition of the Notes and the Certificates.
The summary does not purport to deal with federal income tax consequences or
special rules that are applicable to certain categories of holders. 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"), and
who do not hold their Certificates as part of a "straddle," a "hedge" or a
"conversion transaction," persons that have a "functional currency" other than
the U.S. dollar and investors in pass-through entities. Investors should consult
their own tax advisors to determine the federal, state, local and other tax
consequences of the purchase, ownership and disposition of the Certificates.
Moreover, there are no cases or Internal Revenue Service ("IRS") rulings on many
of the issues discussed below. As a result, the IRS may disagree with all or a
part of the discussion below. Prospective investors are urged to consult their
own tax advisors in determining the federal, state, local, foreign and any other
tax consequences to them of the purchase, ownership and disposition of the Notes
and the Certificates.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended, the Treasury regulations promulgated
thereunder and judicial or ruling authority, all of which are subject to change,
which change may be retroactive. The opinion of Federal Tax Counsel, however, is
not binding on the IRS or the courts. No ruling on any of the issues discussed
below will be sought from the IRS. For purposes of the following summary,
references to the Trust, the Notes, the Certificates and related terms, parties
and documents shall be deemed to refer, unless otherwise specified herein, to
each Trust and the Notes, Certificates and related terms, parties and documents
applicable to such Trust.
The federal income tax consequences to Certificateholders will vary
depending on whether the Trust will be treated for federal income tax purposes
as a partnership, as a division of its sole Certificateholder rather than as a
separate entity, as a grantor trust, or as a security device for the issuance of
Certificates that are to be treated as indebtedness for federal income tax
purposes. The Prospectus Supplement for each series of Certificates will specify
whether the Trust will be treated as a partnership, a division, a grantor trust,
or as a security device as just described. In addition, if the related
Prospectus Supplement so provides, the Transaction Documents for a Trust may
provide that an election will be made to qualify such Trust as a Financial Asset
Securitization Investment Trust ("FASIT") under the Code.
-60-
<PAGE>
TRUSTS TREATED AS PARTNERSHIPS OR AS DIVISIONS
TAX CHARACTERIZATION OF THE TRUST AS A DIVISION
With respect to any Trust which has only one Certificateholder, the
related Prospectus Supplement may specify that for federal income tax purposes
the Trust is intended to be disregarded as a separate entity and is intended to
be treated as a division of its sole Certificateholder. With respect to any such
Trust, upon issuance of the related Securities, Federal Tax Counsel will issue
its opinion, subject to the assumptions set forth therein, that the Trust will
not be an association (or publicly traded partnership) taxable as a corporation
for federal income tax purposes.
TAX CHARACTERIZATION OF THE TRUST AS A PARTNERSHIP
Federal Tax Counsel will deliver its opinion, subject to the assumptions
set forth therein, that a Trust which is intended to be a partnership, as
specified in the related Prospectus Supplement, will not be an association (or
publicly traded partnership) taxable as a corporation for federal income tax
purposes.
If the IRS were to successfully assert that the Trust was a publicly
traded partnership taxable as a corporation for federal income tax purposes, the
Trust would be subject to corporate income tax on its taxable income. The
Trust's taxable income would include all its income on the Receivables, possibly
reduced by its interest expense on the Notes. Any such corporate income tax
could materially reduce cash available to make payments on the Notes and
distributions on the Certificates, and Certificateholders could be liable for
any such tax that is unpaid by the Trust.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES ISSUED BY A PARTNERSHIP OR A DIVISION
Treatment of the Notes as Indebtedness. The Sellers will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for federal income tax purposes. Federal Tax Counsel will, except as otherwise
provided in the related Prospectus Supplement, deliver its opinion, subject to
the assumptions set forth therein, that the Notes will be classified as debt for
federal income tax purposes. The discussion below assumes this income tax
characterization of the Notes is correct.
OID, Indexed Securities, etc. The discussion below assumes that all
payments on the Notes are denominated in U.S. dollars, that the Notes are not
Indexed Securities or Strip Notes and that the Notes have a fixed maturity
greater than one year after their issue date. Moreover, the discussion assumes
that the interest formula for the Notes meets the requirements for "qualified
stated interest" under Treasury regulations (the "OID regulations") relating to
original issue discount ("OID"), and that any OID on the Notes (i.e, any excess
of the "stated redemption price at maturity" of the Notes over their issue
price) does not exceed a de minimis amount (i.e., generally 1/4% of their
principal amount multiplied by the number of full years included in their term),
all within the meaning of the OID regulations. If these conditions are not
satisfied with respect to any given series of Notes, additional tax
considerations with respect to such Notes will be disclosed in the applicable
Prospectus Supplement.
Interest Income on the Notes. Based on the above assumptions the Notes
generally will not be considered issued with OID. The stated interest thereon
will be taxable to a Noteholder as ordinary interest income when received or
accrued in accordance with such Noteholder's regular method of tax accounting.
Under the OID regulations, a holder of a Note issued with a de minimis amount of
OID generally must include such OID in income, on a pro rata basis, only as
principal payments are made on the Note. However, a holder may elect to accrue
de minimis OID under a constant yield method in connection with an election to
accrue all interest, discount and premium on the Note using the constant yield
method. See "Trusts Treated as Grantor Trusts-Taxation of Holders if Stripped
Bond Rules Do Not Apply--Election to Treat All Interest as OID" for a
-61-
<PAGE>
discussion of such election. A purchaser who buys a Note for more or less than
its principal amount will generally be subject, respectively, to the premium
amortization or market discount rules of the Code.
Sale or Other Disposition. If a Noteholder sells a Note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale (not including accrued but unpaid interest) and the
holder's adjusted tax basis in the Note (not including accrued but unpaid
interest). The adjusted tax basis of a Note to a particular Noteholder will
equal the holder's cost for the Note, increased by any market discount,
acquisition discount, OID, if any, and gain previously included by such
Noteholder in income with respect to the Note and decreased by the amount of
bond premium (if any) previously amortized and by the amount of principal
payments previously received by such Noteholder with respect to such Note. Any
such gain or loss generally will be capital gain or loss if the Note was held as
a capital asset, except for gain representing accrued interest and accrued
market discount not previously included in income. Any such gain or loss would
be long-term capital gain or loss if the holder"s holding period exceeded one
year. The maximum rate of federal income taxation on net long-term capital gains
is 28% with respect to capital assets held for more than one year but not more
than eighteen months, and 20% if the holding period exceeded eighteen months.
Capital losses generally may be used only to offset capital gains.
Backup Withholding. Payments made on, and proceeds from the sale of Notes
may be subject to a "back up" withholding tax of 31% unless the holder complies
with certain identification requirements. Any amounts withheld will be allowed
as a credit against the holder"s federal income tax, provided that the required
information is provided to the IRS.
Possible Alternative Treatments of the Notes. If, contrary to the opinion
of Federal Tax Counsel, the IRS successfully asserted that one or more of the
Notes did not represent debt for federal income tax purposes, the Notes might be
treated as equity interests in the Trust. If so treated, the Trust might be
treated as a publicly traded partnership that would be taxable as a corporation
with the adverse consequences described above unless it met certain qualifying
income tests. Even if the trust qualified for such exception, treatment of the
Notes as equity interests in a publicly traded partnership could have adverse
tax consequences to certain holders. For example, income to foreign investors
generally would be subject to U.S. federal income tax payments, tax return
filing and withholding requirements, and individual holders might be subject to
certain limitations on their ability to deduct their share of Trust expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES ISSUED BY A PARTNERSHIP
Treatment of the Trust as a Partnership. With respect to any Trust
intended to be a partnership for tax purposes, as set forth in the related
Prospectus Supplement, each Seller and Franklin Capital will agree, and the
Certificateholders, by their purchase of Certificates will be deemed to have
agreed, to treat the Trust as a partnership for federal and state income tax
purposes, with the assets of the partnership being the assets held by the Trust,
the partners of the partnership being the Certificateholders, and the Notes
being debt of the partnership. However, the proper characterization of such an
arrangement involving the Trust, the Certificates, the Notes, the Sellers and
Franklin Capital is not clear because there is no authority on any closely
comparable transaction.
For example, because the Certificates may have certain features
characteristic of debt, the Certificates might be considered debt of either the
related Seller or the Trust. Generally, provided such Certificates are issued at
or close to face value, any such characterization should not result in
materially adverse tax consequences to Certificateholders as compared to the
consequences from treatment of the Certificates as equity in a partnership,
described below. If Certificates are issued at a substantial discount, a
discussion of the relevant tax consequences will be set forth in the related
Prospectus Supplement. The following discussion assumes that the Certificates
represent equity interests in a partnership for federal income tax purposes.
Indexed Securities, etc. The following discussion assumes that all
payments on the Certificates are denominated in U.S. dollars, none of the
Certificates are Indexed Securities or Strip Certificates, and that a series of
Securities includes a single class of Certificates. If these conditions are not
satisfied with respect to any given
-62-
<PAGE>
series of Certificates, additional tax considerations with respect to such
Certificates will be disclosed in the applicable Prospectus Supplement.
Partnership Taxation. As a partnership, the Trust will not be subject to
federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. In certain instances, however, the
Trust could have an obligation to make payments of withholding tax on behalf of
a Certificateholder. See "Backup Withholding" below. The Trust's income will
consist primarily of interest and finance charges earned on the Receivables
(including appropriate adjustments for market discount, OID and bond premium)
and any gain upon collection or disposition of Receivables. The Trust's
deductions will consist primarily of interest accruing with respect to the
Notes, servicing and other fees, and losses or deductions upon collection or
disposition of Receivables.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
Trust Agreement and related documents). The Trust Agreement will provide, in
general, that the Certificateholders will be allocated taxable income of the
Trust for each month equal to the sum of (i) the interest that accrues on the
Certificates in accordance with their terms for such month, including interest
accruing at the Pass Through Rate for such month and interest on amounts
previously due on the Certificates but not yet distributed; (ii) any Trust
income attributable to discount on the Receivables that corresponds to any
excess of the principal amount of the Certificates over their initial issue
price; (iii) prepayment premium payable to the Certificateholders for such
month; and (iv) any other amounts of income payable to the Certificateholders
for such month. Such allocation will be reduced by any amortization by the Trust
of premium on Receivables that corresponds to any excess of the issue price of
Certificates over their principal amount. Although not free from doubt, based on
the economic arrangement of the parties, this approach for allocating Trust
income should be permissible under applicable Treasury regulations. The IRS may,
however, require a greater amount of income to be allocated to
Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be allocated income equal to the entire Pass-Through Rate
plus the other items described above even though the Trust might not have
sufficient cash to make current cash distributions of such amount. Thus, cash
basis holders will in effect be required to report income from the Certificates
on the accrual basis regardless of their normal method of tax accounting and
Certificateholders may become liable for taxes on Trust income even if they have
not received cash from the Trust to pay such taxes.
All or some of the taxable income allocated to a Certificateholder that is
a pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) may constitute "unrelated business
taxable income" generally taxable to such a holder under the Code.
Depending upon whether the Trust is deemed engaged in a trade or business,
an individual taxpayer's share of expenses of the Trust (including fees to the
Servicer but not interest expense) could be miscellaneous itemized deductions.
Such deductions might be disallowed to the individual in whole or in part and
might result in such holder being taxed on an amount of income that exceeds the
amount of cash actually distributed to such holder over the life of the Trust.
Such deductions may also be subject to reduction under Section 68 of the Code if
the individual's adjusted gross income exceeds certain limits. Moreover,
non-corporate Certificateholders might not be able to deduct such expenses for
purposes of the alternative minimum tax.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Receivable, the Trust
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on Certificateholders.
-63-
<PAGE>
Discount and Premium. It is believed that the Receivables will not be
issued with OID and, therefore, the Trust should not have OID income. However,
the purchase price paid by the Trust for the Receivables may be greater or less
than the remaining principal balance of the Receivables at the time of purchase.
If so, the Receivables will have been acquired at a premium or discount, as the
case may be. (As indicated above, the Trust will make this calculation on an
aggregate basis, but might be required to recompute it on a
Receivable-by-Receivable basis.)
If the Trust acquires the Receivables at a market discount or premium, the
Trust will elect to include any such discount in income currently as it accrues
over the life of the Receivables or to offset any such premium against interest
income on the Receivables. As indicated above, a portion of such market discount
income or premium deduction will be allocated to Certificateholders if the
related Trust Agreement so provides. Any such allocation will be disclosed in
the related Prospectus Supplement.
Section 708 Termination. Under Section 708 of the Code, the Trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the Trust will be considered to
have contributed its assets to the Trust, as a new partnership, and to have
distributed the interests in the new partnership in liquidation to the
Certificate owners. The Trust does not intend to comply with certain technical
requirements that might apply should such a constructive termination occur. As a
result, the Trust may be subject to certain tax penalties and to additional
expenses if it is required to comply with those requirements. Moreover, the
Schedule K-1 information thereafter distributed to Certificateholders may be
incorrect. Furthermore, the Trust might not be able to comply due to lack of
data.
Disposition of Certificates. Generally, gain or loss will be recognized on
a sale or exchange of Certificates in an amount equal to the difference between
the amount realized and the seller's tax basis in the Certificates sold. A
Certificateholder's tax basis in a Certificate will generally equal the holder's
cost increased by the holder's share of Trust income includible in income
(including for the taxable year of sale) and decreased by any distributions
received with respect to such Certificate. In addition, both the tax basis in
the Certificates and the amount realized on a sale of a Certificate would
include the holder's share of liabilities of the Trust (including the Notes). A
holder acquiring Certificates at different prices may be required to maintain a
single aggregate adjusted tax basis in such Certificates and, upon sale or other
disposition of some of the Certificates, to allocate a portion of such aggregate
tax basis to the Certificates sold (rather than maintaining a separate tax basis
in each Certificate for purposes of computing gain or loss on a sale of that
Certificate).
Any gain on the sale of a Certificate attributable to the holder's share
of unrecognized accrued market discount on the Receivables would generally be
treated as ordinary income to the holder and would give rise to special tax
reporting requirements. To avoid those special reporting requirements, the Trust
will elect to include market discount in income as it accrues, thereby
eliminating any ordinary income amount to a selling Certificateholder.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
Any gain or loss on a sale or exchange of a Certificate would be capital
gain or loss. The maximum rate of federal income taxation for an individual
Certificateholder on net long-term capital gains is 28% with respect to capital
assets held for more than one year but not more than eighteen months, and 20% if
the holding period exceeded eighteen months.
Allocations Between Transferors and Transferees. In general, the Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the close
of the last
-64-
<PAGE>
day of such month. As a result, a holder purchasing Certificates may be
allocated tax items (which will affect its tax liability and tax basis)
attributable to periods before the actual purchase takes place.
The use of such a monthly convention may not be permitted by existing
Treasury regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificateholders. In that event or
in the event future Treasury regulations provide for an additional allocation
method the Trust's method of allocation between transferors and transferees may
be revised to conform.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (or loss), the purchasing Certificateholder will have a
higher (or lower) basis in the Certificates than the selling Certificateholder
had. The tax basis of the Trust's assets will not be adjusted to reflect that
higher (or lower) basis unless the Trust were to file an election under Section
754 of the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As a
result, Certificateholders might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
Administrative Matters. The Owner Trustee is required to keep or have kept
complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust will be the calendar year. The Owner Trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
Trust and will report each Certificateholder's allocable share of items of Trust
income and expense to holders and the IRS on Schedule K-1. The Trust will
provide the Schedule K-1 information to nominees that fail to provide the Trust
with the information statement described below and such nominees will be
required to forward such information to the beneficial owners of the
Certificates. Generally, holders must file tax returns that are consistent with
the information return filed by the Trust or be subject to penalties unless the
holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and taxpayer identification number of the nominee and (ii) as to each beneficial
owner (x) the name, address and taxpayer identification number of such person,
(y) whether such person is a United States person, a tax-exempt entity or a
foreign government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust information as
to themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the Trust. The information referred to above for any
calendar year must be furnished to the Trust on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the Trust
with the information described above may be subject to penalties.
Each Seller will be designated as the tax matters partner in the related
Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS with respect to partnership
items. The Code provides for administrative examination of a partnership as if
the partnership were a separate and distinct taxpayer. Generally, the statute of
limitations for partnership items does not expire before three years after the
date on which the partnership information return is filed. Any adverse
determination following an audit of the return of the Trust by the appropriate
taxing authorities could result in an adjustment of the returns of the
Certificateholders, and, under certain circumstances, a Certificateholder may be
precluded from separately litigating a proposed adjustment to the items of the
Trust. An adjustment could also result in an audit of a Certificateholder's
returns and adjustments of items not related to the income and losses of the
Trust.
-65-
<PAGE>
Tax Consequences to Foreign Certificateholders. As discussed below, an
investment in a Certificate is not suitable for any Foreign Person, as defined
below, which is not eligible for a complete exemption from U.S. withholding tax
on interest under a tax treaty with the United States. Accordingly, no interest
in a Certificate should be acquired by or on behalf of any such Foreign Person.
For purposes of this tax discussion, a Foreign Person is any person other
than (i) a citizen or resident of the United States, (ii) a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate whose income
is includable in gross income for United States federal income taxation
regardless of source, or (iv) a trust other than a "Foreign Trust," as such term
is defined in Section 7701(a)(31) of the Code.
No regulations, published rulings or judicial decisions exist that would
discuss the characterization for federal withholding tax purposes with respect
to a Foreign Person of a partnership with activities substantially the same as
the Trust. Depending upon the particular terms of the related Trust Agreement
and Sale and Servicing Agreement, a trust may be considered to be engaged in a
trade or business in the United States for purposes of federal withholding taxes
with respect to Foreign Persons. If the Trust is considered to be engaged in a
trade or business in the United States for such purposes, the income of the
Trust distributable to a Foreign Person would be subject to Federal withholding
tax at a rate of 35% for persons taxable as a corporation and 39.6% for all
other Foreign Persons. Also, in such cases, a Foreign Person that is a
corporation may be subject to the branch profits tax. If the Trust is notified
that a Certificateholder is a Foreign Person, the Trust intends to withhold as
if it were engaged in a trade or business in the United States in order to
protect the Trust from possible adverse consequences of a failure to withhold.
Subsequent adoption of Treasury regulations or the issuance of other
administrative pronouncements may require the Trust to change its withholding
procedures.
If a Trust is engaged in a trade or business, each foreign
Certificateholder will be required to file a United States federal individual or
corporate income tax return (including in the case of a corporation, the branch
profits tax) on its share of the Trust's income. A Foreign Person generally
would be entitled to file with the IRS a claim for refund with respect to
withheld taxes, taking the position that no taxes were due because the Trust was
not engaged in a United States trade or business. However, interest payments
made to (or accrued by) a Certificateholder who is a Foreign Person may be
considered guaranteed payments to the extent such payments are determined
without regard to the income of the Trust and for that reason or because of the
nature of the Receivables, the interest may not be considered "portfolio
interest" which may qualify for certain exemption from taxation. As a result,
even if the Trust is not considered to be engaged in a U.S. trade or business,
Certificateholders could be subject to United States federal income tax which
must be withheld at a rate of 30% on their share of the Trust's income (without
reduction for interest expense), unless reduced or eliminated pursuant to an
applicable income tax treaty. If the Trust is notified that a Certificateholder
is a Foreign Person, the Trust may be required to withhold and pay over such
tax, which can exceed the amounts otherwise available for distribution to such a
Certificateholder. A Foreign Person would generally be entitled to file with the
IRS a refund claim for such withheld taxes, taking the position that the
interest was portfolio interest and therefore not subject to U.S. tax. However,
the IRS may disagree and no assurance can be given as to the appropriate amount
of tax liability. As a result, each potential foreign Certificateholder should
consult its tax advisor as to whether the tax consequences of holding an
interest in a Certificate make it an unsuitable investment.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
TRUSTS TREATED AS GRANTOR TRUSTS
TAX CHARACTERIZATION OF THE TRUST AS A GRANTOR TRUST
As specified in the related Prospectus Supplement, Federal Tax Counsel
will deliver its opinion, subject to the assumptions set forth therein, that a
Trust which is intended to be a grantor trust for federal income tax
-66-
<PAGE>
purposes will not be classified as an association taxable as a corporation and
that such Trust will be classified as a grantor trust under the Code. In this
case, owners of Certificates (referred to herein as "Grantor Trust
Certificateholders") will be treated for federal income tax purposes as owners
of a portion of the Trust's assets as described below. The Certificates issued
by a Trust that is treated as a grantor trust are referred to herein as "Grantor
Trust Certificates."
Characterization. Each Grantor Trust Certificateholder will be treated for
federal income tax purposes as the owner of a pro rata undivided interest in
each of the Receivables in the Trust. Any amounts received by a Grantor Trust
Certificateholder in lieu of amounts due with respect to any Receivable because
of a default or delinquency in payment will be treated for federal income tax
purposes as having the same character as the payments they replace.
Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire income
from the Receivables in the Trust represented by Grantor Trust Certificates,
including interest, market discount, premium, OID, if any, prepayment fees,
assumption fees, any gain recognized upon an assumption and late payment charges
received by the Servicer. Under Code Sections 162 or 212 each Grantor Trust
Certificateholder will be entitled to deduct its pro rata share of servicing
fees, prepayment fees, assumption fees, any loss recognized upon an assumption
and late payment charges retained by the Servicer, provided that such amounts
are reasonable compensation for services rendered to the Trust. Grantor Trust
Certificateholders that are individuals, estates or trusts will be entitled to
deduct their share of expenses only to the extent such expenses plus such
holder's other miscellaneous itemized deductions exceed two percent of such
holder's adjusted gross income. Such deductions may also be limited by Code
Section 68 for an individual whose adjusted gross income exceeds certain limits.
Moreover, non-corporate Grantor Trust Certificateholders cannot deduct such
expenses for purposes of the alternative minumum tax.
A Grantor Trust Certificateholder using the cash method of accounting must
take into account its pro rata share of income and deductions as and when
collected by or paid to the Servicer. A Grantor Trust Certificateholder using an
accrual method of accounting must take into account its pro rata share of income
and deductions as they become due or are paid to the Servicer, whichever is
earlier. If the servicing fees or other amounts paid to the Servicer exceed
reasonable servicing compensation, the amount of such excess would be considered
as an ownership interest retained by the Servicer (or any person to whom the
Servicer assigned all or a portion of the servicing fees) in a portion of the
interest payments on the Receivables. The Receivables would then be subject to
the stripped bond rules of the Code discussed below.
TAXATION OF HOLDERS IF STRIPPED BOND RULES APPLY
In the absence of comprehensive regulations, the tax treatment of stripped
bonds is unclear. The preamble to certain stripped bond regulations suggests
that each purchaser of a Grantor Trust Certificate will be treated with respect
to each Receivable as the purchaser of a single stripped bond consisting of all
of the stripped portions of the applicable Receivable (such portions with
respect to a Receivable are referred to herein as a "Stripped Bond") which
generally should be treated as a single debt instrument issued on the day it is
purchased for purposes of calculating any original issue discount. Generally,
under Treasury regulations relating to Stripped Bonds (the "Section 1286
Treasury Regulations"), if the discount on a Stripped Bond is larger than a de
minimis amount (as calculated for purposes of the OID rules of the Code) such
Stripped Bond will be considered to have been issued with OID. See "-Original
Issue Discount" herein. Based on the preamble to the Section 1286 Treasury
Regulations, although the matter is not entirely clear, the interest income on
the Certificates up to the sum of the Pass-Through Rate and the portion of the
Servicing Fee Rate that does not constitute excess servicing should be treated
as "qualified stated interest" within the meaning of the Section 1286 Treasury
Regulations, assuming all other requirements for treatment as qualified stated
interest are satisfied, and such income will be so treated in the Trustee's tax
information reporting.
-67-
<PAGE>
Original Issue Discount. When Stripped Bonds have more than a de minimis
amount of OID, the special rules of the Code relating to "original issue
discount" (currently Sections 1271 through 1275) will be applicable to a Grantor
Trust Certificateholder's interest in those Stripped Bonds. Generally, a Grantor
Trust Certificateholder that acquires an interest in a Stripped Bond issued or
acquired with OID must include in gross income the sum of the "daily portions,"
as defined below, of the OID on such Stripped Bond for each day on which it owns
a Certificate, including the date of purchase but excluding the date of
disposition. Although the proper method is not entirely clear, the Trust intends
to calculate the daily portions of OID with respect to a Stripped Bond generally
as follows: A calculation will be made of the portion of OID that accrues on the
Stripped Bond during each successive monthly accrual period (or shorter period
in respect of the date of original issue or the final Distribution Date). This
will be done, in the case of each full monthly accrual period, by adding (i) the
present value of all remaining payments to be received on the Stripped Bond
under the prepayment assumption, if any, used in respect of the Stripped Bonds
and (ii) any payments received during such accrual period, and subtracting from
that total the "adjusted issue price" of the Stripped Bond at the beginning of
such accrual period. No representation is made that the Stripped Bonds will
prepay at any prepayment assumption. The "adjusted issue price" of a Stripped
Bond at the beginning of the first accrual period is its issue price (as
determined for purposes of the OID rules of the Code) and the "adjusted issue
price" of a Stripped Bond at the beginning of a subsequent accrual period is the
"adjusted issue price" at the beginning of the immediately preceding accrual
period plus the amount of OID allocable to that accrual period and reduced by
the amount of any payment (other than "qualified stated interest") made at the
end of or during that accrual period. The OID accruing during such accrual
period will then be divided by the number of days in the period to determine the
daily portion of OID for each day in the period. With respect to an initial
accrual period shorter than a full monthly accrual period, the daily portions of
OID must be determined according to an appropriate allocation under either an
exact or approximate method set forth in the OID Regulations, or some other
reasonable method, provided that such method is consistent with the method used
to determine the yield to maturity of the Receivables.
With respect to the Stripped Bonds, the method of calculating OID as
described above will cause the accrual of OID to either increase or decrease
(but never below zero) in any given accrual period to reflect the fact that
prepayments are occurring at a faster or slower rate than the prepayment
assumption used in respect of the Stripped Bonds.
The Trust intends to account for OID, if any, reportable by Grantor Trust
Certificateholders 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 taxable to them.
TAXATION OF HOLDERS IF STRIPPED BOND RULES DO NOT APPLY
Premium. The price paid for a Grantor Trust Certificate by a holder will
be allocated to such holder's undivided interest in each Receivable based on
each Receivable's relative fair market value, so that such holder's undivided
interest in each Receivable will have its own tax basis. A Grantor Trust
Certificateholder that acquires an interest in Receivables at a premium may
elect to amortize such premium under a constant yield method. Amortizable bond
premium will be treated as an offset to interest income on such Grantor Trust
Certificate. The tax basis to such Grantor Trust Certificateholder in such
Certificate will be reduced to the extent that amortizable premium is applied to
offset interest payments. It is unclear whether a reasonable prepayment
assumption should be used in computing amortization of premium allowable under
Code Section 171. A Grantor Trust Certificateholder that makes this election for
Receivables that are construed to be acquired at a premium will be deemed to
have made an election to amortize bond premium with respect to all debt
instruments having amortizable bond premium that such Grantor Trust
Certificateholder acquires during the year of the election or thereafter. Upon a
prepayment of a Receivable, the Certificateholder should recognize a loss with
respect to any unamortized premium.
Market Discount. A Grantor Trust Certificateholder may be subject to the
market discount rules of Sections 1276 through 1278 to the extent an undivided
interest in a Receivable is considered to have been
-68-
<PAGE>
purchased at a "market discount." Generally, the amount of market discount is
equal to the excess of the portion of the principal amount of such Receivable
allocable to such holder's undivided interest over such holder's tax basis in
such interest. Market discount with respect to a Receivable will be considered
to be zero if the amount allocable to the Receivable is less than 0.25% of the
Receivable's stated redemption price at maturity multiplied by its weighted
average maturity remaining after the date of purchase. Treasury regulations
implementing the market discount rules have not yet been issued; therefore,
investors should consult their own tax advisors regarding the application of
these rules and the advisability of making any of the elections allowed under
Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled payment
or a prepayment) or any gain on disposition of a market discount bond shall be
treated as ordinary income to the extent that it does not exceed the accrued
market discount at the time of such payment. The amount of accrued market
discount for purposes of determining the tax treatment of subsequent principal
payments or dispositions of the market discount bond is to be reduced by the
amount so treated as ordinary income. The Code also grants the Treasury
Department authority to issue regulations providing for the computation of
accrued market discount on debt instruments, the principal of which is payable
in more than one installment. Because the regulations described above have not
been issued, it is unclear as to what effect those regulations might have on the
tax treatment of a Grantor Trust Certificate purchased at a discount.
A holder who acquires a Grantor Trust Certificate at a market discount
also may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or continued to purchase
or carry such Grantor Trust Certificate purchased with market discount. For
these purposes, the de minimis rule referred to above applies. Any such deferred
interest expense would not exceed the market discount that accrues during such
taxable year and is, in general, allowed as a deduction not later than the year
in which such market discount is includible in income. If such holder elects to
include market discount in income currently as it accrues on all market discount
instruments acquired by such holder in that taxable year or thereafter, the
interest deferral rule described above will not apply.
Election to Treat All Interest as OID. The OID regulations permit a
Grantor Trust Certificateholder to elect to accrue all interest, discount
(including de minimis market or original issue discount) and premium in income
as interest, based on a constant yield method. If such an election were to be
made with respect to a Grantor Trust Certificate with market discount, the
Certificateholder would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that such Grantor Trust Certificateholder acquires during the
year of the election or thereafter. See "-Market Discount" above. Similarly, a
Grantor Trust Certificateholder that makes this election for a Grantor Trust
Certificate that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Grantor Trust Certificateholder owns or
acquires. See "-Premium" above. The election to accrue interest, discount and
premium on a constant yield method with respect to a Grantor Trust Certificate
is irrevocable.
TAXATION OF HOLDERS REGARDLESS OF WHETHER STRIPPED BOND RULES APPLY
Sale or Exchange of a Grantor Trust Certificate. Sale or exchange of a
Grantor Trust Certificate prior to its maturity will result in gain or loss
equal to the difference, if any, between the amount received and the owner's
adjusted basis in the Grantor Trust Certificate. Such adjusted basis generally
will equal the seller's purchase price for the Grantor Trust Certificate,
increased by the amount of OID and market discount (if any) included in the
seller's gross income with respect to the Grantor Trust Certificate, and reduced
by payments (other than qualified stated interest) on the Grantor Trust
Certificate and any amortized premium. Subject to the discussion of market
discount above, such gain or loss generally will be capital gain or loss to an
owner for which a Grantor Trust Certificate is a "capital asset" within the
meaning of Section 1221, and will be long-term if the Grantor Trust Certificate
has been owned for the requisite holding period.
-69-
<PAGE>
Information Reporting and Backup Withholding. The Servicer will furnish or
make available, within a reasonable time after the end of each calendar year, to
each person who was a Grantor Trust Certificateholder at any time during such
year, such information as may be deemed necessary or desirable to assist Grantor
Trust Certificateholders in preparing their federal income tax returns, or to
enable holders to make such information available to beneficial owners or
financial intermediaries that hold Grantor Trust Certificates as nominees on
behalf of beneficial owners. Backup withholding will be required with respect to
any payments on the Grantor Trust Certificates and the sales proceeds there of
unless the recipient has complied with certain certification requirements. Any
amounts deducted and withheld from a distribution to a recipient would be
allowed as a credit against such recipient's federal income tax liability,
provided that the required information is provided to the IRS.
CERTAIN CERTIFICATES TREATED AS INDEBTEDNESS
Upon the issuance of Certificates that are intended to be treated as
indebtedness for federal income tax purposes, Federal Tax Counsel will opine,
subject to the assumptions set forth therein, that based upon its analysis of
the factors discussed below and certain assumptions and qualifications the
Certificates will be treated as indebtedness for federal income tax purposes.
However, opinions of counsel are not binding on the IRS and there can be no
assurance that the IRS could not successfully challenge this conclusion. Such
Certificates that are intended to be treated as indebtedness are herein referred
to as "Debt Certificates" and holders of such Certificates are herein referred
to as "Debt Certificateholders."
Each Seller will express in the Trust Documents its intent that, for
federal, state and local tax purposes, the Debt Certificates be indebtedness
secured by the Receivables. Each Seller will agree and each Debt
Certificateholder, by acquiring an interest in a Debt Certificate, will be
deemed to agree to treat the Debt Certificates as indebtedness for federal,
state and local tax purposes. However, because different criteria are used to
determine the non-tax accounting characterization of the transactions
contemplated by the Trust Documents, the Sellers expects to treat such
transactions, for regulatory and financial accounting purposes, as a sale of
ownership interests in the Receivables and not as debt obligations.
In general, whether for federal income tax purposes a transaction
constitutes a sale of property, or a loan the repayment of which is secured by
the property, is a question of fact, the resolution of which is based upon the
economic substance of the transaction. The form of a transaction, while a
relevant factor, is not conclusive evidence of its economic substance. In
appropriate circumstances, the courts have allowed taxpayers, as well as the
IRS, to treat a transaction in accordance with its economic substance, as
determined under federal income tax laws, notwithstanding that the participants
characterize the transaction differently for non-tax purposes. (In some
instances, however, courts have held that a taxpayer is bound by a particular
form it has chosen for a transaction, even if the substance of the transaction
does not accord with its form. It is expected that Federal Tax Counsel will
advise that the rationale of those latter cases will not apply to the
transactions evidenced by a series of Debt Certificates.)
While the IRS and the courts have set forth several factors to be taken
into account in determining whether the substance of a transaction is a sale of
property or a secured indebtedness for federal income tax purposes, the primary
factor in making this determination is whether the transferee has assumed the
risk of loss or other economic burdens relating to the property and has obtained
the economic benefits of ownership thereof. Federal Tax Counsel will analyze and
rely on several factors in reaching its opinion that the weight of the benefits
and burdens of ownership of the Receivables has not been transferred to the Debt
Certificateholders and that the Debt Certificates are properly characterized as
indebtedness for federal income tax purposes. Contrary characterizations that
could be asserted by the IRS are described below under "--Possible
Characterization of the Transaction as a Partnership or as an Association
Taxable as a Corporation."
TAXATION OF INCOME OF DEBT CERTIFICATEHOLDERS
As set forth above, it is expected that Federal Tax Counsel will advise
the Sellers that the Debt Certificates will constitute indebtedness for Federal
income tax purposes and, accordingly, holders of Debt
-70-
<PAGE>
Certificates generally will be taxed in the manner described above in "Trusts
Treated as Partnerships or as Divisions--Tax Consequences to Holders of the
Notes Issued by a Partnership or a Division."
If the Debt Certificates are issued with OID that is more than a de
minimis amount as defined in the Code and Treasury regulations, a United States
holder of a Debt Certificate (including a cash basis holder) generally would be
required to accrue the OID on its interest in a Certificate in income for
federal income tax purposes on a constant yield basis, resulting in the
inclusion of OID in income in advance of the receipt of cash attributable to
that income. See "Trusts Treated as Grantor Trusts--Taxation of Holders If
Stripped Bond Rules Apply--Original Issue Discount." Under Code Section
1272(a)(6), special provisions apply to debt instruments on which payments may
be accelerated due to prepayments of other obligations securing those debt
instruments. However, no regulations have been issued interpreting those
provisions, and the manner in which those provisions would apply to the Debt
Certificates is unclear. Additionally, the IRS could take the position based on
Treasury regulations that none of the interest payable on a Debt Certificate is
"unconditionally payable" and hence that all of such interest should be included
in the Debt Certificate's stated redemption price at maturity. Accordingly, it
is unclear whether interest payable on a Debt Certificate constitutes "qualified
stated interest" that is not included in a Certificate's stated redemption price
at maturity. Consequently, prospective investors in Debt Certificates should
consult their own tax advisors concerning the impact to them in their particular
circumstances. The Prospectus Supplement will indicate whether the Trust intends
to treat the interest on the Certificates as "qualified stated interest".
TAX CHARACTERIZATION OF TRUST
Consistent with the treatment of the Debt Certificates as indebtedness,
the Trust will be treated as a security device to hold Receivables securing the
repayment of the Debt Certificates. In connection with the issuance of Debt
Certificates of any series, Federal Tax Counsel will render an opinion that,
based on the assumptions set forth therein, under then current law, the issuance
of the Debt Certificates of such series will not cause the applicable Trust to
be characterized for Federal income tax purposes as an association (or publicly
traded partnership) taxable as a corporation.
POSSIBLE CLASSIFICATION OF THE TRANSACTION AS A PARTNERSHIP OR AS AN ASSOCIATION
TAXABLE AS A CORPORATION
The opinion of Federal Tax Counsel with respect to Debt Certificates will
not be binding on the courts or the IRS. It is possible that the IRS could
assert that, for federal income tax purposes, the transactions contemplated
constitute a sale of the Receivables (or an interest therein) to the Debt
Certificateholders and that the proper classification of the legal relationship
between the related Seller and some or all of the Debt Certificateholders
resulting from the transactions is that of a partnership or a publicly traded
partnership taxable as a corporation. The Sellers currently do not intend to
comply with the federal income tax reporting requirements that would apply if
any Debt Certificates were treated as interests in a partnership or corporation.
If a transaction were treated as creating a partnership (but not a
publicly traded partnership) between the related Seller and the Debt
Certificateholders, the partnership itself would not be subject to federal
income tax (unless it were characterized as a publicly traded partnership
taxable as a corporation); rather, the partners of such partnership, including
the Debt Certificateholders, would be taxed individually on their respective
distributive shares of the partnership's income, gain, loss, deductions and
credits. The amount and timing of items of income and deductions of a Debt
Certificate could differ if the Debt Certificates were held to constitute
partnership interests, rather than indebtedness. See "-Tax Consequences to
Holders of the Certificates Issued by a Partnership-Partnership Taxation."
If it were determined that a transaction created an entity classified as a
publicly traded partnership taxable as a corporation, the Trust would be subject
to federal income tax at corporate income tax rates on the income it derives
from the Receivables, which would reduce the amounts available for distribution
to the Debt Certificateholders. Such classification may also have adverse state
and local tax consequences that would reduce amounts available for distribution
to Debt Certificateholders. Moreover, distributions on Debt Certificates that
are
-71-
<PAGE>
recharacterized as equity in an entity taxable as a corporation would not be
deductible in computing the entity's taxable income, and cash distributions on
such Debt Certificates generally would be treated as dividends for tax purposes
to the extent of such deemed corporation's earnings and profits.
FOREIGN PERSONS
If the IRS were to contend successfully that the Debt Certificates are
interests in a partnership and if such partnership were considered to be engaged
in a trade or business in the United States, the partnership would be subject to
a withholding tax on income of the Trust that is allocable to a Foreign Person
and such Foreign Person would be credited for his or her share of the
withholding tax paid by the partnership. In such case, the holder generally
would be subject to United States federal income tax at regular income tax
rates, and possibly a branch profits tax in the case of a corporate holder.
Alternatively, although there may be arguments to the contrary, if such
partnership is not considered to be engaged in a trade or business within the
United States and if income with respect to the Debt Certificates is not
otherwise effectively connected with the conduct of a trade or business in the
United States by the Foreign Person, the Foreign Person could be subject to
United States income tax and withholding at a rate of 30% (unless reduced by an
applicable tax treaty) on the holder's distributive share of the partnership's
interest income. See "Federal Income Tax Consequences-Trusts Treated as
Partnerships-Tax Consequences to Holders of the Certificates Issued by a
Partnership-Tax Consequences to Foreign Certificateholders" for a more detailed
discussion of the consequences of an equity investment by a Foreign Person in an
entity characterized as a partnership.
If the Trust were taxable as a corporation, distribution to foreign
investors, to the extent treated as dividends, would generally be subject to
withholding at the rate of 30%, unless such rate were reduced or eliminated by
an applicable income tax treaty.
CERTAIN CERTIFICATES TREATED AS INTERESTS IN A FASIT
Upon the proposed issuance of Certificates representing interests in a
FASIT, the Prospectus Supplement relating to such Certificates will describe the
requirements for the classification of the Trust as a FASIT and the consequences
to a holder of owning such Certificates.
STATE AND LOCAL TAXATION
The discussion above does not address the tax treatment of a Trust, the
Certificates, the Notes or the holders of Certificates or Notes of any series
under state and local tax laws. Prospective investors are urged to consult their
own tax advisors regarding state and local tax treatment of the Trust, the
Certificates, the Notes and the consequences of purchase, ownership or
disposition of the Certificates and Notes under any state or local tax law.
ERISA CONSIDERATIONS
A fiduciary of an employee benefit plan subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), should consider
the fiduciary standards under ERISA in the context of the plan's particular
circumstances before authorizing an investment of a portion of such plan's
assets in the Securities. Accordingly, among other factors, such fiduciary
should consider (i) whether the investment is for the exclusive benefit of plan
participants and their beneficiaries; (ii) whether the investment satisfies the
diversification requirements of Section 404 of ERISA; (iii) whether the
investment is in accordance with the documents governing the plan and (iv)
whether the investment is prudent, considering the nature of the investment.
-72-
<PAGE>
Fiduciaries of such plans also should consider ERISA's prohibition on improper
delegation of control over, or responsibility for, plan assets.
In addition, fiduciaries of employee benefit plans subject to Title I of
ERISA, as well as certain plans or other retirement arrangements not subject to
ERISA, but which are subject to Section 4975 of the Code (such as individual
retirement accounts and Keogh plans covering only a sole proprietor or
partners), or any entity (including an insurance company general account) whose
underlying assets include plan assets by reason of such plans or arrangements
investing in such entity (collectively, "Plan(s)") are prohibited from engaging
in a broad range of transactions involving Plan assets and persons having
certain specified relationships to a Plan ("parties in interest" and
"disqualified persons"). Such transactions are treated as "prohibited
transactions" under Sections 406 and 407 of ERISA, and excise taxes are imposed
upon such persons by Section 4975 of the Code. The Sellers, the Trustee, the
Owner Trustee and any underwriter of the offered Securities and certain of their
affiliates might be considered "parties in interest" or "disqualified persons"
with respect to a Plan. If so, the acquisition, holding or transfer of
Securities by, or on behalf of, such Plan could be considered to give rise to a
"prohibited transaction" within the meaning of ERISA and the Code unless a
regulatory exception or administrative exemption is available.
Moreover, the Department of Labor ("DOL") has issued a regulation (29
C.F.R. Section 2510.3-101) (the "Plan Assets Regulation") concerning the
definition of what constitutes the assets of a Plan, which provides that, as a
general rule, the underlying assets and properties of corporations,
partnerships, trusts and certain other entities in which a Plan makes an
"equity" investment will be deemed for purposes of ERISA to be assets of the
investing Plan unless certain exceptions apply. If an investing Plan's assets
were deemed to include an interest in the Trust Property and not merely an
interest in the Securities, transactions occurring in connection with the
servicing, management and operation of the Trust between the Sellers, the Owner
Trustee, the Trustee, the Servicer (or any other servicer), any insurer or any
of their respective affiliates might constitute prohibited transactions, and the
Trust Property would become subject to the fiduciary investment standards of
ERISA, unless a regulatory exception or administrative exemption applies.
With respect to offered Securities which are Certificates, the DOL has
issued to a number of underwriters of pass-through certificates, similar to the
Certificates, administrative exemptions (collectively, the "Exemption"), which
generally exempt from the application of the prohibited transaction provisions
of Section 406(a), Section 406(b)(1) and Section 406(b)(2) of ERISA, and the
excise taxes imposed pursuant to Section 4975(a) and (b) of the Code, the
initial purchase, holding and subsequent resale of mortgage-backed or
asset-backed pass-through certificates representing a beneficial undivided
interest in certain fixed pools of assets held in a trust (as defined in
paragraph III.B of Section III of the Exemption), along with certain
transactions relating to the servicing and operation of such asset pools,
provided that certain conditions set forth in the Exemption are satisfied.
Paragraph III.B of Section III of the Exemption provides in part that a trust
means an investment pool the corpus of which is held in trust and consists
solely of: (1) secured consumer receivables, (2) secured credit instruments, (3)
obligations secured by residential or commercial real property, (4) obligations
secured by motor vehicles or equipment or qualified motor vehicle leases, (5)
guaranteed governmental mortgage pool certificates or (6) an undivided
fractional interest in any of the obligations listed in clauses (1) - (5) above.
If the general conditions of Section II of the Exemption are satisfied,
the Exemption may provide an exemption from the restrictions imposed by Sections
406(a) and 407(a) of ERISA (as well as the excise taxes imposed by Section
4975(a) and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of
the Code) in connection with the direct or indirect sale, exchange or transfer
of Certificates by Plans in the initial issue of Certificates, the holding of
Certificates by Plans or the direct or indirect acquisition or disposition in
the secondary market of Certificates by Plans. However, no exemption is provided
from the restrictions of Sections 406(a)(1)(E), 406(a)(2) and 407 of ERISA for
the acquisition or holding of a Certificate on behalf of an "Excluded Plan" by
any person who has discretionary authority or renders investment advice with
respect to the assets of such Excluded Plan. For purposes of the Certificates,
an Excluded Plan is a Plan sponsored by (1) an underwriter which has been
granted an Exemption (or certain specified entities affiliated or associated
with such underwriter) ("Underwriter"), (2) the Sellers, (3) the Servicer (or
any other servicer), (4) the Trustee or Owner
-73-
<PAGE>
Trustee, (5) any obligor with respect to Receivables constituting more than 5
percent of the aggregate unamortized principal balance of the Receivables as of
the date of initial issuance, (6) any insurer and (7) any affiliate or successor
of a person described in (1) to (6) above (the "Restricted Group").
If the specific conditions of paragraph I.B of Section I of the Exemption
are also satisfied, the Exemption may provide an exemption from the restrictions
imposed by Sections 406(b)(1) and (b)(2) of ERISA and the taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c)(I)(E) of the
Code in connection with (1) the direct or indirect sale, exchange or transfer of
Certificates in the initial issuance of Certificates between the related Seller
or Underwriter and a Plan when the person who has discretionary authority or
renders investment advice with respect to the investment of Plan assets in
Certificates is (a) an obligor with respect to 5 percent or less of the fair
market value of the Receivables or (b) an affiliate of such a person, (2) the
direct or indirect acquisition or disposition in the secondary market of
Certificates by Plans and (3) the holding of Certificates by Plans.
If the specified conditions of paragraph I.C of Section I of the Exemption
are satisfied, the Exemption may provide an exemption from the restrictions
imposed by Sections 406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c) of the Code
for transactions in connection with the servicing, management and operation of
the Trust and the Trust Property.
The Exemption may provide an exemption from the restrictions imposed by
Sections 406(a) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code
if such restrictions are deemed to otherwise apply merely because a person is
deemed to be a "party in interest" or a "disqualified person" with respect to an
investing Plan by virtue of providing services to the Plan (or by virtue of
having certain specified relationships to such a person) solely as a result of
such Plan's ownership of Certificates.
The Exemption sets forth the following seven general conditions which must
be satisfied for a transaction to be eligible for exemptive relief thereunder.
(1) The acquisition of the Certificates by a Plan is on terms
(including the price for the Certificates) that are at least as favorable to the
Plan as they would be in an arm's length transaction with an unrelated party;
(2) The rights and interests evidenced by the Certificates acquired
by the Plan are not subordinated to the rights and interests evidenced by other
Securities issued by the Trust;
(3) The Certificates acquired by the Plan have received a rating at
the time of such acquisition that is one of the three highest generic rating
categories from either Standard & Poor's Structured Ratings Group, Moody's
Investors Service, Inc., Duff & Phelps Credit Rating Co. or Fitch Investors
Service, L.P. ("National Credit Rating Agencies");
(4) Neither the Trustee or the Owner Trustee is an affiliate of any
other member of the Restricted Group (as defined above);
(5) The sum of all payments made to and retained by the Underwriter
in connection with the distribution of Certificates represents not more than
reasonable compensation for underwriting the Certificates. The sum of all
payments made and retained by the related Seller pursuant to the assignment of
the loans to the trust fund represents not more than the fair market value of
such loans. The sum of all payments made to and retained by the Servicer or any
other servicer represents not more than reasonable compensation for such
person's services under the pooling and servicing agreement and reimbursement of
such person's reasonable expenses in connection therewith; and
-74-
<PAGE>
(6) The Plan investing in the certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D under the Securities Act
of 1933. Each Seller assumes that only Plans which are accredited investors
under the federal securities laws will be permitted to purchase the
Certificates.
(7) The trust fund must also meet the following requirements:
(i) the corpus of the trust fund must consist solely of
assets of the type that have been included in other
investment pools;
(ii) certificates in such other investment pools must have
been rated in one of the three highest rating categories
of one of the National Credit Rating Agencies for at
least one year prior to the Plan's acquisition of
Certificates; and
(iii) certificates evidencing interests in such other
investment pools must have been purchased by investors
other than Plans for at least one year prior to any
Plan's acquisition of certificates.
The Exemption may apply to a Plan's purchase, holding and transfer of
Certificates and the operation, management and servicing of the Trust and the
Trust Property as specified in the related Prospectus Supplement. In addition,
in the event the Exemption is not available, certain exemptions from the
prohibited transaction rules may be applicable depending on the type and
circumstances of the plan fiduciary making the decision to acquire a
Certificate. Included among these exemptions are: Prohibited Transaction Class
Exemption ("PTCE") 90-1, regarding investments by insurance company pooled
separate accounts; PTCE 91-38 regarding investments by bank collective
investment funds PTCE 95-60, regarding investments by insurance company general
accounts; PTCE 96-23, regarding transactions affected by in-house asset
managers; and PTCE 84-14, regarding transactions effected by "qualified
professional asset managers".
Certain transactions involving the purchase of Securities which are Notes
might be deemed to constitute prohibited transactions under ERISA and the Code
if the Trust Property were deemed to be assets of a Plan. Under the Plan Assets
Regulation, the Trust Property would be treated as plan assets of a Plan for the
purposes of ERISA and the Code only if the Plan acquires an "Equity Interest" in
the Trust and none of the exceptions contained in the Plan Assets Regulation is
applicable. An Equity Interest is defined under the Plan Assets Regulation as an
interest other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. The Sellers
believe that the Notes should be treated as indebtedness without substantial
equity features for purposes of the Plan Assets Regulation. In addition, even in
the event that the Notes are deemed to be an Equity Interest in the Trust, the
Exemption may be applicable to both a Plan's purchase, holding and transfer of
Notes (which in this situation are considered Certificates for purposes of the
Exemption) and the operation, management and servicing of the Trust and the
Trust Property, if so specified in the related Prospectus Supplement.
Without regard to whether the Notes are characterized as Equity Interests,
the acquisition, transfer or holding of Notes by or on behalf of a Plan could be
considered to give rise to a prohibited transaction if the Trust, the Owner
Trustee or the Trustee or any of their respective affiliates is or becomes a
party in interest or a disqualified person with respect to such Plan. In such
case, PTCE 90-1, PTCE 91-38, PTCE 95-60, PTCE 96-23 and PTCE 84-14 may be
applicable depending on the type and circumstances of the plan fiduciary making
the decision to acquire a Note.
Any Plan fiduciary considering the purchase of Securities should consult
with its counsel with respect to the potential applicability of the fiduciary
responsibility and prohibited transaction provisions of ERISA and the Code to
such investment.
-75-
<PAGE>
RATINGS
As a condition of issuance, the offered Securities of each series will be
rated an investment grade, that is, in one of its four highest rating
categories, by at least one nationally recognized rating agency (a "Rating
Agency") as specified in the related Prospectus Supplement. The ratings will be
based on the Receivables related to each series, the terms of the Securities,
and the subordination and any credit enhancement provided therefor. There is no
assurance that the ratings initially assigned to such Securities will not be
subsequently lowered or withdrawn by the Rating Agencies. In the event the
rating initially assigned to any Securities is subsequently lowered for any
reason, no person or entity will be obligated to provide any credit enhancement
unless otherwise specified in the related Prospectus Supplement. The ratings of
any Securities with respect to which a prepayment premium may be payable do not
evaluate such prepayment premium payable to such Securityholders or the
likelihood that such prepayment premium will be paid.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement (the
"Underwriting Agreement") with respect to each Trust, the related Seller will
agree to sell to each of the underwriters named therein and in the related
Prospectus Supplement, and each of such underwriters will severally agree to
purchase from the related Seller, the principal amount of each class of
Securities of the related series set forth therein and in the related Prospectus
Supplement.
In each Underwriting Agreement, the several underwriters will agree,
subject to the terms and conditions set forth therein, to purchase all the
Securities described therein which are offered hereby and by the related
Prospectus Supplement if any of such Securities are purchased. In the event of a
default by any such underwriter, each Underwriting Agreement will provide that,
in certain circumstances, purchase commitments of the nondefaulting underwriters
may be increased or the Underwriting Agreement may be terminated.
Each Prospectus Supplement will either (i) set forth the price at which
each class of Securities being offered thereby will be offered to the public and
any concessions that may be offered to certain dealers participating in the
offering of such Securities, or (ii) specify that the related Securities are to
be resold by the underwriters in negotiated transactions at varying prices to be
determined at the time of such sale. After the initial public offering of any
Securities, the public offering price and such concessions may be changed.
Each Underwriting Agreement will provide that the related Seller will
indemnify the underwriters against certain liabilities, including liabilities
under the Securities Act.
The Owner Trustee or the Indenture Trustee, if any, may, from time to
time, invest funds held by it in any accounts in Eligible Investments acquired
from one or more of the underwriters.
Under each Underwriting Agreement, the closing of the sale of any class of
Securities subject thereto will be conditioned on the closing of the sale of all
other classes.
The place and time of delivery for the Securities in respect of which this
Prospectus is delivered will be set forth in the related Prospectus Supplement.
-76-
<PAGE>
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of any Series of Securities in Canada ("Canadian
Securities") is being made only on a private placement basis exempt from the
requirement that the Trust prepare and file a prospectus with the securities
regulatory authorities in each province where trades of any Canadian Securities
are effected. Accordingly, any resale of any Canadian Securities must be made in
accordance with applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made in accordance
with available statutory exemptions or pursuant to a discretionary exemption
granted by the applicable Canadian securities regulatory authority. Purchasers
are advised to seek legal advice prior to any resale of any Canadian Securities.
REPRESENTATIONS OF PURCHASERS
Each purchaser of any Canadian Securities who receives a purchase
confirmation will be deemed to represent to the related Seller, the Trust and
the dealer from whom such purchase confirmation is received that (i) such
purchaser is entitled under applicable provincial securities laws to purchase
such Canadian Securities without the benefit of a prospectus qualified under
such securities laws, (ii) where required by law, that such purchaser is
purchasing as principal and not as agent, and (iii) such purchaser has reviewed
the text above under "Resale Restrictions."
RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
The Trust, the Sellers, the Servicer, the Owner Trustee, the Indenture
Trustee and their respective directors and officers, if any, as well as the
experts named herein, may be located outside of Canada and, as a result, it may
not be possible for Ontario purchasers to effect service of process within
Canada upon the Issuer or such persons. All or a substantial portion of the
assets of the Issuer and such persons may be located outside of Canada and, as a
result, it may not be possible to satisfy a judgment against the Issuer or such
persons in Canada or to enforce a judgment obtained in Canadian courts against
such Issuer or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of any Canadian Securities to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any of the Securities acquired by such purchaser pursuant to this offering. Such
report must be in the form attached to British Columbia Securities Commission
Blanket Order BOR #88/5. Only one such report must be filed in respect of any
Canadian Securities acquired on the same date and under the same prospectus
exemption.
LEGAL OPINIONS
Unless otherwise specified in the Prospectus Supplement, certain legal
matters relating to the validity of the issuance of the Certificates and the
Notes, if any, of each series will be passed upon for the Sellers and the
Servicer by Weil, Gotshal & Manges LLP, and certain legal matters relating to
the validity of the issuance of the Certificates and the Notes, if any, of such
series will be passed upon for the Underwriter of the Certificates and the
Notes, if any, of such series by Stroock & Stroock & Lavan LLP, New York, New
York.
-77-
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION
PROCEDURES
Except in certain limited circumstances, any globally offered Series of
Securities (the "Global Securities") will be available only in book-entry form.
Investors in the Global Securities may hold such Global Securities through any
of DTC, Cedel or Euroclear. The Global Securities will be tradeable as home
market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Notes and, if the related Prospectus Supplement so
provides, Certificates will be effected on a delivery-against-payment basis
through the respective Depositories of Cedel and Euroclear (in such capacity)
and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their Participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name
of Cede as nominee of DTC. Investors' interests in the Global Securities will be
represented through financial institutions acting on their behalf as direct and
indirect Participants in DTC. As a result, Cedel and Euroclear will hold
positions on behalf of their Participants through their respective Depositories,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices specified by the Underwriters. Investor securities
custody accounts will be credited with their holdings against payment in
same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global securities
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to insure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled in same-day funds.
-78-
<PAGE>
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC Seller and Cedel or Euroclear Purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. Cedel or Euroclear
will instruct the respective Depository, as the case may be, to receive the
Global Securities against payment. Payment will include interest accrued on the
Global Securities from and including the last coupon payment date to and
excluding the settlement date, on the basis of the actual number of days in such
accrual period and year assumed to consist of 360 days. For transactions
settling on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. Payment will then be made by the
respective Depository of the DTC Participant's account against delivery of the
Global Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the Cedel Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debt will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the Cedel or Euroclear cash debt
will be valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to preposition
funds and allow that credit line to be drawn upon to finance the settlement.
Under this procedure, Cedel Participants or Euroclear Participants purchasing
Global Securities would incur overdraft charges for one day, assuming they
cleared the overdraft when the Global Securities were credited to their
accounts. However, interest on the Global Securities would accrue from the value
date. Therefore, in many cases the investment income on the Global Securities
earned during that one-day period may substantially reduce or offset the amount
of such overdraft charges, although this result will depend on each Cedel
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective European Depository for the benefit of Cedel Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller on
the settlement date. Thus, to the DTC Participants a cross-market transaction
will settle no differently than a trade between two DTC Participants.
Trading between Cedel or Euroclear Seller and DTC Purchaser. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depository, to a DTC Participant. The seller will send instructions
to Cedel or Euroclear through a Cedel Participant or Euroclear Participant at
least one business day prior to settlement. In these cases Cedel or Euroclear
will instruct the respective Depository, as appropriate, to deliver the Global
Securities to the DTC Participant's account against payment. Payment will
include interest accrued on the Global Securities from and including the last
interest payment to and excluding the settlement date on the basis of the actual
number of days in such accrual period and a year assumed to consist of 360 days.
For transactions settling on the 31st of the month, payment will include
interest accrued to and excluding the first day of the following month. The
payment will then be reflected in the account of the Cedel Participant or
Euroclear Participant the following day, and receipt of the cash proceeds in the
-79-
<PAGE>
Cedel Participant's or Euroclear Participant's account would be back-valued to
the value date (which would be the preceding day, when settlement occurred in
New York). Should the Cedel Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect to be in debt in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft incurred over that one-day period. If settlement
is not completed on the intended value date (i.e., the trade fails), receipt of
the cash proceeds in the Cedel Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC
Participant no later than one day prior to settlement, which would give
the Global Securities sufficient time to be reflected in their Cedel or
Euroclear account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the
trade so that the value date for the purchase from the DTC Participant is
at least one day prior to the value date for the sale to the Cedel
Participant or Euroclear Participant.
CERTAIN U.S. FEDERAL WITHHOLDING TAXES AND DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities through Cedel or Euroclear (or
through DTC if the holder has an address outside the U.S.) will be subject to
30% U.S. withholding tax that generally applies to payments of interest
(including original issue discount) on registered debt issued by U.S. Persons,
unless (i) each clearing system, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business in the
chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owners take one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are beneficial owners of Global
Securities residing in a country that has a tax treaty with the United States
can obtain an exemption or reduced tax rate (depending on the treaty terms) by
filing Form 1001 (Ownership, Exemption or Reduced Rate Certificate). If the
treaty provides for a reduced rate, withholding tax will be imposed at that rate
unless the filer alternatively files Form W-8. Form 1001 may be filed by the
Certificateholder or his agent.
-80-
<PAGE>
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The holder of a Global
Securities or, in the case of a Form 1001 or a Form 4224 filer, his agent, files
by submitting the appropriate form to the person through whom it holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar years
and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate the income
of which is includible in gross income for United States tax purposes,
regardless of its source, or (iv) a trust that is not a "Foreign Trust," as such
term is defined in Section 7701(a)(31) of the Internal Revenue Code of 1986, as
amended. This summary of documentation requirements does not deal with all
aspects of U.S. Federal income tax withholding that may be relevant to foreign
holders of the Global Securities. Investors are advised to consult their own tax
advisors for specific tax advice concerning their holding and disposing of the
Global Securities.
-81-
<PAGE>
INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus and
the pages on which the definitions of such terms may be found.
Accounts....................................................................46
Actuarial Receivables.......................................................20
Advance.................................................................12, 47
adjusted issue price........................................................68
Amortization Period......................................................9, 49
APR.........................................................................20
Bronze......................................................................26
Canadian Securities.........................................................77
Cede........................................................................18
Cedel.......................................................................18
Cedel Participants..........................................................40
Certificate Account.........................................................18
Certificate Distribution Account............................................45
Certificate Factor..........................................................22
Certificate Majority........................................................39
Certificateholders.......................................................6, 18
Certificates.................................................................1
clearing agency.......................................................38
clearing corporation........................................................38
Code........................................................................60
Collection Account......................................................18, 45
Commission...................................................................3
Commodity Indexed Securities................................................37
Cooperative ................................................................40
Copper......................................................................26
cram-down...................................................................21
Currency Indexed Securities.................................................37
Dealer Agreement............................................................25
Dealers..................................................................8, 25
dealer reserve..............................................................26
Debt Certificateholders.....................................................70
Debt Certificates...........................................................70
Definitive Certificates.....................................................39
Definitive Notes............................................................39
Depositories................................................................38
Depository..................................................................31
disqualified person.........................................................74
disqualified persons........................................................73
Distribution Account....................................................... 10
Distribution Accounts...................................................... 45
Distribution Date.......................................................11, 31
DOL.........................................................................73
DTC.........................................................................18
due date....................................................................21
EDGAR....................................................................... 3
Eligible Deposit Account....................................................46
Eligible Institution........................................................46
Eligible Investments........................................................46
-82-
<PAGE>
Equity Interest.............................................................75
ERISA...................................................................14, 72
Euroclear...................................................................18
Euroclear Operator..........................................................40
Euroclear Participants......................................................40
Events of Default...........................................................34
Exchange Act.................................................................3
Excluded Plan...............................................................73
Exemption...................................................................73
Face Amount ................................................................38
FASIT...................................................................13, 60
FCC Corp.................................................................. 24
Federal Tax Counsel.........................................................12
Financed Vehicles............................................................8
first month ................................................................45
First-Time Buyer............................................................26
Foreign Person..............................................................66
Foreign Trust...........................................................66, 81
Franklin Bank................................................................1
Franklin Capital......................................................1, 8, 24
Franklin LLC................................................................23
Franklin Resources.......................................................5, 30
FTC Rule....................................................................59
Funding Period...............................................................8
Global Securities...........................................................78
Gold........................................................................26
Grantor Trust Certificateholders............................................67
Grantor Trust Certificates..................................................67
Indenture....................................................................2
Indenture Trustee............................................................2
Independent Director....................................................23, 24
Index.......................................................................37
Indexed Commodity...........................................................37
Indexed Currency............................................................37
Indexed Principal Amount....................................................37
Indexed Securities..........................................................37
indirect participants.......................................................38
Initial Cutoff Date..........................................................7
Initial Financed Vehicles....................................................7
Initial Receivables..........................................................7
Insolvency Laws.........................................................16, 58
Interest Rate................................................................7
Investment Earnings.........................................................46
IRS.........................................................................60
National Credit Rating Agencies.............................................74
Non-prime...............................................................15, 25
Note Distribution Account...................................................45
Note Factor ................................................................22
Note Majority...............................................................33
Noteholders .............................................................7, 18
Notes........................................................................1
Obligor.....................................................................10
Obligors....................................................................18
-83-
<PAGE>
OID.........................................................................61
OID regulations.............................................................61
Owner Trustee.............................................................1, 5
Participants................................................................38
parties in interest.........................................................73
party in interest...........................................................74
Pass-Through Rate............................................................6
Payahead Account........................................................18, 45
Payaheads...................................................................45
Payment Date................................................................32
Plan Assets Regulation......................................................73
Plans.......................................................................14
Plan(s).....................................................................73
Platinum....................................................................26
Pooling and Servicing Agreement..............................................1
Pre-1996 Programs...........................................................26
Preferred...................................................................26
Pre-Funded Amount............................................................8
Pre-Funding Account.......................................................5, 8
Precomputed Receivables.....................................................20
Premier.....................................................................26
prepayments ................................................................22
Prepayment Premium..........................................................48
Prime.......................................................................24
Prospectus Supplement........................................................1
PTCE........................................................................75
Purchase Agreement.......................................................8, 43
Purchase Amount.............................................................45
Rating Agencies.............................................................17
Rating Agency...........................................................14, 76
Receivables ..............................................................1, 8
Rees-Levering Act...........................................................57
Registration Statement.......................................................3
Related Documents...........................................................36
Restricted Group............................................................74
Retained Interest...........................................................10
Revolving Period.........................................................9, 48
Rule of 78's................................................................20
Rule of 78's Receivables....................................................20
Rules.......................................................................39
Sale and Servicing Agreement.................................................1
Schedule of Receivables.....................................................43
second month................................................................45
Section 1286 Treasury Regulations...........................................67
Securities...................................................................1
Securityholders.............................................................18
Seller....................................................................1, 5
Sellers...................................................................1, 5
Servicer.....................................................................1
Servicer Default............................................................51
Servicer Fee................................................................48
Servicer's Certificate......................................................41
Servicing Fee...............................................................47
-84-
<PAGE>
Servicing Fee Rate..........................................................47
Silver......................................................................26
Simple Interest Receivables.................................................20
Standard....................................................................26
Stock Index ................................................................37
Stock Indexed Securities....................................................37
Strip Certificates...........................................................6
Strip Notes .................................................................7
Stripped Bond...............................................................67
Subsequent Cut-Off Date......................................................8
Subsequent Financed Vehicles.................................................8
Subsequent Receivables.......................................................8
Subsequent Transfer Agreement...............................................44
Subsequent Transfer Assignment..............................................44
Sub-prime...............................................................15, 25
Subprime 1..................................................................26
Subprime 2..................................................................26
Supplemental Servicing Fee..................................................47
Terms and Conditions........................................................40
Trust.....................................................................1, 5
Trust Agreement..............................................................1
Trust Documents..........................................................1, 43
Trust Property...............................................................1
U.S. Person ................................................................81
UCC.........................................................................55
Underwriter ................................................................73
Underwriting Agreement......................................................76
-85-
<PAGE>
NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION, OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED THIS
PROSPECTUS, THE RELATED PROSPECTUS SUPPLEMENT OR THE DOCUMENTS INCORPORATED OR
DEEMED INCORPORATED BY REFERENCE HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SELLER OR ANY DEALER,
SALESMAN, OR ANY OTHER PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE
RELATED PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL
UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE INFORMATION HEREIN OR THEREIN SINCE THE DATE HEREOF. THIS PROSPECTUS AND THE
RELATED PROSPECTUS SUPPLEMENT ARE NOT AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITY IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION.
TABLE OF CONTENTS
PAGE
PROSPECTUS SUPPLEMENT
REPORTS TO SECURITYHOLDERS..................................................
AVAILABLE INFORMATION.......................................................
SUMMARY OF TERMS............................................................
RISK FACTORS................................................................
USE OF PROCEEDS.............................................................
THE TRUST...................................................................
THE TRUST PROPERTY..........................................................
THE RECEIVABLES.............................................................
[THE INSURER]...............................................................
[DESCRIPTION OF THE NOTES]..................................................
[DESCRIPTION OF THE CERTIFICATES]...........................................
WEIGHTED AVERAGE LIFE CONSIDERATIONS........................................
DESCRIPTION OF THE PURCHASE AGREEMENTS AND THE TRUST DOCUMENTS..............
[THE POLICIES]..............................................................
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.....................................
[STATE TAX CONSIDERATIONS]..................................................
ERISA CONSIDERATIONS........................................................
UNDERWRITING................................................................
[EXPERTS]...................................................................
LEGAL OPINIONS..............................................................
PROSPECTUS
AVAILABLE INFORMATION..................................................... 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 3
PROSPECTUS SUMMARY........................................................ 5
RISK FACTORS............................................................... 15
THE TRUSTS................................................................. 18
THE RECEIVABLES............................................................ 19
YIELD AND PREPAYMENT CONSIDERATIONS........................................ 21
CERTIFICATE AND NOTE FACTORS AND TRADING INFORMATION....................... 22
USE OF PROCEEDS............................................................ 23
<PAGE>
THE SELLERS................................................................ 23
FRANKLIN CAPITAL CORPORATION............................................... 24
FRANKLIN RESOURCES, INC.....................................................30
THE CERTIFICATES........................................................... 31
THE NOTES.................................................................. 32
CERTAIN INFORMATION REGARDING THE SECURITIES............................... 37
DESCRIPTION OF THE PURCHASE AGREEMENTS AND THE TRUST DOCUMENTS............ 43
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES................................... 55
FEDERAL INCOME TAX CONSEQUENCES............................................ 60
STATE AND LOCAL TAXATION................................................... 72
ERISA CONSIDERATIONS....................................................... 72
RATINGS................................................................... 76
PLAN OF DISTRIBUTION....................................................... 76
NOTICE TO CANADIAN RESIDENTS............................................... 77
LEGAL OPINIONS............................................................. 77
ANNEX I.................................................................... 78
INDEX OF TERMS............................................................. 82
<PAGE>
FRANKLIN AUTO TRUSTS
ASSET BACKED CERTIFICATES
ASSET BACKED NOTES
------
FRANKLIN RECEIVABLES LLC
SELLER
OR
FCC RECEIVABLES CORP.
SELLER
FRANKLIN CAPITAL CORPORATION
SERVICER
PROSPECTUS
UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT, ALL
DEALERS EFFECTING TRANSACTIONS IN THE RELATED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE REQUIRED TO DELIVER THIS
PROSPECTUS AND THE RELATED PROSPECTUS SUPPLEMENT. THIS DELIVERY REQUIREMENT IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The expenses expected to be incurred in connection with the issuance and
distribution of the securities being registered, other than underwriting
compensation, are as set forth below. All such expenses, except for the SEC
registration and filing fees, are estimated:
SEC Registration Fee............................................ $295.00
Legal Fees and Expenses......................................... $*
Accounting Fees and Expenses.................................... $*
Trustee's Fees and Expenses
(including counsel Fees)...................................... $*
Blue Sky Qualification Fees
and expenses.................................................. $*
Printing and Engraving Fees..................................... $*
Rating Agency Fees.............................................. $*
Miscellaneous................................................... $*
--------
Total........................................................... $295.00
- ------------------
* To be provided by amendment.
Item 15. Indemnification of Directors and Officers.
Franklin Receivables LLC
None.
FCC Receivables Corp.
Section 145 of the General corporation Law of Delaware empowers a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that the person is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise. Depending on the character of the proceeding, a corporation may
indemnify against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by the person in
connection with such action, suit or proceeding if the person indemnified acted
in good faith and in a manner the person reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe the person's
conduct was unlawful. If the person indemnified is not wholly successful in such
action, suit or proceeding, but is successful, on the merits or otherwise, in
one or more but less than all claims, issues or matters in such proceeding, such
person may be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by such person in connection with each successfully
resolved claim, issue or matter. In the case of an action or suit by or in the
right of the corporation, no indemnification may be made in respect to any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that despite the adjudication of liability but in the view of
all the circumstances of the case such person is fairly and reasonably entitled
to indemnity for such expenses which
II-1
<PAGE>
the court shall deem proper. Section 145 provides that to the extent a present
or former director or officer of a corporation has been successful in the
defense of any action, suit or proceeding referred to above or in the defense of
any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith.
The Certification of Incorporation, as amended, of the Co-Registrant
provides that no Director of the Co-Registrant shall be personally liable to the
Co-Registrant or its stockholders for monetary damages for breach of fiduciary
duty as a Director; provided, however, that this limitation of liability of a
Director shall not apply with respect to (i) any breach of the Director's duty
of loyalty to the Co-Registrant or its stockholders, (ii) acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) any liability arising under Section 174 of the General Corporation
Law of the State of Delaware or (iv) for any transaction from which the Director
derived an improper personal benefit. The Bylaws of the Co-Registrant require
that the Co-Registrant indemnify each of its Directors and officers, who serve
as a Director or officer of the Co-Registrant, or as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
enterprise or non-profit entity, including employee benefit plans, at the
request of the Co-Registrant, to the fullest extent permitted under and in
accordance with the laws of the State of Delaware in effect now or as it may be
hereinafter amended.
Reference is made to the form of Underwriting Agreement filed as Exhibit
1.1 hereto for provisions relating to the indemnification of directors, officers
and controlling persons against certain liabilities including liabilities under
the Securities Act of 1933, as amended.
Item 16. Exhibits:
1.1 Form of Underwriting Agreement*
3.1 Certificate of Formation of Franklin Receivables LLC, as
currently in effect*
3.2 Operating Agreement of Franklin Receivables LLC, as currently in
effect*
3.3 Certificate of Incorporation of FCC Receivables Corp., as
currently in effect*
3.4 Certificate of Amendment of FCC Receivables Corp., as currently
in effect*
3.5 Bylaws of FCC Receivables Corporation, as currently in effect*
4.1 Form of Trust Agreement, with form of Certificate attached
thereto, among Seller and Owner Trustee*
4.2 Form of Indenture, with form of Note attached thereto, among the
Trust and Indenture Trustee*
4.3 Form of Pooling and Servicing Agreement, among Seller, Servicer,
Franklin Capital and the Owner Trustee*
4.4 Form of Sale and Servicing Agreement, among Seller, Servicer,
Franklin Capital and the Trust*
4.5 Form of Purchase Agreement, among the Seller and Franklin
Capital*
5.1 Opinion of Weil, Gotshal & Manges LLP as to legality (including
consent of such firm)
8.1 Opinion of Weil, Gotshal & Manges LLP as to certain tax matters
(including consent of such firm)
II-2
<PAGE>
23.1 Consents of Weil, Gotshal & Manges LLP (included in Exhibits 5.1
and 8.1)
24.1 Power of Attorney (included on Signature Pages)
25.1(a) Statement of eligibility of Trustee*
- ----------------------------
* To be filed by amendment.
Item 17. Undertakings.
A. Undertaking Pursuant to Rule 415.
The Registrant and the Co-Registrant hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or
any material change of such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
B. Filing Incorporating Subsequent Exchange Act Documents By Reference.
The undersigned Registrant and Co-Registrant hereby undertake that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the Registrant's and Co-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 the time shall be deemed to be the initial bona fide offering thereof.
C. Undertaking in respect of indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant and the Co-Registrant, pursuant to the foregoing provisions, or
otherwise, the Registrant and the Co-Registrant have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant or the Co-Registrant of expenses incurred or
paid by a director, officer or controlling
II-3
<PAGE>
person of the Registrant or the Co-Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant and
the Co-Registrant, as the case may be, 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.
D. Undertaking in respect of the eligibility of the Trustee.
The undersigned Registrant and Co-Registrant hereby undertake to file an
application for the purpose of determining the eligibility of the trustee to act
under subsection (a) of Section 310 of the Trust Indenture Act in accordance
with the rules and regulations prescribed by the Commission under Section
305(b)(2) of the Trust Indenture Act.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the undersigned, Franklin Capital Corporation as a member of Franklin
Receivables LLC ("FRLLC"), hereby certifies on behalf of the FRLLC that it has
reasonable grounds to believe that FRLLC meets all of the requirements for
filing on Form S-3 and that FRLLC has duly caused this Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on the 15th day of June, 1998.
FRANKLIN RECEIVABLES LLC
By Franklin Capital Corporation,
its member
By:/s/ Jennifer J. Bolt
--------------------------------
Name: Jennifer J. Bolt
Title: President
POWER OF ATTORNEY
Each person whose signature appears below hereby severally constitutes and
appoints Leslie Kratter and Harmon E. Burns, severally and jointly, his true and
lawful attorney-in-fact, for him and in his name, place and stead, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement and to cause the same to be filed with the Securities and Exchange
Commission, hereby granting to said attorney-in-fact full power and authority to
do and perform each and every act and thing whatsoever requisite or desirable to
be done and about the premises as fully to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
acts and things that said attorney-in-fact may do or cause to be done by virtue
of these presents.
The Registrant reasonably believes that the security rating requirements
of the Securities will be met at the time of sale of the Securities.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Position Date
- --------- -------- ----
/s/ Harmon E. Burns Director of Franklin June 15, 1998
- --------------------------- Capital Corporation
Harmon E. Burns
/s/ Jennifer J. Bolt Director of Franklin June 15, 1998
- --------------------------- Capital Corporation
Jennifer J. Bolt
Director of Franklin June 15, 1998
- --------------------------- Capital Corporation
Charles B. Johnson
/s/ Rupert H. Johnson, Jr. Director of Franklin June 15, 1998
- --------------------------- Capital Corporation
Rupert H. Johnson, Jr.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the undersigned hereby certifies on behalf of FCC Receivables Corp. ("FCC
Corp.") that he has reasonable grounds to believe that FCC Corp. meets all of
the requirements for filing on Form S-3 and that FCC Corp. has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on the 15th day of
June, 1998.
FCC RECEIVABLES CORP.
By:/s/ Martin L. Flanagan
-----------------------------
Name: Martin L. Flanagan
Title: President
POWER OF ATTORNEY
Each person whose signature appears below hereby severally constitutes and
appoints Leslie Kratter and Harmon E. Burns, severally and jointly, his true and
lawful attorney-in-fact, for him and in his name, place and stead, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement and to cause the same to be filed with the Securities and Exchange
Commission, hereby granting to said attorney-in-fact full power and authority to
do and perform each and every act and thing whatsoever requisite or desirable to
be done and about the premises as fully to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
acts and things that said attorney-in-fact may do or cause to be done by virtue
of these presents.
The Co-Registrant reasonably believes that the security rating
requirements of the Securities will be met at the time of sale of the
Securities.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Position Date
- --------- -------- ----
/s/ Martin L. Flanagan President June 15, 1998
- --------------------------- (Principal Executive Officer)
Martin L. Flanagan
/s/ Charles R. Sims Principal Financial Officer June 15, 1998
- ---------------------------
Charles R. Sims
/s/ Kenneth A. Lewis Principal Accounting Officer June 15, 1998
- --------------------------- Controller
Kenneth A. Lewis
/s/ Harmon E. Burns Director June 15, 1998
- ---------------------------
Harmon E. Burns
Director June 15, 1998
- ---------------------------
Charles B. Johnson
/s/ Rupert H. Johnson, Jr. Director June 15, 1998
- ---------------------------
Rupert H. Johnson, Jr.
Director June 15, 1998
- ---------------------------
Merrill L. Magowan
/s/ George A. Poole, Jr. Director June 15, 1998
- ---------------------------
George A. Poole, Jr.
II-6
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
1.1 Form of Underwriting Agreement*
3.1 Certificate of Formation of Franklin Receivables LLC, as
currently in effect*
3.2 Operating Agreement of Franklin Receivables LLC, as
currently in effect*
3.3 Certificate of Incorporation of FCC Receivables Corp., as
currently in effect*
3.4 Certificate of Amendment of FCC Receivables Corp., as
currently in effect*
3.5 Bylaws of FCC Receivables Corporation, as currently in
effect*
4.1 Form of Trust Agreement, with form of Certificate attached
thereto, among Seller and Owner Trustee*
4.2 Form of Indenture, with form of Notes attached thereto,
among Trust and Indenture Trustee*
4.3 Form of Pooling and Servicing Agreement, among Seller,
Servicer, Franklin Capital and the Owner Trustee*
4.4 Form of Sale and Servicing Agreement, among Seller,
Servicer, Franklin Capital and the Trust*
4.5 Form of Purchase Agreement, among the Seller and Franklin
Capital*
5.1 Opinion of Weil, Gotshal & Manges LLP as to legality
(including consent of such firm)
8.1 Opinion of Weil, Gotshal & Manges LLP as to certain tax
matters (including consent of such firm)
23.1 Consents of Weil, Gotshal & Manges LLP (included in Exhibits
5.1 and 8.1)
24.1 Power of Attorney (included on Signature Pages)
25.1(a) Statement of eligibility of Trustee*
- ----------------------------
* To be filed by amendment.
II-7
EXHIBIT 5.1
WEIL, GOTSHAL & MANGES LLP
A LIMITED LIABILITY PARTNERSHIP
INCLUDING PROFESSIONAL CORPORATIONS
767 FIFTH AVENUE
NEW YORK, NY 10153
212-310-8000
(FAX) 212-310-8007
June 15, 1998
Franklin Receivables LLC
FCC Receivables Corp.
Registration Statement on Form S-3
Franklin Receivables LLC
47 West 200 South
Suite 500
Salt Lake City, UT 84101
FCC Receivables Corp.
47 West 200 South
Suite 500
Salt Lake City, UT 84101
We have acted as counsel to Franklin Receivables LLC, a Delaware
limited liability company and FCC Receivables Corp., a Delaware corporation
(together with Franklin Receivables LLC, the "Companies"), in connection with
the preparation and filing with the Securities and Exchange Commission of the
Companies' Registration Statement on Form S-3, (together with the exhibits and
any and all amendments thereto, the "Registration Statement"), under the
Securities Act of 1933, as amended (the "Securities Act"), relating to the
registration by the Companies of asset-backed notes and asset-backed
certificates (the "Asset-Backed Securities"). As described in the Registration
Statement, the Asset-Backed Securities will be issued in series (and may be
issued in classes within any given series), with each series being issued by a
trust (each, a "Trust") to be formed by the Companies pursuant to either a trust
agreement or a pooling and servicing agreement (each, a "Trust Agreement")
between the Companies and a trustee to be determined (each, a "Trustee").
In so acting, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of the Registration Statement, the
Trust Agreements, and such corporate and limited liability company records,
agreements, documents and other instruments, and such certificates or comparable
documents of public officials and of officers and representatives of the
Companies, and have made such inquiries of such officers and
<PAGE>
representatives, as we have deemed relevant and necessary as a basis for the
opinion hereinafter set forth.
In such examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to original documents of documents submitted to us as certified or
photostatic copies and the authenticity of the originals of such latter
documents. As to all questions of fact material to this opinion that have not
been independently established, we have relied upon certificates or comparable
documents of officers and representatives of the Companies. We have also assumed
that the Companies are duly organized and validly existing and have the
requisite corporate and limited liability company power and authority to
execute, deliver and perform their obligations under each Trust Agreement. The
opinion set forth below is also based on the assumptions that (i) the
Registration Statement, as finally amended (including any necessary
post-effective amendments), has become effective under the Securities Act, (ii)
the amount, price, interest rate and other principal terms of the Asset-Backed
Securities have been or will be duly approved by the Board of Directors (or the
authorized designees) of the Companies, (iii) the related Trust Agreements have
been duly authorized, executed and delivered by the parties thereto
substantially in the form filed as an exhibit to the Registration Statement, and
(iv) the Asset-Backed Securities have been duly executed by the Trustee and
authenticated by the Trustee in accordance with the Trust Agreement and sold and
delivered by the Companies against payment therefor.
Based on the foregoing, and subject to the qualifications stated
herein, we are of the opinion that the asset-backed certificates will be legally
issued, fully paid and nonassessable and any asset-backed notes will be the
binding obligation of the applicable Trust, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors rights and remedies generally, and subject to general
principles of equity, including principles of commercial reasonableness, good
faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).
The opinions herein are limited to the laws of the State of New York
and the federal laws of the United States, and we express no opinion as to the
effect on the matters covered by this opinion of the laws of any other
jurisdiction.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement. We further consent to the reference to our firm's name
under the caption "Legal Opinions" in the prospectuses and the forms of
prospectus supplements which are a part of the Registration Statement.
Very truly yours,
/s/ Weil, Gotshal & Manges LLP
EXHIBIT 8.1
WEIL, GOTSHAL & MANGES LLP
A LIMITED LIABILITY PARTNERSHIP
INCLUDING PROFESSIONAL CORPORATIONS
767 FIFTH AVENUE
NEW YORK, NY 10153
212-310-8000
(FAX) 212-310-8007
June 15, 1998
Franklin Receivables LLC
47 West 200 South, Suite 500
Salt Lake City, Utah 84101
FCC Receivables Corp.
47 West 200 South, Suite 500
Sale Lake City, Utah 84101
Re: FRANKLIN AUTO TRUSTS ASSET BACKED CERTIFICATES AND NOTES
--------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Franklin Receivables LLC, a Delaware
limited liability company, and FCC Receivables Corp., a Delaware corporation
(together with Franklin Receivables LLC, the "Companies"), in connection with
the preparation and filing with the Securities and Exchange Commission of the
Companies' Registration Statement on Form S-3 (together with the exhibits and
any and all amendments thereto, the "Registration Statement"), under the
Securities Act of 1933, as amended (the "Securities Act"), relating to the
registration by the Companies of Trust Certificates and Trust Notes
(collectively, the "Securities"). As described in the Registration Statement,
the Securities will be issued in series (and may be issued in classes within any
given series), with each series being issued by a trust (each, a "Trust") to be
formed by the Companies pursuant to either a Trust Agreement or a Pooling and
Servicing Agreement (each, a "Trust Agreement") between one of the Companies, a
trustee to be determined and such other parties to be determined.
In so acting, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of the Registration Statement,
including the Prospectus which is a part thereof (the "Prospectus"), a draft of
the Trust Agreement, and such corporate records, agreements, documents and other
instruments (the aforementioned documents together, the "Documents"), and have
made such inquiries of such officers and representatives of the Trust and such
other persons, as we have deemed relevant and necessary as a basis for the
opinion hereinafter set forth. In such examination, we have assumed the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified or photostatic
copies, the
<PAGE>
Franklin Receivables LLC
FCC Receivables Corp.
authenticity of the originals of such latter documents, the genuineness of all
signatures, and the correctness of all representations made therein. (The terms
of the Documents are incorporated herein by reference.) We have further assumed
that the final executed Documents will be substantially the same as those which
we have reviewed and that there are no agreements or understandings between or
among the parties to the Documents with respect to the transactions contemplated
therein other than those contained in the Documents.
Based on the foregoing, subject to the next succeeding paragraph,
and assuming full compliance with all the terms of the Documents, it is our
opinion that the statements contained in the Prospectus under the caption
"Federal Income Tax Consequences," insofar as such statements constitute matters
of law or legal conclusions and except to the extent qualified therein, are
correct in all material respects.
The foregoing opinion is based on current provisions of the Internal
Revenue Code of 1986, as amended, the Treasury Regulations promulgated
thereunder, published pronouncements of the Internal Revenue Service, and case
law, any of which may be changed at any time with retroactive effect. Further,
you should be aware that opinions of counsel are not binding on the Internal
Revenue Service or the courts. We express no opinion either as to any matters
not specifically covered by the foregoing opinion or as to the effect on the
matters covered by this opinion of the laws of any other jurisdictions.
Additionally, we undertake no obligation to update this opinion in the event
there is either a change in the legal authorities, in the facts, including the
taking of any action by any party to any of the transactions described in the
Documents pursuant to an opinion of counsel as required by any of the Documents
relating to such transactions, or in the Documents on which this opinion is
based, or an inaccuracy in any of the representations or warranties upon which
we have relied in rendering this opinion.
We consent to the references in the Prospectus under the caption
"Federal Income Tax Consequences" to our firm. This opinion may not be used for
any other purpose and may not otherwise be relied upon by, or disclosed, quoted
or referred to, any other person.
Very truly yours,
/s/ Weil, Gotshal & Manges LLP
