As filed with the Securities and Exchange Commission on August 11, 1998
Registration Nos. 333-56869
333-56869-01
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
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.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Title of Securities Amount being Proposed maximum Proposed maximum Amount of
being registered offering price per aggregate offering registration fee(2)(3)
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.
(2) Calculated in accordance with Rule 457(o) under the Securities Act of 1933.
(3) Previously paid.
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.
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<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.
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SUBJECT TO COMPLETION, DATED AUGUST 11, 1998
PROSPECTUS SUPPLEMENT
(To Prospectus dated ____________,__ 1998)
$[_________]
FRANKLIN AUTO TRUST 1998-[_]
Issuer
$[________] Class A-[_] [__%] [Floating Rate] [Callable] Asset Backed Notes
$[________] Class A - [__] [____%] [Floating Rate] Asset Backed Certificates
[Add other offered Classes of Securities]
The Franklin Auto Trust 199[8]-[ ] (the "Trust" or the "Issuer") 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-[__] [__]% 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-[__] [[__]%] [Floating Rate] [Callable] Asset Backed Notes (the "Class
A-[__] Notes," and together with the Class A-[__] Notes and the Class A-[__]
Notes, the "Notes") [specify others]. The Notes will be issued pursuant to an
Indenture, to be dated as of [ 199__] (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 A-[___] [ %] [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, [the Note Policy,] [the Certificate
Policy] and other specified property, as more fully described herein. [The Note
Policy] and [the Certificate Policy] will be issued by _______.] (Cover
continued on next page)
[The [Note Policy] and [Certificate Policy] are not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the
New York Insurance Law.]
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.
[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
S-2
<PAGE>
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.
FORWARD-LOOKING STATEMENTS
IF AND WHEN INCLUDED IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS OR IN DOCUMENTS INCORPORATED HEREIN OR THEREIN BY REFERENCE, THE
WORDS "EXPECTS," "INTENDS," "ANTICIPATES," "ESTIMATES" AND ANALOGOUS EXPRESSIONS
ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. ANY SUCH STATEMENTS, WHICH
MAY INCLUDE STATEMENTS CONTAINED IN "RISK FACTORS", ARE INHERENTLY SUBJECT TO A
VARIETY OF RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE PROJECTED. SUCH RISKS AND UNCERTAINTIES INCLUDE, AMONG
OTHERS, GENERAL ECONOMIC AND BUSINESS CONDITIONS, COMPETITION, CHANGES IN
POLITICAL, SOCIAL AND ECONOMIC CONDITIONS, REGULATORY INITIATIVES AND COMPLIANCE
WITH GOVERNMENTAL REGULATIONS, CUSTOMER PREFERENCES AND VARIOUS OTHER MATTERS,
MANY OF WHICH ARE BEYOND THE SELLER'S CONTROL. THESE FORWARD-LOOKING STATEMENTS
SPEAK ONLY AS OF THE DATE OF THIS PROSPECTUS SUPPLEMENT. THE SELLER EXPRESSLY
DISCLAIMS ANY OBLIGATIONS OR UNDERTAKING TO RELEASE PUBLICLY ANY UPDATES OR
REVISIONS TO ANY FORWARD-LOOKING STATEMENT CONTAINED HEREIN TO REFLECT ANY
CHANGE IN THE SELLER'S EXPECTATIONS WITH REGARD THERETO OR ANY CHANGE IN EVENTS,
CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS BASED.
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. See "The Trust" herein
and "The Trusts" in the Prospectus.
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" herein and "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...................... on or about [____________].
The Notes......................... The Trust will issue Class A-[_] [__%]
[Floating Rate] [__ Callable]
Asset-Backed Notes (the "Class A-[ ]
Notes") in the - aggregate original
principal amount of
$[_________________], Class A-[_] [__%]
[Floating Rate] [Callable] 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
S-5
<PAGE>
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 representing interest, principal
[and list others] 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, [the Collection Account]
[the Distribution Account] [the Spread
Account] [the Yield Supplement Account]
and [list others], all proceeds of the
foregoing, [the Certificate Policy,]
[the Note Policy] and certain rights
under the Trust Documents. [Specify
rights transferred to the Trust].
[Specify any other assets of the Trust].
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
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<PAGE>
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.]
[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."]
The Receivables transferred to the
Trust, will consist of Prime
Receivables, Non-Prime Receivables and
Sub-Prime Receivables. See "Description
of the Purchase Agreement and The Trust
Documents -- Eligibility Criteria" in
the Prospectus.
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
[Initial Cutoff Date] [Statistical
Calculation Date]. [The
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<PAGE>
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. The Seller
and the Servicer do not believe that the
statistical distribution of the final
characteristics of all Initial
Receivables transferred to the Trust on
the Closing Date will vary materially
from the statistical information
presented in this Prospectus Supplement.
The amount of Receivables identified
subsequent to the Statistical
Calculation Date and included in the
Trust as of the Initial Cutoff Date will
not exceed five percent of the aggregate
principal balance of the Initial
Receivables as of the Initial Cutoff
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
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<PAGE>
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.]
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.] [specify others] Each such
interest rate for a Class of Notes is
referred to as the "Interest Rate." As
used herein, the term "Class" refers to
either the Class A-[__] or Class A-[__]
Notes [others] or all such Classes
collectively, as the context requires.
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
S-9
<PAGE>
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. See
"Description of the Purchase Agreement
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. Distribution Priorities.... On each Distribution Date, for so long
as any Class of Notes remains
outstanding, and except as otherwise
described herein, the Noteholders'
Principal Distributable Amount (as
defined herein) for such date will be
distributed to the holders of the
respective Classes of Notes for the
following purposes and the following
order of priority:
First, to the Class A-[__] Notes, until
the principal balance of such Notes is
reduced to zero;
Second to the Class A-[__] Notes, until
the principal balance of such Notes is
reduced to zero;
S-10
<PAGE>
Third, to the Class A-[__] Notes, until
the principal balance of such Notes is
reduced to zero. [add others, if
applicable].
F. 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].
G. Mandatory Redemption........ [Each Class of Notes will be redeemed in
part on the Mandatory Redemption Date
(as defined under "Pre-Funding Account"
below) in the event that any portion of
the Pre-Funded Amount remains on deposit
in the Pre-Funding Account after giving
effect to the purchase of all Subsequent
Receivables, including any such purchase
on such date. The aggregate principal
amount of each Class of Notes to be
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
S-11
<PAGE>
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
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 Agreement 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
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<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 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 $[__________] [amount
not to exceed 25% of the aggregate
principal amount of the Securities (the
"Initial Pre-Funded Amount") will be
deposited in an account (the
"Pre-Funding Account") which will be
established with the Indenture
Collateral Agent. The Pre-Funding
Account will be an asset of the Trust
and will be pledged to the Indenture
Collateral Agent for the benefit of the
Indenture Trustee, on behalf of the
Noteholders, and the Insurer. The
"Funding Period" is the period from the
Closing Date until the earliest of the
date on which (i) the amount on deposit
in the Pre-Funding Account is less than
$[100,000], (ii) a Servicer Default
occurs under the Sale and Servicing
Agreement, or (iii) the Distribution
Date in [______, 199_]. [date not to
exceed 90 days from the date of issuance
of the Securities]. 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 Subsequent Receivables
purchased by the Trust with the
Pre-Funding Amount will be underwritten
under the same criteria and standards
utilized by Franklin Capital to
underwrite the Initial Receivables.
Amounts in the Pre- Funding Account may
be invested by the Owner Trustee or
Indenture Trustee, as applicable, in
Eligible Investments. 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
S-13
<PAGE>
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
Agreement 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 "Description of the
Purchase Agreement 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. [Specify how
amounts in the Spread Account under the
control of the Owner Trustee or
Indenture Trustee, as applicable, for
the benefit of the Securityholders will
be distributed.] Amounts on deposit or
to be deposited in the Spread Account
may be distributed to [specify who will
receive distributions from the Spread
Account, if other than the Insurer or
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
S-14
<PAGE>
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 Agreement and the Trust
Documents -- Distributions" herein.]
Collection Account................ The Servicer will establish one or more
accounts in the name of the Indenture
Collateral Agent (the "Collection
Account") for the benefit of the
Indenture Trustee, on behalf of the
Noteholders[, the Owner Trustee, on
behalf of the Certificateholders, and
the Insurer]. All payments from Obligors
that are received by the Servicer on
behalf of the Trust will be deposited in
the Collection Account no later than two
Business Days after receipt thereof
except under certain conditions
described herein. Pursuant to the Sale
and Servicing Agreement, the Indenture
Trustee will, on each Distribution Date,
apply the Distribution Amount with
respect to such Distribution Date to the
following (in the priority indicated):
(i) to the Owner Trustee and the
Indenture Trustee, any accrued and
unpaid trustee fees and expenses and any
accrued and unpaid fees and expenses of
the Indenture Collateral Agent (in each
case, to the extent such fees have not
been previously paid by the Servicer or
the 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
Agreement and the Trust
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<PAGE>
Documents -- Distributions" herein and
"Description of the Purchase Agreement
and the Trust Documents -- Collections"
in the Prospectus.
Tax Status........................ In the opinion of Weil, Gotshal & Manges
LLP, special 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 "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. 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.
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<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.
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<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]. [Specify any state, and the percentage of
the Initial Receivables for each such state, where a material portion of any
pool of Receivables was originated]. 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
of 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
S-18
<PAGE>
Certificates. Any reduction or withdrawal of a rating of the Insurer likely
would result in a reduction 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.
[Risk of Year 2000
Many of the world's computer systems currently record years in a two-digit
format. Such computer systems may be unable to recognize, interpret or use dates
beyond the year 1999 correctly. Because the activities of many businesses are
affected by dates or are date-related, the inability to use such date
information correctly could lead to business disruptions both in the United
States and internationally (the "Year 2000 Problem").
Franklin Capital's primary exposure, if any, to the Year 2000 Problem
would be with regards to the systems it utilizes to service its automobile
retail installment sales contracts. Loan servicing systems utilize date
calculations to, among other things: (i) determine interest accrued on loans,
(ii) properly allocate payments it received between interest and principal, and
(iii) determine payment due dates. Were the Year 2000 Problem to impact Franklin
Capital's servicing systems, problems could result due to, among other things,
the (a) misapplication of payments received, leading to disputes with borrowers
and (b) inability to properly determine delinquency status could hinder Franklin
Capital's ability to pursue delinquent borrowers. The occurrence of such
disruptions could negatively impact cash flow to the Trust and thereby affect
the likelihood of receipt of timely payments of interest and ultimate payments
of principal by investors in the [Notes] and [Certificates].
Franklin Capital uses a combination of internal and external systems to
carry out the servicing of its portfolio of loans. The internal system is
currently used for limited purposes only such that its functionality should not
be impacted by the Year 2000 Problem. The external system is provided by a
non-affiliated, third-party vendor. The third-party vendor has already completed
what it believes to be the necessary systems modifications required to make its
system Year 2000 compliant. The third-party vendor is currently in the testing
phase of its modifications, whereby the vendor in conjunction with several of
its clients is verifying that the modifications are indeed effective. The
third-party vendor currently expects this testing and the subsequent full
implementation to be completed by early 1999. Franklin Capital anticipates that
its testing will be completed shortly thereafter.
Franklin Capital also shares certain auxiliary systems with Franklin
Resources, such as accounting, e-mail, networks and telephone switches. Franklin
Resources has been working to address the Year 2000 Problem since 1996 and
presently anticipates having all of its mission critical systems compliant by
December 31, 1998. The Trust will not bear any of the costs and expenses
incurred by either Franklin Capital or Franklin Resources in preparing their
systems against the Year 2000 Problem.
Franklin Capital could also be impacted by the Year 2000 Problem through
its reliance on other third-party systems, such as externally managed data
lines, communications systems, telephone or electrical systems, among others. A
failure of such systems would materially and adversely affect Franklin Capital's
ability to carry
S-19
<PAGE>
on business in any regular fashion. Although Franklin Resources, on behalf of
Franklin Capital, is investigating potential contingency plans for such
circumstances, it is not clear that adequate contingency plans could be
developed for such failures. ]
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."
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
S-20
<PAGE>
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 representing interest, [and]
principal, [specify all others] 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]
[specify all other accounts]; (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 Agreement]; (h) the Receivables Files; [(i) the Certificate Policy];
[(j) the Note Policy]; and (k) certain other rights under the Trust Documents
(including, among others, the right of the Seller under the Purchase Agreement
to require Franklin Capital to repurchase a Receivable upon breach of certain
representations [specify others, if applicable,]. [specify any other material
rights]
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 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 may include a
small amount in respect of amounts owing from obligors 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. The Seller believes that the amount, if any, included in
the Original Pool Balance in respect of force-placed insurance is immaterial and
that the rebate of any unearned premiums would not result in a material
prepayment. As of the date hereof, it is no longer Franklin Capital's policy to
force-place insurance. Uninsured losses on the Financed Vehicles will be borne
by the Trust.] [Add Risk Factor disclosure, if premium rebates on such
Receivables would have a material effect on prepayments].
S-21
<PAGE>
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 Agreement 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 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)
S-22
<PAGE>
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 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.
S-23
<PAGE>
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
Percentage
Aggregate of Aggregate
Number of Principal Principal
State(1) Receivables Balance Balance(2)
-------- ----------- --------- ----------
[Arizona..............................
California............................
Kansas................................
Nevada................................
New Mexico............................
Oregon................................
Utah..................................
Washington............................
List other states]
Total.......................... [___] $[___] 100.0%
_________________________
(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
Percentage
Aggregate of Aggregate
Number of Principal Principal
Interest Allocated Method Receivables Balance Balance
------------------------- ----------- --------- ----------
Actuarial Receivables(1)............. [___] [___] [___]%
Rule of 78's Receivables(1)
Simple Interest Receivables.......... [___] [___] [___]%
Total......................... [___] $[___] 100.0%
______________________
(1) Precomputed Receivables.
S-24
<PAGE>
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-25
<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-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>
Franklin Capital's Receivables portfolio experienced an upward trend in losses
that peaked roughly at the end of 1996. During this period, Franklin Capital
significantly increased its origination volume. The rapid expansion brought with
it, among other things, greater occurrences of Dealer fraud and applicant fraud,
and a decreased ability of Franklin Capital to manage its rapid expansion. As a
result, Franklin Capital curtailed its expansion plans and proceeded to
reexamine its origination and servicing processes. Franklin Capital implemented
an extensive verification process to detect and thwart dealer and applicant
fraud as well as new underwriting guidelines. From the end of 1996 through the
present, Franklin Capital's Receivables portfolio experienced a reversal of the
upward trend of losses on receivables. Franklin Capital believes that the
improved loss and delinquency experience is attributable to a large degree to
its revised underwriting procedures adopted in early 1996.
[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. Losses due to
uninsured losses on the Financed Vehicles will be borne by the Trust. The
Property/Casualty Insurance Fund provides, with respect to motor vehicles which
are principally garaged in the
S-28
<PAGE>
State of New York, for the payment of insurance claims relating to such motor
vehicles that remain unpaid by reason of the inability, due to the insolvency,
of the insurer of the related motor vehicle to meet its insurance obligations
under the related motor vehicle insurance policies. Losses due to uninsured
losses on the Financed Vehicles will be borne by the Trust.
DESCRIPTION OF THE NOTES
General
The Notes will be issued pursuant to the terms of the Indenture, a form
of which has been filed as an exhibit to the Registration Statement. The
following summary describes certain terms of the Notes and the Indenture. The
summary does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Notes and the Indenture.
The following summary supplements, and to the extent inconsistent therewith
replaces, the description of the general terms and provisions of the Notes of
any given series and the related Indenture set forth in the accompanying
Prospectus, to which description reference is hereby made.
The Notes will be offered for purchase in denominations of $1,000 and
integral multiples thereof in book-entry form only. Persons acquiring beneficial
interests in the Notes will hold their interests through DTC in the United
States or Cedel or Euroclear in Europe. See "Certain Information Regarding the
Securities -- Book-Entry Registration" in the Prospectus and Annex I thereto.
Payments of Interest
Interest on the principal amount of each Class of Notes will accrue at
the applicable Interest Rate and will be payable to the Noteholders of such
Class monthly on each Distribution Date, commencing [_______, 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 Agreement 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
S-29
<PAGE>
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).
"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 Agreement 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.
S-30
<PAGE>
Distribution Priorities
On each Distribution Date, for so long as any Class of Notes remains
outstanding, and except as otherwise described herein, the Noteholders'
Principal Distributable Amount (as defined herein) for such date will be
distributed to the holders of the respective Classes of Notes for the following
purposes and the following order of priority: First, to the Class A-[__] Notes,
until the principal balance of such Notes is reduced to zero; Second to the
Class A-[__] Notes, until the principal balance of such Notes is reduced to
zero; Third, to the Class A-[__] Notes, until the principal balance of such
Notes is reduced to zero. [add others, if applicable].
[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], [Class A-[__] Notes] [list others], 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 Agreement 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"). To the extent that there are subsequent
recoveries on Receivables charged off prior to Termination of the Trust, such
recoveries will not be remitted to Securityholders.
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 Agreement 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
S-31
<PAGE>
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.
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 Agreement 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 Agreement and the Trust Documents -- Distributions" herein.
S-32
<PAGE>
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 Agreement 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 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
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<PAGE>
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.
Original Term Remaining Term
Aggregate APR Assumed Cutoff to Maturity to Maturity
Pool Principal Balance Date (in Months) (in Months)
---- ----------------- ---- ----------- -----------
1 $ % / /98
2 $ % / /98
3 $ % / /98
4 $ % / /98
___________
Total
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-34
<PAGE>
Percent of Initial Note Principal Balance or
Initial Certificate Balance at Various ABS Percentages
<TABLE>
<CAPTION>
Class A-[_] Notes Class A-[__] Notes
---------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Distribution Date [0.5% 1.0% 1.7% 2.5%] [ 0.5% 1.0% 1.7% 2.5%]
- ----------------- ----- ---- ---- ----- ----- ---- ---- -----
[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]................
</TABLE>
Weighted Average Life (years)(2)
- ----------------------
(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-35
<PAGE>
Percent of Initial Note Principal Balance or
Initial Certificate Balance at Various ABS Percentages
<TABLE>
<CAPTION>
Class A-[_] Notes Class A-[__] Notes
---------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Distribution Date [0.5% 1.0% 1.7% 2.5%] [ 0.5% 1.0% 1.7% 2.5%]
- ----------------- ----- ---- ---- ----- ----- ---- ---- -----
[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].................
</TABLE>
Weighted Average Life (years)(1)
- ----------------------
(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-36
<PAGE>
DESCRIPTION OF THE PURCHASE AGREEMENT 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 Agreement 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 Servicer Default (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
S-37
<PAGE>
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
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 Agreement 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 (a)(i) with respect to Prime Receivables,
one-twelfth of [__]% per annum (the "Prime Servicing Fee Rate") multiplied by
that portion of the Pool Balance allocable to Prime Receivables, (ii) with
respect to Non-Prime Receivables, one-twelfth of [___]% per annum (the
"Non-Prime Servicing Fee Rate") multiplied by that portion of the Pool Balance
allocable to Non-Prime Receivables, and (iii) with respect to Sub-Prime
Receivables, one-twelfth of [___]% per annum (the "Sub-Prime Servicing Fee
Rate", and collectively with the Prime Servicing Fee Rate and the Non-Prime
Servicing Fee Rate, the "Servicing Fee Rate") multiplied by that portion of the
Pool Balance allocable to Sub-Prime Receivables, in each case determined as of
the first day of such Monthly Period (the "Base Servicing Fee") and (b) 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
S-38
<PAGE>
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 Trust 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
Trust 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.
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
S-39
<PAGE>
Monthly Period or, if such Distribution Date is the Mandatory
Redemption Date, all remaining funds in the Pre-Funding Account.
To the extent that collections on a Precomputed Receivable in the
related Monthly Period exceed the scheduled payment and late fees or other fees,
if any, for such Monthly Period but are insufficient to prepay the Precomputed
Receivable in full, such collections will be treated as "Payaheads."
The scheduled payment with respect to a Precomputed Receivable is that
portion of the payment required to be made by the related Obligor during each
calendar month sufficient to amortize the principal balance thereof under the
actuarial method over the term of the Receivable and to provide interest at the
APR of such Receivable.
Distributions
On each Distribution Date, the Servicer is required to instruct the
Indenture Trustee to distribute the Distribution Amount in the following order
of priority:
1. To the Indenture Trustee and the Owner Trustee,
any accrued and unpaid trustees' fees and any
accrued and unpaid fees of the Indenture Collateral
Agent (in each case, to the extent such fees have
not been previously paid by the Servicer or 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.
S-40
<PAGE>
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.
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.
S-41
<PAGE>
"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.
"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.
S-42
<PAGE>
"Eligible Investments" means investments in (i) direct obligations of,
and obligations fully guaranteed as to timely payment by, the United States of
America; (ii) 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 the criteria of each of the Rating Agencies rating such
Securities; (iii) commercial paper having a minimum credit rating satisfying the
criteria of each of the Rating Agencies rating the Securities; (iv) investments
in money market funds having a minimum credit rating satisfying the criteria of
each of the Rating Agencies rating the Securities; (v) 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 (ii) above; and (vi)
other investments acceptable to the Rating Agencies rating Securities which are
consistent with the rating of the Securities.
"Insurer Optional Deposit" means, with respect to any Distribution
Date, an amount delivered by the Insurer, at its sole option, other than the
Policies for deposit into the Collection Account for any of the following
purposes: (i) to provide funds in respect of the payment of fees or expenses of
any provider of services to the Trust with respect to such Distribution Date; or
(ii) to include such amount as part of the Distribution Amount for such
Distribution Date to the extent that without such amount a draw would be
required to be made on a Policy.
["Liquidated Receivable" means, with respect to any Determination Date,
a Receivable as to which, as of the last day of the related Monthly Period, (i)
90 days have elapsed since the Servicer repossessed the Financed Vehicle, (ii)
the Servicer has determined in good faith that all amounts it expects to recover
have been received, (iii) 10% or more of a scheduled payment shall have become
150 or more days delinquent, or (iv) the Financed Vehicle has been sold and the
proceeds received.]
"Net Liquidation Proceeds" means, with respect to Liquidated
Receivables, (i) proceeds from the disposition of the underlying automobile
securing the Liquidated Receivables, less reasonable Servicer out-of-pocket
costs, including repossession and resale expenses not already deducted from such
proceeds, and any amounts required by law to be remitted to the Obligor, (ii)
any insurance proceeds, or (iii) other monies received from the Obligor or
otherwise.
"Noteholders' Distributable Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Principal Distributable Amount
and the Noteholders' Interest Distributable Amount.
"Noteholders' Interest Carryover Shortfall" means, with respect to any
Distribution Date and a Class of Notes, the excess of the Noteholders' Interest
Distributable Amount for such Class for the preceding Distribution Date, over
the amount in respect of interest that was actually deposited in the Note
Distribution Account with respect to such Class on such preceding Distribution
Date, plus interest on the amount of interest due but not paid to Noteholders of
such Class on the preceding Distribution Date, to the extent permitted by law,
at the Interest Rate borne by such Class of Notes from such preceding
Distribution Date to but excluding the current Distribution Date.
"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.
S-43
<PAGE>
"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
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
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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
(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.
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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. [Specify how
amounts in the Spread Account, if any, under the control of the Owner Trustee or
Indenture Trustee, as applicable, for the benefit of Securityholder will be
distributed.] 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 [specify who will receive distributions
from the Spread Account if not the Insurer, if applicable, or the
Securityholders], without the consent of the Securityholders.
Amounts held from time to time in the Spread Account will continue to
be held for the benefit of holders of the Securities and the Insurer. Funds in
the Spread Account will be invested in Eligible Investments. Investment income
(net of investment losses and expenses) on amounts in the Spread Account will
not be available for distribution to holders of Securities, and will only be
distributed to the Seller.
[In addition, the Seller, the Insurer and the Indenture Collateral
Agent may amend the Spread Account Agreement (and any provisions in the
Insurance Agreement relating to the Spread Account) in any respect (including,
without limitation, reducing or eliminating the Specified Spread Account
Requirement and/or reducing or eliminating the funding requirements of the
Spread Account or permitting such funds to be used for the benefit of persons
other than Securityholders) without the consent of, or notice to, the Indenture
Trustee, the Owner Trustee or the Securityholders. The Indenture Collateral
Agent shall not withhold or delay its consent with respect to any amendment that
does not adversely affect the Indenture Collateral Agent. Notwithstanding any
reduction in or elimination of the funding requirements of the Spread Account or
the depletion thereof, the Insurer will be obligated on each Distribution Date
to fund the full amount of each Guaranteed Note Distribution and each Guaranteed
Certificate Distribution otherwise required to be made on such Distribution
Date. If the Insurer breaches its obligations, any losses on the Receivables
will be borne by the Securityholders.]
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Servicer Default; Rights Upon Servicer Default
Notwithstanding anything to the contrary set forth under "Description
of the Purchase Agreement 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).]
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Waiver of Past Defaults
Notwithstanding anything to the contrary set forth under "Description
of the Purchase Agreement 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.
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"Guaranteed Note Distributions" means payments which are scheduled to
be made on the Notes during the term of the Note Policy in accordance with the
original terms of the Notes when issued and without regard to any subsequent
amendment or modification of the Notes that has not been consented to by the
Insurer, which payments are (i) the Noteholders' Interest Distributable Amount
and (ii) the Noteholders' Principal Distributable Amount; Guaranteed Note
Distributions do not include payments which become due on an accelerated basis
as a result of (a) a default by the Trust, (b) an election by the Trust to pay
principal on an accelerated basis, (c) the occurrence of an Event of Default
under the Indenture or (d) any other cause, unless the Insurer elects, in its
sole discretion, to pay in whole or in part such principal due upon
acceleration, together with any accrued interest to the date of acceleration. In
the event the Insurer does not so elect, the Note Policy will continue to
guarantee Guaranteed Note Distributions due on the Notes in accordance with
their original terms. Guaranteed Note Distributions shall not include (x) any
portion of a Noteholders' Interest Distributable Amount due to Noteholders
because the appropriate notice and certificate for payment in proper form was
not timely Received (as defined below) by the Insurer, (y) any portion of a
Noteholders' Interest Distributable Amount due to Noteholders representing
interest on any Noteholders' Interest Carryover Shortfall accrued from and
including the date of payment of the amount of such Noteholders' Interest
Carryover Shortfall pursuant to the Note Policy, or (z) any Note Prepayment
Amounts unless, in each case, the Insurer elects, in its sole discretion, to pay
such amount in whole or in part.
Payment of claims on the Note Policy made in respect of Guaranteed Note
Distributions will be made by the Insurer following Receipt by the Insurer of
the appropriate notice for payment on the later to occur of (i) 12:00 noon, New
York City time, on the third Business Day following Receipt of such notice for
payment, and (ii) 12:00 noon, New York City time, on the date on which such
payment was due on the Notes.
If payment of any amount avoided as a preference under applicable
bankruptcy, insolvency, receivership or similar law is required to be made under
the Note Policy, the Insurer shall cause such payment to be made no earlier than
the first to occur of (a) the [fourth] Business Day following Receipt by the
Insurer from the Indenture Trustee of (i) a certified copy of the order (the
"Order") of the court or other governmental body which exercised jurisdiction to
the effect that the Noteholder is required to return principal or interest paid
on the Notes during the term of the Note Policy because such payments were
avoidable as preference payments under applicable bankruptcy law, (ii) a
certificate of the Noteholder that the Order has been entered and is not subject
to any stay and (iii) an assignment duly executed and delivered by the
Noteholder, in such form as is reasonably required by the Insurer and provided
to the Noteholder by the Insurer, irrevocably assigning to the Insurer all
rights and claims of the Noteholder relating to or arising under the Notes
against the Trust or otherwise with respect to such preference payment, or (b)
the date of Receipt (as defined below) by the Insurer from the Indenture Trustee
of the items referred to in clauses (i), (ii) and (iii) above if, at least
[four] Business Days prior to such date of Receipt, the Insurer shall have
received written notice from the Indenture Trustee that such items were to be
delivered on such date and such date was specified in such notice. Such payment
shall be disbursed to the receiver, conservator, debtor-in-possession or trustee
in bankruptcy named in the Order and not to the Indenture Trustee or any
Noteholder directly (unless a Noteholder has previously paid such amount to the
receiver, conservator, debtor-in-possession or trustee in bankruptcy named in
the Order, in which case such payment shall be disbursed to the Indenture
Trustee for distribution to such Noteholder upon proof of such payment
reasonably satisfactory to the Insurer). In connection with the foregoing, the
Insurer shall have the rights provided in the Indenture.]
[Certificate Policy
Simultaneously with the issuance of the Certificates, the Insurer will
deliver the Certificate Policy to the Owner Trustee for the benefit of each
Certificateholder. Under the Certificate Policy, the Insurer will
unconditionally and irrevocably guarantee to the Owner Trustee for the benefit
of each Certificateholder the full and complete payment of (i) Guaranteed
Certificate Distributions (as defined below) with respect to the Certificates
and (ii) the amount of any Guaranteed Certificate Distribution which
subsequently is avoided in whole or in part as a preference payment under
applicable law. In the event that the Owner Trustee fails to make a claim under
the Certificate Policy, Certificateholders
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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 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
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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
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.]
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FEDERAL INCOME TAX CONSEQUENCES
PROSPECTIVE NOTEHOLDERS AND CERTIFICATEHOLDERS ARE ENCOURAGED 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. Each Noteholder, by the acceptance
of a Note, will agree to treat the Notes as debt.
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 the above conclusions. Moreover, no ruling will be sought from the IRS
with respect to the transaction described herein. All potential investors and
Certificateholders are encouraged to review "Federal Income Tax Consequences --
Trusts as Partnerships Or Divisions" in the Prospectus for a discussion of the
material 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
S-52
<PAGE>
transaction if the Trust, the Owner Trustee or the Indenture Trustee, the owner
of collateral, or any of their respective affiliates is or becomes a party in
interest or a disqualified person with respect to such Benefit Plan. In such
case, certain exemptions from the prohibited transaction rules could be
applicable depending on the type and circumstances of the plan fiduciary making
the decision to acquire a Note. Included among these exemptions are: Prohibited
Transaction Class Exemption ("PTCE") 90-1, regarding investments by insurance
company pooled separate accounts; PTCE 95-60, regarding investments by insurance
company general accounts; PTCE 91-38, regarding investments by bank collective
investment funds; PTCE 96-23, regarding transactions affected by in-house asset
managers; and PTCE 84-14, regarding transactions effected by "qualified
professional asset managers."
The Certificates may not be acquired by (a) an employee benefit plan
(as defined in Section 3(3) of ERISA) that is subject to the provisions of Title
I of ERISA, (b) a plan described in Section 4975(e)(1) of the Code or (c) any
entity whose underlying assets include plan assets by reason of a plan's
investment in the entity. By its acceptance of a Certificate, each
Certificateholder will be deemed to have represented and warranted that it is
not subject to the foregoing limitation. For additional information regarding
treatment of the Certificates under ERISA, see "ERISA Considerations" in the
accompanying Prospectus.
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements.
A plan fiduciary considering the purchase of Notes should consult its
tax and/or legal advisors regarding whether the assets of the Trust would be
considered plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
UNDERWRITING
Under the terms and subject to the conditions contained in the
Underwriting Agreement, the Seller has agreed to cause the Trust to sell to the
Underwriters named below (the "Underwriters"), for whom [______] 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
S-53
<PAGE>
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 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-54
<PAGE>
[ INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus
Supplement and the pages on which the definitions of such terms may be found.
ABS.............................................................................
ABS Table.......................................................................
aggregate risks.................................................................
Amount Financed.................................................................
APR.............................................................................
Available Funds.................................................................
Base Servicing Fee..............................................................
Benefit Plan....................................................................
Business Day....................................................................
Capitalized Interest Account....................................................
Cedel...........................................................................
Certificate Balance.............................................................
Certificate Distribution Account................................................
Certificate Policy..............................................................
Certificate Policy Claim Amount.................................................
Certificate Prepayment Amount...................................................
Certificateholders..............................................................
Certificateholders' Distributable Amount........................................
Certificateholders' Interest Carryover Shortfall................................
Certificateholders' Interest Distributable Amount...............................
Certificateholders' Monthly Interest Distributable Amount.......................
Certificateholders' Monthly Principal Distributable Amount......................
Certificateholders' Percentage..................................................
Certificateholders' Principal Carryover Shortfall...............................
Certificateholders' Principal Distributable Amount..............................
Certificates....................................................................
Certificate Policy..............................................................
Class...........................................................................
Class A-[__] Certificates.......................................................
Class A-[__] Notes..............................................................
Collected Funds.................................................................
Collection Account..............................................................
Commission......................................................................
Cram Down Loss..................................................................
Dealer Agreements...............................................................
Deficiency Claim Amount.........................................................
Deficiency Claim Date...........................................................
Deficiency Notice...............................................................
Detailed Description............................................................
Determination Date..............................................................
disqualified persons............................................................
Distribution Amount.............................................................
Distribution Date...............................................................
DTC.............................................................................
Eligible Investments............................................................
Equity Interest.................................................................
Euroclear.......................................................................
Events of Default...............................................................
Exchange Act....................................................................
S-55
<PAGE>
Financed Vehicles...............................................................
Franklin Capital................................................................
Franklin Resources..............................................................
Funding Period..................................................................
Guaranteed Certificate Distributions............................................
Guaranteed Note Distributions...................................................
Holdings........................................................................
Indenture.......................................................................
Indenture Collateral Agent......................................................
Indenture Trustee...............................................................
Index Maturity..................................................................
Initial Cutoff Date.............................................................
Initial Financed Vehicles.......................................................
Initial Pre-Funded Amount.......................................................
Initial Receivables.............................................................
Insurance Agreement.............................................................
Insurance Agreement Indenture Cross Defaults....................................
Insurer.........................................................................
Insurer Default.................................................................
Insurer Optional Deposit........................................................
Interest Period.................................................................
Interest Rate...................................................................
IRS.............................................................................
Issuer..........................................................................
LIBOR...........................................................................
LIBOR Determination Date........................................................
Liquidated Receivable...........................................................
Mandatory Redemption Date.......................................................
Monthly Capitalized Interest Amount.............................................
Monthly Period..................................................................
Moody's.........................................................................
Net Liquidation Proceeds........................................................
Non-Prime Receivables...........................................................
Non-Prime Servicing Fee Rate....................................................
Note Distribution Account.......................................................
Note Policy.....................................................................
Note Policy Claim Amount........................................................
Note Prepayment Amount..........................................................
Noteholder Monthly Interest Distributable Amount................................
Noteholders.....................................................................
Noteholders' Distributable Amount...............................................
Noteholders' Interest Carryover Shortfall.......................................
Noteholders' Interest Distributable Amount......................................
Noteholders' Monthly Principal Distributable Amount.............................
Noteholders' Percentage.........................................................
Noteholders' Principal Carryover Shortfall......................................
Noteholders' Principal Distributable Amount.....................................
Notes...........................................................................
Order...........................................................................
Original Pool Balance...........................................................
Owner Trustee...................................................................
parties in interest.............................................................
Payaheads.......................................................................
Payment Date....................................................................
Plan Assets Regulation..........................................................
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<PAGE>
Policies........................................................................
Pool Balance....................................................................
Pre-Funded Amount...............................................................
Pre-Funding Account.............................................................
Prime Receivabes................................................................
Prime Servicing Fee Rate........................................................
Principal Balance...............................................................
Principal Distributable Amount..................................................
Prospectus .....................................................................
PTCE............................................................................
Purchase Agreement..............................................................
Purchase Agreements.............................................................
Purchase Amount.................................................................
Rating Agencies.................................................................
Receipt.........................................................................
Receivables.....................................................................
Received........................................................................
Record Date.....................................................................
Redemption Price................................................................
Reference Banks.................................................................
S&P.............................................................................
Sale and Servicing Agreement....................................................
Securities......................................................................
Securityholders.................................................................
Seller..........................................................................
Servicer........................................................................
Servicer Default................................................................
Servicing Fee...................................................................
Servicing Fee Rate..............................................................
single risks....................................................................
Specified Spread Account Requirement............................................
Spread Account..................................................................
Spread Account Agreement........................................................
Spread Account Initial Deposit..................................................
Statistical Calculation Date....................................................
Sub-Prime Receivables ..........................................................
Sub-Prime Servicing Fee Rate ...................................................
Subsequent Cutoff Date..........................................................
Subsequent Financed Vehicles....................................................
Subsequent Purchase Agreement...................................................
Subsequent Receivables..........................................................
Subsequent Transfer Date........................................................
Supplemental Servicing Fee......................................................
Telerate Page 3750..............................................................
Trust...........................................................................
Trust Agreement.................................................................
Trust Documents.................................................................
Trust Property..................................................................
Underwriters...................................................................
Year 2000 Problem..............................................................]
S-57
<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, AUGUST 11, 1998
PROSPECTUS SUPPLEMENT
(To Prospectus dated , 1998)
$[_____________]
FRANKLIN AUTO TRUST 1998-[ ]
Issuer
$[ ] Class A-[ ] [ ]% [Floating Rate] [Callable] Asset Backed Notes
$ [________] Class A-[ ][____%] [Floating Rate] Asset Backed Certificates
----
[Add other offered Classes of Securities]
The Franklin Auto Trust 199[8]-[ ] (the "Trust" or the "Issuer") 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-[__] [__]% 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-[_] [__]% [Floating
Rate] [Callable] Asset Backed Notes (the "Class A-[_] Notes," and together with
the Class A-[_] Notes and the Class A-[_] Notes, the "Notes") [specify others].
The Notes will be issued pursuant to an Indenture, to be dated as of
[______________, 199___] (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 A-[__][ ]% [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 other specified 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 BID,
DURING AND AFTER THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING" HEREIN.]
S-2
<PAGE>
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.
FORWARD-LOOKING STATEMENTS
IF AND WHEN INCLUDED IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS OR IN DOCUMENTS INCORPORATED HEREIN OR THEREIN BY REFERENCE, THE
WORDS "EXPECTS," "INTENDS," "ANTICIPATES," "ESTIMATES" AND ANALOGOUS EXPRESSIONS
ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. ANY SUCH STATEMENTS, WHICH
MAY INCLUDE STATEMENTS CONTAINED IN "RISK FACTORS", ARE INHERENTLY SUBJECT TO A
VARIETY OF RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE PROJECTED. SUCH RISKS AND UNCERTAINTIES INCLUDE, AMONG
OTHERS, GENERAL ECONOMIC AND BUSINESS CONDITIONS, COMPETITION, CHANGES IN
POLITICAL, SOCIAL AND ECONOMIC CONDITIONS, REGULATORY INITIATIVES AND COMPLIANCE
WITH GOVERNMENTAL REGULATIONS, CUSTOMER PREFERENCES AND VARIOUS OTHER MATTERS,
MANY OF WHICH ARE BEYOND THE SELLER'S CONTROL. THESE FORWARD-LOOKING STATEMENTS
SPEAK ONLY AS OF THE DATE OF THIS PROSPECTUS SUPPLEMENT. THE SELLER EXPRESSLY
DISCLAIMS ANY OBLIGATIONS OR UNDERTAKING TO RELEASE PUBLICLY ANY UPDATES OR
REVISIONS TO ANY FORWARD-LOOKING STATEMENT CONTAINED HEREIN TO REFLECT ANY
CHANGE IN THE SELLER'S EXPECTATIONS WITH REGARD THERETO OR ANY CHANGE IN EVENTS,
CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS BASED.
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. See "The Trust" herein and "The
Trusts" in the Prospectus.
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 Trust - The Owner Trustee" herein
and "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...................... or on about [__________].
The Notes......................... The Trust will issue Class A-[ ] [_______]%
[Floating Rate] [Callable] Asset Backed
Notes (the "Class A-[ ] Notes") in the
aggregate original principal amount of
$[______], Class A-[ ] [__%] [Floating Rate]
[Callable] 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
S-5
<PAGE>
"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) 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 representing
interest, principal [and list others]
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, [the Collection Account] [the
Distribution Account] [the Spread Account]
[the Yield Supplement Account] and [list
others], all proceeds of the foregoing, and
certain rights under the Trust Documents.
[Specify rights transferred to the Trust].
[Specify any other assets of the Trust]. 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
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<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."] The Receivables
transferred to the Trust, will consist of
Prime Receivables, Non-Prime Receivables and
Sub-Prime Receivables. See "Description of
the Purchase Agreement and the trust
Documents -- Eligibility Criteria" in the
Prospectus.
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 [Initial
Cutoff Date] [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
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<PAGE>
Statistical Calculation Date but on or prior
to the Closing Date. The Seller and the
Servicer do not believe that the statistical
distribution of the final characteristics of
all Initial Receivables transferred to the
Trust on the Closing Date will vary
materially from the statistical information
presented in this Prospectus Supplement. The
amount of Receivables indentified subsequent
to the Statistical Calculation Date and
included in the Trust as of the Initial
Cutoff Date will not exceed five percent of
the aggregate principal balance of the
Initial Receivables as of the Initial Cutoff
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
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<PAGE>
Subsequent Receivables must satisfy certain
eligibility criteria specified herein and in
the Sale and Servicing Agreement. See "The
Receivables -- Eligibility Criteria"
herein.]
Terms of the Notes................ The principal terms of the Notes will be as
described below:
A. Distribution Dates.......... Payments of interest and principal on the
Notes will be made on the [_____________]
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. [specify others]
Each such interest rate for a Class of Notes
is referred to as the "Interest Rate." As
used herein, the term "Class" refers to
either the Class A-[ ] or Class A-[ ] Notes
[others] or all such Classes collectively,
as the context requires.
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
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<PAGE>
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. See
"Description of the Purchase Agreement 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. Subordination.............. Credit enhancement for each Class of Notes
will be provided by those Classes of Notes
that are subordinate to such Notes with
respect to (a) rights to receive
distributions of interest and principal, to
the extent described herein and (b) the
allocation of losses on the Receivables and
certain other losses, to the extent
described herein.
On each Distribution Date, for so long as
any Class of Notes remains outstanding, and
except as otherwise described herein, the
Noteholders' Principal Distributable Amount
(as defined herein) for such date will be
distributed to the holders of the respective
Classes of Notes for the following purposes
and the following order of priority:
First, to the Class A-[__] Notes, until the
principal balance of such Notes is reduced
to zero;
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<PAGE>
Second to the Class A-[__] Notes, until the
principal balance of such Notes is reduced
to zero;
Third, to the Class A-[__] Notes, until the
principal balance of such Notes is reduced
to zero. [add others, if applicable].
F. 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].
G. Mandatory Redemption........ [Each Class of Notes will be redeemed in
part on the Mandatory Redemption Date (as
defined under "Pre-Funding Account" below)
in the event that any portion of the
Pre-Funded Amount remains on deposit in the
Pre-Funding Account after giving effect to
the purchase of all Subsequent Receivables,
including any such purchase on such date.
The aggregate principal amount of each Class
of Notes to be 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
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<PAGE>
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
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
Agreement 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").]
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<PAGE>
[Pre-Funding Account.............. On the Closing Date, a cash amount equal to
approximately $[______________] [amount not
to exceed 25% of the aggregate principal
amount of the Securities] (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__]. [date not to exceed 90 days from the
date of issuance of the Securities.] 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
Subsequent Receivables purchased by the
Trust with the Pre-Funding Amount will be
underwritten under the same criteria and
standards utilized by Franklin Capital to
underwrite the Initial Receivables. Amounts
in the Pre- Funding Account may be invested
by the Owner Trustee or Indenture Trustee,
as applicable, in Eligible Investments. 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. 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.
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<PAGE>
See "Description of the Purchase Agreement
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 Agreement 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 Date will be released to
the Seller. [Specify how amounts in the
Spread Account under the control of the
Owner Trustee or Indenture Trustee, as
applicable, for the benefit of the
Securityholders will be distributed.]
Amounts on deposit or to be deposited in the
Spread Account may be distributed to
[specify who will receive distributions from
the Spread Account, if 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
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<PAGE>
[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
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
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<PAGE>
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 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,
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<PAGE>
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 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 Agreement
and the Trust Documents -- Distributions"
herein and "Description of the Purchase
Agreement and the Trust Documents --
Collections" in the Prospectus.
Tax Status........................ In the opinion of Weil, Gotshal & Manges
LLP, special 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
S-17
<PAGE>
tax purposes. See "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.
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<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-19
<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] [Specify any state, and the percentage of the
Initial Receivables for each such state, where a material portion of any pool of
Receivables was originated]. 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
of other significant geographic and other factors] See "The Receivables" herein
and in the Prospectus.
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<PAGE>
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 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]
[Risk of Year 2000
Many of the world's computer systems currently record years in a two-digit
format. Such computer systems may be unable to recognize, interpret or use dates
beyond the year 1999 correctly. Because the activities of many businesses are
affected by dates or are date-related, the inability to use such date
information correctly could lead to business disruptions both in the United
States and internationally (the "Year 2000 Problem").
Franklin Capital's primary exposure, if any, to the Year 2000 Problem
would be with regards to the systems it utilizes to service its automobile
retail installment sales contracts. Loan servicing systems utilize date
calculations to, among other things: (i) determine interest accrued on loans,
(ii) properly allocate payments it received between interest and principal, and
(iii) determine payment due dates. Were the Year 2000 Problem to impact Franklin
Capital's servicing systems, problems could result due to, among other things,
the (a) misapplication of payments received, leading to disputes with borrowers
and (b) inability to properly determine delinquency status could hinder Franklin
Capital's ability to pursue delinquent borrowers. The occurrence of such
disruptions could negatively impact cash flow to the Trust and thereby affect
the likelihood of receipt of timely payments of interest and ultimate payments
of principal by investors in the [Notes] and [Certificates].
S-21
<PAGE>
Franklin Capital uses a combination of internal and external systems to
carry out the servicing of its portfolio of loans. The internal system is
currently used for limited purposes only such that its functionality should not
be impacted by the Year 2000 Problem. The external system is provided by a
non-affiliated, third-party vendor. The third-party vendor has already completed
what it believes to be the necessary systems modifications required to make its
system Year 2000 compliant. The third-party vendor is currently in the testing
phase of its modifications, whereby the vendor in conjunction with several of
its clients is verifying that the modifications are indeed effective. The
third-party vendor currently expects this testing and the subsequent full
implementation to be completed by early 1999. Franklin Capital anticipates that
its testing will be completed shortly thereafter.
Franklin Capital also shares certain auxiliary systems with Franklin
Resources, such as accounting, e-mail, networks and telephone switches. Franklin
Resources has been working to address the Year 2000 Problem since 1996 and
presently anticipates having all of its mission critical systems compliant by
December 31, 1998. The Trust will not bear any of the costs and expenses
incurred by either Franklin Capital or Franklin Resources in preparing their
systems against the Year 2000 Problem.
Franklin Capital could also be impacted by the Year 2000 Problem through
its reliance on other third-party systems, such as externally managed data
lines, communications systems, telephone or electrical systems, among others. A
failure of such systems would materially and adversely affect Franklin Capital's
ability to carry on business in any regular fashion. Although Franklin
Resources, on behalf of Franklin Capital, is investigating potential contingency
plans for such circumstances, it is not clear that adequate contingency plans
could be developed for such failures. ]
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.]
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<PAGE>
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 representing interest, [and]
principal, [specify all others] 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]
[specify all other accounts]; (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 Agreement]; (h) the Receivables Files; and (i) certain other rights
under the Trust Document (including, among others, the right of the Seller under
the Purchase Agreement to require Franklin Capital to repurchase a Receivable
upon breach of certain representations [specify others, if applicable,].
[specify any other material rights]
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.
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<PAGE>
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 may include a
small amount in respect of amounts owing from obligors 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. The Seller believes that the amount, if any, included in
the Original Pool Balance in respect of force-placed insurance is immaterial and
that the rebate of any unearned premiums would not result in a material
prepayment. As of the date hereof, it is no longer Franklin Capital's policy to
force-place insurance. Uninsured losses on the Financed Vehicles will be borne
by the Trust.] [Add Risk Factor disclosure, if premium rebates on such
Receivables would have a material effect on prepayments].
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
Agreement 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 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.]
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<PAGE>
[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.]
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
S-25
<PAGE>
"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.
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-26
<PAGE>
(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-27
<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-28
<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-29
<PAGE>
Franklin Capital's Receivables portfolio experienced an upward trend in losses
that peaked roughly at the end of 1996. During this period, Franklin Capital
significantly increased its origination volume. The rapid expansion brought with
it, among other things, greater occurrences of Dealer fraud and applicant fraud,
and a decreased ability of Franklin Capital to manage its rapid expansion. As a
result, Franklin Capital curtailed its expansion plans and proceeded to
reexamine its origination and servicing processes. Franklin Capital implemented
an extensive verification process to detect and thwart dealer and applicant
fraud as well as new underwriting guidelines. From the end of 1996 through the
present, Franklin Capital's Receivables portfolio experienced a reversal of the
upward trend of losses on receivables. Franklin Capital believes that the
improved loss and delinquency experience is attributable to a large degree to
its revised underwriting procedures adopted in early 1996.
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 Agreement 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.
S-30
<PAGE>
"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).
"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 Agreement 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
S-31
<PAGE>
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.
Subordination
Credit enhancement for each Class of Notes will be provided by those
Classes of Notes that are subordinate to such Notes with respect to (a) rights
to receive distributions of interest and principal, to the extent described
herein and (b) the allocation of losses on the Receivables and certain other
losses, to the extent described herein.
On each Distribution Date, for so long as any Class of Notes remains
outstanding, and except as otherwise described herein, the Noteholders'
Principal Distributable Amount (as defined herein) for such date will be
distributed to the holders of the respective Classes of Notes for the following
purposes and the following order of priority: First, to the Class A-[__] Notes,
until the principal balance of such Notes is reduced to zero; Second to the
Class A-[__] Notes, until the principal balance of such Notes is reduced to
zero; Third, to the Class A-[__] Notes, until the principal balance of such
Notes is reduced to zero. [add others, if applicable].
[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], [Class A - [__] Notes] [list others], 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 Agreement 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"). To the extent that there are subsequent
recoveries on Receivables charged off prior to Termination of the Trust, such
recoveries will not be remitted to Securityholders.
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 Agreement 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 [__].
S-32
<PAGE>
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to the terms of the Trust
Agreement, a form of which has been filed as an exhibit to the Registration
Statement. The following summary describes certain terms of the Certificates and
the Trust Agreement. The summary does not purport to be complete and is subject
to, and qualified in its entirety by reference to, all the provisions of the
Certificates and the Trust Agreement. The following summary supplements, and to
the extent inconsistent therewith replaces, the description of the general terms
and provisions of the Certificates of any given series and the related Trust
Agreement set forth in the Prospectus, to which description reference is hereby
made.
The Certificates will be offered for purchase in denominations of $[1,000]
and integral multiples thereof in book-entry form only. Persons acquiring
beneficial interests in the Certificates will hold their interest through DTC.
See "Certain Information Regarding the Securities -- Book-Entry Registration" in
the Prospectus.
Distributions of Interest
Interest on the Certificate Balance immediately prior to a Distribution
Date will accrue at the Certificate Rate for the related Interest Period, and
will be distributable to Certificateholders of record on each Distribution Date,
commencing [_______, 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 Agreement 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 Agreement 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
S-33
<PAGE>
will effect early retirement of the Certificates. See "Description of the
Purchase Agreement 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 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
S-34
<PAGE>
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-35
<PAGE>
PERCENT OF INITIAL NOTE PRINCIPAL BALANCE OR
INITIAL CERTIFICATE BALANCE AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
Class A-[_] Notes Class A-[_] 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]..........................
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-36
<PAGE>
PERCENT OF INITIAL NOTE PRINCIPAL BALANCE OR
INITIAL CERTIFICATE BALANCE AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
Class A-[_] Notes Class A-[_] 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-37
<PAGE>
DESCRIPTION OF THE PURCHASE AGREEMENT 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 Agreement 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 Servicer Termination Default 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-38
<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
Agreement 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 (a)(i) with respect to Prime Receivables,
one-twelfth of [__]% per annum (the "Prime Servicing Fee Rate") multiplied by
that portion of the Pool Balance allocable to Prime Receivables, (ii) with
respect to Non-Prime Receivables, one-twelfth of [___]% per annum (the
"Non-Prime Servicing Fee Rate") multiplied by that portion of the Pool Balance
allocable to Non-Prime Receivables, and (iii) with respect to Sub-Prime
Receivables, one-twelfth of [___]% per annum (the "Sub-Prime Servicing Fee
Rate", and collectively with the Prime Servicing Fee Rate and the Non-Prime
Servicing Fee Rate, the "Servicing Fee Rate") multiplied by that portion of the
Pool Balance allocable to Sub-Prime Receivables, in each case determined as of
the first day of such Monthly Period (the "Base Servicing Fee") and (b) 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 Trust 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
Trust 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-39
<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-40
<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 be deposited in the Spread Account [or the Class [B] Spread
Account] [until the initial Distribution Date] [on the Closing Date].]
S-41
<PAGE>
[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-42
<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;]
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(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.
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"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
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(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.]
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["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.
"Eligible Investments" means investments in (i) direct obligations of,
and obligations fully guaranteed as to timely payment by, the United States of
America; (ii) 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 the criteria of each of the Rating Agencies rating such
Securities; (iii) commercial paper having a minimum credit rating satisfying the
criteria of each of the Rating Agencies rating the Securities; (iv) investments
in money market funds having a minimum credit rating satisfying the criteria of
each of the Rating Agencies rating the Securities; (v) 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 (ii) above; and (vi)
other investments acceptable to the Rating Agencies rating Securities which are
consistent with the rating of the Securities.
["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.
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<PAGE>
"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.
"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,
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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.
"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
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(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 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. [Specify how amounts in the Spread
Account, if any, under the control of the Owner Trustee or Indenture Trustee, as
applicable, for the benefit of Securityholder will be distributed.] 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 [specify who will receive distributions from the Spread Account
if not the Securityholder,] 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.]
S-50
<PAGE>
Servicer Default; Rights Upon Servicer Default
Notwithstanding anything to the contrary set forth under "Description
of the Purchase Agreement 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 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 Agreement 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
S-51
<PAGE>
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.
FEDERAL INCOME TAX CONSEQUENCES
PROSPECTIVE NOTEHOLDERS AND CERTIFICATEHOLDERS ARE ENCOURAGED 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. Each Noteholder, by the acceptance
of a Note, will agree to treat the Notes as debt.
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 the above conclusions. Moreover, no ruling will be sought from the IRS
with respect to the transaction described herein. All potential investors and
Certificateholders are encouraged to review "Federal Income Tax Consequences --
Trusts Treated As Partnerships Or Divisions" in the Prospectus for a discussion
of the material 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
S-52
<PAGE>
requires that fiduciaries of a Benefit Plan subject to ERISA make investments
that are prudent, diversified (except if prudent not to do so) and in accordance
with governing plan documents.
Certain transactions involving the purchase, holding or transfer of the
Securities might be deemed to constitute prohibited transactions under ERISA and
the Code if assets of the Trust were deemed to be assets of a Benefit Plan.
Under a regulation issued by the United States Department of Labor (the "Plan
Assets Regulation"), the assets of the Trust would be treated as plan assets of
a Benefit Plan for the purposes of ERISA and the Code only if the Benefit Plan
acquires an "Equity Interest" in the Trust and none of the exceptions contained
in the Plan Assets Regulation is applicable. An Equity Interest is defined under
the Plan Assets Regulation as an interest other than an instrument which is
treated as indebtedness under applicable local law and which has no substantial
equity features. The Seller believes that the Notes should be treated as
indebtedness without substantial equity features for purposes of the Plan Assets
Regulation. However, without regard to whether the Notes are treated as an
Equity Interest for such purposes, the acquisition or holding of Notes by or on
behalf of a Benefit Plan could be considered to give rise to a prohibited
transaction if the Trust, the Owner Trustee or the Indenture Trustee, the owner
of collateral, or any of their respective affiliates is or becomes a party in
interest or a disqualified person with respect to such Benefit Plan. In such
case, certain exemptions from the prohibited transaction rules could be
applicable depending on the type and circumstances of the plan fiduciary making
the decision to acquire a Note. Included among these exemptions are: Prohibited
Transaction Class Exemption ("PTCE") 90-1, regarding investments by insurance
company pooled separate accounts; PTCE 95-60, regarding investments by insurance
company general accounts; PTCE 91-38, regarding investments by bank collective
investment funds; PTCE 96-23, regarding transactions affected by in-house asset
managers; and PTCE 84-14, regarding transactions effected by "qualified
professional asset managers."
The Certificates may not be acquired by (a) an employee benefit plan
(as defined in Section 3(3) of ERISA) that is subject to the provisions of Title
I of ERISA, (b) a plan described in Section 4975(e)(1) of the Code or (c) any
entity whose underlying assets include plan assets by reason of a plan's
investment in the entity. By its acceptance of a Certificate, each
Certificateholder will be deemed to have represented and warranted that it is
not subject to the foregoing limitation. For additional information regarding
treatment of the Certificates under ERISA, see "ERISA Considerations" in the
accompanying Prospectus.
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements.
A plan fiduciary considering the purchase of Notes should consult its
tax and/or legal advisors regarding whether the assets of the Trust would be
considered plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
UNDERWRITING
Under the terms and subject to the conditions contained in the
Underwriting Agreement, the Seller has agreed to cause the Trust to sell to the
Underwriters named below (the "Underwriters"), for whom [______] 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
----------- -------- ---------------
S-53
<PAGE>
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.
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 & Manges 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-54
<PAGE>
[ INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus
Supplement and the pages on which the definitions of such terms may be found.
ABS...........................................................................
ABS Table.....................................................................
Amount Financed...............................................................
APR...........................................................................
Available Funds...............................................................
Base Servicing Fee............................................................
Benefit Plan..................................................................
Business Day..................................................................
Capitalized Interest Account..................................................
Cedel.........................................................................
Certificate Balance...........................................................
Certificate Distribution Account..............................................
Certificate Prepayment Amount.................................................
Certificateholders............................................................
Certificateholders' Distributable Amount......................................
Certificateholders' Interest Carryover Shortfall..............................
Certificateholders' Interest Distributable Amount.............................
Certificateholders' Monthly Interest Distributable Amount.....................
Certificateholders' Monthly Principal Distributable Amount....................
Certificateholders' Percentage................................................
Certificateholders' Principal Carryover Shortfall.............................
Certificateholders' Principal Distributable Amount............................
Certificates..................................................................
Class.........................................................................
Class [A] Certificate Balance.................................................
Class A-[ ] Certificates.....................................................
Class [A] Distributable Amount................................................
Class [A] Interest Carryover Shortfall........................................
Class [A] Interest Distributable Amount.......................................
Class A-[__] Notes............................................................
Class [A] Principal Carryover Shortfall.......................................
Class [A] Principal Distributable Amount......................................
Class [B] Certificate Balance.................................................
Class [B] Distributable Amount................................................
Class [B] Interest Carryover Shortfall........................................
Class [B] Interest Distributable Amount.......................................
Class [B] Principal Carryover Shortfall.......................................
Class [B] Principal Distributable Amount......................................
Class [C] Distributions.......................................................
Class [C] Distributable Amount................................................
Class [C] Interest Distributable Amount.......................................
Class [C] Principal Carryover Shortfall.......................................
Class [C] Principal Distributable Amount......................................
Collected Funds...............................................................
Collection Account............................................................
Commission....................................................................
Cram Down Loss................................................................
S-55
<PAGE>
Dealer Agreements.............................................................
Deficiency Claim Amount.......................................................
Deficiency Claim Date.........................................................
Deficiency Notice.............................................................
Detailed Description..........................................................
Determination Date............................................................
disqualified persons..........................................................
Distribution Amount...........................................................
Distribution Date.............................................................
DTC...........................................................................
Eligible Investments..........................................................
Equity Interest...............................................................
Euroclear.....................................................................
Events of Default.............................................................
Exchange Act..................................................................
Financed Vehicles.............................................................
Franklin Capital..............................................................
Franklin Resources............................................................
Funding Period................................................................
Indenture.....................................................................
Indenture Collateral Agent....................................................
Indenture Trustee.............................................................
Index Maturity................................................................
Initial Cutoff Date...........................................................
Initial Financed Vehicles.....................................................
Initial Pre-Funded Amount.....................................................
Initial Receivables...........................................................
Interest Period...............................................................
Interest Rate.................................................................
IRS...........................................................................
Issuer........................................................................
LIBOR.........................................................................
LIBOR Determination Date......................................................
Liquidated Receivable.........................................................
Mandatory Redemption Date.....................................................
Monthly Capitalized Interest Amount...........................................
Monthly Period................................................................
Moody's.......................................................................
Net Liquidation Proceeds......................................................
Non-Prime Receivables.........................................................
Non-Prime Servicing Fee Rate..................................................
Note Distribution Account.....................................................
Note Prepayment Amount........................................................
Noteholder Monthly Interest Distributable Amount..............................
Noteholders...................................................................
Noteholders' Distributable Amount.............................................
Noteholders' Interest Carryover Shortfall.....................................
Noteholders' Interest Distributable Amount....................................
Noteholders' Monthly Principal Distributable Amount...........................
Noteholders' Percentage.......................................................
Noteholders' Principal Carryover Shortfall....................................
Noteholders' Principal Distributable Amount...................................
Notes.........................................................................
S-56
<PAGE>
Original Pool Balance.........................................................
Owner Trustee.................................................................
parties in interest...........................................................
Payaheads.....................................................................
Payment Date..................................................................
Plan Assets Regulation........................................................
Pool Balance..................................................................
Pre-Funded Amount.............................................................
Pre-Funding Account...........................................................
Prime Receivables.............................................................
Prime Servicing Fee Rate......................................................
Principal Balance.............................................................
Principal Distributable Amount................................................
Prospectus ...................................................................
PTCE..........................................................................
Purchase Agreement............................................................
Purchase Agreements...........................................................
Purchase Amount...............................................................
Rating Agencies...............................................................
Receivables...................................................................
Record Date...................................................................
Redemption Price..............................................................
Reference Banks...............................................................
S&P...........................................................................
Sale and Servicing Agreement..................................................
Securities....................................................................
Securityholders...............................................................
Seller........................................................................
Servicer......................................................................
Servicer Default..............................................................
Servicing Fee.................................................................
Servicing Fee Rate............................................................
Specified Class [B] Spread Account Balance....................................
Specified Spread Account Balance..............................................
Specified Spread Account Requirement..........................................
Spread Account................................................................
Spread Account Agreement......................................................
Spread Account Initial Deposit................................................
Statistical Calculation Date..................................................
Sub-Prime Receivables.........................................................
Sub-Prime Servicing Fee Rate..................................................
Subsequent Cutoff Date........................................................
Subsequent Financed Vehicles..................................................
Subsequent Purchase Agreement.................................................
Subsequent Receivables........................................................
Subsequent Transfer Date......................................................
Supplemental Servicing Fee....................................................
Telerate Page 3750............................................................
Total Available Amount........................................................
Trust.........................................................................
Trust Agreement...............................................................
Trust Documents...............................................................
Trust Property................................................................
Underwriters..................................................................
Year 2000 Problem............................................................]
S-57
<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 AUGUST 11, 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 specified 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, 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) and any other
property assigned to the Trust, as specified in the applicable Prospectus
Supplement, 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
The date of this Prospectus is August 11, 1998
<PAGE>
and any other party, if any, specified in the related Prospectus Supplement
(which may include, among others, any party providing credit support or other
services, any co-trustee or any fiscal agent or any other person, as specified
in the related Prospectus Supplement). In either case, the Pooling and Servicing
Agreement or the Trust Agreement and the Sale and Servicing Agreement are
collectively referred to herein as the "Trust Documents." The Notes, if any, of
a series will be issued and secured pursuant to an Indenture (the "Indenture")
between the Trust and the Indenture Trustee specified in the related Prospectus
Supplement (the "Indenture Trustee").
Each class of Securities 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 the Prospectus
incorporates). Requests for such copies should be directed to Les Kratter, Esq.,
777 Mariners Island Boulevard, San Mateo, California 94404 (telephone (605)
312-4018).
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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. See "The Trusts"
herein and 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. See "The Sellers" herein.
Servicer..................... Franklin Capital Corporation, a Utah
corporation. The Servicer is a wholly-owned
subsidiary of Franklin Resources, Inc., a
Delaware corporation ("Franklin Resources"). See
"Franklin Capital Corporation" herein. Franklin
Resources is a financial services company
headquartered in San Mateo, California. See
"Franklin Resources, Inc." herein.
Owner Trustee................ The Owner Trustee will be specified in the
related Prospectus Supplement with respect to
any series of Securities. See "The Trusts-The
Owner Trustee" herein and in the related
Prospectus Supplement and "Description Of The
Purchase Agreements and The Trust
Documents-Duties of the Owner Trustee and
Indenture Trustee" and "-The Owner Trustee and
the Indenture Trustee" herein.
Indenture Trustee............ The Indenture Trustee for any series of Notes
will be specified in the related Prospectus
Supplement. See "The Notes-The Indenture
Trustee" and "Description of The Purchase
Agreements and The Trust Documents-Duties of the
Owner Trustee and Indenture Trustee" and "-The
Owner Trustee and the Indenture Trustee" herein.
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.
See "The Notes" and "The Certificates".
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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 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.
See "The Certificates" herein and "Description
of The Certificates" 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,
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<PAGE>
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.
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). See "The Notes" herein and "Description
of The Notes" in the related Prospectus
Supplement.
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. See "Description of The
Notes-Payments of Interest" 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
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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 and used
automobiles and light trucks (the "Initial
Financed Vehicles"), certain monies received
under the motor vehicle retail installment sale
contracts (including, among other things,
interest and principal) 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
(including, among others, the Collection Account
and the Distribution Account, as specified in
the related Prospectus Supplement) 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) (including,
among others, the rights of the related Sellers
under the related Purchase Agreement, to require
Franklin Capital to repurchase a Receivable upon
breach of certain representations). 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 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."
The Receivables transferred to the Trust, will
consist of receivables financed under Franklin
Capital's Prime (as defined herein) credit
programs ("Prime Receivables"), Franklin
Capital's Non-prime (as defined herein) credit
programs ("Non-Prime Receivables") and Franklin
Capital's Sub-prime (as defined herein) credit
programs ("Sub-Prime Receivables"). Currently,
there is no maximum limit on the amount of
Non-Prime Receivables and Sub-Prime Receivables
that may constitute the Trust Property for any
Trust. See "Description of The Purchase
Agreements and The Trust documents-Eligibility
Criteria".
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<PAGE>
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.
See "The Receivables" and "Description of the
Purchase Agreements and The Trust
Documents-Eligibility Criteria."
Pre-Funding Account.......... If and to the extent so specified in the related
Prospectus Supplement, 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. The maximum amount of the initial
Pre-Funding Amount will not exceed 25% of the
aggregate principal amount of the Securities
as of the date of issuance of the related
Securities. The maximum length of the Funding
Period will not exceed 90 days from the date of
issuance of the Securities. The length of the
Funding Period will be 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.
The Subsequent Receivables purchased by the
Trust with the Pre-Funding Amount will be
underwritten under the same criteria and
standards utilized by Franklin Capital to
underwrite the Initial Receivables. Amounts in
the Pre-Funding
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<PAGE>
Account may be invested by the Owner Trustee or
Indenture Trustee, as applicable, in Eligible
Investments.
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.
If so specified in the related Prospectus
Supplement, funds remaining in the Pre-Funding
Account at the end of the Pre-Funding Period,
may be applied to make payments on the principal
of the Securities. Such payment which will have
the same effect as if there were prepayments on
the principal balance of the Receivables equal
to the amount remaining in the Pre-Funding
Account, thereby reducing the weighted average
life of the Securities. Securityholders will
bear all reinvestment risk associated with the
prepayment of principal due to application of
excess funds in the Pre-funding Account. See
"Risk Factors-Prepayments on Receivables'
Effect on Yield of Securities" and "Yield and
Prepayment Considerations."
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.
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An "Amortization Period" is the period during
which an amount of principal is payable to
holders of a series of Securities which, during
the Revolving Period, were not entitled to such
payments. If so specified in the related
Prospectus Supplement, during an Amortization
Period all or a portion of principal collections
on the Receivables may be applied as specified
above for a Revolving Period and, to the extent
not so applied, will be distributed to the
classes of Notes or Certificates specified in
the related Prospectus Supplement as then being
entitled to payments of principal. In addition,
if so specified in the related Prospectus
Supplement, amounts deposited in certain
accounts for the benefit of one or more classes
of Notes or Certificates may be released from
time to time or on a specified date and applied
as a payment of principal on such classes of
Notes or Certificates. The related Prospectus
Supplement will set forth the circumstances
which will result in the commencement of an
Amortization Period.
Each Trust which has a Revolving Period may also
issue to the 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.
See "Risk Factors-Prepayments on
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<PAGE>
Receivables' Effect on Yield of Securities" and
"Yield and Prepayment Considerations."
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 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. In the event that another person
obtains a perfected security interest in a
Financed Vehicle in such a state subsequent to
the transfer of such Receivable to the related
Trust, such person might acquire rights in such
Financed Vehicle prior to the rights of such
Trust and the Trust's ability to realize on such
Financed Vehicle in the event of a default under
the Receivable may be adversely affected. See
"Certain Legal Aspects of the Receivables."
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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 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, which will
not exceed 50%) of the Original Pool Balance
(as defined in the related
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Prospectus Supplement) (calculated after giving
effect to the principal balance of any
Subsequent Receivables as of their respective
Subsequent Cutoff Dates). Any such sale will be
without recourse to either the Trust or the
related holders of Securities of such series.
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 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"
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("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
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.
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RISK FACTORS
Limited Liquidity
There is currently no market for the Securities of any series. There can
be no assurance that a secondary market for the Securities will develop or, if
such a market does develop, that it will provide Securityholders with liquidity
of investment or that it will continue for the life of the Securities. See "Plan
of Distribution."
Nature of Receivables; Underwriting Process; 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
marginal 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. The investors bear
the risk of loss resulting from a failure of Franklin Capital's underwriting
standards to accurately assess the creditworthiness of the Obligors on the
Receivables supporting a particular series of Notes and/or Certificates, which
could result in greater than expected delinquencies and losses on such
Receivables. See "Franklin Capital Corporation-General."
Limited Assets; Subordination
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. In view of the reliance of Securityholders
for payment, on payment of the related Receivables, potential investors should
review the information set forth in the related Prospectus Supplement under the
heading "The Receivables-Delinquency and Loss Experience." 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
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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.
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."
Certain Matters Relating To Bankruptcy
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
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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."
Prepayments on Receivables' Effect 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.
See "Yield and Prepayment Considerations."
Any reinvestment risk, resulting from faster than expected prepayments of
Receivables held by a given Trust will be borne entirely by the Securityholders
of the related series of Securities. Faster rates of prepayments on the
Receivables, may shorten the weighted average life of the Securities. If the
weighted average life of the Securities is shortened, the expected rate and
amount of return on the Securities may be reduced. A reinvestment of amounts
received by securityholders in other investments at a lower rate of return than
the Securities could result in a lower yield to investors than they would have
received had the weighted average life of the Securities remained unchanged.
Risk of Commingling
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
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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 Certificateholders Upon Waiver of Servicer Default
Unless otherwise provided in the related Prospectus Supplement with
respect to a series of Securities that includes Notes, in the event a Servicer
Default occurs, the Indenture Trustee or the Noteholders with respect to such
series may remove the Servicer without the consent of the Owner Trustee or any
of the Certificateholders with respect to such series. The Owner Trustee or the
Certificateholders with respect to such series will not have the ability to
remove the Servicer if a Servicer Default occurs. In addition, unless otherwise
specified in the related Prospectus Supplement, the Noteholders of such series,
evidencing at least a majority in principal amount of the then-outstanding Notes
of the related series have the ability, on behalf of all such Noteholders and
Certificateholders, to waive defaults by the Servicer in the performance of its
obligations under the related Sale and Servicing Agreement and its consequences,
except for a Servicer Default in making any required deposits to or payments
from any of the Accounts in accordance with such Sale and Servicing Agreement,
including defaults that could materially adversely affect the Certificateholders
of such series. See "The Notes-The Indenture" and "Description of The Purchase
Agreements and The Trust Documents-Waiver of Past Defaults."
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."
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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, (i) motor vehicle
retail installment sale contracts, as specified in the related Prospectus
Supplement, between Dealers and retail purchasers (the "Obligors") of new and
used automobiles and light trucks and (ii) 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 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, 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
Distribution Account," the "Payahead Account," and the "Distribution 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 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, (vii)
the Receivables Files; (viii) the Certificate Policy and/or the Note Policy, as
the case may be, as specified in the related Prospectus Supplement; (ix) any and
all proceeds of the foregoing; and (x) any other property assigned to the Trust,
as specified in the related Prospectus Supplement. 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 Interests in
Vehicles." The Owner Trustee and any Indenture
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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 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 motor vehicle retail
installment sale contracts owned by Franklin Capital. Franklin Capital's
underwriting criteria include specific limits as to the amount of financing that
may be provided to a particular borrower which is based on several factors,
including a borrower's credit history and the value of the vehicle to be
financed. However, the established underwriting procedures provide for financing
above such limits if certain conditions are satisfied. Accordingly, there is no
established maximum that may be financed in respect of any borrower or any
vehicle. 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.
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"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 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. Unless otherwise specified in the
related Prospectus Supplement, each Trust will account for the Simple Interest
Receivables by allocating principal and interest payments thereon in accordance
with the simple interest method.
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.
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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
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
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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, which will not exceed 50%) 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 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
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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."
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.
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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.
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
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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
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.
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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.
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.
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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.
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
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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. Uninsured losses on the Financed
Vehicles will be borne by the related Trust.
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 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.
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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.
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
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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.
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.
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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.
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.
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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.
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
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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 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
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Indenture with respect to any of the collateral for the Notes or, except as
otherwise permitted or contemplated in the Indenture, terminate the lien of the
Indenture on any such collateral or deprive the holder of any Note of the
security provided by the lien of the Indenture.
Events of Default; Rights Upon Event of Default. With respect to each
Trust, unless otherwise specified in the related Prospectus Supplement, "Events
of Default" under the Indenture will consist of: (i) a default for five days or
more in the payment of any interest on any Note after the same becomes due and
payable; (ii) a default in the payment of the principal or of any installment of
the principal of any Note when the same becomes due and payable; (iii) a default
in the observance or performance of any covenant or agreement of the Trust made
in the Indenture and the continuation of any such default for a period of 30
days after notice thereof is given to the Trust by the Indenture Trustee or to
the Trust and the Indenture Trustee by the holders of at least 25% in aggregate
principal amount of the related Notes then outstanding (or for such longer
period, not in excess of 90 days, as may be reasonably necessary to remedy such
default; provided that such default is capable of remedy within 90 days or less
and the Owner Trustee delivers an officer's certificate to the Indenture Trustee
to the effect that the Trust has commenced, or will promptly commence and
diligently pursue, all reasonable efforts to remedy such default); (iv) any
representation or warranty made by the Trust in the Indenture or in any
certificate delivered pursuant thereto or in connection therewith having been
incorrect in a material respect as of the time made, and such breach not having
been cured within 30 days after notice thereof is given to the Trust by the
Indenture Trustee or to the Trust and the Indenture Trustee by the holders of a
least 25% in aggregate principal amount of the Notes then outstanding (or for
such longer period, not in excess of 90 days as may be reasonably necessary to
remedy such default; provided that such default is capable of remedy within 90
days or less and the Owner Trustee delivers an officer's certificate to the
Indenture Trustee to the effect that the Trust has commenced, or will promptly
commence and diligently pursue, all reasonable efforts to remedy such default)
or (v) certain events of bankruptcy, insolvency, receivership or liquidation of
the Trust. However, the amount of principal due and payable on any class of
Notes on any Payment Date (prior to the final scheduled Payment Date, if any,
for such class) will generally be determined by the amount available to be
deposited in the Note Distribution Account for such Payment Date. Therefore, the
failure to pay principal on a class of Notes generally will not result in the
occurrence of an Event of Default unless such class of Notes has a final
scheduled Payment Date, and then not until such final scheduled Payment Date for
such class of Notes.
Unless otherwise specified in the related Prospectus Supplement, if an
Event of Default should occur and be continuing with respect to the Notes of any
series, the related Indenture Trustee or a Note Majority may declare the
principal of the Notes to be immediately due and payable. Such declaration may
be rescinded by a Note Majority if (i) the Trust has paid to the Indenture
Trustee a sum sufficient to pay all amounts then due with respect to the Notes
(without giving effect to such acceleration) and certain amounts payable to the
Indenture Trustee and (ii) all Events of Default (other than nonpayment of the
principal of the Notes due solely as a result of such acceleration) have been
cured or waived.
Unless otherwise specified in the related Prospectus Supplement, if the
Notes of any series have been declared due and payable following an Event of
Default with respect thereto, the related Indenture Trustee may institute
proceedings to collect amounts due or foreclose on Trust Property, exercise
remedies as a secured party, sell the related Receivables or elect to have the
Trust maintain possession of such Receivables and continue to apply collections
on such Receivables as if there had been no declaration of acceleration. The
Indenture Trustee, however, will be prohibited from selling the related
Receivables following an Event of Default, other than a default in the payment
of any principal or a default for five days or more in the payment of any
interest on any Note, unless (i) the holders of all the outstanding related
Notes consent to such sale; (ii) the proceeds of such sale are sufficient to pay
in full the principal of and the accrued interest on such outstanding Notes at
the date of such sale; or (iii) the Indenture Trustee determines that the
proceeds of the Receivables would not be sufficient on an ongoing basis to make
all payments on the Notes as such payments would have become due if such
obligations had not been declared due and payable, and the Indenture Trustee
obtains the consent of the holders representing 66-2/3% of the aggregate
principal balance of the outstanding related Notes. In the event the Notes are
accelerated and the Receivables are sold, no distributions will be made on the
Certificates until all of the interest on and principal of the Notes has been
paid in full. In such event, all the funds, if any, on deposit in any reserve
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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 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,
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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.
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,
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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
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.
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Certificate owners and Note owners who are not Participants but desire to
purchase, sell or otherwise transfer ownership of Securities may do so only
through Participants (unless and until Definitive Certificates or Definitive
Notes, each as defined below, are issued). In addition, Certificate owners and
Note owners will receive all distributions of principal of, and interest on, the
Securities, from the Owner Trustee or the Indenture Trustee, as applicable,
through DTC and Participants. Certificate owners and Note owners will not
receive or be entitled to receive certificates representing their respective
interests in the Securities, except under the limited circumstances described
below and such other circumstances, if any, as may be specified in the related
Prospectus Supplement.
Unless and until Definitive Securities are issued, it is anticipated that
the only Certificateholder of the Certificates and the only Noteholder of the
Notes, if any, will be Cede & Co., as nominee of DTC. Certificate owners and
Note owners will not be recognized by the Owner Trustee as Certificateholders or
by the Indenture Trustee as Noteholders as those terms are used in the related
Trust Documents or Indenture. Certificate owners and Note owners will be
permitted to exercise the rights of Certificateholders or Noteholders, as the
case may be, only indirectly through Participants and DTC.
With respect to any series of Securities issued in book-entry form, while
such Securities are outstanding (except under the circumstances described
below), under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
among Participants on whose behalf it acts with respect to the Securities and is
required to receive and transmit distributions of principal of, and interest on,
the Securities. Participants with whom Certificate owners or Note owners have
accounts with respect to Securities are similarly required to make book-entry
transfers and receive and transmit such distributions on behalf of their
respective Certificate owners and Note owners. Accordingly, although Certificate
owners and Note owners will not possess Securities, the Rules provide a
mechanism by which Certificate owners and Note owners will receive distributions
and will be able to transfer their interests.
Transfers between Participants will occur in accordance with DTC Rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Because of time zone differences, credits of securities received in Cedel
or Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date, and any such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedel Participants on such business day. Cash received in Cedel or
Euroclear as a result of sales of Notes and, if the related Prospectus
Supplement so provides, Certificates by or through a Cedel Participant or
Euroclear Participant to a DTC Participant will be received with value on the
DTC settlement date but will be available in the relevant Cedel or Euroclear
cash account only as of the business day following settlement in DTC.
Cross-market transfers between persons directly holding Notes and, if the
related Prospectus Supplement so provides, Certificates or indirectly through
DTC, on the one hand, and directly or indirectly through Cedel Participants or
Euroclear Participants, on the other, will be effected in DTC in accordance with
DTC Rules on behalf of the relevant European international clearing system by
its Depository; however, such cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in such system in accordance with its rules and procedures and
within its established deadline (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its Depository to take action to effect
final settlement on its behalf by delivering or receiving securities in DTC, and
making or receiving payment in accordance with normal procedures for same day
funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions to the Depositories.
With respect to any series of Securities, Certificates and Notes (if any)
will be issued in registered form to Certificate owners and Note owners, or
their nominees, rather than to DTC (such Certificates and Notes being
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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, 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
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Federal Reserve System and the New York State Banking Department, as well as the
Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of Euroclear, and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants and has no record of or relationship with persons holding
through Euroclear Participants.
Distributions with respect to Notes and, if the related Prospectus
Supplement so provides, Certificates held through Cedel or Euroclear will be
credited to the cash accounts of Cedel Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by its Depository. Such distributions will be subject to tax reporting
in accordance with relevant United States tax laws and regulations. Cedel or the
Euroclear Operator, as the case may be, will take any other action permitted to
be taken by a beneficial holder of Notes and, if the related Prospectus
Supplement so provides, Certificates under the Agreement on behalf of a Cedel
Participant or Euroclear Participant only in accordance with its relevant rules
and procedures and subject to its Depository's ability to effect such actions on
its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of interests in the Notes and, if the related
Prospectus Supplement so provides, the Certificates among Direct Participants of
DTC, Cedel and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
NEITHER THE TRUST, THE 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.
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Statements to Securityholders
On or prior to each Distribution Date, the Servicer will prepare and
provide to the Owner Trustee a statement to be delivered to the related
Certificateholders on such Distribution Date. On or prior to each Payment Date,
the Servicer will prepare and provide to the Indenture Trustee a statement to be
delivered to the related Noteholders on such Payment Date. Such statements will
be based on the information in the related Servicer's certificate setting forth
certain information required under the Trust Documents (the "Servicer's
Certificate"). Each such statement to be delivered to Certificateholders will
include the following information as to the Certificates with respect to such
Distribution Date or the period since the previous Distribution Date, as
applicable, and each such statement to be delivered to Noteholders will include
the following information as to the Notes with respect to such Payment Date or
the period since the previous Payment Date, as applicable:
(i) the amount of the distribution allocable to interest on or with
respect to each class of Securities;
(ii) the amount of the distribution allocable to principal on or with
respect to each class of Securities;
(iii) the Certificate Balance and the Certificate Factor for each class of
Certificates and the aggregate outstanding principal balance and, if applicable,
the Note Factor for each class of Notes, after giving effect to all payments
reported under (ii) above on such date;
(iv) the amount of the Servicing Fee paid to the Servicer with respect to
the related Monthly Period or Periods, as the case may be;
(v) the Pass-Through Rate, Interest Rate or other applicable rate of
return, if any, for the next period for any class of Certificates or Notes with
variable or adjustable rates;
(vi) the amount, if any, distributed to Certificateholders and Noteholders
applicable to payments under any credit enhancement; and
(vii) such other information as may be specified in the related Prospectus
Supplement.
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."
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List of Securityholders
At such time, if any, as Definitive Certificates have been issued, the
Owner Trustee will, upon written request by three or more Certificateholders or
one or more holders of Certificates evidencing not less than 25% of the
Certificate Balance, within five Business Days after provision to the Owner
Trustee of a statement of the applicants' desire to communicate with other
Certificateholders about their rights under the related Trust Documents or the
Certificates and a copy of the communication that the applicants propose to
transmit, afford such Certificateholders access during business hours to the
current list of Certificateholders for purposes of communicating with other
Certificateholders with respect to their rights under the Trust Documents. The
Trust Documents will not provide for holding any annual or other meetings of
Certificateholders.
At such time, if any, as Definitive Notes have been issued, the Indenture
Trustee will, upon written request by three or more Noteholders or one or more
holders of Notes evidencing not less than 25% of the aggregate principal balance
of the related Notes, within five Business Days after provision to the Indenture
Trustee of a statement of the applicants' desire to communicate with other
Noteholders about their rights under the related Indenture or the Notes and a
copy of the communication that the applicants propose to transmit, afford such
Noteholders access during business hours to the current list of Noteholders for
purposes of communicating with other Noteholders with respect to their rights
under the Indenture. The Indenture will not provide for holding any annual or
other meetings of Noteholders.
DESCRIPTION OF THE PURCHASE AGREEMENTS AND THE
TRUST DOCUMENTS
The following summary describes certain terms of the Purchase Agreements
(each a "Purchase Agreement") pursuant to which the 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, without recourse to either the Trust
or Securityholders of such series. 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.
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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, 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.
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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 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.
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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 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.
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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
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
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Receivables. The Servicer shall be entitled to reimbursement of Advances from
subsequent payments on or with respect to the Receivables to the extent
described in the related Prospectus Supplement.
Servicing Compensation
The Servicer is entitled under the Trust Documents to receive or retain,
as specified in the related Prospectus Supplement on each Distribution Date a
servicing fee (the "Servicing Fee") for the related Monthly Period at the rate
specified in the related Prospectus Supplement (the "Servicing Fee Rate")
multiplied by the Pool Balance as of the first day of such Monthly Period. The
Servicer is also entitled to retain from collections a supplemental servicing
fee (the "Supplemental Servicing Fee") for each Monthly Period equal to any late
fees, prepayment fees, rebates and other administrative fees and expenses
collected during the Monthly Period plus reinvestment proceeds on any payments
received in respect of Receivables. If specified in the related Prospectus
Supplement, the Servicer may be entitled to additional compensation from
investment earnings (net of losses) on certain accounts or otherwise. The
Servicer, in its discretion at its election, may defer receipt of all or any
portion of the Servicing Fee, the Supplemental Servicing Fee or any additional
compensation from investment earnings for any Monthly Period to and until a
later Monthly Period for any reason, including in order to avoid a shortfall in
any payments due on any Securities. Any such deferred amount shall be payable to
(or may be retained from subsequent collections by) the Servicer on demand.
The Servicing Fee and the Supplemental Servicing Fee and any other amounts
specified in the related Prospectus Supplement (collectively, the "Servicer
Fee") are intended to compensate the Servicer for performing the functions of a
third-party servicer of the Receivables as an agent for the Securityholders,
including collecting and posting all payments, responding to inquiries of
Obligors on the Receivables, investigating delinquencies, reporting tax
information to Obligors, paying costs of collections and policing the
collateral. The Servicer Fee will also compensate the Servicer for administering
the Receivables, including accounting for collections, furnishing monthly and
annual statements to the Owner Trustee and any Indenture Trustee with respect to
distributions and generating federal income tax information for the Trust. The
Servicer Fee also will reimburse the Servicer for certain taxes, the Trustee's
fees, accounting fees, outside auditor fees, data processing costs and other
costs incurred in connection with administering the Receivables.
Mandatory Prepayment
To the extent a Pre-Funding Account is specified in the related Prospectus
Supplement, the Securities will be prepaid in part on the Distribution Date on
which the Funding Period ends (or on the Distribution Date immediately following
the last day of the Funding Period, if the Funding Period does not end on a
Distribution Date) in the event that any amount remains on deposit in the
Pre-Funding Account after giving effect to the purchase of Subsequent
Receivables, if any, on such Distribution Date. The aggregate principal amount
of Securities to be prepaid will be an amount equal to the amount then on
deposit in the Pre-Funding Account in such portions as specified in the related
Prospectus Supplement. In such event, if and to the extent specified in the
related Prospectus Supplement, a limited recourse mandatory prepayment premium
(the "Prepayment Premium") may be payable by the Trust to the offered
Securityholders if the aggregate principal amount of the offered Securities to
be prepaid pursuant to such mandatory prepayment exceeds such threshold amount
as will be specified in the related Prospectus Supplement. The amount of such
Prepayment Premium, if any, will be specified in the related Prospectus
Supplement. A Trust's obligation to pay the Prepayment Premium shall be limited
to funds which are received from the 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
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interest only) on each class of Securities entitled thereto will be made by the
Owner Trustee or the Indenture Trustee, as applicable, to the Securityholders.
The timing, calculation, allocation, order, source and priorities of, and
requirements for, all distributions to each class of Certificateholders and all
payments to each class of Noteholders will be set forth in the related
Prospectus Supplement.
Revolving Period and Amortization Period; Retained Interest
If the related Prospectus Supplement so provides, there may be a period
commencing on the date of issuance of a class or classes of Notes or
Certificates of a series and ending in the date set forth on the related
Prospectus Supplement (the "Revolving Period") during which no principal
payments will be made to one or more classes of Notes or Certificates of the
related series as are identified in such Prospectus Supplement. All collections
of principal otherwise allocated to such classes of Notes or Certificates may be
(i) utilized by the Trust during the Revolving Period to acquire additional
Receivables which satisfy the criteria described under "The Receivables -
General" herein and the criteria set forth in the related Prospectus Supplement,
(ii) held in an account and invested in Eligible Investments for later
distribution to Securityholders, (iii) applied to those Notes or Certificates,
if any, specified in the related Prospectus Supplement as then are in
amortization, or (iv) otherwise applied as specified in the related Prospectus
Supplement.
An "Amortization Period" is the period during which an amount of principal
is payable to holders of a series of Securities which, during the Revolving
Period, were not entitled to such payments. If so specified in the related
Prospectus Supplement, during an Amortization Period all or a portion of
principal collections on the Receivables may be applied as specified above for a
Revolving Period and, to the extent not so applied, will be distributed to the
classes of Notes or Certificates specified in the related Prospectus Supplement
as then being entitled to payments of principal. In addition, if so specified in
the related Prospectus Supplement, amounts deposited in certain accounts for the
benefit of one or more classes of Notes or Certificates may be released from
time to time or on a specified date and applied as a payment of principal on
such classes of Notes or Certificates. The related Prospectus Supplement will
set forth the circumstances which will result in the commencement of an
Amortization Period.
Each Trust which has a Revolving Period may also issue to the 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.
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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 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
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and duties under the Trust Documents, and the third-party credit enhancer, if
any, does not elect to waive the obligations of the Servicer to perform the
duties which render it legally unable to act or does not elect to delegate those
duties to another person.
The Trust Documents will further provide that neither the Servicer, nor
any of its directors, officers, employees, and agents will be under any
liability to any Trust or any Securityholders for taking any action or for
refraining from taking any action pursuant to the Trust Documents, or for errors
in judgment; provided, however, that neither the Servicer nor any such person
will be protected against any liability that would otherwise be imposed by
reason of willful misfeasance, bad faith or negligence (except for errors in
judgment) in the performance of duties, or by reason of reckless disregard of
obligations and duties thereunder. In addition, the Trust Documents will provide
that the Servicer is under no obligation to appear in, prosecute or defend any
legal action that is not incidental to the Servicer's servicing responsibilities
under the Trust Documents and that, in its opinion, may cause it to incur any
expense or liability. The Servicer may, however, undertake any reasonable action
that it may deem necessary or desirable in respect of the Trust Documents, the
rights and duties of the parties thereto and the interests of the
Securityholders thereunder. In such event, the legal expenses and costs of such
action and any liability resulting therefrom will be expenses, costs and
liabilities of the Servicer, and the Servicer will not be entitled to be
reimbursed therefor out of any Account held by the Owner Trustee or the
Indenture Trustee, as applicable.
Any entity into which the Servicer or the 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
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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 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
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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 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.
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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, which will not exceed 50%) 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. Any
such sale will be without recourse to either the Trust or Securityholders of
such series.
If and to the extent provided in the related Prospectus Supplement with
respect to a Trust, the Owner Trustee or, if Notes are outstanding, the
Indenture Trustee, will, within ten days following a Distribution Date as of
which the Pool Balance is equal to or less than the percentage of the Original
Pool Balance (calculated after giving effect to the principal balance of any
Subsequent Receivables as of their respective Subsequent Cutoff Dates) specified
in the related Prospectus Supplement, solicit bids for the purchase of the
Receivables remaining in such Trust, in the manner and subject to the terms and
conditions set forth in such Prospectus Supplement. If the Owner Trustee or
Indenture Trustee, as applicable, receives satisfactory bids as described in
such Prospectus Supplement, then the Receivables remaining in such Trust will be
sold to the highest bidder. If specified in the related Prospectus Supplement,
any such sale may require the consent of the third-party credit enhancement
provider, if any, of the related series.
As more fully described in the related Prospectus Supplement, any
outstanding Notes of the related series will be redeemed concurrently with
either of the events specified above and the subsequent distribution to the
related Certificateholders of all amounts required to be distributed to them
pursuant to the applicable Trust Agreement or Pooling and Servicing Agreement
will effect early retirement of the Certificates of such series.
Duties of the Owner Trustee and Indenture Trustee
The Owner Trustee and any Indenture Trustee will make no representations
as to the validity or sufficiency of the Trust Documents, the Certificates
(other than the authentication of the Certificates) or the Notes or any
Receivables or related documents, and is not accountable for the use or
application by the Servicer of any funds paid to the 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
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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 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.
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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 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
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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 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
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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. 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
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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.
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
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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, without recourse to the Trust or the related
Securityholders, unless the breach is cured.
Other Limitations
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a lender to
resale upon collateral or enforce a deficiency judgment. For example, in a
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 discussion, insofar as it constitutes statements of law or
legal conclusions, represents the opinion of Weil, Gotshal & Manges LLP
("Federal Tax Counsel") and is subject to the qualifications set forth herein.
The discussion summarizes 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 such as dealers in
securities or foreign currency, tax exempt entities, banks, other financial
institutions, insurance companies, real estate
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investment trusts, regulated investment companies, persons that hold the Notes
as a position in a "straddle," or as part of a synthetic security or "hedge,"
"conversion transaction" or other integrated investment, persons that have a
"functional currency" other than the U.S. dollar, and investors in pass-through
entities. 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"). Investors are encouraged to 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 encouraged 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.
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.
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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. The discussion below assumes that all payments on the Notes are
denominated in U.S. dollars, that the Notes are not 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 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 bond 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
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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.
Strip Certificates, etc. The following discussion assumes that all
payments on the Certificates are denominated in U.S. dollars, none of the
Certificates are Strip Certificates, and that a series of Securities includes
a single class of Certificates. If these conditions are not satisfied with
respect to any given series of Certificates, additional tax considerations with
respect to such Certificates will be disclosed in the applicable Prospectus
Supplement.
Partnership Taxation. As a partnership, the Trust will not be subject to
federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. In certain instances, however, the
Trust could have an obligation to make payments of withholding tax on behalf of
a Certificateholder. See "Backup Withholding" 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
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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.
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 includeable 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
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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 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
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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.
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 includeable 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
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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 is encouraged to 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 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 minimum 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
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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" below. 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.
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.
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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 are encouraged to 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 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 includeable 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.
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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.
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.
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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
Classification 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 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.
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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 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 or as Divisions-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.
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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 encouraged 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.
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.
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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 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.
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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 IBCA, Inc.
("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
(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."
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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.
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.
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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.
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.
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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.
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION
PROCEDURES
Except in certain limited circumstances, any globally offered Series of
Securities (the "Global Securities") will be available only in book-entry form.
Investors in the Global Securities may hold such Global Securities through any
of DTC, Cedel or Euroclear. The Global Securities will be tradeable as home
market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Notes and, if the related Prospectus Supplement so
provides, Certificates will be effected on a delivery-against-payment basis
through the respective Depositories of Cedel and Euroclear (in such capacity)
and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their Participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the name
of Cede as nominee of DTC. Investors' interests in the Global Securities will be
represented through financial institutions acting on their behalf as direct and
indirect Participants in DTC. As a result, Cedel and Euroclear will hold
positions on behalf of their Participants through their respective Depositories,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices specified by the Underwriters. Investor securities
custody accounts will be credited with their holdings against payment in
same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global securities
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to insure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled in same-day funds.
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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
-80-
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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.
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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 includeable 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.
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INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus and
the pages on which the definitions of such terms may be found.
Accounts....................................................................46
Actuarial Receivables.......................................................21
adjusted issue price........................................................68
Advance.................................................................12, 47
Amortization Period.....................................................10, 49
APR ........................................................................21
Bronze......................................................................27
Canadian Securities.........................................................77
Cede .......................................................................18
Cedel ......................................................................18
Cedel Participants..........................................................40
Certificate Distribution Account........................................19, 45
Certificate Factor..........................................................23
Certificate Majority........................................................40
Certificateholders.......................................................5, 18
Certificates.................................................................1
clearing agency.............................................................38
clearing corporation........................................................38
Code........................................................................61
Collection Account......................................................19, 45
Commission ..................................................................3
Cooperative ................................................................40
Copper .....................................................................27
cram-down...................................................................22
Dealer Agreement............................................................26
dealer reserve..............................................................26
Dealers .................................................................8, 26
Debt Certificateholders.....................................................70
Debt Certificates...........................................................70
Definitive Certificates.....................................................40
Definitive Notes............................................................40
Depositories................................................................38
Depository..................................................................32
disqualified person.........................................................74
disqualified persons........................................................73
Distribution Account....................................................11, 19
Distribution Accounts.......................................................45
Distribution Date.......................................................11, 32
DOL.........................................................................73
DTC.........................................................................18
due date....................................................................22
EDGAR........................................................................3
Eligible Deposit Account....................................................46
Eligible Institution........................................................46
Eligible Investments........................................................46
Equity Interest.............................................................76
ERISA...................................................................14, 73
Euroclear ..................................................................18
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Euroclear Operator..........................................................40
Euroclear Participants......................................................40
Events of Default...........................................................35
Exchange Act.................................................................3
Excluded Plan...............................................................74
Exemption ..................................................................74
FASIT ..................................................................14, 61
FCC Corp ...................................................................24
Federal Tax Counsel.....................................................13, 60
Financed Vehicles............................................................7
first month ................................................................45
First-Time Buyer............................................................27
Foreign Person..............................................................66
Foreign Trust...........................................................66, 82
Franklin Bank................................................................1
Franklin Capital......................................................1, 8, 25
Franklin LLC................................................................24
Franklin Resources.......................................................4, 31
FTC Rule ...................................................................59
Funding Period...............................................................8
Global Securities...........................................................79
Gold .......................................................................27
Grantor Trust Certificateholders............................................67
Grantor Trust Certificates..................................................67
Indenture ...................................................................2
Indenture Trustee............................................................2
Independent Director....................................................24, 25
indirect participants.......................................................38
Initial Cutoff Date..........................................................7
Initial Financed Vehicles....................................................7
Initial Receivables..........................................................7
Insolvency Laws.........................................................16, 58
Interest Rate................................................................6
Investment Earnings.........................................................46
IRS ........................................................................61
National Credit Rating Agencies.............................................75
non-prime ..................................................................15
Non-Prime Receivables........................................................7
Note Distribution Account...................................................45
Note Factor ................................................................23
Note Majority...............................................................34
Noteholders .............................................................6, 18
Notes .......................................................................1
Obligor ....................................................................10
Obligors ...................................................................19
OID.........................................................................62
OID regulations.............................................................62
Owner Trustee.............................................................1, 4
Participants................................................................38
parties in interest.........................................................73
party in interest...........................................................74
Pass-Through Rate............................................................5
Payahead Account........................................................19, 46
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Payaheads ..................................................................46
Payment Date................................................................33
Plan Assets Regulation......................................................73
Plans ......................................................................14
Plan(s).....................................................................73
Platinum ...................................................................27
Pooling and Servicing Agreement..............................................1
Pre-1996 Programs...........................................................27
Pre-Funded Amount............................................................8
Pre-Funding Account.......................................................5, 8
Precomputed Receivables.....................................................21
Preferred ..................................................................27
Premier ....................................................................27
Prepayment Premium..........................................................48
prepayments.................................................................23
Prime Receivables............................................................7
Prospectus Supplement........................................................1
PTCE .......................................................................75
Purchase Agreement.......................................................8, 43
Purchase Amount.............................................................45
Rating Agencies.............................................................17
Rating Agency...........................................................14, 76
Receivables...............................................................1, 7
Rees-Levering Act...........................................................57
Registration Statement.......................................................3
Related Documents...........................................................37
Restricted Group............................................................74
Retained Interest...........................................................10
Revolving Period.........................................................9, 49
Rule of 78's Receivables....................................................21
Rules ......................................................................39
Sale and Servicing Agreement.................................................1
Schedule of Receivables.....................................................44
second month................................................................45
Section 1286 Treasury Regulations...........................................68
Securities .................................................................1
Securityholders.............................................................18
Seller ...................................................................1, 4
Sellers ..................................................................1, 4
Servicer ....................................................................1
Servicer Default............................................................51
Servicer Fee................................................................48
Servicer's Certificate......................................................42
Servicing Fee...............................................................48
Servicing Fee Rate..........................................................48
Silver .....................................................................27
Simple Interest Receivables.................................................21
Standard ...................................................................27
Strip Certificates...........................................................6
Strip Notes .................................................................7
Stripped Bond...............................................................68
sub-prime...................................................................15
Sub-Prime Receivables........................................................7
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Subprime 1 .................................................................27
Subprime 2 .................................................................27
Subsequent Cut-Off Date......................................................7
Subsequent Financed Vehicles.................................................7
Subsequent Receivables.......................................................7
Subsequent Transfer Agreement...............................................44
Subsequent Transfer Assignment..............................................44
Supplemental Servicing Fee..................................................48
Terms and Conditions........................................................41
Trust ....................................................................1, 4
Trust Agreement..............................................................1
Trust Documents..........................................................2, 43
Trust Property...............................................................1
U.S. Person ................................................................82
UCC ........................................................................56
Underwriter ................................................................74
Underwriting Agreement......................................................76
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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........................................................ 4
RISK FACTORS............................................................... 15
THE TRUSTS................................................................. 19
THE RECEIVABLES............................................................ 20
YIELD AND PREPAYMENT CONSIDERATIONS........................................ 22
CERTIFICATE AND NOTE FACTORS AND TRADING INFORMATION....................... 23
USE OF PROCEEDS............................................................ 24
<PAGE>
THE SELLERS................................................................ 24
FRANKLIN CAPITAL CORPORATION............................................... 25
FRANKLIN RESOURCES, INC.....................................................31
THE CERTIFICATES........................................................... 32
THE NOTES.................................................................. 33
CERTAIN INFORMATION REGARDING THE SECURITIES............................... 38
DESCRIPTION OF THE PURCHASE AGREEMENTS AND THE TRUST DOCUMENTS............ 43
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES................................... 56
FEDERAL INCOME TAX CONSEQUENCES............................................ 60
STATE AND LOCAL TAXATION................................................... 73
ERISA CONSIDERATIONS....................................................... 73
RATINGS................................................................... 76
PLAN OF DISTRIBUTION....................................................... 76
NOTICE TO CANADIAN RESIDENTS............................................... 77
LEGAL OPINIONS............................................................. 78
ANNEX I.................................................................... 79
INDEX OF TERMS............................................................. 83
<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
- ------------------
* Previously paid.
** 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
II-1
<PAGE>
the circumstances of the case such person is fairly and reasonably entitled to
indemnity for such expenses which 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 Corp., 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)
II-2
<PAGE>
8.1 Opinion of Weil, Gotshal & Manges LLP as to certain tax
matters (including consent of such firm)
23.1 Consent of Weil, Gotshal & Manges LLP (included in Exhibit
5.1)
23.2 Consent of Weil, Gotshal & Manges LLP (included in Exhibit
8.1)
**24.1 Power of Attorney (included on Signature Pages)
*25.1(a) Statement of eligibility of Trustee
- ----------------------------
* To be filed by amendment.
** Previously filed.
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.
II-3
<PAGE>
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 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 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 Amendment No. 1 to its
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Salt Lake, State of Utah, on the 11th day of
August, 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 Amendment No. 1 to the 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 August 11, 1998
- ------------------------------ Capital Corporation
Harmon E. Burns
/s/ Jennifer J. Bolt Director of Franklin August 11, 1998
- ------------------------------ Capital Corporation
Jennifer J. Bolt
/s/ Charles B. Johnson Director of Franklin August 11, 1998
- ------------------------------ Capital Corporation
Charles B. Johnson
/s/ Rupert H. Johnson, Jr. Director of Franklin August 11, 1998
- ------------------------------ Capital Corporation
Rupert H. Johnson, Jr.
* By /s/ Leslie Kratter
------------------------------
Leslie Kratter
Attorney-in-Fact
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
Amendment No. 1 to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Salt Lake, State of Utah,
on the 11th day of August, 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 Amendment No. 1 to the 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 August 11, 1998
- ------------------------------ (Principal Executive Officer)
Martin L. Flanagan
* /s/ Charles R. Sims Principal Financial Officer August 11, 1998
- ------------------------------
Charles R. Sims
* /s/ Kenneth A. Lewis Principal Accounting Officer August 11, 1998
- ------------------------------ Controller
Kenneth A. Lewis
/s/ Harmon E. Burns Director August 11, 1998
- ------------------------------
Harmon E. Burns
/s/ Charles B. Johnson Director August 11, 1998
- ------------------------------
Charles B. Johnson
/s/ Rupert H. Johnson, Jr. Director August 11, 1998
- ------------------------------
Rupert H. Johnson, Jr.
/s/ Merrill L. Magowan Director August 11, 1998
- ------------------------------
Merrill L. Magowan
* /s/ George A. Poole, Jr. Director August 11, 1998
- ------------------------------
George A. Poole, Jr.
* By /s/ Leslie Kratter
------------------------------
Leslie Kratter
Attorney-in-Fact
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 Corp., 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 Consent of Weil, Gotshal & Manges LLP (included in Exhibits
5.1)
23.2 Consent of Weil, Gotshal & Manges LLP (included in Exhibits
8.1)
**24.1 Power of Attorney (included on Signature Pages)
*25.1(a) Statement of eligibility of Trustee
- ----------------------------
* To be filed by amendment.
** Previously filed.
II-7
Exhibit 1.1
FRANKLIN AUTO TRUST 1998-1
$__________ ____% CLASS A-1 ASSET BACKED NOTES
$__________ ____% CLASS A-2 ASSET BACKED NOTES
$__________ ____% CLASS A-3 ASSET BACKED NOTES
$__________ ____% CLASS A-4 ASSET BACKED NOTES
$__________ ____% CLASS A-5 ASSET BACKED NOTES
Franklin Receivables LLC
(SELLER)
FORM OF UNDERWRITING AGREEMENT
___________, 1998
Goldman, Sachs & Co.
85 Broad Street
New York, NY 10004
Ladies and Gentlemen:
1. Introductory. FCC Receivables Corp. and Franklin
Receivables LLC (together, the "Registrants") have previously filed a
registration statement with the Securities and Exchange Commission relating to
the issuance and sale from time to time of up to $________ of asset backed notes
and/or asset backed certificates. FCC Receivables Corp. (the "Seller") proposes
to cause FRANKLIN AUTO TRUST 1998-1 (the "Trust") to issue and sell to Goldman,
Sachs & Co. (the "Underwriter") $_______ principal amount of its _____% Class
A-1 Asset Backed Notes (the "Class A-1 Notes"), $_______ principal amount of its
___% Class A-2 Asset Backed Notes (the "Class A-2 Notes"), $______ principal
amount of its ___% Class A-3 Asset Backed Notes (the "Class A-3 Notes"),
$________ principal amount of its ____% Class A-4 Asset Backed Notes (the "Class
A-4 Notes") and $_______ principal amount of its ___% Class A-5 Asset Backed
Notes (the "Class A-5 Notes" and together with the Class A-1 Notes, Class A-2
Notes, Class A-3 Notes and Class A-4 Notes, the "Notes"). The Trust will also
issue Asset Backed Certificates (the "Certificates" and together with the Notes,
the "Securities") which will be retained by the Seller. The assets of the Trust
will include, among other things, a pool of motor vehicle retail installment
sale contracts (the "Receivables") secured by new and used automobiles and light
trucks financed thereby (the "Financed Vehicles"), and certain monies received
thereunder on or after August 1, 1998 (the "Cutoff Date"), and the other
property and the proceeds thereof to be conveyed to the Trust pursuant to the
Sale and Servicing Agreement to be dated as of August 1, 1998 (the "Sale and
Servicing Agreement") among Franklin Auto Trust 1998-1 (the "Trust"), the Seller
and Franklin Capital Corporation ("Franklin Capital"), as servicer (the
<PAGE>
"Servicer") and as representative (the "Representative"). Pursuant to the Sale
and Servicing Agreement, the Seller will sell the Receivables to the Trust and
the Servicer will service the Receivables on behalf of the Trust. In addition,
pursuant to the Sale and Servicing Agreement, the Servicer will agree to perform
certain administrative tasks on behalf of the Trust imposed on the Trust under
the Indenture. The Notes will be issued pursuant to the Indenture to be dated as
of August 1, 1998 (as amended and supplemented from time to time, the
"Indenture"), between the Trust and ________________ (the "Trustee"). The
Representative will cause the Seller to form the Trust pursuant to a Trust
Agreement (the "Trust Agreement") to be dated as of August 1, 1998 between the
Seller and _____________, as owner trustee (the "Owner Trustee"). The
Certificates, each representing a fractional undivided interest in the Trust,
will be issued pursuant to the Trust Agreement.
The Receivables were originated or acquired by the
Representative. The Representative will sell the Receivables owned by it to the
Seller pursuant to the terms of the Loan Purchase Agreement (the "Loan Purchase
Agreement") dated as of August 1, 1998 between the Seller and the
Representative.
Capitalized terms used and not otherwise defined herein shall
have the meanings given them in the preliminary prospectus or, if not defined
therein, as defined in the Sale and Servicing Agreement. As used herein, the
term "Basic Documents" refers to the Sale and Servicing Agreement, Indenture,
Trust Agreement, Spread Account Agreement, Guarantee Agreement, Loan Purchase
Agreement, the letter agreement in the form of Exhibit A hereto (the "Letter
Agreement"), Insurance and Indemnity Agreement, Indemnification Agreement and
Note Depository Agreement.
2. Representations and Warranties of the Registrants and the
Representative. Each of the Seller and the Representative jointly and severally
and Franklin Receivables LLC with respect to the representations and warranties
appearing in clauses (a), (b), (d), (e) and (f) represents and warrants to and
agrees with the Underwriter that:
(a) A registration statement on Form S-3 (No. 333-56869),
including a prospectus, relating to the Notes has been filed with the Securities
and Exchange Commission (the "Commission") and has become effective. Such
registration statement, as amended as of the date of the Agreement is
hereinafter referred to as the "Registration Statement," and the prospectus
included in such Registration Statement, as supplemented to reflect the terms of
the Notes as first filed with the Commission after the date of this Agreement
pursuant to and in accordance with Rule 424(b) ("Rule 424(b)") under the
Securities Act of 1933, as amended (the "Act"), including all material
incorporated by reference therein, is hereinafter referred to as the
"Prospectus;" a "preliminary prospectus" means any form of prospectus, including
any prospectus supplement, relating to the Notes used prior to date of this
Agreement that is subject to completion.
(b) On the effective date of the registration statement
relating to the Notes, such registration statement conformed in all respects to
the requirements of the Act and the rules and regulations of the Commission
promulgated under the Act (the "Rules and Regulations") and did not include any
2
<PAGE>
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading,
and on the date of this Agreement the Registration Statement and the preliminary
prospectus conform, and at the time of the filing of the Prospectus in
accordance with Rule 424(b), the Registration Statement and the Prospectus will
conform in all respects to the requirements of the Act and the Rules and
Regulations, and neither of such documents includes or will include any untrue
statement of a material fact or omits or will omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading. The preceding sentence does not apply to statements in or omissions
from such documents based upon (i) written information furnished to the Seller
by the Underwriter specifically for use therein, it being understood that the
only such information consists of the Underwriter's Information (as defined in
Section 7(i)) or (ii) the Derived Information (as defined in Section 7 below)
contained in the Current Report (as defined in Section 5(a) below) or in any
amendment thereof or supplement thereto, incorporated by reference in such
Registration Statement or such Prospectus (or any amendment thereof or
supplement thereto).
(c) The Notes are "asset backed securities" within the meaning
of, and satisfy the requirements for use of, Form S-3 under the Act.
(d) The documents incorporated by reference in the
Registration Statement and Prospectus, at the time they were or hereafter are
filed with the Commission, complied and will comply in all material respects
with the requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission thereunder.
(e) Each of the Registrants, the Representative and the
Guarantor is a corporation or limited liability company, as applicable, duly
organized, validly existing and in good standing under the laws of its
respective state of incorporation or formation, as applicable, is duly qualified
to transact business as a foreign corporation or limited liability company, as
applicable, in each jurisdiction in which it is required to be so qualified and
has all necessary licenses, permits and consents to conduct its business as
presently conducted and as described in the Prospectus and to perform its
obligations under the Basic Documents.
(f) This Agreement and each of the Basic Documents to which it
is a party has been duly authorized, executed and delivered by the Registrants,
the Representative and the Guarantor, constitutes a valid and binding agreement
of each of the Registrants, the Representative and the Guarantor, enforceable
against the Registrants, the Representative and the Guarantor in accordance with
its terms, subject as to the enforcement of remedies (x) to applicable
bankruptcy, insolvency, reorganization, moratorium, and other similar laws
affecting creditors' rights generally, (y) to general principles of equity
(regardless of and whether the enforcement of such remedies is considered in a
proceeding in equity or at law) and (z) with respect to rights of indemnity
under this Agreement the Letter Agreement and the Indemnification Agreement, to
limitations of public policy under applicable securities laws.
(g) None of the Seller, the Representative or the Guarantor is
in breach or violation of any credit or security agreement or other agreement or
3
<PAGE>
instrument to which it is a party or by which it or its properties may be bound,
or in violation of any applicable law, statute, regulation or ordinance or any
governmental body having jurisdiction over it, which breach or violation would
have a material and adverse effect on its ability to perform its obligations
under this Agreement or any of the Basic Documents, in each case, to which it is
a party.
(h) Other than as contemplated by this Agreement or as
disclosed in the Prospectus, there is no broker, finder or other party that is
entitled to receive from the Seller, the Representative or any affiliate thereof
or the Underwriter, any brokerage or finder's fee or other fee or commission as
a result of any of the transactions contemplated by this Agreement.
(i) Neither the Representative nor the Seller has entered
into, nor will it enter into, any contractual arrangement with respect to the
distribution of the Notes except for this Agreement
(j) The Trust is not an "investment company" and is not
required to be registered as an "investment company," as such term is defined in
the Investment Company Act of 1940, as amended (the "Investment Company Act").
(k) As of the Closing Date (as defined below), the
representations and warranties of the Seller, the Representative and the
Guarantor, in each of its capacities under each of the Basic Documents, to which
it is a party will be true and correct in all material respects and each such
representation and warranty is so incorporated herein by this reference.
(l) The Seller has filed the preliminary prospectus supplement
relating to the Notes pursuant to and in accordance with Rule 424(b).
(m) On or before the Closing Date, the Basic Documents will
have been duly authorized, executed and delivered by each of the parties
thereto.
(n) The Certificates, when duly and validly executed by the
Owner Trustee, authenticated and delivered in accordance with the Trust
Agreement, and delivered to and paid for pursuant hereto will be validly issued
and outstanding and entitled to the benefits of the Trust Agreement.
(o) The Trust's assignment of the Collateral to the Trustee
pursuant to the Indenture will vest in the Trustee, for the benefit of the
Noteholders, a first priority perfected security interest therein, subject to no
other outstanding Lien.
(p) The Notes, when duly and validly executed by the Trustee,
authenticated and delivered in accordance with the Indenture, and delivered and
paid for pursuant hereto will be enforceable in accordance with their terms,
subject as to enforceability to the effects of applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium and similar laws
now or hereafter in effect relating to creditors' rights generally and subject
to general principles of equity (whether in a proceeding at law or in equity).
4
<PAGE>
(q) Neither the execution, delivery or performance of any of
the Basic Documents by the Seller, or the Representative, nor the issuance, sale
and delivery of the Notes or Certificates, nor the fulfillment of the terms of
the Notes or Certificates, will conflict with, or result in a breach, violation
or acceleration of, or constitute a default under, any term or provision of the
organizational documents of the Seller, or the Representative, any material
indenture or other material agreement or instrument to which the Seller, or the
Representative is a party or by which either of them or their properties is
bound or result in a violation of or contravene the terms of any statute, order
or regulation applicable to the Seller, or the Representative of any court,
regulatory body, administrative agency, governmental body or arbitrator having
jurisdiction over the Seller, or the Representative, or will result in the
creation of any lien upon any material property or assets of the Seller, or the
Representative (other than pursuant to the Basic Documents).
(r) There are no legal or governmental proceedings pending to
which the Seller, the Representative or the Guarantor is a party or of which any
of its properties is the subject, which if determined adversely to the Seller,
the Representative or the Guarantor would individually or in the aggregate have
a material adverse effect on the financial position, shareholders' equity or
results of operations of any of them; and to the best of the Seller's,
Representative's or the Guarantor's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or others.
(s) No consent, license, approval, authorization or order of
or declaration or filing with any governmental authority is required for the
issuance of the Notes and Certificates or sale of the Notes or the consummation
of the other transactions contemplated by this Agreement or the Basic Documents,
except such as have been duly made or obtained.
(t) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not been any
material adverse change, or any development which could reasonably be expected
to result in a material adverse change, in or affecting the financial position,
shareholders' equity or results of operations of the Seller, the Representative
or the Guarantor or the Seller's, the Representative's or the Guarantor's
ability to perform its obligations under this Agreement or any of the Basic
Documents to which it is a party.
(u) Any taxes, fees and other governmental charges due on or
prior to the Closing Date (including, without limitation, sales taxes) in
connection with the execution, delivery and issuance of this Agreement, the
Basic Documents and the Securities have been or will have been paid at or prior
to the Closing Date.
(v) The Receivables transferred by the Representative to the
Seller are chattel paper as defined in the Uniform Commercial Code as in effect
in the State of Utah. The Receivables transferred by the Seller to the Trust are
chattel paper as defined in the Uniform Commercial Code as in effect in the
State of [Utah].
5
<PAGE>
(w) Under generally accepted accounting principles, (i) the
Representative will report its transfer of the Receivables transferred by it to
the Seller pursuant to the Loan Purchase Agreement and (ii) the Seller will
report its transfer of the Receivables to the Trustee pursuant to the Sale and
Servicing Agreement as a sale of the Receivables for financial accounting
purposes.
(x) Immediately prior to the transfer thereof to the Seller
pursuant to the Loan Purchase Agreement, the Representative is the sole owners
of all right, title and interest in, and have good and marketable title to the
Receivables and the other property to be transferred to the Seller. The
Representative, pursuant to the Loan Purchase Agreement, is transferring to the
Seller ownership of the Receivables, the security interest in the Financed
Vehicles securing the Receivables and the proceeds of each of the foregoing,
and, immediately prior to the transfer thereof to the Trust, the Seller will be
the sole owner of all right, title and interest in, and will have good and
marketable title to, the Receivables and the other property to be transferred by
it to the Trust. The assignment of the Receivables, all documents and
instruments relating thereto and all proceeds thereof to the Trust, pursuant to
the Loan Purchase Agreement and the Sale and Servicing Agreement, vests in the
Trust all interests which are purported to be conveyed thereby, free and clear
of any liens, security interests or encumbrances.
(y) Immediately prior to the transfer of the Receivables to
the Seller, the Representative's interest in the Receivables and the proceeds
thereof shall be perfected upon the filing of UCC-1 financing statements (the
"Financing Statements") in the offices specified in Schedule I and there shall
be no unreleased statements affecting the Receivables filed in such offices
other than the Financing Statements. If a court concludes that the transfer of
the Receivables from the Representative to the Seller is a sale, the interest of
the Seller in the Receivables and the proceeds thereof will be perfected upon
the filing of the Financing Statements in the office of the Secretary of State
of the State of Utah. If a court concludes that such transfer is not a sale, the
Loan Purchase Agreement and the transactions contemplated thereby constitute a
grant by the Representative to the Seller of a valid security interest in the
Receivables and the proceeds thereof, which security interest will be perfected
upon the filing of the Financing Statements in the office of the Secretary of
State of the State of Utah. No filing or other action, other than the filing of
the Financing Statements in the office of the Secretary of State of the State of
Utah referred to above, is necessary to perfect and maintain the interest or the
security interest of the Seller in the Receivables and the proceeds thereof
against third parties.
(z) Immediately prior to the transfer of the Receivables to
the Trust, the Seller's interest in the Receivables and the proceeds thereof
shall be perfected upon the filing of the Financing Statements and there shall
be no unreleased statements affecting the Receivables filed in such offices
other than the Financing Statements. If a court concludes that the transfer of
the Receivables from the Seller to the Trust is a sale, the interest of the
Trust in the Receivables and the proceeds thereof will be perfected upon the
filing of the Financing Statements in the office of the Secretary of State of
the State of [Utah]. If a court concludes that such transfer is not a sale, the
Sale and Servicing Agreement and the transactions contemplated thereby
constitute a grant by the Seller to the Trust of a valid security interest in
the Receivables and the proceeds thereof, which security interest will be
perfected upon the filing of the Financing Statements in the office of the
Secretary of State of the State of [Utah]. No filing or other action, other than
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the filing of the Financing Statements in the office of the Secretary of State
of the State of [Utah] referred to above, is necessary to perfect and maintain
the interest or the security interest of the Trust in the Receivables and the
proceeds thereof against third parties.
(aa) Neither the Trust Agreement nor the Indenture need be
qualified under the Trust Indenture Act of 1939, as amended and the Trust is not
required to register under the Investment Company Act of 1940, as amended.
(bb) As of the Closing Date, each of the respective
representations and warranties of the Seller and the Representative set forth in
the Basic Documents will be true and correct, and the Underwriter may rely on
such representations and warranties as if they were set forth herein in full.
(cc) In connection with the offering of the Notes in the State
of Florida, the Seller hereby certifies that it has complied with all provisions
of Section 5.17.075 of the Florida Securities and Investor Protection Act.
3. Purchase, Sale and Delivery of the Notes. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Seller agrees to cause the Trust
to sell to the Underwriter, and the Underwriter agrees, to purchase from the
Trust, the principal amount of each class of Notes set forth on Schedule II
hereto at a purchase price equal to "Price %" as specified on Schedule II
hereto.
The Seller will deliver the Notes to the Underwriter, against
payment of the purchase price to or upon the order of the Seller by wire
transfer or check in Federal (same day) Funds, at the office of [Stroock &
Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038], at 10:00 a.m.,
New York time on _________, 1998, or at such other time not later than seven
full business days thereafter as the Underwriter and the Seller determine, such
time being herein referred to as the "Closing Date." The Notes to be so
delivered will be initially represented by one or more Notes registered in the
name of Cede & Co., the nominee of The Depository Trust Company ("DTC"). The
interests of beneficial owners of the Notes will be represented by book entries
on the records of DTC and participating members thereof. Definitive Notes will
be available only under the limited circumstances specified in the Basic
Documents.
4. Offering by Underwriter. It is understood that, after the
Registration Statement becomes effective, the Underwriter proposes to offer the
Notes for sale to the public (which may include selected dealers), on the terms
set forth in the Prospectus.
5. Covenants of the Seller and the Representative. Each of the
Seller and the Representative, jointly and severally, covenants and agrees with
the Underwriter that:
(a) The Seller will file the Prospectus, properly completed,
with the Commission pursuant to and in accordance with subparagraph (2) (or, if
applicable and if consented to by the Underwriter, subparagraph (5)) of Rule
424(b) no later than the second business day following the earlier of the date
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of determination of the offering price or the date it is first used. The Seller
and the Representative will advise the Underwriter promptly of any such filing
pursuant to Rule 424(b). Subject to the Underwriter's compliance with its
obligations set forth in Section 7(h) hereof, the Seller shall file with the
Commission a current report on Form 8-K (the "Current Report") including any
Derived Information (as defined herein) provided to it by the Underwriter
pursuant to Section 7(h) hereof (i) no later than the date that the Prospectus
Supplement is filed with respect to "computational materials" and "structural
terms sheets" (as such terms are interpreted in the No-Action letters addressed
to Kidder, Peabody Acceptance Corporation I, et al. and the Public Securities
Association dated May 20, 1994 and February 17, 1995, respectively
(collectively, the "PSA Letters")) or (ii) no later than two days following
their date of first use with respect to "collateral term sheets" (as such term
is interpreted in the PSA Letters).
(b) The Seller and the Representative will advise the
Underwriter promptly of any proposal to amend or supplement the Registration
Statement or the Prospectus and will not effect such amendment or
supplementation without the consent of the Underwriter, which consent shall not
be unreasonably withheld or delayed; and the Seller and the Representative will
advise the Underwriter promptly of any amendment or supplementation of the
Registration Statement or the Prospectus and of the institution by the
Commission of any stop order proceedings in respect of the Registration
Statement and will use its best efforts to prevent the issuance of any such stop
order and to obtain as soon as possible its lifting, if issued.
(c) If, at any time when a prospectus relating to the Notes is
required to be delivered by an Underwriter or dealer either (i) any event occurs
as a result of which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made not misleading, or (ii) for any other
reason it shall be necessary to amend or supplement the Prospectus to comply
with the Act, the Seller and the Representative promptly will notify the
Underwriter of such event and promptly will prepare, at their own expense, an
amendment or supplement which will correct such statement or omission. Neither
the Underwriter's consent to, nor the Underwriter's distribution of any
amendment or supplement to the Prospectus shall constitute a waiver of any of
the conditions set forth in Section 6 hereof.
(d) The Seller and the Representative will furnish to the
Underwriter copies of any preliminary prospectus, the Prospectus, the
Registration Statement and all amendments and supplements to such documents, in
each case as soon as available and in such quantities as the Underwriter
reasonably requests.
(e) The Seller and the Representative will take all actions
which are reasonably necessary to arrange for the qualification of the Notes for
offering and sale under the laws of such jurisdictions as the Underwriter
designates and will continue such qualifications in effect so long as required
under such laws for the distribution of the Notes; provided, however, that in no
event shall the Seller be obligated to qualify as a foreign corporation or to
execute a general or unlimited consent to service of process in any such
jurisdiction.
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(f) The Seller and the Representative shall furnish or make
available to the Underwriter or its counsel such additional documents and
information regarding the Seller and the Representative and their respective
affairs as the Underwriter may from time to time reasonably request, including
any and all documentation reasonably requested in connection with its due
diligence efforts regarding information in the Registration Statement and the
Prospectus and in order to evidence the accuracy or completeness of any of the
conditions contained in this Underwriting Agreement; and all actions taken by
the Seller to authorize the sale of the Notes shall be reasonably satisfactory
in form and substance to the Underwriter.
(g) The Seller and the Representative shall, at all times upon
request of the Underwriter or its advisors, or both, from the date hereof
through the Closing Date, (i) make available to the Underwriter or its advisors,
or both, prior to acceptance of its purchase, such information (in addition to
that contained in the Registration Statement and the Prospectus) concerning the
offering, the Seller and any other relevant matters as they possess or can
acquire without unreasonable effort or expense and (ii) provide the Underwriter
or its advisors, or both, prior to acceptance of its subscription, the
opportunity to ask questions of, and receive answers from, the Seller and the
Representative with respect to such matters.
(h) The Seller and the Representative will cause the Trust to
make generally available to Noteholders, as soon as practicable, but no later
than sixteen months after the date hereof, an earnings statement of the Trust
covering a period of at least twelve consecutive months beginning after the
later of (i) the effective date of the registration statement relating to the
Notes and (ii) the effective date of the most recent post-effective amendment to
the Registration Statement to become effective prior to the date of this
Agreement and, in each case, satisfying the provisions of Section 11(a) of the
Act (including Rule 158 promulgated thereunder).
(i) Until the retirement of the Notes, the Seller will deliver
to the Underwriter the annual statements of compliance and the annual
independent certified public accountants' reports furnished to the Trustee
pursuant to the Basic Documents, as soon as such statements and reports are
furnished to the Trustee.
(j) So long as any of the Notes are outstanding, the Seller
will furnish to the Underwriter (i) as soon as practicable after the end of the
fiscal year all documents required to be distributed to Noteholders or filed
with the Commission on behalf of the Trust pursuant to the Exchange Act, or any
order of the Commission thereunder and (ii) from time to time, any other
information concerning the Seller or the Representative as the Underwriter may
reasonably request only insofar as such information reasonably relates to the
Registration Statement or the Prospectus or the transactions contemplated by the
Basic Documents.
(k) On or before the Closing Date, the Seller and the
Representative shall cause the computer records of the Seller and the
Representative relating to the Receivables to show the absolute ownership by the
Owner Trustee on behalf of the Trust of the Receivables, and from and after the
Closing Date neither the Seller nor the Representative shall take any action
inconsistent with the ownership by the Owner Trustee on behalf of the Trust of
such Receivables, other than as permitted by the Sale and Servicing Agreement.
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<PAGE>
(l) To the extent, if any, that any of the ratings provided
with respect to the Notes by the rating agency or agencies that initially rate
any of the Notes are conditional upon the furnishing of documents or the taking
of any other actions by the Seller or the Representative on or prior to the
Closing Date none of the Seller and the Representative shall furnish such
documents and take any such other actions. A copy of any such document shall be
provided to the Underwriter at the time it is delivered to the rating agencies.
(m) The Representative will pay all expenses incident to the
performance of its obligations under this Agreement, including (i) the printing
and filing of the documents (including the Registration Statement and the
Prospectus), (ii) the preparation, issuance and delivery of the Notes to the
Underwriter, (iii) the fees and disbursements of the Representative's and the
Seller's counsel (including without limitation, local counsel in the State of
Utah) and accountants, (iv) the qualification of the Notes under state
securities laws, including filing fees and the fees and disbursements of counsel
for the Underwriter in connection therewith and in connection with the
preparation of any blue sky or legal investment survey, if any is requested, (v)
the printing and delivery to the Underwriter of copies of the Registration
Statement and the Prospectus and each amendment thereto, (vi) the fees and
expenses of the Underwriter and its counsel, (vii) any fees charged by rating
agencies for the rating of the Notes, (viii) the fees and expenses of the
Trustee and its counsel, (ix) the fees and expenses of the Owner Trustee and its
counsel, (x) the fees and expenses of the Note Insurer and its counsel and (xi)
the fees and expenses of [Richards, Layton & Finger].
6. Conditions of the Obligations of the Underwriter. The
obligations of the Underwriter to purchase and pay for the Notes will be subject
to the accuracy, as of the date hereof and as of the Closing Date, of the
representations and warranties on the part of the Seller and the Representative
herein, to the accuracy of the written statements of officers of the Seller and
the Representative made pursuant to the provisions of this Section, to the
performance by the Seller and the Representative of its obligations hereunder
and to the following additional conditions precedent:
(a) The Underwriter shall have received a letter, dated the
date hereof, of ______________, confirming that such accountants are independent
public accountants within the meaning of the Act and the Rules and Regulations,
and substantially in the form of the drafts to which the Underwriter has
previously agreed and otherwise in form and substance reasonably satisfactory to
the Underwriter and counsel for the Underwriter (i) regarding certain numerical
information contained in the Prospectus and (ii) relating to certain agreed-upon
procedures.
(b) The Prospectus shall have been filed with the Commission
in accordance with the Rules and Regulations and Section 5(a) hereof. On or
prior to the Closing Date, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or, to the knowledge of the Seller or the
Representative, shall be contemplated by the Commission.
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<PAGE>
(c) Subsequent to the execution and delivery of this
Agreement, there shall not have occurred (i) any change, or any development
involving a prospective change, in or affecting the Receivables or particularly
the business or properties of (x) the Trust, the Seller, the Representative or
the Guarantor or (y) the Note Insurer which, in the reasonable judgment of the
Underwriter, materially impairs the investment quality of the Notes; (ii) any
downgrading in the rating of (x) any [debt] securities of the Guarantor by any
"nationally recognized statistical rating organization" (as defined for purposes
of Rule 436(g) under the Act), or any public announcement that any such
organization has under surveillance or review its rating of any such debt
securities (other than an announcement with positive implications of a possible
upgrading, and no implication of a possible downgrading, of such rating) or (y)
the claims-paying ability of the Note Insurer by any "nationally recognized
statistical rating organization" or if the claims-paying ability of the Note
Insurer has been put on the "watch list" of any such rating organization with
negative implications; (iii) any suspension or limitation of trading in
securities generally on the New York or American Stock Exchanges, or any setting
of minimum prices for trading on such exchange; (iv) any suspension of trading
of any securities of the Guarantor on any exchange, the NASDAQ National Market
or in the over-the-counter market; (v) any banking moratorium declared by
Federal, New York or Florida authorities; or (vi) any outbreak or escalation of
major hostilities in which the United States is involved, any declaration of war
by Congress, or any other substantial national or international calamity or
emergency if, in the judgment of a the Underwriter, the effect of any such
outbreak, escalation, declaration, calamity or emergency makes it impractical or
inadvisable to proceed with completion of the sale of and payment for the Notes.
(d) On the Closing Date, each of the Basic Documents and the
Securities shall have been duly authorized, executed and delivered by the
parties thereto, shall be in full force and effect and no default shall exist
thereunder, and the Owner Trustee shall have received a fully executed copy
thereof or, with respect to the Notes, a conformed copy thereof. The Basic
Documents and the Securities shall be substantially in the forms heretofore
provided to the Underwriter.
(e) The Underwriter shall have received an opinion of Weil,
Gotchal & Manges, special counsel to the Representative, the Seller and the
Guarantor, dated the Closing Date, satisfactory in form and substance to the
Underwriter, to the effect that:
(i) The Seller has been duly formed and is validly existing
as a limited liability company in good standing under the laws
of the state of its incorporation, with full corporate power
and authority to own its properties and conduct its business,
and is duly qualified to transact business and is in good
standing in each jurisdiction in which its failure to qualify
would have a material adverse effect upon the business or the
ownership of its property. Each of FCC Receivables Corp. and
the Guarantor has been duly incorporated and is validly
existing as a corporation in good standing under the laws of
the state of its incorporation, with full corporate power and
authority to own its properties and conduct its business, and
is duly qualified to transact business and is in good standing
in each jurisdiction in which its failure to qualify would
have a material adverse effect upon the business or the
ownership of its property.
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(ii) This Agreement has been duly authorized, executed and
delivered by each of the Registrants. The Basic Documents to
which it is a party have been duly authorized, executed and
delivered by each of the Seller and the Guarantor.
(iii) The Seller has full power and authority to sell and
assign the property to be sold and assigned to the Trust by it
pursuant to the Sale and Servicing Agreement and has duly
authorized such sale and assignment to the Trust by all
necessary corporate action. The Guarantor has full power and
authority to enter into the Basic Documents to which it is a
party and has duly authorized entering into such documents by
all necessary corporate action.
(iv) Assuming that this Agreement and the Basic Documents
have been duly authorized, executed and delivered by the
Representative, this Agreement and the Basic Documents to
which each of the Representative, the Guarantor and the
Registrants is a party are the legal, valid and binding
obligation of the Representative, the Guarantor and the
Registrants, enforceable against the Representative, the
Guarantor and the Registrants in accordance with their terms,
subject as to enforceability to the effects of applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium and similar laws now or hereafter in effect
relating to creditors' rights generally and subject to general
principles of equity (whether in a proceeding at law or in
equity).
(v) The Seller has duly authorized, executed and delivered
the written order to the Owner Trustee to execute and deliver
the Issuer Order to the Trustee.
(vi) The Seller has duly authorized, executed and delivered
the written order to the Owner Trustee to execute and deliver
the Certificates.
(vii) When the Notes have been executed, authenticated and
delivered in accordance with the Indenture and paid for
pursuant to this Agreement, the Notes will be validly issued
and outstanding and enforceable in accordance with their
terms, subject as to enforceability to the effects of
applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium and similar laws now or hereafter in
effect relating to creditors' rights generally and subject to
general principles of equity (whether in a proceeding at law
or in equity).
(viii) Neither the transfer of certain of the Receivables by
the Seller to the Trustee on behalf of the Trust, nor the
assignment by the Seller of the Trust Estate to the Trust, nor
the grant by the Trust of the security interest in the
Collateral to the Owner Trustee pursuant to the Indenture, nor
the execution, delivery and performance by the Seller of the
Basic Documents to which it is a party, nor the consummation
by the Seller of the transactions contemplated thereby will
conflict with or result in a breach of any of the terms or
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provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon
any of the property or assets of the Seller, pursuant to the
terms of the formation documents of the Seller or any statute,
rule, regulation or order of any governmental agency or body,
or any court having jurisdiction over the Seller or its
properties, or any agreement or instrument known to me after
due investigation to which the Seller is a party or by which
the Seller or any of its properties is bound.
(ix) Neither the execution, delivery and performance by the
Guarantor of the Basic Documents to which it is a party, nor
the consummation by the Guarantor of the transactions
contemplated thereby will conflict with or result in a breach
of any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any lien,
charge or encumbrance upon any of the property or assets of
the Guarantor, pursuant to the terms of the certificate of
incorporation or the by-laws of the Guarantor or any statute,
rule, regulation or order of any governmental agency or body,
or any court having jurisdiction over the Guarantor or its
properties, or any agreement or instrument known to me after
due investigation to which the Seller is a party or by which
the Seller or any of its properties is bound.
(x) No authorization, license, approval, consent or order
of, or filing with, any court or governmental agency or
authority is necessary in connection with the execution,
delivery and performance of this Agreement and each of the
Basic Documents to which it is a party by the Representative,
the Seller or the Guarantor.
(xi) To the best of the knowledge of such counsel, there are
no legal or governmental proceedings pending to which the
Representative or the Seller is a party or of which any
property of the Representative, the Seller or the Guarantor is
the subject, and no such proceedings are known to such counsel
to be threatened or contemplated by governmental authorities
or threatened by others (i) asserting the invalidity of all or
any part of this Agreement or any of the Basic Documents or
(ii) that could materially adversely affect the ability of the
Representative, the Seller or the Guarantor to perform their
obligations under any of the Basic Documents to which either
is a party.
(xii) Such counsel is familiar with the Representative's
standard operating procedures relating to the acquisition of a
perfected first priority security interest in the vehicles
financed by the Representative pursuant to retail installment
sale contracts in the ordinary course of their business.
Assuming that these standard procedures are followed with
respect to the perfection of security interests in the
Financed Vehicles, the Representative has acquired or will
acquire a perfected first priority security interests in the
Financed Vehicles with respect to which it has originated
Receivables sold by it to the Seller.
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(xiii) Immediately prior to the transfer of certain of the
Receivables by the Representative pursuant to the Loan
Purchase Agreement, the Representative was the sole owner of
all right, title and interest in the Receivables and the other
property transferred by it to the Seller. Immediately prior to
the transfer of certain of the Receivables by the Seller
pursuant to the Sale and Servicing Agreement, the Seller was
the sole owner of all right, title and interest in the
Receivables and the other property transferred by it to the
Trust.
(xiv) The Representative has all necessary licenses required
by law in connection with its performance as Servicer pursuant
to the Sale and Servicing Agreement.
(xv) To such counsel's knowledge, there are no material
legal or governmental proceedings pending or threatened
against the Representative, the Seller or the Guarantor other
than those disclosed in the Registration Statement and the
Prospectus.
(xvi) To the best of such counsel's knowledge, there are no
contracts or documents of the Registrants which are required
to be filed as exhibits to the Registration Statement pursuant
to the Act or the Rules or Regulations which have not been so
filed.
(xvii) The Registration Statement became effective under the
Act as of _______, 1998 and, to the best of such counsel's
knowledge, no stop order suspending the effectiveness of the
Registration Statement or any part thereof or any amendment
thereto has been issued under the Act and no proceeding for
that purpose has been instituted or threatened by the
Commission.
(xviii) The Seller is not, and will not as a result of the
offer and sale of the Notes as contemplated in the Prospectus
and this Agreement become, an "investment company" as defined
in the Investment Company Act of 1940, as amended (the
"Investment Company Act"), or a company "controlled by" an
"investment company" within the meaning of the Investment
Company Act.
(xix) Neither the Trust Agreement nor the Indenture need be
qualified under the Trust Indenture Act and the Trust is not
required to register under the Investment Company Act.
(xx) The statements in the Prospectus under the headings
"Summary of Terms -- Tax Status," "Certain Federal Income Tax
Consequences," "Federal Income Tax Consequences," "Summary of
Terms -- ERISA Considerations," and "ERISA Considerations," to
the extent that they constitute statements of matters of law
or legal conclusions with respect thereto, have been reviewed
by such counsel and accurately describe the material
consequences to holders of the Notes under the Code and ERISA.
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(xxi) The documents incorporated by reference in the
Registration Statement and Prospectus, at the time they were
or hereafter are filed with the Commission, complied and will
comply in all material respects with the requirements of the
Exchange Act and the Rules and Regulations, except as to the
financial statements and other financial and statistical data
included therein, to which such counsel need not express any
opinion.
(xxii) The Registration Statement relating to the Notes as
of its effective date and the Prospectus as of the date of
this Agreement, and any amendment or supplement thereto, as of
its date, complied as to form in all material respects with
the requirements of the Act and the applicable Rules and
Regulations. Such counsel need express no opinion with respect
to the financial statements, the exhibits, annexes and other
financial, statistical, numerical or portfolio data, economic
conditions or financial condition of the portfolio information
included in or incorporated by reference into the Registration
Statement relating to the Notes, the Prospectus or any
amendment or supplement thereto.
(xxiii) Such counsel shall state that they have participated
in the preparation of the Registration Statement and the
Prospectus, and that no facts have come to their attention
which cause them to believe that the Registration Statement
relating to the Notes as of its effective date, and the
Prospectus, as of the date of this Agreement, and any
amendment or supplement thereto, as of its date when it became
effective, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading or that the Prospectus on its date contained or on
the Closing Date contains, any untrue statement of a material
fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading; provided that such counsel need not express any
view with respect to the financial, statistical or
computational material included in or incorporated by
reference into the Registration Statement relating to the
Notes, the Prospectus or any amendment or supplement thereto.
Such opinion may contain such assumptions, qualifications and
limitations as are customary in opinions of this type and are reasonably
acceptable to counsel to the Underwriter. In rendering such opinion, such
counsel may state that they express no opinion as to the laws of any
jurisdiction other than the federal law of the United States of America and the
laws of the State of New York.
[(f) The Underwriter shall have received the opinion of Weil,
Gotchal & Manges, special counsel to the Trust, dated the Closing Date,
satisfactory in form and substance to the Underwriter and counsel for the
Underwriter, regarding the creation, attachment and perfection of a first
priority security interest in the Receivables and the property held in the
Spread Account in favor of the Trustee on behalf of the Noteholders. Such
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opinion may contain such assumptions, qualifications and limitations as are
customary in opinions of this type and are reasonably acceptable to counsel to
the Underwriter. In rendering such opinion, such counsel may state that they
express no opinion as to the laws of any jurisdiction other than the federal law
of the United States of America and the laws of the State of New York. To the
extent any portion of such opinion is governed by the laws of the State of
Delaware, such opinion will be given by Richards, Layton & Finger. To the extent
any portion of such opinion is governed by the laws of the State of Utah, such
opinion will be given by ______________.]
(g) The Underwriter shall have received the opinion of
Callister, Nebeker & McCullough, counsel to the Representative or such other
counsel acceptable to the Underwriter and counsel for the Underwriter, dated the
Closing Date, satisfactory in form and substance to the Underwriter and counsel
for the Underwriter to the effect that:
(i) The Representative has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the state of its incorporation, with full corporate
power and authority to own its properties and conduct its
business, and is duly qualified to transact business and is in
good standing in each jurisdiction in which its failure to
qualify would have a material adverse effect upon the business
or the ownership of its property.
(ii) The Representative has full power and authority to sell
and assign the property to be sold and assigned to the Seller
by it pursuant to the Loan Purchase Agreement and has duly
authorized such sale and assignment to the Trust by all
necessary corporate action.
(iii) This Agreement and each of the Basic Documents to
which it is a party have been duly authorized, executed and
delivered by the Representative.
(iv) Neither the transfer of the Receivables by the
Representative to the Seller or the Seller to the Trustee on
behalf of the Trust, nor the assignment by the Seller of the
Trust Estate to the Trust, nor the grant by the Trust of the
security interest in the Collateral to the Trustee pursuant to
the Indenture, nor the execution, delivery and performance by
the Registrants or the Representative of this Agreement and
the Basic Documents to which it is a party, nor the
consummation of the transactions contemplated thereby will
conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon
any of the property or assets of the Representative, pursuant
to the terms of the certificate of incorporation or the
by-laws of the Representative or any statute, rule, regulation
or order of any governmental agency or body, or any court
having jurisdiction over the Representative or the Seller or
their properties, or any agreement or instrument known to me
after due investigation to which the Representative is a party
or by which the Representative or any of its properties is
bound.
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(v) The statements in the Prospectus under the headings
"Summary of Terms -- State Tax Considerations " and "State Tax
Considerations," to the extent that they constitute statements
of matters of law or legal conclusions with respect thereto,
have been reviewed by such counsel and accurately describe the
material consequences to holders of the Notes under Utah law.
(vi) Such counsel shall deliver an opinion regarding Utah
state tax consequences in form and substance reasonably
acceptable to the Underwriter and counsel to the Underwriter.
(vii) The Receivables conveyed by the Representative to the
Seller are chattel paper as defined in the Uniform Commercial
Code as in effect in the State of Utah.
(viii) If the transfer of Receivables from the
Representative to the Seller is considered a sale, such sale
will be perfected upon the filing of financing statements with
the Secretary of State of the State of Utah and ______ County,
Utah. If the transfer of Receivables from the Representative
to the Seller is considered a financing, such financing will
create a first priority perfected interest upon the filing of
financing statements with the Secretary of State of the State
of Utah and _____ County, Utah.
(ix) The Receivables conveyed by the Seller to the Trust are
chattel paper as defined in the Uniform Commercial Code as in
effect in the State of Utah.
(x) If the transfer of Receivables from the Seller to the
Trust is considered a sale, such sale will be perfected upon
the filing of financing statements with the Secretary of State
of the State of Utah and _____ County, Utah. If the transfer
of Receivables from the Seller to the Trust is considered a
financing, such financing will create a first priority
perfected interest upon the filing of financing statements
with the Secretary of State of the State of Utah and _____
County, Utah.
Such opinion may contain such assumptions, qualifications and
limitations as are customary in opinions of this type and are reasonably
acceptable to counsel to the Underwriter. In rendering such opinion, such
counsel may state that they express no opinion as to the laws of any
jurisdiction other than the federal law of the United States of America and the
laws of the State of New York.
(h) The Underwriter shall have received an opinion addressed
to it of Weil Gotchal & Manges, in its capacity as counsel to the Seller, dated
the Closing Date, with respect to (i) the consolidation of the assets and
liabilities of the Seller with those of the Representative under the doctrine of
substantive consolidation, (ii) the creation of (x) a "true sale" with respect
to the transfers of the Receivables from the Representative to the Seller and
the Seller to the Trust and (y) with respect to the transfer of the Receivables
to the Trust, a valid and binding first priority security interest in the
Receivables and (iii) such other related matters as the Underwriter shall
reasonably require and the Seller shall have furnished or caused to be furnished
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to such counsel such documents as they may reasonably request for the purpose of
enabling them to pass upon such matters. Such opinions shall be limited to the
laws of the State of New York and United States federal law.
(i) The Underwriter shall have received an opinion of
__________, counsel to the Trustee, dated the Closing Date and satisfactory in
form and substance to the Underwriter and counsel for the Underwriter, to the
effect that:
(i) The Trustee has been duly organized as a ___________ and
is validly existing as a ________ in good standing under the
laws of the __________.
(ii) The Trustee has the requisite power and authority to
execute, deliver and perform its obligations under the
Indenture and has taken all necessary action to authorize the
execution, delivery and performance by it of the Indenture.
(iii) The Indenture has been duly executed and delivered by
the Trustee and constitutes a legal, valid and binding
obligation of the Trustee, enforceable against the Trustee in
accordance with its respective terms, except that such
enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium, or other similar laws affecting
the enforcement of creditors' rights generally, and by general
principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at
law).
(iv) The Notes have been duly authenticated by the Trustee
in accordance with the terms of the Indenture.
[(v) Assuming a valid security exists in the property held
in the Spread Account in favor of the Trustee, on behalf of
the Noteholders, such security interest is perfected.]
(j) The Underwriter shall have received an opinion of
___________, counsel to the Owner Trustee, dated the Closing Date and
satisfactory in form and substance to the Underwriter and counsel for the
Underwriter, to the effect that:
(i) The Owner Trustee is a _________ duly incorporated and
organized and validly existing under the laws of the ________.
(ii) The Owner Trustee has the full corporate trust power to
accept the office of owner trustee under the Trust Agreement
and to enter into and perform its obligations under the Trust
Agreement, the Indenture and the Sale and Servicing Agreement.
(iii) The execution and delivery of the Trust Agreement, the
Indenture and the Sale and Servicing Agreement, and the
performance by the Owner Trustee of its obligations under the
Trust Agreement, the Sale and Servicing Agreement and the
Indenture have been duly authorized by all necessary action of
the Owner Trustee and each has been duly executed and
delivered by the Owner Trustee.
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(iv) The Trust Agreement constitutes the valid and binding
obligations of the Owner Trustee enforceable against the Owner
Trustee in accordance with its terms.
(v) The execution and delivery by the Owner Trustee of the
Trust Agreement, the Indenture and the Sale and Servicing
Agreement do not require any consent, approval or
authorization of, or any registration or filing with, any
applicable governmental authority.
(vi) Each of the Notes and Certificates has been duly
executed and delivered by the Owner Trustee, on behalf of the
Trust.
(vii) Neither the consummation by the Owner Trustee of the
transactions contemplated in the Sale and Servicing Agreement,
the Indenture or the Trust Agreement nor the fulfillment of
the terms thereof by the Owner Trustee will conflict with,
result in a breach or violation of, or constitute a default
under any law of the United States of America or the State of
New York governing its banking or trust powers or the charter,
by-laws or other organizational documents of the Owner
Trustee.
(viii) No approval, authorization or other action by, or
filing with, any governmental authority of the United States
of America or the State of New York having jurisdiction over
the banking or trust powers of the Owner Trustee is required
in connection with the execution and delivery by the Owner
Trustee of the Trust Agreement, the Indenture or the Sale and
Servicing Agreement.
(k) The Underwriter shall have received an opinion of
[Richards, Layton & Finger], special Delaware counsel for the Trust, dated the
Closing Date, satisfactory in form and substance to the Underwriter and counsel
for the Underwriter, to the effect that:
(i) The Trust Agreement constitutes the valid and binding
obligation of the Owner Trustee and the Seller enforceable
against the Owner Trustee and the Seller in accordance with
its terms subject to (i) applicable bankruptcy, insolvency,
moratorium, receivership, reorganization, fraudulent
conveyance and similar laws relating to and affecting the
rights and remedies of creditors generally, and (ii)
principles of equity (regardless of whether considered and
applied in a proceeding in equity or at law).
(ii) The Indenture and the Sale and Servicing Agreement
constitute the valid and binding obligations of the Trust
enforceable against the Trust in accordance with their terms.
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(iii) The Certificate of Trust has been duly filed with the
Secretary of State. The Trust has been duly formed and is
validly existing as a business trust under the Delaware
Business Trust Act. The Trust has the power and authority
under the Trust Agreement and the Act to execute and deliver
the Indenture and the Sale and Servicing Agreement, to issue
the Notes and the Certificates and to pledge the Trust Estate
to the Trustee as security for the Notes.
(iv) Assuming that the Certificates have been duly executed
and issued by the Trust and duly authenticated by the Owner
Trustee in accordance with the Trust Agreement and delivered
to and paid for pursuant to the Initial Purchaser Agreement,
the Certificates have been validly issued and are entitled to
the benefits of the Trust Agreement.
(v) To the extent that Article 9 of the Uniform Commercial
Code as in effect in the State of Delaware (the "Delaware
UCC") is applicable (without regard to conflicts of laws
principles), and assuming that the security interest created
by the Indenture in the Receivables has been duly created and
has attached, upon the filing of a UCC-1 financing statement
with the Secretary of State of the State of Delaware the
Trustee will have a perfected security interest in such
Receivables and the proceeds thereof, and such security
interest will be prior to any other security interest that is
perfected solely by the filing of financing statements under
the Delaware UCC, excluding purchase money security interests
under ss. 9-312(4) of the UCC and temporarily perfected
security interests in proceeds under ss. 9-306(3) of the
Delaware UCC.
(vi) No re-filing or other action is necessary under the
Delaware UCC in order to maintain the perfection of such
security interest except for the filing of continuation
statements at five year intervals.
(vii) Under ss. 3805(b) of the Business Trust Act, no
creditor of any Certificateholder shall have any right to
obtain possession of, or otherwise exercise legal or equitable
remedies with respect to, the property of the Trust except in
accordance with the terms of the Trust Agreement.
(viii) Under ss. 3805(c) of the Business Trust Act, and
assuming that the Sale and Servicing Agreement conveys good
title to the Receivables to the Trust as a true sale and not
as a security arrangement, the Trust rather than the
Certificateholders is the owner of the Receivables.
(ix) The execution and delivery by the Owner Trustee of the
Trust Agreement and, on behalf of the Trust, the Indenture and
the Sale and Servicing Agreement do not require any consent,
approval or authorization of, or any registration or filing
with, any governmental authority of the State of Delaware,
except for the filing of the Certificate of Trust with the
Secretary of State.
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(x) Neither the consummation by the Owner Trustee of the
transactions contemplated in the Trust Agreement or, on behalf
of the Trust, the transactions contemplated in the Indenture
and the Sale and Servicing Agreement nor the fulfillment of
the terms thereof by the Owner Trustee will conflict with or
result in a breach or violation of any law of the State of
Delaware.
Such opinion may contain such assumptions, qualifications and
limitations as are customary in opinions of this type and are reasonably
acceptable to counsel to the Initial Purchaser. In rendering such opinion, such
counsel may state that they express no opinion as to the laws of any
jurisdiction other than the federal law of the United States of America and the
laws of the State of Delaware.
(l) The Note Policy shall have been duly executed and issued
at or prior to the Closing Date and shall conform in all material respects to
the description thereof in the Prospectus.
(m) The Underwriter shall have received an opinion of
__________________, counsel for the Note Insurer, dated the Closing Date,
satisfactory in form and substance to the Underwriter and counsel for the
Underwriter, to the effect that:
(i) The Note Insurer is a stock insurance company duly
organized, validly existing and authorized to transact
financial guaranty insurance business under the laws of the
State of New York. The Note Insurer is validly licensed and
authorized to issue the Note Policy and perform its
obligations under the Note Policy in accordance with the terms
thereof, under the laws of the State of New York.
(ii) The Note Policy, the Indemnification Agreement and the
Insurance and Indemnity Agreement have been duly authorized,
executed and delivered by the Note Insurer.
(iii) The Note Policy, the Indemnification Agreement and the
Insurance and Indemnity Agreement constitute valid and binding
obligations of the Note Insurer, enforceable against the Note
Insurer in accordance with their terms, subject, as to the
enforcement of remedies, to bankruptcy, insolvency,
reorganization, rehabilitation, moratorium and other similar
laws affecting the enforceability of creditors' rights
generally applicable in the event of the bankruptcy or
insolvency of the Note Insurer and to the application of
general principles of equity and subject, in the case of the
Indemnification Agreement, to principles of public policy
limiting the right to enforce the indemnification provisions
contained therein insofar as such provisions relate to
indemnification for liabilities arising under the securities
law.
(iv) The Note Policy is exempt from registration under the
Securities Act.
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(v) Neither the execution nor the delivery by the Note
Insurer of the Note Policy, the Indemnification Agreement or
the Insurance and Indemnity Agreement, nor the performance by
it of its obligations thereunder, will conflict with any
provision of the certificate of incorporation or the by-laws
of the Note Insurer or, to the best of such counsel's
knowledge, result in a breach of, or constitute a default
under, any agreement or other instrument to which the Note
Insurer is a party or by which it or any of its property is
bound or, to the best of such counsel's knowledge, violate any
judgment, order or decree applicable to the Note Insurer of
any governmental or regulatory body, administrative agency,
court or arbitrator having jurisdiction over the Note Insurer
(except that in the published opinion of the Securities and
Exchange Commission the indemnification provisions of the
Indemnification Agreement, insofar as they relate to
indemnification for liabilities arising under the Securities
Act, are against public policy as expressed in the Securities
Act and are therefore unenforceable).
(vi) The statements set forth in the Prospectus as of the
date thereof and as of the Closing Date under the captions
"______" (other than the financial statements and other
financial and statistical data contained or incorporated
therein, as to which such counsel need express no opinion) is
correct and true in all material respects.
In rendering this opinion, such counsel may rely, as to
matters of fact, on certificates of responsible officers of the Seller, the
Representative, the Trustee, the Note Insurer and public officials. Such opinion
may assume the due authorization, execution and delivery of the instruments and
documents referred to therein by the parties thereto other than the Note
Insurer.
(n) On or prior to the Closing Date there shall not have
occurred any downgrading, nor shall any notice have been given of (A) any
intended or potential downgrading or (B) any review or possible change in rating
the direction of which has not been indicated, in the rating accorded the Note
Insurer's claims paying ability by any "nationally recognized statistical rating
organization."
(o) The Representative shall have received from the Insurer a
certificate, signed by the President, a senior vice president or a vice
president of the Insurer, dated the Closing Date, to the effect that the signer
of such certificate has carefully examined the Policy and the related documents
and that, to the best of his or her knowledge based on reasonable investigation:
(i) The information in the Prospectus Supplement as of the
date hereof under the caption "______________" (the "Note
Insurer Information") is true and correct in all material
respects and does not contain any untrue statement of a fact
that is material to the Note Insurer's ability to perform its
obligations under the Note Policy. There has been no material
adverse change in the financial condition of the Insurer since
____________.
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(ii) There are no actions, suits, proceedings or
investigations pending or, to the best of the Note Insurer's
knowledge, threatened against it at law or in equity or before
or by any court, governmental agency, board or commission or
any arbitrator which, if decided adversely, would materially
and adversely affect its condition (financial or otherwise) or
operations of it or would materially and adversely affect its
ability to perform its obligations under the Note Policy or
the Insurance Agreement.
(iii) The execution and delivery of the Insurance Agreement,
the Indemnification Agreement and the Note Policy and the
compliance with the terms and provisions thereof will not
conflict with, result in a breach of, or constitute a default
under any of the terms, provisions or conditions of, the
Restated Charter or By-Laws of the Note Insurer, or any
agreement, indenture or other instrument to which the Note
Insurer is a party;
(iv) The issuance of the Note Policy and the execution,
delivery and performance of the Indemnification Agreement and
the Insurance Agreement have been duly authorized by all
necessary corporate proceedings. No further approvals or
filings of any kind, including, without limitation, any
further approvals of or further filing with any governmental
agency or other governmental authority, or any approval of the
Note Insurer's board of directors or stockholders, are
necessary for the Note Policy, the Indemnification Agreement
and the Insurance Agreement to constitute the legal, valid and
binding obligations of the Note Insurer.
(p) The Underwriter shall have received copies of each opinion
of counsel delivered to either rating agency or the Note Insurer, together with
a letter addressed to the Underwriter, dated the Closing Date, to the effect
that the Underwriter may rely on each such opinion to the same extent as though
such opinion was addressed to each as of its date.
(q) The Underwriter shall have received a certificate dated
the Closing Date of the Seller, executed by any two of the Chairman of the
Board, the President, any Executive Vice President, Senior Vice President or
Vice President, the Treasurer, any Assistant Treasurer, the Secretary, the
principal financial officer or the principal accounting officer of the Seller,
in which such officer shall state that, to the best of its knowledge after
reasonable investigation, (i) the representations and warranties of the Seller,
contained in this Agreement and the Basic Documents to which it is a party are
true and correct in all material respects, (ii) that the Seller, has complied
with all agreements and satisfied all conditions on its part to be performed or
satisfied under such agreements at or prior to the Closing Date, and (iii) since
the date of its incorporation, except as may be disclosed in the Prospectus or
in such certificate, no material adverse change, or any development involving a
prospective material adverse change, in or affecting particularly the business
or properties of the Trust, the Representative or the Seller, has occurred.
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(r) The Underwriter shall have received a certificate dated
the Closing Date of the Representative, executed by any two of the Chairman of
the Board, the President, any Executive Vice President, Senior Vice President or
Vice President, the Treasurer, any Assistant Treasurer, the Secretary, the
principal financial officer or the principal accounting officer of the
Representative in which such officer shall state that, to the best of its
knowledge after reasonable investigation, (i) the representations and warranties
of the Representative contained in this Agreement, the Loan Purchase Agreement
and the Sale and Servicing Agreement are true and correct in all material
respects, (ii) that the Representative has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied under such
agreements at or prior to Closing Date the and (iii) since December 31, 1997,
except as may be disclosed in the Prospectus or in such certificate, no material
adverse change, or any development involving a prospective material adverse
change, in or affecting particularly the business or properties of the Trust,
the Representative or the Seller, has occurred.
(s) The Underwriter shall have received evidence satisfactory
to it and counsel for the Underwriter that, on or before the Closing Date, UCC-1
financing statements shall have been submitted to the Owner Trustee or Trustee,
as the case may be, for filing in the appropriate filing offices reflecting (1)
the transfer of the interest in the Receivables, certain other property and the
proceeds thereof (A) from the representative to the Seller and (B) from the
Seller to the Trust, and (2) the grant of the security interest by the Trust in
the Receivables, certain other property and the proceeds thereof to the Trustee.
(t) The Class A-1 Notes shall be rated in the highest short
term rating category, and the Class A-2 Notes shall be rated at least "AAA" or
its equivalent, in each case by Moody's and S&P and neither corporation shall
have placed the Notes under surveillance or review with possible negative
implications.
The Seller will provide or cause to be provided to the
Underwriter such conformed copies of such of the foregoing opinions,
certificates, letters and documents as the Underwriter shall reasonably request.
7. Indemnification and Contribution.
(a) The Seller and the Representative, jointly and severally,
agree to indemnify and hold harmless the Underwriter against any and all losses,
claims, damages or liabilities, joint or several, or any action in respect
thereof (including but not limited to, any loss, claim, damage or liability (or
action relating to purchases and sales of the Notes)), to which the Underwriter
may become subject, under the Act, the Exchange Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained or incorporated in the Registration Statement,
the Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
in which they were made, not misleading, and will reimburse the Underwriter for
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any legal or other expenses reasonably incurred by the Underwriter in connection
with investigating or defending any such loss, claim, damage, liability or
action as such expenses are incurred; provided, however, that neither the Seller
nor the Representative shall be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission from
any of such documents in reliance upon and in conformity with the Underwriter's
Information or the Derived Information.
(b) The Underwriter severally agrees to indemnify and hold
harmless the Seller and the Representative against any losses, claims, damages
or liabilities to which the Seller or the Representative may become subject,
under the Act, the Exchange Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained or incorporated in the Registration Statement, the Prospectus, or any
amendment or supplement thereto or any related preliminary prospectus, or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with the Underwriter's
Information, and will reimburse any legal or other expenses reasonably incurred
by the Representative or the Seller in connection with investigating or
defending any such loss, claim, damage, liability or action as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under subsection (a) or (b) above or (e) below, notify the indemnifying party of
the commencement thereof; but the omission to so notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party under subsection (a) or (b) above or (e) below, except to the extent it
has been materially prejudiced by such failure and, provided further, that the
failure to notify any indemnifying party shall not relieve it from any liability
which it may have to any indemnified party otherwise that under this Section. In
case any such action is brought against any indemnified party and it notifies
the indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein and to the extent that it may wish to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party (who shall not, except with the consent of the indemnified party, be
counsel to the indemnifying party), and after notice from the indemnifying party
to such indemnified party of its election so to assume the defense thereof,
except to the extent provided in the next following paragraph, the indemnifying
party will not be liable to such indemnified party under this Section for any
legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation.
Any indemnified party shall have the right to employ separate counsel
in any such action and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless: (i) the employment thereof has been specifically authorized by the
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indemnifying party in writing; (ii) such indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party and in the reasonable judgment of such counsel it is
advisable for such indemnified party to employ separate counsel; or (iii) the
indemnifying party has failed to assume the defense of such action and employ
counsel reasonable satisfactory to the indemnified party, in which case, if such
indemnified party notifies the indemnifying party in writing that it elects to
employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such action
on behalf of such indemnified party, it being understood, however, the
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys (in
addition to local counsel) at any time for all such indemnified parties, which
firm shall be designated in writing by the Underwriter, if the indemnified
parties under this Section 7 consist of the Underwriter, or by the Seller and
the Representative, if the indemnified parties under this Section 7 consist of
the Seller and the Representative.
Each indemnified party, as a condition of the indemnity agreements
contained in Section 7 (a), (b) and (e) hereof, shall use its best efforts to
cooperate with the indemnifying party in the defense of any such action or
claim. No indemnifying party shall be liable for any settlement of any such
action effected without its written consent (which consent shall not be
unreasonably withheld), but if settled with its written consent or if there be a
final judgment for the plaintiff in any such action, the indemnifying party
agrees to indemnify and hold harmless any indemnified party from and against any
loss or liability by reason of such settlement or judgment.
(d) The Underwriter agrees to provide the Seller with a copy
of any Derived Information (as defined in Section 7(h) below) no later than the
date preceding the date such Derived Information is required to be filed with
the Commission on a Current Report pursuant to the PSA Letters.
(e) The Underwriter agrees, assuming all
Representative-Provided Information is accurate and complete in all material
respects, to indemnify and hold harmless the Seller and the Representative
against any losses, claims, damages or liabilities to which the Seller or the
Representative may become subject, under the Act, the Exchange Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement of any material
fact contained in the Derived Information, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and will reimburse any
legal or other expenses reasonably incurred by the Representative or the Seller
in connection with investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred.
(f) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless the indemnified party under
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subsection (a) or (b) above then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Seller and the Representative on the one hand and the Underwriter on the
other from the offering of the Notes or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law or if the indemnified party
failed to give the notice required under subsection (c) above, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Seller or the
Representative on the one hand and the Underwriter on the other in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities as well as any other relevant equitable considerations. The
relative benefits received by the Seller and the Representative on the one hand
and the Underwriter on the other shall be deemed to be in such proportion that
the Underwriter shall be responsible for that portion represented by the
underwriting discounts and commissions received by the Underwriter (the
"Spread"); and the Seller and the Representative shall be responsible for the
balance. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Seller or the Representative or the Underwriter and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The Seller, the Representative and
the Underwriter agree that it would not be just and equitable if contributions
pursuant to this subsection (f) were to be determined by pro rata allocation or
by any other method of allocation which does not take into account the equitable
considerations referred to herein.
The amount paid by an indemnified party as a result of the losses,
claims, damages or liabilities referred to in the first sentence of this
subsection (f) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any action or claim which is the subject of this subsection (f). Notwithstanding
the provisions of this subsection (f), in no case shall the Underwriter (except
(x) with respect to any Derived Information incorporated by reference into the
Registration Statement or Prospectus at the request of the Underwriter (i) which
had not been approved by the Seller for use by the Underwriter or (ii) for which
the Seller have not received a letter from _________________ in form and
substance satisfactory to them be responsible for any amount (not including the
fees and expenses of its counsel) in excess of the Spread received by the
Underwriter, as set forth on the cover page of the Prospectus. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(g) The obligations of the Seller and the Representative under
this Section shall be in addition to any liability which the Seller and the
Representative may otherwise have and shall extend, upon the same terms and
conditions, to each person, if any, who controls the Underwriter within the
meaning of the Act or the Exchange Act. The obligations of the Underwriter shall
be in addition to any liability which the Underwriter may otherwise have and
shall extend, upon the same terms and conditions, to each director of the
Seller, and each of its officers that signed the Registration Statement.
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(h) For purposes of this Section 7, the term "Derived
Information" means such portion, if any, of the information delivered to the
Seller by the Underwriter pursuant to subsection (d) hereof for filing with the
Commission in the Current Report as:
(i) is not contained in the Prospectus without taking into
account information incorporated therein by reference;
(ii) does not constitute Representative-Provided Information
(as defined below); and
(iii) is of the type of information defined as
"computational materials," "structural term sheets" or
"collateral term sheets" (as such terms are interpreted in
the PSA Letters).
"Representative-Provided Information" means any computer tape furnished to the
Underwriter by the Representative concerning the assets comprising the Trust.
(i) The Underwriter confirms that the information set forth in
the last paragraph on the cover page of the Prospectus and in the _____
paragraph under the caption "Underwriting" in the Prospectus (together, the
"Underwriter's Information") is correct, and together with the Derived
Information, constitutes the only information furnished in writing to the Seller
by or on behalf of the Underwriter specifically for inclusion in the
Registration Statement and the Prospectus.
(j) (i) The Underwriter represents and warrants to, and
covenants with, the Seller and the Representative that all Derived Information
provided to the Seller pursuant to this Section 7, as of the date such
information is so provided and as of the date such information is filed by the
Seller with the Commission will not include any untrue statement of a material
fact, when considered in conjunction with the Prospectus, and will not omit to
state any material fact necessary, when considered in conjunction with the
Prospectus, to make the statements contained therein, in the light of the
circumstances under which they were made, not misleading.
(ii) The Underwriter further covenants with the Seller that
if any Derived Information required to be provided to the
Seller pursuant to subsection (d) above is determined to
contain any information that is inaccurate or misleading, the
Underwriter (whether or not such Derived Information was
provided to the Seller or filed by the Seller with the
Commission) shall promptly prepare and deliver to the Seller
and each prospective investor which received such Derived
Information corrected Derived Information. All information
provided to the Seller pursuant to this Section 7(i) shall be
provided within the time periods set forth in subsection (d)
above.
(iii) The Underwriter covenants with the Seller that all
Derived Information delivered by it to prospective investors
shall contain a legend satisfactory in substance to the
Seller.
28
<PAGE>
8. Survival of Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Seller or its officers and of the Underwriter set forth in or made pursuant to
this Agreement or contained in certificates of officers of the Seller submitted
pursuant hereto shall remain operative and in full force and effect, regardless
of any investigation or statement as to the results thereof, made by or on
behalf of the Underwriter, the Seller or any of their respective
representatives, officers or directors or any controlling person, and will
survive delivery of and payment for the Notes. If for any reason the purchase of
the Notes by the Underwriter is not consummated, the Representative shall remain
responsible for the expenses to be paid or reimbursed by the Representative
pursuant to Section 5(l) and the respective obligations of the Seller, the
Representative and the Underwriter pursuant to Section 7 shall remain in effect.
If for any reason the purchase of the Notes by the Underwriter is not
consummated (other than because of a failure to satisfy the conditions set forth
in items (i)(y), (ii)(y), (iii), (v) and (vi) of Section 6(c)), the
Representative will reimburse the Underwriter for all out-of-pocket expenses
reasonably incurred by it in connection with the offering of the Notes.
9. Notices. Any written request, demand, authorization,
direction, notice, consent or waiver shall be personally delivered or mailed
certified mail, return receipt requested (or in the form of telex or facsimile
notice, followed by written notice as aforesaid) and shall be deemed to have
been duly given upon receipt, if sent to the Underwriter, when delivered to the
Underwriter at 85 Broad Street, New York, New York 10004, Attention: Tom
Lasersohn (fax # (212) 902-4024), if sent to the Representative when delivered
to 47 West 200 South, Suite 500, Salt Lake City, UT 84101, Attention: _________
(Fax # (801) 881-8892) and if sent to the Seller when delivered to 47 West 200
South, Suite 500, Salt Lake City, UT 84101, Attention: _________ (Fax # (801)
_________).
10. Successors. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and the
officers and directors and controlling persons referred to in Section 7, and no
other person will have any right or obligations hereunder.
11. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
12. Applicable Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York without regard
to the choice of law provisions thereof.
29
<PAGE>
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us one of the counterparts hereof,
whereupon it will become a binding agreement among the Registrants, the
Representative and the Underwriter in accordance with its terms.
Very truly yours,
FRANKLIN RECEIVABLES LLC
By:__________________________
Name:
Title:
FCC RECEIVABLES CORP.
By:__________________________
Name:
Title:
FRANKLIN CAPITAL CORPORATION
By:__________________________
Name:
Title:
The foregoing Underwriting Agreement
is hereby confirmed and accepted as of the
date first written above.
GOLDMAN, SACHS AND CO.
By:____________________________
30
<PAGE>
SCHEDULE I
OFFICES
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
Original
Principal Investor Investor
Security Balance $ Price % Price $ Price % Price $ Rate %
- -------- --------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Class A-1 Notes
Class A-2 Notes
Class A-3 Notes
Class A-4 Notes
Class A-5 Notes
Total Price to Public: $
Total Price to Seller:
Underwriting Discounts
and Commissions: $
</TABLE>
2
<PAGE>
EXHIBIT A
________, 1998
Goldman, Sachs & Co.
85 Broad Street
New York, NY 10004
Re: Underwriting Agreement for Franklin Auto Trust 1998-1, dated _____,
1998 the "Underwriting Agreement") among FCC Receivables Corp., Franklin
Receivables LLC, Franklin Capital Corporation ("Franklin Capital") and Goldman,
Sachs & Co. (the "Underwriter").
Ladies and Gentlemen:
Pursuant to the Underwriting Agreement, Franklin Capital has undertaken
certain financial obligations with respect to the indemnification of the
Underwriter with respect to the Registration Statement, and the Prospectus
described in the Underwriting Agreement. Any financial obligations of Franklin
Capital under the Underwriting Agreement, whether or not specifically enumerated
in this paragraph, are hereinafter referred to as the "Joint and Several
Obligations;" provided, however, that "Joint and Several Obligations" shall mean
only the financial obligations of Franklin Capital under the Underwriting
Agreement (including the payment of money damages for a breach of any of
Franklin Capital's obligations under the Underwriting Agreement, whether
financial or otherwise) but shall not include any obligations not relating to
the payment of money.
As a condition of its execution of the Underwriting Agreement, the
Underwriter has required the undersigned, Franklin Resources, Inc. (the
"Guarantor"), the parent corporation of Franklin Capital, to acknowledge its
joint and several liability with Franklin Capital for the payment of the Joint
and Several Obligations under the Underwriting Agreement.
Now, therefore, the Underwriter and the Guarantor do hereby agree that:
1. The Guarantor hereby agrees to be absolutely and unconditionally jointly and
severally liable with Franklin Capital to the Underwriter for the payment of the
Joint and Several Obligations under the Underwriting Agreement.
2. The Guarantor may honor its obligations hereunder either by direct payment of
any Joint and Several Obligations or by causing any Joint and Several
Obligations to be paid to the Underwriter by Franklin Capital or another
affiliate of the Guarantor.
<PAGE>
Capitalized terms used herein and not defined herein shall have their
respective meanings as set forth in the Underwriting Agreement.
Very truly yours,
FRANKLIN RESOURCES, INC.
By:_____________________
Name:
Title:
GOLDMAN, SACHS & CO.
By:______________________
Name:
Title:
2
Exhibit 3.1
CERTIFICATE OF FORMATION
OF
FRANKLIN RECEIVABLES LLC
This Certificate of Formation of Franklin Receivables LLC is being
duly executed and filed by Franklin Capital Corporation, as an authorized
person, through its president Jennifer J. Bolt, to form a limited liability
company under the Delaware Limited Liability Company Act (6 Del.C. ss. 18-101,
et seq.).
FIRST: The name of the limited liability company formed hereby is
FRANKLIN RECEIVABLES LLC.
SECOND: The address of the registered office of Franklin Receivables
LLC in the State of Delaware and the name and address of the registered agent
for service of process on Franklin Receivables LLC in the State of Delaware are:
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, County of New Castle, Delaware 19801.
THIRD: This Certificate of Formation shall be effective on the date
of filing.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Formation this 2nd day of June, 1998.
FRANKLIN CAPITAL CORPORATION
By: /s/ Jennifer J. Bolt
---------------------------------
Name: Jennifer J. Bolt
Title: President
Exhibit 3.2
LIMITED LIABILITY COMPANY AGREEMENT
OF
FRANKLIN RECEIVABLES LLC
LIMITED LIABILITY COMPANY AGREEMENT of FRANKLIN RECEIVABLES LLC (the
"Company") dated as of June 8, 1998 by FRANKLIN CAPITAL CORPORATION, a Utah
corporation (the "Managing Member" and together with any persons admitted as
members of the Company pursuant hereto, the "Members").
W I T N E S S E T H :
WHEREAS, the Company was formed as a limited liability company
pursuant to the Delaware Limited Liability Company Act (6 Del.C. ss. 18-101, et
seq.), as it may be amended from time to time (the "Act");
WHEREAS, the Members desire to enter into this Agreement to
establish herein their respective rights and obligations in connection with the
business and operations of the Company;
NOW, THEREFORE, in consideration of the premises and the covenants
and provisions hereinafter contained, the Members hereby agree as follows:
ARTICLE I
ORGANIZATIONAL AND OTHER MATTERS
SECTION 1.01. Formation. The Company was formed as a limited
liability company under the provisions of the Act by the filing on June 2, 1998
of a Certificate of Formation (the "Certificate of Formation") with the
Secretary of State of the State of Delaware. The rights and liabilities of the
Members shall be as provided in the Act, except as is otherwise expressly
provided herein.
SECTION 1.02. Name. The name of the Company shall be FRANKLIN
RECEIVABLES LLC and the business of the Company shall be conducted under such
name.
SECTION 1.03. Principal Office. The principal office of the Company
shall be at 47 West 200 South, Salt Lake City, UT, or such other place as the
Members may from time to time determine.
SECTION 1.04. Term. The Company shall commence on the date of
<PAGE>
filing of the Certificate of Formation, and the term of the Company shall
continue until the dissolution of the Company as provided by law.
SECTION 1.05. Limited Liability. Except as otherwise provided by the
Act, the debts, obligations and liabilities of the Company, whether arising in
contract, tort or otherwise, shall be the debts, obligations and liabilities
solely of the Company, and no Member shall be obligated personally for any of
such debts, obligations or liabilities solely by reason of being a Member.
ARTICLE II
PURPOSE AND POWERS
SECTION 2.01. Purpose of the Company. The Company may buy and sell
receivables, loans and other financial assets and may act as depositor or seller
to trusts and other entities formed to acquire or finance such assets.
SECTION 2.02. Powers of the Company. The Company shall have the
power to do any and all acts reasonably necessary, appropriate, proper,
advisable, incidental or convenient to or for the furtherance of the purpose and
business described in Section 2.01 and for the protection and benefit of the
Company.
ARTICLE III
CAPITAL CONTRIBUTIONS
SECTION 3.01. Capital Contributions. Any capital contributions made
to the Company will be made by the Members as follows: 100% by the Managing
Member.
ARTICLE IV
DISTRIBUTIONS
SECTION 4.01. Distribution of Proceeds. All distributions and
allocations of items of income, gain, loss and deduction shall be made 100% to
the Managing Member.
2
<PAGE>
ARTICLE V
MANAGEMENT OF THE COMPANY
SECTION 5.01. General. The management of the Company shall be vested
in the Managing Member or, pursuant to Section 18-407 of the Act, the Managing
Member may delegate it's rights and powers to manage the business of the Company
to one or more other persons, including without limitation, persons designated
as officers or directors of the Company.
ARTICLE VI
DISSOLUTION AND LIQUIDATION
SECTION 6.01. Dissolution. The Company shall not dissolve or
terminate until the winding up of the affairs of the Company is completed, the
assets of the Company shall have been distributed as provided below and a
Certificate of Cancellation of the Company under the Act has been filed with the
Secretary of State of the State of Delaware.
SECTION 6.02. Liquidation. Sole and plenary authority to effectuate
the liquidation of the assets of the Company shall be vested in the Managing
Member, which shall have full power and authority to sell, assign and encumber
any and all of the Company's assets and to wind up and liquidate the affairs of
the Company in an orderly and business-like manner. The proceeds of liquidation
of the assets of the Company distributable in connection with a dissolution and
winding up of the Company shall be applied in the following order of priority:
(i) first, to the creditors of the Company, including the Managing
Member, if a creditor, in the order of priority provided by law, in
satisfaction of all liabilities and obligations of the Company (of any
nature whatsoever, including, without limitation, fixed or contingent,
matured or unmatured, legal or equitable, secured or unsecured), whether
by payment or the making of reasonable provision for payment thereof; and
(ii) thereafter, to the Managing Member.
3
<PAGE>
SECTION 6.03. Winding Up and Certificate of Cancellation. The
winding up and dissolution of the Company shall be completed when all of its
debts, liabilities, and obligations have been paid and discharged or reasonably
adequate provision therefor has been made, and all of the remaining property and
assets of the Company have been distributed to the Managing Member. Upon the
completion of the winding up of the Company, a Certificate of Cancellation of
the Company shall be filed with the Secretary of State of the State of Delaware.
ARTICLE VII
AMENDMENT
SECTION 7.01. Amendment Procedures. This Agreement may be amended or
modified only by a written instrument executed by all the Members. In addition,
the terms or conditions hereof may be waived by a written instrument executed by
the party waiving compliance. Additional Members may be admitted by amendment of
this Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this
Agreement as of the date first written above.
FRANKLIN CAPITAL CORPORATION
By: /s/ Jennifer J. Bolt
-----------------------------
Name: Jennifer J. Bolt
Title: President
Exhibit 3.3
CERTIFICATE OF INCORPORATION
OF
FCC RECEIVABLES CORP.
----------------------------------------
I, the undersigned, for the purposes of incorporating and organizing a
corporation under the General Corporation Law of the State of Delaware, do
execute this Certificate of Incorporation and do hereby certify as follows:
FIRST. The name of the corporation (hereinafter, the "Corporation") is FCC
RECEIVABLES CORP.
SECOND. The address of the registered office of the Corporation in the
state of Delaware is 32 Loockerman Square, Suite L-100, in the City of Dover,
County of Kent, 19901. The name of the registered agent of the corporation in
the State of Delaware at such address is The Prentice-Hall Corporation System,
Inc.
THIRD. (a) Subject to paragraph (b) below, the purpose of the
Corporation is to engage in any lawful act or activity for which a corporation
may be organized under the General Corporation Law of the State of Delaware.
(b) Notwithstanding paragraph (a) above, the purpose of the
Corporation is limited to the following purposes, and activities incident to and
necessary or convenient to accomplish the following purposes: (i) to acquire,
own, hold, sell, transfer, assign, pledge, finance, refinance, and otherwise
deal with, retail installment sale contracts or wholesale loans secured by new
and used automobiles, minivans and light trucks (the "Receivables); (ii) to
authorize, issue, sell and deliver one or more series of obligations, consisting
of one or more classes of certificates (the "Certificates") that are
collateralized by or evidence an interest in the Receivables; and (iii)
negotiate, authorize, execute, deliver and assume the obligations of any
agreement relating to the activities set forth in clauses (i) and (ii) above,
including but not limited to any pooling and servicing agreement, indenture,
reimbursement agreement, credit support agreement, receivables purchase
agreement or underwriting agreement or to engage in any lawful activity which is
incidental to the activities contemplated by any such agreement. So long as any
outstanding debt of the Corporation or Certificates are rated by any nationally
recognized statistical rating organization, the Corporation shall not issue
notes or otherwise borrow money unless (A) the Corporation has made a written
request to the related nationally recognized statistical rating organization to
issue notes or incur borrowings which notes or borrowings are
<PAGE>
rated by the related nationally recognized statistical rating organization the
same as or higher than the rating afforded such rated debt or certificates, or
(B) such notes or borrowings (1) are fully subordinated (and provide for payment
only after payment in respect of all outstanding rated debt and/or Certificates)
or are nonrecourse against any assets of the Corporation other than the assets
pledged to secure such notes or borrowings, (2) do not constitute a claim
against the Corporation in the event such assets are insufficient to pay such
notes or borrowings, and (3) are secured by the rated debt or Certificates, are
fully subordinated (and provide for payment only after payment in respect of all
outstanding rated debt and/or Certificates) to such rated debt or Certificates.
FOURTH. The Corporation shall have one class of stock designated as Common
Stock, and the total number of shares of stock of that class that the
Corporation shall have authority to issue is 1,000 shares without par value. The
holders of the Common Stock shall have no preemptive rights to subscribe for any
shares of any class of stock of the Corporation whether now or hereafter
authorized.
FIFTH. The name and address of the sole incorporator of the
Corporation is as follows:
Name Address
---- -------
Leslie M. Kratter c/o Franklin Resources, Inc.
777 Mariners Island Boulevard
San Mateo, California 94404
SIXTH. Unless and except to the extent that the by-laws of the Corporation
shall so require, the election of directors of the Corporation need not be by
written ballot.
SEVENTH. In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the Board of Directors of the Corporation is
expressly authorized to make, alter and repeal the by-laws of the Corporation,
subject to the power of the stockholders of the Corporation to alter or repeal
any by-law whether adopted by them or otherwise.
EIGHTH. A director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the General Corporation Law of the
State of Delaware as the same exists or way hereafter be amended. Any amendment,
modification or repeal of the foregoing sentence shall not adversely affect any
right or protection of a director of the Corporation hereunder in respect of any
act or omission occurring prior to the time of such amendment, modification or
repeal.
-2-
<PAGE>
NINTH. Notwithstanding any other provision of this Certificate of
incorporation and any provision of law, the Corporation shall not do any of the
following:
(a) engage in any business or activity other than as set
forth in Article Third hereof;
(b) without the affirmative vote of a majority of the members of the
Board of Directors of the Corporation, (i) dissolve or liquidate, in whole
or in part, or institute proceedings to be adjudicated bankrupt or
insolvent, (ii) consent to the institution of bankruptcy or insolvency
proceedings against it, (iii) file a petition seeking or consent to
reorganization or relief under any applicable federal or state law
relating to bankruptcy, (iv) consent to the appointment of a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of
the corporation or a substantial part of its property, (v) make a general
assignment for the benefit of creditors (vi) admit in writing its
inability to pay its debts generally as they become due, or (vii) take any
corporate action in furtherance of the actions set forth in clauses (i)
through (vi) of this paragraph, provided, however, that no director may be
required by any stockholder of the Corporation to consent to the
institution of bankruptcy or insolvency proceedings against the
Corporation so long as it is solvent; or
(C) without the unanimous affirmative vote of the members of the
Board of Directors of the Corporation, merge or consolidate with any other
corporation, company or entity or sell all or substantially all of its
assets or acquire all or substantially all of the assets or capital stock
or other ownership interest of any other corporation, company or entity,
except for the acquisition of the Receivables of Franklin Capital
Corporation ("Franklin Capital") and the sale of Receivables to one or
more trusts in accordance with the terms of paragraph (b) of Article Third
hereof, on which there shall be no such restriction.
TENTH. The Corporation shall insure at all times that (a) it maintains
separate corporate records and books of account from those of Franklin Capital,
and (b) except as permitted by contract between the Corporation and Franklin
Capital with respect to deposits in certain accounts of collections of trade
receivables of Franklin Capital that were not sold to the Corporation pursuant
to an agreement between them, which will be promptly remitted to the owner
thereof, none of the Corporation's assets will be commingled with those of
Franklin Capital or any of their affiliates.
-3-
<PAGE>
ELEVENTH. The Corporation reserves the right at any time, and from time to time,
to amend, alter, change or repeal any provision contained in this Certificate of
Incorporation in any manner now or hereafter provided herein or by statute; and,
except as provided with respect to the indemnification of directors, all rights,
preferences and privileges conferred by this Certificate of Incorporation upon
stockholders, directors or any other person are granted subject to such right;
provided, however, that the Corporation shall not amend, alter, change or repeal
any provision of Article Third and Articles Ninth through Eleventh (the
"Restricted Articles") without the unanimous vote of the full Board of Directors
and provided, further, that the Corporation shall not amend or change any
provision contained in this Certificate of Incorporation so as to be
inconsistent with the Restricted Articles.
TWELFTH. The powers of the incorporator are to terminate upon the filing
of this Certificate of Incorporation. The names and mailing addresses of the
persons who are to serve as the initial directors of the Corporation until the
first annual meeting of stockholders the Corporation, or until their successors
are elected and qualify, are as follows:
Name Address
---- -------
Harmon E. Burns c/o Franklin Resources, Inc.
777 Mariners Island Boulevard
San Mateo, California 94404
Rupert E. Johnson, Jr. c/o Franklin Resources, Inc.
777 Mariners Island Boulevard
San Mateo, California 94404
Charles B. Johnson c/o Franklin Resources, Inc.
777 Mariners Island Boulevard
San Mateo, California 94404
IN WITNESS WHEREOF, I have set my hand to be affixed to this Certificate of
Incorporation, this 27th day of February, 1995.
-4-
<PAGE>
By: /s/ Leslie M. Kratter
----------------------------------
Leslie M. Kratter
Incorporator
-5-
Exhibit 3.4
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
FCC RECEIVABLES CORP.
The undersigned, being the President of FCC Receivables Corp., a
corporation organized and existing under the General Corporation Law of the
State of Delaware (the "Corporation") does hereby certify as follows:
FIRST: That at a meeting of the Board of Directors of the Corporation duly
called and held on September 14, 1995, resolutions were adopted setting forth a
proposed amendment to the Certificate of Incorporation of the Corporation,
declaring such amendment advisable and directing that the amendment be
considered for approval by the stockholders of the Corporation.
SECOND: That thereafter, pursuant to a consent of stockholders in lieu of
a meeting in accordance with Section 228 of the General Corporation Law of the
State of Delaware, stockholders of the Corporation representing the necessary
number of shares as required by statute approved the amendment of the
Certificate of Incorporation in accordance with the provisions of Section 242 of
the General Corporation Law of the State of Delaware.
THIRD: That Articles Sixth through Twelfth of the Certificate of
Incorporation are renumbered as Articles Seventh through Thirteenth,
respectively.
FOURTH: That the Certificate of Incorporation is amended by the addition
of a new Article Sixth as follows:
"SIXTH. The Corporation shall at all times, except as noted
hereafter, have at least one director (an "Independent Director") who is
not (i) a director, officer or employee of any affiliate of the
Corporation; (ii) a person related to any officer or director of any
affiliate of the Corporation; (iii) a holder (directly or indirectly) of
more than 10% of any voting securities of any affiliate of the
Corporation; or (iv) a person related to a holder (directly or indirectly)
of more than 10% of any voting securities of any affiliate of the
Corporation. In the event of the death, incapacity, resignation or removal
of all Independent Directors, the Board of Directors shall promptly
appoint an Independent Director for each Independent Director whose death,
incapacity, resignation or removal caused the related vacancy on the Board
of Directors; provided, however, that the Board of Directors shall not
vote on any matter unless and until at least one Independent Director has
been duly appointed to serve on the Board of Directors."
<PAGE>
FIFTH: That subsection (b) of Article Tenth is amended and restated in its
entirety as follows:
"(b) without the affirmative vote of a majority of the members of
the Board of Directors of the Corporation (which must include the
affirmative vote of all duly appointed Independent Directors), (i)
dissolve or liquidate, in whole or in part, or institute proceedings to be
adjudicated bankrupt or insolvent, (ii) consent to the institution of
bankruptcy or insolvency proceedings against it, (iii) file a petition
seeking or consent to reorganization or relief under any applicable
federal or state law relating to bankruptcy, (iv) consent to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of the Corporation or a substantial part of its
property, (v) make a general assignment for the benefit of creditors, (vi)
admit in writing its inability to pay its debts generally as they become
due, or (vii) take any corporate action in furtherance of the actions set
forth in clauses (i) through (vi) of this paragraph; provided, however,
that no director may be required by any stockholder of the Corporation to
consent to the institution of bankruptcy or insolvency proceedings against
the Corporation so long as it is solvent; or"
SIXTH: That the references to Articles Ninth and Eleventh in Article
Twelfth are amended to refer to Articles Tenth and Twelfth, respectively
IN WITNESS WHEREOF, the undersigned has executed this certificate this
14th day of September, 1995.
/s/ Martin L. Flanagan
-----------------------------
Martin L Flanagan
President
ATTESTED TO:
/s/ Leslie M. Kratter
- ---------------------------------
Leslie M. Kratter
Secretary
2
Exhibit 4.1
- --------------------------------------------------------------------------------
FRANKLIN AUTO TRUST 1998-1
FORM OF TRUST AGREEMENT
between
FRANKLIN RECEIVABLES LLC
and
------------------------
Owner Trustee
Dated as of August __, 1998
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
Page
ARTICLE I - Definitions
<S> <C> <C>
SECTION 1.1. Capitalized Terms...................................................................................1
SECTION 1.2 Other Definitional Provisions........................................................................3
ARTICLE II - Organization
SECTION 2.1 Name.................................................................................................4
SECTION 2.2 Office...............................................................................................4
SECTION 2.3 Purposes and Powers..................................................................................4
SECTION 2.4 Appointment of Owner Trustee.........................................................................5
SECTION 2.5 Initial Capital Contribution of Trust Estate.........................................................5
SECTION 2.6 Declaration of Trust.................................................................................5
SECTION 2.7 Liability of the Seller..............................................................................6
SECTION 2.8 Title to Trust Property..............................................................................6
SECTION 2.9 Situs of Trust.......................................................................................7
SECTION 2.10 Representations and Warranties of the Seller........................................................7
SECTION 2.11 [Reserved]..........................................................................................8
SECTION 2.12 Covenants of the Certificateholders.................................................................8
SECTION 2.13 Federal Income Tax Allocations......................................................................9
ARTICLE III - Trust Certificates And Transfer Of Interests
SECTION 3.1 Initial Ownership....................................................................................9
SECTION 3.2 The Trust Certificates...............................................................................9
SECTION 3.3 Authentication of Trust Certificates................................................................11
SECTION 3.4 Registration of Transfer and Exchange of Trust Certificates.........................................11
SECTION 3.5 Mutilated, Destroyed, Lost or Stolen Trust Certificates.............................................12
SECTION 3.6 Persons Deemed Certificateholders...................................................................12
SECTION 3.7 Access to List of Certificateholders' Names and Addresses...........................................13
SECTION 3.8 Maintenance of Office or Agency.....................................................................13
SECTION 3.9 Appointment of Paying Agent.........................................................................13
i
<PAGE>
SECTION 3.10 [Reserved].........................................................................................14
SECTION 3.11 [Reserved].........................................................................................14
SECTION 3.12 [Reserved].........................................................................................14
SECTION 3.13 [Reserved].........................................................................................14
SECTION 3.14 [Reserved].........................................................................................14
SECTION 3.15 [Reserved].........................................................................................14
SECTION 3.16 [Reserved].........................................................................................14
SECTION 3.17. Trust Certificate Transfer Restrictions...........................................................14
ARTICLE IV - Actions By Owner Trustee
SECTION 4.1 Prior Notice to Certificateholders with Respect to Certain Matters..................................16
SECTION 4.2. Action by Certificateholders with Respect to Certain Matters.......................................18
SECTION 4.3 Action by Certificateholders with Respect to Bankruptcy.............................................19
SECTION 4.4 Restrictions on Certificateholders' Power...........................................................19
SECTION 4.5 Majority Control....................................................................................19
SECTION 4.6 Rights of Security Insurer..........................................................................19
SECTION 4.7. Execution of Documents.............................................................................19
ARTICLE V - Application Of Trust Funds: Certain Duties
SECTION 5.1 Establishment of Certificate Distribution Account...................................................20
SECTION 5.2 Application of Funds in Certificate Distribution Account............................................20
SECTION 5.3. [Reserved].........................................................................................22
SECTION 5.4 Method of Payment...................................................................................22
SECTION 5.5 No Segregation of Monies; No Interest...............................................................23
SECTION 5.6 Accounting and Reports to the Noteholders, Certificateholders, the Internal
Revenue Service and Others.......................................................................................23
SECTION 5.7 Signature on Returns; Tax Matters Partner............................................................23
ARTICLE VI - Authority And Duties Of Owner Trustee
SECTION 6.1 General Authority...................................................................................24
SECTION 6.2 General Duties......................................................................................24
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SECTION 6.3 Action upon Instruction.............................................................................24
SECTION 6.4 No Duties Except as Specified in this Agreement or in Instructions..................................25
SECTION 6.5 No Action Except under Specified Documents or Instructions..........................................26
SECTION 6.6 Restrictions........................................................................................26
SECTION 6.7 Notice of Default Under Indenture...................................................................26
ARTICLE VII -Concerning The Owner Trustee
SECTION 7.1 Acceptance of Trusts and Duties.....................................................................26
SECTION 7.2 Furnishing of Documents.............................................................................28
SECTION 7.3 Representations and Warranties......................................................................28
SECTION 7.4 Reliance; Advice of Counsel.........................................................................28
SECTION 7.5 Not Acting in Individual Capacity...................................................................29
SECTION 7.6 Owner Trustee Not Liable for Trust Certificates or Receivables......................................29
SECTION 7.7 Owner Trustee May Own Trust Certificates and Notes..................................................30
SECTION 7.8 Payments from Owner Trust Estate....................................................................30
SECTION 7.9 Doing Business in Other Jurisdictions...............................................................31
ARTICLE VIII - Compensation Of Owner Trustee
SECTION 8.1 Owner Trustee's Fees and Expenses...................................................................31
SECTION 8.2 Indemnification.....................................................................................31
SECTION 8.3 Payments to the Owner Trustee.......................................................................32
SECTION 8.4 Non-recourse Obligations............................................................................32
ARTICLE IX -Dissolution And Termination Of Trust
SECTION 9.1 Termination of Trust Agreement......................................................................32
SECTION 9.2 [Reserved]..........................................................................................34
ARTICLE X - Successor Owner Trustees And Additional Owner Trustees
SECTION 10.1 Eligibility Requirements for Owner Trustee.........................................................34
SECTION 10.2 Resignation or Removal of Owner Trustee............................................................34
SECTION 10.3 Successor Owner Trustee............................................................................36
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SECTION 10.4. Merger or Consolidation of Owner Trustee..........................................................36
SECTION 10.5 Appointment of Co-Trustee or Separate Trustee......................................................37
ARTICLE XI - Miscellaneous
SECTION 11.1 Supplements and Amendments.........................................................................38
SECTION 11.2 No Legal Title to Owner Trust Estate in Certificateholders.........................................39
SECTION 11.3. Limitations on Rights of Others...................................................................39
SECTION 11.4. Notices...........................................................................................40
SECTION 11.5 Severability.......................................................................................40
SECTION 11.6 Separate Counterparts..............................................................................40
SECTION 11.7 Successors and Assigns.............................................................................40
SECTION 11.8 [Reserved].........................................................................................41
SECTION 11.9 No Petition........................................................................................41
SECTION 11.10. No Recourse......................................................................................41
SECTION 11.11 Headings..........................................................................................41
SECTION 11.12. Governing Law....................................................................................41
SECTION 11.13 [Reserved]........................................................................................41
SECTION 11.14 Servicer..........................................................................................41
SECTION 11.15. Third Party Beneficiary..........................................................................42
EXHIBITS
EXHIBIT A FORM OF TRUST CERTIFICATE
EXHIBIT B FORM OF CERTIFICATE OF TRUST
</TABLE>
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TRUST AGREEMENT dated as of August
____, 1998 between FRANKLIN RECEIVABLES LLC
as seller, and ______________, as Owner
Trustee.
ARTICLE I
Definitions
SECTION 1.1 Capitalized Terms. For all purposes of this
Agreement, the following terms shall have the meanings set forth below:
"Agreement" shall mean this Trust Agreement, as the same may
be amended and supplemented from time to time.
"Basic Documents" shall mean this Agreement, the Sale and
Servicing Agreement, the Indenture, the Insurance Agreement, the Indemnification
Agreement, the Note Depository Agreement and the other documents and
certificates delivered in connection therewith.
"Benefit Plan" shall have the meaning assigned to such term in
Section 3.17.
"Business Trust Statute" shall mean Chapter 38 of Title 12 of
the Delaware Code, 12 Del. Code ss. 3801 et seq., as the same may be amended
from time to time.
"Certificate" means a certificate evidencing the beneficial
interest of a Certificateholder in the Trust, substantially in the form of
Exhibit A attached hereto.
"Certificate Distribution Account" shall have the meaning
assigned to such term in Section 5.1.
"Certificate of Trust" shall mean the Certificate of Trust in
the form of Exhibit B to be filed for the Trust pursuant to Section 3810(a) of
the Business Trust Statute.
"Certificate Paying Agent" shall mean any paying agent or
co-paying agent appointed pursuant to Section 3.9.
"Certificateholder" or "Holder" shall mean the Person in whose
name a Trust Certificate is registered on the Certificate Register.
"Certificate Register" and "Certificate Registrar" shall mean
the register mentioned and the registrar appointed pursuant to Section 3.4.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and Treasury Regulations promulgated thereunder.
<PAGE>
"Corporate Trust Office" shall mean, with respect to the Owner
Trustee, the principal corporate trust office of the Owner Trustee located at
__________________; or at such other address as the Owner Trustee may designate
by notice to the Certificateholders and the Seller, or the principal corporate
trust office of any successor Owner Trustee (the address of which the successor
owner trustee will notify the Certificateholders and the Seller).
"Delaware Trustee" shall have the meaning assigned to such
term in Section 10.1.
"ERISA" shall have the meaning assigned to such term in
Section 3.17.
"Expenses" shall have the meaning assigned to such term in
Section 8.2.
"Holder" or "Certificateholder" shall mean the Person in whose
name a Trust Certificate is registered on the Certificate Register.
"Indemnified Parties" shall have the meaning assigned to such
term in Section 8.2.
"Owner Trust Estate" shall mean all right, title and interest
of the Trust in and to the property and rights assigned to the Trust pursuant to
Article II of the Sale and Servicing Agreement, all funds on deposit from time
to time in the Trust Accounts and all other property of the Trust from time to
time, including any rights of the Owner Trustee and the Trust pursuant to the
Sale and Servicing Agreement.
"Owner Trustee" shall mean
________________________________________, not in its individual capacity but
solely as owner trustee under this Agreement, and any successor Owner Trustee
hereunder.
"Paying Agent" shall mean any paying agent or co-paying agent
appointed pursuant to Section 3.9.
"Percentage Interest" shall mean with respect to any Trust
Certificate, the percentage interest of ownership in the Trust represented
thereby as set forth on the face thereof.
"Record Date" shall mean, with respect to any Distribution
Date, the close of business on the last day of the calendar month preceding such
Distribution Date.
"Responsible Officer" shall mean, when used with respect to
the Owner Trustee, any officer assigned to the Corporate Trust Office of the
Owner Trustee, including any Vice President, any Assistant Vice President, any
trust officer or any other officer of the Owner Trustee customarily performing
functions similar to those performed by any of the above designated officers or
any agent acting under a power of attorney from the Owner Trustee, having
responsibility for the administration of this Trust Agreement, as the case may
be, and also, with
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respect to a particular matter relating to the Trust, any other officer of the
Owner Trustee to whom such matter is referred because of such officer's
knowledge of and familiarity with such matter. Any notice given to the address
and in the manner specified in Section 11.4 hereof shall be deemed to be given
to a Responsible Officer.
"Sale and Servicing Agreement" shall mean the Sale and
Servicing Agreement among the Trust, Franklin Receivables LLC, as seller and
Franklin Capital Corporation, as representative and as servicer, dated as of
August 1, 1998, as the same may be amended and supplemented from time to time.
"Secretary of State" shall mean the Secretary of State of the
State of Delaware.
"Security Insurer" shall mean MBIA Insurance Corporation, or
its successor in interest.
"Security Act" means the Securities Act of 1933, as amended.
"Seller" shall mean Franklin Receivables LLC as the Seller of
the Receivables and each successor to Franklin Receivables LLC (in the same
capacity), to the extent permitted hereunder.
"Treasury Regulations" shall mean regulations, including
proposed or temporary regulations, promulgated under the Code. References herein
to specific provisions of proposed or temporary regulations shall include
analogous provisions of final Treasury Regulations or other successor Treasury
Regulations.
"Trust" shall mean the trust established by this Agreement.
"Trust Certificate" shall mean a Certificate.
SECTION 1.2 Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined
have the meanings assigned to them in the Sale and Servicing Agreement or, if
not defined therein, in the Indenture.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Agreement or in any such certificate or other document, and
accounting terms partly defined in this Agreement or in any such certificate or
other document to the extent not defined, shall have the respective meanings
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given to them under generally accepted accounting principles as in effect on the
date of this Agreement or any such certificate or other document, as applicable.
To the extent that the definitions of accounting terms in this Agreement or in
any such certificate or other document are inconsistent with the meanings of
such terms under generally accepted accounting principles, the definitions
contained in this Agreement or in any such certificate or other document shall
control.
(d) The words "hereof," "herein," "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement; Section and Exhibit
references contained in this Agreement are references to Sections and Exhibits
in or to this Agreement unless otherwise specified; and the term "including"
shall mean "including without limitation."
(e) The definitions contained in this Agreement are applicable
to the singular as well as the plural forms of such terms and to the masculine
as well as to the feminine and neuter genders of such terms.
ARTICLE II
Organization
SECTION 2.1 Name. The Trust created hereby shall be known as
"Franklin Auto Trust 1998-1" in which name the Owner Trustee may engage in the
transactions contemplated hereby, make and execute contracts and other
instruments on behalf of the Trust and sue and be sued.
SECTION 2.2 Office. The office of the Trust shall be in care
of the Owner Trustee at the Corporate Trust Office, or at the office of the
Delaware Trustee, if one exists, or at such other address as the Owner Trustee
may designate by written notice to the Certificateholders, the Security Insurer
and the Seller.
SECTION 2.3 Purposes and Powers. (a) The purpose of the Trust
is, and the Trust shall have the power and authority, to engage in the following
activities:
(i) to issue the Notes pursuant to the
Indenture and the Trust Certificates pursuant to this
Agreement, and to sell the Notes;
(ii) with the proceeds of the sale of the
Notes, to pay the organizational, start-up and transactional
expenses of the Trust and to pay the balance to the Seller
pursuant to the Sale and Servicing Agreement;
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(iii) to acquire, receive and accept from
time to time the Owner Trust Estate, and to assign, grant,
transfer, pledge, mortgage and convey the Trust Estate (other
than the Certificate Distribution Account) to the Indenture
Collateral Agent pursuant to the Indenture for the benefit of
the Security Insurer and the Trustee on behalf of the
Noteholders, and to hold, manage and distribute to the
Certificateholders pursuant to the terms of the Sale and
Servicing Agreement any portion of the Trust Estate released
from the Lien of, and remitted to the Trust pursuant to, the
Indenture;
(iv) to enter into and perform its
obligations under the Basic Documents to which it is a party;
(v) to engage in those activities, including
entering into agreements, that are necessary, suitable or
convenient to accomplish the foregoing or are incidental
thereto or connected therewith; and
(vi) subject to compliance with the Basic
Documents to which the Trust is a party, to engage in such
other activities as may be required in connection with
conservation of the Owner Trust Estate and the making of
distributions to the Certificateholders and the Noteholders.
The Trust is hereby authorized to engage in the foregoing activities. The Trust
shall not engage in any activity other than in connection with the foregoing or
other than as required or authorized by the terms of this Agreement or the Basic
Documents.
SECTION 2.4 Appointment of Owner Trustee. The Seller hereby
appoints the Owner Trustee as trustee of the Trust effective as of the date
hereof, to have all the rights, powers and duties set forth herein.
SECTION 2.5 Initial Capital Contribution of Trust Estate. The
Seller hereby sells, assigns, transfers, conveys and sets over to the Owner
Trustee, as of the date hereof, the sum of $1. The Owner Trustee hereby
acknowledges receipt in trust from the Seller, as of the date hereof, of the
foregoing contribution, which shall constitute the initial Owner Trust Estate
and shall be deposited in the Certificate Distribution Account.
SECTION 2.6 Declaration of Trust. The Owner Trustee hereby
declares that it will hold the Owner Trust Estate in trust upon and subject to
the conditions set forth herein for the use and benefit of the
Certificateholders, subject to the obligations of the Trust under the Basic
Documents to which the Trust is a party. It is the intention of the parties
hereto that the Trust constitute a business trust under the Business Trust
Statute and that this Agreement constitute the governing instrument of such
business trust. It is the intention of the parties hereto that, solely for
federal income tax purposes, the Trust shall be disregarded as an entity apart
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from its owner, the Seller, in the event that the Seller is the sole
Certificateholder for federal income tax purposes, or treated as a partnership
if there is more than one Certificateholder for federal income tax purposes. The
parties agree that, unless otherwise required by appropriate tax authorities,
the Trust will file or cause to be filed annual or other necessary returns,
reports and other forms consistent with the characterization of the Trust as a
division of the Seller, or as a partnership, as the case may be, for such tax
purposes. Effective as of the date hereof, the Owner Trustee shall have all
rights, powers and duties set forth herein and to the extent not inconsistent
herewith, in the Business Trust Statute with respect to accomplishing the
purposes of the Trust. The Owner Trustee shall file the Certificate of Trust
with the Secretary of State.
SECTION 2.7 Liability of the Seller . (a) The Seller shall pay
organizational expenses of the Trust as they may arise or shall, upon the
request of the Owner Trustee, promptly reimburse the Owner Trustee for any such
expenses paid by the Owner Trustee. The Seller shall also be liable directly to
and will indemnify any injured party for all losses, claims, damages,
liabilities and expenses of the Trust (including Expenses, to the extent not
paid out of the Owner Trust Estate) to the extent that the Seller would be
liable if the Trust were a partnership under the Delaware Revised Uniform
Limited Partnership Act in which the Seller were a general partner; provided,
however, that the Seller shall not be liable for any losses incurred by a
Certificateholder in the capacity of an investor in the Trust Certificates or a
Noteholder in the capacity of an investor in the Notes. In addition, any third
party creditors of the Trust (other than in connection with the obligations
described in the preceding sentence for which the Seller shall not be liable)
shall be deemed third party beneficiaries of this paragraph.
(b) No Holder, other than to the extent set forth in
clause (a), shall have any personal liability for any liability or obligation of
the Trust.
SECTION 2.8 Title to Trust Property. (a) Legal title to all
the Owner Trust Estate shall be vested at all times in the Trust as a separate
legal entity except where applicable law in any jurisdiction requires title to
any part of the Owner Trust Estate to be vested in a trustee or trustees, in
which case title shall be deemed to be vested in the Owner Trustee, a co-trustee
and/or a separate trustee, as the case may be.
(b) The Certificateholders shall not have legal title
to any part of the Owner Trust Estate. The Certificateholders shall be entitled
to receive distributions with respect to their undivided Percentage Interest
therein only in accordance with Articles V and IX. No transfer, by operation of
law or otherwise, of any right, title or interest by any Certificateholder of
its ownership interest in the Owner Trust Estate shall operate to terminate this
Agreement or the trusts hereunder or entitle any transferee to an accounting or
to the transfer to it of legal title to any part of the Owner Trust Estate.
SECTION 2.9 Situs of Trust. The Trust will be located and
administered in the State of Delaware. All bank accounts maintained by the Owner
Trustee on behalf of the Trust shall be located in the State of Delaware or the
State of New York. Payments will be received by the Trust only in Delaware or
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New York, and payments will be made by the Trust only from Delaware or New York.
The Trust shall not have any employees in any state other than Delaware;
provided however, that nothing herein shall restrict or prohibit the Owner
Trustee, in its individual capacity, the Servicer or any agent of the Trust from
having employees within or without the State of Delaware. The only office of the
Trust will be [at the Corporate Trust Office] in Delaware.
SECTION 2.10 Representations and Warranties of the Seller. The
Seller hereby represents and warrants to the Owner Trustee that:
(a) Organization and Good Standing. The Seller is
duly organized and validly existing as a Delaware limited liability company with
power and authority to own its properties and to conduct its business as such
properties are currently owned and such business is presently conducted.
(b) Due Qualification. It is duly qualified to do
business as a limited liability company in good standing, and has
obtained all necessary licenses and approvals, in all jurisdictions in
which the ownership or lease of its property, the conduct of its
business and the performance of its obligations under this Agreement
and the Basic Documents requires such qualification.
(c) Power and Authority. The Seller has the power and
authority to execute and deliver this Agreement and to carry out its
terms; the Seller has full power and authority to sell and assign the
property to be sold and assigned to and deposited with the Trust and
the Seller has duly authorized such sale and assignment and deposit to
the Trust by all necessary corporate action; and the execution,
delivery and performance of this Agreement has been duly authorized by
the Seller by all necessary corporate action.
(d) No Violation. The consummation of the
transactions contemplated by this Agreement and the fulfillment of the
terms hereof do not conflict with, result in any breach of any of the
terms and provisions of, or constitute (with or without notice or lapse
of time) a default under, the certificate of formation or limited
liability company agreement of the Seller, or any material indenture,
agreement or other instrument to which the Seller is a party or by
which it is bound; nor result in the creation or imposition of any Lien
upon any of its properties pursuant to the terms of any such indenture,
agreement or other instrument (other than pursuant to the Basic
Documents); nor violate any law or, to the best of the Seller's
knowledge, any order, rule or regulation applicable to the Seller of
any court or of any Federal or state regulatory body, administrative
agency or other governmental instrumentality having jurisdiction over
the Seller or its properties.
(e) No Consent Required. No consent, license,
approval or authorization or registration or declaration with, any
Person or with any governmental authority, bureau or agency is required
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in connection with the execution, delivery or performance of this
Agreement and the Basic Documents, except for such as have been
obtained, effected or made.
(f) No Proceedings. There are no proceedings or
investigations pending or, to its knowledge threatened against it
before any court, regulatory body, administrative agency or other
tribunal or governmental instrumentality having jurisdiction over it or
its properties (A) asserting the invalidity of this Agreement or any of
the Basic Documents, (B) seeking to prevent the issuance of the
Certificates or the Notes or the consummation of any of the
transactions contemplated by this Agreement or any of the Basic
Documents, (C) seeking any determination or ruling that might
materially and adversely affect its performance of its obligations
under, or the validity or enforceability of, this Agreement or any of
the Basic Documents, or (D) seeking to adversely affect the federal
income tax or other federal, state or local tax attributes of the
Certificates.
SECTION 2.11 [Reserved]
SECTION 2.12 Covenants of the Certificateholders. Each
Certificateholder by becoming a holder of a Certificate agrees:
(a) to be bound by the terms and conditions of the
Certificates of which such Certificateholder is the beneficial owner and of this
Agreement, including any supplements or amendments hereto and to perform the
obligations of a Certificateholder as set forth therein or herein, in all
respects as if it were a signatory hereto. This undertaking is made for the
benefit of the Trust, the Owner Trustee, the Security Insurer and all other
Certificateholders present and future;
(b) to hereby appoint the Seller so long as it is a
Certificateholder as such Certificateholder's agent and attorney-in-fact to sign
any federal income tax information return filed on behalf of the Trust and agree
that, if requested by the Trust, it will sign such federal income tax
information return in its capacity as holder of an interest in the Trust. Each
Certificateholder also hereby agrees that in its tax returns it will not take
any position inconsistent with those taken in any tax returns filed by the
Trust;
(c) if such Certificateholder is other than an
individual or other entity holding its Certificate through a broker who reports
securities sales on Form 1099-B, to notify the Owner Trustee of any transfer by
it of a Certificate in a taxable sale or exchange, within 30 days of the date of
the transfer; and
(d) until the completion of the events specified in
Section 9.1(e), not to, for any reason, institute proceedings for the Trust to
be adjudicated a bankrupt or insolvent, or consent to the institution of
bankruptcy or insolvency proceedings against the Trust, or file a petition
seeking or consenting to reorganization or relief under any applicable federal
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or state law relating to bankruptcy, or consent to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Trust or a substantial part of its property, or cause or permit
the Trust to make any assignment for the benefit of its creditors, or admit in
writing its inability to pay its debts generally as they become due, or declare
or effect a moratorium on its debt or take any action in furtherance of any such
action.
SECTION 2.13 Federal Income Tax Allocations. Net income of the
Trust for any month as determined for Federal income tax purposes (and each item
of income, gain, loss, credit and deduction entering into the computation
thereof) shall be allocated:
(a) for so long as (i) all of the Trust Certificates
are owned by the Seller, the Trust shall be disregarded as an entity separate
from the Seller such that net income of the Trust for any month as determined
solely for federal income tax purposes (and each item of income, gain, loss,
credit and deduction entering into the computation thereof) shall be allocated
to the Seller and treated in the same manner as if the Trust were a division or
branch of the Seller;
(b) in the event that the Seller transfers (as such
term is defined for federal income tax purposes) any Trust Certificates and
there is more than one owner of Trust Certificates for federal income tax
purposes, net income of the Trust for any month as determined solely for federal
income tax purposes (and each item of income, gain, loss, credit and deduction
entering into the computation thereof) shall be allocated pro rata to the
Certificateholders based on their Percentage Interest.
ARTICLE III
Trust Certificates and Transfer of Interests
SECTION 3.1 Initial Ownership. Upon the formation of the Trust
by the contribution by the Seller pursuant to Section 2.5 and until the issuance
of the Trust Certificates, the Seller shall be the sole beneficiary of the
Trust.
SECTION 3.2 The Trust Certificates. The Trust Certificates
shall be issued in minimum denominations of 5% Percentage Interest. The Trust
Certificates shall be initially issued to the Seller in a Percentage Interest of
100%. The Trust Certificates shall be executed on behalf of the Trust by manual
or facsimile signature of an authorized officer of the Owner Trustee, and the
Owner Trustee shall have the power and authority and it is hereby authorized and
empowered, in the name and on behalf of the Trust to authorize, execute, issue
and deliver Trust Certificates. Trust Certificates bearing the manual or
facsimile signatures of individuals who were, at the time when such signatures
shall have been affixed, authorized to sign on behalf of the Trust, shall be
validly issued and entitled to the benefit of this Agreement, notwithstanding
that such individuals or any of them shall have ceased to be so authorized prior
to the authentication and delivery of such Trust Certificates or did not hold
such offices at the date of
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authentication and delivery of such Trust Certificates. A transferee of a Trust
Certificate shall become a Certificateholder, and shall be entitled to the
rights and subject to the obligations of a Certificateholder hereunder, upon due
registration of such Trust Certificate in such transferee's name pursuant to
Section 3.4.
SECTION 3.3 Authentication of Trust Certificates. Concurrently
with the initial sale of the Receivables to the Trust pursuant to the Sale and
Servicing Agreement, the Owner Trustee shall cause the Trust Certificates in an
aggregate Percentage Interest equal to 100% to be executed on behalf of the
Trust, authenticated and delivered to or upon the written order of the Seller,
signed by its chairman of the board, its president or any vice president,
without further corporate action by the Seller, in authorized denominations. No
Trust Certificate shall entitle its holder to any benefit under this Agreement,
or shall be valid for any purpose, unless there shall appear on such Trust
Certificate a certificate of authentication substantially in the form set forth
in Exhibit A, executed by the Owner Trustee by manual signature; such
authentication shall constitute conclusive evidence that such Trust Certificate
shall have been duly authenticated and delivered hereunder. All Trust
Certificates shall be dated the date of their authentication.
SECTION 3.4 Registration of Transfer and Exchange of Trust
Certificates. The Certificate Registrar shall keep or cause to be kept, at the
office or agency maintained pursuant to Section 3.8, a Certificate Register in
which, subject to such reasonable regulations as it may prescribe, the Owner
Trustee shall provide for the registration of Trust Certificates and of
transfers and exchanges of Trust Certificates as herein provided.
__________________________ shall be the initial Certificate Registrar.
Upon surrender for registration of transfer of any Trust
Certificate at the office or agency maintained pursuant to Section 3.8, and,
upon satisfaction of the conditions set forth below, the Owner Trustee shall
execute, authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Trust Certificates in authorized denominations of a
like class and Percentage Interest dated the date of authentication by the Owner
Trustee or any authenticating agent. At the option of a Holder, Trust
Certificates may be exchanged for other Trust Certificates of the same class in
authorized denominations of a like Percentage Interest upon surrender of the
Trust Certificates to be exchanged at the office or agency maintained pursuant
to Section 3.8.
Every Trust Certificate presented or surrendered for
registration of transfer or exchange shall be accompanied by (i) in the case of
a transfer of a Certificate, an executed Investment Letter referred to in
Section 3.10 or an opinion of counsel (furnished at the cost of the transferee
or transferor) satisfactory to the Owner Trustee to the effect that the transfer
of such Certificate is exempt from the registration requirements of the
Securities Act and would not result in adverse tax consequences to the Trust,
the Noteholders or the Certificateholders and (ii) a written instrument of
transfer in form satisfactory to the Owner Trustee and the Certificate Registrar
duly executed by the Certificateholder or his attorney duly authorized in
writing, with such signature guaranteed by an "eligible guarantor institution"
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meeting the requirements of the Certificate Registrar, which requirements
include membership or participation in the Securities Transfer Agent's Medallion
Program ("STAMP") or such other "signature guarantee program" as may be
determined by the Certificate Registrar in addition to, or in substitution for,
STAMP, all in accordance with the Exchange Act. Each Trust Certificate
surrendered for registration of transfer or exchange shall be canceled and
subsequently disposed of by the Owner Trustee in accordance with its customary
practice.
No service charge shall be made for any registration of
transfer or exchange of Trust Certificates, but the Owner Trustee or the
Certificate Registrar may, but shall not be obligated to, require payment of a
sum sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Trust Certificates.
Notwithstanding the foregoing, the Owner Trustee shall not
make and the Certificate Registrar shall not register, transfers or exchanges
of, Trust Certificates for a period of 15 days preceding the due date for any
payment with respect to any Trust Certificates.
SECTION 3.5 Mutilated, Destroyed, Lost or Stolen Trust
Certificates. If (a) any mutilated Trust Certificate shall be surrendered to the
Certificate Registrar, or if the Certificate Registrar shall receive evidence to
its satisfaction of the destruction, loss or theft of any Trust Certificate and
(b) there shall be delivered to the Certificate Registrar, the Owner Trustee and
(unless an Insurer Default shall have occurred and be continuing) the Security
Insurer, such security or indemnity as may be required by them to save each of
them harmless, then in the absence of notice that such Trust Certificate shall
have been acquired by a bona fide purchaser, the Owner Trustee on behalf of the
Trust shall execute and the Owner Trustee shall authenticate and deliver, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen Trust
Certificate, a new Trust Certificate of like class, tenor and Percentage
Interest. In connection with the issuance of any new Trust Certificate under
this Section, the Owner Trustee or the Certificate Registrar may, but shall not
be obligated to, require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection therewith. Any
duplicate Trust Certificate issued pursuant to this Section shall constitute
conclusive evidence of an ownership interest in the Trust, as if originally
issued, whether or not the lost, stolen or destroyed Trust Certificate shall be
found at any time.
SECTION 3.6 Persons Deemed Certificateholders. Every person by
virtue of becoming a Certificateholder in accordance with this Agreement shall
be deemed to be bound by the terms of this Agreement. Prior to due presentation
of a Trust Certificate for registration of transfer, the Owner Trustee, the
Certificate Registrar and the Security Insurer and any agent of the Owner
Trustee, the Certificate Registrar and the Security Insurer, may treat the
Person in whose name any Trust Certificate shall be registered in the
Certificate Register as the Owner of such Trust Certificate for the purpose of
receiving distributions pursuant to Section 5.2 and for all other purposes
whatsoever, and none of the Owner Trustee, the Certificate Registrar or the
Security Insurer nor any agent of the Owner Trustee, the Certificate Registrar,
or the Security Insurer shall be bound by any notice to the contrary.
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SECTION 3.7 Access to List of Certificateholders' Names and
Addresses. The Owner Trustee shall furnish or cause to be furnished to the
Servicer, the Seller or (unless an Insurer Default shall have occurred and be
continuing) the Security Insurer, and the Representative within 15 days after
receipt by the Owner Trustee of a request therefore from the Servicer or the
Representative in writing, a list, in such form as the Servicer may reasonably
require, of the names and addresses of the Certificateholders as of the most
recent Record Date. If three or more Holders of Trust Certificates or one or
more Holders of Trust Certificates evidencing not less than a Percentage
Interest of 25% apply in writing to the Owner Trustee, and such application
states that the applicants desire to communicate with other Certificateholders
with respect to their rights under this Agreement or under the Trust
Certificates and such application is accompanied by a copy of the communication
that such applicants propose to transmit, then the Owner Trustee shall, within
five Business Days after the receipt of such application, afford such applicants
access during normal business hours to the current list of Certificateholders.
Each Holder, by receiving and holding a Trust Certificate, shall be deemed to
have agreed not to hold any of the Seller, the Servicer, the Security Insurer or
the Owner Trustee or the Security Insurer or any agent thereof or the
Representative accountable by reason of the disclosure of its name and address,
regardless of the source from which such information was derived.
SECTION 3.8 Maintenance of Office or Agency. The Owner Trustee
shall maintain in the Borough of Manhattan, City of New York, an office or
offices or agency or agencies where Trust Certificates may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Owner Trustee in respect of the Trust Certificates and the Basic Documents
may be served. The Owner Trustee shall give prompt written notice to the Seller
and to the Certificateholders and (unless an Insurer Default shall have occurred
and be continuing) the Security Insurer of any change in the location of the
Certificate Register or any such office or agency.
SECTION 3.9 Appointment of Paying Agent. The Paying Agent
shall make distributions to Certificateholders from the Certificate Distribution
Account pursuant to Section 5.2 and shall report the amounts of such
distributions to the Owner Trustee. Any Paying Agent shall have the revocable
power to withdraw funds from the Certificate Distribution Account for the
purpose of making the distributions referred to above. The Owner Trustee may
revoke such power and remove the Paying Agent if the Owner Trustee determines in
its sole discretion that the Paying Agent shall have failed to perform its
obligations under this Agreement in any material respect. The Paying Agent shall
initially be _____________________ and any co-Paying Agent chosen by the Owner
Trustee, and acceptable to the Servicer and the Security Insurer. The Paying
Agent shall be permitted to resign upon 30 days' written notice to the Owner
Trustee and the Servicer. In the event that the Owner Trustee shall no longer be
the Paying Agent, the Owner Trustee shall appoint a successor to act as Paying
Agent (which shall be a bank or trust company). The Owner Trustee shall cause
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such successor Paying Agent or any additional Paying Agent appointed by the
Owner Trustee to execute and deliver to the Owner Trustee and (unless and
Insurer Default shall have occurred and be continuing) the Security Insurer an
instrument in which such successor Paying Agent or additional Paying Agent shall
agree with the Owner Trustee that as Paying Agent, such successor Paying Agent
or additional Paying Agent will hold all sums, if any, held by it for payment to
the Certificateholders in trust for the benefit of the Certificateholders and
the Security Insurer entitled thereto until such sums shall be paid to such
Certificateholders or the Security Insurer. The Paying Agent shall return all
unclaimed funds to the Owner Trustee and upon removal of a Paying Agent such
Paying Agent shall also return all funds in its possession to the Owner Trustee.
The provisions of Sections 7.1, 7.3, 7.4 and 8.1 shall apply to the Owner
Trustee also in its role as Paying Agent, for so long as the Owner Trustee shall
act as Paying Agent and, to the extent applicable, to any other Paying Agent
appointed hereunder. Any reference in this Agreement to the Paying Agent shall
include any co-Paying Agent unless the context requires otherwise.
SECTION 3.10 [Reserved]
SECTION 3.11 [Reserved]
SECTION 3.12 [Reserved]
SECTION 3.13 [Reserved]
SECTION 3.14 [Reserved]
SECTION 3.15 [Reserved]
SECTION 3.16 [Reserved]
SECTION 3.17. Trust Certificate Transfer Restrictions. (a) The
Trust Certificates may not be acquired by or for the account of (i) an employee
benefit plan (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) that is subject to the provisions of
Title 1 of ERISA, (ii) a plan described in Section 4975(e) (1) of the Code, or
(iii) any entity whose underlying assets include plan assets by reason of such
plan's investment in the entity (each, a "Benefit Plan"). By accepting and
holding a Trust Certificate, the Holder thereof shall be deemed to have
represented and warranted that it is not a Benefit Plan. The Owner Trustee shall
have no duty to determine whether Trust Certificates are owned by a Benefit
Plan.
(b) The Trust Certificates may not be offered or sold
except to Qualified Institutional Buyers in reliance on the exemption from the
registration requirements of the Securities Act provided by Rule 144A
thereunder.
Each purchaser of the Trust Certificates will be deemed to
have represented and agreed as follows:
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(i) It is a Qualified Institutional Buyer as defined
in Rule 144A promulgated under the Securities Act and is
acquiring the Trust Certificates for its own institutional
account or for the account of a Qualified Institutional Buyer.
(ii) It understands that the Trust Certificates will
be offered in a transaction not involving any public offering
within the meaning of the Securities Act, and that, if in the
future it decides to resell, pledge or otherwise transfer any
Trust Certificates, such Trust Certificates may be resold,
pledged or transferred only (a) to the Servicer (upon
redemption), (b) to a person who the seller reasonably
believes is a Qualified Institutional Buyer that purchases for
its own account or for the account of a Qualified
Institutional Buyer to whom notice is given that the resale,
pledge or transfer is being made in reliance on Rule 144A or
(c) pursuant to an effective registration statement under the
Securities Act.
(iii) It understands that the Trust Certificates will
bear a legend substantially to the following effect:
THE TRUST CERTIFICATES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES
OR "BLUE SKY" LAWS. THE HOLDER HEREOF, BY PURCHASING ANY TRUST
CERTIFICATE, AGREES FOR THE BENEFIT OF THE ISSUER THAT SUCH TRUST
CERTIFICATE IS BEING ACQUIRED FOR ITS OWN ACCOUNT AND NOT WITH A VIEW
TO DISTRIBUTION AND MAY BE RESOLD, PLEDGED OR TRANSFERRED ONLY (1) TO
THE ISSUER (UPON REDEMPTION THEREOF OR OTHERWISE), (2) TO A PERSON THE
TRANSFEROR REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 144A, PURCHASING FOR ITS OWN ACCOUNT OR FOR
THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, OR (3) IN A TRANSACTION COMPLYING WITH THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER JURISDICTION.
NO INTEREST IN THIS TRUST CERTIFICATE MAY BE ACQUIRED BY OR FOR THE
ACCOUNT OF (i) AN "EMPLOYEE BENEFIT PLAN" (AS DEFINED IN SECTION 3(3)
OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED,
("ERISA")) THAT IS SUBJECT TO THE PROVISIONS OF TITLE I OF ERISA, (ii)
A PLAN DESCRIBED IN SECTION 4975(e)(1) OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (INCLUDING, WITHOUT LIMITATION, INDIVIDUAL RETIREMENT
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ACCOUNTS AND KEOGH PLANS), OR (iii) ANY ENTITY WHOSE UNDERLYING ASSETS
INCLUDE PLAN ASSETS BY REASON OF A PLAN'S INVESTMENT IN THE ENTITY. BY
ACCEPTING AND HOLDING THIS CERTIFICATE, THE HOLDER HEREOF AND THE
CERTIFICATE OWNER SHALL EACH BE DEEMED TO HAVE REPRESENTED AND
WARRANTED THAT IT IS NOT A BENEFIT PLAN.
ARTICLE IV
Actions by Owner Trustee
SECTION 4.1 Prior Notice to Certificateholders with Respect to
Certain Matters. With respect to the following matters, the Owner Trustee shall
not take action unless at least 30 days before the taking of such action, the
Owner Trustee shall have notified the Certificateholders and the Security
Insurer in writing of the proposed action and neither the Certificateholders nor
the Security Insurer shall have notified the Owner Trustee in writing prior to
the 30th day after such notice is given that it has withheld consent or provided
alternative direction (provided that no consent or direction of the
Certificateholders pursuant to this Section 4.1 shall be effective without the
consent of the Security Insurer.
(a) the initiation of any material claim or lawsuit
by the Trust except claims or lawsuits brought in connection with the collection
of the Receivables and the compromise of any material action, claim or lawsuit
brought by or against the Trust (except with respect to the aforementioned
claims or lawsuits for collection of the Receivables);
(b) the election by the Trust to file an amendment to
the Certificate of Trust (unless such amendment is required to be filed under
the Business Trust Statute or unless such amendment would not materially and
adversely affect the interests of the Certificateholders);
(c) the amendment of the Indenture by a supplemental
indenture in circumstances where the consent of any Noteholder or the Security
Insurer is required;
(d) the amendment of the Indenture by a supplemental
indenture in circumstances where the consent of any Noteholder or the Security
Insurer is not required and such amendment materially adversely affects the
interest of the Certificateholders;
(e) the amendment, change or modification of the Sale
and Servicing Agreement, except to cure any ambiguity or defect or to amend or
supplement any provision in a manner that would not materially adversely affect
the interests of the Certificateholders;
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(f) the consent to the calling, or waiver of any
default of any Basic Document;
(g) the consent to the assignment by the Indenture
Trustee or Servicer of their respective obligations under any Basic Document;
(h) except as provided in this Agreement dissolve,
terminate or liquidate the Trust in whole or in part;
(i) merge or consolidate the Trust with or into any
other entity, or convey or transfer all or substantially all of the Trust's
assets to any other entity;
(j) cause the Trust to incur, assume or guaranty any
indebtedness other than as set forth in this Agreement or the other Basic
Documents;
(k) perform any act that conflicts with any other
Basic Document;
(l) perform any act which would make it impossible to
carry on the ordinary business of the Trust as described in this Agreement;
(m) confess a judgment against the Trust;
(n) cause the Trust to lend any funds to any entity;
(o) change the Trust's purpose and powers from those
enumerated in this Agreement; or
(p) possess Trust assets or assign the Trust's right
to property for other than a Trust purpose.
The Owner Trustee shall notify the Certificateholders and the Security Insurer
in writing of any appointment of a successor Note Registrar, Certificate Paying
Agent or Certificate Registrar within five Business Days thereof.
SECTION 4.2 Action by Certificateholders with Respect to
Certain Matters. The Owner Trustee shall not have the power, except upon the
direction of the Security Insurer in accordance with the Basic Documents to (a)
remove the Servicer under the Sale and Servicing Agreement pursuant to Section
8.1 thereof or (b) except as expressly provided in the Basic Documents, sell the
Receivables after the termination of the Indenture. The Owner Trustee shall take
the actions referred to in the preceding sentence only upon written instructions
signed by the Certificateholders or the Security Insurer, as the case may be,
and the furnishing of indemnification satisfactory to the Owner Trustee by the
Certificateholders.
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SECTION 4.3 Action by Certificateholders with Respect to
Bankruptcy. The Owner Trustee shall not have the power to, and shall not,
commence a voluntary proceeding in bankruptcy relating to the Trust without the
prior written consent of the Security Insurer (unless an Insurer Default shall
have occurred and be continuing) and the delivery to the Owner Trustee by each
Certificateholder of a certificate certifying that it reasonably believes that
the Trust is insolvent.
SECTION 4.4 Restrictions on Certificateholders' Power. The
Certificateholders shall not direct the Owner Trustee to take or refrain from
taking any action if such action or inaction would be contrary to any obligation
of the Trust or the Owner Trustee under this Agreement or any of the Basic
Documents or would be contrary to Section 2.3 nor shall the Owner Trustee be
obligated to determine if a Certificateholder's direction violates this Section
4.4 or to follow any such direction, if given.
SECTION 4.5 Majority Control. Except as otherwise specifically
provided herein, any action that may be taken by the Certificateholders under
this Agreement may be taken by the Holders of Trust Certificates evidencing not
less than a majority of the Percentage Interest. Except as otherwise
specifically provided herein, any written notice of the Certificateholders
delivered pursuant to this Agreement shall be effective if signed by Holders of
Certificates evidencing not less than a majority of the Percentage Interest at
the time of the delivery of such notice.
SECTION 4.6 Rights of Security Insurer. Notwithstanding
anything to the contrary in the Basic Documents, without the prior written
consent of the Security Insurer (so long as no Insurer Default shall have
occurred and be continuing), the Owner Trustee shall not (i) remove the
Servicer, (ii) initiate any claim, suit or proceeding by the Trust or compromise
any claim, suit or proceeding brought by or against the Trust, other than with
respect to the enforcement of any Receivable or any rights of the Trust
thereunder, (iii) authorize the merger or consolidation of the Trust with or
into any other business trust or other entity (other than in accordance with
Section 3.10 of the Indenture) or (iv) amend the Certificate of Trust.
SECTION 4.7 Execution of Documents. Notwithstanding anything herein to
the contrary, the Owner Trustee is authorized, empowered and directed, on behalf
of the Trust, to execute, deliver, issue and authenticate the Certificates, to
execute, deliver and issue the Notes, and to execute and deliver each Basic
Document to which the Trust or the Owner Trustee is or is to be a party and any
other document, instrument, certificate or other writing that may be necessary,
convenient or incidental thereto. Any such execution, delivery, issuance and
authentication is hereby ratified and confirmed in all respects and does not and
will be deemed not to conflict with, constitute or result in a breach or
violation of, or a default under, any provision of or any duty under this Trust
Agreement.
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ARTICLE V
Application of Trust Funds: Certain Duties
SECTION 5.1 Establishment of Certificate Distribution Account.
(a) The Owner Trustee, for the benefit of the Certificateholders and the
Security Insurer, shall establish and maintain in the name of the Trust an
Eligible Deposit Account (the "Certificate Distribution Account"), bearing a
designation clearly indicating that the funds deposited therein are held for the
benefit of the Certificateholders and the Security Insurer.
(b) The Owner Trustee shall possess all right, title and
interest in all funds on deposit from time to time in the Certificate
Distribution Account and in all proceeds thereof. If, at any time, the
Certificate Distribution Account ceases to be an Eligible Deposit Account, the
Owner Trustee shall within five Business Days (or such longer period, not to
exceed 30 calendar days, as to which each Rating Agency and, so long as no
Insurer Default shall have occurred and be continuing, the Security Insurer may
consent) establish a new Certificate Distribution Account as an Eligible Deposit
Account and shall transfer any cash and/or any investments to such new
Certificate Distribution Account.
(c) All amounts held in the Certificate Distribution Account
shall, to the extent permitted by applicable laws, rules and regulations, be
invested, by the Owner Trustee at the Servicer's written direction, in Eligible
Investments that mature not later than one Business Day prior to the
Distribution Date for the Monthly Period to which such amounts relate.
Investments in Eligible Investments shall be made in the name of the Trust, and
such investments shall not be sold or disposed of prior to their maturity.
Subject to the other provisions hereof, the Owner Trustee shall have sole
control over each such investment and the income thereon, and any certificate or
other instrument evidencing any such investment, if any, shall be delivered
directly to the Owner Trustee. All Investment Earnings on funds in the
Certificate Distribution Account shall be distributed on the next Distribution
Date pursuant to Section 5.6 of the Sale and Servicing Agreement.
SECTION 5.2 Application of Funds in Certificate Distribution
Account. (a) On each Distribution Date, the Owner Trustee will, based on the
information contained in the Servicer's Certificate delivered on the related
Determination Date pursuant to Section 4.9 of the Sale and Servicing Agreement,
distribute pro rata to Certificateholders based on Percentage Interest, to the
extent of the funds available, amounts deposited in the Certificate Distribution
Account pursuant to Sections 5.6(b) of the Sale and Servicing Agreement on such
Distribution Date. Notwithstanding any other provision hereof, the
Certificateholders hereby authorize the Trustee on their behalf to remit all
amounts payable to the Certificate Distribution Account pursuant to Section
5.6(b)(vi) of the Sale and Servicing Agreement to the [Insurer's Agent] for
deposit in the Spread Account up to the amount necessary to cause the Collateral
Amount to
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equal the Specified Spread Account Requirement and then to the [Payment
Provider] for payment of the [Required Amount] on the previous Distribution Date
and to the extent any funds remain, to the Certificateholders. (Capitalized
terms in this Section not defined in this Agreement shall have the meaning as
set forth in the Spread Account and Payment Agreement).
(b) On each Distribution Date, the Owner Trustee shall send to
each Certificateholder the statement provided to the Owner Trustee by the
Servicer pursuant to Section 5.8 of the Sale and Servicing Agreement on such
Distribution Date.
(c) If any withholding tax is imposed on the Trust's payment
(or allocations of income) to a Certificateholder, such tax shall reduce the
amount otherwise distributable to the Certificateholder in accordance with this
Section. The Owner Trustee is hereby authorized and directed to retain from
amounts otherwise distributable to the Certificateholders sufficient funds for
the payment of any tax that is legally owed by the Trust (but such authorization
shall not prevent the Owner Trustee from contesting any such tax in appropriate
proceedings, and withholding payment of such tax, if permitted by law, pending
the outcome of such proceedings). The amount of any withholding tax imposed with
respect to a Certificateholder shall be treated as cash distributed to such
Certificateholder at the time it is withheld by the Trust and remitted to the
appropriate taxing authority. If there is a possibility that withholding tax is
payable with respect to a distribution (such as a distribution to a non-US
Certificateholder), the Owner Trustee may in it sole discretion withhold such
amounts in accordance with this clause (c). In the event that an Owner wishes to
apply for a refund of any such withholding tax, the Owner Trustee shall
reasonably cooperate with such Certificateholder in making such claim so long as
such Certificateholder agrees to reimburse the Owner Trustee for any
out-of-pocket expenses incurred. The Servicer shall facilitate compliance with
this Section 5.2(c) by performance of its duties under the Sale and Servicing
Agreement.
SECTION 5.3 [Reserved]
SECTION 5.4 Method of Payment. Subject to Section 9.1(c),
distributions required to be made to Certificateholders on any Distribution Date
shall be made to each Certificateholder of record on the preceding Record Date
either by wire transfer, in immediately available funds, to the account of such
Holder at a bank or other entity having appropriate facilities therefor, if (i)
such Certificateholder shall have provided to the Certificate Registrar
appropriate written instructions at least five Business Days prior to such
Distribution Date and such Holder's Trust Certificates in the aggregate evidence
a Percentage Interest of not less than 20% or (ii) such Certificateholder is the
Seller, or an Affiliate thereof, or, if not, by check mailed to such
Certificateholder at the address of such holder appearing in the Certificate
Register. Notwithstanding the foregoing, the final distribution in respect of
any Trust Certificate (whether on the Final Scheduled Distribution Date or
otherwise) will be payable only upon presentation and surrender of such Trust
Certificate at the office or agency maintained for that purpose by the Owner
Trustee pursuant to Section 3.8.
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SECTION 5.5 No Segregation of Monies; No Interest. Subject to
Sections 5.1 and 5.2, monies received by the Owner Trustee hereunder need not be
segregated in any manner except to the extent required by law and may be
deposited under such general conditions as may be prescribed by law. The Owner
Trustee shall not be liable for any interest thereon.
SECTION 5.6 Accounting and Reports to the Noteholders,
Certificateholders, the Internal Revenue Service and Others. Subject to Sections
10.1(b)(iii) and 10.1(c) of the Sale and Servicing Agreement, the Seller shall
(a) maintain (or cause to be maintained) the books of the Trust on a calendar
year basis on the accrual method of accounting, (b) deliver (or cause to be
delivered) to each Certificateholder, as may be required by the Code and
applicable Treasury Regulations, such information as may be required (including,
if applicable, Schedule K-1) to enable each Certificateholder to prepare its
Federal and state income tax returns, (c) prepare or cause to be prepared, and
file or cause to be filed, all tax returns, if any, relating to the Trust
(including, if applicable, a partnership information return, Form 1065), and
direct the Owner Trustee to make such elections as may from time to time be
required or appropriate under any applicable state or Federal statute or rule or
regulation thereunder so as to maintain the Trust's characterization as a
division or branch of its 100% owner, or as a partnership, as the case may be,
for Federal income tax purposes and (d) collect or cause to be collected any
withholding tax as described in and in accordance with Section 5.2(c) with
respect to income or distributions to Certificateholders. The Owner Trustee
shall make all elections pursuant to this Section as directed by the Seller. The
Owner Trustee shall sign all tax information returns furnished to it in
execution form by the Seller, and filed pursuant to this Section 5.6 and any
other returns as may be required by law and so furnished to it by the Seller,
and in doing so shall rely entirely upon, and shall have no liability for
information provided by, or calculations provided by, the Seller. In the event
the Trust is characterized as a partnership for federal income tax purposes, the
Seller shall cause the Trust to elect under Section 1278 of the Code to include
in income currently any market discount that accrues with respect to the
Receivables, and the Trust shall not make the election provided under Section
754 of the Code.
SECTION 5.7 Signature on Returns; Tax Matters Partner. (a)
Notwithstanding the provisions of Section 5.6, the Owner Trustee shall sign on
behalf of the Trust the tax returns of the Trust, if any, furnished to it in
execution form by the Seller, unless applicable law requires a Certificateholder
to sign such documents, in which case such documents shall be signed by the
Seller so long as it is a Certificateholder, in its capacity as "tax matters
partner."
(b) In the event the Trust is characterized as a
partnership for federal income tax purposes, and the Seller is a
Certificateholder, the Seller shall be the "tax matters partner" of the Trust
pursuant to the Code.
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ARTICLE VI
Authority and Duties of Owner Trustee
SECTION 6.1 General Authority. The Owner Trustee is authorized
and directed to execute and deliver the Basic Documents to which the Trust is
named as a party and each certificate or other document presented in connection
therewith attached as an exhibit to or contemplated by the Basic Documents to
which the Trust is named as a party and any amendment thereto, in each case, in
such form as the Seller shall approve as evidenced conclusively by the Owner
Trustee's execution thereof, and on behalf of the Trust, to direct the Trustee
to authenticate and deliver Class A-1 Notes in the aggregate principal amount of
$_______________ and Class A-2 Notes in the aggregate principal amount of
$_________________. In addition to the foregoing, the Owner Trustee is
authorized, but shall not be obligated, to take all actions required of the
Trust pursuant to the Basic Documents. The Owner Trustee is further authorized
from time to time to take such action as the Servicer recommends to it in
writing with respect to the Basic Documents.
SECTION 6.2 General Duties. It shall be the duty of the Owner
Trustee to discharge (or cause to be discharged) all of its responsibilities
pursuant to the terms of this Agreement and the Basic Documents and to
administer the Trust in the interest of the Certificateholders, subject to the
Basic Documents and in accordance with the provisions of this Agreement.
Notwithstanding the foregoing, the Owner Trustee shall be deemed to have
discharged its duties and responsibilities hereunder and under the Basic
Documents to the extent the Servicer has agreed in the Sale and Servicing
Agreement, or the Seller has agreed hereunder or thereunder, to perform any act
or to discharge any duty of the Owner Trustee hereunder or of the Trust under
any Basic Document, and the Owner Trustee shall not be liable for the default or
failure of the Servicer or the Seller to carry out its obligations hereunder or
thereunder.
SECTION 6.3 Action upon Instruction. (a) Subject to Article
IV, the Security Insurer (so long as an Insurer Default shall not have occurred
and be continuing) or the Certificateholders (if an Insurer Default shall have
occurred and be continuing) (the "Instructing Party") shall have the exclusive
right to direct the actions of the Owner Trustee in the management of the Trust.
Such direction may be exercised at any time by written instruction of the
Certificateholders pursuant to Article IV.
(b) The Owner Trustee shall not be required to take
any action hereunder or under any Basic Document if the Owner Trustee shall have
reasonably determined, or shall have been advised by counsel, that such action
is likely to result in liability on the part of the Owner Trustee or is contrary
to the terms hereof or of any Basic Document or is otherwise contrary to law.
(c) Whenever the Owner Trustee is unable to decide
between alternative courses of action permitted or required by the terms of this
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Agreement or any Basic Document, the Owner Trustee shall promptly give notice
(in such form as shall be appropriate under the circumstances) to the
Instructing Party requesting instruction as to the course of action to be
adopted, and to the extent the Owner Trustee acts in good faith in accordance
with any written instruction of the Instructing Party received, the Owner
Trustee shall not be liable on account of such action to any Person. If the
Owner Trustee shall not have received appropriate instruction within ten days of
such notice (or within such shorter period of time as reasonably may be
specified in such notice or may be necessary under the circumstances) it may,
but shall be under no duty to, take or refrain from taking such action, not
inconsistent with this Agreement or the Basic Documents, as it shall deem to be
in the best interests of the Certificateholders and the Security Insurer, and
shall have no liability to any Person for such action or inaction.
(d) In the event that the Owner Trustee is unsure as
to the application of any provision of this Agreement or any Basic Document or
any such provision is ambiguous as to its application, or is, or appears to be,
in conflict with any other applicable provision, or in the event that this
Agreement permits any determination by the Owner Trustee or is silent or is
incomplete as to the course of action that the Owner Trustee is required to take
with respect to a particular set of facts, the Owner Trustee may give notice (in
such form as shall be appropriate under the circumstances) to the Instructing
Party requesting instruction and, to the extent that the Owner Trustee acts or
refrains from acting in good faith in accordance with any such instruction
received, the Owner Trustee shall not be liable, on account of such action or
inaction, to any Person. If the Owner Trustee shall not have received
appropriate instruction within 10 days of such notice (or within such shorter
period of time as reasonably may be specified in such notice or may be necessary
under the circumstances) it may, but shall be under no duty to, take or refrain
from taking such action, not inconsistent with this Agreement or the Basic
Documents, as it shall deem to be in the best interests of the
Certificateholders and the Security Insurer, and shall have no liability to any
Person for such action or inaction.
SECTION 6.4 No Duties Except as Specified in this Agreement or
in Instructions. The Owner Trustee shall not have any duty or obligation to
manage, make any payment with respect to, register, record, sell, dispose of, or
otherwise deal with the Owner Trust Estate, or to otherwise take or refrain from
taking any action under, or in connection with, any document contemplated hereby
to which the Owner Trustee is a party, except as expressly provided by the terms
of this Agreement or in any document or written instruction received by the
Owner Trustee pursuant to Section 6.3; and no implied duties or obligations
shall be read into this Agreement or any Basic Document against the Owner
Trustee. The Owner Trustee shall have no responsibility for filing any financing
or continuation or termination statement in any public office at any time or to
otherwise perfect or maintain the perfection of any security interest or lien
granted to it hereunder or to prepare or file any Securities and Exchange
Commission filing for the Trust or to record this Agreement or any Basic
Document. The Owner Trustee nevertheless agrees that it will, at its own cost
and expense, promptly take all action as may be necessary to discharge any Liens
on any part of the Owner Trust Estate that result from actions by, or claims
against, the Owner Trustee (solely in its individual capacity) and that are not
related to the ownership or the administration of the Owner Trust Estate.
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SECTION 6.5 No Action Except under Specified Documents or
Instructions. The Owner Trustee shall not manage, control, use, sell, dispose of
or otherwise deal with any part of the Owner Trust Estate except (i) in
accordance with the powers granted to and the authority conferred upon the Owner
Trustee pursuant to this Agreement, (ii) in accordance with the Basic Documents
and (iii) in accordance with any document or instruction delivered to the Owner
Trustee pursuant to Section 6.3.
SECTION 6.6 Restrictions. The Owner Trustee shall not take any
action (a) that is inconsistent with the purposes of the Trust set forth in
Section 2.3 or (b) that, to the actual knowledge of the Owner Trustee, would
result in the Trust's becoming taxable as a corporation for Federal income tax
purposes. The Certificateholders shall not direct the Owner Trustee to take
action that would violate the provisions of this Section.
SECTION 6.7 Notice of Default Under Indenture. Within 10
business days of receipt of a notice of Default under the Indenture, the Owner
Trustee shall provide notice to each Certificateholder by letter.
ARTICLE VII
Concerning the Owner Trustee
SECTION 7.1. Acceptance of Trusts and Duties. The Owner
Trustee accepts the trusts hereby created and agrees to perform its duties
hereunder with respect to such trusts but only upon the terms of this Agreement.
The Owner Trustee in its individual capacity also agrees to disburse all moneys
actually received by it constituting part of the Owner Trust Estate upon the
terms of the Basic Documents and this Agreement. The Owner Trustee in its
individual capacity shall not be answerable or accountable hereunder or under
any Basic Document under any circumstances, except (i) for its own willful
misconduct, bad faith or negligence (ii) in the case of the inaccuracy of any
representation or warranty contained in Section 7.3 expressly made by the Owner
Trustee, in its individual capacity, (iii) for liabilities arising from the
failure of the Owner Trustee to perform obligations expressly undertaken by it
in the last sentence of Section 6.4 hereof, (iv) for any investments issued by
the Owner Trustee or any branch or affiliate thereof in its commercial capacity
or (v) for taxes, fees or other charges on, based on or measured by, any fees,
commissions or compensation received by the Owner Trustee in its individual
capacity. In particular, but not by way of limitation (and subject to the
exceptions set forth in the preceding sentence):
(a) the Owner Trustee shall not be liable for any
error of judgment made by a Responsible Officer of the Owner Trustee;
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(b) the Owner Trustee shall not be liable with
respect to any action taken or omitted to be taken by it in accordance with the
instructions of the Servicer or any Certificateholder;
(c) no provision of this Agreement or any Basic
Document shall require the Owner Trustee to expend or risk funds or otherwise
incur any financial liability in the performance of any of its rights or powers
hereunder or under any Basic Document if the Owner Trustee shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured or provided to it;
(d) under no circumstances shall the Owner Trustee be
liable for indebtedness evidenced by or arising under any of the Basic
Documents, including the principal of and interest on the Notes;
(e) the Owner Trustee shall not be responsible for or
in respect of the validity or sufficiency of this Agreement or for the due
execution hereof by the Seller or for the form, character, genuineness,
sufficiency, value or validity of any of the Owner Trust Estate or for or in
respect of the validity or sufficiency of the Basic Documents, other than the
certificate of authentication on the Trust Certificates, and the Owner Trustee
shall in no event assume or incur any liability, duty or obligation to the
Security Insurer, Trustee, Indenture Collateral Agent, the Collateral Agent, any
Noteholder or to any Certificateholder, other than as expressly provided for
herein and in the Basic Documents;
(f) the Owner Trustee shall not be liable for the
default or misconduct of the Security Insurer, the Trustee, the Servicer, the
Certificateholders or the Seller under any of the Basic Documents or otherwise
and the Owner Trustee shall have no obligation or liability to insure compliance
by the Servicer, the Certificateholders or the Seller with any agreement to
which it is a party or to perform the obligations of the Trust under this
Agreement or the Basic Documents that are required to be performed by the
Trustee under the Indenture or the Servicer under the Sale and Servicing
Agreement or the Seller under this Agreement; and
(g) the Owner Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Agreement, or to
institute, conduct or defend any litigation under this Agreement or otherwise or
in relation to this Agreement or any Basic Document, at the request, order or
direction of any of the Certificateholders, unless such Certificateholders have
offered to the Owner Trustee security or indemnity satisfactory to it against
the costs, expenses and liabilities that may be incurred by the Owner Trustee
therein or thereby. The right of the Owner Trustee to perform any discretionary
act enumerated in this Agreement or in any Basic Document shall not be construed
as a duty, and, the Owner Trustee shall not be answerable for other than its
negligence, bad faith or willful misconduct in the performance of any such act.
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SECTION 7.2 Furnishing of Documents. The Owner Trustee shall
furnish to the Certificateholders promptly upon receipt of a written request
therefor, duplicates or copies of all reports, notices, requests, demands,
certificates, financial statements and any other instruments furnished to the
Owner Trustee under the Basic Documents.
SECTION 7.3 Representations and Warranties. The Owner Trustee
in its individual capacity hereby represents and warrants to the Seller, and the
Security Insurer, the Representative, and for the benefit of the
Certificateholders, that:
(a) It is a ________________ duly organized and
validly existing in good standing under the laws of the State of Delaware and
having an office within the State of Delaware. It has all requisite corporate
power and authority to execute, deliver and perform its obligations under this
Agreement.
(b) It has taken all corporate action necessary to
authorize the execution and delivery by it of this Agreement, and this Agreement
will be executed and delivered by one of its officers who is duly authorized to
execute and deliver this Agreement on its behalf.
(c) Neither the execution nor the delivery by it of
this Agreement, nor the consummation by it of the transactions contemplated
hereby nor compliance by it with any of the terms or provisions hereof will
contravene any federal, Delaware or New York state law, governmental rule or
regulation governing the banking or trust powers of the Owner Trustee or any
judgment or order binding on it, or constitute any default under its charter
documents or by-laws or any indenture, mortgage, contract, agreement or
instrument to which it is a party or by which any of its properties may be
bound.
SECTION 7.4 Reliance; Advice of Counsel. (a) The Owner Trustee
shall incur no liability to anyone in acting upon any signature, instrument,
notice, resolution, request, consent, order, certificate, report, opinion, bond
or other document or paper believed by it to be genuine and believed by it to be
signed by the proper party or parties. The Owner Trustee may accept a certified
copy of a resolution of the board of directors or other governing body of any
corporate party as conclusive evidence that such resolution has been duly
adopted by such body and that the same is in full force and effect. As to any
fact or matter the method of the determination of which is not specifically
prescribed herein, the Owner Trustee may for all purposes hereof rely on a
certificate, signed by the president or any vice president or by the treasurer,
secretary or other authorized officers of the relevant party, as to such fact or
matter, and such certificate shall constitute full protection to the Owner
Trustee for any action taken or omitted to be taken by it in good faith in
reliance thereon.
(b) In the exercise or administration of the trusts
hereunder and in the performance of its duties and obligations under this
Agreement or the Basic Documents, the Owner Trustee (i) may act directly or
through its agents or attorneys pursuant to agreements entered into with any of
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them, and the Owner Trustee shall not be liable for the conduct or misconduct of
such agents or attorneys if such agents or attorneys shall have been selected by
the Owner Trustee with reasonable care, and (ii) may consult with counsel,
accountants and other skilled persons to be selected with reasonable care and
employed by it. The Owner Trustee shall not be liable for anything done,
suffered or omitted in good faith by it in accordance with the written opinion
or advice of any such counsel, accountants or other such persons and not
contrary to this Agreement or any Basic Document herein.
SECTION 7.5 Not Acting in Individual Capacity. Except as
provided herein or in any other Basic Document, in accepting the trusts hereby
created ____________________ acts solely as Owner Trustee hereunder and not in
its individual capacity and all Persons having any claim against the Owner
Trustee by reason of the transactions contemplated by this Agreement or any
Basic Document shall look only to the Owner Trust Estate for payment or
satisfaction thereof.
SECTION 7.6 Owner Trustee Not Liable for Trust Certificates or
Receivables. The recitals contained herein and in the Trust Certificates (other
than the signature and countersignature of the Owner Trustee on the Trust
Certificates) shall be taken as the statements of the Seller and the Owner
Trustee assumes no responsibility for the correctness thereof. The Owner Trustee
makes no representations as to the validity or sufficiency of this Agreement, of
any Basic Document or of the Trust Certificates (other than the signature and
countersignature of the Owner Trustee on the Trust Certificates) or the Notes,
or of any Receivable or related documents. The Owner Trustee shall at no time
have any responsibility or liability for or with respect to the legality,
validity and enforceability of any Receivable, or the perfection and priority of
any security interest created by any Receivable in any Financed Vehicle or the
maintenance of any such perfection and priority, or for or with respect to the
sufficiency of the Owner Trust Estate or its ability to generate the payments to
be distributed to Certificateholders under this Agreement or the Noteholders
under the Indenture, including, without limitation: the existence, condition and
ownership of any Financed Vehicle; the existence and enforceability of any
insurance thereon; the existence and contents of any Receivable or any computer
or other record thereof; the validity of the assignment of any Receivable to the
Trust or of any intervening assignment; the completeness of any Receivable; the
performance or enforcement of any Receivable; the compliance by the Seller or
the Servicer with any warranty or representation made under any Basic Document
or in any related document or the accuracy of any such warranty or
representation or any action of the Trustee or the Servicer or any subservicer
taken in the name of the Owner Trustee.
SECTION 7.7 Owner Trustee May Own Trust Certificates and
Notes. The Owner Trustee in its individual or any other capacity may become the
owner or pledgee of Trust Certificates or Notes and may deal with the Seller,
the Trustee and the Servicer in banking transactions with the same rights as it
would have if it were not Owner Trustee.
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SECTION 7.8 Payments from Owner Trust Estate. All payments to
be made by the Owner Trustee under this Agreement or any of the Basic Documents
to which the Trust or the Owner Trustee is a party shall be made only from the
income and proceeds of the Owner Trust Estate and only to the extent that the
Owner Trust shall have received income or proceeds from
the Owner Trust Estate to make such payments in accordance with the terms
hereof. __________________, or any successor thereto, in its individual
capacity, shall not be liable for any amounts payable under this Agreement or
any of the Basic Documents to which the Trust or the Owner Trustee is a party.
SECTION 7.9 Doing Business in Other Jurisdictions.
Notwithstanding anything contained to the contrary, neither ____________________
or any successor thereto, nor the Owner Trustee shall be required to take any
action in any jurisdiction other than in the State of Delaware if the taking of
such action will, even after the appointment of a co-trustee or separate trustee
in accordance with Section 10.5 hereof, (i) require the consent or approval or
authorization or order of or the giving of notice to, or the registration with
or the taking of any other action in respect of, any state or other governmental
authority or agency of any jurisdiction other than the State of Delaware; (ii)
result in any fee, tax or other governmental charge under the laws of the State
of Delaware becoming payable by (____________) (or any successor thereto); or
(iii) subject (____________) (or any successor thereto) to personal jurisdiction
in any jurisdiction other than the State of Delaware for causes of action
arising from acts unrelated to the consummation of the transactions by
(____________) (or any successor thereto) or the Owner Trustee, as the case may
be, contemplated hereby.
ARTICLE VIII
Compensation of Owner Trustee
SECTION 8.1 Owner Trustee's Fees and Expenses. The Owner
Trustee shall receive as compensation for its services hereunder such fees as
have been separately agreed upon before the date hereof between the
Representative and the Owner Trustee, and the Owner Trustee shall be entitled to
be reimbursed by the Representative for its other reasonable expenses hereunder,
including the reasonable compensation, expenses and disbursements of such
agents, representatives, experts and counsel as the Owner Trustee may employ
provided, however, that the Owner Trustee shall only be entitled to
reimbursement for expenses hereunder to the extent such expenses (i) are fees of
outside counsel engaged by the Owner Trustee in respect of the performance of
its obligations hereunder, but up to a dollar amount not to exceed the amount
previously agreed to with the Representative or (ii) relate to the performance
of its obligations pursuant to Section 5.6 hereof its rights and its duties
hereunder.
SECTION 8.2 Indemnification. The Seller shall be liable as
primary obligor for, and shall indemnify the Owner Trustee and its successors,
assigns, agents and servants (collectively, the "Indemnified Parties") from and
against, any and all liabilities, obligations, losses, damages, taxes, claims,
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actions and suits, and any and all reasonable costs, expenses and disbursements
(including reasonable legal fees and expenses) of any kind and nature whatsoever
(collectively, "Expenses") which may at any time be imposed on, incurred by, or
asserted against the Owner Trustee or any Indemnified Party in any way relating
to or arising out of this Agreement, the Basic Documents, the Owner Trust
Estate, the administration of the Owner Trust Estate or the action or inaction
of the Owner Trustee hereunder, except only that the Seller shall not be liable
for or required to indemnify the Owner Trustee from and against Expenses arising
or resulting from any of the matters described in the third sentence of Section
7.1. The indemnities contained in this Section shall survive the resignation or
termination of the Owner Trustee or the termination of this Agreement. In any
event of any claim, action or proceeding for which indemnity will be sought
pursuant to this Section, the Owner Trustee's choice of legal counsel shall be
subject to the approval of the Seller, which approval shall not be unreasonably
withheld.
SECTION 8.3 Payments to the Owner Trustee. Any amounts paid to
the Owner Trustee pursuant to this Article VIII shall be deemed not to be a part
of the Owner Trust Estate immediately after such payment.
SECTION 8.4 Non-recourse Obligations. Notwithstanding anything
in this Agreement or any Basic Document, the Owner Trustee agrees in its
individual capacity and in its capacity as Owner Trustee for the Trust that all
obligations of the Trust to the Owner Trustee individually or as Owner Trustee
for the Trust shall be recourse to the Owner Trust Estate only and specifically
shall not be recourse to the assets of any Certificateholder.
ARTICLE IX
Dissolution and Termination of Trust
SECTION 9.1 Termination of Trust Agreement. (a) This Agreement
and the Trust shall terminate and be of no further force or effect upon the
latest of (i) the maturity or other liquidation of the last Receivable
(including the purchase by the Servicer at its option of the corpus of the Trust
as described in Section 9.1 of the Sale and Servicing Agreement) and the
subsequent distribution of amounts in respect of such Receivables as provided in
the Basic Documents, or (ii) the payment to Certificateholders of all amounts
required to be paid to them pursuant to this Agreement and the payment to the
Security Insurer of all amounts payable or reimbursable to it, provided,
however, that in no event shall the trust created by this Agreement continue
beyond the expiration of 21 years from the death of the last survivor of the
descendants living on the date of this Agreement of Rose Kennedy of the
Commonwealth of Massachusetts; and provided, further, that the rights to
indemnification under Section 8.2 shall survive the termination of the Trust.
The Servicer shall promptly notify the Owner Trustee and the Security Insurer of
any prospective termination pursuant to this Section 9.1. The bankruptcy,
liquidation, dissolution, death or incapacity of any Certificateholder, or
Owner, shall not (x) operate to terminate this Agreement or the Trust, nor (y)
entitle such Certificateholder's or Owner's legal representatives or heirs to
claim an accounting or to take any action or proceeding in any court for a
partition or winding up of all or any part of the Trust or Owner Trust Estate
nor (z) otherwise affect the rights, obligations and liabilities of the parties
hereto.
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(b) Except as provided in clause (a), neither the
Seller nor any Certificateholder shall be entitled to revoke or terminate the
Trust.
(c) Notice of any termination of the Trust,
specifying the Distribution Date upon which the Certificateholders shall
surrender their Trust Certificates to the Paying Agent for payment of the final
distribution and cancellation, shall be given by the Owner Trustee by letter to
Certificateholders mailed within five Business Days of receipt of notice of such
termination from the Servicer given pursuant to Section 9.1(c) of the Sale and
Servicing Agreement, stating (i) the Distribution Date upon or with respect to
which final payment of the Trust Certificates shall be made upon presentation
and surrender of the Trust Certificates at the office of the Paying Agent
therein designated, (ii) the amount of any such final payment and (iii) that the
Record Date otherwise applicable to such Distribution Date is not applicable,
payments being made only upon presentation and surrender of the Trust
Certificates at the office of the Paying Agent therein specified. The Owner
Trustee shall give such notice to the Certificate Registrar (if other than the
Owner Trustee) and the Paying Agent (if other than the Owner Trustee) at the
time such notice is given to Certificateholders. Upon presentation and surrender
of the Trust Certificates, the Paying Agent shall cause to be distributed to
Certificateholders amounts distributable on such Distribution Date pursuant to
Section 5.2.
In the event that all of the Certificateholders shall not
surrender their Trust Certificates for cancellation within six months after the
date specified in the above mentioned written notice, the Owner Trustee shall
give a second written notice to the remaining Certificateholders to surrender
their Trust Certificates for cancellation and receive the final distribution
with respect thereto. If within one year after the second notice all the Trust
Certificates shall not have been surrendered for cancellation, the Owner Trustee
may take appropriate steps, or may appoint an agent to take appropriate steps,
to contact the remaining Certificateholders concerning surrender of their Trust
Certificates, and the cost thereof shall be paid out of the funds and other
assets that shall remain subject to this Agreement. Any funds remaining in the
Trust after exhaustion of such remedies shall be distributed, subject to
applicable escheat laws, by the Owner Trustee to the Seller. Certificateholders
shall thereafter look solely to the Seller as general unsecured creditors.
(d) Any funds remaining in the Trust after funds for
final distribution have been distributed or set aside for distribution shall be
distributed by the Owner Trustee to the Seller.
(e) Upon dissolution and completion of the winding up
of the Trust, the Owner Trustee shall cause the Certificate of Trust to be
canceled by filing a certificate of cancellation with the Secretary of State in
accordance with the provisions of Section 3810 of the Business Trust Statute and
thereupon the Trust and this Agreement shall terminate. The Owner Trustee shall
furnish notice of such dissolution to each Rating Agency and the Security
Insurer.
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SECTION 9.2 [Reserved]
ARTICLE X
Successor Owner Trustees and Additional Owner Trustees
SECTION 10.1 Eligibility Requirements for Owner Trustee. The
Owner Trustee shall at all times be a corporation (i) satisfying the provisions
of Section 3807(a) of the Business Trust Statute; (ii) authorized to exercise
corporate trust powers; (iii) having a combined capital and surplus of at least
$50,000,000 and subject to supervision or examination by Federal or State
authorities; and (iv) acceptable to the Security Insurer in its sole discretion,
so long as an Insurer Default shall not have occurred and be continuing. If such
corporation shall publish reports of condition at least annually, pursuant to
law or to the requirements of the aforesaid supervising or examining authority,
then for the purpose of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. In case at any time the
Owner Trustee shall cease to be eligible in accordance with the provisions of
this Section, the Owner Trustee shall resign immediately in the manner and with
the effect specified in Section 10.2. In addition, at all times the Owner
Trustee or a co-trustee shall be a person that satisfies the requirements of
Section 3807(a) of the Business Trustee Statute (the "Delaware Trustee").
SECTION 10.2 Resignation or Removal of Owner Trustee. The
Owner Trustee may at any time resign and be discharged from the trusts hereby
created by giving written notice thereof to the Servicer and the Security
Insurer. Upon receiving such notice of resignation, the Servicer shall promptly
appoint a successor Owner Trustee acceptable to the Security Insurer by written
instrument, in duplicate, one copy of which instrument shall be delivered to the
resigning Owner Trustee and one copy to the successor Owner Trustee, provided
that the Seller shall have received written confirmation from each of the Rating
Agencies that the proposed appointment will not result in an increased capital
charge to the Security Insurer by either of the Rating Agencies. If no successor
Owner Trustee shall have been so appointed and have accepted appointment within
30 days after the giving of such notice of resignation, the resigning Owner
Trustee or the Security Insurer may petition any court of competent jurisdiction
for the appointment of a successor Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 10.1 and shall fail to resign after
written request therefor by the Servicer, or if at any time the Owner Trustee
shall be legally unable to act, or shall be adjudged bankrupt or insolvent, or a
receiver of the Owner Trustee or of its property shall be appointed, or any
public officer shall take charge or control of the Owner Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Servicer with the consent of the Security Insurer (so long
as an Insurer Default shall not have occurred and be continuing) or the Security
Insurer may remove the Owner Trustee. If the Servicer shall remove the Owner
Trustee under the authority of the immediately preceding sentence, the Servicer
shall promptly appoint a
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successor Owner Trustee acceptable to the Security Insurer by written
instrument, in duplicate, one copy of which instrument shall be delivered to the
outgoing Owner Trustee so removed, one copy to the Security Insurer and one copy
to the successor Owner Trustee and payment of all fees owed to the outgoing
Owner Trustee.
Any resignation or removal of the Owner Trustee and
appointment of a successor Owner Trustee pursuant to any of the provisions of
this Section shall not become effective until acceptance of appointment by the
successor Owner Trustee pursuant to Section 10.3 and payment of all fees and
expenses owed to the outgoing Owner Trustee. The Servicer shall provide notice
of such resignation or removal of the Owner Trustee to each of the Rating
Agencies.
SECTION 10.3 Successor Owner Trustee. Any successor Owner
Trustee appointed pursuant to Section 10.2 shall execute, acknowledge and
deliver to the Servicer, the Security Insurer and to its predecessor Owner
Trustee an instrument accepting such appointment under this Agreement, and
thereupon the resignation or removal of the predecessor Owner Trustee shall
become effective and such successor Owner Trustee, without any further act, deed
or conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor under this Agreement, with like effect as if
originally named as Owner Trustee. The predecessor Owner Trustee shall upon
payment of its fees and expenses deliver to the successor Owner Trustee all
documents and statements and monies held by it under this Agreement; and the
Servicer and the predecessor Owner Trustee shall execute and deliver such
instruments and do such other things as may reasonably be required for fully and
certainly vesting and confirming in the successor Owner Trustee all such rights,
powers, duties and obligations.
No successor Owner Trustee shall accept appointment as
provided in this Section unless at the time of such acceptance such successor
Owner Trustee shall be eligible pursuant to Section 10.1.
Upon acceptance of appointment by a successor Owner Trustee
pursuant to this Section, the Servicer shall mail notice of the successor of
such Owner Trustee to all Certificateholders, the Security Insurer the Trustee,
the Noteholders and the Rating Agencies. If the Servicer shall fail to mail such
notice within 10 days after acceptance of appointment by the successor Owner
Trustee, the successor Owner Trustee shall cause such notice to be mailed at the
expense of the Servicer.
SECTION 10.4 Merger or Consolidation of Owner Trustee. Any corporation
into which the Owner Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Owner Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Owner Trustee, shall be the successor of the Owner Trustee hereunder, provided
such corporation shall be eligible pursuant to Section 10.1, without the
execution or filing of any instrument or any further act on the part of any of
the parties hereto, anything herein to the contrary notwithstanding; provided
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further that the Owner Trustee shall mail notice of such merger, sale,
conversion or consolidation to the Rating Agencies.
SECTION 10.5 Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Owner Trust Estate or any Financed Vehicle may at the time be located;
the Servicer and the Owner Trustee acting jointly shall have the power and shall
execute and deliver all instruments to appoint one or more Persons approved by
the Owner Trustee and the Security Insurer to act as co-trustee, jointly with
the Owner Trustee, or separate trustee or separate trustees, of all or any part
of the Owner Trust Estate, and to vest in such Person, in such capacity, such
title to the Owner Trust Estate, or any part thereof, and, subject to the other
provisions of this Section, such powers, duties, obligations, rights and trusts
as the Servicer and the Owner Trustee may consider necessary or desirable. If
the Servicer shall not have joined in such appointment within 15 days after the
receipt by it of a request so to do, the Owner Trustee subject, unless an
Insurer Default shall have occurred and be continuing, to the approval of the
Security Insurer (which approval shall not be unreasonably withheld) alone shall
have the power to make such appointment. No co-trustee or separate trustee under
this Agreement shall be required to meet the terms of eligibility as a successor
trustee pursuant to Section 10.1 and no notice of the appointment of any
co-trustee or separate trustee shall be required pursuant to Section 10.3.
Each separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and
obligations conferred or imposed upon the Owner Trustee shall
be conferred upon and exercised or performed by the Owner
Trustee and such separate trustee or co-trustee jointly (it
being understood that such separate trustee or co-trustee is
not authorized to act separately without the Owner Trustee
joining in such act), except to the extent that under any law
of any jurisdiction in which any particular act or acts are to
be performed, the Owner Trustee shall be incompetent or
unqualified to perform such act or acts, in which event such
rights, powers, duties and obligations (including the holding
of title to the Trust or any portion thereof in any such
jurisdiction) shall be exercised and performed singly by such
separate trustee or co-trustee, but solely at the direction of
the Owner Trustee;
(ii) no trustee under this Agreement shall
be personally liable by reason of any act or omission of any
other trustee under this Agreement; and
(iii) the Servicer and the Owner Trustee
acting jointly may at any time accept the resignation of or
remove any separate trustee or co-trustee.
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Any notice, request or other writing given to the Owner
Trustee shall be deemed to have been given to each of the then separate trustees
and co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Owner
Trustee or separately, as may be provided therein, subject to all the provisions
of this Agreement, specifically including every provision of this Agreement
relating to the conduct of, affecting the liability of, or affording protection
to, the Owner Trustee. Each such instrument shall be filed with the Owner
Trustee and a copy thereof given to the Servicer and the Security Insurer.
Any separate trustee or co-trustee may at any time appoint the
Owner Trustee, its agent or attorney-in-fact with full power and authority, to
the extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Owner Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
ARTICLE XI
Miscellaneous
SECTION 11.1 Supplements and Amendments. (a) This Agreement
may be amended by the Seller and the Owner Trustee, with the prior written
consent of the Security Insurer (so long as an Insurer Default shall not have
occurred and be continuing) and with prior written notice to the Rating
Agencies, without the consent of any of the Noteholders or the
Certificateholders (i) to cure any ambiguity or defect or (ii) to correct,
supplement or modify any provisions in this Agreement; provided, however, that
such action shall not, as evidenced by an Opinion of Counsel, adversely affect
in any material respect the interests of any Noteholder or Certificateholder.
(b) This Agreement may also be amended from time to
time, with the prior written consent of the Security Insurer (so long as an
Insurer Default shall not have occurred and be continuing) by the Seller and the
Owner Trustee, with prior written notice to the Rating Agencies, with the
consent of the Holders of Notes evidencing not less than a majority of the
Outstanding Amount of the Notes and, to the extent the Certificates affected
thereby, the consent of the Holders of Certificates evidencing not less than a
majority in Percentage Interest for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement or
of modifying in any manner the rights of the Noteholders or the
Certificateholders; provided, however, that subject to the express rights of the
Security Insurer under the Basic Documents, no such amendment shall (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 shall be required
to be made for the benefit of the Noteholders or the Certificateholders or (ii)
reduce the aforesaid percentage of the Outstanding Amount of the Notes and the
Percentage Interest required to consent to any such amendment, without the
consent of the Holders of all the outstanding Notes and Holders of all
outstanding Certificates.
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Promptly after the execution of any such amendment or consent,
the Owner Trustee shall furnish written notification of the substance of such
amendment or consent to each Certificateholder, the Trustee and each of the
Rating Agencies.
(c) It shall not be necessary for the consent of
Certificateholders, the Noteholders or the Trustee pursuant to this Section to
approve the particular form of any proposed amendment or consent, but it shall
be sufficient if such consent shall approve the substance thereof. The manner of
obtaining such consents (and any other consents of Certificateholders provided
for in this Agreement or in any other Basic Document) and of evidencing the
authorization of the execution thereof by Certificateholders shall be subject to
such reasonable requirements as the Owner Trustee may prescribe.
(d) Promptly after the execution of any amendment to
the Certificate of Trust, the Owner Trustee shall cause the filing of such
amendment with the Secretary of State.
(e) Prior to the execution of any amendment to this
Agreement or the Certificate of Trust, the Owner Trustee shall be entitled to
receive and rely upon an Opinion of Counsel stating that the execution of such
amendment is authorized or permitted by this Agreement and that all conditions
precedent to the execution and delivery of such amendment have been satisfied.
The Owner Trustee may, but shall not be obligated to, enter into any such
amendment which affects the Owner Trustee's own rights, duties or immunities
under this Agreement or otherwise. The Owner Trustee shall furnish copies of any
such amendments to this Agreement to each Rating Agency and the Security
Insurer.
SECTION 11.2 No Legal Title to Owner Trust Estate in
Certificateholders. The Certificateholders shall not have legal title to any
part of the Owner Trust Estate. The Certificateholders shall be entitled to
receive distributions with respect to their undivided beneficial ownership
interest therein only in accordance with Articles V and IX. No transfer, by
operation of law or otherwise, of any right, title or interest of the
Certificateholders to and in their ownership interest in the Owner Trust Estate
shall operate to terminate this Agreement or the trusts hereunder or entitle any
transferee to an accounting or to the transfer to it of legal title to any part
of the Owner Trust Estate.
SECTION 11.3 Limitations on Rights of Others. Except for Section 2.7,
the provisions of this Agreement are solely for the benefit of the Owner
Trustee, the Security Insurer, the Seller, the Certificateholders, the Servicer
and, to the extent expressly provided herein, the Trustee and the Noteholders,
and nothing in this Agreement, whether express or implied, shall be construed to
give to any other Person any legal or equitable right, remedy or claim in the
Owner Trust Estate or under or in respect of this Agreement or any covenants,
conditions or provisions contained herein.
34
<PAGE>
SECTION 11.4 Notices. (a) Unless otherwise expressly
specified or permitted by the terms hereof, all notices shall be in writing and
shall be deemed given upon receipt personally delivered, delivered by overnight
courier or mailed certified mail, return receipt requested and shall be deemed
to have been duly given upon receipt, if to the Owner Trustee, addressed to the
Corporate Trust Offices if to the Seller, addressed to 47 West 200 South, Suite
500, Salt Lake City, UT 84101, Attention _____________ ; if to the Security
Insurer, addressed to MBIA Insurance Corporation, 113 King Street, Armonk, NY
10504, Attention: Insured Portfolio Management SF; or, as to each party, at such
other address as shall be designated by such party in a written notice to each
other party.
(b) Any notice required or permitted to be given to a
Certificateholder shall be given by first-class mail, postage prepaid, at the
address of such Holder as shown in the Certificate Register. Any notice so
mailed within the time prescribed in this Agreement shall be conclusively
presumed to have been duly given, whether or not the Certificateholder receives
such notice.
SECTION 11.5 Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 11.6 Separate Counterparts. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 11.7 Successors and Assigns. This Agreement shall
inure to the benefit of, the Representative, the Security Insurer, the Owner
Trustee and its successors, each Certificateholder and its successors and
permitted assigns and be binding upon the parties hereto and their respective
successors and permitted assigns. Any request, notice, direction, consent,
waiver or other instrument or action by a Certificateholder shall bind the
successors and assigns of such Certificateholder. Except as otherwise provided
in this Agreement, no other Person shall have any right or obligation hereunder.
Without limiting the generality of the foregoing, all covenants and agreements
in this Agreement which confer rights upon the Security Insurer shall be for the
benefit of and run directly to the Security Insurer, and the Security Insurer
shall be entitled to rely on and enforce such covenants, subject, however, to
the limitations on such rights provided in this Agreement and the Basic
Documents. The Security Insurer may disclaim any of its rights and powers under
this Agreement (but not its duties and obligations under the Note Policy) upon
delivery of a written notice to the Owner Trustee.
SECTION 11.8 [Reserved]
35
<PAGE>
SECTION 11.9 No Petition. The Owner Trustee (not in its
individual capacity but solely as Owner Trustee), by entering into this
Agreement, each Certificateholder, by accepting a Trust Certificate, and the
Trustee and each Noteholder by accepting the benefits of this Agreement, hereby
covenants and agrees that they will not at any time institute against the
Seller, or join in any institution against the Seller of, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any United States Federal or state bankruptcy or similar law
in connection with any obligations relating to the Trust Certificates, the
Notes, this Agreement or any of the Basic Documents.
SECTION 11.10 No Recourse. Each Certificateholder by accepting
a Trust Certificate acknowledges that such Certificateholder's Trust
Certificates represent beneficial ownership interests in the Trust only and do
not represent interests in or obligations of the Seller, the Servicer, the Owner
Trustee, the Trustee, the Security Insurer or any Affiliate thereof and no
recourse by such Certificateholder may be had against such parties or their
assets, except as may be expressly set forth or contemplated in this Agreement,
the Trust Certificates or the Basic Documents.
SECTION 11.11 Headings. The headings of the various Articles
and Sections herein are for convenience of reference only and shall not define
or limit any of the terms or provisions hereof.
SECTION 11.12 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.13 [Reserved]
SECTION 11.14 Servicer. The Servicer is authorized to prepare,
or cause to be prepared, execute and deliver on behalf of the Trust all such
documents, reports, filings, instruments, certificates and opinions as it shall
be the duty of the Trust or Owner Trustee to prepare, file or deliver pursuant
to the Basic Documents. Upon written request, the Owner Trustee shall execute
and deliver to the Servicer a limited power of attorney appointing the Servicer
the Trust's agent and attorney-in-fact to prepare, or cause to be prepared,
execute and deliver all such documents, reports, filings, instruments,
certificates and opinions.
SECTION 11.15. Third Party Beneficiary. The Security Insurer
shall be a third party beneficiary hereof and, so long as no Insurer Default
shall have occurred and be continuing shall be entitled to enforce the
provisions hereof as if a party hereto.
36
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed by their respective officers hereunto duly
authorized as of the day and year first above written.
as Owner Trustee
By:____________________
Name:
Title:
FRANKLIN RECEIVABLES LLC
as Seller,
By: ____________________
Name:
Title:
37
<PAGE>
EXHIBIT A
NUMBER __% Percentage Interest
R- CUSIP NO.
SEE REVERSE FOR CERTAIN DEFINITIONS
THE TRUST CERTIFICATES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE
SECURITIES OR "BLUE SKY" LAWS. THE HOLDER HEREOF, BY PURCHASING ANY TRUST
CERTIFICATE, AGREES FOR THE BENEFIT OF THE ISSUER THAT SUCH TRUST CERTIFICATE IS
BEING ACQUIRED FOR ITS OWN ACCOUNT AND NOT WITH A VIEW TO DISTRIBUTION AND MAY
BE RESOLD, PLEDGED OR TRANSFERRED ONLY (1) TO THE ISSUER (UPON REDEMPTION
THEREOF OR OTHERWISE), (2) TO A PERSON THE TRANSFEROR REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS
GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, OR (3) IN A TRANSACTION COMPLYING WITH THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF
ANY STATE OF THE UNITED STATES OR ANY OTHER JURISDICTION.
NO INTEREST IN THIS TRUST CERTIFICATE MAY BE ACQUIRED BY OR
FOR THE ACCOUNT OF (i) AN "EMPLOYEE BENEFIT PLAN" (AS DEFINED IN SECTION 3(3) OF
THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, ("ERISA")) THAT
IS SUBJECT TO THE PROVISIONS OF TITLE I OF ERISA, (ii) A PLAN DESCRIBED IN
SECTION 4975(e)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (INCLUDING,
WITHOUT LIMITATION, INDIVIDUAL RETIREMENT ACCOUNTS AND KEOGH PLANS), OR (iii)
ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF SUCH PLAN'S
INVESTMENT IN THE ENTITY (EACH A "BENEFIT PLAN"). BY ACCEPTING AND HOLDING THIS
CERTIFICATE, THE HOLDER HEREOF AND THE CERTIFICATE OWNER SHALL EACH BE DEEMED TO
HAVE REPRESENTED AND WARRANTED THAT IT IS NOT A BENEFIT PLAN.
A-1
<PAGE>
FRANKLIN AUTO TRUST 1998-1
ASSET BACKED CERTIFICATE
evidencing a beneficial ownership interest in certain distributions of the
Trust, as defined below, the property of which includes a pool of motor vehicle
retail installment sale contracts secured by new and used automobiles and light
trucks, and sold to the Trust by Franklin Receivables LLC.
(This Trust Certificate does not represent an interest in or obligation of
Franklin Receivables LLC or any of its Affiliates, except to the extent
described below.)
THIS CERTIFIES THAT ____________ is the registered owner of %
Percentage Interest nonassessable, fully-paid, beneficial ownership interest in
Franklin Auto Trust 1998-1 (the "Trust") formed by Franklin Receivables LLC, a
limited liability company (the "Seller").
The Trust was created pursuant to a Trust Agreement dated as
of August 1, 1998 (the "Trust Agreement"), between the Seller and
____________________, not in its individual capacity but solely as owner trustee
(the "Owner Trustee"), a summary of certain of the pertinent provisions of which
is set forth below. To the extent not otherwise defined herein, the capitalized
terms used herein have the meanings assigned to them in the Trust Agreement.
This Certificate is one of the duly authorized Trust
Certificates designated as "Asset Backed Certificates" (herein called the "Trust
Certificates"). Also issued under the Indenture dated as of August 1, 1998,
between the Trust and __________________________ as trustee, are Notes
designated as "Class A-1 ______% Asset Backed Notes" (the "Class A-1 Notes"),
and "Class A-2 ____% Asset Backed Notes" (the "Class A-2 Notes" and together
with the Class A-1 Notes, the "Notes"). This Trust Certificate is issued under
and is subject to the terms, provisions and conditions of the Trust Agreement,
to which Trust Agreement the holder of this Trust Certificate by virtue of the
acceptance hereof assents and by which such holder is bound. The property of the
Trust includes a pool of motor vehicle retail installment sale contracts secured
by new and used automobiles and light trucks, (the "Receivables"), all monies
received on the Receivables on or after August 1, 1998, security interests in
the vehicles financed thereby, certain bank accounts and the proceeds thereof,
proceeds from claims on certain insurance policies and certain other rights
under the Trust Agreement and the Sale and Servicing Agreement.
Under the Trust Agreement, there will be distributed on the
____ day of each month or, if such ____ day is not a Business Day, the next
Business Day (the "Distribution Date"), commencing in September 1998 to the
Person in whose name this Trust Certificate is registered at the close of
business on the last day of the calendar month immediately preceding the
Distribution Date (the "Record Date") such Certificateholder's Percentage
Interest in the amount to be distributed to Certificateholders on such
Distribution Date.
A-2
<PAGE>
The holder of this Trust Certificate acknowledges and agrees
that its rights to receive distributions in respect of this Trust Certificate
are subordinated to the rights of the Noteholders as described in the Sale and
Servicing Agreement, the Indenture and the Trust Agreement, as applicable.
It is the intent of the Seller, Servicer, and
Certificateholders that, for purposes of Federal income taxes, the Trust will be
disregarded as an entity apart from its owner if there is only one owner for
Federal income tax purposes, or, if there is more than one owner for Federal
income tax purposes, will be treated as a partnership the partners of which are
the Certificateholders. The Certificateholders by acceptance of a Trust
Certificate, agree to treat, and to take no action inconsistent with the
treatment of, the Trust and the Trust Certificates for such tax purposes as just
described.
Each Certificateholder, by its acceptance of a Trust
Certificate, covenants and agrees that such Certificateholder will not at any
time institute against the Trust or the Seller, or join in any institution
against the Trust or the Seller of, any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings, or other proceedings under any United
States Federal or state bankruptcy or similar law in connection with any
obligations relating to the Trust Certificates, the Notes, the Trust Agreement
or any of the Basic Documents.
Distributions on this Trust Certificate will be made as
provided in the Trust Agreement by the Owner Trustee by wire transfer or check
mailed to the Certificateholder of record in the Trust Certificate Register
without the presentation or surrender of this Trust Certificate or the making of
any notation hereon. Except as otherwise provided in the Trust Agreement and
notwithstanding the above, the final distribution on this Trust Certificate will
be made after due notice by the Owner Trustee of the pendency of such
distribution and only upon presentation and surrender of this Trust Certificate
at the office or agency maintained for the purpose by the Owner Trustee in the
Borough of Manhattan, City of New York.
Reference is hereby made to the further provisions of this
Trust Certificate set forth on the reverse hereof, which further provisions
shall for all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have
been executed by an authorized officer of the Owner Trustee, by manual
signature, this Trust Certificate shall not entitle the holder hereof to any
benefit under the Trust Agreement or the Sale and Servicing Agreement or be
valid for any purpose.
THIS TRUST CERTIFICATE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS.
A-3
<PAGE>
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust
and not in its individual capacity, has caused this Trust Certificate to be duly
executed.
Date:
FRANKLIN AUTO TRUST 1998-1
By: ____________________,
solely as Owner Trustee and not in
its individual capacity
By: ________________________
Authorized Signatory
OWNER TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Trust Certificates of Franklin Auto Trust
1998-1 referred to in the within-mentioned Trust Agreement.
Date:
--------------------,
solely as Owner Trustee and not in
its individual capacity
By:___________________________
Authorized Signatory
A-4
<PAGE>
(Reverse of Trust Certificate)
The Trust Certificates do not represent an obligation of, or
an interest in, the Seller, the Servicer, the Owner Trustee or any Affiliates of
any of them and no recourse may be had against such parties or their assets,
except as may be expressly set forth or contemplated herein or in the Trust
Agreement, the Indenture or the Basic Documents. In addition, this Trust
Certificate is not guaranteed by any governmental agency or instrumentality and
is limited in right of payment to certain collections with respect to the
Receivables (and certain other amounts), all as more specifically set forth
herein and in the Sale and Servicing Agreement. The Trust Certificates are
limited in right of payment to certain collections and recoveries respecting the
Receivables, all as more specifically set forth in the Sale and Servicing
Agreement. A copy of each of the Sale and Servicing Agreement and the Trust
Agreement may be examined during normal business hours at the principal office
of the Seller, and at such other places, if any, designated by the Seller, by
any Certificateholder upon written request.
The Trust Agreement permits, with certain exceptions therein
provided, the amendment thereof and the modification of the rights and
obligations of the Seller and the rights of the Certificateholders under the
Trust Agreement at any time by the Seller and the Owner Trustee with the consent
of the holders of the Notes and the Trust Certificates evidencing not less than
a majority of the outstanding principal balance of the Notes and the Certificate
Balance. Any such consent by the holder of this Trust Certificate shall be
conclusive and binding on such holder and on all future holders of this Trust
Certificate and of any Trust Certificate issued upon the transfer hereof or in
exchange hereof or in lieu hereof whether or not notation of such consent is
made upon this Trust Certificate. The Trust Agreement also permits the amendment
thereof, in certain limited circumstances, without the consent of the holders of
any of the Trust Certificates.
As provided in the Trust Agreement and subject to certain
limitations therein set forth, the transfer of this Trust Certificate is
registerable in the Certificate Register upon surrender of this Trust
Certificate for registration of transfer at the offices or agencies of the
Certificate Registrar maintained by the Owner Trustee in the Borough of
Manhattan, The City of New York, accompanied by a written instrument of transfer
in form satisfactory to the Owner Trustee and the Certificate Registrar duly
executed by the holder hereof or such holder's attorney duly authorized in
writing, and thereupon one or more new Trust Certificates in authorized
denominations evidencing the same aggregate interest in the Trust will be issued
to the designated transferee. The initial Certificate Registrar appointed under
the Trust Agreement is the Owner Trustee.
As provided in the Trust Agreement and subject to certain
limitations therein set forth, Trust Certificates are exchangeable for new Trust
Certificates in authorized denominations evidencing the same aggregate
denomination, as requested by the holder surrendering the same.
A-5
<PAGE>
No service charge will be made for any such registration of
transfer or exchange, but the Owner Trustee or the Certificate Registrar may
require payment of a sum sufficient to cover any tax or governmental charge
payable in connection therewith.
The Owner Trustee, the Certificate Registrar and any agent of
the Owner Trustee or the Certificate Registrar may treat the person in whose
name this Trust Certificate is registered as the owner hereof for all purposes,
and none of the Owner Trustee, the Certificate Registrar or any such agent shall
be affected by any notice to the contrary.
The obligations and responsibilities created by the Trust
Agreement and the Trust created thereby shall terminate upon the payment to
Certificateholders of all amounts required to be paid to them pursuant to the
Trust Agreement and the Sale and Servicing Agreement and the disposition of all
property held as part of the Owner Trust Estate. The Servicer may at its option
purchase the corpus of the Trust at a price specified in the Sale and Servicing
Agreement, and such purchase of the Receivables and other property of the Trust
will effect early retirement of the Trust Certificates; however, such right of
purchase is exercisable, subject to certain restrictions, only as of the last
day of any Monthly Period as of which the Pool Balance is [10]% or less of the
Initial Pool Balance. In addition, if the Servicer does not exercise its option
to purchase the Receivables within 90 days after the last day of the Monthly
Period as of which such right can first be exercised, an auction sale shall be
conducted (as described in the Sale and Servicing Agreement) and such auction
shall effect early retirement of the Certificates.
A-6
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
(Please print or type name and address, including postal zip code, of assignee)
the within Trust Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing
_______________________________________________ Attorney to transfer said Trust
Certificate on the books of the Trust Certificate Registrar, with full power of
substitution in the premises.
Dated:
*
Signature Guaranteed:
*
- --------------------------
* NOTICE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Trust Certificate in
every particular, without alteration, enlargement or any change whatever. Such
signature must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Certificate Registrar, which requirements include membership
or participation in STAMP or such other "signature guarantee program" as may be
determined by the Certificate Registrar in addition to, or in substitution for,
STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.
A-7
<PAGE>
EXHIBIT B
[FORM OF]
CERTIFICATE OF TRUST OF
FRANKLIN AUTO TRUST 1998-1
THIS Certificate of Trust of Franklin Auto Trust 1998-1 (the
"Trust"), is being duly executed and filed by
_______________________________________________, as trustee, to form a business
trust under the Delaware Business Trust Act (12 Del. Code, ss. 3801 et seq.).
1. Name. The name of the business trust formed hereby is
FRANKLIN AUTO TRUST 1998-1.
2. Delaware Trustee. The name and business address of the
trustee of the Trust in the State of Delaware is _______________________, , ,
Delaware _________, Attention: _____________________________.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of
the Trust, has executed this Certificate of Trust.
-----------------------,
not in its individual capacity but
solely as owner trustee of the Trust.
By:________________________________
Name:
Title:
B-1
Exhibit 4.2
================================================================================
FRANKLIN AUTO TRUST 1998-1
$________ CLASS A-1 ________% Asset Backed Notes
$________ CLASS A-2 ________% Asset Backed Notes
--------------------------------
FORM OF INDENTURE
Dated as of August 1, 1998
------------------------------
Trustee and Indenture Collateral Agent
================================================================================
<PAGE>
CROSS REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
<S> <C> <C>
310 (a) (1) ...............................................................6.11
(a) (2) ...............................................................6.11
(a) (3) ...............................................................6.10; 6.11
(a) (4) ...............................................................N.A.
(a) (5) ...............................................................6.11
(b) ...............................................................6.8; 6.11
(c) ...............................................................N.A.
311 (a) ...............................................................6.12
(b) ...............................................................6.12
(c) ...............................................................N.A.
312 (a) ...............................................................7.1
(b) ...............................................................7.2
(c) ...............................................................7.2
313 (a) ...............................................................7.4
(b) (1) ...............................................................7.4
(b) (2) ...............................................................7.4
(c) ...............................................................11.5
(d) ...............................................................7.3
314 (a) ...............................................................3.9; 7.3
(b) ...............................................................11.15
(c) (1) ...............................................................11.1
(c) (2) ...............................................................11.1
(c) (3) ...............................................................11.1
(d) ...............................................................11.1
(e) ...............................................................1.1; 11.1
(f) ...............................................................11.1
315 (a) ...............................................................6.1
(b) ...............................................................6.5; 11.5
(c) ...............................................................6.1
(d) ...............................................................6.1
(e) ...............................................................5.14
316 (a) (last sentence) ......................................................1.1
(a) (1)(A) ...............................................................5.12
(a) (1)(B) ...............................................................5.13
(a) (2) ...............................................................N.A.
(b) ...............................................................5.7; 5.8
(c) ...............................................................N.A
317 (a) (1) ...............................................................5.3
(a) (2) ...............................................................5.3
(b) ...............................................................3.3
318 (a) ...............................................................11.7
(b) ...............................................................N.A.
(c) ...............................................................11.7
</TABLE>
- -------------------
1 Note: This Cross Reference Table shall not, for any purpose, be deemed to
be part of this Indenture.
2. N.A. means Not Applicable.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
Definitions and Incorporation by Reference
<S> <C> <C>
SECTION 1.1 Definitions.................................................................................3
SECTION 1.2 Incorporation by Reference of Trust Indenture Act..........................................12
SECTION 1.3. Rules of Construction.....................................................................12
ARTICLE II
The Notes
SECTION 2.1. Form......................................................................................13
SECTION 2.2. Execution, Authentication and Delivery....................................................13
SECTION 2.3. Temporary Notes...........................................................................14
SECTION 2.4. Registration; Registration of Transfer and Exchange.......................................14
SECTION 2.5. Mutilated, Destroyed, Lost or Stolen Notes................................................15
SECTION 2.6. Persons Deemed Owner......................................................................16
SECTION 2.7. Payment of Principal and Interest; Defaulted Interest.....................................16
SECTION 2.8. Cancellation..............................................................................18
SECTION 2.9. Release of Collateral.....................................................................18
SECTION 2.10. Book-Entry Notes.........................................................................18
SECTION 2.11. Notices to Clearing Agency...............................................................19
SECTION 2.12. Definitive Notes.........................................................................19
ARTICLE III
Covenants
SECTION 3.1. Payment of Principal and Interest.........................................................20
SECTION 3.2. Maintenance of Office or Agency...........................................................20
SECTION 3.3. Money for Payments To Be Held in Trust....................................................20
SECTION 3.4. Existence.................................................................................22
SECTION 3.5. Protection of Trust Estate................................................................22
SECTION 3.6. Opinions as to Trust Estate...............................................................23
SECTION 3.7. Performance of Obligations; Servicing of Receivables......................................23
SECTION 3.8. Negative Covenants........................................................................25
SECTION 3.9. Annual Statement as to Compliance.........................................................25
SECTION 3.10. Issuer May Consolidate, Etc. Only on Certain Terms.......................................26
SECTION 3.11. Successor or Transferee..................................................................28
SECTION 3.12. No Other Business........................................................................28
SECTION 3.13. No Borrowing.............................................................................28
SECTION 3.14. Servicer's Obligations...................................................................29
SECTION 3.15. Guarantees, Loans, Advances and Other Liabilities........................................29
SECTION 3.16. Capital Expenditures.....................................................................29
SECTION 3.17 Compliance with Laws......................................................................29
i
<PAGE>
SECTION 3.18. Restricted Payments......................................................................29
SECTION 3.19. Notice of Events of Default..............................................................29
SECTION 3.20. Further Instruments and Acts.............................................................29
SECTION 3.21. Amendments ofSale and Servicing Agreement and Trust Agreement............................30
SECTION 3.22. Income Tax Characterization..............................................................30
ARTICLE IV
Satisfaction and Discharge
SECTION 4.1. Satisfaction and Discharge of Indenture...................................................30
SECTION 4.2. Application of Trust Money................................................................31
SECTION 4.3. Repayment of Moneys Held by Paying Agent..................................................31
ARTICLE V
Remedies
SECTION 5.1. Events of Default.........................................................................32
SECTION 5.2. Rights Upon Event of Default..............................................................33
SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee...........................35
SECTION 5.4. Remedies..................................................................................37
SECTION 5.5. Optional Preservation of the Receivables..................................................38
SECTION 5.6. Priorities................................................................................39
SECTION 5.7. Limitation of Suits.......................................................................40
SECTION 5.8. Unconditional Rights of Noteholders To Receive Principal and
Interest.......................................................................................40
SECTION 5.9. Restoration of Rights and Remedies........................................................41
SECTION 5.10. Rights and Remedies Cumulative...........................................................41
SECTION 5.11. Delay or Omission Not a Waiver...........................................................41
SECTION 5.12. Control by Noteholders...................................................................41
SECTION 5.13. Waiver of Past Defaults..................................................................42
SECTION 5.14. Undertaking for Costs....................................................................42
SECTION 5.15. Waiver of Stay or Extension Laws.........................................................42
SECTION 5.16. Action on Notes..........................................................................43
SECTION 5.17. Performance and Enforcement of Certain Obligations.......................................43
SECTION 5.18. Claims Under Note Policy.................................................................43
SECTION 5.19. Preference Claims........................................................................45
ARTICLE VI
The Trustee and the Indenture Collateral Agent
SECTION 6.1. Duties of Trustee.........................................................................45
SECTION 6.2. Rights of Trustee.........................................................................47
SECTION 6.3. Individual Rights of Trustee..............................................................48
SECTION 6.4. Trustee's Disclaimer......................................................................49
SECTION 6.5. Notice of Defaults........................................................................49
SECTION 6.6. Reports by Trustee to Holders.............................................................49
SECTION 6.7. Compensation and Indemnity................................................................49
SECTION 6.8. Replacement of Trustee....................................................................50
SECTION 6.9. Successor Trustee by Merger...............................................................51
SECTION 6.10. Appointment of Co-Trustee or SeparateTrustee.............................................52
ii
<PAGE>
SECTION 6.11. Eligibility; Disqualification............................................................53
SECTION 6.12. Preferential Collection ofClaims Against Issuer..........................................53
SECTION 6.13. Appointment and Powers...................................................................53
SECTION 6.14. Performance of Duties....................................................................54
SECTION 6.15. Limitation on Liability..................................................................54
SECTION 6.16. Reliance Upon Documents..................................................................55
SECTION 6.17. Successor Indenture Collateral Agent.....................................................55
SECTION 6.18. Compensation.............................................................................56
SECTION 6.19. Representations and Warranties of the Indenture Collateral Agent.........................56
SECTION 6.20. Waiver of Setoffs........................................................................57
SECTION 6.21. Control by the Controlling Party.........................................................57
ARTICLE VII
Noteholders' Lists and Reports
SECTION 7.1. Issuer To Furnish To Trustee Names and Addresses of Noteholders...........................57
SECTION 7.2. Preservation ofInformation; Communications to Noteholders.................................58
SECTION 7.3. Reports by Issuer.........................................................................58
SECTION 7.4. Reports by Trustee........................................................................58
ARTICLE VIII
Accounts, Disbursements and Releases
SECTION 8.1. Collection of Money.......................................................................59
SECTION 8.2. Trust Accounts............................................................................59
SECTION 8.3. General Provisions Regarding Accounts.....................................................60
SECTION 8.4. Release of Trust Estate...................................................................60
SECTION 8.5. Opinion of Counsel........................................................................61
ARTICLE IX
Supplemental Indentures
SECTION 9.1. Supplemental Indentures WithoutConsent of Noteholders.....................................61
SECTION 9.2. Supplemental Indentures with Consent of Noteholders.......................................63
SECTION 9.3. Execution of Supplemental Indentures......................................................64
SECTION 9.4. Effect of Supplemental Indenture..........................................................64
SECTION 9.5. Conformity With Trust Indenture Act.......................................................65
SECTION 9.6. Reference in Notes to SupplementalIndentures..............................................65
ARTICLE X
Redemption of Notes
SECTION 10.1 Redemption................................................................................65
SECTION 10.2 Form of Redemption Notice.................................................................66
SECTION 10.3. Notes Payable on Redemption Date.........................................................66
iii
<PAGE>
ARTICLE XI
Miscellaneous
SECTION 11.1 Compliance Certificates and Opinions, etc.................................................67
SECTION 11.2. Form of Documents Delivered to Trustee...................................................69
SECTION 11.3. Acts of Noteholders......................................................................69
SECTION 11.4. Notices, etc., to Trustee,Issuer and Rating Agencies.....................................70
SECTION 11.5. Notices to Noteholders; Waiver...........................................................71
SECTION 11.6. Alternate Payment and Notice Provisions..................................................71
SECTION 11.7. Conflict with Trust Indenture Act........................................................71
SECTION 11.8. Effect of Headings and Table of Contents.................................................72
SECTION 11.9. Successors and Assigns...................................................................72
SECTION 11.10. Separability............................................................................72
SECTION 11.11. Benefits of Indenture...................................................................72
SECTION 11.12. Legal Holidays..........................................................................72
SECTION 11.13. GOVERNING LAW...........................................................................72
SECTION 11.14. Counterparts............................................................................73
SECTION 11.15. Recording of Indenture..................................................................73
SECTION 11.16. Trust Obligation........................................................................73
SECTION 11.17. No Petition.............................................................................73
SECTION 11.18. Inspection..............................................................................73
</TABLE>
iv
<PAGE>
EXHIBITS
EXHIBIT A - SCHEDULE OF RECEIVABLES
EXHIBIT B - SALE AND SERVICING AGREEMENT
EXHIBIT C - NOTE DEPOSITORY AGREEMENT
EXHIBIT D-1 - FORM OF CLASS A-1 NOTES
EXHIBIT D-2 - FORM OF CLASS A-2 NOTES
EXHIBIT E FORM OF NOTE POLICY
<PAGE>
INDENTURE dated as of August __,
1998, between FRANKLIN AUTO TRUST 1998-1, a Delaware
business trust (the "Issuer"), and
______________________, as trustee (the "Trustee")
and Indenture Collateral Agent (as defined below)
Each party agrees as follows for the benefit of the other
party and for the Security Insurer and the equal and ratable benefit of the
Holders of the Issuer's Class A-1 _______% Asset Backed Notes (the "Class A-1
Notes") and Class A-2 _______% Asset Backed Notes (the "Class A-2 Notes" and,
together with the Class A-1 Notes, the "Notes"):
As security for the payment and performance by the Issuer of
its obligations under this Indenture and the Notes, the Issuer has agreed to
assign the Indenture Collateral (as defined below) as collateral to the
Indenture Collateral Agent for the benefit of the Trustee on behalf of the
Noteholders and the Security Insurer.
MBIA Insurance Corporation (the "Security Insurer") has issued
and delivered a note guaranty insurance policy, dated the Closing Date (with
endorsements, if any, the "Note Policy"), pursuant to which the Security Insurer
guarantees Note Insured Payments, as defined in the Note Policy.
As an inducement to the Security Insurer to issue and deliver
the Note Policy, the Issuer and the Security Insurer have executed and delivered
the Insurance Agreement, dated as of August __, 1998 (as amended from time to
time, the "Insurance Agreement"), among the Security Insurer, the Servicer, the
Indenture Trustee, the Owner Trustee, the Issuer, the Representative and the
Seller.
As an additional inducement to the Security Insurer to issue
the Note Policy, and as security for the performance by the Issuer of the
Insurer Issuer Secured Obligations and as security for the performance by the
Issuer of the Trustee Issuer Secured Obligations, the Issuer has agreed to
assign the Collateral (as defined below) as collateral to the Indenture
Collateral Agent for the benefit of the Issuer Secured Parties, as their
respective interests may appear.
GRANTING CLAUSE
The Issuer hereby Grants to the Indenture Collateral Agent at
the Closing Date, for the benefit of the Issuer Secured Parties to secure the
Issuer Secured Parties, all of the Issuer's right, title and interest in and to
(a) the Receivables, and all moneys due thereon after the Cutoff Date; (b) an
assignment of the security interests in the Financed Vehicles granted by
Obligors pursuant to the Receivables and any other interest of the Issuer in the
Financed Vehicles; (c) any proceeds with respect to the Receivables repurchased
by a Dealer, pursuant to a Dealer Agreement, as a result of a breach of
<PAGE>
representation or warranty in the related Dealer Agreement; (d) all rights under
any Service Contracts on the related Financed Vehicles; (e) any proceeds with
respect to the Receivables from claims on any physical damage, theft, credit
life or disability insurance policies covering Financed Vehicles or Obligors;
(f) all funds on deposit from time to time in the Trust Accounts, and in all
investments and proceeds thereof and all rights of the Issuer therein (including
all income thereon); (g) the Issuer's rights and benefits, but none of its
obligations or burdens, under the Purchase Agreement, including the delivery
requirements, representations and warranties and the cure and repurchase
obligations of Franklin Capital Corporation under the Purchase Agreement; (h)
all items contained in the Receivables Files and any and all other documents
that Franklin Capital Corporation keeps on file in accordance with its customary
procedures relating to the Receivables, the Obligors or the Financed Vehicles,
(i) the Issuer's rights and benefits, but none of its obligations or burdens,
under the Sale and Servicing Agreement (including all rights of the Seller under
the Purchase Agreement assigned to the Issuer pursuant to the Sale and Servicing
Agreement); and (j) all present and future claims, demands, causes and choses in
action in respect of any or all of the foregoing and all payments on or under
and all proceeds of every kind and nature whatsoever in respect of any or all of
the foregoing, including all proceeds of the conversion, voluntary or
involuntary, into cash or other liquid property, all cash proceeds, accounts,
accounts receivable, notes, drafts, acceptances, chattel paper, checks, deposit
accounts, insurance proceeds, condemnation awards, rights to payment of any and
every kind and other forms of obligations and receivables, instruments and other
property which at any time constitute all or part of or are included in the
proceeds of any of the foregoing (collectively, the "Collateral").
The foregoing Grant is made in trust to secure the payment of
principal of and interest on, and any other amounts owing in respect of, the
Notes, equally and ratably without prejudice, priority or distinction except as
set forth herein, and to secure compliance with the provisions of this
Indenture, all as provided in this Indenture.
The Indenture Collateral Agent, for the benefit of the Trustee
on behalf of the Holders of the Notes and for the benefit of the Security
Insurer acknowledges such Grant, accepts the trusts under this Indenture in
accordance with the provisions of this Indenture and agrees to perform its
duties required in this Indenture to the best of its ability to the end that the
interests of the Holders of the Notes and the Security Insurer may be adequately
and effectively protected.
2
<PAGE>
ARTICLE I.
Definitions and Incorporation by Reference
SECTION 1.1. Definitions. Except as otherwise specified
herein, the following terms have the respective meanings set forth below for all
purposes of this Indenture.
"Act" has the meaning specified in Section 11.3(a).
"Affiliate" means, with respect to any specified Person, any
other Person controlling or controlled by or under common control with such
specified Person. For the purposes of this definition, "control" when used with
respect to any specified Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing. A Person shall not be
deemed to be an Affiliate of any person solely because such other Person has the
contractual right or obligation to manage such Person unless such other Person
controls such Person through equity ownership or otherwise.
"Authorized Officer" means, with respect to the Issuer and the
Servicer, any officer of the Owner Trustee or the Servicer, as applicable, who
is authorized to act for the Owner Trustee or the Servicer, as applicable, in
matters relating to the Issuer or the Servicer and who is identified on the list
of Authorized Officers delivered by each of the Owner Trustee and the Servicer
to the Trustee on the Closing Date (as such list may be modified or supplemented
from time to time thereafter).
"Basic Documents" means the Certificate of Trust, the Trust
Agreement, the Sale and Servicing Agreement, the Indenture, the Note Depository
Agreement, the Purchase Agreement, the Insurance Agreement, the Indemnification
and other documents and certificates delivered in connection therewith.
"Book Entry Notes" means a beneficial interest in the Notes,
ownership and transfers of which shall be made through book entries by a
Clearing Agency as described in Section 2.10.
"Business Day" means (i) with respect to the Note Policy, any
day other than a Saturday, Sunday, legal holiday or other day on which the
Insurer or commercial banking institutions in Wilmington, Delaware or the City
of New York 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 and (ii) otherwise, a
day other than a Saturday, a 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.
3
<PAGE>
"Certificate of Trust" means the certificate of trust of the
Issuer substantially in the form of Exhibit B to the Trust Agreement.
"Class A-1 Notes" means the Class A-1 __________% Asset Backed
Notes, substantially in the form of Exhibit D-1.
"Class A-1 Interest Rate" means __________% per annum
(computed on the basis of the [actual number of days elapsed in a 360-day
year]).
"Class A-2 Notes" means the Class A-2 __________% Asset Backed
Notes, substantially in the form of Exhibit D-2.
"Class A-2 Interest Rate" means ___________% per annum
(computed on the basis of a 360-day year of twelve 30-day months).
"Clearing Agency" means an organization registered as a
"clearing agency" pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" means a broker, dealer, bank,
other financial institution or other Person for whom from time to time a
Clearing Agency effects book-entry transfers and pledges of securities deposited
with the Clearing Agency.
"Closing Date" means August __, 1998.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, and Treasury Regulations promulgated thereunder.
"Collateral" has the meaning specified in the Granting Clause
of this Indenture.
"Controlling Party" means the Security Insurer, so long as no
Insurer Default shall have occurred and be continuing, and the Trustee, for so
long as an Insurer Default shall have occurred and be continuing.
"Corporate Trust Office" means the principal office of the
Trustee at which at any particular time its corporate trust business shall be
administered which office at date of the execution of this Agreement is located
at ____________________________ or at such other address as the Trustee may
designate from time to time by notice to the Noteholders, the Security Insurer,
the Servicer and the Issuer, or the principal corporate trust office of any
successor Trustee (the address of which the successor Trustee will notify the
Noteholders and the Issuer).
"Default" means any occurrence that is, or with notice or the
lapse of time or both would become, an Event of Default.
4
<PAGE>
"Definitive Notes" has the meaning specified in Section 2.10.
"Event of Default" has the meaning specified in Section 5.1.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Executive Officer" means, with respect to any corporation,
the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer,
President, Executive Vice President, any Vice President, the Secretary or the
Treasurer of such corporation; and with respect to any partnership, any general
partner thereof.
"Grant" means mortgage, pledge, bargain, sell, warrant,
alienate, remise, release, convey, assign, transfer, create, grant a lien upon
or a security interest in or right of set-off against, deposit, or set over and
confirm pursuant to this Indenture. A Grant of the Collateral or of any other
agreement or instrument shall include all rights, powers and options (but none
of the obligations) of the Granting party thereunder, including the immediate
and continuing right to claim for, collect, receive and give receipt for
principal and interest payments in respect of the Collateral and all other
moneys payable thereunder, to give and receive notices and other communications,
to make waivers or other agreements, to exercise all rights and options, to
bring proceedings in the name of the Granting party or otherwise and generally
to do and receive anything that the Granting party is or may be entitled to do
or receive thereunder or with respect thereto.
"Holder" or "Noteholder" means the Person in whose name a Note
is registered on the Note Register.
"Indebtedness" means, with respect to any Person at any time,
(a) indebtedness or liability of such Person for borrowed money whether or not
evidenced by bonds, debentures, notes or other instruments, or for the deferred
purchase price of property or services (including trade obligations); (b)
obligations of such Person as lessee under leases which should have been or
should be, in accordance with generally accepted accounting principles, recorded
as capital leases; (c) current liabilities of such Person in respect of unfunded
vested benefits under plans covered by Title IV of ERISA; (d) obligations issued
for or liabilities incurred on the account of such Person; (e) obligations or
liabilities of such Person arising under acceptance facilities; (f) obligations
of such Person under any guarantees, endorsements (other than for collection or
deposit in the ordinary course of business) and other contingent obligations to
purchase, to provide funds for payment, to supply funds to invest in any Person
or otherwise to assure a creditor against loss; (g) obligations of such Person
secured by any lien on property or assets of such Person, whether or not the
obligations have been assumed by such Person; or (h) obligations of such Person
under any interest rate or currency exchange agreement.
5
<PAGE>
"Indenture" means this Indenture as amended and supplemented
from time to time.
"Indenture Collateral Agent" means, initially,
_________________, in its capacity as collateral agent on behalf of the Issuer
Secured Parties, including its successors in interest, until and unless a
successor Person shall have become the Indenture Collateral Agent pursuant to
Section 6.17 hereof, and thereafter "Indenture Collateral Agent" shall mean such
successor Person.
"Independent" means, when used with respect to any specified
Person, that the person (a) is in fact independent of the Issuer, any other
obligor upon the Notes, the Seller and any Affiliate of any of the foregoing
persons, (b) does not have any direct financial interest or any material
indirect financial interest in the Issuer, any such other obligor, the Seller or
any Affiliate of any of the foregoing Persons and (c) is not connected with the
Issuer, any such other obligor, the Seller or any Affiliate of any of the
foregoing Persons as an officer, employee, promoter, underwriter, trustee,
partner, director or Person performing similar functions.
"Independent Certificate" means a certificate or opinion to be
delivered to the Indenture Collateral Agent under the circumstances described
in, and otherwise complying with, the applicable requirements of Section 11.1,
prepared by an Independent appraiser or other expert appointed by an Issuer
Order and approved by the Indenture Collateral Agent in the exercise of
reasonable care, and such opinion or certificate shall state that the signer has
read the definition of "Independent" in this Indenture and that the signer is
Independent within the meaning thereof.
"Insurance Agreement Event of Default" has the meaning
specified therefor in the Insurance Agreement.
"Insurer Issuer Secured Obligations" means all amounts and
obligations which the Issuer may at any time owe to or on behalf of the Security
Insurer under this Indenture, the Insurance Agreement or any other Basic
Document.
"Interest Rate" means, with respect to the (i) Class A-1
Notes, the Class A-1 Interest Rate and (ii) Class A-2 Notes, the Class A-2
Interest Rate.
"Issuer" means the party named as such in this Indenture until
a successor replaces it and, thereafter, means the successor and, for purposes
of any provision contained herein and required by the TIA, each other obligor on
the Notes.
"Issuer Order" and "Issuer Request" means a written order or
request signed in the name of the Issuer by any one of its Authorized Officers
and delivered to the Trustee.
"Issuer Secured Obligations" means the Insurer Issuer Secured
Obligations and the Trustee Issuer Secured Obligations.
6
<PAGE>
"Issuer Secured Parties" means each of the Trustee in respect
of the Trustee Issuer Secured Obligations and the Security Insurer in respect of
the Insurer Issuer Secured Obligations.
"Note" means a Class A-1 Note and a Class A-2 Note.
"Note Depository Agreement" means the agreement among the
Issuer, the Trustee, the Servicer and The Depository Trust Company, as the
initial Clearing Agency, dated August __, 1998 substantially in the form of
Exhibit C.
"Note Insured Payments" has the meaning specified in the Note
Policy.
"Note Policy" means the note guaranty insurance policy issued
by the Security Insurer with respect to the Notes, including any endorsements
thereto, if any, in the form of Exhibit E.
"Note Owner" means, with respect to a Book-Entry Note, the
person who is the owner of such Book-Entry Note, as reflected on the books of
the Clearing Agency, or on the books of a Person maintaining an account with
such Clearing Agency (directly as a Clearing Agency Participant or as an
indirect participant, in each case in accordance with the rules of such Clearing
Agency).
"Note Register" and "Note Registrar" have the respective
meanings specified in Section 2.4.
"Notice" has the meaning specified in Section 5.18.
"Officer's Certificate" means a certificate signed by any
Authorized Officer of the Owner Trustee, under the circumstances described in,
and otherwise complying with, the applicable requirements of Section 11.1 and
TIA ss. 314, and delivered to the Trustee. Unless otherwise specified, any
reference in this Indenture to an Officer's Certificate shall be to an Officer's
Certificate of any Authorized Officer of the Issuer.
"Opinion of Counsel" means one or more written opinions of
counsel who may, except as otherwise expressly provided in this Indenture, be
employees of or counsel to the Issuer and who shall be satisfactory to the
Trustee and addressed to the Security Insurer and satisfactory to the Security
Insurer, and which shall comply with any applicable requirements of Section
11.01, and shall be in form and substance satisfactory to the Trustee, and shall
be addressed to the Security Insurer and satisfactory to the Security Insurer.
"Outstanding" means, as of the date of determination, all
Notes theretofore authenticated and delivered under this Indenture except:
7
<PAGE>
(i) Notes theretofore canceled by the Note Registrar or
delivered to the Note Registrar for cancellation;
(ii) Notes or portions thereof the payment for which money
in the necessary amount has been theretofore deposited with the Trustee
or any Paying Agent in trust for the Holders of such Notes (provided,
however, that if such Notes are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or provision
therefor, satisfactory to the Trustee); and
(iii) Notes in exchange for or in lieu of other Notes which
have been authenticated and delivered pursuant to this Indenture unless
proof satisfactory to the Trustee is presented that any such Notes are
held by a bona fide purchaser;
provided, however, that Notes which have been paid with proceeds of the Note
Policy shall continue to remain Outstanding for purposes of this Indenture until
the Security Insurer has been paid as subrogee hereunder or reimbursed pursuant
to the Insurance Agreement as evidenced by a written notice from the Security
Insurer delivered to the Trustee, and the Security Insurer shall be deemed to be
the Holder thereof to the extent of any payments thereon made by the Security
Insurer; provided, further, that in determining whether the Holders of the
requisite Outstanding Amount of the Notes have given any request, demand,
authorization, direction, notice, consent or waiver hereunder or under any Basic
Document, Notes owned by the Issuer, any other obligor upon the Notes, the
Seller or any Affiliate of any of the foregoing Persons shall be disregarded and
deemed not to be Outstanding, except that, in determining whether the Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes that a Responsible Officer of
the Trustee either actually knows to be so owned or has received written notice
thereof shall be so disregarded. Notes so owned that have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to such
Notes and that the pledgee is not the Issuer, any other obligor upon the Notes,
the Seller or any Affiliate of any of the foregoing Persons.
"Outstanding Amount" means the aggregate principal amount of
all Notes, or class of Notes, as applicable, Outstanding at the date of
determination.
"Paying Agent" means the Trustee or any other Person
acceptable to the Security Insurer that meets the eligibility standards for the
Trustee specified in Section 6.11 and is authorized by the Issuer to make the
payments to and distributions from the Collection Account and the Note
Distribution Account, including payment of principal of or interest on the Notes
on behalf of the Issuer.
"Payment Date" means a Distribution Date.
8
<PAGE>
"Predecessor Note" means, with respect to any particular Note,
every previous Note evidencing all or a portion of the same debt as that
evidenced by such particular Note; and, for the purpose of this definition, any
Note authenticated and delivered under Section 2.5 in lieu of a mutilated, lost,
destroyed or stolen Note shall be deemed to evidence the same debt as the
mutilated, lost, destroyed or stolen Note.
"Preference Claim" has the meaning specified in Section 5.19.
"Proceeding" means any suit in equity, action at law or other
judicial or administrative proceeding.
"Rating Agency" means each of Moody's and Standard & Poor's,
so long as such Persons maintain a rating on the Notes; and if either Moody's or
Standard & Poor's no longer maintains a rating on the Notes, such other
nationally recognized statistical rating organization selected by the Seller and
(so long as an Insurer Default shall not have occurred and be continuing)
acceptable to the Security Insurer.
"Rating Agency Condition" means, with respect to any action,
that each Rating Agency shall have been given 10 days' (or such shorter period
as shall be acceptable to each Rating Agency) prior notice thereof and that each
of the Rating Agencies shall have notified the Seller, the Servicer, the
Security Insurer, the Trustee, the Owner Trustee and the Issuer in writing that
such action will not result in a reduction or withdrawal of the then current
rating of the Notes.
"Record Date" means, with respect to a Payment Date or
Redemption Date, the close of business on the last Business Day immediately
preceding such Payment Date or Redemption Date.
"Redemption Date" means (a) in the case of a redemption of the
Notes pursuant to Section 10.1(a) or a payment to Noteholders pursuant to
Section 10.1(b), the Payment Date specified by the Servicer or the Issuer
pursuant to Section 10.1(a) or (b) as applicable.
"Redemption Price" means (a) in the case of a redemption of
the Notes pursuant to Section 10.1(a), an amount equal to the unpaid principal
amount of the then outstanding principal amount of each class of Notes being
redeemed plus accrued and unpaid interest thereon to but excluding the
Redemption Date and any amounts then owing to Security Insurer or (b) in the
case of a payment made to Noteholders pursuant to Section 10.1(b), the amount on
deposit in the Note Distribution Account, but not in excess of the amount
specified in clause (a) above.
"Responsible Officer" means, with respect to the Trustee, any
officer within the Corporate Trust Office of the Trustee, including any Vice
President, Assistant Vice President, Assistant Treasurer, Assistant Secretary,
or any other officer of the Trustee customarily performing functions similar to
those performed by any of the above designated officers and also, with respect
to a particular matter, any other officer to whom such matter is referred
because of such officer's knowledge of and familiarity with the particular
subject.
9
<PAGE>
"Sale and Servicing Agreement" means the Sale and Servicing
Agreement dated as of August 1, 1998, among the Issuer, the Representative, the
Seller and the Servicer, substantially in the form of Exhibit B as the same may
be amended or supplemented from time to time.
"Schedule of Receivables" means the listing of the Receivables
set forth in Exhibit A (which Exhibit may be in the form of microfiche);
"State" means any one of the 50 states of the United States of
America or the District of Columbia.
"Successor Servicer" has the meaning specified in Section
3.7(e).
"Termination Date" means the latest of (i) the expiration of
the Note Policy and the return of the Note Policy to the Security Insurer for
cancellation, (ii) the date on which the Security Insurer shall have received
payment and performance of all Insurer Issuer Secured Obligations and (iii) the
date on which the Trustee shall have received payment and performance of all
Trustee Issuer Secured Obligations.
"Trust Estate" means all money, instruments, rights and other
property that are subject or intended to be subject to the lien and security
interest of this Indenture for the benefit of the Noteholders and the Security
Insurer (including all property and interests Granted to the Indenture
Collateral Agent), including all proceeds thereof.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act
of 1939 as in force on the date hereof, unless otherwise specifically provided.
"Trustee" means ___________________________ not in its
individual capacity but as trustee under this Indenture, or any successor
trustee under this Indenture.
"Trustee Issuer Secured Obligations" means all amounts and
obligations which the Issuer may at any time owe to or on behalf of the Trustee
for the benefit of the Noteholders and the Security Insurer under this Indenture
or the Notes.
"UCC" means, unless the context otherwise requires, the
Uniform Commercial Code, as in effect in the relevant jurisdiction, as amended
from time to time.
(a) Except as otherwise specified herein, the following terms
have the respective meanings set forth in the Sale and Servicing Agreement as in
effect on the Closing Date for all purposes of this Indenture, and the
definitions of such terms are equally applicable both to the singular and plural
forms of such terms:
10
<PAGE>
<TABLE>
<CAPTION>
Section of Sale and
Term Servicing Agreement
---- -------------------
<S> <C>
Annual Percentage Rate or APR................................................... Section 1.1
Certificateholders.............................................................. Section 1.1
Closing Date.................................................................... Section 1.1
Collection Account.............................................................. Section 1.1
Collection Period............................................................... Section 1.1
Contract........................................................................ Section 1.1
Distribution Date............................................................... Section 1.1
Eligible Deposit Account........................................................ Section 1.1
Eligible Investments............................................................ Section 1.1
Final Scheduled Distribution Date............................................... Section 1.1
Final Scheduled Maturity Date................................................... Section 1.1
Financed Vehicle................................................................ Section 1.1
Interest Period................................................................. Section 1.1
Note Distribution Account....................................................... Section 1.1
Insurance Agreement............................................................. Section 1.1
Insurance Agreement Event of Default............................................ Section 1.1
Insurer Default................................................................. Section 1.1
Interest Period................................................................. Section 1.1
Monthly Period.................................................................. Section 1.1
Note Distribution Account....................................................... Section 1.1
Noteholders' Distributable Amount............................................... Section 1.1
Noteholders' Interest Distributable Amount...................................... Section 1.1
Noteholders' Percentage......................................................... Section 1.1
Noteholders' Principal Distributable Amount..................................... Section 1.1
Obligor......................................................................... Section 1.1
Original Pool Balance........................................................... Section 1.1
Owner Trustee................................................................... Section 1.1
Parity Date..................................................................... Section 1.1
Person.......................................................................... Section 1.1
Pool Balance.................................................................... Section 1.1
Precomputed Receivable.......................................................... Section 1.1
Purchase Agreement.............................................................. Section 1.1
Purchased Receivable............................................................ Section 1.1
Receivable...................................................................... Section 1.1
Security Insurer................................................................ Section 1.1
Seller.......................................................................... Section 1.1
11
<PAGE>
Servicer........................................................................ Section 1.1
Servicer Default................................................................ Section 1.1
Simple Interest Receivable...................................................... Section 1.1
Total Distribution Amount....................................................... Section 1.1
Trust Accounts.................................................................. Section 1.1
Trust Agreement................................................................. Section 1.1
</TABLE>
(b) Capitalized terms used herein and not otherwise defined
herein or in the Sale and Servicing Agreement have the meanings assigned to them
in the Trust Agreement.
SECTION 1.2. Incorporation by Reference of Trust Indenture
Act. Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Trustee.
"obligor" on the indenture securities means the Issuer and any
other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by Commission
rule have the meaning assigned to them by such definitions.
SECTION 1.3. Rules of Construction. Unless the context
otherwise requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation; and
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(v) words in the singular include the plural and words in the
plural include the singular.
ARTICLE II.
The Notes
SECTION 2.1. Form. The Class A-1 Notes and the Class A-2 Notes
and in each case together with the Trustee's certificate of authentication,
shall be in substantially the form set forth in Exhibit D-1 and D-2
respectively, with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Indenture and may have
such letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may, consistently herewith, be determined by the
officers executing such Notes, as evidenced by their execution of the Notes. Any
portion of the text of any Note may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Note.
The Definitive Notes shall be typewritten, printed,
lithographed or engraved or produced by any combination of these methods (with
or without steel engraved borders), all as determined by the officers executing
such Notes, as evidenced by their execution of such Notes.
Each Note shall be dated the date of its authentication. The
terms of the Notes set forth in Exhibit D is part of the terms of this
Indenture.
SECTION 2.2. Execution, Authentication and Delivery. The Notes
shall be executed on behalf of the Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals
who were at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
The Trustee shall upon receipt of the Note Policy and Issuer
Order authenticate and deliver Class A-1 Notes for original issue in an
aggregate principal amount of ____________ and Class A-2 Notes for original
issue in the aggregate principal amount of $____________. Class A-1 Notes and
Class A-2 Notes outstanding at any time may not exceed such amounts except as
provided in Section 2.5.
Each Note shall be dated the date of its authentication. The
Notes shall be issuable as registered Notes in the minimum denomination of
$1,000 and in integral multiples thereof (except for one Note of each class
which may be issued in a denomination other than an integral multiple of
$1,000).
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No Note shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by the manual signature of one of its authorized
signatories, and such certificate upon any Note shall be conclusive evidence,
and the only evidence, that such Note has been duly authenticated and delivered
hereunder.
SECTION 2.3. Temporary Notes. Pending the preparation of
Definitive Notes, the Issuer may execute, and upon receipt of an Issuer Order
the Trustee shall authenticate and deliver, temporary Notes which are printed,
lithographed, typewritten, mimeographed or otherwise produced, of the tenor of
the Definitive Notes in lieu of which they are issued and with such variations
not inconsistent with the terms of this Indenture as the officers executing such
Notes may determine, as evidenced by their execution of such Notes.
If temporary Notes are issued, the Issuer will cause
Definitive Notes to be prepared without unreasonable delay. After the
preparation of Definitive Notes, the temporary Notes shall be exchangeable for
Definitive Notes upon surrender of the temporary Notes at the office or agency
of the Issuer to be maintained as provided in Section 3.2, without charge to the
Holder. Upon surrender for cancellation of any one or more temporary Notes, the
Issuer shall execute and the Trustee shall authenticate and deliver in exchange
therefor a like principal amount of Definitive Notes of authorized
denominations. Until so exchanged, the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as Definitive Notes.
SECTION 2.4. Registration; Registration of Transfer and
Exchange. The Issuer shall cause to be kept a register (the "Note Register") in
which, subject to such reasonable regulations as it may prescribe, the Issuer
shall provide for the registration of Notes and the registration of transfers of
Notes. The Trustee shall be "Note Registrar" for the purpose of registering
Notes and transfers of Notes as herein provided. Upon any resignation of any
Note Registrar, the Issuer shall promptly appoint a successor or, if it elects
not to make such an appointment, assume the duties of Note Registrar.
If a Person other than the Trustee is appointed by the Issuer
as Note Registrar, the Issuer will give the Trustee prompt written notice of the
appointment of such Note Registrar and of the location, and any change in the
location, of the Note Register, and the Trustee shall have the right to inspect
the Note Register at all reasonable times and to obtain copies thereof, and the
Trustee shall have the right to rely upon a certificate executed on behalf of
the Note Registrar by an Executive Officer thereof as to the names and addresses
of the Holders of the Notes and the principal amounts and number of such Notes.
Upon surrender for registration of transfer of any Note at the
office or agency of the Issuer to be maintained as provided in Section 3.2, if
the requirements of Section 8-401(1) of the UCC are met the Issuer shall execute
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and upon its request the Trustee shall authenticate and the Noteholder shall
obtain from the Trustee, in the name of the designated transferee or
transferees, one or more new Notes, in any authorized denominations, of the same
class and a like aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other
Notes in any authorized denominations, of the same class and a like aggregate
principal amount, upon surrender of the Notes to be exchanged at such office or
agency. Whenever any Notes are so surrendered for exchange, if the requirements
of Section 8-401(1) of the UCC are met the Issuer shall execute and upon its
request the Trustee shall authenticate and the Noteholder shall obtain from the
Trustee, the Notes which the Noteholder making the exchange is entitled to
receive.
All Notes issued upon any registration of transfer or exchange
of Notes shall be the valid obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of
transfer or exchange shall be (i) duly endorsed by, or be accompanied by a
written instrument of transfer in form satisfactory to the Trustee duly executed
by, the Holder thereof or such Holder's attorney duly authorized in writing,
with such signature guaranteed by an "eligible guarantor institution" meeting
the requirements of the Note Registrar which requirements include membership or
participation in Securities Transfer Agents Medallion Program ("Stamp") or such
other "signature guarantee program" as may be determined by the Note Registrar
in addition to, or in substitution for, Stamp, all in accordance with the
Exchange Act, and (ii) accompanied by such other documents as the Trustee may
require.
No service charge shall be made to a Holder for any
registration of transfer or exchange of Notes, but the Note Registrar may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer or
exchange of Notes, other than exchanges pursuant to Section 2.3 or 9.6 not
involving any transfer.
The preceding provisions of this section notwithstanding, the
Issuer shall not be required to make and the Note Registrar need not register
transfers or exchanges of Notes selected for redemption or of any Note for a
period of 15 days preceding the due date for any payment with respect to the
Note.
SECTION 2.5. Mutilated, Destroyed, Lost or Stolen Notes. If
(i) any mutilated Note is surrendered to the Trustee, or the Trustee receives
evidence to its satisfaction of the destruction, loss or theft of any Note, and
(ii) there is delivered to the Trustee and the Security Insurer (unless an
Insurer Default shall have occurred and be continuing) such security or
indemnity as may be required by it to hold the Issuer, the Trustee and the
Security Insurer harmless, then, in the absence of notice to the Issuer, the
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Note Registrar or the Trustee that such Note has been acquired by a bona fide
purchaser, and provided that the requirements of Section 8-405 of the UCC are
met, the Issuer shall execute and upon its request the Trustee shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Note, a replacement Note; provided, however, that if
any such destroyed, lost or stolen Note, but not a mutilated Note, shall have
become or within seven days shall be due and payable, or shall have been called
for redemption, instead of issuing a replacement Note, the Issuer may pay such
destroyed, lost or stolen Note when so due or payable or upon the Redemption
Date without surrender thereof. If, after the delivery of such replacement Note
or payment of a destroyed, lost or stolen Note pursuant to the proviso to the
preceding sentence, a bona fide purchaser of the original Note in lieu of which
such replacement Note was issued presents for payment such original Note, the
Issuer, the Trustee and the Security Insurer shall be entitled to recover such
replacement Note (or such payment) from the Person to whom it was delivered or
any Person taking such replacement Note from such Person to whom such
replacement Note was delivered or any assignee of such Person, except a bona
fide purchaser, and shall be entitled to recover upon the security or indemnity
provided therefor to the extent of any loss, damage, cost or expense incurred by
the Issuer or the Trustee in connection therewith.
Upon the issuance of any replacement Note under this Section,
the Issuer may require the payment by the Holder of such Note of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other reasonable expenses (including the fees and
expenses of the Trustee) connected therewith.
Every replacement Note issued pursuant to this Section in
replacement of any mutilated, destroyed, lost or stolen Note shall constitute an
original additional contractual obligation of the Issuer, whether or not the
mutilated, destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.6. Persons Deemed Owner. Prior to due presentment
for registration of transfer of any Note, the Issuer, the Trustee, any agent of
the Issuer or the Trustee, the Security Insurer may treat the Person in whose
name any Note is registered (as of the day of determination) as the owner of
such Note for the purpose of receiving payments of principal of and interest, if
any on such Note and for all other purposes whatsoever, whether or not such Note
be overdue, and none of the Issuer, the Security Insurer, the Trustee nor any
agent of the Issuer or the Trustee shall be affected by notice to the contrary.
SECTION 2.7. Payment of Principal and Interest; Defaulted
Interest. (a) The Notes shall accrue interest as provided in the forms of the
Class A-1 Note and the Class A-2 Note set forth in Exhibits D-1 and D-2,
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respectively, and such interest shall be payable on each Payment Date as
specified therein. Any installment of interest or principal, if any, payable on
any Note which is punctually paid or duly provided for by the Issuer on the
applicable Payment Date shall be paid to the Person in whose name such Note (or
one or more Predecessor Notes) is registered on the Record Date, by check mailed
first-class, postage prepaid, to such Person's address as it appears on the Note
Register on such Record Date, except that, unless Definitive Notes have been
issued pursuant to Section 2.12, with respect to Notes registered on the Record
Date in the name of the nominee of the Clearing Agency (initially, such nominee
to be Cede & Co.), payment will be made by wire transfer in immediately
available funds to the account designated by such nominee and except for the
final installment of principal payable with respect to such Note on a Payment
Date or on the Final Scheduled Distribution Date (and except for the Redemption
Price for any Note called for redemption pursuant to Section 10.1(a)) which
shall be payable as provided below. The funds represented by any such checks
returned undelivered shall be held in accordance with Section 3.3.
(b) The principal of each Note shall be payable in
installments on each Payment Date as provided in the forms of the Class A-1 Note
and the Class A-2 Note set forth in Exhibits D-1 and D-2, respectively.
Notwithstanding the foregoing, the entire unpaid principal amount of the Notes
shall be due and payable, if not previously paid, on the date on which an Event
of Default shall have occurred and be continuing, if the Trustee or the Holders
of the Notes representing not less than a majority of the Outstanding Amount of
the Notes have declared the Notes to be immediately due and payable in the
manner provided in Section 5.2. All principal payments on each class of Notes
shall be made pro rata to the Noteholders of such class entitled thereto. The
Trustee shall notify the Person in whose name a Note is registered at the close
of business on the Record Date preceding the Payment Date on which the Issuer
expects that the final installment of principal of and interest on such Note
will be paid. Such notice shall be mailed or transmitted by facsimile prior to
such final Payment Date and shall specify that such final installment will be
payable only upon presentation and surrender of such Note and shall specify the
place where such Note may be presented and surrendered for payment of such
installment. Notices in connection with redemptions of Notes shall be mailed to
Noteholders as provided in Section 10.2.
(c) If the Issuer defaults in a payment of interest on the
Notes, the Issuer shall pay defaulted interest (plus interest on such defaulted
interest to the extent lawful) at the appli-cable Interest Rate in any lawful
manner. The Issuer may pay such defaulted interest to the Persons who are
Noteholders on a subsequent special record date, which date shall be at least
five Business Days prior to the payment date. The Issuer shall fix or cause to
be fixed any such special record date and payment date, and, at least 15 days
before any such special record date, the Issuer shall mail to each Noteholder
and the Trustee a notice that states the special record date, the payment date
and the amount of defaulted interest to be paid.
(d) Promptly following the date on which all principal of and
interest on the Notes has been paid in full and the Notes have been surrendered
to the Trustee, the Trustee shall, if the Security Insurer has paid any amount
in respect of the Notes under the Note Policy or otherwise which has not been
reimbursed to it, deliver such surrendered Notes to the Security Insurer.
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SECTION 2.8. Cancellation. Subject to Section 2.7(d), all
Notes surrendered for payment, registration of transfer, exchange or redemption
shall, if surrendered to any Person other than the Trustee, be delivered to the
Trustee and shall be promptly canceled by the Trustee. Subject to Section
2.7(d), the Issuer may at any time deliver to the Trustee for cancellation any
Notes previously authenticated and delivered hereunder which the Issuer may have
acquired in any manner whatsoever, and all Notes so delivered shall be promptly
canceled by the Trustee. No Notes shall be authenticated in lieu of or in
exchange for any Notes canceled as provided in this Section, except as expressly
permitted by this Indenture. Subject to Section 2.7(d), all canceled Notes may
be held or disposed of by the Trustee in accordance with its standard retention
or disposal policy as in effect at the time unless the Issuer shall direct by an
Issuer Order that they be destroyed or returned to it; provided that such Issuer
Order is timely and the Notes have not been previously disposed of by the
Trustee.
SECTION2.9. Release of Collateral. The Indenture Collateral
Agent shall, on or after the Termination Date, release any remaining portion of
the Trust Estate from the lien created by this Indenture and deposit in the
Collection Account any funds then on deposit in any other Trust Account. The
Indenture Collateral Agent shall release property from the lien created by this
Indenture pursuant to this Section 2.9 only upon receipt of an Issuer Request
accompanied by an Officer's Certificate, an Opinion of Counsel and (if required
by the TIA) Independent Certificates in accordance with TIA Sections 314(c) and
314(d)(1) meeting the applicable requirements of Section 11.1.
SECTION 2.10. Book-Entry Notes. The Notes, upon original
issuance, will be issued in the form of typewritten Notes representing the
Book-Entry Notes, to be delivered to The Depository Trust Company, the initial
Clearing Agency, by, or on behalf of, the Issuer. Such Notes shall initially be
registered on the Note Register in the name of Cede & Co., the nominee of the
initial Clearing Agency, and no Note Owner will receive a Definitive Note
representing such Note Owner's interest in such Note, except as provided in
Section 2.12. Unless and until definitive, fully registered Notes (the
"Definitive Notes") have been issued to Note Owners pursuant to Section 2.12:
(i) the provisions of this Section shall be in full
force and effect;
(ii) the Note Registrar and the Trustee shall be
entitled to deal with the Clearing Agency for all purposes of this
Indenture (including the payment of principal of and interest on the
Notes and the giving of instructions or directions hereunder) as the
sole Holder of the Notes, and shall have no obligation to the Note
Owners;
(iii) to the extent that the provisions of this
Section conflict with any other provisions of this Indenture, the
provisions of this Section shall control;
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(iv) the rights of Note Owners shall be exercised
only through the Clearing Agency and shall be limited to those
established by law and agreements between such Note Owners and the
Clearing Agency and/or the Clearing Agency Participants. Pursuant to
the Note Depository Agreement, unless and until Definitive Notes are
issued pursuant to Section 2.12, the initial Clearing Agency will make
book-entry transfers among the Clearing Agency Participants and receive
and transmit payments of principal of and interest on the Notes to such
Clearing Agency Participants;
(v) whenever this Indenture requires or permits
actions to be taken based upon instructions or directions of Holders of
Notes evidencing a specified percentage of the Outstanding Amount of
the Notes, the Clearing Agency shall be deemed to represent such
percentage only to the extent that it has received instructions to such
effect from Note Owners and/or Clearing Agency Participants owning or
representing, respectively, such required percentage of the beneficial
interest in the Notes and has delivered such instructions to the
Trustee; and
(vi) Note Owners may receive copies of any reports
sent to Noteholders pursuant to this Indenture, upon written request,
together with a certification that they are Note Owners and payment of
reproduction and postage expenses associated with the distribution of
such reports, from the Trustee at the Corporate Trust Office.
SECTION2.11. Notices to Clearing Agency. Whenever a notice or
other communication to the Noteholders is required under this Indenture, unless
and until Definitive Notes shall have been issued to Note Owners pursuant to
Section 2.12, the Trustee shall give all such notices and communications
specified herein to be given to Holders of the Notes to the Clearing Agency, and
shall have no obligation to the Note Owners.
SECTION 2.12. Definitive Notes. If (i) the Servicer advises
the Trustee in writing that the Clearing Agency is no longer willing or able to
properly discharge its responsibilities with respect to the Notes, and the
Servicer is unable to locate a qualified successor, (ii) the Servicer at its
option advises the Trustee in writing that it elects to terminate the book-entry
system through the Clearing Agency or (iii) after the occurrence of an Event of
Default, Note Owners representing beneficial interests aggregating at least a
majority of the Outstanding Amount of the Notes advise the Trustee through the
Clearing Agency in writing that the continuation of a book entry system through
the Clearing Agency is no longer in the best interests of the Note Owners, then
the Clearing Agency shall notify all Note Owners and the Trustee of the
occurrence of any such event and of the availability of Definitive Notes to Note
Owners requesting the same. Upon surrender to the Trustee of the typewritten
Note or Notes representing the Book-Entry Notes by the Clearing Agency,
accompanied by registration instructions, the Issuer shall execute and the
Trustee shall authenticate the Definitive Notes in accordance with the
instructions of the Clearing Agency. None of the Issuer, the Note Registrar or
the Trustee shall be liable for any delay in delivery of such instructions and
may conclusively rely on, and shall be protected in relying on, such
instructions. Upon the issuance of Definitive Notes, the Trustee shall recognize
the Holders of the Definitive Notes as Note-holders.
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ARTICLE III.
Covenants
SECTION 3.1. Payment of Principal and Interest. The Issuer
will duly and punctually pay the principal of and interest on the Notes in
accordance with the terms of the Notes and this Indenture. Without limiting the
foregoing, the Issuer will cause to be distributed all amounts on deposit in the
Note Distribution Account on a Payment Date deposited therein pursuant to the
Sale and Servicing Agreement (i) for the benefit of the Class A-l Notes, to
Class A-1 Noteholders and (ii) for the benefit of the Class A-2 Notes, to Class
A-2 Noteholders. Amounts properly withheld under the Code by any Person from a
payment to any Noteholder of interest and/or principal shall be considered as
having been paid by the Issuer to such Noteholder for all purposes of this
Indenture.
SECTION 3.2. Maintenance of Office or Agency. The Issuer will
maintain in the Borough of Manhattan, The City of New York, an office or agency
where Notes may be surrendered for registration of transfer or exchange, and
where notices and demands to or upon the Issuer in respect of the Notes and this
Indenture may be served. The Issuer hereby initially appoints the Trustee to
serve as its agent for the foregoing purposes. The Issuer will give prompt
written notice to the Trustee of the location, and of any change in the
location, of any such office or agency. If at any time the Issuer shall fail to
maintain any such office or agency or shall fail to furnish the Trustee with the
address thereof, such surrenders, notices and demands may be made or served at
the Corporate Trust Office, and the Issuer hereby appoints the Trustee as its
agent to receive all such surrenders, notices and demands.
SECTION 3.3. Money for Payments To Be Held in Trust. As
provided in Sections 8.2(a) and (b), all payments of amounts due and payable
with respect to any Notes that are to be made from amounts withdrawn from the
Collection Account and the Note Distribution Account shall be made on behalf of
the Issuer by the Trustee or by another Paying Agent, and no amounts so
withdrawn from the Collection Account and the Note Distribution Account for
payments of Notes shall be paid over to the Issuer except as provided in this
Section.
On or before each Payment Date and Redemption Date, the Issuer
shall deposit or cause to be deposited in the Note Distribution Account an
aggregate sum sufficient to pay the amounts then becoming due under the Notes,
such sum to be held in trust for the benefit of the Persons entitled thereto and
(unless the Paying Agent is the Trustee) shall promptly notify the Trustee of
its action or failure so to act.
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The Issuer will cause each Paying Agent other than the Trustee
to execute and deliver to the Trustee and the Security Insurer an instrument in
which such Paying Agent shall agree with the Trustee (and if the Trustee acts as
Paying Agent, it hereby so agrees), subject to the provisions of this Section,
that such Paying Agent will:
(i) hold all sums held by it for the payment of amounts due
with respect to the Notes in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and pay such sums to such
Persons as herein provided;
(ii) give the Trustee notice of any default by the Issuer of
which it has actual knowledge (or any other obligor upon the Notes) in
the making of any payment required to be made with respect to the
Notes;
(iii) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent;
(iv) immediately resign as a Paying Agent and forthwith pay to
the Trustee all sums held by it in trust for the payment of Notes if at
any time it ceases to meet the standards required to be met by a Paying
Agent at the time of its appointment; and
(v) comply with all requirements of the Code with respect to
the withholding from any payments made by it on any Notes of any
applicable withholding taxes imposed thereon and with respect to any
applicable reporting requirements in connection therewith.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Order direct any Paying Agent to pay to the Trustee all sums held in trust by
such Paying Agent, such sums to be held by the Trustee upon the same trusts as
those upon which the sums were held by such Paying Agent; and upon such a
payment by any Paying Agent to the Trustee, such Paying Agent shall be released
from all further liability with respect to such money.
Subject to applicable laws with respect to the escheat of
funds, any money held by the Trustee or any Paying Agent in trust for the
payment of any amount due with respect to any Note and remaining unclaimed for
two years after such amount has become due and payable shall be discharged from
such trust and be paid to the Issuer on Issuer Request with the consent of the
Security Insurer (unless an Insurer Default shall have occurred and be
continuing), and the Holder of such Note shall thereafter, as an unsecured
general creditor, look only to the Issuer for payment thereof (but only to the
extent of the amounts so paid to the Issuer), and all liability of the Trustee
or such Paying Agent with respect to such trust money shall thereupon cease;
provided, however, that if such money or any portion thereof had been previously
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deposited by the Security Insurer or the Indenture Collateral Agent with the
Trustee for the payment of principal or interest on the Notes, to the extent any
amounts are owing to the Security Insurer, such amounts shall be paid promptly
to the Security Insurer upon receipt of a written request by the Security
Insurer to such effect, and provided, further, that the Trustee or such Paying
Agent, before being required to make any such repayment, shall at the expense of
the Issuer cause to be published once, in a newspaper published in the English
language, customarily published on each Business Day and of general circulation
in The City of New York, notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30 days from the
date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Issuer. The Trustee shall also adopt and employ, at the
expense of the Issuer, any other reasonable means of notification of such
repayment (including, but not limited to, mailing notice of such repayment to
Holders whose Notes have been called but have not been surrendered for
redemption or whose right to or interest in moneys due and payable but not
claimed is determinable from the records of the Trustee or of any Paying Agent,
at the last address of record for each such Holder).
SECTION 3.4. Existence. Except as otherwise permitted by the
provisions of Section 3.10, the Issuer will keep in full effect its existence,
rights and franchises as a business trust under the laws of the State of
Delaware (unless it becomes, or any successor Issuer hereunder is or becomes,
organized under the laws of any other state or of the United States of America,
in which case the Issuer will keep in full effect its existence, rights and
franchises under the laws of such other jurisdiction) and will obtain and
preserve its qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes, the Collateral and each other
instrument or agreement included in the Trust Estate.
SECTION 3.5. Protection of Trust Estate. The Issuer intends
the security interest Granted pursuant to this Indenture in favor of the Issuer
Secured Parties to be prior to all other liens in respect of the Trust Estate,
and the Issuer shall take all actions necessary to obtain and maintain, in favor
of the Indenture Collateral Agent, for the benefit of the Issuer Secured
Parties, a first lien on and a first priority, perfected security interest in
the Trust Estate. The Issuer will from time to time prepare (or shall cause to
be prepared), execute and deliver all such supplements and amendments hereto and
all such financing statements, continuation statements, instruments of further
assurance and other instruments, and will take such other action necessary or
advisable to:
(i) Grant more effectively all or any portion of the Trust
Estate;
(ii) maintain or preserve the lien and security interest (and
the priority thereof) in favor of the Indenture Collateral Agent for
the benefit of the Issuer Secured Parties created by this Indenture or
carry out more effectively the purposes hereof;
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(iii) perfect, publish notice of or protect the validity of any
Grant made or to be made by this Indenture;
(iv) enforce any of the Collateral;
(v) preserve and defend title to the Trust Estate and the
rights of the Indenture Collateral Agent in such Trust Estate against
the claims of all persons and parties; and
(vi) pay all taxes or assessments levied or assessed upon the
Trust Estate when due.
The Issuer hereby designates the Indenture Collateral Agent its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required by the Indenture Collateral Agent pursuant to this
Section.
SECTION 3.6. Opinions as to Trust Estate. (a) On the Closing
Date, the Issuer shall furnish to the Trustee, the Indenture Collateral Agent
and the Security Insurer an Opinion of Counsel either stating that, in the
opinion of such counsel, such action has been taken with respect to the
recording and filing of this Indenture, any indentures supplemental hereto, and
any other requisite documents, and with respect to the execution and filing of
any financing statements and continuation statements, as are necessary to
perfect and make effective the first priority lien and security interest in
favor of the Indenture Collateral Agent, for the benefit of the Issuer Secured
Parties, created by this Indenture and reciting the details of such action, or
stating that, in the opinion of such counsel, no such action is necessary to
make such lien and security interest effective.
(b) Within 120 days after the beginning of each calendar year,
beginning with the first calendar year beginning more than three months after
the Closing Date, the Issuer shall furnish to the Trustee, Indenture Collateral
Agent and the Security Insurer an Opinion of Counsel either stating that, in the
opinion of such counsel, such action has been taken with respect to the
recording, filing, re-recording and refiling of this Indenture, any indentures
supplemental hereto and any other requisite documents and with respect to the
execution and filing of any financing statements and continuation statements as
are necessary to maintain the lien and security interest created by this
Indenture and reciting the details of such action or stating that in the opinion
of such counsel no such action is necessary to maintain such lien and security
interest. Such Opinion of Counsel shall also describe the recording, filing,
re-recording and refiling of this Indenture, any indentures supplemental hereto
and any other requisite documents and the execution and filing of any financing
statements and continuation statements that will, in the opinion of such
counsel, be required to maintain the lien and security interest of this
Indenture until January 30 in the following calendar year.
SECTION 3.7. Performance of Obligations; Servicing of
Receivables. (a) The Issuer will not take any action and will use its best
efforts not to permit any action to be taken by others that would release any
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Person from any of such Person's material covenants or obligations under any
instrument or agreement included in the Trust Estate or that would result in the
amendment, hypothecation, subordination, termination or discharge of, or impair
the validity or effectiveness of, any such instrument or agreement, except as
ordered by any bankruptcy or other court or as expressly provided in this
Indenture, the Basic Documents or such other instrument or agreement.
(b) The Issuer may contract with other Persons acceptable to
the Security Insurer (so long as no Insurer Default shall have occurred and be
continuing) to assist it in performing its duties under this Indenture, and any
performance of such duties by a Person identified to the Trustee and the
Security Insurer in an Officer's Certificate of the Issuer shall be deemed to be
action taken by the Issuer. Initially, the Issuer has contracted with the
Servicer to assist the Issuer in performing its duties under this Indenture.
(c) The Issuer will punctually perform and observe all of its
obligations and agreements contained in this Indenture, the Basic Documents and
in the instruments and agreements included in the Trust Estate, including but
not limited to preparing (or causing to be prepared) and filing (or causing to
be filed) all UCC financing statements and continuation statements required to
be filed by the terms of this Indenture and the Sale and Servicing Agreement in
accordance with and within the time periods provided for herein and therein.
Except as otherwise expressly provided therein, the Issuer shall not waive,
amend, modify, supplement or terminate any Basic Document or any provision
thereof without the consent of the Trustee, the Security Insurer or the Holders
of at least a majority of the Outstanding Amount of the Notes.
(d) If a responsible officer of the Owner Trustee shall have
actual knowledge of the occurrence of a Servicer Default under the Sale and
Servicing Agreement, the Issuer shall promptly notify the Trustee, the Security
Insurer and the Rating Agencies thereof in accordance with Section 11.4, and
shall specify in such notice the action, if any, the Issuer is taking in respect
of such default. If a Servicer Default shall arise from the failure of the
Servicer to perform any of its duties or obligations under the Sale and
Servicing Agreement with respect to the Receivables, the Issuer shall take all
reasonable steps available to it to remedy such failure.
(e) If an Insurer Default shall have occurred and be
continuing and if the Issuer has given notice of termination to the Servicer of
the Servicer's rights and powers pursuant to Section 8.1 of the Sale and
Servicing Agreement, as promptly as possible thereafter, the Issuer shall
appoint a successor servicer in accordance with Section 8.2 of the Sale and
Servicing Agreement.
(f) Upon any termination of the Servicer's rights and powers
pursuant to the Sale and Servicing Agreement, the Issuer shall promptly notify
the Trustee. As soon as a Successor Servicer (other than the Trustee) is
appointed, the Issuer shall notify the Trustee of such appointment, specifying
in such notice the name and address of such Successor Servicer.
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(g) The Issuer agrees that it will not waive timely
performance or observance by the Servicer, the Seller or the Representative of
their respective duties under the Basic Documents (x) without the prior consent
of the Security Insurer (unless an Insurer Default shall have occurred and be
continuing) or (y) if the effect thereof would adversely affect the Holders of
the Notes.
SECTION 3.8. Negative Covenants. So long as any Notes are
Outstanding, the Issuer shall not:
(i) except as expressly permitted by this Indenture or the
Basic Documents, sell, transfer, exchange or otherwise dispose of any
of the properties or assets of the Issuer, including those included in
the Trust Estate, unless directed to do so by the Controlling Party;
(ii) claim any credit on, or make any deduction from the
principal or interest payable in respect of, the Notes (other than
amounts properly withheld from such payments under the Code) or assert
any claim against any present or former Noteholder by reason of the
payment of the taxes levied or assessed upon any part of the Trust
Estate; or
(iii) (A) permit the validity or effectiveness of this
Indenture to be impaired, or permit the lien in favor of the Indenture
Collateral Agent created by this Indenture to be amended, hypothecated,
subordinated, terminated or discharged, or permit any Person to be
released from any covenants or obligations with respect to the Notes
under this Indenture except as may be expressly permitted hereby, (B)
permit any lien, charge, excise, claim, security interest, mortgage or
other encumbrance (other than the lien of this Indenture) to be created
on or extend to or other-wise arise upon or burden the Trust Estate or
any part thereof or any interest therein or the proceeds thereof (other
than tax liens, mechanics' liens and other liens that arise by
operation of law, in each case on a Financed Vehicle and arising solely
as a result of an action or omission of the related Obligor), (C)
permit the lien of this Indenture not to constitute a valid first
priority (other than with respect to any such tax, mechanics' or other
lien) security interest in the Trust Estate or (D) amend, modify or
fail to comply with the provisions of the Basic Documents without the
prior written consent of the Controlling Party.
SECTION 3.9. Annual Statement as to Compliance. The Issuer
will deliver to the Trustee and the Security Insurer, within 120 days after the
end of each fiscal year of the Issuer (commencing with the fiscal year ended
December 31, 1998), and otherwise in compliance with the requirements of TIA
Section 314(a)(4) an Officer's Certificate stating, as to the Authorized Officer
signing such Officer's Certificate, that
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(i) a review of the activities of the Issuer during such year
and of performance under this Indenture has been made under such
Authorized Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge, based
on such review, the Issuer has complied with all conditions and
covenants under this Indenture throughout such year, or, if there has
been a default in the compliance of any such condition or covenant,
specifying each such default known to such Authorized Officer and the
nature and status thereof.
SECTION 3.10. Issuer May Consolidate, Etc. Only on Certain
Terms. (a) The Issuer shall not consolidate or merge with or into any other
Person, unless
(i) the Person (if other than the Issuer) formed by or
surviving such consolidation or merger shall be a Person organized and
existing under the laws of the United States of America or any state
and shall expressly assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form satisfactory to the
Trustee and the Security Insurer (so long as no Insurer Default shall
have occurred and be continuing), the due and punctual payment of the
principal of and interest on all Notes and the performance or
observance of every agreement and covenant of this Indenture on the
part of the Issuer to be performed or observed, all as provided herein;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing;
(iii) the Rating Agency Condition shall have been satisfied
with respect to such transaction;
(iv) the Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Trustee and the Security
Insurer (so long as no Insurer Default shall have occurred and be
continuing)) to the effect that such transaction will not have any
material adverse tax consequence to the Trust, the Security Insurer,
any Noteholder or any Certificateholder;
(v) any action as is necessary to maintain the lien and
security interest created by this Indenture shall have been taken;
(vi) the Issuer shall have delivered to the Trustee an
Officer's Certificate and an Opinion of Counsel each stating that such
consolidation or merger and such supplemental indenture comply with
this Article III and that all conditions precedent herein provided for
relating to such transaction have been complied with (including any
filing required by the Exchange Act); and
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(vii) so long as no Insurer Default shall have occurred and be
continuing, the Issuer shall have given the Security Insurer written
notice of such consolidation or merger at least 20 Business Days prior
to the consummation of such action and shall have received the prior
written approval of the Security Insurer of such consolidation or
merger and the Issuer or the Person (if other than the Issuer) formed
by or surviving such consolidation or merger has a net worth,
immediately after such consolidation or merger, that is (a) greater
than zero and (b) not less than the net worth of the Issuer immediately
prior to giving effect to such consolidation or merger.
(b) The Issuer shall not convey or transfer all or
substantially all of its properties or assets, including those included in the
Trust Estate, to any Person, unless
(i) the Person that acquires by conveyance or transfer the
properties and assets of the Issuer the conveyance or transfer of which
is hereby restricted shall (A) be a United States citizen or a Person
organized and existing under the laws of the United States of America
or any state, (B) expressly assume, by an indenture supplemental
hereto, executed and delivered to the Trustee, in form satisfactory to
the Trustee, and the Security Insurer (so long as no Insurer Default
shall have occurred and be continuing), the due and punctual payment of
the principal of and interest on all Notes and the performance or
observance of every agreement and covenant of this Indenture and each
of the Basic Documents on the part of the Issuer to be performed or
observed, all as provided herein, (C) expressly agree by means of such
supplemental indenture that all right, title and interest so conveyed
or transferred shall be subject and subordinate to the rights of
Holders of the Notes, (D) unless otherwise provided in such
supplemental indenture, expressly agree to indemnify, defend and hold
harmless the Issuer against and from any loss, liability or expense
arising under or related to this Indenture and the Notes and (E)
expressly agree by means of such supplemental indenture that such
Person (or if a group of persons, then one specified Person) shall
prepare (or cause to be prepared) and make all filings with the
Commission (and any other appropriate Person) required by the Exchange
Act in connection with the Notes;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing;
(iii) the Rating Agency Condition shall have been satisfied
with respect to such transaction;
(iv) the Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Trustee and the Security
Insurer (so long as no Insurer Default shall have occurred and be
continuing)) to the effect that such transaction will not have any
material adverse tax consequence to the Trust, the Security Insurer,
any Noteholder or any Certificateholder;
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(v) any action as is necessary to maintain the lien and
security interest created by this Indenture shall have been taken; and
(vi) the Issuer shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel each stating that such
conveyance or transfer and such supplemental indenture comply with this
Article III and that all conditions precedent herein provided for
relating to such transaction have been complied with (including any
filing required by the Exchange Act); and
(vii) so long as no Insurer Default shall have occurred and be
continuing, the Issuer shall have given the Security Insurer written
notice of such conveyance or transfer at least 20 Business Days prior
to the consummation of such action and shall have received the prior
written approval of the Security Insurer of such consolidation or
merger and the Issuer or the Person (if other than the Issuer) formed
by or surviving such consolidation or merger has a net worth,
immediately after such consolidation or merger, that is (a) greater
than zero and (b)not less than the net worth of the Issuer immediately
prior to giving effect to such consolidation or merger.
SECTION 3.11. Successor or Transferee. (a) Upon any
consolidation or merger of the Issuer in accordance with Section 3.10(a), the
Person formed by or surviving such consolidation or merger (if other than the
Issuer) shall succeed to, and be substituted for, and may exercise every right
and power of, the Issuer under this Indenture with the same effect as if such
Person had been named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and
properties of the Issuer pursuant to Section 3.10 (b), Franklin Auto Trust
1998-1 will be released from every covenant and agreement of this Indenture to
be observed or performed on the part of the Issuer with respect to the Notes
immediately upon the delivery of written notice to the Trustee stating that
Franklin Auto Trust 1998-1 is to be so released.
SECTION 3.12. No Other Business. The Issuer shall not engage
in any business other than financing, purchasing, owning, selling and managing
the Receivables in the manner contemplated by this Indenture and the Basic
Documents and activities incidental thereto.
SECTION 3.13. No Borrowing. The Issuer shall not issue, incur,
assume, guarantee or otherwise become liable, directly or indirectly, for any
Indebtedness except for (i) the Notes, (ii) obligations owing from time to time
to the Security Insurer under the Insurance Agreement and (iii) any other
Indebtedness permitted by or arising under the Basic Documents or the Issuer's
compliance therewith. The proceeds of the Notes shall be used exclusively to
fund the Issuer's purchase of the Receivables and the other assets specified in
the Sale and Servicing Agreement to Fund the Spread Account and to pay the
Issuer's organizational, transactional and start-up expenses.
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SECTION 3.14. Servicer's Obligations. The Issuer shall cause
the Servicer to comply with Sections 4.9, 4.10, 4.11 and 5.8 of the Sale and
Servicing Agreement.
SECTION 3.15. Guarantees, Loans, Advances and Other
Liabilities. Except as contemplated by the Sale and Servicing Agreement or this
Indenture, the Issuer shall not make any loan or advance or credit to, or
guarantee (directly or indirectly or by an instrument having the effect of
assuring another's payment or performance on any obligation or capability of so
doing or otherwise), endorse or otherwise become contingently liable, directly
or indirectly, in connection with the obligations, stocks or dividends of, or
own, purchase, repurchase or acquire (or agree contingently to do so) any stock,
obligations, assets or securities of, or any other interest in, or make any
capital contribution to, any other Person.
SECTION 3.16. Capital Expenditures. The Issuer shall not make
any expenditure (by long-term or operating lease or otherwise) for capital
assets (either realty or personalty).
SECTION 3.17. Compliance with Laws. The Issuer shall comply
with the requirements of all applicable laws, the non-compliance with which
would, individually or in the aggregate, materially and adversely affect the
ability of the Issuer to perform its obligations under the Notes, this Indenture
or any Basic Document.
SECTION 3.18. Restricted Payments. The Issuer shall not,
directly or indirectly, (i) pay any dividend or make any distribution (by
reduction of capital or otherwise), whether in cash, property, securities or a
combination thereof, to the Owner Trustee or any owner of a beneficial interest
in the Issuer or otherwise with respect to any ownership or equity interest or
security in or of the Issuer or to the Servicer, (ii) redeem, purchase, retire
or otherwise acquire for value any such owner-ship or equity interest or
security or (iii) set aside or otherwise segregate any amounts for any such
purpose; provided, however, that the Issuer may make, or cause to be made,
distributions to the Servicer, the Owner Trustee, the Security Insurer, the
Trustee, the Indenture Collateral Agent and the Certificateholders as permitted
by, and to the extent funds are available for such purpose under, the Sale and
Servicing Agreement or Trust Agreement. The Issuer will not, directly or
indirectly, make payments to or distributions from the Collection Account except
in accordance with this Indenture and the Basic Documents.
SECTION 3.19. Notice of Events of Default. Upon a responsible
officer of the Owner Trustee having actual knowledge thereof, the Issuer agrees
to give the Trustee, the Security Insurer and the Rating Agencies prompt written
notice of each Event of Default hereunder and each default on the part of the
Servicer or the Seller of its obligations under the Sale and Servicing
Agreement.
SECTION 3.20. Further Instruments and Acts. Upon request of
the Trustee or the Security Insurer, the Issuer will execute and deliver such
further instruments and do such further acts as may be reasonably necessary or
proper to carry out more effectively the purpose of this Indenture.
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SECTION 3.21. Amendments of Sale and Servicing Agreement and
Trust Agreement. The Issuer shall not agree to any amendment to Section 11.1 of
the Sale and Servicing Agreement or Section 11.1 of the Trust Agreement to
eliminate the requirements thereunder that the Trustee, the Security Insurer or
the Holders of the Notes consent to amendments thereto as provided therein.
SECTION 3.22. Income Tax Characterization. For purposes of
federal income, state and local income and franchise and any other income taxes,
the Issuer will treat the Notes as indebtedness of the Issuer.
ARTICLE IV.
Satisfaction and Discharge
SECTION 4.1. Satisfaction and Discharge of Indenture. This
Indenture shall cease to be of further effect with respect to the Notes except
as to (i) rights of registration of transfer and exchange, (ii) substitution of
mutilated, destroyed, lost or stolen Notes, (iii) rights of Noteholders to
receive payments of principal thereof and interest thereon, (iv) Sections 3.3,
3.4, 3.5, 3.8, 3.10, 3.12, 3.13, 3.20, 3.21 and 3.22, (v) the rights,
obligations and immunities of the Trustee hereunder (including the rights of the
Trustee under Section 6.7 and the obligations of the Trustee under Section 4.2)
and (vi) the rights of Noteholders as beneficiaries hereof with respect to the
property so deposited with the Trustee payable to all or any of them, and the
Trustee, on demand of and at the expense of the Issuer, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture with
respect to the Notes, when
(A) either
(1) all Notes theretofore authenticated and delivered
(other than (i) Notes that have been destroyed, lost or stolen
and that have been replaced or paid as provided in Section 2.5
and (ii) Notes for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the
Issuer and thereafter repaid to the Issuer or discharged from
such trust, as provided in Section 3.3) have been delivered to
the Trustee for cancellation and the Note Policy has expired
and been returned to the Security Insurer for cancellation; or
(2) all Notes not theretofore delivered to the
Trustee for cancellation
(i) have become due and payable,
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(ii) will become due and payable at their
respective Final Scheduled Distribution Dates within
one year, or
(iii) are to be called for redemption within
one year under arrangements satisfactory to the
Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the
Issuer,
and the Issuer, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be irrevocably deposited
with the Indenture Collateral Agent cash or direct obligations
of or obligations guaranteed by the United States of America
(which will mature prior to the date such amounts are
payable), in trust for such purpose, in an amount sufficient
to pay and discharge the entire indebtedness on such Notes not
theretofore delivered to the Trustee for cancellation when due
to the Final Scheduled Distribution Date or Redemption Date
(if Notes shall have been called for redemption pursuant to
Section 10.1(a)), as the case may be;
(B) the Issuer has paid or caused to be paid all Insurer
Issuer Secured Obligations and all Trustee Issuer Secured Obligations;
and
(C) the Issuer has delivered to the Trustee, the Indenture
Collateral Agent and the Security Insurer an Officer's Certificate, an
Opinion of Counsel and, if required by the TIA, the Trustee, the
Indenture Collateral Agent or the Security Insurer (so long as an
Insurer Default shall not have occurred and be continuing) an
Independent Certificate from a firm of certified public accountants,
each meeting the applicable requirements of Section 11.1(a) and each
stating that all conditions precedent herein provided for relating to
the satisfaction and discharge of this Indenture have been complied
with.
SECTION 4.2. Application of Trust Money. All moneys deposited
with the Trustee pursuant to Section 4.1 hereof shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent, as the
Trustee may determine, to the Holders of the particular Notes for the payment or
redemption of which such moneys have been deposited with the Trustee, of all
sums due and to become due thereon for principal and interest; but such moneys
need not be segregated from other funds except to the extent required herein or
in the Sale and Servicing Agreement or required by law.
SECTION 4.3. Repayment of Moneys Held by Paying Agent. In
connection with the satisfaction and discharge of this Indenture with respect to
the Notes, all moneys then held by any Paying Agent other than the Trustee under
the provisions of this Indenture with respect to such Notes shall, upon demand
of the Issuer, be paid to the Trustee to be held and applied according to
Section 3.3 and thereupon such Paying Agent shall be released from all further
liability with respect to such moneys.
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ARTICLE V.
Remedies
SECTION 5.1. Events of Default. "Event of Default", wherever
used herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) default in the payment of any interest on any Note when
the same becomes due and payable, and such default shall continue for a
period of five days after receipt of notice thereof from the Trustee
(solely for purposes of this clause, a payment on the Notes funded by
the Security Insurer shall be deemed to be a payment made by the
Issuer); or
(ii) default in the payment of the principal of or any
installment of the principal of any Note when the same becomes due and
payable on the related Final Scheduled Distribution Date (solely for
purposes of this clause, a payment on the Notes funded by the Security
Insurer shall be deemed to be a payment made by the Issuer); or
(iii) so long as an Insurer Default shall not have occurred and
be continuing, an Insurance Agreement Event of Default shall have
occurred; provided, however, that the occurrence of an Insurance
Agreement Event of Default may not form the basis of an Event of
Default unless the Security Insurer shall, upon prior written notice to
the Rating Agencies, have delivered to the Issuer and the Trustee and
not rescinded a written notice specifying that such Insurance Agreement
Event of Default constitutes an Event of Default under the Indenture;
or
(iv) so long as an Insurer Default shall have occurred and be
continuing, default in the observance or performance of any covenant or
agreement of the Issuer made in this Indenture (other than a covenant
or agreement, a default in the observance or performance of which is
elsewhere in this Section specifically dealt with), or any
representation or warranty of the Issuer made in this Indenture or in
any certificate or other writing delivered pursuant hereto or in
connection herewith proving to have been incorrect in any material
respect as of the time when the same shall have been made, and such
default shall continue or not be cured, or the circumstance or
condition in respect of which such misrepresentation or warranty was
incorrect shall not have been eliminated or otherwise cured, for a
period of 30 days (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
Servicer on behalf of the Owner Trustee delivers an Officer's
Certificate to the Trustee to the effect that the Issuer has commenced,
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or will promptly commence and diligently pursue, all reasonable efforts
to remedy such default) after there shall have been given, by
registered or certified mail, to the Issuer by the Trustee or to the
Issuer and the Trustee by the Holders of at least 25% of the
Outstanding Amount of the Notes, a written notice specifying such
default or incorrect representation or warranty and requiring it to be
remedied and stating that such notice is a "Notice of Default"
hereunder; or
(v) so long as an Insurer Default shall have occurred and be
continuing, the filing of a decree or order for relief by a court
having jurisdiction in the premises in respect of the Issuer or any
substantial part of the Trust Estate in an involuntary case under any
applicable Federal or state bankruptcy, insolvency or other similar law
now or hereafter in effect, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the
Issuer or for any substantial part of the Trust Estate, or ordering the
winding-up or liquidation of the Issuer's affairs, and such decree or
order shall remain unstayed and in effect for a period of 60
consecutive days; or
(vi) so long as an Insurer Default shall have occurred and be
continuing, the commencement by the Issuer of a voluntary case under
any applicable Federal or state bankruptcy, insolvency or other similar
law now or hereafter in effect, or the consent by the Issuer to the
entry of an order for relief in an involuntary case under any such law,
or the consent by the Issuer to the appointment or taking possession by
a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Issuer or for any substantial part of the Trust
Estate, or the making by the Issuer of any general assignment for the
benefit of creditors, or the failure by the Issuer generally to pay its
debts as such debts become due, or the taking of action by the Issuer
in furtherance of any of the foregoing.
The Issuer shall deliver to the Trustee and the Security
Insurer, within five days after the occurrence thereof, written notice in the
form of an Officer's Certificate of any event which with the giving of notice
and the lapse of time would become an Event of Default under clause (iii), its
status and what action the Issuer is taking or proposes to take with respect
thereto.
SECTION 5.2. Rights Upon Event of Default. (a) If an Insurer
Default shall not have occurred and be continuing and an Event of Default shall
have occurred and be continuing, the Notes shall become immediately due and
payable at par, together with accrued interest thereon. If an Event of Default
shall have occurred and be continuing, the Controlling Party may exercise any of
the remedies specified in Section 5.4(a). In the event of any acceleration of
any Notes by operation of this Section 5.2, the Trustee shall continue to be
entitled to make claims under the Note Policy pursuant to Section 5.18 hereof
for Note Insured Payments on the Notes. Payments under the Note Policy following
acceleration of any Notes shall be applied by the Trustee:
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FIRST: to Noteholders for amounts due and unpaid on the Notes
for interest, ratably, without preference or priority of any kind, according to
the amounts due and payable on the Notes for interest; and
SECOND: to Noteholders for amounts due and unpaid on the Notes
for principal, ratably, without preference or priority of any kind, according to
the amounts due and payable on the Notes for principal.
(b) In the event any Notes are accelerated due to an Event of
Default, the Security Insurer shall have the right (in addition to its
obligation to pay Note Insured Payments on the Notes in accordance with the Note
Policy), but not the obligation, to make payments under the Note Policy or
otherwise of interest and principal due on such Notes, in whole or in part, on
any date or dates following such acceleration as the Security Insurer, in its
sole discretion, shall elect.
(c) If an Insurer Default shall have occurred and be
continuing and an Event of Default shall have occurred and be continuing, the
Trustee in its discretion may, or if so requested in writing by Holders holding
Notes representing not less than a majority of the Outstanding Amount of the
Notes, declare by written notice to the Issuer that the Notes become, whereupon
they shall become, immediately due and payable at par, together with accrued
interest thereon.
(d) If an Insurer Default shall have occurred and be
continuing, then at any time after such declaration of acceleration of maturity
has been made and before a judgment or decree for payment of the money due has
been obtained by the Trustee as hereinafter in this Article V provided, the
Holders of Notes representing a majority of the Outstanding Amount of the Notes,
by written notice to the Issuer and the Trustee, may rescind and annul such
declaration and its consequences if:
(i) the Issuer has paid or deposited with the Trustee a
sum sufficient to pay
(A) all payments of principal of and interest on all
Notes and all other amounts that would then be due hereunder
or upon such Notes if the Event of Default giving rise to such
acceleration had not occurred; and
(B) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee and its agents and
counsel; and
(ii) all Events of Default, other than the nonpayment of the
principal of the Notes that has become due solely by such acceleration,
have been cured or waived as provided in Section 5.12.
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No such rescission shall affect any subsequent default or
impair any right consequent thereto.
SECTION 5.3. Collection of Indebtedness and Suits for
Enforcement by Trustee (a) The Issuer covenants that if (i) default is made in
the payment of any interest on any Note when the same becomes due and payable,
and such default continues for a period of five days, or (ii) default is made in
the payment of the principal of or any installment of the principal of any Note
when the same becomes due and payable, the Issuer will, upon demand of the
Trustee, pay to it, for the benefit of the Holders of the Notes, the whole
amount then due and payable on such Notes for principal and interest, with
interest upon the overdue principal, and, to the extent payment at such rate of
interest shall be legally enforceable, upon overdue installments of interest, at
the applicable Interest Rate and in addition thereto such further amount as
shall be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee and
its agents and counsel.
(b) Each Issuer Secured Party hereby irrevocably and
unconditionally appoints the Controlling Party as the true and lawful
attorney-in-fact of such Issuer Secured Party for so long as such Issuer Secured
Party is not the Controlling Party, with full power of substitution, to execute,
acknowledge and deliver any notice, document, certificate, paper, pleading or
instrument and to do in the name of the Controlling Party as well as in the
name, place and stead of such Issuer Secured Party such acts, things and deeds
for or on behalf of and in the name of such Issuer Secured Party under this
Indenture (including specifically under Section 5.4) and under the Basic
Documents which such Issuer Secured Party could or might do or which may be
necessary, desirable or convenient in such Controlling Party's sole discretion
to effect the purposes contemplated hereunder and under the Related Documents
and, without limitation, following the occurrence of an Event of Default,
exercise full right, power and authority to take, or defer from taking, any and
all acts with respect to the administration, maintenance or disposition of the
Trust Estate.
(c) If an Event of Default occurs and is continuing, the
Trustee may in its discretion but with the consent of the Controlling Party and
shall, at the direction of the Controlling Party (except as provided in Section
5.3(d) below), proceed to protect and enforce its rights and the rights of the
Noteholders by such appropriate Proceedings as the Trustee or the Controlling
Party shall deem most effective to protect and enforce any such rights, whether
for the specific enforcement of any covenant or agreement in this Indenture or
in aid of the exercise of any power granted herein, or to enforce any other
proper remedy or legal or equitable right vested in the Trustee by this
Indenture or by law.
(d) Notwithstanding anything to the contrary contained in this
Indenture (including without limitation Sections 5.4(a), 5.12, 5.13 and 5.17)
and regardless of whether an Insurer Default shall have occurred and be
continuing, if the Issuer fails to perform its obligations under Section 10.1(b)
hereof when and as due, the Trustee may in its discretion (and without the
consent of the Controlling Party) proceed to protect and enforce its rights and
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the rights of the Noteholders by such appropriate proceedings as the Trustee
shall deem most effective to protect and enforce any such rights, whether for
specific performance of any covenant or agreement in this Indenture or in aid of
the exercise of any power granted herein, or to enforce any other proper remedy
or legal or equitable right vested in the Trustee by this Indenture or by law;
provided that the Trustee shall only be entitled to take any such actions
without the consent of the Controlling Party to the extent such actions are
taken only to enforce the Issuer's obligations to redeem the principal amount of
Notes.
(e) In case there shall be pending, relative to the Issuer or
any other obligor upon the Notes or any Person having or claiming an ownership
interest in the Trust Estate, proceedings under Title 11 of the United States
Code or any other applicable Federal or state bankruptcy, insolvency or other
similar law, or in case a receiver, assignee or trustee in bankruptcy or
reorganization, liquidator, sequestrator or similar official shall have been
appointed for or taken possession of the Issuer or its property or such other
obligor or Person, or in case of any other comparable judicial proceedings
relative to the Issuer or other obligor upon the Notes, or to the creditors or
property of the Issuer or such other obligor, the Trustee, irrespective of
whether the principal of any Notes shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the Trustee
shall have made any demand pursuant to the provisions of this Section, shall be
entitled and empowered, by intervention in such proceedings or otherwise:
(i) to file and prove a claim or claims for the whole amount
of principal and interest owing and unpaid in respect of the Notes and
to file such other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee (including any claim for
reasonable compensation to the Trustee and each predecessor Trustee,
and their respective agents, attorneys and counsel, and for
reimbursement of all expenses and liabilities incurred, and all
advances made, by the Trustee and each predecessor Trustee, except as a
result of negligence, bad faith or willful misconduct) and of the
Noteholders allowed in such proceedings;
(ii) unless prohibited by applicable law and regulations, to
vote on behalf of the Holders of Notes in any election of a trustee, a
standby trustee or person performing similar functions in any such
proceedings;
(iii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute all amounts
received with respect to the claims of the Noteholders and of the
Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims
of the Trustee or the Holders of Notes allowed in any judicial
proceedings relative to the Issuer, its creditors and its property;
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and any trustee, receiver, liquidator, custodian or other similar official in
any such proceeding is hereby authorized by each of such Noteholders to make
payments to the Trustee, and, in the event that the Trustee shall consent to the
making of payments directly to such Noteholders, to pay to the Trustee such
amounts as shall be sufficient to cover reasonable compensation to the Trustee,
each predecessor Trustee and their respective agents, attorneys and counsel, and
all other expenses and liabilities incurred, and all advances made, by the
Trustee and each predecessor Trustee except as a result of negligence or bad
faith.
(f) Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or to
authorize the Trustee to vote in respect of the claim of any Noteholder in any
such proceeding except, as aforesaid, to vote for the election of a trustee in
bankruptcy or similar person.
(g) All rights of action and of asserting claims under this
Indenture or under any of the Notes, may be enforced by the Trustee without the
possession of any of the Notes or the production thereof in any trial or other
proceedings relative thereto, and any such action or proceedings instituted by
the Trustee shall be brought in its own name as trustee of an express trust, and
any recovery of judgment, subject to the payment of the expenses, disbursements
and compensation of the Trustee, each predecessor Trustee and their respective
agents and attorneys, shall be for the ratable benefit of the Holders of the
Notes.
(h) In any proceedings brought by the Trustee (and also any
proceedings involving the interpretation of any provision of this Indenture),
the Trustee shall be held to represent all the Holders of the Notes, and it
shall not be necessary to make any Noteholder a party to any such proceedings.
SECTION 5.4. Remedies. (a) If an Event of Default shall have
occurred and be continuing, the Controlling Party may do one or more of the
following (subject to Section 5.5):
(i) institute Proceedings in its own name and as trustee of
an express trust for the collection of all amounts then payable on the
Notes or under this Indenture with respect thereto, whether by
declaration or otherwise, enforce any judgment obtained, and collect
from the Issuer and any other obligor upon such Notes moneys adjudged
due;
(ii) institute Proceedings from time to time for the complete
or partial foreclosure of this Indenture with respect to the Trust
Estate;
(iii) exercise any remedies of a secured party under the UCC
and take any other appropriate action to protect and enforce the rights
and remedies of the Trustee and the Holders of the Notes; and
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(iv) direct the Indenture Collateral Agent to sell the Trust
Estate or any portion thereof or rights or interest therein, at one or
more public or private sales called and conducted in any manner
permitted by law; provided, however, that
(A) if the Security Insurer is the Controlling Party,
the Security Insurer may not sell or otherwise liquidate the
Trust Estate following an Insurance Agreement Event of Default
unless
(I) such Insurance Agreement Indenture
Cross Default arises from a claim being made on the
Note Policy or from the insolvency of the Trust or
the Seller, or
(II) the proceeds of such sale or
liquidation distributable to the Noteholders are
sufficient to discharge in full all amounts then due
and unpaid upon such Notes for principal and
interest; or
(B) if the Trustee is the Controlling Party, the
Trustee may not sell or otherwise liquidate the Trust Estate
following an Event of Default unless
(I) such Event of Default is of the type
described in Section 5.01(i) or (ii), or
(II) either
(x) the Holders of 100% of the
Outstanding Amount of the Notes consent
thereto,
(y) the proceeds of such sale or
liquidation distributable to the Noteholders
are sufficient to discharge in full all
amounts then due and unpaid upon such Notes
for principal and interest, or
(z) the Trustee determines that the
Trust Estate will not continue to provide
sufficient funds for the payment of
principal of and interest on the Notes as
they would have become due if the Notes had
not been declared due and payable, and the
Trustee provides prior written notice to the
Rating Agencies and obtains the consent of
Holders of 66-2/3% of the Outstanding Amount
of the Notes.
In determining such sufficiency or insufficiency with respect
to clause (y) and (z), the Trustee may, but need not, obtain and rely upon an
opinion of an Independent investment banking or accounting firm of national
reputation as to the feasibility of such proposed action and as to the
sufficiency of the Trust Estate for such purpose.
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SECTION 5.5. Optional Preservation of the Receivables. If the
Trustee is the Controlling Party and if the Notes have been declared to be due
and payable under Section 5.2 following an Event of Default and such declaration
and its consequences have not been rescinded and annulled, the Trustee may, but
need not, elect to maintain possession of the Trust Estate. It is the desire of
the parties hereto and the Noteholders that there be at all times sufficient
funds for the payment of principal of and interest on the Notes, and the Trustee
shall take such desire into account when determining whether or not to maintain
possession of the Trust Estate. In determining whether to maintain possession of
the Trust Estate, the Trustee may, but need not, obtain and rely upon an opinion
of an Independent investment banking or accounting firm of national reputation
as to the feasibility of such proposed action and as to the sufficiency of the
Trust Estate for such purpose.
SECTION 5.6. Priorities.
(a) Following (1) the acceleration of the Notes pursuant to
Section 5.2 or (2) if an Insurer Default shall have occurred and be continuing,
the occurrence of an Event of Default pursuant to Section 5.1(i), 5.1(ii),
5.1(iii), 5.1(v) or 5.1(vi) of the Indenture or (3) the receipt of Insolvency
Proceeds pursuant to Section 9.1(b) of the Sale and Servicing Agreement, the
Distribution Amount, including any money or property collected pursuant to
Section 5.4 of the Indenture any such Insolvency Proceeds, shall be applied by
the Trustee on the related Payment Date in the following order of priority:
FIRST: amounts due and owing and required to be distributed to
the Servicer, the Owner Trustee, the Trustee and the Indenture
Collateral Agent, respectively, pursuant to priorities (i) and (ii) of
Section 5.6(b) of the Sale and Servicing Agreement and not previously
distributed, in the order of such priorities and without preference or
priority of any kind within such priorities;
SECOND: to Noteholders for amounts due and unpaid on the Notes
for interest, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Notes for interest;
THIRD: to Noteholders for amounts due and unpaid on the Notes
for principal, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Notes for principal;
FOURTH: amounts due and owing and required to be distributed
to the Security Insurer pursuant to priority (v) of Section 5.6(b) of
the Sale and Servicing Agreement and not previously distributed; and
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FIFTH: to or upon the order of the Owner Trustee for
distribution pursuant to Section 5.2(a) of the Trust Agreement,
(b) The Trustee may fix a record date and payment date for any
payment to Noteholders pursuant to this Section. At least 15 days before such
record date the Issuer shall mail to each Noteholder and the Trustee a notice
that states the record date, the payment date and the amount to be paid.
SECTION 5.7. Limitation of Suits. No Holder of any Note shall
have any right to institute any proceeding, judicial or otherwise, with respect
to this Indenture, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless:
(i) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(ii) the Holders of not less than 25% of the Outstanding
Amount of the Notes have made written request to the Trustee to
institute such proceeding in respect of such Event of Default in its
own name as Trustee hereunder;
(iii) such Holder or Holders have offered to the Trustee
indemnity reasonably satisfactory to it against the costs, expenses and
liabilities to be incurred in complying with such request;
(iv) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute such
proceedings;
(v) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority of the Outstanding Amount of the Notes; and
(vi) an Insurer Default shall have occurred and be continuing;
it being understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders of Notes or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture, except in the
manner herein provided.
In the event the Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of Notes,
each representing less than a majority of the Outstanding Amount of the Notes,
the Trustee shall proceed in accordance with the request of the greater majority
of the Outstanding Amount of the Notes, as determined by reference to such
requests.
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SECTION 5.8. Unconditional Rights of Noteholders To Receive
Principal and Interest. Notwithstanding any other provisions in this Indenture,
the Holder of any Note shall have the right, which is absolute and
unconditional, to receive payment of the principal of and interest, if any, on
such Note on or after the respective due dates thereof expressed in such Note or
in this Indenture (or, in the case of redemption, on or after the Redemption
Date) and to institute suit for the enforcement of any such payment, and such
right shall not be impaired without the consent of such Holder.
SECTION 5.9. Restoration of Rights and Remedies. If the
Controlling Party or any Noteholder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason or has been determined adversely to the Trustee or
to such Noteholder, then and in every such case the Issuer, the Trustee and the
Noteholders shall, subject to any determination in such Proceeding, be restored
severally and respectively to their former positions hereunder, and thereafter
all rights and remedies of the Trustee and the Noteholders shall continue as
though no such proceeding had been instituted.
SECTION 5.10. Rights and Remedies Cumulative. No right or
remedy herein conferred upon or reserved to the Controlling Party or to the
Noteholders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 5.11. Delay or Omission Not a Waiver. No delay or
omission of the Controlling Party or any Holder of any Note to exercise any
right or remedy accruing upon any Default or Event of Default shall impair any
such right or remedy or constitute a waiver of any such Default or Event of
Default or an acquiescence therein. Every right and remedy given by this Article
V or by law to the Trustee or to the Noteholders may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee or by the
Noteholders, as the case may be.
SECTION 5.12. Control by Noteholders. If the Trustee is the
Controlling Party, the Holders of a majority of the Outstanding Amount of the
Notes shall have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee with respect to the Notes
or exercising any trust or power conferred on the Trustee; provided that:
(i) such direction shall not be in conflict with any rule of
law or with this Indenture;
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(ii) subject to the express terms of Section 5.4, any
direction to the Trustee to sell or liquidate the Trust Estate shall be
by the Holders of Notes representing not less than 100% of the
Outstanding Amount of the Notes;
(iii) if the conditions set forth in Section 5.5 have been
satisfied and the Trustee elects to retain the Trust Estate pursuant to
such Section, then any direction to the trustee by Holders of Notes
representing less than 100% of the Outstanding Amount of the Notes to
sell or liquidate the Trust Estate shall be of no force and effect; and
(iv) the Trustee may take any other action deemed proper by
the Trustee that is not inconsistent with such direction;
provided, however, that, subject to Section 6.1, the Trustee need not take any
action that it determines might involve it in liability or might materially
adversely affect the rights of any Noteholders not consenting to such action.
SECTION 5.13. Waiver of Past Defaults. If an Insurer Default
shall occurred and be continuing, prior to the declaration of the acceleration
of the maturity of the Notes as provided in Section 5.4, the Holders of Notes of
not less than a majority of the Outstanding Amount of the Notes may waive any
past Default or Event of Default and its consequences except a Default (a) in
payment of principal of or interest on any of the Notes or (b) in respect of a
covenant or provision hereof which cannot be modified or amended without the
consent of the Holder of each Note. In the case of any such waiver, the Issuer,
the Trustee and the Holders of the Notes shall be restored to their former
positions and rights hereunder, respectively; but no such waiver shall extend to
any subsequent or other Default or impair any right consequent thereto.
Upon any such waiver, such Default shall cease to exist and be
deemed to have been cured and not to have occurred, and any Event of Default
arising therefrom shall be deemed to have been cured and not to have occurred,
for every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or Event of Default or impair any right consequent
thereto.
SECTION 5.14. Undertaking for Costs. All parties to this
Indenture agree, and each Holder of any Note by such Holder's acceptance thereof
shall be deemed to have agreed, that any court may in its discretion require, in
any suit for the enforcement of any right or remedy under this Indenture, or in
any suit against the Trustee for any action taken, suffered or omitted by it as
Trustee, the filing by any party litigant in such suit of an undertaking to pay
the costs of such suit, and that such court may in its discretion assess
reasonable costs, including reasonable attorneys' fees, against any party
litigant in such suit, having due regard to the merits and good faith of the
claims or defenses made by such party litigant; but the provisions of this
Section shall not apply to (a) any suit instituted by the Trustee, (b) any suit
instituted by any Noteholder, or group of Noteholders, in each case holding in
the aggregate more than 10% of the Outstanding Amount of the Notes or (c) any
suit instituted by any Noteholder for the enforcement of the payment of
principal of or interest on any Note on or after the respective due dates
expressed in such Note and in this Indenture (or, in the case of redemption, on
or after the Redemption Date).
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SECTION 5.15. Waiver of Stay or Extension Laws. The Issuer
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead or in any manner whatsoever, claim or take the
benefit or advantage of, any stay or extension law wherever enacted, now or at
any time hereafter in force, that may affect the covenants or the performance of
this Indenture; and the Issuer (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
SECTION 5.16. Action on Notes. The Trustee's right to seek and
recover judgment on the Notes or under this Indenture shall not be affected by
the seeking, obtaining or application of any other relief under or with respect
to this Indenture. Neither the lien of this Indenture nor any rights or remedies
of the Trustee or the Noteholders shall be impaired by the recovery of any
judgment by the Trustee against the Issuer or by the levy of any execution under
such judgment upon any portion of the Trust Estate or upon any of the assets of
the Issuer.
SECTION 5.17. Performance and Enforcement of Certain
Obligations. (a) Promptly following a request from the Trustee to do so and at
the Servicer's expense, the Issuer agrees to take all such lawful action as the
Trustee may request to compel or secure the performance and observance by the
Representative, the Seller and the Servicer, as applicable, of each of their
obligations to the Issuer under or in connection with the Sale and Servicing
Agreement in accordance with the terms thereof, and to exercise any and all
rights, remedies, powers and privileges lawfully available to the Issuer under
or in connection with the Sale and Servicing Agreement to the extent and in the
manner directed by the Trustee, including the transmission of notices of default
on the part of the Seller or the Servicer thereunder and the institution of
legal or administrative actions or proceedings to compel or secure performance
by the Seller or the Servicer of each of their obligations under the Sale and
Servicing Agreement.
(b) If the Trustee is a Controlling Party and if an Event of
Default has occurred and is continuing, the Trustee may, and, at the direction
(which direction shall be in writing or by telephone (confirmed in writing
promptly thereafter)) of the Holders of 66-2/3% of the Outstanding Amount of the
Notes shall, exercise all rights, remedies, powers, privileges and claims of the
Issuer against the Seller or the Servicer under or in connection with the Sale
and Servicing Agreement, including the right or power to take any action to
compel or secure performance or observance by the Seller or the Servicer of each
of their obligations to the Issuer thereunder and to give any consent, request,
notice, direction, approval, extension or waiver under the Sale and Servicing
Agreement, and any right of the Issuer to take such action shall be suspended.
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SECTION 5.18. Claims Under Note Policy.
(a) In the event that the Trustee has delivered a Deficiency
Notice with respect to any Determination Date pursuant to Section 5.4 of the
Sale and Servicing Agreement, the Trustee shall on the related Draw Date
determine the Note Insured Payment (as defined below), if any, for the related
Payment Date. If the Note Insured Payment, if any, for such Payment Date is
greater than zero, the Trustee shall furnish to the Security Insurer on the
related Draw Date a completed notice form set forth as Exhibit A to the Note
Policy in accordance with the terms of the Note Policy in the amount of the Note
Insured Payment, if any. Amounts paid by the Security Insurer pursuant to a
claim submitted under this Section 5.18(a) shall be deposited by the Trustee
into the Note Distribution Account for payment to Noteholders on the related
Payment Date. The "Note Insured Payment" shall have the meaning as set forth in
the Note Policy.
(b) Any notice delivered by the Trustee to the Security
Insurer pursuant to subsection 5.18(a) shall specify the Note Insured Payment
claimed under the Note Policy and subject to the terms of the Note Policy, shall
constitute a "Notice" under the Note Policy. The Security Insurer is required to
pay to the Trustee the Note Insured Payment in accordance with the terms of the
Note Policy. Any payment made by the Security Insurer under the Note Policy
shall be applied solely to the payment of the Notes, and for no other purpose.
(c) The Trustee shall (i) receive as attorney-in-fact of each
Noteholder any Note Insured Payment from the Security Insurer and (ii) deposit
the same in the Note Distribution Account for distribution to Noteholders as
provided in Section 3.1 or Section 5.2 of this Indenture. Any and all Note
Insured Payments disbursed by the Trustee from claims made under the Note Policy
shall not be considered payment by the Trust with respect to such Notes, and
shall not discharge the obligations of the Trust with respect thereto. The
Security Insurer shall, to the extent it makes any payment with respect to the
Notes, become subrogated to the rights of the recipients of such payments to the
extent of such payments. Subject to and conditioned upon any payment with
respect to the Notes by or on behalf of the Security Insurer, the Trustee shall
assign to the Security Insurer all rights to the payment of interest or
principal with respect to the Notes which are then due for payment to the extent
of all payments made by the Security Insurer, and the Security Insurer may
exercise any option, vote, right, power or the like with respect to the Notes to
the extent that it has made payment pursuant to the Note Policy. To evidence
such subrogation, the Note Registrar shall note the Security Insurer's rights as
subrogee upon the register of Noteholders upon receipt from the Security Insurer
of proof of payment by the Security Insurer of any Noteholders' Interest
Distributable Amount or Noteholders' Principal Distributable Amount. The
foregoing subrogation shall in all cases be subject to the rights of the
Noteholders to receive all Note Insured Payments in respect of the Notes.
(d) The Trustee shall keep a complete and accurate record of
all funds deposited by the Security Insurer into the Collection Account and the
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allocation of such funds to payment of interest on and principal paid in respect
of any Note. The Security Insurer shall have the right to inspect such records
at reasonable times upon one Business Day's prior notice to the Trustee.
(e) The Trustee shall be entitled to enforce on behalf of the
Noteholders the obligations of the Security Insurer under the Note Policy.
Notwithstanding any other provision of this Agreement or any Related Document,
the Noteholders are not entitled to institute proceedings directly against the
Security Insurer.
SECTION 5.19. Preference Claims. (a) In the event that the
Trustee has received a certified copy of a final non-appealable order of the
court of applicable jurisdiction that any Noteholders' Interest Distributable
Amount, Noteholders' Principal Distributable Amount or Accelerated Principal
Distributable Amount paid on a Note has been avoided in whole or in part as a
preference payment under the United States Bankruptcy Code (11 U.S.C.), (a "Note
Preference Amount") the Trustee shall so notify the Security Insurer, shall
comply with the provisions of the Note Policy to obtain payment by the Security
Insurer of such Note Preference Amount and shall, at the time it provides notice
to the Security Insurer, notify Holders of the Notes by mail that, in the event
that any Noteholder's payment is so recoverable, such Noteholder will be
entitled to payment pursuant to the terms of the Note Policy. The Trustee shall
furnish to the Security Insurer its records evidencing the payments of principal
of and interest on Notes, if any, which have been made by the Trustee and
subsequently recovered from Noteholders, and the dates on which such payments
were made. Pursuant to the terms of the Note Policy, the Security Insurer will
make such payment on behalf of the Noteholder in the manner set forth in the
Note Policy.
(b) The Trustee shall promptly notify the Security Insurer of
any proceeding or the institution of any action (of which the Trustee has actual
knowledge) seeking the avoidance as a preferential transfer under applicable
bankruptcy, insolvency, receivership, rehabilitation or similar law (a
"Preference Claim") of any distribution made with respect to the Notes. Each
Holder, by its purchase of Notes, and the Trustee hereby agree that so long as
an Insurer Default shall not have occurred and be continuing, the Security
Insurer may at any time during the continuation of any proceeding relating to a
Preference Claim direct all matters relating to such Preference Claim including,
without limitation, (i) the direction of any appeal of any order relating to any
Preference Claim and (ii) the posting of any surety, supersedeas or performance
bond pending any such appeal at the expense of the Security Insurer, but subject
to reimbursement as provided in the Insurance Agreement. In addition, and
without limitation of the foregoing, as set forth in Section 5.18(c), the
Security Insurer shall be subrogated to, and each Noteholder and the Trustee
hereby delegate and assign, to the fullest extent permitted by law, the rights
of the Trustee and each Noteholder in the conduct of any proceeding with respect
to a Preference Claim, including, without limitation, all rights of any party to
an adversary proceeding action with respect to any court order issued in
connection with any such Preference Claim.
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ARTICLE VI.
The Trustee and the Indenture Collateral Agent
SECTION 6.1. Duties of Trustee. (a) If an Event of Default has
occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and use the same degree of care and skill in
their exercise as a prudent person would exercise or use under the circumstances
in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of
Default:
(i) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture; however, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements
of this Indenture and, if applicable, the Trustee's other Basic
Documents.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 5.12.
(d) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Issuer.
(e) Money held in trust by the Trustee need not be segregated
from other funds except to the extent required by law or the terms of this
Indenture or the Sale and Servicing Agreement.
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(f) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(g) Every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
(h) The Trustee shall, upon reasonable prior notice to the
Trustee, permit any representative of the Security Insurer, at the Security
Insurer's expense, during the Trustee's normal business hours, to examine all
books of account, records, reports and other papers of the Trustee relating to
the Notes, to make copies and extracts therefrom and to discuss the Trustee's
affairs and actions, as such affairs and actions relate to the Trustee's duties
with respect to the Notes, with the Trustee's officers and employees responsible
for carrying out the Trustee's duties with respect to the Notes.
(i) The Trustee shall, and hereby agrees that it will, perform
all of the obligations and duties required of it under the Sale and Servicing
Agreement.
(j) The Trustee shall, and hereby agrees that it will, hold
the Note Policy in trust, and will hold any proceeds of any claim on the Note
Policy in trust solely for the use and benefit of the Noteholders.
(k) Without limiting the generality of this Section 6.1, the
Trustee shall have no duty (i) to see to any recording, filing or depositing of
this Indenture or any agreement referred to herein or any financing statement
evidencing a security interest in the Financed Vehicles, or to see to the
maintenance of any such recording or filing or depositing or to any recording,
refiling or redepositing of any thereof, (ii) to see to any insurance of the
Financed Vehicles or Obligors or to effect or maintain any such insurance, (iii)
to see to the payment or discharge of any tax, assessment or other governmental
charge or any Lien or encumbrance of any kind owing with respect to, assessed or
levied against any part of the Trust, (iv) to confirm or verify the contents of
any reports or certificates delivered to the Trustee pursuant to this Indenture
or the Sale and Servicing Agreement believed by the Trustee to be genuine and to
have been signed or presented by the proper party or parties, or (v) to inspect
the Financed Vehicles at any time or ascertain or inquire as to the performance
or observance of any of the Issuer's, the Seller's or the Servicer's
representations, warranties or covenants or the Servicer's duties and
obligations as Servicer and as custodian of the Receivable Files under the Sale
and Servicing Agreement.
(l) Whenever any action under the Basic Documents requires the
approval or disapproval of Certificateholders, the Trustee shall, in accordance
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with, and subject to, Section 2.13 of the Trust Agreement, instruct the
Certificateholders to act in accordance with the written directions, received
from Holders of a majority of the Outstanding Amount of the Notes.
SECTION 6.2. Rights of Trustee. (a) The Trustee may rely on
any document believed by it to be genuine and to have been signed or presented
by the proper person. The Trustee need not investigate any fact or matter stated
in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
the Officer's Certificate or Opinion of Counsel.
(c) The Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee, and the Trustee shall not be
responsible for any misconduct or negligence on the part of, or for the
supervision of, Franklin Capital Corporation, or any other such agent, attorney,
custodian or nominee appointed with due care by it hereunder.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Trustee's conduct does not
constitute willful misconduct, negligence or bad faith.
(e) The Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture and
the Notes shall be full and complete authorization and protection from liability
in respect to any action taken, omitted or suffered by it hereunder in good
faith and in accordance with the advice or opinion of such counsel.
(f) The Trustee shall be under no obligation to institute,
conduct or defend any litigation under this Indenture or in relation to this
Indenture, at the request, order or direction of any of the Holders of Notes or
the Controlling Party, pursuant to the provisions of this Indenture, unless such
Holders of Notes or the Controlling Party shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that may be incurred therein or thereby; provided, however, that the Trustee
shall, upon the occurrence of an Event of Default (that has not been cured),
exercise the rights and powers vested in it by this Indenture with reasonable
care and skill.
(g) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond or
other paper or document, unless requested in writing to do so by the Security
Insurer (so long as no Insurer Default shall have occurred and be continuing) or
(if an Insurer Default shall have occurred and be continuing) by the Holders of
Notes evidencing not less than 25% of the Outstanding Amount thereof; provided,
however, that if the payment within a reasonable time to the Trustee of the
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costs, expenses or liabilities likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not reasonably assured to the
Trustee by the security afforded to it by the terms of this Indenture or the
Sale and Servicing Agreement, the Trustee may require reasonable indemnity
against such cost, expense or liability as a condition to so proceeding; the
reasonable expense of every such examination shall be paid by the Person making
such request, or, if paid by the Trustee, shall be reimbursed by the Person
making such request upon demand.
SECTION 6.3. Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Notes and
may otherwise deal with the Issuer or its Affiliates with the same rights it
would have if it were not Trustee. Any Paying Agent, Note Registrar,
co-registrar or co-paying agent may do the same with like rights.
However, the Trustee must comply with Sections 6.11 and 6.12.
SECTION 6.4. Trustee's Disclaimer. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture, the Trust Estate or the Notes, it shall not be accountable for
the Issuer's use of the proceeds from the Notes, and it shall not be responsible
for any statement of the Issuer in the Indenture or in any document issued in
connection with the sale of the Notes or in the Notes other than the Trustee's
certificate of authentication.
SECTION 6.5. Notice of Defaults. If a Default occurs and is
continuing and if it is either known by, or written notice of the existence
thereof has been delivered to, a Responsible Officer of the Trustee, the Trustee
shall mail to each Noteholder notice of the Default within 90 days after such
knowledge or notice occurs and to the Security Insurer such notice promptly
after such knowledge or notice occurs. Except in the case of a Default in
payment of principal of or interest on any Note (including payments pursuant to
the mandatory redemption provisions of such Note), the Trustee may withhold the
notice if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of Noteholders.
SECTION 6.6. Reports by Trustee to Holders. The Trustee shall
deliver to each Noteholder such information as may be reasonably required to
enable such Holder to prepare its Federal and state income tax returns.
SECTION 6.7. Compensation and Indemnity. (a) Pursuant to
Section 5.6(b) of the Sale and Servicing Agreement, the Issuer shall, or shall
cause the Servicer to, pay to the Trustee from time to time compensation for its
services in accordance with a separate agreement between the Servicer and the
Trustee. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Issuer shall or shall cause
the Servicer to reimburse the Trustee for all reasonable out-of-pocket expenses
incurred or made by it, including costs of collection, in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation and expenses, disbursements and advances of the Trustee's agents,
counsel, accountants and experts. The Issuer shall or shall cause the Servicer
to indemnify the Trustee, the Indenture Collateral Agent and their respective
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officers, directors, employees and agents against any and all loss, liability or
expense (including attorneys' fees and expenses) incurred by it in connection
with the acceptance or the administration of this trust and the performance of
its duties hereunder. The Trustee shall notify the Issuer and the Servicer
promptly of any claim for which it may seek indemnity. Failure by the Trustee to
so notify the Issuer and the Servicer shall not relieve the Issuer of its
obligations hereunder or the Servicer of its obligations under Article X of the
Sale and Servicing Agreement. The Issuer shall or shall cause the Servicer to
defend the claim, the Trustee may have separate counsel and the Issuer shall or
shall cause the Servicer to pay the fees and expenses of such counsel. Neither
the Issuer nor the Servicer need reimburse any expense or indemnify against any
loss, liability or expense incurred by the Trustee through the Trustee's own
willful misconduct, negligence or bad faith.
(b) The Issuer's payment obligations to the Trustee pursuant
to this Section shall survive the discharge of this Indenture subject to a
satisfaction of the Rating Agency Condition. When the Trustee incurs expenses
after the occurrence of a Default specified in Section 5.1(iv) or (v) with
respect to the Issuer, the expenses are intended to constitute expenses of
administration under Title 11 of the United States Code or any other applicable
Federal or state bankruptcy, insolvency or similar law. Notwithstanding anything
else set forth in this Indenture or the Basic Documents, the Trustee agrees that
the obligations of the Issuer (but not the Servicer) to the Trustee hereunder
and under the Basic Documents shall be recourse to the Trust Estate only and
specifically shall not be recourse to the assets of any Certificateholder. In
addition, the Trustee agrees that its recourse to the Issuer, the Trust Estate,
The Certificateholders and the Seller shall be limited to the right to receive
the distributions referred to in Section 5.6(b)(vii) of the Sale and Servicing
Agreement.
SECTION 6.8. Replacement of Trustee. The Trustee may resign at
any time by so notifying the Issuer and the Security Insurer. The Issuer may
with the consent of the Security Insurer and, at the request of the Security
Insurer (unless an Insurer Default shall have occurred and be continuing) shall,
remove the Trustee, if:
(i) the Trustee fails to comply with Section 6.11;
(ii) a court having jurisdiction in the premises in respect of
the Trustee in an involuntary case or proceeding under federal or state
banking or bankruptcy laws, as now or hereafter constituted, or any
other applicable federal or state bankruptcy, insolvency or other
similar law, shall have entered a decree or order granting relief or
appointing a receiver, liquidator, assignee, custodian, trustee,
conservator, sequestrator (or similar official) for the Trustee or for
any substantial part of the Trustee's property, or ordering the
winding-up or liquidation of the Trustee's affairs;
(iii) an involuntary case under the federal bankruptcy laws, as
now or hereafter in effect, or another present or future federal or
state bankruptcy, insolvency or similar law is commenced with respect
to the Trustee and such case is not dismissed within 60 days;
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(iv) the Trustee commences a voluntary case under any federal
or state banking or bankruptcy laws, as now or hereafter constituted,
or any other applicable federal or state bankruptcy, insolvency or
other similar law, or consents to the appointment of or taking
possession by a receiver, liquidator, assignee, custodian, trustee,
conservator, sequestrator (or other similar official) for the Trustee
or for any substantial part of the Trustee's property, or makes any
assignment for the benefit of creditors or fails generally to pay its
debts as such debts become due or takes any corporate action in
furtherance of any of the foregoing; or
(v) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason (the Trustee in such event being referred
to herein as the retiring Trustee), the Issuer shall promptly appoint a
successor Trustee acceptable to the Security Insurer (so long as an Insurer
Default shall not have occurred and be continuing). If the Issuer fails to
appoint such a successor Trustee, the Security Insurer may appoint a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuer and the Security Insurer
(provided that no Insurer Default shall have occurred and be continuing).
Thereupon the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have all the rights, powers and
duties of the Trustee under this Indenture subject to satisfaction of the Rating
Agency Condition. The successor Trustee shall mail a notice of its succession to
Noteholders. The retiring Trustee shall promptly transfer all property held by
it as Trustee to the successor Trustee.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Issuer or the Holders of a majority in Outstanding Amount of the Notes may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee fails to comply with Section 6.11, any
Noteholder may petition any court of competent jurisdiction for the removal of
the Trustee and the appointment of a successor Trustee.
Any resignation or removal of the Trustee and appointment of a
successor Trustee pursuant to any of the provisions of this Section shall not
become effective until acceptance of appointment by the successor Trustee
pursuant to Section 6.8 and payment of all fees and expenses owed to the
outgoing Trustee.
Notwithstanding the replacement of the Trustee pursuant to this Section, the
Issuer's and the Servicer's obligations under Section 6.7 shall continue for the
benefit of the retiring Trustee.
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SECTION 6.9. Successor Trustee by Merger. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee. The Trustee shall provide the Rating
Agencies prior written notice of any such transaction.
In case at the time such successor or successors by merger,
conversion or consolidation to the Trustee shall succeed to the trusts created
by this Indenture any of the Notes shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Trustee may authenticate such Notes either
in the name of any predecessor hereunder or in the name of the successor to the
Trustee; and in all such cases such certificates shall have the full force which
it is anywhere in the Notes or in this Indenture provided that the certificate
of the Trustee shall have.
SECTION 6.10. Appointment of Co-Trustee or Separate Trustee.
(a) Notwithstanding any other provisions of this Indenture, at any time, for the
purpose of meeting any legal requirement of any jurisdiction in which any part
of the Trust may at the time be located, the Trustee with the consent of the
Security Insurer (so long as an Insurer Default shall not have occurred and be
continuing) shall have the power and may execute and deliver all instruments to
appoint one or more Persons to act as a co-trustee or co-trustees, or a separate
trustee or separate trustees, of all or any part of the Trust, and to vest in
such Person or Persons, in such capacity and for the benefit of the Noteholders,
such title to the Trust, or any part hereof, and, subject to the other
provisions of this Section, such powers, duties, obligations, rights and trusts
as the Trustee may consider necessary or desirable. No co-trustee or separate
trustee hereunder shall be required to meet the terms of eligibility as a
successor trustee under Section 6.11 and no notice to Noteholders of the
appointment of any co-trustee or separate trustee shall be required under
Section 6.8 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or
co-trustee jointly (it being understood that such separate trustee or
co-trustee is not authorized to act separately without the Trustee
joining in such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed
the Trustee shall be incompetent or unqualified to perform such act or
acts, in which event such rights, powers, duties and obligations
(including the holding of title to the Trust or any portion thereof in
any such jurisdiction) shall be exercised and performed singly by such
separate trustee or co-trustee, but solely at the direction of the
Trustee;
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(ii) no trustee hereunder shall be personally liable by reason
of any act or omission of any other trustee hereunder, including acts
or omissions of predecessor or successor trustees; and
(iii) the Trustee may at any time accept the resignation of or
remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article VI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Trustee or separately, as may be provided therein, subject to all the provisions
of this Indenture, specifically including every provision of this Indenture
relating to the conduct of, affecting the liability of, or affording protection
to, the Trustee. Every such instrument shall be filed with the Trustee.
(d) Any separate trustee or co-trustee may at any time
constitute the Trustee, its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Indenture on its behalf and in its name. If any separate trustee
or co-trustee shall die, dissolve, become insolvent, become incapable of acting,
resign or be removed, all of its estates, properties, rights, remedies and
trusts shall invest in and be exercised by the Trustee, to the extent permitted
by law, without the appointment of a new or successor trustee.
SECTION 6.11. Eligibility; Disqualification. The Trustee shall
at all times satisfy the requirements of TIA Section 310(a). The Trustee shall
have a combined capital and surplus of at least $50,000,000 as set forth in its
most recent published annual report of condition and it shall have a long term
debt rating of BBB- or better by the Rating Agencies. The Trustee shall provide
copies of such reports to the Security Insurer upon request. The Trustee shall
comply with TIA Section 310(b), including the optional provision permitted by
the second sentence of TIA Section 310(b)(9); provided, however, that there
shall be excluded from the operation of TIA Section 310(b)(1) any indenture or
indentures under which other securities of the Issuer are outstanding if the
requirements for such exclusion set forth in TIA Section 310(b)(1) are met.
SECTION 6.12. Preferential Collection of Claims Against
Issuer. The Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated.
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SECTION 6.13. Appointment and Powers. Subject to the terms and
conditions hereof, each of the Issuer Secured Parties hereby appoints
_______________________ as the Indenture Collateral Agent with respect to the
Collateral, and _______________________ hereby accepts such appointment and
agrees to act as Indenture Collateral Agent with respect to the Collateral for
the Issuer Secured Parties, to maintain custody and possession of such
Collateral (except as otherwise provided hereunder) and to perform the other
duties of the Indenture Collateral Agent in accordance with the provisions of
this Indenture. Each Issuer Secured Party hereby authorizes the Indenture
Collateral Agent to take such action on its behalf, and to exercise such rights,
remedies, powers and privileges hereunder, as the Controlling Party may direct
and as are specifically authorized to be exercised by the Indenture Collateral
Agent by the terms hereof, together with such actions, rights, remedies, powers
and privileges as are reasonably incidental thereto. The Indenture Collateral
Agent shall act upon and in compliance with the written instructions of the
Controlling Party delivered pursuant to this Indenture promptly following
receipt of such written instructions; provided that the Indenture Collateral
Agent shall not act in accordance with any instructions (i) which are not
authorized by, or in violation of the provisions of, this Indenture, (ii) which
are in violation of any applicable law, rule or regulation or (iii) for which
the Indenture Collateral Agent has not received reasonable indemnity. Receipt of
such instructions shall not be a condition to the exercise by the Indenture
Collateral Agent of its express duties hereunder, except where this Indenture
provides that the Indenture Collateral Agent is permitted to act only following
and in accordance with such instructions.
SECTION 6.14. Performance of Duties. The Indenture Collateral
Agent shall have no duties or responsibilities except those expressly set forth
in this Indenture and the other Basic Documents to which the Indenture
Collateral Agent is a party or as directed by the Controlling Party in
accordance with this Indenture. The Indenture Collateral Agent shall not be
required to take any discretionary actions hereunder except at the written
direction and with the indemnification of the Controlling Party. The Indenture
Collateral Agent shall, and hereby agrees that it will, perform all of the
duties and obligations required of it under the Sale and Servicing Agreement.
SECTION 6.15. Limitation on Liability. Neither the Indenture
Collateral Agent nor any of its directors, officers or employees shall be liable
for any action taken or omitted to be taken by it or them hereunder, or in
connection herewith, except that the Indenture Collateral Agent shall be liable
for its negligence, bad faith or willful misconduct; nor shall the Indenture
Collateral Agent be responsible for the validity, effectiveness, value,
sufficiency or enforceability against the Issuer of this Indenture or any of the
Collateral (or any part thereof). Notwithstanding any term or provision of this
Indenture, the Indenture Collateral Agent shall incur no liability to the Issuer
or the Issuer Secured Parties for any action taken or omitted by the Indenture
Collateral Agent in connection with the Collateral, except for the negligence,
bad faith or willful misconduct on the part of the Indenture Collateral Agent,
and, further, shall incur no liability to the Issuer Secured Parties except for
negligence, bad faith or willful misconduct in carrying out its duties to the
Issuer Secured Parties. Subject to Section 6.16, the Indenture Collateral Agent
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shall be protected and shall incur no liability to any such party in relying
upon the accuracy, acting in reliance upon the contents, and assuming the
genuineness of any notice, demand, certificate, signature, instrument or other
document reasonably believed by the Indenture Collateral Agent to be genuine and
to have been duly executed by the appropriate signatory, and (absent actual
knowledge to the contrary) the Indenture Collateral Agent shall not be required
to make any independent investigation with respect thereto. The Indenture
Collateral Agent shall at all times be free independently to establish to its
reasonable satisfaction, but shall have no duty to independently verify, the
existence or nonexistence of facts that are a condition to the exercise or
enforcement of any right or remedy hereunder or under any of the Related
Documents. The Indenture Collateral Agent may consult with counsel, and shall
not be liable for any action taken or omitted to be taken by it hereunder in
good faith and in accordance with the written advice of such counsel. The
Indenture Collateral Agent shall not be under any obligation to exercise any of
the remedial rights or powers vested in it by this Indenture or to follow any
direction from the Controlling Party unless it shall have received reasonable
security or indemnity satisfactory to the Indenture Collateral Agent against the
costs, expenses and liabilities which might be incurred by it.
SECTION 6.16. Reliance Upon Documents. In the absence of
negligence, bad faith or willful misconduct on its part, the Indenture
Collateral Agent shall be entitled to rely on any communication, instrument,
paper or other document reasonably believed by it to be genuine and correct and
to have been signed or sent by the proper Person or Persons and shall have no
liability in acting, or omitting to act, where such action or omission to act is
in reasonable reliance upon any statement or opinion contained in any such
document or instrument.
SECTION 6.17. Successor Indenture Collateral Agent. (a)
Merger. Any Person into which the Indenture Collateral Agent may be converted or
merged, or with which it may be consolidated, or to which it may sell or
transfer its trust business and assets as a whole or substantially as a whole,
or any Person resulting from any such conversion, merger, consolidation, sale or
transfer to which the Indenture Collateral Agent is a party, shall (provided it
is otherwise qualified to serve as the Indenture Collateral Agent hereunder) be
and become a successor Indenture Collateral Agent hereunder and be vested with
all of the title to and interest in the Collateral and all of the trusts,
powers, discretions, immunities, privileges and other matters as was its
predecessor without the execution or filing of any instrument or any further
act, deed or conveyance on the part of any of the parties hereto, anything
herein to the contrary notwithstanding, except to the extent, if any, that any
such action is necessary to perfect, or continue the perfection of, the security
interest of the Issuer Secured Parties in the Collateral; provided that any such
successor shall also be the successor Trustee under Section 6.9.
(b) Resignation. The Indenture Collateral Agent and any
successor Indenture Collateral Agent may resign at any time by so notifying the
Issuer and the Security Insurer; provided that the Indenture Collateral Agent
shall not so resign unless it shall also resign as Trustee hereunder.
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(c) Removal. The Indenture Collateral Agent may be removed by
the Controlling Party at any time (and shall be removed at any time that the
Trustee has been removed), with or without cause, by an instrument or concurrent
instruments in writing delivered to the Indenture Collateral Agent, the other
Issuer Secured Party and the Issuer. A temporary successor may be removed at any
time to allow a successor Indenture Collateral Agent to be appointed pursuant to
subsection (d) below. Any removal pursuant to the provisions of this subsection
(c) shall take effect only upon the date which is the latest of (i) the
effective date of the appointment of a successor Indenture Collateral Agent and
the acceptance in writing by such successor Indenture Collateral Agent of such
appointment and of its obligation to perform its duties hereunder in accordance
with the provisions hereof, and (ii) receipt by the Controlling Party of an
Opinion of Counsel to the effect described in Section 3.6.
(d) Acceptance by Successor. The Controlling Party shall have
the sole right to appoint each successor Indenture Collateral Agent. Every
temporary or permanent successor Indenture Collateral Agent appointed hereunder
shall execute, acknowledge and deliver to its predecessor and to the Trustee,
each Issuer Secured Party and the Issuer an instrument in writing accepting such
appointment hereunder and the relevant predecessor shall execute, acknowledge
and deliver such other documents and instruments as will effectuate the delivery
of all Indenture Collateral to the successor Indenture Collateral Agent,
whereupon such successor, without any further act, deed or conveyance, shall
become fully vested with all the estates, properties, rights, powers, duties and
obligations of its predecessor. Such predecessor shall, nevertheless, on the
written request of either Issuer Secured Party or the Issuer, execute and
deliver an instrument transferring to such successor all the estates,
properties, rights and powers of such predecessor hereunder. In the event that
any instrument in writing from the Issuer or an Issuer Secured Party is
reasonably required by a successor Indenture Collateral Agent to more fully and
certainly vest in such successor the estates, properties, rights, powers, duties
and obligations vested or intended to be vested hereunder in the Indenture
Collateral Agent, any and all such written instruments shall, at the request of
the temporary or permanent successor Indenture Collateral Agent, be forthwith
executed, acknowledged and delivered by the Trustee or the Issuer, as the case
may be. The designation of any successor Indenture Collateral Agent and the
instrument or instruments removing any Indenture Collateral Agent and appointing
a successor hereunder, together with all other instruments provided for herein,
shall be maintained with the records relating to the Indenture Collateral and,
to the extent required by applicable law, filed or recorded by the successor
Indenture Collateral Agent in each place where such filing or recording is
necessary to effect the transfer of the Indenture Collateral to the successor
Indenture Collateral Agent or to protect or continue the perfection of the
security interests granted hereunder.
SECTION 6.18. Compensation. The Indenture Collateral Agent
shall not be entitled to any compensation for the performance of its duties
hereunder other than the compensation it is entitled to receive in its capacity
as Trustee.
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SECTION 6.19. Representations and Warranties of the Indenture
Collateral Agent. The Indenture Collateral Agent represents and warrants to the
Issuer and to each Issuer Secured Party as follows:
(a) Due Organization. The Indenture Collateral Agent is a
_______________________ duly organized, validly existing and in good standing
under the laws of the United States and is duly authorized and licensed under
applicable law to conduct its business as presently conducted.
(b) Corporate Power. The Indenture Collateral Agent has all
requisite right, power and authority to execute and deliver this Indenture and
to perform all of its duties as Indenture Collateral Agent hereunder.
(c) Due Authorization. The execution and delivery by the
Indenture Collateral Agent of this Indenture and the other Transaction Documents
to which it is a party, and the performance by the Indenture Collateral Agent of
its duties hereunder and thereunder, have been duly authorized by all necessary
corporate proceedings and no further approvals or filings, including any
governmental approvals, are required for the valid execution and delivery by the
Indenture Collateral Agent, or the performance by the Indenture Collateral
Agent, of this Indenture and such other Related Documents.
(d) Valid and Binding Indenture. The Indenture Collateral
Agent has duly executed and delivered this Indenture and each other Related
Document to which it is a party, and each of this Indenture and each such other
Related Document constitutes the legal, valid and binding obligation of the
Indenture Collateral Agent, enforceable against the Indenture Collateral Agent
in accordance with its terms, except as (i) such enforceability may be limited
by bankruptcy, insolvency, reorganization and similar laws relating to or
affecting the enforcement of creditors' rights generally and (ii) the
availability of equitable remedies may be limited by equitable principles of
general applicability.
SECTION 6.20. Waiver of Setoffs. The Indenture Collateral
Agent and the Trustee hereby expressly waive any and all rights of setoff that
the Indenture Collateral Agent or the Trustee may otherwise at any time have
under applicable law with respect to any Trust Account and agrees that amounts
in the Trust Accounts shall at all times be held and applied solely in
accordance with the provisions hereof.
SECTION 6.21. Control by the Controlling Party. The Indenture
Collateral Agent shall comply with notices and instructions given by the Issuer
only if accompanied by the written consent of the Controlling Party, except that
if any Event of Default shall have occurred and be continuing, the Indenture
Collateral Agent shall act upon and comply with notices and instructions given
by the Controlling Party alone in the place and stead of the Issuer.
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ARTICLE VII.
Noteholders' Lists and Reports
SECTION 7.1. Issuer To Furnish To Trustee Names and Addresses
of Noteholders. The Issuer will furnish or cause to be furnished to the Trustee
(a) not more than five days after each Record Date a list, in such form as the
Trustee may reasonably require, of the names and addresses of the Holders as of
such Record Date, (b) at such other times as the Trustee may request in writing,
within 30 days after receipt by the Issuer of any such request, a list of
similar form and content as of a date not more than 10 days prior to the time
such list is furnished; provided, however, that so long as the Trustee is the
Note Registrar, no such list shall be required to be furnished. The Trustee or,
if the Trustee is not the Note Registrar, the Issuer shall furnish to the
Security Insurer in writing on an annual basis on each December 31 (beginning on
December 31, 1998) and at such other times as the Security Insurer may request a
copy of the list.
SECTION 7.2. Preservation of Information; Communications to
Noteholders. (a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Holders contained in the
most recent list furnished to the Trustee as provided in Section 7.1 and the
names and addresses of Holders received by the Trustee in its capacity as Note
Registrar. The Trustee may destroy any list furnished to it as provided in such
Section 7.1 upon receipt of a new list so furnished.
(b) Noteholders may communicate pursuant to TIA Section 312(b)
with other Noteholders with respect to their rights under this Indenture or
under the Notes.
(c) The Issuer, the Trustee and the Note Registrar shall have
the protection of TIA Section 312(c).
SECTION 7.3. Reports by Issuer. (a) The Issuer shall:
(i) file with the Trustee, within 15 days after the Issuer is
required to file the same with the Commission, copies of the annual
reports and of the information, documents and other reports (or copies
of such portions of any of the foregoing as the Commission may from
time to time by rules and regulations prescribe) which the Issuer may
be required to file with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act;
(ii) file with the Trustee and the Commission in accordance
with rules and regulations prescribed from time to time by the
Commission such additional information, documents and reports with
respect to compliance by the Issuer with the conditions and covenants
of this Indenture as may be required from time to time by such rules
and regulations; and
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(iii) supply to the Trustee (and the Trustee shall transmit by
mail to all Noteholders described in TIA Section 313(c)) such summaries
of any information, documents and reports required to be filed by the
Issuer pursuant to clauses (i) and (ii) of this Section 7.3(a) as may
be required by rules and regulations prescribed from time to time by
the Commission.
(b) Unless the Issuer otherwise determines, the fiscal year of
the Issuer shall end on December 31 of each year.
SECTION 7.4. Reports by Trustee. If required by TIA Section
313(a), within 60 days after each December 1, beginning with December 1, 1998,
the Trustee shall mail to each Noteholder as required by TIA Section 313(c) a
brief report dated as of such date that complies with TIA Section 313(a). The
Trustee also shall comply with TIA Section 313(b).
A copy of each report at the time of its mailing to
Noteholders shall be filed by the Trustee with the Commission and each stock
exchange, if any, on which the Notes are listed. The Issuer shall notify the
Trustee if and when the Notes are listed on any stock exchange.
ARTICLE VIII.
Accounts, Disbursements and Releases
SECTION 8.1. Collection of Money. Except as otherwise
expressly provided herein, the Trustee may demand payment or delivery of, and
shall receive and collect, directly and without intervention or assistance of
any fiscal agent or other intermediary, all money and other property payable to
or receivable by the Trustee pursuant to this Indenture. The Trustee shall apply
all such money received by it as provided in this Indenture. Except as otherwise
expressly provided in this Indenture, if any default occurs in the making of any
payment or performance under any agreement or instrument that is part of the
Trust Estate, the Trustee may take such action as may be appropriate to enforce
such payment or performance, including the institution and prosecution of
appropriate proceedings. Any such action shall be without prejudice to any right
to claim a Default or Event of Default under this Indenture and any right to
proceed thereafter as provided in Article V.
SECTION 8.2. Trust Accounts. (a) On or prior to the Closing
Date, the Issuer shall cause the Servicer to establish and maintain, in the name
of the Trustee, for the benefit of the Noteholders, the Certificateholders and
the Security Insurer, the Trust Accounts as provided in Section 5.1 of the Sale
and Servicing Agreement.
(b) Subject to Section 5.6 of the Sale and Servicing
Agreement, on each Payment Date and Redemption Date, the Trustee shall
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distribute all amounts on deposit in the Note Distribution Account to
Noteholders in respect of the Notes to the extent of amounts due and unpaid on
the Notes for principal and interest in the following amounts and in the
following order of priority (except as otherwise provided in Section 5.6):
(i) accrued and unpaid interest on the Notes; provided that
if there are not sufficient funds in the Note Distribution Account to
pay the entire amount of accrued and unpaid interest then due on each
class of Notes, the amount in the Note Distribution Account shall be
applied to the payment of such interest on each class of Notes pro rata
on the basis of the amount of accrued and unpaid interest due on each
class of Notes;
(ii) principal to the Holders of the Class A-1 Notes until the
Outstanding Amount of the Class A-1 Notes is reduced to zero;
(iii) principal to the Holders of the Class A-2 Notes until the
Outstanding Amount of the Class A-2 Notes is reduced to zero and
SECTION 8.3. General Provisions Regarding Accounts. (a) So
long as no Default or Event of Default shall have occurred and be continuing,
all or a portion of the funds in the Trust Accounts shall be invested in
Eligible Investments and reinvested by the Trustee upon Issuer Order, subject to
the provisions of Section 5.1(b) of the Sale and Servicing Agreement. All income
or other gain from investments of moneys deposited in the Trust Accounts shall
be deposited (or caused to be deposited) by the Trustee in the Collection
Account, and any loss resulting from such investments shall be charged to such
account. The Issuer will not direct the Trustee to make any investment of any
funds or to sell any investment held in any of the Trust Accounts unless the
security interest Granted and perfected in such account will continue to be
perfected in such investment or the proceeds of such sale, in either case
without any further action by any Person, and, in connection with any direction
to the Trustee to make any such investment or sale, if requested by the Trustee,
the Issuer shall deliver to the Trustee and the Security Insurer an Opinion of
Counsel, acceptable to the Trustee and the Security Insurer, to such effect.
(b) [Reserved]
(c) Subject to Section 6.1(c), the Trustee shall not in any
way be held liable by reason of any insufficiency in any of the Trust Accounts
resulting from any loss on any Eligible Investment included therein except for
losses attributable to the Trustee's failure to make payments on such Eligible
Investments issued by the Trustee, in its commercial capacity as principal
obligor and not as trustee, in accordance with their terms.
(d) If (i) the Issuer shall have failed to give investment
directions for any funds on deposit in the Trust Accounts to the Trustee by
12:00 noon Eastern Time (or such other time as may be agreed by the Issuer and
Trustee) on any Business Day; or (ii) a Default or Event of Default shall have
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occurred and be continuing with respect to the Notes but the Notes shall not
have been declared due and payable pursuant to Section 5.2, or, if such Notes
shall have been declared due and payable following an Event of Default, amounts
collected or receivable from the Trust Estate are being applied in accordance
with Section 5.5 as if there had not been such a declaration; then the Trustee
shall, to the fullest extent practicable, invest and reinvest funds in the Trust
Accounts in investments of the type set forth in clause (c) of the definition of
Eligible Investments.
SECTION 8.4. Release of Trust Estate. (a) Subject to the
payment of its fees and expenses pursuant to Section 6.7, the Indenture
Collateral Agent may, and when required by the provisions of this Indenture
shall, execute instruments to release property from the, lien of this Indenture,
or convey the Indenture Collateral Agent's interest in the same, in a manner and
under circumstances that are not inconsistent with the provisions of this
Indenture. No party relying upon an instrument executed by the Indenture
Collateral Agent as provided in this Article, VIII shall be bound to ascertain
the Indenture Collateral Agent's authority, inquire into the satisfaction of any
conditions precedent or see to the application of any moneys.
(b) The Indenture Collateral Agent shall, at such time as
there are no Notes outstanding and all sums due the Trustee pursuant to Section
6.7 have been paid, release any remaining portion of the Trust Estate that
secured the Notes from the lien of this Indenture and release to the Issuer or
any other Person entitled thereto any funds then on deposit in the Trust
Accounts. The Trustee shall release property from the lien of this Indenture
pursuant to this Section 8.4(b) only upon receipt of an Issuer Request
accompanied by an Officer's Certificate, an Opinion of Counsel and (if required
by the TIA) Independent Certificates in accordance with TIA Sections 314(c) and
314(d)(1) meeting the applicable requirements of Section 11.1.
SECTION 8.5. Opinion of Counsel. The Indenture Collateral
Agent shall receive at least seven days' notice when requested by the Issuer to
take any action pursuant to Section 8.4(a), accompanied by copies of any
instruments involved, and the Trustee shall also require as a condition to such
action, an Opinion of Counsel, in form and substance satisfactory to the
Trustee, stating the legal effect of any such action, outlining the steps
required to complete the same, and concluding that all conditions precedent to
the taking of such action have been complied with and such action will not
materially and adversely impair the security for the Notes or the rights of the
Noteholders in contravention of the provisions of this Indenture; provided,
however, that such Opinion of Counsel shall not be required to express an
opinion as to the fair value of the Trust Estate. Counsel rendering any such
opinion may rely, without independent investigation, on the accuracy and
validity of any certificate or other instrument delivered to the Trustee in
connection with any such action.
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ARTICLE IX.
Supplemental Indentures
SECTION 9.1. Supplemental Indentures Without Consent of
Noteholders. (a)Without the consent of the Holders of any Notes but with the
consent of the Security Insurer (unless an Insurer Default shall have occurred
and be continuing) and with prior notice to the Rating Agencies by the Issuer,
as evidenced to the Trustee, the Issuer and the Trustee, when authorized by an
Issuer Order, at any time and from time to time, may enter into one or more
indentures supplemental hereto (which shall conform to the provisions of the
Trust Indenture Act as in force at the date of the execution thereof), in form
satisfactory to the Trustee, for any of the following purposes:
(i) to correct or amplify the description of any property at
any time subject to the lien of this Indenture, or better to assure,
convey and confirm unto the Indenture Collateral Agent any property
subject or required to be subjected to the lien of this Indenture, or
to subject to the lien of this Indenture additional property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to the Issuer, and the
assumption by any such successor of the covenants of the Issuer herein
and in the Notes contained;
(iii) to add to the covenants of the Issuer, for the benefit of
the Holders of the Notes, or to surrender any right or power herein
conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any
property to or with the Indenture Collateral Agent;
(v) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture which may be
inconsistent with any other provision herein or in any supplemental
indenture or to make any other provisions with respect to matters or
questions arising under this Indenture or in any supplemental
indenture; provided that such action shall not adversely affect the
interests of the Holders of the Notes;
(vi) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with respect to the Notes
and to add to or change any of the provisions of this Indenture as
shall be necessary to facilitate the administration of the trusts
hereunder by more than one trustee, pursuant to the requirements of
Article VI; or
(vii) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under the TIA or under any similar
federal statute hereafter enacted and to add to this Indenture such
other provisions as may be expressly required by the TIA.
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The Trustee is hereby authorized to join in the execution of
any such supplemental indenture and to make any further appropriate agreements
and stipulations that may be therein contained.
(b)The Issuer and the Trustee, when authorized by an Issuer
Order, may, also without the consent of any of the Holders of the Notes but with
the prior written consent of the Security Insurer and prior notice to the Rating
Agencies by the Issuer, as evidenced to the Trustee, enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to, or
changing in any manner or eliminating any of the provisions of, this Indenture
or of modifying in any manner the rights of the Holders of the Notes under this
Indenture; provided, however, that such action shall not, as evidenced by an
Opinion of Counsel, adversely affect in any material respect the interests of
any Noteholder.
SECTION 9.2. Supplemental Indentures with Consent of Noteholders. The
Issuer and the Trustee, when authorized by an Issuer Order, also may, with prior
notice to the Rating Agencies, with the consent of the Security Insurer (unless
an Insurer Default shall have occurred and be continuing) and with the consent
of the Holders of not less than a majority of the outstanding Amount of the
Notes, by Act of such Holders delivered to the Issuer and the Trustee, enter
into an indenture or indentures supplemental hereto for the purpose of adding
any provisions to, or changing in any manner or eliminating any of the
provisions of, this Indenture or of modifying in any manner the rights of the
Holders of the Notes under this Indenture; provided, however, that, subject to
the express rights of the Security Insurer under the Basic Documents, no such
supplemental indenture shall, without the consent of the Holder of each
Outstanding Note affected thereby:
(i) change the date of payment 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 provision of this Indenture relating to the
application of collections on, or the proceeds of the sale of, the
Trust Estate 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 the interest thereon is payable;
(ii) impair the right to institute suit for the enforcement of
the provisions of this Indenture requiring the application of funds
available therefor, as provided in Article V, to the payment of any
such amount due on the Notes on or after the respective due dates
thereof (or, in the case of redemption, on or after the Redemption
Date);
(iii) reduce the percentage of the Outstanding Amount of the
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 this
Indenture or certain defaults hereunder and their consequences provided
for in this Indenture;
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(iv) modify or alter the provisions of the proviso to the
definition of the term "Outstanding";
(v) reduce the percentage of the Outstanding Amount of the
Notes required to direct the Trustee to direct the Issuer to sell or
liquidate the Trust Estate pursuant to Section 5.4;
(vi) modify any provision of this Section except to increase
any percentage specified herein or to provide that certain additional
provisions of this Indenture or the Basic Documents cannot be modified
or waived without the consent of the Holder of each Outstanding Note
affected thereby;
(vii) modify any of the provisions of this Indenture in such
manner as to affect the calculation of the amount of any payment of
interest or principal due on any Note on any Payment Date (including
the calculation of any of the individual components of such
calculation) or to affect the rights of the Holders of Notes to the
benefit of any provisions for the mandatory redemption of the Notes
contained herein; or
(viii) permit the creation of any lien ranking prior to or on a
parity with the lien of this Indenture with respect to any part of the
Trust Estate or, except as otherwise permitted or contemplated herein
or in any of the Basic Documents, terminate the lien of this Indenture
on any property at any time subject hereto or deprive the Holder of any
Note of the security provided by the lien of this Indenture.
The Trustee may determine whether or not any Notes would be
affected by any supplemental indenture and any such determination shall be
conclusive upon the Holders of all Notes, whether theretofore or thereafter
authenticated and delivered hereunder. The Trustee shall not be liable for any
such determination made in good faith.
It shall not be necessary for any Act of Noteholders under
this Section to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.
Promptly after the execution by the Issuer and the Trustee of
any supplemental indenture pursuant to this Section, the Trustee shall mail to
the Holders of the Notes to which such amendment or supplemental indenture
relates a notice setting forth in general terms the substance of such
supplemental indenture. Any failure of the Trustee to mail such notice, or any
defect therein, shall not, however, in any way impair or affect the validity of
any such supplemental indenture.
SECTION 9.3. Execution of Supplemental Indentures. In
executing, or permitting the additional trusts created by, any supplemental
indenture permitted by this Article IX or the modifications thereby of the
trusts created by this Indenture, the Trustee shall be entitled to receive, and
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subject to Sections 6.1 and 6.2, shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture that affects the
Trustee's own rights, duties, liabilities or immunities under this Indenture or
otherwise.
SECTION 9.4. Effect of Supplemental Indenture. Upon the
execution of any supplemental indenture pursuant to the provisions hereof, this
Indenture shall be and be deemed to be modified and amended in accordance
therewith with respect to the Notes affected thereby, and the respective rights,
limitations of rights, obligations, duties, liabilities and immunities under
this Indenture of the Trustee, the Issuer and the Holders of the Notes shall
thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.
SECTION 9.5. Conformity With Trust Indenture Act. Every
amendment of this Indenture and every supplemental indenture executed pursuant
to this Article IX shall conform to the requirements of the Trust Indenture Act
as then in effect so long as this Indenture shall then be qualified under the
Trust Indenture Act.
SECTION 9.6. Reference in Notes to Supplemental Indentures.
Notes authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article IX may, and if required by the Trustee shall,
bear a notation in form approved by the Trustee as to any matter provided for in
such supplemental indenture. If the Issuer or the Trustee shall so determine,
new Notes so modified as to conform, in the opinion of the Trustee and the
Issuer, to any such supplemental indenture may be prepared and executed by the
Issuer and authenticated and delivered by the Trustee in exchange for
Outstanding Notes.
ARTICLE X.
Redemption of Notes
SECTION 10.1. Redemption. (a) The Notes are subject to
redemption in whole, but not in part, at the direction of the Seller pursuant to
Section 9.1(a) of the Sale and Servicing Agreement, on any Payment Date on which
the Servicer exercises its option to purchase the Trust Estate pursuant to said
Section 9.1(a), for a purchase price equal to the Redemption Price; provided,
however, that the Issuer has available funds sufficient to pay the Redemption
Price. The Servicer or the Issuer shall furnish the Security Insurer and the
Rating Agencies notice of such redemption. If the Notes are to be redeemed
pursuant to this Section 10.1(a), the Servicer or the Issuer shall furnish
notice of such election to the Trustee not later than 35 days prior to the
Redemption Date and the Issuer shall deposit with the Trustee in the Note
Distribution Account the Redemption Price of the Notes to be redeemed whereupon
all such Notes shall be due and payable on the Redemption Date upon the
furnishing of a notice complying with Section 10.2 to each Holder of Notes.
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(b) [Reserved]
(c) In the event that the assets of the Trust are sold
pursuant to Section 9.2 of the Trust Agreement, all amounts on deposit in the
Note Distribution Account shall be paid to the Noteholders up to the Outstanding
Amount of the Notes and all accrued and unpaid interest thereon and the Security
Insurer shall receive all amounts then owing to it. If amounts are to be paid to
Noteholders pursuant to this Section 10.1(c), the Servicer or the Issuer shall,
to the extent practicable, furnish notice of such event to the Trustee and the
Security Insurer not later than 45 days prior to the Redemption Date whereupon
all such amounts shall be payable on the Redemption Date.
SECTION 10.2. Form of Redemption Notice. (a) Notice of
redemption under Section 10.1(a) shall be given by the Trustee by facsimile or
by first-class mail, postage prepaid, transmitted or mailed prior to the
applicable Redemption Date to each Holder of Notes, as of the close of business
on the Record Date preceding the applicable Redemption Date, at such Holder's
address appearing in the Note Register.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) that the Record Date otherwise applicable to such
Redemption Date is not applicable and that payments shall be made only
upon presentation and surrender of such Notes and the place where such
Notes are to be surrendered for payment of the Redemption Price (which
shall be the office or agency of the Issuer to be maintained as
provided in Section 3.2); and
(iv) that interest on the Notes shall cease to accrue on the
Redemption Date.
Notice of redemption of the Notes shall be given by the
Trustee in the name and at the expense of the Issuer. Failure to give notice of
redemption, or any defect therein, to any Holder of any Note shall not impair or
affect the validity of the redemption of any other Note.
(b) Prior notice of redemption under Sections 10.1(b) is not
required to be given to Noteholders.
SECTION 10.3. Notes Payable on Redemption Date. The Notes to
be redeemed shall, following notice of redemption as required by Section 10.2
(in the case of redemption pursuant to Section 10.1(a)), on the Redemption Date
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become due and payable at the Redemption Price and (unless the Issuer shall
default in the payment of the Redemption Price) no interest shall accrue on the
Redemption Price for any period after the date to which accrued interest is
calculated for purposes of calculating the Redemption Price.
ARTICLE XI.
Miscellaneous
SECTION 11.1. Compliance Certificates and Opinions, etc. (a)
Upon any application or request by the Issuer to the Trustee or the Indenture
Collateral Agent to take any action under any provision of this Indenture, the
Issuer shall furnish to the Trustee or the Indenture Collateral Agent, as the
case may be, and to the Security Insurer if the application or request is made
to the Indenture Collateral Agent (i) an Officer's Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, (ii) an Opinion of Counsel stating that
in the opinion of such counsel all such conditions precedent, if any, have been
complied with and (iii) (if required by the TIA) an Independent Certificate from
a firm of certified public accountants meeting the applicable requirements of
this Section, except that, in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Indenture, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(i) a statement that each signatory of such certificate or
opinion has read or has caused to be read such covenant or condition
and the definitions herein relating thereto;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of each such signatory,
such signatory has made such examination or investigation as is
necessary to enable such signatory to express an informed opinion as to
whether or not such covenant or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each such
signatory such condition or covenant has been complied with.
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(b) (i) Prior to the deposit of any Collateral or other
property or securities with the Indenture Collateral Agent that is to
be made the basis for the release of any property or securities subject
to the lien of this Indenture, the Issuer shall, in addition to any
obligation imposed in Section 11.1(a) or elsewhere in this Indenture,
furnish to the Indenture Collateral Agent and the Security Insurer an
Officer's Certificate certifying or stating the opinion of each person
signing such certificate as to the fair value (within 90 days of such
deposit) to the Issuer of the Collateral or other property or
securities to be so deposited.
(ii) Whenever the Issuer is required to furnish to the
Indenture Collateral Agent and the Security Insurer an Officer's
Certificate certifying or stating the opinion of any signer thereof as
to the matters described in clause (i) above, the Issuer shall also
deliver to the Indenture Collateral Agent and the Security Insurer an
Independent Certificate as to the same matters, if the fair value to
the Issuer of the securities to be so deposited and of all other such
securities made the basis of any such withdrawal or release since the
commencement of the then-current fiscal year of the Issuer, as set
forth in the certificates delivered pursuant to clause (i) above and
this clause (ii), is 10% or more of the Outstanding Amount of the
Notes, but such a certificate need not be furnished with respect to any
securities so deposited, if the fair value thereof to the Issuer as set
forth in the related Officer's Certificate is less than $25,000 or less
than 1% percent of the Outstanding Amount of the Notes.
(iii) Other than with respect to the release of any Purchased
Receivables or Liquidated Receivables, whenever any property or
securities are to be released from the lien of this Indenture, the
Issuer shall also furnish to the Indenture Collateral Agent and the
Security Insurer an Officer's Certificate certifying or stating the
opinion of each person signing such certificate as to the fair value
(within 90 days of such release) of the property or securities proposed
to be released and stating that in the opinion of such person the
proposed release will not impair the security under this Indenture in
contravention of the provisions hereof.
(iv) Whenever the Issuer is required to furnish to the Trustee
and the Security Insurer an Officer's Certificate certifying or stating
the opinion of any signer thereof as to the matters described in clause
(iii) above, the Issuer shall also furnish to the Indenture Collateral
Agent and the Security Insurer an Independent Certificate as to the
same matters if the fair value of the property or securities and of all
other property other than Purchased Receivables and Defaulted
Receivables, or securities released from the lien of this Indenture
since the commencement of the then current calendar year, as set forth
in the certificates required by clause (iii) above and this clause
(iv), equals 10% or more of the Outstanding Amount of the Notes, but
such certificate need not be furnished in the case of any release of
property or securities if the fair value thereof as set forth in the
related Officer's Certificate is less than $25,000 or less than 1%
percent of the then Outstanding Amount of the Notes.
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(v) Notwithstanding Section 2.9 or any other provision of
this Section, the Issuer may (A) collect, liquidate, sell or otherwise
dispose of Receivables as and to the extent permitted or required by
the Basic Documents and (B) make cash payments out of the Trust
Accounts as and to the extent permitted or required by the Basic
Documents.
SECTION 11.2. Form of Documents Delivered to Trustee. In any
case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the
Issuer may be based, insofar as it relates to legal matters, upon a certificate
or opinion of, or representations by, counsel, unless such officer knows, or in
the exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his or her certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer or
Opinion of Counsel may be based, insofar as it relates to factual matters, upon
a certificate or opinion of, or representations by, an officer or officers of
the Servicer, the Seller or the Issuer, stating that the information with
respect to such factual matters is in the possession of the Servicer, the Seller
or the Issuer, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
Whenever in this Indenture, in connection with any application
or certificate or report to the Trustee, it is provided that the Issuer shall
deliver any document as a condition of the granting of such application, or as
evidence of the Issuer's compliance with any term hereof, it is intended that
the truth and accuracy, at the time of the granting of such application or at
the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Trustee's right to rely upon the truth and accuracy of
any statement or opinion contained in any such document as provided in Article
VI.
SECTION 11.3. Acts of Noteholders. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
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such Noteholders in person or by agents duly appointed in writing; and except as
herein otherwise expressly provided such action shall become effective when such
instrument or instruments are delivered to the Trustee, and, where it is hereby
expressly required, to the Issuer. Such instrument or instruments (and the
action embodied therein and evidenced thereby) are herein sometimes referred to
as the "Act" of the Noteholders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Indenture and (subject to Section 6.1)
conclusive in favor of the Trustee and the Issuer, if made in the manner
provided in this Section.
(b) The fact and date of the execution by any person of any
such instrument or writing may be proved in any customary manner of the Trustee.
(c) The ownership of Notes shall be proved by the Note
Register.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Holder of any Notes shall bind the Holder
of every Note issued upon the registration thereof or in exchange therefor or in
lieu thereof, in respect of anything done, omitted or suffered to be done by the
Trustee or the Issuer in reliance thereon, whether or not notation of such
action is made upon such Note.
SECTION 11.4. Notices, etc., to Trustee, Issuer and Rating
Agencies. Any request, demand, authorization, direction, notice, consent, waiver
or Act of Noteholders or other documents provided or permitted by this Indenture
to be made upon, given or furnished to or filed with:
(a) The Trustee by any Noteholder or by the Issuer shall be
sufficient for every purpose hereunder if personally delivered, delivered by
overnight courier or mailed certified mail, return receipt requested and shall
be deemed to have been duly given upon receipt to the Trustee at its Corporate
Trust Office, or
(b) The Issuer by the Trustee or by any Noteholder shall be
sufficient for every purpose hereunder if personally delivered, delivered by
overnight courier or mailed certified mail, return receipt requested and shall
be deemed to have been duly given upon receipt to the Issuer addressed to:
Franklin Auto Trust 1998-1 _________________, Attention: _____________, or at
any other address previously furnished in writing to the Trustee by Issuer. The
Issuer shall promptly transmit any notice received by it from the Noteholders to
the Trustee.
(c) The Security Insurer by the Issuer or the Trustee shall be
sufficient for any purpose hereunder if in writing and mailed by registered mail
or personally delivered or telexed or telecopied to the recipient as follows: to
the Security Insurer: MBIA Insurance Corporation, 113 King Street, Armonk, NY
10504, Attention: Insured Portfolio Management - SF, Fax: 914-765-3810, Ph:
(914) 273-4545.
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Notices required to be given to the Rating Agencies by the
Issuer, the Trustee or the Owner Trustee shall be in writing, personally
delivered, delivered by overnight courier or mailed certified mail, return
receipt requested to (i) in the case of Moody's, at the following address:
Moody's Investors Service, Inc., 99 Church Street, New York, New York 10004 and
(ii) in the case of S&P, at the following address: Standard & Poor's Ratings
Services, 26 Broadway (15th Floor), New York, New York 10004, Attention of Asset
Backed Surveillance Department; or as to each of the foregoing, at such other
address as shall be designated by written notice to the other parties.
SECTION 11.5. Notices to Noteholders; Waiver. Where this
Indenture provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Noteholder affected by such
event, at his address as it appears on the Note Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Noteholder shall affect the sufficiency of such notice with
respect to other Noteholders, and any notice that is mailed in the manner here
in provided shall conclusively be presumed to have been duly given.
Where this Indenture provides for notice in any manner, such
notice may be waived in writing by any Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by Noteholders shall be filed with the Trustee
but such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service
as a result of a strike, work stoppage or similar activity, it shall be
impractical to mail notice of any event to Noteholders when such notice is
required to be given pursuant to any provision of this Indenture, then any
manner of giving such notice as shall be satisfactory to the Trustee shall be
deemed to be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating
Agencies, failure to give such notice shall not affect any other rights or
obligations created hereunder, and shall not under any circumstance constitute a
Default or Event of Default.
SECTION 11.6. Alternate Payment and Notice Provisions.
Notwithstanding any provision of this Indenture or any of the Notes to the
contrary, the Issuer may enter into any agreement with any Holder of a Note
providing for a method of payment, or notice by the Trustee or any Paying Agent
to such Holder, that is different from the methods provided for in this
Indenture for such payments or notices, provided that such methods are
reasonable and consented to by the Trustee (which consent shall not be
unreasonably withheld). The Issuer will furnish to the Trustee a copy of each
such agreement and the Trustee will cause payments to be made and notices to be
given in accordance with such agreements.
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SECTION 11.7. Conflict with Trust Indenture Act. If any
provision hereof limits, qualifies or conflicts with another provision hereof
that is required to be included in this indenture by any of the provisions of
the Trust Indenture Act, such required provision shall control.
The provisions of TIA Sections 310 through 317 that impose
duties on any person (including the provisions automatically deemed included
herein unless expressly excluded by this Indenture) are a part of and govern
this Indenture, whether or not physically contained herein.
SECTION 11.8. Effect of Headings and Table of Contents. The
Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 11.9. Successors and Assigns. All covenants and
agreements in this Indenture and the Notes by the Issuer shall bind its
successors and assigns, whether so expressed or not. All agreements of the
Trustee in this Indenture shall bind its successors. All agreements of the
Indenture Collateral Agent in this Indenture shall bind its successors.
SECTION 11.10. Separability. In case any provision in this
Indenture or in the Notes shall be invalid, illegal or unenforceable, the
validity, legality, and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 11.11. Benefits of Indenture. The Security Insurer and
its successors and assigns shall be a third-party beneficiary to the provisions
of this Indenture, and shall be entitled to rely upon and directly to enforce
such provisions of this Indenture so long as no Insurer Default shall have
occurred and be continuing. Nothing in this Indenture or in the Notes, express
or implied, shall give to any Person, other than the parties hereto and their
successors hereunder, and the Noteholders, and any other party secured
hereunder, and any other person with an Ownership interest in any part of the
Trust Estate, any benefit or any legal or equitable right, remedy or claim under
this Indenture. The Security Insurer may disclaim any of its rights and powers
under this Indenture (in which case the Indenture Trustee may exercise such
right or power hereunder), but not its duties and obligations under the Note
Policy, upon delivery of a written notice to the Trustee.
SECTION 11.12. Legal Holidays. In any case where the date on
which any payment is due shall not be a Business Day, then (notwithstanding any
other provision of the Notes or this Indenture) payment need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the date an which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
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SECTION 11.13. GOVERNING LAW. THIS INDENTURE SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH
LAWS.
SECTION 11.14. Counterparts. This Indenture may be executed in
any number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
SECTION 11.15. Recording of Indenture. If this Indenture is
subject to recording in any appropriate public recording offices, such recording
is to be effected by the Issuer and at its expense accompanied by an Opinion of
Counsel (which may be counsel to the Trustee or any other counsel reasonably
acceptable to the Trustee and the Security Insurer) to the effect that such
recording is necessary either for the protection of the Noteholders or any other
person secured hereunder or for the enforcement of any right or remedy granted
to the Trustee or the Indenture Collateral Agent under this Indenture.
SECTION 11.16. Trust Obligation. No recourse may be taken,
directly or indirectly, with respect to the obligations of the Issuer, the
Seller, the Servicer, the Owner Trustee, the Trustee or the Indenture Collateral
Agent on the Notes or under this Indenture or any certificate or other writing
delivered in connection herewith or therewith, against (i) the Seller, the
Servicer, the Trustee, the Indenture Collateral Agent, or the Owner Trustee in
its individual capacity, (ii) any owner of a beneficial interest in the Issuer
or (iii) any partner, owner, beneficiary, agent, officer, director, employee or
agent of the Seller, the Servicer, the Trustee, the Indenture Collateral Agent
or the Owner Trustee in its individual capacity, any holder of a beneficial
interest in the Issuer, the Seller, the Servicer, the Owner Trustee, the
Indenture Collateral Agent or the Trustee or of any successor or assign of the
Seller, the Servicer, the Trustee, the Indenture Collateral Agent or the Owner
Trustee in its individual capacity, except as any such Person may have expressly
agreed (it being understood that the Trustee, the Indenture Collateral Agent and
the Owner Trustee have no such obligations in their individual capacity) and
except that any such partner, owner or beneficiary shall be fully liable, to the
extent provided by applicable law, for any unpaid consideration for stock,
unpaid capital contribution or failure to pay any installment or call owing to
such entity. For all purposes of this Indenture, in the performance of any
duties or obligations of the Issuer hereunder, the Owner Trustee shall be
subject to, and entitled to the benefits of, the terms and provisions of Article
VI, VII and VIII of the Trust Agreement.
SECTION 11.17. No Petition. The Trustee and the Indenture
Collateral Agent, by entering into this Indenture, and each Noteholder, by
accepting a Note, hereby covenant and agree that they will not at any time
institute against the Seller, or the Issuer, or join in any institution against
the Seller, or the Issuer of, any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings, or other proceedings under any United
States Federal or state bankruptcy or similar law in connection with any
obligations relating to the Notes, this Indenture or any of the Basic Documents.
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SECTION 11.18. Inspection. The Issuer agrees that, on
reasonable prior notice, it will permit any representative of the Trustee or of
the Security Insurer, during the Issuer's normal business hours, to examine all
the books of account, records, reports, and other papers of the Issuer, to make
copies and extracts therefrom, to cause such books to be audited by Independent
certified public accountants, and to discuss the Issuer's affairs, finances and
accounts with the Issuer's officers, employees, and independent certified public
accountants, all at such reasonable times and as often as may be reasonably
requested. The Trustee shall and shall cause its representatives to hold in
confidence all such information except to the extent disclosure may be required
by law (and all reasonable applications for confidential treatment are
unavailing) and except to the extent that the Trustee may reasonably determine
that such disclosure is consistent with its Obligations hereunder.
[THIS SPACE LEFT INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the Issuer and the Trustee have caused
this Indenture to be duly executed by their respective officers, thereunto duly
authorized, all as of the day and year first above written.
FRANKLIN AUTO TRUST 1998-1,
By: _________________________________, not in
its individual capacity but solely as
Owner Trustee,
By:_____________________________
Name:
Title:
_________________________________, not in its
individual capacity but solely as Trustee and
Indenture Collateral Agent,
By:_____________________________
Name: ______________
Title: ______________
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[Form of Note]
EXHIBIT D-1
REGISTERED $_____________
No. R
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP NO.
[Unless this Note is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to the Issuer
or its agent for registration of transfer, exchange or payment, and any Note
issued is registered in the name of Cede & Co. or in such other name as is
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.]
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET
FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY
TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
FRANKLIN AUTO TRUST 1998-1
CLASS A-1 _____% ASSET BACKED NOTES
Franklin Auto Trust 1998-1, a business trust organized and
existing under the laws of the State of Delaware (herein referred to as the
"Issuer"), for value received, hereby promises to pay to CEDE & CO., or
registered assigns, the principal sum of [__________ ] DOLLARS payable on each
Payment Date in an amount equal to the result obtained by multiplying (i) a
fraction the numerator of which is $[INSERT INITIAL PRINCIPAL AMOUNT OF NOTE]
and the denominator of which is $__________ by (ii) the aggregate amount, if
any, payable from the Note Distribution Account in respect of principal on the
Class A-1 Notes pursuant to Section 3.1 of the Indenture, provided, however,
that the entire unpaid principal amount of this Note shall be due and payable on
the ___________ Payment Date (the" ` Scheduled Payment Date"). The Issuer will
pay interest on this Note at the rate per annum shown above on each Payment Date
until the principal of this Note is paid or made available for payment, on the
principal amount of this Note outstanding on the preceding Payment Date (after
giving effect to all payments of principal made on the preceding Payment Date).
D-1-1
<PAGE>
Interest on this Note will accrue for each Payment Date from the most recent
Payment Date on which interest has been paid to but excluding such Payment Date
or, if no interest has yet been paid, from the Closing Date. Interest will be
computed on the basis of the [actual number of days elapsed in a 360-day year].
Such principal of and interest on this Note shall be paid in the manner
specified on the reverse hereof.
The principal of and interest on this Note are payable in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts. All payments made by the
Issuer with respect to this Note shall be applied first to interest due and
payable on this Note as provided above and then to the unpaid principal of this
Note.
The Notes are entitled to the benefits of a note guaranty
insurance policy (the "Note Policy") issued by MBIA Insurance Corporation (the
"Security Insurer"), pursuant to which the Security Insurer has unconditionally
guaranteed payments of Note Insured Payments on each Payment Date, all as more
fully set forth in the Indenture.
Reference is made to the further provisions of this Note set
forth on the reverse hereof, which shall have the same effect as though fully
set forth on the face of this Note.
Unless the certificate of authentication hereon has been
executed by the Trustee whose name appears below by manual signature, this Note
shall not be entitled to any benefit under the Indenture referred to on the
reverse hereof, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to
be signed, manually or in facsimile, by its Authorized Officer as of the date
set forth below.
FRANKLIN AUTO TRUST 1998-1
By: _________________________,
not in its individual capacity
but solely as Owner Trustee under
the Trust Agreement,
By: __________________________
Name:
Title:
Date:
D-1-2
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in
the within-mentioned Indenture.
Date:
________________________, not in its
individual capacity but solely as Trustee,
by______________________
Authorized Signatory
D-1-3
<PAGE>
[REVERSE OF NOTE]
This Note is one of a duly authorized issue of Notes of the
Issuer, designated as its Class A-1 ________% Asset Backed Notes (herein called
the "Class A-1 Notes"), all issued under an Indenture dated as of ________ (such
indenture, as supplemented or amended, is herein called the "Indenture"),
between the Issuer and ________________, as trustee (the "Trustee", which term
includes any successor Trustee under the Indenture, and the "Indenture
Collateral Agent", which term includes any successor Indenture Collateral Agent
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights and
obligations thereunder of the Issuer, the Trustee and the Holders of the Notes.
The Notes are subject to all terms of the Indenture. All terms used in this Note
that are defined in the Indenture, as supplemented or amended, shall have the
meanings assigned to them in or pursuant to the Indenture, as so supplemented or
amended.
The Class A-1 Notes and the Class A-2 Notes ________________
(together, the "Notes") are and will be equally and ratably secured by the
collateral pledged as security therefor as provided in the Indenture.
Principal of the Class A-1 Notes will be payable on each
Payment Date in an amount described on the face hereof. "Payment Date" means the
twentieth day of each month, or, if any such date is not a Business Day, the
next succeeding Business Day, commencing in January 1999.
As described above, the entire unpaid principal amount of this
Note shall be due and payable on the earlier of the Class A-1 Final Scheduled
Payment Date and the Redemption Date, if any, pursuant to Section 10.1(a) or
10.1(c) of the Indenture. As described above, a portion of the unpaid principal
balance of this Note shall be due and payable on the Redemption Date, if any,
pursuant to Section 10.1(b) of the Indenture. Notwithstanding the foregoing, the
entire unpaid principal amount of the Notes shall be due and payable (i) on the
date on which an Event of Default shall have occurred and be continuing so long
as an Insurer Default shall not have occurred and be continuing or (ii) if an
Insurer Default shall have occurred and be continuing, on the date on which an
Event of Default shall have occurred and be continuing and the Trustee or the
Holders of the Notes representing at least 66-2/3% of the Outstanding Amount of
the Notes have declared the Notes to be immediately due and payable in the
manner provided in Section 5.2 of the Indenture. All principal payments on the
Class A-1 Notes shall be made pro rata to the Class A-1 Noteholders entitled
thereto.
Payments of interest on this Note due and payable on each
Payment Date, together with the installment of principal, if any, to the extent
not in full payment of this Note, shall be made by check mailed to the Person
whose name appears as the Holder of this Note (or one or more Predecessor Notes)
on the Note Register as of the close of business on each Record Date, except
that with respect to Notes registered on the Record Date in the name of the
nominee of the Clearing Agency (initially, such nominee to be Cede & Co.),
D-1-4
<PAGE>
payments will be made by wire transfer in immediately available funds to the
account designated by such nominee. Such checks shall be mailed to the Person
entitled thereto at the address of such Person as it appears on the Note
Register as of the applicable Record Date without requiring that this Note be
submitted for notation of payment. Any reduction in the principal amount of this
Note (or any one or more Predecessor Notes) effected by any payments made on any
Payment Date shall be binding upon all future Holders of this Note and of any
Note issued upon the registration of transfer hereof or in exchange hereof or in
lieu hereof, whether or not noted hereon. If funds are expected to be available,
as provided in the Indenture, for payment in full of the then remaining unpaid
principal amount of this Note on a Payment Date, then the Trustee, in the name
of and on behalf of the Issuer, will notify the Person who was the Holder hereof
as of the Record Date preceding such Payment Date by notice mailed prior to such
Payment Date and the amount then due and payable shall be payable only upon
presentation and surrender of this Note at the Trustee's principal Corporate
Trust Office or at the office of the Trustee's agent appointed for such purposes
located in The City of New York.
The Issuer shall pay interest on overdue installments of
interest at the Class A-1 Interest Rate to the extent lawful.
As provided in the Indenture, the Notes may be redeemed
pursuant to Section 10.1(a) of the Indenture, in whole, but not in part, at the
option of the Servicer (with the consent of the Security Insurer under certain
circumstances), on any Payment Date on or after the date on which the Pool
Balance is less than or equal to 10% of the Original Pool Balance.
As provided in the Indenture and subject to certain
limitations set forth therein, the transfer of this Note may be registered on
the Note Register upon surrender of this Note for registration of transfer at
the office or agency designated by the Issuer pursuant to the Indenture, (i)
duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Trustee duly executed by, the Holder hereof or his attorney
duly authorized in writing, with such signature guaranteed by an "eligible
guarantor institution" meeting the requirements of the Note Registrar which
requirements include membership or participation in Securities Transfer Agents
Medallion Program ("Stamp") or such other "signature guarantee program" as may
be determined by the Note Registrar in addition to, or in substitution for,
Stamp, all in accordance with the Exchange Act, and (ii) accompanied by such
other documents as the Trustee may require, and thereupon one or more new Notes
of authorized denominations and in the same aggregate principal amount will be
issued to the designated transferee or transferees. No service charge will be
charged for any registration of transfer or exchange of this Note, but the
transferor may be required to pay a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any such registration
of transfer or exchange.
Each Noteholder or Note Owner, by acceptance of a Note or, in
the case of a Note Owner, a beneficial interest in a Note covenants and agrees
that no recourse may be taken, directly or indirectly, with respect to the
obligations of the Issuer, the Owner Trustee, the Indenture Collateral Agent or
the Trustee on the Notes or under the Indenture or any certificate or other
writing delivered in connection therewith, against (i) the Seller, the Servicer,
D-1-5
<PAGE>
the Trustee, the Indenture Collateral Agent or the Owner Trustee in its
individual capacity, (ii) any owner of a beneficial interest in the Issuer or
(iii) any partner, owner, beneficiary, agent, officer, director or employee of
the Seller, the Servicer, the Trustee, the Indenture Collateral Agent or the
Owner Trustee in its individual capacity, any holder of a beneficial interest in
the Issuer, the Seller, the Servicer, the Owner Trustee or the Trustee or of any
successor or assign of the Seller, the Servicer, the Trustee, the Indenture
Collateral Agent or the Owner Trustee in its individual capacity, except as any
such Person may have expressly agreed (it being understood that the Trustee, the
Indenture Collateral Agent and the Owner Trustee have no such obligations in
their individual capacity) and except that any such partner, owner or
beneficiary shall be fully liable, to the extent provided by applicable law, for
any unpaid consideration for stock, unpaid capital contribution or failure to
pay any installment or call owing to such entity.
Each Noteholder or Note Owner, by acceptance of a Note or, in
the case of a Note Owner, a beneficial interest in a Note covenants and agrees
that by accepting the benefits of the Indenture that such Noteholder will not at
any time institute against the Seller, or the Issuer or join in any institution
against the Seller, or the Issuer of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings, under
any United States Federal or state bankruptcy or similar law in connection with
any obligations relating to the Notes, the Indenture or the Basic Documents.
Prior to the due presentment for registration of transfer of
this Note, the Issuer, the Trustee and the Security Insurer and any agent of the
Issuer, the Trustee or the Security Insurer may treat the Person in whose name
this Note (as of the day of determination or as of such other date as may be
specified in the Indenture) is registered as the owner hereof for all purposes,
whether or not this Note be overdue, and neither the Issuer, the Trustee nor any
such agent shall be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Issuer and the rights of the Holders of the Notes under the
Indenture at any time by the Issuer with the consent of the Security Insurer and
of the Holders of Notes representing a majority of the Outstanding Amount of all
Notes at the time Outstanding. The Indenture also contains provisions permitting
the Holders of Notes representing specified percentages of the Outstanding
Amount of the Notes, on behalf of the Holders of all the Notes, to waive
compliance by the Issuer with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Note (or any one or more Predecessor Notes) shall
be conclusive and binding upon such Holder and upon all future Holders of this
Note and of any Note issued upon the registration of transfer hereof or in
exchange hereof or in lieu hereof whether or not notation of such consent or
waiver is made upon this Note. The Indenture also permits the Trustee to amend
or waive certain terms and conditions set forth in the Indenture without the
consent of Holders of the Notes issued thereunder.
The term "Issuer" as used in this Note includes any successor
to the Issuer under the Indenture.
D-1-6
<PAGE>
The Issuer is permitted by the Indenture, under certain
circumstances, to merge or consolidate, subject to the rights of the Trustee and
the Holders of Notes under the Indenture.
The Notes are issuable only in registered form in
denominations as provided in the Indenture, subject to certain limitations
therein set forth.
This Note and the Indenture shall be construed in accordance
with the laws of the State of New York, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this
Note or of the Indenture shall alter or impair the obligation of the Issuer,
which is absolute and unconditional, to pay the principal of and interest on
this Note at the times, place, and rate, and in the coin or currency herein
prescribed.
Anything herein to the contrary notwithstanding, except as
expressly provided in the Indenture or the Basic Documents, neither
_______________ in its individual capacity, any owner of a beneficial interest
in the Issuer, nor any of their respective partners, beneficiaries, agents,
officers, directors, employees or successors or assigns shall be personally
liable for, nor shall recourse be had to any of them for, the payment of
principal of or interest on, or performance of, or omission to perform, any of
the covenants, obligations or indemnifications contained in this Note or the
Indenture, it being expressly understood that said covenants, obligations and
indemnifications have been made by the Owner Trustee for the sole purposes of
binding the interests of the Owner Trustee in the assets of the Issuer. The
Holder of this Note by the acceptance hereof agrees that except as expressly
provided in the Indenture or the Basic Documents, in the case of an Event of
Default under the Indenture, the Holder shall have no claim against any of the
foregoing for any deficiency, loss or claim therefrom; provided, however, that
nothing contained herein shall be taken to prevent recourse to, and enforcement
against, the assets of the Issuer for any and all liabilities, obligations and
undertakings contained in the Indenture or in this Note.
D-1-7
<PAGE>
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
-------------------------------
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints _____________, attorney, to transfer said Note on the books kept
for registration thereof, with full power of substitution in the premises.
Dated: ___________ _______________________(1)
Signature Guaranteed:
________________________
1 NOTE: The signature to this assignment must correspond with the name of
the registered owner as it appears on the face of the within Note in
every particular, without alteration, enlargement or any change
whatsoever.
D-1-8
<PAGE>
REGISTERED [Form of Note]
Exhibit D-2
$----------
No. R-_
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP NO.
[Unless this Note is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to the Issuer
or its agent for registration of transfer, exchange or payment, and any Note
issued is registered in the name of Cede & Co. or in such other name as is
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.]
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET
FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY
TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
FRANKLIN AUTO TRUST 1998-1
CLASS A-2_____% ASSET BACKED NOTES
Franklin Auto Trust 1998-1, a business trust organized and
existing under the laws of the State of Delaware (herein referred to as the
"Issuer"), for value received, hereby promises to pay to CEDE & CO., or
registered assigns, the principal sum of [_______________] DOLLARS payable on
each Payment Date in an amount equal to the result obtained by multiplying (i) a
fraction the numerator of which is $[INSERT INITIAL PRINCIPAL AMOUNT OF NOTE]
and the denominator of which is $__________ by (ii) the aggregate amount, if
any, payable from the Note Distribution Account in respect of principal on the
Class A-2 Notes pursuant to Section 3.1 of the Indenture; provided, however,
that the entire unpaid principal amount of this Note shall be due and payable on
the March 2004 Payment Date (the "Class A-2 Final Scheduled Payment Date"). The
Issuer will pay interest on this Note at the rate per annum shown above on each
Payment Date until the principal of this Note is paid or made available for
payment, on the principal amount of this Note outstanding on the preceding
Payment Date (after giving effect to all payments of principal made on the
preceding Payment Date). Interest on this Note will accrue for each Payment Date
from the most recent Payment Date on which interest has been paid to but
excluding such Payment Date or, if no interest has yet been paid, from
_______________. Interest will be computed on the basis of a 360-day year
consisting of twelve 30-day months. Such principal of and interest on this Note
shall be paid in the manner specified on the reverse hereof.
D-2-1
<PAGE>
The principal of and interest on this Note are payable in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts. All payments made by the
Issuer with respect to this Note shall be applied first to interest due and
payable on this Note as provided above and then to the unpaid principal of this
Note.
The Notes are entitled to the benefits of a note guaranty
insurance policy (the "Note Policy") issued by MBIA Insurance Corporation(the
"Insurer"), pursuant to which the Insurer has unconditionally guaranteed
payments of Note Insured Payments on each Payment Date, all as more fully set
forth in the Indenture.
Reference is made to the further provisions of this Note set
forth on the reverse hereof, which shall have the same effect as though fully
set forth on the face of this Note.
Unless the certificate of authentication hereon has been
executed by the Trustee whose name appears below by manual signature, this Note
shall not be entitled to any benefit under the Indenture referred to on the
reverse hereof, or be valid or obligatory for any purpose.
D-2-2
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to
be signed, manually or in facsimile, by its Authorized Officer as of the date
set forth below.
FRANKLIN AUTO TRUST 1998-1
By: ____________________, not in its
individual capacity but solely as Owner
Trustee under the Trust Agreement,
By:__________________________
Name:
Title:
Date:
D-2-3
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in
the within-mentioned Indenture.
Date:
________________________________, not in
its individual capacity but solely as
Trustee,
By:______________________
Authorized Signatory
D-2-4
<PAGE>
[REVERSE OF NOTE]
This Note is one of a duly authorized issue of Notes of the
Issuer, designated as its Class A-2 _____% Asset Backed Notes (herein called the
"Class A-2 Notes"), all issued under an Indenture dated as of
________________________ (such indenture, as supplemented or amended, is herein
called the "Indenture"), between the Issuer and ________________, as trustee
(the "Trustee", which term includes any successor Trustee under the Indenture,
and the "Indenture Collateral Agent", which term includes any successor
Indenture Collateral Agent under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights and obligations thereunder of the Issuer, the Trustee and the
Holders of the Notes. The Notes are subject to all terms of the Indenture. All
terms used in this Note that are defined in the Indenture, as supplemented or
amended, shall have the meanings assigned to them in or pursuant to the
Indenture, as so supplemented or amended.
The Class A-1 Notes and the Class A-2 Notes ________________
(together, the "Notes") are and will be equally and ratably secured by the
collateral pledged as security therefor as provided in the Indenture.
Principal of the Class A-2 Notes will be payable on each
Payment Date in an amount described on the face hereof. "Payment Date" means the
twentieth day of each month, or, if any such date is not a Business Day, the
next succeeding Business Day, commencing in January, 1998.
As described above, the entire unpaid principal amount of this
Note shall be due and payable on the earlier of the Class A-2 Final Scheduled
Payment Date and the Redemption Date, if any, pursuant to Section 10.1(a) or
10.1(c) of the Indenture. As described above, a portion of the unpaid principal
balance of this Note shall be due and payable on the Redemption Date, if any,
pursuant to Section 10.1(b) of the Indenture. Notwithstanding the foregoing, the
entire unpaid principal amount of the Notes shall be due and payable (i) on the
date on which an Event of Default shall have occurred and be continuing so long
as an Insurer Default shall not have occurred and be continuing or (ii) if an
Insurer Default shall have occurred and be continuing, on the date on which an
Event of Default shall have occurred and be continuing and the Trustee or the
Holders of the Notes representing at least 66-2/3% of the Outstanding Amount of
the Notes have declared the Notes to be immediately due and payable in the
manner provided in Section 5.2 of the Indenture. All principal payments on the
Class A-2 Notes shall be made pro rata to the Class A-2 Noteholders entitled
thereto.
Payments of interest on this Note due and payable on each
Payment Date, together with the installment of principal, if any, to the extent
not in full payment of this Note, shall be made by check mailed to the Person
whose name appears as the Holder of this Note (or one or more Predecessor Notes)
on the Note Register as of the close of business on each Record Date, except
that with respect to Notes registered on the Record Date in the name of the
nominee of the Clearing Agency (initially, such nominee to be Cede & Co.),
D-2-5
<PAGE>
payments will be made by wire transfer in immediately available funds to the
account designated by such nominee. Such checks shall be mailed to the Person
entitled thereto at the address of such Person as it appears on the Note
Register as of the applicable Record Date without requiring that this Note be
submitted for notation of payment. Any reduction in the principal amount of this
Note (or any one or more Predecessor Notes) effected by any payments made on any
Payment Date shall be binding upon all future Holders of this Note and of any
Note issued upon the registration of transfer hereof or in exchange hereof or in
lieu hereof, whether or not noted hereon. If funds are expected to be available,
as provided in the Indenture, for payment in full of the then remaining unpaid
principal amount of this Note on a Payment Date, then the Trustee, in the name
of and on behalf of the Issuer, will notify the Person who was the Holder hereof
as of the Record Date preceding such Payment Date by notice mailed prior to such
Payment Date and the amount then due and payable shall be payable only upon
presentation and surrender of this Note at the Trustee's principal Corporate
Trust Office or at the office of the Trustee's agent appointed for such purposes
located in The City of New York.
The Issuer shall pay interest on overdue installments of
interest at the Class A-2 Interest Rate to the extent lawful.
As provided in the Indenture, the Notes may be redeemed
pursuant to Section 10.1(a) of the Indenture, in whole, but not in part, at the
option of the Servicer (with the consent of the Insurer under certain
circumstances), on any Payment Date on or after the date on which the Pool
Balance is less than or equal to 10% of the Original Pool Balance.
As provided in the Indenture and subject to certain
limitations set forth therein, the transfer of this Note may be registered on
the Note Register upon surrender of this Note for registration of transfer at
the office or agency designated by the Issuer pursuant to the Indenture, (i)
duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Trustee duly executed by, the Holder hereof or his attorney
duly authorized in writing, with such signature guaranteed by an "eligible
guarantor institution" meeting the requirements of the Note Registrar which
requirements include membership or participation in Securities Transfer Agents
Medallion Program ("Stamp") or such other "signature guarantee program" as may
be determined by the Note Registrar in addition to, or in substitution for,
Stamp, all in accordance with the Exchange Act, and (ii) accompanied by such
other documents as the Trustee may require, and thereupon one or more new Notes
of authorized denominations and in the same aggregate principal amount will be
issued to the designated transferee or transferees. No service charge will be
charged for any registration of transfer or exchange of this Note, but the
transferor may be required to pay a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any such registration
of transfer or exchange.
Each Noteholder or Note Owner, by acceptance of a Note or, in
the case of a Note Owner, a beneficial interest in a Note covenants and agrees
that no recourse may be taken, directly or indirectly, with respect to the
obligations of the Issuer, the Owner Trustee, the Indenture Collateral Agent or
the Trustee on the Notes or under the Indenture or any certificate or other
writing delivered in connection therewith, against (i) the Seller, the Servicer,
the Trustee, the Indenture Collateral Agent or the Owner Trustee in its
D-2-6
<PAGE>
individual capacity, (ii) any owner of a beneficial interest in the Issuer or
(iii) any partner, owner, beneficiary, agent, officer, director or employee of
the Seller, the Servicer, the Trustee, the Indenture Collateral Agent or the
Owner Trustee in its individual capacity, any holder of a beneficial interest in
the Issuer, the Seller, the Servicer, the Owner Trustee, the Indenture
Collateral Agent or the Trustee or of any successor or assign of the Seller, the
Servicer, the Trustee, the Indenture Collateral Agent or the Owner Trustee in
its individual capacity, except as any such Person may have expressly agreed (it
being understood that the Trustee, the Indenture Collateral Agent and the Owner
Trustee have no such obligations in their individual capacity) and except that
any such partner, owner or beneficiary shall be fully liable, to the extent
provided by applicable law, for any unpaid consideration for stock, unpaid
capital contribution or failure to pay any installment or call owing to such
entity.
Each Noteholder or Note Owner, by acceptance of a Note or, in
the case of a Note Owner, a beneficial interest in a Note covenants and agrees
that by accepting the benefits of the Indenture that such Noteholder will not at
any time institute against the Seller, or the Issuer or join in any institution
against the Seller, or the Issuer of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings, under
any United States Federal or state bankruptcy or similar law in connection with
any obligations relating to the Notes, the Indenture or the Basic Documents.
Prior to the due presentment for registration of transfer of
this Note, the Issuer, the Trustee and the Insurer and any agent of the Issuer,
the Trustee or the Insurer may treat the Person in whose name this Note (as of
the day of determination or as of such other date as may be specified in the
Indenture) is registered as the owner hereof for all purposes, whether or not
this Note be overdue, and neither the Issuer, the Trustee nor any such agent
shall be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Issuer and the rights of the Holders of the Notes under the
Indenture at any time by the Issuer with the consent of the Insurer and of the
Holders of Notes representing a majority of the Outstanding Amount of all Notes
at the time Outstanding. The Indenture also contains provisions permitting the
Holders of Notes representing specified percentages of the Outstanding Amount of
the Notes, on behalf of the Holders of all the Notes, to waive compliance by the
Issuer with certain provisions of the Indenture and certain past defaults under
the Indenture and their consequences. Any such consent or waiver by the Holder
of this Note (or any one or more Predecessor Notes) shall be conclusive and
binding upon such Holder and upon all future Holders of this Note and of any
Note issued upon the registration of transfer hereof or in exchange hereof or in
lieu hereof whether or not notation of such consent or waiver is made upon this
Note. The Indenture also permits the Trustee to amend or waive certain terms and
conditions set forth in the Indenture without the consent of Holders of the
Notes issued thereunder.
The term "Issuer" as used in this Note includes any successor
to the Issuer under the Indenture.
D-2-7
<PAGE>
The Issuer is permitted by the Indenture, under certain
circumstances, to merge or consolidate, subject to the rights of the Trustee and
the Holders of Notes under the Indenture.
The Notes are issuable only in registered form in
denominations as provided in the Indenture, subject to certain limitations
therein set forth.
This Note and the Indenture shall be construed in accordance
with the laws of the State of New York, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this
Note or of the Indenture shall alter or impair the obligation of the Issuer,
which is absolute and unconditional, to pay the principal of and interest on
this Note at the times, place, and rate, and in the coin or currency herein
prescribed.
Anything herein to the contrary notwithstanding, except as
expressly provided in the Indenture or the Basic Documents, neither ___________
in its individual capacity, any owner of a beneficial interest in the Issuer,
nor any of their respective partners, beneficiaries, agents, officers,
directors, employees or successors or assigns shall be personally liable for,
nor shall recourse be had to any of them for, the payment of principal of or
interest on, or performance of, or omission to perform, any of the covenants,
obligations or indemnifications contained in this Note or the Indenture, it
being expressly understood that said covenants, obligations and indemnifications
have been made by the Owner Trustee for the sole purposes of binding the
interests of the Owner Trustee in the assets of the Issuer. The Holder of this
Note by the acceptance hereof agrees that except as expressly provided in the
Indenture or the Basic Documents, in the case of an Event of Default under the
Indenture, the Holder shall have no claim against any of the foregoing for any
deficiency, loss or claim therefrom; provided, however, that nothing contained
herein shall be taken to prevent recourse to, and enforcement against, the
assets of the Issuer for any and all liabilities, obligations and undertakings
contained in the Indenture or in this Note.
D-2-8
<PAGE>
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
-------------------------------
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints _____________, attorney, to transfer said Note on the books kept
for registration thereof, with full power of substitution in the premises.
Dated: ___________ _______________________(1)
Signature Guaranteed:
- -----------------------
(1) NOTE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Note in every
particular, without alteration, enlargement or any change whatsoever.
D-2-9
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in
the within-mentioned Indenture.
Date:
_______________________________, not in
its individual capacity but solely as
Trustee,
By:______________________
Authorized Signatory
D-3-1
Exhibit 4.3
================================================================================
FORM OF POOLING AND SERVICING AGREEMENT
among
FRANKLIN CAPITAL CORPORATION,
as Representative,
FRANKLIN RECEIVABLES LLC,
as Seller,
FRANKLIN CAPITAL CORPORATION,
as Servicer,
and
-------------------------
as Trustee and Collateral Agent
Dated as of ___________
FRANKLIN AUTO GRANTOR TRUST 199_-_
___% Asset Backed Certificates
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
Special Definitions and Terms
<S> <C> <C>
SECTION 1.01. Special Definitions and Terms..............................................................
ARTICLE II
Establishment of Trust
SECTION 2.01. Creation of Trust..........................................................................
SECTION 2.02. Acceptance by Trustee .....................................................................
ARTICLE III
Conveyance of Receivables
SECTION 3.01. Conveyance of Receivables .................................................................
ARTICLE IV
Incorporation of Standard Terms
and Conditions
SECTION 4.01. Incorporation of Standard Terms
and Conditions of Agreement....................................................
ARTICLE V
Additional Representations and
Warranties of the Seller
SECTION 5.01. Additional Representations
and Warranties of the Seller...................................................
<PAGE>
ARTICLE VI
Additional Provisions Relating
to Servicer
SECTION 6.01. Servicer Not to Resign..................................................................
ARTICLE VII
The Collateral Agent
SECTION 7.01. The Collateral Agent....................................................................
</TABLE>
SCHEDULE A Schedule of Receivables
SCHEDULE B Location of Receivable Files
<PAGE>
POOLING AND SERVICING AGREEMENT dated as of ___________, among
FRANKLIN CAPITAL CORPORATION, a Delaware corporation, as representative (the
"Representative") and as servicer (the "Servicer"), FRANKLIN RECEIVABLES LLC, a
Delaware limited liability company, as seller (the "Seller"), and
_________________________ ("_________"), a _______________________, as trustee
and collateral agent (the "Trustee" and "Collateral Agent," respectively).
WHEREAS, the Seller owns certain receivables arising in
connection with prime, non-prime and sub-prime motor vehicle retail installment
sale contracts (the "Contracts") acquired by the Representative through motor
vehicle dealers in the ordinary course of its business; and
WHEREAS, the Representative, the Seller, the Servicer, the
Trustee and the Collateral Agent wish to set forth the terms and conditions
pursuant to which the Trust (as hereinafter defined) will acquire the Contracts
from the Seller, and the Servicer will service the Contracts on behalf of the
Trust;
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter set forth, the Representative, the Seller, the
Servicer, the Trustee and the Collateral Agent agree as follows:
ARTICLE I
Special Definitions and Terms
SECTION 1.01. Special Definitions and Terms. Capitalized terms
used and not defined herein have the meanings assigned thereto in the Standard
Terms and Conditions of Agreement. Whenever used in this Agreement and the
Standard Terms and Conditions of Agreement, the following words and phrases
shall have the following meanings:
"Agreement" means this Pooling and Servicing Agreement,
including the Standard Terms and Conditions of Agreement of Franklin Auto
Grantor Trusts, dated as of ___________, in the form attached hereto.
"Certificate" means a ___% Asset Backed Certificate,
evidencing a beneficial interest in the Trust, substantially in the form of
Exhibit A to the Standard Terms and Conditions of Agreement.
"Certificate Insurer" means _____________________, a financial
guaranty insurance company incorporated under the laws of ________, or any
successor thereto, as issuer of the Policy.
"Closing Date" means _________________.
<PAGE>
"Corporate Trust Office" means the principal corporate trust
office of the Trustee, which at the time of execution of this agreement
is____________________________________.
"Cutoff Date" means ___________.
"Depository Agreement" means the agreement dated
_________________, between the Trustee and The Depository Trust Company, as the
initial Clearing Agency, substantially in the form attached as Exhibit C to the
Standard Terms and Conditions of Agreement.
"Distribution Date" means, with respect to each Monthly
Period, the __th day of the following calendar month or, if such day is not a
Business Day, the immediately following Business Day, commencing _____________.
"Final Scheduled Distribution Date" means _____________.
"Final Scheduled Maturity Date" means _______________.
"Initial Certificate Balance" means $_________.
"Pass-Through Rate" means ___%.
"Policy" means the financial guaranty insurance policy number
_________ issued by the Certificate Insurer to the Trustee for the benefit of
the Certificateholders, including any endorsements thereto.
"Policy Payments Account" means the account designated as the
Policy Payments Account in, and which is established and maintained pursuant to,
Section 14.01 of the Standard Terms and Conditions of Agreement
"Purchase Agreement" means the Purchase Agreement dated as of
___________ between the Representative and the Seller relating to the Purchase
by the Seller from the Representative of the Receivables set forth in Exhibit A.
"Receivable" means any receivable conveyed to the Trust
hereunder on the Closing Date.
"Rule of 78s Receivable" means a Receivable which by its terms
calculates interest and principal with respect to each scheduled payment in
accordance with the Rule of 78s method.
"Servicing Fee Rate" means ___% per annum.
"Spread Account Initial Deposit" means an amount equal to __%
of the Initial Certificate Balance, deposited on the Closing Date (which is
equal to $___________).
2
<PAGE>
"Standard Terms and Conditions of Agreement" means the
Standard Terms and Conditions of Agreement of Franklin Auto Grantor Trusts,
dated as of ___________, in the form attached hereto.
"Trustee" means _________ ____________________________, a
_______________________, its successors in interest and any successor Trustee
hereunder.
"Trustee Fee" means an annual fee of $______, payable in equal
installments on each Distribution Date plus the out-of-pocket expenses
(including the reasonable fees and expenses of counsel) of the Trustee.
ARTICLE II
Establishment of Trust
SECTION 2.01. Creation of Trust. Upon the execution of this
Agreement by the parties hereto, there is hereby created a separate trust, which
shall be known as Franklin Auto Grantor Trust 199_-_ (the "Trust"). The Trust
shall be administered pursuant to the provisions of this Agreement for the
benefit of the Certificateholders.
SECTION 2.02. Acceptance by Trustee. The Trustee hereby
accepts all consideration conveyed by the Seller pursuant to Section 3.01 and
declares that it will hold such consideration upon the trusts set forth herein
for the benefit of the Certificateholders, subject to the terms and provisions
of this Agreement.
ARTICLE III
Conveyance of Receivables
SECTION 3.01. Conveyance of Receivables. In consideration of
the Trustee's delivery on the Closing Date to or upon the order of the Seller of
Certificates in an initial aggregate principal amount equal to the Initial
Certificate Balance, the Seller does hereby sell, transfer, assign, set over and
otherwise convey to the Trustee in trust for the benefit of the
Certificateholders, without recourse (subject to the obligations set forth
herein), all right, title and interest of the Seller in and to:
(1) the Receivables, and all moneys received thereon
after the Cutoff Date and, in the case of Precomputed
Receivables, all moneys received thereon on or prior to the
Cutoff Date that relate to Scheduled Payments due after the
Cutoff Date;
3
<PAGE>
(2) the security interests in the Financed Vehicles
granted by Obligors pursuant to the Receivables and any other
interest of the Seller in such Financed Vehicles;
(3) any proceeds with respect to the Receivables from
claims on any physical damage, credit life or disability
insurance policies covering Financed Vehicles or Obligors and
any proceeds from the liquidation of the Receivables;
(4) any proceeds from any Receivable repurchased by a
Dealer, pursuant to a Dealer Agreement, as a result of a
breach of representation or warranty in the related Dealer
Agreement;
(5) the related Receivables Files;
(6) all of the Seller's right, title and interest in
its rights and benefits, but none of its obligations or
burdens, under the Purchase Agreement, including the Seller's
rights under the Purchase Agreement, and the delivery
requirements, representations and warranties and the cure and
repurchase obligations of the Representative under the
Purchase Agreement; and
(7) the proceeds of any and all of the foregoing.
It is the intention of the Seller that the transfer and
assignment contemplated by this Agreement shall constitute a sale of the
Receivables and other Trust Property from the Seller to the Trust and the
beneficial interest in and title to the Receivables and the other Trust Property
shall not be part of the Seller's estate in the event of the filing of a
bankruptcy petition by or against the Seller under any bankruptcy law. In the
event that, notwithstanding the intent of the Seller, the transfer and
assignment contemplated hereby is held not to be a sale, this Agreement shall
constitute a grant of a security interest in the property referred to in this
Section 3.01 for the benefit of the Certificateholders.
ARTICLE IV
Incorporation of Standard Terms and Conditions
SECTION 4.01. Incorporation of Standard Terms and Conditions
of Agreement. This Pooling and Servicing Agreement does hereby incorporate by
reference the Standard Terms and Conditions of Agreement for Franklin Auto
Grantor Trusts dated as of ___________ (the "Standard Terms and Conditions of
Agreement"), in the form attached hereto.
4
<PAGE>
ARTICLE V
Additional Representations and Warranties of the Seller
SECTION 5.01. Additional Representations and Warranties of the
Seller. The Representative and the Seller, jointly and severally, make the
following representations and warranties on which the Trustee relies in
accepting the Receivables in trust and executing and authenticating the
Certificates. Such representations and warranties speak as of the execution and
delivery of this Agreement and as of the Closing Date but shall survive the
sale, transfer and assignment of the Receivables to the Trustee.
(i) Maturity of Receivables. Each Receivable has a final
maturity date not later than _______________; each Receivable has an original
term to maturity of not more than __ months; the weighted average original term
of the Receivables is ___ months; the weighted average remaining term of the
Receivables is ___ months as of the Cutoff Date.
(ii) Financing. Approximately ____% of the aggregate
principal balance of the Receivables, constituting ____% of the number of
Receivables as of the Cutoff Date, represent new vehicles; the remainder of the
Receivables represent used vehicles; approximately ____% of the aggregate
Principal Balance of the Receivables as of the Cutoff Date represent Precomputed
Receivables and the remainder of the Receivables represent Simple Interest
Receivables; all of the Pre-computed Receivables are Rule of 78s Receivables.
The aggregate Principal Balance of the Receivables, as of the Cutoff Date, is
$_________.
(iii) APR. The weighted average Annual Percentage Rate of
the Receivables as of the Cutoff Date is approximately ____%. Each Receivable
has an APR equal to or greater than _____%.
(iv) Number. There are ______ Receivables.
(v) Balance. As of the Cutoff Date, each Receivable has a
remaining
principal balance of not less than $_______ and not more than $_________; as of
the Cutoff Date, the average Principal Balance of the Receivables is $_______.
5
<PAGE>
ARTICLE VI
Additional Provisions Relating To Servicer
SECTION 6.01. Servicer Not to Resign. Subject to the
provisions of Section 17.03 of the Standard Terms and Conditions of Agreement,
the Servicer may not resign from the obligations and duties hereby imposed on it
as Servicer under this Agreement except upon determination that by reason of a
change in legal requirements the performance of its duties under this Agreement
would cause it to be in violation of such legal requirements in a manner which
would result in a material adverse effect on the Servicer and the Certificate
Insurer 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. Notice of any such determination permitting the
resignation of the Servicer shall be communicated to the Trustee and the
Certificate Insurer at the earliest practicable time (and, if such communication
is not in writing, shall be confirmed in writing at the earliest practicable
time) and any such determination shall be evidenced by an Opinion of Counsel to
such effect delivered to and satisfactory to the Trustee and the Certificate
Insurer concurrently with or promptly after such notice. No such resignation of
the Servicer shall become effective until a successor servicer shall have
assumed the responsibilities and obligations of the Representative in accordance
with Section 18.02 of the Standard Terms and Conditions of Agreement.
ARTICLE VII
The Collateral Agent
SECTION 7.01. The Collateral Agent. _________ hereby accepts
its appointment as Collateral Agent hereunder. The parties hereto acknowledge
that any successor Collateral Agent appointed by the Seller with the consent of
the Certificate Insurer shall be the Collateral Agent for all purposes of the
Agreement; provided, however, that any such successor Collateral Agent shall be
required to execute an instrument of assumption satisfactory to the Trustee
evidencing such successor's assumption of the obligations of the Collateral
Agent hereunder. The Collateral Agent shall promptly notify each of the parties
hereto if it shall resign or be terminated as Collateral Agent. The Collateral
Agent hereby agrees that it shall not be entitled to any additional fees for its
services as Collateral Agent hereunder.
6
<PAGE>
IN WITNESS WHEREOF, the Representative, the Seller, the
Servicer, the Trustee and Collateral Agent have caused this Pooling and
Servicing Agreement to be duly executed by their respective officers as of the
day and year first above written.
FRANKLIN RECEIVABLES LLC
By:_______________________________
Name:
Title:
FRANKLIN CAPITAL CORPORATION
By:_______________________________
Name:
Title:
---------------------------
as Trustee and Collateral Agent
By:______________________________
Name:
Title:
7
<PAGE>
SCHEDULE A
SCHEDULE OF RECEIVABLES
(To be delivered to the Trustee at Closing)
<PAGE>
SCHEDULE B
LOCATION OF RECEIVABLE FILES
================
================
<PAGE>
================================================================
FORM OF STANDARD TERMS AND CONDITIONS OF AGREEMENT
OF
FRANKLIN AUTO GRANTOR TRUSTS
FRANKLIN CAPITAL CORPORATION
Representative
FRANKLIN RECEIVABLES LLC
Seller
and
FRANKLIN CAPITAL CORPORATION
Servicer
Dated as of ___________
================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLES I - X
Reserved
ARTICLE XI
Definitions
<S> <C> <C>
SECTION 11.01. Definitions ........................................................................
SECTION 11.02. Other Definitional Provisions........................................................
ARTICLE XII
The Receivables
SECTION 12.01. Representations and Warranties
of Seller....................................................................
SECTION 12.02. [RESERVED] ........................................................................
SECTION 12.03. Repurchase Upon Breach ..............................................................
SECTION 12.04. Custody of Receivable Files..........................................................
SECTION 12.05. Duties of Servicer as Custodian.......................................................
SECTION 12.06. Instructions; Authority to Act.......................................................
SECTION 12.07. Custodian's Indemnification..........................................................
SECTION 12.08. Effective Period and Termination ....................................................
ARTICLE XIII
Administration and Servicing of Receivables
SECTION 13.01. Duties of Servicer...................................................................
SECTION 13.02. Collection and Allocation of
Receivable Payments.....................................................
SECTION 13.03. Realization Upon Receivables.........................................................
SECTION 13.04. Physical Damage Insurance............................................................
SECTION 13.05. Maintenance of Security Interests
in Financed Vehicles....................................................
<PAGE>
SECTION 13.05A Segregation of Receivables Files......................................................
SECTION 13.06. Covenants of Servicer ...............................................................
SECTION 13.07. Purchase of Receivables Upon Breach..................................................
SECTION 13.08. Servicing Fee........................................................................
SECTION 13.09. Servicer's Certificate...............................................................
SECTION 13.10. Annual Statement as to Compliance
Notice of Default.......................................................
SECTION 13.11. Annual Independent Certified Public
Accountant's Report.....................................................
SECTION 13.12. Access to Certain Documentation and
Information Regarding Receivables.......................................
SECTION 13.13. Servicer Expenses....................................................................
SECTION 13.14. Appointment of Subservicer...........................................................
ARTICLE XIV
Distributions; Spread Account;
Statements to Certificateholders
SECTION 14.01. Establishment of Trust Accounts.......................................................
SECTION 14.01A Investments of Funds in Payahead
Account.................................................................
SECTION 14.02. Collections ........................................................................
SECTION 14.03. Application of Collections...........................................................
SECTION 14.04. Withdrawals From Spread Account......................................................
SECTION 14.05. Additional Deposits..................................................................
SECTION 14.06. Distributions........................................................................
SECTION 14.07. Spread Account.......................................................................
SECTION 14.07A Investments of Funds in Spread
Account.................................................................
SECTION 14.08. Pre-Funding Account..................................................................
SECTION 14.09. Statements to Certificateholders ....................................................
SECTION 14.10. Tax Returns ........................................................................
SECTION 14.11. Net Deposits ........................................................................
SECTION 14.12. Optional Deposits by the
Certificate Insurer.....................................................
ARTICLE XIV A
SECTION 14A.01 The Policy ........................................................................
<PAGE>
SECTION 14A.02 Claims Under Policy...................................................................
SECTION 14A.03 Preference Claims; Direction of
Proceedings.............................................................
SECTION 14A.04 Surrender of Policy...................................................................
ARTICLE XV
The Certificates
SECTION 15.01. The Certificates.....................................................................
SECTION 15.02. Authentication of Certificates.......................................................
SECTION 15.03. Registration of Transfer and
Exchange of Certificates................................................
SECTION 15.04. [RESERVED] ........................................................................
SECTION 15.05. Mutilated, Destroyed, Lost or
Stolen Certificates.....................................................
SECTION 15.06. Persons Deemed Owners................................................................
SECTION 15.07. Access to List of Certificateholders'
Names and Addresses.....................................................
SECTION 15.08. Maintenance of Office or Agency......................................................
SECTION 15.09. Book-Entry Certificates..............................................................
SECTION 15.10. Notices to Clearing Agency...........................................................
SECTION 15.11. Definitive Certificates..............................................................
SECTION 15.12. Temporary Certificates...............................................................
ARTICLE XVI
The Seller
SECTION 16.01. Representations of Seller............................................................
SECTION 16.02. Corporate Existence..................................................................
SECTION 16.03. Liabilities of Seller; Indemnities...................................................
SECTION 16.04. Merger or Consolidation of, or
Assumption of the Obligations of,
Seller..................................................................
SECTION 16.05. Limitation on Liability of
Seller and Others.......................................................
SECTION 16.06. Seller May Own Certificates .........................................................
<PAGE>
ARTICLE XVII
The Servicer
SECTION 17.01. Representations of Servicer..........................................................
SECTION 17.02. Indemnities of Servicer..............................................................
SECTION 17.03. Merger or Consolidation of,
or Assumption of the Obligations of,
Servicer................................................................
SECTION 17.04. Limitation on Liability of
Servicer and Others.....................................................
ARTICLE XVIII
Default
SECTION 18.01. Events of Default....................................................................
SECTION 18.02. Appointment of Successor ............................................................
SECTION 18.03. [RESERVED] ........................................................................
SECTION 18.04. Notification to Certificateholders ..................................................
SECTION 18.05. Waiver of Past Defaults..............................................................
ARTICLE XIX
The Trustee
SECTION 19.01. Duties of Trustee....................................................................
SECTION 19.02. Certain Matters Affecting Trustee....................................................
SECTION 19.03. Trustee Not Liable for
Certificates or Receivables.............................................
SECTION 19.04. Trustee May Own Certificates.........................................................
SECTION 19.05. Trustee's Fees and Expenses..........................................................
SECTION 19.06. Eligibility Requirements for Trustee.................................................
SECTION 19.07. Resignation or Removal of Trustee....................................................
SECTION 19.08. Successor Trustee....................................................................
SECTION 19.09. Merger or Consolidation of Trustee...................................................
SECTION 19.10. Appointment of Co-Trustee or
Separate Trustee........................................................
SECTION 19.11. Representations and Warranties
of Trustee..............................................................
SECTION 19.12. No Bankruptcy Petition...............................................................
SECTION 19.13. Trustee's Certificate................................................................
<PAGE>
SECTION 19.14. Trustee's Assignment of
Purchased Receivables...................................................
ARTICLE XX
Termination
SECTION 20.01. Termination of the Trust.............................................................
SECTION 20.02. Optional Purchase of All Receivables.................................................
ARTICLE XXI
Miscellaneous Provisions
SECTION 21.01. Amendment ........................................................................
SECTION 21.02. Protection of Title to Trust.........................................................
SECTION 21.03. Separate Counterparts................................................................
SECTION 21.04. Limitation on Rights of
Certificateholders......................................................
SECTION 21.05. Governing Law........................................................................
SECTION 21.06. Notices ........................................................................
SECTION 21.07. Severability of Provisions...........................................................
SECTION 21.08. Assignment ........................................................................
SECTION 21.09. Certificates Nonassessable
and Fully Paid..........................................................
SECTION 21.10. Third Party Beneficiaries............................................................
SECTION 21.11. Headings ........................................................................
SECTION 21.12. Nonpetition Covenants................................................................
SECTION 21.13. Financial Security as Controlling
Party...................................................................
</TABLE>
Exhibit A Form of Certificate
Exhibit B Form of Depository Agreement
Exhibit C [Reserved]
Exhibit D Form of Servicer's Certificate
Exhibit E-1 Form of Trustee's Certificate - Assignment to Seller
Exhibit E-2 Form of Trustee's Certificate - Assignment to
Servicer
Exhibit F Form of Receivable Stamp Language
<PAGE>
FRANKLIN AUTO TRUSTS
STANDARD TERMS AND CONDITIONS OF AGREEMENT
Dated as of ___________
INTRODUCTION
These Standard Terms and Conditions of Agreement shall be
applicable to Franklin Auto Trust grantor trusts formed on or after the date
hereof with respect to which a Pooling and Servicing Agreement incorporating by
reference these Standard Terms and Conditions of Agreement shall have been
executed.
ARTICLES I-X
Reserved
ARTICLE XI
Definitions
SECTION 11.01. Definitions. Whenever used in the Agreement,
the following words and phrases, unless the context otherwise requires, shall
have the following meanings:
"Affiliate" means, with respect to any specified Person, any
other Person controlling or controlled by or under common control with such
specified Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Aggregate Principal Balance" means, with respect to any
Determination Date, the sum of the Principal Balances for all Receivables (other
than (i) any Receivable that became a Liquidated Receivable during the related
Monthly Period and (ii) any Receivable that was purchased or repurchased by any
Person pursuant to the Agreement during the related Monthly Period) as of the
date of determination.
"Agreement" means a pooling and servicing agreement among
Franklin Capital Corporation, as representative and servicer, Franklin
Receivables LLC, as seller, and the Trustee and Collateral Agent named in such
agreement, into which these Standard Terms and Conditions of Agreement shall be
incorporated by reference, and all amendments and supplements thereto.
<PAGE>
"Amount Available" 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 a Certificate Insurer Optional Deposit or the Spread Account or otherwise)
by the Trustee with respect to such Distribution Date, plus (iii) the Policy
Claim Amount, if any, received by the Trustee with respect to such Distribution
Date.
"Amount Financed" means, with respect to a Receivable, the
aggregate amount advanced under such Receivable toward the purchase price of the
Financed Vehicle and any related costs, including amounts advanced in respect of
sales tax, car club membership fees, accessories, insurance premiums, service
and warranty contracts, other items customarily financed as part of retail
automobile installment sale contracts or promissory notes, and related costs.
"Annual Percentage Rate" or "APR" of a Receivable means the
annual percentage rate of finance charges or service charges, as the case may
be, stated in the related Contract.
"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), and (ii) all Purchase Amounts deposited in the Collection
Account during the related Monthly Period.
"Average Default Rate" means, with respect to any Distribution
Date, the arithmetic average of the Default Rate for such Distribution Date and
the Default Rates for the two immediately preceding Distribution Dates.
"Average Delinquency Ratio" means, with respect to any
Distribution Date, the arithmetic average of the Delinquency Ratio for such
Distribution Date and the Delinquency Ratios for the two immediately preceding
Distribution Dates.
"Average Net Loss Rate" with respect to any Distribution Date,
the arithmetic average of the Net Loss Rates for the three immediately preceding
Monthly Periods.
"Base Servicing Fee" means, with respect to any Monthly
Period, the fee payable to the Servicer for services rendered during such
Monthly Period, which shall be equal to one-twelfth of the Servicing Fee Rate
multiplied by the Pool Balance as of the first day of such Monthly Period.
"Book-Entry Certificates" means, unless otherwise specified in
the Agreement, a beneficial interest in the Certificates, ownership and
transfers of which shall be registered through book entries by a Clearing Agency
as described in Section 15.09.
"Business Day" means any day other than a Saturday, a Sunday
or a day on which banking institutions or trust companies in any of The City of
New York and the States of California, Utah and Delaware or any other location
of any successor Servicer or successor Trustee or successor Collateral Agent are
authorized or obligated by law, regulation or executive order to be closed.
2
<PAGE>
"Certificate Balance" means, as of any date of determination,
the Initial Certificate Balance, as specified in the Agreement, reduced by all
amounts previously distributed to Holders of Certificates and allocable to
principal.
"Certificate Factor" means, as of the close of business on a
Distribution Date, a seven-digit decimal figure equal to the Certificate Balance
as of such Distribution Date divided by the Initial Certificate Balance.
"Certificate Owner" means, with respect to a Book-Entry
Certificate, the Person who is the beneficial owner of such Book-Entry
Certificate, as reflected on the books of the Clearing Agency or on the books of
a Person maintaining an account with such Clearing Agency (directly as a
Clearing Agency Participant or as an indirect participant, in each case in
accordance with the rules of such Clearing Agency).
"Certificate Register" and "Certificate Registrar" mean the
register maintained and the registrar appointed pursuant to Section 15.03.
"Certificateholder" or "Holder" means a Person in whose name a
Certificate is registered in the Certificate Register.
"Certificates" shall have the meaning set forth in the
Agreement.
"Clearing Agency" means an organization registered as a
"clearing agency" pursuant to Section 17A of the Securities Exchange Act of
1934, as amended.
"Clearing Agency Participant" means a broker, dealer, bank,
other financial institution or other Person for whom from time to time a
Clearing Agency effects book-entry transfers and pledges of securities deposited
with the Clearing Agency.
"Closing Date" with respect to each Trust shall have the
meaning set forth in the applicable Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral Agent" means the Collateral Agent named in an
Agreement, and any successor thereto pursuant to the terms of such Agreement.
"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).
3
<PAGE>
"Collection Account" means the account designated as such,
established and maintained pursuant to Section 14.01(a).
"Computer Tape" means the computer tapes or other electronic
media furnished by the Seller to the Trustee describing certain characteristics
of the Receivables.
"Contract" means a motor vehicle retail installment sale
contract.
"Corporate Trust Office" means the principal office of the
Trustee at the address set forth in the related Agreement or at such other
address as the Trustee may designate from time to time by notice to
Certificateholders, the Seller and the Servicer, or the principal corporate
trust office of any successor Trustee (of which address such successor Trustee
shall notify the Certificateholders, the Seller and Servicer).
"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 a Receivable or otherwise modifying or
restructuring the scheduled payments to be made on a 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.
"Cutoff Date" means, with respect to any Receivable, the date
after which collections on such Receivable will be included in a Trust or the
related trust account pursuant to the related Agreement.
"Dealer" means the dealer who sold a Financed Vehicle and who
originated and assigned the related Receivable to the Representative under an
existing Dealer Agreement.
"Dealer Agreement" means an agreement between the
Representative and a Dealer relating to the sale of a Contract and all documents
and instruments relating thereto.
"Deemed Cured" means, as of a Determination Date, with respect
to a Trigger Event that has occurred, that no Trigger Event shall have occurred
as of such Determination Date or as of any of the three consecutively preceding
Monthly Periods.
"Default Rate" means, with respect to any Distribution Date
and based on such information provided in the Servicer's Certificate under
Section 13.09, the product of (x) twelve and (y) a fraction (i) the numerator of
which is the sum of (a) the aggregate of the Principal Balances of all
Receivables which became Defaulted Receivables during the related Monthly Period
4
<PAGE>
and (b) the aggregate of the Principal Balances (as of the related repurchase
date) of Receivables that became Purchased Receivables during the related
Monthly Period that were 30 days or more delinquent with respect to 10% or more
of a Scheduled Payment at the time of such repurchase hereunder and (ii) the
denominator of which is the Aggregate Principal Balance of the Receivables as of
the first day of the related Monthly Period.
"Defaulted Receivable" means a Receivable with respect to
which: (i) ten percent or more of a Scheduled Payment is 120 or more days
delinquent, (ii) the Servicer has repossessed the related Financed Vehicle (and
any applicable redemption period has expired) or (iii) such Receivable is in
default and the Servicer has determined in good faith that payments thereunder
are not likely to be resumed.
"Deficiency Claim Amount" shall have the meaning set forth in
Section 14.04.
"Deficiency Claim Date" means, with respect to any
Distribution Date, the fourth Business Day immediately preceding such
Distribution Date.
"Deficiency Notice" shall have the meaning set forth in
Section 14.04.
"Definitive Certificates" shall have the meaning specified in
Section 15.11.
"Delinquency Ratio" means, with respect to any Distribution
Date, a fraction, expressed as a percentage, (a) the numerator of which is equal
to the aggregate Principal Balance of all Receivables other than those for which
the related Financed Vehicle has been repossessed that were 30 or more days
delinquent with respect to more than 10% of a Scheduled Payment as of the last
day of the related Monthly Period and (b) the denominator of which is equal to
the Aggregate Principal Balance of the Receivables as of the first day of the
related Monthly Period.
"Delivery" means:
(a) with respect to bankers' acceptances, commercial paper,
negotiable certificates of deposit and other obligations that constitute
"instruments" within the meaning of Section 9-105(1)(i) of the UCC and are
susceptible of physical delivery, transfer thereof to the Trustee or its nominee
or custodian by physical delivery to the Trustee or its nominee or custodian
endorsed to, or registered in the name of, the Trustee or its nominee or
custodian or endorsed in blank, and, with respect to a certificated security (as
defined in Section 8-102 of the UCC) transfer thereof (i) by delivery of such
certificated security endorsed to, or registered in the name of, the Trustee or
its nominee or custodian or endorsed in blank to a financial intermediary (as
defined in Section 8-313 of the UCC) and the making by such financial
intermediary of entries on its books and records identifying such certificated
securities as belonging to the Trustee or its nominee or custodian and the
5
<PAGE>
sending by such financial intermediary of a confirmation of the purchase of such
certificated security by the Trustee or its nominee or custodian, or (ii) by
delivery thereof to a "clearing corporation" (as defined in Section 8-102(3) of
the UCC) and the making by such clearing corporation of appropriate entries on
its books reducing the appropriate securities account of the transferor and
increasing the appropriate securities account of a financial intermediary by the
amount of such certificated security, the identification by the clearing
corporation of the certificated securities for the sole and exclusive account of
the financial intermediary, the maintenance of such certificated securities by
such clearing corporation or a "custodian bank" (as defined in Section 8-102(4)
of the UCC) or the nominee of either, subject to the clearing corporation's
exclusive control, the sending of a confirmation by the financial intermediary
of the purchase by the Trustee or its nominee or custodian of such securities
and the making by such financial intermediary of entries on its books and
records identifying such certificated securities as belonging to the Trustee or
its nominee or custodian (all of the foregoing, "Physical Property"), and, in
any event, any such Physical Property in registered form shall be in the name of
the Trustee or its nominee or custodian; and such additional or alternative
procedures as may hereafter become appropriate to effect the complete transfer
of ownership of any such Trust Property to the Trustee or its nominee or
custodian, consistent with changes in applicable law or regulations or the
interpretation thereof;
(b) with respect to any securities issued by the U.S.
Treasury, the Federal Home Loan Mortgage Corporation or by the Federal National
Mortgage Association that is a book-entry security held through the Federal
Reserve System pursuant to federal book-entry regulations, the following
procedures, all in accordance with applicable law, including applicable federal
regulations and Articles 8 and 9 of the UCC: book-entry registration of such
Trust Property to an appropriate book-entry account maintained with a Federal
Reserve Bank by a financial intermediary that is also a "depository" pursuant to
applicable federal regulations and issuance by such financial intermediary of a
deposit advice or other written confirmation of such book-entry registration to
the Trustee or its nominee or custodian of the purchase by the Trustee or its
nominee or custodian of such book-entry securities; the making by such financial
intermediary of entries in its books and records identifying such book-entry
security held through the Federal Reserve System pursuant to federal book-entry
regulations as belonging to the Trustee or its nominee or custodian and
indicating that such custodian holds such Trust Property solely as agent for the
Trustee or its nominee or custodian; and such additional or alternative
procedures as may hereafter become appropriate to effect complete transfer of
ownership of any such Trust Property to the Trustee or its nominee or custodian,
consistent with changes in applicable law or regulations or the interpretation
thereof; and
(c) with respect to any item of Trust Property that is an
uncertificated security under Article 8 of the UCC and that is not governed by
clause (b) above, registration on the books and records of the issuer thereof in
the name of the financial intermediary, the sending of a confirmation by the
financial intermediary of the purchase by the Trustee or its nominee or
custodian of such uncertificated security, the making by such financial
intermediary of entries on its books and records identifying such uncertificated
certificates as belonging to the Trustee or its nominee or custodian.
6
<PAGE>
"Determination Date" means, unless otherwise specified in the
Agreement, with respect to a Monthly Period, the fifth Business Day prior to the
related Distribution Date.
"Distribution Amount" means, with respect to a Distribution
Date, the sum of (i) the Available Funds for such Distribution Date, plus (ii)
the Deficiency Claim Amount, if any, received by the Trustee with respect to
such Distribution Date.
"Distribution Date" with respect to each Trust shall have the
meaning set forth in the applicable Agreement.
"Draw Date" means, with respect to any Distribution Date, the
third Business Day immediately preceding such Distribution Date.
"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 Colombia (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 shall have a credit rating from
each Rating Agency in one of its generic rating categories that signifies
investment grade.
"Eligible Institution" means (a) the corporate trust
department of the Trustee or any other entity specified in the Agreement 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), which (i) has either (A) a long-term
unsecured debt rating of AAA or better by Standard & Poor's and Aaa or better by
Moody's or (B) a certificate of deposit rating of A-1+ by Standard & Poor's and
P-1 or better by Moody's or any other short-term or certificate of deposit
rating acceptable to the Rating Agencies and to the Certificate Insurer and (ii)
whose deposits are insured by the FDIC. If so qualified, the Trustee or any such
other entity specified in the Agreement may be considered an Eligible
Institution for the purposes of clause (b) of this definition.
"Eligible Investments" mean book-entry securities, negotiable
instruments or securities represented by instruments in bearer or registered
form which evidence:
(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
organized 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) and subject to supervision and
examination by Federal or state banking or depository
institution authorities (including depository receipts issued
by any such institution or trust company as custodian with
7
<PAGE>
respect to any obligation referred to in clause (a) above or
portion of such obligation for the benefit of the holders of
such depository receipts); provided, however, that at the time
of the investment or contractual commitment to invest therein
(which shall be deemed to be made again each time funds are
reinvested following each Distribution Date), the commercial
paper or other short-term senior unsecured debt obligations
(other than such obligations the rating of which is based on
the credit of a Person other than such depository institution
or trust company) of such depository institution or trust
company shall have a credit rating from Standard & Poor's of
A-1+ and from Moody's of P-1;
(c) commercial paper having, at the time of the
investment or contractual commitment to invest therein, a
rating from Standard & Poor's of A-1+ and from Moody's of P-1;
(d) investments in money market funds (including
funds for which the Trustee or any of its Affiliates is
investment manager or advisor) having a rating from Standard &
Poor's of AAA-m or AAAm-G and from Moody's of Aaa and having
been approved by the Certificate Insurer;
(e) bankers' acceptances issued by any depository
institution or trust company referred to in clause (b) above;
(f) repurchase obligations with respect to any
security that is a direct obligation of, or fully guaranteed
by, the United States of America or any agency or
instrumentality thereof the obligations of which are backed by
the full faith and credit of the United States of America, in
either case entered into with a depository institution or
trust company (acting as principal) referred to in clause (b)
above; and
(g) any other investment which would satisfy the
Rating Agency Condition and is consistent with the rating of
the Certificates and which, so long as no Insurer Default
shall have occurred and be continuing, has been approved by
the Certificate Insurer.
Any of the foregoing Eligible Investments may be purchased by
or through the Trustee or any of its Affiliates.
"Eligible Servicer" means the Representative, the Trustee or
another Person which at the time of its appointment as Servicer, (i) is
servicing a portfolio of motor vehicle retail installment sales contracts and/or
motor vehicle installment loans, (ii) is legally qualified and has the capacity
to service the Receivables, (iii) has demonstrated the ability professionally
and competently to service a portfolio of motor vehicle retail installment sales
contracts and/or motor vehicle installment loans similar to the Receivables with
reasonable skill and care, and (iv) is qualified and entitled to use, pursuant
8
<PAGE>
to a license or other written agreement, and agrees to maintain the
confidentiality of, the software which the Servicer uses in connection with
performing its duties and responsibilities under this Agreement or otherwise has
available software which is adequate to perform its duties and responsibilities
under this Agreement.
"FDIC" means the Federal Deposit Insurance Corporation.
"Final Scheduled Distribution Date" means the date specified
in an Agreement as the final scheduled distribution date with respect to the
related Certificates.
"Final Scheduled Maturity Date" means the final scheduled
maturity date specified in the Agreement in respect of the Receivables
transferred to the Trust under such Agreement.
"Financed Vehicle" means an automobile or light-duty truck,
van or minivan together with all accessions thereto, securing an Obligor's
indebtedness under the respective Receivable.
"Floor Amount" means, as of any Distribution Date, the lesser
of (i) __% of the Initial Certificate Balance and (ii) the greater of (a) the
outstanding Certificate Balance and (b) $______.
"Initial Certificate Balance" shall have the meaning specified
in the Agreement.
"Insolvency Event" means, with respect to a specified Person,
(a) the filing of a petition against such Person or the entry of a decree or
order for relief by a court having jurisdiction in the premises in respect of
such Person or any substantial part of its property in an involuntary case under
any applicable federal or state bankruptcy, insolvency or other similar law now
or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator, or similar official for such Person or for any
substantial part of its property, or ordering the winding-up or liquidation or
such Person's affairs, and such petition, decree or order shall remain unstayed
and in effect for a period of 60 consecutive days; or (b) the commencement by
such Person of a voluntary case under any applicable federal or state
bankruptcy, insolvency or other similar law now or hereafter in effect, or the
consent by such Person to the entry of an order for relief in an involuntary
case under any such law, or the consent by such Person to the appointment of or
taking possession by, a receiver, liquidator, assignee, custodian, trustee,
sequestrator, or similar official for such Person or for any substantial part of
its property, or the making by such Person of any general assignment for the
benefit of creditors, or the failure by such Person generally to pay its debts
as such debts become due, or the taking of action by such Person in furtherance
of any of the foregoing.
"Insurance Agreement" means the Insurance and Indemnity
Agreement among the Certificate Insurer, the Representative, the Seller and the
Servicer.
"Insurance Agreement Event of Default" means an "Event of
Default" as defined in the related Insurance Agreement.
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"Insurance Policy" means, with respect to a Receivable, any
insurance policy (including the insurance policies described in Section
12.01(q)) benefiting the holder of the Receivable providing loss or physical
damage, credit life, credit disability, theft, mechanical breakdown or similar
coverage with respect to the Financed Vehicle or the Obligor.
"Insurer Default" means the occurrence and continuance of any
of the following events:
(a) the Certificate Insurer shall have failed to make
a payment required under the Policy in accordance with its
terms;
(b) The Certificate 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,
judgment or decree (i) appointing a custodian, trustee, agent
or receiver for the Certificate 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 Certificate Insurer (or the taking of
possession of all or any material portion of the property of
the Certificate Insurer).
"Interest Carryover Shortfall" means, as of the close of
business on any Distribution Date, the excess of the Interest Distributable
Amount for such Distribution Date plus (without duplication) any outstanding
Interest Carryover Shortfall from the preceding Distribution Date plus interest
on such outstanding Interest Carryover Shortfall, to the extent permitted by
law, at the Pass-Through Rate from such preceding Distribution Date through the
current Distribution Date, over the amount of interest that Holders of the
Certificates actually received on such current Distribution Date.
"Interest Distributable Amount" means, with respect to any
Distribution Date, the sum of (i) thirty days interest, calculated on the basis
of a 360-day year consisting of twelve 30-day months, at the Pass-Through Rate
on the Certificate Balance as of the close of business on the last day of the
preceding Monthly Period and (ii) any outstanding Interest Carryover Shortfall.
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"Investment Earnings" means, with respect to any Distribution
Date, the investment earnings (net of losses and investment expenses) on amounts
on deposit in the accounts established pursuant to Section 14.01.
"Lien" means a security interest, lien, charge, pledge,
equity, or encumbrance of any kind, other than tax liens, mechanics' liens and
any liens that attach to the respective Receivable by operation of law as a
result of any act or omission by the related Obligor.
"Lien Certificate" means, with respect to a Financed Vehicle,
an original certificate of title, certificate of lien or other notification
issued by the Registrar of Titles of the applicable state to a secured party
which indicates that the lien of the secured party on the Financed Vehicle is
recorded on the original certificate of title. In any jurisdiction in which the
original certificate of title is required to be given to the Obligor, the term
"Lien Certificate" shall mean only a certificate or notification issued to a
secured party.
"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 180 or more days delinquent, or (iv) the
Financed Vehicle has been sold and the proceeds received.
"Monthly Period" means a calendar month (or in the case of the
first Distribution Date, the period from and including the Cutoff Date to and
including the last day of the calendar month in which the Closing Date occurs).
"Moody's" means Moody's Investors Service, Inc., or its
successor.
"Net Liquidation Proceeds" means, with respect to Liquidated
Receivables, (i) proceeds from the disposition of the vehicles 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.
"Net Loss Rate" means for any Monthly Period, the product,
expressed as a percentage, of twelve multiplied by a fraction, the numerator of
which is equal to (i) the aggregate Principal Balance of all Receivables that
became Liquidated Receivables during such Monthly Period less (ii) the Net
Liquidation Proceeds received by the Trust with respect to Receivables which
became Liquidated Receivables in prior Monthly Periods, and the denominator of
which is equal to the Aggregate Principal Balance of the Receivables as of the
first day of such Monthly Period.
"Obligor" on a Receivable means the purchaser or co-purchasers
of the Financed Vehicle and any other Person who owes payments under the
Receivable.
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"Officers' Certificate" means a certificate signed by the (a)
chairman of the board, the president, any executive vice president or any vice
president and (b) any treasurer, assistant treasurer, secretary or assistant
secretary of the Representative, the Seller or the Servicer, as appropriate.
"Opinion of Counsel" means one or more written opinions of
counsel, who may be an employee of or counsel to the Representative, the Seller
or the Servicer, which counsel shall be acceptable to the Trustee, the
Certificate Insurer or Rating Agencies, as applicable.
"Original Pool Balance" means the Pool Balance as of the
Cutoff Date.
"Pass-Through Rate" shall have the meaning specified in the
Agreement.
"Payahead" on a Receivable that is a Precomputed Receivable
means the amount, as of the close of business on the last day of a Monthly
Period, computed in accordance with Section 14.03 with respect to such
Receivable.
"Payahead Account" means the account designated as such,
established and maintained pursuant to Section 14.01(c).
"Payahead Balance" on a Precomputed Receivable means the sum,
as of the close of business on the last day of a Monthly Period, of all
Payaheads made by or on behalf of the Obligor with respect to such Precomputed
Receivable, as reduced by applications of previous Payaheads with respect to
such Precomputed Receivable, pursuant to Section 14.03.
"Person" means any legal person, including any individual,
corporation, partnership, limited liability company, joint venture, estate,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof, or any other entity.
"Physical Property" has the meaning assigned to such term in
the definition of "Delivery" above.
"Policy Claim Amount" shall have the meaning set forth in
Section 14A.02.
"Policy Payments Account" means the trust account designated
as such, established pursuant to Section 14.01(a).
"Pool Balance" means, as of any date, the aggregate Principal
Balance of the Receivables as of such date (excluding Purchased Receivables and
Liquidated Receivables).
"Precomputed Receivable" means any Receivable under which the
portion of a payment allocable to interest and the portion allocable to
principal is determined in accordance with the Rule of 78's Method.
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"Principal Balance" means, with respect to any Receivable, as
of any date, the Amount Financed minus (i) that portion of all amounts
(including Payaheads applied to Scheduled Payments) received on or prior to such
date and allocable to principal in accordance with (x) in the case of Simple
Interest Receivables the terms of the Receivable and (y) in the case of
Precomputed Receivables, the actuarial method, and (ii) any Cram Down Loss in
respect of such Receivable.
"Principal Carryover Shortfall" means, as of the close of
business on any Distribution Date, the excess of the Principal Distributable
Amount plus any outstanding Principal Carryover Shortfall from the preceding
Distribution Date over the amount of principal that the Holders of the
Certificates receive on such current Distribution Date.
"Principal Distributable Amount" means, with respect to any
Distribution Date, without duplication, the sum of (i) the principal portion
(calculated in the case of Precomputed Receivables on the basis of the actuarial
method and in the case of Simple Interest Receivables, calculated on the basis
of the Simple Interest Method) of all Collected Funds received during the
immediately preceding Monthly Period (other than Liquidated Receivables and
Purchased Receivables) including the principal portion of all prepayments and
all principal amounts required to be withdrawn from the Payahead Account on such
Distribution Date but excluding any Payaheads received during such Monthly
Period that are required to be deposited in the Payahead Account pursuant to
Section 14.03, (ii) the Principal Balance of all Receivables that became
Liquidated Receivables during the related Monthly Period (other than Purchased
Receivables), (iii) the principal portion of the Purchase Amounts received with
respect to all Receivables that became Purchased Receivables during the related
Monthly Period, plus, in the sole discretion of the Certificate Insurer, the
Principal Balance allocable to the Certificates of all the Receivables that were
required to be purchased pursuant to Sections 12.03 and 13.07, during such
Monthly Period but were not purchased, (iv) the aggregate amount of Cram Down
Losses that shall have occurred during the related Monthly Period, and (v) any
outstanding Principal Carryover Shortfall.
"Purchase Amount" means, with respect to a Receivable, the
Principal Balance and all accrued and unpaid interest on the Receivable
(including one month's interest thereon, in the month of payment, at the APR
less, so long as the Representative is the Servicer, the Servicing Fee), after
giving effect to the receipt of any moneys collected (from whatever source) on
such Receivable, if any.
"Purchased Receivable" means a Receivable purchased as of the
close of business on the last day of a Monthly Period pursuant to Section 13.07
or Section 12.03.
"Rating Agency" means, unless otherwise specified in the
Agreement, Moody's and Standard & Poor's. If no such organization or successor
maintains a rating on the Certificates, "Rating Agency" shall mean any
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nationally recognized statistical rating organization or other comparable Person
designated by the Seller and acceptable to the Certificate Insurer (so long as
an Insurer Default shall not have occurred and be continuing) notice of which
designation shall be given to the Trustee and the Servicer.
"Rating Agency Condition" means, with respect to any action,
that each Rating Agency shall have been given 10 days' (or such shorter period
as shall be acceptable to each Rating Agency) prior notice thereof and that each
of the Rating Agencies shall have notified the Seller, the Servicer, the
Certificate Insurer and the Trustee in writing that such action will not result
in a reduction or withdrawal of the then current rating of the Certificates.
"Realized Losses" means, with respect to any Receivable that
becomes a Liquidated Receivable, the excess of the Principal Balance of such
Liquidated Receivable over Net Liquidation Proceeds to the extent allocable to
principal.
"Receivable" means any Contract conveyed to the Trust on the
Closing Date listed on Schedule A to the Agreement (which schedule may be in the
form of microfiche).
"Receivable Files" means the documents specified in Section
12.04.
"Record Date" with respect to each Distribution Date means the
day immediately preceding such Distribution Date, unless otherwise specified in
the Agreement.
"Registrar of Titles" means, with respect to any state, the
governmental agency or body responsible for the registration of, and the
issuance of certificates of title relating to, motor vehicles and liens thereon.
"Rule of 78's Method" means the method under which a portion
of a payment allocated to earned interest and the portion allocable to principal
is determined according to the sum of the month's digits or any equivalent
method commonly referred to as the "Rule of 78's."
"Scheduled Payment" on a Precomputed Receivable means that
portion of the payment required to be made by the Obligor during the respective
Monthly Period sufficient to amortize the Principal Balance thereof under the
actuarial method over the term of the Receivable and to provide interest at the
APR.
"Seller" means Franklin Receivables LLC, a Delaware limited
liability company, and its successors in interest to the extent permitted
hereunder.
"Servicer" means Franklin Capital Corporation as the servicer
of the Receivables, and each successor Servicer pursuant to Section 17.03 or
18.02.
"Servicer Default" means a default specified in Section 18.01.
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"Servicer's Certificate" means an Officers' Certificate of the
Servicer delivered pursuant to Section 13.09, substantially in the form of
Exhibit D.
"Servicing Fee" means the fee payable to the Servicer for
services rendered during each Monthly Period, determined pursuant to Section
13.08.
"Simple Interest Method" means the method of allocating a
fixed level payment to principal and interest, pursuant to which the portion of
such payment that is allocated to interest is equal to the product of the fixed
rate of interest multiplied by the unpaid principal balance multiplied by the
period of time elapsed since the preceding payment of interest was made (in some
states assuming 30 day months), divided by the actual number of days in a year
(360 days in states which assume 30 day months) and the remainder of such
payment is allocable to principal.
"Simple Interest Receivable" means any Receivable under which
the portion of a payment allocable to interest and the portion allocable to
principal is determined in accordance with the Simple Interest Method.
"Specified Spread Account Requirement" means, as of any
Determination Date after giving effect to any principal distributions to be made
on the related Distribution Date (including, without limitation, any principal
distributions to be made from withdrawals from the Spread Account pursuant to
Section 14.04 on the related Distribution Date), the greater of (i) __% of the
outstanding Certificate Balance and (ii) the Floor Amount; provided, however, if
a Trigger Event occurs and has not been Deemed Cured, the amount in (i) above
will equal __%; provided further, however, at such time as a Trigger Event shall
be Deemed Cured, the amount in (i) above shall revert to __%. If an Insurance
Agreement Event of Default shall have occurred, "Specified Spread Account
Requirement" shall mean an unlimited amount and be continuing.
"Spread Account" means the account designated as such,
established and maintained pursuant to Section 14.07.
"Spread Account Initial Deposit" with respect to a Spread
Account and any Trust shall have the meaning set forth in the related Agreement.
"Spread Account Property" has the meaning assigned thereto in
Section 14.07(b).
"Standard & Poor's" means Standard & Poor's Ratings Group, or
its successor.
"Supplemental Servicing Fee" means charges including, in the
case of a Precomputed Receivable that is prepaid in full, the difference between
the Principal Balance of such Receivable (plus accrued interest to the date of
prepayment) and the principal balance of such Receivable computed according to
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the "Rule of 78s," and other late fees, prepayment fees, administrative fees
and expenses or similar charges allowed by applicable law with respect to
Receivables, collected (from whatever source) on the Receivables during the
related Monthly Period plus reinvestment proceeds on any payments received in
respect of Receivables during the related Monthly Period.
"Trigger Event" means that any of the following tests shall
not be satisfied:
(i) For any Distribution Date, the Average Delinquency Ratio
is less than __%;
(ii) For any Distribution Date, commencing with the
Distribution Date on _____________, the Average Default Rate (determined on the
related Determination Date) is less than __% and for each Distribution Date
thereafter, commencing with the Distribution Date on __________, is less than
__%; and
(iii) For any Distribution Date, commencing with the
distribution Date on _____________, the Average Net Loss Rate (determined on the
related Determination Date) is less than __%, and for each Distribution Date
thereafter, commencing with the Distribution Date on _____________, is less than
___%
"Trust" shall have the meaning set forth in the Agreement.
"Trust Property" means the property and proceeds of every
description conveyed pursuant to Section 3.01 of an Agreement, the Policy,
amounts on deposit in the Collection Account (but not including Investment
Earnings thereon) rights to certain amounts on deposit in the Payahead Account
and the Spread Account as provided herein, and certain other rights under this
Agreement. Neither the Payahead Account nor the Spread Account shall under any
circumstances be deemed to be a part of or otherwise includable in a Trust or
the Trust Property.
"Trustee" with respect to each Trust shall have the meaning
assigned thereto in the Agreement.
"Trustee Officer" means the chairman or vice-chairman of the
board of directors, the chairman or vice-chairman of the executive committee of
the board of directors, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any trust officer or assistant trust officer, the controller
and any assistant controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of such officer's
knowledge of and familiarity with the particular subject.
"UCC" means the Uniform Commercial Code as in effect in the
State of New York on the date hereof.
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SECTION 11.02. Other Definitional Provisions. (a) All terms
defined in this Standard Terms and Conditions of Agreement or any Agreement
shall have the defined meanings when used in any certificate or other document
made or delivered pursuant hereto or thereto unless otherwise defined therein.
(b) As used herein, in any Agreement and in any certificate
or other document made or delivered pursuant hereto or thereto, accounting terms
not defined herein or in such Agreement or in any such certificate or other
document, and accounting terms partly defined herein or in such Agreement or in
any such certificate or other document to the extent not defined, shall have the
respective meanings given to them under generally accepted accounting
principles. To the extent that the definitions of accounting terms herein, in
any related Agreement or in any such certificate or other document are
inconsistent with the meanings of such terms under generally accepted accounting
principles, the definitions contained herein, in such Agreement or in any such
certificate or other document shall control.
(c) The words "hereof," "herein," "hereunder" and words of
similar import when used herein shall refer to these Standard Terms and
Conditions of Agreement and the Agreement as a whole and not to any particular
provision of the Standard Terms and Conditions of Agreement or the Agreement;
Article, Section, Schedule and Exhibit references contained in the Standard
Terms and Conditions of Agreement or any Agreement are references to Articles,
Sections, Schedules and Exhibits in or to the Standard Terms and Conditions of
Agreement and the Agreement, respectively; and the term "including" shall mean
"including without limitation".
(d) The definitions contained in these Standard Terms and
Conditions of Agreement and the Agreement are applicable to the singular as well
as the plural forms of such terms and to the masculine as well as to the
feminine and neuter genders of such terms.
(e) Any agreement, instrument or statute defined or referred
to herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein;
references to a Person are also to its permitted successors and assigns.
ARTICLE XII
The Receivables
SECTION 12.01. Representations and Warranties of Seller. The
Representative and the Seller, jointly and severally, make the following
representations and warranties as to the Receivables on which the Trustee shall
be deemed to rely in accepting the Receivables in trust and executing and
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authenticating the Certificates and upon which the Certificate Insurer shall be
deemed to rely in issuing the Policy. Such representations and warranties speak
as of the execution and delivery of the Agreement and as of the Closing Date and
shall survive the sale, transfer and assignment of any Receivables to the Trust.
(a) Title. It is the intention of the Seller that the
transfer and assignment herein contemplated constitute a sale of the Receivables
from the Seller to the Trust and that the beneficial interest in and title to
such Receivables not be part of the debtor's estate in the event of the filing
of a petition for receivership by or against the Seller. Immediately prior to
the transfer and assignment herein contemplated, the Seller had good and
marketable title to each Receivable, free and clear of all Liens and,
immediately upon the transfer thereof, the Trustee, for the benefit of the
Certificateholders, shall have good and marketable title to each such
Receivable, free and clear of all Liens; and the transfer of the Receivables to
the Trust has been perfected under the UCC. No Dealer or any other Person has
any right to receive proceeds of any Receivables.
(b) All Filings Made. All filings (including, without
limitation, UCC filings) necessary in any jurisdiction to give the Trust a first
priority perfected ownership interest in the Receivables shall have been made.
(c) Characteristics of Receivables. Each Receivable
(i) shall have been originated in the United States of America by a Dealer in
connection with the retail sale of a Financed Vehicle in the ordinary course of
such Dealer's business, shall have been fully and properly executed by the
parties thereto, shall have been purchased by the Seller from the Representative
which in turn shall have purchased such Receivable from such Dealer under an
existing dealer agreement with the Representative and shall have been validly
assigned by the Representative to the Seller in accordance with its terms, (ii)
shall have created or shall create a valid, subsisting and enforceable first
priority security interest in favor of the Representative in the Financed
Vehicle, which security interest has been assigned by the Representative to the
Seller, which in turn shall be assignable by the Seller to the Trust, (iii)
shall contain customary and enforceable provisions such that the rights and
remedies of the holder thereof shall be adequate for realization against the
collateral of the benefits of the security, (iv) shall provide for level monthly
payments (provided that the payment in the first or last month in the life of
the Receivable may be minimally different from the level payment) that fully
amortize the Amount Financed by maturity, (v) in the case of a Precomputed
Receivable, shall provide for, in the event that such Contract is prepaid, a
prepayment that fully pays the Principal Balance and includes a full months
interest to the date of payment in the month of prepayment at the Annual
Percentage Rate, and (vi) has not been amended or collections with respect to
which waived, other than as evidenced in the Receivable File relating thereto.
(d) Schedule of Receivables. The information set
forth in Schedule A to each Agreement is true and correct in all material
respects as of the close of business on the Cutoff Date, and no selection
procedures believed by the Seller to be adverse to the Certificateholders were
utilized in selecting the Receivables. Each Computer Tape regarding the
Receivables is true and correct in all material respects as of the Cutoff Date.
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(e) Compliance With Law. Each Receivable shall comply
at the time it was originated or made and at the execution of the Agreement in
all material respects with all requirements of applicable Federal, state and
local laws and regulations thereunder, including, without limitation, usury
laws, the Federal Truth-in-Lending Act, the Equal Credit Opportunity Act, the
Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Federal
Trade Commission Act, the Magnuson-Moss Warranty Act, the Rees-Levering Act, the
Federal Reserve Board's Regulations B and Z, state adaptations of the National
Consumer Act and other consumer credit laws and equal credit opportunity and
disclosure laws.
(f) Binding Obligation. Each Receivable shall
represent the legal, valid and binding payment obligation in writing of the
Obligor thereunder, enforceable by the holder thereof in accordance with its
terms except as such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, fraudulent conveyance, reorganization and similar laws
now or hereafter in effect related to or affecting creditors' rights generally
and subject to general principles of equity (whether applied in a proceeding at
law or in equity); and all parties to each Receivable had full legal capacity to
execute and deliver such Receivable and all other documents related thereto and
to grant the security interest purported to be granted thereby.
(g) No Government Obligor. None of the Receivables
shall be due from the United States of America or any State or from any agency,
department or instrumentality of the United States of America or any State.
(h) Security Interest in Financed Vehicle.
Immediately prior to the sale, assignment and transfer thereof to a Trust, each
Receivable shall be secured by a validly perfected first priority security
interest in the Financed Vehicle in favor of the Representative as secured party
or all necessary and appropriate actions have been commenced that would result
in the valid perfection of a first priority security interest in the Financed
Vehicle in favor of the Representative as secured party. Immediately after the
sale, assignment and transfer thereof to a Trust, although the Lien Certificate
will not indicate the Trust or Trustee as secured party, each Receivable will be
secured by an enforceable and perfected security interest in the Financed
Vehicle in favor of the Trust as secured party, which security interest is prior
to all other Liens in such Financed Vehicle.
(i) Receivables in Force. No Receivable shall have
been satisfied, subordinated or rescinded, nor shall any Financed Vehicle been
released from the Lien granted by the related Receivable in whole or in part
unless another vehicle has been substituted as collateral securing the
Receivable without any other modification to such Receivable.
(j) No Waiver. No provision of a Receivable shall
have been waived except as reflected in the Receivable File relating to such
Receivable.
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(k) No Defenses. No right of rescission, setoff,
counterclaim or defense shall have been asserted or threatened with respect to
any Receivable.
(l) No Liens. There are no Liens or claims, including
Liens for work, labor, materials or unpaid state or federal taxes relating to
any Financed Vehicle securing the related Receivable, that are or may be prior
to or equal to the Lien granted by such Receivable.
(m) No Default. No Receivable has a payment that is
more than 30 days overdue as of the Cutoff Date and, except as permitted in this
paragraph, no default, breach, violation or event (in any such case) permitting
acceleration under the terms of any Receivable has occurred; and no continuing
condition that with notice or the lapse of time would constitute a default,
breach, violation or event (in any such case) permitting acceleration under the
terms of any Receivable shall have arisen as of the Cutoff Date; and the Seller
has not waived and shall not waive any of the foregoing.
(n) No Bankruptcies. No Obligor on any Receivable was
the subject of a bankruptcy proceeding commenced following the execution of the
related Contract.
(o) No Repossessions. As of the Cutoff Date no
Financed Vehicle securing any Receivable is in repossession status.
(p) Adverse Selection. No selection procedures
adverse to the Certificateholders were utilized in selecting the Receivables
from those owned by the Servicer which met the selection criteria contained in
this Agreement.
(q) Chattel Paper. Each Receivable constitutes
"chattel paper" as defined in the UCC.
(r) Insurance. The Seller, in accordance with its
customary procedures, shall have determined that the Obligor, at the time the
Receivable was originated, obtained physical damage insurance covering the
Financed Vehicle and under the terms of the Receivable the Obligor is required
to maintain such insurance.
(s) Lawful Assignment. No Receivable shall have been
originated in, or as of the Cutoff Date is subject to the laws of, any
jurisdiction under which the sale, transfer and assignment of such Receivable or
this Agreement is unlawful, void or voidable.
(t) No Insurance Premiums. No portion of the
Principal Balance of any Receivable shall include amounts attributable to the
payment of any physical damage or theft insurance premium.
(u) One Original. There shall be only one original
executed copy of each Receivable.
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(v) Location of Receivable Files. The Receivable
Files shall be kept at one or more of the locations listed in Schedule B and
each item required to be in a Receivable File is in such Receivable File.
(w) Computer Records. As of the date of execution of
an Agreement, the accounting and computer records relating to the Receivables of
the Seller have been marked to show the absolute ownership by the Trustee on
behalf of the Trust of the Receivables.
(x) Certificate Taxes. To the best knowledge of the
Representative and the Seller, there are no state or local taxing jurisdictions
which have asserted that nonresident holders of certificates in a trust which
holds assets similar to the assets to be held by the Trust are subject to the
jurisdiction's income or other taxes solely by reason of the location in the
jurisdiction of the Trustee, the Seller, the Servicer, the Representative, the
obligors on or the assets securing the Receivables held by the Trust, or the
issuer of a financial guaranty insurance policy.
SECTION 12.02. [RESERVED]
SECTION 12.03. Repurchase Upon Breach. (a) The Representative,
the Seller, the Servicer, the Certificate Insurer or the Trustee, as the case
may be, shall inform the other parties to the Agreement promptly, in writing,
upon the discovery of any breach of the Representative's or the Seller's
representations and warranties made pursuant to Section 5.01 or 12.01 or
Seller's representations and warranties made pursuant to Section 16.01(b). As of
the last day of the second (or, if the Representative or the Seller so elects,
the first) month following the discovery by the Representative or the Seller or
receipt by the Representative or the Seller of notice from any of the
Representative, the Seller, the Servicer, the Certificate Insurer or the Trustee
of such breach, unless such breach is cured by such date, the Representative and
the Seller shall jointly and severally have an obligation to repurchase any
Receivable in which the interests of the Certificateholders or the Certificate
Insurer are materially and adversely affected by any such breach as of such
date. 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. In consideration of and
simultaneously with the repurchase of the Receivable, the Representative and/or
the Seller shall remit, or cause the Representative to remit, to the Collection
Account the Purchase Amount in the manner specified in Section 14.05 and the
Trustee shall execute such assignments and other documents reasonably requested
by such Person in order to effect such repurchase. Subject to the provisions of
Section 16.03, the sole remedy of the Trust, the Trustee or the
Certificateholders with respect to a breach of representations and warranties
pursuant to Section 5.01, 12.01 or 16.01(b) and the agreement contained in this
Section shall be the repurchase of Receivables pursuant to this Section, subject
to the conditions contained herein or the repurchase by the Representative of
such Receivables pursuant to the Purchase Agreement. The Trustee shall not have
a duty to conduct any affirmative investigation as to the occurrence of any
conditions requiring the repurchase of any Receivable pursuant to this Section.
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(b) Pursuant to Section 3.01 of the Agreement, the
Seller shall convey to the Trustee all of the Seller's right, title and interest
in its rights and benefits, but none of its obligations or burdens, under the
related Purchase Agreement including the Seller's rights under the Purchase
Agreement and the delivery requirements, representations and warranties and the
cure or repurchase obligations of the Representative thereunder. The Seller
hereby represents and warrants to the Trustee that such assignment is valid,
enforceable and effective to permit the Trustee to enforce such obligations of
the Representative under the Purchase Agreement.
SECTION 12.04. Custody of Receivable Files. To assure uniform
quality in servicing the Receivables and to reduce administrative costs, the
Trustee, upon the execution and delivery of the Agreement, hereby (based on the
direction of the Seller and the Certificate Insurer) revocably appoints the
Servicer, and the Servicer hereby accepts such appointment, to act as the agent
of the Trustee as custodian of the following documents or instruments which are
hereby constructively delivered to the Trustee as of the Cutoff Date with
respect to each Receivable:
(a) the original Receivable;
(b) a record of the information supplied by
the Obligor in the original credit application;
(c) the original certificate of title or
such documents that the Servicer shall keep on file, in
accordance with its customary procedures, evidencing the
security interest of the Representative in the Financed
Vehicle (it being understood that the original certificates of
title generally are not delivered to the Seller for 120 days
but that promptly upon delivery they shall be delivered to the
Servicer as custodian hereunder); and
(d) any and all other documents that the
Servicer shall keep on file, in accordance with its customary
procedures, relating to a Receivable, an Obligor or a Financed
Vehicle.
SECTION 12.05. Duties of Servicer as Custodian. (a)
Safekeeping. The Servicer shall hold the Receivable Files on behalf of the Trust
and the Trustee and maintain such accurate and complete accounts, records and
computer systems pertaining to each Receivable File as shall enable the Trustee
to comply with this Agreement. In performing its duties as custodian the
Servicer shall act with reasonable care, using that degree of skill and
attention that the Servicer exercises with respect to the receivable files
relating to all comparable automotive receivables that the Servicer services for
itself or others, and in any event with no less degree of skill and care than
would be exercised by a prudent servicer or custodian of non-prime motor vehicle
retail installment sales contracts, except that the Servicer shall not be
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obligated, and does not currently intend, to (i) pay any premium of force-placed
insurance concerning any Financed Vehicle or (ii) monitor any Obligor's
maintenance of such insurance. The Servicer shall conduct, or cause to be
conducted, periodic audits of the Receivable Files held by it under this
Agreement and of the related accounts, records and computer systems, in such a
manner as shall enable the Trustee and the Certificate Insurer to verify the
accuracy of the Servicer's record keeping. The Servicer shall promptly report to
the Trustee and the Certificate Insurer any failure on its part to hold the
Receivable Files and maintain its accounts, records and computer systems as
herein provided and promptly take appropriate action to remedy any such failure.
(b) Maintenance of Records. The Servicer shall
maintain each Receivable File at its office specified in Schedule B to the
Agreement or at such other office as shall be specified to the Trustee and the
Certificate Insurer by written notice not later than 10 days after any change in
location. The Servicer shall (i) at all times maintain the original of the fully
executed Receivable and store such original Receivable in a fireproof cabinet;
and (ii) stamp each Receivable on both the first and the signature page (if
different) as of the Closing Date and in accordance with the instructions from
time to time provided by Upon the Certificate Insurer, in the form attached
hereto as Exhibit F, or such other form as shall be acceptable to the
Certificate Insurer.
(c) Access to Records. The Servicer will provide, on
the Closing Date, an Officer's Certificate stating that the Receivable Files
contain all materials which are required to be kept therein by Section 12.04(a),
(b) and (c). At any time following the Closing Date, the Certificate Insurer may
conduct a review of the Receivable Files, or a sample thereof as it may specify,
at its own expense but with the cooperation of the Servicer. Should the
Certificate Insurer find any documents missing or any other irregularities, then
the Trustee shall perform a review, for the benefit of the Certificate Insurer
and at the expense of the Servicer, of all the Receivables Files.
Upon reasonable prior notice, the Servicer shall make
available to the Trustee, the Certificate Insurer, or any duly authorized
representatives, attorneys or auditors of either, a list of locations of, and
access to, the Receivable Files and records and computer systems maintained by
the Servicer at such times during normal business hours as the Trustee or the
Certificate Insurer shall instruct.
(d) Release of Documents. Upon written instruction
from the Trustee or the Certificate Insurer, at any time following a Servicer
Default or Termination of the Servicer's appointment pursuant to Section 12.08
the Servicer shall release any Receivable File to the Trustee, the Trustee's
agent, or the Trustee's designee, as the case may be, or the Certificate
Insurer, as the case may be, at such place or places as the Trustee or the
Certificate Insurer, as the case may be, may designate, as soon as practicable.
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SECTION 12.06. Instructions; Authority To Act. The Servicer
shall be deemed to have received proper instructions with respect to the
Receivable Files upon its receipt of written instructions signed by a Trustee
Officer. A copy of such instructions shall be furnished by the Trustee to the
Certificate Insurer. The Trustee shall not have any duty or obligation to
provide the Servicer with any such instructions with respect to the Receivable
Files.
SECTION 12.07. Custodian's Indemnification. The Servicer as
custodian shall indemnify and hold harmless the Trustee and the Certificate
Insurer and each of its officers, directors, employees and agents for any and
all liabilities, obligations, losses, compensatory damages, payments, costs or
expenses (including reasonable attorneys' fees and expenses) that may be imposed
on, incurred by or asserted against the Trustee or any of its officers,
directors, employees and agents as the result of any improper act or omission in
any way relating to the maintenance and custody by the Servicer as custodian of
the Receivable Files; provided, however, that the Servicer shall not be liable
to the Trustee or the Certificate Insurer, as the case may be, for any portion
of any such amount resulting from the willful misfeasance, bad faith or
negligence of the Trustee or the Certificate Insurer, as the case may be. This
provision shall not be considered to limit the Servicer's or any other party's
rights, obligations, liabilities, claims or defenses which arise as a matter of
law or pursuant to any other provision of the Agreement.
SECTION 12.08. Effective Period and Termination. The
Servicer's appointment as Custodian shall become effective as of the Cutoff Date
and shall continue in full force and effect until terminated pursuant to this
Section 12.08. If the Representative shall resign as Servicer in accordance with
the provisions hereof or if all of the rights and obligations of any Servicer
shall have been terminated under Section 18.01, the appointment of such Servicer
as Custodian shall be terminated in the same manner as the Servicer may be
terminated under Section 18.01. The Trustee may, with the consent of the
Certificate Insurer, and the Certificate Insurer may, terminate the Servicer's
appointment as Custodian, at any time (i) with cause or (ii) upon the occurrence
of an Insurance Agreement Event of Default, upon written notification to the
Servicer and the Trustee or Certificate Insurer, as the case may be. As soon as
practicable after any termination of such appointment, the Servicer shall
deliver the Receivable Files to the Trustee or the Trustee's agent at such place
or places as the Trustee, with the consent of the Certificate Insurer, or
Certificate Insurer may reasonably designate in writing. If the Servicer shall
be terminated as custodian hereunder for any reason but shall continue to serve
as Servicer, the Trustee shall, or shall cause its agent to, make the Receivable
Files available to the Servicer during normal business hours upon reasonable
notice so as to permit the Servicer to perform its obligations as Servicer
hereunder.
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ARTICLE XIII
Administration and Servicing of Receivables
SECTION 13.01. Duties of Servicer. The Servicer, as agent for
the Trust, the Certificateholders and the Certificate Insurer (to the extent
provided herein), shall manage, service, administer and make collections on the
Receivables (other than Purchased Receivables) with reasonable care, using that
degree of skill and attention that the Servicer exercises with respect to all
comparable automotive receivables that it services for itself or others, and in
any event with no less degree of skill and care than would be exercised by a
prudent servicer of non-prime motor vehicle retail installment sales contracts,
except that the Servicer shall not be obligated, and does not currently intend,
to (i) pay any premium of force-placed insurance concerning any Financed Vehicle
or (ii) monitor any Obligor's maintenance of such insurance. The Servicer's
duties shall include collection and posting of all payments, responding to
inquiries of Obligors on such Receivables, investigating delinquencies, sending
payment statements to Obligors, accounting for collections and furnishing
monthly and annual statements to the Trustee and Certificate Insurer with
respect to distributions. Subject to the provisions of Section 13.02, the
Servicer shall follow its customary standards, policies and procedures in
performing its duties as Servicer. Without limiting the generality of the
foregoing, the Servicer is authorized and empowered to execute and deliver, on
behalf of itself, the Trust, the Trustee, the Certificate Insurer and the
Certificateholders or any of them, any and all instruments of satisfaction or
cancellation, or partial or full release or discharge, and all other comparable
instruments, with respect to such Receivables or to the Financed Vehicles
securing such Receivables. If the Servicer shall commence a legal proceeding to
enforce a Receivable, the Trustee, on behalf of the Trust, (in the case of a
Receivable other than a Purchased Receivable) shall thereupon be deemed to have
automatically assigned, solely for the purpose of collection, such Receivable to
the Servicer. If in any enforcement suit or legal proceeding it shall be held
that the Servicer may not enforce a Receivable on the ground that it shall not
be a real party in interest or a holder entitled to enforce such Receivable the
Trustee shall, at the Servicer's expense and direction, take steps to enforce
such Receivable, including bringing suit in its name or the name of the Trustee
or the Certificateholders. The Trustee and the Certificate Insurer shall upon
the written request of the Servicer furnish the Servicer with any powers of
attorney and other documents reasonably necessary or appropriate (as certified
to the Trustee and/or the Certificate Insurer by the Servicer) to enable the
Servicer to carry out its servicing and administrative duties hereunder.
SECTION 13.02. Collection and Allocation of Receivable
Payments. (a) The Servicer shall make all reasonable efforts to collect all
payments called for under the terms and provisions of the Receivables as and
when the same shall become due and shall follow such collection procedures as it
follows with respect to all comparable automotive receivables that it services
for itself or others, and in any event with no less degree of skill and care
than would be exercised by a prudent servicer of non-prime motor vehicle retail
installment sales contracts. The Servicer shall allocate collections between
principal and interest in accordance with its customary servicing procedures.
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(b) The Servicer may grant extensions, rebates or
adjustments on a Receivable which shall not, for the purposes of the Agreement,
modify the original due dates (other than to permit payment on a different date
in the month) or amounts of the Scheduled Payments (unless the Obligor is in
default or, in the judgment of the Servicer, such default is imminent) on a
Precomputed Receivable or the original due dates (other than to permit payment
on a different date in the month) or amounts of the originally scheduled
payments of interest (unless the Obligor is in default or, in the judgment of
the Servicer, such default is imminent) on Simple Interest Receivables;
provided, however, that if the Servicer extends the date for final payment by
the Obligor of any Receivable beyond the Final Scheduled Maturity Date, it shall
promptly repurchase such Receivable from the Trust in accordance with Section
13.07. The Servicer may in its discretion waive any late payment charge or any
other fees that may be collected in the ordinary course of servicing a
Receivable. The Servicer shall not agree to any alteration of the interest rate
on any Receivable.
SECTION 13.03. Realization upon Receivables. On behalf of the
Trust, the Certificateholders and the Certificate Insurer the Servicer shall use
its best efforts, consistent with its customary servicing procedures, to
repossess or otherwise convert the ownership of the Financed Vehicle securing
any Receivable as to which the Servicer shall have determined eventual payment
in full is unlikely. From time to time, as appropriate for servicing or
liquidating any Receivable, the Trustee shall, upon written request of the
Servicer, execute such documents as shall be reasonably necessary to prosecute
any such proceedings. The Servicer shall follow such customary and usual
practices and procedures as it shall deem necessary or advisable in its
servicing of automotive receivables, which may include reasonable efforts to
realize proceeds from Receivables repurchased by a Dealer, pursuant to a Dealer
Agreement, as a result of a breach of representation or warranty in the related
Dealer Agreement or a default by an Obligor resulting in the repossession of the
Financed Vehicle under such Dealer Agreement. The foregoing shall be subject to
the provision that, in any case in which the Financed Vehicle shall have
suffered damage, the Servicer shall not expend funds in connection with the
repair or the repossession of such Financed Vehicle unless it shall determine in
its reasonable discretion that such repair and/or repossession will increase the
Net Liquidation Proceeds by an amount greater than the amount of such expenses.
SECTION 13.04. Physical Damage Insurance. The Servicer shall,
in accordance with its customary servicing procedures, require that each Obligor
shall have obtained and shall maintain fire, theft and collision insurance or
comprehensive and collision insurance covering the Financed Vehicle as of the
execution of the Receivable. The Servicer shall enforce its rights under the
Receivables to require the Obligors to maintain fire, theft and collision
insurance or comprehensive and collision insurance, in accordance with the
Servicer's customary practices and procedures, and in any event with no less
degree of skill and care than would be exercised by a prudent servicer of
non-prime motor vehicle retail installment sales contracts, with respect to
comparable new or used motor vehicle receivables that it services for itself or
others, except that the Servicer shall not be obligated, and does not currently
intend, to (i) pay any premium of force-placed insurance concerning any Financed
Vehicle or (ii) monitor any Obligor's maintenance of such insurance.
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SECTION 13.05. Maintenance of Security Interests in Financed
Vehicles. (a) The Servicer shall, in accordance with its customary servicing
procedures, take such steps as are necessary to maintain perfection of the
security interest created by each Receivable in the related Financed Vehicle in
favor of the Seller. The Servicer is hereby authorized to take such steps as are
necessary to re-perfect such security interest on behalf of the Trust in the
event of the relocation of a Financed Vehicle or for any other reason.
(b) Upon the occurrence of an Insurance Agreement Event of
Default, and subject to the other provisions of this Agreement, the Certificate
Insurer may (so long as an Insurer Default shall not have occurred and be
continuing) instruct the Trustee and the Servicer to take or cause to be taken,
or, if an Insurer Default shall have occurred, upon the occurrence of a Servicer
Default Event, the Trustee and the Servicer shall take or cause to be taken such
action as may, in the opinion of counsel to the Certificate Insurer (or, if an
Insurer Default shall have occurred and be continuing, counsel to the Trustee),
be necessary to perfect or reperfect the security interests in the Financed
Vehicles securing the Contracts in the name of the Trustee on behalf of the
Trust by amending the title documents of such Financed Vehicles or by such other
reasonable means as may, in the opinion of counsel to the Certificate Insurer or
the Trustee (as applicable), be necessary or prudent. The Servicer hereby agrees
to pay all expenses related to such perfection or reperfection and to take all
action necessary therefor.
SECTION 13.05-A. Segregation of Receivable Files. The Servicer
shall maintain the Receivables Files (containing the original Receivable and
Lien Certificate, when such Lien Certificate has been returned from the
appropriate recording office) physically segregated from other files of
automotive receivables owned or serviced by it at the location where the
Receivables Files are kept.
SECTION 13.06. Covenants of Servicer. The Servicer shall not
release the Financed Vehicle securing any Receivable from the security interest
granted by such Receivable in whole or in part except in the event of payment in
full by the Obligor thereunder or payment in full less a deficiency which the
Servicer would not attempt to collect in accordance with its customary
procedures or repossession or except as may be required by an insurer in order
to receive proceeds from insurance covering such Financed Vehicle, nor shall the
Servicer impair the rights of the Trustee, the Certificate Insurer or the
Certificateholders in such Receivables (it being understood that no action of
the Servicer taken in compliance with the terms of this Agreement shall be
deemed to impair such rights), nor shall the Servicer increase the number of
scheduled payments due under a Receivable.
SECTION 13.07. Purchase of Receivables upon Breach. The
Representative, the Seller, the Servicer, the Certificate Insurer or the Trustee
shall inform the other parties promptly, in writing, upon the discovery of any
breach pursuant to Section 13.02, 13.05 or 13.06, or of any breach of the
Servicer's representations and warranties made pursuant to Section 17.01(b). As
of the last day of the second (or, if the Representative or the Servicer so
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elects, the first) month following the discovery by the Representative or the
Servicer or receipt by the Representative or the Servicer of notice from any of
the Representative, the Seller, the Servicer, the Certificate Insurer or the
Trustee of such breach, unless such breach is cured by such date, the
Representative and the Servicer jointly and severally shall be obligated to
purchase any Receivable in which the interests of Certificateholders are
materially and adversely affected by such breach as of such date. 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. In consideration of the purchase of any such
Receivable pursuant to the preceding sentence, the Servicer shall remit (or, if
the Servicer shall fail to so remit, the Representative shall remit) the
Purchase Amount in the manner specified in Section 14.05. The sole remedy of the
Trustee, the Certificate Insurer or the Certificateholders with respect to a
breach pursuant to Section 13.02, 13.05 or 13.06, or to a breach of
representations and warranties pursuant to Section 17.01(b), shall be limited to
the purchase of Receivables in accordance with this Section. The Trustee shall
have no duty to conduct any affirmative investigation as to the occurrence of
any condition requiring the purchase of any Receivable pursuant to this Section.
SECTION 13.08. Servicing Fee. The Servicing Fee for a
Distribution Date shall equal the sum of the Base Servicing Fee, Supplemental
Servicing Fee, all investment earnings (net of losses) on the Collection Account
plus any reimbursement pursuant to Section 17.02. The Servicer also shall be
entitled to retain from collections the Base Servicing Fee and the Supplemental
Servicing Fee, as provided herein. The Servicer, in its discretion at its
election, may defer receipt of all or any portion of the Servicing Fee 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 Certificates. Any such
deferred amount shall be payable to (or may be retained from subsequent
collections by) the Servicer on demand.
SECTION 13.09. Servicer's Certificate. (a) No later than 12:00
p.m. New York City time on each Determination Date, the Servicer shall deliver
to the Trustee, the Certificate Insurer, the Collateral Agent and each Rating
Agency a Servicer's Certificate containing, among other things, (i) all
information necessary to enable the Trustee to make any withdrawal and deposit
required by Section 14.06 to give any notice required by Section 14.04 or 14A.02
and make the distributions required by Section 14.06, (ii) all information
necessary to enable the Trustee to send the statements to Certificateholders and
the Certificate Insurer required by Section 14.09, (iii) a listing of all
Receivables purchased during the related Monthly Period, identifying the
Receivables so purchased, and (iv) all information necessary to enable the
Trustee to reconcile all deposits to, and withdrawals from, the Collection
Account and the Payahead Account for the related Monthly Period and Distribution
Date, including the accounting required by Section 14.11. Receivables purchased
by the Servicer or by the Seller and each receivable which became a Liquidated
Receivable or which was paid in full during the related Monthly Period shall be
identified by account number (as set forth in the Schedule of Receivables). A
copy of such certificate may be obtained by any Certificateholder by a request
in writing to the Trustee addressed to the Corporate Trust Office. The Trustee
shall not be under any obligation to confirm or reconcile the information
provided pursuant to Section 13.09(iv).
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(b) In addition to the information required by
Section 13.09(a), the Servicer shall include in the copy of the Servicer's
Certificate delivered to the Certificate Insurer (i) the Delinquency Ratio,
Average Delinquency Ratio, Default Rate, Average Default Rate, Net Loss Rate and
Average Net Loss Rate for such Determination Date, (ii) whether any Trigger
Event has occurred as of such Determination Date, (iii) whether any Trigger
Event that may have occurred as of a prior Determination Date is Deemed Cured as
of such Determination Date, and (iv) whether to the knowledge of the Servicer an
Insurance Agreement Event of Default has occurred.
(c) If the Servicer's Certificate contains a manifest
error, the Certificate Insurer's written notice to the Servicer and the Trustee
containing the corrected information shall be deemed to amend such Servicer's
Certificate.
SECTION 13.10. Annual Statement as to Compliance; Notice of
Default. (a) The Servicer shall deliver to the Trustee and the Certificate
Insurer, on or before April 30 of each year beginning April 30, 199_, an
Officers' Certificate, dated as of the preceding December 31, stating that (i) a
review of the activities of the Servicer during the preceding 12-month period
(or, in the case of the first such report, during the period from the Closing
Date to December 31, 199_) and of its performance under the Agreement has been
made under such officers' supervision and (ii) to the best of such officers'
knowledge, based on such review, the Servicer has fulfilled all its obligations
under the Agreement throughout such year or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officers and the nature and status thereof. The Trustee shall send a copy of
such certificate and the report referred to in Section 13.11 to the Rating
Agencies. A copy of such certificate and the report referred to in Section 13.11
may be obtained by any Certificateholder by a request in writing to the Trustee
addressed to the Corporate Trust Office.
(b) The Servicer shall deliver to the Trustee, the
Certificate Insurer and the Rating Agencies, promptly after having obtained
knowledge thereof, but in no event later than five (5) Business Days thereafter,
written notice in an Officers' Certificate of any event which with the giving of
notice or lapse of time, or both, would become a Servicer Default under Section
18.01(a) or (b).
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SECTION 13.11. Annual Independent Certified Public
Accountants' Report. The Servicer shall cause a firm of independent certified
public accountants, which may also render other services to the Servicer or the
Seller, to deliver to the Seller, the Certificate Insurer and the Trustee on or
before April 30 of each year beginning April 30, 199_, an agreed-upon procedures
report addressed to the Servicer, the Seller, the Certificate Insurer and the
Trustee and each Rating Agency, expressing a summary of findings, (based on
certain procedures performed on the documents, records and accounting records
that such accountants considered appropriate under the circumstances) relating
to the servicing of the Receivables, or the administration of the Receivables
and of the Trust, as the case may be, during the preceding calendar year (or, in
the case of the first such report, during the period from the Closing Date to
December 31, 199_) and that, on the basis of the accounting and auditing
procedures considered appropriate under the circumstances, such firm is of the
opinion that such servicing or administration was conducted in compliance with
the terms of the Agreement, except for (i) such exceptions as such firm shall
believe to be immaterial and (ii) such other exceptions as shall be set forth in
such report.
Such report will also indicate that the firm is independent of
the Servicer within the meaning of the Code of Professional Ethics of the
American Institute of Certified Public Accountants.
SECTION 13.12. Access to Certain Documentation and Information
Regarding Receivables. The Servicer shall provide to representatives of the
Trustee and Certificate Insurer reasonable access to the Receivable Files. The
Servicer shall provide to the Certificateholders access to the Receivable Files
in such cases where the Certificateholders shall be required by applicable
statutes or regulations to review such documentation as demonstrated by evidence
satisfactory to the Servicer in its reasonable judgment. Access shall be
afforded without charge, but only upon reasonable request and during normal
business hours at the respective offices of the Servicer. Nothing in this
Section shall affect the obligation of the Servicer to observe any applicable
law prohibiting disclosure of information regarding the Obligors and the failure
of the Servicer to provide access to information as a result of such obligation
shall not constitute a breach of this Section.
SECTION 13.13. Servicer Expenses. The Servicer shall be
required to pay all expenses incurred by it in connection with its activities
hereunder, including fees and disbursements of independent accountants, taxes
imposed on the Servicer and expenses incurred in connection with distributions
and reports to Certificateholders.
SECTION 13.14. Appointment of Subservicer. The Servicer may at
any time appoint a subservicer to perform all or any portion of its obligations
as Servicer hereunder; provided, however, that the Rating Agency Condition shall
have been satisfied in connection therewith; provided further, that the Servicer
shall remain obligated and be liable to the Issuer, the Trustee, the Certificate
Insurer and the Certificateholders for the servicing and administering of the
Receivables in accordance with the provisions hereof without diminution of such
obligation and liability by virtue of the appointment of such subservicer and to
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the same extent and under the same terms and conditions as if the Servicer alone
were servicing and administering the Receivables. The fees and expenses of the
subservicer shall be as agreed between the Servicer and its subservicer from
time to time and none of the Trustee, the Certificate Insurer or the
Certificateholders shall have any responsibility therefor. Any such subservicer
shall perform its duties with the same standard of care applicable to the
Servicer pursuant to Section 13.01 of this Agreement.
ARTICLE XIV
Accounts; Collections; Distributions;
Statements to Certificateholders
SECTION 14.01. Establishment of Accounts. (a) (i) The
Servicer, for the benefit of the Certificateholders, shall establish and
maintain in the name of the Trustee an Eligible Deposit Account (the "Collection
Account"), bearing a designation clearly indicating that the funds deposited
therein are held for the benefit of the Certificateholders. Investment Earnings
on funds in the Collection Account shall be paid to the Servicer.
(ii) [RESERVED]
(iii) The Servicer, for the benefit of the Certificateholders,
shall establish and maintain in the name of the Trustee a non-interest bearing
account (the "Policy Payments Account"), bearing a designation clearly
indicating that the funds deposited therein are held for the benefit of the
Certificateholders. If at the close of business on a distribution date there
shall be any monies remaining in the Policy Payments Account or any monies in
the Collection Account funded by transfers from the Policy Payments Account, the
Trustee shall remit such monies to the Certificate Insurer on the next Business
Day.
(b) Funds on deposit in the Collection Account and the
Payahead Account shall be invested by the Trustee (or any custodian with respect
to funds on deposit in any such account) in Eligible Investments selected in
writing by the Servicer (pursuant to standing instructions or otherwise);
provided, however, it is understood and agreed that the Trustee shall not be
liable for any loss arising from such investment in Eligible Investments. All
such Eligible Investments shall be held by or on behalf of the Trustee for the
benefit of the Certificateholders. Other than as permitted by the Rating
Agencies and the Certificate Insurer, funds on deposit in the Collection Account
shall be invested in Eligible Investments that will mature so that such funds
will be available at the close of business on the Business day immediately
preceding the next Distribution Date. Funds deposited in the Collection Account
and the Policy Payments Account upon the maturity of any Eligible Investments on
the day immediately preceding a Distribution Date are not required to be
invested overnight.
(c) (i) The Seller shall establish and maintain with the
Collateral Agent an Eligible Deposit Account (the "Payahead Account") bearing a
designation clearly indicating that the funds deposited therein are held in
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trust for the benefit of the Certificateholders. The Payahead Account will
include the money and other property deposited and held therein pursuant to
Section 14.06 and this Section. The Payahead Account shall not be property of
the Trust, but instead will be held by the Collateral Agent, for the benefit of
the Holders of the Certificates and the Certificate Insurer. The Seller hereby
acknowledges that any amounts on deposit in the Payahead Account (and any
Investment Earnings thereon) is owned directly by it, and the Seller hereby
agrees to treat the same as its assets (and earnings) for federal income tax and
all other purposes.
(ii) The Servicer shall on or prior to each Distribution Date
(and prior to deposits to the Collection Account) transfer from the Collection
Account to the Payahead Account all Payaheads as described in Section 14.03
received by the Servicer during the Monthly Period. Notwithstanding the
foregoing and the first sentence of Section 14.02, for so long as the Servicer
is permitted to make monthly remittances to the Collection Account pursuant to
Section 14.02, Payaheads need not be remitted to and deposited in the Payahead
Account but instead may be remitted to and held by the Servicer. So long as such
condition is met, the Servicer shall not be required to segregate or otherwise
hold separate any Payaheads remitted to the Servicer as aforesaid but shall be
required to remit Payaheads to the Collection Account in accordance with Section
14.06(a).
(iii) In order to assure the availability of the amounts
maintained in the Payahead Account, the Seller hereby pledges to the Collateral
Agent, and its successors and assigns, all amounts deposited in or credited to
the Payahead Account from time to time under the Agreement, all Eligible
Investments made with amounts on deposit therein, all earnings and distributions
thereon and proceeds thereof (other than proceeds constituting net Investment
Earnings attributable to the Payahead Account Property) subject, however, to the
limitations set forth below, and solely for the purpose of securing and
providing for payment of the amounts described in Section 14.06(b)(i)-(v) and
this Section (all the foregoing, subject to the limitations set forth below, the
"Payahead Account Property"), to have and to hold all the aforesaid property,
rights and privileges unto the Collateral Agent, its successors and assigns, in
trust for the uses and purposes, and subject to the terms and provisions, set
forth in this Section. The Collateral Agent hereby acknowledges such transfer
and accepts the trusts hereunder and shall hold and distribute the Payahead
Account Property in accordance with the terms and provisions of this Section.
(iv) Consistent with the limited purposes for which such trust
is granted, the amounts on deposit in the Payahead Account on each Distribution
Date shall be available for distribution as provided in Section 14.06.
Investment Earnings attributable to the Payahead Account
Property shall not be subject to any claims or rights of the Certificateholders
or the Servicer. All such investments shall be made in the name of the
Collateral Agent or its nominee, and all income and gain realized thereon shall
be solely for the benefit of the Seller and shall be payable by the Collateral
Agent to the Seller on each Distribution Date. Realized losses, if any, on
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investments of the Payahead Account Property shall be charged first against
undistributed investment earnings attributable to the Payahead Account Property
and then against the Payahead Account Property.
(v) With respect to the Payahead Account Property, the Seller,
on behalf of itself, its successors and assigns, and the Collateral Agent agree
that:
(A) Any Payahead Account Property that is held in deposit
accounts shall be held solely in the name of the Collateral Agent at an Eligible
Institution. Each such deposit account shall be subject to the exclusive custody
and control of the Collateral Agent, and the Collateral Agent shall have sole
signature authority with respect thereto.
(B) Any Payahead Account Property that constitutes Physical
Property shall be delivered to the Collateral Agent in accordance with paragraph
(a) of the definition of "Delivery" and shall be held, pending maturity or
disposition, solely by the Collateral Agent, or a financial intermediary (as
such term is defined in Section 8-313(4) of the UCC) acting solely for the
Collateral Agent.
(C) Any Payahead Account Property that is a book-entry
security held through the Federal Reserve System pursuant to federal book-entry
regulations shall be delivered in accordance with paragraph (b) of the
definition of "Delivery" and shall be maintained by the Collateral Agent,
pending maturity or disposition, through continued book-entry registration of
such Payahead Account Property as described in such paragraph.
(D) Any Payahead Account Property that is an "uncertificated
security" under Article 8 of the UCC and that is not governed by clause (C)
above shall be delivered to the Collateral Agent, in accordance with paragraph
(c) of the definition of "Delivery" and shall be maintained by the Collateral
Agent, pending maturity or disposition, through continued registration of the
Collateral Agent's (or its custodian's or it nominee's) ownership of such
security.
Effective upon Delivery of any Payahead Account Property in
the form of Physical Property, book-entry securities or uncertificated
securities, the Collateral Agent shall be deemed to have purchased such Payahead
Account Property for value, in good faith and without notice of any adverse
claim thereto.
(vi) Each of the Seller and the Servicer agrees to take or
cause to be taken such further actions, to execute, deliver and file or cause to
be executed, delivered and filed such further documents and instruments
(including, without limitation, any UCC financing statements or the Agreement)
as may be determined to be necessary in an Opinion of Counsel to the Seller
delivered to the Collateral Agent in order to perfect the interests created by
this Section and otherwise fully to effectuate the purposes, terms and
conditions of this Section.
The Seller shall:
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(A) promptly execute, deliver and file any financing
statements, amendments, continuation statements, assignments, certificates, and
other documents with respect to such interests and perform all such other acts
as may be necessary in order to perfect or to maintain the perfection of the
Collateral Agent's security interest; and
(B) file the necessary financing statements or amendments
thereto within five days, and promptly notify the Collateral Agent of any such
filing, after the occurrence of any of the following: (1) any change in its
corporate name or any trade name; (2) any change in the location of its chief
executive office or principal place of business; and (3) any merger or
consolidation or other change in its identity or corporate structure and
promptly notify the Collateral Agent of any such filings.
(vii) The Collateral Agent shall not enter into any
subordination or intercreditor agreement other than as contemplated hereby with
respect to the Payahead Account Property.
(viii) Following the payment in full of the Certificate
Balance and of all other amounts owing or to be distributed under the Agreement
to Certificateholders and the termination of the Trust, any amount remaining on
deposit in the Payahead Account shall be distributed to the Seller.
(ix) The Collateral Agent in acting under this agreement shall
be afforded the same rights and protections available to the Trustee pursuant to
Article Nineteen hereof.
SECTION 14.01A. Investments of Funds in Payahead Account. (a)
Funds held in the Payahead Account shall be invested and reinvested by the
Collateral Agent, at the written direction (which may include, subject to the
provisions hereof, general standing instructions) of the Seller (unless a
Servicer Default shall have occurred and be continuing, in which case at the
written direction of the Certificate Insurer) or its designee received by the
Collateral Agent by 1:00 P.M. New York City time on the Business Day prior to
the date on which such investment shall be made, in one or more Eligible
Investments in the manner specified in Section 14.01A(c) hereof. If no written
direction with respect to any portion of such Payahead Account is received by
the Collateral Agent, the Collateral Agent shall invest such funds overnight
pursuant to such general standing instructions of the Seller delivered to the
Trustee as described in the preceding sentence, provided that the Collateral
Agent shall not be liable for any loss or absence of income resulting from such
investments.
(b) Each investment made pursuant to this Section 14.01A on
any date shall mature not later than the Business Day immediately preceding the
Distribution Date next succeeding the day investment is made.
(c) Subject to the other provisions hereof, the Collateral
Agent shall have sole control over each such investment and the income thereon,
and any certificate or other instrument evidencing any such investment, if any,
shall be delivered directly to the Collateral Agent or its agent, together with
each document of transfer, if any, necessary to transfer title to such
investment to the Collateral Agent.
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(d) The Collateral Agent shall not be liable by reason of any
insufficiency in the Payahead Account, if any, resulting from any loss on any
Eligible Investment included therein except for losses attributable to the
Collateral Agent's failure to make payments on Eligible Investments as to which
the Collateral Agent, in its commercial capacity, is obligated.
SECTION 14.02. Collections. (a) The Servicer shall remit
within two Business Days of receipt thereof to the Collection Account all
payments by or on behalf of the Obligors with respect to the Receivables (other
than Purchased Receivables) and all Liquidation Proceeds, both as collected
during the Monthly Period less any payments owed thereon to the Servicer.
Notwithstanding the foregoing, for so long as (i) the Representative remains the
Servicer, (ii) no Servicer Default shall have occurred and be continuing, (iii)
there exists no Insurer Default and the Certificate Insurer has furnished its
prior written consent and (iv) the Rating Agency Condition shall have been
satisfied (and any conditions or limitations imposed by the Rating Agencies in
connection therewith are complied with), the Servicer may remit such collections
with respect to the preceding calendar month to the Collection Account on the
Determination Date immediately preceding the related Distribution Date. For
purposes of this Article XIV the phrase "payments by or on behalf of Obligors"
shall mean payments made with respect to the Receivables by Persons other than
the Servicer or the Seller.
(b) The Servicer will be entitled to be reimbursed from
amounts on deposit in the Collection Account with respect to a Monthly Period
for amounts previously deposited in the Collection Account but later determined
by the Servicer to have resulted from mistaken deposits or postings or checks
returned for insufficient funds. The amount to be reimbursed hereunder shall be
paid to the Servicer on the related Distribution Date pursuant to Section
14.06(b)(i) upon certification by the Servicer of such amounts and the provision
of such information to the Trustee and the Certificate Insurer as may be
necessary in the opinion of the Certificate Insurer to verify the accuracy of
such certification. In the event that the Certificate Insurer has not received
evidence satisfactory to it of the Servicer's entitlement to reimbursement
pursuant to Section 14.02(b), the Certificate Insurer shall (unless an Insurer
Default shall have occurred and be continuing) give the Trustee notice to such
effect, following receipt of which the Trustee shall not make a distribution to
the Servicer in respect of such amount pursuant to Section 14.06, or if the
Servicer prior thereto has been reimbursed pursuant to Section 14.06 or Section
14.11, the Trustee shall withhold such amounts from amounts otherwise
distributable to the Servicer on the next succeeding Distribution Date.
SECTION 14.03. Application of Collections. All
collections for the Monthly Period shall be applied by the Servicer as follows:
With respect to each Receivable (other than a Purchased
Receivable), payments by or on behalf of the Obligor, (other than Supplemental
Servicing Fees with respect to such Receivable, to the extent collected) shall
be applied first, in the case of Pre-Computed Receivables, to the Scheduled
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Payment and, in the case of Simple Interest Receivables, to interest and
principal in accordance with the Simple Interest Method. With respect to
Precomputed Receivables, any remaining excess shall be added to the Payahead
Balance, and shall be applied to prepay the Precomputed Receivable, but only if
the sum of such excess and the previous Payahead Balance shall be sufficient to
prepay the Receivable in full. Otherwise, any such remaining excess payments
shall constitute a Payahead and shall increase the Payahead Balance.
All amounts collected that are payable to the Servicer as
Supplemental Servicing Fees hereunder shall be deposited in the Collection
Account and paid to the Servicer in accordance with Section 14.06(b).
SECTION 14.04. Withdrawals from Spread Account. (a) In the
event that the Servicer's Certificate with respect to any Determination Date
shall state that the amount of the Available Funds with respect to such
Determination Date is less than the sum of the amounts payable on the related
Distribution Date pursuant to clauses (i) through (v) of Subsection 14.06(b)
(such deficiency being a "Deficiency Claim Amount") then on the Deficiency Claim
Date immediately preceding such Distribution Date, the Trustee shall deliver to
the Collateral Agent, the Certificate Insurer and the Servicer, by hand
delivery, telex or facsimile transmission, a written notice (a "Deficiency
Notice") specifying the Deficiency Claim Amount for such Distribution Date. Such
Deficiency Notice shall direct the Collateral Agent to remit such Deficiency
Claim Amount (to the extent of the funds available in the Spread Account) to the
Trustee for deposit in the Collection Account on the related Distribution Date,
and the Collateral Agent, following receipt of such Deficiency Notice, shall so
remit such Deficiency Claim Amount (to the extent of the funds available in the
Spread Account) on such Distribution Date.
(b) Any Deficiency Notice shall be delivered by 10:00 am., New
York City time, on the fourth Business Day preceding such Distribution Date. The
amounts distributed by the Collateral Agent to the Trustee pursuant to a
Deficiency Notice shall be deposited by the Trustee into the Collection Account
pursuant to Section 14.05.
SECTION 14.05. Additional Deposits. The Servicer and the
Seller shall deposit or cause to be deposited in the Collection Account the
aggregate Purchase Amount with respect to Purchased Receivables, and the
Servicer shall deposit therein all amounts to be paid under Section 20.02. The
Servicer shall deposit the aggregate Purchase Amount with respect to Purchased
Receivables when such obligations are due, unless the Servicer shall not be
required to make daily deposits pursuant to Section 14.02 in which event such
Purchase Amounts shall be deposited on the Determination Date following the date
on which such obligations are due. On or before each Draw Date, the Trustee
shall remit to the Collection Account any amounts delivered to the Trustee by
the Collateral Agent.
SECTION 14.06. Distributions. (a) On each Distribution Date,
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the Trustee shall (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 referred to in Section
14.03 for the Monthly Period related to such Determination Date.
(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 under Section 14.03 and (b) to the Seller, in
immediately available funds, all Investment Earnings on funds in the Payahead
Account.
(b) On each Distribution Date, the Trustee shall (x)
distribute all amounts deposited by the Certificate Insurer under Section 14.12
as directed by the Certificate Insurer, and (y) (based solely on the information
contained in the Servicer's Certificate delivered with respect to the related
Determination Date) distribute the following amounts and in the following order
of priority:
(i) first, from the Distribution Amount, to the Servicer, the
Base Servicing Fee for the related Monthly Period, any Supplemental Servicing
Fees for the related Monthly Period, and any amounts specified in Section
14.02(b), to the extent the Servicer has not reimbursed itself in respect of
such amounts pursuant to Section 14.11 and to the extent not retained by the
Servicer;
(ii) second, from the Distribution Amount, to the Trustee, the
Trustee's Fees;
(iii) third, from the Amount Available, to the
Certificateholders, the Interest Distributable Amount for such Distribution
Date;
(iv) fourth, from the Amount Available to the
Certificateholders, the Principal Distributable Amount for such Distribution
Date;
(v) fifth, from the Distribution Amount, to the Certificate
Insurer, to the extent of any amounts owing to the Certificate Insurer under the
Insurance Agreement and not paid;
(vi) sixth, from Available Funds, to the Collateral Agent,
amounts for deposit in the Spread Account up to the Specified Spread Account
Requirement; and
(vii) seventh, from Available Funds, to the Seller, any
remaining funds.
(c) Subject to Section 20.01 respecting the final payment upon
retirement of each Certificate, the Servicer shall on each Distribution Date
instruct the Trustee to distribute to each Certificateholder of record on the
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preceding Record Date either by wire transfer in immediately available funds to
the account of such Holder at a bank or other entity having appropriate
facilities therefor, if such Certificateholder shall have provided to the
Trustee and the Servicer appropriate instructions prior to such Distribution
Date and such Holder's Certificates in the aggregate evidence a denomination of
not less than $1,000,000, or, if not, by check mailed to such Certificateholder
at the address of such Holder appearing in the Certificate Register, the amounts
to be distributed to such Certificateholder pursuant to such Holder's
Certificates except that with respect to Certificates registered on the Record
Date in the name of the nominee of the Clearing Agency (initially, such nominee
to be Cede & Co.), payments will be made by wire transfer in immediately
available funds to the account designated by such nominee.
SECTION 14.07. Spread Account. (a) In order to assure that
sufficient amounts to make required distributions to Certificateholders will be
available, the Servicer shall establish and maintain an Eligible Deposit Account
(the "Spread Account") with the Collateral Agent, bearing a designation clearly
indicating that the funds deposited therein are held in trust for the benefit of
the Certificateholders. The Spread Account will include the money and other
property deposited and held therein pursuant to Section 14.06 and this Section.
On or prior to the Closing Date, the Seller shall deposit an
amount equal to the Spread Account Initial Deposit into the Spread Account. The
Spread Account and the Spread Account Property shall not be part of the Trust,
but instead will be held by the Collateral Agent, for the benefit of the Holders
of the Certificates and the Certificate Insurer. The Seller hereby acknowledges
that the Spread Account Initial Deposit (and any investment earnings thereon) is
owned directly by it, and the Seller hereby agrees to treat the same as its
assets (and earnings) for federal income tax and all other purposes.
(b) In order to assure the availability of the amounts
maintained in the Spread Account, the Seller hereby sells, conveys and transfers
to the Collateral Agent, and its successors and assigns, the Spread Account
Initial Deposit and all proceeds thereof and hereby pledges to the Collateral
Agent, and its successors and assigns, all other amounts deposited in or
credited to the Spread Account from time to time under the Agreement, all
Eligible Investments made with amounts on deposit therein, all earnings and
distributions thereon and proceeds thereof (other than proceeds constituting net
investment earnings attributable to the Spread Account Property) subject,
however, to the limitations set forth below, and solely for the purpose of
securing and providing for payment of the amounts described in Section
14.06(b)(i)-(v) and this Section (all the foregoing, subject to the limitations
set forth below, the "Spread Account Property"), to have and to hold all the
aforesaid property, rights and privileges unto the Collateral Agent, its
successors and assigns, in trust for the uses and purposes, and subject to the
terms and provisions, set forth in this Section. The Collateral Agent hereby
acknowledges such transfer and accepts the trusts hereunder and shall hold and
distribute the Spread Account Property in accordance with the terms and
provisions of this Section.
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(c) Consistent with the limited purposes for which such trust
is granted, the amounts on deposit in the Spread Account on each Distribution
Date shall be available for distribution as provided in Section 14.06, in
accordance with and subject to the following: if the amount on deposit in the
Spread Account (after giving effect to all deposits thereto and withdrawals
therefrom on such Distribution Date) is greater than the Specified Spread
Account Requirement, the Collateral Agent shall release and distribute all such
excess amounts to the Seller. Upon any such distribution to the Seller, the
Certificateholders will have no further rights in, or claims to, such amounts.
Investment earnings attributable to the Spread Account
Property shall not be subject to any claims or rights of the Certificateholders
or the Servicer. All such investments shall be made in the name of the
Collateral Agent or its nominee, and all income and gain realized thereon shall
be solely for the benefit of the Seller and shall be payable by the Collateral
Agent to the Seller on each Distribution Date. Realized losses, if any, on
investments of the Spread Account Property shall be charged first against
undistributed investment earnings attributable to the Spread Account Property
and then against the Spread Account Property.
(d) With respect to the Spread Account Property, the Seller,
on behalf of itself, its successors and assigns, and the Collateral Agent agree
that:
(i) Any Spread Account Property that is held in deposit
accounts shall be held solely in the name of the Collateral Agent at an Eligible
Institution. Each such deposit account shall be subject to the exclusive custody
and control of the Collateral Agent, and the Collateral Agent shall have sole
signature authority with respect thereto.
(ii) Any Spread Account Property that constitutes Physical
Property shall be delivered to the Collateral Agent in accordance with paragraph
(a) of the definition of "Delivery" and shall be held, pending maturity or
disposition, solely by the Collateral Agent, or a financial intermediary (as
such term is defined in Section 8-313(4) of the UCC) acting solely for the
Collateral Agent.
(iii) Any Spread Account Property that is a book-entry
security held through the Federal Reserve System pursuant to federal book-entry
regulations shall be delivered in accordance with paragraph (b) of the
definition of "Delivery" and shall be maintained by the Collateral Agent,
pending maturity or disposition, through continued book-entry registration of
such Spread Account Property as described in such paragraph.
(iv) Any Spread Account Property that is an "uncertificated
security" under Article 8 of the UCC and that is not governed by clause (C)
above shall be delivered to the Collateral Agent, in accordance with paragraph
(c) of the definition of "Delivery" and shall be maintained by the Collateral
Agent, pending maturity or disposition, through continued registration of the
Collateral Agent's (or its custodian's or it nominee's) ownership of such
security.
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Effective upon Delivery of any Spread Account Property in the
form of Physical Property, book-entry securities or uncertificated securities,
the Trustee shall be deemed to have purchased such Spread Account Property for
value, in good faith and without notice of any adverse claim thereto.
(e) Each of the Seller and the Servicer agrees to take or
cause to be taken such further actions, to execute, deliver and file or cause to
be executed, delivered and filed such further documents and instruments
(including, without limitation, any UCC financing statements or the Agreement)
as may be determined to be necessary in an Opinion of Counsel to the Seller
delivered to the Collateral Agent in order to perfect the interests created by
this Section and otherwise fully to effectuate the purposes, terms and
conditions of this Section.
The Seller shall:
(i) promptly execute, deliver and file any financing
statements, amendments, continuation statements, assignments, certificates, and
other documents with respect to such interests and perform all such other acts
as may be necessary in order to perfect or to maintain the perfection of the
Collateral Agent's security interest; and
(ii) file the necessary financing statements or amendments
thereto within five days, and promptly notify the Collateral Agent of any such
filing, after the occurrence of any of the following: (1) any change in its
corporate name or any trade name; (2) any change in the location of its chief
executive office or principal place of business; and (3) any merger or
consolidation or other change in its identity or corporate structure and
promptly notify the Collateral Agent of any such filings.
(f) The Collateral Agent shall not enter into any
subordination or intercreditor agreement other than as contemplated hereby with
respect to the Spread Account Property.
(g) Following the payment in full of the Certificate Balance
and of all other amounts owing or to be distributed under the Agreement to
Certificateholders, the Certificate Insurer and any other Person who is entitled
to payment thereon and the termination of the Trust, any amount remaining on
deposit in the Spread Account shall be distributed to the Seller.
SECTION 14.07A. Investments of Funds in Spread Account. (a)
Funds held in the Spread Account shall be invested and reinvested by the
Collateral Agent, at the written direction (which may include, subject to the
provisions hereof, general standing instructions) of the Seller (unless a
Servicer Default shall have occurred and be continuing, in which case at the
written direction of the Certificate Insurer) or its designee received by the
Collateral Agent by 1:00 P.M. New York City time on the Business Day prior to
the date on which such investment shall be made, in one or more Eligible
Investments in the manner specified in Section 14.07A(c) hereof. If no written
direction with respect to any portion of such Spread Account is received by the
Collateral Agent, the Collateral Agent shall invest such funds overnight
pursuant to such general standby instruction of the Seller delivered to the
Trustee as described in the preceding sentence in such Eligible Investments as
the Collateral Agent may select, provided that the Collateral Agent shall not be
liable for any loss or absence of income resulting from such investments.
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(b) Each investment made pursuant to this Section 14.07A on
any date shall mature not later than the Business Day immediately preceding the
Distribution Date next succeeding the day such investment is made.
(c) Subject to the other provisions hereof, the Collateral
Agent shall have sole control over each such investment and the income thereon,
and any certificate or other instrument evidencing any such investment, if any,
shall be delivered directly to the Collateral Agent or its agent, together with
each document of transfer, if any, necessary to transfer title to such
investment to the Collateral Agent.
(d) The Collateral Agent shall not be liable by reason of any
insufficiency in the Spread Account, if any, resulting from any loss on any
Eligible Investment included therein except for losses attributable to the
Collateral Agent's failure to make payments on Eligible Investments as to which
the Collateral Agent, in its commercial capacity, is obligated.
SECTION 14.08. [RESERVED]
SECTION 14.09. Statements to Certificateholders. On each
Distribution Date, the Servicer shall provide to the Certificate Insurer, the
Rating Agencies and the Trustee for the Trustee to forward to each
Certificateholder of record as of the most recent Record Date, a statement
substantially in the form of Exhibit D setting forth at least the following
information as to the Certificates:
(i) the amount of such distribution allocable to interest on
or with respect to the Certificates;
(ii) the amount of such distribution allocable to principal on
or with respect to the Certificates;
(iii) the amount of such distribution payable out of amounts
withdrawn from the Spread Account or pursuant to a claim on the Policy;
(iv) the Pool Balance as of the close of business on the last
day of the preceding Monthly Period;
(v) the Certificate Balance and the Certificate Factor and
after giving effect to all payments reported under clause (ii) above on such
date;
(vi) the amount of the Servicing Fee paid to the Servicer with
respect to the related Monthly Period and/or due but unpaid with respect to such
Monthly Period or prior Monthly Periods, as the case may be;
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(vii) the amount of the Principal Carryover Shortfall and
Interest Carryover Shortfall, as applicable, if any, on such Distribution Date
and the change in the Principal Carryover Shortfall, and Interest Carryover
Shortfall, as applicable, from the preceding Distribution Date;
(viii) the amount of aggregate Realized Losses, if any, for
the second preceding Monthly Period;
(ix) the aggregate Purchase Amounts for Receivables, if any,
that were repurchased in such period; and
(x) the aggregate Payahead Balance and the change in such
balance from the preceding Distribution Date.
Each amount set forth pursuant to subclauses (i), (ii), (iii), (vi) and (vii)
above shall be expressed as a dollar amount per $1,000 of original principal
balance of Certificate.
SECTION 14.10. Tax Returns. The Trustee shall deliver to each
Holder of a Certificate a statement setting forth the aggregate amount
distributed pursuant to Section 14.09(i), (ii) and (vi) for the preceding
calendar year to enable each Holder to prepare its federal and state income tax
returns.
SECTION 14.11. Net Deposits. As an administrative convenience,
unless the Servicer is required to remit collections daily, the Servicer will be
permitted to make the deposit of collections on the Receivables and Purchase
Amounts for or with respect to each Monthly Period net of distributions to be
made to the Servicer with respect to such Monthly Period. The Servicer, however,
will account to the Trustee and to the Certificateholders as if all deposits,
distributions and transfers were made individually.
SECTION 14.12. Optional Deposits by the Certificate Insurer.
The Certificate Insurer shall at any time, and from time to time, with respect
to a Distribution Date, have the option (but shall not be required, except as
provided in Section 14A.02 and in accordance with the terms of the Policy) to
deliver amounts to the Trustee 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 Amount
Available for such Distribution Date to the extent that without such amount a
draw would be required to be made on the Policy.
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ARTICLE XIV A
The Policy
SECTION 14A.01. The Policy. The Servicer and the Seller agree,
simultaneously with the execution and delivery of this Agreement, to cause the
Certificate Insurer to issue the Policy for the benefit of the Trust in
accordance with the terms thereof.
SECTION 14A.02. Claims Under Policy. (a) In the event that the
Trustee has delivered a Deficiency Notice with respect to any Determination
Date, the Trustee shall determine on the related Draw Date whether the sum of
(i) the amount of Available Funds with respect to such Determination Date (as
stated in the Servicer's Certificate with respect to such Determination Date)
plus (ii) the amount of the Deficiency Claim Amount, if any, to be delivered by
the Collateral Agent to the Trustee in accordance with Section 14.04(a) would be
insufficient, after giving effect to the distributions required by Section
14.06(b)(i)-(ii), to pay the sum of the Interest Distributable Amount and the
Principal Distributable Amount for the related Distribution Date, then in such
event the Trustee shall furnish to the Certificate Insurer (with a copy to the
Servicer) 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 shortfall in amounts so available
to pay the Interest Distributable Amount and the Principal Distributable Amount
with respect to such Distribution Date (the amount of any such shortfall being
hereinafter referred to as the "Policy Claim Amount"). Amounts paid by the
Certificate Insurer under the Policy shall be deposited by the Trustee into the
Policy Payments Account and thereafter into the Collection Account for payment
to Certificateholders on the related Distribution Date (or promptly following
payment on a later date as set forth in the Policy).
(b) Any notice delivered by the Trustee to the Certificate
Insurer pursuant to subsection 14A.02(a) shall specify the Policy Claim Amount
claimed under the Policy and shall constitute a "Notice of Claim" under the
Policy. In accordance with the provisions of the Policy, the Certificate Insurer
is required to pay to the Trustee the Policy Claim Amount properly claimed
thereunder by 12:00 noon, New York City time, on the later of (i) the third
Business Day following receipt on a Business Day of the Notice of Claim, and
(ii) the applicable Distribution Date. Any payment made by the Certificate
Insurer under the Policy shall be applied solely to the payment of the
Certificates, and for no other purpose.
(c) The Trustee shall (i) receive as attorney-in-fact of each
Certificateholder any Policy Claim Amount from the Certificate Insurer and (ii)
deposit the same in the Policy Payments Account and thereafter into Collection
Account for disbursement to the Certificateholders as set forth in clauses (iii)
and (iv) of subsection 14.06(b). Any and all Policy Claim Amounts disbursed by
the Trustee from claims made under the Policy shall not be considered payment by
the Trust or from the Spread Account with respect to such Certificates, and
shall not discharge the obligations of the Trust with respect thereto. The
Certificate Insurer shall, to the extent it makes any payment with respect to
the Certificates, become subrogated to the rights of the recipients of such
payments to the extent of such payments. Subject to and conditioned upon any
payment with respect to the Certificates by or on behalf of the Certificate
Insurer, the Trustee shall assign to the Certificate Insurer all rights to the
payment of interest or principal with respect to the Certificates which are then
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due for payment to the extent of all payments made by the Certificate Insurer
and the Certificate Insurer may exercise any option, vote, right, power or the
like with respect to the Certificates to the extent that it has made payment
pursuant to the Policy. To evidence such subrogation, the Certificate Registrar
shall note the Certificate Insurer's rights as subrogee upon the register of
Certificateholders upon receipt from the Certificate Insurer of proof of payment
by the Certificate Insurer of any Interest Distributable Amount or Principal
Distributable Amount.
(d) The Trustee shall be entitled to enforce on behalf of the
Certificateholders the obligations of the Certificate Insurer under the Policy.
Notwithstanding any other provision of this Agreement, the Certificateholders
are not entitled to make a claim directly under the Policy or institute
proceedings directly against the Certificate Insurer.
SECTION 14A.03. Preference Claims; Direction of Proceedings.
(a) In the event that the Trustee has received a certified copy of an order of
the appropriate court that any Interest Distributable Amount or Principal
Distributable Amount paid on a Certificate has been avoided in whole or in part
as a preference payment under applicable bankruptcy law, the Trustee shall so
notify the Certificate Insurer, shall comply with the provisions of the Policy
to obtain payment by the Certificate Insurer of such avoided payment, and shall,
at the time it provides notice to the Certificate Insurer, notify Holders of the
Certificates by mail that, in the event that any Certificateholder's payment is
so recoverable, such Certificateholder will be entitled to payment pursuant to
the terms of the Policy. Pursuant to the terms of the Policy, the Certificate
Insurer will make such payment on behalf of the Certificateholder to the
receiver, conservator, debtor-in-possession or trustee in bankruptcy named in
the Order (as defined in the Policy) and not to the Trustee or any
Certificateholder directly (unless a Certificateholder has previously paid such
payment to the receiver, conservator, debtor-in-possession or trustee in
bankruptcy, in which case the Certificate Insurer will make such payment to the
Trustee for distribution to such Certificateholder upon proof of such payment
reasonably satisfactory to the Certificate Insurer).
(b) The Trustee shall promptly notify the Certificate Insurer
of any proceeding or the institution of any action (of which the Trustee has
actual knowledge) seeking the avoidance as a preferential transfer under
applicable bankruptcy, insolvency, receivership, rehabilitation or similar law
(a "Preference Claim") of any distribution made with respect to the
Certificates. Each Holder, by its purchase of Certificates, and the Trustee
hereby agree that so long as an Insurer Default shall not have occurred and be
continuing, the Certificate Insurer may at any time during the continuation of
any proceeding relating to a Preference Claim direct all matters relating to
such Preference Claim including, without limitation, (i) the direction of any
appeal of any order relating to any Preference Claim and (ii) the posting of any
surety, supersedeas or performance bond pending any such appeal at the expense
of the Certificate Insurer, but subject to reimbursement as provided in the
Insurance Agreement. In addition, and without limitation of the foregoing, as
set forth in Section 14A.02(c), the Certificate Insurer shall be subrogated to,
and each Certificateholder and the Trustee hereby delegate and assign, to the
fullest extent permitted by law, the rights of the Trustee and each
Certificateholder in the conduct of any proceeding with respect to a Preference
Claim, including, without limitation, all rights of any party to an adversary
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proceeding action with respect to any court order issued in connection with any
such Preference Claim.
SECTION 14A.04. Surrender of Policy. The Trustee shall
surrender the Policy to the Certificate Insurer for cancellation upon its
expiration in accordance with the terms thereof.
ARTICLE XV
THE CERTIFICATES
SECTION 15.01. The Certificates. Unless otherwise specified in
the Agreement, the Certificates shall be issued in fully registered form in
minimum denominations of $1,000. The Certificates shall be executed on behalf of
the Trust by manual or facsimile signature of an authorized officer of the
Trustee. Certificates bearing the manual or facsimile signatures of individuals
who were, at the time when such signatures shall have been affixed, authorized
to sign on behalf of the Trust, shall be validly issued and entitled to the
benefit of the Agreement, notwithstanding that such individuals or any of them
shall have ceased to be so authorized prior to the authentication and delivery
of such Certificates or did not hold such offices at the date of authentication
and delivery of such Certificates.
A transferee of a Certificate shall become a Certificateholder
and shall be entitled to the rights and subject to the obligations of a
Certificateholder hereunder upon such transferee's acceptance of a Certificate
duly registered in such transferee's name pursuant to Section 15.03.
SECTION 15.02. Authentication of Certificates. The Trustee
shall cause the Certificates to be executed on behalf of the Trust,
authenticated and delivered to or upon the written order of the Seller, signed
by its chairman of the board, its president, any vice president, secretary, or
assistant treasurer, without further corporate action by the Seller, in
authorized denominations, pursuant to the Agreement. No Certificate shall
entitle its Holder to any benefit under the Agreement or shall be valid for any
purpose unless there shall appear on such Certificate a certificate of
authentication substantially in the form set forth in Exhibit A, executed by the
Trustee by manual signature. Such authentication shall constitute conclusive
evidence that such Certificate shall have been duly authenticated and delivered
hereunder. All Certificates shall be dated the date of their authentication.
SECTION 15.03. Registration of Transfer and Exchange of
Certificates. The Certificate Registrar shall keep or cause to be kept, at the
office or agency maintained pursuant to Section 15.08, a Certificate Register in
which, subject to such reasonable regulations as it may prescribe, the Trustee
shall provide for the registration of Certificates and of transfers and
exchanges of Certificates as herein provided. Unless otherwise specified in the
Agreement, the Trustee shall be the initial Certificate Registrar.
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Upon surrender for registration of transfer of any Certificate
at the Corporate Trust Office, the Trustee shall execute, authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Certificates in authorized denominations of a like aggregate amount dated
the date of authentication by the Trustee. At the option of a Holder,
Certificates may be exchanged for other Certificates of authorized denominations
of a like aggregate amount upon surrender at the Corporate Trust Office of the
Certificates to be exchanged.
Every Certificate presented or surrendered for registration of
transfer or exchange shall be accompanied by a written instrument of transfer in
form satisfactory to the Trustee and the Certificate Registrar duly executed by
the Holder or such Holder's attorney duly authorized in writing. Each
Certificate surrendered for registration of transfer and exchange shall be
canceled and subsequently disposed of by the Trustee in accordance with its
customary procedures.
No service charge shall be made for any registration of
transfer or exchange of Certificates, but the Trustee may require payment of a
sum sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates.
SECTION 15.04. [Reserved]
SECTION 15.05. Mutilated, Destroyed, Lost or Stolen
Certificates. If (a) any mutilated Certificate shall be surrendered to the
Certificate Registrar, or if the Certificate Registrar shall receive evidence to
its satisfaction of the destruction, loss or theft of any Certificate and (b)
there shall be delivered to the Certificate Registrar, the Trustee and (unless
an Insurer Default shall have occurred and be continuing) the Certificate
Insurer such security or indemnity as may be required by them to save each of
them harmless, then in the absence of notice that such Certificate has been
acquired by a bona fide purchaser, the Trustee on behalf of the Trust shall
execute, and the Trustee shall authenticate and deliver, in exchange for or in
lieu of any such mutilated, destroyed, lost or stolen Certificate, a new
Certificate of like tenor and denomination. In connection with the issuance of
any new Certificate under this Section, the Trustee and the Certificate
Registrar may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith. Any duplicate
Certificate issued pursuant to this Section shall constitute conclusive evidence
of ownership in the Trust, as if originally issued, whether or not the lost,
stolen or destroyed Certificate shall be found at any time.
SECTION 15.06. Persons Deemed Owners. Prior to due
presentation of a Certificate for registration of transfer, the Trustee or the
Certificate Registrar may treat the Person in whose name any Certificate shall
be registered as the owner of such Certificate for the purpose of receiving
distributions pursuant to Section 14.06 and for all other purposes whatsoever,
and neither the Trustee, the Certificate Insurer, the Certificate Registrar nor
any agent of the Trustee, Certificate Insurer or Certificate Registrar shall be
bound by any notice to the contrary.
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SECTION 15.07. Access to List of Certificateholders' Names and
Addresses. The Trustee shall furnish or cause to be furnished to the Servicer,
and (unless an Insurer Default shall have occurred and be continuing) the
Certificate Insurer, within 15 days after receipt by the Trustee of a request
therefor from such party in writing, a list, in such form as such party may
reasonably require, of the names and addresses of the Certificateholders as of
the most recent Record Date. If three or more Certificateholders, or one or more
Holders of Certificates evidencing not less than 25% of the Certificate Balance
apply in writing to the Trustee, and such application states that the applicants
desire to communicate with other Certificateholders with respect to their rights
under the Agreement or under the Certificates and such application shall be
accompanied by a copy of the communication that such applicants propose to
transmit, then the Trustee shall, within five Business Days after the receipt
for such application, afford such applicants access during normal business hours
to the current list of Certificateholders. Each Holder, by receiving and holding
a Certificate, shall be deemed to have agreed to hold neither the Servicer nor
the Trustee accountable by reason of the disclosure of its name and address,
regardless of the source from which such information was derived.
SECTION 15.08. Maintenance of Office or Agency. The Trustee
shall maintain in the City of _____, _________, an office or offices or agency
or agencies where Certificates may be surrendered for registration of transfer
or exchange and where notices and demands to or upon the Trustee in respect of
the Certificates and the Agreement may be served. The Trustee initially
designates its office at _________ __________________ as its office for such
purposes. The Trustee shall give prompt written notice to the Servicer and to
Certificateholders of any change in the location of the Certificate Register or
any such office or agency.
SECTION 15.09. Book-Entry Certificates. The Certificates may
be issued in the form of one or more typewritten Certificates representing
Book-Entry Certificates, to be delivered by, or on behalf of, the Seller to the
initial Clearing Agency, which, unless otherwise specified in the Agreement,
shall be The Depository Trust Company. In such case, the Certificates delivered
to the Depository Trust Company shall initially be registered on the Certificate
Register in the name of Cede & Co., the nominee of the initial Clearing Agency,
and no Certificate Owner will receive a definitive certificate representing such
Certificate Owner's interest in the Certificates, except as provided in Section
15.11. Unless and until definitive, fully registered Certificates (the
"Definitive Certificates") have been issued to such Certificate Owners pursuant
to Section 15.11:
(i) the provisions of this Section shall be in full force and
effect;
(ii) the Seller, the Servicer, the Certificate Insurer, the
Certificate Registrar and the Trustee may deal with the Clearing Agency for all
purposes (including the making of distributions on such Certificates) as the
sole Holder of such Certificates and shall have no obligation to the related
Certificate Owners;
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(iii) to the extent that the provisions of this Section
conflict with any other provisions of this Agreement, the provisions of this
Section shall control;
(iv) the rights of such Certificate Owners shall be exercised
only through the Clearing Agency and shall be limited to those established by
law and agreements between such Certificate Owners and the Clearing Agency
and/or the Clearing Agency Participants. Pursuant to the Depository Agreement,
unless and until Definitive Certificates are issued pursuant to Section 15.11,
the initial Clearing Agency will make book-entry transfers among the Clearing
Agency Participants and receive and transmit distributions of principal and
interest on such Certificates to such Clearing Agency Participants; and
(v) whenever the Agreement requires or permits actions to be
taken based upon instructions or directions of Holders of Certificates
evidencing a specified percentage of the Certificate Balance, the Clearing
Agency shall be deemed to represent such percentage only to the extent that it
has received instructions to such effect from Certificate Owners and/or Clearing
Agency Participants owning or representing, respectively, such required
percentage of the beneficial interest in such Certificates and has delivered
such instructions to the Trustee.
SECTION 15.10. Notices to Clearing Agency. Whenever notice or
other communication to the Certificateholders is required under this Agreement,
unless and until Definitive Certificates shall have been issued to Certificate
Owners pursuant to Section 15.11, the Trustee and the Servicer shall give all
such notices and communications specified herein to be given to Certificate
Owners to the Clearing Agency.
SECTION 15.11. Definitive Certificates. If (i) the Servicer
advises the Trustee in writing that the Clearing Agency is no longer willing or
able to properly discharge its responsibilities under the Depository Agreement
and the Seller is unable to locate a qualified successor, (ii) the Seller at its
option advises the Trustee in writing that it elects to terminate the book-entry
system through the Clearing Agency or (iii) after the occurrence of a Servicer
Default, Certificate Owners representing beneficial interests aggregating not
less than a majority of the aggregate outstanding principal amount of the
Book-Entry Certificates advise the Trustee and the Clearing Agency in writing
that the continuation of a book-entry system through the Clearing Agency is no
longer in the best interests of the Certificate Owners, then the Clearing Agency
shall notify all Certificate Owners and the Trustee of the occurrence of such
event and of the availability of Definitive Certificates to Certificate Owners
requesting the same. Upon surrender to the Trustee of the typewritten
Certificates representing the Book-Entry Certificates by the Clearing Agency,
accompanied by registration instructions, the Trustee shall execute and
authenticate the Definitive Certificates in accordance with the instructions of
the Clearing Agency. None of the Seller, the Certificate Registrar or the
Trustee shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of Definitive Certificates, the Trustee shall recognize the
Holders of the Definitive Certificates as Certificateholders hereunder. The
Definitive Certificates shall be printed, lithographed or engraved or may be
produced in any other manner as is reasonably acceptable to the Trustee, as
evidenced by its execution thereof.
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SECTION 15.12. Temporary Certificates. In the event that the
Agreement provides that the Certificates are not to be issued in book-entry form
pursuant to Section 15.09, pending the preparation of definitive Certificates,
the Trustee, on behalf of the Trust, may execute, authenticate and deliver,
temporary Certificates that are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Certificates in lieu of which they are issued. If
temporary Certificates are issued, the Seller will cause definitive Certificates
to be prepared without unreasonable delay. After the preparation of definitive
Certificates, the temporary Certificates shall be exchangeable for definitive
Certificates upon surrender of the temporary Certificates at the office or
agency to be maintained as provided in Section 15.08, without charge to the
Holder. Upon surrender for cancellation of any one or more temporary
Certificates, the Trustee shall execute, authenticate and deliver in exchange
therefor a like principal amount of definitive Certificates in authorized
denominations. Until so exchanged, the temporary Certificates shall in all
respects be entitled to the same benefits under the Agreement as definitive
Certificates.
ARTICLE XVI
The Seller
SECTION 16.01. Representations of Seller. The Seller makes the
following representations on which the Certificate Insurer shall be deemed to
have relied in executing and delivering the Policy and on which Trustee shall be
deemed to have relied in accepting the Receivables in trust and executing and
authenticating the Certificates. The representations speak as of the execution
and delivery of the Agreement and as of the Closing Date, in the case of
Receivables, and shall survive the sale of the Receivables to the Trust.
(a) Organization and Good Standing. The Seller is duly
organized and validly existing as a limited liability company in good standing
under the laws of the State of Delaware, with the authority to own its
properties and to conduct its business as such properties are currently owned
and such business is presently conducted, and had at all relevant times, and
has, the corporate power, authority and legal right to acquire and own the
Receivables.
(b) Due Qualification. The Seller is duly qualified to do
business as a foreign limited liability company in good standing, and has
obtained all necessary licenses and approvals in all jurisdictions in which the
ownership or lease of property, including the Receivables, or the conduct of its
business shall require such qualifications.
(c) Power and Authority. The Seller has the power and
authority to execute and deliver the Agreement and to carry out its terms; the
Seller has full power and authority to sell and assign the property to be sold
and assigned to and deposited with the Trustee as part of the Trust, and the
Seller shall have duly authorized such sale and assignment to the Trustee by all
necessary action.
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(d) Binding Obligation. The Agreement shall constitute legal,
valid and binding obligations of the Seller enforceable in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, moratorium,
fraudulent conveyance, reorganization and similar laws now or hereafter in
effect relating to creditors' rights generally and subject to general principles
of equity (whether applied in a proceeding at law or in equity).
(e) No Violation. The consummation of the transactions
contemplated by the Agreement and the fulfillment of the terms hereof and
thereof do not conflict with, result in any breach of any of the terms and
provisions of, or constitute (with or without notice or lapse of time) a default
under, the certificate of incorporation or bylaws of the Seller, or any
indenture, agreement or other instrument to which the Seller is a party or by
which it is bound; nor result in the creation or imposition of any Lien upon any
of its properties pursuant to the terms of any such indenture, agreement or
other instrument (other than pursuant to the Agreement); nor violate any law or,
to the best of the Seller's knowledge, any order, rule or regulation applicable
to the Seller of any court or of any federal or state regulatory body,
administrative agency or other governmental instrumentality having jurisdiction
over the Seller or its properties.
(f) No Proceedings. There are no proceedings or investigations
pending against the Seller or, to its best knowledge, threatened against the
Seller, before any court, regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Seller or its
properties: (i) asserting the invalidity of the Agreement or the Certificates;
(ii) seeking to prevent the issuance of the Certificates or the consummation of
any of the transactions contemplated by the Agreement; (iii) seeking any
determination or ruling that might materially and adversely affect the
performance by the Seller of its obligations under, or the validity or
enforceability of, the Agreement or the Certificates, or (iv) that might
adversely affect the federal income tax attributes of the Certificates.
(g) All Consents. All authorizations, consents, orders or
approvals of or registrations or declarations with any court, regulatory body,
administrative agency or other government instrumentality required to be
obtained, effected or given by the Seller in connection with the execution and
delivery by the Seller of the Agreement and the performance by the Seller of the
transactions contemplated by this Agreement, have been duly obtained, effected
or given and are in full force and effect, except where failure to obtain the
same would not have a material adverse effect upon the rights of the Trustee or
the Certificateholders.
(h) Chief Executive Office. The chief executive office of the
Seller is at __________________________.
SECTION 16.02. Corporate Existence. (a) During the term of
this Agreement, the Seller will keep in full force and effect its existence,
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rights and franchises as a corporation under the laws of the jurisdiction of its
incorporation and will obtain and preserve its qualification to do business in
each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of this Agreement and each other
instrument or agreement necessary or appropriate to the proper administration of
this Agreement and the transactions contemplated hereby.
(b) During the term of this Agreement, the Seller shall
observe the applicable legal requirements for the recognition of the Seller as a
legal entity separate and apart from its Affiliates, including as follows:
(i) the Seller shall maintain corporate records and books of
account separate from those of its Affiliates;
(ii) except as otherwise provided in this Agreement, the
Seller shall not commingle its assets and funds with those of its Affiliates;
(iii) the Seller shall hold such appropriate meetings of its
Board of Directors as are necessary to authorize all the Seller's corporate
actions required by law to be authorized by the Board of Directors, shall keep
minutes of such meetings and of meetings of its stockholder(s) and observe all
other customary corporate formalities (and any successor Seller not a
corporation shall observe similar procedures in accordance with its governing
documents and applicable law);
(iv) the Seller shall at all times hold itself out to the
public under the Seller's own name as a legal entity separate and distinct from
its Affiliates; and
(v) all transactions and dealings between the Seller and its
Affiliates will be conducted on an arm's-length basis.
SECTION 16.03. Liabilities of Seller; Indemnities. The Seller
shall be liable in accordance herewith only to the extent of the obligations
specifically undertaken by the Seller under the Agreement.
(a) The Seller shall indemnify, defend and hold harmless the
Trustee, the Certificate Insurer, and the Trust from and against any taxes that
may at any time be asserted against the Trustee, the Certificate Insurer, or the
Trust with respect to the transactions contemplated in the Agreement, including
any sales, gross receipts, general corporation, tangible personal property,
privilege, or license taxes (but, in the case of the Trust, not including any
taxes asserted with respect to, federal or other income taxes arising out of the
distributions on the Certificates) and costs and expenses in defending against
the same.
(b) The Seller shall indemnify, defend and hold harmless the
Trustee, the Certificate Insurer and the Certificateholders from and against any
loss, liability or expense incurred by reason of (a) the Seller's willful
misfeasance, bad faith or negligence in the performance of its duties under the
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Agreement, or by reason of reckless disregard of its obligations and duties
under the Agreement, and (b) the Seller's or Trust's violation of federal or
state securities laws in connection with the offering and sale of the
Certificates.
(c) The Seller shall indemnify, defend and hold harmless the
Trustee and its officers, directors, employees and agents from and against all
costs, expenses, losses, claims, damages and liabilities arising out of or
incurred in connection with the acceptance or performance of the trusts and
duties herein and in the Agreement contained, except to the extent that such
cost, expense, loss, claim, damage or liabilities shall be due to the willful
misfeasance, bad faith or negligence (except for errors in judgment) of the
Trustee.
Indemnification under this Section 16.03 shall survive the
resignation or removal of the Trustee and the termination of the Agreement and
shall include reasonable fees and expenses of counsel and expenses of
litigation. If the Seller shall have made any indemnity payments to the Trustee
or the Certificate Insurer, as the case may be, pursuant to this Section and the
Trustee or the Certificate Insurer, as the case may be, thereafter shall collect
any of such amounts from others, the Trustee or the Certificate Insurer, as the
case may be, shall promptly repay such amounts to the Seller, without interest.
SECTION 16.04. Merger or Consolidation of, or Assumption of
the Obligations of, Seller. Any Person (a) into which the Seller may be merged
or consolidated, (b) which may result from any merger or consolidation to which
the Seller shall be a party or (c) which may succeed to the properties and
assets of the Seller substantially as a whole, which Person in any of the
foregoing cases executes an agreement of assumption to perform every obligation
of the Seller under the Agreement, shall be the successor to the Seller
hereunder without the execution or filing of any document or any further act by
any of the parties to the Agreement; provided, however, that (i) the Seller
shall have received the written consent of the Certificate Insurer prior to
entering into any such transaction (ii) immediately after giving effect to such
transaction, no representation or warranty made pursuant to Section 12.01 shall
have been breached and no Servicer Default, and no event which, after notice or
lapse of time, or both, would become a Servicer Default shall have happened and
be continuing, (iii) the Seller shall have delivered to the Trustee and the
Certificate Insurer an Officers' Certificate and an Opinion of Counsel each
stating that such consolidation, merger or succession and such agreement of
assumption comply with this Section and that all conditions precedent, if any,
provided for in the Agreement relating to such transaction have been complied
with, (iv) the Rating Agency Condition shall have been satisfied with respect to
such transaction and (v) the Seller shall have delivered to the Trustee and the
Certificate Insurer an Opinion of Counsel stating that, in the opinion of such
counsel, either (A) all financing statements and continuation statements and
amendments thereto have been executed and filed that are necessary fully to
preserve and protect the interest of the Trustee in the Receivables and reciting
the details of such filings or (B) no such action shall be necessary to preserve
and protect such interest. Notwithstanding anything herein to the contrary, the
execution of the foregoing agreement of assumption and compliance with clauses
(i), (ii), (iii), (iv) and (v) above shall be conditions to the consummation of
the transactions referred to in clauses (a), (b) or (c) above.
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SECTION 16.05. Limitation on Liability of Seller and Others.
The Seller and any director, officer, employee or agent of the Seller may rely
in good faith on the advice of counsel or on any document of any kind, prima
facie properly executed and submitted by any Person respecting any matters
arising hereunder. The Seller shall not be under any obligation to appear in,
prosecute or defend any legal action that shall not be incidental to its
obligations under the Agreement and that in its opinion may involve it in any
expense or liability.
SECTION 16.06. Seller May Own Certificates. The Seller and any
Affiliate thereof may in its individual or any other capacity become the owner
or pledgee of Certificates with the same rights as it would have if it were not
the Seller or an Affiliate thereof, except as otherwise provided herein.
Certificates so owned by the Seller or such Affiliate shall have an equal and
proportionate benefit under the provisions of this Agreement, without
preference, priority, or distinction as among all of the Certificates, provided
however, that any Certificates owned by the Seller or any Affiliate thereof,
during the time such Certificates are owned by them, shall be without voting
rights for any purpose set forth in this Agreement and will not be entitled to
the benefits of the Policy. The Seller shall notify the Trustee and the
Certificate Insurer promptly after it or any of its Affiliates become the owner
of a Certificate.
ARTICLE XVII
The Servicer
SECTION 17.01. Representations of Servicer. The Servicer makes
the following representations on which the Certificate Insurer shall be deemed
to have relied in executing and delivering the Policy and on which the Trustee
shall be deemed to have relied in accepting the Receivables in trust and
executing and authenticating the Certificates. The representations speak as of
the execution and delivery of the Agreement and as of the Closing Date, in the
case of the Receivables, and shall survive the sale of the Receivables to the
Trust.
(a) Organization and Good Standing. The Servicer is duly
organized and validly existing as a corporation in good standing under the laws
of the state of its incorporation, with the corporate power and authority to own
its properties and to conduct its business as such properties are currently
owned and such business is presently conducted, and had at all relevant times,
and has, the power, authority and legal right to acquire, own, sell and service
the Receivables and to hold the Receivable Files as custodian.
(b) Due Qualification. The Servicer is duly qualified to do
business and has obtained all necessary licenses and approvals in all
jurisdictions in which the ownership or lease of property or the conduct of its
business (including the ownership or servicing of the Receivables as required by
the Agreement) shall require such qualifications, and was duly qualified and had
all licenses in all relevant jurisdictions required for the origination of the
Receivables.
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(c) Power and Authority of the Servicer. The Servicer has the
corporate power and authority to execute and deliver the Agreement and to
perform its obligations hereunder, and the execution, delivery and performance
of the Agreement have been duly authorized by the Servicer by all necessary
corporate action. All authorizations, consents, orders or approvals of or
registrations or declarations with any court, regulatory body, administrative
agency or other government instrumentality required to be obtained, effected or
given by the Servicer in connection with the execution and delivery by the
Servicer of the Agreement and the performance by the Servicer of the
transactions contemplated by the Agreement have been duly obtained, effected or
given and are in full force and effect, except where failure to obtain the same
would not have a material adverse effect upon the rights of the Trustee or the
Certificateholders.
(d) Binding Obligation. The Agreement constitutes a legal,
valid and binding obligation of the Servicer, enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, moratorium, fraudulent
conveyance, reorganization and similar laws now or hereafter in effect relating
to creditors' rights generally, and subject to general principles of equity
(whether applied in a proceeding at law or in equity).
(e) No Violation. The consummation of the transactions
contemplated by the Agreement and the fulfillment of the terms hereof shall not
conflict with, result in any breach of any of the terms and provisions of, or
constitute (with or without notice or lapse of time) a default under, the
articles of incorporation or bylaws of the Servicer, or any indenture, agreement
or other instrument to which the Servicer is a party or by which it is bound; or
result in the creation or imposition of any Lien upon any of its properties
pursuant to the terms of any such indenture, agreement or other instrument
(other than the Agreement); or violate any law or, to the best of the Servicer's
knowledge, any order, rule or regulation applicable to the Servicer of any court
or of any federal or state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Servicer or its
properties.
(f) No Proceedings. There are no proceedings or investigations
pending against the Servicer, or, to its best knowledge, threatened against the
Servicer, before any court, regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Servicer or its
properties: (i) asserting the invalidity of the Agreement or the Certificates,
(ii) seeking to prevent the issuance of the Certificates or the consummation of
any of the transactions contemplated by the Agreement, (iii) seeking any
determination or ruling that might materially and adversely affect the
performance by the Servicer of its obligations under, or the validity or
enforceability of, the Agreement or the Certificates, or (iv) relating to the
Servicer and which might adversely affect the federal income tax or ERISA
attributes of the Certificates.
(g) No Insolvent Obligors. As of the Cutoff Date, no Obligor
on a Receivable shall be shown on the Receivable Files as the subject of a
bankruptcy proceeding commenced following the execution of the related Contract.
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SECTION 17.02. Indemnities of Servicer. The Servicer shall be
liable in accordance herewith only to the extent of the obligations specifically
undertaken by the Servicer under the Agreement and the representations made by
the Servicer herein.
(a) The Servicer shall defend, indemnify and hold harmless the
Trustee, the Trust, the Collateral Agent, the Certificate Insurer, the
Certificateholders and the Seller from and against any and all costs, expenses,
losses, damages, claims, and liabilities, arising out of or resulting from the
use, ownership or operation by the Servicer or any Affiliate thereof of a
Financed Vehicle.
(b) The Servicer shall indemnify, defend and hold harmless the
Trustee, the Seller, the Trust, the Collateral Agent, the Certificate Insurer,
their respective officers, directors, agents and employees and the
Certificateholders from and against any and all costs, expenses, losses, claims,
damages, and liabilities to the extent that such cost, expense, loss, claim,
damage, or liability arose out of, or was imposed upon any such Person through,
the negligence, willful misfeasance or bad faith of the Servicer in the
performance of its duties under the Agreement or by reason of reckless disregard
of its obligations and duties under the Agreement.
(c) The Servicer shall indemnify, defend and hold harmless the
Trustee and its officers, directors, employees and agents from and against all
costs, expenses, losses, claims, damages and liabilities arising out of or
incurred in connection with the acceptance or performance of the trusts and
duties herein and in the Agreement contained, except to the extent that such
costs, expense, loss, claim, damage or liability shall be due to the willful
misfeasance, bad faith or negligence (except for errors in judgment) of the
Trustee.
For purposes of this Section, in the event of the termination
of the rights and obligations of the Representative (or any successor thereto
pursuant to Section 17.03) as Servicer pursuant to Section 18.01, or a
resignation by such Servicer pursuant to the Agreement, such Servicer shall be
deemed to be the Servicer pending appointment of a successor Servicer (other
than the Trustee) pursuant to Section 18.02.
Indemnification under this Section shall survive the
resignation or removal of the Trustee or the termination of the Agreement and
shall include reasonable fees and expenses of counsel and expenses of
litigation. If the Servicer shall have made any indemnity payments pursuant to
this Section and the recipient thereafter collects any of such amounts from
others, such Person shall promptly repay such amounts to the Servicer, without
interest.
SECTION 17.03. Merger or Consolidation of, or Assumption of
the Obligations of Servicer. Any Person (a) into which the Servicer may be
merged or consolidated, (b) which may result from any merger or consolidation to
which the Servicer shall be a party, (c) which may succeed to the properties and
assets of the Servicer substantially as a whole or (d) with respect to the
Servicer's obligations hereunder, which is a corporation 50% or more of the
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voting stock of which is owned, directly or indirectly, by Franklin Capital
Corporation, which Person executed an agreement of assumption to perform every
obligation of the Servicer hereunder shall be the successor to the Servicer
under the Agreement without further act on the part of any of the parties to the
Agreement; provided, however, that (i) the Servicer shall have received the
written consent of the Certificate Insurer prior to entering into any such
transaction; (ii) immediately after giving effect to such transaction, no
Servicer Default and no event which, after notice or lapse of time, or both,
would become a Servicer Default shall have happened and be continuing, (iii) the
Servicer shall have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel each stating that such consolidation, merger or succession
and such agreement of assumption comply with this Section and that all
conditions precedent provided for in the Agreement relating to such transaction
have been complied with, (iv) the Rating Agency Condition shall have been
satisfied with respect to such transaction and (v) the Servicer shall have
delivered to the Trustee an Opinion of Counsel stating that, in the opinion of
such counsel, either (A) all financing statements and continuation statements
and amendments thereto have been executed and filed that are necessary fully to
preserve and protect the interest of the Trustee in the Receivables and reciting
the details of such filings or (B) no such action shall be necessary to preserve
and protect such interest. Notwithstanding anything herein to the contrary, the
execution of the foregoing agreement of assumption and compliance with clauses
(i), (ii), (iii), (iv) and (v) above shall be conditions to the consummation of
the transactions referred to in clauses (a), (b) or (c) above.
SECTION 17.04. Limitation on Liability of Servicer and Others.
Neither the Servicer nor any of its directors, officers, employees or agents
shall be under any liability to the Trust or the Certificateholders, except as
provided under this Agreement, for any action taken or for refraining from the
taking of any action pursuant to the Agreement or for errors in judgment;
provided, however, that this provision shall not protect the Servicer or any
such person against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of duties or by
reason of reckless disregard of obligations and duties under the Agreement. The
Servicer or any subservicer and any of their respective directors, officers,
employees or agents may rely in good faith on any document of any kind prima
facie properly executed and submitted by any Person respecting any matters
arising under the Agreement.
Except as provided in the Agreement the Servicer shall not be
under any obligation to appear in, prosecute or defend any legal action that
shall not be incidental to its respective duties to service the Receivables in
accordance with the Agreement, and that in its opinion may involve it in any
expense or liability; provided, however, that the Servicer may (but shall not be
required to) undertake any reasonable action that it may deem necessary or
desirable to protect the interests of the Certificateholders under the
Agreement.
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ARTICLE XVIII
Default
SECTION 18.01. Servicer Default. If any one of the following
events (a "Servicer Default") shall occur and be continuing:
(a) Any failure by the Servicer to deliver to the Trustee for
deposit to the Collection Account any proceeds or payment required to be so
delivered under the terms of the Certificates and the Agreement that shall
continue unremedied for a period of five Business Days after written notice of
such failure is received by the Servicer from the Trustee or the Certificate
Insurer or after discovery of such failure by an officer of the Servicer; or
(b) Failure by the Servicer duly to observe or to perform in
any material respect any other covenants or agreements of the Servicer or the
Seller (as the case may be) set forth in the Certificates or in the Agreement,
which failure shall (x) materially and adversely affect the rights of
Certificateholders and (y) continue unremedied for a period of 10 business days
after the date on which written notice of such failure, requiring the same to be
remedied, shall have been given (1) to the Servicer by the Trustee or the
Certificate Insurer or (2) to the Servicer and to the Trustee by the Holders of
Certificates evidencing not less than 25% of the Certificate Balance (or for
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 and the Servicer delivers an Officers' Certificate to the Trustee and the
Certificate Insurer to such effect and to the effect that the Servicer has
commenced or will promptly commence, and will diligently pursue, all reasonable
efforts to remedy such default); or
(c) The occurrence of an Insolvency Event with respect to the
Servicer; or
(d) So long as an Insurer Default shall not have occurred and
be continuing, an Insurance Agreement Event of Default described in Section 5.01
of the Insurance Agreement shall have occurred;
then, and in each and every case, so long as no Insurer Default shall have
occurred and be continuing, the Certificate Insurer, subject to subsection (b)
of this Section 18.01, (or, if an Insurer Default shall have occurred and be
continuing, any of the Trustee or the Holders of Certificates evidencing not
less than a majority of the Certificates then outstanding by notice given in
writing to the Servicer (and to the Trustee if given by the Certificate Insurer
or the Certificateholders) may terminate all of the rights and obligations of
the Servicer under the Agreement. On or after the receipt by the Servicer of
such written notice, all authority, power, obligations and responsibilities of
the Servicer under this Agreement, whether with respect to the Certificates or
the Trust Property or otherwise, automatically shall pass to, be vested in and
become obligations and responsibilities of the Trustee provided that the Trustee
is not unwilling or unable to act; provided, however, that the Trustee shall
have no liability with respect to any obligation which was required to be
performed by the prior Servicer prior to the date that the Trustee becomes the
Servicer or any claim of a third party based on any alleged action or inaction
of the prior Servicer. The Trustee is authorized and empowered by this
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Agreement, as successor Servicer to execute and deliver, on behalf of the prior
Servicer, as attorney-in-fact or otherwise, any and all documents and other
instruments and to do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, whether to
complete the transfer and endorsement of the Receivables and the other Trust
Property and related documents to show the Trustee as lienholder or secured
party on the related Lien Certificates, or otherwise. The prior Servicer agrees
to cooperate with the successor Servicer in effecting the termination of the
responsibilities and rights of the prior Servicer under this agreement,
including, without limitation, the transfer to the successor Servicer for
administration by it of all cash amounts that shall at the time be held by the
prior Servicer for deposit, or have been deposited by the prior Servicer, in the
Collection Account or thereafter received with respect to the Receivables and
the delivery to the successor Servicer of all Receivables Files, records and a
computer tape in readable form containing all information necessary to enable
the successor Servicer to service the Receivables and the other Trust Property.
The terminated Servicer shall grant the Trustee, (in its capacity as Trustee
and/or successor Servicer) and the Certificate Insurer reasonable access to the
terminated Servicer's premises at the Servicer's expense.
SECTION 18.02. Appointment of Successor. (a) Upon the
Servicer's receipt of notice of termination pursuant to Section 18.01 or the
Servicer's resignation in accordance with the terms of the Agreement, the
predecessor Servicer shall continue to perform its functions as Servicer under
the Agreement, in the case of termination, only until the date specified in such
termination notice or, if no such date is specified in a notice of termination,
until receipt of such notice and, in the case of resignation, until the later of
(x) the date 45 days from the delivery to the Trustee of written notice of such
resignation (or written confirmation of such notice) in accordance with the
terms of the Agreement and (y) the date upon which the predecessor Servicer
shall become unable to act as Servicer, as specified in the notice of
resignation and accompanying Opinion of Counsel. In the event of the Servicer's
termination hereunder, the Trustee shall; provided it is not unwilling or unable
to act, assume the obligations of Servicer hereunder, and shall accept its
appointment by a written assumption in form acceptable to the Certificate
Insurer. Notwithstanding the above, the Trustee, with the prior written consent
of the Certificate Insurer, or the Certificate Insurer shall, if the Trustee
shall be unwilling or legally unable so to act, appoint, or petition a court of
competent jurisdiction to appoint, any established institution having a net
worth of not less than $50,000,000 and whose regular business shall include the
servicing of automotive receivables as the successor to the Servicer under the
Agreement.
(b) Upon appointment, the successor Servicer (including the
Trustee acting as successor Servicer) shall be the successor in all respects to
the predecessor Servicer and shall be subject to all the responsibilities,
duties and liabilities arising thereafter relating thereto placed on the
predecessor Servicer and shall be entitled to the Servicing Fee and all of the
rights granted to the predecessor Servicer by the terms and provisions of the
Agreement.
(c) The Servicer may not resign unless it is prohibited from
serving as such by law.
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SECTION 18.03. [RESERVED]
SECTION 18.04. Notification to Certificateholders. Upon any
termination of, or appointment of a successor to, the Servicer pursuant to this
Article XVIII, the Trustee shall give prompt written notice thereof to
Certificateholders and to the Rating Agencies.
SECTION 18.05. Waiver of Past Defaults. So long as no Insurer
Default shall have occurred and be continuing, the Certificate Insurer (or, if
an Insurer Default shall have occurred and be continuing, the Holders of
Certificates evidencing not less than a majority of the Certificate Balance)
may, on behalf of all Holders of Certificates, waive any default by the Servicer
in the performance of its obligations hereunder and its consequences, except a
default in making any required deposits to or payments from an Account in
accordance with the Agreement. Upon any such waiver of a past default, such
default shall cease to exist, and any Servicer Default arising therefrom shall
be deemed to have been remedied for every purpose of the Agreement. No such
waiver shall extend to any subsequent or other default or impair any right
consequent thereon.
ARTICLE XIX
The Trustee And Collateral Agent
SECTION 19.01. Duties of Trustee. (a) If a Servicer Default
has occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by the Agreement and use the same degree of care and skill in their
exercise as a prudent person would exercise or use under the circumstances in
the conduct of such person's own affairs.
(b) Except during the continuance of a Servicer Default:
(i) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in the Agreement and no implied
covenants or obligations shall be read into the Agreement against the Trustee;
and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of the Agreement; provided, however,
that the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of the Agreement.
(c) The Trustee shall take and maintain custody of the
Schedule of Receivables included as an exhibit to the Agreement and shall retain
all Servicer's Certificates identifying Receivables that become Purchased
Receivables and Liquidated Receivables.
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(d) The Trustee shall not be liable with respect to any action
taken, suffered or omitted to be taken in good faith in accordance with the
Agreement or at the direction of the Certificate Insurer or Holders of
Certificates evidencing not less than 25% of the Certificate Balance relating to
the time, method and place of conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or power conferred upon the Trustee
under the Agreement;
(e) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of clause (d) of
this Section;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Trustee Officer unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a direction
received by it pursuant to the Agreement.
(f) No provision of the Agreement shall require the Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
SECTION 19.02. Certain Matters Affecting Trustee. Except as
otherwise provided in Section 19.01:
(a) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper Person. The Trustee
need not investigate any fact or matter stated in any such document.
(b) The Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters or relating to the Agreement or
the Certificates shall be full and complete authorization and protection from
liability in respect of any action taken, suffered or omitted by it under the
Agreement in good faith and in accordance with such advice or opinion of such
counsel.
(c) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by the Agreement, or to institute, conduct
or defend any litigation under the Agreement at the request, order or direction
of the Certificate Insurer or any of the Certificateholders pursuant to the
provisions of the Agreement, unless the Certificate Insurer or such
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Certificateholders, as the case may be, shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that may be incurred therein or thereby.
(d) The Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith which it believes to be authorized or
within its rights or powers conferred upon it by the Agreement; provided, that
such conduct does not constitute willful misconduct, bad faith or negligence on
the part of the Trustee.
(e) The Trustee may execute any of the trusts or powers or
perform any duties hereunder either directly or by or through agents or
attorneys or a custodian, and the Trustee shall not be responsible for any
misconduct or negligence of any such agent, attorney or custodian appointed with
due care by it hereunder.
SECTION 19.03. Trustee Not Liable for Certificates or
Receivables. The recitals contained herein and in the Certificates (other than
the certificate of authentication on the Certificates) shall be taken as the
statements of the Seller or the Servicer, as the case may be, and the Trustee
assumes no responsibility for the correctness thereof. The Trustee shall make no
representations as to the validity or sufficiency of the Agreement or of the
Certificates (other than the certificate of authentication on the Certificates),
or of any Receivable or related document. The Trustee shall at no time have any
responsibility or liability for or with respect to any offering materials used
in connection with the sale of the Certificates, the legality, validity and
enforceability of any Receivable, or the perfection and priority of any security
interest created by any Receivable in any Financed Vehicle or the maintenance of
any such perfection and priority, or for or with respect to the efficacy of the
Trust, the representations, warranties and covenants of the Trust or its ability
to generate the payments to be distributed to Certificateholders under the
Agreement, including, without limitation: the existence, condition and ownership
of any Financed Vehicle; the existence and enforceability of any insurance
thereon; the existence and contents of any Receivable or any computer or other
record thereof; the validity of the assignment of any Receivable to the Trust or
of any intervening assignment; the completeness of any Receivable; the
performance or enforcement of any Receivable; the compliance by the Seller or
the Servicer with any covenant, warranty or representation made under the
Agreement or in any related document and the accuracy of any such covenant,
warranty or representation or any action of the Servicer taken in the name of
the Trustee.
SECTION 19.04. Trustee May Own Certificates. The Trustee in
its individual or any other capacity may become the owner or pledgee of
Certificates and may deal with the Seller and the Servicer in banking
transactions with the same rights as it would have if it were not Trustee.
SECTION 19.05. Trustee's Fees and Expenses. The Trustee shall
be entitled to receive the Trustee Fee pursuant to Section 14.06 for all
services rendered by it in the execution of the trusts created by the Agreement
and in the exercise and performance of any of the Trustee's powers and duties
under the Agreement. The Trustee Fee shall be the only fee payable to the
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Trustee for its services as Trustee and Collateral Agent, provided that the
Trustee and the Collateral Agent shall be entitled to their out-of-pocket
expenses in accordance with the Agreement. The Trustee and the Collateral Agent
shall be entitled to be reimbursed by the Servicer for its reasonable expenses
under the Agreement, including the reasonable compensation, expenses and
disbursements of such agents, representatives, experts and counsel as the
Trustee may employ in connection with the exercise and performance of its rights
and duties under the Agreement.
SECTION 19.06. Eligibility Requirements for Trustee. The
Trustee shall at all times be a corporation having an office in the same state
as the location of the Corporate Trust Office; organized and doing business
under the laws of any state or the United States of America; authorized under
any laws to exercise corporate trust powers; having a combined capital and
surplus of at least $50,000,000 and subject to supervision or examination by
federal or state authorities; and (so long as an Insurer Default shall not have
occurred and be continuing) satisfactory to the Certificate Insurer, and having
(or having a parent that has) a rating of at least Baa3 by Moody's. If such
corporation shall publish reports of condition at least annually pursuant to law
or to the requirements of the aforesaid supervising or examining authority, then
for the purpose of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. In case at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section, the Trustee shall resign immediately in the manner and with the effect
specified in Section 19.07.
SECTION 19.07. Resignation or Removal of Trustee. The Trustee
may at any time resign and be discharged from the trusts hereby created by
giving written notice thereof to the Servicer and the Certificate Insurer. Upon
receiving such notice of resignation, the Servicer shall promptly appoint a
successor Trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the resigning Trustee and one copy to the
successor Trustee. If no successor Trustee shall have been so appointed and have
accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 19.06 and shall fail to resign after
written request therefor by the Servicer or the Certificate Insurer, or if at
any time the Trustee shall be legally unable to act, or shall be adjudged
bankrupt or insolvent, or a receiver of the Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Servicer or the Certificate Insurer may remove the
Trustee. If the Servicer or the Certificate Insurer shall remove the Trustee
under the authority of the immediately preceding sentence, the Servicer (so long
as an Insurer Default shall not have occurred and be continuing) with the
written consent of the Certificate Insurer, or (unless an Insurer Default shall
have occurred and be continuing) at the written request of the Certificate
Insurer shall, or the Certificate Insurer shall promptly appoint a successor
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Trustee (which successor Trustee, if appointed by the Certificate Insurer, shall
be subject to the prior written consent of the Servicer, which consent shall not
be unreasonably withheld) by written instrument, in duplicate, one copy of which
instrument shall be delivered to the outgoing Trustee so removed and one copy to
the successor Trustee, and shall pay all fees owed to the outgoing Trustee. Any
successor trustee shall (so long as an Insurer Default shall not have occurred
and be continuing) be acceptable to the Certificate Insurer.
Any resignation or removal of the Trustee and appointment of a
successor Trustee pursuant to any of the provisions of this Section shall not
become effective until acceptance of appointment by the successor Trustee
pursuant to Section 19.08 and payment of all fees and expenses owed to the
outgoing Trustee. The Servicer shall provide notice of such resignation or
removal of the Trustee to each of the Rating Agencies.
SECTION 19.08. Successor Trustee. Any successor Trustee
appointed pursuant to Section 19.07 shall execute, acknowledge and deliver to
the Servicer and the Certificate Insurer and to its predecessor Trustee an
instrument accepting such appointment under the Agreement as Trustee and
Collateral Agent, and thereupon the resignation or removal of the predecessor
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become fully vested with all the rights, powers,
duties and obligations of its predecessor under the Agreement, with like effect
as if originally named as Trustee and Collateral Agent. The predecessor Trustee
shall upon payment of its fees and expenses deliver to the successor Trustee all
documents and statements and monies held by it under the Agreement; and the
Servicer and the predecessor Trustee shall execute and deliver such instruments
and do such other things as may reasonably be required for fully and certainly
vesting and confirming in the successor Trustee all such rights, powers, duties
and obligations.
No successor Trustee shall accept appointment as provided in
this Section unless at the time of such acceptance such successor Trustee shall
be eligible pursuant to Section 19.06.
Upon acceptance of appointment by a successor Trustee pursuant
to this Section, the Servicer shall mail notice thereof to all
Certificateholders, the Certificate Insurer and the Rating Agencies. If the
Servicer shall fail to mail such notice within 10 days after acceptance of
appointment by the successor Trustee, the successor Trustee shall cause such
notice to be mailed at the expense of the Servicer.
SECTION 19.09. Merger or Consolidation of Trustee. Any
corporation into which the Trustee may be merged or converted or with which it
may be consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be eligible pursuant to Section 19.06, without the execution
or filing of any instrument or any further act on the part of any of the parties
hereto, anything herein to the contrary notwithstanding. The Trustee shall mail
notice of any such merger or consolidation to the Rating Agencies and the
Certificate Insurer.
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SECTION 19.10. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of the Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust or any Financed Vehicle may at the time be located, the Servicer,
the Certificate Insurer (provided an Insurer Default shall not have occurred and
be continuing) and the Trustee shall have the power and shall execute and
deliver all instruments to appoint one or more Persons approved by the Trustee
to act as co-trustee, jointly with the Trustee, or separate trustee or separate
trustees, of all or any part of the Trust, and to vest in such Person, in such
capacity and for the benefit of the Certificateholders, such title to the Trust
or any part thereof and, subject to the other provisions of this Section, such
powers, duties, obligations, rights, and trusts as the Servicer, the Certificate
Insurer and the Trustee may consider necessary or desirable. If the Servicer and
the Certificate Insurer shall not have joined in (or rejected the entity named
in the request) such appointment within 15 days after the receipt by it of a
request so to do, the Trustee alone shall have the power to make such
appointment. No co-trustee or separate trustee under the Agreement shall be
required to meet the terms of eligibility as a successor Trustee pursuant to
Section 19.06 and no notice of the appointment of any co-trustee or separate
trustee shall be required pursuant to Section 19.08.
Each separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) All rights, powers, duties and obligations conferred or
imposed upon any such separate trustee or co- trustee shall be conferred upon
and exercised or performed by the Trustee and such separate trustee or
co-trustee jointly (it being understood that such separate trustee or co-trustee
is not authorized to act separately without the Trustee joining in such act),
except to the extent that under any law of any jurisdiction in which any
particular act or acts are to be performed, the Trustee shall be incompetent or
unqualified to perform such act or acts, in which event such rights, powers,
duties and obligations (including the holding of title to the Trust or any
portion thereof in any such jurisdiction) shall be exercised and performed
singly by such separate trustee or co-trustee, but solely at the direction of
the Trustee;
(ii) No trustee under the Agreement shall be personally liable
by reason of any act or omission of any other trustee under the Agreement; and
(iii) Provided no Insurer Default shall have occurred and be
continuing, the Certificate Insurer may, and, in the event an Insurer Default
shall have occurred and be continuing, then, the Servicer and the Trustee acting
jointly may, at any time accept the resignation of or remove any separate
trustee or co-trustee.
Any notice, request or other writing given to the Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to the Agreement and
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the conditions of this Article. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Trustee or
separately, as may be provided therein, subject to all the provisions of the
Agreement, specifically including every provision of the Agreement relating to
the conduct of, affecting the liability of, or affording protection to, the
Trustee. Each such instrument shall be filed with the Trustee and a copy thereof
given to the Servicer.
Any separate trustee or co-trustee may at any time appoint the
Trustee its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of the
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor co-trustee or separate trustee.
SECTION 19.11. Representations and Warranties of Trustee. The
Trustee shall make the following representations and warranties on which the
Representative, the Seller and Certificateholders shall be deemed to rely:
(i) The Trustee is a banking corporation duly organized,
validly existing and in good standing under the laws of its place of
incorporation.
(ii) The Trustee has full corporate power, authority and legal
right to execute and deliver, and to perform its obligations under, the
Agreement as Trustee and Collateral Agent, and shall have taken all necessary
action to authorize the execution and delivery of, and the performance of its
obligations under, the Agreement.
(iii) The Agreement shall have been duly executed and
delivered by the Trustee.
SECTION 19.12. No Bankruptcy Petition. The Trustee, by
entering into the Agreement, and each Certificateholder, by accepting a
Certificate, hereby covenant and agree that they will not at any time, prior to
the date that is one year and one day after the termination of the Agreement,
institute against, or join any other Person in instituting against, the Seller
or the Trust any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings, or other similar proceedings under any federal or state
bankruptcy or similar law in connection with the Certificates or the Agreement.
SECTION 19.13. Trustee's Certificate. On or as soon as
practicable after each Record Date as of which Receivables shall be assigned to
the Seller or the Servicer pursuant to Section 19.14, the Trustee shall execute
a Trustee's Certificate (in the form of Exhibit E-1 or Exhibit E-2, as
applicable), based on the information contained in the Servicer's Certificate
for the related Monthly Period, amounts deposited to the Collection Account and
notices received pursuant to the Agreement, identifying the Receivables
repurchased by the Seller pursuant to Section 12.03 or purchased by the Servicer
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pursuant to Section 13.07 or Section 20.02 during such Monthly Period, and shall
deliver such Trustee's Certificate, accompanied by a copy of the Servicer's
Certificate for such Monthly Period, to the Seller or the Servicer, as
applicable. The Trustee's Certificate submitted with respect to such
Distribution Date shall operate, as of such Distribution Date, as an assignment,
without recourse, representation or warranty, to the Seller or the Servicer, as
applicable, of all the Trustee's right, title and interest in and to any such
Purchased Receivable and to the other property conveyed to the Trust with
respect thereto, and all security and documents relating thereto, such
assignment being an assignment outright and not for security.
SECTION 19.14. Trustee's Assignment of Purchased Receivables.
With respect to all Receivables repurchased by the Seller pursuant to Section
12.03 or purchased by the Servicer pursuant to Section 13.07 or Section 20.02,
the Trustee shall by a Trustee's Certificate (in the form of Exhibit E-1 or
Exhibit E-2, as applicable) assign, without recourse, representation or
warranty, to the Seller or the Servicer, as applicable, all the Trustee's right,
title and interest in and to any such Receivable and the other property conveyed
to the Trust with respect thereto, and all security and documents relating
thereto, such assignment being an assignment outright and not for security.
ARTICLE XX
Termination
SECTION 20.01. Termination of the Trust. (a) The respective
obligations and responsibilities of the Seller, the Servicer, the Trustee and
Collateral Agent created hereby and the Trust created by the Agreement shall
terminate upon the latest of (i) the maturity or other liquidation of the last
Receivable (including the purchase of the corpus of the Trust pursuant to
Section 20.02) and the disposition of any amounts received upon liquidation of
any remaining Receivables, (ii) the payment to Certificateholders, the
Certificate Insurer and all Persons entitled to payment under the Agreement, of
all amounts required to be paid to them pursuant to the Agreement and the
disposition of all property held as part of the Trust and (iii) the expiration
of any preference period related thereto and payment to the Certificate Insurer
of all amounts payable or reimbursable to it pursuant to the Agreement and the
Insurance and Indemnity Agreement; provided, however, that in no event shall the
trust created by the Agreement continue beyond the expiration of 21 years from
the death of the last survivor of the descendants of Joseph P. Kennedy, the late
ambassador of the United States to the Court of St. James, living on the date of
the Agreement. The Servicer shall promptly notify the other parties hereto and
the Certificate Insurer of any prospective termination pursuant to this Section.
(b) Except as provided in Section 20.01(a), neither the Seller
nor any Certificateholder shall be entitled to revoke or terminate the Trust.
(c) Notice of any termination of the Trust, specifying the
Distribution Date upon which Certificateholders shall surrender their
Certificates to the Trustee for payment of the final distribution and
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cancellation of the Certificates, shall, upon receipt by the Trustee from the
Servicer of such notice, be given by the Trustee by letter to Certificateholders
mailed not earlier than the 15th day and not later than the 25th day of the
month next preceding the specified Distribution Date stating (A) the
Distribution Date upon which final payment of the Certificates shall be made
upon presentation and surrender of the Certificates at the office of the Trustee
therein designated, (B) the amount of such final payment and (C) that the Record
Date otherwise applicable to such Distribution Date is not applicable, payments
being made only upon presentation and surrender of the Certificates at the
office of the Trustee therein specified. The Trustee shall give such notice to
the Certificate Registrar (if other than the Trustee) at the time such notice is
given to Certificateholders. Upon presentation and surrender of the
Certificates, the Trustee shall cause to be distributed to Certificateholders
amounts distributable on such Distribution Date pursuant to Section 14.06.
In the event that all of the Certificateholders shall not
surrender their Certificates for cancellation within six months after the date
specified in the above mentioned written notice, the Trustee shall give a second
written notice to the remaining Certificateholders to surrender their
Certificates for cancellation and receive the final distribution with respect
thereto. If within one year after such second notice all of the Certificates
shall not have been surrendered for cancellation, the Trustee may take
appropriate steps, or may appoint an agent to take appropriate steps, to contact
the remaining Certificateholders concerning surrender of their Certificates, and
the cost thereof shall be paid out of the funds and other assets that shall
remain subject to the Agreement. Any funds remaining in the Trust after
exhaustion of such remedies shall be distributed by the Trustee to the Seller.
As soon as practicable after the termination of the Trust, the Trustee shall
surrender the Policy to the Certificate Insurer for cancellation.
SECTION 20.02. Optional Purchase of All Receivables. On the
last day of any Monthly Period as of which the Pool Balance shall be less than
or equal to 10% of the Original Pool Balance, the Servicer shall have the option
to purchase the corpus of the Trust (with the consent of the Certificate Insurer
if such purchase would result in a claim on the Policy or would result in any
amount owing to the Certificate Insurer, under the Insurance Agreement,
remaining unpaid). To exercise such option the Servicer shall deposit pursuant
to Section 14.05 in the Collection Account an amount equal to the aggregate
Purchase Amount for the Receivables (including Defaulted Receivables), plus the
appraised value of any other property held by the Trust, such value to be
determined by an appraiser mutually agreed upon by the Servicer, the Certificate
Insurer and the Trustee, and shall succeed to all interests in and to the Trust.
ARTICLE XXI
MISCELLANEOUS PROVISIONS
SECTION 21.01. Amendment. (a) The Agreement may be amended
from time to time by the Representative, the Seller, the Servicer and the
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Trustee by written agreement, upon the prior written consent of the Certificate
Insurer, without the notice to or consent of the Certificateholders, to cure any
ambiguity, to correct or supplement any provisions herein, to comply with any
changes in the Code, or to make any other provisions with respect to matters or
questions arising under this Agreement which shall not be inconsistent with the
provisions of this Agreement or the Insurance Agreement; provided, however, that
such action shall not, as evidenced by an Opinion of Counsel delivered to the
Trustee, adversely affect in any material respect the interests of any
Certificateholder.
The Agreement may also be amended from time to time by the
Seller, the Servicer and the Trustee with the prior written consent of the
Certificate Insurer and the Holders of Certificates (which consent shall be
conclusive and binding on such Holders and on all future Holders of such
Certificates and of any Certificates issued upon the transfer therefor or in
exchange thereof or in lieu thereof, whether or not notation of such consent is
made upon the Certificates), evidencing not less than a majority of the
Certificate Balance for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of the Agreement, or of
modifying in any manner the rights of the Certificateholders; provided, however,
that no such amendment shall (a) increase or reduce in any manner the amount of,
or accelerate or delay the timing of, collections of payments on Receivables or
distributions that shall be required to be made on any Certificate or (b) reduce
the aforesaid percentage of the Certificate Balance required to consent to any
such amendment without the consent of the Holders of all Certificates then
outstanding; provided further, that if an Insurer Default has occurred and is
continuing, such action shall not materially adversely affect the interest of
the Certificate Insurer.
Promptly after the execution of any such amendment or consent,
the Trustee shall furnish written notification of the substance of such
amendment or consent to each Certificateholder and the Rating Agencies.
It shall not be necessary for the consent of
Certificateholders pursuant to this Section to approve the particular form of
any proposed amendment or consent, but it shall be sufficient if such consent
shall approve the substance thereof. The manner of obtaining such consents (and
any other consents of Certificateholders provided for in this Agreement) and of
evidencing the authorization of any action by Certificateholders shall be
subject to such reasonable requirements as the Trustee may prescribe.
Prior to the execution of any amendment to the Agreement, the
Trustee shall be entitled to receive and rely upon an Opinion of Counsel stating
that the execution of such amendment is authorized or permitted by the Agreement
and the Opinion of Counsel referred to in Section 21.02(i)(1). The Trustee may,
but shall not be obligated to, enter into any such amendment that affects the
Trustee's own rights, duties or immunities under the Agreement or otherwise.
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(b) Notwithstanding anything to the contrary contained in
subsection 21.01(a) above, the provisions of the Agreement relating to (i) the
Spread Account, the Specified Spread Account Requirement, a Trigger Event or any
component definition of a Trigger Event and (ii) any additional sources of funds
which may be added to the Spread Account or uses of funds on deposit in the
Spread Account may be amended in any respect by the Seller, the Servicer, the
Trustee and the Certificate Insurer without the consent of, or notice to, the
Certificateholders.
SECTION 21.02. Protection of Title to Trust. (a) The Seller
shall execute and file such financing statements and cause to be executed and
filed such continuation statements, all in such manner and in such places as may
be required by law fully to preserve, maintain and protect the interest of the
Certificateholders and the Trustee in the Receivables and in the proceeds
thereof. The Seller shall deliver (or cause to be delivered) to the Trustee and
the Certificate Insurer file-stamped copies of, or filing receipts for, any
document filed as provided above, as soon as available following such filing.
(b) Neither the Seller nor the Servicer shall change its name,
identity or corporate structure in any manner that would, could or might make
any financing statement or continuation statement filed in accordance with
paragraph (a) above seriously misleading within the meaning of Section 9-402(7)
of the UCC, unless it shall have given the Trustee and Certificate Insurer at
least 20 days' prior written notice thereof and shall have promptly filed
appropriate amendments to all previously filed financing statements or
continuation statements. Promptly upon such filing, the Seller or the Servicer,
as the case may be, shall deliver an Opinion of Counsel in form and substance
reasonably satisfactory to the Certificate Insurer, either (A) all financing
statements and continuation statements have been executed and filed that are
necessary fully to preserve and protect the interest of the Trust in the
Receivables, and reciting the details of such filings or referring to prior
Opinions of Counsel in which such details are given, or (B) no such action shall
be necessary to preserve and protect such interest.
(c) Each of the Seller and the Servicer shall have an
obligation to give the Trustee and Certificate Insurer at least 60 days' prior
written notice of any relocation of its principal executive office if, as a
result of such relocation, the applicable provisions of the UCC would require
the filing of any amendment of any previously filed financing or continuation
statement or of any new financing statement, and shall promptly file any such
amendment or new financing statement. The Servicer shall at all times maintain
its principal executive office and each office from which it shall service
Receivables within the United States of America.
(d) The Servicer shall maintain accounts and records as to
each Receivable accurately and in sufficient detail to permit (i) the reader
thereof to know at any time the status of such Receivable, including payments
and recoveries made and payments owing (and the nature of each) and (ii)
reconciliation between payments or recoveries on (or with respect to) each
Receivable and the amounts from time to time deposited in the Collection Account
and Payahead Account in respect of such Receivable.
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(e) The Servicer shall maintain its computer systems so that,
from and after the time of sale under the Agreement of the Receivables to the
Trustee, the Servicer's master computer records (including any back-up archives)
that refer to a Receivable shall indicate clearly the interest of the Trust, in
such Receivable, and that such Receivable is owned by the Trust. Indication of
the Trust's ownership of a Receivable shall be deleted from or modified on the
Servicer's computer systems when, and only when, such Receivable shall have been
paid in full or repurchased.
(f) If at any time the Seller or the Servicer shall propose to
sell, grant a security interest in, or otherwise transfer any interest in
automotive receivables to, any prospective purchaser, lender or other
transferee, the Servicer shall give to such prospective purchaser, lender or
other transferee computer tapes, records or print-outs (including any restored
from back-up archives) that, if they shall refer in any manner whatsoever to any
Receivable shall indicate clearly that such Receivable has been sold and is
owned by the Trustee.
(g) The Servicer shall permit the Trustee and the Certificate
Insurer and their respective agents at any time during normal business hours to
inspect, audit and make copies of and abstracts from the Servicer's records
regarding any Receivable or any other portion of the Trust Property. The
preceding sentence shall not create any duty or obligation on the part of the
Trustee to perform any such acts.
(h) Upon request, the Servicer shall furnish to the Trustee or
the Certificate Insurer, within five Business Days, a list of all Receivables
(by contract number and name of Obligor) then held as part of the Trust,
together with a reconciliation of such list to the Schedule of Receivables and
to each of the Servicer's Certificates furnished before such request indicating
removal of Receivables from the Trust.
(i) The Servicer shall deliver to the Trustee and the
Certificate Insurer:
(1) promptly after the execution and delivery of the Agreement
and, if required pursuant to Section 21.01, of each amendment, an Opinion of
Counsel stating that, in the opinion of such Counsel, in form and substance
reasonably satisfactory to the Certificate Insurer, either (A) all financing
statements and continuation statements have been executed and filed that are
necessary fully to preserve and protect the interest of the Trust in the
Receivables, and reciting the details of such filings or referring to prior
Opinions of Counsel in which such details are given, or (B) no such action shall
be necessary to preserve and protect such interest; and
(2) within 90 days after the beginning of each calendar year
beginning with the first calendar year beginning more than three months after
the Cutoff Date, an Opinion of Counsel, dated as of a date during such 90-day
period, stating that, in the opinion of such counsel, either (A) all financing
statements and continuation statements have been executed and filed that are
necessary fully to preserve and protect the interest of the Trust in the
Receivables, and reciting the details of such filings or referring to prior
Opinions of Counsel in which such details are given, or (B) no such action shall
be necessary to preserve and protect such interest.
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Each Opinion of Counsel referred to in clause (l) or (2) above shall specify any
action necessary (as of the date of such opinion) to be taken in the following
year to preserve and protect such interest.
(j) The Seller shall, to the extent required by applicable
law, cause the Certificates to be registered with the Securities and Exchange
Commission pursuant to Section 12(b) or Section 12(g) of the Securities Exchange
Act of 1934 within the time periods specified in such sections.
SECTION 21.03. Separate Counterparts. The Agreement may be
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.
SECTION 21.04. Limitation on Rights of Certificateholders. (a)
The death or incapacity of any Certificateholder shall not operate to terminate
the Agreement or the Trust, nor entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
commence any proceeding in any court for a partition or winding up of the Trust,
nor otherwise affect the rights, obligations and liabilities of the parties to
the Agreement or any of them.
(b) No Certificateholder shall have any right to vote (except
as provided in Section 21.01 or 18.05) or in any manner otherwise control the
operation and management of the Trust or the obligations of the parties to the
Agreement; nor shall any provision in the Agreement or contained in the
Certificates be construed so as to constitute the Certificateholders from time
to time as partners or members of an association; nor shall any
Certificateholder be under any liability to any third person by reason of any
action taken pursuant to any provision of the Agreement.
(c) No Certificateholder shall have any right to institute any
suit, action or proceeding in equity or at law upon or under or with respect to
the Agreement, unless: (i) such Holder previously shall have given to the
Trustee written notice of a continuing Servicer Default; (ii) the Holders of
Certificates evidencing not less than 25% of the Certificate Balance shall have
made written request upon the Trustee to institute such action, suit or
proceeding in its own name as Trustee under the Agreement and shall have offered
to the Trustee such reasonable indemnity as it may require against the costs,
expenses and liabilities to be incurred therein or thereby; (iii) the Trustee,
for 60 days after its receipt of such notice, request and offer of indemnity
shall have neglected or refused to institute any such action, suit or
proceeding; and (iv) during such 60-day period no request or waiver inconsistent
with such written request shall have been given to the Trustee by Holders
representing a majority of the Certificate Balance. It is understood and
intended that no one or more Holders of Certificates shall have any right in any
manner whatever by virtue of, or by availing of, any provisions of the Agreement
to affect, disturb or prejudice the rights of any other Holders of Certificates,
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or to obtain or seek to obtain priority over or preference to any other such
Holder, or to enforce any right under the Agreement, except in the manner
provided in the Agreement. Nothing in this Agreement shall be construed as
giving the Holders any right to make a claim under the Policy.
SECTION 21.05. Governing Law. THE AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES UNDER THE AGREEMENT SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 21.06. Notices. All demands, notices and
communications upon or to the Seller, the Servicer, the Trustee or the Rating
Agencies under the Agreement shall be in writing, personally delivered or mailed
by certified mail, return receipt requested, and shall be deemed to have been
duly given upon receipt (a) in the case of the Seller, to Franklin Receivables
LLC _____________________, Attention of ___________, (b) in the case of the
Servicer, to ___________________________; (c) in the case of the Trustee or
Collateral Agent, at the Corporate Trust Office; (d) in the case of the
Certificate Insurer, to _____________________, _______________________;
Attention: _____________ (in each case in which notice or other communication to
the Certificate Insurer refers to a Servicer Default, a claim on the Policy, a
Deficiency Notice pursuant to Section 14.04 of this Agreement or with respect to
which failure on the part of the Certificate Insurer to respond shall be deemed
to constitute consent or acceptance, then a copy of such notice or other
communication should also be sent to the attention of each of the General
Counsel and shall be marked to indicate "URGENT MATERIAL ENCLOSED"); (e) in the
case of Moody's, to Moody's Investors Service, Inc., ABS Monitoring Department,
99 Church Street, New York, New York 10007; and (f) in the case of Standard &
Poor's, to Standard & Poor's Ratings Group, 25 Broadway - 15th Floor, New York,
New York 10004, Attention: Asset Backed Surveillance Department. Any notice
required or permitted to be mailed to a Certificateholder shall be given by
first class mail, postage prepaid, at the address of such Holder as shown in the
Certificate Register. Any notice so mailed within the time prescribed in the
Agreement shall be conclusively presumed to have been duly given, whether or not
the Certificateholder shall receive such notice.
SECTION 21.07. Severability of Provisions. Any provision of
the Agreement that is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of the Agreement,
and any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
SECTION 21.08. Assignment. Notwithstanding anything to the
contrary contained herein, except as provided in Sections 16.04 and 17.03 and as
provided in the provisions of the Agreement concerning the resignation of the
Servicer, the Agreement may not be assigned by the Seller or the Servicer
without the prior written consent of the Trustee and the Certificate Insurer (or
if an Insurer Default shall have occurred and be continuing the Holders of
Certificates evidencing not less than 66% of the Certificate Balance).
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SECTION 21.09. Certificates Nonassessable and Fully Paid.
Certificateholders shall not be personally liable for obligations of the Trust.
The interests represented by the Certificates shall be nonassessable for any
losses or expenses of the Trust or for any reason whatsoever.
SECTION 21.10. Third-Party Beneficiaries. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns. No other Person shall have any
right or obligation hereunder. The Certificate Insurer and its successors and
assigns shall be a third-party beneficiary to the provisions of this Agreement,
and shall be entitled to rely upon and directly enforce such provisions of this
Agreement so long as no Insurer Default shall have occurred and be continuing.
Except as expressly stated otherwise herein, any right of the Certificate
Insurer to direct, appoint, consent to, approve of, or take any action under
this Agreement, shall be a right exercised by the Certificate Insurer in its
sole and absolute discretion. The Certificate Insurer may disclaim any of its
rights and powers under this Agreement (but not its duties and obligations under
the Policy) upon delivery of a written notice to the Trustee.
SECTION 21.11. Headings. The headings of the various Articles
and Sections herein are for convenience of reference only and shall not define
or limit any of the terms or provisions hereof.
SECTION 21.12. Nonpetition Covenants. (a) Notwithstanding any
prior termination of this Agreement, the Servicer and the Seller shall not,
prior to the date that is one year and one day after the termination of the
Agreement with respect to the Trust, acquiesce to, petition or otherwise invoke
or cause the Trust to invoke the process of any court or government authority
for the purpose of commencing or sustaining a case against the Trust under any
federal or state bankruptcy, insolvency or similar law, or appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator, or other
similar official of the Trust or any substantial part of its property, or
ordering the winding up or liquidation of the affairs of the Trust.
(b) Notwithstanding any prior termination of the Agreement,
the Servicer shall not, prior to the date that is one year and one day after the
termination of the Agreement with respect to the Seller, acquiesce to, petition
or otherwise invoke or cause the Seller to invoke the process of any court or
government authority for the purpose of commencing or sustaining a case against
the Seller under any federal or state bankruptcy, insolvency or similar law,
appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator,
or other similar official of the Seller or any substantial part of its property,
or ordering the winding up or liquidation of the affairs of the Seller.
SECTION 21.13. Financial Security as Controlling Party. Each
Certificateholder by purchase of the Certificates held by it acknowledges that
the Trustee on behalf of the Trust, as partial consideration of the issuance of
the Policy, has agreed that the Certificate Insurer shall have certain rights
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hereunder for so long as no Insurer Default shall have occurred and be
continuing. So long as an Insurer Default has occurred and is continuing, any
provision giving the Certificate Insurer the right to direct, appoint or consent
to, approve of, or take any action under this Agreement shall be inoperative
during the period of such Insurer Default and such right shall instead vest in
the Trustee acting at the direction of the Holders of Certificates. The
Certificate Insurer may disclaim any of its rights and powers under this
Agreement (but not its duties and obligations under the Policy) upon delivery of
a written notice to the Trustee. The Certificate Insurer may give or withhold
any consent hereunder in its reasonable discretion.
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EXHIBIT A
FORM OF CERTIFICATE
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
DISTRIBUTIONS IN REDUCTION OF THE PRINCIPAL BALANCE OF THIS
CERTIFICATE WILL BE MADE IN INSTALLMENTS AS SET FORTH HEREIN. ACCORDINGLY, THE
OUTSTANDING PRINCIPAL AMOUNT OF THIS CERTIFICATE AT ANY TIME MAY BE LESS THAN
THE AMOUNT SHOWN ON THE FACE HEREOF.
NUMBER $ CUSIP NO.
R-
FRANKLIN AUTO GRANTOR TRUST 199_-_
____% ASSET BACKED CERTIFICATE
evidencing a fractional undivided interest in the Trust, as defined below, the
property of which includes a pool of priime, non-prime and sub-prime retail
installment sale contracts secured by new and used automobiles and light trucks.
(This Certificate does not represent an interest in or obligation of the
Representative, Franklin Receivables LLC or any of their respective affiliates,
except to the extent described below.)
THIS CERTIFIES THAT _________________________________________
is the registered owner of _______________________________________ DOLLARS
nonassessable, fully-paid, fractional undivided interest in Franklin Auto Trust
199_-_ (the "Trust") formed pursuant to the Pooling and Servicing Agreement (the
"Agreement") dated as of ___________, among Franklin Receivables LLC, a Delaware
limited liability company, as seller (the "Seller"), the Franklin Capital
Corporation, a Delaware corporation, as servicer (the "Servicer"), and as
representative (the "Representative") and _________
____________________________, a _______________________, as Trustee and
Collateral Agent, a summary of certain of the pertinent provisions of which is
set forth below. To the extent not otherwise defined herein, the capitalized
terms used herein have the meanings assigned to them in the Agreement.
<PAGE>
This Certificate is one of a duly authorized series of
Certificates, designated as the ___% Asset Backed Certificates (herein called
the "Certificates"), all issued under the Agreement, to which Agreement
reference is hereby made for a statement of the respective rights and
obligations thereunder of the Representative, the Seller, the Servicer, the
Trustee and Collateral Agent, and Holders of the Certificates. The Certificates
are subject to all terms of the Agreement.
The property of the Trust includes a pool of non-prime retail
installment sale contracts secured by new and used automobiles, vans and light
duty trucks (collectively, the "Receivables"), all monies received under such
Receivables after the related Cutoff Date (and, in the case of Precomputed
Receivables, all monies received on or prior to the Cutoff Date that relate to
Scheduled Payments after the Cutoff Date, security interests in the vehicles
financed thereby, certain bank accounts and the proceeds thereof, a financial
guaranty insurance policy (the "Policy") issued by _____________________ (the
"Certificate Insurer"), certain rights against the Representative in the event
of breaches of representations or warranties with respect to the Receivables,
proceeds from claims on certain insurance policies and all proceeds of the
foregoing.
Under the Agreement, there will be distributed on the __th day
of each month or, if such __th day is not a Business Day, the next Business Day
(each, a "Distribution Date"), commencing on _____________, to the Person in
whose name this Certificate is registered at the close of business on the day
immediately preceding such Distribution Date (the "Record Date"), such
Certificateholder's fractional undivided interest in the amount to be
distributed to Certificateholders on such Distribution Date.
Full and complete payment of the Guaranteed Distribution on
each Distribution Date is unconditionally and irrevocably guaranteed pursuant to
the Policy.
It is the intent of the Seller and the Certificateholders
that, for purposes of federal income, state and local income and single business
tax and any other income taxes, the Trust will be treated as a grantor trust and
the Certificates will be treated as interests in a grantor trust. The
Representative, the Seller, the Servicer, the Trustee and the Collateral Agent,
and the Certificateholders, by acceptance of a Certificate, agree to treat, and
to take no action inconsistent with the treatment of, the Certificates for such
tax purposes as interests in a grantor trust.
Distributions on this Certificate will be made as provided in
the Agreement by the Trustee by wire transfer or check mailed to the
Certificateholder of record in the Certificate Register without the presentation
or surrender of this Certificate or the making of any notation hereon, except
that with respect to Certificates registered on the Record Date in the name of
the nominee of the Clearing Agency (initially, such nominee to be Cede & Co.),
payments will be made by wire transfer in immediately available funds to the
account designated by such nominee. Except as otherwise provided in the
Agreement and notwithstanding the above, the final distribution on this
Certificate will be made after due notice by the Trustee of the pendency of such
<PAGE>
distribution and only upon presentation and surrender of this Certificate at the
office or agency maintained for that purpose by the Trustee in the city of
__________,____________.
Reference is hereby made to the further provisions of this
Certificate set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have
been executed by an authorized officer of the Trustee, by manual signature, this
Certificate shall not entitle the Holder hereof to any benefit under the
Agreement or be valid for any purpose.
THIS TRUST CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
<PAGE>
IN WITNESS WHEREOF, the Trustee, on behalf of the Trust and
not in its individual capacity, has caused this Certificate to be duly executed.
Date: FRANKLIN AUTO TRUST 199_-_
By: ______________________________,
not in its individual capacity
but solely as Trustee
By: ______________________________
Authorized Signatory
CERTIFICATE OF AUTHENTICATION
This is one of the Certificates referred to in the within-mentioned Agreement.
Date: __________________________________ as Trustee
By: ______________________________ Authorized Signatory
<PAGE>
(REVERSE OF CERTIFICATE)
The Certificates do not represent an obligation of, or an
interest in, the Seller, the Servicer, the Trustee, and the Collateral Agent or
any affiliates of any of them, and no recourse may be had against such parties
or their assets except as expressly set forth or contemplated herein or in the
Agreement. In addition, this Certificate is limited in right of payment to
certain collections and recoveries with respect to the Receivables (and certain
other amounts) and claims made under the Policy, all as more specifically set
forth herein and in the Agreement. A copy of the Agreement may be examined by
any Certificateholder upon written request during normal business hours at the
principal office of the Seller and at such other places, if any, designated by
the Seller.
The Agreement permits, with certain exceptions therein
provided, the amendment thereof and the modification of the rights and
obligations of the Seller, the Servicer and the Trustee and the rights of the
Certificateholders at any time by the Seller, the Servicer and the Trustee with
the consent of the Certificate Insurer and the Holders of Certificates
evidencing not less than a majority of the Certificate Balance. Any such consent
by the Holder of this Certificate shall be conclusive and binding on such Holder
and on all future Holders of this Certificate and of any Certificate issued upon
the transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent is made upon this Certificate. The Agreement also
permits the amendment thereof, in certain limited circumstances, without the
consent of the Holders of any of the Certificates.
As provided in the Agreement and subject to certain
limitations therein set forth, the transfer of this Certificate is registerable
in the Certificate Register upon surrender of this Certificate for registration
of transfer at the offices or agencies of the Certificate Registrar maintained
by the Trustee in the Borough of Manhattan, The City of New York, accompanied by
a written instrument of transfer in form satisfactory to the Trustee and the
Certificate Registrar duly executed by the Holder hereof or such Holder's
attorney duly authorized in writing, and thereupon one or more new Certificates
of authorized denominations evidencing the same aggregate interest in the Trust
will be issued to the designated transferee. The initial Certificate Registrar
appointed under the Agreement is _________________________.
Except as provided in the Agreement, the Certificates are
issuable only as registered certificates without coupons in a minimum
denomination of $1,000. As provided in the Agreement and subject to certain
limitations therein set forth, Certificates are exchangeable for new
Certificates of authorized denominations evidencing the same aggregate
denomination, as requested by the Holder surrendering the same. No service
charge will be made for any such registration of transfer or exchange, but the
Trustee or the Certificate Registrar may require payment of a sum sufficient to
cover any tax or governmental charge payable in connection therewith.
<PAGE>
The Trustee, the Certificate Registrar and any agent of the
Trustee or the Certificate Registrar may treat the Person in whose name this
Certificate is registered as the owner hereof for all purposes, and none of the
Trustee, the Certificate Registrar or any such agent shall be affected by any
notice to the contrary.
The obligations and responsibilities created by the Agreement
and the Trust created thereby shall terminate upon the payment to
Certificateholders of all amounts required to be paid to them pursuant to the
Agreement and the disposition of all property held by the Trust. The Servicer of
the Receivables may at its option purchase the Trust property at a price
specified in the Agreement, and such purchase of the Receivables and other
property of the Trust will effect early retirement of the Certificates; however,
such right of purchase is exercisable only as of the last day of any Monthly
Period as of which the Pool Balance is less than or equal to 10% of the Original
Pool Balance.
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
(Please print or type name and address, including postal zip code, of assignee)
________________________________________________________________________________
the within Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing ____________________________ to transfer said
Certificate on the books of the Certificate Registrar, with full power of
substitution in the premises.
Dated:
___________________________________________*/
Signature Guaranteed:
____________________________*/
- -----------------------
*/ NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Certificate in every particular, without
alteration, enlargement or any change whatever. Such signature must be
guaranteed by a member firm of the New York Stock Exchange or a commercial bank
or trust company.
<PAGE>
EXHIBIT D
FORM OF SERVICER'S CERTIFICATE
TMS AUTO RECEIVABLES TRUST 199_-_
___% Asset Backed Certificates.
Distribution Date:
Monthly Period:
Under the Pooling and Servicing Agreement dated as of
___________ by and among Franklin Receivables LLC, as Seller, Franklin Capital
Corporation, as Representative ans Servicer and _________
____________________________, as Trustee and Collateral Agent, the Servicer is
required to prepare certain information each month regarding current
distributions to Certificateholders and the performance of the Trust during the
previous month. The information that is required to be prepared with respect to
the Distribution Date and Monthly Period listed above is set forth below.
Certain of the information is presented on the basis of an original principal
amount of $1,000 per Certificate, and certain other information is presented
based upon the aggregate amounts for the Trust as a whole.
A. Information Regarding the Current Monthly Distribution.
1. Certificates.
<TABLE>
<S> <C> <C>
(a) The aggregate amount of the distribution to Certificateholders........ $________
(b) The amount of the distribution set forth in paragraph A.1.(a) above in $________
respect of interest....................................................
(c) The amount of the distribution set forth in paragraph A.1.(a) above in $________
respect of principal...................................................
(d) The amount of the distribution set forth in paragraph A.1.(a) above per $________
$1,000 interest .......................................................
(e) The amount of the distribution set forth in paragraph A.1.(b) above per $________
$1,000 interest........................................................
(f) The amount of the distribution set forth in paragraph A.1.(c) above per $________
$1,000 interest........................................................
<PAGE>
B. Information Regarding the Performance of the Trust.
1. Pool Balance and Certificate Balances.
(a) The Pool Balance close of business on the last day of the preceding $_____
Monthly Period.........................................................
(b) The Certificate Balance as of the close of business on the last day of $_____
the preceding Monthly Period, after giving effect to payments
allocated to principal set forth in Paragraph A.1(c) above.............
(c) The Certificate as of the close of business on the last day of the $_____
preceding Monthly Period...............................................
The change in the Principal Carryover Shortfall from the previous
(d) Distribution Date...................................................... $_____
The change in the Interest Carryover Shortfall from the previous
Distribution Date......................................................
(e) $_____
The amount of aggregate Realized Losses for the second preceding
Monthly
Period.................................................................
(f) $_____
2. Servicing Fee.
(a) The aggregate amount of the Servicing Fee paid to the Servicer with $_____
respect to the preceding Monthly Period...............................
(b) The amount of such Servicing Fee per $1,000 interest.................. $_____
(c) The amount of any unpaid Servicing Fee................................. $_____
(d) The change in the amount of any unpaid Servicing Fee from the $_____
previous Distribution Date............................................
3. Payment Shortfalls.
(a) The amount of the Interest Carryover Shortfall after giving effect to the
payments set forth in paragraph A.1(b) above.............................................$_____
(b) The amount of the Principal Carryover Shortfall after giving effect to the
payment set forth in paragraph A.1(c) above..............................................$_____
<PAGE>
4. Payahead Account.
(a) The aggregate Payahead Balance......................................... $_____
(b) The change in the Payahead Balance from the previous Distribution Date $_____
5. Spread Account.
(a) The amount of such distribution payable out of amounts withdrawn from $_____
the Spread Account.....................................................
(b) The Spread Account balance after giving effect to distributions made $_____
on such Distribution Date..............................................
6. Purchase Amounts.
(a) The aggregate Purchase Amounts for Receivables, that were purchased $____
from the previous Distribution Date....................................
7. The Policy.
(a) The amount of such distribution payable for the Policy................. $____
</TABLE>
<PAGE>
EXHIBIT E-1
FORM OF TRUSTEE' CERTIFICATE - ASSIGNMENT TO SELLER
Trustee's Certificate pursuant to Section 19.14 of the Pooling
and Servicing Agreement.
_________ ____________________________, as trustee (the
"Trustee") of Franklin Auto Trust 199_-_, created pursuant to the Pooling and
Servicing Agreement, dated as of ___________ (including the Standard Terms and
Conditions of Agreement incorporated by reference therein, the "Pooling and
Servicing Agreement"), among Franklin Receivables LLC (the "Seller"), Franklin
Capital Corporation (the "Representative" and the "Servicer") and the Trustee,
does hereby sell, transfer, assign and otherwise convey to the Seller, without
recourse, representation or warranty, all of the Trustee's right, title and
interest in and to all of the Receivables (as defined in the Pooling and
Servicing Agreement) identified in the attached Servicer's Certificate as
"Purchased Receivables," which are to be repurchased by the Seller pursuant to
Section 12.03 of the Pooling and Servicing Agreement, and all security and
documents relating thereto.
IN WITNESS WHEREOF, I have hereunto set my hand this _______
day of ______________________, 199___.
- -------------------------------
<PAGE>
EXHIBIT E-2
FORM OF TRUSTEE' CERTIFICATE - ASSIGNMENT TO SERVICER
Trustee's Certificate pursuant to Section 19.14 of the pooling
and Servicing Agreement.
_________ ____________________________, as trustee (the
"Trustee") of Franklin Auto Trust 199_-_, created pursuant to the Pooling and
Servicing Agreement, dated as of ___________ (including the Standard Terms and
Conditions of Agreement incorporated by reference therein, the "Pooling and
Servicing Agreement among Franklin Receivables LLC (the "Seller"), Franklin
Capital Corporation (the "Representative" and the "Servicer") and the Trustee,
does hereby sell, transfer, assign and otherwise convey to the Servicer, without
recourse, representation or warranty, all of the Trustee's right, title and
interest in and to all of the Receivables (as defined in the Pooling and
Servicing Agreement) identified in the attached Servicer's Certificate as
"Purchased Receivables," which are to be purchased by the Servicer pursuant to
Section 13.07 or Section 20.02 of the Pooling and Servicing Agreement, and all
security and documents relating thereto.
IN WITNESS WHEREOF, I have hereunto set my hand this _______
day of ______________________, 199___.
- ----------------------------
<PAGE>
EXHIBIT F
FORM OF RECEIVABLE STAMP LANGUAGE
THIS CONTRACT/NOTE IS SUBJECT TO A SECURITY INTEREST
GRANTED TO ______________, AS TRUSTEE, FOR WHICH
UCC-1 FINANCING STATEMENTS HAVE BEEN FILED WITH THE
SECRETARY OF STATE OF CALIFORNIA. AS THE LIEN WILL BE
RELEASED ONLY BY FILINGS IN SUCH OFFICES, PURCHASE
DOCUMENT MUST REFER TO SUCH FILINGS TO DETERMINE
WHETHER THE LIEN HAS BEEN RELEASED.
Exhibit 4.4
- --------------------------------------------------------------------------------
FORM OF SALE AND SERVICING
AGREEMENT
among
FRANKLIN AUTO TRUST 1998-1
Issuer,
FRANKLIN RECEIVABLES LLC
Seller, and
FRANKLIN CAPITAL CORPORATION
Servicer and Representative
Dated as of August 1, 1998
- --------------------------------------------------------------------------------
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
ARTICLE I
Definitions
<S> <C> <C>
SECTION 1.1 Definitions............................................................................1
SECTION 1.2 Other Definitional Provisions.........................................................18
ARTICLE II
Conveyance of Receivables
SECTION 2.1 Conveyance of Receivables.............................................................19
ARTICLE III
The Receivables
SECTION 3.1 Representations and Warranties of Seller..............................................20
SECTION 3.2 Repurchase upon Breach................................................................24
SECTION 3.3 Custody of Receivables Files..........................................................25
SECTION 3.4 Duties of Servicer as Custodian.......................................................25
SECTION 3.5 Instructions; Authority To Act........................................................26
SECTION 3.6 Custodian's Indemnification...........................................................26
SECTION 3.7 Effective Period and Termination......................................................27
ARTICLE IV
Administration and Servicing of Receivables
SECTION 4.1 Duties of Servicer....................................................................27
SECTION 4.2 Collection and Allocation of Receivable Payments......................................28
SECTION 4.3 Realization upon Receivables..........................................................28
SECTION 4.4 Physical Damage Insurance.............................................................29
SECTION 4.5 Maintenance of Security Interests in Financed Vehicles................................29
SECTION 4.5-A. Segregation of Receivables Files......................................................30
SECTION 4.6 Covenants of Servicer.................................................................30
SECTION 4.7 Purchase of Receivables upon Breach...................................................30
SECTION 4.8 Servicing Fee.........................................................................31
SECTION 4.9 Servicer's Certificate................................................................31
SECTION 4.10 Annual Statement as to Compliance; Notice of Default..................................31
SECTION 4.11 Annual Independent Certified Public Accountants' Report...............................32
i
<PAGE>
SECTION 4.12 Access to Certain Documentation and InformationRegarding Receivables..................32
SECTION 4.13 Servicer Expenses.....................................................................33
SECTION 4.14 Appointment of Subservicer............................................................33
SECTION 4.15 Obligations under Basic Documents.....................................................33
ARTICLE V
Distributions; Statements to Certificateholders and Noteholders
SECTION 5.1 Establishment of Trust Accounts.......................................................33
SECTION 5.2 Collections...........................................................................36
SECTION 5.3 Application of Collections............................................................36
SECTION 5.4 Deficiency Notice.....................................................................37
SECTION 5.5 Additional Deposits...................................................................37
SECTION 5.6 Distributions.........................................................................37
SECTION 5.7 [RESERVED]............................................................................39
SECTION 5.8 Statements to Certificateholders and Noteholders......................................39
SECTION 5.9 Net Deposits..........................................................................40
SECTION 5.10 Optional Deposits by the Security Insurer.............................................40
ARTICLE VI
The Seller
SECTION 6.1 Representations of the Seller.........................................................40
SECTION 6.2 Corporate Existence...................................................................42
SECTION 6.3 Liability of Seller; Indemnities......................................................43
SECTION 6.4 Merger or Consolidation of, or Assumption of the Obligations of, Seller........ 44
SECTION 6.5 Limitation on Liability of Seller and Others..........................................44
SECTION 6.6 Seller May Own Certificates or Notes..................................................44
ARTICLE VII
The Servicer and the Representative
SECTION 7.1 Representations of Servicer and Representative........................................45
SECTION 7.2 Indemnities of Servicer...............................................................46
SECTION 7.3 Merger or Consolidation of, or Assumption of the Obligations of, Servicer.......47
SECTION 7.4 Limitation on Liability of Servicer and Others........................................48
SECTION 7.5 Servicer Not To Resign................................................................48
ARTICLE VIII
Default
SECTION 8.1 Servicer Default......................................................................49
SECTION 8.2 Appointment of Successor..............................................................50
ii
<PAGE>
SECTION 8.3 [RESERVED]............................................................................51
SECTION 8.4 Notification to Noteholders and Certificateholders....................................51
SECTION 8.5 Waiver of Past Defaults...............................................................51
ARTICLE IX
Termination
SECTION .9.1 Optional Purchase of All Receivables..................................................51
ARTICLE X
Administrative Duties of the Servicer
SECTION 10.1 Administrative Duties.................................................................53
SECTION 10.2 Records...............................................................................55
SECTION 10.3 Additional Information to be Furnished to the Issuer..................................55
ARTICLE XI
Miscellaneous Provisions
SECTION 11.1 Amendment.............................................................................55
SECTION 11.2 Protection of Title to Trust..........................................................56
SECTION 11.3 Notices...............................................................................58
SECTION 11.4 Assignment............................................................................59
SECTION 11.5 Limitations on Rights of Others.......................................................59
SECTION 11.6 Severability..........................................................................59
SECTION 11.7 Separate Counterparts.................................................................59
SECTION 11.8 Headings..............................................................................59
SECTION 11.9 Governing Law.........................................................................59
SECTION 11.10 Assignment to Trustee.................................................................59
SECTION 11.11 Nonpetition Covenants.................................................................60
SECTION 11.12 Limitation of Liability of Owner Trustee, Trustee and Indenture Collateral Agent 60
SECTION 11.13 Independence of the Servicer..........................................................60
SECTION 11.14 No Joint Venture......................................................................61
SECTION 11.15 Third-Party Beneficiaries.............................................................61
SECTION 11.16 Disclaimer by Security Insurer........................................................61
</TABLE>
SCHEDULES
Schedule A - Schedule of Receivables
Schedule B - Location of Receivables
EXHIBITS
Exhibit A - Reserved
Exhibit B - Reserved
Exhibit C - Form of Monthly Noteholder Statement
Exhibit D - Form of Servicer's Certificate
Exhibit E - Form of Note Policy
Exhibit F - Form of Stamp
iii
<PAGE>
SALE AND SERVICING AGREEMENT dated as of
August 1, 1998, among FRANKLIN AUTO TRUST 1998-1, a
Delaware business trust (the "Issuer"), FRANKLIN
RECEIVABLES LLC, a Delaware limited liability company
(the "Seller") and FRANKLIN CAPITAL CORPORATION, a
Delaware corporation (the "Servicer," the
"Representative" or "Franklin Capital").
WHEREAS the Issuer desires to purchase a portfolio of
receivables arising in connection with motor vehicle retail installment sale
contracts acquired by Franklin Capital Corporation through motor vehicle
dealers;
WHEREAS the Seller has purchased such receivables from Franklin
Capital Corporation and is willing to sell such receivables to the Issuer;
WHEREAS the Servicer is willing to service all such receivables;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I.
Definitions
SECTION 1.1 Definitions. Whenever used in this Agreement, the following
words and phrases shall have the following meanings:
"Affiliate" means, with respect to any specified Person, any
other Person controlling or controlled by or under common control with such
specified Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing. A Person shall not be
deemed to be an Affiliate of any person solely because such other Person has the
contractual right or obligation to manage such Person unless such other Person
controls such Person through equity ownership or otherwise.
<PAGE>
"Aggregate Principal Balance" means, with respect to any date
of determination, the sum of the Principal Balances for all Receivables (other
than (i) any Receivable that became a Liquidated Receivable during the related
Monthly Period and (ii) any Receivable that was purchased or repurchased by any
Person pursuant to the Agreement during the related Monthly Period) as of the
date of determination.
"Agreement" means this Sale and Servicing Agreement, as the
same may be amended and supplemented from time to time.
"Amount Financed" means, with respect to a Receivable, the
aggregate amount advanced under such Receivable toward the purchase price of the
Financed Vehicle and any 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.
"Annual Percentage Rate" or "APR" of a Receivable means the
annual percentage rate of finance charges or service charges, as stated in the
related Contract.
"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), (ii) all Purchase Amounts deposited in the Collection
Account during the related Monthly Period, and proceeds of any repurchase by a
Dealer pursuant to Dealer Agreement, (iii) following the acceleration of the
Notes pursuant to Section 5.2 of the Indenture, the amount of money or property
collected pursuant to Section 5.4 of the Indenture since the preceding
Determination Date by the Trustee or Controlling Party for distribution pursuant
to Section 5.6 of the Indenture, and (iv) any Insolvency Proceeds received
pursuant to Section 9.1(b) hereof.
"Base Servicing Fee" means, with respect to any Monthly
Period, the fee payable to the Servicer for services rendered during such
Monthly Period, which shall be equal to one-twelfth of the applicable Servicing
Fee Rate multiplied by the Pool Balance applicable to Prime Receivables,
Non-Prime Receivables and Sub-Prime Receivables, as applicable as of the first
day of such Monthly Period.
"Basic Documents" means the Certificate of Trust, the Trust
Agreement, the Sale and Servicing Agreement, the Indenture, the Insurance
Agreement, the Depository Agreement and other documents and certificates
delivered in connection therewith.
"Business Day" means a day other than a Saturday, a 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.
"Certificate" means a Trust Certificate (as defined in the
Trust Agreement).
2
<PAGE>
"Certificate Distribution Account" has the meaning assigned to
such term in the Trust Agreement.
"Certificateholder" each person in whose name a Certificate is
registered.
"Class" means the Class A-1 Notes and the Class A-2 Notes, as
the context requires.
"Class A-1 Notes" has the meaning assigned to such term in the
Indenture.
"Class A-2 Notes" has the meaning assigned to such term in the
Indenture.
"Closing Date" means August ___, 1998.
"Collected Funds" means, with respect to any Determination
Date, the amount of funds in or to be deposited in the Collection Account
representing collections on the Receivables during the related Monthly Period,
including all Net Liquidation Proceeds and proceeds of any Insurance Policy
collected during the related Monthly Period (but excluding any Purchase
Amounts).
"Collection Account" means the account designated as such,
established and maintained pursuant to Section 5.1 of the Agreement.
"Computer Tape" means the computer tapes or other electronic
media furnished by or on behalf of the Seller to the Issuer and its assigns and
the Security Insurer describing certain characteristics of the Receivables as of
the Cutoff Date.
"Contract" means a motor vehicle retail installment sale
contract.
"Corporate Trust Office" means (i) with respect to the Owner
Trustee, the principal corporate trust office of the Owner Trustee, which at the
time of execution of this Agreement is __________, Attention: _____________, and
(ii) with respect to Trustee and the Indenture Collateral Agent, the principal
corporate office of the Trustee, which at the time of execution of this
Agreement is _____________________________________________.
"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 a Receivable or otherwise modifying or
restructuring the scheduled payments to be made on a 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 of such reduction (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.
3
<PAGE>
"Cutoff Date" means as to any Receivable, August __, 1998.
"Dealer" means a dealer who sold a Financed Vehicle and who
originated and assigned the respective Receivable to the Seller under an
existing agreement between such Dealer and the Seller.
"Dealer Agreement" means any agreement between a Dealer and
Franklin Capital Corporation relating to the acquisition of Receivables from a
Dealer by Franklin Capital Corporation.
"Defaulted Receivable" means a Receivable with respect to
which: (i) ten percent or more of a Scheduled Payment is 120 or more days
delinquent, (ii) the Servicer has repossessed the related Financed Vehicle (and
any applicable redemption period has expired) or (iii) such Receivable is in
default and the Servicer has determined in good faith that payments thereunder
are not likely to be resumed.
"Deficiency Claim Amount" shall have the meaning set forth in
Section 5.4 of the Agreement.
"Deficiency Claim Date" means, with respect to any
Distribution Date, the fourth Business Day immediately preceding such
Distribution Date.
"Deficiency Notice" shall have the meaning set forth in
Section 5.4 of the Agreement.
"Delivery" when used with respect to Trust Account Property
means:
(a) with respect to bankers' acceptances, commercial paper,
negotiable certificates of deposit and other obligations that constitute
instruments and are susceptible of physical delivery ("Physical Property"):
(i) transfer of possession thereof to the Trustee,
endorsed to, or registered in the name of, the Trustee or its
nominee or endorsed in blank;
(b) with respect to a certificated security:
(i) delivery thereof in bearer form to the Indenture
Collateral Agent; or
(ii) delivery thereof in registered form to the
Indenture Collateral Agent and
(A) the certificate is endorsed to the Indenture
Collateral Agent or in blank by effective endorsement; or
4
<PAGE>
(B) the certificate is registered in the name of the
Indenture Collateral Agent, upon original issue or
registration of transfer by the Issuer;
(c) with respect to an uncertificated security:
(i) the delivery of the uncertificated security to
the Indenture Collateral Agent; or
(ii) the issuer has agreed that it will comply with
instructions originated by the Indenture Collateral Agent
without further consent by the registered owner;
(d) with respect to any security issued by the U.S. Treasury
that is a book-entry security held through the Federal Reserve System pursuant
to Federal book-entry regulations:
(i) a Federal Reserve Bank by book entry credits the
book-entry security to the securities account (as defined in
31 CFR Part 357) of a participant (as defined in 31 CFR Part
357) which is also a securities intermediary; and
(ii) the participant indicates by book entry that the
book-entry security has been credited to the Indenture
Collateral Agent securities account;
(e) with respect to a security entitlement:
(i) the Indenture Collateral Agent becomes the
entitlement holder; or
(ii) the securities intermediary has agreed that it
will comply with entitlement orders originated by the
Indenture Collateral Agent without further consent by the
entitlement holder;
(f) for the purpose of clauses (b) and (c) hereof "delivery"
means:
(i) with respect to a certificated security:
(A) the Indenture Collateral Agent acquires
possession thereof;
(B) another person (other than a securities
intermediary) either acquires possession thereof on behalf of
the Indenture Collateral Agent or, having previously acquired
possession thereof, acknowledges that it holds for the
Indenture Collateral Agent; or
(C) a securities intermediary acting on
behalf of the Indenture Collateral Agent acquires possession
of thereof, only if the certificate is in registered form and
5
<PAGE>
has been specially endorsed to the Indenture Collateral Agent
by an effective endorsement;
(ii) with respect to an uncertificated security:
(A) the issuer registers the Indenture
Collateral Agent as the registered owner, upon original issue
or registration of transfer; or
(B) another person (other than a securities
intermediary) either becomes the registered owner thereof on
behalf of the Indenture Collateral Agent or, having previously
become the registered owner, acknowledges that it holds for
the Indenture Collateral Agent;
(g) for purposes of this definition, except as otherwise
indicated, the following terms shall have the meaning assigned to each such term
in the UCC:
(i) "certificated security"
(ii) "effective endorsement"
(iii) "entitlement holder"
(iv) "instrument"
(v) "securities account"
(vi) "securities entitlement"
(vii) "securities intermediary"
(viii) "uncertificated security"
(h) in each case of Delivery contemplated herein, the
Indenture Collateral Agent shall make appropriate notations on its records, and
shall cause same to be made on the records of its nominees, indicating that
securities are held in trust pursuant to and as provided in this Agreement.
"Depository Agreement" means the Note Depository Agreement.
"Determination Date" means, with respect to any Distribution
Date, the fifth Business Day prior to the related Distribution Date.
"Distribution Amount" means, with respect to a Distribution
Date, the sum of (i) the Available Funds for the immediately preceding
Determination Date, plus (ii) the Deficiency Claim Amount, if any, received
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(from an Insurer Optional Deposit or otherwise [other than from draws under the
Note Policy]) by the Trustee with respect to such Distribution Date.
"Distribution Date" means, with respect to each Monthly
Period, the fifteenth day of the following calendar month, or if such day is not
a Business Day, the immediately following Business Day, commencing in September
1998.
"Draw Date" means, with respect to any Distribution Date, the
second Business Day immediately preceding such Distribution Date.
"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 (a) the corporate trust
department of the Trustee or any other entity specified in the Agreement 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), which (i) has either (A) a long-term
unsecured debt rating of AAA or better by Standard & Poor's and Aaa or better by
Moody's or (B) a certificate of deposit rating of A-1+ by Standard & Poor's and
P-1 or better by Moody's or any other short-term or certificate of deposit
rating acceptable to the Rating Agencies and to the Security Insurer and (ii)
whose deposits are insured by the FDIC. If so qualified under clause (b) above,
the Owner Trustee or the Trustee may be considered an Eligible Institution.
"Eligible Investments" mean book-entry securities, negotiable
instruments or securities represented by instruments in bearer or registered
form which evidence:
(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) and subject to supervision and
examination by Federal or state banking or depository institution authorities
(including depository receipts issued by any such institution or trust company
as custodian with respect to any obligation referred to in clause (a) above or
portion of such obligation for the benefit of the holders of such depository
receipts); provided, however, that at the time of the investment or contractual
commitment to invest therein (which shall be deemed to be made again each time
funds are reinvested following each Distribution Date), the commercial paper or
other short-term senior unsecured debt obligations (other than such obligations
the rating of which is based on the credit of a Person other than such
depository institution or trust company) of such depository institution or trust
company shall have a credit rating from Standard & Poor's of A-1+ and from
Moody's of P-1;
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(c) commercial paper having, at the time of the investment or
contractual commitment to invest therein, a rating from Standard & Poor's of
A-1+ and from Moody's of P-1;
(d) investments in money market funds (including funds for
which the Trustee or the Owner Trustee or any of their respective Affiliates is
investment manager or advisor) having a rating from Standard & Poor's of AAA-m
or AAAm-G and from Moody's of Aaa and having been approved by the Security
Insurer;
(e) bankers' acceptances issued by any depository institution
or trust company referred to in clause (b) above;
(f) repurchase obligations with respect to any security that
is a direct obligation of, or fully guaranteed by, the United States of America
or any agency or instrumentality thereof the obligations of which are backed by
the full faith and credit of the United States of America, in either case
entered into with a depository institution or trust company (acting as
principal) referred to in clause (b) above;
(g) any demand deposit in a trust account maintained by
___________; provided that such deposits shall consist of direct obligations of,
and obligations guaranteed as to timely payment by, __________________; and
(h) any other investment which would satisfy the Rating Agency
Condition and is consistent with the ratings of the Securities and which, so
long as no Insurer Default shall have occurred and be continuing, has been
approved by the Security Insurer.
Any of the foregoing Eligible Investments may be purchased by
or through the Owner Trustee or the Trustee or any of its Affiliates.
"FDIC" means the Federal Deposit Insurance Corporation.
"Final Scheduled Distribution Date" means with respect to (i)
the Class A-1 Notes, the _____ Distribution Date, and (ii) the Class A-2 Notes,
the Distribution Date.
"Final Scheduled Maturity Date" means _________________.
"Financed Vehicle" means a new or used automobile or
light-truck, together with all accessions thereto, securing an Obligor's
indebtedness under the respective Receivable.
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"Indenture" means the Indenture dated as of August 1, 1998,
among the Issuer, the Indenture Collateral Agent and the Trustee, as the same
may be amended and supplemented from time to time.
"Indenture Collateral Agent" means the Person acting as
Indenture Collateral Agent under the Indenture, its successors in interest and
any successor Indenture Collateral Agent under the Indenture.
"Insolvency Event" means, with respect to a specified Person,
(a) the filing of a petition against such Person or the entry of a decree or
order for relief by a court having jurisdiction in the premises in respect of
such Person or any substantial part of its property in an involuntary case under
any applicable federal or state bankruptcy, insolvency or other similar law now
or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator, or similar official for such Person or for any
substantial part of its property, or ordering the winding-up or liquidation of
such Person's affairs, and such petition, decree or order shall remain unstayed
and in effect for a period of 60 consecutive days; or (b) the commencement by
such Person of a voluntary case under any applicable federal or state
bankruptcy, insolvency or other similar law now or hereafter in effect, or the
consent by such Person to the entry of an order for relief in an involuntary
case under any such law, or the consent by such Person to the appointment of or
taking possession by, a receiver, liquidator, assignee, custodian, trustee,
sequestrator, or similar official for such Person or for any substantial part of
its property, or the making by such Person of any general assignment for the
benefit of creditors, or the failure by such Person generally to pay its debts
as such debts become due, or the taking of action by such Person in furtherance
of any of the foregoing.
"Insurance Agreement" means the Insurance Agreement, dated as
of August 1, 1998, among the Security Insurer, the Indenture Trustee, the Trust,
the Servicer, the Representative, the Owner Trustee and the Seller.
"Insurance Agreement Event of Default" means an "Insurance
Agreement Event of Default" as defined in the Insurance Agreement.
"Insurance Policy" means, with respect to a Receivable, any
insurance policy (including the insurance policies described in Section 4.4 of
the Agreement) benefiting the holder of the Receivable providing loss or
physical damage, credit life, credit disability, theft, mechanical breakdown or
similar coverage with respect to the Financed Vehicle or the Obligor.
"Insurer's Agent" means The Chase Manhattan Bank.
"Insurer Default" means the occurrence and continuance of any
of the following events:
(a) the Security Insurer shall have failed to make a payment
required under the Note Policy in accordance with its terms;
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(b) The Security 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, judgment or decree (i) appointing a custodian, trustee,
agent or receiver for the Security 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 Security Insurer (or the taking of possession
of all or any material portion of the property of the Security Insurer);
provided, however, that the Security Insurer's rights shall be immediately
reinstated upon cure of such Insurer Default.
"Insurer Optional Deposit" means, with respect to any
Distribution Date, an amount delivered by or on behalf of the Insurer pursuant
to Section 5.10 of the Agreement, at its sole option, to the Trustee 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 or for such Distribution Date or, to
the extent that without such amount a draw would be required to be made on the
Note Policy.
"Interest Rate" means, with respect to (i) the Class A-1
Notes,__% per annum [(computed on the basis of the actual number of days elapsed
in a 360-day year)] and (ii) the Class A-2 Notes,__% per annum (computed on the
basis of a 360-day year of twelve 30-day months).
"Investment Earnings" means, with respect to any Distribution
Date, the investment earnings (net of losses and investment expenses) on amounts
on deposit in the Trust Accounts and the Certificate Distribution Account.
"Issuer" means Franklin Auto Trust 1998-1.
"Lien" means a security interest, lien, charge, pledge,
equity, or encumbrance of any kind, other than tax liens, mechanics' liens and
any liens that attach to the respective Receivable by operation of law as a
result of any act or omission by the related Obligor.
"Lien Certificate" means, with respect to a Financed Vehicle,
an original certificate of title, certificate of lien or other notification
issued by the Registrar of Titles of the applicable state to a secured party
which indicates that the lien of the secured party on the Financed Vehicle is
recorded on the original certificate of title. In any jurisdiction in which the
original certificate of title is required to be given to the Obligor, the term
"Lien Certificate" shall mean only a certificate or notification issued to a
secured party.
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"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 180 or more days delinquent, or (iv) the
Financed Vehicle has been sold and the proceeds received.
"Monthly Period" means with respect to each Distribution Date,
the calendar month preceding the month in which such Distribution Date or
occurs.
"Moody's" means Moody's Investors Service, Inc., or its
successor.
"Net Liquidation Proceeds" means as to any Liquidated
Receivable, all amounts realized with respect to such Receivable (other than
amounts paid pursuant to this Agreement and draws under the Note Policy) net of
(i) reasonable expenses incurred by the Servicer in connection with the
collection of such Receivable and the repossession and disposition of the
Financed Vehicle and (ii) amounts that are required to be refunded to the
Obligor on such Receivable; provided, however, that the Net Liquidation Proceeds
with respect to any Receivable shall in no event be less than zero.
"Non-Prime Receivables" means those Receivables indicated on
Schedule A hereto as non-prime.
"Note Distribution Account" means the account designated as
such, established and maintained pursuant to Section 5.1 of the Agreement.
"Note Insured Payment" has the meaning as defined in the Note
Policy.
"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, the excess of the Noteholders' Monthly
Interest Distributable Amount for the preceding Distribution Date and any
outstanding Noteholders' Interest Carryover Shortfall on such preceding
Distribution Date, over the amount in respect of interest that was actually
deposited in the Note Distribution Account on such preceding Distribution Date,
plus interest on the amount of interest due but not paid to Noteholders on the
preceding Distribution Date, to the extent permitted by law, at the respective
Interest Rate borne by each 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 such Distribution Date and the Noteholders' Interest
Carryover Shortfall for such Distribution Date. Interest on the Class A-1 Notes
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shall 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-2 Notes
shall be computed on the basis of a 360-day year of twelve 30-day months.
"Noteholders' Monthly Interest Distributable Amount" means,
with respect to any Distribution Date, the product of (i) (X) in the case of the
Class A-1 Notes, the product of the Interest Rate for such Class and a fraction,
the numerator of which is [the number of days elapsed from and including the
prior Distribution Date (or, in the case of the first Distribution Date, from
and including the Closing Date) to but excluding such Distribution Date and the
denominator of which is 360] and (Y) in the case of the Class A-2 Notes,
one-twelfth of the Interest Rate for such Class (or, in the case of the first
Distribution Date, the Interest Rate for such Class multiplied by a fraction,
the numerator of which is the number of days elapsed from and including August
__, 1998 to but excluding such Distribution Date and the denominator of which is
360) and (ii) the outstanding principal amount of the Notes of such Class
immediately preceding such Distribution Date.
"Noteholders' Monthly Principal Distributable Amount" means,
with respect to any Distribution Date, the Noteholders' Percentage of the
Principal Distributable Amount.
"Noteholders' Percentage" means with respect to any
Determination Date (i) relating to a Distribution Date prior to the Distribution
Date on which the principal amount of the Class A-2 Notes is reduced to zero,
100%; (ii) relating to the Distribution Date on which the principal amount of
the Class A-2 Notes is reduced to zero, the percentage equivalent of a fraction,
the numerator of which is the principal amount of the Class A-2 Notes
immediately prior to such Distribution Date, and the denominator of which is the
Principal Distributable Amount; and (iii) relating to any other Distribution
Date, 0%.
"Noteholders' Principal Carryover Shortfall" means, as of the
close of any Distribution Date, the excess of the Noteholders' Monthly Principal
Distributable Amount and any outstanding Noteholders' Principal Carryover
Shortfall for the preceding Distribution Date over the amount in respect of
principal that was actually deposited in the Note Distribution Account on such
preceding 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 lesser of (i) the outstanding principal
balance on the Notes on such Distribution Date prior to making any distribution
thereon and (ii) 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).
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"Note Policy" means the note guaranty insurance policy issued
by the Security Insurer to the Trustee for the benefit of the Noteholders with
respect to the Notes, including any endorsements thereto, in the form of Exhibit
E to the Indenture.
"Note Pool Factor" for each Class of Notes as of the close of
business on a Distribution Date means a seven-digit decimal figure equal to the
outstanding principal amount of such Class of Notes as of such Distribution Date
after giving effect to principal distributions on such date divided by the
original outstanding principal amount of such Class of Notes.
"Obligor" on a Receivable means the purchaser or co-purchasers
of the Financed Vehicle and any other Person who owes payments under the
Receivable.
"Officer's Certificate" means a certificate signed by the (a)
chairman of the board, the president, any executive vice president or any vice
president and (b) any treasurer, assistant treasurer, secretary or assistant
secretary of the Representative, the Seller or the Servicer, as appropriate.
"Opinion of Counsel" means one or more written opinions of
counsel who may be an employee of or counsel to the Representatives, the Seller
or the Servicer, which counsel shall be acceptable to the Trustee, the Owner
Trustee, the Security Insurer or the Rating Agencies, as applicable, and which
shall be addressed to the Security Insurer.
"Original Pool Balance" means the Pool Balance as of the
Cutoff Date.
"Owner Trust Estate" has the meaning assigned to such term in
the Trust Agreement.
"Owner Trustee" means ____, not in its individual capacity but
solely as Owner Trustee under the Trust Agreement, its successors in interest or
any successor Owner Trustee under the Trust Agreement.
"Payahead" on a Precomputed Receivable means the amount, as of
the close of business on the last day of a Collection Period, computed in
accordance with Section 5.3 with respect to such Receivable.
"Payahead Account" means the account designated as such,
established and maintained pursuant to Section 5.1 of the Agreement.
"Payahead Balance" on a Precomputed Receivable means the sum,
as of the close of business on the last day of a Collection Period, of all
Payaheads made by or on behalf of the Obligor with respect to such Precomputed
Receivable, as reduced by applications of previous Payaheads with respect to
such Precomputed Receivable, pursuant to Section 5.3.
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"Person" means any individual, corporation, estate,
partnership, joint venture, association, joint stock company, trust (including
any beneficiary thereof), unincorporated organization or government or any
agency or political subdivision thereof.
"Physical Property" has the meaning assigned to such term in
the definition of "Delivery" above.
"Pool Balance" means, as of any date of determination, the
aggregate Principal Balance of the Receivables (excluding Purchased Receivables
and Liquidated Receivables).
"Precomputed Receivable" means any Receivable under which the
portion of a payment allocable to interest and the portion allocable to
principal is determined in accordance with the Rule of 78s Method.
"Prime Receivables" means those Receivables indicated on
Schedule A hereto as prime.
"Principal Balance" means, with respect to any Receivable, as
of any date, the Amount Financed minus (i) that portion of all amounts received
on or prior to such date and allocable to principal in accordance with (x) in
the case of Simple Interest Receivables, the terms of the Receivable and (y) in
the case of Precomputed Receivables, the actuarial method, and (ii) any Cram
Down Loss in respect of such Receivable.
"Principal Carryover Shortfall" means, as of the close of
business on any Distribution Date, the excess of the Principal Distributable
Amount plus any outstanding Principal Carryover Shortfall from the preceding
Distribution Date over the amount of principal deposited in the Note
Distribution Account with respect to such current Distribution Date.
"Principal Distributable Amount" means, with respect to any
Distribution Date, without duplication, the sum of (i) the principal portion
(calculated in the case of Precomputed Receivables on the basis of the actuarial
method and in the case of Simple Interest Receivables, calculated on the basis
of the Simple Interest Method) of all Collected Funds received during the
immediately preceding Monthly Period (other than Liquidated Receivables and
Purchased Receivables) including the principal portion of all prepayments, (ii)
the Principal Balance of all Receivables that became Liquidated Receivables
during the related Monthly Period (other than Purchased Receivables), (iii)
(without duplication of amounts in clause (ii) hereof) the principal portion of
the Purchase Amounts received with respect to all Receivables that became
Purchased Receivables during the related Monthly Period, (iv) in the sole
discretion of the Security Insurer, the Principal Balance of all the Receivables
that were required to be purchased pursuant to Sections 3.2 and 4.7, during such
Monthly Period but were not purchased, (v) the aggregate amount of Cram Down
Losses that shall have occurred during the related Monthly Period; and (vi)
following the acceleration of the Notes pursuant to Section 5.2 of the
Indenture, the amount of money or property collected pursuant to Section 5.4 of
the Indenture since the preceding Determination Date by the Trustee or
Controlling Party for distribution pursuant to Section 5.6 of the Indenture.
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"Purchase Agreement" means the Purchase Agreement between the
Seller and Franklin Capital Corporation, dated as of August 1, 1998 pursuant to
which the Seller acquired the Receivables, as such Agreement may be amended from
time to time.
"Purchase Amount" means, with respect to a Receivable, the
Principal Balance and all accrued and unpaid interest on the Principal Balance
of such Receivable (including one month's interest thereon, in the month of
payment, at the APR less, so long as Franklin Capital Corporation is the
Servicer, the Servicing Fee), after giving effect to the receipt of any moneys
collected (from whatever source) on such Receivable, if any.
"Purchased Receivable" means a Receivable purchased as of the
close of business on the last day of a Monthly Period by the Servicer or the
Representative pursuant to Section 4.7 of the Agreement or repurchased by the
Seller, Franklin Capital Corporation or the Representative pursuant to Section
3.2 of the Agreement.
"Rating Agency" means Moody's and Standard & Poor's. If no
such organization or successor maintains a rating on the Securities, "Rating
Agency" shall be a nationally recognized statistical rating organization or
other comparable Person designated by the Seller and acceptable to the Security
Insurer (so long as an Insurer Default shall not have occurred and be
continuing), notice of which designation shall be given to the Trustee, the
Owner Trustee, the Security Insurer and the Servicer.
"Rating Agency Condition" means, with respect to any action,
that each Rating Agency shall have been given 10 days' (or such shorter period
as shall be acceptable to each Rating Agency) prior notice thereof and that each
of the Rating Agencies shall have notified the Seller, the Servicer, the
Security Insurer, the Owner Trustee and the Trustee in writing that such action
will not result in a reduction or withdrawal of the then current rating of any
Class of Notes.
"Realized Losses" means, with respect to any Receivable that
becomes a Liquidated Receivable, the excess of the Principal Balance of such
Liquidated Receivable over Net Liquidation Proceeds to the extent allocable to
principal.
"Receivable" means any Contract listed on Schedule A (which
Schedule may be in the form of microfiche).
"Receivable Files" means the documents specified in Section
3.3.
"Receivables" means any Receivable conveyed to the Trust on
the Closing Date.
"Record Date" with respect to each Distribution Date means the
day immediately preceding such Distribution Date, unless otherwise specified in
the Agreement.
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"Registrar of Titles" means, with respect to any state, the
governmental agency or body responsible for the registration of, and the
issuance of certificates of title relating to, motor vehicles and liens thereon.
"Rule of 78s Method" means the method under which a portion of
a payment allocated to earned interest and the portion allocable to principal is
determined according to the sum of the month's digits or any equivalent method
commonly referred to as the "Rule of 78s."
"Rule of 78s Receivable" means a Receivable which by its terms
calculates interest and principal with respect to each scheduled payment in
accordance with the Rule of 78s method.
"Scheduled Payment" on a Precomputed Receivable means that
portion of the payment required to be made by the Obligor during the respective
Monthly Period sufficient to amortize the Principal Balance thereof under the
actuarial method over the term of the Receivable and to provide interest at the
APR.
"Security Insurer" means MBIA Insurance Corporation, a stock
insurance company incorporated under the laws of the State of New York, or any
successor thereto, as issuer of the Policies.
"Seller" means Franklin Receivables LLC, a Delaware limited
liability company, and its successors in interest to the extent permitted
hereunder.
"Service Contract" means, with respect to a Financed Vehicle,
the agreement, if any, financed under the related Receivable that provides for
the repair of such Financed Vehicle.
"Servicer" means Franklin Capital Corporation, as the servicer
of the Receivables, and each successor Servicer pursuant to Section 7.3 or 8.2
of the Agreement.
"Servicer Default" means an event specified in Section 8.1 of
the Agreement.
"Servicer's Certificate" means an Officer's Certificate of the
Servicer delivered pursuant to Section 4.9 of the Agreement, substantially in
the form of Exhibit D to the Agreement.
"Servicing Fee" has the meaning specified in Section 4.8 of
the Agreement.
"Servicing Fee Rate" means with respect to (i) Prime
Receivables, 1.0% per annum, (ii) Non-Prime Receivables, 1.53% per annum and
(iii) Sub-Prime Receivables, 2.0%per annum.
"Simple Interest Method" means the method of allocating a
fixed level payment to principal and interest, pursuant to which the portion of
such payment that is allocated to interest is equal to the product of the fixed
rate of interest multiplied by the unpaid principal balance multiplied by the
period of time elapsed since the preceding payment of interest was made (in some
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states assuming 30 day months), divided by the actual number of days in a year
(360 days in states which assume 30 day months) and the remainder of such
payment is allocable to principal.
"Simple Interest Receivable" means any Receivable under which
the portion of a payment allocable to interest and the portion allocable to
principal is determined in accordance with the Simple Interest Method.
"Standard & Poor's" means Standard & Poor's Ratings Services,
or its successor.
"Sub-Prime Receivables" means those Receivables indicated on
Schedule A hereto as sub-prime.
"Supplemental Servicing Fee" means charges collected (from
whatever source) on the Receivables during the related Monthly Period including,
in the case of a Precomputed Receivable that is prepaid in full, the difference
between the Principal Balance of such Receivable (plus accrued interest to the
date of prepayment) and the principal balance of such Receivable computed
according to the Rule of 78s, and other late fees, prepayment fees,
administrative fees and expenses or similar charges allowed by applicable law
with respect to Receivables, plus reinvestment proceeds on any payments received
in respect of Receivables during the related Monthly Period.
"Trust" means the Issuer.
"Trust Account Property" means the Trust Accounts, all amounts
and investments held from time to time in any Trust Account (whether in the form
of deposit accounts, Physical Property, book-entry securities, uncertificated
securities or otherwise), and all proceeds of the foregoing.
"Trust Accounts" has the meaning assigned thereto in Section
5.1 of the Agreement.
"Trust Agreement" means the Trust Agreement dated as of August
1, 1998 between the Seller and the Owner Trustee, as the same may be amended and
supplemented from time to time.
"Trust Officer" means, (i) in the case of the Trustee, the
chairman or vice-chairman of the board of directors, the chairman or
vice-chairman of the executive committee of the board of directors, the
president, any vice president, the secretary, any assistant secretary, the
treasurer, any assistant treasurer, the cashier, any assistant cashier, any
trust officer or assistant trust officer, the controller and any assistant
controller or any other officer of the Trustee customarily performing functions
similar to those performed by any of the above designated officers and also
means, with respect to a particular corporate trust matter, any other officer to
whom such matter is referred because of such officer's knowledge of and
familiarity with the particular subject, and (ii) in the case of the Owner
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Trustee, any officer in the corporate trust office of the Owner Trustee with
direct responsibility for the administration of this Agreement or any of the
Basic Documents on behalf of the Owner Trustee.
"Trust Property" has the meaning assigned thereto in Section
2.1 of the Agreement.
"Trustee" means the Person acting as Trustee under the
Indenture, its successors in interest and any successor trustee under the
Indenture.
"UCC" means the Uniform Commercial Code as in effect in the
State of New York on the date of the Agreement.
SECTION 1.2 Other Definitional Provisions
(a) Capitalized terms used herein and not otherwise defined
herein have the meanings assigned to them in the Indenture, or, if not defined
therein, in the Trust Agreement.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any instrument governed hereby and in any certificate or
other document made or delivered pursuant hereto unless otherwise defined
therein.
(c) As used in this Agreement, in any instrument governed
hereby and in any certificate or other document made or delivered pursuant
hereto or thereto, accounting terms not defined in this Agreement or in any such
instrument, certificate or other document, and accounting terms partly defined
in this Agreement or in any such instrument, certificate or other document to
the extent not defined, shall have the respective meanings given to them under
generally accepted accounting principles as in effect on the date of this
Agreement or any such instrument, certificate or other document, as applicable.
To the extent that the definitions of accounting terms in this Agreement or in
any such instrument, certificate or other document are inconsistent with the
meanings of such terms under generally accepted accounting principles, the
definitions contained in this Agreement or in any such instrument, certificate
or other document shall control.
(d) The words "hereof," "herein," "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement; Section, Schedule
and Exhibit references contained in this Agreement are references to Sections,
Schedules and Exhibits in or to this Agreement unless otherwise specified; and
the term "including" shall mean "including without limitation."
(e) The definitions contained in this Agreement are applicable
to the singular as well as the plural forms of such terms and to the masculine
as well as to the feminine and neuter genders of such terms.
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(f) Any agreement, instrument or statute defined or referred
to herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein;
references to a Person are also to its permitted successors and assigns.
ARTICLE II
Conveyance of Receivables
SECTION 2.1 Conveyance of Receivables. In consideration of the Issuer's
delivery to or upon the order of the Seller on the Closing Date of (x) the net
proceeds from the sale of the Notes, (y) the Certificates and (z) the other
amounts to be distributed from time to time to the Seller in accordance with the
terms of this Agreement, the Seller does hereby sell, transfer, assign, set over
and otherwise convey to the Issuer, without recourse (subject to the obligations
set forth herein), all right, title and interest of the Seller in and to:
(a) the Receivables, and all moneys received thereon after the
Cutoff Date;
(b) an assignment of the security interests in the Financed
Vehicles granted by Obligors pursuant to the Receivables and any other interest
of the Seller in such Financed Vehicles;
(c) any proceeds with respect to the Receivables from claims
on any physical damage, credit life or disability insurance policies covering
Financed Vehicles or Obligors and any proceeds from the liquidation of the
Receivables;
(d) any proceeds from any Receivable repurchased by a Dealer,
pursuant to a Dealer Agreement, as a result of a breach of representation or
warranty in the related Dealer Agreement;
(e) all rights under any Service Contracts on the related
Financed Vehicles;
(f) the related Receivables Files;
(g) all of the Seller's right, title and interest in its
rights and benefits, but none of its obligations or burdens, under the Purchase
Agreement, including the Seller's rights under the Purchase Agreement, and the
delivery requirements, the representations and warranties and the cure and
repurchase obligations of Franklin Capital Corporation under the Purchase
Agreement; and
(h) the proceeds of any and all of the foregoing (the items
specified in clauses (a) through (h) are referred to herein as the "Trust
Property").
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It is the intention of the Seller that the transfer and
assignment contemplated by this Agreement shall constitute a sale of the
Receivables and other Trust Property from the Seller to the Trust and the
beneficial interest in and title to the Receivables and the other Trust Property
shall not be part of the Seller's estate in the event of the filing of a
bankruptcy petition by or against the Seller under any bankruptcy law. In the
event that, notwithstanding the intent of the Seller, the transfer and
assignment contemplated hereby is held not to be a sale, this Agreement shall
constitute a grant of a security interest in the property referred to in this
Section 2.1 for the benefit of the Noteholders, the Certificateholders and the
Security Insurer.
ARTICLE III
The Receivables
SECTION 3.1 Representations and Warranties of Seller. The Representative
and the Seller, jointly and severally, make the following representations and
warranties as to the Receivables on which the Issuer is deemed to have relied in
acquiring the Receivables and upon which the Security Insurer shall be deemed to
rely in issuing the Note Policy. Such representations and warranties speak as of
the execution and delivery of this Agreement and as of the Closing Date, but
shall survive the sale, transfer and assignment of the Receivables to the Issuer
and the pledge thereof to the Trustee pursuant to the Indenture.
(a) Title. It is the intention of the Seller that the transfer
and assignment herein contemplated constitute a sale of the Receivables from the
Seller to the Trust and that the beneficial interest in and title to such
Receivables not be part of the debtor's estate in the event of the filing of a
petition for receivership by or against the Seller under any bankruptcy law.
Immediately prior to the transfer and assignment herein contemplated, the Seller
had good and marketable title to each Receivable, free and clear of all Liens
and, immediately upon the transfer thereof, the Trust shall have good and
marketable title to each such Receivable, free and clear of all Liens; and the
transfer of the Receivables to the Trust has been perfected under the UCC. No
Dealer or any other Person has any right to receive proceeds of any Receivables.
(b) All Filings Made. All filings (including, without
limitation, UCC filings) necessary in any jurisdiction to give the Trust a first
priority perfected ownership interest in the Receivables, and to give the
Trustee a first priority perfected security interest therein, shall have been
made.
(c) Characteristics of Receivables. Each Receivable (i) was
originated in the United States of America by (i) a Dealer in connection with
the retail sale of a Financed Vehicle in the ordinary course of such Dealer's
business, was fully and properly executed by the parties thereto, and was
purchased by the Seller from such Dealer under an existing dealer agreement with
the Seller or (ii) Franklin Capital Corporation or an affiliate of Franklin
Capital Corporation in the ordinary course of its business and was fully and
properly executed by the parties thereto, shall have been purchased by the
Seller from Franklin Capital Corporation and shall have been validly assigned by
Franklin Capital Corporation to the Seller in accordance with its terms, (ii)
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shall have created or shall create a valid, subsisting and enforceable first
priority security interest in favor of Franklin Capital Corporation in the
Financed Vehicle, which security interest has been assigned by Franklin Capital
Corporation to the Seller, which in turn shall be assignable by the Seller to
the Trust, (iii) shall contain customary and enforceable provisions such that
the rights and remedies of the holder thereof shall be adequate for realization
against the collateral of the benefits of the security, (iv) shall provide for
level monthly payments (provided that the payment in the first or last month in
the life of the Receivable may be minimally different from the level payment)
that fully amortize the Amount Financed by maturity, (v) in the case of a
Precomputed Receivable, shall provide for, in the event that such Contract is
prepaid, a prepayment that fully pays the Principal Balance and includes a full
months interest to the date of payment in the month of prepayment at the Annual
Percentage Rate, and (vi) has not been amended or collections with respect to
which have been waived, other than as evidenced in the Receivable File relating
thereto.
(d) Schedule of Receivables. The information set forth in
Schedule A to this Agreement is true and correct in all material respects as of
the close of business on the Cutoff Date, and no selection procedures believed
by the Seller to be adverse to the Noteholders or the Security Insurer were
utilized in selecting the Receivables. The Computer Tape regarding the
Receivables is true and correct in all material respects as of the Cutoff Date.
(e) Compliance With Law. Each Receivable complied at the time
it was originated or made and complies at the execution of this Agreement in all
material respects with all requirements of applicable Federal, state and local
laws and regulations thereunder, including, without limitation, usury laws, the
Federal Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair Credit
Reporting Act, the Fair Debt Collection Practices Act, the Federal Trade
Commission Act, the Magnuson-Moss Warranty Act, the Rees-Levering Act, the
Federal Reserve Board's Regulations B and Z, state adaptations of the National
Consumer Act and other consumer credit laws and equal credit opportunity and
disclosure laws.
(f) Binding Obligation. Each Receivable represents the legal,
valid and binding payment obligation in writing of the Obligor thereunder,
enforceable by the holder thereof in accordance with its terms except as such
enforceability may be limited by applicable bankruptcy, insolvency, moratorium,
fraudulent conveyance, reorganization and similar laws now or hereafter in
effect related to or affecting creditors' rights generally and subject to
general principles of equity (whether applied in a proceeding at law or in
equity); and all parties to each Receivable had full legal capacity to execute
and deliver such Receivable and all other documents related thereto and to grant
the security interest purported to be granted thereby.
(g) No Government Obligor. None of the Receivables are due
from the United States of America or any State or from any agency, department or
instrumentality of the United States of America or any state.
(h) Security Interest in Financed Vehicle. Immediately prior
to the sale, assignment and transfer thereof to the Trust, each Receivable is
secured by a validly perfected first priority security interest in the Financed
Vehicle in favor of Franklin Capital Corporation as secured party or all
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necessary and appropriate actions have been commenced that would result in the
valid perfection of a first priority security interest in the Financed Vehicle
in favor of Franklin Capital Corporation as secured party. Immediately after the
sale, assignment and transfer thereof to the Trust, although the Lien
Certificate will not indicate the Trust or Owner Trustee as secured party, each
Receivable will be secured by an enforceable and perfected security interest in
the Financed Vehicle in favor of the Trust as secured party for the benefit of
the Noteholders and the Security Insurer, which security interest is prior to
all other Liens in such Financed Vehicle.
(i) Receivables in Force. No Receivable has been satisfied,
subordinated or rescinded, nor has any Financed Vehicle been released from the
Lien granted by the related Receivable in whole or in part unless another
vehicle has been substituted as collateral securing the Receivable without any
other modification to such Receivable.
(j) No Waiver. No provision of a Receivable has been waived
except as reflected in the Receivable File relating to such Receivable.
(k) No Defenses. No right of rescission, setoff, counterclaim
or defense has been asserted or threatened with respect to any Receivable.
(l) No Liens. There are no Liens or claims, including Liens
for work, labor, materials or unpaid state or federal taxes relating to any
Financed Vehicle securing the related Receivable, that are or may be prior to or
equal to the Lien granted by such Receivable.
(m) No Default. No Receivable has a payment that is more than
30 days delinquent as of the Cutoff Date and, except as permitted in this
paragraph, no default, breach, violation or event (in any such case) permitting
acceleration under the terms of any Receivable has occurred; and no continuing
condition that with notice or the lapse of time would constitute a default,
breach, violation or event (in any such case) permitting acceleration under the
terms of any Receivable shall have arisen as of the Cutoff Date; and the Seller
has not waived and shall not waive any of the foregoing. For purposes of this
clause (m), 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. As of the Closing Date, no Receivable has had an uncured first
payment default.
(n) No Bankruptcies. No Obligor on any Receivable was the
subject of a bankruptcy proceeding commenced following the execution of the
related Contract.
(o) No Repossessions. As of the Cutoff Date, no Financed
Vehicle securing any Receivable is in repossession status.
(p) Adverse Selection. No selection procedures adverse to the
Noteholders or the Security Insurer were utilized in selecting the Receivables
from those owned by the Servicer which met the selection criteria contained in
this Agreement.
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(q) Chattel Paper. Each Receivable constitutes "chattel paper"
as defined in the UCC.
(r) Insurance. The Seller, in accordance with its customary
procedures, has determined that the Obligor, at the time the Receivable was
originated, obtained physical damage insurance covering the Financed Vehicle and
under the terms of the Receivable the Obligor is required to maintain such
insurance.
(s) Lawful Assignment. No Receivable was originated in, as of
the Cutoff Date, or is subject to the laws of, any jurisdiction under which the
sale, transfer and assignment of such Receivable or this Agreement is unlawful,
void or voidable).
(t) No Insurance Premiums. No portion of the Principal Balance
of any Receivable includes amounts attributable to the payment of any physical
damage or theft insurance premium.
(u) One Original. There is only one original executed copy of
each Receivable.
(v) Location of Receivable Files. The Receivable Files shall
be kept at one or more of the locations listed in Schedule B and each item
required to be in a Receivable File is in such Receivable File.
(w) Computer Records. As of the Closing Date, the accounting
and computer records relating to the Receivables of the Seller have been marked
to show the absolute ownership by the Owner Trustee on behalf of the Trust of
the Receivables.
(x) Taxes. To the best knowledge of the Representative and the
Seller, there are no state or local taxing jurisdictions which have asserted
that nonresident holders of notes issued by, a trust which holds assets similar
to the assets to be held by the Trust are subject to the jurisdiction's income
or other taxes solely by reason of the location in the jurisdiction of the Owner
Trustee, the Seller, the Servicer, the Representative, the obligors on or the
assets securing the Receivables held by the Trust, or the issuer of a financial
guaranty insurance policy.
(y) Maturity of Receivables. Each Receivable has a final
maturity date not later than ____; each Receivable has an original term to
maturity of not more than _____ months; the weighted average original term of
the Receivables is approximately ______ months; the weighted average remaining
term of the Receivables is approximately _____ months as of the Cutoff Date. No
Receivable shall have a remaining term to maturity in excess of _____ months
except __% of the Aggregate Principal Balance of the Receivables represent
Receivables with remaining terms to maturity of up to _____ months.
(z) Financing. Approximately ___% of the aggregate principal
balance of the Receivables, represent new vehicles; the remainder of the
Receivables represent used vehicles; approximately ___% of the aggregate
Principal Balance of the Receivables represent Precomputed Receivables and the
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remainder of the Receivables represent Simple Interest Receivables;
approximately ____% of the Receivables which are Precomputed Receivables are
Rule of 78s Receivables. The aggregate Principal Balance of the Receivables is
$_____.
(aa) APR. The weighted average Annual Percentage Rate of the
Receivables is approximately ___%. Each Receivable has an APR equal to or
greater than ____%.
(bb) Number. There are ____ Receivables.
(cc) Balance. Each Receivable has a remaining principal
balance of not less than $_______ and not more than $_________, the average
Principal Balance of the Receivables is $_________.
SECTION 3.2 Repurchase upon Breach. (a) The Representative, the Seller,
the Servicer, the Security Insurer or the Owner Trustee, as the case may be,
shall inform the other parties to this Agreement and the Trustee promptly, in
writing, upon the discovery of any breach of the Representative's or the
Seller's representations and warranties made pursuant to Section 3.1. As of the
last day of the second (or, if the Representative or the Seller so elects, the
first) month following the discovery by the Representative or the Seller or
receipt by the Representative or the Seller of notice from any of the
Representative, the Seller, the Servicer, the Security Insurer or the Owner
Trustee of such breach, unless such breach is cured by such date, the
Representative and the Seller shall jointly and severally have an obligation to
repurchase any Receivable in which the interests of the Noteholders or the
Security Insurer are materially and adversely affected by any such breach as of
such date. 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. In consideration of and
simultaneously with the repurchase of the Receivable, the Representative and/or
the Seller shall remit, or cause Franklin Capital Corporation to remit, to the
Collection Account the Purchase Amount in the manner specified in Section 5.5
and the Issuer shall execute such assignments and other documents reasonably
requested by such person in order to effect such repurchase. The sole remedy of
the Issuer, the Owner Trustee, the Trustee, the Noteholders or the
Certificateholders with respect to a breach of representations and warranties
pursuant to Section 3.1 and the agreement contained in this Section shall be the
repurchase of Receivables pursuant to this Section, subject to the conditions
contained herein or to enforce the obligation of Franklin Capital Corporation to
the Seller to repurchase such Receivables pursuant to the Purchase Agreement.
Neither the Owner Trustee nor the Trustee shall have a duty to conduct any
affirmative investigation as to the occurrence of any conditions requiring the
repurchase of any Receivable pursuant to this Section.
(b) Pursuant to Section 2.1 of this Agreement, the Seller
conveyed to the Trust all of the Seller's right, title and interest in its
rights and benefits, but none of its obligations or burdens, under the Purchase
Agreement including the Seller's rights under the Purchase Agreement and the
delivery requirements, the representations and warranties and the cure or
repurchase obligations of Franklin Capital Corporation thereunder. The Seller
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hereby represents and warrants to the Trust that such assignment is valid,
enforceable and effective to permit the Trust to enforce such obligations of
Franklin Capital Corporation under the Purchase Agreement.
SECTION 3.3 Custody of Receivables Files. To assure uniform quality in
servicing the Receivables and to reduce administrative costs, the Issuer hereby
revocably appoints the Servicer, and the Servicer hereby accepts such
appointment, to act as the agent of the Issuer and the Trustee as custodian of
the following documents or instruments which are hereby constructively delivered
to the Trustee, as of the Cutoff Date as pledgee of the Issuer with respect to
each Receivable:
(a) the original Receivable;
(b) a record of the information supplied by the Obligor in the
original credit application;
(c) the original certificate of title or such documents that
the Servicer shall keep on file, in accordance with its customary procedures,
evidencing the security interest of Franklin Capital Corporation in the Financed
Vehicle (it being understood that the original certificates of title generally
are not delivered to the Seller for 120 days but that promptly upon delivery
they shall be delivered to the Servicer as custodian hereunder); and
(d) any and all other documents that the Servicer shall keep
on file, in accordance with its customary procedures, relating to a Receivable,
an Obligor or a Financed Vehicle.
SECTION 3.4 Duties of Servicer as Custodian. (a) Safekeeping. The
Servicer shall hold the Receivables Files on behalf of the Issuer and the
Trustee and maintain such accurate and complete accounts, records and computer
systems pertaining to each Receivable File as shall enable the Issuer to comply
with this Agreement. In performing its duties as custodian the Servicer shall
act with reasonable care, using that degree of skill and attention that the
Servicer exercises with respect to the receivable files relating to all
comparable automotive receivables that the Servicer services for itself or
others, and in any event with no less degree of skill and care than would be
exercised by a prudent servicer or custodian of non-prime motor vehicle retail
installment sales contracts, except that the Servicer shall not be obligated,
and does not currently intend, to (i) pay any premium of force-placed insurance
concerning any Financed Vehicle or (ii) monitor any Obligor's maintenance of
such insurance. The Servicer shall conduct, or cause to be conducted, periodic
audits of the Receivables Files held by it under this Agreement and of the
related accounts, records and computer systems, in such a manner as shall enable
the Owner Trustee, the Security Insurer or the Trustee to verify the accuracy of
the Servicer's record keeping. The Servicer shall promptly report to the Issuer,
the Security Insurer and the Trustee any failure on its part to hold the
Receivables Files and maintain its accounts, records and computer systems as
herein provided and promptly take appropriate action to remedy any such failure.
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(b) Maintenance of Records. The Servicer shall maintain each
Receivable File at its office specified in Schedule B to the Agreement or at
such other office as shall be specified to the Issuer, the Trustee and the
Security Insurer by written notice not later than 10 days after any change in
location. The Servicer shall (i) at all times maintain the original of the fully
executed Receivable and store such original Receivable in a fireproof cabinet;
and (ii) stamp each Receivable on both the first and the signature page (if
different) as of the Closing Date and in accordance with the instructions from
time to time provided by the Security Insurer, in the form attached hereto as
Exhibit F, or such other form as shall be acceptable to the Security Insurer.
(c) Access to Records. The Servicer will provide, on the
Closing Date, an Officer's Certificate stating that the Receivables Files
contain all materials which are required to be kept therein by Section 3.3(a),
(b), (c) and (d). At any time following the Closing Date, the Security Insurer
may conduct a review of the Receivables Files, or a sample thereof as it may
specify, at its own expense but with the cooperation of the Servicer. Should the
Security Insurer find any documents missing or any other irregularities, then
the Trustee shall perform a review, for the benefit of the Security Insurer and
at the expense of the Servicer, of all the Receivables Files.
Upon reasonable prior notice, the Servicer shall make
available to the Issuer, the Trustee, the Security Insurer, or any duly
authorized representatives, attorneys or auditors of any of the foregoing, a
list of locations of, and access to, the Receivables Files and records and
computer systems maintained by the Servicer at such times during normal business
hours as the Issuer, the Trustee or the Security Insurer shall instruct.
(d) Release of Documents. Upon written instruction from the
Trustee or the Security Insurer, at any time following a Servicer Default or
termination of the Servicer's appointment pursuant to Section 3.7 the Servicer
shall release any Receivable File to the Trustee, the Trustee's agent, or the
Trustee's designee, as the case may be, or the Security Insurer, as the case may
be, at such place or places as the Trustee or the Security Insurer, as the case
may be, may designate, as soon as practicable.
SECTION 3.5 Instructions; Authority To Act. The Servicer shall
be deemed to have received proper instructions with respect to the Receivables
Files upon its receipt of written instructions signed by a Trust Officer of the
Trustee. A copy of such instructions shall be furnished by the Trustee to the
Security Insurer. The Trustee shall not have any duty or obligation to provide
the Servicer with any such instructions with respect to the Receivables Files.
SECTION 3.6 Custodian's Indemnification. The Servicer as custodian shall
indemnify and hold harmless the Trust, the Security Insurer, the Owner Trustee
and the Trustee and each of their officers, directors, employees and agents for
any and all liabilities, obligations, losses, compensatory damages, payments,
costs or expenses (including reasonable attorneys' fees and expenses) that may
be imposed on, incurred by or asserted against the Trust, the Owner Trustee or
the Trustee or any of their officers, directors, employees and agents as the
result of any improper act or omission in any way relating to the maintenance
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and custody by the Servicer as custodian of the Receivables Files; provided,
however, that the Servicer shall not be liable to the Trust, the Owner Trustee,
the Trustee or the Security Insurer, as the case may be, for any portion of any
such amount resulting from the willful misfeasance, bad faith or negligence of
the Owner Trustee, the Trustee or the Security Insurer, as the case may be. This
provision shall not be considered to limit the Servicer's or any other party's
rights, obligations, liabilities, claims or defenses which arise as a matter of
law or pursuant to any other provision of this Agreement.
SECTION 3.7 Effective Period and Termination. The Servicer's appointment
as custodian shall become effective as of the Cutoff Date and shall continue in
full force and effect until terminated pursuant to this Section 3.7. If Franklin
Capital Corporation shall resign as Servicer in accordance with the provisions
of this Agreement or if all of the rights and obligations of any Servicer shall
have been terminated under Section 8.1, the appointment of such Servicer as
custodian shall be terminated, in the same manner as the Servicer may be
terminated under Section 8.1. The Trustee or, with the consent of the Trustee,
the Owner Trustee may, in each case, with the consent of the Security Insurer,
and the Security Insurer may terminate the Servicer's appointment as custodian
(i) with cause or (ii) upon the occurrence of an Insurance Agreement Event of
Default, upon written notification to the Servicer and the Trustee or Security
Insurer, as the case may be. As soon as practicable after any termination of
such appointment, the Servicer shall deliver the Receivables Files to the
Trustee or the Trustee's agent at such place or places as the Trustee, with the
consent of the Security Insurer, or the Trustee shall, at the direction of the
Security Insurer, reasonably designate in writing. If the Servicer shall be
terminated as custodian hereunder for any reason but shall continue to serve as
Servicer, the Trustee shall, or shall cause its agent to, make the Receivables
Files available to the Servicer during normal business hours upon reasonable
notice so as to permit the Servicer to perform its obligations as Servicer
hereunder.
ARTICLE IV
Administration and Servicing of Receivables
SECTION 4.1 Duties of Servicer. The Servicer, as agent for the Issuer
and the Security Insurer (to the extent provided herein), shall manage, service,
administer and make collections on the Receivables (other than Purchased
Receivables) with reasonable care, using that degree of skill and attention that
the Servicer exercises with respect to all comparable automotive receivables
that it services for itself or others, and in any event with no less degree of
skill and care than would be exercised by a prudent servicer of prime, non-prime
or sub-prime, as applicable, motor vehicle retail installment sales contracts,
except that the Servicer shall not be obligated, and does not currently intend,
to (i) pay any premium of force-placed insurance concerning any Financed Vehicle
or (ii) monitor any Obligor's maintenance of such insurance. The Servicer's
duties shall include collection and posting of all payments, responding to
inquiries of Obligors on such Receivables, investigating delinquencies, sending
payment statements to Obligors, accounting for collections and furnishing
monthly and annual statements to the Owner Trustee, the Trustee and the Security
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Insurer with respect to distributions. Subject to the provisions of Section 4.2,
the Servicer shall follow its customary standards, policies and procedures in
performing its duties as Servicer. Without limiting the generality of the
foregoing, the Servicer is authorized and empowered to execute and deliver, on
behalf of itself, the Issuer, the Owner Trustee, the Trustee, the Security
Insurer, the Certificateholders and the Noteholders or any of them, any and all
instruments of satisfaction or cancellation, or partial or full release or
discharge, and all other comparable instruments, with respect to such
Receivables or to the Financed Vehicles securing such Receivables. If the
Servicer shall commence a legal proceeding to enforce a Receivable, the Issuer
(in the case of a Receivable other than a Purchased Receivable) shall thereupon
be deemed to have automatically assigned, solely for the purpose of collection,
such Receivable to the Servicer. If in any enforcement suit or legal proceeding
it shall be held that the Servicer may not enforce a Receivable on the ground
that it shall not be a real party in interest or a holder entitled to enforce
such Receivable the Owner Trustee shall, at the Servicer's expense and
direction, take steps to enforce such Receivable, including bringing suit in its
name or the name of the Trust, the Trustee, the Certificateholders or the
Noteholders. The Owner Trustee and the Security Insurer shall upon the written
request of the Servicer furnish the Servicer with any powers of attorney and
other documents reasonably necessary or appropriate (as certified to the Owner
Trustee and/or the Security Insurer by the Servicer) to enable the Servicer to
carry out its servicing and administrative duties hereunder.
SECTION 4.2 Collection and Allocation of Receivable Payments. (a) The
Servicer shall make reasonable efforts to collect all payments called for under
the terms and provisions of the Receivables as and when the same shall become
due and shall follow such collection procedures as it follows with respect to
all comparable automotive receivables that it services for itself or others, and
in any event with no less degree of skill and care than would be exercised by a
prudent servicer of non-prime motor vehicle retail installment sales contracts.
The Servicer shall allocate collections between principal and interest in
accordance with its customary servicing procedures.
(b) The Servicer may grant extensions, rebates or adjustments
on a Receivable which shall not, for the purposes of this Agreement, modify the
original due dates (other than to permit payment on a different date in the
month) or amounts of the Scheduled Payments (unless the Obligor is in default
or, in the judgment of the Servicer, such default is imminent) on a Precomputed
Receivable or the original due dates (other than to permit payment on a
different date in the month) or amounts of the originally scheduled payments of
interest (unless the Obligor is in default or, in the judgment of the Servicer,
such default is imminent) on Simple Interest Receivables; provided, however,
that if the Servicer extends the date for final payment by the Obligor of any
Receivable beyond the Final Scheduled Maturity Date, it shall promptly
repurchase such Receivable from the Trust in accordance with Section 4.7. The
Servicer may in its discretion waive any late payment charge or any other fees
that may be collected in the ordinary course of servicing a Receivable. The
Servicer shall not agree to any alteration of the interest rate on any
Receivable.
SECTION 4.3 Realization upon Receivables. On behalf of the Issuer and
the Security Insurer, the Servicer shall use its best efforts, consistent with
its customary servicing procedures, to repossess or otherwise convert the
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ownership of the Financed Vehicle securing any Receivable as to which the
Servicer shall have determined eventual payment in full is unlikely. From time
to time, as appropriate for servicing or foreclosing upon any Receivable, the
Owner Trustee shall, upon written request of the Servicer, execute such
documents as shall be reasonably necessary to prosecute any such proceedings.
The Servicer shall follow such customary and usual practices and procedures as
it shall deem necessary or advisable in its servicing of automotive receivables,
which may include reasonable efforts to realize proceeds from Receivables
repurchased by a Dealer, pursuant to a Dealer Agreement, as a result of a breach
of representation or warranty in the related Dealer Agreement or a default by an
Obligor resulting in the repossession of the Financed Vehicle under such Dealer
Agreement. The foregoing shall be subject to the provision that, in any case in
which the Financed Vehicle shall have suffered damage, the Servicer shall not
expend funds in connection with the repair or the repossession of such Financed
Vehicle unless it shall determine in its reasonable discretion that such repair
and/or repossession will increase the Net Liquidation Proceeds by an amount
greater than the amount of such expenses.
SECTION 4.4 Physical Damage Insurance. Franklin Capital Corporation
shall, in accordance with its customary servicing procedures, require that each
Obligor shall have obtained and shall maintain fire, theft and collision
insurance or comprehensive and collision insurance covering the Financed Vehicle
as of the execution of the Receivable. The Servicer shall enforce its rights
under the Receivables to require the Obligors to maintain fire, theft and
collision insurance or comprehensive and collision insurance, in accordance with
the Servicer's customary practices and procedures, and in any event with no less
degree of skill and care than would be exercised by a prudent servicer of prime,
non-prime or sub-prime, as applicable, motor vehicle retail installment sales
contracts, with respect to comparable new or used motor vehicle receivables that
it services for itself or others, except that the Servicer shall not be
obligated, and does not currently intend, to (i) pay any premium of force-placed
insurance concerning any Financed Vehicle or (ii) monitor any Obligor's
maintenance of such insurance.
SECTION 4.5 Maintenance of Security Interests in Financed Vehicles. (a)
The Servicer shall, in accordance with its customary servicing procedures, take
such steps as are necessary to maintain perfection of the security interest
created by each Receivable in the related Financed Vehicle in favor of the
Seller. The Servicer is hereby authorized to take such steps as are necessary to
re-perfect such security interest on behalf of the Issuer and the Indenture
Collateral Agent in the event of the relocation of a Financed Vehicle or for any
other reason.
(b) Upon the occurrence of an Insurance Agreement Event of
Default, and subject to the other provisions of this Agreement, the Security
Insurer may (so long as an Insurer Default shall not have occurred and be
continuing) instruct the Owner Trustee and the Servicer to take or cause to be
taken, or, if an Insurer Default shall have occurred, upon the occurrence of a
Servicer Default, the Owner Trustee and the Servicer shall take or cause to be
taken such action as may, in the opinion of counsel to the Security Insurer (or,
if an Insurer Default shall have occurred and be continuing, counsel to the
Owner Trustee), be necessary to perfect or reperfect the security interests in
the Financed Vehicles securing the Receivables in the name of the Trust by
amending the title documents of such Financed Vehicles or by such other
reasonable means as may, in the opinion of counsel to the Security Insurer or
the Owner Trustee (as applicable), be necessary or prudent. The Servicer hereby
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agrees to pay all expenses related to such perfection or reperfection and to
take all action necessary therefor.
SECTION 4.5-A Segregation of Receivables Files. The Servicer shall
maintain the Receivables Files (containing the original Receivable and Lien
Certificate, when such Lien Certificate has been returned from the appropriate
recording office) physically segregated from other files of automotive
receivables owned or serviced by it at the location where the Receivables Files
are kept.
SECTION 4.6 Covenants of Servicer. The Servicer shall not release the
Financed Vehicle securing any Receivable from the security interest granted by
such Receivable in whole or in part except in the event of payment in full by
the Obligor thereunder or payment in full less a deficiency which the Servicer
would not attempt to collect in accordance with its customary procedures or in
connection with repossession or except as may be required by an insurer in order
to receive proceeds from insurance covering such Financed Vehicle, nor shall the
Servicer impair the rights of the Issuer, the Trustee, the Indenture Collateral
Agent, the Security Insurer, the Certificateholders or the Noteholders in such
Receivables (it being understood that no action of the Servicer taken in
compliance with the terms of this Agreement shall be deemed to impair such
rights), nor shall the Servicer increase the number of scheduled payments due
under a Receivable.
SECTION 4.7 Purchase of Receivables upon Breach. The Representative,
the Seller, the Servicer, the Security Insurer or the Owner Trustee shall inform
the other parties and the Trustee promptly, in writing, upon the discovery of
any breach of the Servicer's covenants pursuant to Section 4.2(b), 4.4, 4.5 or
4.6, or of any breach of the Servicer's representations and warranties made
pursuant to Section 7.1(b). As of the last day of the second (or, if the
Representative or the Servicer so elects, the first) month following the
discovery by the Representative or the Servicer or receipt by the Representative
or the Servicer of notice from any of the Representative, the Seller, the
Servicer, the Security Insurer, the Owner Trustee or the Trustee of such breach,
unless such breach is cured by such date, the Representative and the Servicer
jointly and severally shall be obligated to purchase any Receivable in which the
interests of the Noteholders, the Certificateholders or the Security Insurer are
materially and adversely affected by such breach as of such date. 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. In consideration of the purchase of any such
Receivable pursuant to the preceding sentence, the Servicer shall remit (or, if
the Servicer shall fail to so remit, the Representative shall remit) the
Purchase Amount in the manner specified in Section 5.5. The sole remedy of the
Issuer, the Trustee, the Noteholders or the Certificateholders with respect to a
breach pursuant to Section 4.2(b), 4.4, 4.5 or 4.6, or to a breach of
representations and warranties pursuant to Section 7.1(b), shall be limited to
the purchase of Receivables in accordance with this Section 4.7. The Trustee and
the Owner Trustee shall have no duty to conduct any affirmative investigation as
to the occurrence of any condition requiring the purchase of any Receivable
pursuant to this Section 4.7.
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SECTION 4.8 Servicing Fee. The Servicing Fee for a Distribution Date
shall equal the sum of the Base Servicing Fee, the Supplemental Servicing Fee,
all Investment Earnings on the Collection Account plus any reimbursement
pursuant to Section 7.2. The Servicer also shall be entitled to retain from
collections the Base Servicing Fee and the Supplemental Servicing Fee, as
provided herein. The Servicer, in its discretion at its election, may defer
receipt of all or any portion of the Servicing Fee 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 Notes. Any such deferred amount shall be
payable to (or may be retained from subsequent collections by) the Servicer on
demand.
SECTION 4.9 Servicer's Certificate. (a) No later than 12:00 noon New
York City time on each Determination Date, the Servicer shall deliver to the
Owner Trustee, the Trustee, the Security Insurer or its fiscal agent, the
Indenture Collateral Agent and each Rating Agency a Servicer's Certificate
containing, among other things, (i) all information necessary to enable the
Trustee to make any withdrawal and deposit required by Section 5.6(a), 5.6(b),
5.6(c) and 5.6(d), to give any notice required by Section 5.4 or 5A.1 and make
the distributions required by Section 5.6 and 5.7, (ii) all information
necessary to enable the Trustee to send the statements required by Section 5.8
to the Owner Trustee, the Noteholders, each Rating Agency and the Security
Insurer, (iii) a listing of all Receivables purchased during the related Monthly
Period, identifying the Receivables so purchased, and (iv) all information
necessary to enable the Trustee to reconcile all deposits to, and withdrawals
from, the Collection Account for the related Monthly Period and Distribution
Date, including the accounting required by Section 5.9. Receivables purchased by
the Servicer, the Seller or the Representative and each receivable which became
a Liquidated Receivable or which was paid in full during the related Monthly
Period shall be identified by account number (as set forth in the Schedule of
Receivables). A copy of such certificate may be obtained by any Noteholder or
Certificateholder by a request in writing to the Trustee or the Owner Trustee
addressed to the applicable Corporate Trust Office. The Trustee shall not be
under any obligation to confirm or reconcile the information provided pursuant
to Section 4.9(a)(iv).
(b) If the Servicer's Certificate contains a manifest error,
the Security Insurer's written notice to the Servicer, the Owner Trustee and the
Trustee containing the corrected information shall be deemed to amend such
Servicer's Certificate.
SECTION 4.10 Annual Statement as to Compliance; Notice of Default. (a)
The Servicer shall deliver to the Owner Trustee, the Trustee and the Security
Insurer, on or before April 30 of each year beginning April 30, 1999 an
Officer's Certificate, dated as of the preceding December 31, stating that (i) a
review of the activities of the Servicer during the preceding 12-month period
and of its performance under this Agreement has been made under such officer's
supervision and (ii) to the best of such officer's knowledge, based on such
review, the Servicer has fulfilled all its obligations under this Agreement
throughout such year or, if there has been a default in the fulfillment of any
such obligation, specifying each such default known to such officers and the
nature and status thereof. The Trustee shall send a copy of such certificate and
the report referred to in Section 4.11 to the Rating Agencies. A copy of such
certificate and the report referred to in Section 4.11 may be obtained by any
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Certificateholder by a request in writing to the Owner Trustee addressed to the
Corporate Trust Office or by any Noteholder by a request in writing to the
Trustee addressed to the Corporate Trust Office. Upon the telephone request of
the Owner Trustee, the Trustee will promptly furnish the Owner Trustee a list of
Noteholders as of the date specified by the Owner Trustee. Each Noteholder, by
its acceptance of a Note, shall be deemed to agree that the Trustee shall be
under no liability for providing the list of Noteholders to the Owner Trustee as
described in the immediately preceding sentence.
(b) The Servicer shall deliver to the Owner Trustee, the
Trustee, the Security Insurer and the Rating Agencies, promptly after having
obtained knowledge thereof, but in no event later than five (5) Business Days
thereafter, written notice in an Officer's Certificate of any event which with
the giving of notice or lapse of time, or both, would become a Servicer Default
under Section 8.1(a) or (b).
SECTION 4.11 Annual Independent Certified Public Accountants' Report.
The Servicer shall cause a firm of independent certified public accountants,
which may also render other services to the Servicer or the Seller, to deliver
to the Seller, the Owner Trustee, the Trustee and the Security Insurer on or
before April 30 of each year beginning April 30, 1999, an agreed-upon procedures
report addressed to the Servicer, the Seller, the Owner Trustee, the Trustee and
the Security Insurer and each Rating Agency, expressing a summary of findings,
(based on certain procedures performed on the documents, records and accounting
records that such accountants considered appropriate under the circumstances)
relating to the servicing of the Receivables, or the administration of the
Receivables and of the Trust, as the case may be, during the preceding calendar
year and that, on the basis of the accounting and auditing procedures considered
appropriate under the circumstances, such firm is of the opinion that such
servicing or administration was conducted in compliance with the terms of this
Agreement, except for (i) such exceptions as such firm shall believe to be
immaterial and (ii) such other exceptions as shall be set forth in such report.
Such report will also indicate that the firm is independent of
the Servicer within the meaning of the Code of Professional Ethics of the
American Institute of Certified Public Accountants.
SECTION 4.12 Access to Certain Documentation and Information Regarding
Receivables. The Servicer shall provide to representatives of the Trustee, the
Owner Trustee and the Security Insurer reasonable access to the Receivable
Files. The Servicer shall provide to the Certificateholders and Noteholders
access to the Receivable Files in such cases where the Certificateholders or
Noteholders shall be required by applicable statutes or regulations to review
such documentation as demonstrated by evidence satisfactory to the Servicer in
its reasonable judgment. Access shall be afforded without charge, but only upon
reasonable request and during the normal business hours at the respective
offices of the Servicer. Nothing in this Section shall affect the obligation of
the Servicer to observe any applicable law prohibiting disclosure of information
regarding the Obligors and the failure of the Servicer to provide access to
information as a result of such obligation shall not constitute a breach of this
Section.
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SECTION 4.13 Servicer Expenses. The Servicer shall be required to pay
all expenses incurred by it in connection with its activities hereunder and
under any of the Basic Documents, including fees and disbursements of
independent accountants, taxes imposed on the Servicer and expenses incurred in
connection with distributions and reports to Certificateholders and Noteholders.
SECTION 4.14 Appointment of Subservicer. The Servicer may at
any time appoint a subservicer to perform all or any portion of its obligations
as Servicer hereunder; provided, however, that the Rating Agency Condition shall
have been satisfied in connection therewith; provided further that the Servicer
shall remain obligated and be liable to the Issuer, the Owner Trustee, the
Trustee, the Security Insurer, the Certificateholders and the Noteholders for
the servicing and administering of the Receivables in accordance with the
provisions hereof without diminution of such obligation and liability by virtue
of the appointment of such subservicer and to the same extent and under the same
terms and conditions as if the Servicer alone were servicing and administering
the Receivables. The fees and expenses of the subservicer shall be as agreed
between the Servicer and its subservicer from time to time and none of the
Issuer, the Owner Trustee, the Trustee, the Security Insurer, the
Certificateholders or the Noteholders shall have any responsibility therefor.
Any such subservicer shall perform its duties with the same standard of care
applicable to the Servicer pursuant to Section 4.1 of this Agreement.
SECTION 4.15 Obligations under Basic Documents. The Servicer shall
perform all of its obligations under the Basic Documents.
ARTICLE V
Distributions;
Statements to Certificateholders and Noteholders
SECTION 5.1 Establishment of Trust Accounts.
(a)(i) The Servicer, for the benefit of the Trustee on behalf
of the Noteholders, the Owner Trustee on behalf of the
Certificateholders, and the Security Insurer, shall establish and
maintain in the name of the Indenture Collateral Agent an Eligible
Deposit Account (the "Collection Account"), bearing a designation
clearly indicating that the funds deposited therein are held for the
benefit of the Trustee on behalf of the Noteholders, the Owner Trustee
on behalf of the Certificateholders and the Security Insurer.
Investment Earnings on funds in the Collection Account shall be paid to
the Servicer.
(ii) The Servicer, for the benefit of the Trustee on behalf of
the Noteholders, shall establish and maintain in the name of the
Indenture Collateral Agent an Eligible Deposit Account (the "Note
Distribution Account"), bearing a designation clearly indicating that
the funds deposited therein are held for the benefit of the Trustee on
behalf of the Noteholders and the Security Insurer. The Note
Distribution Account shall initially be established with the Trustee.
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(iii) The Servicer, for the benefit of the Trustee on behalf
of the Noteholders, the Owner Trustee on behalf of the
Certificateholders, and the Security Insurer, shall establish and
maintain in the name of the Indenture Collateral Agent an Eligible
Deposit Account (the "Payahead Account"), bearing a designation clearly
indicating that the funds deposited therein are held for the benefit of
the Trustee on behalf of the Noteholders, the Owner Trustee on behalf
of the Certificateholders and the Security Insurer. Investment Earnings
on funds in the Payahead Account shall be paid to the Servicer.
(b) Funds on deposit in the Collection Account, the Note
Distribution Account, the Payahead Account (collectively, along with the
Capitalized Interest Account, the "Trust Accounts") and the Certificate
Distribution Account shall be invested by the Indenture Collateral Agent with
respect to Trust Accounts and by the Owner Trustee with respect to the
Certificate Distribution Account (or any custodian with respect to funds on
deposit in any such account) in Eligible Investments selected in writing by the
Servicer (pursuant to standing instructions or otherwise); provided, however, it
is understood and agreed that neither the Indenture Collateral Agent nor the
Owner Trustee shall be liable for any loss arising from such investment in
Eligible Investments. All such Eligible Investments shall be held by or on
behalf of the Indenture Collateral Agent or the Owner Trustee, as applicable,
for the benefit of the Noteholders and/or the Certificateholders, as applicable
and the Security Insurer. Other than as permitted by the Rating Agencies and the
Security Insurer, funds on deposit in the Collection Account, the Payahead
Account the Note Distribution Account and the Certificate Distribution Account
shall be invested in Eligible Investments that will mature so that such funds
will be available at the close of business on the Business Day immediately
preceding the following Distribution Date. Funds deposited in a Trust Account or
the Certificate Distribution Account on the day immediately preceding a
Distribution Date upon the maturity of any Eligible Investments are not required
to be invested overnight.
(c)(i) The Indenture Collateral Agent shall possess all right,
title and interest in all funds on deposit from time to time in the Trust
Accounts and in all proceeds thereof (excluding all Investment Earnings on the
Collection Account) and all such funds, investments, proceeds and income shall
be part of the Owner Trust Estate. Except as otherwise provided herein, the
Trust Accounts shall be under the sole dominion and control of the Indenture
Collateral Agent for the benefit of the Noteholders and the Certificateholders,
or the Noteholders, as the case may be, and the Security Insurer. If, at any
time, any of the Trust Accounts or the Certificate Distribution Account ceases
to be an Eligible Deposit Account, the Indenture Collateral Agent (or the
Servicer on its behalf) or the Owner Trustee, as applicable, shall within 10
Business Days (or such longer period as to which each Rating Agency and the
Security Insurer may consent) establish a new Trust Account or a new Certificate
Distribution Account, as applicable, as an Eligible Deposit Account and shall
transfer any cash and/or any investments to such new Trust Account or a new
Certificate Distribution Account, as applicable. In connection with the
foregoing, the Servicer agrees that, in the event that any of the Trust Accounts
are not accounts with the Trustee, the Servicer shall notify the Trustee in
writing promptly upon any of such Trust Accounts ceasing to be an Eligible
Deposit Account.
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(ii) With respect to the Trust Account Property, the Indenture
Collateral Agent, and with respect to the Certificate Distribution
Account, the Owner Trustee agrees, by its respective acceptance
hereof, that:
A any Trust Account Property or any property in the
Certificate Distribution Account that is held in deposit
accounts shall be held solely in the Eligible Deposit Accounts
subject to the penultimate sentence of Section 5.1(c)(i); and,
except as otherwise provided herein, each such Eligible
Deposit Account shall be subject to the exclusive custody and
control of the Indenture Collateral Agent with respect to the
Trust Accounts and the Owner Trustee with respect to the
Certificate Distribution Account, and the Indenture Collateral
Agent or the Owner Trustee, as applicable, shall have sole
signature authority with respect thereto;
B any Trust Account Property shall be Delivered to
the Indenture Collateral Agent in accordance with the
definition of "Delivery" and shall be held, pending maturity
or disposition, solely by the Indenture Collateral Agent or
such other Person acting solely for the Indenture Collateral
Agent as required for Delivery;
C In the event that the Indenture Collateral Agent,
in its capacity as securities intermediary has or subsequently
obtains by agreement, operation of law or otherwise a security
interest in the Trust Accounts or any security entitlement
credited thereto, the Indenture Collateral Agent, in its
capacity as securities intermediary hereby agrees that such
security interest shall be subordinate to the security
interest of the Indenture Collateral Agent. The financial
assets and other items deposited to the Trust Accounts will
not be subject to deduction, set-off, banker's lien, or any
other right in favor of any person (except that the Indenture
Collateral Agent, in its capacity as securities intermediary
may set off the face amount of any checks which have been
credited to the Trust Accounts but are subsequently returned
unpaid because of uncollected or insufficient funds).
(d) The Servicer shall have the power, revocable by the
Security Insurer or, with the consent of the Security Insurer by the Trustee or
by the Owner Trustee with the consent of the Trustee, to instruct the Indenture
Collateral Agent to make withdrawals and payments from the Trust Accounts for
the purpose of permitting the Servicer or the Owner Trustee to carry out its
respective duties hereunder or permitting the Trustee to carry out its duties
under the Indenture.
(e) The Servicer shall on or prior to each Distribution Date
(and prior to deposits to the Note Distribution Account) transfer from
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the Collection Account to the Payahead Account all Payaheads as
described in Section 5.3 received by the Servicer during the Collection
Period. Notwithstanding the foregoing and the first sentence of Section
5.2, for so long as the Servicer is permitted to make monthly
remittances to the Collection Account pursuant to Section 5.2,
Payaheads need not be remitted to and deposited in the Payahead Account
but instead may be remitted to and held by the Servicer. So long as
such condition is met, the Servicer shall not be required to segregate
or otherwise hold separate any Payaheads remitted to the Servicer as
aforesaid but shall be required to remit Payaheads to the Collection
Account in accordance with Section 5.6(a).
SECTION 5.2 Collections. (a) The Servicer shall remit within
two Business Days of receipt thereof to the Collection Account all payments by
or on behalf of the Obligors with respect to the Receivables (other than
Purchased Receivables) and all Liquidation Proceeds, both as collected during
the Monthly Period less any payments owed thereon to the Servicer.
Notwithstanding the foregoing, for so long as (i) Franklin Capital Corporation
remains the Servicer, (ii) no Servicer Default shall have occurred and be
continuing, (iii) there exists no Insurer Default and the Security Insurer has
furnished its prior written consent and (iv) the Rating Agency Condition shall
have been satisfied (and any conditions or limitations imposed by the Rating
Agencies in connection therewith are complied with), the Servicer may remit such
collections with respect to the preceding calendar month to the Collection
Account on the Determination Date immediately preceding the related Distribution
Date. For purposes of this Article V the phrase "payments by or on behalf of
Obligors" shall mean payments made with respect to the Receivables by Persons
other than the Servicer or the Seller.
(b) The Servicer will be entitled to be reimbursed from
amounts on deposit in the Collection Account with respect to a Monthly Period
for amounts previously deposited in the Collection Account but later determined
by the Servicer to have resulted from mistaken deposits or postings or checks
returned for insufficient funds. The amount to be reimbursed hereunder shall be
paid to the Servicer on the related Distribution Date pursuant to Section
5.6(b)(ii) upon certification by the Servicer of such amounts and the provision
of such information to the Trustee and the Security Insurer as may be necessary
in the opinion of the Security Insurer to verify the accuracy of such
certification. In the event that the Security Insurer has not received evidence
satisfactory to it of the Servicer's entitlement to reimbursement pursuant to
Section 5.2(b), the Security Insurer shall (unless an Insurer Default shall have
occurred and be continuing) give the Trustee notice to such effect, following
receipt of which the Trustee shall not make a distribution to the Servicer in
respect of such amount pursuant to Section 5.6, or if the Servicer prior thereto
has been reimbursed pursuant to Section 5.6 or Section 5.9, the Trustee shall
withhold such amounts from amounts otherwise distributable to the Servicer on
the next succeeding Distribution Date.
SECTION 5.3 Application of Collections. All collections for the Monthly
Period shall be applied by the Servicer as follows:
With respect to each Receivable (other than a Purchased
Receivable), payments by or on behalf of the Obligor, (other than Supplemental
Servicing Fees with respect to such Receivable, to the extent collected) shall
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be applied first, in the case of Precomputed Receivables, to the Scheduled
Payment and, in the case of Simple Interest Receivables, to interest and
principal in accordance with the Simple Interest Method. With respect to
Precomputed Receivables, any remaining excess shall be added to the Payahead
Balance, and shall be applied to prepay the Precomputed Receivable, but only if
the sum of such excess and the previous Payahead Balance shall be sufficient to
prepay the Precomputed Receivable in full. Otherwise, any such remaining excess
payments shall constitute a Payahead and shall increase the Payahead Balance.
All amounts collected that are payable to the Servicer as
Supplemental Servicing Fees hereunder shall, other than as provided in Section
5.9, be deposited in the Collection Account and paid to the Servicer in
accordance with Section 5.6(b).
SECTION 5.4 Deficiency Notice. (a) In the event that the Servicer's
Certificate with respect to any Determination Date shall state that the amount
of the Available Funds with respect to such Determination Date is less than the
sum of the amounts payable on the related Distribution Date pursuant to clauses
(i) through (v) of Section 5.6(b) (such deficiency being a "Deficiency Claim
Amount") then on the Deficiency Claim Date immediately preceding such
Distribution Date the Trustee shall deliver to the Indenture Collateral Agent,
the Security Insurer, the Owner Trustee, the Insurer's Agent and the Servicer,
by hand delivery, telex or facsimile transmission, a written notice (a
"Deficiency Notice") specifying the Deficiency Claim Amount for such
Distribution Date.
(b) Any Deficiency Notice shall be delivered by 10:00 am., New
York City time, on the related Deficiency Claim Date. The amounts distributed to
the Trustee pursuant to a Deficiency Notice shall be deposited by the Trustee
into the Collection Account pursuant to Section 5.5.
SECTION 5.5 Additional Deposits. The Servicer and the Seller, Franklin
Capital Corporation and the Representative, as applicable, shall deposit or
cause to be deposited in the Collection Account on the Determination Date
following the date on which such obligations are due the aggregate Purchase
Amount with respect to Purchased Receivables. On or before each Draw Date, the
Trustee shall remit to the Collection Account any amounts delivered to the
Trustee pursuant to a Deficiency Notice.
SECTION 5.6 Distributions. (a) No later than 12:00 noon New York City
time on each Distribution Date, the Trustee shall (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 Payahead Account (i) to the Collection Account,
in immediately available funds, the aggregate previous Payaheads to be
applied to Scheduled Payments on Precomputed Receivables for the
related Collection Period or prepayments for the related Collection
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Period, pursuant to Section 5.3, in the amounts set forth in the
Servicer's Certificate for such Distribution Date and (ii) to the
Seller, in immediately available funds, the investment earnings, net of
losses on the Payaheads for the related Collection Period.
(b) On each Distribution Date other than the Distribution Date
on which Insolvency Proceeds are to be distributed, the Trustee shall (based
solely on the information contained in the Servicer's Certificate delivered with
respect to the related Determination Date) distribute the following amounts and
in the following order of priority:
(i) from the Distribution Amount, to each of the Trustee and
the Owner Trustee, their respective accrued and unpaid trustees' fees
and any accrued and unpaid fees of the Indenture Collateral Agent (in
each case, to the extent such fees have not been previously paid by the
Servicer or the Representative);
(ii) from the Distribution Amount, to the Servicer, the Base
Servicing Fee for the related Monthly Period, any Supplemental
Servicing Fees for the related Monthly Period, and any amounts
specified in Section 5.2(b), to the extent the Servicer has not
reimbursed itself in respect of such amounts pursuant to Section 5.9
and to the extent not retained by the Servicer;
(iii) from the Distribution Amount, to the Note Distribution
Account, the Noteholders' Interest Distributable Amount;
(iv) from the Distribution Amount, to the Note Distribution
Account, the Noteholders' Principal Distributable Amount;
(v) from the Distribution Amount, to the Security Insurer, any
premium amounts and any overdue premium amounts payable pursuant to the
Insurance Agreement, and, any payments made on the Note Policy and any
other amounts owing to the Security Insurer under the Insurance
Agreement and not paid;
(vi) from the Available Funds, to the Certificate Distribution
Account for distribution to the Certificateholders or their designees,
any remaining funds.
provided, however, that, (A) following an acceleration of the Notes or, (B) if
an Insurer Default shall have occurred and be continuing, following the
occurrence of an Event of Default pursuant to Section 5.1(i), 5.1(ii), 5.1(iii),
5.1(v) or 5.1(vi) of the Indenture, or (C) following the receipt of Insolvency
Proceeds pursuant to Section 9.1(b), amounts deposited in the Note Distribution
Account shall be applied to the Noteholders to the extent necessary to pay
accrued and unpaid interest on the Notes and then, to the extent funds are
available therefore, principal on the Notes until the principal balance of the
Notes has been reduced to zero, in accordance with the provisions of Section 5.6
of the Indenture.
(c) Reserved.
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(d) In the event that the Collection Account is maintained
with an institution other than the Indenture Collateral Agent, the Servicer
shall instruct and cause such institution to make all deposits and distributions
pursuant to Section 5.6(b) and Section 5.6(c) on the related Distribution Date.
SECTION 5.7 [RESERVED] .
SECTION 5.8 Statements to Certificateholders and Noteholders. On or
prior to each Determination Date, the Servicer shall provide to the Trustee
(with a copy to the Security Insurer and the Rating Agencies) for the Trustee to
forward to each Noteholder of record, to each Paying Agent, if any, and to the
Owner Trustee for the Owner Trustee to forward to each Certificateholder of
record, a statement substantially in the form of Exhibit B and Exhibit C,
respectively, setting forth at least the following information with respect to
distributions on the related Distribution Date as to the Notes and the
Certificates to the extent applicable:
(i) the amount of such distribution allocable to principal of
each Class of Notes;
(ii) the amount of such distribution allocable to interest on
or with respect to each Class of Notes;
(iii) the amount of such distribution payable pursuant to a
claim on the Note Policy and any remaining outstanding balance
available to be drawn under the applicable Note Policy;
(iv) the Pool Balance as of the close of business on the last
day of the preceding Monthly Period;
(v) the aggregate outstanding principal amount of each Class
of the Notes, the Note Pool Factor for each such Class, after giving
effect to payments allocated to principal reported under (i) above;
(vi) the amount of the Servicing Fee paid to the Servicer with
respect to the related Monthly Period and/or due but unpaid with
respect to such Monthly Period or prior Monthly Periods, as the case
may be;
(vii) the Noteholders' Interest Carryover Shortfall and the
Noteholders' Principal Carryover Shortfall;
(viii) the amount of the aggregate Realized Losses, if any,
for the second preceding Monthly Period;
(ix) the aggregate Purchase Amounts for Receivables, if any,
that were repurchased in such period;
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(x) the amounts which were collected by the Servicer;
(xi) the aggregate amount which was received by the Trust from
the Servicer;
(xii) any reimbursements to the Security Insurer;
(xiii) delinquency information relating to Receivables which
are 30, 60 or 90 days delinquent,
(xiv) the aggregate Payahead Balance; and
(xv) the aggregate amount distributed to the
Certificateholders.
Each amount set forth pursuant to paragraph (i), (ii), (iii), (vii), (x) and
(xi) above shall be expressed as a dollar amount per $1,000 of the initial
principal balance of the Notes (or Class thereof).
SECTION 5.9 Net Deposits. As an administrative convenience, unless the
Servicer is required to remit collections within two Business Days of receipt
thereof, the Servicer will be permitted to make the deposit of collections on
the Receivables and Purchase Amounts for or with respect to each Monthly Period
net of distributions to be made to the Servicer with respect to such Monthly
Period. Similarly, the Servicer may cause to be made a single, net transfer,
from the Collection Account to the Payahead Account, or vice versa. The
Servicer, however, will account to the Owner Trustee, the Trustee, the Indenture
Collateral Agent, the Noteholders and the Certificateholders as if all deposits,
distributions and transfers were made individually.
SECTION 5.10 Optional Deposits by the Security Insurer. The Security
Insurer shall at any time, and from time to time, with respect to a Distribution
Date, have the option (but shall not be required, except in accordance with the
terms of the Note Policy) to deliver or cause to be delivered amounts to the
Trustee 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 to the extent that without such amount a draw would
be required to be made on the Note Policy.
ARTICLE VI
The Seller
SECTION 6.1 Representations of the Seller. The Seller makes the
following representations on which the Security Insurer shall be deemed to have
relied in executing and delivering the Note Policy and on which the Issuer is
deemed to have relied in acquiring the Receivables. The representations speak as
of the execution and delivery of this Agreement and as of the Closing Date, and
shall survive the sale of to the Issuer and the pledge thereof to the Trustee
pursuant to the Indenture.
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(a) Organization and Good Standing. The Seller is duly
organized and validly existing as a Delaware limited liability company with
power and authority to own its properties and to conduct its business as such
properties are currently owned and such business is presently conducted, and had
at all relevant times, and has, the power, authority and legal right to acquire
and own the Receivables.
(b) Due Qualification. The Seller is duly qualified to do
business as a limited liability company in good standing, and has obtained all
necessary licenses and approvals in all jurisdictions in which the ownership or
lease of property, including the Receivables, or the conduct of its business
shall require such qualifications.
(c) Power and Authority of the Seller. The Seller has the
power and authority to execute and deliver this Agreement and to perform its
obligations under each of the Basic Documents to which the Seller is a party;
the Seller has full power and authority to sell and assign the property to be
sold and assigned to and deposited with the Issuer and the Seller has duly
authorized such sale and assignment to the Issuer by all necessary corporate
action; and the execution, delivery and performance of each of the Basic
Documents to which the Seller is a party has been duly authorized by the Seller
by all necessary corporate action.
(d) Binding Obligation. This Agreement and each of the Basic
Documents to which the Seller is a party constitute legal, valid and binding
obligations of the Seller, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium, fraudulent conveyance,
reorganization and similar laws now or hereafter in effect relating to
creditors' rights generally and subject to general principles of equity (whether
applied in a proceeding at law or in equity).
(e) No Violation. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof and
thereof do not result in any breach of any of the terms and provisions of, nor
constitute (with or without notice or lapse of time or both) a default under,
the certificate of formation or limited liability company agreement of the
Seller, or any indenture, agreement or other instrument to which the Seller is a
party or by which it is bound; nor result in the creation or imposition of any
Lien upon any of its properties pursuant to the terms of any such indenture,
agreement or other instrument (other than pursuant to the Basic Documents); nor
violate any law or, to the best of its knowledge, any order, rule or regulation
applicable to the Seller of any court or of any federal or state regulatory
body, administrative agency or other governmental instrumentality having
jurisdiction over the Seller or its properties.
(f) No Proceedings. There are no proceedings or investigations
pending against the Seller or, to its best knowledge, threatened against the
Seller, before any court, regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Seller or its
properties: (i) asserting the invalidity of this Agreement or any of the Basic
Documents, the Notes or the Certificates, (ii) seeking to prevent the issuance
of the Notes or the Certificates or the consummation of any of the transactions
contemplated by this Agreement or any of the Basic Documents, (iii) seeking any
determination or ruling that could reasonably be expected to have a material and
adverse effect on the performance by the Seller of its obligations under, or the
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validity or enforceability of, the Basic Documents, the Notes or the
Certificates or (iv) that might adversely affect the federal income tax
attributes of the Issuer, the Notes or the Certificates.
(g) All Consents. All authorizations, consents, orders or
approvals of or registrations or declarations with any court, regulatory body,
administrative agency or other government instrumentality required to be
obtained, effected or given by the Seller in connection with the execution and
delivery by the Seller of this Agreement or any of the Basic Documents to which
it is a party and the performance by the Seller of the transactions contemplated
by this Agreement, or any of the Basic Documents to which it is a party, have
been duly obtained, effected or given and are in full force and effect, except
where failure to obtain the same would not have a material and adverse effect
upon the rights of the Issuer, the Noteholders or the Certificateholders.
(h) Chief Executive Office. The chief executive office of the
Seller is at ___________________.
SECTION 6.2 Corporate Existence. (a) During the term of this Agreement,
the Seller will keep in full force and effect its existence, rights and
franchises as a corporation under the laws of the jurisdiction of its
incorporation and will obtain and preserve its qualification to do business in
each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of this Agreement, the Basic Documents
and each other instrument or agreement necessary or appropriate to the proper
administration of this Agreement and the transactions contemplated hereby.
(b) During the term of this Agreement, the Seller shall
observe the applicable legal requirements for the recognition of the Seller as a
legal entity separate and apart from its Affiliates, including as follows:
(i) the Seller shall maintain corporate records and books of
account separate from those of its Affiliates;
(ii) except as otherwise provided in this Agreement, the
Seller shall not commingle its assets and funds with those of its
Affiliates;
(iii) the Seller shall hold such appropriate meetings of its
Board of Directors as are necessary to authorize all the Seller's
corporate actions required by law to be authorized by the Board of
Directors, shall keep minutes of such meetings and of meetings of its
stockholder(s) and observe all other customary corporate formalities
(and any successor Seller not a corporation shall observe similar
procedures in accordance with its governing documents and applicable
law);
(iv) the Seller shall at all times hold itself out to the
public under the Seller's own name as a legal entity separate and
distinct from its Affiliates; and
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(v) all transactions and dealings between the Seller and its
Affiliates will be conducted on an arm's-length basis.
SECTION 6.3 Liability of Seller; Indemnities. The Seller shall be
liable in accordance herewith only to the extent of the obligations specifically
undertaken by the Seller under this Agreement.
(a) The Seller shall indemnify, defend and hold harmless the
Issuer, the Owner Trustee, the Trust, the Security Insurer, the Trustee and the
Indenture Collateral Agent from and against any taxes that may at any time be
asserted against any such Person with respect to the transactions contemplated
in this Agreement and any of the Basic Documents (except any income taxes
arising out of fees paid to the Owner Trustee or the Trustee and except any
taxes to which the Owner Trustee or the Trustee may otherwise be subject to),
including any sales, gross receipts, general corporation, tangible personal
property, privilege or license taxes (but, in the case of the Issuer, not
including any taxes asserted with respect to, federal or other income taxes
arising out of distributions on the Certificates and the Notes) and costs and
expenses in defending against the same.
(b) The Seller shall indemnify, defend and hold harmless the
Issuer, the Owner Trustee, the Trustee, the Indenture Collateral Agent, the
Security Insurer, and the Noteholders from and against any loss, liability or
expense incurred by reason of (i) the Seller's willful misfeasance, bad faith or
negligence in the performance of its duties under this Agreement, or by reason
of reckless disregard of its obligations and duties under this Agreement and
(ii) the Seller's or the Issuer's violation of Federal or state securities laws
in connection with the offering and sale of the Notes.
(c) The Seller shall indemnify, defend and hold harmless the
Owner Trustee and its officers, directors, employees and agents from and against
any and all costs, expenses, losses, claims, damages and liabilities arising out
of, or incurred in connection with the acceptance or performance of the trusts
and duties set forth herein and in the Basic Documents except to the extent that
such cost, expense, loss, claim, damage or liability shall be due to the willful
misfeasance, bad faith or negligence (except for errors in judgment) of the
Owner Trustee.
Indemnification under this Section shall survive the
resignation or removal of the Owner Trustee, the Trustee or the Indenture
Collateral Agent and the termination of this Agreement, the Indenture or the
Trust Agreement, as applicable, and shall include reasonable fees and expenses
of counsel and other expenses of litigation. If the Seller shall have made any
indemnity payments pursuant to this Section and the Person to or on behalf of
whom such payments are made thereafter shall collect any of such amounts from
others, such Person shall promptly repay such amounts to the Seller, without
interest.
SECTION 6.4 Merger or Consolidation of, or Assumption of the
Obligations of, Seller. Any Person (a) into which the Seller may be merged or
consolidated, (b) which may result from any merger or consolidation to which the
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Seller shall be a party or (c) which may succeed to the properties and assets of
the Seller substantially as a whole, which Person in any of the foregoing cases
executes an agreement of assumption to perform every obligation of the Seller
under this Agreement, shall be the successor to the Seller hereunder without the
execution or filing of any document or any further act by any of the parties to
this Agreement; provided, however, that (i) the Seller shall have received the
written consent of the Security Insurer prior to entering into any such
transaction, (ii) immediately after giving effect to such transaction, no
representation or warranty made pursuant to Section 3.1 shall have been breached
and no Servicer Default, and no event which, after notice or lapse of time, or
both, would become a Servicer Default shall have happened and be continuing,
(iii) the Seller shall have delivered to the Owner Trustee, the Trustee and the
Security Insurer an Officer's Certificate and an Opinion of Counsel each stating
that such consolidation, merger or succession and such agreement of assumption
comply with this Section and that all conditions precedent, if any, provided for
in this Agreement relating to such transaction have been complied with, (iv) the
Rating Agency Condition shall have been satisfied with respect to such
transaction and (v) the Seller shall have delivered to the Owner Trustee, the
Trustee and the Security Insurer an Opinion of Counsel stating that, in the
opinion of such counsel, either (A) all financing statements and continuation
statements and amendments thereto have been executed and filed that are
necessary fully to preserve and protect the interest of the Owner Trustee and
the Trustee, respectively, in the Receivables and reciting the details of such
filings or (B) no such action shall be necessary to preserve and protect such
interest. Notwithstanding anything herein to the contrary, the execution of the
foregoing agreement of assumption and compliance with clauses (i), (ii), (iii),
(iv) and (v) above shall be conditions to the consummation of the transactions
referred to in clauses (a), (b) or (c) above.
SECTION 6.5 Limitation on Liability of Seller and Others. The Seller
and any director or officer or employee or agent of the Seller may rely in good
faith on the advice of counsel or on any document of any kind, prima facie
properly executed and submitted by any Person respecting any matters arising
under any Basic Document. The Seller shall not be under any obligation to appear
in, prosecute or defend any legal action that shall not be incidental to its
obligations under this Agreement, and that in its opinion may involve it in any
expense or liability.
SECTION 6.6 Seller May Own Certificates or Notes. The Seller and any
Affiliate thereof may in its individual or any other capacity become the owner
or pledgee of Certificates or Notes with the same rights as it would have if it
were not the Seller or an Affiliate thereof, except as expressly provided herein
or in any Basic Document. Notes or Certificates so owned by the Seller or such
Affiliate shall have an equal and proportionate benefit under the provisions of
the Basic Documents, without preference, priority, or distinction as among all
of the Notes or Certificates, provided, however, that any Notes or Certificates
owned by the Seller or any Affiliate thereof, during the time such Notes or
Certificates are owned by them, shall be without voting rights for any purpose
set forth in the Basic Documents and will not be entitled to the benefits of the
Note Policy. The Seller shall notify the Owner Trustee, the Trustee and the
Security Insurer promptly after it or any of its Affiliates become the owner of
a Certificate or a Note. The Seller hereby notifies the Owner Trustee that
immediately following the issuance of the Certificates that it and the
Representative will own all the Certificates.
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ARTICLE VII
The Servicer and the Representative
SECTION 7.1 Representations of Servicer and the Representative.
Franklin Capital makes the following representations on which the Security
Insurer shall be deemed to have relied in executing and delivering the Note
Policy and on which the Issuer is deemed to have relied in acquiring the
Receivables. The representations speak as of the execution and delivery of this
Agreement and as of the Closing Date, and shall survive the sale of the
Receivables to the Issuer and the pledge thereof to the Trustee pursuant to the
Indenture.
(a) Organization and Good Standing. Franklin Capital is duly
organized and validly existing as a corporation in good standing under the laws
of the state of its incorporation, with the corporate power and authority to own
its properties and to conduct its business as such properties are currently
owned and such business is presently conducted, and had at all relevant times,
and has, the power, authority and legal right to acquire, own, sell and service
the Receivables and to hold the Receivable Files as custodian.
(b) Due Qualification. Franklin Capital is duly qualified to
do business and has obtained all necessary licenses and approvals in all
jurisdictions in which the ownership or lease of property or the conduct of its
business (including the servicing of the Receivables as required by this
Agreement) shall require such qualifications, and was duly qualified and had all
licenses in all relevant jurisdictions required for the origination of the
Receivables.
(c) Power and Authority of the Servicer. Franklin Capital has
the corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder, and the execution, delivery and performance
of this Agreement have been duly authorized by Franklin Capital by all necessary
corporate action. All authorizations, consents, orders or approvals of or
registrations or declarations with any court, regulatory body, administrative
agency or other government instrumentality required to be obtained, effected or
given by Franklin Capital in connection with the execution and delivery by the
Servicer of this Agreement or any of the Basic Documents to which it is a party
and the performance by the Servicer of the transactions contemplated by this
Agreement or any of the Basic Documents to which it is a party, have been duly
obtained, effected or given and are in full force and effect, except where
failure to obtain the same would not have a material adverse effect upon the
rights of the Issuer or the Noteholders.
(d) Binding Obligation. This Agreement constitutes a legal,
valid and binding obligation of Franklin Capital, enforceable in accordance with
its terms, subject to applicable bankruptcy, insolvency, moratorium, fraudulent
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conveyance, reorganization and similar laws now or hereafter in effect relating
to creditors' rights generally, and subject to general principles of equity
(whether applied in a proceeding at law or in equity).
(e) No Violation. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof do not
result in any breach of any of the terms and provisions of, or constitute (with
or without notice or lapse of time) a default under the articles of
incorporation or by-laws of Franklin Capital, or any indenture, agreement or
other instrument to which Franklin Capital is a party or by which it shall be
bound; or result in the creation or imposition of any Lien upon any of its
properties pursuant to the terms of any such indenture, agreement or other
instrument (other than pursuant to the Basic Documents); or violate any law or,
to the best of Franklin Capital's knowledge, any order, rule or regulation
applicable to Franklin Capital of any court or of any federal or state
regulatory body, administrative agency or other governmental instrumentality
having jurisdiction over Franklin Capital or its properties.
(f) No Proceedings. There are no proceedings or investigations
pending against Franklin Capital, or, to its best knowledge, threatened against
Franklin Capital, before any court, regulatory body, administrative agency or
other governmental instrumentality having jurisdiction over Franklin Capital or
its properties: (i) asserting the invalidity of this Agreement or any of the
Basic Documents or the Notes, (ii) seeking to prevent the issuance of the Notes
or the consummation of any of the transactions contemplated by this Agreement or
any of the Basic Documents, (iii) seeking any determination or ruling that might
materially and adversely affect the performance by Franklin Capital of its
obligations under, or the validity or enforceability of this Agreement or any of
the Basic Documents or the Notes or (iv) relating to Franklin Capital and which
might adversely affect the federal income tax or ERISA attributes of the Issuer
or the Notes.
(g) No Insolvent Obligors. As of the Cutoff Date, no Obligor
shall be shown on the related Receivable Files as the subject of a bankruptcy
proceeding commenced following the execution of the related Contract.
SECTION 7.2 Indemnities of Servicer. (a) The Servicer shall be liable
in accordance herewith only to the extent of the obligations specifically
undertaken by the Servicer under this Agreement and the representations made by
the Servicer herein.
(b) The Servicer shall defend, indemnify and hold harmless the
Owner Trustee, the Trustee, the Trust, the Indenture Collateral Agent, the
Security Insurer, the Noteholders and the Seller from and against any and all
costs, expenses, losses, damages, claims, and liabilities, arising out of or
resulting from the use, ownership or operation by the Servicer or any Affiliate
thereof of a Financed Vehicle.
(c) The Servicer shall indemnify, defend and hold harmless the
Owner Trustee, the Trustee, the Seller, the Trust, the Indenture Collateral
Agent, the Security Insurer, their respective officers, directors, agents and
employees and the Noteholders from and against any and all costs, expenses,
losses, claims, damages, and liabilities to the extent that such cost, expense,
loss, claim, damage, or liability arose out of, or was imposed upon any such
Person through, the negligence, willful misfeasance or bad faith of the Servicer
in the performance of its duties under this Agreement or by reason of reckless
disregard of its obligations and duties under this Agreement.
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(d) The Servicer shall indemnify, defend and hold harmless the
Owner Trustee and its officers, directors, employees and agents from and against
all costs, expenses, losses, claims, damages and liabilities arising out of or
incurred in connection with the acceptance or performance of the trusts and
duties herein and in the Trust Agreement contained, except to the extent that
such costs, expense, loss, claim, damage or liability shall be due to the
willful misfeasance, bad faith or negligence (except for errors in judgment) of
the Owner Trustee.
For purposes of this Section, in the event of the termination
of the rights and obligations of Franklin Capital Corporation (or any successor
thereto pursuant to Section 7.3) as Servicer pursuant to Section 8.1, or a
resignation by such Servicer pursuant to this Agreement, such Servicer shall be
deemed to be the Servicer pending appointment of a successor Servicer (other
than the Trustee) pursuant to Section 8.2.
Indemnification under this Section shall survive the
resignation or removal of the Owner Trustee or the Trustee or the termination of
this Agreement, the Indenture or the Trust Agreement, as applicable, and shall
include reasonable fees and expenses of counsel and expenses of litigation. If
the Servicer shall have made any indemnity payments pursuant to this Section and
the recipient thereafter collects any of such amounts from others, such Person
shall promptly repay such amounts to the Servicer, without interest.
SECTION 7.3 Merger or Consolidation of, or Assumption of the
Obligations of, Servicer. Any Person (a) into which the Servicer may be merged
or consolidated, (b) which may result from any merger or consolidation to which
the Servicer shall be a party or (c) which may succeed to the properties and
assets of the Servicer, substantially as a whole or (d) with respect to the
Servicer's obligations hereunder, which is a corporation 50% or more of the
voting stock of which is owned, directly or indirectly, by Franklin Resources,
Inc., which Person executed an agreement of assumption to perform every
obligation of the Servicer hereunder shall be the successor to the Servicer
under the Agreement without further act on the part of any of the parties to the
Agreement; provided, however, that (i) the Servicer shall have received the
written consent of the Security Insurer prior to entering into any such
transaction; (ii) immediately after giving effect to such transaction, no
Servicer Default and no event which, after notice or lapse of time, or both,
would become a Servicer Default shall have happened and be continuing, (iii) the
Servicer shall have delivered to the Owner Trustee and the Trustee an Officer's
Certificate and an Opinion of Counsel each stating that such consolidation,
merger or succession and such agreement of assumption comply with this Section
and that all conditions precedent provided for in this Agreement relating to
such transaction have been complied with, (iv) the Rating Agency Condition shall
have been satisfied with respect to such transaction and (v) the Servicer shall
have delivered to the Owner Trustee and the Trustee an Opinion of Counsel
stating that, in the opinion of such counsel, either (A) all financing
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statements and continuation statements and amendments thereto have been executed
and filed that are necessary fully to preserve and protect the interest of the
Owner Trustee and the Trustee in the Receivables and reciting the details of
such filings or (B) no such action shall be necessary to preserve and protect
such interest. Notwithstanding anything herein to the contrary, the execution of
the foregoing agreement of assumption and compliance with clauses (i), (ii),
(iii), (iv) and (v) above shall be conditions to the consummation of the
transactions referred to in clauses (a), (b), (c) or (d) above.
SECTION 7.4 Limitation on Liability of Servicer and Others. Neither the
Servicer nor any of its directors, officers, employees or agents shall be under
any liability to the Issuer, the Noteholders or the Certificateholders, except
as provided under this Agreement, for any action taken or for refraining from
the taking of any action pursuant to this Agreement or for errors in judgment;
provided, however, that this provision shall not protect the Servicer or any
such person against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of duties or by
reason of reckless disregard of obligations and duties under this Agreement. The
Servicer or any subservicer and any of their respective directors, officers,
employees or agents may rely in good faith on any document of any kind prima
facie properly executed and submitted by any Person respecting any matters
arising under this Agreement.
Except as provided in this Agreement, the Servicer shall not
be under any obligation to appear in, prosecute or defend any legal action that
shall not be incidental to its duties to service the Receivables in accordance
with this Agreement, and that in its opinion may involve it in any expense or
liability; provided, however, that the Servicer, may (but shall not be required
to) undertake any reasonable action that it may deem necessary or desirable to
protect the interests of the Certificateholders under the Trust Agreement and
the Noteholders under the Indenture.
SECTION 7.5 Servicer Not To Resign. Subject to the provisions of
Section 7.3, the Servicer may not resign from the obligations and duties hereby
imposed on it as Servicer under this Agreement except upon determination that by
reason of a change in legal requirements the performance of its duties under
this Agreement would cause it to be in violation of such legal requirements in a
manner which would result in a material adverse effect on the Servicer and the
Security Insurer 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. Notice of any such determination
permitting the resignation of the Servicer shall be communicated to the Owner
Trustee, the Trustee and the Security Insurer at the earliest practicable time
(and, if such communication is not in writing, shall be confirmed in writing at
the earliest practicable time) and any such determination shall be evidenced by
an Opinion of Counsel to such effect delivered to and satisfactory to the Owner
Trustee, the Trustee and the Security Insurer concurrently with or promptly
after such notice. No such resignation of the Servicer shall become effective
until a successor servicer shall have assumed the responsibilities and
obligations of Franklin Capital Corporation in accordance with Section 8.2 of
this Agreement.
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ARTICLE VIII
Default
SECTION 8.1 Servicer Default. If any one of the following events (a
"Servicer Default") shall occur and be continuing:
(a) Any failure by the Servicer to deliver to the Owner
Trustee or Trustee for deposit in any of the Trust Accounts or the Certificate
Distribution Account any payment required to be so delivered under the terms of
the Notes, the Certificates or this Agreement that shall continue unremedied for
a period of five Business Days after written notice of such failure is received
by the Servicer from the Security Insurer, the Owner Trustee or the Trustee or
after discovery of such failure by an Officer of the Servicer; or
(b) Failure by the Servicer duly to observe or to perform in
any material respect any other covenants or agreements of the Servicer or the
Seller (as the case may be) set forth in the Notes, the Certificates, this
Agreement or any other Basic Document, which failure shall (i) materially and
adversely affect the rights of either the Certificateholders or the Noteholders
and (ii) continue unremedied for a period of 60 days after the date on which
written notice of such failure, requiring the same to be remedied, shall have
been given (A) to the Servicer by the Security Insurer, the Owner Trustee or the
Trustee or (B) to the Servicer, the Owner Trustee and the Trustee by the Holders
of Notes evidencing not less than 25% of the outstanding principal amount of the
Notes as applicable (or for 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 and the Servicer delivers an Officers'
Certificate to the Security Insurer, the Owner Trustee and the Trustee to such
effect and to the effect that the Servicer has commenced or will promptly
commence, and will diligently pursue, all reasonable efforts to remedy such
default); or
(c) An Insolvency Event occurs with respect to the Servicer or
any successor; or
(d) So long as an Insurer Default shall not have occurred and
be continuing, an Insurance Agreement Event of Default described in Section 5.01
of the Insurance Agreement shall have occurred;
then, and in each and every case, (i) so long as no Insurer Default shall have
occurred and be continuing, the Trustee may, with the consent of the Security
Insurer and at the direction of the Security Insurer, the Trustee shall, subject
to subsection (b) of this Section 8.1, except in the case of an event arising
under Section 5.01(c) of the Insurance Agreement or (ii) if an Insurer Default
shall have occurred and be continuing, any of the Trustee or the Holders of
Notes evidencing not less than a majority of the principal amount of the Notes
then outstanding or Holders of Certificates of Percentage Interests greater than
50% in the case of any default that does not adversely affect the Trustee or the
Noteholders, in any case by notice given in writing to the Servicer (and to the
Trustee if given by the Security Insurer or, as applicable, the Noteholders or
the Certificateholders) may terminate all of the rights and obligations of the
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Servicer under this Agreement. For purposes of Section 8.1(d), any determination
of an adverse effect on the interest of the Certificateholders or the
Noteholders pursuant to Section 8.1(b) shall be made without consideration of
the availability of funds under the Note Policy. On or after the receipt by the
Servicer of such written notice, all authority, power, obligations and
responsibilities of the Servicer under this Agreement, whether with respect to
the Notes, the Certificates or the Receivables or otherwise, automatically shall
pass to, be vested in and become obligations and responsibilities of the Trustee
provided that the Trustee is not unwilling or unable to act; provided, however,
that the Trustee shall have no liability with respect to any obligation which
was required to be performed by the prior Servicer prior to the date that the
Trustee becomes the Servicer or any claim of a third party based on any alleged
action or inaction of the prior Servicer. The Trustee is authorized and
empowered by this Agreement, as successor Servicer to execute and deliver, on
behalf of the prior Servicer, as attorney-in-fact or otherwise, any and all
documents and other instruments and to do or accomplish all other acts or things
necessary or appropriate to effect the purposes of such notice of termination,
whether to complete the transfer and endorsement of the Receivables and the
other Trust Property and related documents, to show the Owner Trustee as
lienholder or secured party on the related Lien Certificates, or otherwise. The
prior Servicer agrees to cooperate with the successor Servicer in effecting the
termination of the responsibilities and rights of the prior Servicer under this
Agreement, including, without limitation, the transfer to the successor Servicer
for administration by it of all cash amounts that shall at the time be held by
the prior Servicer for deposit, or have been deposited by the prior Servicer, in
the Collection Account or thereafter received with respect to the Receivables
and the delivery to the successor Servicer of all Receivables Files, records and
a computer tape in readable form containing all information necessary to enable
the successor Servicer to service the Receivables and the other Trust Property.
The terminated Servicer shall grant the Trustee, (in its capacity as Trustee
and/or successor Servicer), the Owner Trustee and the Security Insurer
reasonable access to the terminated Servicer's premises at the Servicer's
expense.
SECTION 8.2 Appointment of Successor. (a) Upon the Servicer's receipt
of notice of termination, pursuant to Section 8.1 or the Servicer's resignation
in accordance with the terms of this Agreement, the predecessor Servicer shall
continue to perform its functions as Servicer under this Agreement, in the case
of termination, only until the date specified in such termination notice or, if
no such date is specified in a notice of termination, until receipt of such
notice and, in the case of resignation, until the later of (x) the date 45 days
from the delivery to the Owner Trustee and the Trustee of written notice of such
resignation (or written confirmation of such notice) in accordance with the
terms of this Agreement and (y) the date upon which the predecessor Servicer
shall become unable to act as Servicer, as specified in the notice of
resignation and accompanying Opinion of Counsel. In the event of the Servicer's
termination hereunder, the Trustee shall, provided it is not unwilling or unable
to act, assume the obligations of Servicer hereunder, and shall accept its
appointment by a written assumption in form acceptable to the Security Insurer.
Notwithstanding the above, the Trustee, with the prior written consent of the
Security Insurer, or the Security Insurer shall, if the Trustee shall be
unwilling or legally unable so to act, appoint, or petition a court of competent
jurisdiction to appoint, any established institution having a net worth of not
less than $50,000,000 and whose regular business shall include the servicing of
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automotive receivables as the successor to the Servicer under the Agreement. Any
successor Servicer shall be acceptable to the Security Insurer.
(b) Upon appointment, the successor Servicer (including the
Trustee acting as successor Servicer) shall be the successor in all respects to
the predecessor Servicer and shall be subject to all the responsibilities,
duties and liabilities arising thereafter relating thereto placed on the
predecessor Servicer, subject to the exceptions set forth in Section 8.2(a)
hereof, and shall be entitled to the Servicing Fee and all the rights granted to
the predecessor Servicer by the terms and provisions of this Agreement.
SECTION 8.3 [RESERVED]
SECTION 8.4 Notification to Noteholders and Certificateholders. Upon
any termination of, or appointment of a successor to, the Servicer pursuant to
this Article VIII, the Owner Trustee shall give prompt written notice thereof to
Certificateholders, the Security Insurer and the Trustee shall give prompt
written notice thereof to Noteholders and to the Rating Agencies.
SECTION 8.5 Waiver of Past Defaults. So long as no Insurer Default
shall have occurred and be continuing, the Security Insurer (or, if an Insurer
Default shall have occurred and be continuing, the Holders of Notes evidencing
not less than a majority of the outstanding principal amount of the Notes, or
Holders of Certificates of Percentage Interests greater than 50% in the case of
any default which does not adversely affect the Trustee or the Noteholders may,
on behalf of all Noteholders and Certificateholders, waive any default by the
Servicer in the performance of its obligations hereunder and its consequences,
except a default in making any required deposits to or payments from any of the
Trust Accounts in accordance with this Agreement. Upon any such waiver of a past
default, such default shall cease to exist, and any Servicer Default arising
therefrom shall be deemed to have been remedied for every purpose of this
Agreement. No such waiver shall extend to any subsequent or other default or
impair any right consequent thereto.
ARTICLE IX
Termination
SECTION 9.1 Optional Purchase of All Receivables. (a) On the last day
of any Monthly Period as of which the Pool Balance shall be less than or equal
to 10% of the Original Pool Balance, the Servicer shall have the option to
purchase the Owner Trust Estate, other than the Trust Accounts and the
Certificate Distribution Account (with the consent of the Security Insurer if
such purchase would result in a claim on the Note Policy or would result in any
amount owing to the Security Insurer under the Insurance Agreement remaining
unpaid); provided, however, that the amount to be paid for such purchase (as set
forth in the following sentence) shall be sufficient to pay the full amount of
principal, premium, if any, and interest then due and payable on the Notes. To
exercise such option, the Servicer shall deposit pursuant to Section 5.5 in the
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Collection Account an amount equal to the aggregate Purchase Amount for the
Receivables (including Defaulted Receivables), plus any amounts then due and
owing to the Security Insurer plus the appraised value of any other property
held by the Trust, such value to be determined by an appraiser mutually agreed
upon by the Servicer, the Security Insurer, the Owner Trustee and the Trustee,
and shall succeed to all interests in and to the Trust.
(b) Upon any sale of the assets of the Trust pursuant to
Section 9.2 of the Trust Agreement, the Servicer shall instruct the Trustee to
deposit the proceeds from such sale after all payments and reserves therefrom
(including the expenses of such sale) have been made (the "Insolvency Proceeds")
in the Collection Account. On the Distribution Date on which the Insolvency
Proceeds are deposited in the Collection Account (or, if such proceeds are not
so deposited on a Distribution Date, on the Distribution Date immediately
following such deposit), the Servicer shall instruct the Trustee to make, and
the Trustee shall make, the following deposits and distributions (after the
application on such Distribution Date of the Distribution Amount pursuant to
Section 5.6(b)) from the Insolvency Proceeds and the Distribution Amount for
such Distribution Date:
(i) to the Note Distribution Account, any portion of the
Noteholders' Interest Distributable Amount not otherwise deposited into
the Note Distribution Account on such Distribution Date; and
(ii) to the Note Distribution Account, the outstanding
principal amount of the Notes (after giving effect to the reduction in
the outstanding principal amount of the Notes to result from the
deposits made in the Note Distribution Account on such Distribution
Date).
Any Insolvency Proceeds remaining after the deposits described above shall be
paid first to the Security Insurer to the extent of any amounts owing to the
Security Insurer under the Insurance Agreement and not paid, and second, to the
extent of any remaining funds, to the Certificateholders.
(c) Notice of any termination of the Trust shall be given by
the Servicer to the Owner Trustee, the Trustee, the Security Insurer and the
Rating Agencies as soon as practicable after the Servicer has received notice
thereof.
(d) Following the satisfaction and discharge of the Indenture
and the payment in full of the principal of and interest on the Notes, the
Certificateholders will succeed to the rights of the Noteholders hereunder and
the Owner Trustee will succeed to the rights of, and assume the obligations of,
the Trustee pursuant to this Agreement.
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ARTICLE X
Administrative Duties of the Servicer
SECTION 10.1 Administrative Duties. (a) Duties with Respect to the
Indenture and Depository Agreements. The Servicer shall perform all its duties
and the duties of the Issuer under the Indenture and the Depository Agreements.
In addition, the Servicer shall consult with the Owner Trustee as the Servicer
deems appropriate regarding the duties of the Issuer under the Indenture and the
Depository Agreements. The Servicer shall monitor the performance of the Issuer
and shall advise the Owner Trustee when action is necessary to comply with the
Issuer's duties under the Indenture and the Depository Agreements. The Servicer
shall prepare for execution by the Issuer or shall cause the preparation by
other appropriate Persons of all such documents, reports, filings, instruments,
certificates and opinions as it shall be the duty of the Issuer to prepare, file
or deliver pursuant to the Indenture and the Depository Agreements. In
furtherance of the foregoing, the Servicer shall take all necessary action that
is the duty of the Issuer to take pursuant to the Indenture and the Depository
Agreements, including, without limitation, pursuant to Sections 2.7, 3.5, 3.6,
3.7, 3.9, 7.2, 7.3, 11.1 and 11.15 of the Indenture.
(b) Duties with Respect to the Issuer.
(i) In addition to the duties of the Servicer set forth in
this Agreement or any of the Basic Documents, the Servicer shall
perform such calculations and shall prepare for execution by the Issuer
or the Owner Trustee or shall cause the preparation by other
appropriate Persons of all such documents, reports, filings,
instruments, certificates and opinions as it shall be the duty of the
Issuer or the Owner Trustee to prepare, file or deliver pursuant to
this Agreement or any of the Basic Documents, and at the request of the
Owner Trustee shall take all appropriate action that it is the duty of
the Issuer to take pursuant to this Agreement or any of the Basic
Documents, including, without limitation, pursuant to Sections 2.6 and
2.11 of the Trust Agreement. In accordance with the directions of the
Issuer or the Owner Trustee, the Servicer shall administer, perform or
supervise the performance of such other activities in connection with
the Collateral (including the Basic Documents) as are not covered by
any of the foregoing provisions and as are expressly requested by the
Issuer or the Owner Trustee and are reasonably within the capability of
the Servicer.
(ii) Notwithstanding anything in this Agreement or any of the
Basic Documents to the contrary, the Servicer shall be responsible for
promptly notifying the Owner Trustee in the event that any withholding
tax is imposed on the Issuer's payments (or allocations of income) to
an Owner (as defined in the Trust Agreement) as contemplated in Section
5.2(f) of the Trust Agreement. Any such notice shall be in writing and
specify the amount of any withholding tax required to be withheld by
the Owner Trustee pursuant to such provision.
(iii) Notwithstanding anything in this Agreement or the Basic
Documents to the contrary, the Servicer shall be responsible for
performance of the duties of the Issuer or the Owner Trustee set forth
in Section 5.6(a), (b), (c) and (d) of the Trust Agreement with respect
to, among other things, accounting and reports to Owners (as defined in
the Trust Agreement); provided, however, that once prepared by the
Servicer the Owner Trustee shall retain responsibility for the
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distribution of the Schedule K-1s necessary to enable each
Certificateholder to prepare its federal and state income tax returns.
(iv) The Servicer shall perform the duties of the Servicer
specified in Section 10.2 of the Trust Agreement required to be
performed in connection with the resignation or removal of the Owner
Trustee, and any other duties expressly required to be performed by the
Servicer under this Agreement or any of the Basic Documents.
(v) In carrying out the foregoing duties or any of its other
obligations under this Agreement, the Servicer may enter into
transactions with or otherwise deal with any of its Affiliates;
provided, however, that the terms of any such transactions or dealings
shall be in accordance with any directions received from the Issuer and
shall be, in the Servicer's opinion, no less favorable to the Issuer in
any material respect.
(c) Tax Matters. The Servicer shall prepare and file, on
behalf of the Seller, so long as it is a Certificateholder, all tax returns, tax
elections, financial statements and such annual or other reports of the Issuer
as are necessary for preparation of tax reports as provided in Article V of the
Trust Agreement, including without limitation Forms 1099 and 1066. All tax
returns will be signed by Seller, so long as it is a Certificateholder.
(d) Non-Ministerial Matters. With respect to matters that in
the reasonable judgment of the Servicer are non-ministerial, the Servicer shall
not take any action pursuant to this Article X unless within a reasonable time
before the taking of such action, the Servicer shall have notified the Owner
Trustee and the Trustee of the proposed action and the Owner Trustee and, with
respect to items (A), (B), (C) and (D) below, the Trustee shall not have
withheld consent or provided an alternative direction. For the purpose of the
preceding sentence, "non-ministerial matters" shall include:
(A) the amendment of or any supplement to the
Indenture;
(B) the initiation of any claim or lawsuit by the
Issuer and the compromise of any action, claim or lawsuit
brought by or against the Issuer (other than in connection
with the collection of the Receivables);
(C) the amendment, change or modification of this
Agreement or any of the Basic Documents;
(D) the appointment of successor Note Registrars,
successor Paying Agents and successor Trustees pursuant to the
Indenture or the appointment of Successor Servicers or the
consent to the assignment by the Note Registrar, Paying Agent
or Trustee of its obligations under the Indenture; and
(E) the removal of the Trustee.
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(e) Exceptions. Notwithstanding anything to the contrary in
this Agreement, except as expressly provided herein or in the other Basic
Documents, the Servicer, in its capacity hereunder, shall not be obligated to,
and shall not, (1) make any payments to the Noteholders or Certificateholders
under the Basic Documents, (2) sell the Owner Trust Estate pursuant to Section
5.5 of the Indenture, (3) take any other action that the Issuer directs the
Servicer not to take on its behalf or (4) in connection with its duties
hereunder assume any indemnification obligation of any other Person.
SECTION 10.2 Records. The Servicer shall maintain appropriate books of
account and records relating to services performed under this Agreement, which
books of account and records shall be accessible for inspection by the Issuer at
any time during normal business hours.
SECTION 10.3 Additional Information to be Furnished to the Issuer. The
Servicer shall furnish to the Issuer from time to time such additional
information regarding the Collateral as the Issuer shall reasonably request.
ARTICLE XI
Miscellaneous Provisions
SECTION 11.1 Amendment. This Agreement may be amended from time to time
by the Representative, the Seller, the Servicer and the Owner Trustee, with the
consent of the Trustee (which consent may not be unreasonably withheld), with
the prior written consent of the Security Insurer (so long as no Insurer Default
has occurred and is continuing) but without the consent of any of the
Noteholders or the Certificateholders, to cure any ambiguity, to correct or
supplement any provisions in this Agreement, to comply with any changes in the
Code, or to make any other provisions with respect to matters or questions
arising under this Agreement which shall not be inconsistent with the provisions
of this Agreement or the Insurance Agreement; provided, however, that such
action shall not, as evidenced by an Opinion of Counsel delivered to the Owner
Trustee and the Trustee, adversely affect in any material respect the interests
of any Noteholder or Certificateholder; provided further that if an Insurer
Default has occurred and is continuing, such action shall not materially
adversely affect the interests of the Security Insurer in the Trust.
This Agreement may also be amended from time to time by the
Representative, the Seller, the Servicer and the Owner Trustee, with the consent
of the Security Insurer (so long as no Insurer Default has occurred and is
continuing), the consent of the Trustee, the consent of the Holders of Notes
evidencing not less than a majority of the outstanding principal amount of the
Notes and the consent of the Holders of Certificates evidencing not less than a
Percentage Interest greater than 50% for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of this Agreement
or of modifying in any manner the rights of the Noteholders or the
Certificateholders; provided, however, that no such amendment shall (a) increase
or reduce in any manner the amount of, or accelerate or delay the timing of,
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collections of payments on Receivables or distributions that shall be required
to be made for the benefit of the Noteholders or the Certificateholders or (b)
reduce the aforesaid percentage of the outstanding principal amount of the Notes
and the Percentage Interests, the Holders of which are required to consent to
any such amendment, without the consent of the Holders of all the outstanding
Notes and the Certificates, of each class affected thereby; provided further,
that if an Insurer Default has occurred and is continuing, such action shall not
materially adversely affect the interest of the Security Insurer.
Promptly after the execution of any such amendment or consent
pursuant to either of the preceding paragraphs, the Owner Trustee shall furnish
written notification of the substance of such amendment or consent to each
Certificateholder and the Rating Agencies.
It shall not be necessary for the consent of
Certificateholders or Noteholders pursuant to this Section to approve the
particular form of any proposed amendment or consent, but it shall be sufficient
if such consent shall approve the substance thereof. The manner of obtaining
such consents (and any other consents of Noteholders or Certificateholders
provided for in this Agreement) and of evidencing the authorization of any
action by Noteholders or Certificateholders shall be subject to such reasonable
requirements as the Trustee or the Owner Trustee, as applicable, may prescribe.
Prior to the execution of any amendment to this Agreement, the
Owner Trustee, the Trustee and the Security Insurer shall be entitled to receive
and rely upon an Opinion of Counsel stating that the execution of such amendment
is authorized or permitted by this Agreement and the Opinion of Counsel referred
to in Section 11.2(i)(1) has been delivered. The Owner Trustee and the Trustee
may, but shall not be obligated to, enter into any such amendment which affects
the Issuer's, the Owner Trustee's or the Trustee's, as applicable, own rights,
duties or immunities under this Agreement or otherwise.
SECTION 11.2 Protection of Title to Trust. (a) The Seller shall execute
and file such financing statements and cause to be executed and filed such
continuation statements, all in such manner and in such places as may be
required by law fully to preserve, maintain and protect the interest of the
Issuer and the interests of the Indenture Collateral Agent on behalf of the
Noteholders, the Certificateholders and the Security Insurer in the Receivables
and in the proceeds thereof. The Seller shall deliver (or cause to be delivered)
to the Security Insurer, the Owner Trustee and the Indenture Collateral Agent
file-stamped copies of, or filing receipts for, any document filed as provided
above, as soon as available following such filing.
(b) Neither the Seller nor the Servicer shall change its name,
identity or corporate structure in any manner that would, could or might make
any financing statement or continuation statement filed in accordance with
paragraph (a) above seriously misleading within the meaning of Section 9-402(7)
of the UCC, unless it shall have given the Security Insurer, the Owner Trustee
and the Trustee at least five days' prior written notice thereof and shall have
promptly filed appropriate amendments to all previously filed financing
statements or continuation statements. Promptly upon such filing, the Seller or
the Servicer, as the case may be, shall deliver an Opinion of Counsel in form
and substance reasonably satisfactory to the Security Insurer, stating either
(A) all financing statements and continuation statements have been executed and
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filed that are necessary fully to preserve and protect the interest of the Trust
and the Trustee in the Receivables, and reciting the details of such filings or
referring to prior Opinions of Counsel in which such details are given, or (B)
no such action shall be necessary to preserve and protect such interest.
(c) Each of the Seller and the Servicer shall have an
obligation to give the Security Insurer, the Owner Trustee and the Trustee at
least 60 days' prior written notice of any relocation of its principal executive
office if, as a result of such relocation, the applicable provisions of the UCC
would require the filing of any amendment of any previously filed financing or
continuation statement or of any new financing statement and shall promptly file
any such amendment. The Servicer shall at all times maintain each office from
which it shall service Receivables, and its principal executive office, within
the United States of America.
(d) The Servicer shall maintain accounts and records as to
each Receivable accurately and in sufficient detail to permit (i) the reader
thereof to know at any time the status of such Receivable, including payments
and recoveries made and payments owing (and the nature of each) and (ii)
reconciliation between payments or recoveries on (or with respect to) each
Receivable and the amounts from time to time deposited in the Collection Account
in respect of such Receivable.
(e) The Servicer shall maintain its computer systems so that,
from and after the time of sale under this Agreement of the Receivables to the
Issuer, the Servicer's master computer records (including any backup archives)
that refer to a Receivable shall indicate clearly the interest of the Issuer and
the Trustee on behalf of the Certificateholders, the Noteholders and the
Security Insurer in such Receivable and that such Receivable is owned by the
Issuer and has been pledged to the Trustee. Indication of the Issuer's and the
Trustee's interest in a Receivable shall be deleted from or modified on the
Servicer's computer systems when, and only when, the related Receivable shall
have been paid in full or repurchased.
(f) If at any time the Seller or the Servicer shall propose to
sell, grant a security interest in or otherwise transfer any interest in
automotive receivables to any prospective purchaser, lender or other transferee,
the Servicer shall give to such prospective purchaser, lender or other
transferee computer tapes, records or printouts (including any restored from
backup archives) that, if they shall refer in any manner whatsoever to any
Receivable, shall indicate clearly that such Receivable has been sold and is
owned by the Issuer and has been pledged to the Trustee on behalf of the
Certificateholders, the Noteholders and the Security Insurer.
(g) The Servicer shall permit the Trustee and the Security
Insurer and their respective agents at any time during normal business hours to
inspect, audit and make copies of and abstracts from the Servicer's records
regarding any Receivable or any other portion of the Trust Property. The
preceding sentence shall not create any duty or obligation on the part of the
Trustee to perform any such acts.
(h) Upon request, the Servicer shall furnish to the Security
Insurer, the Owner Trustee or to the Trustee, within five Business Days, a list
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of all Receivables (by contract number and name of Obligor) then held as part of
the Trust, together with a reconciliation of such list to the Schedule of
Receivables and to each of the Servicer's Certificates furnished before such
request indicating removal of Receivables from the Trust.
(i) The Servicer shall deliver to the Security Insurer, the
Owner Trustee and the Trustee:
(1) promptly after the execution and delivery of the Agreement
and, if required pursuant to Section 11.1, of each amendment, an
Opinion of Counsel stating that, in the opinion of such Counsel, in
form and substance reasonably satisfactory to the Security Insurer,
either (A) all financing statements and continuation statements have
been executed and filed that are necessary fully to preserve and
protect the interest of the Trust and the Trustee in the Receivables,
and reciting the details of such filings or referring to prior Opinions
of Counsel in which such details are given, or (B) no such action shall
be necessary to preserve and protect such interest; and
(2) within 90 days after the beginning of each calendar year
beginning with the first calendar year beginning more than three months
after the Cutoff Date, an Opinion of Counsel, dated as of a date during
such 90-day period, stating that, in the opinion of such counsel,
either (A) all financing statements and continuation statements have
been executed and filed that are necessary fully to preserve and
protect the interest of the Trust and the Trustee in the Receivables,
and reciting the details of such filings or referring to prior Opinions
of Counsel in which such details are given, or (B) no such action shall
be necessary to preserve and protect such interest.
Each Opinion of Counsel referred to in clause (l) or (2) above
shall specify any action necessary (as of the date of such opinion) to be taken
in the following year to preserve and protect such interest.
(j) The Seller shall, to the extent required by applicable
law, cause the Certificates and the Notes to be registered with the Commission
pursuant to Section 12(b) or Section 12(g) of the Exchange Act within the time
periods specified in such sections.
SECTION 11.3 Notices. All demands, notices and communications upon or
to the Seller, the Servicer, the Owner Trustee, the Trustee or the Rating
Agencies under this Agreement shall be in writing, personally delivered, or
mailed by certified mail, return receipt requested, and shall be deemed to have
been duly given upon receipt (a) in the case of the Seller to 47 West 200 South,
Suite 500, Salt Lake City, UT 84101, Attention: ___________ (b) in the case of
the Servicer or the Representative to 47 West 200 South, Suite 500, Salt Lake
City, UT 84101, Attention: __________ (c) in the case of the Issuer or the Owner
Trustee, at the Corporate Trust Office of the Owner Trustee, with a copy to
________, Attention: ______________ (d) in the case of the Trustee or the
Indenture Collateral Agent, at the Corporate Trust Office, (e) in the case of
the Security Insurer, to MBIA Insurance Corporation, 113 King Street, Armonk,
New York 10504, Attention: Insured Portfolio Management-SF; (f) in the case of
Moody's, to Moody's Investors Service, Inc., ABS Monitoring Department, 99
Church Street, New York, New York 10007; and (g) in the case of Standard &
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Poor's, to Standard & Poor's Ratings Group, 25 Broadway - 15th Floor, New York,
New York 10004, Attention: Asset Backed Surveillance Department. Any notice
required or permitted to be mailed to a Noteholder or Certificateholder shall be
given by first class mail, postage prepaid, at the address of such Holder as
shown in the Certificate Register or Note Register, as applicable. Any notice so
mailed within the time prescribed in the Agreement shall be conclusively
presumed to have been duly given, whether or not the Certificateholder or
Noteholder shall receive such notice.
SECTION 11.4 Assignment. Notwithstanding anything to the contrary
contained herein, except as provided in Sections 6.4 and 7.3 and as provided in
the provisions of this Agreement concerning the resignation of the Servicer,
this Agreement may not be assigned by the Seller or the Servicer without the
prior written consent of the Owner Trustee, the Trustee and the Security Insurer
(or if an Insurer Default shall have occurred and be continuing the Holders of
Notes evidencing not less than 66% of the principal amount of the outstanding
Notes.)
SECTION 11.5 Limitations on Rights of Others. The provisions of this
Agreement are solely for the benefit of the Seller, the Servicer, the Issuer,
the Owner Trustee and for the benefit of the Certificateholders, the Trustee,
the Security Insurer and the Noteholders, as third-party beneficiaries. Nothing
in this Agreement, whether express or implied, shall be construed to give to any
other Person, other than express third-party beneficiaries, any legal or
equitable right, remedy or claim in the Owner Trust Estate or under or in
respect of this Agreement or any covenants, conditions or provisions contained
herein.
SECTION 11.6 Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 11.7 Separate Counterparts. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 11.8 Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
SECTION 11.9 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.10 Assignment to Trustee. The Seller hereby acknowledges and
consents to any mortgage, pledge, assignment and grant of a security interest by
the Issuer to the Trustee pursuant to the Indenture for the benefit of the
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Issuer Secured Parties (as defined in the Indenture) of all right, title and
interest of the Issuer in, to and under the Receivables and/or the assignment of
any or all of the Issuer's rights and obligations hereunder to the Trustee.
SECTION 11.11 Nonpetition Covenants. (a) Notwithstanding any prior
termination of this Agreement, the parties hereto shall not, prior to the date
which is one year and one day after the termination of this Agreement with
respect to the Issuer, acquiesce, petition or otherwise invoke or cause the
Issuer to invoke the process of any court or government authority for the
purpose of commencing or sustaining a case against the Issuer under any federal
or state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Issuer or any substantial part of its property, or ordering the winding
up or liquidation of the affairs of the Issuer.
(b) Notwithstanding any prior termination of this Agreement,
the parties hereto shall not, prior to the date that is one year and one day
after the termination of this Agreement with respect to the Seller, acquiesce
to, petition or otherwise invoke or cause the Seller to invoke the process of
any court or government authority for the purpose of commencing or sustaining a
case against the Seller under any federal or state bankruptcy, insolvency or
similar law, appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator, or other similar official of the Seller or any substantial part of
its property, or ordering the winding up or liquidation of the affairs of the
Seller.
SECTION 11.12 Limitation of Liability of Owner Trustee,
Trustee and Indenture Collateral Agent. (a) Notwithstanding anything contained
herein to the contrary, this Agreement has been countersigned by _______________
not in its individual capacity but solely in its capacity as Owner Trustee of
the Issuer and in no event shall _____________ in its individual capacity or,
except as expressly provided in the Trust Agreement, as Owner Trustee have any
liability for the representations, warranties, covenants, agreements or other
obligations of the Issuer hereunder or in any of the certificates, notices or
agreements delivered pursuant hereto, as to all of which recourse shall be had
solely to the assets of the Issuer. For all purposes of this Agreement, in the
performance of its duties or obligations hereunder or in the performance of any
duties or obligations of the Issuer hereunder, the Owner Trustee shall be
subject to, and entitled to the benefits of, the terms and provisions of
Articles VI, VII and VIII of the Trust Agreement.
(b) Notwithstanding anything contained herein to the contrary,
this Agreement has been accepted by ____________, not in its individual capacity
but solely as Trustee and as Indenture Collateral Agent, and in no event shall
___________ have any liability for the representations, warranties, covenants,
agreements or other obligations of the Issuer hereunder or in any of the
certificates, notices or agreements delivered pursuant hereto, as to all of
which recourse shall be had solely to the assets of the Issuer.
SECTION 11.13 Independence of the Servicer. For all purposes of this
Agreement, the Servicer shall be an independent contractor and shall not be
subject to the supervision of the Issuer or the Owner Trustee with respect to
60
<PAGE>
the manner in which it accomplishes the performance of its obligations
hereunder. Unless expressly authorized by the Issuer, the Servicer shall have no
authority to act for or represent the Issuer or the Owner Trustee in any way and
shall not otherwise be deemed an agent of the Issuer or the Owner Trustee.
SECTION 11.14 No Joint Venture. Nothing contained in this Agreement (i)
shall constitute the Servicer and either of the Issuer or the Owner Trustee as
members of any partnership, joint venture, association, syndicate,
unincorporated business or other separate entity, (ii) shall be construed to
impose any liability as such on any of them or (iii) shall be deemed to confer
on any of them any express, implied or apparent authority to incur any
obligation or liability on behalf of the others.
SECTION 11.15 Third-Party Beneficiaries. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. The Security Insurer and its successors and
assigns shall be a third-party beneficiary to the provisions of this Agreement,
and shall be entitled to rely upon and directly to enforce such provisions of
this Agreement so long as no Insurer Default shall have occurred and be
continuing. Except as expressly stated otherwise herein or in the Basic
Documents, any right of the Security Insurer to direct, appoint, consent to,
approve of, or take any action under this Agreement, shall be a right exercised
by the Security Insurer in its sole and absolute discretion.
SECTION 11.16 Disclaimer by Security Insurer. The Security Insurer may
disclaim any of its rights and powers under this Agreement (but not its duties
and obligations under the Note Policy) upon delivery of a written notice to the
Owner Trustee and the Trustee.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their respective duly authorized
officers as of the day and year first above written.
FRANKLIN AUTO TRUST 1998-1
By ,
not in its individual capacity but solely
as Owner Trustee on behalf of the Trust,
By_____________________________________
Name:
Title:
FRANKLIN RECEIVABLES LLC,
Seller
By_____________________________________
Name:
Title:
FRANKLIN CAPITAL CORPORATION,
Servicer and Representative,
By_____________________________________
Name:
Title:
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<PAGE>
Acknowledged and Accepted:
, not
in its individual capacity
but solely as Trustee,
By___________________________
Name:
Title:
Acknowledged and Accepted:
,
not in its individual capacity
but solely as Owner Trustee,
By____________________________
Name:
Title:
Acknowledged and Accepted:
, not
in its individual capacity
but solely as Indenture Collateral
Agent
By____________________________
Name:
Title:
63
<PAGE>
SCHEDULE A
Schedule of Receivables
-----------------------
<PAGE>
SCHEDULE B
Location of Receivables
-----------------------
-----------------
-----------------
-----------------
<PAGE>
Exhibit B
[Intentionally Left Blank]
<PAGE>
Exhibit C
FORM OF MONTHLY NOTEHOLDER STATEMENT
FRANKLIN AUTO TRUST 1998-1
Class A-1 _________% Asset Backed Notes
Class A-2 _________% Asset Backed Notes
Distribution Date:
Monthly Period:
Under the Sale and Servicing Agreement dated as of August 1, 1998 among
Franklin Capital Corporation as servicer and representative, Franklin
Receivables LLC, as seller and Franklin Auto Trust 1998-1, as issuer, the
Servicer is required to prepare certain information each month regarding current
distributions to Noteholders and the performance of the Trust during the
previous month. The information that is required to be prepared with respect to
the Distribution Date and Monthly Period listed above is set forth below.
Certain of the information is presented on the basis of an original principal
amount of $1,000 per Note, and certain other information is presented based upon
the aggregate amounts for the Trust as a whole.
A. Information Regarding the Current Monthly Distribution.
1. Notes.
<TABLE>
<S> <C> <C>
(a) The aggregate amount of the
distribution with respect to:
the Class A-1 Notes............................................................$________
the Class A-2 Notes............................................................$________
(b) The amount of the distribution set forth in paragraph A.1.(a)
above in respect of interest on:
the Class A-1 Notes............................................................$________
the Class A-2 Notes............................................................$________
(c) The amount of the distribution set forth in paragraph A.1.(a)
above in respect of principal of:
the Class A-1 Notes............................................................$________
the Class A-2 Notes............................................................$________
<PAGE>
(d) The amount of the distribution in A.1.(a) payable pursuant to a
claim on the Note Policy with respect to:
the Class A-1 Notes.......................................................$_______
the Class A-2 Notes.......................................................$_______
(e) The remaining outstanding balance
available to be drawn under the
Note Policy........................................................................$_______
(f) The amount of the distribution set forth in paragraph A.1.(a)
above per $1,000 interest in:
the Class A-1 Notes............................................................$________
the Class A-2 Notes............................................................$________
(g) The amount of the distribution set forth in paragraph A.1.(b)
above per $1,000 interest in:
the Class A-1 Notes............................................................$________
the Class A-2 Notes............................................................$________
(h) The amount of the distribution set forth in paragraph A.1.(c)
above per $1,000 interest in:
the Class A-1 Notes............................................................$________
the Class A-2 Notes............................................................$________
(i) The amount of the distribution set forth in paragraph A.1.(d)
above per $1,000 interest in:
the Class A-1 Notes............................................................$________
the Class A-2 Notes............................................................$________
B. Information Regarding the Performance of the Trust.
1. Pool Balance and Note Principal Balance.
(a) The Pool Balance at the close of business on
the last day of the Monthly Period.........................................................$_____
(b) The aggregate outstanding principal amount of each Class of
Notes after giving effect to payments allocated to principal as
set forth in Paragraph A.1(c) above with respect to:
the Class A-1 Notes............................................................$________
the Class A-2 Notes............................................................$________
<PAGE>
(c) The Note Pool Factor for each Class of Notes after giving affect
to the payments set forth in paragraph A.1(c) with respect to:
the Class A-1 Notes.............................................................________
the Class A-2 Notes.............................................................________
(d) The amount of aggregate Realized Losses for the second
preceding Monthly Period................................................................$________
(e) The aggregate Purchase Amount for
all Receivables that were repurchased
in the Monthly Period...................................................................$________
(f) The aggregate Payahead Balance on
such Distribution Date.................................................................$________
(g) The change in the Payahead Balance
from the preceding Distribution Date...................................................$________
<PAGE>
2. Servicing Fee.
The aggregate amount of the Servicing
Fee paid to the Servicer with respect
to the preceding Monthly Period..........................................................$_______
3. Payment Shortfalls.
(a) The amount of the Noteholders' Interest Carryover Shortfall
after giving effect to the payments set forth in paragraph
A.1(b) above with respect to:
the Class A-1 Notes............................................................$________
the Class A-2 Notes............................................................$________
(b) The amount of the Noteholders' Interest Carryover Shortfall set
forth in paragraph B.3.(a) above per $1,000 interest with
respect to:
the Class A-1 Notes............................................................$________
the Class A-2 Notes............................................................$________
(c) The amount of the Noteholders' Principal Carryover Shortfall
after giving effect to the payments set forth in paragraph
A.1(b) above with respect to:
the Class A-1 Notes............................................................$________
the Class A-2 Notes............................................................$________
(d) The amount of the Noteholders' Principal Carryover Shortfall set
forth in paragraph B.3.(a) above per $1,000 interest with
respect to:
the Class A-1 Notes............................................................$________
the Class A-2 Notes............................................................$________
4. (a) The aggregate amount of collections by
the Servicer during the preceding
Monthly
Period...................................................................$______
(b) The aggregate amount which was received by
the Trust from the Servicer during the
preceding Monthly
Period.........................................................$______
<PAGE>
(c) The aggregate amount of reimbursements to
the Security Insurer during the preceding
Monthly
Period...................................................................$______
(d) The number of Receivables that are delinquent
for over:
30
days................................................................______
60
days................................................................______
90
days................................................................______
</TABLE>
<PAGE>
Exhibit D
Form of Servicer's Certificate
<PAGE>
Exhibit E
Form of Note Policy
<PAGE>
Exhibit F
Form of Stamp
THIS CONTRACT/NOTE IS SUBJECT TO A SECURITY
INTEREST GRANTED TO _________________, AS
TRUSTEE, FOR WHICH UCC-1 FINANCING STATEMENTS HAVE
BEEN FILED WITH THE SECRETARY OF STATE OF DELAWARE.
AS THE LIEN WILL BE RELEASED ONLY BY FILINGS IN SUCH
OFFICES, PURCHASE DOCUMENTS MUST REFER TO SUCH
FILINGS TO DETERMINE WHETHER THE LIEN HAS BEEN
RELEASED.
Exhibit 4.5
FORM OF PURCHASE AGREEMENT dated as of August 1, 1998, between
FRANKLIN CAPITAL CORPORATION, a Delaware corporation (the
"Seller"), and FRANKLIN RECEIVABLES LLC, a Delaware limited
liability company (the "Purchaser").
WHEREAS in the regular course of its business, the Seller has
purchased certain non-prime motor vehicle retail installment sale contracts
secured by new and used automobiles and light trucks from motor vehicle dealers;
WHEREAS the Seller and the Purchaser wish to set forth the terms
pursuant to which the Receivables (as hereinafter defined) are to be sold by the
Seller to the Purchaser, which Receivables will be transferred by the Purchaser,
pursuant to the Sale and Servicing Agreement (as hereinafter defined), to
Franklin Auto Trust 1998-1 (the "Trust"), which Trust will issue two classes of
Asset Backed Notes (the "Notes"), which will be debt of the Trust and
Certificates representing the ownership interest in the Trust (the
"Certificates").
NOW, THEREFORE, in consideration of the foregoing, other good
and valuable consideration and the mutual terms and covenants contained herein,
the parties hereto agree as follows:
ARTICLE I
Certain Definitions
Terms not defined in this Agreement shall have the meaning set
forth in the Sale and Servicing Agreement. As used in this Agreement, the
following terms shall, unless the context otherwise requires, have the following
meanings (such meanings to be equally applicable to the singular and plural
forms of the terms defined):
"Agreement" shall mean this Purchase Agreement, as the same may
be amended and supplemented from time to time.
"Assignment" shall mean the document of assignment attached to
this Agreement as Exhibit A.
"Certificateholder" means a holder of a Certificate.
"Closing Date" shall mean August __, 1998.
<PAGE>
"Collections" shall mean all amounts collected by the Servicer
(from whatever source) on or with respect to the Receivables.
"Computer Tape" means the computer tapes or other electronic
media furnished by the Seller to the Purchaser describing certain
characteristics of the Receivables.
"Lien" means a security interest, lien, charge, pledge, equity,
or encumbrance of any kind, other than tax liens, mechanics' liens and any liens
that attach to the respective Receivable by operation of law as a result of any
act or omission by the related Obligor.
"Noteholder" means a holder of a Note.
"Obligor" on a Receivable means the purchaser or co-purchasers
of the Financed Vehicle and any other Person who owes payments under the
Receivable.
"Prospectus" shall mean the Prospectus (as defined in the
Underwriting Agreement).
"Purchaser" shall mean Franklin Receivables LLC, a Delaware
limited liability company, its successors and assigns.
"Receivable" shall mean any Contract listed on Schedule A (which
Schedule may be in the form of microfiche).
"Repurchase Event" shall have the meaning specified in Section
6.02.
"Sale and Servicing Agreement" shall mean the Sale and Servicing
Agreement dated as of August 1, 1998, among the Trust, as issuer, Franklin
Receivables LLC, as seller, and Franklin Capital Corporation, as servicer and
representative, as the same may be amended and supplemented from time to time.
"Schedule of Receivables" shall mean the list of Receivables
annexed hereto as Schedule A.
"Security Insurer" shall mean MBIA Insurance Corporation.
"Seller" shall mean Franklin Capital Corporation., a Delaware
limited liability company, its successors and assigns.
"Underwriting Agreement" shall mean the Underwriting Agreement
dated August __, 1998 between Goldman, Sachs & Co. Inc. and the Purchaser.
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<PAGE>
ARTICLE II
Conveyance of Receivables
SECTION 2.01. Conveyance of Receivables. In consideration of the
Purchaser's delivery to or upon the order of the Seller of $___________ the
Seller does hereby sell, transfer, assign, set over and otherwise convey to the
Purchaser, without recourse (subject to the obligations herein), all right,
title and interest of the Seller in and to:
(i) the Receivables, and all moneys received thereon after the
Cutoff Date;
(ii) an assignment of the security interests in the Financed
Vehicles granted by Obligors pursuant to the Receivables and any other interest
of the Seller in such Financed Vehicles;
(iii) any proceeds with respect to the Receivables from claims
on any physical damage, credit life or disability insurance policies covering
Financed Vehicles or Obligors and any proceeds from the liquidation of the
Receivables;
(iv) any proceeds from any Receivables repurchased by a Dealer,
pursuant to a Dealer Agreement, as a result of a breach of representation and
warranty in the related Dealer Agreement;
(v) all rights under any Service Contracts on the related
Financed Vehicles;
(vi) the related Receivables Files; and
(vii) the proceeds of any and all of the foregoing.
SECTION 2.02. RESERVED.
SECTION 2.03. The Closing. The sale and purchase of the
Receivables shall take place at a closing (the "Closing") at the offices of
Weil, Gotchal & Manges, 767 Fifth Avenue, New York, New York 10153 on the
Closing Date, simultaneously with the closings under the Sale and Servicing
Agreement.
ARTICLE III
Representations and Warranties
SECTION 3.01. Representations and Warranties of the Purchaser.
The Purchaser hereby represents and warrants to the Seller as of the date hereof
and as of the Closing Date:
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<PAGE>
(a) Organization and Good Standing. The Purchaser has been duly
organized and is validly existing as a limited liability company in good
standing under the laws of the State of Delaware, with the power and authority
to own its properties and to conduct its business as such properties are
currently owned and such business is presently conducted, and had at all
relevant times, and has, the power, authority and legal right to acquire and own
the Receivables.
(b) Due Qualification. The Purchaser is duly qualified to do
business and is in good standing, and has obtained all necessary licenses and
approvals, in all jurisdictions in which the ownership or lease of property or
the conduct of its business shall require such qualifications.
(c) Power and Authority. The Purchaser has the power and
authority to execute and deliver this Agreement and to carry out its terms and
the execution, delivery and performance of this Agreement has been duly
authorized by the Purchaser by all necessary action.
(d) No Violation. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof do not
conflict with, result in any breach of any of the terms and provisions of, nor
constitute (with or without notice or lapse of time) a default under, the
certificate of formation or limited liability company agreement of the
Purchaser, or any indenture, agreement or other instrument to which the
Purchaser is a party or by which it is bound; nor result in the creation or
imposition of any Lien upon any of its properties pursuant to the terms of any
such indenture, agreement or other instrument (other than the Sale and Servicing
Agreement) nor violate any law or, to the best of the Purchaser's knowledge, any
order, rule or regulation applicable to the Purchaser of any court or of any
Federal or state regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Purchaser or its properties.
(e) No Proceedings. There are no proceedings or investigations
pending or, to the Purchaser's best knowledge, threatened, before any court,
regulatory body, administrative agency or other governmental instrumentality
having jurisdiction over the Purchaser or its properties: (i) asserting the
invalidity of this Agreement, (ii) seeking to prevent the consummation of any of
the transactions contemplated by this Agreement or (iii) seeking any
determination or ruling that might materially and adversely affect the
performance by the Purchaser of its obligations under, or the validity or
enforceability of, this Agreement.
SECTION 3.02. Representations and Warranties of the Seller. (a)
The Seller hereby represents and warrants to the Purchaser as of the date hereof
and as of the Closing Date:
(i) Organization and Good Standing. The Seller has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware, with the power and authority to
own its properties and to conduct its business as such properties are
currently owned and such business is presently conducted, and had at all
relevant times, and has, the power, authority and legal right to acquire
and own the Receivables.
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<PAGE>
(ii) Due Qualification. The Seller is duly qualified to do
business as a foreign corporation and is in good standing, and has
obtained all necessary licenses and approvals, in all jurisdictions in
which the ownership or lease of property or the conduct of its business
shall require such qualifications.
(iii) Power and Authority. The Seller has the power and
authority to execute and deliver this Agreement and to carry out its
terms; the Seller has full power and authority to sell and assign the
property sold and assigned to the Purchaser hereby and has duly
authorized such sale and assignment to the Purchaser by all necessary
corporate action; and the execution, delivery and performance of this
Agreement has been duly authorized by the Seller by all necessary
corporate action.
(iv) No Violation. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof
shall not conflict with, result in any breach of any of the terms and
provisions of, nor constitute (with or without notice or lapse of time)
a default under, the articles of incorporation or by-laws of the Seller,
or any indenture, agreement or other instrument to which the Seller is a
party or by which it is bound; nor result in the creation or imposition
of any Lien upon any of its properties pursuant to the terms of any such
indenture, agreement or other instrument (other than this Agreement);
nor violate any law or, to the best of the Seller's knowledge, any
order, rule or regulation applicable to the Seller of any court or of
any Federal or state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Seller or its
properties.
(v) No Proceedings. To the Seller's best knowledge, there are no
proceedings or investigations pending, or threatened, before any court,
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Seller or its properties:
(A) asserting the invalidity of this Agreement, (B) seeking to prevent
the consummation of any of the transactions contemplated by this
Agreement, or (C) seeking any determination or ruling that might
materially and adversely affect the performance by the Seller of its
obligations under, or the validity or enforceability of, this Agreement.
(b) The Seller makes the following representations and
warranties as to the Receivables on which the Purchaser relies in accepting the
Receivables. Such representations and warranties speak as of the execution and
delivery of this Agreement, but shall survive the sale, transfer and assignment
of the Receivables to the Purchaser and the subsequent assignment and transfer
of the Receivables pursuant to the Sale and Servicing Agreement:
(i) Title. It is the intention of the Seller that the transfer and
assignment herein contemplated constitute a sale of the Receivables from the
Seller to the Purchaser and that the beneficial interest in and title to such
Receivables not be part of the Seller's estate in the event of the filing of a
petition for receivership by or against the Seller under any bankruptcy law.
Immediately prior to the transfer and assignment herein contemplated, the Seller
had good and marketable title to each Receivable, free and clear of all Liens
5
<PAGE>
and, immediately upon the transfer thereof, the Purchaser shall have good and
marketable title to each such Receivable, free and clear of all Liens; and the
transfer of the Receivables to the Purchaser has been perfected under the UCC.
(ii) All Filings Made. All filings (including UCC filings) necessary
in any jurisdiction to give the Purchaser a perfected ownership interest in the
Receivables have been made.
(iii) Characteristics of Receivables. Each Receivable (a) was
originated in the United States of America by (i) a Dealer in connection with
the retail sale of a Financed Vehicle in the ordinary course of such Dealer's
business, was fully and properly executed by the parties thereto, and was
purchased by the Seller from such Dealer under an existing dealer agreement with
the Seller or (ii) the Seller or an affiliate of the Seller in the ordinary
course of its business and was fully and properly executed by the parties
thereto, (b) has created or shall create a valid, subsisting, and enforceable
first priority security interest in favor of the Seller in the Financed Vehicle,
which security interest shall be assignable by the Seller to the Purchaser,
which in turn shall be assignable to the Trust, (c) contains customary and
enforceable provisions such that the rights and remedies of the holder thereof
shall be adequate for realization against the collateral of the benefits of the
security, (d) provides for level monthly payments (provided that the payment in
the first or last month in the life of the Receivable may be minimally different
from the level payment) that fully amortize the Amount Financed by maturity, (e)
provides for, in the case of a Precomputed Receivable, in the event that such
Contract is prepaid, a prepayment that fully pays the Principal Balance and
includes interest to the date of payment, in the month of prepayment, at the
Annual Percentage Rate, and (f) has not been amended or collections with respect
to which have not been waived, other than as evidenced in the Receivable File
related thereto.
(iv) Schedule of Receivables. The information set forth in Schedule A
to this Agreement is true and correct in all material respects as of the close
of business on the Cutoff Date, and no selection procedures believed by the
Seller to be adverse to the Purchaser or the Security Insurer were utilized in
selecting the Receivables. The Computer Tape regarding the Receivables is true
and correct in all material respects as of the close of business on the Cutoff
Date.
(v) Compliance With Law. Each Receivable complied at the time it
was originated or made and at the Closing Date complies in all material respects
with all requirements of applicable Federal, state and local laws and
regulations thereunder, including usury laws, the Federal Truth-in-Lending Act,
the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair Debt
Collection Practices Act, the Federal Trade Commission Act, the Magnuson-Moss
Warranty Act, the Rees-Levering Act, the Federal Reserve Board's Regulations B
and Z, and state adaptations of the National Consumer Act, and other consumer
credit laws and equal credit opportunity and disclosure laws.
6
<PAGE>
(vi) Binding Obligation. Each Receivable represents the legal,
valid and binding payment obligation in writing of the Obligor thereunder,
enforceable by the holder thereof in accordance with its terms except as such
enforceability may be limited by applicable bankruptcy, insolvency, moratorium,
fraudulent conveyance, reorganization and similar laws now or hereafter in
effect related to or affecting creditors' rights generally and subject to
general principles of equity (whether applied in a proceeding at law or in
equity).
(vii) No Government Obligor. None of the Receivables are due
from the United States of America or any State or from any agency, department or
instrumentality of the United States of America or any State.
(viii) Security Interest in Financed Vehicle. Immediately prior
to the sale, assignment and transfer thereof, each Receivable is secured by a
validly perfected first priority security interest in the Financed Vehicle in
favor of the Seller as secured party or all necessary and appropriate actions
have been commenced that would result in the valid perfection of a first
security interest in the Financed Vehicle in favor of the Seller as secured
party. Immediately after the sale, assignment and transfer thereof to the
Purchaser, although the Lien Certificate will not indicate the Purchaser as
secured party, each Receivable will be secured by an enforceable and perfected
security interest in the Financed Vehicle in favor of the Purchaser as secured
party, which security interest is prior to all other Liens in such Financed
Vehicle.
(ix) Receivables in Force. No Receivable has been satisfied,
subordinated or rescinded, nor has any Financed Vehicle been released from the
Lien granted by the related Receivable in whole or in part unless another
vehicle has been substituted as collateral securing the Receivable without any
other modification to such Receivable.
(x) No Waiver. No provision of a Receivable has been waived
except as reflected in the Receivable File relating to such Receivable.
(xi) No Defenses. No right of rescission, setoff, counterclaim
or defense has been asserted or threatened with respect to any Receivable.
(xii) No Liens. The Seller has not received notice of any Liens
or claims, including Liens for work, labor, materials or unpaid state or federal
taxes relating to any Financed Vehicle securing the related Receivable, that are
or may be prior to or equal to the Lien granted by such Receivable.
(xiii) No Default. No Receivable has a payment that is more than
30 days delinquent as of the Cutoff Date, and, except as permitted in this
paragraph, no default, breach, violation or event (in any such case) permitting
acceleration under the terms of any Receivable has occurred; and no continuing
condition that with notice or the lapse of time would constitute a default,
breach, violation or event (in any such case) permitting acceleration under the
terms of any Receivable has arisen as of the Cutoff Date; and the Seller has not
waived and shall not waive any of the foregoing. For purposes of this clause
(xiii), a Receivable is considered 30 days delinquent as of the end of the month
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<PAGE>
following the date on which a second consecutive Scheduled Payment has not been
made. As of the Closing Date no Receivable has had an uncured first payment
default.
(xiv) No Bankruptcies. No Obligor on any Receivable was noted in
the related Receivable File as having filed for bankruptcy in a proceeding which
remained undischarged as of the Cutoff Date.
(xv) No Repossessions. As of the Cutoff Date no Financed Vehicle
securing any Receivable is in repossession status.
(xvi) Chattel Paper. Each Receivable constitutes "chattel paper"
as defined in the UCC.
(xvii) Insurance. The Seller, in accordance with its customary
procedures, has determined that the Obligor, at the time the Receivable was
originated, obtained physical damage insurance covering the Financed Vehicle and
under the terms of the Receivable the Obligor is required to maintain such
insurance.
(xviii) Lawful Assignment. No Receivable has been originated in,
or as of the Cutoff Date is subject to the laws of, any jurisdiction under which
the sale, transfer and assignment of such Receivable or this Agreement is
unlawful, void or voidable.
(xix) No Insurance Premiums. No portion of the Principal Balance
of any Receivable included amounts attributable to the payment of any physical
damage or theft insurance premium.
(xx) One Original. There is only one original executed copy of
each Receivable.
(xxi) Location of Receivable Files. The Receivable Files are
kept at one or more of the locations listed in Schedule B.
(xxii) Computer Records. As of the Closing Date, the accounting
and computer records relating to the Receivables of the Seller will have been
marked to show the absolute ownership by the Purchaser of the Receivables.
(xxiii) Maturity of Receivables. Each Receivable has a final
maturity date not later than _______; each Receivable has an original term to
maturity of not more than __ months; the weighted average original term of the
Receivables is _____ months; and the weighted average remaining term of the
Receivables is ____ months as of the Cutoff Date. No Receivable shall have a
remaining term to maturity in excess of __ months except ____% of the Aggregate
Principal Balance of the Receivables represent Receivables with remaining terms
to maturity of up to __ months.
8
<PAGE>
(xxiv) Financing. Approximately ___% of the aggregate principal
balance of the Receivables, represent new vehicles; the remainder of the
Receivables represent used vehicles; approximately ___% of the aggregate
principal balance of the Receivables represent Precomputed Receivables and the
remainder of the Receivables represent Simple Interest Receivables; ___% of the
Receivables which are Precomputed Receivables are Rule of 78s Receivables. The
aggregate Principal Balance of the Receivables is $_______.
(xxv) APR. The weighted average Annual Percentage Rate of the
Receivables as of the Cutoff Date is approximately ___%. Each Receivable has an
APR equal to or greater than ___%.
(xxvi) Number. There are ___ Receivables.
(xxvii) Balance. Each Receivable has a remaining principal
balance of not less than $____ and not more than $____; the average Principal
Balance of the Receivables is $______.
(xxviii) Adverse Selection. No selection procedures adverse to
the Noteholders or the Certificateholders or the Security Insurer were utilized
in selecting the Receivables from those owned by the Servicer which met the
selection criteria contained in the Sale and Servicing Agreement.
(xxix) Taxes. To the best knowledge of the Seller, there are no
state or local taxing jurisdictions which have asserted that nonresident holders
of certificates in, or notes issued by, a trust which holds assets similar to
the assets to be held by the Trust are subject to the jurisdiction's income or
other taxes solely by reason of the location in the jurisdiction of the Owner
Trustee, the Seller, the Servicer, the Representative, the obligors on or the
assets securing the Receivables held by the Trust, or the issuer of a financial
guaranty insurance policy.
ARTICLE IV
Conditions
SECTION 4.01. Conditions to Obligation of the Purchaser. The
obligation of the Purchaser to purchase the Receivables is subject to the
satisfaction of the following conditions:
(a) Representations and Warranties True. The representations and
warranties of the Seller hereunder shall be true and correct on the Closing Date
with the same effect as if then made, and the Seller shall have performed all
obligations to be performed by it hereunder on or prior to the Closing Date.
9
<PAGE>
(b) Computer Files Marked. The Seller shall, at its own expense,
on or prior to the Closing Date, indicate in its computer files that receivables
created in connection with the Receivables have been sold to the Purchaser
pursuant to this Agreement, and deliver to the Purchaser the Schedule of
Receivables certified by the Chairman, the President, a Vice President or the
Treasurer to be true, correct and complete.
(c) Documents To Be Delivered by the Seller at the Closing.
(i) The Assignment. At the Closing, the Seller will execute and
deliver an Assignment. The Assignment shall be substantially in the form
of Exhibit A hereto.
(ii) Evidence of UCC Filing. On or prior to the Closing Date,
the Seller shall record and file, at its own expense, a UCC-l financing
statement in each jurisdiction in which required by applicable law,
executed by the Seller, as seller or debtor, and naming the Purchaser,
as purchaser or secured party, describing the Receivables and the other
property included in the Trust Property as collateral, meeting the
requirements of the laws of each such jurisdiction and in such manner as
is necessary to perfect the sale, transfer, assignment and conveyance of
such Receivables to the Purchaser. The Seller shall deliver a
file-stamped copy, or other evidence satisfactory to the Purchaser of
such filing, to the Purchaser on or prior to the Closing Date.
(iii) Other Documents. Such other documents as the Purchaser may
reasonably request.
(d) Other Transactions. The transactions contemplated by the
Sale and Servicing Agreement to be consummated on the Closing Date, shall be
consummated on such date.
SECTION 4.02. Conditions to Obligation of the Seller. The
obligation of the Seller to sell the Receivables to the Purchaser is subject to
the satisfaction of the following conditions:
(a) Representations and Warranties True. The representations and
warranties of the Purchaser hereunder shall be true and correct on the Closing
Date with the same effect as if then made, and the Seller shall have performed
all obligations to be performed by it hereunder on or prior to the Closing Date.
(b) Receivables Purchase Price. On the Closing Date, the
Purchaser shall have delivered to the Seller the purchase price specified in
Section 2.01 of this Agreement.
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ARTICLE V
Covenants of the Seller
The Seller agrees with the Purchaser as follows; provided,
however, that to the extent that any provision of this Article conflicts with
any provision of the Sale and Servicing Agreement, the Sale and Servicing
Agreement shall govern:
SECTION 5.01. Protection of Right, Title and Interest. (a)
Filings. The Seller shall cause all financing statements and continuation
statements and any other necessary documents covering the right, title and
interest of the Purchaser in and to the Receivables and the other property
included in the Trust Property to be promptly filed, and at all times to be kept
recorded, registered and filed, all in such manner and in such places as may be
required by law fully to preserve and protect the right, title and interest of
the Purchaser hereunder to the Receivables and the other property included in
the Trust Property. The Seller shall deliver to the Purchaser file stamped
copies of, or filing receipts for, any document recorded, registered or filed as
provided above, as soon as available following such recordation, registration or
filing. The Purchaser shall cooperate fully with the Seller in connection with
the obligations set forth above and will execute any and all documents
reasonably required to fulfill the intent of this paragraph.
(b) Name Change. Within 15 days after the Seller makes any
change in its name, identity or corporate structure which would make any
financing statement or continuation statement filed in accordance with paragraph
(a) above seriously misleading within the applicable provisions of the UCC or
any title statute, the Seller shall give the Purchaser notice of any such
change, and no later than 5 days after the effective date thereof, shall file
such financing statements or amendments as may be necessary to continue the
perfection of the Purchaser's interest in the property included in the Owner
Trust Estate.
SECTION 5.02. Other Liens or Interests. Except for the
conveyances hereunder and pursuant to the Sale and Servicing Agreement, the
Seller will not sell, pledge, assign or transfer to any Person, or grant,
create, incur, assume or suffer to exist any Lien on, any interest in, to and
under the Receivables, and the Seller shall defend the right, title and interest
of the Purchaser in, to and under the Receivables against all claims of third
parties claiming through or under the Seller; provided, however, that the
Seller's obligations under this Section shall terminate upon the termination of
the Trust pursuant to the Sale and Servicing Agreement.
SECTION 5.03. Chief Executive Office. During the term of the
Receivables, the Seller will maintain its chief executive office in Utah.
SECTION 5.04. Costs and Expenses. The Seller agrees to pay all
reasonable costs and disbursements in connection with the perfection, as against
all third parties, of the Purchaser's right, title and interest in and to the
Receivables.
11
<PAGE>
ARTICLE VI
Miscellaneous Provisions
SECTION 6.01. Obligations of Seller. The obligations of the
Seller under this Agreement shall not be affected by reason of any invalidity,
illegality or irregularity of any Receivable.
SECTION 6.02. Repurchase Events. The Seller hereby covenants and
agrees with the Purchaser for the benefit of the Purchaser, the Trust, the
Trustee, the Noteholders, the Certificateholders and the Security Insurer that
the occurrence of a breach of any of the Seller's representations and warranties
contained in Section 3.02(b) shall constitute events obligating the Seller to
repurchase Receivables hereunder ("Repurchase Events"), at the Purchase Amount
from the Purchaser or from the Trustee. The repurchase obligation of the Seller
shall constitute the sole remedy to the Purchaser, the Trust, the Trustee, the
Noteholders or the Certificateholders against the Seller with respect to any
Repurchase Event.
SECTION 6.03. Purchaser Assignment of Repurchased Receivables.
With respect to all Receivables repurchased by the Seller pursuant to this
Agreement, the Purchaser shall assign, without recourse, representation or
warranty, to the Seller all the Purchaser's right, title and interest in and to
such Receivables, and all security and documents relating thereto.
SECTION 6.04. [Reserved]
SECTION 6.05. Trust. The Seller acknowledges and agrees that (a)
the Purchaser will, pursuant to the Sale and Servicing Agreement, sell the
Receivables to the Trust and assign its rights under this Agreement to the
Trust, and (b) the representations and warranties contained in this Agreement
and the rights of the Purchaser under this Agreement, including those under
Section 6.02, are intended to benefit the Trust, the Noteholders, the
Certificateholders and the Security Insurer. The Seller hereby consents to all
such sales and assignments.
SECTION 6.06. Amendment. This Agreement may be amended from time
to time, with prior written notice to the Rating Agencies, by a written
amendment duly executed and delivered by the Seller and the Purchaser, without
the consent of the Noteholders, but with the consent of the Security Insurer for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Agreement or of modifying in any manner the rights
of the Noteholders; provided that such amendment will not, in the Opinion of
Counsel satisfactory to the Trustee, materially and adversely affect the
interest of any Noteholder. This Agreement may also be amended by the Seller and
the Purchaser, with prior written notice to the Rating Agencies, with the
consent of the holders of Notes evidencing at least a majority of the
outstanding principal amount of the Notes for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement or of modifying in any manner the rights of Noteholders and with
the consent of the Security Insurer; 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 Receivables or distributions that are
required to be made for the benefit of Noteholders or (ii) reduce the aforesaid
percentage of the Notes which are required to consent to any such amendment,
without the consent of the holders of all the outstanding Notes.
12
<PAGE>
SECTION 6.07. Accountants' Letters. (a) ________ will review the
characteristics of the Receivables described in the Schedule of Receivables set
forth as a Schedule hereto and will compare those characteristics to the
information with respect to the Receivables contained in the Offering Documents;
(b) the Seller will cooperate with the Purchaser and ______ in making available
all information and taking all steps reasonably necessary to permit such
accountants to complete the review set forth in clause (a) above and to deliver
the letters required of them under the Underwriting Agreement; (c) _______ will
deliver to the Purchaser a letter, dated the date of the Prospectus, in the form
previously agreed to by the Seller and the Purchaser, with respect to the
financial and statistical information contained in the Prospectus and with
respect to such other information as may be agreed in the form of letter.
SECTION 6.08. Waivers. No failure or delay on the part of the
Purchaser in exercising any power, right or remedy under this Agreement or any
Assignment shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or remedy preclude any other or further
exercise thereof or the exercise of any other power, right or remedy.
SECTION 6.09. Notices. All demands, notices and communications
under this Agreement shall be in writing, personally delivered or mailed by
certified mail, return receipt requested, and shall be deemed to have been duly
given upon receipt (a) in the case of the Seller, to 47 West 200 South, Suite
500, Salt lake City, UT 84101, Attention: _______, (b) in the case of the
Purchaser, to 47 West 200 South, Suite 500, Salt lake City, UT 84101, Attention:
_______, (c) in the case of Moody's, to Moody's Investors Service, Inc., ABS
Monitoring Department, 99 Church Street, New York, New York 10007; (d) in the
case of Standard & Poor's, to Standard & Poor's Corporation, 26 Broadway (20th
Floor), New York, New York 10004, Attention of Asset Backed Surveillance
Department; (e) in the case of the Security Insurer, to MBIA Insurance
Corporation, 113 King Street, Armonk, New York 10504, Attn: Insured Portfolio
Management (IPM-SF), or as to each of the foregoing, at such other address as
shall be designated by written notice to the other parties.
SECTION 6.10. Costs and Expenses. The Seller will pay all
expenses incident to the performance of its obligations under this Agreement and
the Seller agrees to pay all reasonable out-of-pocket costs and expenses of the
Purchaser, excluding fees and expenses of counsel, in connection with the
perfection as against third parties of the Purchaser's right, title and interest
in and to the Receivables and the enforcement of any obligation of the Seller
hereunder.
SECTION 6.11. Representations of the Seller and the Purchaser.
The respective agreements, representations, warranties and other statements by
the Seller and the Purchaser set forth in or made pursuant to this Agreement
shall remain in full force and effect and will survive the closing under Section
2.03.
13
<PAGE>
SECTION 6.12. Confidential Information. The Purchaser agrees
that it will neither use nor disclose to any Person the names and addresses of
the Obligors, except in connection with the enforcement of the Purchaser's
rights hereunder, under the Receivables, under the Sale and Servicing Agreement
or as required by any of the foregoing or by law.
SECTION 6.13. Headings and Cross-References. The various
headings in this Agreement are included for convenience only and shall not
affect the meaning or interpretation of any provision of this Agreement.
References in this Agreement to Section names or numbers are to such Sections of
this Agreement.
SECTION 6.14. GOVERNING LAW. THIS AGREEMENT AND THE ASSIGNMENTS
SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER OR THEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
SECTION 6.15. Counterparts. This Agreement may be executed in
two or more counterparts and by different parties on separate counterparts, each
of which shall be an original, but all of which together shall constitute one
and the same instrument.
SECTION 6.16. Third Party Beneficiary. The Security Insurer is
an express third party beneficiary of this Agreement.
SECTION 6.17. No Proceedings. So long as this Agreement is in
effect, and for one year following its termination, the Seller agrees that it
will not file any involuntary petition or otherwise institute any bankruptcy,
reorganization arrangement, insolvency or liquidation proceeding or other
proceedings under any federal or state bankruptcy law or similar law against the
Purchaser.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers duly authorized as of the
date and year first above written.
FRANKLIN RECEIVABLES LLC
By: __________________________
Name:
Title:
FRANKLIN CAPITAL CORPORATION
By: __________________________
Name:
Title:
<PAGE>
EXHIBIT A
ASSIGNMENT
For value received, in accordance with the Purchase Agreement
(the "Purchase Agreement") dated as of August 1, 1998, between the undersigned
and Franklin Receivables LLC (the "Purchaser"), the undersigned does hereby
sell, assign, transfer and otherwise convey unto the Purchaser, without
recourse, all right, title and interest of the undersigned in and to (i) the
Receivables and all monies received thereon, on or after the Cutoff Date; (ii)
the security interest of the Seller in the Financed Vehicles granted by the
Obligors pursuant to the and any other interest of the Seller in such Financed
Vehicles; (iii) the interest of the Seller in any proceeds from claims on any
physical damage, credit life or disability insurance policies relating to the
Financed Vehicles or Obligors; (iv) the interest of the Seller in any proceeds
with respect to the Receivables from recourse to Dealers thereon with respect to
which the Servicer has determined in accordance with its customary procedures
that eventual payment in full is unlikely; (v) all rights under any Service
Contract on the related Financed Vehicles; (vi) the related Receivables Files;
and (vii) the proceeds of any and all of the foregoing. The foregoing sale does
not constitute and is not intended to result in any assumption by the Purchaser
of any obligation of the undersigned to the Obligors, insurers or any other
person in connection with the Receivables, Receivable Files, any insurance
policies or any agreement or instrument relating to any of them.
This Assignment is made pursuant to and upon the
representations, warranties and agreements on the part of the undersigned
contained in the Purchase Agreement and is to be governed by the Purchase
Agreement. The undersigned acknowledges and agrees that the Purchaser may
A-1
<PAGE>
further assign the items enumerated in clauses (i) through (vii) above to
Franklin Auto Trust 1998-1 which may in turn assign its interests in the items
in (i) through (vii) to ____________, as trustee (the "Trustee") for the benefit
of the Noteholders and the Security Insurer and that the Trustee will have the
right to enforce any of the rights of the Purchaser under the Purchase
Agreement.
Capitalized terms used herein and not otherwise defined shall
have the meaning assigned to them in the Purchase Agreement.
A-2
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Assignment
to be duly executed as of August 1, 1998.
FRANKLIN CAPITAL CORPORATION
By: _____________________________
Name:
Title:
A-3
<PAGE>
SCHEDULE A
Schedule of Receivables
[Delivered to the Trustee at Closing]
<PAGE>
SCHEDULE 1
Location of Receivable Files
----------------------------
----------------------
----------------------
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
August 11, 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
Re: Amendment No. 1 to Registration Statement (Nos. 333-56869 and 333-56869-01)
---------------------------------------------------------------------------
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' Amendment No. 1 to Registration Statement on Form S-3 (Nos. 333-56869
and 333-56869-01), (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
<PAGE>
Franklin Receivables LLC
FCC Receivables Corp.
August 11, 1998
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 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, the corporate laws of the State of Delaware 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.
<PAGE>
Franklin Receivables LLC
FCC Receivables Corp.
August 11, 1998
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
August 11, 1998
Franklin Receivables LLC
47 West 200 South, Suite 500
Salt Lake City, Utah 84101
FCC Receivables Corp.
47 West 200 South, Suite 500
Salt 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 (Registration Nos. 33-56869 and 33-56869-01)
on Form S-3 on June 15, 1998, as amended to the date hereof (together with the
exhibits thereto, the "Registration Statement") 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, we confirm the
opinion included 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.
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
