<PAGE> 1
As filed with the Securities and Exchange Commission on September 18, 1998
Registration Nos. 333-56869
333-56869-01
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 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)
<TABLE>
<S> <C>
REGISTRANT - DELAWARE REGISTRANT 94-3301790
CO-REGISTRANT - DELAWARE CO-REGISTRANT 94-3219968
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
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:
<TABLE>
<S> <C>
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
</TABLE>
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 being Amount being Proposed maximum Proposed maximum Amount of
registered registered offering price per unit aggregate offering price(1) registration fee(2)(3)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Backed Notes and $500,000,000.00 100% $500,000,000.00 $147,500.00
Asset Backed Certificates
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
(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) $295.00 has previously been paid in connection with the initial filing of
the Registration Statement.
<PAGE> 3
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) three 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> 4
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 SEPTEMBER 18, 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
.] [The Servicer has the option to purchase all outstanding
Receivables when the aggregate principal balance of the Receivables, shall have
declined to [50]% or less of the Original Pool Balance.]
[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.] The Property/Casualty Insurance Fund provides for the
payment of certain insurance claims against insolvent insurers. The
Property/Casualty Insurance Fund will offer no protection to the
[Securityholders].
(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> 5
(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 ("Final Scheduled
Distribution Date") shall mean for each Class of Notes [or Certificates] the
dates set forth below. The Final Scheduled Distribution Date for the Class
A-[ ] Notes will be [ , 199 ], [the 200 Distribution Date]. The Final
Scheduled Distribution Date for the Certificates will be the [ , 200 ]
Distribution Date. However, payment in full of a Class of Notes or the
Certificates may occur earlier than such dates as described herein. In addition,
the Class A-[ ] Notes will be subject to redemption in whole, but not in part,
and the Certificates will be subject to prepayment in whole, but not in part, on
any Distribution Date on which the Servicer exercises its option to purchase the
Receivables. The Servicer may purchase the Receivables when the aggregate
principal balance of the Receivables shall have declined to [10]% or less of the
Original Pool Balance.]
Full and timely payment of the Guaranteed Note Distributions in respect of
the Notes and the Guaranteed Certificate Distributions in respect of the
Certificates (each as defined herein) on each Distribution Date is
unconditionally and irrevocably guaranteed pursuant to financial guaranty
insurance policies (the "Policies") to be issued by
There currently is no secondary market for the Notes or the Certificates.
The Underwriter[s] expect to make a market in the Securities but have no
obligation to do so. There is no assurance that any such market will develop or
continue or that it will provide Securityholders with sufficient liquidity of
investment.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE SECURITIES. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE SECURITIES MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED A FINAL PROSPECTUS SUPPLEMENT AND
THE FINAL PROSPECTUS. TO THE EXTENT ANY STATEMENTS IN THIS PROSPECTUS SUPPLEMENT
CONFLICT WITH STATEMENTS IN THE PROSPECTUS, THE STATEMENTS IN THIS PROSPECTUS
SUPPLEMENT SHALL CONTROL.
S-2
<PAGE> 6
[UNDERWRITERS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
INCLUDING OVER ALLOTMENT, STABILIZING AND SHORT COVERING TRANSACTIONS IN THE
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, DURING AND AFTER THE OFFERING.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING" HEREIN.]
THE SECURITIES OFFERED BY THIS PROSPECTUS SUPPLEMENT WILL CONSTITUTE A
SEPARATE SERIES OF SECURITIES BEING OFFERED BY THE DEPOSITOR PURSUANT TO ITS
PROSPECTUS DATED [ ], 1998, OF WHICH THIS PROSPECTUS SUPPLEMENT IS A PART
AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING WHICH IS NOT CONTAINED HEREIN, AND
PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT IN FULL. IN PARTICULAR, INVESTORS SHOULD CONSIDER CAREFULLY THE
FACTORS SET FORTH UNDER "RISK FACTORS" IN THE PROSPECTUS AND IN THIS PROSPECTUS
SUPPLEMENT.
UNTIL [ ], 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT RELATES. THIS
DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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.
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
S-3
<PAGE> 7
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> 8
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 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.................. 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
S-5
<PAGE> 9
through DTC in the United States or Cedel Bank,
societe anonyme ("Cedel") or the Euroclear
System ("Euroclear") in Europe. See "Certain
Information Regarding The
Securities -- Book-Entry Registration" in the
Prospectus and Annex I thereto.
The Notes will be secured by the assets of the
Trust (other than the Certificate Distribution
Account and the Certificate Policy) pursuant to
the Indenture.
The Certificates.............. The Trust will issue [ %] [Floating Rate]
Asset Backed Certificates (the "Certificates")
with an aggregate initial Certificate Balance
(as defined herein) of $[ ] [specify
others]. The Certificates will represent
fractional undivided interests in the Trust.
The Certificates will be issued pursuant to the
Trust Agreement. The Certificates will be
offered for purchase in denominations of
$[1,000] and integral multiples thereof in
book-entry form only (other than the
Certificates sold to the Seller, as described
in "The Trust -- General" herein). See "Certain
Information Regarding the
Securities -- Book-Entry Registration" in the
Prospectus.
Trust Property................ Each Note will represent an obligation of, and
each Certificate will represent a fractional
undivided interest in, the Trust. The Trust's
assets (the "Trust Property") will include
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 payments and
principal payments [late fees, penalty charges,
extension fees, modification fees and other
processing fees] 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], 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
S-6
<PAGE> 10
Securities. The Trust Property also will
include an assignment of the Seller's rights
against Franklin Capital under the Purchase
Agreement upon the occurrence of certain
breaches of representations and warranties.
[The Initial Receivables transferred to the
Trust on the Closing Date will also include
certain motor vehicle retail installment sale
contracts originated by Franklin Capital, some
of which may be originated after
[ , 199 ] (the "Statistical
Calculation Date") but on or prior to the
Closing Date.]
[Additional motor vehicle retail installment
sale contracts (the "Subsequent Receivables")
secured by new or used automobiles, and light
trucks (the "Subsequent Financed Vehicles"),
certain monies received thereunder on or after
the applicable Subsequent Cutoff Date (as
defined below) and, with respect to Subsequent
Receivables which are Precomputed Receivables,
monies received thereunder on or prior to the
related Subsequent Cutoff Date which are due
after such Subsequent Cutoff Date, an
assignment of the security interests in the
Subsequent Financed Vehicles securing the
Subsequent Receivables, the related Receivables
Files, all rights to proceeds from claims on
certain physical damage, credit life and
disability insurance policies covering the
Subsequent Financed Vehicles or the Obligors,
as the case may be, all rights to liquidation
proceeds with respect to the Subsequent
Receivables, certain proceeds from the exercise
of rights against Dealers under agreements
between Franklin Capital and such Dealers,
certain bank accounts and all proceeds of the
foregoing are intended to be purchased by the
Trust from the Seller from time to time on or
before the [ , 199 ]
Distribution Date, from funds on deposit in the
Pre-Funding Account. The Subsequent Receivables
will be purchased by the Seller from Franklin
Capital pursuant to one or more subsequent
purchase agreements (each, a "Subsequent
Purchase Agreement") between the Seller and
Franklin Capital. The Trust Property also will
include an assignment of the Seller's rights
against Franklin Capital under each Subsequent
Purchase Agreement upon the occurrence of
certain breaches of representations and
warranties thereunder. The purchase by the
Trust of the Subsequent Receivables is subject
to the satisfaction of certain conditions, as
described under "The Receivables" herein. The
Initial Receivables and the Subsequent
Receivables are hereinafter referred to as the
"Receivables," and the Initial Financed
Vehicles and the Subsequent Financed Vehicles
are hereinafter referred to as the "Financed
Vehicles."]
Receivables................... The Receivables consist of motor vehicle retail
installment sale contracts originated by
Dealers and then acquired by Franklin Capital.
See "Franklin Capital Corporation -- General"
in the Prospectus.
S-7
<PAGE> 11
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
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.
The Receivables transferred to the Trust, will
consist of Prime Receivables, Non-Prime
Receivables and Sub-Prime Receivables. See
"Description of the Purchase Agreements and The
Trust Documents -- Eligibility Criteria" in the
Prospectus.
[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
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<PAGE> 12
described herein, to purchase such Subsequent
Receivables from the Seller. Franklin Capital
will designate as a cutoff date (each, a
"Subsequent Cutoff Date") (i) the last day of
the month preceding the month in which
Subsequent Receivables are conveyed to the
Seller by Franklin Capital and reconveyed by
the Seller to the Trust or (ii) if any such
Subsequent Receivable is originated in the
month of conveyance, the date of origination.
Subsequent Receivables will be conveyed to the
Seller and then reconveyed by the Seller to the
Trust on designated dates (each, a "Subsequent
Transfer Date") occurring during the Funding
Period. The Trust may purchase the Subsequent
Receivables only from the Seller and not from
any other person, and the Seller may purchase
the Subsequent Receivables only from Franklin
Capital. The Subsequent Receivables must
satisfy certain eligibility criteria specified
herein and in the Sale and Servicing Agreement.
See "The Receivables -- Eligibility Criteria"
herein.]
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
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<PAGE> 13
amount at the applicable Interest Rate. The
amount of interest distributable on the Notes
on each Distribution Date will equal interest
accrued during the related Interest Period.
Interest on the Class A-[ ] Notes, and [other
Class A-[ ] Note] will be calculated on the
basis of a [360-day year and the actual number
of days elapsed in the applicable Interest
Period] [360-day year consisting of twelve
30-day months.] See "Description of the
Notes -- Payments of Interest" herein.
D. Principal................ Principal of the Notes will be payable on each
Distribution Date in an amount equal to the
Noteholders' Principal Distributable Amount for
the calendar month (the "Monthly Period")
preceding such Distribution Date. The
Noteholders' Principal Distributable Amount
will equal the sum of (x) the Noteholders'
Percentage of the Principal Distributable
Amount and (y) any unpaid portion of the amount
described in clause (x) with respect to a prior
Distribution Date. The "Principal Distributable
Amount" with respect to any Distribution Date
will be an amount equal to the sum of the
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,
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<PAGE> 14
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;
Third, to the Class A-[ ] Notes, until the
principal balance of such Notes is reduced to
zero.
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
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<PAGE> 15
Servicer. In the case of such an Event of
Default, the Notes will automatically be
accelerated and subject to immediate payment at
par. See "Description of the Notes -- Events of
Default" herein. The Note Policy does not
guarantee payment of any amounts that become
due on an accelerated basis, unless the Insurer
elects, in its sole discretion, to pay such
amounts in whole or in part. See "The
Policies -- Note Policy" herein.]
Terms of the Certificates..... The principal terms of the Certificates will be
as described below:
A. Distribution Dates....... Distributions with respect to the Certificates
will be made on each Distribution Date,
commencing [ , 199 ]. Distributions
will be made to holders of record of the
Certificates (the "Certificateholders" and,
together with the Noteholders, the
"Securityholders") as of the related Record
Date.
B. Certificate Rate......... [ ]% per annum payable monthly at one-twelfth
of the annual rate, calculated on the basis of
a 360-day year consisting of twelve 30-day
months.
C. Subordination of
Certificates.................. The Certificates will not receive any
distribution with respect to a Distribution
Date until the full amount of the Noteholders'
Distributable Amount with respect to such
Distribution Date has been deposited in the
Note Distribution Account.
D. Interest................. On each Distribution Date, the Owner Trustee
will distribute to Certificateholders their pro
rata share of interest distributable with
respect to such Certificates. The amount of
interest distributable on the Certificates on
each Distribution Date will equal interest
accrued during the related Interest Period at
the Certificate Rate on the Certificate Balance
immediately prior to such Distribution Date.
Interest on the 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-
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<PAGE> 16
[ ] 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").]
[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 Distri-
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<PAGE> 17
bution Date in [ , 199 ] or (ii) if
the last day of the Funding Period occurs on or
prior to the Determination Date (as defined
herein) occurring in July or [ ,
199 ], the Distribution Date relating to such
Determination Date.]
[Capitalized Interest
Account....................... On the Closing Date, a cash amount may be
deposited in an account (the "Capitalized
Interest Account") which will be established
with the Indenture Collateral Agent. The
Capitalized Interest Account will be an asset
of the Trust, and will be pledged to the
Indenture Collateral Agent for the benefit of
the Indenture Trustee, on behalf of the
Noteholders, the Owner Trustee, on behalf of
the Certificateholders, and the Insurer. The
amount, if any, deposited in the Capitalized
Interest Account will be applied on the
Distribution Dates occurring in [ ],
[ ] and [199 ] of [ ] to fund an
amount (the "Monthly Capitalized Interest
Amount") equal to the amount of interest
accrued for each such Distribution Date at the
weighted average Interest Rates and Certificate
Rate on the portion of the Securities having a
principal balance in excess of the principal
balances of the Receivables (which portion will
equal the Pre-Funded Amount). Any amounts
remaining in the Capitalized Interest Account
on the Mandatory Redemption Date and not used
for such purposes are required to be paid
directly to the Seller on such date. See
"Description of the Purchase 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 Distribu-
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<PAGE> 18
tion 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 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
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<PAGE> 19
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
Documents -- Distributions" herein and
"Description of the Purchase Agreements and the
Trust Documents -- Collections" in the
Prospectus.
Tax Status.................... In the opinion of Weil, Gotshal & Manges LLP,
special 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.]
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<PAGE> 20
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> 21
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.
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<PAGE> 22
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. [Add
disclosure of economic conditions in any state where a material portion of any
pool was originated and the effects of such economic conditions on payments on
the Receivables.] [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
S-19
<PAGE> 23
Distribution Date to cover shortfalls in distributions of the Noteholders'
Distributable Amount and the Certificateholders' Distributable Amount on such
Distribution Date, if the Insurer defaults in its obligations under the
applicable Policy, the Trust will depend on current distributions on the
Receivables and, amounts, if any, available therefor in the Spread Account to
make payments on the Notes and the Certificates. See "The Insurer" and "The
Policies" herein.]
RATINGS ON SECURITIES
A rating is not a recommendation to purchase, hold or sell Notes or
Certificates. The ratings of the Notes and Certificates address the likelihood
of the payment of principal and interest on the Securities pursuant to their
terms. There is no assurance that a rating will remain in effect for any given
period of time or that a rating will not be lowered or withdrawn entirely by a
Rating Agency if in its judgment circumstances in the future so warrant. In the
event that any ratings initially assigned to the Notes and the Certificates were
subsequently lowered or withdrawn for any reason, including by reason of a
downgrading of the claims-paying ability of the Insurer, no person or entity
will be obligated to provide any additional credit enhancement with respect to
the Notes or the Certificates. Any reduction or withdrawal of a rating of the
Insurer likely would result in a reduction 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 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
S-20
<PAGE> 24
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 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.]
S-21
<PAGE> 25
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:
<TABLE>
<S> <C>
Class A-[ ] Notes.......................................... $ []
Class A-[ ] Notes.......................................... $ []
Class A-[ ] Notes.......................................... $ []
Certificates................................................ $ []
-----
Total............................................. $ []
=====
</TABLE>
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.
S-22
<PAGE> 26
THE TRUST PROPERTY
The Trust Property will include 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 payments, [and] principal
payments, [late fees, penalty charges, extension fees, modification fees and
other processing fees] 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 any 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
S-23
<PAGE> 27
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 (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.
S-24
<PAGE> 28
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) 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
S-25
<PAGE> 29
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-26
<PAGE> 30
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>
- ---------------
(1) Precomputed Receivables.
S-27
<PAGE> 31
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-28
<PAGE> 32
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-29
<PAGE> 33
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>
AS OF AS OF
------------------------------------------------------------ ----------------------------
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 MARCH 31 MARCH 31
DELINQUENCY EXPERIENCE 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%
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
DURING FISCAL YEARS ENDED DURING SIX MONTHS ENDED
------------------------------------------------------------- ----------------------------
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 MARCH 31 MARCH 31
CREDIT/LOSS EXPERIENCE 1994(1) 1995 1996 1997 1997 1998
- ---------------------- ------------ ------------ ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
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%*
============ ============= ============ ============ ============ ============
</TABLE>
- ---------------
Key -- * Annualized
@ Simple average using Franklin Capital figures
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-30
<PAGE> 34
Franklin Capital's portfolio of motor vehicle retail installment sale
contracts 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 portfolio of motor vehicle retail installment sale contracts
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.
S-31
<PAGE> 35
[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. The
Property/Casualty Insurance Fund provides for the payment of certain insurance
claims against insolvent insurers. The Property/Casualty Insurance Fund will
offer no protection to [Securityholders].
S-32
<PAGE> 36
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 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
S-33
<PAGE> 37
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
S-34
<PAGE> 38
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.
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.
[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 Agreements and the
Trust Documents -- Termination." Such redemption will effect early retirement of
the Notes of such Class. The redemption price will be equal to the unpaid
principal amount of the Notes of such Class, plus accrued and unpaid interest
thereon (the "Redemption Price"). 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 Docu-
S-35
<PAGE> 39
ments -- Distributions" herein; and (v) any failure to observe or perform in any
material respect any other covenants or agreements in the Indenture, or any
representation or warranty of the Trust made in the Indenture or in any
certificate or other writing delivered pursuant thereto or in connection
therewith proving to have been incorrect in any material respect when made, and
such failure continuing or not being cured, or the circumstance or condition in
respect of which such misrepresentation or warranty was incorrect not having
been eliminated or otherwise cured, for 30 days after the giving of written
notice of such failure or incorrect representation or warranty to the Trust and
the Indenture Trustee by the Insurer.
Upon the occurrence of an Event of Default, so long as an Insurer Default
shall not have occurred and be continuing, the Insurer will have the right, but
not the obligation, to cause the Indenture Collateral Agent to liquidate the
Trust Property in whole or in part, on any date or dates following the
acceleration of the Notes due to such Event of Default as the Insurer, in its
sole discretion, shall elect, and to deliver the proceeds of such liquidation to
the Indenture Trustee for distribution in accordance with the terms of the
Indenture. The Insurer may not, however, cause the Indenture Collateral Agent to
liquidate the Trust Property in whole or in part if the proceeds of such
liquidation would not be sufficient to pay all outstanding principal of and
accrued interest on the Notes, unless such Event of Default arose from a claim
being made on the Note Policy or from certain events of bankruptcy, insolvency,
receivership or liquidation of the Trust. Following the occurrence of any Event
of Default, the Indenture Trustee and the Owner Trustee will continue to submit
claims under the Policies for any shortfalls in the Guaranteed Note
Distributions on the Notes and the Guaranteed Certificate Distributions on the
Certificates. Following any Event of Default under the Indenture, the Insurer
may elect to pay all or any portion of the outstanding amount of the Notes, plus
accrued interest thereon. See "The Policies" herein.
If an Insurer Default has occurred and is continuing, "Events of Default"
under the Indenture will consist of the Events of Default described in the
accompanying Prospectus under "The Notes -- The Indenture," and the Indenture
Trustee will have the rights under the Indenture described therein.
S-36
<PAGE> 40
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").]
S-37
<PAGE> 41
Upon the occurrence of an Event of Default under the Indenture (so long as
an Insurer Default shall not have occurred and be continuing), the Insurer will
have the right, but not the obligation, to cause the liquidation of the Trust
Property, in whole or in part, on any date or dates as the Insurer, in its sole
discretion, shall elect, as described under "Description of the Notes -- Events
of Default." Any such liquidation, in whole or in part, may cause a full or
partial prepayment of the Certificates.
OPTIONAL PREPAYMENT
If the Servicer exercises its option to purchase the Receivables when the
Pool Balance declines to [10]% or less of the Original Pool Balance,
Certificateholders will receive an amount in respect of the Certificates equal
to the outstanding Certificate Balance together with accrued interest at the
Certificate Rate, which distribution will effect early retirement of the
Certificates. See "Description of the Purchase Agreements and the Trust
Documents -- Termination" in the Prospectus.
[WEIGHTED AVERAGE LIFE CONSIDERATIONS
The rate of payment of principal of each Class of Notes and in respect of
the Certificate Balance will depend on the rate of payment (including
prepayments) of the principal balance of the Receivables. As a result, final
payment of any Class of Notes could occur significantly earlier than the Final
Scheduled Distribution Date for such Class of Notes. The final distribution in
respect of principal of the Certificates also could occur prior to the Final
Scheduled Distribution Date for the Certificates. Reinvestment risk associated
with early payment of the Notes and the Certificates will be borne exclusively
by the Noteholders and the Certificateholders, respectively.
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
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<PAGE> 42
Subsequent Receivables; and (xii) the Servicer does not exercise its option to
purchase the Receivables.
<TABLE>
<CAPTION>
ORIGINAL TERM REMAINING TERM
AGGREGATE ASSUMED TO MATURITY TO MATURITY
POOL PRINCIPAL BALANCE APR CUTOFF DATE (IN MONTHS) (IN MONTHS)
---- ----------------- --- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
1................................. $ % / /98
2................................. $ % / /98
3................................. $ % / /98
4................................. $ % / /98
--------
Total
</TABLE>
The ABS Table indicates, based on the assumptions set forth above, the
percentages of the initial principal amount of each Class of Notes and of the
Certificate Balance of the Certificates that would be outstanding after each of
the Distributions Dates shown at various percentages of ABS and the
corresponding weighted average lives of such Securities. The actual
characteristics and performance of the Receivables will differ from the
assumptions used in constructing the ABS Table. The assumptions used are
hypothetical and have been provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the Receivables will prepay at a constant
level of ABS until maturity, that all of the Receivables will prepay at the same
level of ABS or that LIBOR will remain constant at the level assumed or at any
other level. Moreover, the diverse terms of Receivables could produce slower or
faster principal distributions than indicated in the ABS Table at the various
constant percentages of ABS specified, even if the original and remaining terms
to maturity of the Receivables are as assumed. Any difference between such
assumptions and the actual characteristics and performance of the Receivables,
or actual prepayment experience, will affect the percentages of initial balances
outstanding over time and the weighted average lives of each Class of Notes and
the Certificates.
S-39
<PAGE> 43
PERCENT OF INITIAL NOTE PRINCIPAL BALANCE OR
INITIAL CERTIFICATE BALANCE AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
CLASS A-[ ] NOTES CLASS A-[ ] NOTES
--------------------------------------------- ---------------------------------------------
DISTRIBUTION DATE [0.50% 1.00% 1.70% 2.50%] [0.50% 1.00% 1.70% 2.50%]
- ----------------- ------ ----- ----- ------ ------ ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
[Closing Date.......... 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
08/20/98...............
09/20/98...............
10/20/98...............
11/20/98...............
12/20/98...............
01/20/99...............
02/20/99...............
03/20/99...............
04/20/99...............
05/20/99...............
06/20/99...............
07/20/99...............
08/20/99...............
09/20/99...............
10/20/99...............
11/20/99...............
12/20/99...............
01/20/00...............
02/20/00...............
03/20/00...............
04/20/00...............
05/20/00...............
06/20/00...............
07/20/00...............
08/20/00...............
09/20/00...............
10/20/00...............
11/20/00...............
12/20/00...............
01/20/01...............
02/20/01...............
03/20/01...............
04/20/01...............
05/20/01...............
06/20/01...............
07/20/01...............
08/20/01...............
09/20/01...............
10/20/01...............
11/20/01...............
12/20/01...............
01/20/02]..............
Weighted Average Life
(years)(2)...........
</TABLE>
- ---------------
(1) The Class A-[ ] Final Scheduled Distribution Date is [ ,
199 ]; payment in full of the Class A-[ ] Notes on such date is
guaranteed by the Note Policy to the extent described herein.
(2) The weighted average life of a Security is determined by (i) multiplying the
amount of each principal payment on a Security by the number of years from
the date of the issuance of the Security to the related Distribution Date,
(ii) adding the results and (iii) dividing the sum by the related initial
principal amount of the Security.
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<PAGE> 44
PERCENT OF INITIAL NOTE PRINCIPAL BALANCE OR
INITIAL CERTIFICATE BALANCE AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
CLASS A-[ ] NOTES CLASS A-[ -- ] CERTIFICATES
--------------------------------------------- ---------------------------------------------
DISTRIBUTION DATE 0.50% 1.00% 1.70% 2.50% 0.50% 1.00% 1.70% 2.50%
- ----------------- ----- ----- ----- ----- ----- ----- ----- -----
<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.]
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<PAGE> 45
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 Agreements and the Trust Documents -- Sale and
Assignment of Receivables" in the accompanying Prospectus. [In addition, during
the Funding Period, pursuant to the Sale and Servicing Agreement, the Seller
will be obligated to sell to the Trust Subsequent Receivables having an
aggregate principal balance equal to approximately $[ ] (such
amount being equal to the initial Pre-Funded Amount) to the extent that such
Subsequent Receivables are available.]
[During the Funding Period, on each Subsequent Transfer Date, subject to
the conditions described under "The Receivables -- Eligibility Criteria," the
Seller will sell and assign to the Trust, without recourse, the Seller's entire
interest in the Subsequent Receivables designated by the Seller as of the
related Subsequent Cutoff Date and identified in a schedule attached to a
Subsequent Transfer Agreement relating to such Subsequent Receivables executed
on such date by the Seller. Upon the conveyance of Subsequent Receivables to the
Trust on a Subsequent Transfer Date, (i) the Pool Balance will increase in an
amount equal to the aggregate principal balances of the Subsequent Receivables
and (ii) an amount equal to the aggregate principal balances of such Subsequent
Receivables will be withdrawn from the Pre-Funding Account and paid to or upon
the order of the Seller.]
ACCOUNTS
The Servicer will establish and maintain one or more accounts, in the name
of the Indenture Collateral Agent, for the benefit of the Indenture Trustee, on
behalf of the Noteholders, the Owner Trustee, on behalf of the
Certificateholders, and the Insurer, into which all payments made on or with
respect to the Receivables will be deposited (the "Collection Account"). The
Servicer will be required to remit collections to the Collection Account within
two Business Days of receipt thereof. Such collections may be remitted less any
payments owed thereon to the Servicer. However, at any time that and for so long
as (i) there exists no 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
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<PAGE> 46
deposited and from which all distributions to Noteholders will be made (the
"Note Distribution Account"). The Servicer will establish and maintain an
account, in the name of the Indenture Collateral Agent, for the benefit of the
Owner Trustee, on behalf of the Certificateholders, and the Insurer in which
amounts released from the Collection Account for distribution to
Certificateholders will be deposited and from which all distributions to
Certificateholders will be made (the "Certificate Distribution Account").
[On the Closing Date, a cash amount equal to approximately $[ ]
(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
S-43
<PAGE> 47
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.
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
S-44
<PAGE> 48
(iv) during the Funding Period, from the Pre-Funding Account (a) if
such Distribution Date is the Mandatory Redemption Date, to the Collection
Account, in immediately available funds, the Pre-Funded Amount (exclusive
of investment earnings), after giving effect to the purchase of Subsequent
Receivables if any, on the Mandatory Redemption Date and (b) to the Seller,
in immediately available funds, all investment earnings on funds in the
Pre-Funding Account with respect to the preceding Monthly Period or, if
such Distribution Date is the Mandatory Redemption Date, all remaining
funds in the Pre-Funding Account.
To the extent that collections on a Precomputed Receivable in the related
Monthly Period exceed the scheduled payment and late fees or other fees, if any,
for such Monthly Period but are insufficient to prepay the Precomputed
Receivable in full, such collections will be treated as "Payaheads."
The scheduled payment with respect to a Precomputed Receivable is that
portion of the payment required to be made by the related Obligor during each
calendar month sufficient to amortize the principal balance thereof under the
actuarial method over the term of the Receivable and to provide interest at the
APR of such Receivable.
DISTRIBUTIONS
On each Distribution Date, the Servicer is required to instruct the
Indenture Trustee to distribute the Distribution Amount in the following order
of priority:
1. To the Indenture Trustee and the Owner Trustee, any accrued and
unpaid trustees' fees and any accrued and unpaid fees of the Indenture
Collateral Agent (in each case, to the extent such fees have not been
previously paid by the Servicer or Franklin Capital).
2. To the Servicer, the Servicing Fee for the related Monthly Period,
any Supplemental Servicing Fees for such month and certain other amounts
relating to mistaken deposits, postings or checks returned for insufficient
funds to the extent the Servicer has not reimbursed itself in respect of
such amount to the extent not retained by the Servicer.
3. To the Note Distribution Account, the Noteholders' Interest
Distributable Amount.
4. To the Note Distribution Account, the Noteholders' Principal
Distributable Amount, to be distributed as described under "Description of
the Notes -- Payments of Principal."
5. To the Certificate Distribution Account, the Certificateholders'
Interest Distributable Amount.
6. To the Certificate Distribution Account, the Certificateholders'
Principal Distributable Amount.
7. To the Insurer, any amounts owing to the Insurer under the
Insurance Agreement and not paid.
8. To the Indenture Collateral Agent, up to the Specified Spread
Account Requirement for deposit in the Spread Account.
9. To the Seller, any remaining funds.
If the Notes are accelerated following an Event of Default under the
Indenture, amounts collected will be distributed in the order described above.
In the event that the Servicer's Certificate indicates that the
Distribution Amount will be insufficient on any Distribution Date to cover the
distributions required pursuant to clauses 1 through 4 above on such
Distribution Date, the Indenture Trustee shall furnish to the Insurer no later
than [12:00 noon] New York City time on the related Draw Date a completed notice
of claim in the amount of the Note Policy Claim Amount. Amounts paid by the
Insurer pursuant to any such notice
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<PAGE> 49
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.
"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
S-46
<PAGE> 50
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.
"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
S-47
<PAGE> 51
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.
"Noteholders' Monthly Principal Distributable Amount" means, with respect
to any Distribution Date, the Noteholders' Percentage of the Principal
Distributable Amount.
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"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 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.
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STATEMENTS TO SECURITYHOLDERS
On or prior to each Distribution Date, the Indenture Trustee will be
required to forward a statement to the Noteholders and the Owner Trustee will be
required to forward a statement to the Certificateholders on such Distribution
Date. Such statements will be based on the information in the related Servicer's
Certificate setting forth certain information required under the Trust
Documents. Each such statement to be delivered to Noteholders will include the
following information as to the Notes, and each such statement to be delivered
to Certificateholders will include the following information as to the
Certificates, with respect to such Distribution Date or the period since the
previous Distribution Date, as applicable:
(i) the amount of the distribution allocable to interest on or with
respect to the Notes and the Certificates;
(ii) the amount of the distribution allocable to principal with
respect to the Notes and the Certificates;
(iii) the amount of the distribution payable pursuant to a claim on
the Note Policy or the Certificate Policy, as the case may be, or out of
amounts on deposit in the Spread Account;
(iv) the aggregate outstanding principal amount and the Note Pool
Factor for each Class of Notes and the Certificate Balance and the
Certificate Pool Factor for the Certificates, in each case, after giving
effect to all payments reported under (ii) above on such date;
(v) the Noteholders' Interest Carryover Shortfall, the Noteholders'
Principal Carryover Shortfall, the Certificateholders' Interest Carryover
Shortfall and the Certificateholders' Principal Carryover Shortfall, if
any, and the change in such amounts from the preceding statement;
(vi) the amount of the Servicing Fee paid to the Servicer with respect
to the related Monthly Period;
(vii) for each such date during the Funding Period, the remaining
Pre-Funded Amount, the amount in the Pre-Funding Account and the amount
remaining in the Capitalized Interest Account; and
(viii) for the final Subsequent Transfer Date, the amount of any
remaining Pre-Funded Amount that has not been used to fund the purchase of
Subsequent Receivables and is being passed through as payments of principal
of the Notes and Certificates.
Each amount set forth pursuant to subclauses (i) through (vi) with respect
to Certificates or Notes will be expressed as a dollar amount per $1,000 of the
initial principal amount of the Notes or initial Certificate Balance, as
applicable.
Unless and until Definitive Notes or Definitive Certificates are issued,
such reports will be sent on behalf of the Trust to Cede & Co., as registered
holder of the Notes and the Certificates and the nominee of DTC. See "Certain
Information Regarding the Securities -- Statements to Securityholders" in the
Prospectus.
Within the required period of time after the end of each calendar year, the
Indenture Trustee and the Owner Trustee, as applicable, will furnish to each
person who at any time during such calendar year was a Noteholder or
Certificateholder, a statement as to the aggregate amounts of interest and
principal paid to such Noteholder or Certificateholder, information regarding
the amount of servicing compensation received by the Servicer and such other
information as the Seller deems necessary to enable such Noteholder or
Certificateholder to prepare its tax returns.
SPREAD ACCOUNT
On the Closing Date, the Seller will make an initial deposit of an amount
to be agreed upon by the Seller and the Insurer (the "Spread Account Initial
Deposit") to the Spread Account which will
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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.]
SERVICER DEFAULT; RIGHTS UPON SERVICER DEFAULT
Notwithstanding anything to the contrary set forth under "Description of
the Purchase Agreements and the Trust Documents -- Servicer Default" in the
Prospectus, a "Servicer Default" under the Sale and Servicing Agreement will
consist of (i) any failure by the Servicer to deliver to the Owner Trustee or
the Indenture Trustee any deposit or payment required to be so made, which
failure continues unremedied for [ ] Business Days after written notice from
the Owner Trustee or the Indenture Trustee or the Insurer is received by the
Servicer or after discovery of such failure by the Servicer, (ii) any failure by
the Servicer duly to observe or perform in any material respect any other
covenant or agreement in the Sale and Servicing Agreement which failure
materially and adversely affects the rights of Certificateholders or Noteholders
and which continues unremedied for 60 days after the giving of written notice of
such failure (1) to the Servicer by the Owner Trustee
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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).]
WAIVER OF PAST DEFAULTS
Notwithstanding anything to the contrary set forth under "Description of
the Purchase Agreements and the Trust Documents -- Waiver of Past Defaults" in
the Prospectus, the Insurer may, on behalf of all holders of Securities, waive
any default by the Servicer in the performance of its obligations under the Sale
and Servicing Agreement and its consequences. No such waiver will impair the
Securityholders' rights with respect to subsequent defaults.
AMENDMENT
Notwithstanding anything to the contrary set forth under "Description of
the Purchase Agreements and the Trust Documents -- Amendment" in the Prospectus,
the [Pooling and Servicing Agreement] [Sale and Servicing 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
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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 [Pooling and
Servicing Agreement] [Sale and Servicing Agreement] with the consent of the
Insurer, the consent of the Indenture Trustee, the consent of Noteholders
holding a majority of the principal amount of the Notes and the consent of
Certificateholders holding a majority of the principal amount of Certificates
outstanding to add, change or eliminate any other provisions with respect to
matters or questions arising under such agreement or affecting the rights of the
Noteholders or the Certificateholders; provided that such action will not (i)
increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on Receivables or distributions that are
required to be made for the benefit of the Noteholders or Certificateholders or
(ii) reduce the aforesaid percentage of the Noteholders or Certificateholders
required to consent to any such amendment, without, in either case, the consent
of the holders of all Notes and Certificates outstanding; provided, further,
that if an Insurer Default has occurred and is continuing, such action shall not
materially adversely affect the interest of the Insurer. The Seller and Servicer
must deliver to the Owner Trustee, the Indenture Trustee and the Insurer upon
the execution and delivery of the Sale and Servicing Agreement and any amendment
thereto an opinion of counsel, satisfactory to the Indenture Trustee, that all
financing statements and continuation statements have been filed that are
necessary to fully protect and preserve the Trustee's interest in the
Receivables.
[THE POLICIES
NOTE POLICY
Simultaneously with the issuance of the Notes, the Insurer will deliver the
Note Policy to the Indenture Trustee for the benefit of each Noteholder. Under
the Note Policy, the Insurer will unconditionally and irrevocably guarantee to
the Indenture Trustee for the benefit of each Noteholder the full and complete
payment of (i) Guaranteed Note Distributions (as defined below) on the Notes and
(ii) the amount of any Guaranteed Note Distribution which subsequently is
avoided in whole or in part as a preference payment under applicable law. In the
event the Indenture Trustee fails to make a claim under the Note Policy,
Noteholders do not have the right to make a claim directly under the Note
Policy, but may sue to compel the Indenture Trustee to do so.
"Guaranteed Note Distributions" means payments which are scheduled to be
made on the Notes during the term of the Note Policy in accordance with the
original terms of the Notes when issued and without regard to any subsequent
amendment or modification of the Notes that has not been consented to by the
Insurer, which payments are (i) the Noteholders' Interest Distributable Amount
and (ii) the Noteholders' Principal Distributable Amount; Guaranteed 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'
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Interest Distributable Amount due to Noteholders because the appropriate notice
and certificate for payment in proper form was not timely Received (as defined
below) by the Insurer, (y) any portion of a Noteholders' Interest Distributable
Amount due to Noteholders representing interest on any Noteholders' Interest
Carryover Shortfall accrued from and including the date of payment of the amount
of such Noteholders' Interest Carryover Shortfall pursuant to the Note Policy,
or (z) any Note Prepayment Amounts unless, in each case, the Insurer elects, in
its sole discretion, to pay such amount in whole or in part.
Payment of claims on the Note Policy made in respect of Guaranteed Note
Distributions will be made by the Insurer following Receipt by the Insurer of
the appropriate notice for payment on the later to occur of (i) 12:00 noon, New
York City time, on the third Business Day following Receipt of such notice for
payment, and (ii) 12:00 noon, New York City time, on the date on which such
payment was due on the Notes.
If payment of any amount avoided as a preference under applicable
bankruptcy, insolvency, receivership or similar law is required to be made under
the Note Policy, the Insurer shall cause such payment to be made no earlier than
the first to occur of (a) the [fourth] Business Day following Receipt by the
Insurer from the Indenture Trustee of (i) a certified copy of the order (the
"Order") of the court or other governmental body which exercised jurisdiction to
the effect that the Noteholder is required to return principal or interest paid
on the Notes during the term of the Note Policy because such payments were
avoidable as preference payments under applicable bankruptcy law, (ii) a
certificate of the Noteholder that the Order has been entered and is not subject
to any stay and (iii) an assignment duly executed and delivered by the
Noteholder, in such form as is reasonably required by the Insurer and provided
to the Noteholder by the Insurer, irrevocably assigning to the Insurer all
rights and claims of the Noteholder relating to or arising under the Notes
against the Trust or otherwise with respect to such preference payment, or (b)
the date of Receipt (as defined below) by the Insurer from the Indenture Trustee
of the items referred to in clauses (i), (ii) and (iii) above if, at least
[four] Business Days prior to such date of Receipt, the Insurer shall have
received written notice from the Indenture Trustee that such items were to be
delivered on such date and such date was specified in such notice. Such payment
shall be disbursed to the receiver, conservator, debtor-in-possession or trustee
in bankruptcy named in the Order and not to the Indenture Trustee or any
Noteholder directly (unless a Noteholder has previously paid such amount to the
receiver, conservator, debtor-in-possession or trustee in bankruptcy named in
the Order, in which case such payment shall be disbursed to the Indenture
Trustee for distribution to such Noteholder upon proof of such payment
reasonably satisfactory to the Insurer). In connection with the foregoing, the
Insurer shall have the rights provided in the Indenture.]
[CERTIFICATE POLICY
Simultaneously with the issuance of the Certificates, the Insurer will
deliver the Certificate Policy to the Owner Trustee for the benefit of each
Certificateholder. Under the Certificate Policy, the Insurer will
unconditionally and irrevocably guarantee to the Owner Trustee for the benefit
of each Certificateholder the full and complete payment of (i) Guaranteed
Certificate Distributions (as defined below) with respect to the Certificates
and (ii) the amount of any Guaranteed Certificate Distribution which
subsequently is avoided in whole or in part as a preference payment under
applicable law. In the event that the Owner Trustee fails to make a claim under
the Certificate Policy, Certificateholders do not have the right to make a claim
directly under the Certificate Policy but may sue to compel the Owner Trustee to
do so.
"Guaranteed Certificate Distributions" means the distributions to be made
on the Certificates with respect to a Distribution Date during the term of the
Certificate Policy in accordance with the original terms of the Certificates
when issued and without regard to any amendment or modification of the
Certificates or the Trust Agreement which has not been consented to by the
Insurer, which distributions are equal to (i) the Certificateholders' Interest
Distributable Amount with respect to such Distribution Date and (ii) the
Certificateholders' Principal Distributable Amount with respect to
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such Distribution Date; provided, however, that Guaranteed Certificate
Distributions shall not include (x) any portion of a Certificateholder's
Interest Distributable Amount due to Certificateholders because the appropriate
notice and certificate for payment in proper form was not timely Received (as
defined below) by the Insurer, (y) any portion of a Certificateholder's Interest
Distributable Amount due to Certificateholders representing interest on any
Certificateholders' Interest Carryover Shortfall accrued from and including the
date of payment of the amount of such Certificateholders' Interest Carryover
Shortfall pursuant to the Certificate Policy, or (z) any Certificate Prepayment
Amount, unless, in each case, the Insurer elects, in its sole discretion, to pay
such amount in whole or in part.]
Payment of claims on the Certificate Policy made in respect of Guaranteed
Certificate Distributions will be made by the Insurer following Receipt by the
Insurer of the appropriate notice for payment on the later to occur of (i) 12:00
noon New York City time, on the [third] Business Day following Receipt (as
defined below) of such notice for payment, or (ii) 12:00 noon, New York City
time, on the date on which such payment was due on the Certificates.
[If payment of any amount avoided as a preference under applicable
bankruptcy, insolvency, receivership or similar law is required to be made under
the Certificate Policy, the Insurer shall cause such payment to be made no
earlier than the first to occur of (a) the [fourth] Business Day following
Receipt by the Insurer from the Owner Trustee of (i) a certified copy of the
order (the "Order") of the court or other governmental body which exercised
jurisdiction to the effect that the Certificateholder is required to return the
amount of any Guaranteed Certificate Distributions distributed with respect to
the Certificates during the term of the Certificate Policy because such
distributions were avoidable as preference payments under applicable bankruptcy
law, (ii) a certificate of the Certificateholder that the Order has been entered
and is not subject to any stay and (iii) an assignment duly executed and
delivered by the Certificateholder, in such form as is reasonably required by
the Insurer and provided to the Certificateholder by the Insurer, irrevocably
assigning to the Insurer all rights and claims of the Certificateholder relating
to or arising under the Certificates against the debtor which made such
preference payment or otherwise with respect to such preference payment, or (b)
the date of Receipt by the Insurer from the Owner Trustee of the items referred
to in clauses (i), (ii) and (iii) above if, at least [four] Business Days prior
to such date of Receipt, the Insurer shall have Received written notice from the
Owner Trustee that such items were to be delivered on such date and such date
was specified in such notice. Such payment shall be disbursed to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in the Order
and not to the Owner Trustee or any Certificateholder directly (unless a
Certificateholder has previously paid such amount to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the Order in which case
such payment shall be disbursed to the Owner Trustee for distribution to such
Certificateholder upon proof of such payment reasonably satisfactory to the
Insurer). In connection with the foregoing, the Insurer shall have the rights
provided in the Sale and Servicing Agreement.]
[OTHER PROVISIONS OF THE POLICIES
The terms "Receipt" and "Received" with respect to a Policy shall mean
actual delivery to the Insurer and to its fiscal agent, if any, prior to 12:00
noon, New York City time, on a Business Day; delivery either on a day that is
not a Business Day or after 12:00 noon, New York City time, shall be deemed to
be Received on the next succeeding Business Day. If any notice or certificate
given under a Policy by the Indenture Trustee or the Owner Trustee, as the case
may be, is not in proper form or is not properly completed, executed or
delivered, it shall be deemed not to have been Received, and the Insurer or its
fiscal agent shall promptly so advise the Indenture Trustee or the Owner Trustee
and the Indenture Trustee or the Owner Trustee may submit an amended notice.
Under the Policies, "Business Day" means any day other than a Saturday,
Sunday, legal holiday or other day on which commercial banking institutions in
Wilmington, Delaware, the City of New York or , California, Salt
Lake City, Utah or any other location of any successor
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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. 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.
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 AS DIVISIONS -- Tax Consequences to
Holders of the Notes Issued by a Partnership or a Division and -- Certain
Certificates Treated as Indebtedness" 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
S-57
<PAGE> 61
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.
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<PAGE> 62
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.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRINCIPAL AMOUNT
UNDERWRITER OF NOTES OF CERTIFICATES
----------- ---------------- ----------------
<S> <C> <C>
</TABLE>
The Underwriters have informed the Servicer and the Seller that they do not
expect discretionary sales by the Underwriters to exceed [5]% of the principal
amount of the Securities being offered hereby.
The Seller has been advised by the Underwriters that the Underwriters
propose to offer the Securities from time to time for sale in negotiated
transactions or otherwise, at prices determined at the time of sale. The
Underwriters may effect such transactions by selling Securities to or through
dealers and such dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Underwriters and any purchasers
of Securities for whom they may act as agents. The Underwriters and any dealers
that participate with the Underwriters in the distribution of the Securities may
be deemed to be underwriters, and any discounts or commissions received by them
and any profit on the resale of Securities by them may be deemed to be
underwriting discounts or commissions, under the Securities Act of 1933, as
amended.
The Servicer and Seller have jointly agreed to indemnify the several
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or contribute to payments which the Underwriters may be required
to make in respect thereof.
[In connection with the offering of the Securities, the Underwriter(s) may
purchase and sell the Securities in the open market. These transactions may
include over-allotment and stabilizing transactions and purchases to cover 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.
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<PAGE> 63
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 [ ].
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<PAGE> 64
[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.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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...........................................
</TABLE>
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<PAGE> 65
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Exchange Act................................................
Financed Vehicles...........................................
Final Scheduled Distribution Date...........................
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 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...............................................
</TABLE>
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<PAGE> 66
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
parties in interest.........................................
Payaheads...................................................
Payment Date................................................
Plan Assets Regulation......................................
Policies....................................................
Pool Balance................................................
Pre-Funded Amount...........................................
Pre-Funding Account.........................................
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 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........................................... ]
</TABLE>
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<PAGE> 67
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, SEPTEMBER 18, 1998
PROSPECTUS SUPPLEMENT
(To Prospectus date____________, 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.
[The Servicer has the option to purchase all outstanding Receivables
when the aggregate principal balance of the Receivables, shall have declined to
less than [50]% or less of the Original Pool Balance.] (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[ ].
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<PAGE> 68
(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 ("Final Scheduled Distribution Date")
shall mean for each Class of Notes [or Certificates] the dates set
forth below. The Final Scheduled Distribution Date for the Class
A-[__] Notes will be [__________, 199 ], [the 200 Distribution Date].
The Final Scheduled Distribution Date for the Certificates will be the
[__________, 200_] Distribution Date. However, payment in full of a
Class of Notes or the Certificates may occur earlier than such dates
as described herein. In addition, the Class A-[__] Notes will be
subject to redemption in whole, but not in part, and the Certificates
will be subject to prepayment in whole, but not in part, on any
Distribution Date on which the Servicer exercises its option to
purchase the Receivables. The Servicer may purchase the Receivables
when the aggregate principal balance of the Receivables shall have
declined to [10]% or less of the Original Pool Balance.]
There currently is no secondary market for the Notes or the
Certificates. The Underwriter[s] expect to make a market in the
Securities but have no obligation to do so. There is no assurance that
any such market will develop or continue or that it will provide
Securityholders with sufficient liquidity of investment.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE
INFORMATION ABOUT THE OFFERING OF THE SECURITIES. ADDITIONAL
INFORMATION IS CONTAINED IN THE PROSPECTUS AND PROSPECTIVE INVESTORS
ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN
FULL. SALES OF THE SECURITIES MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS RECEIVED A FINAL PROSPECTUS SUPPLEMENT AND THE FINAL
PROSPECTUS. TO THE EXTENT ANY STATEMENTS IN THIS PROSPECTUS SUPPLEMENT
CONFLICT WITH STATEMENTS IN THE PROSPECTUS, THE STATEMENTS IN THIS
PROSPECTUS SUPPLEMENT SHALL CONTROL.
[UNDERWRITERS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF
THE SECURITIES INCLUDING OVER ALLOTMENT, STABILIZING AND SHORT COVERING
TRANSACTIONS IN THE SECURITIES, AND THE IMPOSITION OF A PENALTY
S-2
<PAGE> 69
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.
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<PAGE> 70
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.
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<PAGE> 71
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.
<TABLE>
<S> <C>
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...................................... 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 Bank, societe
anonyme ("Cedel") or the Euroclear System ("Euroclear") in
Europe. See "Certain Information Regarding the Securities -
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- 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 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 payments, principal
payments [late fees, penalty charges, extension fees,
modification fees, and other processing fees] 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], 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
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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."]
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
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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.
The Receivables transferred to the Trust, will consist of
Prime Receivables, Non-Prime Receivables and Sub-Prime
Receivables. See "Description of the Purchase Agreements
and The Trust Documents -- Eligibility Criteria" in the
Prospectus.
[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
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Subsequent Receivable is originated in the month of
conveyance, the date of origination. Subsequent Receivables
will be conveyed to the Seller and then reconveyed by the
Seller to the Trust on designated dates (each, a "Subsequent
Transfer Date") occurring during the Funding Period.
The Trust may purchase the Subsequent Receivables only
from the Seller and not from any other person, and
the Seller may purchase the Subsequent Receivables only
from Franklin Capital. The Subsequent Receivables must
satisfy certain eligibility criteria specified herein
and in the Sale and Servicing Agreement. See "The Receivables --
Eligibility Criteria" herein.]
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
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Period] [360-day year consisting of twelve 30-day months.]
See "Description of the Notes -- Payments of Interest"
herein.
D. Principal................................... Principal of the Notes will be payable on each Distribution
Date in an amount equal to the Noteholders' Principal
Distributable Amount for the calendar month (the "Monthly
Period") preceding such Distribution Date. The Noteholders'
Principal Distributable Amount will equal the sum of (x) the
Noteholders' Percentage of the Principal Distributable
Amount and (y) any unpaid portion of the amount described
in clause (x) with respect to a prior Distribution Date. The
"Principal Distributable Amount" with respect to any
Distribution Date will be an amount equal to the sum of the
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
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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.
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__].
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Distributions will be made to holders of record of the
Certificates (the "Certificateholders" and, together with the
Noteholders, the "Securityholders") as of the related Record Date.
B. Certificate Rate ........................... [____]% per annum payable monthly at one-twelfth of the
annual rate, calculated on the basis of a 360-day year consisting of
twelve 30-day months.
C. Subordination of Certificates .............. The Certificates will not receive any distribution with respect
to a Distribution Date until the full amount of the
Noteholders' Distributable Amount with respect to such
Distribution Date has been deposited in the Note Distribution
Account. [Other Subordination].
D. Interest.................................... On each Distribution Date, the Owner Trustee will distribute
to Certificateholders their pro rata share of interest
distributable with respect to such Certificates. The amount of
interest distributable on the Certificates on each Distribution
Date will equal interest accrued during the related Interest
Period at the Certificate Rate on the Certificate Balance
immediately prior to such Distribution Date. Interest on the
Certificates for any Distribution Date due but not paid on
such Distribution Date will be due on the next Distribution
Date together with, to the extent permitted by law, interest
on such amount at one-twelfth of the Certificate Rate.
Distributions of interest on the Certificates are subordinate to
payments of interest and principal on the Notes, as described
above under "Subordination of Certificates." See
"Description of the Certificates -- Distributions of Interest"
herein.
E. Principal................................... On each Distribution Date on or after the date on which the
Class A-[_] Notes have been paid in full, principal of the
Certificates will be payable in an amount equal to the
Certificateholders' Principal Distributable Amount for the
Monthly Period preceding such Distribution Date. The
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.
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G. Mandatory Prepayment ....................... [The Certificates will be prepaid in part on the Mandatory
Redemption Date in the event that any portion of the
Pre-Funded Amount remains on deposit in the Pre-Funding
Account after giving effect to the purchase of all Subsequent
Receivables, including any such purchase on such date. The
aggregate principal amount of Certificates to be prepaid will
be an amount equal to the Certificateholders' pro rata share
(based on the respective current principal amount of each
Class of Notes and the Certificate Balance) of the Pre Funded
Amount (the "Certificate Prepayment Amount").]
[Pre-Funding Account ............................. On the Closing Date, a cash amount equal to approximately
$[_______________] [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
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Distribution Dates occurring in [______________], [______________] and
[199_] of [______________] to fund an amount (the "Monthly
Capitalized Interest Amount") equal to the amount of interest
accrued for each such Distribution Date at the weighted
average Interest Rates and Certificate Rate on the portion of
the Securities having a principal balance in excess of the
principal balances of the Receivables (which portion will
equal the Pre-Funded Amount). Any amounts remaining in the
Capitalized Interest Account on the Mandatory Redemption Date
and not used for such purposes are required to be paid
directly to the Seller on such date. See "Description of the
Purchase Agreement and the Trust Documents -- Accounts" herein.]
[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
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or eliminating the funding requirements of the Spread Account
or permitting such funds to be used for the benefit of persons
other than Securityholders) without the consent of, or notice
to, [the Indenture Trustee] [the Owner Trustee] or the Securityholders.]
Credit Enhancement ............................... [In the event of defaults and delinquencies on the
Receivables, certain distributions of interest and principal on
the Certificates will be subordinated in priority of payment to
interest and principal due on the Notes to the extent described
herein.] [Distributions of interest and principal on the Class
[B] Certificates will be subordinated in priority of payment to
interest and principal due on the Class [A] Certificates to the
extent described herein in the event of defaults and
delinquencies on the Receivables, except with respect to
payments of interest and principal received from the Class
[B] Spread Account. The Class [B] Certificates will not
receive any distributions of interest with respect to a Monthly
Period until the full amount of interest on the Notes and the
Class [A] Certificates relating to such Monthly Period has
been deposited in the Note Distribution Account and the
Class [A] Distribution Account, [except with respect to
payments of monies from the Class [B] Spread Account,] and
the Class [B] Certificateholders will not receive any
distributions of principal with respect to such Monthly Period
until the full amount of interest on and principal of the Notes
and the Class [A] Certificates relating to such Monthly
Period has been deposited in the Note Distribution Account
and the Class [A] Distribution Account[, except with respect
to payments of monies from the Class [B] Spread Account.]
Distributions of interest and principal on the Class [C]
Certificates will be subordinated in priority of payment to
interest and principal due on the Securities in the event of
defaults and delinquencies on the Receivables. [Describe any
other credit enhancement facility.]
[Spread Account
and Class [B] Spread
Account].......................................... There will be [no] [an] initial deposit of [funds] [$______] to
the Spread Account [or Class [B] Spread Account] by the
Seller or Servicer. On the initial Distribution Date and on
each Distribution Date thereafter, if necessary, the Class [C]
Certificateholders' pro rata portion of interest and principal
payments received by the Trust with respect to the
Receivables ("Class [C] Distributions") shall be allocated as
described below. First, the Class [C] Distributions shall be
deposited into the Spread Account, until the amount in the
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
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case] to the extent necessary to maintain the Spread Account
[or the Class [B] Spread Account] at an amount equal to the
Specified Spread Account Balance [or the Specified Class [B]
Spread Account Balance, as applicable]. At any time, the
[Indenture] Trustee shall permit all or any portion of the
Class [C] Distributions, as requested by the Seller to be
excluded thereafter from the foregoing deposit requirements,
provided that, at the time of such request, the Seller
presents evidence to the [Indenture] Trustee that the ratings
of the Securities shall not be reduced or withdrawn as a
request of such requested exclusion. [Furthermore, upon a
request from the Seller, the [Indenture] Trustee shall permit
a reduction in the Specified Class [B] Spread Account Balance;
provided, however, that the Seller presents written evidence
to the [Indenture] Trustee that the ratings of the Securities
shall not be reduced or withdrawn as a result of such
requested reduction.] If any such portion of the Class [C]
Distributions becomes excluded from such deposit requirements
it shall remain excluded even if the amounts in the Spread
Account [or the Class [B] Spread Account] thereafter fall
below the Specified Spread Account Balance [or the Specified
Class [B] Spread Account Balance, respectively.] Amounts in
the Spread Account [or the Class [B] Spread Account] on any
Distribution Date (after giving effect to all Securityholder
distributions made on such Distribution Date) in excess of the
Spread Account Balance [or the Specified Class [B] Spread
Account Balance, as applicable], for such Distribution Date
generally will be payable to the Class [C] Certificateholders.
The "Specified Spread Account Balance" with respect to any
Distribution Date will be equal to the [Insert requirements for
maintaining and releasing amounts from Spread Account].
The Spread Account will be maintained with the [Indenture]
Trustee as a segregated trust account, but will not be part of
the Trust. [The "Specified Class [B] Spread Account
Balance" with respect to any Distribution Date will be equal
to [Insert requirements for maintaining and releasing amounts
from the Class [B] Spread Account]. The Class [B] Spread
Account will be maintained with the [Indenture] Trustee as a
segregated trust account, but will not be part of the Trust.]
Amounts will be withdrawn from the Spread Account for
distribution first [to the Noteholders to the extent of shortfalls
in the amounts available to make required distributions of
interest and principal on the Notes, second] to the Class [A]
Certificateholders to the extent of shortfalls in the amounts
available to make required distributions of interest on the
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
</TABLE>
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<PAGE> 83
<TABLE>
<S> <C>
distributions of principal on the Class [A] Certificates [and
then to Class [B] Certificateholders to the extent of
shortfalls in the amounts available to make required
distributions of principal on the Class [B] Certificates].
[Following withdrawals from the Spread Account for
distribution to the Noteholders, the Class [A]
Certificateholders and the Class [B] Certificateholders,
amounts will be withdrawn from the Class [B] Spread Account
for distribution to the Class [B] Certificateholders to the
extent of shortfalls in the amounts available to make required
distributions of interest and principal on the Class [B]
Certificates. The Noteholders, the Class [A]
Certificateholders and, except as described below, the Class
[C] Certificateholders shall have no rights to receive
distributions from the Class [B] Spread Account.] Finally,
amounts will be withdrawn from the Spread Account [or the
Class [B] Spread Account] for distribution to Class [C]
Certificateholders to the extent of shortfalls in the amounts
available to make required distributions of interest and
principal on the Class [C] Certificates, but only to the
extent such withdrawal would not reduce the Spread Account [or
the Class [B] Spread Account] below the Specified Spread
Account Balance [and the Specified Class [B] Spread Account
Balance, respectively].
Collection Account ............................... The Servicer will establish one or more accounts in the name
of the Indenture Collateral Agent (the "Collection Account")
for the benefit of the Indenture Trustee, on behalf of the
Noteholders[, the Owner Trustee, on behalf of the
Certificateholders]. All payments from Obligors that are
received by the Servicer on behalf of the Trust will be
deposited in the Collection Account no later than two
Business Days after receipt thereof except under certain
conditions described herein. Pursuant to the Sale and
Servicing Agreement, the Indenture Trustee will, on each
Distribution Date, apply the Distribution Amount with respect
to such Distribution Date to the following (in the priority
indicated): (i) to the Owner Trustee and the Indenture
Trustee, any accrued and unpaid trustee fees and expenses
and any accrued and unpaid fees and expenses of the
Indenture Collateral Agent (in each case, to the extent such
fees have not been previously paid by the Servicer or the
Franklin Resources), (ii) to the Servicer, the Servicing Fee
for the related Monthly Period and any overdue Servicing
Fees, (iii) into the Note Distribution Account, the
Noteholders' Interest Distributable Amount, (iv) into the Note
Distribution Account, the Noteholders' Principal Distributable
Amount, (v) into the Certificate Distribution Account, the
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
</TABLE>
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<PAGE> 84
<TABLE>
<S> <C>
Agreements 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. 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.
</TABLE>
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<PAGE> 85
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 Agreement 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
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<PAGE> 86
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. [Add
disclosure of economic conditions in any state where a material portion of any
pool was originated and the effects of such economic conditions on payments on
the Receivables.] [Disclosure of other significant geographic and other factors]
See "The Receivables" herein and in the Prospectus.
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<PAGE> 87
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].
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<PAGE> 88
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> 89
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:
<TABLE>
<S> <C>
Class A-[ ] Notes................................. $[ ]
---------
Class A-[ ] Notes................................. $[ ]
---------
Class A-[ ] Notes................................. $[ ]
---------
Class A-[ ] Certificates]......................... $[ ]
---------
Class B-[ ] Certificates]......................... $[ ]
---------
Class C-[ ] Certificates]......................... $[ ]
---------
Total......................................... $[ ]
=========
</TABLE>
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 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 payments, [and] principal
payments, [late fees, penalty charges, extension fees, modification fees and
other processing fees] 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 any 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
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<PAGE> 90
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].
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
S-24
<PAGE> 91
the Initial Cutoff Date; and (v) as of the Initial Cutoff Date, no Obligor on
any Receivable was the subject of a bankruptcy proceeding commenced following
the execution of the related contract. [For purposes of clause (iii), a
Receivable is considered [30] days delinquent as of the end of the month
following the date on which a second consecutive Scheduled Payment has not been
made.]
[During the Funding Period, pursuant to the Purchase Agreement, the
Seller is obligated to purchase from Franklin Capital and, pursuant to the Sale
and Servicing Agreement, sell to the Trust, Subsequent Receivables. The
aggregate principal balance of the Subsequent Receivables is anticipated by
Franklin Capital to equal approximately $[__________]. On each Subsequent
Transfer Date, Franklin Capital will convey the Subsequent Receivables to the
Seller pursuant to the Subsequent Purchase Agreement executed by Franklin
Capital and the Seller on the Subsequent Transfer Date and including as an
exhibit a schedule identifying the Subsequent Receivables transferred on such
date. The Seller will convey the Subsequent Receivables to the Trust on such
Subsequent Transfer Date pursuant to the Sale and Servicing Agreement and the
applicable Subsequent Transfer Agreement executed by the Seller and the Owner
Trustee on the Subsequent Transfer Date and including as an exhibit a schedule
identifying the Subsequent Receivables transferred on such date. In connection
with each purchase of Subsequent Receivables the Trust will be required to pay
to the Seller a cash purchase price equal to the outstanding principal balance
of the Subsequent Receivables as of their respective Subsequent Cutoff Dates,
which price the Seller will pay to Franklin Capital. The purchase price will be
withdrawn from the Pre-Funding Account and paid to the Seller for payment to
Franklin Capital.
Any conveyance of Subsequent Receivables is subject to the following
conditions, among others: (i) each such Subsequent Receivable and/or Subsequent
Financed Vehicle must satisfy the eligibility criteria specified under "The
Receivables -- General" in the Prospectus and the criteria set forth in clauses
(ii) through (v) of the second preceding paragraph, in each case, as of the
respective Subsequent Cutoff Date of such Subsequent Receivable; (ii) neither
Franklin Capital nor the Seller will have selected such Subsequent Receivables
in a manner that either believes is adverse to the interests of the
Securityholders; (iii) Franklin Capital and the Seller will deliver certain
opinions of counsel to the Owner Trustee, the Indenture Trustee and the Rating
Agencies with respect to the validity of the conveyance of such Subsequent
Receivables; and (iv) the Rating Agencies shall confirm that the ratings on the
Securities have not been and will not be withdrawn or reduced as a result of the
transfer of such Subsequent Receivables to the Trust. Because the Subsequent
Receivables may be originated after the Initial Receivables, following their
conveyance to the Trust the characteristics of the Receivables, including the
Subsequent Receivables, may vary from those of the Initial Receivables.
In addition, the obligation of the Trust to purchase the Subsequent
Receivables on a Subsequent Transfer Date is subject to the condition that the
Receivables in the Trust, including the Subsequent Receivables to be conveyed to
the Trust on such Subsequent Transfer Date, meet the following criteria: (i) the
weighted average APR of the Receivables in the Trust is not less than [_____]%;
(ii) the weighted average remaining term of the Receivables on such Subsequent
Cutoff Date is not greater than [____] months; and (iii) not more than [_____]%
of the Receivables have Obligors whose mailing addresses are in California. As
to clauses (i) and (ii) in the immediately preceding sentence, such criteria
will be based on the characteristics of the Initial Receivables on the Initial
Cutoff Date and the Receivables, including the Subsequent Receivables, on the
related Subsequent Cutoff Date, and as to clause (iii) in the immediately
preceding sentence, such criteria will be based on the mailing addresses of the
Obligors of the Initial Receivables on the Initial Cutoff Date and the
Subsequent Receivables on the related Subsequent Cutoff Dates.
Except for the criteria described in the preceding paragraphs, there
are no required characteristics of the Subsequent Receivables. Therefore,
following the transfer of Subsequent Receivables to the Trust, the aggregate
characteristics of the entire pool of Receivables included in the Trust,
including the composition of the Receivables, the geographic distribution, the
distribution by remaining principal balance, the distribution by APR, the
distribution by remaining term, the distribution of Precomputed Receivables and
Simple Interest Receivables and the distribution of the Receivables secured by
new and used motor vehicles, may vary from those of the Initial Receivables.]
S-25
<PAGE> 92
COMPOSITION
The statistical information presented in this Prospectus Supplement,
including the summary statistical information set forth below, is based on the
Initial Receivables as of [__________, 199__] (the "Statistical Calculation
Date"). [Prior to the Initial Cutoff Date, certain Initial Receivables may be
removed and additional Initial Receivables substituted therefor. Regularly
scheduled payments and prepayments of the Receivables (which are prepayable at
any time) between the Statistical Calculation Date and the Initial Cutoff Date
will affect the balances and percentages set forth below. A Current Report on
Form 8-K containing a detailed description (the "Detailed Description") of the
Initial Receivables will be available to purchasers of the Securities upon
request at the time of the initial issuance of the Securities and will be filed
with the Securities and Exchange Commission within 15 days after such issuance.
The Detailed Description will specify the information set forth below as of the
Initial Cutoff Date.
While the statistical distribution of the final characteristics of all
Initial Receivables transferred to the Trust on the Closing Date will vary from
the statistical information presented in this Prospectus Supplement, the Seller
and the Servicer do not believe that the characteristics of the Initial
Receivables on the Closing Date will vary materially.]
COMPOSITION OF THE INITIAL RECEIVABLES AS OF THE STATISTICAL CALCULATION DATE
<TABLE>
<CAPTION>
Weighted Average Aggregate Principal Number of Weighted Average Weighted Average Average Principal
APR of Receivables Balance Receivables Remaining Term Original Term Balance
------------------ ------------------- ----------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
[_____]% $[__________] [_____] [____] months [____] months $[__________]
</TABLE>
The geographic distribution, the distribution of Initial Receivables
which are Precomputed Receivables and Simple Interest Receivables, the
distribution of the Initial Receivables secured by new and used motor vehicles,
the distribution by remaining principal balance, the distribution by APR and the
distribution by remaining term, in each case of the Initial Receivables as of
the Statistical Calculation Date, are set forth below.
GEOGRAPHIC DISTRIBUTION OF THE INITIAL RECEIVABLES
AS OF THE STATISTICAL CALCULATION DATE
<TABLE>
<CAPTION>
Percentage
Aggregate of Aggregate
Number of Principal Principal
State(1) Receivables Balance Balance(2)
-------- ----------- --------- ------------
<S> <C> <C> <C>
[Arizona.............................
California...........................
Kansas...............................
Nevada...............................
New Mexico...........................
Oregon...............................
Utah.................................
Washington...........................
List other states]
Total......................... [ ] $[ ] 100.0%
====== ======= ======
</TABLE>
------------------
(1) Based on billing addresses of the Obligors as of the Statistical
Calculation Date.
(2) Percentages may not add to 100.00% because of rounding.
S-26
<PAGE> 93
DISTRIBUTION BY INTEREST ALLOCATION METHOD OF THE INITIAL RECEIVABLES
AS OF THE STATISTICAL CALCULATION DATE
<TABLE>
<CAPTION>
Percentage
Aggregate of Aggregate
Number of Principal Principal
Interest Allocated Method Receivables Balance Balance
------------------------- ----------- --------- ------------
<S> <C> <C> <C>
Actuarial Receivables(1)......... [ ] $[ ] [ ]%
------ ------- -----
Rule of 78's Receivables(1)
Simple Interest Receivables...... [ ] $[ ] [ ]%
------ ------- -----
Total..................... [ ] $[ ] 100.0%
====== ======= ======
</TABLE>
------------------
(1) Precomputed Receivables.
DISTRIBUTION OF THE INITIAL RECEIVABLES BY NEW AND USED FINANCED VEHICLES
AS OF THE STATISTICAL CALCULATION DATE
<TABLE>
<CAPTION>
Percentage
Aggregate of Aggregate
Number of Principal Principal
Collateral Type Receivables Balance Balance
--------------- ----------- --------- ------------
<S> <C> <C> <C>
New.............................. [ ] $[ ] [ ]%
------ ------- -----
Used............................. [ ] $[ ] [ ]%
------ ------- -----
Total..................... [ ] $[ ] 100.0%
====== ======= ======
</TABLE>
DISTRIBUTION BY REMAINING PRINCIPAL BALANCE OF THE INITIAL RECEIVABLES
AS OF THE STATISTICAL CALCULATION DATE
<TABLE>
<CAPTION>
Percentage
Aggregate of Aggregate
Range of Remaining Number of Principal Principal
Principal Balance Receivables Balance Balance
------------------ ----------- --------- ------------
<S> <C> <C> <C>
.................. [ ] $[ ] [ ]%
------ ------- -----
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
Total .................. [ ] $[ ] 100.0%
====== ======= ======
</TABLE>
S-27
<PAGE> 94
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> 95
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%
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
CREDIT/LOSS EXPERIENCE DURING FISCAL YEARS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
1994(1) 1995 1996 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average portfolio outstanding during period(2,4) $66,586,803@ $225,203,667@ $196,747,716 $162,745,276
Average number of loans outstanding during period n/a n/a n/a 14,780
Number of repossessions during period n/a n/a n/a 760
Repossessions as a percentage of average
number of loans outstanding during period n/a n/a n/a 5.1%
Gross charge-off(5) $ 210,842 $ 7,039,263 $ 12,082,834 $ 6,580,261
Recoveries(6) 4,242 649,374 1,408,190 1,854,461
- ---------------------------------------------------------------------------------------------------------------------
Net losses $ 206,600 $ 6,389,889 $ 10,674,644 $ 4,725,800
- ---------------------------------------------------------------------------------------------------------------------
Net losses as a percentage of average portfolio
outstanding during the period 0.3% 2.8% 5.4% 2.9%
=====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
CREDIT/LOSS EXPERIENCE DURING SIX MONTHS ENDED
MARCH 31 MARCH 31
1997 1998
- -----------------------------------------------------------------------------------
<S> <C> <C>
Average portfolio outstanding during period(2,4) $169,247,701 $154,112,781
Average number of loans outstanding during period 15,036 14,832
Number of repossessions during period 429 312
Repossessions as a percentage of average
number of loans outstanding during period 5.7%* 4.2%*
Gross charge-off(5) $ 3,775,078 $ 1,723,875
Recoveries(6) 1,067,076 549,363
- -----------------------------------------------------------------------------------
Net losses $ 2,708,002 $ 1,174,512
- -----------------------------------------------------------------------------------
Net losses as a percentage of average portfolio
outstanding during the period 3.2%* 1.5%*
===================================================================================
</TABLE>
Key - * Annualized
@ Simple average using Franklin Capital figures
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> 96
Franklin Capital's portfolio of motor vehicle retail installment sale contracts
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 portfolio of motor vehicle retail installment sale contracts
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
S-30
<PAGE> 97
of calculating LIBOR, a business day means a Business Day and a day on which
banking institutions in the City of London, England are not required or
authorized by law to be closed.
"LIBOR" means, with respect to any Interest Period, the London
interbank offered rate for deposits in U.S. dollars having a maturity of one
month commencing on the related LIBOR Determination Date (the "Index Maturity")
which appears on Telerate Page 3750 (as defined below) as of 11:00 a.m., London
time, on such LIBOR Determination Date. If such rate does not appear on the
Telerate Page 3750, the rate for that day will be determined on the basis of the
rates at which deposits in U.S. dollars, having the Index Maturity and in a
principal amount of not less than U.S. $1,000,000, are offered at approximately
11:00 a.m., London time, on such LIBOR Determination Date to prime banks in the
London interbank market by the Reference Banks (as defined below). The Indenture
Trustee will request the principal London office of each of such Reference Banks
to provide a quotation of its rate. If at least two such quotations are
provided, the rate for that day will be the arithmetic mean, rounded upward, if
necessary, to the nearest 1/100,000 of 1% (.0000001), with five one-millionths
of a percentage point rounded upward, of all such quotations. If fewer than two
such quotations are provided, the rate for that day will be the arithmetic mean,
rounded upward, if necessary, to the nearest 1/100,000 of 1% (.0000001), with
five one-millionths of a percentage point rounded upward, of the offered per
annum rates that one or more leading banks in New York City, selected by the
Indenture Trustee, are quoting as of approximately 11:00 a.m., New York City
time, on such LIBOR Determination Date to leading European banks for United
States dollar deposits for the Index Maturity; provided that if the banks
selected as aforesaid are not quoting as mentioned in this sentence, LIBOR in
effect for the applicable Interest Period will be LIBOR in effect for the
previous Interest Period.
"Telerate Page 3750" means the display page so designated on the Dow
Jones Telerate Service (or such other page as may replace that page on that
service for the purpose of displaying comparable rates or prices).
"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
S-31
<PAGE> 98
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.
[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].
[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], to the extent still
outstanding, may be redeemed in whole, but not in part, on any Distribution Date
on which the Servicer exercises its option to purchase the Receivables. The
Servicer may purchase the Receivables when the Pool Balance has declined to
[10]% or less of the Original Pool Balance, as described in the accompanying
Prospectus under "Description of the Purchase Agreements and the Trust Documents
- -- Termination." Such redemption will effect early retirement of the Notes of
such Class. The redemption price will be equal to the unpaid principal amount of
the Notes of such Class, plus accrued and unpaid interest thereon (the
"Redemption Price"). 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> 99
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
PreFunded 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,
S-33
<PAGE> 100
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 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>
Original Term Remaining Term
Aggregate Assumed Cutoff to Maturity to Maturity
Pool Principal Balance APR Date (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
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<PAGE> 101
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.
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<PAGE> 102
PERCENT OF INITIAL NOTE PRINCIPAL BALANCE OR
INITIAL CERTIFICATE BALANCE AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
Class A-[ ] Notes Class A-[ ] Notes
-------------------------------------------- -----------------------------------------------
Distribution Date [0.5% 1.0% 1.7% 2.5%] [ 0.5% 1.0% 1.7% 2.5%]
- ----------------- ----- ------ ------ ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
[Closing Date....................... 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
08/20/98............................
09/20/98............................
10/20/98............................
11/20/98............................
12/20/98............................
01/20/99............................
02/20/99............................
03/20/99............................
04/20/99............................
05/20/99............................
06/20/99............................
07/20/99............................
08/20/99............................
09/20/99............................
10/20/99............................
11/20/99............................
12/20/99............................
01/20/00............................
02/20/00............................
03/20/00............................
04/20/00............................
05/20/00............................
06/20/00............................
07/20/00............................
08/20/00............................
09/20/00............................
10/20/00............................
11/20/00............................
12/20/00............................
01/20/01............................
02/20/01............................
03/20/01............................
04/20/01............................
05/20/01............................
06/20/01............................
07/20/01............................
08/20/01............................
09/20/01............................
10/20/01............................
11/20/01............................
12/20/01............................
01/20/02]...........................
Weighted Average Life (years)(2)....
</TABLE>
- ----------------------
(1) The Class A-[ ] Final Scheduled Distribution Date is [ , 199 ].
(2) The weighted average life of a Security is determined by (i)
multiplying the amount of each principal payment on a Security by the
number of years from the date of the issuance of the Security to the
related Distribution Date, (ii) adding the results and (iii) dividing
the sum by the related initial principal amount of the Security.
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<PAGE> 103
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.
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<PAGE> 104
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 Agreements and the Trust Documents -- Sale and
Assignment of Receivables" in the accompanying Prospectus. [In addition, during
the Funding Period, pursuant to the Sale and Servicing Agreement, the Seller
will be obligated to sell to the Trust Subsequent Receivables having an
aggregate principal balance equal to approximately $[__________] (such amount
being equal to the initial Pre-Funded Amount) to the extent that such Subsequent
Receivables are available.]
[During the Funding Period, on each Subsequent Transfer Date, subject
to the conditions described under "The Receivables -- Eligibility Criteria," the
Seller will sell and assign to the Trust, without recourse, the Seller's entire
interest in the Subsequent Receivables designated by the Seller as of the
related Subsequent Cutoff Date and identified in a schedule attached to a
Subsequent Transfer Agreement relating to such Subsequent Receivables executed
on such date by the Seller. Upon the conveyance of Subsequent Receivables to the
Trust on a Subsequent Transfer Date, (i) the Pool Balance will increase in an
amount equal to the aggregate principal balances of the Subsequent Receivables
and (ii) an amount equal to the aggregate principal balances of such Subsequent
Receivables will be withdrawn from the Pre-Funding Account and paid to or upon
the order of the Seller.]
ACCOUNTS
The Servicer will establish and maintain one or more accounts, in the
name of the Indenture Collateral Agent, for the benefit of the Indenture
Trustee, on behalf of the Noteholders, the Owner Trustee, on behalf of the
Certificateholders, into which all payments made on or with respect to the
Receivables will be deposited (the "Collection Account"). The Servicer will be
required to remit collections to the Collection Account within two Business Days
of receipt thereof. Such collections may be remitted less any payments owed
thereon to the Servicer. However, at any time that and for so long as (i) there
exists no 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
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<PAGE> 105
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.
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<PAGE> 106
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.
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<PAGE> 107
DISTRIBUTIONS
On each Distribution Date, the Servicer is required to instruct the
Indenture Trustee to distribute the Distribution Amount in the following order
of priority:
1. To the Indenture Trustee and the Owner Trustee, any
accrued and unpaid trustees' fees and any accrued and
unpaid fees of the Indenture Collateral Agent (in
each case, to the extent such fees have not been
previously paid by the Servicer or Franklin Capital).
2. To the Servicer, the Servicing Fee for the related
Monthly Period, any Supplemental Servicing Fees for
such month and certain other amounts relating to
mistaken deposits, postings or checks returned for
insufficient funds to the extent the Servicer has not
reimbursed itself in respect of such amount to the
extent not retained by the Servicer.
3. To the Note Distribution Account, the Noteholders'
Interest Distributable Amount.
4. To the Note Distribution Account, the Noteholders'
Principal Distributable Amount, to be distributed as
described under "Description of the Notes -- Payments
of Principal."
5. To the Certificate Distribution Account, the
Certificateholders' Interest Distributable Amount.
6. To the Certificate Distribution Account, the
Certificateholders' Principal Distributable Amount.
7. To the Indenture Collateral Agent, up to the
Specified Spread Account Requirement for deposit in
the Spread Account.
8. To the Seller, any remaining funds.
If the Notes are accelerated following an Event of Default under the
Indenture, amounts collected will be distributed in the order described above.
SUBORDINATION AND SPREAD ACCOUNTS
[The rights of the Class [B] Certificateholders to receive
distributions with respect to the Receivables generally will be subordinated to
the rights of the Noteholders and the Class [A] Certificateholders in the event
of defaults and delinquencies on the Receivables as provided in the Trust
Documents, except as described herein. The rights of the Class [C]
Certificateholders to receive distributions with respect to the Receivables
generally will be subordinated to the rights of the Securityholders in the event
of defaults and delinquencies on the Receivables as provided in the Trust
Documents.]
The protection afforded to the Securityholders through subordination
will be effected both by the preferential right of the Securityholders to
receive current distributions with respect to the Receivables [and by the
establishment of the Spread Account] [and, with respect to the Class [B]
Certificates, by the establishment of the Class [B] Spread Account]. In
addition, the Spread Account [and the Class [B] Spread Account] will be
available in the event of defaults and delinquencies on the Receivables to make
distributions on the Class [C] Certificates, generally to the extent of amounts
remaining after distributions have been made to the Securityholders. [No funds]
[$_______] will
S-41
<PAGE> 108
be deposited in the Spread Account [or the Class [B] Spread Account] [until the
initial Distribution Date] [on the Closing Date].]
[On the initial Distribution Date and each Distribution Date
thereafter, if necessary, the Class [C] Distributions shall first be deposited
into the Spread Account until the amount in the Spread Account reaches an amount
equal to the Specified Spread Account Balance. [After the amount in the Spread
Account equals the Specified Spread Account Balance, the Class [B] Spread
Account then will be funded by deposits on each Distribution Date with amounts
otherwise distributable to Class [C] Certificateholders; unless such amounts
shall be required to fund the Spread Account or until the amount in the Class
[B] Spread Account reaches an amount equal to the Specified Class [B] Spread
Account Balance.] Thereafter, Class [C] Distributions will be deposited first in
the Spread Account [and then in the Class [B] Spread Account, in each case] to
the extent necessary to maintain the amounts in such accounts at the Specified
Spread Account Balance [and the Specified Class [B] Spread Account Balance, as
applicable]. At any time on or after the date on which the Spread Account [or
the Class [B] Spread Account] equals the specified Spread Account Balance [or
the Specified Class [B] Spread Account Balance, respectively], the [Indenture]
Trustee shall permit all or any portion of the Class [C] Distributions, as
requested by the Seller, thereafter to be excluded from the foregoing deposit
requirements, provided that, at the time of such request, the Seller presents
evidence to the [Indenture] Trustee that the ratings of the Securities shall not
be reduced or withdrawn as a result of such requested exclusion. [Furthermore,
upon a request from the Seller, the [Indenture] Trustee shall permit a reduction
in the Specified Class [B] Spread Account Balance; provided, however, that the
Seller presents written evidence to the [Indenture] Trustee that the ratings of
the Securities shall not be reduced or withdrawn as a result of such requested
reduction.] If any such portion of the Class [C] Distributions becomes excluded
from such deposit requirements it shall remain excluded even if the amounts in
the Spread Account [or the Class [B] Spread Account] thereafter fall below the
Specified Spread Account Balance [or the Specified Class [B] Spread Account
Balance, respectively].
[The Spread Account [and the Class [B] Spread Account] will not be a
part of the Trust and will be segregated trust accounts held by the [Indenture]
Trustee. On each Distribution Date, (i) if the amounts on deposit in the Spread
Account [or the Class [B] Spread Account] are less than the Specified Spread
Account Balance [or the Specified Class [B] Spread Account Balance,
respectively], the [Indenture] Trustee will be required, after payment of any
amounts required to be distributed to holders of the Securities and the payment
or retention of the Services Fee due with respect to the related Monthly Period
(including any unpaid Servicer Fee with respect to prior Monthly Periods), to
withdraw from the Collection Account and deposit first in the Spread Account
[and then in the Class [B] Spread Account] the amount remaining in the
Collection Account (subject to the possible exclusion of interest and/or
principal referred to in the preceding paragraph) that would otherwise be
distributed to the holders of the Class [C] Certificates, or such lesser portion
thereof as is sufficient to restore the amounts in the Spread Account [or the
Class [B] Spread Account] to the Specified Spread Account Balance [or the
Specified Class [B] Spread Account Balance, respectively], and (ii) if the
amounts on deposit in the Spread Account [or the Class [B] Spread Account] on
such Distribution Date (after giving effect to all deposits or withdrawals
therefrom on such Distribution Date) is greater than or equal to the Specified
Spread Account Balance [or the Specified Class [B] Spread Account Balance,
respectively,] for such Distribution Date, the [Indenture] Trustee will release
and distribute any such excess to the holders of the Class [C] Certificates.
Upon any such distribution to Class [C] Certificateholders, the Offered
Certificateholders will have no rights in, or claims to, such amounts.]
[Amounts held from time to time in the Spread Account will continue
to be held for the benefit of holders of the Securities and holders of the Class
[C] Certificates in order to effectuate the subordination of the rights of the
holders of the Class [C] Certificates to the rights of the holders of the
Securities. [Amounts held from time to time in the Class [B] Spread Account will
continue to be held for the benefit of holders of the Class [B] Certificates in
order to effectuate the subordination of the rights of the holders of the Class
[C] Certificates to the rights of the holders of the Class [B] Certificates. The
Class [A] Certificateholders shall have no rights to receive distributions from
the Class [B] Spread Account. The Class [C] Certificateholders shall have rights
to receive distributions from the Class [B] Spread Account only to the extent
described herein.] Funds in the Spread Account [and the Class [B] Spread
Account] shall be invested as provided in the Trust Documents in Eligible
Investments. Investment income (net of investment losses and expenses) on
amounts in the Spread Account [and the Class [B] Spread Account] will not be
available for distribution to holders of Securities, and will only be
distributed to the Seller.]
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["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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<PAGE> 110
(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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<PAGE> 113
["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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"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
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full and, with respect to Simple Interest Receivables, partial principal
prepayments, received during such Monthly Period (including, with respect to
Precomputed Receivables, amounts withdrawn from the Payahead Account but
excluding amounts deposited into the Payahead Account) with respect to such
Monthly Period, (ii) the principal balance of each Receivable that was
repurchased by Franklin Capital, the Seller or the Servicer as of the last day
of such Monthly Period, (iii) the outstanding principal balance of those
Receivables that were required to be repurchased by the Seller and/or Franklin
Capital during such Monthly Period but were not so repurchased, (iv) the
principal balance of each Receivable that became a Liquidated Receivable during
such Monthly Period and (v) the aggregate amount of Cram Down Losses during such
Monthly Period.
"Purchase Amount" means, with respect to a Receivable, the Principal
Balance and accrued interest on the Receivable (including one month's interest
thereon, in the month of payment, at the APR less, so long as Franklin Capital
is the Servicer, the Servicing Fee and other servicing compensation and
expenses), after giving effect to the receipt of any moneys collected (from
whatever source) on such Receivable, if any.
"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.]
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SERVICER DEFAULT; RIGHTS UPON SERVICER DEFAULT
Notwithstanding anything to the contrary set forth under "Description
of the Purchase Agreements and the Trust Documents -- Servicer Default" in the
Prospectus, a "Servicer Default" under the Sale and Servicing Agreement will
consist of (i) any failure by the Servicer to deliver to the Owner Trustee or
the Indenture Trustee any deposit or payment required to be so made, which
failure continues unremedied for [__] Business Days after written notice from
the Owner Trustee or the Indenture Trustee is received by the Servicer or after
discovery of such failure by the Servicer, (ii) any failure by the Servicer duly
to observe or perform in any material respect any other covenant or agreement in
the Sale and Servicing Agreement which failure materially and adversely affects
the rights of Certificateholders or Noteholders and which continues unremedied
for 60 days after the giving of written notice of such failure (1) to the
Servicer by the Owner Trustee or the Indenture Trustee or (2) to the Servicer
and to the Owner Trustee and the Indenture Trustee by holders of Certificates or
Notes evidencing not less than 25% in aggregate principal amount of the
outstanding Certificates or Notes, respectively (or such longer period, not in
excess of 120 days, as may be reasonably necessary to remedy such default;
provided that such default is capable of remedy within 120 days or less and the
Servicer delivers an officer's certificate to the Owner Trustee and the
Indenture Trustee to such effect and to the effect that the Servicer has
commenced, or will promptly commence, and diligently pursue all reasonable
efforts to remedy such default); and (iii) certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings with respect to the Servicer or the Seller and certain actions by
the Servicer or the Seller indicating its insolvency, reorganization pursuant to
bankruptcy proceedings, or inability to pay its obligations.
As long as a Servicer Default under the Sale and Servicing Agreement
remains unremedied, either the Indenture Trustee or the Noteholders holding not
less than a majority of the principal amount of Notes outstanding may terminate
all of the rights and obligations of the Servicer under the Sale and Servicing
Agreement. All authority, power, obligations and responsibilities of the
Servicer under the Sale and Servicing Agreement will automatically then pass to
the Indenture Trustee, as backup servicer, or a successor servicer appointed by
the Owner Trustee in accordance with the Sale and Servicing Agreement.
WAIVER OF PAST DEFAULTS
Notwithstanding anything to the contrary set forth under "Description
of the Purchase Agreements and the Trust Documents -- Waiver of Past Defaults"
in the Prospectus, the [Owner Trustee] may, on behalf of all holders of
Securities, waive any default by the Servicer in the performance of its
obligations under the Sale and Servicing Agreement and its consequences. No such
waiver will impair the Securityholders' rights with respect to subsequent
defaults.
AMENDMENT
Notwithstanding anything to the contrary set forth under "Description
of the Purchase Agreements and the Trust Documents -- Amendment" in the
Prospectus, the [Pooling and Servicing Agreement] [Sale and Servicing 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 [Pooling and
Servicing Agreement] [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
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affecting the rights of the Noteholders or the Certificateholders; provided that
such action will not (i) increase or reduce in any manner the amount of, or
accelerate or delay the timing of, collections of payments on Receivables or
distributions that are required to be made for the benefit of the Noteholders or
Certificateholders or (ii) reduce the aforesaid percentage of the Noteholders or
Certificateholders required to consent to any such amendment, without, in either
case, the consent of the holders of all Notes and Certificates outstanding. The
Seller and Servicer must deliver to the Owner Trustee and the Indenture Trustee
upon the execution and delivery of the Sale and Servicing Agreement and any
amendment thereto an opinion of counsel, satisfactory to the Indenture Trustee,
that all financing statements and continuation statements have been filed that
are necessary to fully protect and preserve the Trustee's interest in the
Receivables.
It is a condition to issuance that the Class A-[_] Notes be rated
[____] by S&P and [___] by Moody's, and that the Class A-[_] Notes, the Class
A-[_] Notes and the Certificates be rated [___] by S&P and [___] by Moody's. A
rating is not a recommendation to purchase, hold or sell Securities. In the
event that the rating initially assigned to any of the Securities is
subsequently lowered or withdrawn for any reason, no person or entity will be
obligated to provide any additional credit enhancement with respect to the
Securities. Any reduction or withdrawal of a rating may have an adverse effect
on the liquidity and market price of the Securities. See "Ratings" in the
Prospectus.
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. 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.
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, "--Tax Consequences to Holders of
the Notes Issued by a Partnership or a Division" and --Certain Certificates
Treated as Indebtedness" 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
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Section 406 of ERISA, and/or Section 4975 of the Code, prohibits a
pension, profit-sharing or other employee benefit plan, as well as individual
retirement accounts and certain types of Keogh Plans (each a "Benefit Plan")
from engaging in certain transactions with persons that are "parties in
interest" under ERISA or "disqualified persons" under the Code with respect to
such Benefit Plan. A violation of these "prohibited transaction" rules may
result in an excise tax or other penalties and liabilities under ERISA and the
Code for such persons. Title I of ERISA also requires that fiduciaries of a
Benefit Plan subject to ERISA make investments that are prudent, diversified
(except if prudent not to do so) and in accordance with governing plan
documents.
Certain transactions involving the purchase, holding or transfer of the
Securities might be deemed to constitute prohibited transactions under ERISA and
the Code if assets of the Trust were deemed to be assets of a Benefit Plan.
Under a regulation issued by the United States Department of Labor (the "Plan
Assets Regulation"), the assets of the Trust would be treated as plan assets of
a Benefit Plan for the purposes of ERISA and the Code only if the Benefit Plan
acquires an "Equity Interest" in the Trust and none of the exceptions contained
in the Plan Assets Regulation is applicable. An Equity Interest is defined under
the Plan Assets Regulation as an interest other than an instrument which is
treated as indebtedness under applicable local law and which has no substantial
equity features. The Seller believes that the Notes should be treated as
indebtedness without substantial equity features for purposes of the Plan Assets
Regulation. However, without regard to whether the Notes are treated as an
Equity Interest for such purposes, the acquisition or holding of Notes by or on
behalf of a Benefit Plan could be considered to give rise to a prohibited
transaction if the Trust, the Owner Trustee or the Indenture Trustee, the owner
of collateral, or any of their respective affiliates is or becomes a party in
interest or a disqualified person with respect to such Benefit Plan. In such
case, certain exemptions from the prohibited transaction rules could be
applicable depending on the type and circumstances of the plan fiduciary making
the decision to acquire a Note. Included among these exemptions are: Prohibited
Transaction Class Exemption ("PTCE") 90-1, regarding investments by insurance
company pooled separate accounts; PTCE 95-60, regarding investments by insurance
company general accounts; PTCE 91-38, regarding investments by bank collective
investment funds; PTCE 96-23, regarding transactions affected by in-house asset
managers; and PTCE 84-14, regarding transactions effected by "qualified
professional asset managers."
The Certificates may not be acquired by (a) an employee benefit plan
(as defined in Section 3(3) of ERISA) that is subject to the provisions of Title
I of ERISA, (b) a plan described in Section 4975(e)(1) of the Code or (c) any
entity whose underlying assets include plan assets by reason of a plan's
investment in the entity. By its acceptance of a Certificate, each
Certificateholder will be deemed to have represented and warranted that it is
not subject to the foregoing limitation. For additional information regarding
treatment of the Certificates under ERISA, see "ERISA Considerations" in the
accompanying Prospectus.
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements.
A plan fiduciary considering the purchase of Notes should consult its
tax and/or legal advisors regarding whether the assets of the Trust would be
considered plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
UNDERWRITING
Under the terms and subject to the conditions contained in the
Underwriting Agreement, the Seller has agreed to cause the Trust to sell to the
Underwriters named below (the "Underwriters"), for whom [______] 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
----------- ---------------- ----------------
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<PAGE> 120
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
S-54
<PAGE> 121
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-55
<PAGE> 122
[ 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-56
<PAGE> 123
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...............................................................
Final Scheduled Distribution Date ..............................................
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 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......................................
S-57
<PAGE> 124
Noteholders' Principal Distributable Amount.....................................
Notes...........................................................................
Original Pool Balance...........................................................
Owner Trustee...................................................................
parties in interest.............................................................
Payaheads.......................................................................
Payment Date....................................................................
Plan Assets Regulation..........................................................
Pool Balance....................................................................
Pre-Funded Amount...............................................................
Pre-Funding Account.............................................................
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 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..........................................................
S-58
<PAGE> 125
Trust...........................................................................
Trust Agreement.................................................................
Trust Documents.................................................................
Trust Property..................................................................
Underwriters....................................................................
Year 2000 Problem..............................................................]
S-59
<PAGE> 126
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED SEPTEMBER 18, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED SEPTEMBER , 1998)
$131,394,000
FRANKLIN AUTO TRUST 1998-1
[FRANKLIN CAPITAL CORP. LOGO]
ISSUER
$106,000,000 CLASS A-1 % ASSET BACKED NOTES
$25,394,000 CLASS A-2 % ASSET BACKED NOTES
----------------------
FRANKLIN RECEIVABLES LLC
SELLER
FRANKLIN CAPITAL CORPORATION
SERVICER
----------------------
The Franklin Auto Trust 1998-1 (the "Trust" or the "Issuer") will be formed
pursuant to a Trust Agreement (the "Trust Agreement") to be entered into by and
among Franklin Receivables LLC, as seller (the "Seller") and Bankers Trust
(Delaware), as owner trustee ("Owner Trustee"), and will issue $106,000,000
aggregate principal amount of Class A-1 % Asset Backed Notes (the "Class A-1
Notes") and $25,394,000 aggregate principal amount of Class A-2 % Asset
Backed Notes (the "Class A-2 Notes" and together with the Class A-1 Notes, the
"Notes"). The Notes will be issued pursuant to an Indenture, to be dated as of
September 1, 1998 (the "Indenture"), between the Trust and The Chase Manhattan
Bank, as indenture trustee and as indenture collateral agent (the "Indenture
Trustee" and the "Indenture Collateral Agent", respectively).
The assets of the Trust will include a pool of prime, non-prime and
sub-prime motor vehicle retail installment sale contracts (the "Receivables")
secured by new and used automobiles and light trucks financed thereby (the
"Financed Vehicles"), certain amounts received under each Receivable on and
after September 1, 1998 (the "Cutoff Date"), security interests in the Financed
Vehicles, the Note Policy (as defined herein) and other specified property, as
more fully described herein. The Note Policy will be issued by MBIA Insurance
Corporation.
(LOGO)
The Note Policy is not covered by the Property/Casualty Insurance Security
Fund specified in Article 76 of the New York Insurance Law. The
Property/Casualty Insurance Fund provides for the payment of certain insurance
claims against insolvent insurers. The Property and Casualty Insurance Fund will
offer no protection to the Noteholders.
(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 15 IN THE ACCOMPANYING PROSPECTUS.
THE NOTES REPRESENT OBLIGATIONS OF 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.
----------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO THE
OFFERING PRICE(1) DISCOUNT(2) SELLER (1)(3)
----------------- ------------ ---------------
<S> <C> <C> <C>
Per Class A-1 Note................................ % % %
Per Class A-2 Note................................ % % %
Total............................................. $ $ $
</TABLE>
- ---------------
(1) Plus accrued interest if any from September 15, 1998.
(2) The Seller has agreed to indemnify the Underwriter's against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(3) Before deducting expenses payable by the Seller estimated to be $ .
----------------------
The Notes offered hereby are offered by Goldman, Sachs & Co. (the
"Underwriters"), as specified herein, subject to receipt and acceptance by them
and subject to their right to reject any order in whole or in part. It is
expected that the Notes will be ready for delivery through the facilities of The
Depository Trust Company ("DTC") or through Cedel Bank, societe anonyme
("Cedel") or the Euroclear System ("Euroclear") on or about September , 1998
against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
----------------------
The date of this Prospectus Supplement is September , 1998.
<PAGE> 127
(Continued from preceding page)
The Notes will be secured by the assets of the Trust pursuant to the
Indenture. Interest on the Class A-1 Notes and Class A-2 Notes will accrue at
the per annum interest rates specified above. Interest on the Notes will
generally be payable on the 15th day of each month (each, a "Distribution
Date"), commencing October 15, 1998. Principal on the Notes will be payable on
each Distribution Date to the extent described herein, except that no principal
will be paid on the Class A-2 Notes until the principal due on the Class A-1
Notes has been paid in full.
The final scheduled distribution date ("Final Scheduled Distribution Date")
shall mean for each Class of Notes the date set forth below. The Final Scheduled
Distribution Date for the Class A-1 Notes and Class A-2 Notes will be the
, 200 and the , 200 Distribution Date,
respectively. However, payment in full of a Class of Notes may occur earlier
than such date as described herein. In addition, the Notes will be subject to
redemption 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.
The full and timely payment of the interest portion of the Guaranteed Note
Distributions in respect of the Notes on each Distribution Date and the full and
ultimate payment of the principal portion of the Guaranteed Note Distributions
in respect of the Notes on their respective Final Scheduled Distribution Dates
are unconditionally and irrevocably guaranteed pursuant to a financial guaranty
insurance policy (the "Note Policy") to be issued by MBIA Insurance Corporation.
There currently is no secondary market for the Notes. The Underwriters
expect to make a market in the Notes but have no obligation to do so. There is
no assurance that any such market will develop or continue or that it will
provide the holders of the Notes (the "Noteholders") with sufficient liquidity
of investment.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE NOTES. 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 NOTES 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.
THE UNDERWRITERS MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR
OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING OVER-ALLOTMENT, STABILIZING
AND SHORT-COVERING TRANSACTIONS IN SUCH SECURITIES AND THE IMPOSITION OF PENALTY
BIDS, IN EACH CASE IN CONNECTION WITH THE OFFERING. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING" HEREIN.
THE NOTES OFFERED BY THIS PROSPECTUS SUPPLEMENT WILL CONSTITUTE A SEPARATE
SERIES OF SECURITIES BEING OFFERED BY THE SELLER PURSUANT TO ITS PROSPECTUS
DATED SEPTEMBER [ ], 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.
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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.
----------------------
REPORTS TO NOTEHOLDERS
Unless and until Definitive Notes 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 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 Corporation, Franklin Resources, Inc.
or MBIA Insurance Corporation intends to send any of its financial reports to
Noteholders. 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. The Trust may suspend the filing of such reports under the Exchange
Act when and if the filing of such reports is no longer required.
AVAILABLE INFORMATION
The consolidated financial statements of MBIA Insurance Corporation, a New
York domiciled insurance company (the "Insurer") are included in, or as exhibits
to, the following documents which have been filed with the Commission by the
Insurer's parent company MBIA, Inc., a Connecticut corporation ("Holdings") are
hereby incorporated by reference:
(a) Annual Report on Form 10-K for the year ended December 31, 1997,
and
(b) Quarterly Report on Form 10-Q for the period ended June 30, 1998.
Investors are encouraged to review such documents, 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 Notes for information about the Insurer.
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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 1998-1 (the "Trust" or the
"Issuer"), a Delaware business trust to be
formed pursuant to a Trust Agreement, dated as
of September 1, 1998 (the "Trust Agreement"),
between 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 (the "Seller") and
wholly-owned subsidiary of 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 Franklin Resources,
Inc., a Delaware corporation ("Franklin
Resources"). See "Franklin Capital Corporation"
and "Franklin Resources, Inc." in the
Prospectus.
Insurer....................... MBIA Insurance Corporation (the "Insurer"), a
New York domiciled insurance company. See "The
Insurer" herein.
Indenture Trustee............. The Chase Manhattan Bank (the "Indenture
Trustee"). See "The Notes -- The Indenture
Trustee" in the Prospectus.
Owner Trustee................. Bankers Trust (Delaware) (the "Owner Trustee").
See "The Trust -- The Owner Trustee" herein and
"The Trusts -- The Owner Trustee" in the
Prospectus.
Cutoff Date................... September 1, 1998.
Closing Date.................. September , 1998.
The Notes..................... The Trust will issue Class A-1 % Asset
Backed Notes (the "Class A-1 Notes") in the
aggregate original principal amount of
$106,000,000 and Class A-2 % Asset Backed
Notes (the "Class A-2 Notes") in the aggregate
original principal amount of $25,394,000. The
Class A-1 Notes and the Class A-2 Notes
(collectively, the "Notes") will be issued
pursuant to an Indenture, dated as of September
1, 1998, among the Issuer, the Indenture
Trustee and The Chase Manhattan Bank, as
Indenture Collateral Agent (the "Indenture
Collateral Agent"). The Notes will be offered
for purchase in denominations of $1,000 and
integral multiples thereof in book-entry form
only. Persons acquiring beneficial interests in
the Notes will hold their interests through DTC
in the United States or Cedel Bank, societe
anonyme ("Cedel") or the Euroclear System
("Euroclear") in Europe. See "Certain
Information Regarding The Securities --
Book-Entry Registration" in the Prospectus and
Annex I thereto.
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The Notes will be secured by the assets of the
Trust pursuant to the Indenture.
Trust Property................ Each Note will represent an obligation of the
Trust. The Trust's assets (the "Trust
Property") will include certain prime,
non-prime and sub-prime motor vehicle retail
installment sale contracts (the "Receivables"),
secured by new and used automobiles and light
trucks (the "Financed Vehicles"), certain
monies representing interest payments and
principal payments received thereunder on and
after the Cutoff Date and, with respect to
Receivables which are Precomputed Receivables,
monies received thereunder prior to the Cutoff
Date that are due on or after the Cutoff Date,
an assignment of the security interests in the
Financed Vehicles securing the 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 Financed Vehicles or the
Obligors, as the case may be, all rights to
liquidation proceeds with respect to the
Receivables, certain proceeds from the exercise
of rights against Dealers under agreements
between Franklin Capital and such Dealers, all
proceeds of the foregoing, the Note Policy,
such amounts as from time to time may be held
in the Collection Account, the Payahead Account
and the Note Distribution Account and certain
rights under the Trust Documents. The
Receivables will be purchased by the Seller
from Franklin Capital pursuant to a purchase
agreement dated as of September 1, 1998 between
the Seller and Franklin Capital (the "Purchase
Agreement") on or prior to the date of issuance
of the Notes and sold to the Trust on the
Closing Date pursuant to a Sale and Servicing
Agreement dated as of the Cutoff Date among the
Seller, the Servicer, Franklin Resources and
the Owner Trustee (the "Sale and Servicing
Agreement"). 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.
Receivables................... The Receivables consist of prime, non-prime and
sub-prime motor vehicle retail installment sale
contracts originated by motor vehicle dealers
("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
Receivables as of the Cutoff Date.
The Receivables have, as of the Cutoff Date, a
weighted average annual percentage rate ("APR")
of approximately 11.62%, a weighted average
original maturity of 62.49 months and a
weighted average remaining maturity of 42.86
months. The Receivables have an aggregate
principal balance of $131,394,490.64 as of the
Cutoff Date. See "The Receivables" herein. Each
of the Receivables also will have
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a remaining term of not less than seven months
as of the Cutoff Date.
The Receivables transferred to the Trust, will
consist of Prime Receivables, Non-Prime
Receivables and Sub-Prime Receivables ("Prime,"
"Non-Prime" and "Sub-Prime" each as defined in
the Prospectus). See "Franklin Capital
Corporation -- General" and "Description of the
Purchase Agreements and The Trust
Documents -- Eligibility Criteria" in the
Prospectus. The Prime, the Non-Prime and
Sub-Prime Receivables have principal balances
of $78,430,885.03, $45,967,290.62 and
$6,996,314.98 as of the Cutoff Date,
respectively, which represent 59.7%, 35.0% and
5.3% of the aggregate principal balance of the
Receivables as of the Cutoff Date.
All of the Receivables must satisfy the
eligibility criteria set forth under "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 15th day of each month or,
if the 15th day is not a Business Day, on the
next following Business Day (each, a
"Distribution Date") commencing October 15,
1998. 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 or New York are authorized or
obligated to be closed.
B. Interest Rates........... The Class A-1 Notes will bear interest at the
fixed per annum rate set forth on the cover
page hereof. The Class A-2 Notes will bear
interest at the fixed per annum rate set forth
on the cover page hereof. 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-1 or Class
A-2 Notes or both 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
fifteenth day of the calendar month preceding
the Distribution Date to, but excluding, the
fifteenth day of the following calendar month
(each, an "Interest Period"). Interest on the
Notes for any Distribution Date due but not
paid on such Distribution Date will be due on
the next Distribution Date together with, to
the extent permitted by law, interest on such
amount at the applicable Interest Rate. The
amount of interest distributable on the Notes
on each Distribution Date will equal interest
accrued during the related Interest Period.
Interest on the Class A-1 Notes and Class A-2
Notes will be calculated on the basis of a
360-day year consisting of
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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
Principal Distributable Amount (as defined
below) for the calendar month (the "Monthly
Period") preceding such Distribution Date. The
Principal Distributable Amount will equal the
excess of (i) the aggregate outstanding
principal balance of the Notes as of the
preceding Distribution Date (after giving
effect to distributions thereon) or in the case
of the first Distribution Date as of the
Closing Date, over (ii) the Month-End Pool
Balance as of the end of the preceding Monthly
Period. The "Month-End Pool Balance" as of the
end of any Monthly Period (other than the
initial Monthly Period) represents the Pool
Balance for the immediately preceding Monthly
Period, or in the case of the initial Monthly
Period the Original Pool Balance, less 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
Franklin Resources 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
Franklin Resources and/or Franklin Capital
during such Monthly Period but were not so
repurchased, (iv) without duplication of
amounts in clause (ii), 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. The Pool Balance as of the
Cutoff Date (the "Original Pool Balance") will
be $131,394,490.64.
No principal will be paid on the Class A-2
Notes until the principal of the Class A-1
Notes has been paid in full. In addition, the
outstanding principal amount of the Notes of
any Class, to the extent not previously paid,
will be payable on the respective Final
Scheduled Distribution Date for such Class.
E. Distribution
Priorities.................... On each Distribution Date, for so long as any
Class of Notes remains outstanding, and except
as otherwise described herein, the Principal
Distributable Amount for such date will be
distributed to the holders of the respective
Classes of
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Notes for the following purposes and the
following order of priority:
First, to the Class A-1 Notes, until the
principal balance of such Notes is reduced to
zero; and
Second, to the Class A-2 Notes, until the
principal balance of such Notes is reduced to
zero.
F. Optional Redemption...... The Class A-1 Notes and Class A-2 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 (with the consent of the Insurer, if
such purchase would result in a claim on the
Note Policy or would result in any amount owing
to the Insurer remaining unpaid), at a
redemption price equal to the unpaid principal
amount of the Notes of each outstanding Class
plus accrued and unpaid interest thereon. See
"Description of the Notes -- Optional
Redemption" herein. The Original Pool Balance
will equal the aggregate principal balance of
the Receivables as of the Cutoff Date.
G. Mandatory Redemption..... 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 Reimbursement
Agreement, dated as of the Closing Date (the
"Insurance Agreement"), among the Insurer, the
Trust, Franklin Resources, 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 plus accrued and unpaid interest. 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 Note Policy -- Note
Policy" herein.
The Note Policy............... On the Closing Date, the Insurer will issue a
financial guaranty insurance policy (the "Note
Policy") to the Indenture 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.
See "The Note Policy" and "Description of the
Purchase Agreement and the Trust
Documents -- Distributions" herein. On the
Closing Date, the Seller will make an initial
deposit into the Insurance Spread Account (as
defined in "The Note Policy -- The Note Policy"
herein) of an
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amount to be agreed to by the Seller and
Insurer for the benefit of the Insurer. Amounts
in the Insurance Spread Account will be used to
reimburse the Insurer for any Guaranteed Note
Distributions or Insurer Optional Deposit. Such
account may be funded from amounts received on
the Receivables. Additional amounts may be
deposited in such account from time to time. In
addition, Franklin Resources, Inc. will agree
to deposit certain amounts into the Insurance
Spread Account to the extent required by the
Insurance Agreement (subject to a maximum limit
on such deposits). The Insurance Spread Account
will not be an asset of the Trust and
Noteholders will have no right to payments
therefrom.
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, and the Insurer. All
payments from Obligors that are received by the
Servicer on behalf of the Trust must be
deposited into the Collection Account no later
than two Business Days prior to the related
Distribution Date. Upon the occurrence of
certain events specified herein, 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.
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 Servicer, the Servicing Fee (as
defined herein) for the related Monthly Period
(to the extent due and unpaid) and any overdue
Servicing Fees, (ii) to the Insurer, any
accrued and unpaid fees of the Insurer (to the
extent such fees have not been previously paid
by the Servicer or Franklin Capital), (iii)
into the Note Distribution Account, the
Noteholders' Interest Distributable Amount,
(iv) into the Note Distribution Account, the
Principal Distributable Amount, (v) to the
Insurer, any interest due on outstanding Surety
Draws (as defined below), (vi) to the Insurer,
any payments previously made by the Insurer
under the Note Policy, and any other
discretionary amounts paid by the Insurer
(including Insurer Optional Deposits) with
respect to Principal Distributable Amounts on
any prior Distribution Date (such insurance
payments and amounts, the "Surety Draws"),
(vii) into the Insurance Spread Account, to the
extent the amount therein is less than the
required amount, (viii) to the Servicer, the
Excess Servicing Fee (as defined herein) for
the related monthly period (to the extent due
and unpaid) and any overdue Excess Servicing
Fees, and (ix) the remaining balance, if any,
to the Seller. See "Description of the Purchase
Agreement and the Trust
Documents -- Distributions" and "-- Servicing
Compensation and Trustees' Fees" herein and
"Description of the
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Purchase Agreements and the Trust
Documents -- Collections" in the Prospectus.
The Servicer may deposit collections net of the
Servicing Fee for any Monthly Period.
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 for
federal income tax purposes. See "Federal
Income Tax Consequences" herein and "Federal
Income Tax Consequences" in the Prospectus.
Investors are encouraged to consult their own
advisors concerning state, local and foreign
tax consequences of an investment in the Notes.
See "State, Local and Foreign Tax
Considerations" herein.
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"). See "ERISA Considerations" herein and
in the Prospectus.
Ratings....................... It is a condition to issuance that the Class
A-1 Notes and Class A-2 Notes be rated AAA by
Standard & Poor's, a division of The
McGraw-Hill Companies, Inc. ("S&P"), and Aaa by
Moody's Investors Service, Inc. ("Moody's" and
together with S&P, the "Rating Agencies"). The
ratings by the Rating Agencies of the Notes
will be based primarily on the Note Policy.
There is no assurance that the ratings
initially assigned to the Notes will not
subsequently be lowered or withdrawn by the
Rating Agencies. See "Risk Factors -- Ratings
on Securities" herein.
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RISK FACTORS
Prospective Noteholders 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.
REINVESTMENT RISKS FROM PREPAYMENTS
The weighted average life of the Notes 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, 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, payment of Insurer Optional Deposits
by the Insurer, 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 Noteholders 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
Notes may be paid in full prior to their respective Final Scheduled Distribution
Dates. The Noteholders will bear all reinvestment risk resulting from the timing
of payments of principal on the Notes. 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 Cutoff Date, Obligors with respect to 72.7%, 9.3% and 6.5% of the
Receivables (based on the principal balance of the Receivables and mailing
addresses of the Obligors thereon as of the Cutoff Date) were located in
California, Nevada and New Mexico, respectively. Economic conditions in
California are often volatile and from time to time have been adversely affected
by natural disasters, contractions in key industries and declining real estate
values. No predictions, however, can be made regarding future economic
conditions in California or any other states where Obligors reside. See "The
Receivables" herein and in the Prospectus.
LIMITED ASSETS
The Trust will not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables and the Note
Policy. Holders of the Notes must rely for repayment upon payments on the
Receivables and payments of claims made under the Note Policy. Similarly,
although the Note Policy will be available on each Distribution Date to cover
shortfalls in distributions of the Noteholders' Interest Distributable Amount on
such Distribution Date and to cover shortfalls in distributions of the Principal
Distributable Amount on the Final Scheduled
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<PAGE> 137
Distribution Date, if the Insurer defaults on its obligations under the Note
Policy, the Trust will depend on current distributions on the Receivables to
make payments on the Notes. See "The Insurer" and "The Note Policy" herein.
RATINGS ON NOTES
A rating is not a recommendation to purchase, hold or sell Notes. The
ratings of the Notes address the likelihood of the timely payment of interest on
the Notes and the ultimate payment of the principal of the Notes at their
maturity. 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 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. Any
reduction or withdrawal of a rating of the Insurer likely would result in a
reduction or withdrawal of ratings of the Notes, and may have an adverse effect
on the liquidity and market price of the Notes.
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.
Following the occurrence of an Event of Default, the Indenture Trustee will
continue to submit claims under the Note Policy as necessary to enable the Trust
to continue to make payments of the Noteholders' Interest Distributable Amount
on each Distribution Date and to pay the outstanding Principal Balance on any
outstanding Notes on their Final Scheduled Distribution Date. Insurer decisions
with respect to defaults may have a significant impact on the weighted average
life of the Notes.
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 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 which 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.
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 affected by the Year 2000 Problem. The external system is provided by a
S-12
<PAGE> 138
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
February 28, 1999. 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 Notes
will be used to pay to the Seller, and in turn, Franklin Capital, the purchase
price for the Receivables.
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<PAGE> 139
THE TRUST
The following information supplements and, to the extent inconsistent
therewith, supersedes the information contained in the accompanying Prospectus.
Prospective Noteholders should consider, in addition to the information below,
the information under "The Trusts" in the accompanying Prospectus.
GENERAL
The Issuer, Franklin Auto Trust 1998-1, is a business trust formed under
the laws of the State of Delaware pursuant to the Trust Agreement for the
transactions described in this Prospectus Supplement. After its formation, the
Trust will not engage in any activity other than (i) acquiring, holding and
managing the Receivables and the other assets of the Trust and proceeds
therefrom, (ii) issuing the Notes, (iii) making payments on the Notes and (iv)
engaging in other activities that are necessary, suitable or convenient to
accomplish the foregoing or are incidental thereto or connected therewith. The
proceeds of the initial sale of the Notes will be used by the Trust to purchase
the Receivables from the Seller pursuant to the Sale and Servicing Agreement.
The Trust's principal offices are in Delaware, in care of Bankers Trust
(Delaware), as Owner Trustee, at the address listed below under "-- The Owner
Trustee."
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the Trust as of the
Cutoff Date, as if the issuance and sale of the Notes had taken place on such
date:
<TABLE>
<S> <C>
Class A-1 Notes............................................ $106,000,000
Class A-2 Notes............................................ $ 25,394,000
------------
Total............................................ $131,394,000
============
</TABLE>
THE OWNER TRUSTEE
Bankers Trust (Delaware) is the Owner Trustee under the Trust Agreement, is
a Delaware banking corporation and its principal offices are located at 1011
Centre Road, Suite 200, Wilmington, Delaware 19825. 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. The
Owner Trustee's liability in connection with the issuance and sale of 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 the following: (a) prime, non-prime and
sub-prime motor vehicle retail installment sale contracts secured by new and
used automobiles and light trucks; (b) all payments received thereunder on and
after the Cutoff Date, and, with respect to Precomputed Receivables, certain
monies representing interest payments and principal payments received thereunder
prior to the Cutoff Date that are due on or after the Cutoff Date; (c) such
amounts as from time to time may be held in the Collection Account, the Payahead
Account and the Note Distribution Account, if any; (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; (h) the
Receivables Files; and (i) certain other rights under
S-14
<PAGE> 140
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).
The Receivables were originated by Dealers in accordance with Franklin
Capital's requirements under agreements with Dealers for assignment to Franklin
Capital, have been so assigned and evidence the indirect financing made
available to the Obligors. 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" as of the end of any Monthly Period represents the
aggregate principal balance of the Receivables (exclusive of Liquidated
Receivables) at the end of such 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, on the Determination Date following such
Monthly Period and all losses, including Cram Down Losses, realized on
Receivables liquidated during such Monthly Period. The Pool Balance as of the
Cutoff Date (the "Original Pool Balance") will be $131,394,490.64. Prior to the
Closing Date certain Receivables may be removed and additional Receivables
substituted therefor. All of the Receivables 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. Losses on the Receivables resulting from uninsured losses
on the Financed Vehicles will be borne by the Trust.
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 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.
S-15
<PAGE> 141
THE RECEIVABLES
The following information supplements the information contained under "The
Receivables" in the accompanying Prospectus.
GENERAL
The Receivables were purchased by Franklin Capital in the ordinary course
of business from motor vehicle dealers ("Dealers"). The Receivables will consist
of Prime, Non-Prime and Sub-Prime (each as defined in the Prospectus) 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 selected according to several criteria, including
those specified under "The Receivables -- General" in the accompanying
Prospectus. In addition, the Receivables were selected from Franklin Capital's
portfolio of motor vehicle retail installment contracts based on several
criteria, including the following: (i) each Receivable has an APR equal to or
greater than 6%; (ii) each Receivable has an original term to maturity of not
more than 84 months; (iii) as of the Cutoff Date, the most recent Scheduled
Payment of each Receivable was made by or on behalf of the Obligor or was not
contractually delinquent more than 30 days; (iv) no Financed Vehicle has been
repossessed without reinstatement as of the Cutoff Date; and (v) as of the
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.
COMPOSITION
The statistical information presented in this Prospectus Supplement,
including the summary statistical information set forth below, is based on the
Receivables as of the Cutoff Date.
The distribution by credit quality, the distribution by Financed Vehicle
Age, the geographic distribution, the distribution by interest allocation
method, the distribution by new and used Financed Vehicles, the distribution by
remaining principal balance, the distribution by APR, the distribution by
original term and the distribution by remaining term, in each case of the
Receivables as of the Cutoff Date, are set forth below.
CREDIT QUALITY OF THE RECEIVABLES AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
AVERAGE
AGGREGATE WEIGHTED WEIGHTED WEIGHTED AVERAGE ORIGINAL
CLASS OF PRINCIPAL NUMBER OF AVERAGE AVERAGE AVERAGE PRINCIPAL AMOUNT
RECEIVABLES(1) BALANCE RECEIVABLES APR ORIGINAL TERM REMAINING TERM BALANCE FINANCED
- -------------- --------- ----------- -------- ------------- -------------- --------- --------
(IN MONTHS) (IN MONTHS)
<S> <C> <C> <C> <C> <C> <C> <C>
Prime................ $ 78,430,885.03 7,160 9.68% 62.45 45.10 $10,954.03 $16,441.08
Non-Prime............ 45,967,290.62 5,194 13.83% 63.18 39.53 8,850.08 15,203.47
Sub-Prime............ 6,996,314.98 924 18.77% 58.46 39.66 7,571.77 11,856.34
--------------- ------ ----- ----- ----- ---------- ----------
Total................ $131,394,490.64 13,278 11.62% 62.49 42.86 $10,037.89 $15,764.35
</TABLE>
- ---------------
(1) The Receivables have been allocated to the Prime, Non-Prime and Sub-Prime
catgories based on Franklin Capital's underwriting criteria. There can be no
assurance that greater percentages would not be classified as Non-Prime or
Sub-Prime under criteria used by other auto lenders. See " " in
the Prospectus.
S-16
<PAGE> 142
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL
STATE(1) RECEIVABLES BALANCE BALANCE(3)
- -------- ----------- --------- ----------
<S> <C> <C> <C>
Arizona........................................ 538 $ 4,422,512.18 3.4%
California..................................... 9,416 95,529,775.57 72.7%
Kansas......................................... 130 1,857,136.26 1.4%
Nevada......................................... 1,123 12,247,677.28 9.3%
New Mexico..................................... 975 8,535,662.78 6.5%
Utah........................................... 389 3,389,616.73 2.6%
Other(2)....................................... 707 5,412,109.84 4.1%
------ --------------- ------
Total................................ 13,278 $131,394,490.64 100.0%
====== =============== ======
</TABLE>
- ---------------
(1) Based on billing addresses of the Obligors as of the Cutoff Date.
(2) Includes states with concentrations less than 1% by principal balance.
(3) Percentages may not add to 100.0% because of rounding.
DISTRIBUTION BY INTEREST ALLOCATION METHOD OF THE RECEIVABLES AS OF THE CUTOFF
DATE
<TABLE>
<CAPTION>
PERCENTAGE
AGGREGATE OF AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
INTEREST ALLOCATION METHOD RECEIVABLES BALANCE BALANCE(2)
- -------------------------- ----------- --------- ------------
<S> <C> <C> <C>
Precomputed Receivables(1)..................... 6,267 $ 53,284,201.41 40.6%
Simple Interest Receivables.................... 7,011 78,110,289.22 59.4%
------ --------------- -----
Total................................ 13,278 $131,394,490.64 100.0%
====== =============== =====
</TABLE>
- ---------------
(1) All of the Precomputed Receivables are Rule of 78's Receivables.
(2) Percentages may not add to 100.0% because of rounding.
DISTRIBUTION BY REMAINING PRINCIPAL BALANCE OF THE RECEIVABLES
AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
PERCENTAGE
AGGREGATE OF AGGREGATE
RANGE OF REMAINING NUMBER OF PRINCIPAL PRINCIPAL
PRINCIPAL BALANCE RECEIVABLES BALANCE BALANCE(1)
- ------------------ ----------- --------- ------------
<S> <C> <C> <C>
$ 0.00 to $ 4,999.99...................... 3,197 10,815,411.38 8.2%
$ 5,000.00 to $ 9,999.99....................... 4,187 31,298,338.57 23.8%
$10,000.00 to $14,999.99....................... 3,617 44,209,633.27 33.6%
$15,000.00 to $19,999.99....................... 1,457 24,851,952.89 18.9%
$20,000.00 to $24,999.99....................... 553 12,244,826.53 9.3%
$25,000.00 to $29,999.99....................... 176 4,720,319.66 3.6%
$30,000.00 or greater.......................... 91 3,254,008.34 2.5%
------ --------------- -----
Total................................ 13,278 $131,394,490.64 100.0%
====== =============== =====
</TABLE>
- ---------------
(1) Percentages may not add to 100.0% because of rounding.
S-17
<PAGE> 143
DISTRIBUTION BY ANNUAL PERCENTAGE RATE OF THE RECEIVABLES AS OF THE CUTOFF
DATE
<TABLE>
<CAPTION>
PERCENTAGE
AGGREGATE OF AGGREGATE
RANGE OF ANNUAL NUMBER OF PRINCIPAL PRINCIPAL
PERCENTAGE RATE RECEIVABLES BALANCE BALANCE(1)
- --------------- ----------- --------- ------------
<S> <C> <C> <C>
7.00% to 7.99%............................... 1,857 $ 16,368,587.52 12.5%
8.00% to 8.99%............................... 2,048 21,004,582.00 16.0%
9.00% to 9.99%............................... 2,135 22,435,157.29 17.1%
10.00% to 10.99%............................... 1,654 17,048,120.41 13.0%
11.00% to 11.99%............................... 1,061 10,963,664.76 8.3%
12.00% to 12.99%............................... 936 9,319,917.21 7.1%
13.00% to 13.99%............................... 621 5,941,108.77 4.5%
14.00% to 14.99%............................... 496 4,391,265.21 3.3%
15.00% to 15.99%............................... 520 4,385,253.15 3.3%
16.00% to 16.99%............................... 451 4,414,554.36 3.4%
17.00% to 17.99%............................... 294 3,067,040.37 2.3%
18.00% to 18.99%............................... 336 3,473,857.88 2.6%
19.00% to 19.99%............................... 384 4,323,530.22 3.3%
20.00% and greater............................. 465 4,257,851.49 3.2%
------ --------------- -----
Total................................ 13,278 $131,394,490.64 100.0%
====== =============== =====
</TABLE>
- ---------------
(1) Percentages may not add to 100.0% because of rounding.
DISTRIBUTION BY ORIGINAL TERM OF THE RECEIVABLES AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
PERCENTAGE
AGGREGATE OF AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
RANGE OF ORIGINAL TERM RECEIVABLES BALANCE BALANCE(1)
- ---------------------- ----------- --------- ------------
<S> <C> <C> <C>
24 Months and Under............................ 46 $ 242,069.92 0.2%
25 to 36 Months................................ 341 2,229,364.10 1.7%
37 to 48 Months................................ 948 7,599,713.85 5.8%
49 to 60 Months................................ 8,559 78,908,867.64 60.1%
61 to 72 Months................................ 3,318 41,167,730.71 31.3%
73 to 84 Months................................ 66 1,246,744.42 0.9%
------ --------------- -----
Total................................ 13,278 $131,394,490.64 100.0%
====== =============== =====
</TABLE>
DISTRIBUTION BY REMAINING TERM OF THE RECEIVABLES AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
PERCENTAGE
AGGREGATE OF AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
RANGE OF REMAINING TERM RECEIVABLES BALANCE BALANCE(1)
- ----------------------- ----------- --------- ------------
<S> <C> <C> <C>
24 Months and Under............................ 4,604 $ 21,049,042.32 16.0%
25 to 36 Months................................ 2,400 21,670,383.00 16.5%
37 to 48 Months................................ 2,596 31,790,008.59 24.2%
49 to 60 Months................................ 2,919 42,500,558.47 32.3%
61 to 72 Months................................ 739 13,896,753.91 10.6%
73 to 84 Months................................ 20 487,744.34 0.4%
------ --------------- -----
Total................................ 13,278 $131,394,490.64 100.0%
====== =============== =====
</TABLE>
- ---------------
(1) Percentages may not add to 100.0% because of rounding.
S-18
<PAGE> 144
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, growth and decline, and 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 CORPORATION
HISTORICAL DELINQUENCY AND LOSS EXPERIENCE
<TABLE>
<CAPTION>
AS OF AS OF
------------------------------------------------------------ -------------------------------
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 JUNE JUNE
DELINQUENCY EXPERIENCE 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 $154,995,826 $164,182,493
Delinquencies at end of
period(3)
30-59 days..................... $ 2,442,313 $ 9,217,070 $ 4,129,543 $ 1,929,654 $ 2,385,855 $ 1,190,679
60-89 days..................... 733,619 3,252,750 1,969,257 729,097 1,078,090 428,597
90 days or more................ 400,740 3,761,131 2,067,850 1,326,175 1,135,224 693,176
------------ ------------ ------------ ------------ ------------ ------------
Total delinquencies............. $ 3,576,672 $ 16,230,951 $ 8,166,650 $ 3,984,926 $ 4,599,169 $ 2,312,451
------------ ------------ ------------ ------------ ------------ ------------
Total delinquencies as a
percentage of portfolio
outstanding at end of period... 2.2% 7.2% 4.7% 2.6% 3.0% 1.4%
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
DURING FISCAL YEARS ENDED DURING NINE MONTHS ENDED
------------------------------------------------------------ -------------------------------
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 JUNE JUNE
CREDIT/LOSS EXPERIENCE 1994(1) 1995 1996 1997 1997 1998
- ---------------------- ------------ ------------ ------------ ------------ ---- ----
<S> <C> <C> <C> <C> <C> <C>
Average portfolio outstanding
during period(2,4)............. $ 66,586,803(b) $225,203,667(b) $196,747,716 $162,745,276 $165,496,266 $156,829,260
Average number of loans
outstanding during period...... n/a n/a n/a 14,780 14,855 15,065
Number of repossessions during
period......................... n/a n/a n/a 760 598 390
Repossessions as a percentage of
average number of loans
outstanding during period...... n/a n/a n/a 5.1% 5.4%* 3.5%*
Gross charge-off(5)............. $ 210,842 $ 7,039,263 $ 12,082,834 $ 6,580,261 $ 5,270,050 $ 2,409,242
Recoveries(6)................... 4,242 649,374 1,408,190 1,854,461 1,521,453 773,821
------------ ------------ ------------ ------------ ------------ ------------
Net losses...................... $ 206,600 $ 6,389,889 $ 10,674,644 $ 4,725,800 $ 3,748,597 $ 1,635,420
------------ ------------ ------------ ------------ ------------ ------------
Net losses as a percentage of
average portfolio outstanding
during the period.............. 0.3% 2.8% 5.4% 2.9% 3.0%* 1.4%*
============ ============ ============ ============ ============ ============
</TABLE>
- ---------------
Key -- (a) Annualized
(b) Simple average using Franklin Capital figures
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
net of recovery expenses.
S-19
<PAGE> 145
Franklin Capital's motor vehicle retail installment sale contracts
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 portfolio motor vehicle retail installment sale contracts 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.
S-20
<PAGE> 146
THE INSURER
The following information has been obtained from MBIA Insurance Corporation
(the "Insurer") and has not been verified by the Seller, the Servicer or the
Underwriters. No representations or warranty are made by the Seller, the
Servicer or the Underwriters with respect thereto.
The Insurer is the principal operating subsidiary of MBIA Inc., a New York
Stock Exchange listed company. MBIA Inc. is not obligated to pay the debts of or
claims against the Insurer. The Insurer is domiciled in the State of New York
and licensed to do business in and subject to regulation under the laws of all
50 states, the District of Columbia, the Commonwealth of Puerto Rico, the
Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United
States and Territory of Guam. The Insurer has two European branches, one in the
Republic of France and the other in the Kingdom of Spain. New York has laws
prescribing minimum capital requirements, limiting classes and concentrations of
investments and requiring the approval of policy rates and forms. State laws
also regulate the amount of both the aggregate and individual risks that may be
insured, the payment of dividends by the Insurer, changes in control and
transactions among affiliates. Additionally, the Insurer is required to maintain
contingency reserves on its liabilities in certain amounts and for certain
periods of time.
Effective February 17, 1998, MBIA Inc. acquired all of the outstanding
stock of Capital Markets Assurance Corporation ("CMAC") through a merger with
its parent CapMAC Holdings, Inc. Pursuant to a reinsurance agreement, CMAC has
ceded all of its net insured risks (including any amounts due but unpaid from
third party reinsurers), as well as its unearned premiums and contingency
reserves, to the Insurer. MBIA Inc. is not obligated to pay the debts of or
claims against CMAC.
The consolidated financial statements of the Insurer, a wholly owned
subsidiary of MBIA Inc. and its subsidiaries as of December 31, 1997 and
December 31, 1996 and for each of the three years in the period ended December
31, 1997, prepared in accordance with generally accepted accounting principles,
included in the Annual Report on Form 10-K of MBIA Inc. for the year ended
December 31, 1997 and the consolidated financial statements of the Insurer and
its subsidiaries as of June 30, 1998 and for the six month periods ending June
30, 1998 and June 30, 1997 included in the Quarterly Report on Form 10-Q of MBIA
Inc. for the period ending June 30, 1998, are hereby incorporated by reference
into this Prospectus Supplement and shall be deemed to be a part hereof.
The tables below present selected financial information of the Insurer
determined in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities ("SAP") and generally accepted
accounting principles ("GAAP"):
<TABLE>
<CAPTION>
SAP
----------------------------------
DECEMBER 31, 1997 JUNE 30, 1998
(AUDITED) (UNAUDITED)
----------------- -------------
(IN MILLIONS)
<S> <C> <C>
Admitted Assets..................................... $5,256 $6,048
Liabilities......................................... $3,496 $3,962
Capital and Surplus................................. $1,760 $2,086
</TABLE>
<TABLE>
<CAPTION>
GAAP
----------------------------------
DECEMBER 31, 1997 JUNE 30, 1998
(AUDITED) (UNAUDITED)
----------------- -------------
(IN MILLIONS)
<S> <C> <C>
Assets.............................................. $5,988 $6,794
Liabilities......................................... $2,624 $2,977
Shareholder's Equity................................ $3,364 $3,817
</TABLE>
Copies of the financial statements of the Insurer referenced herein and
copies of the Insurer's 1997 year-end audited financial statements prepared in
accordance with statutory accounting
S-21
<PAGE> 147
practices are available, without charge, from the Insurer. The address of the
Insurer is 113 King Street, Armonk, New York 10504. The telephone number of the
Insurer is (914) 273-4545.
The Insurer does not accept any responsibility for the accuracy or
completeness of this Prospectus Supplement or any information or disclosure
contained herein, or omitted herefrom, other than with respect to the accuracy
of the information regarding the Insurer set forth under the headings "The
Insurer." Additionally, the Insurer makes no representation regarding the Notes
or the advisability of investing in the Notes.
The Note Policy is not covered by the Property/Casualty Insurance Security
Fund specified in Article 76 of the New York Insurance Law. The
Property/Casualty Insurance Fund will offer no protection to the Noteholders.
The Property/Casualty Insurance Fund provides for the payment of certain
insurance claims against insolvent insurers.
S&P rates the claims paying ability of the Insurer "AAA."
Fitch IBCA, Inc. (formerly known as Fitch Investors Service, L.P.) rates
the claims paying ability of the Insurer "AAA."
Moody's rates the claims paying ability of the Insurer "Aaa."
Each rating of the Insurer should be evaluated independently. The ratings
reflect the respective rating agency's current assessment of the
creditworthiness of the Insurer and its ability to pay claims on its policies of
insurance. Any further explanation as to the significance of the above ratings
may be obtained only from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the Notes,
and such ratings may be subject to revision or withdrawal at any time by the
rating agencies. Any downward revision or withdrawal of any of the above ratings
may have an adverse effect on the market price of the Notes. The Insurer does
not guaranty the market price of the Notes nor does it guaranty that the ratings
on the Notes will not be revised or withdrawn.
S-22
<PAGE> 148
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 1 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 October 15, 1998. Interest will
accrue from and including the fifteenth day of the calendar month preceding the
Distribution Date to but excluding the fifteenth day of the following calendar
month (each, an "Interest Period"). Interest on the Class A-1 Notes and Class
A-2 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. Interest payments on the Notes will be made from the Distribution Amount
(as defined herein) after payment of accrued and unpaid Servicing Fee and
payment of any accrued and unpaid fees of the Insurer. See "Description of the
Purchase Agreement and the Trust Documents -- Distributions" herein.
PAYMENTS OF PRINCIPAL
Principal payments will be made to the Noteholders on each Distribution
Date in an amount equal to the sum of the Principal Distributable Amount for the
calendar month (the "Monthly Period") preceding such Distribution Date. The
Principal Distributable Amount will equal the excess of (i) the aggregate
outstanding principal balance of the Notes as of the preceding Distribution Date
(after giving effect to distributions thereon) or in the case of the first
Distribution Date as of the Closing Date, over (ii) the Month-End Pool Balance
as of the end of the preceding Monthly Period. The "Month-End Pool Balance" as
of the end of any Monthly Period (other than the initial Monthly Period)
represents the Pool Balance for the immediately preceding Monthly Period, or in
the case of the initial Monthly Period the Original Pool Balance, less 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) without duplication of amounts
in clause (ii), the principal balance of each Receivable that became a
Liquidated
S-23
<PAGE> 149
Receivable during such Monthly Period, and (v) the aggregate amount of Cram Down
Losses during such Monthly Period. The Pool Balance as of the Cutoff Date (the
"Original Pool Balance") will be $131,394,490.64. All of the Receivables must
satisfy the eligibility criteria set forth under "The Receivables -- Eligibility
Criteria" herein. Principal payments on the Notes will be made from the
Distribution Amount after payment of accrued and unpaid Servicing Fee, payment
of any accrued and unpaid fees of the Insurer, and after distribution of the
Noteholders' Interest Distributable Amount. See "Description of the Purchase
Agreement and the Trust Documents -- Distributions" herein.
Principal payments on the Notes will be applied on each Distribution Date
sequentially, to the Class A-1 Notes and the Class A-2 Notes in that order,
until the respective principal amount of each such Class of Notes has been paid
in full so that no principal will be paid on the Class A-2 Notes until the
principal of the Class A-1 Notes 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.
DISTRIBUTION PRIORITIES
On each Distribution Date, for so long as any Class of Notes remains
outstanding, and except as otherwise described herein, the 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-1 Notes, until the
principal balance of such Notes is reduced to zero; and second, to the Class A-2
Notes, until the principal balance of such Notes is reduced to zero.
OPTIONAL REDEMPTION
The Class A-1 Notes and Class A-2 Notes, to the extent still outstanding,
may be redeemed in whole, but not in part, on any Distribution Date on which the
Servicer exercises its option to purchase the Receivables. The Servicer may
purchase the Receivables when the Pool Balance has declined to 10% or less of
the Original Pool Balance (with the consent of the Insurer, if such purchase
would result in a claim on the Note Policy or would result in any amount owing
to the Insurer remaining unpaid), as described in the accompanying Prospectus
under "Description of the Purchase Agreements and the Trust
Documents -- Termination." Such redemption will effect early retirement of the
Notes of such Class. The redemption price will be equal to the unpaid principal
amount of the Notes of each 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 Noteholders.
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 Trigger Events, 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 Trigger Events constitutes an Event of Default
under the Indenture. "Insurance Agreement Trigger Events" consist of: (i) a
demand for payment being made under the Note Policy in excess of the amount
available from the Insurance Spread Account or from Franklin Resources; (ii)
certain events of bankruptcy, insolvency, receivership or liquidation of the
Trust, the Seller or the Servicer; (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 being less than the
sum of the amounts described in clauses 1-6 under "Description of the Purchase
S-24
<PAGE> 150
Agreement and the Trust Documents -- Distributions" herein; (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, the Servicer and the Indenture Trustee by the Insurer; (vi) any
failure by Franklin Resources, the Seller and the Servicer, to perform in a
material respect any other covenants or agreements in the Trust Documents or
Insurance Agreement, and such failure continuing or not being cured, for 30 days
after the giving of written notice of such failure to the defaulting party by
the Insurer; (vii) any of the Indenture or Trust Documents ceases to be in full
force and effect; and (viii) the security interest of the Indenture Trustee in
the Trust Property ceases to be in effect or ceases to be a first priority
perfected security interest, for 30 days after written notice of such is
delivered to the Servicer by the Insurer.
Upon the occurrence of an Event of Default, so long as an Insurer Default
shall not have occurred and be continuing, the Insurer will have the right, but
not the obligation, to cause the Indenture Collateral Agent to liquidate the
Trust Property in whole or in part, on any date or dates following the
acceleration of the Notes due to such Event of Default as the Insurer, in its
sole discretion, shall elect, and to deliver the proceeds of such liquidation to
the Indenture Trustee for distribution in accordance with the terms of the
Indenture. The Insurer may not, however, cause the Indenture Collateral Agent to
liquidate the Trust Property in whole or in part if the proceeds of such
liquidation would not be sufficient to pay all outstanding principal of and
accrued interest on the Notes, unless such Event of Default arose from a claim
being made on the Note Policy or from certain events of bankruptcy, insolvency,
receivership or liquidation of the Trust. Following the occurrence of any Event
of Default, the Indenture Trustee and the Owner Trustee will continue to submit
claims under the Note Policy for any shortfalls in the Guaranteed Note
Distributions on the Notes. Following any Event of Default under the Indenture,
the Insurer may elect to pay all or any portion of the outstanding principal
amount due on the Notes (to the extent of the Principal Distributable Amount),
plus accrued interest thereon. See "The Note Policy" 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.
WEIGHTED AVERAGE LIFE CONSIDERATIONS
The rate of payment of principal of each Class of Notes 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. Reinvestment risk associated with early payment of the Notes will be
borne exclusively by the Noteholders.
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.
S-25
<PAGE> 151
The table captioned "Percent of Initial Note Principal Balance at Various
ABS Percentages" (the "ABS Table") has been prepared on the basis of the
following assumptions: (i) the Trust includes 3 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 are as set forth on the cover
page hereof; (v) interest accrues during each Interest Period at the applicable
Interest Rate; (vi) payments on the Notes are made on the 15th day of each month
whether or not a Business Day; (vii) the Notes are purchased on the Closing
Date; (viii) the scheduled monthly payment for each Receivable 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; (ix) the first due date for each Receivable is in the month after the
Cutoff Date; (x) the Cutoff Date is September 1, 1998; and (xi) the Servicer
does not exercise its option to purchase the Receivables.
<TABLE>
<CAPTION>
ORIGINAL TERM REMAINING TERM
AGGREGATE TO MATURITY TO MATURITY
POOL PRINCIPAL BALANCE APR (IN MONTHS) (IN MONTHS)
---- ----------------- --- ------------- --------------
<S> <C> <C> <C> <C>
1.......................... $ 42,414,475.13 11.36% 72 49
2.......................... $ 78,908,867.64 11.64% 60 41
3.......................... $ 10,071,147.86 12.54% 45 32
Total............ $131,394,490.64 11.62% 63 43
</TABLE>
The ABS Table indicates, based on the assumptions set forth above, the
percentages of the initial principal amount of each Class of Notes that would be
outstanding after each of the Distributions Dates shown at various percentages
of ABS and the corresponding weighted average lives of such Notes. 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 or that all of the Receivables will prepay at the
same level of ABS. 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.
S-26
<PAGE> 152
PERCENT OF INITIAL NOTE PRINCIPAL BALANCE
AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
CLASS A-1 NOTES (1) CLASS A-2 NOTES (2)
--------------------------------- ---------------------------------
DISTRIBUTION DATE 0.50% 1.00% 1.50% 2.00% 0.50% 1.00% 1.50% 2.00%
- ----------------- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date...................................... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
10/15/98.......................................... 96.94 96.10 95.01 93.55 100.00 100.00 100.00 100.00
11/15/98.......................................... 93.88 92.23 90.10 87.24 100.00 100.00 100.00 100.00
12/15/98.......................................... 90.83 88.40 85.27 81.07 100.00 100.00 100.00 100.00
01/15/99.......................................... 87.78 84.61 80.52 75.04 100.00 100.00 100.00 100.00
02/15/99.......................................... 84.74 80.86 75.86 69.15 100.00 100.00 100.00 100.00
03/15/99.......................................... 81.70 77.15 71.28 63.40 100.00 100.00 100.00 100.00
04/15/99.......................................... 78.66 73.47 66.79 57.80 100.00 100.00 100.00 100.00
05/15/99.......................................... 75.63 69.84 62.38 52.35 100.00 100.00 100.00 100.00
06/15/99.......................................... 72.61 66.25 58.06 47.05 100.00 100.00 100.00 100.00
07/15/99.......................................... 69.58 62.70 53.83 41.91 100.00 100.00 100.00 100.00
08/15/99.......................................... 66.57 59.20 49.69 36.91 100.00 100.00 100.00 100.00
09/15/99.......................................... 63.56 55.74 45.65 32.08 100.00 100.00 100.00 100.00
10/15/99.......................................... 60.55 52.32 41.69 27.41 100.00 100.00 100.00 100.00
11/15/99.......................................... 57.55 48.95 37.84 22.90 100.00 100.00 100.00 100.00
12/15/99.......................................... 54.56 45.62 34.08 18.55 100.00 100.00 100.00 100.00
01/15/00.......................................... 51.57 42.34 30.42 14.37 100.00 100.00 100.00 100.00
02/15/00.......................................... 48.59 39.11 26.86 10.37 100.00 100.00 100.00 100.00
03/15/00.......................................... 45.61 35.92 23.40 6.53 100.00 100.00 100.00 100.00
04/15/00.......................................... 42.64 32.79 20.04 2.87 100.00 100.00 100.00 100.00
05/15/00.......................................... 39.68 29.70 16.79 0.00 100.00 100.00 100.00 97.45
06/15/00.......................................... 36.73 26.66 13.65 0.00 100.00 100.00 100.00 83.67
07/15/00.......................................... 33.78 23.68 10.61 0.00 100.00 100.00 100.00 70.65
08/15/00.......................................... 30.84 20.75 7.68 0.00 100.00 100.00 100.00 58.41
09/15/00.......................................... 27.91 17.67 4.87 0.00 100.00 100.00 100.00 46.95
10/15/00.......................................... 24.98 15.05 2.16 0.00 100.00 100.00 100.00 36.29
11/15/00.......................................... 22.07 12.28 0.00 0.00 100.00 100.00 98.22 26.45
12/15/00.......................................... 19.16 9.56 0.00 0.00 100.00 100.00 87.91 17.42
01/15/01.......................................... 16.26 6.91 0.00 0.00 100.00 100.00 78.08 12.24
02/15/01.......................................... 13.37 4.31 0.00 0.00 100.00 100.00 68.76 7.64
03/15/01.......................................... 10.49 1.77 0.00 0.00 100.00 100.00 59.94 3.63
04/15/01.......................................... 7.62 0.00 0.00 0.00 100.00 97.03 51.64 0.23
05/15/01.......................................... 4.76 0.00 0.00 0.00 100.00 86.92 43.86 0.00
06/15/01.......................................... 2.20 0.00 0.00 0.00 100.00 77.99 37.18 0.00
07/15/01.......................................... 0.00 0.00 0.00 0.00 98.54 69.29 30.99 0.00
08/15/01.......................................... 0.00 0.00 0.00 0.00 87.93 60.83 25.29 0.00
09/15/01.......................................... 0.00 0.00 0.00 0.00 77.37 52.61 20.10 0.00
10/15/01.......................................... 0.00 0.00 0.00 0.00 66.84 44.64 15.43 0.00
11/15/01.......................................... 0.00 0.00 0.00 0.00 56.36 36.93 11.27 0.00
12/15/01.......................................... 0.00 0.00 0.00 0.00 45.93 29.47 7.64 0.00
01/15/02.......................................... 0.00 0.00 0.00 0.00 35.54 22.27 4.55 0.00
02/15/02.......................................... 0.00 0.00 0.00 0.00 25.20 15.33 2.00 0.00
03/15/02.......................................... 0.00 0.00 0.00 0.00 21.99 13.10 1.10 0.00
04/15/02.......................................... 0.00 0.00 0.00 0.00 18.79 10.96 0.38 0.00
05/15/02.......................................... 0.00 0.00 0.00 0.00 15.62 8.91 0.00 0.00
06/15/02.......................................... 0.00 0.00 0.00 0.00 12.46 6.94 0.00 0.00
07/15/02.......................................... 0.00 0.00 0.00 0.00 9.32 5.07 0.00 0.00
08/15/02.......................................... 0.00 0.00 0.00 0.00 6.19 3.28 0.00 0.00
09/15/02.......................................... 0.00 0.00 0.00 0.00 3.09 1.59 0.00 0.00
10/15/02.......................................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
11/15/02.......................................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Weighted Average Life............................. 1.43 1.23 1.00 0.78 3.32 3.12 2.70 2.05
</TABLE>
- ---------------
(1) The Class A-1 Final Scheduled Distribution Date is , 200 ; payment
of interest and principal in full of the Class A-1 Notes on such date is
guaranteed by the Note Policy to the extent described herein.
(2) The Class A-2 Final Scheduled Distribution Date is , 200 ; payment
of interest and principal in full of the Class A-2 Notes on such date is
guaranteed by the Note Policy to the extent described herein.
(3) The weighted average life of the Notes is determined by (a) assuming that
the Servicer does not exercise its option to purchase the Receivables, and
(b) (i) multiplying the amount of each principal payment on a note by the
number of years from the date of the issuance of the note to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
related initial principal amount of the note.
S-27
<PAGE> 153
DESCRIPTION OF THE PURCHASE AGREEMENT AND THE TRUST DOCUMENTS
The following summary describes certain terms of the Purchase Agreement
(the "Purchase Agreement"), and the Sale and Servicing Agreement and the Trust
Agreement (together, the "Trust Documents"). Forms of the Purchase Agreement 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 Agreement 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 Agreement 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
Certain information with respect to the sale of the Receivables by Franklin
Capital to the Seller pursuant to the Purchase Agreement and the conveyance of
the Receivables from the Seller to the Trust on the Closing Date pursuant to the
Sale and Servicing Agreement is set forth under "Description of the Purchase
Agreements and the Trust Documents -- Sale and Assignment of Receivables" in the
accompanying Prospectus.
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 and the Insurer, into which all payments made on or
with respect to the Receivables will be deposited (the "Collection Account").
All payments from Obligors that are received by the Servicer on behalf of the
Trust may be commingled with other assets of the Servicer and need not be
deposited in the Collection Account until two Business Days prior to the related
Distribution Date. 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 a Servicer Default, (ii) there exists an Insurer Default, (iii) Franklin
Capital is not the Servicer, (iv) the Servicer's (or if the Servicer is Franklin
Capital, then Franklin Resources) short term obligations are not rated at least
A-1 by S&P and P-1 by Moody's, or (v) any other condition to making deposits
less frequently than every two Business Days as may be specified by the Rating
Agencies is not satisfied, the Servicer will be required to deposit into the
Collection Account all payments from Obligors received by the Servicer on behalf
of the Trust, no later than two Business Days after receipt thereof. 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").
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 and the Insurer.
All such Accounts shall be Eligible Deposit Accounts (as defined in the
Prospectus) and 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 (i) a servicing fee (the "Servicing Fee") for the related
Monthly Period equal to the lesser of
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(1) one-twelfth of 1.25% per annum multiplied by the outstanding Pool Balance,
and (2) the sum of (a) with respect to Prime Receivables, one-twelfth of 1.0%
per annum (the "Prime Servicing Fee Rate") multiplied by that portion of the
Pool Balance consisting of, to Prime Receivables, (b) with respect to Non-Prime
Receivables, one-twelfth of 1.5% per annum (the "Non-Prime Servicing Fee Rate")
multiplied by that portion of the Pool Balance consisting of, to Non-Prime
Receivables, and (c) with respect to Sub-Prime Receivables, one-twelfth of 2.0%
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 consisting of, to
Sub-Prime Receivables, in each case determined as of the first day of such
Monthly Period, and (ii) the investment earnings (net of losses) on the
Collection Account. The Servicer may also be paid an additional servicing fee
(the "Excess Servicing Fee") equal to the excess, if any, of the amount
calculated in clause (2) over the amount calculated in clause (1) above. The
Servicer may retain from collection on Receivables the Servicing Fee and 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.
The Indenture Trustee and the Owner Trustee are entitled to a fee for their
services as trustees under the Indenture and the Trust Document equal to an
amount agreed upon by the Indenture Trustee and Owner Trustee and the Servicer.
CERTAIN ALLOCATIONS
On or about the fifth 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 Franklin Resources or Franklin Capital, all with
respect to the preceding Monthly Period.
On the fourth 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, the Chase Manhattan Bank, as insurer
agent ("Insurer Agent") and to its fiscal agent and the Servicer a Deficiency
Notice specifying the Deficiency Claim Amount, if any, for such Distribution
Date. Such Deficiency Notice will direct the Insurer's Agent and to the extent
funds in the Insurance Spread Account are insufficient, the Insurer, to remit
the [Note Policy] Claim Amount to the Indenture Collateral Agent for deposit
into the Collection Account.
On each Distribution Date, the Indenture Trustee (based solely on the
information contained in the Servicer's Certificate delivered on the related
Determination Date) will 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; and
(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.
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
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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 the Business Day prior to 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 Servicer, (i) the Servicing Fee for the related Monthly
Period and (ii) 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.
2. To the Insurer, any accrued and unpaid fees of the Insurer (to the
extent such fees have not been previously paid by the Servicer or Franklin
Capital).
3. To the Note Distribution Account, the Noteholders' Interest
Distributable Amount.
4. To the Note Distribution Account, the Principal Distributable
Amount, to be distributed as described under "Description of the
Notes -- Payments of Principal."
5. To the Insurer, any interest due on outstanding Surety Draws (as
defined below).
6. To the Insurer, to the extent of available funds, the amount, if
any, to reimburse the Insurer for amounts paid under the Note Policy (to
the extent not reimbursed from other amounts available to the Insurer)
(such amounts paid, the "Surety Draws") to pay the Guaranteed Note
Distributions, the [Note Policy] Claim Amounts or Insurer Optional
Deposits.
7. Into the Insurance Spread Account, to the extent the amount
therein is less than the required amount.
8. To the Servicer, the Excess Servicing Fee for the related Monthly
Period, to the extent the Servicer has not reimbursed itself in respect of
such amount to the extent not retained by the Servicer.
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,
except that 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) will be paid from
the Distribution Amount after item 2 above.
In the event that the Indenture Trustee determines (based solely on the
information in the Servicer's Certificate delivered on the Determination Date)
on the fourth Business Day prior to a Distribution Date, that the [Available
Funds] are insufficient on any Distribution Date (other than the Final Scheduled
Distribution Date) to cover the distributions required pursuant to clause 3
above on such Distribution Date (other than the Final Scheduled Distribution
Date for which clauses 3 and 4 above apply), the Indenture Trustee shall furnish
to the Insurer a notice of claim in accordance with the terms of the Note
Policy. Amounts paid by the Insurer pursuant to any such notice of claim in
accordance with the terms of the Note Policy shall be deposited by the Insurer
into the Note Distribution Account for payment to Noteholders on the related
Distribution Date.
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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) amounts deposited from the
Insurance Spread Account.
"Collected Funds" means, with respect to any Determination Date, the amount
of funds in the Collection Account representing collections (excluding, late
fees, prepayment fees, rebates and other administrative fees and expenses
collected during the Monthly Period) 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 the excess of (i) the principal balance of such Receivable immediately
prior to such order over (ii)(a) the principal balance of such Receivable as so
reduced and/or (b) 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 (i) any Determination Date
(other than the Determination Date relating to the Final Scheduled Distribution
Date), the excess, if any, of the sum of the amounts payable on the related
Distribution Date pursuant to clauses 1 through 3 above over the amount of
Available Funds with respect to such Determination Date, or (ii) the
Determination Date related to the Final Scheduled Distribution Date for any
Class of Notes, the excess, if any, of the sum of the amounts payable on such
Final Scheduled Distribution Date pursuant to clauses 3 and 4 above over the
amount of Available Funds remaining after the application of clauses 1 and 2
above 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 by the Indenture Trustee with
respect to such Distribution Date plus (iii) amounts deposited by the Insurer as
an Insurer Optional Deposit, if any.
"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
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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 or on behalf of the Insurer, at its sole option, to the
Indenture Collateral Agent 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 provide funds in respect of the payment of
principal on the Notes to the extent the amounts to be distributed pursuant to
clauses 1 through 4 above exceed the Available Funds; or (iii) 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 the Note
Policy.
"Interest Period" means, with respect to any Distribution Date, the period
from and including the fifteenth day of the calendar month preceding the related
Distribution Date to, but excluding, the fifteenth day of the following calendar
month.
"Interest Rate" means, (i) with respect to the Class A-1 Notes, a rate
equal to % per annum and (ii) with respect to the Class A-2 Notes, a rate
equal to % per annum.
"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)
the Servicer has determined in good faith that all amounts it expects to recover
have been received, (ii) more than $25.00 of a scheduled payment shall have
become 180 or more days delinquent, and the Servicer has repossessed the
Financed Vehicle or the Obligor has filed for bankruptcy, (iii) more than $25.00
of a scheduled payment shall have been 120 or more days delinquent, the Servicer
has not repossessed the Financed Vehicle and the Obligor has not declared
bankruptcy, or (iv) the Financed Vehicle has been sold and the proceeds
received.
"Month-End Pool Balance" means, as of the end of any Monthly Period (other
than the initial Monthly Period) the Pool Balance for the immediately preceding
Monthly Period, or in the case of the initial Monthly Period the Original Pool
Balance, less 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, Franklin Resources 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, Franklin Resources and/or Franklin Capital during such Monthly
Period but were not so repurchased, (iv) without duplication of amounts in
clause (ii), 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.
"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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"Noteholders' Distributable Amount" means, with respect to any Distribution
Date, the sum of the 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 the fifteenth day of the
calendar month preceding the Distribution Date to but excluding the fifteenth
day of the following calendar month.
"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 consisting of
twelve 30-day months.
["Note Policy Claim Amount" for (i) any Distribution Date (other than the
Final Scheduled Distribution Date), shall equal the lesser of (a) the sum of the
Noteholders' Interest Distributable Amount for such Distribution Date and (b)
the excess, if any, of (o) the amount required to be distributed pursuant to
clauses 1 through 3 above over the Distribution Amount with respect to such
Distribution Date (other than the Final Scheduled Distribution Dates) or and
(ii) the Final Scheduled Distribution Date, shall equal the lesser of (a) the
sum of the Noteholders' Interest Distributable Amount and Principal
Distributable Amount for the Final Scheduled Distribution Date and (b) the sum,
if any, of the amount required to be distributed pursuant to clauses 1 through 4
above over the Distribution Amount with respect to the Final Scheduled
Distribution Date.]
"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 excess of (i) the aggregate outstanding principal
balance of the Notes as of the preceding Distribution Date (after giving effect
to distributions thereon) or in the case of the first Distribution Date as of
the Closing Date, over (ii) the Month-End Pool Balance as of the end of the
preceding Monthly Period; provided, however, that on the Final Scheduled
Distribution Date for any Class of Notes, the Principal Distributable Amount
will not be less than the outstanding principal balance of such Class of Notes.
"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), after giving effect to the receipt of any
moneys collected (from whatever source) on such Receivable, if any.
STATEMENTS TO NOTEHOLDERS
On or prior to each Distribution Date, the Indenture Trustee will be
required to forward a statement to the Noteholders. 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,
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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 each Class of the Notes;
(ii) the amount of the distribution allocable to principal with
respect to each Class of the Notes;
(iii) the amount of the distribution payable pursuant to a claim on
the Note Policy;
(iv) the aggregate outstanding principal amount and the Note Factor
for each Class of Notes, after giving effect to all payments reported under
(ii) above on such date;
(v) the Noteholders' Interest Carryover Shortfall, if any, and the
change in such amount from the preceding statement; and
(vi) the amount of the Servicing Fee paid to the Servicer with respect
to the related Monthly Period.
Each amount set forth pursuant to subclauses (i), (ii), (iii) and (v) will
be expressed as a dollar amount per $1,000 of the initial principal amount of
the Notes.
Unless and until Definitive Notes are issued, such reports will be sent on
behalf of the Trust to Cede & Co., as registered holder of the Notes 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, a statement
as to the aggregate amounts of interest and principal paid to such Noteholder,
information regarding the amount of servicing compensation received by the
Servicer and such other information as the Seller deems necessary to enable such
Noteholder to prepare its tax returns.
SERVICER DEFAULT; RIGHTS UPON SERVICER DEFAULT
Notwithstanding anything to the contrary set forth under "Description of
the Purchase Agreements and the Trust Documents -- Servicer Default" in the
Prospectus, a "Servicer Default" under the Sale and Servicing Agreement will
consist of (i) any failure by the Servicer to deliver to the Owner Trustee or
the Indenture Trustee any deposit or payment required to be so made, which
failure continues unremedied for 30 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 the 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 the Notes evidencing not less than 25% in aggregate
principal amount of the outstanding Notes (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, Insurance Agreement Trigger
Events under the Insurance Agreement.
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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
Note Policy in accordance with its terms;
(b) the Insurer shall have (i) filed a petition or commenced any case
or proceeding under any provision or chapter of the United States
Bankruptcy Code or any other similar federal or state law relating to
insolvency, bankruptcy, rehabilitation, liquidation or reorganization, (ii)
made a general assignment for the benefit of its creditors, or (iii) had an
order for relief entered against it under the United States Bankruptcy Code
or any other similar federal or state law relating to insolvency,
bankruptcy, rehabilitation, liquidation or reorganization which is final
and nonappealable; or
(c) a court of competent jurisdiction, the New York Department of
Insurance or other competent regulatory authority shall have entered a
final and nonappealable order, judgement or decree (i) appointing a
custodian, trustee, agent or receiver for the Insurer or for all or any
material portion of its property or (ii) authorizing the taking of
possession by a custodian, trustee, agent or receiver of the Insurer (or
the taking of possession of all or any material portion of the property of
the Insurer).
WAIVER OF PAST DEFAULTS
Notwithstanding anything to the contrary set forth under "Description of
the Purchase Agreements and the Trust Documents -- Waiver of Past Defaults" in
the Prospectus, the Insurer may, on behalf of all holders of Notes, 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
Noteholders' rights with respect to subsequent defaults.
AMENDMENT
Notwithstanding anything to the contrary set forth under "Description of
the Purchase Agreements and the Trust Documents -- Amendment" in the Prospectus,
the Sale and Servicing Agreement and the Indenture 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 Noteholders, 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 Noteholder; 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 Notes 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 Notes, within 10 days' after receipt of notice of such amendment,
shall have notified the Seller, the Servicer or the Owner Trustee in writing
that such amendment will result in a reduction or withdrawal of the then current
rating of the Notes. The Seller, the Servicer and the Owner Trustee may also
amend the Sale and Servicing Agreement and the Indenture 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 outstanding to add,
change or eliminate any other
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provisions with respect to matters or questions arising under the Sale and
Servicing Agreement or affecting the rights of the Noteholders; 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
(ii) reduce the aforesaid percentage of the Noteholders required to consent to
any such amendment, without, in either case, the consent of the holders of all
Notes 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 Trust's interest in the Receivables.
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THE NOTE POLICY
NOTE POLICY
Simultaneously with the issuance of the Notes, the Insurer will deliver the
Note Policy to the Indenture Trustee for the benefit of each Noteholder. Under
the Note Policy, the Insurer will unconditionally and irrevocably guarantee to
the Indenture Trustee for the benefit of each Noteholder the full and complete
payment of (i) Guaranteed Note Distributions (as defined below) on the Notes and
(ii) the amount of any Guaranteed Note Distribution which subsequently is
avoided in whole or in part as a preference payment under applicable law. In the
event the Indenture Trustee fails to make a claim under the Note Policy,
Noteholders do not have the right to make a claim directly under the Note
Policy, but may sue to compel the Indenture Trustee to do so.
"Guaranteed Note Distributions" means payments which are scheduled to be
made on the Notes during the term of the Note Policy in accordance with the
original terms of the Notes when issued and without regard to any subsequent
amendment or modification of the Notes that has not been consented to by the
Insurer, which are (i) the timely payment of the Noteholders' Interest
Distributable Amount on each Distribution Date and (ii) the ultimate payment of
the Principal Distributable Amount on the Final Scheduled Distribution Date;
Guaranteed Note Distributions do not include payments which are made as a result
of an Insurer Optional Deposit or 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 by 12:00 noon, New York City time, on the
fourth Business Day prior to the Distribution Date.
If payment of any amount guaranteed under the Note Policy is avoided as a
preference pursuant to any applicable bankruptcy, insolvency, receivership or
similar law in a proceeding by or against the Trust, the Seller, the Servicer or
Franklin Resources, Inc., 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,
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<PAGE> 163
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.
On the Closing Date, the Seller will make an initial deposit into an
account (the "Insurance Spread Account") of an amount to be agreed to by the
Seller and Insurer for the benefit of the Insurer. The Insurance Spread Account
may be funded from amounts received on the Receivables after distribution of
amounts set forth in clauses 1 through 6 of the first paragraph under the
caption "Description of the Purchase Agreement and the Trust
Documents -- Distribution" herein. Additional amounts may be deposited in the
Insurance Spread Account from time to time. In addition, the Seller will deposit
certain additional amounts in the Insurance Spread Account (as defined herein)
(and Franklin Resources, Inc. will agree to make any deposit that the Seller
fails to make) to the extent that funds on deposit therein are less than the
required amount (subject to a maximum limit on such deposits). The Insurance
Spread Account will not be an asset of the Trust and Noteholders will have no
right to payments therefrom.
OTHER PROVISIONS OF THE NOTE POLICY
The terms "Receipt" and "Received" with respect to the Note 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 the Note Policy by the Indenture Trustee is not in
proper form or is not properly completed, executed or delivered, it shall be
deemed not to have been Received, and the Insurer or its fiscal agent shall
promptly so advise the Indenture Trustee and the Indenture Trustee may submit an
amended notice.
Under the Note Policy, "Business Day" means any day other than a Saturday,
Sunday, legal holiday or other day on which commercial banking institutions in
the City of New York or California are authorized or obligated by law, executive
order or governmental decree to be closed.
The Insurer's obligations under the Note Policy in respect of Guaranteed
Note Distributions shall be discharged to the extent funds are transferred to
the Indenture Trustee as provided in the related Note Policy whether or not such
funds are properly applied by the Indenture Trustee.
The Insurer shall be subrogated to the rights of each Noteholder to receive
payments of principal and interest to the extent of any payment by the Insurer
under the Note Policy.
Claims under the Note Policy 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 Note Policy 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. THE NOTE POLICY IS NOT COVERED BY
THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW
YORK INSURANCE LAW. The Note Policy is governed by the laws of the State of New
York.
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<PAGE> 164
RATINGS
It is a condition to issuance that the Class A-1 Notes and Class A-2 Notes
be rated AAA by S&P and Aaa by Moody's. The ratings by the Rating Agencies of
the Notes will be based primarily on the issuances of the Note Policy. A rating
is not a recommendation to purchase, hold or sell Notes. In the event that the
rating initially assigned to any of the Notes 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 Notes. Any
reduction or withdrawal of a rating may have an adverse effect on the liquidity
and market price of the Notes. See "Ratings" in the Prospectus.
FEDERAL INCOME TAX CONSEQUENCES
PROSPECTIVE NOTEHOLDERS 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, 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 a debt for federal income tax
purposes.
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 are
advised to review "Federal Income Tax Consequences -- Trusts Treated As
Partnerships Or As Divisions -- Tax Consequences to Holders of the Notes Issued
by a Partnership or a Division" and "-- Certain Certificates Treated as
Indebtedness" in the Prospectus for a discussion of the material federal income
tax consequences of the purchase, ownership and disposition of the Notes for
federal income tax purposes.
STATE, LOCAL AND FOREIGN TAX CONSIDERATIONS
Potential Noteholders should consider the state, local and foreign income
tax effects on them of the purchase, ownership and disposition of the Notes.
State, local and foreign 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 or foreign jurisdiction.
Therefore, potential Noteholders are encouraged to consult their own tax
advisors with respect to the various state, local and foreign tax consequences
of an investment in the Notes.
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
Notes might be deemed to constitute prohibited transactions under ERISA and the
Code if assets of the Trust were deemed
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<PAGE> 165
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."
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 the Notes to
Goldman, Sachs & Co. (the "Underwriters"), and the Underwriters have agreed to
purchase the Notes.
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Notes offered
hereby if any of the Notes are purchased. The Seller has been advised by the
Underwriters that they propose initially to offer the Notes to the public at the
prices set forth herein, and to certain dealers at such price less a concession
not in excess of . % of the Note amounts. The Underwriters may allow and such
dealers may reallow a concession not in excess of . % of the Note amounts to
certain other dealers. After the initial public offering, the public offering
price and such concessions may be changed.
The Underwriters may effect the distribution of the Notes by selling Notes
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 Notes for whom they may act as agents. The Underwriters and any
dealers that participate with the Underwriters in the distribution of the Notes
may be deemed to be underwriters, and any discounts or commissions received by
them and any profit on the resale of Notes by them may be deemed to be
underwriting discounts or commissions, under the Securities Act of 1933, as
amended ("Securities Act").
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<PAGE> 166
The Servicer and Seller have jointly agreed to indemnify the 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 Underwriters may engage in over-allotment transactions, stabilizing
transactions, syndicate covering transactions, and penalty bids with respect to
the Notes in accordance with Regulation M under the Securities and Exchange Act
of 1934. Over-allotment transactions involve syndicate sales in excess of the
offering size, which create syndicate short positions. Stabilizing transactions
permit bids to purchase the Notes so long as the stabilizing bids do not exceed
a specified maximum. Syndicate covering transactions involve purchases of the
Notes in the open market after the distribution has been completed in order to
cover syndicate short positions. Penalty bids permit the initial Purchaser to
reclaim a selling concession from a syndicate member when the Notes originally
sold by such syndicate member are purchased in a syndicate covering transaction.
Such over-allotment transactions, stabilizing transactions, syndicate covering
transactions, and penalty bids may cause the prices of the Notes to be higher
than they would otherwise be in the absence of such transactions. Neither the
Company nor the Underwriters represent that the Underwriters will engage in any
such transactions or that such transactions, once commenced, will not be
discontinued without notice at any time.
The Indenture Trustee and the Indenture Collateral Agent may from time to
time invest the funds in the Collection Account the Payahead Account, the Note
Distribution Account, as the case may be, in Eligible Investments acquired from
the Underwriters.
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 Notes
will be passed upon for the Servicer by Weil, Gotshal & Manges LLP. Certain
legal matters relating to the Notes will be passed upon for the Underwriters by
Stroock & Stroock & Lavan LLP. Certain legal matters will be passed upon for the
Insurer by Shaw Pittman Potts & Trowbridge.
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<PAGE> 167
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.
<TABLE>
<S> <C>
ABS......................................................... S-26
ABS Table................................................... S-27
Amount Financed............................................. S-33
APR......................................................... S-5
Available Funds............................................. S-33
Benefit Plan................................................ S-10, S-41
Business Day................................................ S-40
Cedel....................................................... S-1, S-4
Class....................................................... S-6
Class A-1 Notes............................................. S-1, S-4
Class A-2 Notes............................................. S-1, S-4
CMAC........................................................ S-21
Collected Funds............................................. S-33
Collection Account.......................................... S-9, S-30
Commission.................................................. S-3
Cram Down Loss.............................................. S-33
Cutoff Date................................................. S-1
Dealers..................................................... S-5, S-16
Dealer Agreements........................................... S-14
Deficiency Claim Amount..................................... S-33
Deficiency Claim Date....................................... S-31
Deficiency Notice........................................... S-33
Determination Date.......................................... S-31
disqualified persons........................................ S-41
Distribution Amount......................................... S-33
Distribution Date........................................... S-2, S-6
DTC......................................................... S-1
Eligible Investments........................................ S-33
Equity Interest............................................. S-42
Euroclear................................................... S-1, S-4
Events of Default........................................... S-25
Excess Servicing Fee........................................ S-31
Exchange Act................................................ S-3
Final Scheduled Distribution Date........................... S-2
Financed Vehicles........................................... S-1, S-5
Franklin Capital............................................ S-4
Franklin Resources.......................................... S-4
GAAP........................................................ S-22
Guaranteed Note Distributions............................... S-39
Holdings.................................................... S-3
Indenture................................................... S-1
Indenture Collateral Agent.................................. S-1, S-4
Indenture Trustee........................................... S-1, S-4
Insurance Agreement......................................... S-8
Insurance Agreement Trigger Events.......................... S-25
</TABLE>
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<PAGE> 168
<TABLE>
<S> <C>
Insurance Spread Account.................................... S-40
Insurer..................................................... S-3, S-4, S-21
Insurer Agent............................................... S-31
Insurer Default............................................. S-37
Insurer Optional Deposit.................................... S-34
Interest Period............................................. S-6, S-24, S-34
Interest Rate............................................... S-6, S-34
IRS......................................................... S-41
Issuer...................................................... S-1, S-4
Liquidated Receivable....................................... S-34
Month-End Pool Balance...................................... S-7, S-24, S-34
Monthly Period.............................................. S-7, S-24
Moody's..................................................... S-10
Net Liquidation Proceeds.................................... S-34
Non-Prime................................................... S-6
Non-Prime Servicing Fee Rate................................ S-31
Note Distribution Account................................... S-30
Note Policy................................................. S-2, S-8
Noteholder Monthly Interest Distributable Amount............ S-35
Noteholders................................................. S-2, S-6
Noteholders' Distributable Amount........................... S-35
Noteholders' Interest Carryover Shortfall................... S-35
Noteholders' Interest Distributable Amount.................. S-35
Noteholders' Percentage.....................................
Notes....................................................... S-1, S-4
Order....................................................... S-39
Original Pool Balance....................................... S-7, S-15, S-25
Owner Trustee............................................... S-1, S-4
parties in interest......................................... S-41
Payaheads................................................... S-32
Plan Assets Regulation...................................... S-42
Pool Balance................................................ S-15
Prime....................................................... S-6
Prime Servicing Fee Rate.................................... S-30
Principal Balance........................................... S-35
Principal Distributable Amount.............................. S-35
Prospectus.................................................. S-3
PTCE........................................................ S-42
Purchase Agreement.......................................... S-5, S-30
Purchase Amount............................................. S-35
Rating Agencies............................................. S-10
Receipt..................................................... S-40
Receivables................................................. S-1, S-5
Received.................................................... S-40
Record Date................................................. S-6
Redemption Price............................................ S-25
S&P......................................................... S-10
Sale and Servicing Agreement................................ S-5
SAP......................................................... S-22
</TABLE>
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<PAGE> 169
<TABLE>
<S> <C>
Securities Act.............................................. S-42
Seller...................................................... S-1, S-4
Servicer.................................................... S-4
Servicer Default............................................ S-36
Servicing Fee............................................... S-30
Servicing Fee Rate.......................................... S-31
Sub-Prime................................................... S-6
Sub-Prime Servicing Fee Rate................................ S-31
Surety Draws................................................ S-9, S-32
Supplemental Servicing Fee.................................. S-31
Trust....................................................... S-1, S-4
Trust Agreement............................................. S-1, S-4
Trust Documents............................................. S-30
Trust Property.............................................. S-5
Underwriters................................................ S-1, S-42
Year 2000 Problem........................................... S-12
</TABLE>
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<PAGE> 170
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.
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, any proceeds from
claims on certain insurance policies, certain rights under the related Trust
Documents (as defined herein) and all proceeds of the foregoing, all as more
fully described herein and in the related Prospectus Supplement. Each Trust will
be formed pursuant to either (i) a Pooling and Servicing Agreement (the "Pooling
and Servicing Agreement") to be entered into among the related Seller, the
Servicer in its individual capacity and as Servicer, and the trustee (the "Owner
Trustee") and any other party, if any, specified in the related Prospectus
Supplement or (ii) a Trust Agreement (the "Trust Agreement") to be entered into
between the related Seller and the Owner Trustee. If the Trust is formed
pursuant to a Trust Agreement, a Sale and Servicing Agreement (the "Sale and
Servicing Agreement") will be entered into among the related Seller, the
Servicer, in its individual capacity and as Servicer, the Trust and any other
party, if any, specified in the related Prospectus Supplement (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.
The date of this Prospectus is September 18, 1998
<PAGE> 171
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).
2
<PAGE> 172
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 "The Trust" 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 "The
Trust -- The Owner Trustee" 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
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may include one or more classes of Certificates
entitled to (i) distributions in respect of
principal with disproportionate, nominal or no
interest distributions, or (ii) interest
distributions with disproportionate, nominal or
no distributions in respect of principal (such
Certificates, "Strip Certificates").
With respect to any series of Securities
including one or more classes of Notes,
distributions in respect of the Certificates
may be subordinated in priority of payment to
payments on the Notes of such series, to the
extent specified in the related Prospectus
Supplement.
In connection with each Trust, the related
Seller may, with respect to any series of
Securities, retain one or more classes of
Certificates, which may or may not be evidenced
by physical certificates.
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
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portions of the Receivables for such series. In
addition, a series may include one or more
classes of Notes entitled to (i) principal
payments with disproportionate, nominal or no
interest payments or (ii) interest payments
with disproportionate, nominal or no principal
payments (such Notes, "Strip Notes").
TRUST PROPERTY................ The Trust property will include certain motor
vehicle retail installment sale contracts
initially transferred to the Trust (the
"Initial Receivables"), as specified in the
related Prospectus Supplement, secured by new
and used automobiles and light trucks (the
"Initial Financed Vehicles"), certain monies
received under the motor vehicle retail
installment sale contracts (which may include
interest payments, principal payments, late
fees, penalty charges, extension fees,
modification fees, other processing fees, and
such other payments, as specified in the
related Prospectus Supplement) 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 (which may include the
Collection Account, the Distribution Account,
the Spread Account, the Yield Supplement
Account, and such other accounts, 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)
(which may include the rights of the related
Sellers under the related Purchase Agreement,
to require Franklin Capital to repurchase a
Receivable upon breach of certain
representations and such other rights, as
specified in the related Prospectus
Supplement). 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 de-
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fined 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."
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
Pe-
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riod 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 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. 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
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<PAGE> 178
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. 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 of the related series 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 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
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<PAGE> 179
Certificates of the related series of
Securities outstanding is reduced.
Each Trust will issue only one series of Notes
and/or Certificates, however, each series may
contain one or more classes of Notes and
Certificates. The terms of each class of
Securities will be fully disclosed in the
related Prospectus Supplement for each series.
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
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
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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."
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
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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 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
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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 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,
state and local 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 tax
purposes. Alternative characterizations of such
Trust and such Securities are possible and
potential investors are encouraged to consult
their tax advisors before purchasing such
Securities.
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
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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."
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RISK OF UNPERFECTED SECURITY INTERESTS IN FINANCED VEHICLES
As part of the sale and assignment of Receivables to a Trust, security
interests in the related Financed Vehicles will be assigned by the related
Seller to such Trust. In most states, such an assignment is an effective
conveyance of a security interest without amendment of any such security
interest noted on a motor vehicle's certificate of title, and the assignee
succeeds thereby to the assignor's rights as secured party. Such notation of a
secured party's security interest is generally effected in such states by
depositing with the applicable state motor vehicle registrar or similar state
authority, the motor vehicle's certificate of title, an application containing
the name and address of such secured party, and the necessary registration fees.
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,
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or other lien created by operation of law is imposed on the property of the
Servicer, the holder of such lien may have priority over the Trust's interest in
such Receivables.
SOCIAL, ECONOMIC AND OTHER FACTORS AFFECTING THE RECEIVABLES
Economic conditions in states where Obligors reside may affect the
delinquency, loan loss and repossession experience of a Trust with respect to
the related Receivables. The related Prospectus Supplement will set forth any
restrictions imposed by any Trust on concentrations of Receivables thereunder.
The performance by such Obligors may be affected by a variety of social and
economic factors. Economic factors include, but are not limited to, interest
rates, unemployment levels, the rate of inflation and consumer perception of
economic conditions, generally. However, the related Seller is unable to
determine and has no basis to predict whether or to what extent economic or
social factors will affect the performance by any Obligors, or the availability
of Subsequent Receivables in cases where Subsequent Receivables are to be
transferred to a Trust as specified in the related Prospectus Supplement. See
"Franklin Capital Corporation."
CONCENTRATION OF RECEIVABLES
As of August 1, 1998, Franklin Capital Corporation originates motor vehicle
retail installment sale contracts in the following eight states: Arizona,
California, Kansas, Nevada, New Mexico, Oregon, Utah and Washington. Economic
conditions in these states and in the western United States are often volatile
and from time to time have been adversely affected by diverse factors including
disasters, contractions in the key industries and declining real estate values.
Generally, economic conditions in these states have been favorable during the
recent years. Thus economic conditions in recent years have not had an adverse
effect on the loss and delinquency experience of the Receivables. However, no
predictions can be made regarding future economic conditions in these states and
in the western United States. An economic downturn in one or more of these
states likely would result a deterioration of the loss and delinquency
experience of the Receivables which in turn could lead to losses for
Securityholders.
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
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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 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."
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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, (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 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.
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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 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.
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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), (iv) 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. Franklin Capital's underwriters may decide to approve financing in
excess of the value of a vehicle if they determine that other factors (such as a
borrower's income, employment history, credit history, length of residency and
total outstanding debt) compensate for the increased loan-to-value ratio of such
financing. To the extent financing is provided to a borrower in excess of the
value of the vehicle to be financed, a default by such borrower could result in
the Trust realizing a loss of the amount financed in excess of the value of such
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.
"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
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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.
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.
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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.
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>
AS OF
--------------------------------------------------------------
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
DELINQUENCY EXPERIENCE 1994(1) 1995 1996 1997
---------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Portfolio Outstanding at end of
period(2).............................. $160,635,623 $225,575,436 $174,589,677 $154,271,605
Delinquencies at end of period(3)
30-59 days............................. $ 2,442,313 $ 9,217,070 $ 4,129,543 $ 1,929,654
60-89 days............................. 733,619 3,252,750 1,969,257 729,097
90 days or more........................ 400,740 3,761,131 2,067,850 1,326,175
------------ ------------ ------------ ------------
Total delinquencies...................... $ 3,576,672 $16,230,951 $ 8,166,650 $ 3,984,926
------------ ------------ ------------ ------------
Total delinquencies as a percentage of
portfolio outstanding at end of
period................................. 2.2% 7.2% 4.7% 2.6%
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
DURING FISCAL YEARS ENDED
--------------------------------------------------------------
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
CREDIT/ LOSS EXPERIENCE 1994(1) 1995 1996 1997
----------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Average portfolio outstanding during
period(2)(4)........................... $66,586,803(@) $225,203,667(@) $196,747,716 $162,745,276
Average number of loans outstanding
during period.......................... n/a n/a n/a 14,780
Number of repossessions during period.... n/a n/a n/a 760
Repossessions as a percentage of average
number of loans outstanding during
period................................. n/a n/a n/a 5.1%
</TABLE>
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<TABLE>
<CAPTION>
DURING FISCAL YEARS ENDED
--------------------------------------------------------------
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
CREDIT/ LOSS EXPERIENCE 1994(1) 1995 1996 1997
----------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross charge-off(5)...................... $ 210,842 $ 7,039,263 $12,082,834 $ 6,580,261
Recoveries(6)............................ 4,242 649,374 1,408,190 1,854,461
------------ ------------ ------------ ------------
Net losses............................... $ 206,600 $ 6,389,889 $10,674,644 $ 4,725,800
------------ ------------ ------------ ------------
Net losses as a percentage of average
portfolio outstanding during the
period................................. 0.3% 2.8% 5.4% 2.9%
============ ============ ============ ============
</TABLE>
- ---------------
Key -- @ Simple average using Franklin Capital figures
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.
Franklin Capital's portfolio of motor vehicle retail installment sale
contracts 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 portfolio of motor vehicle retail installment sale contracts
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.
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
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<PAGE> 195
weighted average life (i.e., the weighted average life assuming that payments
will be made as scheduled, and that no prepayments will be made). (For this
purpose, the term "prepayments" also includes liquidations due to default, as
well as receipt of proceeds from credit life, credit disability, and casualty
insurance policies.) Weighted average life means the average amount of time
during which each dollar of principal on a Receivable is outstanding. The
payment characteristics of the Receivables held by a Trust will be specified in
the related Prospectus Supplement.
The rate of prepayments on the Receivables may be influenced by a variety
of economic, social, and other factors, including the fact that an Obligor may
not sell or transfer a Financed Vehicle without the consent of the Servicer.
Franklin Capital has not as of the date of this Prospectus prepared data on
prepayment rates. Franklin Capital can make no prediction as to the actual
prepayment rates that will be experienced on the Receivables. Franklin Capital,
however, believes that the actual rate of prepayments will result in a
substantially shorter weighted average life than the scheduled weighted average
life of the Receivables. Any reinvestment risks resulting from a faster or
slower incidence of prepayment of Receivables will be borne by the
Securityholders of the related Trust. See "Description of the Purchase
Agreements and the Trust Documents -- Termination" regarding (i) the Servicer's
option to purchase all of the Receivables of a Trust as of the last day of any
month in which the Pool Balance of such Trust at the close of business on the
last day of any Monthly Period is 10% (or such other percentage specified in the
related Prospectus Supplement, 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
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<PAGE> 196
application of amounts on deposit in the Pre-Funding Account). The amount of a
Certificateholder's pro rata share of the Certificate Balance for the related
class of Certificates can be determined on any date by multiplying the original
denomination of the holder's Certificate by the applicable Certificate Factor as
of the close of business on the most recent Distribution Date. The amount of a
Noteholder's pro rata share of the aggregate outstanding principal balance of
the applicable class of Notes can be determined by multiplying the original
denomination of such Noteholder's Note by the then applicable Note Factor.
Pursuant to each Trust and pursuant to the related Trust Documents, the
Securityholders thereunder will be entitled to receive monthly reports
concerning the payments received on the Receivables, additions of Subsequent
Receivables, if any, and the reduction in the Pre-Funded Amount, if any, the
Certificate Balance, the Note Balance, the Certificate Factor or Certificate
Factors for each class of Certificates, the Note Factor or Note Factors for each
class of Notes and various other items of information with respect to such
series. Securityholders of record during any calendar year will be furnished
information for tax reporting purposes not later than the latest date permitted
by law. See "Certain Information Regarding the Securities -- Statements to
Securityholders."
USE OF PROCEEDS
The net proceeds to be received by each Seller from the sale of each
related series of Securities will be applied to the purchase of the related
Receivables from Franklin Capital and, if specified in the related Prospectus
Supplement, to the deposit of the related Pre-Funded Amount, if any, in the
related Pre-Funding Account and/or to provide for other forms of credit
enhancement specified in the related Prospectus Supplement.
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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) 238-6700.
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.
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.
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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 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.
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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.
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.
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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.
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.
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<PAGE> 201
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 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
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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.
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.
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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 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.
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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.
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MODIFICATION OF INDENTURE WITHOUT NOTEHOLDER CONSENT. With respect to each
Trust, without the consent of the related Noteholders, and with notice to the
applicable Rating Agencies, the Indenture Trustee and the Owner Trustee (on
behalf of such Trust), and with (if so provided in the related Prospectus
Supplement) the consent of the third party credit enhancement provider, if any
(so long as no Insurer Default (as defined in the related Prospectus Supplement)
has occurred and is continuing) unless the related Prospectus Supplement
provides otherwise, may enter into one or more supplemental indentures for any
of the following purposes: (i) to correct or amplify the description of the
collateral or add additional collateral; (ii) to evidence and provide for the
assumption of the Note and the Indenture obligations by a permitted successor to
the Trust; (iii) to add additional covenants for the benefit of the related
Noteholders, or to surrender any rights or power conferred upon the Trust: (iv)
to convey, transfer, assign, mortgage or pledge any property to or with the
Indenture Trustee; (v) to cure any ambiguity or correct or supplement any
provision in the Indenture or in any supplemental indenture; (vi) to evidence
and provide for the acceptance of the appointment of a successor Indenture
Trustee or to add to or change any of the provisions of the Indenture as shall
be necessary and permitted to facilitate the administration by more than one
trustee; (vii) to modify, eliminate or add to the provisions of the Indenture in
order to comply with the Trust Indenture Act of 1939, as amended; and (viii) to
add any provisions to, change in any manner, or eliminate any of the provisions
of, the Indenture or modify in any manner the rights of Noteholders under such
Indenture; provided that any action specified in this clause (viii) shall not
adversely affect in any material respect the interests of any related
Noteholder. An amendment described in such clause (viii) shall be deemed not to
adversely affect the interests of any Noteholder if each Rating Agency rating
such Notes confirms in writing that such amendment will not result in a
reduction or withdrawal of the then current ratings of such Notes or the
applicable Rating Agencies rating such Notes, within 10 days' after receipt of
notice of such amendment, shall not have notified 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
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such sale would be insufficient to pay the principal amount and accrued but
unpaid interest on the outstanding Notes, (vi) decrease the percentage of the
aggregate principal amount of the Notes required to amend the sections of the
Indenture which specify the applicable percentage of aggregate principal amount
of the Notes necessary to amend the Indenture or certain other related
agreements, (vii) modify any of the provisions of the Indenture in such manner
as to affect the calculation of the amount of any payment of interest on any
Distribution Date or principal due on any Note on any Distribution Date
(including the calculation of any of the individual components of such
calculation) or to affect the rights of the Noteholders to the benefit of any
provision for the mandatory redemption of the Notes contained in the Indenture
or (viii) permit the creation of any lien ranking prior to or on a parity with
the lien of the Indenture with respect to any of the collateral for the Notes
or, except as otherwise permitted or contemplated in the Indenture, terminate
the lien of the Indenture on any such collateral or deprive the holder of any
Note of the security provided by the lien of the Indenture.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT. With respect to each
Trust, unless otherwise specified in the related Prospectus Supplement, "Events
of Default" under the Indenture will consist of: (i) a default for five days or
more in the payment of any interest on any Note after the same becomes due and
payable; (ii) a default in the payment of the principal or of any installment of
the principal of any Note when the same becomes due and payable; (iii) a default
in the observance or performance of any covenant or agreement of the Trust made
in the Indenture and the continuation of any such default for a period of 30
days after notice thereof is given to the Trust by the Indenture Trustee or to
the Trust and the Indenture Trustee by the holders of at least 25% in aggregate
principal amount of the related Notes then outstanding (or for such longer
period, not in excess of 90 days, as may be reasonably necessary to remedy such
default; provided that such default is capable of remedy within 90 days or less
and the Owner Trustee delivers an officer's certificate to the Indenture Trustee
to the effect that the Trust has commenced, or will promptly commence and
diligently pursue, all reasonable efforts to remedy such default); (iv) any
representation or warranty made by the Trust in the Indenture or in any
certificate delivered pursuant thereto or in connection therewith having been
incorrect in a material respect as of the time made, and such breach not having
been cured within 30 days after notice thereof is given to the Trust by the
Indenture Trustee or to the Trust and the Indenture Trustee by the holders of a
least 25% in aggregate principal amount of the Notes then outstanding (or for
such longer period, not in excess of 90 days as may be reasonably necessary to
remedy such default; provided that such default is capable of remedy within 90
days or less and the Owner Trustee delivers an officer's certificate to the
Indenture Trustee to the effect that the Trust has commenced, or will promptly
commence and diligently pursue, all reasonable efforts to remedy such default)
or (v) certain events of bankruptcy, insolvency, receivership or liquidation of
the Trust. However, the amount of principal due and payable on any class of
Notes on any Payment Date (prior to the final scheduled Payment Date, if any,
for such class) will generally be determined by the amount available to be
deposited in the Note Distribution Account for such Payment Date. Therefore, the
failure to pay principal on a class of Notes generally will not result in the
occurrence of an Event of Default unless such class of Notes has a final
scheduled Payment Date, and then not until such final scheduled Payment Date for
such class of Notes.
Unless otherwise specified in the related Prospectus Supplement, if an
Event of Default should occur and be continuing with respect to the Notes of any
series, the related Indenture Trustee or a Note Majority may declare the
principal of the Notes to be immediately due and payable. Such declaration may
be rescinded by a Note Majority if (i) the Trust has paid to the Indenture
Trustee a sum sufficient to pay all amounts then due with respect to the Notes
(without giving effect to such acceleration) and certain amounts payable to the
Indenture Trustee and (ii) all Events of Default (other than nonpayment of the
principal of the Notes due solely as a result of such acceleration) have been
cured or waived.
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Unless otherwise specified in the related Prospectus Supplement, if the
Notes of any series have been declared due and payable following an Event of
Default with respect thereto, the related Indenture Trustee may institute
proceedings to collect amounts due or foreclose on Trust Property, exercise
remedies as a secured party, sell the related Receivables or elect to have the
Trust maintain possession of such Receivables and continue to apply collections
on such Receivables as if there had been no declaration of acceleration. The
Indenture Trustee, however, will be prohibited from selling the related
Receivables following an Event of Default, other than a default in the payment
of any principal or a default for five days or more in the payment of any
interest on any Note, unless (i) the holders of all the outstanding related
Notes consent to such sale; (ii) the proceeds of such sale are sufficient to pay
in full the principal of and the accrued interest on such outstanding Notes at
the date of such sale; or (iii) the Indenture Trustee determines that the
proceeds of the Receivables would not be sufficient on an ongoing basis to make
all payments on the Notes as such payments would have become due if such
obligations had not been declared due and payable, and the Indenture Trustee
obtains the consent of the holders representing 66 2/3% of the aggregate
principal balance of the outstanding related Notes. In the event the Notes are
accelerated and the Receivables are sold, no distributions will be made on the
Certificates until all of the interest on and principal of the Notes has been
paid in full. In such event, all the funds, if any, on deposit in any reserve
account or received from another source of credit support will be available to
first pay interest on and principal of the Notes.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, if an Event of Default occurs and is continuing with respect
to a series of Notes, the Indenture Trustee will be under no obligation to
exercise any of the rights or powers under the Indenture at the request or
direction of any of the holders of such Notes, if the Indenture Trustee
reasonably believes it will not be adequately indemnified against the costs,
expenses and liabilities which might be incurred by it in complying with such
request. Subject to the provisions for indemnification and certain limitations
contained in the Indenture, a Note Majority in a series will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Indenture Trustee with respect to the Notes or exercising any
trust or power conferred on the Indenture Trustee and a Note Majority may, in
certain cases, waive any default with respect thereto, except a default in the
payment of principal or interest or a default in respect of a covenant or
provision of the Indenture that cannot be modified without the waiver or consent
of all of the holders of such outstanding Notes.
No holder of a Note of any series will have the right to institute any
proceeding with respect to the related Indenture unless (i) such holder
previously has given to the Indenture Trustee written notice of a continuing
Event 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.
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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, 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,
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(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, 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.
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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.
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
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Certificate owners and Note owners will receive distributions and will be able
to transfer their interests.
Transfers between Participants will occur in accordance with DTC Rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Because of time zone differences, credits of securities received in Cedel
or Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date, and any such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedel Participants on such business day. Cash received in Cedel or
Euroclear as a result of sales of Notes and, if the related Prospectus
Supplement so provides, Certificates by or through a Cedel Participant or
Euroclear Participant to a DTC Participant will be received with value on the
DTC settlement date but will be available in the relevant Cedel or Euroclear
cash account only as of the business day following settlement in DTC.
Cross-market transfers between persons directly holding Notes and, if the
related Prospectus Supplement so provides, Certificates or indirectly through
DTC, on the one hand, and directly or indirectly through Cedel Participants or
Euroclear Participants, on the other, will be effected in DTC in accordance with
DTC Rules on behalf of the relevant European international clearing system by
its Depository; however, such cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in such system in accordance with its rules and procedures and
within its established deadline (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its Depository to take action to effect
final settlement on its behalf by delivering or receiving securities in DTC, and
making or receiving payment in accordance with normal procedures for same day
funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions to the Depositories.
With respect to any series of Securities, Certificates and Notes (if any)
will be issued in registered form to Certificate owners and Note owners, or
their nominees, rather than to DTC (such Certificates and Notes being referred
to herein as "Definitive Certificates" and "Definitive Notes," respectively),
only if (i) the related Seller advises the Owner Trustee or the Indenture
Trustee, as the case may be, in writing that DTC is no longer willing or able to
discharge properly its responsibilities as nominee and depository with respect
to the Certificates or the Notes and the related Seller is unable to locate a
qualified successor, (ii) the related Seller at its sole option has advised the
Owner Trustee or the Indenture Trustee, as the case may be, in writing that it
elects to terminate the book-entry system through DTC or (iii) after the
occurrence of an Event of Default, the holders representing a majority of the
Certificate Balance (a "Certificate Majority") or a Note Majority advises the
Owner Trustee or the Indenture Trustee, as the case may be, through DTC that
continuation of a book-entry system is no longer in their best interests. Upon
issuance of Definitive Certificates or Definitive Notes to Certificate owners or
Note owners, 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
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Participants, with respect to some Certificates or Notes which conflict with
actions taken with respect to other Certificates or Notes.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in Cedel in any of 28
currencies, including United States dollars. Cedel provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to Cedel is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York the ("Euroclear Operator"), under contract
with Euroclear Clearance Systems, S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. Indirect access to Euroclear is
also available to other firms that clear through, or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of Euroclear, and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and 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,
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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 Trust Documents on behalf of a Cedel
Participant or Euroclear Participant only in accordance with its relevant rules
and procedures and subject to its Depository's ability to effect such actions on
its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of interests in the Notes and, if the related
Prospectus Supplement so provides, the Certificates among Direct Participants of
DTC, Cedel and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
NEITHER THE TRUST, THE SELLERS, THE SERVICER, FRANKLIN CAPITAL, FRANKLIN
RESOURCES, THE OWNER TRUSTEE, THE INDENTURE TRUSTEE, NOR ANY OF THE UNDERWRITERS
WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO ANY PARTICIPANTS, CEDEL
PARTICIPANTS OR EUROCLEAR PARTICIPANTS OR THE PERSONS FOR WHOM THEY ACT AS
NOMINEES WITH RESPECT TO (1) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC,
CEDEL, EUROCLEAR OR ANY PARTICIPANT, (2) THE PAYMENT BY DTC, CEDEL, EUROCLEAR OR
ANY PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE
PRINCIPAL BALANCE OF, OR INTEREST ON, THE NOTES AND, IF THE RELATED PROSPECTUS
SUPPLEMENT SO PROVIDES, THE CERTIFICATES, (3) THE DELIVERY BY ANY PARTICIPANT,
CEDEL PARTICIPANT OR EUROCLEAR PARTICIPANT OF ANY NOTICE TO ANY BENEFICIAL OWNER
WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE AGREEMENT TO BE GIVEN TO
NOTEHOLDERS AND, IF THE RELATED PROSPECTUS SUPPLEMENT SO PROVIDES,
CERTIFICATEHOLDERS OR (4) ANY OTHER ACTION TAKEN BY DTC OR ITS NOMINEE AS THE
NOTEHOLDER AND, IF THE RELATED PROSPECTUS SUPPLEMENT SO PROVIDES, THE
CERTIFICATEHOLDER.
Issuance of Certificates and Notes in book-entry form rather than as
physical certificates or notes may adversely affect the liquidity of
Certificates or Notes in the secondary market and the ability of the Certificate
owners or Note owners to pledge them. In addition, since distributions on the
Certificates and the Notes will be made by the Owner Trustee or the Indenture
Trustee to DTC unless and until Definitive Certificates and Definitive Notes are
issued and DTC will credit such distributions to the accounts of its
Participants, with the Participants further crediting such distributions to the
accounts of indirect participants or Certificate owners or Note owners,
Certificate owners and Note owners may experience delays in the receipt of such
distributions.
STATEMENTS TO SECURITYHOLDERS
On or prior to each Distribution Date, the Servicer will prepare and
provide to the Owner Trustee a statement to be delivered to the related
Certificateholders on such Distribution Date. On or prior to each Payment Date,
the Servicer will prepare and provide to the Indenture Trustee a statement to be
delivered to the related Noteholders on such Payment Date. Such statements will
be based on the information in the related Servicer's certificate setting forth
certain information required under the Trust Documents (the "Servicer's
Certificate"). Each such statement to be delivered to Certificateholders will
include the following information as to the Certificates with respect to such
Distribution Date or the period since the previous Distribution Date, as
applicable, and each such statement to be delivered to Noteholders will include
the following information as to the Notes with respect to such Payment Date or
the period since the previous Payment Date, as applicable:
(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;
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(iii) the Certificate Balance and the Certificate Factor for each
class of Certificates and the aggregate outstanding principal balance and,
if applicable, the Note Factor for each class of Notes, after giving effect
to all payments reported under (ii) above on such date;
(iv) the amount of the Servicing Fee paid to the Servicer with respect
to the related Monthly Period or Periods, as the case may be;
(v) the Pass-Through Rate, Interest Rate or other applicable rate of
return, if any, for the next period for any class of Certificates or Notes
with variable or adjustable rates;
(vi) the amount, if any, distributed to Certificateholders and
Noteholders applicable to payments under any credit enhancement; and
(vii) such other information as may be specified in the related
Prospectus Supplement.
Unless higher denominations are specified in the related Prospectus
Supplement, each amount set forth pursuant to subclauses (i), (ii), (iv), (vi)
and (vii) with respect to Certificates or Notes will be expressed as a dollar
amount per $1,000 of the initial Certificate Balance or the initial principal
balance of the Notes, as applicable.
Unless and until Definitive Certificates or Definitive Notes are issued,
such reports with respect to a series of Securities will be sent on behalf of
the related Trust to the Owner Trustee, the Indenture Trustee and Cede & Co., as
registered holder of the Certificates and the Notes and the nominee of DTC.
Certificate owners and Note owners may receive copies of such reports upon
written request, together with a certification that they are Certificate owners
or Note owners, as the case may be, and payment of any expenses associated with
the distribution of such reports, from the Owner Trustee or the Indenture
Trustee, as applicable. See "-- Statements to Securityholders" and
"-- Book-Entry Registration" above.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of a Trust, the Owner Trustee and the
Indenture Trustee, as applicable, will mail to each holder of a class of
Securities who at any time during such calendar year has been a Securityholder,
and received any payment thereon, a statement containing certain information for
the purposes of such Securityholder's preparation of federal income tax return.
See "Federal Income Tax Consequences."
LIST OF SECURITYHOLDERS
At such time, if any, as Definitive Certificates have been issued, the
Owner Trustee will, upon written request by three or more Certificateholders or
one or more holders of Certificates evidencing not less than 25% of the
Certificate Balance, within five Business Days after provision to the Owner
Trustee of a statement of the applicants' desire to communicate with other
Certificateholders about their rights under the related Trust Documents or the
Certificates and a copy of the communication that the applicants propose to
transmit, afford such Certificateholders access during business hours to the
current list of Certificateholders for purposes of communicating with other
Certificateholders with respect to their rights under the Trust Documents. The
Trust Documents will not provide for holding any annual or other meetings of
Certificateholders.
At such time, if any, as Definitive Notes have been issued, the Indenture
Trustee will, upon written request by three or more Noteholders or one or more
holders of Notes evidencing not less than 25% of the aggregate principal balance
of the related Notes, within five Business Days after provision to the Indenture
Trustee of a statement of the applicants' desire to communicate with other
Noteholders about their rights under the related 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.
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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.
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
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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 either a Pooling and Servicing Agreement or a
Sale and Servicing Agreement, as applicable, 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 either a
Pooling and Servicing Agreement or a Sale and Servicing Agreement, as
applicable, and the applicable Subsequent Transfer Assignment (each, a
"Subsequent Transfer Assignment") executed by the related Seller and the Trustee
on the Subsequent Transfer Date and including as an exhibit a schedule
identifying the Subsequent Receivables transferred on such date.
Any conveyance of Subsequent Receivables will be subject to the following
conditions, among others specified in the related Prospectus Supplement: (i)
each such Subsequent Receivable must satisfy the eligibility criteria specified
in the preceding paragraph as of its Subsequent Cutoff Date and such additional
criteria as may be specified in the related Prospectus Supplement; (ii) if and
to the extent specified in the related Prospectus Supplement, the third-party
credit enhancement provider, if any, shall have approved the transfer of such
Subsequent Receivables to the Trust; and (iii) neither Franklin Capital nor the
related Seller will have selected such Subsequent Receivables in a manner that
either believes is adverse to the interests of the Securityholders.
As of the last day of the second (or, if the related Seller elects, the
first) month following the discovery by the related Seller or receipt by the
related Seller of notice from the Servicer, the Owner Trustee, the Indenture
Trustee or the third party credit enhancement provider, if any, of a breach of
any representation or warranty of the related Seller which the Owner Trustee, or
the Indenture
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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.
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
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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.
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 in respect of the principal of the Securities.
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 pool of Receivables 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.
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ADVANCES
If and to the extent specified in the related Prospectus Supplement, the
Servicer may be required to advance (each, an "Advance") monthly payments of
interest or monthly payments of principal and interest in respect of a
delinquent Receivable or Servicer approved deferrals of monthly payments that
the Servicer, in its sole discretion, expects to receive from subsequent
payments on or with respect to such Receivable or from other Receivables. The
Servicer shall be entitled to reimbursement of Advances from subsequent payments
on or with respect to the Receivables to the extent described in the related
Prospectus Supplement.
SERVICING COMPENSATION
The Servicer is entitled under the Trust Documents to receive or retain, as
specified in the related Prospectus Supplement on each Distribution Date a
servicing fee (the "Servicing Fee") for the related Monthly Period at the rate
specified in the related Prospectus Supplement (the "Servicing Fee Rate")
multiplied by the Pool Balance as of the first day of such Monthly Period. The
Servicer is also entitled to retain from collections a supplemental servicing
fee (the "Supplemental Servicing Fee") for each Monthly Period equal to any late
fees, prepayment fees, rebates and other administrative fees and expenses
collected during the Monthly Period plus reinvestment proceeds on any payments
received in respect of Receivables. If specified in the related Prospectus
Supplement, the Servicer may be entitled to additional compensation from
investment earnings (net of losses) on certain accounts or otherwise. The
Servicer, in its discretion at its election, may defer receipt of all or any
portion of the Servicing Fee, the Supplemental Servicing Fee or any additional
compensation from investment 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
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obligation to pay the Prepayment Premium shall be limited to funds which are
received from the related Seller under the Purchase Agreement as liquidated
damages for the failure to deliver Subsequent Receivables. No other assets of
the Trust will be available for the purpose of making such payment. The ratings
of any series of Securities with respect to which a Prepayment Premium is
payable does not evaluate the Prepayment Premium or the likelihood that the
Prepayment Premium will be paid.
DISTRIBUTIONS
With respect to each Trust, beginning on the Distribution Date or Payment
Date, as applicable, specified in the related Prospectus Supplement,
distributions of principal and interest (or, where applicable, of principal or
interest only) on each class of Securities entitled thereto will be made by the
Owner Trustee or the Indenture Trustee, as applicable, to the Securityholders.
The timing, calculation, allocation, order, source and priorities of, and
requirements for, all distributions to each class of Certificateholders and all
payments to each class of Noteholders will be set forth in the related
Prospectus Supplement.
REVOLVING PERIOD AND AMORTIZATION PERIOD; RETAINED INTEREST
If the related Prospectus Supplement so provides, there may be a period
commencing on the date of issuance of a class or classes of Notes or
Certificates of a series and ending in the date set forth on the related
Prospectus Supplement (the "Revolving Period") during which no principal
payments will be made to one or more classes of Notes or Certificates of the
related series as are identified in such Prospectus Supplement. All collections
of principal otherwise allocated to such classes of Notes or Certificates may be
(i) utilized by the Trust during the Revolving Period to acquire additional
Receivables which satisfy the criteria described under "The Receivables --
General" herein and the criteria set forth in the related Prospectus Supplement,
(ii) held in an account and invested in Eligible Investments for later
distribution to Securityholders, (iii) applied to those Notes or Certificates of
the related series as then are in amortization, if any, 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. Each
Trust will issue only one series of Notes and/or Certificates, however, each
series may contain one or more classes of Notes and Certificates. The terms of
each class of Securities will be fully disclosed in the related Prospectus
Supplement for each series.
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NET DEPOSITS
As an administrative convenience, unless otherwise specified in the related
Prospectus Supplement, the Servicer will be permitted to make the deposit of
collections, aggregate Advances and Purchase Amounts on the related Receivables
for any Trust for or with respect to the related Monthly Period net of
distributions to be made to the Servicer for such Trust with respect to such
Monthly Period. The Servicer may cause to be made a single, net transfer from
the Collection Account to the related Payahead Account, if any, or vice versa.
The Servicer, however, will account to the Trustee, any Indenture Trustee, the
third party credit enhancement provider, if any, the Noteholders, if any, and
the Certificateholders with respect to each Trust as if all deposits,
distributions and transfers were made individually. With respect to any Trust
that issues both Certificates and Notes, if the related Payment Dates do not
coincide with Distribution Dates, all distributions, deposits or other
remittances made on a Payment Date will be treated as having been distributed,
deposited or remitted on the Distribution Date for the applicable Monthly Period
for purposes of determining other amounts required to be distributed, deposited
or otherwise remitted on such Distribution Date.
CREDIT ENHANCEMENT
The amounts and types of credit enhancement, and the provider of any credit
enhancement, if any, with respect to each class of Securities will be set forth
in the related Prospectus Supplement. If and to the extent provided in the
related Prospectus Supplement, credit enhancement may be in the form of the
subordination of one or more classes of Securities, a spread account or other
type of reserve account, accelerated payments of principal relative to the
amortization of the related Receivables, financial guaranty insurance policy or
surety bond, letter of credit, credit or liquidity facility, repurchase
obligation, third party payment or other support, cash deposit or such other
arrangement, or any combination of two or more of the foregoing, as may be
described in the related Prospectus Supplement. A Trust may also include a
guaranteed investment contract or reinvestment agreement pursuant to which funds
held in one or more accounts will be invested at a specified rate. If any class
of Certificates or Notes of a series has a floating interest rate, or if any of
the Receivables has a floating interest rate, the related Trust may include an
interest rate swap contract, an interest rate cap agreement or similar contract
providing limited protection against interest rate risks. If specified in the
applicable Prospectus Supplement, credit enhancement for a series of Securities
may cover one or more other series of Securities.
The presence of credit enhancement is intended to enhance the likelihood of
receipt by the credit enhanced Securityholders of the full amount of principal
and interest due thereon and to decrease the likelihood 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
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Securities) with certain standards relating to the servicing of the Receivables,
the Servicer's accounting and computer systems with respect thereto, and certain
other matters.
The Trust Documents will also provide for delivery to the Owner Trustee and
the Indenture Trustee, if any, and the third party credit enhancement provider,
if any, on or before December 31 of each year, commencing in the calendar year
following the establishment of the related Trust, of a certificate signed by an
officer of the Servicer stating that the Servicer has fulfilled its obligations
under the applicable Trust Documents throughout the preceding twelve months
ended April 30 (or, for the initial report with respect to any Securities for
such longer or shorter period as shall have elapsed from the date of issuance of
the related Securities) or, if there has been a default in the fulfillment of
any such obligation, describing each such default.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the Owner Trustee or the
Indenture Trustee, as the case may be.
CERTAIN MATTERS REGARDING THE SERVICER
The Trust Documents will provide that the initial Servicer may not resign
from its obligations and duties as Servicer thereunder, except upon a
determination that the Servicer's performance of such duties is no longer
permissible under applicable law. No such resignation will become effective
until the Owner Trustee or, if Notes have been issued, the Indenture Trustee, or
a successor servicer has assumed the Servicer's servicing obligations and duties
under the Trust Documents, and the third-party credit enhancer, if any, does not
elect to waive the obligations of the Servicer to perform the duties which
render it legally unable to act or does not elect to delegate those duties to
another person.
The Trust Documents will further provide that neither the Servicer, nor any
of its directors, officers, employees, and agents will be under any liability to
any Trust or any Securityholders for taking any action or for refraining from
taking any action pursuant to the Trust Documents, or for errors in judgment;
provided, however, that neither the Servicer nor any such person will be
protected against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence (except for errors in judgment) in
the performance of duties, or by reason of reckless disregard of obligations and
duties thereunder. In addition, the Trust Documents will provide that the
Servicer is under no obligation to appear in, prosecute or defend any legal
action that is not incidental to the Servicer's servicing responsibilities under
the Trust Documents and that, in its opinion, may cause it to incur any expense
or liability. The Servicer may, however, undertake any reasonable action that it
may deem necessary or desirable in respect of the Trust Documents, the rights
and duties of the parties thereto and the interests of the Securityholders
thereunder. In such event, the legal expenses and costs of such action and any
liability resulting therefrom will be expenses, costs and liabilities of the
Servicer, and the Servicer will not be entitled to be reimbursed therefor out of
any Account held by the Owner Trustee or the Indenture Trustee, as applicable.
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
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Trustee or the Indenture Trustee, as applicable, to make any required
distributions therefrom, which failure continues unremedied for five business
days after written notice from the Owner Trustee or Indenture Trustee is
received by the Servicer or after discovery of such failure by the Servicer,
(ii) any failure by the related Seller or the Servicer duly to observe or
perform in any material respect any other covenant or agreement in the Trust
Documents which failure materially and adversely affects the rights of
Securityholders and which continues unremedied for 60 days after the giving of
written notice of such failure (1) to the related Seller or the Servicer, as
applicable, by the Owner Trustee or the Indenture Trustee, or (2) to the related
Seller or the Servicer, as applicable, and to the Owner Trustee or the Indenture
Trustee by Securityholders evidencing not less than 25% of a class of Securities
constituting at least 25% of the then Pool Balance for such series; (or such
longer period, not in excess of 120 days, as may be reasonably necessary to
remedy such default; provided that such default is capable of remedy within 120
days or less and the Servicer delivers an officer's certificate to the Owner
Trustee and, if applicable, Indenture Trustees to such effect and to the effect
that the Servicer has commenced, or will promptly commence and diligently
pursue, all reasonable efforts to remedy such default); and (iii) certain events
of insolvency, readjustment of debt, marshaling of assets and liabilities or
similar proceedings with respect to the Servicer indicating its insolvency,
reorganization pursuant to bankruptcy proceedings, or acknowledgement in writing
of its inability to pay its obligations.
RIGHTS UPON SERVICER DEFAULT
In the case of any Trust that has issued Notes, as long as a Servicer
Default under a Sale and Servicing Agreement remains unremedied, the related
Indenture Trustee or holders of Notes of the related series evidencing more than
50% of principal amount of such Notes then outstanding may terminate all the
rights and obligations of the Servicer under such Sale and Servicing Agreement,
whereupon such Indenture Trustee or a successor servicer appointed by such
Indenture Trustee will succeed to all the responsibilities, duties and
liabilities of the Servicer under such Sale and Servicing Agreement and will be
entitled to similar compensation arrangements. In the case of any Trust that has
not issued Notes, as long as a Servicer Default under the related Sale and
Servicing Agreement or Pooling and Servicing Agreement remains unremedied, the
related Owner Trustee or holders of Certificates of the related series
evidencing more than 50% of the principal amount of such Certificates then
outstanding may terminate all the rights and obligations of the Servicer under
such Sale and Servicing Agreement or Pooling and Servicing Agreement, whereupon
such Owner Trustee will succeed to all the responsibilities, duties and
liabilities of the Servicer under such Sale and Servicing Agreement or Pooling
and Servicing Agreement and will be entitled to similar compensation
arrangements. If, however, a bankruptcy trustee or similar official has been
appointed for the Servicer, and no Servicer Default other than such appointment
has occurred, such trustee or official may have the power to prevent such
Indenture Trustee, such Noteholders, such Owner Trustee or such
Certificateholders from effecting a transfer of servicing. In the event that
such Indenture Trustee or Owner Trustee is unwilling or unable to so act, it may
appoint, or petition a court of competent jurisdiction for the appointment of, a
successor with a net worth of at least $50,000,000 and whose regular business
includes the servicing of motor vehicle retail installment sale contracts. Such
Indenture Trustee or Trustee may make such arrangements for compensation to be
paid, which in no event may be greater than the servicing compensation to the
Servicer under such Sale and Servicing Agreement or Pooling and Servicing
Agreement. Notwithstanding the foregoing, if and to the extent specified in the
related Prospectus Supplement, a third-party credit enhancement 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
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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 Sale and Servicing Agreements and the Pooling and Servicing Agreements, as
applicable, may be amended by the parties thereto, without the consent of the
related Noteholders or Certificateholders, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such agreements or of modifying in any manner the rights of such Noteholders of
Certificateholders; provided that such action will not materially and adversely
affect the interest of any such Noteholder or Certificateholder. An amendment
shall be deemed not to adversely affect the interests of any such holder if
either each Rating Agency rating such Securities confirms in writing that such
amendment will not result in a reduction or withdrawal of such rating or none of
Rating Agencies rating such Securities, within 10 days after receipt of notice
of such amendment, shall have notified the related Seller, the Servicer or the
Trust in writing that such amendment will result in a reduction or withdrawal of
the then current rating of the Securities. Unless otherwise specified in the
related Prospectus Supplement, the Purchase Agreements, Pooling and Servicing
Agreements and Sale and Servicing Agreements may also be amended by the related
Seller, the Servicer, the related Owner Trustee and any related Indenture
Trustee with the consent of the holders of Notes evidencing at least a majority
in principal amount of then outstanding Notes, if any, of the related series and
the holders of the Certificates of such series evidencing at least a majority of
the principal amount of such Certificates then outstanding, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of such agreements or of modifying in any manner the rights of such
Noteholders or Certificateholders; provided, however, that no such amendment may
(i) increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on the related Receivables or distributions
that are required to be made for the benefit of such Noteholders or
Certificateholders or (ii) reduce the aforesaid percentage of the Notes or
Certificates of such series which are required to consent to any such amendment,
without the consent of the holders of all the outstanding Notes or Certificates,
as the case may be, of such series.
In addition, holders of certain classes of Securities of a series may have
the right to take actions that are detrimental to the interests of the
Securityholders of certain other classes of Securities of such series, as
specified in the related Prospectus Supplement. In certain cases, the senior
classes of securities may have the exclusive right to remove the Servicer, waive
defaults or control the disposition of collateral. In addition, because of the
relative size of the senior classes to the subordinate classes in most
senior/subordinate structures, the senior classes may effectively have voting
control over the Trust on matters that require the vote of all classes of
securities. In no event,
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however, will any class of securities have the right to affect the interest rate
or payment priorities of another class of securities.
Notwithstanding any of the foregoing, if and to the extent specified in the
related Prospectus Supplement, the consent of the third-party credit enhancement
provider, if any, for the related series may be required to any such amendment.
INSOLVENCY EVENT
Each Trust Agreement will provide that the applicable Trustee does not have
the power to commence a voluntary proceeding in bankruptcy with respect to the
related Owner Trust without the unanimous prior approval of all
Certificateholders of such Trust and the delivery to such Trustee by each such
Certificateholder of a certificate certifying that such Certificateholder
reasonably believes that such Trust is insolvent.
PAYMENT OF NOTES
Upon the payment in full of all outstanding Notes of a given series and the
satisfaction and discharge of the related Indenture, the related Owner Trustee
will succeed to all the rights of the Indenture Trustee, and the
Certificateholders of such series will succeed to all the rights of the
Noteholders of such series, under the related Sale and Servicing Agreement,
except as otherwise provided therein.
TERMINATION
With respect to each Trust, the obligations of the Servicer, the related
Seller, the related Owner Trustee and the related Indenture Trustee, if any,
pursuant to the Pooling and Servicing Agreement or Sale and Servicing Agreement,
as applicable, will terminate upon the latest of (i) the maturity or other
liquidation of the last related Receivable and the disposition of any amounts
received upon liquidation of any such remaining Receivables, (ii) the payment to
Noteholders, if any, and Certificateholders of the related series of all amounts
required to be paid to them pursuant to the Pooling and Servicing Agreement or
Sale and Servicing Agreement, as applicable, and the payment of any fees or
other amounts owing to the third party credit enhancement provider, if any, for
such Trust, and (iii) the occurrence of either event described below or such
other events provided in the related Prospectus Supplement.
The related Prospectus Supplement will specify whether the Servicer will be
permitted at its option to purchase from each Trust, as of the end of any
applicable Monthly Period, when the then outstanding Pool Balance with respect
to the Receivables held by such Trust is 10% (or such other percentage specified
in the related Prospectus Supplement, 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
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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 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
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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 retail installment sale contracts ("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,
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the Servicer will continue to hold any certificates of title relating to the
Financed Vehicles in its possession as custodian for the Owner Trustee pursuant
to the Trust Documents.
Under the law of California and most other states, assignments such as
those under the Purchase Agreement and the Trust Documents are an effective
conveyance of a security interest without amendment of any security interest
noted on a motor vehicle's certificate of title, and the assignee succeeds
thereby to the assignor's rights as secured party. In the absence of fraud or
forgery by the motor vehicle owner or the Servicer or administrative error by
state or local agencies, the notation of the Servicer's security interest on the
certificates of title or the Servicer's possession of the certificate of title
will be sufficient to protect the Trust against the rights of subsequent
purchasers of a Financed Vehicle or subsequent lenders who take a security
interest in a Financed Vehicle. If there are any Financed Vehicles as to which a
perfected security interest was not obtained, the Trust's security interest
would be subordinate to, among others, subsequent purchasers of the Financed
Vehicles, lienholders and holders of perfected security interests. Such a
failure, however, would constitute a breach of Franklin Capital's warranties
under the Purchase Agreement and of the related Seller's warranties under the
Trust Documents and would create an obligation of Franklin Capital and/or
another party, if any, designated, in the related Prospectus Supplement, under
the Purchase Agreement and of the related Seller and/or another party, if any,
designated, in the related Prospectus Supplement, under the Trust Documents to
purchase the related Receivable unless the breach is cured. The related Seller
will assign its rights under the Purchase Agreement to the Trust. By not
identifying the Trust as the secured party on the certificate of title, the
security interest of the Trust in the Financed Vehicle could be defeated through
fraud or negligence.
Under the laws of most states, the perfected security interest in a motor
vehicle would continue for four months after a motor vehicle is moved to a state
other than the state in which it is initially registered and thereafter until
the motor vehicle owner re-registers the motor vehicle in the new state. A
majority of states, including California, generally require surrender of a
certificate of title to re-register a motor vehicle; accordingly, a secured
party must surrender possession if it holds the certificate of title to the
motor vehicle, or, in the case of motor vehicles registered in states providing
for the notation of a security interest on the certificate of title but not
possession by the secured party, the secured party would receive notice of
surrender if the security interest is noted on the certificate of title. Thus,
the secured party would have the opportunity to re-perfect its security interest
in the motor vehicle in the state of relocation. In states that do not require a
certificate of title for 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
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be given to the Owner Trustee, the Indenture Trustee, if any, or any
Securityholders in the event such a lien arises or confiscation occurs.
REPOSSESSION
In the event of a default by motor vehicle purchasers, the holder of the
motor vehicle retail installment sale contract has all the remedies of a secured
party under the UCC, except where specifically limited by other laws. In
addition to the provisions of the UCC, under California law the Contracts
originated in California are subject to the provisions of its Rees-Levering
Motor Vehicle Sales and Finance Act (the "Rees-Levering Act"). Contracts
originated in other states are subject to retail installment sale laws and
similar laws of those states. The provisions of the Rees-Levering Act and
similar laws of other states control in the event of a conflict with the
provisions of the UCC. The UCC remedies of a secured party include the right to
repossession by self-help means, unless such means would constitute a breach of
the peace. Unless a motor vehicle is voluntarily surrendered, self-help
repossession by outside agencies is the method employed by Franklin Capital in
the majority of instances in which a default occurs and is accomplished by
retaking possession of the financed motor vehicle. The Rees-Levering Act and
similar laws of other states place restrictions on repossession sales, including
notice to the debtor of the intent to sell and of the debtor's right to redeem
the motor vehicle. In addition, the UCC requires commercial reasonableness in
the conduct of the sale. In cases where the Obligor objects or raises a defense
to repossession, or if otherwise required by applicable state law, a court order
must be obtained from the appropriate state court, and the motor vehicle must
then be repossessed in accordance with that order. In certain states under
certain circumstances after the motor vehicle has been repossessed, the Obligor
may reinstate the contract by paying the delinquent installments on the contract
and other amounts due.
NOTICE OF SALE; REDEMPTION RIGHTS
In the event of default by the Obligor, some jurisdictions require that the
Obligor be notified of the default and be given a time period within which the
Obligor may cure the default prior to repossession. Generally, this right of
reinstatement may be exercised on a limited number of occasions in any one-year
period.
The UCC and other state laws require the secured party to provide the
Obligor with reasonable notice of the date, time, and place of any public sale
and/or the date after which any private sale of the collateral may be held. In
some states the Obligor has the right to redeem the collateral prior to actual
sale by paying the secured party the unpaid principal balance of the obligation
plus reasonable expenses for repossessing, holding, and preparing the collateral
for disposition and arranging for this sale, plus, in some jurisdictions,
reasonable attorneys' fees, or, in some other states, by payment of delinquent
installments or the unpaid balance. 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
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judgment against the Obligor for the shortfall, and a defaulting Obligor can be
expected to have very little capital or sources of income available following
repossession. Therefore, in many cases, it may not be useful to seek a
deficiency judgment or, if one is obtained, it may be settled at a significant
discount.
Occasionally, after resale of a motor vehicle and payment of all expenses
and indebtedness, there is a surplus of funds. In that case, the UCC requires
the lender to remit the surplus to any other holder of any lien with respect to
the motor vehicle or, if no such lienholder exists or there are remaining funds,
the UCC requires the lender to remit the surplus to the former Obligor.
INSOLVENCY MATTERS
Franklin Capital intends that any transfer of Receivables to the Sellers
will constitute a sale, rather than a pledge of the Receivables to secure
indebtedness of Franklin Capital. However, if Franklin Capital were to become a
debtor under the federal bankruptcy code or similar applicable state laws
(collectively, the "Insolvency Laws"), a creditor or trustee in bankruptcy
thereof, or Franklin Capital as debtor-in-possession, might argue that such sale
of Receivables was a pledge of Receivables rather than a sale and/or that the
assets and liabilities of the Seller should be consolidated with the assets and
liabilities of Franklin Capital. Each Seller has taken and will take steps in
structuring the transactions contemplated hereby and by any Prospectus
Supplement that are intended to minimize the risk that the voluntary or
involuntary application for relief under any Insolvency Law would result in the
assets and liabilities of the related Seller being consolidated with the assets
and liabilities of any other person. Nevertheless, if Franklin Capital were to
become a debtor under any Insolvency Laws, and such positions -- that the
transfer of Receivables was a pledge rather than a sale or otherwise should be
treated as part of its bankruptcy estate and/or that the assets and liabilities
of the related Seller should be consolidated -- were presented to or accepted by
a court, then delays in payments to Securityholders could occur or reductions in
the amounts of such payments could result. In addition, if a Seller were to
become a debtor under any Insolvency Law and a creditor or trustee-in-bankruptcy
of such debtor or such debtor itself were to take the position that the sale of
Receivables to such Trust should instead be treated as a pledge of such
Receivables to secure a borrowing of such debtor, delays in payments of
collections of Receivables to the related Securityholders could occur or
reductions in the amounts of such payments could result. In addition, if the
transfer of any Receivables is recharacterized as a pledge, a tax lien, other
governmental lien, or other lien created by operation of law on the property of
the Servicer, the holder of such lien may have priority over the Trust's
interest in such Receivables. See "The Sellers."
In addition, in a case recently decided by the United States Court of
Appeals for the Tenth Circuit, Octagon Gas System, Inc. v. Rimmer, such Circuit
Court found that "accounts," a defined term under the Uniform Commercial Code,
sold prior to a bankruptcy should be treated as part of the bankruptcy estate of
the seller of such accounts. If Franklin Capital or a Seller were to become a
debtor in a bankruptcy proceeding and a court applied the reasoning of the
Circuit Court reflected in the case described above, delays in payments to
Securityholders could occur or reductions in the amounts of such payments could
result.
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
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disclosures in addition to those required under federal law. These requirements
impose specific statutory liabilities upon creditors who fail to comply with
their provisions. In some cases, this liability could affect an assignee's (such
as the Trust's) ability to enforce consumer finance contracts such as the
Receivables.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade Commission
(the "FTC Rule"), the provisions of which are generally duplicated by the
Uniform Consumer Credit Code, state statutes or the common law in certain
states, has the effect of subjecting a seller (and certain related lenders and
their assignees, such as the Trust) in a consumer credit transaction and any
assignee of the seller to all claims and defenses which the obligor in the
transaction could assert against the seller of the goods. Liability under the
FTC Rule is limited to the amounts paid by the obligor under the contract, and
the holder of the contract may also be unable to collect any balance remaining
due thereunder from the obligor.
Most of the Receivables will be subject to the requirements of the FTC
Rule. Accordingly, the Owner Trustee, as holder of the Receivables, will be
subject to any claims or defenses that the purchaser of the Financed Vehicle may
assert against the seller of the Financed Vehicle. Such claims are limited to a
maximum liability equal to the amounts theretofore paid by the obligor on the
Receivable. Under most state motor vehicle dealer licensing laws, sellers of
motor vehicles are required to be licensed to sell motor vehicles at retail
sale. Furthermore, Federal Odometer Regulations promulgated under the Motor
Vehicle Information and Cost Savings Act require that all sellers of new and
used motor vehicles furnish a written statement signed by the seller certifying
the accuracy of the odometer reading. If a seller is not properly licensed or if
an Odometer Disclosure Statement was not provided to the purchaser of the
related financed motor vehicle, the obligor may be able to assert a defense
against the seller of the motor vehicle.
Courts have imposed general equitable principles on secured parties
pursuing repossession of collateral or litigation involving deficiency balances.
These equitable principles may have the effect of relieving an obligor from some
or all of the legal consequences of a default.
In several cases, obligors have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. Courts have generally upheld the notice provisions of the UCC and
related laws as reasonable or have found that the repossession and resale by the
creditor do not involve sufficient state action to afford constitutional
protection to consumers.
In addition to those parties, if any, identified in the related Prospectus
Supplement, Franklin Capital and each Seller will warrant under the Purchase
Agreement and the Trust Documents, that each Receivable complies with all
requirements of law in all material respects. Accordingly, if an Obligor has a
claim against the Trust for violation of any law and the Owner Trustee or the
Indenture Trustee, as the case may be, determines such claim materially and
adversely affects the Trust's interest in a Receivable, such violation would
constitute a breach of warranty under the Purchase Agreement and the Trust
Documents and would create an obligation of Franklin Capital, the related Seller
and the party, if any, identified in the related Prospectus Supplement, to
repurchase the Receivable, 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
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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 entire discussion which follows under the caption "Federal Income Tax
Consequences," 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, banks, other financial institutions, insurance companies, real estate
investment trusts, regulated investment companies, tax exempt entities, 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 and
persons that have a "functional currency" other than the U.S. dollar. In
addition, this summary is generally limited to investors who will hold the
Certificates as "capital assets" (generally, property held for investment)
within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code"). Prospective investors 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. Moreover, there are no cases or Internal
Revenue Service ("IRS") rulings on many of the issues discussed below and no
ruling on any of the issues discussed below will be sought from the IRS. The
opinion of Federal Tax Counsel is not binding on the IRS or the courts. As a
result, the IRS may disagree with all or a part of the discussion below. 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.
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TRUSTS TREATED AS PARTNERSHIPS OR AS DIVISIONS
TAX CHARACTERIZATION OF THE TRUST AS A DIVISION
With respect to any Trust which has only one Certificateholder, the related
Prospectus Supplement may specify that for federal income tax purposes the Trust
is intended to be disregarded as a separate entity and is intended to be treated
as a division of its sole Certificateholder. With respect to any such Trust,
upon issuance of the related Securities, Federal Tax Counsel will issue its
opinion, subject to the assumptions set forth therein, that the Trust will not
be an association (or publicly traded partnership) taxable as a corporation for
federal income tax purposes.
TAX CHARACTERIZATION OF THE TRUST AS A PARTNERSHIP
Federal Tax Counsel will deliver its opinion, subject to the assumptions
set forth therein, that a Trust which is intended to be a partnership, as
specified in the related Prospectus Supplement, will not be an association (or
publicly traded partnership) taxable as a corporation for federal income tax
purposes.
If the IRS were to successfully assert that the Trust was a publicly traded
partnership taxable as a corporation for federal income tax purposes, the Trust
would be subject to corporate income tax on its taxable income. The Trust's
taxable income would include all its income on the Receivables, possibly reduced
by its interest expense on the Notes. Any such corporate income tax could
materially reduce cash available to make payments on the Notes and distributions
on the Certificates, and Certificateholders could be liable for any such tax
that is unpaid by the Trust.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES ISSUED BY A PARTNERSHIP OR A DIVISION
TREATMENT OF THE NOTES AS INDEBTEDNESS. The Sellers will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for federal income tax purposes. Federal Tax Counsel will, except as otherwise
provided in the related Prospectus Supplement, deliver its opinion, subject to
the assumptions set forth therein, that the Notes will be classified as debt for
federal income tax purposes. The discussion below assumes this income tax
characterization of the Notes is correct.
OID. 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
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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
realized by a non-corporation is 20% with respect to capital assets held for
more than one year. Capital losses generally may be used only to offset capital
gains.
BACKUP WITHHOLDING. Payments made on, and proceeds from the sale of Notes
may be subject to a "back up" withholding tax of 31% unless the holder complies
with certain identification requirements. Any amounts withheld will be allowed
as a credit against the holder's federal income tax, provided that the required
information is provided to the IRS.
POSSIBLE ALTERNATIVE TREATMENTS OF THE NOTES. If, contrary to the opinion
of Federal Tax Counsel, the IRS successfully asserted that one or more of the
Notes did not represent debt for federal income tax purposes, the Notes might be
treated as equity interests in the Trust. If so treated, the Trust might be
treated as a publicly traded partnership that would be taxable as a corporation
with the adverse consequences described above unless it met certain qualifying
income tests. Even if the trust qualified for such exception, treatment of the
Notes as equity interests in a publicly traded partnership could have adverse
tax consequences to certain holders. For example, income to foreign investors
generally would be subject to U.S. federal income tax payments, tax return
filing and withholding requirements, and individual holders might be subject to
certain limitations on their ability to deduct their share of Trust expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES ISSUED BY A PARTNERSHIP
TREATMENT OF THE TRUST AS A PARTNERSHIP. With respect to any Trust
intended to be a partnership for tax purposes, as set forth in the related
Prospectus Supplement, each Seller and Franklin Capital will agree, and the
Certificateholders, by their purchase of Certificates will be deemed to have
agreed, to treat the Trust as a partnership for federal, state and local 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.
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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 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
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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 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 20% with respect to capital
assets held for more than one year.
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
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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 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
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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 with respect to which a court in the
United States is able to exercise primary authority over its administration and
one or more United States persons have the authority to control all of its
substantial decisions.
No regulations, published rulings or judicial decisions exist that would
discuss the characterization for federal withholding tax purposes with respect
to a Foreign Person of a partnership with activities substantially the same as
the Trust. Depending upon the particular terms of the related Trust Agreement
and Sale and Servicing Agreement, a trust may be considered to be engaged in a
trade or business in the United States for purposes of federal withholding taxes
with respect to Foreign Persons. If the Trust is considered to be engaged in a
trade or business in the United States for such purposes, the income of the
Trust distributable to a Foreign Person would be subject to Federal withholding
tax at a rate of 35% for persons taxable as a corporation and 39.6% for all
other Foreign Persons. Also, in such cases, a Foreign Person that is a
corporation may be subject to the branch profits tax. If the Trust is notified
that a Certificateholder is a Foreign Person, the Trust intends to withhold as
if it were engaged in a trade or business in the United States in order to
protect the Trust from possible adverse consequences of a failure to withhold.
Subsequent adoption of Treasury regulations or the issuance of other
administrative pronouncements may require the Trust to change its withholding
procedures.
If a Trust is engaged in a trade or business, each foreign
Certificateholder will be required to file a United States federal individual or
corporate income tax return (including in the case of a corporation, the branch
profits tax) on its share of the Trust's income. A Foreign Person generally
would be entitled to file with the IRS a claim for refund with respect to
withheld taxes, taking the position that no taxes were due because the Trust was
not engaged in a United States trade or business. However, interest payments
made to (or accrued by) a Certificateholder who is a Foreign Person may be
considered guaranteed payments to the extent such payments are determined
without regard to the income of the Trust and for that reason or because of the
nature of the Receivables, the interest may not be considered "portfolio
interest" which may qualify for certain exemption from taxation. As a result,
even if the Trust is not considered to be engaged in a U.S. trade or business,
Certificateholders could be subject to United States federal income tax which
must be withheld at a rate of 30% on their share of the Trust's income (without
reduction for interest expense), unless reduced or eliminated pursuant to an
applicable income tax treaty. If the Trust is notified that a Certificateholder
is a Foreign Person, the Trust may be required to withhold and pay over such
tax, which can exceed the amounts otherwise available for distribution to such a
Certificateholder. A Foreign Person would generally be entitled to file with the
IRS a refund claim for such withheld taxes, taking the position that the
interest was portfolio interest and therefore not subject to U.S. tax. However,
the IRS may disagree and no assurance can be given as to the appropriate amount
of tax liability. As a result, each potential foreign Certificateholder 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.
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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.
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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 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
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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.
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
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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.
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.
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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.
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CERTAIN CERTIFICATES TREATED AS INDEBTEDNESS
Upon the issuance of Certificates that are intended to be treated as
indebtedness for federal income tax purposes, Federal Tax Counsel will opine,
subject to the assumptions set forth therein, that based upon its analysis of
the factors discussed below and certain assumptions and qualifications the
Certificates will be treated as indebtedness for federal income tax purposes.
However, opinions of counsel are not binding on the IRS and there can be no
assurance that the IRS could not successfully challenge this conclusion. Such
Certificates that are intended to be treated as indebtedness are herein referred
to as "Debt Certificates" and holders of such Certificates are herein referred
to as "Debt Certificateholders."
Each Seller will express in the Trust Documents its intent that, for
federal, state and local tax purposes, the Debt Certificates be indebtedness
secured by the Receivables. Each Seller will agree and each Debt
Certificateholder, by acquiring an interest in a Debt Certificate, will be
deemed to agree to treat the Debt Certificates as indebtedness for federal,
state and local tax purposes. However, because different criteria are used to
determine the non-tax accounting characterization of the transactions
contemplated by the Trust Documents, the Sellers expects to treat such
transactions, for regulatory and financial accounting purposes, as a sale of
ownership interests in the Receivables and not as debt obligations.
In general, whether for federal income tax purposes a transaction
constitutes a sale of property, or a loan the repayment of which is secured by
the property, is a question of fact, the resolution of which is based upon the
economic substance of the transaction. The form of a transaction, while a
relevant factor, is not conclusive evidence of its economic substance. In
appropriate circumstances, the courts have allowed taxpayers, as well as the
IRS, to treat a transaction in accordance with its economic substance, as
determined under federal income tax laws, notwithstanding that the participants
characterize the transaction differently for non-tax purposes. (In some
instances, however, courts have held that a taxpayer is bound by a particular
form it has chosen for a transaction, even if the substance of the transaction
does not accord with its form. It is expected that Federal Tax Counsel will
advise that the rationale of those latter cases will not apply to the
transactions evidenced by a series of Debt Certificates.)
While the IRS and the courts have set forth several factors to be taken
into account in determining whether the substance of a transaction is a sale of
property or a secured indebtedness for federal income tax purposes, the primary
factor in making this determination is whether the transferee has assumed the
risk of loss or other economic burdens relating to the property and has obtained
the economic benefits of ownership thereof. Federal Tax Counsel will analyze and
rely on several factors in reaching its opinion that the weight of the benefits
and burdens of ownership of the Receivables has not been transferred to the Debt
Certificateholders and that the Debt Certificates are properly characterized as
indebtedness for federal income tax purposes. Contrary characterizations that
could be asserted by the IRS are described below under "-- Possible
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
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Trusts -- Taxation of Holders If Stripped Bond Rules Apply -- Original Issue
Discount." Under Code Section 1272(a)(6), special provisions apply to debt
instruments on which payments may be accelerated due to prepayments of other
obligations securing those debt instruments. However, no regulations have been
issued interpreting those provisions, and the manner in which those provisions
would apply to the Debt Certificates is unclear. Additionally, the IRS could
take the position based on Treasury regulations that none of the interest
payable on a Debt Certificate is "unconditionally payable" and hence that all of
such interest should be included in the Debt Certificate's stated redemption
price at maturity. Accordingly, it is unclear whether interest payable on a Debt
Certificate constitutes "qualified stated interest" that is not included in a
Certificate's stated redemption price at maturity. Consequently, prospective
investors in Debt Certificates should consult their own tax advisors concerning
the impact to them in their particular circumstances. The Prospectus Supplement
will indicate whether the Trust intends to treat the interest on the
Certificates as "qualified stated interest."
TAX CHARACTERIZATION OF TRUST
Consistent with the treatment of the Debt Certificates as indebtedness, the
Trust will be treated as a security device to hold Receivables securing the
repayment of the Debt Certificates. In connection with the issuance of Debt
Certificates of any series, Federal Tax Counsel will render an opinion that,
based on the assumptions set forth therein, under then current law, the issuance
of the Debt Certificates of such series will not cause the applicable Trust to
be characterized for federal income tax purposes as an association (or publicly
traded partnership) taxable as a corporation.
POSSIBLE CLASSIFICATION OF THE TRANSACTION AS A PARTNERSHIP OR AS AN ASSOCIATION
TAXABLE AS A CORPORATION
The opinion of Federal Tax Counsel with respect to Debt Certificates will
not be binding on the courts or the IRS. It is possible that the IRS could
assert that, for federal income tax purposes, the transactions contemplated
constitute a sale of the Receivables (or an interest therein) to the Debt
Certificateholders and that the proper classification of the legal relationship
between the related Seller and some or all of the Debt Certificateholders
resulting from the transactions is that of a partnership or a publicly traded
partnership taxable as a corporation. The Sellers currently do not intend to
comply with the federal income tax reporting requirements that would apply if
any Debt Certificates were treated as interests in a partnership or corporation.
If a transaction were treated as creating a partnership (but not a publicly
traded partnership) between the related Seller and the Debt Certificateholders,
the partnership itself would not be subject to federal income tax (unless it
were characterized as a publicly traded partnership taxable as a corporation);
rather, the partners of such partnership, including the Debt Certificateholders,
would be taxed individually on their respective distributive shares of the
partnership's income, gain, loss, deductions and credits. The amount and timing
of items of income and deductions of a Debt Certificate could differ if the Debt
Certificates were held to constitute partnership interests, rather than
indebtedness. See "-- Tax Consequences to Holders of the Certificates Issued by
a Partnership -- Partnership Taxation."
If it were determined that a transaction created an entity classified as a
publicly traded partnership taxable as a corporation, the Trust would be subject
to federal income tax at corporate income tax rates on the income it derives
from the Receivables, which would reduce the amounts available for distribution
to the Debt Certificateholders. Such classification may also have adverse state
and local tax consequences that would reduce amounts available for distribution
to Debt Certificateholders. Moreover, distributions on Debt Certificates that
are 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.
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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.
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
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the Code. The Sellers, the Trustee, the Owner Trustee and any underwriter of the
offered Securities and certain of their affiliates might be considered "parties
in interest" or "disqualified persons" with respect to a Plan. If so, the
acquisition, holding or transfer of Securities by, or on behalf of, such Plan
could be considered to give rise to a "prohibited transaction" within the
meaning of ERISA and the Code unless a regulatory exception or administrative
exemption is available.
Moreover, the Department of Labor ("DOL") has issued a regulation (29
C.F.R. Section 2510.3-101) (the "Plan Assets Regulation") concerning the
definition of what constitutes the assets of a Plan, which provides that, as a
general rule, the underlying assets and properties of corporations,
partnerships, trusts and certain other entities in which a Plan makes an
"equity" investment will be deemed for purposes of ERISA to be assets of the
investing Plan unless certain exceptions apply. If an investing Plan's assets
were deemed to include an interest in the Trust Property and not merely an
interest in the Securities, transactions occurring in connection with the
servicing, management and operation of the Trust between the Sellers, the Owner
Trustee, the Trustee, the Servicer (or any other servicer), any insurer or any
of their respective affiliates might constitute prohibited transactions, and the
Trust Property would become subject to the fiduciary investment standards of
ERISA, unless a regulatory exception or administrative exemption applies.
With respect to offered Securities which are Certificates, the DOL has
issued to a number of underwriters of pass-through certificates, similar to the
Certificates, administrative exemptions (collectively, the "Exemption"), which
generally exempt from the application of the prohibited transaction provisions
of Section 406(a), Section 406(b)(1) and Section 406(b)(2) of ERISA, and the
excise taxes imposed pursuant to Section 4975(a) and (b) of the Code, the
initial purchase, holding and subsequent resale of mortgage-backed or
asset-backed pass-through certificates representing a beneficial undivided
interest in certain fixed pools of assets held in a trust (as defined in
paragraph III.B of Section III of the Exemption), along with certain
transactions relating to the servicing and operation of such asset pools,
provided that certain conditions set forth in the Exemption are satisfied.
Paragraph III.B of Section III of the Exemption provides in part that a trust
means an investment pool the corpus of which is held in trust and consists
solely of: (1) secured consumer receivables, (2) secured credit instruments, (3)
obligations secured by residential or commercial real property, (4) obligations
secured by motor vehicles or equipment or qualified motor vehicle leases, (5)
guaranteed governmental mortgage pool certificates or (6) an undivided
fractional interest in any of the obligations listed in clauses (1)-(5) above.
If the general conditions of Section II of the Exemption are satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(a) and 407(a) of ERISA (as well as the excise taxes imposed by Section
4975(a) and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of
the Code) in connection with the direct or indirect sale, exchange or transfer
of Certificates by Plans in the initial issue of Certificates, the holding of
Certificates by Plans or the direct or indirect acquisition or disposition in
the secondary market of Certificates by Plans. However, no exemption is provided
from the restrictions of Sections 406(a)(1)(E), 406(a)(2) and 407 of ERISA for
the acquisition or holding of a Certificate on behalf of an "Excluded Plan" by
any person who has discretionary authority or renders investment advice with
respect to the assets of such Excluded Plan. For purposes of the Certificates,
an Excluded Plan is a Plan sponsored by (1) an underwriter which has been
granted an Exemption (or certain specified entities affiliated or associated
with such underwriter) ("Underwriter"), (2) the Sellers, (3) the Servicer (or
any other servicer), (4) the Trustee or Owner 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
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transfer of Certificates in the initial issuance of Certificates between the
related Seller or Underwriter and a Plan when the person who has discretionary
authority or renders investment advice with respect to the investment of Plan
assets in Certificates is (a) an obligor with respect to 5 percent or less of
the fair market value of the Receivables or (b) an affiliate of such a person,
(2) the direct or indirect acquisition or disposition in the secondary market of
Certificates by Plans and (3) the holding of Certificates by Plans.
If the specified conditions of paragraph I.C of Section I of the Exemption
are satisfied, the Exemption may provide an exemption from the restrictions
imposed by Sections 406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c) of the Code
for transactions in connection with the servicing, management and operation of
the Trust and the Trust Property.
The Exemption may provide an exemption from the restrictions imposed by
Sections 406(a) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code
if such restrictions are deemed to otherwise apply merely because a person is
deemed to be a "party in interest" or a "disqualified person" with respect to an
investing Plan by virtue of providing services to the Plan (or by virtue of
having certain specified relationships to such a person) solely as a result of
such Plan's ownership of Certificates.
The Exemption sets forth the following seven general conditions which must
be satisfied for a transaction to be eligible for exemptive relief thereunder.
(1) The acquisition of the Certificates by a Plan is on terms (including
the price for the Certificates) that are at least as favorable to the Plan as
they would be in an arm's length transaction with an unrelated party;
(2) The rights and interests evidenced by the Certificates acquired by the
Plan are not subordinated to the rights and interests evidenced by other
Securities issued by the Trust;
(3) The Certificates acquired by the Plan have received a rating at the
time of such acquisition that is one of the three highest generic rating
categories from either Standard & Poor's Structured Ratings Group, Moody's
Investors Service, Inc., Duff & Phelps Credit Rating Co. or Fitch 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;
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(ii) certificates in such other investment pools must have been rated
in one of the three highest rating categories of one of the National Credit
Rating Agencies for at least one year prior to the Plan's acquisition of
Certificates; and
(iii) certificates evidencing interests in such other investment pools
must have been purchased by investors other than Plans for at least one
year prior to any Plan's acquisition of certificates.
The Exemption may apply to a Plan's purchase, holding and transfer of
Certificates and the operation, management and servicing of the Trust and the
Trust Property as specified in the related Prospectus Supplement. In addition,
in the event the Exemption is not available, certain exemptions from the
prohibited transaction rules may be applicable depending on the type and
circumstances of the plan fiduciary making the decision to acquire a
Certificate. Included among these exemptions are: Prohibited Transaction Class
Exemption ("PTCE") 90-1, regarding investments by insurance company pooled
separate accounts; PTCE 91-38 regarding investments by bank collective
investment funds PTCE 95-60, regarding investments by insurance company general
accounts; PTCE 96-23, regarding transactions affected by in-house asset
managers; and PTCE 84-14, regarding transactions effected by "qualified
professional asset managers."
Certain transactions involving the purchase of Securities which are Notes
might be deemed to constitute prohibited transactions under ERISA and the Code
if the Trust Property were deemed to be assets of a Plan. Under the Plan Assets
Regulation, the Trust Property would be treated as plan assets of a Plan for the
purposes of ERISA and the Code only if the Plan acquires an "Equity Interest" in
the Trust and none of the exceptions contained in the Plan Assets Regulation is
applicable. An Equity Interest is defined under the Plan Assets Regulation as an
interest other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. The Sellers
believe that the Notes should be treated as indebtedness without substantial
equity features for purposes of the Plan Assets Regulation. In addition, even in
the event that the Notes are deemed to be an Equity Interest in the Trust, the
Exemption may be applicable to both a Plan's purchase, holding and transfer of
Notes (which in this situation are considered Certificates for purposes of the
Exemption) and the operation, management and servicing of the Trust and the
Trust Property, if so specified in the related Prospectus Supplement.
Without regard to whether the Notes are characterized as Equity Interests,
the acquisition, transfer or holding of Notes by or on behalf of a Plan could be
considered to give rise to a prohibited transaction if the Trust, the Owner
Trustee or the Trustee or any of their respective affiliates is or becomes a
party in interest or a disqualified person with respect to such Plan. In such
case, PTCE 90-1, PTCE 91-38, PTCE 95-60, PTCE 96-23 and PTCE 84-14 may be
applicable depending on the type and circumstances of the plan fiduciary making
the decision to acquire a Note.
Any Plan fiduciary considering the purchase of Securities should consult
with its counsel with respect to the potential applicability of the fiduciary
responsibility and prohibited transaction provisions of ERISA and the Code to
such investment.
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 prepay-
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ment premium may be payable do not evaluate such prepayment premium payable to
such Securityholders or the likelihood that such prepayment premium will be
paid.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement (the
"Underwriting Agreement") with respect to each Trust, the related Seller will
agree to sell to each of the underwriters named therein and in the related
Prospectus Supplement, and each of such underwriters will severally agree to
purchase from the related Seller, the principal amount of each class of
Securities of the related series set forth therein and in the related Prospectus
Supplement.
In each Underwriting Agreement, the several underwriters will agree,
subject to the terms and conditions set forth therein, to purchase all the
Securities described therein which are offered hereby and by the related
Prospectus Supplement if any of such Securities are purchased. In the event of a
default by any such underwriter, each Underwriting Agreement will provide that,
in certain circumstances, purchase commitments of the nondefaulting underwriters
may be increased or the Underwriting Agreement may be terminated.
Each Prospectus Supplement will either (i) set forth the price at which
each class of Securities being offered thereby will be offered to the public and
any concessions that may be offered to certain dealers participating in the
offering of such Securities, or (ii) specify that the related Securities are to
be resold by the underwriters in negotiated transactions at varying prices to be
determined at the time of such sale. After the initial public offering of any
Securities, the public offering price and such concessions may be changed.
Each Underwriting Agreement will provide that the related Seller will
indemnify the underwriters against certain liabilities, including liabilities
under the Securities Act.
The Owner Trustee or the Indenture Trustee, if any, may, from time to time,
invest funds held by it in any accounts in Eligible Investments acquired from
one or more of the underwriters.
Under each Underwriting Agreement, the closing of the sale of any class of
Securities subject thereto will be conditioned on the closing of the sale of all
other classes.
The place and time of delivery for the Securities in respect of which this
Prospectus is delivered will be set forth in the related Prospectus Supplement.
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NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of any Series of Securities in Canada ("Canadian
Securities") is being made only on a private placement basis exempt from the
requirement that the Trust prepare and file a prospectus with the securities
regulatory authorities in each province where trades of any Canadian Securities
are effected. Accordingly, any resale of any Canadian Securities must be made in
accordance with applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made in accordance
with available statutory exemptions or pursuant to a discretionary exemption
granted by the applicable Canadian securities regulatory authority. Purchasers
are advised to seek legal advice prior to any resale of any Canadian Securities.
REPRESENTATIONS OF PURCHASERS
Each purchaser of any Canadian Securities who receives a purchase
confirmation will be deemed to represent to the related Seller, the Trust and
the dealer from whom such purchase confirmation is received that (i) such
purchaser is entitled under applicable provincial securities laws to purchase
such Canadian Securities without the benefit of a prospectus qualified under
such securities laws, (ii) where required by law, that such purchaser is
purchasing as principal and not as agent, and (iii) such purchaser has reviewed
the text above under "Resale Restrictions."
RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
The Trust, the Sellers, the Servicer, the Owner Trustee, the Indenture
Trustee and their respective directors and officers, if any, as well as the
experts named herein, may be located outside of Canada and, as a result, it may
not be possible for Ontario purchasers to effect service of process within
Canada upon the Issuer or such persons. All or a substantial portion of the
assets of the Issuer and such persons may be located outside of Canada and, as a
result, it may not be possible to satisfy a judgment against the Issuer or such
persons in Canada or to enforce a judgment obtained in Canadian courts against
such Issuer or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of any Canadian Securities to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any of the Securities acquired by such purchaser pursuant to this offering. Such
report must be in the form attached to British Columbia Securities Commission
Blanket Order BOR #88/5. Only one such report must be filed in respect of any
Canadian Securities acquired on the same date and under the same prospectus
exemption.
LEGAL OPINIONS
Unless otherwise specified in the Prospectus Supplement, certain legal
matters relating to the validity of the issuance of the Certificates and the
Notes, if any, of each series will be passed upon for the Sellers and the
Servicer by Weil, Gotshal & Manges LLP, and certain legal matters relating to
the validity of the issuance of the Certificates and the Notes, if any, of such
series will be passed upon for the Underwriter of the Certificates and the
Notes, if any, of such series by Stroock & Stroock & Lavan LLP, New York, New
York.
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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.
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
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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
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
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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.
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
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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.
<TABLE>
<S> <C>
Accounts.................................................... 51
Actuarial Receivables....................................... 22
adjusted issue price........................................ 76
Advance..................................................... 12, 53
Amortization Period......................................... 9, 54
APR......................................................... 22
Bronze...................................................... 31
Canadian Securities......................................... 86
capital assets.............................................. 67
Cede........................................................ 19
Cedel....................................................... 19
Cedel Participants.......................................... 45
Certificate Distribution Account............................ 20, 50
Certificate Factor.......................................... 26
Certificate Majority........................................ 44
Certificateholders.......................................... 4, 19
Certificates................................................ 1
clearing agency............................................. 43
clearing corporation........................................ 43
Code........................................................ 67
Collection Account.......................................... 20, 50
Commission.................................................. 2
Contracts................................................... 62
Cooperative................................................. 45
Copper...................................................... 31
cram-down................................................... 24
Dealer Agreement............................................ 30
dealer reserve.............................................. 30
Dealers..................................................... 7, 29
Debt Certificateholders..................................... 79
Debt Certificates........................................... 79
Definitive Certificates..................................... 44
Definitive Notes............................................ 44
Depositories................................................ 43
Depository.................................................. 36
disqualified person......................................... 83
disqualified persons........................................ 81, 82
Distribution Account........................................ 10, 20
Distribution Accounts....................................... 50
Distribution Date........................................... 10, 36
DOL......................................................... 82
DTC......................................................... 19
due date.................................................... 23
EDGAR....................................................... 2
Eligible Deposit Account.................................... 51
</TABLE>
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<TABLE>
<S> <C>
Eligible Institution........................................ 51
Eligible Investments........................................ 51
Equity Interest............................................. 84
ERISA....................................................... 14, 81
Euroclear................................................... 19
Euroclear Operator.......................................... 45
Euroclear Participants...................................... 45
Events of Default........................................... 39
Exchange Act................................................ 2
Excluded Plan............................................... 82
Exemption................................................... 82
FCC Corp. .................................................. 28
Federal Tax Counsel......................................... 13, 67
Financed Vehicles........................................... 6
first month................................................. 50
First-Time Buyer............................................ 31
Foreign Person.............................................. 73
Foreign Trust............................................... I-4
Franklin Bank............................................... 1
Franklin Capital............................................ 1, 7, 29
Franklin LLC................................................ 28
Franklin Resources.......................................... 3, 35
FTC Rule.................................................... 66
Funding Period.............................................. 7
Global Securities........................................... I-1
Gold........................................................ 31
Grantor Trust Certificateholders............................ 75
Grantor Trust Certificates.................................. 75
Indenture................................................... 1
Indenture Trustee........................................... 1
Independent Director........................................ 28
indirect participants....................................... 43
Initial Cutoff Date......................................... 6
Initial Financed Vehicles................................... 6
Initial Receivables......................................... 6
Insolvency Laws............................................. 16, 65
Interest Rate............................................... 5
Investment Earnings......................................... 51
IRS......................................................... 67
National Credit Rating Agencies............................. 83
Non-Prime................................................... 29
non-prime................................................... 15
Non-Prime Receivables....................................... 7, 20
Note Distribution Account................................... 50
Note Factor................................................. 26
Note Majority............................................... 38
Noteholders................................................. 5, 19
Notes....................................................... 1
Obligor..................................................... 10
</TABLE>
I-6
<PAGE> 262
<TABLE>
<S> <C>
Obligors.................................................... 20
OID......................................................... 68
OID regulations............................................. 68
Owner Trustee............................................... 1, 3
Participants................................................ 43
parties in interest......................................... 81, 82
party in interest........................................... 83
Pass-Through Rate........................................... 4
Payahead Account............................................ 20, 50
Payaheads................................................... 50
Payment Date................................................ 37
Plan Assets Regulation...................................... 82
Plans....................................................... 14
Plan(s)..................................................... 81
Platinum.................................................... 31
Pooling and Servicing Agreement............................. 1
Pre-1996 Programs........................................... 31
Pre-Funded Amount........................................... 7
Pre-Funding Account......................................... 4, 7
Precomputed Receivables..................................... 22
Preferred................................................... 31
Premier..................................................... 31
Prepayment Premium.......................................... 53
prepayments................................................. 26
Prime....................................................... 29
Prime Receivables........................................... 7, 20
Prospectus Supplement....................................... 1
PTCE........................................................ 84
Purchase Agreement.......................................... 7, 48
Purchase Amount............................................. 50
Rating Agencies............................................. 18
Rating Agency............................................... 14, 84
Receivables................................................. 1, 6
Rees-Levering Act........................................... 64
Registration Statement...................................... 2
Related Documents........................................... 41
Restricted Group............................................ 82
Retained Interest........................................... 9
Revolving Period............................................ 9, 54
Rule of 78's Receivables.................................... 22
Rules....................................................... 43
Sale and Servicing Agreement................................ 1
Schedule of Receivables..................................... 48
second month................................................ 50
Section 1286 Treasury Regulations........................... 75
Securities.................................................. 1
Securityholders............................................. 19
Seller...................................................... 1, 3
Sellers..................................................... 1, 3
</TABLE>
I-7
<PAGE> 263
<TABLE>
<S> <C>
Servicer.................................................... 1
Servicer Default............................................ 56
Servicer Fee................................................ 53
Servicer's Certificate...................................... 46
Servicing Fee............................................... 53
Servicing Fee Rate.......................................... 53
Silver...................................................... 31
Simple Interest Receivables................................. 22
Standard.................................................... 31
Strip Certificates.......................................... 5
Strip Notes................................................. 6
Stripped Bond............................................... 75
Sub-Prime................................................... 29
sub-prime................................................... 15
Sub-Prime Receivables....................................... 7, 20
Subprime 1.................................................. 31
Subprime 2.................................................. 31
Subsequent Cut-Off Date..................................... 6
Subsequent Financed Vehicles................................ 6
Subsequent Receivables...................................... 6
Subsequent Transfer Agreement............................... 49
Subsequent Transfer Assignment.............................. 49
Supplemental Servicing Fee.................................. 53
Terms and Conditions........................................ 45
Trust....................................................... 1, 3
Trust Agreement............................................. 1
Trust Documents............................................. 48
Trust Property.............................................. 1
U.S. Person................................................. I-4
UCC......................................................... 62
Underwriter................................................. 82
Underwriting Agreement...................................... 85
</TABLE>
I-8
<PAGE> 264
- -----------------------------------------------------------
- -----------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SELLER
OR GOLDMAN, SACHS & CO. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH THEY RELATE OR
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THEIR
RESPECTIVE DATES.
----------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Forward Looking Statements........................... S-3
Reports to Noteholders............................... S-3
Available Information................................ S-3
Summary of Terms..................................... S-4
Risk Factors......................................... S-11
Use of Proceeds...................................... S-13
The Trust............................................ S-14
The Trust Property................................... S-14
The Receivables...................................... S-16
The Insurer.......................................... S-21
Description of the Notes............................. S-23
Weighted Average Life Considerations................. S-25
Description of the Purchase Agreement and the Trust
Documents.......................................... S-28
The Note Policy...................................... S-37
Ratings.............................................. S-39
Federal Income Tax Consequences...................... S-39
State, Local and Foreign Tax Considerations.......... S-39
ERISA Considerations................................. S-39
Underwriting......................................... S-40
Legal Opinions....................................... S-41
Index of Terms....................................... S-42
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
Available Information................................ 2
Incorporation of Certain Documents by Reference...... 2
Prospectus Summary................................... 3
Risk Factors......................................... 15
The Trusts........................................... 20
The Receivables...................................... 22
Yield and Prepayment Considerations.................. 25
Certificate and Note Factors and Trading
Information........................................ 26
Use of Proceeds...................................... 27
The Sellers.......................................... 28
Franklin Capital Corporation......................... 29
Franklin Resources, Inc.............................. 35
The Certificates..................................... 36
The Notes............................................ 37
Certain Information Regarding the Securities......... 43
Description of the Purchase Agreements and the Trust
Documents.......................................... 48
Certain Legal Aspects of the Receivables............. 62
Federal Income Tax Consequences...................... 67
State and Local Taxation............................. 81
ERISA Considerations................................. 81
Ratings.............................................. 84
Plan of Distribution................................. 85
Notice to Canadian Residents......................... 86
Legal Opinions....................................... 86
Annex I.............................................. I-1
Index of Terms....................................... I-5
</TABLE>
UNTIL DECEMBER , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS
SUPPLEMENT), ALL DEALERS EFFECTING TRANSACTIONS IN THE NOTES, 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
THE PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- -----------------------------------------------------------
- -----------------------------------------------------------
- -----------------------------------------------------------
- -----------------------------------------------------------
[ ]
FRANKLIN AUTO TRUST
1998-1
[ ]
CLASS A-1 [ ]%
ASSET BACKED NOTES
[ ]
CLASS A-2 [ ]%
ASSET BACKED NOTES
FRANKLIN RECEIVABLES LLC
SELLER
FRANKLIN CAPITAL CORPORATION
SERVICER
----------------------
PROSPECTUS SUPPLEMENT
----------------------
----------------------
[FRANKLIN CAPITAL CORP. LOGO]
----------------------
SEPTEMBER [ ], 1998
- -----------------------------------------------------------
- -----------------------------------------------------------
<PAGE> 265
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:
<TABLE>
<S> <C>
SEC Registration Fee.......................................................................... $147,500.00*
Legal Fees and Expenses....................................................................... $300,000.00
Accounting Fees and Expenses.................................................................. $ 50,000.00
Trustee's Fees and Expenses
(including counsel Fees).................................................................... $ 20,000.00
Blue Sky Qualification Fees
and expenses................................................................................ $ 0.00
Printing and Engraving Fees................................................................... $ 50,000.00
Rating Agency Fees............................................................................ $ 80,000.00
Miscellaneous................................................................................. $ 10,000.00
Total......................................................................................... $657,500.00
</TABLE>
- ------------------
* $295.00 has previously been paid.
Item 15. Indemnification of Directors and Officers.
Franklin Receivables LLC
Section 18-108 of the Limited Liability Company Act of Delaware
empowers a limited liability company, subject to such standards and
restrictions, if any, as are set forth in its limited liability company
agreement, to indemnify and hold harmless any member or manager or other person
from and against any and all claims and demands whatsoever. The Amended and
Restated Limited Liability Company Agreement, as amended ("LLC Agreement"), of
the Registrant provides that the Registrant shall defend, indemnify and save
harmless each of its members from and against all claims, losses, damages, cost,
expense, demands, liabilities, obligations, liens, encumbrances, rights of
action or attorneys' fees sustained by reason of any act performed, or omitted
to be performed, in good faith and without gross negligence or willful
misconduct, within the scope of its authority expressly conferred by the LLC
Agreement, to the fullest extent permitted by applicable law in effect on the
date of the LLC Agreement and to such greater extent as applicable law may
hereafter from time to time permit. Such indemnity shall not be construed to
limit or diminish the coverage of each member under any insurance obtained by
the Registrant and payment shall not be a condition precedent to any
indemnification provided in the LLC Agreement.
FCC Receivables Corp.
II-1
<PAGE> 266
Section 145 of the General Corporation Law of Delaware empowers a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that the person is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise. Depending on the character of the proceeding, a corporation may
indemnify against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by the person in
connection with such action, suit or proceeding if the person indemnified acted
in good faith and in a manner the person reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe the person's
conduct was unlawful. If the person indemnified is not wholly successful in such
action, suit or proceeding, but is successful, on the merits or otherwise, in
one or more but less than all claims, issues or matters in such proceeding, such
person may be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by such person in connection with each successfully
resolved claim, issue or matter. In the case of an action or suit by or in the
right of the corporation, no indemnification may be made in respect to any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that despite the adjudication of liability but in the view of
all the circumstances of the case such person is fairly and reasonably entitled
to indemnity for such expenses which 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.
<TABLE>
<CAPTION>
Item 16. Exhibits:
<S> <C> <C>
**1.1 Form of Underwriting Agreement
**3.1 Certificate of Formation of Franklin Receivables LLC, as currently in effect
3.2 Form of Amended and Restated Limited Liability Company 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
</TABLE>
II-2
<PAGE> 267
<TABLE>
<S> <C> <C>
**4.1 Form of Trust Agreement, with form of Certificate attached thereto, among Seller and
Owner Trustee
**4.2 Form of Indenture, with form of Note attached thereto, among the Trust and
Indenture Trustee
**4.3 Form of Pooling and Servicing Agreement, among Seller, Servicer, Franklin Capital
and the Owner Trustee
**4.4 Form of Sale and Servicing Agreement, among Seller, Servicer, Franklin Capital and
the Trust
**4.5 Form of Purchase Agreement, among the Seller and Franklin Capital
5.1 Opinion of Weil, Gotshal & Manges LLP as to legality (including consent of such
firm)
8.1 Opinion of Weil, Gotshal & Manges LLP as to certain tax matters (including consent
of such firm)
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
</TABLE>
- ----------------------------
** 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
II-3
<PAGE> 268
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
B. Filing Incorporating Subsequent Exchange Act Documents By Reference.
The undersigned Registrant and Co-Registrant hereby undertake that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the Registrant's and Co-Registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.
C. Undertaking in respect of indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant and the Co-Registrant, pursuant to the foregoing provisions, or
otherwise, the Registrant and the Co-Registrant have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant or the Co-Registrant of expenses incurred or
paid by a director, officer or controlling 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.
E. Undertaking Pursuant to Rule 430A.
The undersigned Registrant and Co-Registrant hereby undertake that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information, if any, omitted from the form of the prospectus, if
any, filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 269
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. 2 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 18th day of
September, 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. 2 to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
Signature Position Date
*/s/ Leslie Kratter Director of Franklin September 18, 1998
- ---------------------- Capital Corporation
Harmon E. Burns
/s/ Jennifer J. Bolt Director of Franklin September 18, 1998
- ---------------------- Capital Corporation
Jennifer J. Bolt
*/s/ Leslie Kratter Director of Franklin September 18, 1998
- ---------------------- Capital Corporation
Charles B. Johnson
*/s/ Leslie Kratter Director of Franklin September 18, 1998
- ---------------------- Capital Corporation
Rupert H. Johnson, Jr.
*By /s/ Leslie Kratter
------------------
Leslie Kratter
Attorney-in-Fact
II-5
<PAGE> 270
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. 2 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 18th day of September, 1998.
FCC RECEIVABLES CORP.
By: /s/ Leslie Kratter*
--------------------
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. 2 to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
Signature Position Date
*/s/ Leslie Kratter President September 18, 1998
- ---------------------- (Principal Executive Officer)
Martin L. Flanagan
*/s/ Leslie Kratter Principal Financial Officer September 18, 1998
- ----------------------
Charles R. Sims
*/s/ Leslie Kratter Principal Accounting Officer September 18, 1998
- ---------------------- Controller
Kenneth A. Lewis
*/s/ Leslie Kratter Director September 18, 1998
- ----------------------
Harmon E. Burns
*/s/ Leslie Kratter Director September 18, 1998
- ----------------------
Charles B. Johnson
*/s/ Leslie Kratter Director September 18, 1998
- ----------------------
Rupert H. Johnson, Jr.
*/s/ Leslie Kratter Director September 18, 1998
- ----------------------
Merrill L. Magowan
II-6
<PAGE> 271
*/s/ Leslie Kratter Director September 18, 1998
- -----------------------
George A. Poole, Jr.
*By /s/ Leslie Kratter
------------------
Leslie Kratter
Attorney-in-Fact
II-7
<PAGE> 272
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
<S> <C> <C>
**1.1 Form of Underwriting Agreement
**3.1 Certificate of Formation of Franklin Receivables LLC, as
currently in effect
3.2 Form of Amended and Restated Limited Liability Company
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
</TABLE>
- ----------------------------
** Previously filed.
II-8
<PAGE> 1
Exhibit 3.2
FORM
OF
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
FOR
FRANKLIN RECEIVABLES, LLC,
A DELAWARE LIMITED LIABILITY COMPANY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article I - Definitions................................................................. 1
1.1 "Act"............................................................... 1
1.2 "Affiliate"......................................................... 1
1.3 "Bankruptcy Member"................................................. 2
1.4 "Bankruptcy Membership Interest".................................... 2
1.5 "Capital Contribution".............................................. 2
1.6 "Certificate"....................................................... 2
1.7 "Code".............................................................. 2
1.8 "Company"........................................................... 2
1.9 "Distributable Cash"................................................ 2
1.10 "FCC"............................................................... 2
1.11 "Fiscal Year"....................................................... 2
1.12 "Independent Directors"............................................. 3
1.13 "LLC Agreement"..................................................... 3
1.14 "Managing Member"................................................... 3
1.15 "Managing Membership Interest"...................................... 3
1.16 "Members"........................................................... 3
1.17 "Membership Interest"............................................... 3
1.18 "Net Profits" and "Net Losses"...................................... 3
1.19 "Percentage Interest"............................................... 3
1.20 "Permitted Indebtedness"............................................ 3
1.21 "Person"............................................................ 3
1.22 "Purchase Agreement"................................................ 4
1.23 "Receivables"....................................................... 4
1.24 "Receivables Corp."................................................. 4
1.25 "Regulations"....................................................... 4
Article II - Organizational Matters..................................................... 4
2.1 Formation........................................................... 4
2.2 Name................................................................ 4
2.3 Term................................................................ 5
2.4 Registered Office; Registered Agent; Principal Office............... 5
2.5 Address of Members.................................................. 5
2.6 Purpose of Company.................................................. 5
Article III - Capital Contributions..................................................... 11
3.1 Initial Capital Contribution........................................ 11
3.2 Additional Capital Contributions.................................... 11
3.3 No Interest......................................................... 11
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
3.4 Capital Account..................................................... 11
3.5 No Withdrawal of Capital Contribution............................... 11
3.6 No Personal Liability for Return of Capital Contribution............ 11
3.7 Negative Balance in Capital Account................................. 12
3.8 Loans............................................................... 12
Article IV - Member..................................................................... 12
4.1 Limited Liability................................................... 12
4.2 Admission of Additional Members..................................... 12
4.3 Resignations........................................................ 12
4.4 Transaction With the Company........................................ 12
4.5 Remuneration to Member.............................................. 13
4.6 Voting Rights....................................................... 13
4.7 Meetings of the Member.............................................. 13
Article V - Management and Control of the Company; Limited Liability.................... 13
5.1 Management of the Company by Member................................. 13
5.2 Powers With Respect to Management of the Company.................... 13
5.3 Bankruptcy Member Powers............................................ 14
5.4 Performance of Duties; Liability of Managing Member and
Bankruptcy Member................................................... 14
5.5 Limited Liability................................................... 14
Article VI - Allocations of Net Profits and Net Losses and Distributions................ 14
6.1 Allocations of Net Profits and Net Losses........................... 14
6.2 Distributions of the Company........................................ 15
6.3 Form of Distribution................................................ 15
6.4 Return of Distributions............................................. 15
Article VII - Transfer of Interests..................................................... 15
Article VIII - Accounting, Records, Reporting by Members................................ 15
8.1 Books and Records................................................... 15
8.2 Delivery to Member and Inspection................................... 16
8.3 Annual Statements................................................... 16
8.4 Filings............................................................. 16
8.5 Bank Accounts....................................................... 17
8.6 Accounting Decisions and Reliance on Others......................... 17
8.7 Tax Matters for the Company Handled by Member....................... 17
Article IX - Dissolution and Winding-Up................................................. 17
9.1 Termination and Dissolution......................................... 17
9.2 Winding-Up.......................................................... 18
9.3 Order of Payment of Liabilities Upon Dissolution.................... 18
</TABLE>
ii
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<TABLE>
<S> <C>
9.4 No Deficit Restoration.............................................. 18
9.5 Certificate of Cancellation......................................... 18
Article X - Indemnification ............................................................ 19
10.1 Indemnification..................................................... 19
Article XI - Miscellaneous.............................................................. 19
11.1 Complete Agreement.................................................. 19
11.2 Binding Effect...................................................... 19
11.3 Parties in Interest................................................. 19
11.4 Pronouns; Statutory References...................................... 20
11.5 Headings............................................................ 20
11.6 References to this LLC Agreement.................................... 20
11.7 Severability........................................................ 20
11.8 Additional Documents and Acts....................................... 20
11.9 Notices............................................................. 20
11.10 Amendments.......................................................... 20
11.11 Multiple Counterparts............................................... 21
11.12 Remedies Cumulative................................................. 21
11.13 Choice of Law....................................................... 21
</TABLE>
iii
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Page 1
FORM OF
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
FOR
FRANKLIN RECEIVABLES, LLC,
A DELAWARE LIMITED LIABILITY COMPANY
This Amended and Restated Limited Liability Company Agreement is made
as of and is effective the _____ day of August, 1998 ("LLC AGREEMENT"), by
Franklin Capital Corporation, a Utah corporation ("FCC"), as the primary member
and FCC Receivables Corp., a Delaware Corporation ("RECEIVABLES CORP."), as the
second member with reference to the following:
RECITALS
A. The Certificate of Formation for Franklin Receivables, LLC (the
"COMPANY") was filed on June 2, 1998, with the Delaware Secretary of State.
B. On June 8, 1998, FCC adopted and approved a Limited Liability
Company Agreement (the "INITIAL LLC AGREEMENT") for the Company.
C. FCC now desires to amend and restate the Initial LLC Agreement.
AGREEMENT
NOW, THEREFORE, FCC and Receivables Corp., by this LLC Agreement amend
and restate the Initial LLC Agreement for the Company under the laws of the
State of Delaware upon the terms and subject to the conditions of this
Agreement.
Article I - Definitions
When used in this Agreement, the following terms shall have the
meanings set forth below (terms used in this Agreement that are not defined in
this Article 1 shall have the meanings set forth elsewhere in this Agreement or
in Section 18-101 of the Act, as defined below):
Section 1.1 "ACT" shall mean the Delaware Limited Liability Company Act
(6 Del. C. Section 18-101 et. seq.), as the same may be amended from time to
time.
Section 1.2 "AFFILIATE" shall mean a Person or Persons directly or
indirectly, through one or more intermediaries, controlling, controlled by or
under common control with the Person or Persons in question. The term "control",
as used in
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Page 2
the immediately preceding sentence, shall mean, with respect to a Person that is
a corporation, the right to exercise, directly or indirectly, more than 50% of
the voting rights attributable to the shares of the controlled corporation and,
with respect to a Person that is not a corporation, the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of the controlled Person.
Section 1.3 "BANKRUPTCY MEMBER" shall mean Receivables Corp. in its
capacity as a member of the Company or any other Person that succeeds
Receivables Corp. in that capacity.
Section 1.4 "BANKRUPTCY MEMBERSHIP INTEREST" shall mean the Bankruptcy
Member's limited right to manage the Company with respect to voting on the
certain matters specified in Section 2.6(d) hereof [and the limited right to
manage the Company in the event the Managing Member is the subject of a
bankruptcy proceeding and is incapable of carrying out its management
responsibilities hereunder]. The Bankruptcy Member has no right to any
distributions hereunder and has no economic interest in the Company.
Section 1.5 "CAPITAL CONTRIBUTION" shall mean the total of cash and
other assets contributed to the Company by the Managing Member.
Section 1.6 "CERTIFICATE" shall mean the Certificate of Formation of
the Company, filed with the Delaware Secretary of State on June 2, 1998 (which
is hereby ratified and approved in all respects), as amended from time to time.
Section 1.7 "CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time, the provisions of succeeding law, and to the extent
applicable, the Regulations.
Section 1.8 "COMPANY" shall mean Franklin Receivables, LLC, a Delaware
limited liability company.
Section 1.9 "DISTRIBUTABLE CASH" shall mean the amount of cash which
the Managing Member deems available for distribution, taking into account all
the Company's debts, liabilities, and obligations then due (including, without
limitation, any agreement to purchase or sell Receivables) and amounts necessary
to place into reserves for customary and usual claims with respect to the
Company's business.
Section 1.10 "FCC" means Franklin Capital Corporation, a Utah
corporation.
Section 1.11 "FISCAL YEAR" shall mean the Company's fiscal year, which
shall be the calendar year.
Section 1.12 "INDEPENDENT DIRECTORS" shall have the meaning set forth
in
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Section 2.6(c) hereof.
Section 1.13 "LLC AGREEMENT" shall mean this Amended and Restated
Limited Liability Company Agreement dated August ___, 1998, for Franklin
Receivables, LLC, as originally executed and as amended from time to time.
Section 1.14 "MANAGING MEMBER" shall mean FCC in its capacity as a
member of the Company or any other Person that succeeds FCC in that capacity,
who is appointed as sole manager within the meaning of the Act.
Section 1.15 "MANAGING MEMBERSHIP INTEREST" shall mean all of the
Managing Member's right, title and interest in, to and against the Company,
including rights to Distributable Cash of the Company and all other rights of
the Managing Member to participate in the business, affairs and management of
the Company, including without limitation, the right to vote on or grant consent
or approval with respect to matters coming before the Company.
Section 1.16 "MEMBERS" shall mean the Managing Member and the
Bankruptcy Member.
Section 1.17 "MEMBERSHIP INTEREST" shall mean the Bankruptcy Membership
Interest and the Managing Membership Interest.
Section 1.18 "NET PROFITS" and "NET LOSSES" shall mean the net profits
and net losses of the Company for a period (or from a transaction) as determined
in accordance with generally accepted accounting principles, consistently
applied.
Section 1.19 "PERCENTAGE INTEREST" shall mean the limited liability
interest in the Company expressed as a percentage of the total limited liability
interests outstanding. The Percentage Interest of the Managing Member is 100.0%.
The Percentage Interest of the Bankruptcy Member is 0.0%.
Section 1.20 "PERMITTED INDEBTEDNESS" shall mean the indebtedness
permitted under Section 2.6(b)(iv) hereof.
Section 1.21 "PERSON" shall mean any individual, sole proprietorship,
corporation, general partnership, limited partnership, limited liability company
or partnership, joint venture, association, joint stock company, bank, trust,
estate, unincorporated organization, any federal, state, county or municipal
government (or any agency or political subdivision thereof), endowment fund or
any other form of entity.
[Section 1.22 "PURCHASE AGREEMENT" shall mean [ ].]
Section 1.23 "RECEIVABLES" shall have the meaning set forth in Section
2.6(a)(i)
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hereof.
Section 1.24 "RECEIVABLES CORP." shall mean FCC Receivables Corp., a
Delaware corporation.
Section 1.25 "REGULATIONS" shall, unless the context clearly indicates
otherwise, mean the regulations currently in force as formal or temporary that
have been issued by the U.S. Department of Treasury pursuant to its authority
under the Code.
ARTICLE II - ORGANIZATIONAL MATTERS
Section 2.1 FORMATION. Pursuant to the Act, FCC formed a limited
liability company under the laws of the State of Delaware by filing the
Certificate with the Delaware Secretary of State and otherwise complying with
the requirements of the Act for the formation of limited liability companies.
The filing of the Certificate of the Company with the Delaware Secretary of
State is hereby ratified and approved in all respects. FCC and Receivables Corp.
(and any successors thereto as Members) are hereby designated as the authorized
persons, within the meaning of the Act, to execute, deliver and file with the
Delaware Secretary of State any amendments and/or restatements of the
Certificate of the Company. Without the need for the consent of any Person, FCC
is hereby admitted to the Company as the Managing Member of the Company and
Receivables Corp. is hereby admitted to the Company as the Bankruptcy Member of
the Company. The rights and liabilities of each Member shall be determined
pursuant to the Act and this Agreement. To the extent that the rights or
obligations of each Member are different by reason of any provision of this
Agreement than they would be in the absence of such provision, this Agreement
shall control, to the extent permitted by the Act.
Section 2.2 NAME. The name of the Company shall be "FRANKLIN
RECEIVABLES, LLC". The business of the Company may be conducted under that name
or, upon compliance with applicable laws, any other name that the Managing
Member deems appropriate or advisable. The Managing Member shall qualify the
Company to do business in California and Utah and shall file any qualification
instruments and fictitious name certificates and similar filings, and any
amendments thereto, as necessary to qualify the Company to conduct business in
the State of California and Utah or which the Managing Member otherwise
considers appropriate or advisable in accordance with Article 5 of this
Agreement.
Section 2.3 TERM. The term of this Agreement shall commence from the
date as set forth in the introductory paragraph and shall continue until
dissolution of the Company, as hereinafter provided.
Section 2.4 REGISTERED OFFICE; REGISTERED AGENT; PRINCIPAL OFFICE. The
<PAGE> 9
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Company shall continuously maintain a registered office and registered agent in
the State of Delaware as required by the Act. At the time of its formation, the
registered office and registered agent of the Company in Delaware is The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, County of New Castle, Delaware 19801. In addition, the Company shall
maintain its principal office at [47 West 200 South, Suite 500, Salt Lake City,
Utah 84101], or at such other place as the Managing Member may determine. The
registered office, registered agent and principal office of the Company may be
changed at any time and from time to time by the Managing Member.
Section 2.5 ADDRESS OF MEMBERS. The address of FCC as the initial
Managing Member as of the date of this Agreement is [47 West 200 South, Suite
500, Salt Lake City, Utah 84101], Attention: [________________]. The address of
Receivables Corp. as the initial Bankruptcy Member as of the date of this
Agreement is [47 West 200 South, Suite 500, Salt Lake City, Utah 84101],
Attention: [________________]. A copy of all communications sent by the Company
or its Managing Member to Receivables Corp. shall also be sent to
[____________________________], Attention: [________________]. Any successor
Member who is admitted shall notify FCC, Receivables Corp. and the Company of
its address upon admission to membership. Each Member shall provide notice of a
change in its address to the Managing Member and the Company.
Section 2.6 PURPOSE OF COMPANY.
(a) The nature of the business or purposes to be conducted or
promoted by the Company is to engage solely in the following activities:
(i) to acquire from time to time all right, title and interest
in and to receivables or leases arising out of or relating to the financing,
sale or lease of new or used motor vehicles or industrial equipment, including
automobiles, light and heavy duty trucks, and recreational vehicles, monies due
thereunder, security interests in the motor vehicles or equipment financed
thereby, proceeds from claims on insurance policies related thereto, and related
rights (collectively, "RECEIVABLES");
(ii) to acquire, own, hold, service, sell, assign, pledge and
otherwise deal with the Receivables, collateral securing the Receivables,
related insurance policies, agreements with motor vehicle or equipment dealers
or lessors or other obligors, originators or servicers of Receivables and any
proceeds or further rights associated with any of the foregoing;
(iii) to transfer Receivables to corporations, trusts (the
"TRUSTS") or other entities (each a "TRANSFEREE") pursuant to one more
receivables purchase agreements, pooling and servicing agreements, sale and
servicing agreements or other agreements (the "AGREEMENTS") to be entered into
by and among, among others, the
<PAGE> 10
Page 6
Company, the Transferee named therein and any entity acting as collection agent
or servicer of the Receivables;
(iv) to sell Receivables to, or to finance ownership of
Receivables through, one or more Transferees established to fund the transfer of
Receivables through the issuance of commercial paper notes (such Transferee's
commercial paper notes issued to fund such Receivables, the "COMMERCIAL PAPER")
pursuant to one or more Agreements to be entered into by and among, among
others, the Company, such Transferee and any entity acting as collection agent
or servicer of the Receivables;
(v) to authorize, sell and deliver any class of certificates
or other securities (collectively, the "CERTIFICATES") issued by a Trust or
other Transferee under the related Agreements;
(vi) to acquire from FCC or Receivables Corp. certificates
issued by one or more grantor trusts to which FCC or Receivables Corp.
transferred Receivables;
(vii) to issue, sell, authorize and deliver one or more series
and classes of bonds, notes or other evidence of indebtedness secured or
collateralized by one or more pools of Receivables or by certificates of any
class issued by one or more trusts or by certificates of any class issued by a
grantor trust established by FCC (collectively, the "NOTES");
(viii) to hold and enjoy all of the rights and privileges of
any Certificates issued by the Trusts to the Company under the related
Agreements and to hold and enjoy all of the rights and privileges of any class
of any series of Notes or Certificates, including any class of Notes or
Certificates which may be subordinate to any other class of Notes or
Certificates, respectively;
(ix) to perform its obligations under the Agreements and any
indenture or other agreement (each, an "INDENTURE") pursuant to which any
Certificates or Notes are issued; and
(x) to engage in any activity, to exercise any powers
permitted to limited liability companies under the laws of the State of Delaware
and to transact any and all lawful business that is reasonably necessary,
appropriate, proper, advisable, related, incidental or convenient to the
conduct, promotion or attainment or for the furtherance of the purposes,
activities and businesses described in this Section 2.6(a) and for the
protection of the Company. In furtherance of such purposes, the Company shall
have the power, and is hereby authorized to buy and sell Receivables.
(b) Notwithstanding any other provision of this Agreement to
the contrary, and any provision of law that otherwise so empowers the Company,
the Company shall not do any of the following:
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(i) own any asset or property other than (A) the
Receivables, and (B) incidental personal and intangible property relating to the
ownership of the Receivables;
(ii) engage in any business other than those set
forth in subsection (a) above;
(iii) enter into any contract or agreement with any
Affiliate of the Company, any constituent party of the Company, or any Affiliate
of any constituent party, except in the ordinary course of business and upon
terms and conditions that are substantially similar to those that would be
available on an arms-length basis with third parties;
(iv) incur any indebtedness, or assume or guarantee
any indebtedness of any other entity, secured or unsecured, direct or indirect,
absolute or contingent other than (A) any indebtedness incurred in connection
with any Commercial Paper, Certificates or Notes, provided that any such future
indebtedness incurred in connection with any Certificates or Notes must be rated
in an investment grade ratings category by at least one nationally recognized
rating agency and (B) any indebtedness to FCC or any Affiliate thereof incurred
in connection with the acquisition of Receivables, which indebtedness shall be
subordinated to all other obligations of the Company and shall be nonrecourse
debt of the Company, except with respect to proceeds of the Receivables in
excess of such proceeds necessary to pay all obligations in relation to the
Commercial Paper, Certificates or Notes ("EXCESS PROCEEDS"), and shall not
constitute a claim against the Company to the extent that Excess Proceeds are
insufficient to pay such indebtedness (provided that such indebtedness is also
expressly authorized by the [Bankruptcy Member,] including all of its
Independent Directors), or endeavor to obtain credit or incur any other
obligations (other than with respect to Receivables) to any Person based on the
assets of any Person other than itself or pledge its assets for the benefit of
any other Person; or fail to correct promptly any known misunderstanding with
respect to the foregoing;
(v) become insolvent or not pay its debts and
liabilities (including operating expenses, employment and overhead expenses)
from its assets as the same shall become due;
(vi) fail to do or cause to be done all things
necessary to observe organizational formalities and preserve its existence, or
amend, modify, or otherwise change the organizational documents of the Company
without the prior written authorization of all its Members, including that of
all the Independent Directors of the Bankruptcy Member;
(vii) fail to maintain all of its books, records, and
bank
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accounts separate from those of its Affiliates and any constituent party or fail
to prepare separate financial statements (even if consolidated financial
statements are also prepared) audited by independent certified public
accountants, and file its own tax returns (except to the extent consolidation is
required as a matter of law);
(viii) fail to hold itself out to the public as a
legal entity separate and distinct from any other Person (including any of its
Affiliates, any of its constituent parties, or any Affiliate of any constituent
party), fail to conduct business in its own name or fail to maintain and utilize
separate telephone numbers, stationery, invoices and checks;
(ix) fail to maintain adequate capital in light of
its contemplated business purpose;
(x) commingle or pool Company funds and assets with
those of any other Person;
(xi) fail to maintain its assets in such a manner
that it will not be costly or difficult to segregate, ascertain or identify its
individual assets from those of any Affiliate or constituent party or any
Affiliate of any constituent party or any other Person;
(xii) hold itself out to be responsible for or
guaranty the debts or obligations of any other Person;
(xiii) seek to merge into or consolidate with any
Person or dissolve (in whole or in part), wind up (in whole or in part),
terminate, convert to a different form of business association (or otherwise
change its legal structure) including, but not limited to, transfer of the
membership interests of any Member, in whole or in part, or liquidate (in whole
or in part), transfer or otherwise dispose of all or substantially all of its
assets, unless:
(A) the entity (if other than the Company) formed or
surviving the consolidation or merger or which acquires the properties
and assets of the Company is organized and existing under the laws of
the State of Delaware, expressly assumes the due and punctual payment
of, and all obligations of the Company, including those obligations of
the Company under any Agreement and any Indenture, and has a
certificate of incorporation, limited liability company agreement or
other controlling document containing provisions identical to the
provision of this Section 2.6; and
(B) immediately after giving effect to the
transaction, no default or event of default has occurred and is
continuing under any
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indebtedness of the Company or any agreements relating to such
indebtedness; and
(C) the entity (if other than the Company) formed or
surviving the consolidation or merger or which acquires the properties
and assets of the Company agrees that (i) it shall maintain its funds
or assets as identifiable and not commingle its funds or assets with
those of any direct or ultimate parent of such entity and pay from its
assets all obligations and indebtedness of any kind incurred by it,
(ii) it shall maintain separate bank accounts, company records and
books of account from those of any direct or ultimate parent of such
entity and (iii) the business affairs of such entity will be managed by
or under the direction of its Board of Directors, Managing Board,
Managing Member, or other governing board and it will conduct its
business from an office separate from any direct or ultimate parent of
such entity; and
(D) the organizational and constituent documents and
the surviving entity's organizational documents continue to have
provisions identical to the provisions of this Section 2.6;
(xiv) file or consent to the filing of any petition,
either voluntary or involuntary, for insolvency, bankruptcy, liquidation,
receivership, or reorganization under any laws or regulations, or make an
assignment for the benefit of creditors or, except as required by law, admit in
writing its inability to pay its debts as they come due, except as contemplated
by Section 2.6(d) of this LLC Agreement;
(xv) share any common logo with or hold itself out as
or be considered as a department or division of any Member, or any other Person;
(xvi) take any action that could reasonably be
expected to cause the Company to be treated as an association taxable as a
corporation for federal, state or local tax purposes, or
(xvii) fail to fairly allocate and apportion any
overhead (including costs of office space, utilities and routine services) or
other expenses (including employee salaries and benefits) shared between the
Company and any other Person.
(c) The Bankruptcy Member of the Company shall at all times
cause there to be at least one duly appointed director of its Board of Directors
who is an independent director (an "INDEPENDENT DIRECTOR") who shall not have
been or be at the time of such individual's appointment, and may not have been
at any time during the preceding five (5) years preceding his or her appointment
(A) a member, shareholder, partner, director, officer or employee of the
Company, or of any Member or any Affiliate
<PAGE> 14
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of any of them (provided, however, that the Independent Director may be a
director of a subsidiary of the Company); (B) a customer of, or supplier or
service provider (including professionals) to, the Company or its Members or any
of the Company's or Members', shareholders, partners, or subsidiaries, or any
Affiliate of any of them, if the revenues therefrom to such director account for
over 5% of such director's gross annual revenues; (C) a Person controlling any
of the foregoing; (D) any other Person receiving a material portion of his or
her compensation or other financial remuneration from, or who is otherwise
financially dependent on, an officer, director or employee of the Company or any
Member, or any of their Affiliates or an officer's, director's or employee's
family member by blood or marriage or a business entity owned or controlled by
any of the foregoing; or (E) a spouse, parent, sibling or child of any Person
described by (A), (B), (C) or (D) above. As used in this Section 2.6 (c), the
term "controlled" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person whether
through ownership of voting securities, by contract or otherwise.
(d) Notwithstanding any other provision of this LLC Agreement
or the Certificate or of law that otherwise so empowers the Company, the Company
shall not [, without the unanimous affirmative vote of all of the Members, which
vote must include the vote of all of the Independent Directors of the Bankruptcy
Member,] take any of the following actions: (i) the dissolution, winding up,
liquidation, consolidation, conversion to another form of business association,
or change in the legal structure of the Company including, but not limited to,
transfer of the membership interests of any Member in whole or in part, the
merger of the Company; (ii) the engagement by Company in any business other than
as specified in Section 2.6(a); or (iii) the amendment or modification of this
Section 2.6. Notwithstanding another provision of this Agreement or the
Certificate or of law that otherwise so empowers the Company, the Company shall
not, without the unanimous affirmative vote of all of the Members, which vote
must include the vote of all of the Independent Directors of the Bankruptcy
Member, take any of the following actions: (A) institute proceedings to be
adjudicated bankrupt or insolvent, or consent to the institution of bankruptcy
or insolvency proceedings against it, or file a petition seeking or consenting
to reorganization or relief under any applicable federal or state law relating
to bankruptcy, or consent to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the Company or a
substantial part of its property, or make any assignment for the benefit of
creditors, or except as required by law, admit in writing its inability to pay
its debts generally as they become due, or take Company action in furtherance of
any such action; or (B) the amendment or modification of any provision of this
Agreement (other than this Section 2.6, amendment of which by the Company is
prohibited by the prior sentence of this Section 2.6(d)) or the Certificate; and
any purported action of the Company which violates this sentence shall be void
ab initio and of no force or effect.
(e) The Company shall have no liabilities, contingent or
otherwise, other than the Permitted Indebtedness.
<PAGE> 15
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Section 2.7 LIMITED LIABILITY COMPANY INTEREST. FCC shall, on the
execution hereof, sell, transfer or contribute to the Company from time to time
all its right, title and interest in and to a pool of Receivables and related
assets in a related Purchase Agreement (a "TRANSACTION"). FCC will represent,
warrant and covenant in each Purchase Agreement to the Company that the
Receivable sold thereby will be free and clear of all liens and encumbrances,
except for those which constitute Permitted Indebtedness and that the sale,
transfer or contribution of the Receivables and related assets and the
consummation of the transactions contemplated by this LLC Agreement and the
related Purchase Agreement were duly authorized.
ARTICLE III - CAPITAL CONTRIBUTIONS.
Section 3.1 INITIAL CAPITAL CONTRIBUTION. The Managing Member shall, on
the execution hereof, contribute [__________] to the Company. The Managing
Member shall execute any additional assignments and documents necessay to
evidence the foregoing assignment to Company.
Section 3.2 ADDITIONAL CAPITAL CONTRIBUTIONS. The Managing Member may
contribute additional capital to the Company in such amounts and at such times
as Managing Member shall determine in its sole and absolute discretion.
Section 3.3 NO INTEREST. The Managing Member shall not be entitled to
receive interest on any Capital Contributions.
Section 3.4 CAPITAL ACCOUNT. The Company shall establish and maintain a
capital account for the Managing Member to which it shall credit the amount of
its Capital Contributions and Net Profits of the Company from time to time and
to which it shall charge the Managing Member's share of distributions and Net
Losses. The initial capital account of the Managing Member shall be equal to
[$____]
Section 3.5 NO WITHDRAWAL OF CAPITAL CONTRIBUTION. Except as otherwise
provided in this LLC Agreement, the Managing Member shall not withdraw any
Capital Contributions without the consent of all the Members. The Managing
Member shall not receive any drawing with respect to its Capital Contributions
except as otherwise provided in this LLC Agreement.
Section 3.6 NO PERSONAL LIABILITY FOR RETURN OF CAPITAL CONTRIBUTION.
Notwithstanding anything to the contrary contained herein, no Member shall be
personally liable for the return of Capital Contributions or the return of any
additions to the capital accounts of the other Members or the return of any
portion of such Capital Contributions or capital account, it being expressly
agreed that any return of Capital Contributions as may be made at any time, or
from time to time, shall be made solely
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from the assets of the Company and only in accordance with the term hereof.
Section 3.7 NEGATIVE BALANCE IN CAPITAL ACCOUNT. Except as may be
required by law, at no time during the term of the Company, or upon the
dissolution or liquidation thereof, shall the Managing Member have any
obligation to the Company or any other Member to restore any negative balance in
its capital account.
Section 3.8 LOANS. The Managing Member may, but shall not be required
to, make loans to the Company and in respect of such loans shall be treated as a
creditor of the Company. Such loans shall be repaid as and when the Company has
funds available therefor, and such loans and interest thereon (at rates to be
agreed upon by the Managing Member and the Company) shall constitute obligations
of the Company. Any such loan shall not increase the Managing Member's capital
account, entitle the Managing Member to any increase in its share of the Net
Profits or to any greater proportion of Net Losses which the Company may
sustain.
ARTICLE IV - MEMBER.
Section 4.1 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 solely the debts, obligations and
liabilities of the Company, and each Member shall not be obligated personally
for any such debt, obligation or liability of the Company solely by reason of
being a member of the Company.
Section 4.2 ADMISSION OF ADDITIONAL MEMBERS. No additional members
shall be admitted to the Company, it being the intent of the Members that the
Company shall at all times be a two member limited liability company. Without
the need for the consent of any Person, upon a transfer of the limited liability
company interest in accordance with this LLC Agreement the transferee shall be
deemed admitted as Members of the Company upon the effective date of such
transfer.
Section 4.3 RESIGNATIONS. The Members shall not resign as the members
of the Company.
Section 4.4 TRANSACTION WITH THE COMPANY. Subject to any limitations
set forth in this LLC Agreement, including without limitation, Section 2.6
hereof, the Managing Member may lend money to, act as a surety, guarantor or
endorser for, guarantee or assume one or more obligations of, provide collateral
for, and transact other business with the Company. Subject to this LLC Agreement
and applicable law, the Managing Member has the same rights and obligations with
respect to any transaction with Company as a person or entity who is not a
member or manager.
Section 4.5 REMUNERATION TO MEMBER. Except as otherwise authorized in
or pursuant to this LLC Agreement, the Members are not entitled to remuneration
for
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acting on Company business.
Section 4.6 VOTING RIGHTS. Except as expressly modified in this LLC
Agreement, each Member shall have the [voting, approval and consent] rights
provided in the Act.
Section 4.7 MEETINGS OF THE MEMBER. No annual or regular meeting of the
Members is required.
ARTICLE V - MANAGEMENT AND CONTROL OF THE COMPANY; LIMITED LIABILITY
Section 5.1 MANAGEMENT OF THE COMPANY BY MEMBER. The business, property
and affairs of the Company shall be managed solely by or under the direction of
the Managing Member and all powers of the Company shall be exercised by or under
the direction of Managing Member, except only for the powers which require the
vote of the Bankruptcy Member under this Article 5. The Managing Member shall,
on behalf of and in the name of the Company, and in addition to the general
management obligations for the operation of the Company and the obligations of
the Managing Member provided for elsewhere in this LLC Agreement or by law,
cause the Company to perform the obligations and otherwise comply with the
requirements set forth in Section 2.6 of this LLC Agreement. The Managing Member
shall conduct the affairs of the Company in the best interest of the Company and
the Members, including the safekeeping and use of all Company funds for the
benefit of the Company and the Members.
Section 5.2 POWERS WITH RESPECT TO MANAGEMENT OF THE COMPANY. Subject
to the limitations set forth in Section 2.6 and in Section 5.3 or expressly
provided elsewhere in this LLC Agreement, the Managing Member shall have all
necessary powers to manage and carry out the management of the Company and the
power to sign contracts and obligations on behalf of the Company, including
without limitation, the power to exercise on behalf and in the name of the
Company all of the powers of a manager described in the Act. The Managing
Member, in its capacity as a manager of the Company, has the authority to bind
the Company. Except as otherwise provided herein, the Bankruptcy Member, in its
capacity as a member of the Company, does not have the authority to bind the
Company. Notwithstanding any other provision of this LLC Agreement, the Company,
and the Managing Member on behalf of the Company, may enter into and perform
such agreements as are necessary to carry out the purposes of the Company
without any further act, vote or approval.
Section 5.3 BANKRUPTCY MEMBER POWERS. Subject to the terms of the Act
and as otherwise provided under this Section 5, the Company shall be managed by
the Bankruptcy Member to the extent, and only to the extent, of the matters
described in
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Section 2.6(d) hereof, and any action taken by the Bankruptcy Member to approve
or ratify any action described in Section 2.6(d) shall require the unanimous
approval of all the Members (including all the Independent Directors of the
Bankruptcy Member). The Bankruptcy Member is hereby designated as a manager
within the meaning of the Act but shall have only the rights and powers as are
set forth in this Section 5.3 and shall not have the authority, acting alone or
together, to bind the Company.
Section 5.4 PERFORMANCE OF DUTIES; LIABILITY OF MANAGING MEMBER AND
BANKRUPTCY MEMBER. Neither the Managing Member nor Bankruptcy Member shall be
liable to Company for any loss or damage sustained by Company, unless the loss
or damage shall have been the result of an act performed, or omitted to be
performed, in bad faith or with gross negligence or willful misconduct by the
Managing Member or by the Bankruptcy Member, as the case may be. To the extent
that, at law or in equity, the Managing Member or the Bankruptcy Member has
duties (including fiduciary duties) and liabilities relating thereto to the
Company or to the other Member, the Managing Member and the Bankruptcy Member
acting under this LLC Agreement shall not be liable to the Company or to the
other Member for its good faith reliance on the provisions of this LLC
Agreement. The provisions of this LLC Agreement, to the extent that they
restrict the duties and liabilities of the Managing Member or the Bankruptcy
Member otherwise existing at law or in equity, are agreed by the parties hereto
to replace, to the fullest extent permitted by law, such other duties and
liabilities of the Managing Member and the Bankruptcy Member.
Section 5.5 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 solely the debts, obligations and
liabilities of the Company, and neither the Managing Member nor the Bankruptcy
Member shall be obligated personally for any such debt, obligation or liability
of the Company solely by reason of being a manager or member of the Company.
ARTICLE VI - ALLOCATIONS OF NET PROFITS AND NET LOSSES AND DISTRIBUTIONS
Section 6.1 ALLOCATIONS OF NET PROFITS AND NET LOSSES. Net Profits and
Net Losses shall be allocated solely to the Managing Members as the holder of
100% of the Percentage Interest.
Section 6.2 DISTRIBUTIONS OF THE COMPANY. Distributable Cash shall be
distributed solely to the Managing Member. All such distributions shall be made
only to the Person who, according to the books and records of the Company, is
the holder of record of the Managing Membership Interest in respect of which
such distributions are made on the actual date of distribution. Notwithstanding
any provision to the contrary contained in this LLC Agreement, the Company shall
not make a distribution which would violate the Act or other applicable law.
Neither the Company nor the Managing
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Member shall incur any liability for making distributions in accordance with
Section 2.6 and this Section 6.2.
Section 6.3 FORM OF DISTRIBUTION. The Managing Member has no right to
demand and receive any distribution from the Company in any form other than
money. Except upon a dissolution and winding-up of the Company, the Managing
Member may not be compelled to accept from the Company a distribution of any
asset in kind.
Section 6.4 RETURN OF DISTRIBUTIONS. Except for distributions made in
violation of the Act, other applicable law, or this LLC Agreement, the Managing
Member shall not be obligated to return any distribution to the Company or pay
the amount of any distribution for the account of the Company or to any creditor
of the Company. The amount of any distribution returned to the Company by the
Managing Member or paid by the Managing Member for the account of the Company or
to a creditor of the Company shall be added to the account or accounts from
which it was subtracted when it was distributed to the Managing Member.
ARTICLE VII - TRANSFER OF INTERESTS
Subject to Section 2.6, the Members shall not be entitled to directly
or indirectly transfer, assign, convey, sell, encumber or in any way alienate
all or any part of their Membership Interest (a "TRANSFER"). To the fullest
extent permitted by law, transfers in violation of this Article 7 shall be null
and void ab initio.
ARTICLE VIII - ACCOUNTING, RECORDS, REPORTING BY MEMBERS
Section 8.1 BOOKS AND RECORDS. The books and records of the Company
shall be kept, and the financial position and the results of its operations
recorded, in accordance with generally accepted accounting principles or such
other commonly accepted accounting methods, consistently applied, as may be
selected by the Managing Member from time to time. The books and records of the
Company shall reflect all the Company transactions and shall be appropriate and
adequate for the Company's business. The Company shall maintain at its principal
office all of the following:
(1) MEMBERS. A record of the full name and last known business
address of each Member, together with the capital account, Capital
Contributions, and Percentage Interest of such Member;
(2) CERTIFICATE. A copy of the Certificate and any and all
amendments thereto together with executed copies of any powers of attorney
pursuant to which the Certificate or any amendments thereto have been executed;
(3) TAX RETURNS. Copies of the Company's federal, state, and
local
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income tax or information returns and reports, if any;
(4) LLC AGREEMENT. A copy of this LLC Agreement and any and
all amendments thereto together with executed copies of any powers of attorney
pursuant to which this LLC Agreement or any amendments thereto have been
executed;
(5) FINANCIAL STATEMENTS. Copies of the financial statements
of the Company, if any, for the six (6) most recent Fiscal Years (but if for
less than six (6) years, then for the number of Fiscal Years the Company has
been in existence); and
(6) BOOKS AND RECORDS. The Company's books and records as
they relate to the affairs of the Company (including, without limitation,
accounting records, leases, contracts and other agreements) for at least the
current and past six (6) Fiscal Years (but if for less than six (6) years, then
for the number of Fiscal Years the Company has been in existence).
Section 8.2 DELIVERY TO MEMBER AND INSPECTION. Each Member has the
right to inspect and copy during normal business hours any of the Company
records described in Sections 8.1(1) through (6).
Section 8.3 ANNUAL STATEMENTS. The Managing Member shall cause to be
prepared at least annually, at the Company's expense, information necessary for
the preparation of each Member's federal and state income tax returns. Within
ninety (90) days after the end of each Fiscal Year, such information as is
necessary to complete federal and state income tax or information returns shall
be made available to each Member, and a copy of the Company's federal, state,
and local income tax or information returns, if any, for that year.
Section 8.4 FILINGS. The Managing Member, at the Company's expense,
shall cause the income tax and information returns, if any, for the Company to
be prepared and timely filed with the appropriate authorities. The Managing
Member, at the Company's expense, shall also cause to be prepared and timely
filed, with appropriate federal and state regulatory and administrative bodies,
amendments to or restatements of the Certificate and all reports required to be
filed by the Company with those entities under the Act or other then current
applicable laws, rules, and regulations.
Section 8.5 BANK ACCOUNTS. Subject to the requirements under Section
2.6 of this LLC Agreement, the Managing Member shall maintain the funds of the
Company in one or more separate bank accounts.
Section 8.6 ACCOUNTING DECISIONS AND RELIANCE ON OTHERS. All decisions
as to accounting matters, except as otherwise specifically set forth herein,
shall be made by the Managing Member. The Managing Member may rely upon the
advice of
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its accountants as to whether such decisions are in accordance with generally
accepted accounting principles or other accounting methods appropriate for the
Company and authorized hereby.
Section 8.7 TAX MATTERS FOR THE COMPANY HANDLED BY MEMBER. The Managing
Member shall from time to time cause the Company to make such tax elections, if
any, as it deems to be in the best interests of the Company and the Members. The
Managing Member shall be the "TAX MATTERS PARTNER" as defined in Code Section
6231, shall represent the Company (at the Company's expense) in connection with
all examinations of the Company's affairs by tax authorities, including
resulting judicial and administrative proceedings, and shall expend the Company
funds for professional services and costs associated therewith. The Managing
Member shall oversee the Company tax affairs in the overall best interests of
the Company and the Members.
ARTICLE IX - DISSOLUTION AND WINDING-UP
[ Section 9.1 TERMINATION AND DISSOLUTION. The Company shall be
dissolved, its assets shall be disposed of, and its affairs wound up on the
first to occur of the following:
(a) Upon the entry of a decree of judicial dissolution under
the Act; or
(b) At any time there is no Member of the Company, unless the
Company is otherwise continued in accordance with the Act. ]
The filing of a petition in bankruptcy, the filing of a petition or answer
seeking reorganization, arrangement, composition, liquidation, readjustment,
dissolution or similar relief under any statute, law or regulation, or the
occurrence of any other event or circumstance involving or relating to any
Member contemplated by or described in Section 18-304 of the Act, shall not,
under any circumstances, cause any Member to cease being a member of the Company
and shall not cause the dissolution of the Company.
Section 9.2 WINDING-UP. Upon the dissolution of the Company, the
Company shall continue solely for the purpose of winding-up its affairs in an
orderly manner, liquidating its assets, and satisfying the claims of its
creditors. The Managing Member shall be responsible for overseeing the
winding-up and liquidation of the Company, shall take full account of the
liabilities of the Company and its assets, shall either cause its assets to be
sold or distributed, and if sold (as promptly as is consistent with obtaining
the fair market value thereof) shall cause the proceeds therefrom, to the extent
sufficient therefor, to be applied and distributed as provided in Section 9.3
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hereof.
Section 9.3 ORDER OF PAYMENT OF LIABILITIES UPON DISSOLUTION. Upon
dissolution, the assets of the Company shall be liquidated, and the proceeds
from such liquidation shall be allocated and distributed in the following order
of priority:
(a) First, to the satisfaction of creditors of the Company,
including the Managing Member if a creditor, to the extent otherwise permitted
by law, in satisfaction of the liabilities of the Company (whether by payment or
the making of reasonable provision for payment thereof);
(b) Second, to the satisfaction of all debts, liabilities and
other obligations owed to the Managing Member and not paid pursuant to clause
(a) above (whether by payment or the making of reasonable provision for payment
thereof); and
(c) The balance to the Managing Member.
Section 9.4 NO DEFICIT RESTORATION. If, upon liquidation, the Managing
Member has a deficit balance in its capital account, after taking into account
all capital account adjustments for the Company's Fiscal Year during which
liquidation occurs, neither the Managing Member nor the Bankruptcy Member shall
have any obligation to contribute cash to the capital of the Company to restore
such deficit balance.
Section 9.5 CERTIFICATE OF CANCELLATION. The Managing Member shall
cause to be filed in the office of, and on a form prescribed by, the Delaware
Secretary of State, a certificate of cancellation of the Certificate upon
completion of the winding-up of the affairs of the Company.
(a) NO ACTION FOR DISSOLUTION. To the fullest extent permitted
by law, neither the Managing Member nor the Bankruptcy Member shall take any
voluntary action that directly or indirectly causes a dissolution of the
Company. The Members acknowledge that irreparable damage would be done to the
goodwill and reputation of the Company if the Members should bring an action in
court to dissolve the Company under circumstances where dissolution is not
required by Section 9.1.
This LLC Agreement has been drawn carefully to provide fair treatment of all
parties and equitable payment in liquidation of the Membership Interests.
Accordingly, to the fullest extent permitted by law, each Member hereby waives
and renounces its right to initiate legal action to seek the appointment of a
receiver or trustee to liquidate the Company or to seek a decree of judicial
dissolution of the Company (including, but not limited to, any right which any
Member may have under Section 18-802 of the Act).
ARTICLE X - INDEMNIFICATION
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Section 10.1 INDEMNIFICATION. The Company shall defend, indemnify and
save harmless each Member (including in its capacity as Managing Member or
Bankruptcy Member) from and against all claims, losses, damages, cost, expense,
demands, liabilities, obligations, liens, encumbrances, rights of action or
attorneys' fees ("CLAIMS") sustained by reason of any act performed, or omitted
to be performed, in good faith and without gross negligence or willful
misconduct, within the scope of its authority expressly conferred by this LLC
Agreement, to the fullest extent permitted by applicable law in effect on the
date hereof and to such greater extent as applicable law may hereafter from time
to time permit. Such indemnity shall not be construed to limit or diminish the
coverage of each Member under any insurance obtained by the Company. Payment
shall not be a condition precedent to any indemnification provided in this LLC
Agreement.
ARTICLE XI - MISCELLANEOUS
Section 11.1 COMPLETE AGREEMENT. This LLC Agreement and the Certificate
constitute the complete and exclusive statement of agreement of the Members with
respect to the subject matter herein and therein and replace and supersede the
terms of the Initial LLC Agreement and all prior written and oral agreements or
statements by the Members. No representation, statement, condition or warranty
not contained in this LLC Agreement or the Certificate will be binding on any
Member or has any force or effect whatsoever.
Section 11.2 BINDING EFFECT. Subject to the provisions of this LLC
Agreement relating to transferability, this LLC Agreement will be binding upon
and inure to the benefit of each Member, and its respective successors and
assigns.
Section 11.3 PARTIES IN INTEREST. Except as expressly provided in the
Act or in this LLC Agreement, nothing in this LLC Agreement shall confer any
rights or remedies under or by reason of this LLC Agreement on any Person other
than each Member and its successors and assigns nor shall anything in this LLC
Agreement relieve or discharge the obligation or liability of any third Person
to the Company or any party to this LLC Agreement, nor shall any provision
hereof give any third Person any right of subrogation or action over or against
Company or any party to this LLC Agreement.
Section 11.4 PRONOUNS; STATUTORY REFERENCES. All pronouns and all
variations thereof shall be deemed to refer to the masculine, feminine, or
neuter, singular or plural, as the context in which they are used may require.
Any reference to the Code, the Regulations, the Act, or other statutes or laws
will include all amendments, modifications, or replacements of the specific
sections and provisions concerned.
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Section 11.5 HEADINGS. All headings herein are inserted only for
convenience and ease of reference and are not to be considered in the
construction or interpretation of any provision of this LLC Agreement.
Section 11.6 REFERENCES TO THIS LLC AGREEMENT. Numbered or lettered
articles, sections and subsections herein contained refer to articles, sections
and subsections of this LLC Agreement unless otherwise expressly stated.
Section 11.7 SEVERABILITY. If any provision of this LLC Agreement or
the application of such provision to any Person or circumstance shall be held
invalid, the remainder of this LLC Agreement or the application of such
provision to Persons or circumstances other than those to which it is held
invalid shall not be affected thereby.
Section 11.8 ADDITIONAL DOCUMENTS AND ACTS. The Members agree to
execute and deliver such additional documents and instruments and to perform
such additional acts as may be necessary or appropriate to effectuate, carry out
and perform all of the terms, provisions, and conditions of this LLC Agreement
and the transactions contemplated hereby.
Section 11.9 NOTICES. Any notice which the Company or the Managing
Member or Bankruptcy Member is required or may desire to give the others shall
be in writing and may be personally delivered or given by United States
registered or certified mail, return receipt requested, addressed as provided
under Section 2.5 above (subject to the right of such Person to designate a
different address for itself by notice similarly given). Any notice so given by
United States mail shall be deemed to have been given on the third day after the
same is deposited in the United States mail as a registered or certified matter,
return receipt requested, addressed as above provided, with postage thereon
fully prepaid. Any notice not given by registered or certified mail as aforesaid
shall be deemed to be given upon actual receipt of the same by the Person to
whom the same is to be given, provided that the refusal by such Person to
receive any such notice shall be deemed such Person's receipt of the same.
Section 11.10 AMENDMENTS. Subject to Section 2.6, all amendments to
this LLC Agreement will be in writing and signed by all of the Members; provided
that no amendment to this Agreement will be made to the extent prohibited by
[Section ______].
Section 11.11 MULTIPLE COUNTERPARTS. This LLC Agreement may be executed
in two or more counterparts, each of which shall be deemed an original, but all
of which shall constitute one and the same instrument.
Section 11.12 REMEDIES CUMULATIVE. The remedies under this LLC
Agreement are cumulative and shall not exclude any other remedies to which any
person may be lawfully entitled.
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Section 11.13 CHOICE OF LAW. This LLC Agreement shall be governed by,
and shall be construed in accordance with, the laws of the State of Delaware
(without regard to conflict of laws principles).
IN WITNESS WHEREOF, each Member has executed this LLC Agreement,
effective as of the date first written above.
FRANKLIN CAPITAL CORPORATION
By:
Name:
Title:
Date Signed:
FCC RECEIVABLES CORP.
By:
Name:
Title:
Date Signed:
<PAGE> 1
Exhibit 3.5
BY-LAWS
OF
FCC RECEIVABLES CORP.
(Amended as of 6/8/98)
ARTICLE I
Offices
Section 1.1 Principal Executive Office. The principal executive office of FCC
Receivables Corp. (the "Corporation") shall be at 47 W. 200 South, Suite 500,
Salt Lake City, Utah 84101.
Section 1.2 Other Offices. The Corporation may also have offices at such other
places both within and without the State of Delaware as the Board of Directors
or the President may from time to time determine or the business of the
Corporation may require.
ARTICLE II
Stockholders
Section 2.1 Annual Meeting and Election of Directors. The Annual Meeting of
Stockholders shall be held at such place either within or without the State of
Delaware and at such time and on such date as may be designated by resolution of
the Board of Directors from time to time. The directors shall be elected and any
other proper business may be transacted at each Annual Meeting of Stockholders.
Section 2.2 Special Meetings. Special meetings of stockholders for any purpose
or purposes may be called at any time by the Board of Directors, the Chairman of
the Board of Directors, the President or the holders of shares entitled to cast
not less than ten percent (10%) of the votes at such meeting. Each special
meeting shall be held at such date and time as is requested by the person or
persons calling the meeting within the limits fixed by law.
Section 2.3 Place of Meetings. Each annual or special meeting of stockholders
shall be held at such location either within or without the State of Delaware as
may be determined by the Board of Directors, or if no such determination is
made, at such place as may be determined by the President. If no location is so
determined, any annual or special meeting shall be held at the principal
executive office of the Corporation.
Section 2.4 Notice of Meetings. Notice of each annual or special meeting of
stockholders shall contain such information, and shall be given to such persons
at such time, and in such manner, as the Board of Directors shall determine, or
if no such determination is made, as the President shall determine, subject to
the requirements of applicable law.
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Section 2.5 Adjournments. Any meeting of stockholders, annual or special, may
adjourn from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than 30
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
Section 2.6 Conduct of Meetings. Subject to the requirements of applicable law,
all annual and special meetings of stockholders shall be conducted in accordance
with such rules and procedures as the Board of Directors may determine and, as
to matters not governed by such rules and procedures, as the Chairman of such
meeting shall determine.
Section 2.7 Quorum. The holders of a majority of the shares issued and
outstanding and entitled to vote at a meeting of the stockholders shall be
requisite and shall constitute a quorum thereat for the transaction of business,
except as otherwise provided by statute, by the Certificate of Incorporation
("Certificate") or by these by-laws. If a quorum is not present or represented
at a meeting of the stockholders, the stockholders so present and entitled to
vote may, by majority vote, adjourn the meeting from time to time in the manner
provided in Section 2.5 of these bylaws until a quorum is present or
represented. At any rescheduled meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally notified.
Section 2.8 Action Without Meeting. Any action required by statute to be taken
at a meeting of the stockholders, or any action that may be taken at a meeting
of the stockholders, may be taken without a meeting, without prior written
notice and without a vote if a consent or consents in writing, setting forth the
action so taken, shall be signed by the holders of the outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
to take such action at a meeting at which all shares entitled to vote thereon
were present and voted and shall be delivered (by hand or by certified or
registered mail, return receipt requested) to the Corporation by delivery to its
registered office in the State of Delaware, its principal place of business, or
an officer or agent of the Corporation having custody of the book in which
proceedings of minutes of stockholders are recorded. The signed consent or a
signed copy shall be placed in the minute book of the Corporation and prompt
notice of the taking of the corporate action shall be given to those
stockholders who have not consented in writing.
Section 2.9 Telephone and Similar Meetings. Stockholders may participate in and
hold a meeting by means of which all persons participating in the meeting can
hear each other. Participation in such a meeting shall constitute presence in
person at the meeting, unless a stockholder participates in the meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened.
Section 2.10 Voting; Proxies. Except as otherwise provided by the Certificate,
each stockholder entitled to vote at any meeting of stockholders shall be
entitled to one vote for each share of stock held by him which has voting power
upon the matter in question. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a
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longer period. A proxy shall be irrevocable if it states that it is irrevocable
and if, and only as long as, it is coupled with an interest sufficient in law to
support an irrevocable power. A stockholder may revoke any proxy which is not
irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or by delivering a proxy in accordance
with applicable law bearing a later date to the Secretary of the Corporation.
Voting at meetings of stockholders need not be by written ballot and, unless
otherwise required by law, need not be conducted by inspectors of election
unless so determined by the holders of shares of stock having a majority of the
votes which could be cast by the holders of all outstanding shares of stock
entitled to vote thereon which are present in person or by proxy at such
meeting. At all meetings of stockholders for the election of directors a
plurality of the votes cast shall be sufficient to elect. All other elections
and questions shall, unless otherwise provided by law, the Certificate or these
by-laws, be decided by the vote of the holders of shares of stock having a
majority of the votes which could be cast by the holders of all shares of stock
outstanding and entitled to vote thereon.
Section 2.11 Fixing Date for Determination of Stockholders of Record. In order
that the Corporation may determine the stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, or to express
consent to corporate action in writing without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or exchange
of stock or for the purpose of any other lawful action, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors and
which record date: (1) in the case of determination of stockholders entitled to
vote at any meeting of stockholders or adjournment thereof, shall, unless
otherwise required by law, not be more than 60 nor less than ten days before the
date of such meeting; (2) in the case of determination of stockholders entitled
to express consent to corporate action in writing without a meeting, shall not
be more than ten days from the date upon which the resolution fixing the record
date is adopted by the Board of Directors; and (3) in the case of any other
action, shall not be more than 60 days prior to such other action. If no record
date is fixed: (1) the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held; (2) the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting
when no prior action of the Board of Directors is required by law, shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation in accordance with
applicable law, or, if prior action by the Board of Directors is required by
law, shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action; and (3) the record
date for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
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ARTICLE III
Directors
Section 3.1 Number. The authorized number of directors on the Board of Directors
shall not be less than three (3) nor more than six (6) unless changed by a
by-law duly adopted either by the Board of Directors or the stockholders
amending this Section 3.1. The Board of Directors shall initially be comprised
of three (3) directors. The exact number of directors shall be fixed, from time
to time within the limits specified, by resolution duly adopted either by the
Board of Directors or the stockholders.
Section 3.2 Qualification - Election; Term.
(a) The Board of Directors shall initially consist of the persons
named as directors by the incorporator, and each director so
elected shall hold office until the first annual meeting of
stockholders or until his or her successor is elected and
qualified. Except as otherwise provided by Section 3.9 and 3.10 of
these by-laws, the directors shall be elected at the annual
meeting of stockholders.
(b) Each director elected shall hold office until the next annual
meeting of stockholders and until his or her successor has been
elected and qualified or until his or her death, resignation,
retirement, disqualification or removal.
Section 3.3 Powers. Subject to limitations of the Certificate, these by-laws,
and the General Corporation Law of the State of Delaware relating to actions
required to be approved by the stockholders or by the outstanding shares, the
business and affairs of the Corporation shall be managed and all corporate
powers shall be exercised by or under direction of the Board of Directors. The
Board of Directors may delegate the management of the day-to-day operation of
the business of the Corporation to the officers of the Corporation or other
persons provided that the business and affairs of the Corporation shall be
managed by and all corporate powers shall be exercised under the ultimate
direction of the Board of Directors.
Section 3.4 Meetings of the Board.
(a) Each meeting of the Board of Directors shall be held at a location
determined as follows. The Board of Directors may designate any
place, within or without the State of Delaware, for the holding of
any meeting. If no such designation is made, the meeting shall be
held at the Corporation's principal executive office. Subject to
the requirements of applicable law, all meetings of the Board of
Directors shall be conducted in accordance with such rules and
procedures as the Board of Directors may approve and, as to
matters not governed by such rules and procedures, as the Chairman
of such meeting shall determine.
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(b) Special meetings of the Board of Directors may be held at any time
or place within or without the State of Delaware whenever called
by the President, any Vice President, the Secretary, or by any
member of the Board of Directors. Notice of a special meeting of
the Board of Directors shall be given by the person or persons
calling the meeting at least 24 hours before the special meeting.
(c)
Section 3.5 Quorum: Vote Required for Action. At all meetings of the Board of
Directors a majority of the whole Board of Directors shall constitute a quorum
for the transaction of business. Except in cases in which the Certificate or
these by-laws otherwise provide, the vote of a majority of the directors present
at a meeting at which a quorum is present shall be the act of the Board of
Directors.
Section 3.6 Action by Consent. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting if a written consent setting forth the action so taken is
signed by all members of the Board of Directors or of such committee, as the
case may be, and such written consent is filed with the Secretary of the
Corporation and placed in the minute book. Such consent shall have the same
force and effect as a unanimous vote at a meeting of such Board of Directors or
committee.
Section 3.7 Committees. The Board of Directors may, by resolution adopted by a
majority of the whole Board of Directors, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. Any
such committee, to the extent provided in the resolution of the Board of
Directors, shall have and may exercise all of the powers and authority of the
Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have any powers or
authority in reference to:
(a) amending the Certificate;
(b) approving an agreement of merger or consolidation;
(c) recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets
otherwise than in the usual and regular course of its business;
(d) recommending to the stockholders a dissolution of the Corporation
or a revocation thereof;
(e) amending or repealing the by-laws of the Corporation or adopting
new by-laws of the Corporation;
(f) amending or repealing any resolution of the Board of Directors
which by its express terms is not so amendable or repealable;
(g) appointing other committees of the Board of Directors or the
members thereof;
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<PAGE> 6
(h) filling new vacancies in or removing members of the Board of
Directors or of any committee appointed by the Board of Directors;
(i) fixing the compensation of the directors for serving on the Board
of Directors or for serving as any member of a committee thereof;
or
(j) unless the resolution of the Board of Directors expressly so
provides, declaring a dividend or authorizing the issuance of
stock.
Any such committee shall report on its meetings to the Board of Directors at the
next meeting of the Board of Directors.
Section 3.8 Executive Committee of the Board. Subject to the by-laws herein,
including Sections 3.4, 3.5, 3.6 and 3.7, and the Certificate, the Executive
Committee of the Board of Directors ("Executive Committee") is authorized by
unanimous written consent of all its Executive Committee members to bind this
Corporation without the consent of other members of the Board of Directors and
shall have and may exercise all of the authority of the Board of Directors in
the management of the business and affairs of the Corporation, including the
power to authorize the seal of the Corporation to be affixed to all papers which
may require it. Upon the unanimous consent of all members of the Executive
Committee, the Executive Committee is also authorized by these by-laws to
authorize the future purchase and sale of Receivables as defined and provided
for in the Certificate of this Corporation.
Section 3.9 Removal. Any member of the Executive Committee and other committees
may be removed by the Board of Directors by the affirmative vote of a majority
of the whole Board of Directors, whenever in its judgment the best interests of
the Corporation will be served thereby.
Section 3.10 Vacancies. A vacancy occurring in the Executive Committee or other
committee (by death, resignation, retirement, disqualification, removal or
otherwise) may be filled by the Board of Directors in the manner provided for
original designation in Section 3.7 of these by-laws.
Section 3.11 Compensation. Members of the Board of Directors and the Executive
Committee or other committee may, by resolution of the Board of Directors, be
allowed compensation for attending meetings of the Board of Directors and
committees thereof.
Section 3.12 Telephone and Similar Meetings. Committee members may participate
in and hold a meeting by means of which all persons participating in the meeting
can hear each other. Participation in such a meeting shall constitute presence
in person at the meeting, unless a person authorized to participate in such a
meeting participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting was not lawfully
called or convened.
Section 3.13 Written Action or Minutes. The Executive Committee and other
committees shall keep either a record of action taken or minutes of their
proceedings and report the same to the Board of Directors when required. The
minutes of the proceedings of the Executive Committee and other committees shall
be placed in the minute book of the Corporation.
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<PAGE> 7
ARTICLE IV
Indemnification of Directors,
Officers and Other Corporate Agents
Section 4.1 Right to Indemnification. This Corporation shall indemnify and hold
harmless, to the fullest extent permitted by applicable law as it presently
exists or may hereafter be amended, any person who was or is made or is
threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") by reason of the fact that he, or a person for whom he is the
legal representative, is or was a director or officer of the Corporation or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust, enterprise or nonprofit entity, including service with respect to
employee benefit plans, against all liability and loss suffered and expenses
(including attorneys' fees) reasonably incurred by such person. The Corporation
shall be required to indemnify a person in connection with a proceeding (or part
thereof) initiated by such person only if the proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation.
Section 4.2 Prepayment of Expenses. The Corporation may, in its discretion, pay
the expenses (including attorneys' fees) incurred in defending any proceeding in
advance of its final disposition; provided, however, that the payment of
expenses incurred by a director or officer in advance of the final disposition
of the proceeding shall be made only upon receipt of an undertaking by the
director or officer to repay all amounts advanced if it should be ultimately
determined that the director or officer is not entitled to be indemnified under
this Article or otherwise.
Section 4.3 Claims. If a claim for indemnification or payment of expenses under
this Article is not paid in full within 60 days after a written claim therefor
has been received by the Corporation, the claimant may file suit to recover the
unpaid amount of such claim and, if successful in whole or in part, shall be
entitled to be paid the expense of prosecuting such claim. In any such action
the Corporation shall have the burden of proving that the claimant was not
entitled to the requested indemnification or payment of expenses under
applicable law.
Section 4.4 Non-Exclusivity of Rights. The rights conferred on any person by
this Article IV shall not be exclusive of any other rights which such person may
have or hereafter acquire under any statute, provision of the Certificate, these
by-laws, agreement, vote of stockholders or disinterested directors or
otherwise.
Section 4.5 Other Indemnification. The Corporation's obligation, if any, to
indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or nonprofit entity shall be reduced by any amount such person
may collect as indemnification from such other corporation, partnership, joint
venture, trust, enterprise or nonprofit enterprise.
Section 4.6 Insurance. Upon resolution passed by the Board of Directors, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, or as a member of any committee or similar body, against any
liability asserted
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<PAGE> 8
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to indemnify
him against such liability under the provisions of this Article.
Section 4.7 Amendment or Repeal. Any repeal or modification of the foregoing
provisions of this Article IV shall not adversely affect any right or protection
hereunder of any person in respect of any act or omission occurring prior to the
time of such repeal or modification.
ARTICLE V
Officers
Section 5.1 Principal Officers. The principal officers of the Corporation shall
be a President, a Secretary and a Treasurer, each of whom shall have the
authority to perform the duties provided in these by-laws or as may from time to
time be assigned by the Board of Directors. One person may hold two or more
offices, except that the Secretary may not also hold the office of President.
Section 5.2 Subordinate Officers. The Corporation may also have, at the
discretion of the Board of Directors, one or more Vice Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers and such other officers
as the business of the Corporation may require, each of whom shall have the
authority and perform the duties as may be provided in these by-laws or as may
from time to time be assigned by the Board of Directors.
Section 5.3 Appointment of the Corporation's Officers. The Board of Directors or
the Executive Committee shall appoint the officers of the Corporation, each such
officer to hold his office until the earlier of his death, resignation,
retirement, disqualification or removal. Thereafter, the Board of Directors or
the Executive Committee may, from time to time, appoint other officers of the
Corporation to fill a vacancy in any office or otherwise, each such officer to
hold his office until the earlier of his death, resignation, retirement,
disqualification or removal from office.
Section 5.4 Removal and Resignation.
(a) Any officer may be removed, either with or without cause, by the
unanimous written consent of the Executive Committee or by a
majority of the directors at the time in office, at any regular or
special meeting of the Board of Directors.
(b) Any officer may resign at any time by giving written notice to the
Board of Directors, the Chairman of the Board of Directors, the
President or the Secretary of the Corporation. Any such
resignation shall take effect at the date of the receipt of such
notice or at any later time specified therein; and unless
otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
Section 5.5 President. The President, unless a Chairman of the Board is elected
by the Board of Directors, shall, if present, preside at all meetings of
stockholders or directors.
The President shall, subject to the ultimate direction of the Board of
Directors, have general supervision, direction and control of the business and
affairs of the Corporation. The President
8
<PAGE> 9
shall have the general powers and duties of management usually vested in the
chief executive officer of a corporation.
The President shall provide the general and active management of the business
operations of the Corporation and shall see that all orders and resolutions of
the Board of Directors are carried into effect. The President shall develop and
issue or cause to be issued such operating policies, procedures and guidelines
respecting the conduct of the business of the Corporation and of its officers,
employees and agents as he or she shall deem appropriate; and shall possess the
power and authority to authorize exceptions to and deviations from such
policies, procedures and guidelines where he or she, in good faith, determines
that such exceptions or deviations serve the best interests of the Corporation
and would neither violate applicable law nor do damage to the reputation of the
Corporation or its stockholders.
The President shall execute bonds, mortgages and other contracts requiring a
seal, under the seal of the Corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be delegated by the Board of Directors to some other
officer or agent of the Corporation.
Section 5.6 Secretary.
(a) The Secretary shall keep, or cause to be kept, the minute book of
the Corporation at the principal executive office of the
Corporation, or such other place as the Board of Directors may
order, of all meetings of stockholders, the Board of Directors and
its committees, with the time and place of holding, whether
regular or special and if special, how authorized and the notice
thereof given, the names of those present at Board of Directors
and committee meetings, the number of shares present or
represented at stockholders' meetings and the proceedings thereof.
(b) The Secretary shall keep, or cause to be kept, at the principal
executive office of the Corporation or at the office of the
Corporation's transfer agent, a share register, or a duplicate
share register, showing the names of the stockholders and their
addresses; the number and classes of shares held by each; the
number and date of certificates issued for the same; and the
number and date of cancellation of every certificate surrendered
for cancellation.
(c) The Secretary shall be under the supervision of the President. The
Secretary shall perform such other duties and have such other
authority and powers as the Board of Directors may from time to
time prescribe or as the President may from time to time delegate.
Section 5.7 Treasurer.
(a) The Treasurer shall deposit or cause the deposit of all monies and
other valuables in the name and to the credit of the Corporation
with such depositories as may be designated by the Board of
Directors.
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<PAGE> 10
(b) The Treasurer shall have custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts
and disbursements of the Corporation.
(c) The Treasurer shall be responsible for effecting the properly
authorized disbursement of funds of the Corporation and shall
provide appropriate and timely accounting of his transactions as
Treasurer to the President and the Board of Directors.
(d) The Treasurer shall keep and maintain, or cause to be kept and
maintained, adequate and correct accounts of the properties and
business transactions of the Corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses,
capital, additional paid-in capital and retained earnings. Capital
and additional paid-in capital shall be classified according to
source and shown in separate accounts.
(e) The Treasurer shall provide appropriate and timely reports on the
financial condition of and the results of operations of the
Corporation to the President and the Board of Directors.
(f) The Treasurer shall perform such other duties and may have such
other authority and powers as the Board of Directors may from time
to time prescribe or as the President may from time to time
delegate.
Section 5.8 Vice Presidents. The Vice Presidents, if any, shall exercise and
perform such powers and duties with respect to the administration of the
business affairs and operations of the Corporation as may from time to time be
assigned to each of them by the President or the Board of Directors, or if not
ranked, the Vice President designated by the Board of Directors, may perform all
of the duties of the President and when so acting shall have all of the powers
of and be subject to all of the restrictions upon the President.
Section 5.9 Assistant Secretaries. The Assistant Secretaries, if any, may, in
the absence or disability of the Secretary, perform all of the duties of the
Secretary and when so acting shall have all of the powers of and be subject to
all of the restrictions upon the Secretary.
Section 5.10 Assistant Treasurer. The Assistant Treasurers, if any, may, in the
absence or disability of the Treasurer, perform all of the duties of the
Treasurer and when so acting shall have all of the powers of and be subject to
all of the restrictions upon the Treasurer.
Section 5.11 Compensation. The compensation, if any, of the officers and agents
shall be fixed from time to time by the Board of Directors or the Executive
Committee.
ARTICLE VI
Amendments
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<PAGE> 11
Section 6.1 By-laws. These by-laws may be altered or repealed, and new by-laws
adopted by the Board of Directors, but the stockholders may make additional
by-laws and may alter and repeal any by-laws whether adopted by them or
otherwise.
ARTICLE VII
General Provisions
Section 7.1 Seal. The Board of Directors shall adopt a corporate seal, which
shall be in the form of a circle and shall bear the name of the Corporation and
words and figures showing that the Corporation was incorporated in the State of
Delaware and the date of incorporation.
Section 7.2 Method. Whenever by statute, the Certificate, these by-laws, or
otherwise, notice is required to be given to a director, committee member or
stockholder, and no provision is made as to how the notice shall be given, it
shall not be construed to mean personal notice, but any such notice may be
given:
(a) in writing by mail, first-class postage prepaid, addressed to the
director, committee member, or stockholder and the address
appearing on the books of the Corporation;
(b) facsimile transmission; or
(c) in any other method permitted by law.
Any notice required or permitted to be given by mail shall be deemed given at
the time when the same is deposited in accordance with the terms of this Section
in the United States mails.
Section 7.3 Waiver of Notice. Whenever notice is required to be given by these
by-laws or the Certificate or by law, the person entitled to said notice may
waive such notice in writing, either before or after the time stated herein, and
such waiver shall be deemed equivalent to notice.
Section 7.4 Fiscal Year. The fiscal year of the Corporation shall end on the
30th day of September in each year.
Section 7.5 Construction. Whenever the context so requires, the masculine gender
shall include the feminine and neuter genders and the singular shall include the
plural, and conversely. If any portion of these by-laws shall be invalid or
inoperative, then, so far as is reasonable and possible:
(a) the remainder of these by-laws shall be considered valid and
operative; and effect shall be given to the intent manifested by
the portion held invalid or inoperative.
Section 7.6 Headings. The headings set forth in these by-laws are for
organization, convenience and clarity. In interpreting these by-laws, they shall
be subordinated in importance to other written material.
11
<PAGE> 12
Section 7.7 Relation to the Certificate of Incorporation. These by-laws are
subject to, and governed by the Certificate and any written agreement by a
majority in interest of the stockholders filed with the Corporation at its
principal place of business.
Section 7.8 Form of Records. Any records maintained by the Corporation in the
regular course of its business, including its stock ledger, books of account,
and minute books, may be kept on, or be in the form of, punch cards, magnetic
tape, photographs, microphotographs, or any other information storage device,
provided that the records so kept can be converted into clearly legible form
within a reasonable time.
12
<PAGE> 1
Exhibit 5.1
WEIL, GOTSHAL & MANGES LLP
A Limited Liability Partnership Including Professional Corporations
767 Fifth Avenue
New York, New York 10153
(212) 310-8000
Fax: (212) 310-8007
September 18, 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").
<PAGE> 2
Franklin Receivables LLC
FCC Receivables Corp.
September 18, 1998
In so acting, we have examined originals or copies, certified
or otherwise identified to our satisfaction, of the Registration Statement, the
Trust Agreements, and such corporate and limited liability company records,
agreements, documents and other instruments, and such certificates or comparable
documents of public officials and of officers and representatives of the
Companies, and have made such inquiries of such officers and 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 and business trust 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> 3
Franklin Receivables LLC
FCC Receivables Corp.
September 18, 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
<PAGE> 4
Franklin Receivables LLC
FCC Receivables Corp.
September 18, 1998
[On File Copy only:]
Prepared by: Daniel G. Simpson (#1906)
Signed by: Daniel Mette (#225)
Reviewed by: Ted S. Waksman (# )
<PAGE> 1
Exhibit 8.1
WEIL, GOTSHAL & MANGES LLP
A Limited Liability Partnership Including Professional Corporations
767 Fifth Avenue
New York, New York 10153
(212) 310-8000
Fax: (212) 310-8007
September 18, 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
<PAGE> 2
Franklin Receivables LLC
FCC Receivables Corp.
September 18, 1998
original documents of all documents submitted to us as certified or photostatic
copies, the 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 hereby
adopt and confirm as our opinion the opinions set forth in the discussion
included in the Prospectus under the caption "Federal Income Tax Consequences,"
insofar as it constitutes statements 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
2
<PAGE> 3
Franklin Receivables LLC
FCC Receivables Corp.
September 18, 1998
Re: Franklin Auto Trusts Asset Backed Certificates and Notes
[On File Copy only:]
Prepared by: _____________________
LIG #295
Signed by: _____________________
MBA #38
Reviewed by: _____________________
LIG #295
3
<PAGE> 1
EXHIBIT 25.1.A
File Nos. 333-56869___
333-56869-01
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
-------------------------------------------
[X] - CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(b)(2)
------------------------------------------
THE CHASE MANHATTAN BANK
(Exact name of trustee as specified in its charter)
NEW YORK 13-4994650
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
270 PARK AVENUE
NEW YORK, NEW YORK 10017
(Address of principal executive offices) (Zip Code)
William H. McDavid
General Counsel
270 Park Avenue
New York, New York 10017
Tel: (212) 270-2611
(Name, address and telephone number of agent for service)
---------------------------------------------
FRANKLIN AUTO TRUST 1998-1
(Exact name of obligor as specified in its charter)
FRANKLIN RECEIVABLES LLC
(REGISTRANT)
FCC RECEIVABLES CORP.
(CO-REGISTRANT)
DELAWARE (REGISTRANT) 94-3301790
(State or other jurisdiction of (CO-REGISTRANT) 94-3219968
incorporation or organization) (I.R.S. employer identification No.)
C/O BANKERS TRUST (DELAWARE)
1011 CENTRE ROAD
SUITE 200
WILMINGTON, DE 19805
(Address of principal executive offices) (Zip Code)
- --------------------------------------------------------------------------------
(Title of the indenture securities)
ASSET BACKED NOTES
<PAGE> 2
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
New York State Banking Department, State House, Albany, New
York 12110.
Board of Governors of the Federal Reserve System, Washington,
D.C., 20551
Federal Reserve Bank of New York, District No. 2, 33 Liberty
Street, New York, N.Y.
Federal Deposit Insurance Corporation, Washington, D.C.,
20429.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
- 2 -
<PAGE> 3
Item 16. List of Exhibits
List below all exhibits filed as a part of this Statement of
Eligibility.
1. A copy of the Articles of Association of the Trustee as now in
effect, including the Organization Certificate and the Certificates of Amendment
dated February 17, 1969, August 31, 1977, December 31, 1980, September 9, 1982,
February 28, 1985, December 2, 1991 and July 10, 1996 (see Exhibit 1 to Form T-1
filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
2. A copy of the Certificate of Authority of the Trustee to Commence
Business (see Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-50010, which is incorporated by reference. On July 14, 1996, in
connection with the merger of Chemical Bank and The Chase Manhattan Bank
(National Association), Chemical Bank, the surviving corporation, was renamed
The Chase Manhattan Bank).
3. None, authorization to exercise corporate trust powers being
contained in the documents identified above as Exhibits 1 and 2.
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to
Form T-1 filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act
(see Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-50010, which is incorporated by reference. On July 14, 1996, in connection
with the merger of Chemical Bank and The Chase Manhattan Bank (National
Association), Chemical Bank, the surviving corporation, was renamed The Chase
Manhattan Bank).
7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining authority.
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, The Chase Manhattan Bank, a corporation organized and existing under
the laws of the State of New York, has duly caused this statement of eligibility
to be signed on its behalf by the undersigned, thereunto duly authorized,
all in the City of New York and State of New York, on the th day of , 1998.
THE CHASE MANHATTAN BANK
By /s/ Tara Sweeney
----------------
/s/ Tara Sweeney
Trust Officer
- 3 -
<PAGE> 4
Exhibit 7 to Form T-1
Bank Call Notice
RESERVE DISTRICT NO. 2
CONSOLIDATED REPORT OF CONDITION OF
The Chase Manhattan Bank
of 270 Park Avenue, New York, New York 10017
and Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System,
at the close of business June 30, 1998, in accordance
with a call made by the Federal Reserve Bank of this District
pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
ASSETS IN MILLIONS
<S> <C> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and
currency and coin ............................... $ 12,546
Interest-bearing balances ....................... 6,610
Securities:
Held to maturity securities .......................... 2,014
Available for sale securities ........................ 46,342
Federal funds sold and securities purchased under
agreements to resell ............................ 27,489
Loans and lease financing receivables:
Loans and leases, net of unearned income ........ $129,281
Less: Allowance for loan and lease losses ....... 2,796
Less: Allocated transfer risk reserve ........... 0
--------
Loans and leases, net of unearned income,
allowance, and reserve .......................... 126,485
Trading Assets ....................................... 58,015
Premises and fixed assets (including capitalized
leases) .............................................. 3,001
Other real estate owned .............................. 260
Investments in unconsolidated subsidiaries and
associated companies ............................ 255
Customers' liability to this bank on acceptances
outstanding ..................................... 1,245
Intangible assets .................................... 1,492
Other assets ......................................... 16,408
--------
TOTAL ASSETS ......................................... $302,162
========
</TABLE>
- 4 -
<PAGE> 5
<TABLE>
<CAPTION>
LIABILITIES
<S> <C>
Deposits
In domestic offices .................................... $ 99,347
Noninterest-bearing .................................... $ 41,566
Interest-bearing ....................................... 57,781
In foreign offices, Edge and Agreement,
subsidiaries and IBF's ................................. 80,602
Noninterest-bearing ......................................... $ 4,109
Interest-bearing ....................................... 76,493
Federal funds purchased and securities sold under agree-
ments to repurchase ......................................... 37,760
Demand notes issued to the U.S. Treasury .................... 1,000
Trading liabilities ......................................... 42,941
Other borrowed money (includes mortgage indebtedness
and obligations under capitalized leases):
With a remaining maturity of one year or less .......... 4,162
With a remaining maturity of more than one year .............
through three years ............................. 213
With a remaining maturity of more than three years .... 106
Bank's liability on acceptances executed and outstanding .... 1,245
Subordinated notes and debentures ........................... 5,408
Other liabilities ........................................... 11,796
TOTAL LIABILITIES ........................................... 284,580
---------
EQUITY CAPITAL
Perpetual preferred stock and related surplus ............... 0
Common stock ................................................ 1,211
Surplus (exclude all surplus related to preferred stock) ... 10,441
Undivided profits and capital reserves ...................... 5,916
Net unrealized holding gains (losses)
on available-for-sale securities ............................ (2)
Cumulative foreign currency translation adjustments ......... 16
TOTAL EQUITY CAPITAL ........................................ 17,582
---------
TOTAL LIABILITIES AND EQUITY CAPITAL ........................ $ 302,162
=========
</TABLE>
I, Joseph L. Sclafani, E.V.P. & Controller of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and is true
to the best of my knowledge and belief.
JOSEPH L. SCLAFANI
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us, and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the appropriate Federal regulatory authority and is true and correct.
WALTER V. SHIPLEY )
THOMAS G. LABRECQUE ) DIRECTORS
WILLIAM B. HARRISON, JR. )
-5-
