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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1997
REGISTRATION NO. 333-___
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FIRST SECURITY-REGISTERED TRADEMARK- AUTO GRANTOR TRUSTS
(Issuer with respect to the Certificates)
FIRST SECURITY BANK,-REGISTERED TRADEMARK- N.A.
(Originator of the Trusts described herein)
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UNITED STATES OF AMERICA 6025 87-0131890
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of Classification Code No.) Identification
incorporation or organization) No.)
</TABLE>
FIRST SECURITY BANK, N.A.
79 SOUTH MAIN STREET
SALT LAKE CITY, UTAH 84111
(801) 246-6000
(Address, including zip code, and telephone number, including
area code, of the Registrant's principal executive office)
------------------------
SCOTT C. ULBRICH
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
FIRST SECURITY CORPORATION
79 SOUTH MAIN STREET
SALT LAKE CITY, UTAH 84111
(801) 246-5706
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
A.R. THORUP KENNETH P. MORRISON
RAY, QUINNEY & NEBEKER KIRKLAND & ELLIS
79 SOUTH MAIN STREET, 400 DESERT 200 EAST RANDOLPH DRIVE
BUILDING
SALT LAKE CITY, UTAH 84145-0385 CHICAGO, ILLINOIS 60601
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: FROM TIME TO
TIME AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT.
------------------------
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, 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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED (1) PER UNIT (1) OFFERING PRICE (1) REGISTRATION FEE
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Asset Backed Certificates............ $1,000,000 100% $1,000,000 $330.00
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(1) Estimated in accordance with Rule 457 of the Securities Act solely for the
purpose of determining the registration fee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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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.
<PAGE>
Subject to Completion
Dated September 17, 1997
PROSPECTUS
FIRST SECURITY-REGISTERED TRADEMARK- AUTO GRANTOR TRUSTS
ASSET BACKED CERTIFICATES, CLASS A
ASSET BACKED CERTIFICATES, CLASS B
FIRST SECURITY BANK-REGISTERED TRADEMARK- N.A.
SELLER AND SERVICER
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The Asset Backed Certificates (the "CERTIFICATES") 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 Certificates will consist
of two classes of Certificates, the Class A Certificates and the Class B
Certificates. The Class A Certificates of any series will evidence in the
aggregate an undivided ownership interest equal to the Class A Percentage (as
defined in the related Prospectus Supplement) and the Class B Certificates of
any series will evidence in the aggregate an undivided ownership interest equal
to the Class B Percentage (as defined in the related Prospectus Supplement) of
the grantor trust to be formed with respect to such series (a "TRUST"). Each
Trust will be formed pursuant to a Pooling and Servicing Agreement (an
"AGREEMENT"; collectively referred to herein as "AGREEMENTS") to be entered into
among First Security Bank, N.A., as seller (the "SELLER" and the "BANK"), and as
servicer (the "SERVICER"), and the trustee specified in the related Prospectus
Supplement (the "TRUSTEE"). The property of each Trust will include a pool of
fixed rate simple interest retail motor vehicle installment sale contracts and
installment loans directly or indirectly originated by the Seller (collectively,
the "RECEIVABLES"), certain monies due or received thereunder on and after the
Cutoff Date set forth in the related Prospectus Supplement, security interests
in the vehicles financed thereby and certain other property.
Principal and interest at the Class A Pass-Through Rate (as defined in the
related Prospectus Supplement) will be distributed on the 15th day of each month
(or the next following business day) beginning on the date set forth in the
related Prospectus Supplement or such other day as is specified in the
Prospectus Supplement (each, a "DISTRIBUTION DATE"). Principal and interest at
the Class B Pass-Through Rate (as defined in the related Prospectus Supplement)
will be distributed on each Distribution Date. The rights of the Class B
Certificateholders to receive distributions will be subordinated to the rights
of the related Class A Certificateholders to the extent described herein.
Unless otherwise provided in the Prospectus Supplement, the Certificates
initially will be represented by global certificates registered in the name of
Cede & Co., as nominee of The Depository Trust Company ("DTC"). The interests of
the beneficial owners of the Certificates will be represented by book entries on
the records of DTC and participating members thereof. Definitive Certificates
will be available only under the limited circumstances described herein.
------------------------
THE CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN EACH TRUST ONLY AND DO
NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE SELLER, FIRST SECURITY
CORPORATION OR ANY AFFILIATE THEREOF. NEITHER THE CERTIFICATES NOR THE
RECEIVABLES ARE INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
------------------------
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 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 , 1997.
2
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE SELLER OR THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER, SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE SELLER OR THE TRUSTS SINCE SUCH DATE.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Seller has filed with the Securities and Exchange Commission (the
"COMMISSION"), on behalf of each Trust, a Registration Statement under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), with respect to each
series of Certificates offered pursuant to this Prospectus and the related
Prospectus Supplement. For further information, reference is made to such
Registration Statement, and the exhibits thereto, which are available for
inspection without charge at the public reference facilities of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, as well as the Regional
Offices of the Commission at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such information can be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission at the following address: http://www.sec.gov.
The Servicer, on behalf of each Trust, will also file or cause to be filed with
the Commission such periodic reports as may be required under the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and the rules and
regulations of the Commission thereunder.
REPORTS TO CERTIFICATEHOLDERS
With respect to any series of Certificates, unless and until Definitive
Certificates are issued, unaudited monthly and annual reports concerning the
Receivables and the Trust will be prepared by the Servicer and sent by the
Trustee, on behalf of the Trust, only to Cede & Co. as nominee of DTC, the
registered holder of the Class A Certificates and the Class B Certificates,
pursuant to the Agreement. Such reports will not contain audited financial
statements with respect to the related Trust. Owners of beneficial interests in
the Certificates may obtain these reports by a request in writing to the
Trustee. The Seller does not intend to send any of its financial reports to
Certificateholders or Certificate Owners. See "The Certificates--Book Entry
Registration" and "--Statements to Certificateholders."
3
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PROSPECTUS SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS AND BY REFERENCE TO THE
INFORMATION WITH RESPECT TO THE CERTIFICATES CONTAINED IN THE RELATED PROSPECTUS
SUPPLEMENT TO BE PREPARED AND DELIVERED IN CONNECTION WITH THE OFFERING OF EACH
SERIES. CERTAIN CAPITALIZED TERMS USED IN THIS PROSPECTUS SUMMARY ARE DEFINED
ELSEWHERE IN THIS PROSPECTUS. A LISTING OF THE PAGES ON WHICH SOME OF SUCH TERMS
ARE DEFINED IS FOUND IN THE INDEX OF PRINCIPAL TERMS.
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Issuer................... With respect to each series of Certificates, a grantor
trust (a "TRUST") will be formed by First Security
Bank, N.A. (the "SELLER" and the "SERVICER" in its
capacity as such; and otherwise sometimes referred to
herein as the "BANK") pursuant to a Pooling and
Servicing Agreement (an "AGREEMENT") between the Bank,
as Seller and Servicer, and the Trustee.
Seller and Servicer...... First Security Bank, N.A.
Trustee.................. The trustee for each Trust will be specified in the
related Prospectus Supplement (the "TRUSTEE").
Collateral Agent......... The collateral agent for each Trust will be specified
in the related Prospectus Supplement (the "COLLATERAL
AGENT").
Trust Assets............. The property of each Trust (the "TRUST PROPERTY") will
include (i) a pool of fixed rate retail motor vehicle
installment sale contracts and installment loans
directly or indirectly originated by the Seller that
provide for the allocation of payments between
principal and interest according to the simple interest
method (collectively, the "RECEIVABLES"), (ii) all
monies due or received thereunder on and after the
Cutoff Date set forth in the related Prospectus
Supplement, (iii) security interests in the new and
used automobiles and light trucks financed thereby
(collectively, the "FINANCED VEHICLES"), (iv) certain
rights of such Trust under the related Yield Supplement
Agreement as described below, (v) the Seller's rights
(if any) to receive proceeds from claims under certain
insurance policies relating to the Financed Vehicles or
the obligors under the Receivables (each, an
"OBLIGOR"), (vi) certain of the Seller's rights
relating to the Receivables under agreements between
the Seller and the motor vehicle dealers ("DEALERS")
that sold the Financed Vehicles and any assignments and
other documents related thereto (collectively, the
"DEALER AGREEMENTS") and under the documents and
instruments contained in the Receivable Files, (vii)
all rights of such Trust under the related Agreement,
(viii) certain amounts from time to time on deposit in
the related Certificate Account, Class A Distribution
Account and Class B Distribution Account and (ix) all
proceeds of the foregoing within the meaning of the
UCC. The related Reserve Account and Yield Supplement
Account, and any amounts therein, will not be property
of such Trust, but will be pledged to and held by the
Collateral Agent, as secured party for the benefit of
the Certificateholders.
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3
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Certificates............. Each series of Certificates will consist of two
classes, the Class A Certificates and the Class B
Certificates, in each case as designated in the related
Prospectus Supplement. The Class A Certificates will be
issued in an initial principal amount specified in the
related Prospectus Supplement (the "ORIGINAL CLASS A
CERTIFICATE BALANCE"), and the Class B Certificates
will be issued in an initial principal amount specified
in the related Prospectus Supplement (the "ORIGINAL
CLASS B CERTIFICATE BALANCE" and, together with the
Original Class A Certificate Balance, the "ORIGINAL
CERTIFICATE BALANCE"). For any series of Certificates,
the Original Class A Certificate Balance will equal
approximately the Class A Percentage (as defined in the
related Prospectus Supplement) of the outstanding
principal balance of the Receivables determined in
accordance with the Agreement (the "POOL BALANCE") as
of the Cutoff Date (the "ORIGINAL POOL BALANCE"). The
Original Class B Certificate Balance will equal
approximately the Class B Percentage (as defined in the
related Prospectus Supplement) multiplied by the
Original Pool Balance.
Registration of With respect to each series of Certificates, the Class
Certificates........... A Certificates and the Class B Certificates will each
be represented initially by global certificates
registered in the name of the Certificateholders,
initially Cede & Co. ("CEDE"), as nominee of The
Depository Trust Company ("DTC"). No person acquiring a
beneficial ownership interest in the Certificates (a
"CERTIFICATE OWNER") will be entitled to receive a
Definitive Certificate representing such person's
interest in such Trust except in certain limited
circumstances. Under the terms of each Agreement,
Certificate Owners will not be recognized as
Certificateholders and will be permitted to exercise
the rights of the Certificateholders only indirectly
through DTC. See "Risk Factors -- Absence of Definitive
Certificates" and "The Certificates -- Book Entry
Registration."
Distribution Date........ With respect to each series of Certificates, the 15th
day of each month or such other date as is specified in
the related Prospectus Supplement (or, if such day is
not a business day, the next succeeding business day)
(each, a "DISTRIBUTION DATE"), beginning on that date
(the "INITIAL DISTRIBUTION DATE") specified in the
related Prospectus Supplement.
</TABLE>
4
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Interest................. With respect to each series of Certificates, on each
Distribution Date, interest at the Class A Pass-Through
Rate (as defined in the related Prospectus Supplement)
on the Class A Certificate Balance and interest at the
Class B Pass-Through Rate (as defined in the related
Prospectus Supplement) on the Class B Certificate
Balance, in each case as of the immediately preceding
Distribution Date (after giving effect to any payments
of principal made on such Distribution Date) will be
distributed to the registered holders of the Class A
Certificates ("CLASS A CERTIFICATEHOLDERS") and the
registered holders of the Class B Certificates ("CLASS
B CERTIFICATEHOLDERS" and, together with the Class A
Certificateholders, the "CERTIFICATEHOLDERS"),
respectively, initially, Cede as nominee of DTC, as of
the day immediately preceding such Distribution Date
(or, if Definitive Certificates are issued, the last
day of the related Collection Period) (the "RECORD
DATE") to the extent that sufficient funds are on
deposit for such Distribution Date in the Certificate
Account or available in the Reserve Account to make
such distribution. A "COLLECTION PERIOD" means a period
during the term of the related Agreement from and
including the 26th day of a calendar month to and
including the 25th day of the succeeding calendar month
(or, in the case of the initial Collection Period, the
period from but not including the Cutoff Date to and
including such date as specified in the related
Prospectus Supplement). See "The Certificates --
Distributions on Certificates and " -- Reserve
Account." The rights of Class B Certificateholders to
receive payments of interest will be subordinated to
the rights of the Class A Certificateholders to receive
payments of interest to the extent described herein.
See "Risk Factors -- Limited Assets of each Trust" and
" -- Subordination of the Class B Certificates."
Principal................ With respect to each series of Certificates, on each
Distribution Date, as described more fully herein, all
payments of principal on the Receivables received by
the Servicer during the related Collection Period, plus
all Liquidation Proceeds, to the extent allocable to
principal will be distributed by the Trustee PRO RATA
to the Class A Certificateholders and to the Class B
Certificateholders of record on the related Record Date
to the extent that sufficient funds are on deposit in
the Certificate Account or available in the Reserve
Account to make such distribution. See "The
Certificates -- Distributions on Certificates" and " --
Reserve Account." The rights of the Class B
Certificateholders to receive payments of principal
will be subordinated to the rights of the Class A
Certificateholders to receive payments of interest and
principal to the extent described herein. See "Risk
Factors-Limited Assets of Each Trust" and " --
Subordination of the Class B Certificates."
</TABLE>
5
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Servicing Fees........... With respect to each series of Certificates, on each
Distribution Date, the Servicer will receive a fee for
servicing the Receivables, equal to the Basic Servicing
Fee. In addition, the Servicer will be entitled to the
Supplemental Servicing Fee. See "The Certificates --
Servicing Compensation."
Subordination of Class B Distributions of interest and principal on any series
Certificates........... of Class B Certificates will be subordinated in
priority of payment to distributions of interest and
principal due on the Class A Certificates of such
series in the event of defaults on the Receivables to
the extent described herein. The Class B
Certificateholders will not receive any distributions
of interest with respect to a Collection Period until
the full amount of interest on the Class A Certificates
relating to such Collection Period has been deposited
in the Class A Distribution Account. The Class B
Certificateholders will not receive any distributions
of principal with respect to such Collection Period
until the full amount of interest on and principal of
the Class A Certificates relating to such Collection
Period has been deposited in the Class A Distribution
Account. See "Risk Factors -- Limited Assets of Each
Trust" and " -- Subordination of the Class B
Certificates."
Advances................. With respect to each series of Certificates, on each
Deposit Date, the Servicer may, subject to the
following, make a payment (an "ADVANCE") with respect
to each Receivable serviced by it (other than a
Defaulted Receivable) equal to the excess, if any, of
(x) the product of the principal balance of such
Receivable as of the first day of the related
Collection Period and one-twelfth of its Contract Rate
(calculated on the basis of a 360-day year comprised of
twelve 30-day months), over (y) the interest actually
received by the Servicer with respect to such
Receivable from the Obligor or from payments of the
Purchase Amount, Liquidation Proceeds or Recoveries (in
each case for the related Collection Period and to the
extent allocable to interest) during or with respect to
such Collection Period. The Servicer may elect not to
make an Advance of interest due and unpaid with respect
to a Receivable to the extent that the Servicer, in its
sole discretion, determines that such Advance is not
recoverable from subsequent payments on such Receivable
or from funds in the related Reserve Account. See "The
Certificates-Advances."
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6
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Yield Supplement With respect to each series of Certificates, to the
Agreement.............. extent that any Receivable has a Contract Rate below
the applicable Class A Pass-Through Rate or the Class B
Pass-Through Rate, plus the Basic Servicing Fee Rate,
the Seller will enter into a yield supplement agreement
with the related Trust (a "YIELD SUPPLEMENT AGREEMENT")
which will provide funds to supplement the interest
collections on such Receivables, as described below.
Such Yield Supplement Agreement will, with respect to
each Receivable, provide for payment by the Seller on
or prior to the business day preceding each
Distribution Date (each such date, a "DEPOSIT DATE") of
an amount (if positive) calculated by the Servicer
equal to one-twelfth of the excess, if any, of (i) the
sum of interest on the Class A Percentage of such
Receivable's principal balance as of the first day of
the related Collection Period at a rate equal to the
sum of the Class A Pass-Through Rate and the Basic
Servicing Fee Rate and interest on the Class B
Percentage of such Receivable's principal balance as of
the first day of the related Collection Period at a
rate equal to the sum of the Class B Pass-Through Rate
and the Basic Servicing Fee Rate over (ii) interest at
the Contract Rate on such Receivable's principal
balance as of the first day of the related Collection
Period (in the aggregate for all Receivables with
respect to any Deposit Date, the "YIELD SUPPLEMENT
AMOUNT"). The Seller's obligations under any Yield
Supplement Agreement will be secured by funds on
deposit in an account to be maintained by the Seller in
the name of the Collateral Agent (a "YIELD SUPPLEMENT
ACCOUNT"). The amount on deposit in a Yield Supplement
Account and available on any Distribution Date will be
equal to at least the sum of all projected Yield
Supplement Amounts for all future Distribution Dates,
assuming that future scheduled payments on the
Receivables are made on their scheduled due dates (the
"SPECIFIED YIELD SUPPLEMENT BALANCE"); provided that if
on any date the Seller shall fail to pay the amount
payable under a Yield Supplement Agreement in
accordance with the terms thereof, then, in such event,
the Specified Yield Supplement Balance shall not
thereafter be reduced. The amount required to be
deposited by the Seller into a Yield Supplement Account
on or prior to the Closing Date will be specified in
the related Prospectus Supplement (the "YIELD
SUPPLEMENT INITIAL DEPOSIT").
7
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Reserve Account.......... With respect to each series of Certificates, a reserve
account (the "RESERVE ACCOUNT") will be established and
maintained by the Seller, in the name of, and under the
control of, the Collateral Agent with an initial
deposit of cash or certain investments having an
aggregate value that will be specified in the related
Prospectus Supplement (the "RESERVE ACCOUNT INITIAL
DEPOSIT"). In addition, on each Distribution Date, any
amounts on deposit in the Certificate Account with
respect to the related Collection Period after payments
to the Certificateholders and the Servicer have been
made will be deposited into the Reserve Account until
the amount of the Reserve Account is equal to the
related Specified Reserve Account Balance. The Reserve
Account provides credit enhancement and liquidity to
the Certificateholders that will be available in the
event that, as a result of defaults or delinquencies,
Collections on the Receivables are insufficient to make
the distributions on the Certificates. On or prior to
each Deposit Date, the Collateral Agent will withdraw
funds from the Reserve Account, to the extent of the
funds therein (net of investment earnings), (i) to the
extent required to reimburse the Servicer for Advances
previously made and not reimbursed ("OUTSTANDING
ADVANCES") to the extent provided in the related
Agreement and (ii) to the extent (x) the sum of the
amounts required to be distributed to
Certificateholders and the Servicer on the related
Distribution Date exceeds (y) the amount on deposit in
the Certificate Account as of the last day of the
related Collection Period (net of investment earnings).
If the amount in the Reserve Account is reduced to
zero, Certificateholders will bear directly the credit
and other risks associated with ownership of the
Receivables, including the risk that such Trust may not
have a perfected security interest in the Financed
Vehicles. See "Risk Factors-Possible Subordination of
Security Interests," "The Certificates-Reserve
Account," "Certain Legal Aspects of the Receivables."
8
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Specified Reserve Account With respect to each series of Certificates, on each
Balance................ Distribution Date, the "SPECIFIED RESERVE ACCOUNT
BALANCE" will equal the Basic Reserve Account
Percentage of the Pool Balance as of the last day of
the related Collection Period, but in any event will
not be less than the lesser of (i) the Reserve Account
Floor Amount and (ii) the Full Payoff Amount (or, under
certain circumstances, a higher amount). The Specified
Reserve Account Balance may be reduced to a lesser
amount as determined by the Seller, provided that such
reduction does not adversely affect the ratings of the
Certificates by the Rating Agencies. Amounts in the
Reserve Account on any Distribution Date (after giving
effect to all distributions made on that date) in
excess of the Specified Reserve Account Balance for
such Distribution Date will be paid to the Seller. See
"The Certificates-Reserve Account."
Optional Purchase........ With respect to any series of Certificates, if (i) the
Pool Balance as of the last day of a Collection Period
has declined to 10% or less of the Original Pool
Balance (or such other percentage as may be specified
in the related Prospectus Supplement) and (ii) the
aggregate Purchase Amount for the Receivables is
greater than or equal to the sum of the Class A
Certificate Balance and the Class B Certificate
Balance, the Servicer may purchase all remaining Trust
Property on any Distribution Date occurring in a
subsequent Collection Period at a purchase price equal
to the aggregate of the Purchase Amounts of the
remaining Receivables (other than Defaulted
Receivables). See "The Certificates-Termination."
</TABLE>
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Tax Status............... In the opinion of Kirkland & Ellis, special tax counsel
to the Seller, each Trust will be classified for
Federal income tax purposes as a grantor trust and not
as an association taxable as a corporation. Certificate
Owners must report their respective allocable shares of
income earned on Trust assets and, subject to certain
limitations applicable to individuals, estates and
trusts, may deduct their respective allocable shares of
reasonable servicing and other fees. Individuals should
consult their own tax advisors to determine the
federal, state, local, and other tax consequences of
the purchase, ownership and disposition of the Class A
Certificates or the Class B Certificates. Prospective
investors should note that no rulings have been or will
be sought from the Internal Revenue Service (the "IRS")
with respect to any of the federal income tax
consequences discussed herein, and no assurance can be
given that the IRS will not take a contrary position.
See "Federal Income Tax Consequences."
Prepayment The weighted average life of the Certificates of any
Considerations......... series may be reduced by full or partial prepayments on
the Receivables. The Receivables are prepayable at any
time. Prepayments may also result from liquidations due
to default, the receipt of monthly installments earlier
than the scheduled due dates for such installments, the
receipt of proceeds from credit life, disability, theft
or physical damage insurance, repurchases by the Seller
as a result of certain uncured breaches of the
warranties made by it in the related Agreement with
respect to the Receivables, purchases by the Servicer
as a result of certain uncured breaches of the
covenants made by it in such Agreement with respect to
the Receivables, or the Servicer exercising its
optional purchase right. The rate of prepayments on the
Receivables may be influenced by a variety of economic,
social, and other factors, including Obligor
refinancings resulting from decreases in interest rates
and the fact that the Obligor may not sell or transfer
the Financed Vehicle securing a Receivable without the
consent of the Seller. No prediction can be made as to
the actual prepayment rates which will be experienced
on the Receivables. If prepayments were to occur after
a decline in interest rates, investors seeking to
reinvest their distributed funds might be required to
invest at a return lower than the applicable
Pass-Through Rate. Certificate Owners will bear all
reinvestment risk resulting from prepayment of the
Receivables. See "Risk Factors -- Reduction in Weighted
Average Life of the Certificates; Possible Reinvestment
Risk" and "The Receivables -- Maturity and Prepayment
Assumptions."
</TABLE>
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<TABLE>
<S> <C>
Rating................... It is a condition to the issuance of each series of the
Certificates that each of the Class A Certificates and
the Class B Certificates of a series be rated at least
in the respective rating categories (or their
equivalents) specified in the Prospectus Supplement
(the "REQUIRED CLASS A RATING" and the "REQUIRED CLASS
B RATING"), respectively, in each case by at least one
nationally recognized rating agency (a "RATING
AGENCY"). A security rating is not a recommendation to
buy, sell or hold securities and may be revised or
withdrawn at any time by the assigning Rating Agency.
The ratings on the Certificates of a series do not
address the timing of distributions of principal on
such Certificates prior to their Final Scheduled
Distribution Date.
ERISA Considerations..... As described herein and in the related Prospectus
Supplement, the Class A Certificates may be purchased
by employee benefit plans that are subject to the
Employee Retirement Income Security Act of 1974, as
amended, upon satisfaction of certain conditions
described herein. Employee benefit plans subject to
ERISA will not be eligible to purchase Class B
Certificates, because the Class B Certificates are
subordinated to the Class A Certificates. Any benefit
plan fiduciary considering a purchase of Certificates
should, among other things, consult with experienced
legal counsel in determining whether all required
conditions have been satisfied. See "ERISA
Considerations."
Risk Factors............. Prospective investors should consider the factors set
forth under "Risk Factors."
</TABLE>
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS,
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS AND
ANY RISK FACTORS SET FORTH IN THE PROSPECTUS SUPPLEMENT BEFORE INVESTING IN
CERTIFICATES.
LIMITED LIQUIDITY
Immediately after issuance of each series of Certificates, there will be no
secondary market for the Class A Certificates or the Class B Certificates. The
Seller believes that the related Underwriters may, but will not be obligated to,
make a market in the Certificates of such series. There is no assurance that any
such market will develop or, if one does develop, that it will provide liquidity
of investment or will continue for the life of such Class A Certificates or such
Class B Certificates, as the case may be.
POSSIBLE SUBORDINATION OF SECURITY INTERESTS
The Seller will cause financing statements to be filed with the appropriate
governmental authorities to perfect the interest of each Trust in its purchase
of the Receivables in accordance with the requirements of the Uniform Commercial
Code in effect in the relevant states (the "UCC"), and the Trustee will appoint
First Security Service Company, an affiliate of the Servicer, to hold the
Receivables and Receivable Files as custodian for the Trustee following the sale
and assignment of the Receivables to such Trust. Although the Receivable Files
will not be segregated, stamped or otherwise marked to so indicate, the Servicer
and First Security Service Company will note in their computer records that the
Receivables have been sold to such Trust. If, through inadvertence or otherwise,
another party purchases (or takes a security interest in) the Receivables for
new value in the ordinary course of business and takes possession of the
Receivables without actual knowledge of such Trust's interest, such purchaser
(or secured party) will acquire an interest in the Receivables superior to the
interest of such Trust.
The Seller will assign its security interests in the Financed Vehicles along
with the sale and assignment of the Receivables to the Trustee. The certificates
of title or ownership will not be endorsed or otherwise amended to identify the
Trust as the new secured party. In Utah, Idaho and most other states, in the
absence of fraud or forgery by the vehicle owner or of fraud, forgery,
negligence or error by the Bank or administrative error by state or local
agencies, the filing within 20 days after the Obligor takes possession of the
Financed Vehicle of an application requesting the notation of the Bank's lien on
the certificates of title or ownership and/or possession of such certificates
with such notation will be sufficient to perfect the security interest of such
Trust in the Financed Vehicle which will protect such Trust against the rights
of subsequent purchasers of a Financed Vehicle or subsequent lenders who take a
security interest in a Financed Vehicle. In Idaho, if the Bank and the
department agree, a paperless electronic record of title may be made in lieu of
a paper certificate. In that case, perfection of the security interest occurs
upon filing in the electronic records department. There exists a risk, however,
in certain states that by not identifying such Trust or the related Trustee as
the new secured party on the certificate of title that the security interest of
such Trust or the related Trustee may not be perfected. In the event such Trust
has failed to obtain or maintain a perfected security interest in a Financed
Vehicle, its security interest would be subordinate to, among others, a
bankruptcy trustee of the Obligor, a subsequent purchaser of the Financed
Vehicle or a holder of a perfected security interest. See "Certain Legal Aspects
of the Receivables."
POSSIBLE REDUCTIONS AND DELAYS IN PAYMENTS DUE TO BANKRUPTCY AND INSOLVENCY
The Bank intends that the transfer of the Receivables by it under each
Agreement constitute a sale. In the event that the Bank were to become
insolvent, the Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") sets forth certain powers that the Federal Deposit Insurance
Corporation (the "FDIC") could exercise if it were appointed as receiver of the
Bank. Subject to clarification by FDIC regulations or interpretations, it would
appear from the positions taken by the FDIC
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before and after the passage of FIRREA that the FDIC, in its capacity as
receiver for the Bank, would not interfere with the timely transfer to the
related Trust of payments collected on the Receivables. If the transfer to such
Trust were to be characterized as a loan secured by a pledge of Receivables, to
the extent that the Bank would be deemed to have granted a security interest in
the Receivables to such Trust, and that interest had been validly perfected
before the Bank's insolvency and had not been taken in contemplation of
insolvency, that security interest should not be subject to avoidance, and
payments to such Trust with respect to the Receivables should not be subject to
recovery by the FDIC as receiver of the Bank. If, however, the FDIC were to
assert a contrary position, such as by requiring the Trustee to establish its
right to those payments by submitting to and completing the administrative
claims procedure established under FIRREA, delays in payments on the
Certificates and possible reductions in the amount of those payments could
occur. Alternatively, in such circumstances, the FDIC might have the right to
repay the Certificates for an amount which may be greater or less than the
principal balance thereof and which would shorten their weighted average life.
See "Certain Legal Aspects of the Receivables."
LIMITED ENFORCEABILITY OF THE RECEIVABLES
Numerous Federal and state consumer protection laws and related regulations
impose substantial and detailed requirements upon lenders and servicers involved
in consumer finance. These requirements impose specific statutory liabilities
upon creditors who fail to comply with their provisions where applicable. In
most cases, this liability could affect the ability of an assignee, such as the
Trustee, to enforce secured loans such as the Receivables. If, as of the Cutoff
Date, an Obligor had a claim against any Trust for violation of any law and such
claim materially and adversely affects that Trust's interest in a Receivable,
such violation would create an obligation of the Seller to repurchase the
Receivable unless the breach was cured. See "Certain Legal Aspects of the
Receivables -- Consumer Protection Laws."
REDUCTION IN WEIGHTED AVERAGE LIFE OF THE CERTIFICATES; POSSIBLE REINVESTMENT
RISK
The weighted average life of the Certificates may be reduced by full or
partial prepayments on the Receivables. Each Receivable is prepayable by the
related Obligor at any time. Prepayments may also result from liquidation due to
default, the receipt of monthly installments earlier than the scheduled due
dates for such installments, the receipt of proceeds from credit life,
disability, theft or physical damage insurance, repurchases by the Seller as a
result of certain uncured breaches of the warranties made by it in each
Agreement with respect to the Receivables, purchases by the Servicer as a result
of certain uncured breaches of the covenants made by it in such Agreement with
respect to the Receivables, or the Servicer exercising its optional purchase
right. The rate of prepayment on the Receivables may be influenced by a variety
of economic, social, and other factors, including decreases in interest rates
and the fact that the Obligor may not sell or transfer the Financed Vehicle
securing a Receivable without the consent of the Seller. No prediction can be
made as to the actual prepayment rates which will be experienced on the
Receivables. If prepayments were to occur after a decline in interest rates,
investors seeking to reinvest their funds might be required to invest at a
return lower than the applicable Pass-Through Rate. Certificate Owners will bear
all reinvestment risk resulting from prepayment of the Receivables. See "The
Receivables -- Maturity and Prepayment Assumptions."
LIMITED RELIANCE ON THE SELLER, THE SERVICER AND THEIR AFFILIATES
None of the Seller, the Servicer or their affiliates is generally obligated
to make any payments in respect of the Certificates or the Receivables. However,
in connection with the sale of Receivables by the Seller to the related Trust,
the Seller will make representations and warranties with respect to the
characteristics of such Receivables and, in certain circumstances, the Seller
may be required to repurchase Receivables with respect to which such
representations and warranties have been breached. See "The Certificates --
Mandatory Repurchase of the Receivables." In addition, under certain
circumstances, the Servicer may be required to purchase Receivables. See "The
Certificates -- Servicing Procedures." If
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<PAGE>
collections on any Receivable were reduced as a result of any matter giving rise
to a repurchase or purchase obligation on the part of the Seller or the
Servicer, respectively, and the Seller or the Servicer failed for any reason to
perform in accordance with that obligation, then delays in payments on the
Certificates and possible reductions in the amount of those payments could
occur. Moreover, if the Bank were to cease acting as the Servicer, delays in
processing payments on the Receivables and information in respect thereof could
occur and result in delays in payments to the Certificateholders.
The Bank's parent, First Security Corporation, is subject to the information
requirements of the Exchange Act and in accordance therewith files reports and
other information with the Commission. For further information regarding First
Security Corporation, reference is made to such reports and other information
which are available at the addresses specified under "Available Information."
EXTENSIONS AND DEFERRALS OF PAYMENTS ON RECEIVABLES
The Bank may, on a case-by-case basis, permit extensions with respect to the
due dates of the Receivables in the discretion of a senior credit officer other
than the origination officer. In addition to such extensions, the Servicer has
historically offered payment deferrals to a broader population of qualifying
applicants in June and in December. All Obligors that meet the Bank's
eligibility requirements will be given the opportunity to take advantage of such
payment deferrals. Any such deferrals or extensions may extend the maturity of
the applicable Receivable and increase the weighted average life of the
Receivables and any fees associated therewith will increase the principal
balance of the related Receivable. Any reinvestment risks resulting from
extensions and deferrals of payments on Receivables will be borne entirely by
the Certificate Owners. However, if any payment deferral results in the final
scheduled payment on the applicable Receivable falling after the Final Scheduled
Distribution Date, the Servicer will be required to purchase the Receivable from
the related Trust. See "The Certificates -- Credit Deferrals and Optional
Payment Deferrals."
LIMITED ASSETS OF EACH TRUST
No Trust is permitted or expected to have access to any significant assets
or sources of funds other than the Receivables and the right to receive payments
under certain circumstances from the Reserve Account or pursuant to the Yield
Supplement Agreement. The Certificates represent interests solely in the related
Trust and neither the Class A Certificates nor the Class B Certificates will be
insured or guaranteed by First Security Corporation, the Seller, the Servicer,
the Trustee, or any other person or entity. Consequently, Certificateholders
must rely for payment upon collections on the Receivables, the Yield Supplement
Agreement and, if and to the extent available, amounts on deposit in the Reserve
Account. Amounts on deposit in a Reserve Account are limited in amount and will
be reduced as the Pool Balance declines.
Amounts on deposit in a Reserve Account will be available on any
Distribution Date first to cover shortfalls in reimbursement of Outstanding
Advances and payment of Basic Servicing Fees to the Servicer, then shortfalls in
distributions of interest on the Class A Certificates and then shortfalls in
distributions of interest on the Class B Certificates. After distributions of
interest on the Certificates have been made, the remaining amounts on deposit in
such Reserve Account will be available first to cover shortfalls in
distributions of principal on the Class A Certificates and then shortfalls in
distributions of principal on the Class B Certificates. If a Reserve Account is
exhausted (and not replenished from Collections on Receivables), the related
Trust will depend solely on payments on the Receivables to make distributions on
the Certificates, and Certificateholders will bear, without any additional
credit enhancement (except with respect to the Yield Supplement Agreement and to
the extent that the Reserve Account is later replenished), the risk of
delinquency, loan losses and repossessions with respect to the Receivables.
There can be no assurance that the future delinquency, loan loss and
repossession experience of any Trust with respect to its Receivables will be
better or worse than that set forth herein with respect to the total portfolio
of Motor Vehicle Loans owned and serviced by the Bank. See "The Motor Vehicle
Loan Portfolio
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- -- Delinquency and Loss Experience," "The Certificates -- Reserve Accounts" and
"-- Distributions on Certificates."
SUBORDINATION OF THE CLASS B CERTIFICATES
Distributions of interest and principal on the Class B Certificates will be
subordinated in priority of payment to interest due on the Class A Certificates.
The Class B Certificateholders will not receive any distributions of interest
with respect to a Collection Period until the full amount of interest on the
Class A Certificates relating to such Collection Period has been deposited in
the Class A Distribution Account. Distributions of principal on the Class B
Certificates will be subordinated in priority of payment to interest and
principal due on the Class A Certificates. Class B Certificateholders will not
receive any distributions of principal with respect to such Collection Period
until the full amount of interest on and principal of the Class A Certificates
relating to such Collection Period has been deposited in the Class A
Distribution Account. However, distributions of interest on the Class B
Certificates, to the extent of collections on the Receivables allocable to
interest and the amounts on deposit in the Reserve Account available after the
payment of interest on the Class A Certificates has been made, will not be
subordinated to the payment of principal on the Class A Certificates. See "The
Certificates -- Distributions on Certificates."
RISK OF COMMINGLING OF COLLECTIONS BY THE SERVICER
The Servicer will deposit all payments on Receivables (other than late fees,
prepayment charges and certain other amounts payable to the Servicer under the
Agreement which are not required to be deposited into the Certificate Account)
into the related Certificate Account not later than two business days after
receipt thereof. However, if conditions satisfactory to the Rating Agencies have
been met, the Servicer will no longer be required to make such payments within
two business days, but instead will be permitted to make such payments for a
Collection Period into such Certificate Account not later than the opening of
business (New York time) on the related Deposit Date. The Servicer intends to
satisfy such conditions and make deposits only on Deposit Dates for the related
Collection Period. Pending deposit into the Certificate 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 Certificateholders might incur a loss. In order to satisfy the
requirements described above, the Servicer may, upon confirmation by the Rating
Agencies that the rating of a series of Class A Certificates and Class B
Certificates would not be lowered as a result, obtain a letter of credit or make
other arrangements for the benefit of the related Trust to secure timely
remittances of collections on the Receivables (other than with respect to
Advances) and payment of the aggregate Purchase Amount with respect to
Receivables purchased by the Servicer.
FEDERAL INCOME TAXATION; SUBORDINATION OF CLASS B CERTIFICATE OWNERS
It is expected that, for Federal income tax purposes, amounts otherwise
payable to the Class B Certificate Owners that are paid to the Class A
Certificate Owners pursuant to the subordination provisions described above
under "--Subordination of the Class B Certificates" will be deemed to have been
received by the Class B Certificate Owners and then paid by them to the Class A
Certificate Owners pursuant to a guaranty. See "Federal Income Tax Consequences
- -- Class B Certificate Owners."
If the Class B Certificate Owners received distributions of less than their
share of the related Trust's receipts of principal or interest (the "SHORTFALL
AMOUNT") because of the subordination of the Class B Certificates, it is
expected that Class B Certificate Owners would, for Federal income tax purposes,
be treated as if they had (i) received as distributions their full share of such
receipts, (ii) paid over to the Class A Certificate Owners an amount equal to
such Shortfall Amount, and (iii) retained the right to reimbursement of such
amounts to the extent of future Collections otherwise available for deposit in
the Reserve Account.
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Under this analysis, (i) Class B Certificate Owners would be required to
accrue as current income any interest or OID income of such Trust that was a
component of the Shortfall Amount, even though such amount was in fact paid to
the Class A Certificate Owners, (ii) a loss would only be allowed to the Class B
Certificate Owners when their right to receive reimbursement of such Shortfall
Amount became worthless (i.e., when it becomes clear that such amount will not
be available from any source to reimburse such loss), and (iii) reimbursement of
such Shortfall Amount prior to such a claim of worthlessness would not be
taxable income to Class B Certificate Owners because such amount was previously
included in income. Those results should not significantly affect the inclusion
of income for Class B Certificate Owners on the accrual method of accounting,
but could accelerate inclusion of income to Class B Certificate Owners on the
cash method of accounting by, in effect, placing them on the accrual method.
Moreover, the character and timing of loss deductions is unclear.
LIMITED SIGNIFICANCE OF RATINGS
It will be a condition to the issuance of any series of Certificates that
the Class A Certificates and the Class B Certificates be rated at or above the
Required Class A Rating and the Required Class B Rating, respectively, by at
least one Rating Agency. A security rating is not a recommendation to buy, sell
or hold securities and may be revised or withdrawn at any time by the assigning
Rating Agency. In addition, the ratings on the Certificates do not address the
timing of distributions of principal on the Certificates prior to the applicable
Final Scheduled Distribution Date.
ABSENCE OF DEFINITIVE CERTIFICATES
With respect to any series of Certificates, the Class A Certificates and the
Class B Certificates will each be represented initially by global certificates
registered in the name of Cede, as nominee of DTC. No Certificate Owner will be
entitled to receive a Definitive Certificate representing such person's interest
in the related Trust except in certain limited circumstances. Under the terms of
each Agreement, Certificate Owners will not be recognized as Certificateholders,
and will be permitted to exercise the rights of the Certificateholders only
indirectly through DTC. See "The Certificates -- Book Entry Registration" and
"-- Definitive Certificates."
FORMATION OF THE TRUSTS
With respect to each series of Certificates, the Seller will establish a
Trust by selling and assigning the Receivables and certain other Trust Property
to the related Trust in exchange for the Certificates. Prior to such sale and
assignment, such Trust will have no assets or obligations or any operating
history. No Trust will engage in any activity other than acquiring and holding
the related Trust Property, issuing the Certificates and distributing payments
on the Certificates.
The Servicer will service the Receivables of each Trust, either directly or
through subservicers, and will be paid the Basic Servicing Fee out of
collections from the Receivables, prior to distributions to the
Certificateholders. Certain other expenses of each Trust will be paid by the
Servicer or by the Seller as provided in the Agreement. See "The Certificates --
Servicing Procedures," "-- Servicing Compensation" and "-- Distributions on
Certificates."
The Servicer will appoint an affiliate, First Security Service Company, to
hold the Receivables and Receivable Files as custodian for the Trustee. Although
the Receivables will not be marked or stamped to indicate that they have been
sold to a Trust, and the certificates of title for the Financed Vehicles will
not be endorsed or otherwise amended to identify such Trust as the new secured
party, the Servicer and First Security Service Company will indicate in their
computer records that the Receivables have been sold to that Trust. Under such
circumstances and in certain jurisdictions, a Trust's interest in the
Receivables and the Financed Vehicles may be subordinate to certain third
parties. See "Certain Legal Aspects of the Receivables -- Rights in the
Receivables" and "-- Security Interests in the Financed Vehicles."
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No Trust will acquire any assets other than the related Trust Property, and
it is not anticipated that any Trust will have a need for additional capital
resources. Because each Trust will have no operating history upon its
establishment and will not engage in any activity other than acquiring and
holding the Trust Property, issuing the Certificates and distributing payments
on the Certificates, no historical or pro forma financial statements or ratios
of earnings to fixed charges with respect to a Trust have been included herein,
nor will any be included in a Prospectus Supplement.
TRUST PROPERTY
Each Certificate will represent a fractional undivided interest in the
related Trust. The property of each Trust will include (i) the Receivables, (ii)
all monies due or received under such Receivables after the Cutoff Date, (iii)
certain amounts from time to time on deposit in the related Certificate Account,
Class A Distribution Account and Class B Distribution Account, (iv) security
interests in the related Financed Vehicles, (v) certain rights of such Trust
under the related Yield Supplement Agreement, (vi) the Seller's rights (if any)
to receive proceeds from claims on credit life, disability, theft and physical
damage insurance policies covering such Financed Vehicles or the related
Obligors, (vii) the Seller's right to all documents and information contained in
the Receivable Files, (viii) the rights of such Trust under the related
Agreement, (ix) certain of the Seller's rights relating to such Receivables
under Dealer Agreements and (x) all proceeds (within the meaning of the UCC) of
the foregoing. The Reserve Account and the Yield Supplement Account for a series
of Certificates, and any amounts therein, will not be property of the related
Trust, but will be pledged to and held by the Collateral Agent, as secured party
for the benefit of the related Certificateholders.
THE MOTOR VEHICLE LOAN PORTFOLIO
GENERAL
The Bank originates retail motor vehicle installment sale contracts and
installment loans secured by new and used automobiles and light-duty trucks
manufactured by a number of automobile manufacturers through Dealers and
branches of the Bank ("MOTOR VEHICLE LOANS"). The Motor Vehicle Loans to be
transferred to any Trust have been or will be originated by participating
Dealers or will be made by the Bank directly to borrowers. All applications are
reviewed by the Bank in accordance with its established underwriting procedures.
The following is a description of the origination, underwriting and
servicing of the Bank's portfolio of Motor Vehicle Loans as of the date of this
Prospectus. Any material changes to this information with respect to a Trust
known at the time such Trust is created will be set forth in the related
Prospectus Supplement.
ORIGINATION OF RECEIVABLES
Since September 30, 1996, the Bank's direct loans have been referred to, and
approved at, the Direct Loan Center located in Boise. Prior to this date, direct
loans for the State of Utah were approved at a Direct Loan Center in Salt Lake
City and the direct loans for the State of Idaho were approved at a Direct Loan
Center in Boise.
Applications for credit which originate with Dealers are sent via facsimile
to the Application Processing Center in Boise. These applications are
data-entered and transmitted through the Application Processing System to
Regional Dealer Services Centers located in Salt Lake City, Utah and Boise and
Lewiston, Idaho. These centers are responsible for all credit analysis and
credit decisions on indirect loan requests.
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Since September 30, 1996, bank wide consumer loan collections have been
performed by the Consumer Collection Center located in Salt Lake City. Prior to
this date, collection activities for Utah were performed in Salt Lake City and
collection activities for Idaho were handled in Boise.
The Consumer Loan Servicing Center located in Boise, reviews and tracks all
loan documentation, stores and maintains all loan files, follows up on lien
perfection, processes payments, reconciles accounting records and provides for
internal and external reporting for all of the Bank's direct and indirect
consumer lending business. In addition, this department provides central
processing of dealer flooring, including processing of manufacturers' drafts and
flooring requests for the Regional Dealer Services Centers and processing of
flooring billing and payments.
Credit administration is provided by the Small Business and Consumer Loan
Administration department located in Boise. This department provides policy and
functional guidance for all areas of consumer lending.
UNDERWRITING
The Bank uses the applicant's creditworthiness as the basic criterion in
purchasing a retail installment sale contract from a Dealer and in making an
installment loan. Each applicant is evaluated individually by the Bank based on
underwriting guidelines developed by the Bank. These underwriting guidelines are
intended to assess the applicant's ability to repay such loan and the adequacy
of the Financed Vehicle as collateral. Among the criteria considered in
evaluating the individual applications are (i) stability of the applicant with
specific regard to the applicant's length of residence in the area, occupation,
length of employment, and whether the applicant rents or owns a residence, (ii)
the applicant's payment history, (iii) a debt service to net monthly income
ratio test, and (iv) a loan to value ratio test taking into account the age,
type and market value of the Financed Vehicle.
The Bank obtains information from the loan application form which generally
lists the applicant's income, deposit accounts, liabilities, credit history,
employment history, and a description of the Financed Vehicle. Upon receipt of
an application, the Bank obtains a credit bureau report from a major credit
reporting agency summarizing the applicant's credit history and paying habits,
including such items as open accounts, delinquent payments, bankruptcies,
repossessions, lawsuits and judgments. The Bank's analysts generally verify the
applicant's employment or, where appropriate, check directly with the
applicant's creditors. The Bank's general policy has been to reject applications
for applicants whose debt service to net monthly income ratio exceeds 45%.
The amount financed by the Bank under a retail installment sale contract
generally will not exceed (i) for a new Financed Vehicle, the Dealer wholesale
price, plus sales tax, license fees, title fees, service and warranty contracts,
and premiums for credit life and credit accident and health insurance obtained
in connection with the vehicle or the financing and (ii) for a used Financed
Vehicle, the wholesale value of the Financed Vehicle (as determined according to
industry standards and price quotations), plus sales tax, license fees, title
fees, and premiums for credit life and credit accident and health insurance
obtained in connection with the vehicle or the financing. However, the maximum
amount advanced for Motor Vehicle Loans is often less than such amounts
depending on a number of factors, including the length of the Motor Vehicle Loan
term and the model and year of the Financed Vehicle. These adjustments are made
to assure that the Financed Vehicle constitutes adequate collateral to secure
the Motor Vehicle Loan.
Since January 1994, an empirically based credit scoring process has been
used to objectively index an applicant's creditworthiness. This scoring process
was created using historical information from the database of Motor Vehicle
Loans owned and serviced by the Bank. Through credit scoring, the Bank evaluates
credit profiles in order to quantify credit risk. The credit scoring process
entails the use of statistics to correlate common characteristics with credit
risk. The credit scoring process used by the Bank is periodically reviewed and
validated and, if necessary, updated based upon statistical sampling of actual
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credit results. The Bank's credit scoring process is intended to provide a basis
for lending decisions, but is not meant to supersede the judgment of the credit
analyst.
Such information is evaluated by the Bank's experienced credit officers as a
package; no one factor is determinative to the analysis. As a result, certain
contracts may not comply with all of the Bank's guidelines. Deviations from the
guidelines must be approved by a lending officer with appropriate authority.
Motor Vehicle Loans which do not comply with all of the Bank's guidelines must
have strong compensating factors which indicate a high ability of the applicant
to repay the loan. Any Receivables sold by the Bank to any Trust which were the
subject of special financing or other promotional programs will have been
approved by the Bank in accordance with its normal and customary underwriting
practices and procedures for all Motor Vehicle Loans.
The Bank has established internal control procedures and performs periodic
audits to ensure compliance with the underwriting guidelines and its established
policies and procedures for Motor Vehicle Loans originated directly by the Bank
as well as those originated through Dealers.
Dealers from which the Bank purchases retail installment sale contracts have
been selected by the Bank based on the Dealer's financial and operating history,
and have made representations and warranties to the Bank with respect to the
contracts and the security interests in the Financed Vehicles relating thereto,
which representations and warranties do not relate to the creditworthiness of
the applicant or the collectibility of the loans. In addition, as to a generally
small percentage of Motor Vehicle Loans, there is recourse to a Dealer ("DIRECT
RECOURSE") if an applicant defaults under a Receivable, subject to certain
conditions to be fulfilled by the Bank. Upon breach of any representation or
warranty made by such a Dealer with respect to a retail installment sale
contract, the Bank has a right of recourse against such Dealer to require it to
repurchase such contract. Generally, in determining whether to exercise such
right or any right of direct recourse, the Bank considers the prior performance
of the Dealer and other business and commercial considerations. The Bank, as
Servicer, is obligated to enforce such rights with respect to Dealer Agreements
relating to the Receivables in accordance with such customary practices, and the
right to any proceeds received upon such enforcement will be conveyed to the
applicable Trust.
The Bank may, on a case-by-case basis, permit extensions with respect to the
due dates of Receivables or payment deferrals in the discretion of a senior
credit officer other than the origination officer. In addition to such
extensions, the Bank has historically offered payment deferrals to a broader
population of qualifying applicants in June and in December. Unless otherwise
specified in a Prospectus Supplement, all obligors that meet the Bank's
eligibility requirements will be given the opportunity to take advantage of such
payment deferrals. Any such deferrals or extensions may extend the maturity of
the applicable Receivable and increase the weighted average life of the
Receivables and any fees associated therewith will increase the principal
balance of the related Receivable.
SERVICING AND COLLECTIONS
Collection activities with respect to delinquent contracts are performed by
the Bank's collection personnel. Under current practices, collection personnel
generally initiate contact, by mail, with obligors whose contracts have become
more than 10 days delinquent. In the event that such contact fails to resolve
the delinquency, the collection personnel typically contact the obligor by
telephone after the contract becomes 15 days delinquent. Generally, after a
contract continues delinquent for 90 days, the vehicle is repossessed; however,
under certain circumstances, the vehicle may be repossessed immediately after a
contract has become delinquent. After repossession, the Bank is required to give
reasonable notice of any proposed sale of the vehicle, and the Bank's practice
is to give the obligor 10 days' notice. Losses may occur in connection with
delinquent contracts and can arise in several ways, including inability to
locate the vehicle to be repossessed. The Bank recognizes losses on Motor
Vehicle Loans at the time it deems such Motor Vehicle Loans to be uncollectible,
which is generally at the time it has exhausted all of its non-legal remedies,
typically no later than the 120th day of delinquency. The servicing and
charge-off policies and
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collection practices of the Bank may change over time in accordance with the
Bank's business judgment. Upon repossession and disposition of the vehicle, any
deficiency remaining will be pursued to the extent deemed practical.
PHYSICAL DAMAGE INSURANCE
The Bank requires that an obligor provide an insurance policy covering
collision and comprehensive insurance. The deductibles are a maximum of $1,000
each for the collision insurance and the comprehensive insurance. The Bank uses
an automatic insurance tracking system. If, after 42 days, the Bank has not
received evidence of the proper insurance, a notice is sent to the obligor.
After giving the obligor another 28 days to purchase the required insurance, the
Bank force places "collateral protection insurance" policies on the Financed
Vehicle. If the principal balance of a Motor Vehicle Loan is less than $2,000,
the Bank does not force place insurance. An amount equal to the premium to cover
the policy is added to the loan, and monthly payments are adjusted to pay for
the insurance premium over a nine-month period. Unless otherwise specified in
the Prospectus Supplement, such additional principal and any interest thereon
will not be deemed Trust Property. Virtually all of such force placed insurance
policies are written for one year and then re-issued for subsequent years if
necessary. Unless otherwise specified in the Prospectus Supplement, insurance on
the Receivables in a Trust will be written through Balboa Life and Casualty
Company. Balboa Life and Casualty Company also provides the Bank with an errors
and omissions policy for insurance follow-ups.
DELINQUENCY AND LOSS EXPERIENCE
Fluctuations in delinquencies, repossessions and charge-offs generally
follow trends in the overall economic environment and may be affected by such
factors as increased competition for obligors, rising consumer debt burden per
household and increases in personal bankruptcies. Information with respect to
delinquencies, repossessions and charge-offs will be set forth in the Prospectus
Supplement, including, to the extent appropriate, past data indicating the
delinquency and credit/loss repossession experience for each of the last five
calendar years of the Bank's entire portfolio of Motor Vehicle Loans.
MATURITY AND PREPAYMENT ASSUMPTIONS
Full or partial prepayments on the Receivables in a Trust will have the
effect of reducing the weighted average life of the Receivables, while
delinquencies by Obligors under the Receivables, as well as extensions and
deferrals on the Receivables, will have the effect of increasing the weighted
average life of the Certificates. The Receivables may be prepaid at any time and
mandatory prepayments of a Receivable may result from, among other things, the
sale, insured loss or other disposition of the related Financed Vehicle or the
Receivable becoming a Defaulted Receivable. No assurance can be given as to the
level or timing of prepayments. If prepayments were to occur after a decline in
interest rates, investors seeking to reinvest their funds might be required to
invest at a return lower than the applicable Pass-Through Rate.
Certificateholders will bear all reinvestment risk resulting from prepayment of
the Receivables in the related Trust.
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. The
Servicer 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 in a Trust. Any reinvestment risks resulting from a
faster or slower incidence of prepayment of such Receivables will be borne by
the related Certificateholders. See "The Certificates -- Termination" regarding
the Servicer's option to purchase all of the Receivables in a Trust as of the
last day of any Collection Period in which the Pool Balance of such Trust as a
percentage of the Original Pool Balance is 10.0% or less (or such other
percentage as is specified in the related Prospectus Supplement).
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The Bank maintains certain records of the historical prepayment experience
of its portfolio of indirect Motor Vehicle Loans. The Bank does not believe that
such records are adequate to provide meaningful information with respect to the
Receivables in a Trust. In any event, no assurance can be given that prepayments
on such Receivables would conform to any historical experience, and no
prediction can be made as to the actual prepayment experience to be expected
with respect to any Receivables.
YIELD CONSIDERATIONS
With respect to any series of Certificates, on each Distribution Date,
interest on the Certificates will be distributed at the applicable Pass-Through
Rate on the Class A Certificate Balance and the Class B Certificate Balance as
of the immediately preceding Distribution Date (after giving effect to all
payments made on such preceding Distribution Date). In the event of a principal
prepayment on a Receivable during a Collection Period, Certificateholders will
receive their PRO RATA share of interest for the full Collection Period with
respect to the unpaid principal balance of such Receivable as of the first day
of such Collection Period to the extent that amounts on deposit in the related
Certificate Account and in the related Reserve Account are available for such
purpose. The Receivables are Simple Interest Receivables and, to the extent that
payments of the fixed monthly installments thereunder are received prior to the
scheduled due dates for such installments, the portions of such installments
allocable to interest will be less than they would be if the payments were
received as scheduled. If the related Reserve Account is exhausted, the amount
of interest distributed to the Class B Certificateholders and, in certain
circumstances, the Class A Certificateholders, may be less than that described
above. See "The Certificates -- Distributions on Certificates."
Although the Receivables have different Contract Rates, disproportionate
rates of prepayments between Receivables with Contract Rates greater than or
less than a rate equal to the sum of the applicable Pass-Through Rate and the
Basic Servicing Fee Rate will generally not affect the yield to the
Certificateholders because the Seller has entered into a Yield Supplement
Agreement with each Trust. However, higher rates of prepayments of Receivables
with higher Contract Rates will decrease the amount available to cover
delinquencies and defaults on the Receivables. See "The Certificates --
Distributions on Certificates."
Additional information concerning the Receivables, including the selection
criteria and other characteristics of the Receivables, will be set forth in the
Prospectus Supplement for each series of Certificates.
POOL FACTORS AND OTHER INFORMATION
The "CLASS A POOL FACTOR" and the "CLASS B POOL FACTOR" for any series of
Certificates will each be a seven-digit decimal that the Servicer will compute
each month indicating the remaining Class A Certificate Balance and Class B
Certificate Balance, respectively, as of the close of business of the Servicer
on the Distribution Date, as a fraction of the respective initial outstanding
principal balance of the Class A Certificates and the Class B Certificates. The
Class A Pool Factor and the Class B Pool Factor will each be 1.0000000 as of the
date of the initial issuance of the Certificates (the "CLOSING DATE"), and
thereafter will decline to reflect reductions in the outstanding principal
balance of the Class A Certificates and Class B Certificates.
A Class A Certificateholder's portion of the aggregate outstanding principal
balance of the Class A Certificates is the product of (i) the original
denomination of the holder's Class A Certificate and (ii) the related Class A
Pool Factor. A Class B Certificateholder's portion of the aggregate outstanding
principal balance of the Class B Certificates is the product of (i) the original
denomination of the holder's Class B Certificate and (ii) the related Class B
Pool Factor.
Pursuant to the applicable Agreement, the Certificateholders of a series
will receive from the related Trustee monthly reports concerning the payments
received on the Receivables, Pool Balance, Class A Pool Factor and Class B Pool
Factor, and various other items of information. Certificateholders of record
during
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any calendar year will be furnished information by such Trustee for tax
reporting purposes not later than the latest date permitted by law. See "The
Certificates -- Statements to Certificateholders."
USE OF PROCEEDS
For any series of Certificates, the Seller will receive the Certificates in
exchange for the contribution to a Trust of the Receivables and the other Trust
Property described in a related Prospectus Supplement. Unless otherwise
described in the Prospectus Supplement, the net proceeds to be received by the
Seller from the sale of the Certificates will be added to its general corporate
funds and will be used for general corporate purposes.
THE BANK
The Bank, which will act as the Seller and Servicer for the Trusts, is a
subsidiary of First Security Corporation, a Delaware multi-state financial
services corporation based in Salt Lake City, Utah. First Security Corporation
is the oldest continuously operating multi-state bank holding company in the
United States. The Bank is a major participant in the motor vehicle financing
and dealer flooring markets in Utah, Idaho and neighboring market areas, as well
as in all facets of consumer and commercial lending.
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THE CERTIFICATES
The Certificates will be issued in series. Each series of Certificates will
be issued pursuant to an Agreement to be entered into by the Bank and the
Trustee specified in the related Prospectus Supplement. A form of Agreement has
been filed as an exhibit to the Registration Statement of which this Prospectus
is a part. Copies of an Agreement may be obtained by the Certificateholders upon
written request to the Bank at 79 South Main Street, Salt Lake City, Utah 84111.
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 related
Agreement. Where particular provisions or terms used in an Agreement are
referred to, the actual provisions (including definitions of terms) are
incorporated by reference as a part of such summaries.
GENERAL
Each series of Certificates will evidence interests in a Trust to be created
pursuant to an Agreement. The Class A Certificates will evidence in the
aggregate an undivided ownership interest of the Class A Percentage of the Trust
and the Class B Certificates will evidence in the aggregate an undivided
ownership interest of the Class B Percentage of the Trust. On each Distribution
Date, the Trustee will distribute, to Certificateholders of the related Trust of
record on the related Record Date, all payments of principal on the Receivables
received by the Servicer during the related Collection Period, plus interest at
the applicable Pass-Through Rate on the Class A Certificate Balance and the
Class B Certificate Balance as of the immediately preceding Distribution Date
(after giving effect to all payments made on such Distribution Date), to the
extent that sufficient funds are on deposit in the related Certificate Account
or available in the related Reserve Account to make such distribution. See
"--Distributions on Certificates" and "-- Reserve Account." Principal and
interest to be distributed to Certificateholders may be provided by payments
made by or on behalf of Obligors, the payment of Purchase Amounts by the Seller
or the Servicer, draws from the related Reserve Account, payments pursuant to
the related Yield Supplement Agreement, repossession of, or other enforcement
measures taken with respect to, Financed Vehicles after default by Obligors and
the realization of net Liquidation Proceeds with respect thereto, or Recoveries
(if any) of deficiencies from Obligors after repossession and sale of Financed
Vehicles. See "--Sale and Assignment of the Receivables" and "--Servicing
Procedures." In the event that, on any Distribution Date, funds available from
the foregoing sources are insufficient to provide for such distributions, any
shortfall will be payable on the subsequent Distribution Date, to the extent
funds are available therefor.
The Certificates will be offered for purchase in denominations of $1,000 and
integral multiples thereof and will be represented initially by global
certificates registered in the name of Cede, as nominee of DTC. No Certificate
Owner will be entitled to receive a Definitive Certificate representing such
person's interest in any Trust unless Definitive Certificates are issued under
the limited circumstances described herein. Unless and until Definitive
Certificates are issued, all references to actions by Certificateholders shall
refer to actions taken by DTC upon instructions from its Direct Participants and
all references to distributions, notices, reports and statements to
Certificateholders shall refer to distributions, notices, reports and statements
to DTC. See "--Definitive Certificates."
BOOK ENTRY REGISTRATION
DTC is a limited purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to Section 17A of the Exchange Act. DTC was created
to hold securities for its participating organizations ("DIRECT
PARTICIPANTS")and to facilitate the clearance and settlement of securities
transactions between Direct Participants through electronic book-entries,
thereby eliminating the need for physical movement of certificates. Direct
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations, and may include certain other organizations. Indirect
access to the DTC system is also available to others such as
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banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Direct Participant, either directly or indirectly
("INDIRECT PARTICIPANTS").
Certificate Owners that are not Direct Participants or Indirect Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Certificates may do so only through Direct Participants or
Indirect Participants. In addition, Certificate Owners will receive all
distributions of principal and interest from the appropriate Trustee through
Direct Participants or Indirect Participants. Under a book-entry format,
Certificate Owners may experience some delay in their receipt of payments, as
such payments will be forwarded by the Trustee to Cede as nominee of DTC. DTC
will forward such payments to its Direct Participants which thereafter will
forward them to Indirect Participants or Certificate Owners. It is anticipated
that the only "Certificateholder" will be Cede as nominee of DTC. Certificate
Owners will not be recognized by the Trustee as Certificateholders, as such term
is used in the Agreement, and Certificate Owners will be permitted to exercise
the rights of Certificateholders only indirectly through DTC and its Direct
Participants and Indirect Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (THE "RULES"), DTC will be required to make book-entry transfers
of Certificates among Direct Participants and to receive and transmit
distributions of principal of, and interest on, the Certificates. Direct
Participants and Indirect Participants with which Certificate Owners have
accounts with respect to the Certificates similarly are required to make
book-entry transfers and receive and transmit such payments on behalf of their
respective Certificate Owners. Accordingly, although Certificate Owners will not
possess Certificates, the Rules provide a mechanism by which Participants will
receive payments and Certificate Owners will be able to transfer their
interests.
Because DTC can only act on behalf of Direct Participants, who in turn act
on behalf of Indirect Participants, and on behalf of certain banks, trust
companies and other persons approved by it, the ability of a Certificate Owner
to pledge Certificates to persons or entities that do not participate in the DTC
system, or to otherwise act with respect to such Certificates, may be limited
due to the absence of physical certificates for such Certificates.
DTC has advised the Seller that it will take any action permitted to be
taken by a Certificateholder under the related Agreement only at the direction
of one or more Direct Participants to whose accounts with DTC the Certificates
are credited. Additionally, DTC has advised the Seller that to the extent that
the applicable Agreement requires that any action may be taken only by holders
of Class A Certificates or Class B Certificates representing specified
percentages of the aggregate outstanding principal amount thereof, DTC will take
such action only at the direction of and on behalf of Direct Participants whose
holdings include undivided interests that satisfy such specified percentages.
DTC may take conflicting actions with respect to other undivided interests to
the extent that such actions are taken on behalf of Direct Participants whose
holdings include such undivided interests.
DEFINITIVE CERTIFICATES
Each series of Certificates will be issued in fully registered, certificated
form ("DEFINITIVE CERTIFICATES") to Certificate Owners or their nominees, rather
than to DTC or its nominee, only if (i) the Seller advises the related Trustee
in writing that DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to the Certificates and such Trustee
or the Seller is unable to locate a qualified successor, (ii) the Seller, at its
option, elects to terminate the book-entry system through DTC or (iii) after the
occurrence of an Event of Servicing Termination, with respect to a series of the
Class A Certificates, Class A Certificate Owners of such series representing in
the aggregate not less than a majority of the aggregate outstanding principal
balance of the Class A Certificates or, with respect to the Class B
Certificates, Class B Certificate Owners representing in the aggregate not less
than a majority of the aggregate outstanding principal balance of the Class B
Certificates, advise the Trustee and DTC through Direct Participants in writing
that the continuation of a book-entry system through DTC (or successor
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thereto) is no longer in the Class A Certificate Owners' or the Class B
Certificate Owners', as the case may be, best interests.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Direct Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC to
the Trustee of the global certificates representing the Certificates and receipt
by the Trustee of instructions for re-registration, the Trustee will reissue the
Certificates as Definitive Certificates and thereafter the Trustee will
recognize the holders of such Definitive Certificates as Certificateholders
under the related Agreement ("HOLDERS").
Distributions of principal of, and interest on, the Class A Certificates and
the Class B Certificates will be made by the Trustee directly to Holders of
Definitive Certificates in accordance with the procedures set forth herein and
in the related Agreement. Distributions of principal and interest on each
Distribution Date will be made to Holders in whose names the Definitive
Certificates were registered at the close of business of the Trustee on the
related Record Date. Such distributions will be made by check mailed to the
address of such Holder as it appears on the register maintained by such Trustee.
The final payment on any Definitive Certificate, however, will be made only upon
presentation and surrender of the Definitive Certificate at the office or agency
specified in the related notice of final distribution mailed to Holders.
Definitive Certificates will be transferable and exchangeable subject to
such reasonable regulations as the Trustee may prescribe. No service charge will
be imposed for any registration of transfer or exchange, but the Trustee may
require payment of a sum sufficient to cover any tax or other government charge
imposed in connection therewith.
SALE AND ASSIGNMENT OF THE RECEIVABLES
On or prior to a Closing Date, pursuant to each Agreement, the Seller will
sell and assign to the related Trust, without recourse, the Seller's entire
interest in the Receivables and the proceeds thereof, including its security
interests in the Financed Vehicles. Each Receivable with respect to a Trust will
be identified in a schedule incorporated by reference into the related Agreement
(the "SCHEDULE OF RECEIVABLES"). The Trustee will, concurrently with such sale
and assignment, execute, authenticate and deliver the global certificates
representing the Certificates to the Seller, to be delivered by, or on behalf
of, the Seller to DTC.
The Seller will warrant in each Agreement as to each Receivable conveyed by
it to the related Trust that, among other things, as of the Closing Date (unless
otherwise indicated): (i) the Receivable has been fully and properly executed by
the parties thereto and (a) has been originated by the Seller or has been
originated by a Dealer for the retail sale of a Motor Vehicle in the ordinary
course of such Dealer's business and has been purchased by the Seller in the
ordinary course of the Seller's business and has been validly assigned by such
Dealer to the Seller, (b) is secured by a valid, subsisting and enforceable
security interest in favor of the Seller in the Financed Vehicle (subject to
administrative delays and clerical errors on the part of the applicable
government agency) prior in right to the security interest of any other
creditor, which security interest is assignable together with such Receivable,
and has been so assigned, by the Seller to the Trustee, (c) contains customary
and enforceable provisions such that the rights and remedies of the holder
thereof are adequate for realization against the collateral of the benefits of
the security, (d) provided, at origination, for level monthly payments (although
the amount of the first and last payments may be different), which fully
amortize the initial principal balance of the Receivable over the original term
and (e) provides for a payment that will fully pay the principal balance of such
Receivable as of the first day of the Collection Period in which the Receivable
is fully prepaid, together with interest accrued at least to the date of
prepayment at the related Contract Rate; (ii) the information set forth in the
related Schedule of Receivables was true and correct as of the close of business
of the Seller on the Cutoff Date; (iii) the Receivable complied at the time it
was originated or made, and will comply as of the Closing Date, in all material
respects with all requirements of applicable Federal, state and local laws, and
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regulations thereunder; (iv) the Receivable constitutes the genuine, legal,
valid and binding payment obligation in writing of the Obligor, enforceable in
all material respects by the holder thereof in accordance with its terms, and
the Receivable is not subject to any right of rescission, setoff, counterclaim
or defense, including the defense of usury, and the operation of any of the
terms of the Receivable, or the exercise of any right thereunder, will not
render the Receivable unenforceable in whole or in part or subject to any right
of rescission, setoff, counterclaim or defense, including the defense of usury,
and the Seller has no notice that any right of rescission, setoff, counterclaim
or defense has been asserted with respect thereto; (v) the Seller has taken no
action which would have the effect of releasing the related Financed Vehicle
from the lien granted by the Receivable in whole or in part; (vi) no material
provision of the Receivable has been amended, waived, altered or modified in any
respect, except such waivers as would be permitted under the related Agreement,
and no amendment, waiver, alteration or modification causes such Receivable not
to conform to the other representations or warranties contained in this
paragraph; (vii) the Seller has not received notice of any liens or claims,
including liens for work, labor, materials or unpaid state or Federal taxes
relating to the Financed Vehicle securing the Receivable, that are or may be
prior to or equal to the lien granted by the Receivable; (viii) except for
payment delinquencies continuing for a period of not more than 30 days as of the
Cutoff Date, no default, breach, violation or event permitting acceleration
under the terms of the Receivable exists and no continuing condition that with
notice or lapse of time, or both, would constitute a default, breach, violation
or event permitting acceleration under the terms of the Receivable has arisen;
(ix) if the principal balance of a Receivable exceeds $2,000 (or such other
amount as is specified in the related Prospectus Supplement), the Financed
Vehicle securing such Receivable is insured under an insurance policy covering
theft and physical damage, the premiums for which have been paid in full, and
such insurance policy is in full force and effect, (x) the Receivable has not
been sold, assigned, pledged or otherwise conveyed by the Seller to any person
other than the related Trust, and, immediately prior to the transfer and
assignment herein contemplated, the Seller had good and marketable title to the
Receivable free and clear of any encumbrance, equity, lien, pledge, charge,
claim, security interest or other right or interest of any other person and had
full right and power to transfer and assign the Receivable to the Trust and
immediately upon the transfer and assignment of the Receivable to the Trust,
such Trust will have good and marketable title to the Receivable, free and clear
of any encumbrance, equity, lien, pledge, charge, claim, security interest or
other right or interest of any other person and, if such transfer to such Trust
is deemed to be a transfer for security, such Trust's interest in the Receivable
resulting from the transfer has been perfected under the UCC; (xi) the Seller
has duly fulfilled all obligations on its part to be fulfilled under, or in
connection with, the Receivable and (xii) there is only one original executed
Receivable, and immediately prior to the related Closing Date, the Seller will
have possession of such original executed Receivable.
The Seller also will warrant in each Agreement that: (i) the Original Pool
Balance will be a specified amount (which amount is described in the related
Prospectus Supplement); (ii) as of the related Cutoff Date, the Receivables had
the individual characteristics described in the applicable Prospectus Supplement
under "The Receivables--Selection Criteria;" (iii) as of the related Cutoff
Date, the Receivables had the characteristics described in the applicable
Prospectus Supplement under "The Receivables--Certain Characteristics;" (iv) by
the related Closing Date, the Seller will have caused the portions of the
Seller's electronic master record of retail motor vehicle loans relating to the
Receivables to be clearly and unambiguously marked to show that such Receivables
constitute part of the Trust Property and are owned by such Trust in accordance
with the terms of the related Agreement; and (v) the Seller has not taken any
action to convey any right to any person that would result in such person having
a right to payments received under the related theft and physical damage
insurance policies or Dealer Agreements or to payments due under such
Receivables that is senior to or equal with that of the Trust.
To assure uniform quality in servicing the Receivables and to reduce
administrative costs, pursuant to each Agreement, the Trustee will appoint the
Servicer and the Servicer will appoint First Security Service Company, an
affiliate of the Servicer, as initial custodian of the Receivables held by the
related Trust. First Security Service Company, in its capacity as custodian with
respect to the Receivables, will hold such
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Receivables and the motor vehicle certificates of title relating thereto (each,
a "RECEIVABLE FILE") on behalf of the Trustee for the benefit of
Certificateholders. The Receivables will not be stamped or otherwise marked to
reflect the sale and assignment of the Receivables to the Trust and will not be
segregated from other receivables held by First Security Service Company on
behalf of the Servicer. Documents related to the Receivables that are not
included in the original Receivable Files will be maintained by First Security
Service Company, on behalf of the Servicer, in a computer imaging system (but
not in original form). The Seller's and First Security Service Company's
accounting records and computer systems will reflect the sale and assignment of
the Receivables to such Trust, and UCC financing statements with respect to such
sale and assignment will be filed. See "Formation of the Trusts" and "Certain
Legal Aspects of the Receivables."
MANDATORY REPURCHASE OF RECEIVABLES
In the event of a breach or failure to be true of any warranty described in
"--Sale and Assignment of the Receivables" by the Seller with respect to the
Receivables in a Trust, which breach or failure materially and adversely affects
the interests of such Trust and the related Certificateholders in a Receivable
(it being understood that any such breach or failure with respect to certain
representations and warranties which does not affect the ability of the Trust to
receive and retain payment in full on the Receivable will not be deemed to have
such a material and adverse effect), the Seller, unless such breach or failure
has been cured by the last day of the related Collection Period which includes
the 60th day after the date on which the Seller becomes aware of, or receives
written notice from the Trustee or the Servicer of, such breach or failure, will
be required to repurchase the Receivable from the Trustee, without recourse,
representation or warranty, other than that the Trustee has not imposed any
liens on such Receivable to be repurchased, for the Purchase Amount. In
addition, if any payment deferral or credit extension permitted by the Servicer
results in the term of a Receivable extending beyond the last day of the
Collection Period immediately preceding the related Final Scheduled Distribution
Date, the Servicer is required to purchase that Receivable for the Purchase
Amount. See "--Credit Deferrals and Optional Payment Deferrals." The Purchase
Amount is payable on the Deposit Date related to such Collection Period. The
repurchase obligation will constitute the sole remedy available to the related
Certificateholders, Trustee or Trust against the Seller for any such uncured
breach or failure, except with respect to certain indemnities of the Seller
under the related Agreement.
The "PURCHASE AMOUNT" of any Receivable means, with respect to any Deposit
Date, an amount equal to the sum of (i) the outstanding principal balance of
such Receivable as of the last day of the related Collection Period and (ii) an
amount equal to the amount of accrued and unpaid interest on such principal
balance at the applicable Contract Rate through the last day of such related
Collection Period, in each case after giving effect to Collections on such
Receivable in such Collection Period.
CREDIT DEFERRALS AND OPTIONAL PAYMENT DEFERRALS
Other than as described below, the Servicer will not be allowed to increase
or decrease the amount or number of payments under a Receivable or the Contract
Rate of a Receivable, or extend, rewrite or otherwise modify the payment terms
of a Receivable, release collateral securing a Receivable, or otherwise modify
or waive any material term of a Receivable. Notwithstanding the foregoing, the
Servicer will be allowed to grant to an Obligor one or more payment deferrals
(each, a "CREDIT DEFERRAL") if (i) the Servicer determines that, absent such
deferral, a payment default by the Obligor is reasonably foreseeable, (ii) the
Servicer would grant such Credit Deferral if the Receivable were serviced by it
for its own account and in accordance with its customary standards, (iii) the
cumulative extensions with respect to any Receivable would not cause the term of
such Receivable to extend beyond the last day of the Collection Period
immediately preceding the related Final Scheduled Distribution Date, (iv) such
extensions in the aggregate would not exceed two months for each twelve months
of the original term of the Receivable and (v) interest would continue to accrue
on the outstanding principal balance of the Receivable during the
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term of such Credit Deferral. In the event that the Servicer fails to comply
with the provisions of the preceding sentence, the Servicer will be required to
purchase the Receivable or Receivables affected thereby for the Purchase Amount.
The Servicer will receive a fee in connection with the grant of Credit
Deferrals, which fee is then added to the principal balance of the related
Receivable.
Unless otherwise provided in a Prospectus Supplement, the Servicer will be
allowed to grant non-credit related extensions of any regularly scheduled
payment due under a Receivable (each, an "OPTIONAL PAYMENT DEFERRAL") to
Obligors satisfying the following conditions: (i) at the time of the extension,
the Receivable is not the subject of two Optional Payment Deferrals in the
related fiscal year of the related Trust; (ii) the Receivable is (x) not the
subject of any Credit Deferral within 90 days of the related Optional Payment
Deferral, or (y) not the subject of more than two Credit Deferrals since its
date of origination; (iii) the Receivable has been more than 30 days past due no
more than once; (iv) at the time of the Optional Payment Deferral, the
Receivable is not 15 days or more delinquent; (v) at the time of the Optional
Payment Deferral, the remaining term of the Receivable is greater than 20%, but
not more than 95%, of the original specified term of the Receivable; and (vi) in
the reasonable judgment of the Servicer, the Receivable is not likely to become
a Defaulted Receivable following the Optional Payment Deferral. If, as an
inadvertent result of any Optional Payment Deferral, the extension breached any
of the terms of the preceding criteria (i) through (vi) or caused the term of
the Receivable to extend beyond the last day of the Collection Period
immediately preceding the Final Scheduled Distribution Date, then the Servicer
will be obligated to purchase the Receivable for the Purchase Amount. The
Servicer will receive a fee in connection with the grant of Optional Payment
Deferrals, which fee is then added to the principal balance of the related
Receivable.
ACCOUNTS
With respect to each series of Certificates, the Trustee will establish one
or more segregated accounts (collectively for such series, the "CERTIFICATE
ACCOUNT"), in the name of the Trustee on behalf of the related Trust and for the
benefit of the Certificateholders of such series, into which all payments made
on or with respect to the Receivables will be deposited. Additionally, with
respect to each series of Certificates, the Trustee will establish a segregated
account (the "CLASS A DISTRIBUTION ACCOUNT") in the name of the Trustee on
behalf of the related Trust and for the benefit of the Class A
Certificateholders, and a segregated account (the "CLASS B DISTRIBUTION
ACCOUNT") in the name of the Trustee on behalf of the related Trust and for the
benefit of the Class B Certificateholders, from which all distributions with
respect to the Class A Certificates and the Class B Certificates, respectively,
will be made. The Certificate Account, the Class A Distribution Account and the
Class B Distribution Account for a series are collectively referred to as the
"ACCOUNTS," and such Accounts shall initially be established with the Trustee.
Each Account will be at all times an Eligible Deposit Account. If any
Account held by the Trustee in its own trust department ceases to be an Eligible
Deposit Account, the Trustee will be required to transfer such Account to an
Eligible Bank or otherwise cause such Account to again become an Eligible
Deposit Account. "ELIGIBLE DEPOSIT ACCOUNT" means either (a) a segregated
account with an Eligible Bank or (b) a segregated trust account with the 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 trust powers and acting as
trustee for funds deposited in such account, so long as the long-term unsecured
debt of such depository institution shall have a credit rating from each Rating
Agency in one of its generic rating categories which signifies investment grade.
"ELIGIBLE BANK" means any institution with trust powers (which may be the
Bank or the Trustee), organized under the laws of the United States of America
or any one of the states thereof or the District of Columbia (or any domestic
branch of a foreign bank) which has a combined capital and surplus in excess of
$50,000,000, the deposits of which are insured to the full extent permitted by
law by the Federal Deposit Insurance Corporation (the "FDIC"), which is subject
to supervision and examination by Federal or state banking authorities and which
has (i) a rating of at least P-1 from Moody's Investors Service, Inc.
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("MOODY'S")and A-l+ from Standard & Poor's Ratings Service, a Division of the
McGraw Hill Companies ("S&P") with respect to short-term deposits obligations,
(ii) a rating of A2 or higher from Moody's and A from S&P with respect to
long-term unsecured debt obligations, or (iii) such other ratings as may be
described in a Prospectus Supplement.
The Accounts may be maintained with the Bank, or any affiliate of the Bank,
if the Bank or such affiliate, as the case may be, and the Accounts meet the
eligibility criteria described in the preceding paragraphs.
Funds in the Accounts will be invested as provided in the related Agreement
in Eligible Investments. "ELIGIBLE INVESTMENTS" will generally be limited to
investments acceptable to the Rating Agencies as being consistent with the
rating of the Certificates and may include, if otherwise eligible, debt
securities of the Trustee, the Bank or any of their affiliates and money market
funds for which the Trustee, the Bank or any of their affiliates is an
investment manager or investment advisor. Investments of amounts on deposit in
the Accounts with respect to any Collection Period or Distribution Date are
limited to obligations or securities that mature not later than the related
Deposit Date. However, to the extent permitted by each Rating Agency, funds on
deposit in the Reserve Account may be invested in securities that will not
mature prior to the date of the next distribution with respect to the
Certificates. Any earnings (net of losses and investment expenses) on amounts on
deposit in the Accounts will be paid to the Seller and will not be available to
Certificateholders.
COLLECTIONS ON THE RECEIVABLES
The Servicer will deposit all payments on Receivables held by a Trust (other
than late fees, prepayment charges and certain other amounts payable to the
Servicer under the applicable Agreement, which are not required to be deposited
into the related Certificate Account) into the Certificate Account not later
than two business days after receipt thereof. However, if conditions
satisfactory to the Rating Agencies have been met, the Servicer will no longer
be required to make such payments within two business days, but instead will be
permitted to make such payments for a Collection Period into the Certificate
Account not later than the close of business (New York time) on the related
Deposit Date. Notwithstanding that payments received in respect of the
Receivables by the Servicer may not be required to be segregated from the
Servicer's own funds, the Agreement requires the Servicer to deposit into the
Certificate Account the full amount of all payments received from Obligors
during the related Collection Period and consequently the Servicer, not the
Certificateholders, will bear the risk of loss on all amounts received with
respect to the Receivables prior to their deposit into the Certificate Account.
The Seller and the Servicer will also deposit into the Certificate Account
on or before the next Deposit Date the Purchase Amount of each Receivable to be
repurchased or purchased by them pursuant to an obligation that arose during the
related Collection Period. The Servicer will be entitled to retain, or to be
reimbursed from, amounts otherwise payable into, or on deposit in, the
Certificate Account but later determined to have resulted from mistaken deposits
or postings or checks returned for insufficient funds.
As an administrative convenience, so long as no Event of Servicing
Termination has occurred, the Servicer will be permitted to make deposits for a
Collection Period net of distributions to be made to it with respect to such
Collection Period. The Servicer will account to the Trustee and to the
Certificateholders, however, as if all such deposits and distributions were made
individually.
SERVICING PROCEDURES
The Servicer will make reasonable efforts to collect all payments due with
respect to the Receivables held by a Trust in a manner consistent with the
related Agreement and will exercise the degree of skill and care that the
Servicer exercises with respect to similar motor vehicle loans serviced by the
Servicer for itself or others and that are consistent with prudent industry
standards. The Servicer is permitted to delegate (i) any and all of its
servicing duties to any of its affiliates or (ii) specific duties to
subcontractors who are in
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the business of performing such duties; PROVIDED, HOWEVER, the Servicer will
remain obligated and liable to the Trustee and the Certificateholders for
servicing and administering the Receivables in accordance with the related
Agreement as if the Servicer alone were servicing the Receivables. References
herein to actions required or permitted to be taken, or restrictions on actions
to be taken, by the Servicer include such actions by a subservicer. References
herein to amounts received by the Servicer include amounts received by a
subservicer.
In each Agreement, the Servicer will covenant that: (A) the Servicer will
not release the Financed Vehicle from the security interest granted by the
related Receivable in whole or in part, except upon payment in full of the
Receivable or as otherwise contemplated by such Agreement; (B) the Servicer will
not impair in any material respect the rights of the Certificateholders in the
Receivables, the Dealer Agreements or the physical damage insurance policies;
and (C) except in the case of certain extensions, amendments or modifications
explicitly permitted by such Agreement, the Servicer will not (i) amend or
modify the principal balance or Contract Rate of any Receivable or (ii) amend,
waive or otherwise modify any material term of a Receivable.
In the event of a breach by the Servicer of any covenant described above
that materially and adversely affects the interests of the related Trust and the
Certificateholders in a Receivable, the Servicer, unless such breach has been
cured by the last day of the Collection Period which includes the 60th day after
the date on which the Servicer becomes aware of, or receives written notice of
such breach from the Trustee or the Seller, will be required to purchase the
Receivable from the Trustee, without recourse, representation or warranty, other
than that the Trustee has not imposed any liens on such Receivable to be
repurchased, for the Purchase Amount on the Deposit Date related to such
Collection Period or earlier under certain circumstances. In addition, if any
payment deferral or credit extension permitted by the Servicer results in the
term of a Receivable extending beyond the last day of the Collection Period
immediately preceding the Final Scheduled Distribution Date of the related
series, the Servicer will be required to purchase that Receivable for the
Purchase Amount. Such purchase will occur as of the last day of the related
Collection Period. The purchase obligation will constitute the sole remedy
available to the Certificateholders, the related Trust or Trustee against the
Servicer for any such uncured breach, except with respect to certain indemnities
of the Servicer under the related Agreement.
Each Agreement will also generally require the Servicer to charge off a
Receivable as a Defaulted Receivable in accordance with its customary servicing
procedures, to use its best efforts to repossess and liquidate the Financed
Vehicle as soon as feasible and to follow such of its normal collection
practices and procedures as it deems necessary or advisable, and that are
consistent with the standard of care required by the related Agreement, to
realize upon any Receivable. The Servicer may sell the Financed Vehicle securing
such Receivable at judicial sale or take any other action permitted by
applicable law. See "Certain Legal Aspects of the Receivables."
Each Agreement will provide that the Servicer will defend and indemnify the
related Trust, Collateral Agent and Certificateholders against any and all
costs, expenses, losses, damages, claims and liabilities, including reasonable
fees and expenses of counsel and expenses of litigation, arising out of or
resulting from (i) the use, ownership or operations by the Servicer or any
affiliate thereof of any Financed Vehicle or (ii) the willful misfeasance,
negligence or bad faith of the Servicer in the performance of its duties under
an Agreement. The Servicer's obligations to indemnify the related Trust, the
Collateral Agent and the Certificateholders for the Servicer's actions or
omissions will survive the removal of the Servicer, but will not apply to any
action or omission of a successor servicer.
SERVICING COMPENSATION
With respect to each series of Certificates, on each Distribution Date, to
the extent of Interest Collections, the Servicer will receive a fee for
servicing the Receivables equal to one-twelfth of a per annum rate (the "BASIC
SERVICING FEE RATE") multiplied by the Pool Balance as of the first day of the
related
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Collection Period (the "BASIC SERVICING FEE"). If it is acceptable to each
Rating Agency without a reduction in the rating of the Certificates, the Basic
Servicing Fee in respect of a Collection Period (together with any portion of
the Basic Servicing Fee that remains unpaid from prior Distribution Dates) at
the option of the Servicer may be paid at or as soon as possible after the
beginning of such Collection Period out of the first collections of interest
received on the Receivables for such Collection Period. The Basic Servicing Fee
Rate will equal 1.0% per annum (or such other percentage as is set forth in the
related Prospectus Supplement). In addition, with respect to each series of
Certificates, the Servicer will be entitled to retain any late fees, prepayment
charges (other than Deferral Fees) and other fees and charges collected during
the related Collection Period, plus any interest earned during the Collection
Period on deposits in the Accounts (the "SUPPLEMENTAL SERVICING FEE").
The Basic Servicing Fee and Supplemental Servicing Fee with respect to each
series of Certificates will compensate the Servicer for performing the functions
of a third party servicer of Motor Vehicle Loans and for administering the
Receivables on behalf of the Certificateholders, including collecting payments,
accounting for collections, furnishing monthly and annual statements to the
Trustee with respect to distributions, responding to inquiries of Obligors,
investigating delinquencies and providing collection and repossession services
in cases of Obligor default. The Basic Servicing Fee and Supplemental Servicing
Fee will provide further compensation for certain taxes, accounting fees,
outside auditor fees and processing costs, and other costs incurred by the
Servicer under each Agreement in connection with administering and servicing the
Receivables.
ADVANCES
With respect to any series of Certificates, on each Deposit Date, the
Servicer may, subject to the following and unless otherwise specified in a
Prospectus Supplement, make a payment with respect to each Receivable serviced
by it (other than a Defaulted Receivable) equal to the excess, if any, of (x)
the product of the principal balance of such Receivable as of the first day of
the applicable Collection Period and one-twelfth of its Contract Rate
(calculated on the basis of a 360-day year comprised of twelve 30-day months),
over (y) Interest Collections actually received by the Servicer as of the last
day of such Collection Period with respect to such Receivable. The Servicer may
elect not to make any Advance of due and unpaid interest with respect to a
Receivable to the extent that the Servicer, in its sole discretion, determines
that such Advance is not recoverable from subsequent payments on such Receivable
or from funds in the Reserve Account.
With respect to any series of Certificates, on each Distribution Date, prior
to making any distribution to the Certificateholders, the Servicer shall be
reimbursed for all Outstanding Advances with respect to prior Distribution
Dates, to the extent of the Interest Collections for such Distribution Date and,
to the extent such Interest Collections are insufficient, to the extent of the
funds in the related Reserve Account. If it is acceptable to each Rating Agency
without reduction in the rating of the Certificates, the Outstanding Advances at
the option the Servicer may be paid at or as soon as possible after the
beginning of the applicable Collection Period out of the first collections of
interest received on the Receivables held by the related Trust for such
Collection Period.
The Servicer will deposit all Advances into the applicable Certificate
Account on the Deposit Date.
YIELD SUPPLEMENT AGREEMENT
With respect to any series of Certificates, simultaneously with the sale and
assignment of the Receivables by the Seller to the related Trust, such Trust and
the Seller will enter into a Yield Supplement Agreement if the amount calculated
below is greater than zero. Each Yield Supplement Agreement will, with respect
to each Receivable held by the related Trust, provide for the payment by the
Servicer on or prior to each Deposit Date of an amount (if positive) calculated
by the Servicer equal to one-twelfth of the excess of (i) the sum of the amount
of interest that would accrue on the Class A Percentage of such
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Receivable's principal balance as of the first day of the related Collection
Period at a rate equal to the sum of the Class A Pass-Through Rate and the Basic
Servicing Fee Rate and the amount of interest that would accrue on the Class B
Percentage of such Receivable's principal balance as of the first day of the
related Collection Period at a rate equal to the sum of the Class B Pass-Through
Rate and the Basic Servicing Fee Rate over (ii) interest at the Contract Rate on
such Receivable's principal balance as of the first day of the applicable
Collection Period.
The Seller's obligations under each Yield Supplement Agreement will be
secured by funds on deposit in a separate Eligible Deposit Account to be
maintained by the Seller in the name of the Collateral Agent for the benefit of
the Certificateholders (a "YIELD SUPPLEMENT ACCOUNT"). The amount required to be
deposited by the Seller into such Yield Supplement Account on the Closing Date
will be equal to the Yield Supplement Initial Deposit, and the amount on deposit
in the Yield Supplement Account and available on any Distribution Date will be
the Specified Yield Supplement Balance.
Each Yield Supplement Account will be an Eligible Deposit Account which the
Seller shall establish and maintain in the name of, and under the control of,
the Collateral Agent. Funds on deposit in such Yield Supplement Account will be
invested in Eligible Investments selected by the Seller; PROVIDED that, if
permitted by the Rating Agencies, funds on deposit in a Yield Supplement Account
may be invested in Eligible Investments that mature later than the next Deposit
Date. A Yield Supplement Account and any amounts therein shall not be property
of the related Trust, but will be pledged to and held for the benefit of the
Collateral Agent, as secured party for the benefit of the Certificateholders.
Each Yield Supplement Account shall initially be maintained at the corporate
trust office of the related Trustee.
Amounts on deposit in a Yield Supplement Account will be released to the
Seller on each Distribution Date to the extent the amount on deposit in such
Yield Supplement Account exceeds the Specified Yield Supplement Balance. The
Collateral Agent also shall cause all investment earnings attributable to any
Yield Supplement Account to be distributed on each Distribution Date to the
Seller. Upon any distribution to the Seller of amounts from a Yield Supplement
Account, the Certificateholders will not have any rights in, or claims to, such
amounts.
RESERVE ACCOUNT
With respect to each series of Certificates, a separate Reserve Account will
be created with an initial deposit of cash or Eligible Investments having a
value of at least the Reserve Account Initial Deposit. In addition, on each
Distribution Date, any amounts on deposit in the related Certificate Account
with respect to the related Collection Period after payments to the
Certificateholders and the Servicer have been made will be deposited into the
related Reserve Account until the amount of such Reserve Account is equal to the
Specified Reserve Account Balance.
Each Reserve Account will be an Eligible Deposit Account which the Seller
shall establish and maintain in the name of, and under the control of, the
related Collateral Agent. Funds on deposit in any Reserve Account will be
invested in Eligible Investments selected by the Seller; PROVIDED that, if
permitted by the Rating Agencies, funds on deposit in such Reserve Account may
be invested in Eligible Investments that mature later than the next Deposit
Date. A Reserve Account and any amounts therein will not be property of the
Trust, but will be pledged to and held by the related Collateral Agent, as
secured party for the benefit of the related Certificateholders.
On each Distribution Date, the amount available in any Reserve Account (the
"AVAILABLE RESERVE AMOUNT") will equal the lesser of (i) the amount on deposit
in such Reserve Account (net of investment earnings) and (ii) the Specified
Reserve Account Balance.
For each series, on or prior to each Deposit Date, the related Collateral
Agent will withdraw funds from the applicable Reserve Account (i) to the extent
required to make reimbursements of Outstanding Advances to the extent not
recovered from Interest Collections and (ii) to the extent (x) the sum of the
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amounts required to be distributed to Certificateholders and the accrued and
unpaid Basic Servicing Fees payable to the Servicer on such Distribution Date
exceeds (y) the amount on deposit in the Certificate Account as of the last day
of the related Collection Period (net of investment income). Such deficiencies
in a Certificate Account may result from, among other things, Receivables
becoming Defaulted Receivables or the failure of the Servicer to make any
remittance required to be made under the related Agreement. The aggregate amount
to be withdrawn from a specific Reserve Account on any Deposit Date will not
exceed the Available Reserve Amount with respect to the applicable Distribution
Date. The related Collateral Agent will deposit the proceeds of the withdrawal
described in clause (ii) above into the Certificate Account on or before the
Distribution Date with respect to which such withdrawal was made.
For each series, the Specified Reserve Account Balance on any Distribution
Date will equal the Basic Reserve Account Percentage of the related Pool Balance
as of the last day of the related Collection Period, but in any event will not
be less than the lesser of (i) the Reserve Account Floor Amount and (ii) the
Full Payoff Amount; provided that the Specified Reserve Account Balance will be
calculated using the Reserve Account Increase Percentage instead of the Basic
Reserve Account Percentage for any Distribution Date (beginning on the Reserve
Account Trigger Starting Date) on which the Average Net Loss Ratio exceeds the
Default Trigger or the Average Delinquency Ratio exceeds the Delinquency
Trigger.
"AGGREGATE NET LOSSES" means, for each series, for any Collection Period,
the aggregate amount allocable to principal of all Receivables newly
designated during such Collection Period as Defaulted Receivables minus all
Liquidation Proceeds to the extent allocable to principal collected during
such Collection Period with respect to all Defaulted Receivables (whether or
not newly designated as such).
"AVERAGE DELINQUENCY RATIO" means, for each series, as of any Distribution
Date, the average of the Delinquency Ratios for the preceding three
Collection Periods.
"AVERAGE NET LOSS RATIO" means, for each series, as of any Distribution
Date, the average of the Net Loss Ratios for the preceding three Collection
Periods.
"BASIC RESERVE ACCOUNT PERCENTAGE" for any series will be specified in the
related Prospectus Supplement.
"DEFAULTED RECEIVABLE" means, with respect to any Collection Period, a
Receivable (other than a Purchased Receivable) which the Servicer, on behalf
of the Trust, has determined to charge off during such Collection Period in
accordance with its customary servicing practices; provided, however, that
any Receivable which the Seller or the Servicer is obligated to repurchase
or purchase shall be deemed not to be a Defaulted Receivable during a
Collection Period unless the Seller or the Servicer fails to deposit the
Purchase Amount on the related Deposit Date when due unless such Receivable
is otherwise repurchased or purchased on or prior to the last day of the
Collection Period in which such Receivable is determined to be a Defaulted
Receivable.
"DEFAULT TRIGGER" for any series will be specified in the related Prospectus
Supplement.
"DELINQUENCY RATIO" means, for each series, for any Collection Period, the
ratio, expressed as a percentage, of (i) the principal amount of all
outstanding Receivables (other than Purchased Receivables and Defaulted
Receivables) which are 60 or more days delinquent as of the last day of such
Collection Period, determined in accordance with the Servicer's customary
practices, divided by (ii) the Pool Balance as of the last day of such
Collection Period.
"DELINQUENCY TRIGGER" for any series will be specified in the related
Prospectus Supplement.
"FULL PAYOFF AMOUNT" for a series means the sum of the Pool Balance of the
related Trust plus an amount sufficient to pay interest on (i) the Class A
Percentage of such Pool Balance at a rate equal to the sum of the Class A
Pass-Through Rate and the Basic Servicing Fee Rate through the Final
Scheduled Distribution Date and (ii) the Class B Percentage of such Pool
Balance at a rate equal to
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the sum of the Class B Pass-Through Rate and the Basic Servicing Fee Rate
through the Final Scheduled Distribution Date
"LIQUIDATION PROCEEDS" means, for each series, with respect to any
Distribution Date and a Receivable that became a Defaulted Receivable during
the related Collection Period, (i) insurance proceeds received during such
Collection Period by the Servicer, with respect to insurance policies
relating to the Financed Vehicles or the Obligors, (ii) amounts received by
the Servicer during such Collection Period from a Dealer in connection with
such Defaulted Receivable pursuant to the exercise of rights under a Dealer
Agreement, and (iii) the monies collected by the Servicer (from whatever
source, including proceeds of a sale of a Financed Vehicle or deficiency
balance recovered after the charge-off of the related Receivable) during
such Collection Period on such Defaulted Receivable net of any expenses
incurred by the Servicer in connection with the collection of such
Receivable and the disposition of the Financed Vehicle and any payments
required by law to be remitted to the Obligor, but, in any event, not less
than zero. Liquidation Proceeds shall be applied first to accrued and unpaid
interest on the Receivable and then to the principal balance thereof.
"NET LOSS RATIO" means, for each series, for any Collection Period, an
amount, expressed as a percentage, equal to (i) the product of (a) the
Aggregate Net Losses minus Recoveries for such Collection Period and (b)
twelve, divided by (ii) the average of the Pool Balances on each of the
first day of such Collection Period and the last day of such Collection
Period.
"RECOVERIES" means, for each series, with respect to any Distribution Date,
all monies received by the Servicer with respect to any Defaulted Receivable
during the related Collection Period if such Collection Period follows the
Collection Period in which such Receivable became a Defaulted Receivable,
net of the sum of (i) any expenses incurred by the Servicer in connection
with the collection of such Receivable and the disposition of the Financed
Vehicle (to the extent not previously reimbursed) and (ii) any payments
required by law to be remitted to the Obligor, but, in any event, not less
than zero.
"RESERVE ACCOUNT FLOOR AMOUNT" for any series will be specified in the
related Prospectus Supplement.
"RESERVE ACCOUNT INCREASE PERCENTAGE" for any series will be specified in
the related Prospectus Supplement.
"RESERVE ACCOUNT TRIGGER STARTING DATE" for any series will be specified in
the related Prospectus Supplement.
The Specified Reserve Account Balance with respect to each series of
Certificates may be reduced to a lesser amount as determined by the Seller,
provided that such reduction does not adversely affect the ratings of the
Certificates by the Rating Agencies. Amounts on deposit in any Reserve Account
will be released to the Seller on each Distribution Date to the extent that the
amount on deposit in such Reserve Account would exceed the Specified Reserve
Account Balance. The related Collateral Agent will cause all investment earnings
attributable to the applicable Reserve Account to be distributed on each
Distribution Date to the Seller. Upon any distribution to the Seller of amounts
from any Reserve Account, the Certificateholders will not have any rights in, or
claims to, such amounts.
In the event that the funds in a Reserve Account are reduced to zero, the
Certificateholders of such series will bear directly the credit and other risks
associated with ownership of the Receivables held by the related Trust,
including the risk that such Trust may not have a perfected security interest in
the Financed Vehicles. In such a case, the amount available for distribution may
be less than that described below, and the Certificateholders may experience
delays or suffer losses as a result, among other things, of defaults or
delinquencies by the Obligors or previous extensions made by the Servicer.
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DISTRIBUTIONS ON CERTIFICATES
DEPOSITS TO CERTIFICATE ACCOUNT. With respect to each series of
Certificates, on or before the tenth calendar day of each month (the
"DETERMINATION DATE"), the Servicer will provide the related Trustee and
Collateral Agent with a certificate (the "SERVICER'S CERTIFICATE") containing
certain information with respect to the applicable Collection Period, including
the amount of aggregate collections on the Receivables during such Collection
Period, the aggregate amount of Receivables held by the related Trust which
became Defaulted Receivables during such Collection Period, the Yield Supplement
Amount, the aggregate Purchase Amounts of Receivables to be repurchased by the
Seller or to be purchased by the Servicer on the related Deposit Date and the
aggregate amount to be withdrawn from the Reserve Account.
With respect to each series of Certificates, on or before each Deposit Date,
(a) the Servicer will cause all related Collections and Liquidation Proceeds and
Recoveries to be deposited into the applicable Certificate Account and will
deposit into the Certificate Account all Purchase Amounts of Receivables to be
purchased by the Servicer on such Deposit Date, (b) the Seller will deposit into
the Certificate Account all Purchase Amounts of Receivables to be repurchased by
the Seller on such Deposit Date, (c) the Collateral Agent will make any required
withdrawals for the related Distribution Date from the Reserve Account for such
series and deposit such amounts into the Certificate Account, (d) the Servicer
will deposit all Advances for the related Distribution Date into the Certificate
Account and (e) the Seller (or, if the Seller fails to do so, the Collateral
Agent) will deposit the Yield Supplement Amount for such Distribution Date into
the Certificate Account.
"AVAILABLE INTEREST" means, for each series, with respect to any
Distribution Date, the excess of (a) the sum of (i) Interest Collections for
such Distribution Date, (ii) the Yield Supplement Amount for such
Distribution Date and (iii) all Advances made by the Servicer with respect
to such Distribution Date, over (b) the amount of Outstanding Advances to be
reimbursed on or with respect to such Distribution Date.
"AVAILABLE PRINCIPAL" means, for each series, with respect to any
Distribution Date, the sum of the following amounts with respect to the
related Collection Period: (i) that portion of all Collections allocable to
principal in accordance with the terms of the Receivables and the Servicer's
customary servicing procedures; (ii) to the extent attributable to
principal, the Purchase Amount received with respect to each Receivable
repurchased by the Seller or purchased by the Servicer under an obligation
which arose during the related Collection Period; and (iii) all related
Liquidation Proceeds, to the extent allocable to principal. "Available
Principal" on any Distribution Date shall exclude all payments and proceeds
of any Receivables the Purchase Amount of which has been distributed on a
prior Distribution Date.
"COLLECTIONS" means all collections on the Receivables.
"INTEREST COLLECTIONS" means, for each series, for any Distribution
Date, the sum of the following amounts for the related Collection Period:
(i) that portion of the Collections on the Receivables received during the
related Collection Period that is allocable to interest in accordance with
the terms of the Receivables and the Servicer's customary procedures, (ii)
all related Liquidation Proceeds, to the extent allocable to interest, (iii)
to the extent allocable to interest, all related Recoveries and (iv) to the
extent attributable to interest, the Purchase Amount of all Receivables that
are repurchased by the Seller or purchased by the Servicer as of any day in
the related Collection Period. "Interest Collections" for any Distribution
Date shall exclude all payments and proceeds of any Receivables the Purchase
Amount of which has been distributed on a prior Distribution Date.
"PURCHASED RECEIVABLE" means, at any time, a Receivable as to which
payment of the Purchase Amount has previously been made by the Seller or the
Servicer pursuant to the applicable Agreement.
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DEPOSITS TO THE DISTRIBUTION ACCOUNTS. With respect to each series of
Certificates, on each Distribution Date, after making reimbursements of
Outstanding Advances to the Servicer, the Trustee will make the following
deposits and distributions, to the extent of Available Interest and any
Available Reserve Amount remaining after such reimbursements (and, in the case
of shortfalls occurring under clause (ii) below in the Class A Interest
Distribution, the Class B Percentage of Available Principal to the extent of
such shortfalls), in the following priority, all in accordance with the
direction contained in the Servicer's Certificate:
(i) to the Servicer, any unpaid Basic Servicing Fee for the related
Collection Period and all unpaid Basic Servicing Fees from prior
Collection Periods, but only from Interest Collections;
(ii) to the Class A Distribution Account, the Class A Interest Distribution
for such Distribution Date; and
(iii) to the Class B Distribution Account, the Class B Interest Distribution
for such Distribution Date.
With respect to each series of Certificates, on each Distribution Date, the
Trustee will make the following deposits and distributions, to the extent of the
portion of Available Principal, Available Interest and Available Reserve Amount
remaining after the application of clauses (i), (ii) and (iii) above, in the
following priority:
(a) to the Class A Distribution Account, the Class A Principal Distribution
for such Distribution Date;
(b) to the Class B Distribution Account, the Class B Principal Distribution
for such Distribution Date;
(c) to the Collateral Agent for deposit in the Reserve Account, any amounts
remaining, until the amount on deposit in the Reserve Account equals the
Specified Reserve Account Balance; and
(d) to the Collateral Agent for distribution to the Seller, any amounts
remaining.
With respect to any series of Certificates, on each Distribution Date, all
amounts on deposit in the Class A Distribution Account will be distributed to
the Class A Certificateholders by the Trustee, all amounts on deposit in the
Class B Distribution Account will be distributed to the Class B
Certificateholders by the Trustee and all amounts on deposit in the Reserve
Account in excess of the Specified Reserve Account Balance will be distributed
to the Seller by the Collateral Agent; PROVIDED, HOWEVER, that upon distribution
with respect to such Class A Certificates of an amount, together with all prior
distributions with respect to the Class A Certificates, equal to the Original
Class A Certificate Balance plus interest thereon, such Class A
Certificateholders shall have no right to any additional distribution and the
Trustee shall make no distributions with respect to the Class A Certificates and
upon distribution with respect to the Class B Certificates of an amount,
together with all prior distributions with respect to the Class B Certificates,
equal to the Original Class B Certificate Balance plus interest thereon, the
Class B Certificateholders shall have no right to any additional distribution
and the Trustee shall make no distributions with respect to the Class B
Certificates.
"CLASS A CERTIFICATE BALANCE" for each series, at any time, equals the
Original Class A Certificate Balance, as reduced by all amounts allocable to
principal on such Class A Certificates distributed to Class A
Certificateholders prior to such time.
"CLASS A INTEREST CARRYOVER SHORTFALL" means, for each series, (i) with
respect to any initial Distribution Date, zero, and (ii) with respect to any
other Distribution Date, the excess of Class A Monthly Interest for the
preceding Distribution Date and any outstanding Class A Interest Carryover
Shortfall on such preceding Distribution Date, over the amount in respect of
interest that is actually deposited in the Class A Distribution Account on
such preceding Distribution Date, plus 30 days of interest on such excess,
to the extent permitted by law, at the applicable Class A Pass-Through Rate.
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"CLASS A INTEREST DISTRIBUTION" means, for each series, with respect to
any Distribution Date, the sum of Class A Monthly Interest for such
Distribution Date and the Class A Interest Carryover Shortfall for such
Distribution Date.
"CLASS A MONTHLY INTEREST" means, for each series, with respect to any
Distribution Date, one-twelfth of the applicable Class A Pass-Through Rate
multiplied by the Class A Certificate Balance as of the preceding
Distribution Date, or, in the case of the first Distribution Date, as of the
Interest Accrual Date.
"CLASS A MONTHLY PRINCIPAL" means, for each series, with respect to any
Distribution Date, the Class A Percentage of Available Principal for such
Distribution Date plus the Class A Percentage of Realized Losses with
respect to the related Collection Period.
"CLASS A PRINCIPAL CARRYOVER SHORTFALL" means, for each series, (i)
with respect to the initial Distribution Date, zero and (ii) with respect to
any other Distribution Date, the excess of Class A Monthly Principal for
such Distribution Date and any outstanding Class A Principal Carryover
Shortfall from the preceding Distribution Date over the amount in respect of
principal that is actually deposited in the Class A Distribution Account on
such Distribution Date.
"CLASS A PRINCIPAL DISTRIBUTION" means, for each series, with respect
to the initial Distribution Date, the Class A Monthly Principal for such
Distribution Date and, in the case of any Distribution Date other than the
initial Distribution Date, the sum of the Class A Monthly Principal for such
Distribution Date and the Class A Principal Carryover Shortfall as of the
close of the preceding Distribution Date. In addition, on the Final
Scheduled Distribution Date for such series, the Class A Principal
Distribution shall include the amount that is necessary (after giving effect
to the other amounts described above to be distributed to the Class A
Certificateholders on such Distribution Date and allocable to principal) to
reduce the Class A Certificate Balance to zero.
"CLASS B CERTIFICATE BALANCE" for each series, at any time, equals the
Original Class B Certificate Balance, as reduced by all amounts allocable to
principal on such Class B Certificates distributed to Class B
Certificateholders prior to such time.
"CLASS B INTEREST CARRYOVER SHORTFALL" means, for each series, (i) with
respect to the initial Distribution Date, zero, and (ii) with respect to any
other Distribution Date, the excess of Class B Monthly Interest for the
preceding Distribution Date and any outstanding Class B Interest Carryover
Shortfall on such preceding Distribution Date, over the amount in respect of
interest that is actually deposited in the Class B Distribution Account on
such preceding Distribution Date, plus 30 days of interest on such excess,
to the extent permitted by law, at the Class B Pass-Through Rate.
"CLASS B INTEREST DISTRIBUTION" means, for each series, with respect to
any Distribution Date, the sum of Class B Monthly Interest for such
Distribution Date and the Class B Interest Carryover Shortfall for such
Distribution Date.
"CLASS B MONTHLY INTEREST" means, for each series, with respect to any
Distribution Date, one-twelfth of the Class B Pass-Through Rate multiplied
by the Class B Certificate Balance as of the preceding Distribution Date
(after giving effect to any distributions made on such Distribution Date)
or, in the case of the first Distribution Date, as of the Interest Accrual
Date.
"CLASS B MONTHLY PRINCIPAL" means, for each series, with respect to any
Distribution Date, the Class B Percentage of Available Principal for such
Distribution Date plus the Class B Percentage of Realized Losses with
respect to the related Collection Period.
"CLASS B PRINCIPAL CARRYOVER SHORTFALL" means, for each series, (i)
with respect to the initial Distribution Date, zero and (ii) with respect to
any other Distribution Date, the excess of Class B
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Monthly Principal for such Distribution Date and any outstanding Class B
Principal Carryover Shortfall from the preceding Distribution Date over the
amount in respect of principal that is actually deposited in the Class B
Distribution Account on such Distribution Date.
"CLASS B PRINCIPAL DISTRIBUTION" means, for each series, with respect
to any initial Distribution Date, the Class B Monthly Principal for such
Distribution Date and, in the case of any Distribution Date other than the
initial Distribution Date, the sum of Class B Monthly Principal for such
Distribution Date and the Class B Principal Carryover Shortfall as of the
close of the preceding Distribution Date. In addition, on the Final
Scheduled Distribution Date for such series, the Class B Principal
Distribution will include the amount that is necessary (after giving effect
to the other amounts described above to be distributed to the Class B
Certificateholders on such Distribution Date and allocable to principal) to
reduce the Class B Certificate Balance to zero.
"INTEREST ACCRUAL DATE" means, for each series, the date on which
interest begins to accrue on the Certificates of such series, which date
will be specified in the Prospectus Supplement.
"REALIZED LOSSES" means, with respect to any Distribution Date and a
Receivable that became a Defaulted Receivable during the related Collection
Period, the excess of (i) the aggregate principal balance of such Receivable
as of the first day of the related Collection Period over (ii) Liquidation
Proceeds received with respect to such Receivable during such Collection
Period, to the extent allocable to principal.
The following chart sets forth an example of the application of the
foregoing provisions to a hypothetical monthly distribution with respect to a
series of Certificates:
<TABLE>
<S> <C>
February 26-March 25 COLLECTION PERIOD. The Servicer receives monthly payments,
prepayments, and other proceeds in respect of the
Receivables.
April 10 DETERMINATION DATE. On or before this date, the Servicer
delivers to the Trustee the Servicer's Certificate, which
notifies the Trustee of the amounts required to be
distributed and the amounts available for distribution on
the next Distribution Date.
April 14 RECORD DATE. Distributions on the next Distribution Date are
made to Certificateholders of record at the close of
business of the Trustee on this date (or, if Definitive
Certificates are issued, the Record Date will be March 25).
April 15 DEPOSIT DATE. All Collections, Advances and any Yield
Supplement Amount relating to the related Collection Period
are required to be deposited into the Certificate Account on
or before this date.The Trustee withdraws funds from the
Reserve Account to the extent necessary.
April 15 DISTRIBUTION DATE. The Trustee distributes to
Certificateholders amounts payable in respect of the
Certificates, pays the Basic Servicing Fee and reimburses
Outstanding Advances to the Servicer, deposits any excess
funds to the Reserve Account and, if the Reserve Account is
equal to the Specified Reserve Account Balance, pays any
remaining funds to the Seller.
</TABLE>
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STATEMENTS TO CERTIFICATEHOLDERS
With respect to each series of Certificates, on each Distribution Date, the
Trustee will include with the distribution to each Class A Certificateholder and
Class B Certificateholder a statement setting forth the following information
for the related Collection Period, to the extent applicable to that series:
(i) the amount of the distribution allocable to principal on the Class A
Certificates and the Class B Certificates;
(ii) the amount of the distribution allocable to interest on the Class A
Certificates and the Class B Certificates;
(iii) the Yield Supplement Amount;
(iv) the amount of the Basic Servicing Fee paid to the Servicer with
respect to the related Collection Period;
(v) the Class A Certificate Balance, the Class A Pool Factor, the Class B
Certificate Balance and the Class B Pool Factor as of such Distribution
Date, after giving effect to payments allocated to principal reported
under clause (i) above;
(vi) the Pool Balance as of the close of business of the Servicer on the
last day of the related Collection Period;
(vii) the amount of the aggregate Realized Losses, if any, for such
Collection Period;
(viii) the amount of the aggregate Defaulted Receivables, if any, for such
Collection Period;
(ix) the amount otherwise distributable to the Class B Certificateholders
that is distributed to the Class A Certificateholders for the related
Collection Period;
(x) the aggregate Purchase Amount of Receivables repurchased by the Seller
or purchased by the Servicer with respect to the related Collection
Period;
(xi) the amount of Advances made in respect of such Collection Period and
the amount of unreimbursed Advances on such Distribution Date;
(xii) the balance of the Reserve Account on such Distribution Date, after
giving effect to changes therein on such Distribution Date;
(xiii) the excess, if any, of the Class A Certificate Balance over the Pool
Balance and the excess, if any, of the Class B Certificate Balance over
the amount by which the Pool Balance exceeds the Class A Certificate
Balance; and
(xiv) the aggregate outstanding balances of the Receivables which were
delinquent 30-59 days, 60-89 days, 90-119 days and 120 or more days,
respectively, as of the close of business on the last day of the related
Collection Period.
Each amount set forth pursuant to clauses (i) through (iv) above will be
expressed in the aggregate and as a dollar amount per $1,000 of original
denomination of the Certificates.
With respect to each series of Certificates, within a reasonable period of
time after the end of each calendar year, but not later than the latest date
permitted by law, the Trustee will furnish to each person who at any time during
such calendar year was a Certificateholder of such series a statement containing
the sum of the amounts described in the clauses (i) and (ii) above and such
other information as is available to the Servicer as the Servicer deems
necessary or desirable to enable Certificateholders to prepare their Federal
income tax returns. See "Federal Income Tax Consequences."
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EVIDENCE AS TO COMPLIANCE
Each Agreement will provide that a firm of independent certified public
accountants, who may provide audit and other services to the Servicer, will
furnish to the Trustee, on or before March 15 of each year, beginning the first
March 15 which is at least three months after the related Closing Date, a report
of examination to the effect that such firm has examined the motor vehicle loan
servicing functions of the Servicer over the previous calendar year (or shorter
or longer period in the case of the first such report) and that such examination
(i) included tests relating to motor vehicle loans serviced and such other
auditing procedures as such firm considered necessary under the circumstances
and (ii) except as described in such report, disclosed no exceptions or errors
in the records relating to motor vehicle loans serviced that, in such firm's
opinion, requires such firm to report.
Each Agreement will also provide for delivery to the Trustee, on or before
March 15 of each year, beginning on the first March 15 which is at least three
months after the related Closing Date, of a certificate signed by an officer of
the Servicer stating that, to the best of such officer's knowledge, the Servicer
has fulfilled its obligations under the Agreement for the previous calendar year
(or shorter period in the case of the first such certificate) or, if there has
been a default in the fulfillment of any such obligation, describing each such
default.
Certificateholders and Certificate Owners may obtain copies of such
statements and certificates by written request addressed to the Trustee. See "--
The Trustee."
CERTAIN MATTERS REGARDING THE SERVICER
Each Agreement will provide that the 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 Trustee or a
successor servicer has assumed the Servicer's servicing obligations and duties
under the Agreement.
Any corporation or other entity into which the Servicer may be merged or
consolidated, or that may result from any merger, conversion or consolidation to
which the Servicer is a party, or any entity that may succeed by purchase and
assumption to all or substantially all the business of the Servicer, where the
Servicer is not the surviving entity and where such corporation or other entity
assumes the obligations of the Servicer under an Agreement, will be the
successor to the Servicer under that Agreement.
Each Agreement will provide that the Servicer will be liable only to the
extent of the obligations specifically undertaken by it under such Agreement and
will have no other obligations or liabilities thereunder.
Each Agreement will also provide that the Servicer will not be under any
obligation to appear in, prosecute, or defend any legal action that is not
incidental to the Servicer's servicing responsibilities under such Agreement and
that, in its opinion, may cause it to incur any expense or liability. The
Servicer may, however, at its expense undertake any reasonable action that it
may deem necessary or desirable in respect of an Agreement and the rights and
duties of the parties thereto and the interests of the Certificateholders
thereunder.
EVENTS OF SERVICING TERMINATION
With respect to any series of Certificates, the following events will
constitute "EVENTS OF SERVICING TERMINATION" under the applicable Agreement: (i)
any failure by the Servicer to deliver to the related Trustee the Servicer's
Certificate for any Collection Period (which failure continues beyond the
earlier of three business days from the date the Servicer's Certificate was due
to be delivered and the related Deposit Date), (ii) any failure by the Servicer
to deliver to the related Accounts any required payment or deposit, which
failure continues unremedied for five business days following the due date (or,
in the case of a payment or deposit to be made not later than a Deposit Date
related to a Distribution Date, the failure to
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make such payment or deposit by such Distribution Date), (iii) any failure by
the Servicer duly to observe or perform in any material respect any other
covenant or agreement in the Certificates and the related Agreement, which
failure materially and adversely affects the rights of Certificateholders of
such series (which determination shall be made without regard to whether funds
are available to the Certificateholders pursuant to the applicable Reserve
Account) and which continues unremedied for 90 days after written notice of such
failure is given to the Servicer or the Seller by the Trustee or to the Servicer
and Trustee by the holders of Certificates of such series evidencing not less
than a majority of the aggregate outstanding principal balance of the Class A
Certificates and the Class B Certificates of such series taken together as a
single class, (iv) certain events of bankruptcy, receivership, insolvency or
similar proceedings and certain actions by the Servicer indicating its
insolvency pursuant to bankruptcy, receivership, conservatorship, insolvency or
similar proceedings or its inability to pay its obligations and (v) the failure
by the Servicer to be an Eligible Servicer.
The holders of Certificates of such series evidencing not less than a
majority of the aggregate outstanding principal balance of the Class A
Certificates and the Class B Certificates, with respect to that series of
Certificates, taken together as a single class may waive any Event of Servicing
Termination, except an event resulting from the failure to make any required
deposit or payment to a related Account.
If an Event of Servicing Termination occurs, the Trustee will have no
obligation to notify Certificateholders of such series of such event prior to
the end of any cure period described above.
RIGHTS UPON AN EVENT OF SERVICING TERMINATION
As long as an Event of Servicing Termination under an Agreement remains
unremedied, the Trustee or the holders of Certificates of such series evidencing
not less than a majority of the aggregate outstanding principal balance of the
Class A Certificates and the Class B Certificates of such series taken together
as a single class may terminate the Servicer's rights and obligations under such
Agreement, whereupon the Trustee will succeed to all the responsibilities,
duties and liabilities of the Servicer under such Agreement. Thereafter, the
Trustee will be entitled to the same Basic Servicing Fee and Supplemental
Servicing Fee otherwise payable to the Servicer. The Trustee may appoint, or
petition a court of competent jurisdiction for the appointment of, an Eligible
Servicer to act as successor to the outgoing Servicer under such Agreement. In
no event may the servicing compensation to be paid to such successor be greater
than the Basic Servicing Fees payable to the outgoing Servicer under such
Agreement. In the event of the bankruptcy or insolvency of the Servicer, the
bankruptcy trustee or the Servicer, as debtor-in-possession, may have the power
to prevent a termination of the Servicer's rights and obligations under the
related Agreement. The Bank will be entitled to receive all accrued and unpaid
Basic Servicing Fees and Supplemental Servicing Fees through and including, and
to be reimbursed for all Outstanding Advances as of, the effective date of its
termination as the Servicer.
"Eligible Servicer" means (a) any affiliate of the Seller, (b) the Trustee
or (c) any person which, at the time of its appointment as Servicer, (i) has a
net worth of not less than $50,000,000 (or such other amount as is specified in
the related Prospectus Supplement), (ii) is servicing a portfolio of motor
vehicle retail installment sale contracts and/or motor vehicle loans, (iii) is
legally qualified, and has the capacity, to service the Receivables, (iv) has
demonstrated the ability to service a portfolio of motor vehicle loans similar
to the Receivables professionally and completely in accordance with standards of
skill and care that are consistent with prudent industry standards, and (v) is
qualified and entitled to use pursuant to a license or other written agreement,
and agrees to maintain the confidentiality of, the software which the Servicer
uses in connection with performing its duties and responsibilities under the
related Agreement or obtains rights to use, or develops at its own expense,
software which is adequate to perform its duties and responsibilities under the
related Agreement.
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AMENDMENT
Each Agreement may be amended by the Seller, the Servicer and the Trustee,
without the consent of the Certificateholders of such series, to add any
provisions to or change in any manner or eliminate any of the provisions of any
Agreement or modify the rights of the Certificateholders of such series;
PROVIDED, HOWEVER, that such action will not, in the opinion of counsel (which
may be an employee of the Seller, the Servicer or any of their affiliates)
reasonably satisfactory in form to the Trustee, materially and adversely affect
the interests of any Certificateholder of such series or cause the related Trust
to be classified for Federal income tax purposes as an association taxable as a
corporation. Each such Agreement also may be amended by the Seller, the Servicer
and the Trustee with the consent of the holders of Certificates evidencing not
less than a majority of the aggregate outstanding principal balance of the Class
A Certificates and the Class B Certificates of such series taken together as a
single class, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of that Agreement or of modifying
the rights of the Certificateholders of such series; except that no such
amendment may (i) increase or reduce in any manner the amount of, or accelerate
or delay the timing of, or change the allocation or priority of, Collections or
distributions that are required to be made on any Certificate of such series,
without the consent of all adversely affected Certificateholders, (ii) reduce
the percentage of the aggregate outstanding principal balance of the
Certificates of such series, the holders of which are required to consent to any
such amendment, without the consent of all Certificateholders of such series,
(iii) materially and adversely affect the interests of either the Class A
Certificateholders or the Class B Certificateholders without the consent of the
holders of Class A Certificates or Class B Certificates of such series, as the
case may be, evidencing not less than a majority of the aggregate outstanding
principal balance of the Class A Certificates or the Class B Certificates, as
the case may be, (iv) adversely affect the rating of the Class A Certificates or
the Class B Certificates by any Rating Agency without the consent of holders of
Class A Certificates or Class B Certificates, as the case may be, evidencing not
less than two-thirds of the aggregate outstanding principal balance of the Class
A Certificates or the Class B Certificates of such series, as the case may be or
(v) cause the related Trust to be taxable as a corporation.
LIST OF CERTIFICATEHOLDERS
With respect to any series of Certificates, if Definitive Certificates have
been issued, the Trustee, upon written request of the holders of Class A
Certificates or Class B Certificates evidencing not less than 25% of the
aggregate outstanding principal balance of either the Class A Certificates or
the Class B Certificates of such series, as the case may be, will afford such
Class A Certificateholders or Class B Certificateholders access during business
hours to the most current list of Certificateholders of such series for purposes
of communicating with other Certificateholders of such series with respect to
their rights under the related Agreement. Prior to such time, neither the
Trustee nor DTC will have an obligation to maintain, or provide Certificate
Owners with access to, a list of Certificate Owners. Definitive Certificates
will be issued only in the limited circumstances described above in " --
Definitive Certificates."
No Agreement will provide for holding any annual or other meetings of
Certificateholders.
TERMINATION
With respect to each series of Certificates, the Trust, and the respective
obligations and responsibilities of the Seller, the Servicer and the Trustee
under each such Agreement will, except with respect to certain reporting
requirements, terminate upon the earliest of (i) the Distribution Date next
succeeding the Servicer's purchase of the remaining Trust Property, as described
below, (ii) payment to Certificateholders, the Trustee and the Collateral Agent
of all amounts required to be paid to them pursuant to the related Agreement and
(iii) the Distribution Date next succeeding the month which is six months after
the maturity or liquidation of the last Receivable held in the Trust and the
disposition of any amounts received upon liquidation of any property remaining
in the Trust in accordance with the terms and priorities set forth in the
Agreement.
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In order to avoid excessive administration expense, the Servicer will be
permitted, at its option, in the event that the Pool Balance as of the last day
of a Collection Period has declined to 10.0% or less of the applicable Original
Pool Balance (or such other percentage as is specified in the related Prospectus
Supplement), to purchase from the Trust, on any Distribution Date occurring in a
subsequent Collection Period, all remaining Trust Property at a purchase price
equal to the aggregate of the Purchase Amounts of the remaining Receivables. The
exercise of this right may effect an early retirement of the related
Certificates.
The Trustee will give written notice of termination of the Trust to each
related Certificateholder of record. The final distribution to any
Certificateholder will be made only upon surrender and cancellation of such
holder's Certificate (whether a Definitive Certificate or the physical
certificate representing the Certificates) at the office or agency of the
Trustee specified in the notice of termination. Any funds remaining in such
Trust after setting aside all funds required to be distributed to
Certificateholders, will be distributed to the Seller or as otherwise provided
in the related Agreement.
THE TRUSTEE
With respect to any series of Certificates, the Trustee will be specified in
the related Prospectus Supplement. The Trustee, in its individual capacity or
otherwise, and any of its affiliates, may hold Certificates in their own names
or as pledgee. In addition, for the purpose of meeting the legal requirements of
certain jurisdictions, the Servicer and the Trustee, acting jointly (or in some
instances, the Trustee, acting alone), will have the power to appoint
co-trustees or separate trustees of all or any part of the related Trust. In the
event of such appointment, all rights, powers, duties, and obligations conferred
or imposed upon the Trustee by an Agreement will be conferred or imposed upon
the Trustee and such co-trustee or separate trustee jointly, or, in any
jurisdiction where the Trustee is incompetent or unqualified to perform certain
acts, singly upon such co-trustee or separate trustee who shall exercise and
perform such rights, powers, duties and obligations solely at the direction of
the Trustee. Each Agreement will provide that the Servicer will pay the
Trustee's reasonable fees and expenses.
A Trustee may resign at any time, in which event the Servicer will be
obligated to appoint a successor trustee. The Servicer may also remove a Trustee
if such Trustee ceases to be eligible to serve, becomes legally unable to act,
is adjudged bankrupt, insolvent or is placed in receivership or similar
proceedings. In such circumstances, the Servicer will be obligated to appoint a
successor trustee. Any resignation or removal of a Trustee and appointment of a
successor trustee will not become effective until acceptance of the appointment
by the successor Trustee. Upon removal or termination of a Trustee for any
reason, the related Collateral Agent will also be removed or terminated, and the
successor Trustee shall also become the successor Collateral Agent.
The address of the Trustee's Corporate Trust Office will be specified in the
related Prospectus Supplement. The Seller, the Servicer and their respective
affiliates may have other banking relationships with a Trustee and its
affiliates in the ordinary course of their business.
DUTIES OF THE TRUSTEE
No Trustee will make representations as to the validity or sufficiency of
any Agreement, the Certificates (other than the execution and authentication of
the Certificates), the Receivables, or any related documents, and no Trustee
will be accountable for the use or application by the Seller or the Servicer of
any funds paid to the Seller or the Servicer in respect of the Certificates or
the Receivables or for any monies prior to the time such monies are deposited
into the related Certificate Account. No Trustee will independently verify the
Receivables.
If no Event of Servicing Termination has occurred and is continuing, a
Trustee will be required to perform only those duties specifically required of
it under the related Agreement. Generally, those duties are limited to the
receipt of the various certificates, reports or other instruments required to be
furnished
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by the Servicer to such Trustee under the related Agreement, in which case the
Trustee will only be required to examine such instruments to determine whether
they conform to the requirements of the related Agreement.
No Trustee will be under any obligation to exercise any of the rights or
powers vested in it by the related Agreement or to institute, conduct or defend
any litigation thereunder or in relation thereto at the request, order, or
direction of any of the Certificateholders, unless such Certificateholders have
offered such Trustee security or indemnity satisfactory to it against the costs,
expenses and liabilities which may be incurred therein or thereby. No
Certificateholder will have any right under such Agreement to institute any
proceeding with respect to that Agreement, unless such holder has given the
Trustee written notice of default and unless holders of the Certificates
evidencing not less than a majority of the aggregate outstanding principal
balance of the Class A Certificates and the Class B Certificates of such series,
taken together as a single class, shall have made a written request to the
Trustee to institute such proceeding in its own name as Trustee thereunder and
have offered to the Trustee reasonable indemnity, and the Trustee for 30 days
has neglected or refused to institute any such proceeding.
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CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
RIGHTS IN THE RECEIVABLES
With respect to any series of Certificates, the Receivables are "chattel
paper" as defined in Article 9 of the UCC. Article 9 of the UCC specifically
states that with respect to a sale of chattel paper, the provisions of Article 9
apply. In that connection and to avail the related Trust of the benefits and
protections afforded by the UCC to a purchaser of chattel paper against other
competing claimants, actions prescribed by the UCC will be taken to "perfect"
the interests of the Trust in the Receivables transferred to such Trust. First,
the Seller will cause appropriate financing statements to be filed with the
appropriate governmental authorities in the states of Utah and Idaho. Second,
following the sale and assignment of the Receivables to such Trust, pursuant to
the related Agreement, an affiliate of the Servicer, First Security Service
Company, will be appointed by the Trustee to have physical possession of the
Receivables and the Receivable Files as custodian for the Trustee. The
Receivables will not be stamped, or otherwise marked to indicate that they have
been sold to such Trust; however, the Servicer and First Security Service
Company will indicate in their computer records that the Receivables have been
sold to that Trust and both will have notice of the interest of such Trust in
such Receivables. If, through inadvertence or otherwise, another party purchases
(or takes a security interest in) the Receivables for new value in the ordinary
course of business and somehow manages to take possession of the Receivables
without actual knowledge of the Trust's interests, such purchaser (or secured
party) will acquire an interest in the Receivables superior to the interest of
that Trust. Under the related Agreement, in addition to the obligation to
provide for perfection as above-described, the Seller is also obligated to
assure that the interest of the Trust in the Receivables is perfected in such a
manner as to affect the highest priority afforded by the UCC to such interests.
SECURITY INTERESTS IN THE FINANCED VEHICLES
Generally, retail motor vehicle installment sale contracts and installment
loans such as the Receivables evidence loans to obligors to finance the purchase
of such motor vehicles. The loan documents also constitute personal property
security agreements and include grants of security interests in the vehicles
under the UCC. Perfection of security interests in motor vehicles is generally
governed by the motor vehicle registration laws of the state in which the
vehicle is located. In Utah, Idaho and most other states, with the exception of
the Idaho electronic title option hereinafter described, perfection of a
security interest in the vehicle is accomplished by taking action to have the
secured party's lien noted on the certificate of title. If the filing of the
registration, title and lien application papers necessary to cause such notation
to occur is accomplished within the appropriate period (20 days for Idaho and 30
days for Utah), the date of perfection is the date that such papers were
executed. Otherwise, perfection is deemed to occur at the time of filing such
papers. Accordingly, if for any reason there is a failure to file such papers
within the aforesaid period, subsequent purchasers and lien or security interest
claimants whose interests are perfected before the filing of such papers would
have prior claims to the vehicle. Also, even though the laws in Utah allow 30
days for such filing, a filing after 20 days exposes the secured party to a
possible claim in a bankruptcy proceeding that the Obligor's grant of the
security interest is a preferential transfer.
In Idaho, upon receipt of a properly completed title application, the
department of motor vehicles is authorized to create a paperless electronic
record of title to a vehicle in lieu of issuing a paper certificate of title if
the department and the lienholder so agree in writing. Under this alternative
method of registering and maintaining title to a motor vehicle, liens filed with
the department shall be perfected and take priority according to the order of
time in which the same are entered into the electronic records of the
department. In the absence of a written agreement between the department and the
lienholder to create a paperless electronic title, the paper certificate of
title is the controlling title document evidencing the recording date.
The Bank's practice is to take such action as is required in accordance with
its normal and customary servicing practices and procedures to perfect its
security interest in a Financed Vehicle under the laws of
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the jurisdiction in which the Financed Vehicle is registered. If the Bank,
because of clerical error or otherwise, has failed to take such action with
respect to a Financed Vehicle, it will not have a perfected security interest in
the Financed Vehicle and its security interest may be subordinate to the
interests of, among others, subsequent purchasers of the Financed Vehicle that
give value without notice of the Bank's security interest and to whom a
certificate of title is issued in such purchaser's name, holders of perfected
security interests in the Financed Vehicle, and the trustee in bankruptcy of the
Obligor. The Bank's security interest may also be subordinate to such third
parties in the event of fraud or forgery by the Obligor or administrative error
by state recording officials or in the circumstances noted below. As described
more fully below, the Bank will warrant in each Agreement that it has an
enforceable first priority perfected security interest with respect to each
Financed Vehicle and will be required to repurchase the related Receivable in
the event of an uncured breach of such warranty.
Pursuant to each Agreement, the Seller will assign its security interests in
the Financed Vehicles, along with the sale and assignment of the Receivables, to
the related Trustee. The certificates of title will not be endorsed or otherwise
amended to identify the Trust or Trustee as the new secured party, however,
because of the administrative burden and expense involved.
In Utah, Idaho and most other states, an assignment of a security interest
in a Financed Vehicle along with the applicable Receivable is effective without
amendment of any lien noted on a vehicle's certificate of title or ownership,
and the assignee succeeds thereby to the assignor's rights as secured party. In
Utah, Idaho and most other states, in the absence of fraud or forgery by the
vehicle owner or of fraud, forgery, negligence or error by the Bank or
administrative error by state or local agencies, the notation of the Bank's lien
on the certificates of title or ownership and/or possession of such certificates
with such notation will be sufficient to protect the related Trust against the
rights of subsequent purchasers of a Financed Vehicle or subsequent lenders who
take a security interest in a Financed Vehicle. There exists a risk, however, in
not identifying the Trust or Trustee as the new secured party on the certificate
of title that the security interest of the Trust or the Trustee may not be
enforceable. In the event the related Trust has failed to obtain or maintain a
perfected security interest in a Financed Vehicle, its security interest would
be subordinate to, among others, a bankruptcy trustee of the Obligor, a
subsequent purchaser of the Financed Vehicle or a holder of a perfected security
interest.
The Seller will warrant in the related Agreement as to each Receivable
conveyed by it to the Trust that, on the Closing Date, it has a valid,
subsisting, and enforceable first priority perfected security interest in the
Financed Vehicle securing the Receivable (subject to administrative delays and
clerical errors on the part of the applicable government agency) and such
security interest will be assigned by the Seller to the related Trust or
Trustee. In the event of an uncured breach of such warranty, the Seller will be
required to repurchase such Receivable for its Purchase Amount. The repurchase
obligation will constitute the sole remedy available to the affected Trust or
Trustee and the Certificateholders for such breach. The Seller's warranties with
respect to perfection and enforceability of a security interest in a Financed
Vehicle will not cover statutory or other liens arising after the Closing Date
by operation of law which have priority over such security interest.
Accordingly, any such lien would not by itself give rise to a repurchase
obligation on the part of the Seller.
In the event that an Obligor moves to a state other than the state in which
the Financed Vehicle is registered, under the laws of Utah, Idaho and most
states, a perfected security interest in a motor vehicle continues for four
months after such relocation and thereafter, in most instances, until the
Obligor re-registers the motor vehicle in the new state, but in any event not
beyond the surrender of the certificate of title. A majority of states require
surrender of a certificate of title to reregister a motor vehicle, and many
require that notice of such surrender be given to each secured party noticed on
the certificate of title. In those states that require a secured party to take
possession of a certificate of title to perfect a security interest, the secured
party would likely learn of the re-registration through the request from the
Obligor to surrender possession of the certificate of title. In those states
that require a secured party to note its lien on a certificate of title to
perfect a security interest but do not require possession of the certificate of
title, the
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secured party would likely learn of the re-registration through the notice from
the state department of motor vehicles that the certificate of title had been
surrendered. The requirements that a certificate of title be surrendered and
that notices of such surrender be given to each secured party also apply to re-
registrations effected following a sale of a motor vehicle. The Seller would
therefore have the opportunity to re-perfect its security interest in a Financed
Vehicle in the state of re-registration following relocation of the Obligor and
would be able to require satisfaction of the related Receivable following a sale
of the Financed Vehicle. 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 Motor Vehicle Loans, the Servicer takes steps
to effect re-perfection upon receipt of notice of re-registration or information
from the Obligor of a relocation. However, there is a risk that an Obligor could
relocate without notification to the Seller, then file a false affidavit with
the new state to cause a new certificate of title to be issued without notation
of the Seller's lien.
Under the laws of Utah, Idaho and many other states, certain possessory
liens for repairs performed on or storage of a motor vehicle and liens for
unpaid taxes may take priority over a perfected security interest in the motor
vehicle. The Code also grants priority to certain Federal tax liens over the
lien 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 a loss of a secured party's perfected security
interest in the confiscated motor vehicle. The Seller will warrant in the
related Agreement that, as of the Closing Date, the Seller has not taken any
action which would have a material and adverse effect on the interests of the
related Trust and Certificateholders, and the Seller will be required to
repurchase the Receivable secured by the Financed Vehicle involved. This
repurchase obligation will constitute the sole remedy available to the related
Trust and Certificateholders for such breach. Any liens for repairs or taxes
arising at any time after the Closing Date during the term of a Receivable would
not give rise to a repurchase obligation on the part of the Seller.
REPOSSESSION
In the event of a default by an Obligor, the holder of a Receivable has all
the remedies of a secured party under the UCC, except where specifically limited
by other state laws or by contract. The remedies of a secured party under the
UCC include the right to repossession by means of self-help, unless such means
would constitute a breach of the peace. Self-help repossession is the method
employed by the Bank in most cases, and is accomplished simply by taking
possession of the Financed Vehicle. Generally, where the Obligor objects or
raises a defense to repossession, a court order must be obtained from the
appropriate state court, and the Financed Vehicle must then be repossessed in
accordance with that order. In the event of a default by an Obligor, the laws of
many jurisdictions (but not Utah and Idaho) require that the Obligor be notified
of the default and be given a time period within which he may cure the default
prior to repossession, except such notice need not be given in emergency
situations pursuant to an order from the appropriate state court.
NOTICE OF SALE; REDEMPTION RIGHTS
The UCC and other state laws require the secured party to provide an 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. The Obligor
generally has the right to redeem the collateral prior to actual sale by paying
the secured party the unpaid principal balance of the obligation plus accrued
and unpaid interest and, in most cases, reasonable expenses for repossessing,
holding and preparing the collateral for disposition and arranging for its sale
plus, in some jurisdictions, reasonable attorneys' fees. In some states (but not
Utah and Idaho), the Obligor has the right, prior to actual sale, to
reinstatement of the original loan terms and to return of the collateral by
payment of delinquent installments of the unpaid balance.
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DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of Financed 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. 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
Utah, Idaho and those states that do not prohibit or limit such judgments
(assuming proper notice of sale has been given and the sale has been conducted
in a commercially reasonable manner and otherwise in compliance with applicable
UCC provisions). Any such deficiency judgment would be a personal judgment
against the Obligor for the shortfall, however, and a defaulting Obligor may
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 or not paid at
all.
Occasionally, after resale of a repossessed motor vehicle and payment of all
expenses and indebtedness, there is a surplus of funds. In that case, the UCC
requires the secured party to remit the surplus to any other holder of a lien
with respect to the Financed Vehicle or, if no such lienholder exists or funds
remain after paying such other lienholders, to the Obligor.
CONSUMER PROTECTION LAWS
Numerous Federal and state consumer protection laws and related regulations
impose substantial and detailed 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
Billing Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices
Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B,
Z, and AA, and other similar acts and regulations, state adoptions of the
National Consumer Act and of the Uniform Consumer Credit Code and other similar
laws. Also, state laws impose other restrictions on consumer transactions, may
require contract disclosures in addition to those required under Federal law and
may limit the remedies available in the event of default by an Obligor. These
requirements impose specific statutory liabilities upon creditors who fail to
comply with their provisions where applicable. In most cases, this liability
could affect the ability of an assignee, such as the Trustee, to enforce secured
loans such as the Receivables.
The FTC's holder-in-due-course rule (the "FTC RULE") has the effect of
subjecting a seller of motor vehicles (and certain related lenders and their
assignees) in a consumer credit transaction and any assignee of the seller to
all claims and defenses which the purchaser could assert against the seller.
Liability under the FTC Rule is limited to the amounts paid by the purchaser
under the contract, and the holder of the contract may also be unable to collect
any balance remaining due thereunder from the purchaser. The FTC Rule is
generally duplicated by state statutes or the common law in certain states.
Although the Bank is not a seller of motor vehicles and is not subject to the
jurisdiction of the FTC, the loan agreements evidencing the Receivables contain
provisions which contractually apply the FTC Rule. Accordingly, the Bank, and
each Trustee as a holder of Receivables, will be subject to claims or defenses,
if any, that the purchaser of a Financed Vehicle may assert against the seller
of such vehicle. In Utah and Idaho, such claims and defenses could also arise
under state "lemon laws," statutes governing the sale of "salvage" vehicles, and
other consumer protection laws. Other examples of such claims include, but are
not limited to, breach of implied UCC warranties and fraud.
Under the motor vehicle dealer licensing laws of most states, sellers of
motor vehicles are required to be licensed to sell such vehicles at retail sale.
In addition, with respect to used motor vehicles, the FTC's Rule on Sale of Used
Vehicles requires that all sellers of used motor vehicles prepare, complete and
display a "Buyer's Guide" which explains the warranty coverage of such vehicles.
Federal Odometer Regulations promulgated under the Motor Vehicle Information and
Cost Savings Act require that all sellers of 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 either a Buyer's Guide or
Odometer Disclosure
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Statement was not properly provided to the purchaser of a Financed Vehicle, such
purchaser may be able to assert a claim against the seller of such vehicle.
Although the Bank is not a seller of motor vehicles and is not subject to those
laws, a violation thereof may form the basis for a claim or defense against the
Bank or Trustee as a holder of the affected Receivable.
Courts have applied general equitable principles to secured parties pursuing
repossession 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.
The Seller will warrant in each Agreement as to each Receivable conveyed by
it to the related Trust that such Receivable complied at the time it was
originated and as of the Closing Date in all material respects with all
requirements of applicable law. If, as of the Cutoff Date, an Obligor had a
claim against such Trust for violation of any law and such claim materially and
adversely affects that Trust's interest in a Receivable, such violation would
create an obligation of the Seller to repurchase the Receivable unless the
breach was cured. This repurchase obligation will constitute the sole remedy of
the related Trustee and Certificateholders against the Seller in respect of any
such uncured breach, except with respect to the affected Seller's indemnity
obligations under the related Agreement with respect thereto. See "The
Certificates -- Sale and Assignment of the Receivables."
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
realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the United States Bankruptcy Code, 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 such vehicle at the time of bankruptcy (as determined by the court),
leaving the party providing financing as a general unsecured creditor for the
remainder of the indebtedness. A bankruptcy court may also reduce the monthly
payments due under a contract or change the rate of interest and time of
repayment of the indebtedness.
The Seller intends that the transfer of the Receivables under each Agreement
constitute a sale. FIRREA sets forth certain powers that the FDIC could exercise
if it were appointed as receiver for the Seller. Subject to clarification by
FDIC regulations or interpretations, it would appear from the positions taken by
the FDIC before and after the passage of FIRREA that the FDIC in its capacity as
receiver for the Seller would not interfere with the timely transfer to a Trust
of payments collected on the Receivables. To the extent that the Seller is
deemed to have granted a security interest in the Receivables to the Trust, and
that interest was validly perfected before the Seller's insolvency and was not
taken in contemplation of insolvency, that security interest should not be
subject to avoidance, and payments to the Trust with respect to the affected
Receivables should not be subject to recovery by the FDIC as receiver. If,
however, the FDIC were to assert a contrary position, such as by requiring the
Trustee to establish its right to those payments by submitting to and completing
the administrative claims procedure established under FIRREA, delays in
distributions on the Certificates and possible reductions in the amount of those
payments could occur. Alternatively, in such circumstances, the FDIC might have
the right to repay the Certificates for an amount which may be greater or less
than the principal balance thereof and which would shorten their weighted
average life.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material anticipated Federal income tax
consequences of the purchase, ownership, and disposition of Certificates. This
summary is based upon laws, regulations, rulings, and decisions currently in
effect, all of which are subject to change. The discussion does not deal with
all Federal tax consequences applicable to all categories of investors, some of
which may be subject to special
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rules. 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"). Consequences to individual investors of investment in the
Certificates will vary according to circumstances; accordingly, investors should
consult their own tax advisors to determine the Federal, state, local, and other
tax consequences of the purchase, ownership, and disposition of the
Certificates. Prospective investors should note that no rulings have been or
will be sought from the Internal Revenue Service (the "IRS") with respect to any
of the Federal income tax consequences discussed below, and no assurance can be
given that the IRS will not take contrary positions.
TAX STATUS OF THE TRUSTS
In the opinion of Kirkland & Ellis, special tax counsel to the Seller, each
Trust will be classified as a grantor trust and not as an association taxable as
a corporation for Federal income tax purposes. Accordingly, each Certificate
Owner will be subject to Federal income taxation as if it owned directly its
interest in each asset owned by the related Trust and paid directly its share of
reasonable expenses paid by that Trust.
TREATMENT OF CERTIFICATE OWNERS' INTEREST IN TRUST PROPERTY
With respect to any series of Certificates, each Certificate Owner could be
considered to own either (i) an undivided interest in a single debt obligation
held by the related Trust and having a principal amount equal to the total
stated principal amount of the Receivables and an interest rate equal to the
applicable Pass-Through Rate, or (ii) an interest in each of the Receivables and
in the Yield Supplement Agreement and any other Trust Property. Each Agreement
will express the intent of the Seller to sell, and the Certificateholders to
purchase, the Receivables (other than the Retained Yield), and the Seller, the
Certificateholders, and each Certificate Owner, by accepting a beneficial
interest in a Certificate, will agree to treat the Certificates as ownership
interests in such Receivables.
TREATMENT AS DEBT OBLIGATION. If a Certificate Owner were considered to own
an undivided interest in a single debt obligation, rather than reporting its
share of the interest accrued on each Receivable it would, in general, be
required to include in income interest accrued or received on the Class A
Certificate Balance or the Class B Certificate Balance, as the case may be, at
the applicable Pass-Through Rate in accordance with its usual method of
accounting.
The Certificates would be subject to the original issue discount ("OID")
rules, generally in the manner discussed below with respect to Stripped
Receivables. However, in determining whether such OID is DE MINIMIS, the
weighted average life of the Certificates would be determined using a reasonable
assumption regarding anticipated prepayments (a "PREPAYMENT ASSUMPTION"). OID
includible in income for any accrual period (generally, the period between
Distribution Dates) would generally be calculated using a Prepayment Assumption
and an anticipated yield established as of the date of initial sale of the
related Certificates, and would increase or decrease to reflect prepayments at a
faster or slower rate than anticipated. The related Certificates would also be
subject to the market discount provisions of the Code to the extent that a
Certificate Owner purchased such Certificates at a discount from the initial
issue price (as adjusted to reflect prior accruals of OID).
INCOME ON RECEIVABLES. The remainder of the discussion herein assumes that
a Certificate Owner of any given series will be treated as owning an interest in
each Receivable (and the proceeds thereof) held by the related Trust and an
interest in the related Yield Supplement Agreement and other Trust Property of
such Trust.
For Federal income tax purposes, the Seller will be treated as having
retained a fixed portion of the interest due on each Receivable having an annual
percentage rate in excess of the sum of the applicable Pass-Through Rate and the
Basic Servicing Fee Rate (each, a "STRIPPED RECEIVABLE") equal to the difference
between (x) the annual percentage rate of the Receivable and (y) the sum of the
applicable Pass-Through
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Rate and the Basic Servicing Fee Rate (the "RETAINED YIELD"). The Retained Yield
will be treated as "STRIPPED COUPONS" within the meaning of Section 1286 of the
Code, and the Stripped Receivables will be treated as "STRIPPED BONDS."
Accordingly, each Certificate Owner will be treated as owning its PRO RATA
percentage interest in (i) payments received under the Yield Supplement
Agreement, and (ii) the principal of, and interest payable on, each Receivable
(minus the Retained Yield on the Stripped Receivables).
Those Receivables that bear interest at a rate which is less than or equal
to the sum of the applicable Pass-Through Rate and the Basic Servicing Fee Rate
(the "SUPPLEMENTED RECEIVABLES") will not be treated as Stripped Receivables.
Instead, Yield Supplement Amounts will be payable to eliminate the difference
between the actual yield on each Supplemented Receivable and the yield such
Receivable would have had if its interest rate had equaled the sum of the
applicable Pass-Through Rate and the Basic Servicing Fee Rate. See "--Yield
Supplement Amounts."
Each Certificate Owner will be required to report on its Federal income tax
return its share of the gross income of the Trust, including interest and
certain other charges accrued on the Receivables and any gain upon collection or
disposition of the Receivables (but not including any portion of the Retained
Yield). Such gross income attributable to interest on such Receivables will
exceed the Class A Pass-Through Rate by an amount equal to the Class A
Certificate Owner's share of the expenses of the Trust for the period during
which it owns a Class A Certificate. The Class A Certificate Owner will be
entitled to deduct its share of expenses of the Trust to the extent described
below. Any amounts received by a Class A Certificate Owner from the Reserve
Account or from the subordination of the Class B Certificates will be treated
for Federal income tax purposes as having the same characteristics as the
payments they replace.
A Class A Certificate Owner will report its share of the income of the Trust
including interest and certain other charges accrued on the Receivables, OID and
market discount, payments received under the Yield Supplement Agreement (to the
extent treated as income) and investment earnings on funds held pending
distribution, under its usual method of accounting. Accordingly, interest,
excluding OID or market discount, will be includible in a Certificate Owner's
gross income when it accrues on the Receivables, or, in the case of Certificate
Owners who are cash basis taxpayers, when received by the Servicer on behalf of
Certificate Owners. Because (i) interest accrues on the Receivables over
differing monthly periods and is paid in arrears and (ii) interest collected on
a Receivable generally is paid to Certificateholders in the following month, the
amount of interest accruing to a Certificate Owner during any calendar month
will not equal the interest distributed in that month. The actual amount of
discount on a Receivable will be includible in income as principal payments are
received on the Receivables.
For administrative convenience, the Servicer intends to report the total
amount of income with respect to the Class A Certificates of any given series on
an aggregate basis (as though all of the Receivables and the Yield Supplement
Agreement were a single obligation), rather than on an asset-by-asset basis. The
amount and, in some instances, character, of the income reported to a
Certificate Owner may differ under this method for a particular period from that
which would be reported if income were reported on a precise asset-by-asset
basis. Accordingly, the IRS could require that a Certificate Owner calculate its
income either (i) on an asset-by-asset basis, accounting separately for each
Receivable and the Yield Supplement Agreement, or (ii) by aggregating all
Stripped Receivables under the aggregation rule described below and accounting
for the remaining Receivables and the Yield Supplement Agreement on an
asset-by-asset basis. See "--Discount and Premium --Original Issue Discount on
Stripped Receivables." In computing its income on an asset-by-asset basis, a
Certificate Owner would allocate its tax basis among the Receivables and its
interest in the Yield Supplement Agreement in proportion to their fair market
values. Because the annual percentage rates of the Receivables vary widely, the
allocation of basis and computation of income on an asset-by-asset basis could
have a more significant effect on the income of a Certificate Owner than it
would if the Receivables had more uniform characteristics.
The remainder of the disclosure generally describes the Code provisions
governing reporting of income on the Receivables and the Yield Supplement
Agreement on a separate asset basis.
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DISCOUNT AND PREMIUM
In determining whether a Certificate Owner has purchased its interest in the
Receivables (or any Receivable) held by the related Trust at a discount and
whether such Receivables (or any Receivable) have OID or, in the case of
Supplemented Receivables, market discount, a portion of the purchase price of a
Certificate should be allocated to the Certificate Owner's undivided interest in
accrued but unpaid interest, amounts collected at the time of purchase but not
distributed, and rights to receive Yield Supplement Amounts. As a result, the
portion of the purchase price allocable to a Certificate Owner's undivided
interest in the Receivables (or any Receivable) (the "PURCHASE PRICE") will be
decreased and the potential OID and/or market discount on the Receivables (or
any Receivable) could be increased.
ORIGINAL ISSUE DISCOUNT ON STRIPPED RECEIVABLES. Because the Stripped
Receivables represent stripped bonds, they will be subject to the OID rules of
the Code. Accordingly, the tax treatment of a Certificate Owner will depend in
part upon whether the amount of OID on a Stripped Receivable is less than a
statutorily defined DE MINIMIS amount.
In general, under Treasury Regulations issued under Section 1286 of the Code
(the "SECTION 1286 REGULATIONS"), the amount of OID on a receivable treated as a
"stripped bond" will be DE MINIMIS if it is less than 1/4 of one percent for
each full year of weighted average life remaining after the purchase date until
the maturity of the Receivable, although it is not clear whether expected
prepayments are taken into account. Under the Section 1286 Regulations, it
appears that the portion of the interest on each Receivable payable to the
Certificate Owners may be treated as "qualified stated interest." As a result,
the amount of OID on a Stripped Receivable will equal the amount by which the
Purchase Price of a Stripped Receivable is less than the portion of the
remaining principal balance of the Receivable allocable to the interest
acquired.
If the amount of OID is DE MINIMIS under the rule set forth above, a
Stripped Receivable would not be treated as having OID. The actual amount of
discount on a Stripped Receivable would be includible in income as principal
payments are received on the Receivable, in the proportion that each principal
payment bears to the total principal amount of the Receivable.
If the OID on a Receivable is not treated as being DE MINIMIS, in addition
to the amounts described above, a Certificate Owner will be required to include
in income any OID as it accrues on a daily basis, regardless of when cash
payments are received, using a method reflecting a constant yield on the
Receivable (or Receivables). It is possible that the IRS could require use of a
Prepayment Assumption in computing the yield of a Receivable. Accrued OID would
increase a Class A Certificate Owner's tax basis in the Class A Certificate (and
the applicable Receivables). Distributions of principal and other items
attributable to accrued OID (other than payments of interest on the Receivables
at the sum of the Class A Pass-Through Rate and the Basic Servicing Fee Rate)
would reduce a Class A Certificate Owner's tax basis. If a Receivable is deemed
to be acquired by a Certificate Owner at a significant discount, such treatment
could accelerate the accrual of income by a Certificate Owner.
The Trustee intends to account for OID, if any, reportable by
Certificateholders by reference to the price paid for a Certificate by an
initial purchaser, although the amount of OID will differ for subsequent
purchasers. Such subsequent purchasers should consult their tax advisers
regarding the proper calculation of OID on the interest in Receivables
represented by a Certificate.
The Trustee will calculate OID, if any, on all of the Receivables (including
both Stripped Receivables and Supplemented Receivables) on an aggregate basis
and without the use of a Prepayment Assumption. Regulations issued under the OID
provisions of the Code (the "OID REGULATIONS") suggest that all payments on the
Stripped Receivables allocable to the Certificates may be aggregated in
determining whether the Stripped Receivables will be treated as having OID,
although the regulation does not include the Supplemented Receivables, since
they are not "stripped bonds." Separate accounting for the Stripped Receivables
and the Receivables that are not stripped would reduce the possibility that the
Stripped
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Receivables would be treated as issued with OID; however, as discussed below,
the Supplemented Receivables would be treated as having imputed interest, market
discount, or both. In addition, it is not clear whether use of a Prepayment
Assumption is required in computing OID. If the IRS were to require that OID be
computed on a Receivable-by-Receivable basis, or that a Prepayment Assumption be
used, the character and timing of a Certificate Owner's income could be
adversely affected. Because under the stripped bond rules, each sale of a
Certificate results in a recalculation of OID, a Certificate Owner technically
will not be subject to the market discount provisions of the Code with respect
to Stripped Receivables.
In the event that a Receivable is treated as purchased at a premium (I.E.,
its Purchase Price exceeds the portion of the remaining principal balance of
such Receivable allocable to the Certificate Owner), such premium will be
amortizable by the Certificate Owner as an offset to interest income (with a
corresponding reduction in the Certificate Owner's basis) under a constant yield
method over the term of the Receivable if an election under Section 171 of the
Code is made with respect to the interests in the Receivables represented by the
Certificates of a particular Trust or was previously in effect. Any such
election will also apply to all debt instruments held by the Certificate Owner
during the year in which the election is made and all debt instruments acquired
thereafter.
A Certificate Owner will be entitled to deduct, consistent with its method
of accounting, its PRO RATA share of reasonable servicing fees and other fees
paid or incurred by the Trust as provided in Section 163 or 212 of the Code. If
a Certificate Owner is an individual, estate or trust, the deduction for such
holder's share of such fees will be allowed only to the extent that all of such
holder's miscellaneous itemized deductions, including such holder's share of
such fees, exceed 2% of such holder's adjusted gross income. In addition, in the
case of Certificate Owners who are individuals, certain otherwise allowable
itemized deductions will be reduced, but not by more than 80%, by an amount
equal to 3% of such holder's adjusted gross income in excess of a statutorily
defined threshold ($121,200 in the case of a married couple filing jointly for
the taxable year beginning in 1997). Because the Servicer will not report to
Certificate Owners the amount of income or deductions attributable to interest
earned on Collections, such a holder may effectively underreport its net taxable
income.
SUPPLEMENTED RECEIVABLES. The Supplemented Receivables will not be treated
as stripped bonds. A portion of the Certificate Owner's purchase price for a
Certificate will be allocated to each Supplemented Receivable, based on its fair
market value relative to the other assets of the Trust.
Some or all of the Supplemented Receivables may have imputed interest and/or
market discount. If, as is likely, a Supplemented Receivable did not have
"adequate stated interest" (as defined in the Code) when originated, then such
Receivable has "imputed interest." Under the imputed interest rules of the Code,
the "total unstated interest" on any Receivable as of its origination would
equal the excess of (a) the sum of all principal payments due more than six
months after such Receivable's date of origination over (b) the sum of the
discounted present values of such principal payments and all interest payments
due under such Receivable. The discount rate to be used in computing the present
values is the "applicable federal rate" for the period during which the
Receivable was originated. A portion of the Receivable's stated principal amount
equal to such total unstated interest would be recharacterized as interest, and
the Receivable's principal amount would be correspondingly reduced, thus
increasing the total amount of income to be realized with respect to the
Receivable. The total unstated interest would be included in gross income over
the term of the Receivable using a constant yield-to-maturity method. It is not
clear whether imputed interest may be reduced to the extent that a Receivable
having imputed interest is subsequently sold for a price in excess of the
imputed principal amount. It would appear reasonable to reduce the amount of
imputed interest to the extent that such a purchase price reflects a movement of
market interest rates since the origination of the Receivable.
To the extent that the portion of the purchase price allocated to a
Certificate Owner's undivided interest in a Supplemented Receivable is less than
the "stated redemption price at maturity" (or possibly
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<PAGE>
the imputed principal amount, in the case of a Receivable with imputed interest)
such Receivable will have market discount. The allocation of a portion of the
purchase price of a Certificate to the rights to payments under the Yield
Supplement Agreement, accrued interest and/or amounts collected and
undistributed as of the date such Certificate was purchased may cause or
increase the amount of market discount.
In general, under the market discount provisions of the Code, principal
payments received by a Trust and all or a portion of the gain recognized upon a
sale or other disposition of a Receivable or upon the sale or other disposition
of a Certificate by a Certificate Owner will be treated as ordinary income to
the extent of accrued market discount. Any payment received by a Certificate
Owner upon a sale or other disposition of a Certificate in an amount in excess
of accrued market discount will be treated as capital gain, assuming the
Certificate Owner held such Certificate as a capital asset. In addition, a
portion of the interest deductions of the Certificate Owner attributable to any
indebtedness treated as incurred or continued to purchase or carry a Receivable
may have to be deferred, unless a Certificate Owner makes an election to include
market discount in income currently as it accrues, which election would apply to
all debt instruments acquired by the taxpayer on or after the first day of the
first taxable year to which such election applies. Taxpayers may, in general,
elect to accrue market discount either (i) under a constant yield-to-maturity
method or (ii) in the proportion that the stated interest paid on the obligation
for the current period bears to the total remaining interest on the obligation.
The manner in which the imputed interest rules interact with the market
discount rules is unclear. It is also not clear whether the stated redemption
price at maturity should be determined by excluding imputed interest under
Section 483 of the Code, thereby avoiding duplicative amounts of market discount
and imputed interest or whether the imputed interest is also recharacterized as
market discount. The effect of a discount sale of a debt instrument that did not
have adequate stated interest when originated may be to create overlapping
amounts of imputed interest and market discount. It is unclear whether a
purchaser of a debt instrument, such as a Supplemented Receivable, which has
imputed interest and market discount should continue to report the imputed
interest using the rules of Section 483 of the Code and the regulations
thereunder (with a corresponding reduction in the amount of market discount) or
whether all or a portion of such imputed interest is instead converted into
market discount.
CLASS B CERTIFICATE OWNERS
IN GENERAL. Except as described below, it is believed that the Class B
Certificate Owners will be subject to tax in the same manner as Class A
Certificate Owners. However, no Federal income tax authorities address the
precise method of taxation of an instrument such as the Class B Certificates. In
the absence of applicable authorities, the Trustee intends to report income to
Class B Certificate Owners in the manner described below.
Each Class B Certificate Owner will be treated as owning (i) the Class B
Percentage of the principal on each Receivable plus (ii) a proportionate portion
of the interest on each Receivable (not including the Retained Yield). Income
will be reported to a Class B Certificate Owner based on the assumption that all
amounts payable to the Class B Certificate Owners are taxable under the coupon
stripping provisions of the Code and treated as a single obligation. In applying
those provisions, the Trustee will take the position that a Class B Certificate
Owner's entire share of the interest on a Receivable will qualify as "qualified
stated interest." Thus, except to the extent modified by the effects of
subordination of the Class B Certificates, as described below, income will be
reported to Class B Certificate Owners in the manner described above for the
Class A Certificate Owners.
EFFECT OF SUBORDINATION. If the Class B Certificate Owners received
distributions of less than their share of the Trust's receipts of principal or
interest (the "SHORTFALL AMOUNT") because of the subordination of the Class B
Certificates, Class B Certificate Owners would probably be treated for Federal
income tax purposes as if they had (1) received as distributions their full
share of such receipts, (2) paid over to the Class A Certificate Owners an
amount equal to such Shortfall Amount, and (3) retained the right to
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<PAGE>
reimbursement of such amounts to the extent of future Collections otherwise
available for deposit in the Reserve Account.
Under this analysis, (1) Class B Certificate Owners would be required to
accrue as current income any interest or OID income of the Trust that was a
component of the Shortfall Amount, even though such amount was in fact paid to
the Class A Certificate Owners, (2) a loss would only be allowed to the Class B
Certificate Owners when their right to receive reimbursement of such Shortfall
Amount became worthless (i.e., when it becomes clear that the amount will not be
available from any source to reimburse such loss), and (3) reimbursement of such
Shortfall Amount prior to such a claim of worthlessness would not be taxable
income to Class B Certificate Owners because such amount was previously included
in income. Those results should not significantly affect the inclusion of income
for Class B Certificate Owners on the accrual method of accounting, but could
accelerate inclusion of income to Class B Certificate Owners on the cash method
of accounting by, in effect, placing them on the accrual method. Moreover, the
character and timing of loss deductions is unclear.
YIELD SUPPLEMENT AMOUNTS
The proper Federal income tax characterization of the Yield Supplement
Amounts is not clear. Moreover, the sum of the income and deductions properly
reportable by a Certificate Owner in any taxable year may not equal the amounts
that would be reportable if a Certificate Owner held instead of an interest in
the Receivables and in the Yield Supplement Agreement either (i) a debt
instrument bearing interest at the applicable Pass-Through Rate or (ii) an
interest in a trust holding Receivables each of which bears interest at a rate
at least equal to the sum of the Pass-Through Rate plus the Basic Servicing Fee
Rate.
It is likely that the right to receive Yield Supplement Amounts will be
treated as a separate asset purchased by each Certificate Owner, in which case a
portion of each Certificate Owner's purchase price or other tax basis in the
Certificate equal to the fair market value of the right to receive such Yield
Supplement Amounts should be allocated to the right to receive payments of Yield
Supplement Amounts. See "--Discount and Premium--Original Issue Discount on
Stripped Receivables." The right to receive Yield Supplement Amounts may be
treated as a loan made by a Certificate Owner to the Seller in an amount equal
to the present value, discounted at a rate equal to the sum of the applicable
Pass-Through Rate and the Basic Servicing Fee Rate, of the projected Yield
Supplement Amounts. In that event, a portion of the Yield Supplement Amounts
generally representing a yield equal to the applicable Pass-Through Rate plus
the Basic Servicing Fee Rate on such discounted value should be treated as
interest includible in income as accrued or received, and the remainder should
be treated as a return of the principal amount of the deemed loan.
Alternatively, it is possible that the entire amount of each Yield Supplement
Amount should be included in income as accrued or received, in which event a
Certificate Owner should also be entitled to amortize the portion of its
purchase price allocable to its right to receive Yield Supplement Amounts. The
method of calculating such amortization is unclear, and could result in the
inclusion of greater amounts of income than a Certificate Owner's actual yield
on a Receivable.
Alternatively, it is possible that the Yield Supplement Amounts could be
treated as payments adjusting the purchase price of the Supplemented
Receivables, rather than as a separate asset. In that event, a Certificate Owner
could be treated as having purchased each Supplemented Receivable at a discount
(which may consist of imputed interest, market discount, or both) that, combined
with the actual coupon rate of such Receivable, produces a yield equal to the
sum of the applicable Pass-Through Rate and the Basic Servicing Fee Rate. See
"--Discount and Premium."
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<PAGE>
It is not clear whether, and to what extent, the amounts includible in
income or amortizable under any of these methods would be adjusted to take
account of prepayments on the Receivables. Moreover, it is possible that the IRS
might contend that none of the above methods is appropriate, and that income
with respect to the Yield Supplement Agreement should be reported by a
Certificate Owner in some other manner. In addition, to the extent that the
amounts payable pursuant to Yield Supplement Agreement decline during any period
by reason of prepayments on the Receivables, it is possible that a portion of
the amount amortizable by the Certificate Owner during such period would be
treated as a capital loss (which would not offset ordinary income), rather than
as an ordinary deduction. It is expected that the annual statement furnished to
Certificateholders will report the net income derived from the Yield Supplement
Agreement using a method that causes the total income attributable to a
Certificate to equal income at the applicable Pass-Through Rate on the Class A
Percentage or Class B Percentage of the Pool Balance. Certificate Owners are
advised to consult their tax advisors regarding the appropriate method of
accounting for income attributable to the Yield Supplement Agreement.
SALE OF A CERTIFICATE
With respect to any series of Certificates, if a Certificate is sold, gain
or loss will be recognized equal to the difference between the amount realized
on the sale and the Certificate Owner's adjusted basis in the Receivables and
any other assets held by the related Trust. A Certificate Owner's adjusted basis
will equal the Certificate Owner's cost for the Certificate, increased by any
discount previously included in income, and decreased by any deduction
previously allowed for accrued premium and by the amount of principal payments
previously received on the Receivables. Any gain or loss not attributable to
accrued interest will be capital gain or loss if the Certificate was held as a
capital asset.
FOREIGN CERTIFICATE OWNERS
Interest attributable to Receivables held by any Trust which is payable to a
foreign Certificate Owner will generally not be subject to the normal 30%
withholding tax imposed with respect to such payments, PROVIDED that such
Certificate Owner is not engaged in a trade or business in the United States and
that such Certificate Owner fulfills certain certification requirements. Under
such certification requirements, the Certificate Owner must certify, under
penalties of perjury, that it is not a "United States person" and it is the
beneficial owner of the Certificates, and must provide its name and address. For
this purpose, "United States person" means a citizen or resident of the United
States, a corporation, partnership, or other entity created or organized in or
under the laws of the United States or any political subdivision thereof, or an
estate or trust the income of which is includible in gross income for United
States Federal income tax purposes, regardless of its source.
It is not clear whether amounts received by Certificate Owners that are
attributable to payments of Yield Supplement Amounts received pursuant to any
Yield Supplement Agreement would be subject to withholding tax. Accordingly, a
prospective investor in Certificates who is not a United States person should
assume that tax will be withheld from such payments at a rate of 30% (or such
lower rate as may be provided in an applicable tax treaty). As a result, a
Certificate may not be a suitable investment for a non-United States person.
BACKUP WITHHOLDING
Payments made on the Certificates and proceeds from the sale of Certificates
will not be subject to a "backup" withholding tax of 31% (or such other level as
may be applicable under then current law) unless, in general, the Certificate
Owner fails to comply with certain reporting procedures and is not an exempt
recipient under applicable provisions of the Code.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain requirements on employee benefit plans and certain
other retirement plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and collective investment funds and separate
accounts in which such plans, accounts or arrangements are invested that are
subject to ERISA and the Code (all of which are hereinafter referred to as a
"PLAN") and on persons who are fiduciaries with respect to such Plans. Moreover,
based on the reasoning of the United States Supreme Court in JOHN HANCOCK LIFE
INS. CO. V. HARRIS TRUST AND SAV. BANK, 510 U.S. 86 (1993), an insurance
company's general account may be deemed to include assets of the Plans investing
in the general account (e.g., through the purchase of an annuity contract), and
the insurance company might be treated as a fiduciary with respect to such plans
by virtue of such investment. In accordance with ERISA's general fiduciary
standards, before investing in a Certificate, a Plan fiduciary should determine
whether such an investment is permitted under the governing Plan instruments and
is appropriate for the Plan in view of its overall investment policy and the
composition and diversification of its portfolio. Other provisions of ERISA and
the Code prohibit certain transactions involving the assets of a Plan and
persons who have certain specified relationships to the Plan ("parties in
interest" within the meaning of ERISA or "disqualified persons" within the
meaning of the Code). Thus, a Plan fiduciary considering an investment in
Certificates should also consider whether such an investment might constitute or
give rise to a prohibited transaction under ERISA or the Code.
An investment in any series of Certificates by a Plan might result in the
assets of the related Trust being deemed to constitute Plan assets, which in
turn might mean that certain aspects of such investment, including the operation
of such Trust, might be prohibited transactions under ERISA and the Code. There
may also be an improper delegation of the responsibility to manage Plan assets
if Plans that purchase any Certificates are deemed to own an interest in the
underlying assets of the related Trust. Neither ERISA nor the Code defines the
term "plan assets." Under Section 2510.3-101 of the United States Department of
Labor ("DOL") regulations (THE "REGULATION"), a Plan's assets may include an
interest in the underlying assets of an entity (such as a trust) for certain
purposes, including the prohibited transaction provisions of ERISA and the Code,
if the Plan acquires an "equity interest" in such entity.
Unless otherwise provided in the Prospectus Supplement, the DOL has granted
an administrative exemption (each, an "EXEMPTION") to the underwriter(s)
specified in the related Prospectus Supplement, exempting from the application
of the prohibited transaction provisions of Section 406 of ERISA and the excise
taxes imposed on such prohibited transactions pursuant to Section 4975(a) and
(b) of the Code and Section 502(i) of ERISA certain transactions relating to the
initial purchase, holding and subsequent resale by Plans of certificates in
pass-through trusts that consist of certain receivables, loans and other
obligations that meet the conditions and requirements set forth in the
applicable Exemption. The receivables covered by the Exemption include motor
vehicle installment obligations such as the Receivables. The Exemption will
apply to the acquisition, holding and resale of the Class A Certificates by a
Plan from the underwriter specified in the Prospectus Supplement, provided that
specified conditions (certain of which are described below) are met. The Seller
believes that the Exemption will apply to the acquisition and holding of the
Class A Certificates by a Plan and that all conditions of the Exemption other
than those within the control of the investors have been or will be met.
The Exemption sets forth six general conditions that must be satisfied for a
transaction involving the acquisition of the Class A Certificates by a Plan to
be eligible for the exemptive relief thereunder:
(1) the acquisition of the Class A Certificates by a Plan is on terms
(including the price for the Class A Certificates) that are at least as
favorable to the Plan as they would be in an arm's-length transaction
with an unrelated party;
(2) the rights and interests evidenced by the Class A Certificates acquired
by a Plan are not subordinated to the rights and interests evidenced by
other certificates of the related Trust;
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(3) the Class A Certificates acquired by the Plan have received a rating at
the time of such acquisition that is in one of the three highest generic
rating categories from any one of four rating entities, including S&P and
Moody's;
(4) the Trustee is not an affiliate of any other member of the "RESTRICTED
GROUP," which consists of the Underwriters, the Seller, the Trustee and
any Obligor with respect to the Receivables included in the Trust
constituting more than 5% of the aggregate unamortized principal balance
of the assets of the related Trust as of the date of initial issuance of
the Class A Certificates, and any affiliate of such parties;
(5) the sum of all payments made to and retained by the underwriter
specified in the related prospectus supplement in connection with the
distribution or placement of the Class A Certificates represents not more
than reasonable compensation for underwriting or placing the Class A
Certificates. The sum of all payments made to and retained by the Seller
pursuant to the sale of the Receivables to the related Trust represents
not more than the fair market value of such Receivables. The sum of all
payments made to and retained by the Servicer represents not more than
reasonable compensation for the Servicer's services under the Agreement
and reimbursement of the Servicer's reasonable expenses in connection
therewith; and
(6) the Plan investing in the Class A Certificates must be an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Commission
under the Securities Act.
Because the rights and interests evidenced by the Class A Certificates
acquired by a Plan are not subordinated to the rights and interests evidenced by
other certificates of the related Trust, the second general condition set forth
above is satisfied. It is a condition of the issuance of the Class A
Certificates that they be rated in the highest rating category by any one of the
rating entities, including S&P and Moody's. A fiduciary of a Plan contemplating
purchasing a Class A Certificate must make its own determination that at the
time of such acquisition, the Class A Certificates continue to satisfy the
fourth general condition set forth above. The Seller and the Servicer expect
that the fifth general condition set forth above will be satisfied with respect
to the Class A Certificates. A fiduciary of a Plan contemplating purchasing a
Class A Certificate must make its own determination that the first and sixth
general conditions set forth above will be satisfied with respect to the Class A
Certificates.
In addition the related Trust must satisfy the following requirements:
(a) the corpus of such Trust must consist solely of assets of the type which
have been included in other investment pools,
(b) certificates in such other investment pools must have been rated in one
of the three highest generic rating categories of S&P, Moody's, Duff &
Phelps Credit Rating Co. or Fitch Investors Service, Inc. for at least
one year prior to the Plan's acquisition of Class A Certificates, and
(c) 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 Class A Certificates.
If the general conditions of the Exemption are satisfied, the Exemption may
provide relief from the restrictions imposed by Section 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 Section 4975(c)(1)(A) through (D) of the Code, in connection with
the direct or indirect sale, exchange, transfer or holding of the Class A
Certificates by a Plan. However, no exemption is provided from the restrictions
of Sections 406(a)(1)(E), 406(a)(2) and 407 of ERISA for the acquisition or
holding of a Class A Certificate on behalf of an Excluded Plan by any person who
has discretionary authority or renders investment advice with respect to the
assets of such Excluded Plan. For purposes of the Class A Certificates, an
"Excluded Plan" is a Plan sponsored by any member of the Restricted Group.
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If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide relief from the restrictions imposed by Sections 406(b)(1)
and (b)(2) and 407(a) of ERISA and the taxes imposed by Section 4975(a) and (b)
of the Code by reason of Section 4975(c)(1)(E) of the Code in connection with
the direct or indirect sale, exchange, transfer or holding of Class A
Certificates in the initial issuance of Class A Certificates between the Seller
or underwriter specified in the related Prospectus Supplement and a Plan other
than an Excluded Plan when the person who has discretionary authority or renders
investment advice with respect to the investment of Plan assets in the Class A
Certificates is (a) an Obligor with respect to 5% or less of the fair market
value of the Receivables or (b) an affiliate of such person.
The Exemption also applies to transactions in connection with the servicing,
management and operation of the related Trust, provided that, in addition to the
general requirements described above, (a) such transactions are carried out in
accordance with the terms of a binding pooling and servicing agreement and (b)
the pooling and servicing agreement is provided to, or described in all material
respects in the prospectus provided to, investing Plans before their purchase of
Class A Certificates issued by the related Trust. Each Agreement is a pooling
and servicing agreement as defined in the Exemption. All transactions relating
to the servicing, management and operations of each Trust will be carried out in
accordance with the related Agreement. See "The Certificates."
The Exemption also may provide relief from the restriction imposed by
Sections 406(a) and 407(a) of ERISA and the taxes imposed by Section
4975(c)(1)(A) through (D) of the Code if such restrictions are deemed to
otherwise apply merely because a person is deemed to be a party in interest or a
disqualified person with respect to an investing Plan by virtue of providing
services to a Plan (or by virtue of having certain specified relationships to
such a person) solely as a result of such Plan's ownership of Class A
Certificates.
Any Plan fiduciary considering whether to purchase a Class A Certificate on
behalf of a Plan should consult with its counsel regarding the applicability of
the Exemption and other applicable issues and whether the Class A Certificates
are an appropriate investment for a Plan under ERISA and the Code.
Because the Class B Certificates are subordinate interests, the Exemption
will not be available for Class B Certificates. Accordingly, no Plan will be
eligible to purchase or otherwise hold Class B Certificates and no beneficial
interest therein may be sold or otherwise transferred to a Plan.
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in an underwriting agreement
relating to any series of Certificates (an "UNDERWRITING AGREEMENT"), the 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 Seller, the principal amount of Class A Certificates and Class
B Certificates set forth therein and in the related Prospectus Supplement
(subject to proportional adjustment on the terms and conditions set forth in the
related Underwriting Agreement (if any) in the event of an increase or decrease
in the aggregate amount of Class A Certificates and Class B Certificates offered
hereby and by 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 Class A
Certificates and Class B Certificates offered hereby and by the related
Prospectus Supplement if any of such Class A Certificates and Class B
Certificates are purchased. In the event of a default by any 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 set forth the prices at which the Class A
Certificates and Class B Certificates being offered thereby initially will be
offered to the public and any concessions that may be
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offered to certain dealers participating in the offering of such Certificates.
After the initial public offering, the public offering price and such
concessions may be changed.
Each Underwriting Agreement will provide that the Seller will indemnify the
related underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
The place and time of delivery for the Securities in respect of which this
Prospectus is being delivered will be set forth in the accompanying Prospectus
Supplement.
LEGAL MATTERS
Certain legal matters will be passed upon for the Seller by Ray, Quinney &
Nebeker, Salt Lake City, Utah and for the Underwriters by Kirkland & Ellis.
Certain federal income tax and other matters will be passed upon for the Seller
by Kirkland & Ellis. Certain Idaho state tax and other matters will be passed
upon for the Seller by Moffatt, Thomas, Barrett, Rock & Fields. Alonzo W.
Watson, a shareholder and director of Ray, Quinney & Nebeker, is also an officer
of First Security Corporation. A daughter of the chief executive officer of
First Security Corporation is a shareholder and director of Ray, Quinney &
Nebeker.
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INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
<S> <C>
Advance.................................................................................................. 5
Aggregate Net losses..................................................................................... 29
Agreement................................................................................................ 1, 3
Agreements............................................................................................... 1
Available Interest....................................................................................... 31
Available Principal...................................................................................... 31
Available Reserve Amount................................................................................. 28
Average Delinquency Ratio................................................................................ 29
Average Net Loss Ratio................................................................................... 29
Bank..................................................................................................... 1, 3
Basic Reserve Account Percentage......................................................................... 29
Basic Servicing Fee...................................................................................... 27
Basic Servicing Fee Rate................................................................................. 27
Cede..................................................................................................... 4
Certificate Account...................................................................................... 24
Certificate Owner........................................................................................ 4
Certificateholders....................................................................................... 4
Certificates............................................................................................. 1
Class A Certificate Balance.............................................................................. 32
Class A Certificateholders............................................................................... 4
Class A Distribution Account............................................................................. 24
Class A Interest Carryover Shortfall..................................................................... 32
Class A Interest Distribution............................................................................ 33
Class A Monthly Interest................................................................................. 33
Class A Monthly Principal................................................................................ 33
Class A Pool Factor...................................................................................... 18
Class A Principal Carryover Shortfall.................................................................... 33
Class A Principal Distribution........................................................................... 33
Class B Certificate Balance.............................................................................. 33
Class B Certificateholders............................................................................... 4
Class B Distribution Account............................................................................. 24
Class B Interest Carryover Shortfall..................................................................... 33
Class B Interest Distribution............................................................................ 33
Class B Monthly Interest................................................................................. 33
Class B Monthly Principal................................................................................ 33
Class B Pool Factor...................................................................................... 18
Class B Principal Carryover Shortfall.................................................................... 33
Class B Principal Distribution........................................................................... 34
Closing Date............................................................................................. 18
Code..................................................................................................... 44
Collateral Agent......................................................................................... 3
Collection Period........................................................................................ 4
Collections.............................................................................................. 31
Commission............................................................................................... 2
Credit Deferral.......................................................................................... 24
Dealer Agreements........................................................................................ 3
Dealers.................................................................................................. 3
Default Trigger.......................................................................................... 29
</TABLE>
61
<PAGE>
<TABLE>
<S> <C>
Defaulted Receivable..................................................................................... 29
Definitive Certificates.................................................................................. 21
Delinquency Ratio........................................................................................ 29
Delinquency Trigger...................................................................................... 30
Deposit Date............................................................................................. 6
Determination Date....................................................................................... 31
Direct Participants...................................................................................... 20
Distribution Date........................................................................................ 1, 4
DOL...................................................................................................... 51
DTC...................................................................................................... 1, 4
Eligible Bank............................................................................................ 25
Eligible Deposit Account................................................................................. 25
Eligible Investments..................................................................................... 25
ERISA.................................................................................................... 50
Events of Servicing Termination.......................................................................... 36
Exemption................................................................................................ 51
FDIC..................................................................................................... 10, 25
Financed Vehicles........................................................................................ 3
FIRREA................................................................................................... 10
FTC Rule................................................................................................. 43
Full Payoff Amount....................................................................................... 30
Holders.................................................................................................. 21
Indirect Participants.................................................................................... 20
Initial Distribution Date................................................................................ 4
Interest Accrual Rate.................................................................................... 34
Interest Collections..................................................................................... 31
IRS...................................................................................................... 8, 44
Liquidation Proceeds..................................................................................... 30
Moody's.................................................................................................. 25
Motor Vehicle Loans...................................................................................... 15
Net Loss Ratio........................................................................................... 30
Obligor.................................................................................................. 3
OID...................................................................................................... 45
OID Regulations.......................................................................................... 47
Optional Payment Deferral................................................................................ 24
Original Certificate Balance............................................................................. 4
Original Class A Certificate Balance..................................................................... 4
Original Class B Certificate Balance..................................................................... 4
Original Pool Balance.................................................................................... 4
Outstanding Advances..................................................................................... 7
Plan..................................................................................................... 51
Pool Balance............................................................................................. 4
Prepayment Assumption.................................................................................... 45
Prospectus Supplement.................................................................................... 1
Purchase Amount.......................................................................................... 24
Purchase Price........................................................................................... 46
Purchased Receivable..................................................................................... 31
Rating Agency............................................................................................ 8
Realized Losses.......................................................................................... 34
Receivable File.......................................................................................... 23
Receivables.............................................................................................. 1, 3
</TABLE>
62
<PAGE>
<TABLE>
<S> <C>
Record Date.............................................................................................. 4
Recoveries............................................................................................... 30
Regulation............................................................................................... 51
Required Class A Rating.................................................................................. 8
Required Class B Rating.................................................................................. 8
Reserve Account.......................................................................................... 6
Reserve Account Floor Amount............................................................................. 30
Reserve Account Increase Percentage...................................................................... 30
Reserve Account Initial Deposit.......................................................................... 7
Reserve Account Trigger Starting Date.................................................................... 30
Restricted Group......................................................................................... 51
Retained Yield........................................................................................... 45
Rules.................................................................................................... 21
S&P...................................................................................................... 25
Schedule of Receivables.................................................................................. 22
Section 1286 Regulations................................................................................. 46
Securities Act........................................................................................... 2
Seller................................................................................................... 1, 3
Servicer................................................................................................. 1, 3
Servicer's Certificate................................................................................... 31
Shortfall Amount......................................................................................... 13, 49
Specified Reserve Account Balance........................................................................ 7
Specified Yield Supplement Balance....................................................................... 6
Stripped Receivable...................................................................................... 45
Supplemental Servicing Fee............................................................................... 27
Supplemented Receivables................................................................................. 45
Trust.................................................................................................... 1, 3
Trust Property........................................................................................... 3
Trustee.................................................................................................. 1, 3
UCC...................................................................................................... 10
Underwriting Agreement................................................................................... 53
Yield Supplement Account................................................................................. 6, 28
Yield Supplement Agreement............................................................................... 6
Yield Supplement Amount.................................................................................. 6
Yield Supplement Initial Deposit......................................................................... 6
</TABLE>
63
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC Registration Fee............................................... $ 330.00
Printing and Engraving............................................. *
Legal Fees and Expenses............................................ *
Blue Sky Fees and Expenses......................................... *
Accountant's Fees and Expenses..................................... *
Rating Agency Fees................................................. *
Miscellaneous Fees and Expenses.................................... *
---------
Total Expenses................................................... $ *
---------
---------
</TABLE>
- ------------------------
* To be completed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Association of First Security Bank, N.A. (the "Bank")
requires the Bank to indemnify its officers and directors against reasonable
expenses (in the event of a derivative claim), and against reasonable expenses
and damages (in the event of a third-party claim). This indemnity is available
only if the officer or director in question was at the time of the acts
complained of acting in his or her official capacity, in good faith and in or
not opposed to the best interests of the Bank. However, no indemnity is allowed
by the Bank if the officer or director is found to have been guilty of a crime,
or to have acted in a manner evidencing willful misconduct or gross negligence,
or where there is a final order assessing civil money penalties or requiring
payments by the officer or director to the Bank. The Bank will not provide
indemnity for a derivative claim if the officer or director shall have been
adjudged to be liable for negligence or misconduct in the performance of his or
her duty to the Bank, unless a court shall nevertheless determine that indemnity
is proper. The availability of indemnification for an officer or director will
be determined under the foregoing standards by (a) a majority of disinterested
directors, (b) the opinion of independent legal counsel retained to examine the
conduct in question, or (c) a vote of the shareholders of the Bank.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
4.1 Form of Prospectus Supplement
4.2* Form of Pooling and Servicing Agreement, including the form of Asset
Backed Certificate, Class A and the form of Asset Backed Certificate,
Class B and Yield Supplement Agreement as exhibits thereto
5.1* Opinion of Kirkland & Ellis re: Legality
8.1* Opinion of Kirkland & Ellis re: Tax Consequences
24.1* Consent of Kirkland & Ellis (contained in Exhibits 5.1 and 8.1)
24.2* Consent of Ray, Quinney & Nebeker
24.3* Consent of Moffatt, Thomas, Barrett, Rock & Fields
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
25.1 Powers of Attorney of directors and officers of First Security Bank, N.A.
(included on the signature pages to the Registration Statement).
</TABLE>
- ------------------------
* To be filed by amendment.
(b) Financial Statement Schedules.
Not applicable.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby agrees:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(1) To include any prospectus required by section 10(a)(3) of the Securities
Act;
(2) To reflect in the prospectus any facts or events arising after the
effective date of this 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 this Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(3) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement;
(b) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) 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.
(d) That, insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the 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 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 Securities Act and will be governed by the final
adjudication of such issue.
(e) That, for purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus 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.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned thereto duly authorized, in Salt Lake City, State of Utah, on
September 17, 1997.
<TABLE>
<S> <C> <C>
FIRST SECURITY BANK, N.A.
as originator of the Trusts, Registrant
By: /s/ L. SCOTT NELSON
-----------------------------------------
L. Scott Nelson
CHAIRMAN
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints A.
Robert Thorup his true and lawful attorney-in-fact and agent, with full powers
of substitution, for him and in his name, place and stead, in any and all
capacities, to sign and to file any and all amendments, including post-effective
amendments, to this Registration Statement with the Securities and Exchange
Commission, granting to said attorney-in-fact full power and authority to
perform any other act on behalf of the undersigned required to be done in
connection therewith.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------- ------------------------- -------------------------
<C> <S> <C>
/s/ L. SCOTT NELSON Chairman (a Principal
- ------------------------- Executive Officer) and September 17, 1997
L. Scott Nelson Director
/s/ J. PATRICK MCMURRAY President (a Principal
- ------------------------- Executive Officer) and September 17, 1997
J. Patrick McMurray Director
Executive Vice President
/s/ SCOTT C. ULBRICH and Cashier (Principal
- ------------------------- Financial and September 17, 1997
Scott C. Ulbrich Accounting Officer) and
Director
/s/ SPENCER F. ECCLES
- ------------------------- Director September 17, 1997
Spencer F. Eccles
/s/ MORGAN J. EVANS
- ------------------------- Director September 17, 1997
Morgan J. Evans
/s/ MICHAEL P. CAUGHLIN
- ------------------------- Director September 17, 1997
Michael P. Caughlin
/s/ MARK D. HOWELL
- ------------------------- Director September 17, 1997
Mark D. Howell
/s/ BRAD D. HARDY
- ------------------------- Director September 17, 1997
Brad D. Hardy
</TABLE>
II-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS PAGE
- ----------- ---------
<C> <S> <C>
1.1* Form of Underwriting Agreement
4.1 Form of Prospectus Supplement
4.2* Form of Pooling and Servicing Agreement, including the form of Asset Backed Certificate, Class A
and the form of Asset Backed Certificate, Class B and Yield Supplement Agreement as exhibits
thereto
5.1* Opinion of Kirkland & Ellis re: Legality
8.1* Opinion of Kirkland & Ellis re: Tax Consequences
24.1* Consent of Kirkland & Ellis(contained in Exhibits 5.1 and 8.1)
24.2* Consent of Ray, Quinney & Nebeker
24.3* Consent of Moffatt, Thomas, Barrett, Rock & Fields
25.1 Powers of Attorney of directors and officers of First Security Bank, N.A. (included on the
signature pages to the Registration Statement)
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
EXHIBIT 4.1
SUBJECT TO COMPLETION
DATED __________, ______
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED __________, 1997)
$___________.__
FIRST SECURITY-Registered Trademark-AUTO GRANTOR TRUST _______-__
$___________.__ __.___% ASSET BACKED CERTIFICATES, CLASS A
$___________.__ __.___% ASSET BACKED CERTIFICATES, CLASS B
FIRST SECURITY BANK,-Registered Trademark- N.A.
SELLER AND SERVICER
The_______% Asset Backed Certificates, Class A (the "Class A Certificates") and
the_______% Asset Backed Certificates, Class B (the "Class B Certificates"
together with the Class A Certificates, the "Certificates") offered hereby
evidence undivided interests in the First Security Auto Grantor Trust ____-__
(the "Trust") created pursuant to a Pooling and Servicing Agreement (the
"Agreement") among First Security Bank, N.A., as Seller (the "Seller" and the
"Bank") and as Servicer (the "Servicer"), and ____________________, as Trustee
(the "Trustee"). The property of the Trust will include a pool of fixed rate
simple interest retail motor vehicle installment sale contracts and installment
loans directly or indirectly originated by the Seller (collectively, the
"Receivables"), certain monies received under the Receivables after _________,
____ (the "Cutoff Date"), (COVER CONTINUED ON NEXT PAGE)
Principal and interest at the Class A Pass-Through Rate of _______% per annum
will be distributed with respect to the Class A Certificates on the 15th day of
each month (or the next following business day), beginning __________, ___
(each, a "Distribution Date"). Principal and interest at the Class B
Pass-Through Rate of ______% per annum will be distributed with respect to the
Class B Certificates on each Distribution Date. The final scheduled Distribution
Date is __________, 2003. Distributions of interest and principal on the
Class B Certificates will be subordinated in priority of payment to the payment
of interest and principal on the Class A Certificates to the extent described
herein.
The Certificates will be represented initially by global certificates registered
in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC").
The interests of beneficial owners of the Certificates will be represented by
book entries on the records of DTC and participating members thereof. Definitive
Certificates will be available only under the limited circumstances described in
the accompanying Prospectus.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK FACTORS"
ON PAGE S-4 HEREIN AND ON PAGES ______ THROUGH _____ IN THE ACCOMPANYING
PROSPECTUS.
THE CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND DO NOT
REPRESENT INTERESTS IN OR OBLIGATIONS OF THE SELLER, FIRST SECURITY CORPORATION
OR ANY AFFILIATE THEREOF. NEITHER THE CERTIFICATES NOR THE RECEIVABLES ARE
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
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.
PRICE TO UNDERWRITING PROCEEDS TO THE
PUBLIC (1) DISCOUNT (2) SELLER (1)(2)(3)
Per Class A Certificate __.___% 0.___% __.___%
Per Class B Certificate __.___% 0.___% __.___%
Total $_______.__ $_______.__ $_______.__
(1) Plus accrued interest, if any, calculated from _______, _____.
(2) The underwriting discount only applies to $_______.__ aggregate principal
amount of the Class A Certificates and $_______.__aggregate principal
amount of the Class B Certificates that are offered by __________. See
"Underwriting."
(3) Before deducting expenses payable by the Seller, estimated to be $_______.
The Certificates are offered subject to receipt and acceptance by the
Underwriters and the Capital Markets Division of First Security Bank, N.A., to
prior sale and to the right of the Underwriters and First Security Bank, N.A. to
reject any order in whole or in part and to withdraw, cancel or modify the offer
without notice. It is expected that delivery of the Certificates will be made in
book-entry form through the facilities of DTC on or about_______, ____.
[UNDERWRITERS]
The date of this Prospectus Supplement is _______, _____.
<PAGE>
(COVER CONTINUED FROM PREVIOUS PAGE)
perfected security interests in the new and used automobiles and light trucks
financed thereby, certain rights of the Trust under the Pooling and Servicing
Agreement and the Yield Supplement Agreement, certain amounts from time to time
on deposit in certain accounts maintained by the Trustee for the benefit of
Certificateholders and the Seller's rights to payments under agreements with
dealers of Financed Vehicles and insurance policies relating to the Receivables,
as more fully described under "The Trust Property" in the accompanying
Prospectus. The aggregate principal balance of the Receivables on the Cutoff
Date was $_______.__.
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SELLER
OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER, SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE SELLER OR THE TRUST SINCE
SUCH DATE.
UNTIL _______, ____ (90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT),
ALL DEALERS EFFECTING TRANSACTIONS IN THE CERTIFICATES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS TO WHICH IT RELATES. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
<S> <C>
PROSPECTUS SUPPLEMENT
The Certificates.......................................................S-3
Risk Factors...........................................................S-4
Delinquency and Loss Experience of the Seller..........................S-4
The Receivables........................................................S-6
The Trustee............................................................S-8
ERISA Considerations...................................................S-8
Underwriting...........................................................S-8
PROSPECTUS
Available Information....................................................2
Reports to Certificateholders............................................2
Prospectus Summary.......................................................3
Risk Factors............................................................10
Formation of the Trusts.................................................14
Trust Property..........................................................14
The Motor Vehicle Loan Portfolio........................................15
Maturity and Prepayment Assumptions.....................................17
Yield Considerations....................................................18
Pool Factors and Other Information......................................18
Use of Proceeds.........................................................19
The Bank................................................................19
The Certificates........................................................20
Certain Legal Aspects of the Receivables................................40
Federal Income Tax Consequences.........................................44
ERISA Considerations....................................................50
Plan of Distribution....................................................53
Legal Matters...........................................................53
Index of Defined Terms..................................................54
</TABLE>
S-2
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PLACE OF THE CERTIFICATES AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE PART OF A
SEPARATE SERIES OF CERTIFICATES BEING OFFERED BY THE SELLER PURSUANT TO ITS
PROSPECTUS DATED _______, 1997, OF WHICH THIS PROSPECTUS SUPPLEMENT IS A PART
AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS CONTAINS
IMPORTANT INFORMATION REGARDING THE OFFERING WHICH IS NOT CONTAINED HEREIN, AND
PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT IN FULL. SALES OF THE CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
THE CERTIFICATES
The Certificates are a series of Certificates described in the
accompanying Prospectus. The series of Certificates consists of two classes,
entitled ___% Asset Backed Certificates, Class A (the "Class A Certificates")
and ___% Asset Backed Certificates, Class B (the "Class B Certificates").
The Certificates will be issued by the First Security Auto Grantor Trust
____-__ (the "Trust") to be formed by the Seller pursuant to a Pooling and
Servicing Agreement (the "Agreement ") between the Seller, the Servicer and
____________, as Trustee (the "Trustee") to be dated as of _______, ____ (the
"Closing Date"). The initial Collection Period will be the period from but
not including the Cutoff Date to and including ____________, ____.
Capitalized terms used herein and not otherwise defined shall have the
meanings given to such terms in the Prospectus. In addition to the terms and
conditions set forth below, reference is made to the Prospectus for the terms
and conditions of the Certificates.
<TABLE>
<CAPTION>
GENERAL
<S> <C>
Original Pool Balance............................................ $_______.__
Cutoff Date...................................................... _______, ____
Collateral Agent................................................. _________________
Required Class A Rating..........................................
Required Class B Rating..........................................
CERTIFICATE TERMS
Class A Percentage............................................... __.__%
Class B Percentage............................................... __.__%
Original Class A Certificate Balance............................. $_______.__
Original Class B Certificate Balance............................. $_______.__
Class A Pass-Through Rate........................................ __.__%
Class B Pass-Through Rate........................................ __.__%
Interest Accrual Date............................................ _______, ____
Initial Distribution Date........................................ _______, ____
Final Scheduled Distribution Date _______, ____
RESERVE ACCOUNT AND YIELD SUPPLEMENT ACCOUNT
Reserve Account Initial Deposit.................................. $_______.__
Basic Reserve Account Percentage................................. ___%
Reserve Account Floor Amount..................................... $_______.__
Reserve Account Increase Percentage.............................. __.__%
Reserve Account Trigger Starting Date............................ ______, ____
Default Trigger.................................................. __.__%
Delinquency Trigger.............................................. __.__%
S-3
<PAGE>
Yield Supplement Initial Deposit................................. $_______.__
</TABLE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS
SUPPLEMENT, PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK
FACTORS AND THE RISK FACTORS SET FORTH IN THE PROSPECTUS BEFORE INVESTING IN THE
CERTIFICATES.
LACK OF GEOGRAPHIC DIVERSIFICATION
Economic conditions in states 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, the mailing addresses of Obligors with
respect to __.__% and __.__% by principal balance of the Receivables were
located in Utah and Idaho, respectively. Due to the concentration of Obligors
in Utah and Idaho, adverse economic conditions in one or both of these states
may have a disproportionate impact on the performance of the Receivables.
Economic factors such as unemployment, interest rates, the rate of inflation and
consumer perceptions may affect the rate of prepayment and defaults on the
Receivables. See "The Receivables--Certain Characteristics."
DELINQUENCY AND LOSS EXPERIENCE OF THE SELLER
The tables set forth below indicate the delinquency and credit
loss/repossession experience for each of the last five calendar years of the
Bank's entire portfolio of Motor Vehicle Loans. The tables include both Motor
Vehicle Loans originated directly by the Bank and through Dealers in a relative
proportion substantially similar to the Motor Vehicle Loans to be transferred to
the Trust. Fluctuations in delinquencies, repossessions and charge-offs
generally follow trends in the overall economic environment and may be affected
by such factors as increased competition for obligors, rising consumer debt
burden per household and increases in personal bankruptcies. Although
delinquencies, repossessions and charge-offs have been rising, the Bank believes
that these numbers continue to be commensurate with industry experience. The
Bank believes that the increase in delinquencies in 1996 was due primarily to
the merger in September 1996 of the Bank's Utah and Idaho collection departments
and some associated turnover in personnel which resulted in a lack of continuity
in the collections function. The Bank believes that most of the merger related
issues have since been resolved. No assurance can be made, however, that the
delinquency and loss experience for the Motor Vehicle Loans in the future will
be similar to the historical experience set forth below.
S-4
<PAGE>
DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
---------------------------------------------------- ------------------------
1997 1996 1996
---------------------------------------------------- ------------------------
(DOLLARS IN NUMBER NUMBER NUMBER
THOUSANDS) OF LOANS AMOUNT OF LOANS AMOUNT OF LOANS AMOUNT
- ----------------------- ---------- ---------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Portfolio at Period End 174,711 1,861,897 174,482 1,719,721 186,063 $1,888,980
Delinquency(1)
30-59 Days............. 2,640 26,551 2,155 19,517 3,183 $30,284
60-89 Days............. 685 6,847 453 4,427 1,148 $10,897
90 Days or More........ 337 3,698 224 2,106 576 $5,767
Total Delinquencies.... 3,662 37,096 2,832 26,050 4,907 $46,948
Total Delinquencies as
Percentage of the
Portfolio.............. 2.10% 1.99% 1.62% 1.51% 2.64% 2.49%
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------------------------------------------
1995 1994 1993 1992
-------------------- --------------------- -------------------- ------------------------
(DOLLARS IN NUMBER NUMBER NUMBER NUMBER
THOUSANDS) OF LOANS AMOUNT OF LOANS AMOUNT OF LOANS AMOUNT OF LOANS AMOUNT
- ------------------------ -------- ----------- --------- ----------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio at Period End 169,273 $1,637,857 197,996 $1,885,492 159,870 $1,409,188 130,180 $1,035,480
Delinquency(1)
30-59 Days............. 2,691 $23,440 2,345 $20,775 1,458 $11,722 1,227 $8,398
60-89 Days............. 517 $5,018 603 $5,838 337 $2,702 283 $2,171
90 Days or More........ 246 $2,382 273 $2,595 153 $1,306 123 $976
Total Delinquencies.... 3,454 $30,840 3,221 $29,208 1,948 $15,730 1,633 $11,545
Total Delinquencies as
Percentage of the
Portfolio.......... 2.04% $1.88% 1.63% $1.55% 1.22% $1.12% 1.25% $1.11%
___________________________
</TABLE>
(1) The period of delinquency is based on the number of days payments are
contractually past due for all Motor Vehicle Loans other than Motor Vehicle
Loans previously charged off.
CREDIT LOSS/REPOSSESSION EXPERIENCE
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- ---------------------
(DOLLARS IN THOUSANDS) 1997 1996 1996
------------- ----------- ----------
<S> <C> <C> <C>
Portfolio Balance at Period End............................ $1,861,897 $1,719,721 $1,888,980
Average Portfolio Balance During Period.................... $1,819,179 $1,676,007 $1,753,324
Average Number of Loans Outstanding During the
Period................................................ 174,750 171,757 176,850
Number of Repossessions During the Period.................. 2,447 2,178 4,198
Number of Repossessions as a Percentage of Average
Number of Loans Outstanding(1)........................ 2.80% 2.54% 2.37%
Gross Charge-offs(2)....................................... $20,510 $13,172 $28,629
Recoveries on Loans Previously Charged Off(3).............. $9,030 $5,939 $11,031
Net Charge-offs(4)......................................... $11,480 $7,233 $17,598
Net Charge-offs as a Percentage of Portfolio Balance
at Period End(1)...................................... 1.23% .84% .93%
Net Charge-offs as a Percentage of Average Balance
During Period(1)...................................... 1.26% .86% 1.00%
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
(DOLLARS IN THOUSANDS) 1995 1994 1993 1992
------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
Portfolio Balance at Period End............................ $1,637,857 $1,885,492 $1,409,188 $1,035,480
Average Portfolio Balance During Period.................... $1,745,369 $1,650,636 $1,221,927 $914,093
Average Number of Loans Outstanding During the
Period................................................ 182,716 179,061 145,683 119,669
Number of Repossessions During the Period.................. 4,153 3,528 2,583 2,125
Number of Repossessions as a Percentage of Average
Number of Loans Outstanding(1)........................ 2.27% 1.97% 1.77% 1.78%
Gross Charge-offs(2)....................................... $24,593 $17,657 $11,676 $9,918
Recoveries on Loans Previously Charged Off(3).............. $10,866 $8,301 $6,538 $4,665
Net Charge-offs(4)......................................... $13,727 $9,355 $5,138 $5,253
Net Charge-offs as a Percentage of Portfolio Balance
at Period End(1)...................................... 0.84% 0.50% 0.36% 0.51%
Net Charge-offs as a Percentage of Average Balance
During Period(1)...................................... 0.79% 0.57% 0.42% 0.57%
</TABLE>
__________________________
(1) June 30 figures have been annualized.
(2) Gross Charge-offs are generally stated net of liquidation proceeds.
(3) Recoveries on Loans Previously Charged Off generally include amounts
received with respect to loans previously charged off, other than
liquidation proceeds, net of collection expenses. A portion of recoveries
has resulted from certain collection and recovery efforts used by the Bank
with respect to defaulted receivables acquired by the Bank from other
institutions as a result of mergers. Such defaulted receivables are not
being transferred to the Trust and such reported recoveries may not be
indicative of future results.
(4) Net Charge-offs equal Gross Charge-offs minus Recoveries on Loans
Previously Charged Off.
S-5
<PAGE>
THE RECEIVABLES
SELECTION CRITERIA
Approximately __.__% of the Motor Vehicle Loans were originated by the
Seller through Dealers in the ordinary course of the Seller's business and in
accordance with Seller's underwriting standards; the remainder of the Motor
Vehicle Loans were made directly by the Seller to the Obligors in accordance
with the Seller's underwriting standards. The Seller will warrant in the
Agreement that all the Receivables have the following individual
characteristics, among others: (i) the obligation of the related Obligor under
each Receivable is secured by a security interest in either a new or used
automobile or light truck; (ii) each Receivable has a contractual interest rate
("Contract Rate") of at least __% and not more than __%; (iii) each Receivable
had a remaining maturity, as of the Cutoff Date, of not less than 6 months and
not more than [60] months; (iv) each Receivable had a remaining principal
balance of not less than $100 and not more than $_____ as of the Cutoff Date;
(v) no Receivable was more than [30] days past due as of the Cutoff Date;
(vi) no Financed Vehicle had been repossessed as of the Cutoff Date; (vii) each
Receivable is a Simple Interest Receivable; (viii) the Dealer of the Financed
Vehicle, if any, has no participation in, or other right to receive, any
proceeds of the Receivable and (ix) each Receivable was originated on or after
__________, ______. No procedures adverse to Certificateholders were used by the
Seller in selecting the Receivables to be transferred to the Trust on the
Closing Date. All terms of the retail motor vehicle installment sale contracts
and installment loans constituting the Receivables which are material to the
Certificateholders are described in the Prospectus.
CERTAIN CHARACTERISTICS
As of the Cutoff Date, approximately __.__% of the Original Pool Balance
was attributable to loans for purchases of new Financed Vehicles and
approximately __.__% of the Original Pool Balance was attributable to loans for
purchases of used Financed Vehicles.
The composition and distribution by Contract Rate of the Receivables as of
the Cutoff Date are set forth in the following tables:
COMPOSITION OF THE RECEIVABLES
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE NUMBER OF AVERAGE WEIGHTED AVERAGE
CONTRACT RATE AGGREGATE RECEIVABLES PRINCIPAL AVERAGE ORIGINAL
OF RECEIVABLES PRINCIPAL BALANCE IN POOL BALANCE REMAINING TERM TERM
---------------- ----------------- --------- ------- --------------- --------
<S> <C> <C> <C> <C> <C>
__.____% $_______.__ _______ $_______.__ _____ mos. _____ mos.
</TABLE>
S-6
<PAGE>
DISTRIBUTION BY CONTRACT RATE OF THE RECEIVABLES
AGGREGATE PERCENT OF
CONTRACT NUMBER OF PRINCIPAL ORIGINAL POOL
RATE RANGE RECEIVABLES BALANCE BALANCE(1)
- -------------- ----------------- -------------- ---------------
$ __.__%
6.00-6.99...........
7.00-7.99...........
8.00-8.99...........
9.00-9.99...........
10.00-10.99...........
11.00-11.99...........
12.00-12.99...........
13.00-13.99...........
14.00-14.99........... --------- --------- ----------
Total --------- $ --------- ----------%
--------- --------- ----------
___________
(1) Percentages do not add to 100.00% because of rounding.
The following table sets forth the percentage of the Original Pool Balance
in the states with the largest concentration of Receivables based on the billing
addresses of the Obligors. No other state accounts for more than 1.0% of the
Original Pool Balance.
PERCENTAGE OF
STATE ORIGINAL POOL BALANCE
------- ---------------------
Utah ............................................. __.__
Idaho............................................. __.__
Washington ....................................... __.__
Nevada ........................................... __.__
Oregon ........................................... __.__
Montana........................................... __.__
Wyoming........................................... __.__
PAYMENTS ON THE RECEIVABLES
The entire Original Pool Balance is attributable to Receivables that
provide for the allocation of payments according to the "Simple Interest" method
(each a "Simple Interest Receivable"). A Simple Interest Receivable provides for
the amortization of the amount financed under the Receivable over a series of
fixed level monthly payments (except that the last such payment may be
different). However, each monthly payment consists of an installment of interest
which is calculated on the basis of the outstanding principal balance of the
Receivable multiplied by the stated Contract Rate and further multiplied by the
period elapsed (as a fraction of a calendar year) since the preceding payment of
interest was made. As payments are received under a Simple Interest Receivable
the amount received is applied first to interest accrued and unpaid to the date
of payment and the balance is applied to reduce the unpaid principal balance.
Accordingly, if an obligor pays a fixed monthly installment before its schedule
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, thereby having the
effect of a prepayment. Conversely, if an obligor 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 obligor
S-7
<PAGE>
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.
The Receivables are prepayable at any time. Prepayments may also result
from liquidations due to default, the receipt of monthly installments earlier
than the scheduled due dates for such installments, the receipt of proceeds from
credit life, disability, theft or physical damage insurance, repurchases by the
Seller as a result of certain uncured breaches of the warranties made by it in
the Agreement with respect to the Receivables, purchases by the Servicer as a
result of certain uncured breaches of the covenants made by it in the Agreement
with respect to the Receivables, or the Servicer exercising its option to
purchase all of the remaining Receivables. Prepayments on the Receivables may be
influenced by a variety of economic, social, and other factors, including
decreases in interest rates and the fact that an Obligor may not sell or
transfer the Financed Vehicle securing a Receivable without the consent of the
Seller.
THE TRUSTEE
____________ will act as the Trustee of this series of Certificates. The
Trustee's Corporate Trust Office is located
at____________________________________________.
ERISA CONSIDERATIONS
The Exemption described in the Prospectus under the caption "ERISA
Considerations" refers to the exemption granted to __________ (Prohibited
Transaction Exemption _____; Exemption Application No. _____, _____ Fed. Reg.
_____ (19__)).
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
relating to the Certificates (the "Underwriting Agreement"), the Seller has
agreed to sell to _______________ and _______________ (the "Underwriters"), and
the Underwriters have agreed to purchase, the principal amount of the Class A
Certificates and the Class B Certificates set forth opposite their names:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRINCIPAL AMOUNT
UNDERWRITERS OF CLASS A CERTIFICATES OF CLASS B CERTIFICATES
- ------------ ----------------------- ------------------------
<S> <C> <C>
- ----------------------................ $ $
- ----------------------................ --------- ---------
Total................................. $ $
--------- ---------
--------- ---------
</TABLE>
In addition, the Capital Markets Division of First Security Bank,
N.A., as selling agent, will directly offer $__________ aggregate principal
amount of the Class A Certificates and $__________ aggregate principal amount of
the Class B Certificates. The Capital Markets Division of First Security Bank,
N.A. may sell a portion of the Class A Certificates and the Class B Certificates
to the Underwriters at a discount not in excess of 0.___% of the Class A
Certificate denominations or 0.___% of the Class B Certificate denominations.
The Seller has been advised by the Underwriters that the Underwriters
propose initially to offer the Certificates to the public at the prices set
forth herein and to certain dealers at such prices less a concession not in
excess of 0.___% of the Class A Certificate denominations or 0.___% of the
Class B Certificate denominations, and that the Underwriters may allow, and
such dealers may reallow, a discount not in excess of 0.___% of the Class A
Certificate denominations or 0.___% of the Class B Certificate denominations
to certain other dealers. After the initial public offering, the public
offering price, concessions, and discounts to dealers may be changed by the
Underwriters.
In addition, the Seller has an arrangement with the Capital Markets
Division of First Security Bank, N.A. under which it will act as a selling
agent for the Class A Certificates and Class B Certificates described above
at the same prices, concessions and discounts to dealers applicable to the
Underwriters.
S-8
<PAGE>
The Seller has agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act, or to contribute
to payments which the Underwriters may be required to make in respect
thereof. The Seller has also agreed to reimburse the Underwriters for certain
of their expenses.
In the ordinary course of its business, the Underwriters and their
affiliates have engaged and may engage in investment banking and/or
commercial banking transactions with the Seller and its affiliates.
S-9
