AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 22, 2000
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HARLEY-DAVIDSON MOTORCYCLE TRUSTS
(Issuer with respect to the Securities)
HARLEY-DAVIDSON CUSTOMER FUNDING CORP.
(Sponsor of the Trusts described herein)
(Exact name of Registrant as specified in its charter)
NEVADA APPLIED FOR
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4150 TECHNOLOGY WAY
CARSON CITY, NEVADA 89706
(775) 886-3200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DONNA F. ZARCONE
PRESIDENT AND CHIEF OPERATING OFFICER
HARLEY-DAVIDSON CREDIT CORP.
150 SOUTH WACKER DRIVE
SUITE 3100
CHICAGO, ILLINOIS 60606
(775) 886-3200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES OF ALL COMMUNICATIONS TO:
M. DAVID GALAINENA
WINSTON & STRAWN
35 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60601
(312) 558-5600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. /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
================================== ================== ======================== ====================== ========================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) PER UNIT(2) PRICE REGISTRATION FEE
- ---------------------------------- ------------------ ------------------------ ---------------------- ------------------------
- ---------------------------------- ------------------ ------------------------ ---------------------- ------------------------
Harley-Davidson Motorcycle
Contract Backed Notes and
Certificates $10,000,000 100% $10,000,000 $2,640.00
================================== ================== ======================== ====================== ========================
(1) The amount of Securities being registered represents the maximum aggregate
principal amount of Securities currently expected to be offered for sale.
$190,000,000 aggregate principal amount of the Securities registered by the
Registrant under Registration Statement No. 333-62849 referred to below and
not previously sold are consolidated in this Registration Statement
pursuant to Rule 429. All registration fees in the amount of $354,000 in
connection with such unsold amount of Securities have previously been paid
under Registration Statement No. 333-62849. The total amount registered
under this Registration Statement as so consolidated as of the date of this
filing is $200,000,000.
(2) Estimated solely for purposes of calculating the registration fee.
Pursuant to Rule 429 under the Securities Act of 1933, the prospectus and
prospectus supplement filed as part of this Registration Statement also relate
to $190,000,000 principal amount of Securities previously registered by the
Registrant under its Registration Statement on Form S-3 (File No. 333-62849).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
INTRODUCTORY NOTE
This registration statement contains (i) a prospectus relating to the
offering of one or more series of Harley-Davidson Motorcycle Contract Backed
Notes and/or Harley-Davidson Motorcycle Contract Backed Certificates by various
Harley-Davidson Motorcycle Trusts created from time to time by Harley-Davidson
Credit Corp. and (ii) two forms of prospectus supplement relating to the
offering by a Harley-Davidson Motorcycle Trust of Harley-Davidson Motorcycle
Contract Backed Notes and/or Harley-Davidson Motorcycle Contract Backed
Certificates described in the forms of prospectus supplement. The forms of
prospectus supplement relate only to the securities described therein and are
forms that may be used by the Harley-Davidson Motorcycle Trusts to offer
Harley-Davidson Motorcycle Contract Backed Notes and/or Harley-Davidson
Motorcycle Contract Backed Certificates under this registration statement.
SUBJECT TO COMPLETION, DATED MAY 22, 2000
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED [______________]
THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY
BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
HARLEY-DAVIDSON MOTORCYCLE TRUST [_____]
ISSUER
$[ ] [ ]% HARLEY-DAVIDSON MOTORCYCLE CONTRACT BACKED NOTES, CLASS A-1
$[ ] [ ]% HARLEY-DAVIDSON MOTORCYCLE CONTRACT BACKED NOTES, CLASS A-2
$[ ] [ ]% HARLEY-DAVIDSON MOTORCYCLE CONTRACT BACKED NOTES, CLASS B
HARLEY-DAVIDSON CUSTOMER FUNDING CORP.
DEPOSITOR
HARLEY-DAVIDSON CREDIT CORP.
SELLER AND SERVICER
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-10 IN THIS PROSPECTUS
SUPPLEMENT AND ON PAGE 9 OF THE PROSPECTUS.
The notes will represent obligations of the Harley-Davidson Motorcycle
Trust [ ] only, and will not represent obligations of or interests in
Harley-Davidson Financial Services, Inc., Harley-Davidson Credit Corp.,
Harley-Davidson Customer Funding Corp., Harley-Davidson, Inc. or any of their
respective affiliates. This prospectus supplement may be used to offer and sell
the notes only if accompanied by the prospectus.
The notes are contract backed notes issued by the trust. The assets
underlying the notes are fixed-rate, simple interest, conditional sales
contracts relating to the purchase of new or used motorcycles.
-------------------------
THE TRUST WILL ISSUE THE FOLLOWING CLASSES OF NOTES:
- ------------------------------------------------------------------------------------------------------------
FINAL UNDERWRITING
PRINCIPAL INTEREST FIRST PAYMENT SCHEDULED PRICE TO DISCOUNT PER PROCEEDS TO
CLASS AMOUNT RATE DATE PAYMENT DATE PUBLIC NOTE ISSUER
- ------------------------------------------------------------------------------------------------------------
A-1 $__________ ___% ___________ _____________ ______ ______ ______
- ------------------------------------------------------------------------------------------------------------
A-2 $__________ ___% ___________ _____________ ______ ______ ______
- ------------------------------------------------------------------------------------------------------------
B $__________ ___% ___________ _____________ ______ ______ ______
- ------------------------------------------------------------------------------------------------------------
The total price to the public is $
-------------------------------------
The total underwriting discount is $
-----------------------------------
The total proceeds to the depositor are $
------------------------------
Credit Enhancement:
- Reserve fund with an initial deposit of $_________.
- Subordination of the Class A-2 notes to the Class A-1 notes as
described in this prospectus supplement.
- Subordination of the Class B notes to the Class A notes as
described in this prospectus supplement.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
[UNDERWRITERS]
Prospectus Supplement dated [______________]
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
Prospectus Supplement Summary.....................................................................................S-1
Risk Factors......................................................................................................S-10
The Trust.........................................................................................................S-13
The Seller And The Servicer.......................................................................................S-15
Use Of Proceeds...................................................................................................S-15
The Contracts.....................................................................................................S-15
Yield And Prepayment Considerations...............................................................................S-25
The Depositor.....................................................................................................S-25
Description Of The Notes..........................................................................................S-25
General....................................................................................................S-26
Optional Redemption........................................................................................S-27
Mandatory Redemption Following the Funding Period..........................................................S-27
Certain Information Regarding The Notes...........................................................................S-28
The Accounts...............................................................................................S-28
Determination of Outstanding Principal Balances............................................................S-31
Payments and Distributions on the Notes....................................................................S-32
Material Federal Income Tax Consequences..........................................................................S-34
ERISA Considerations..............................................................................................S-35
Legal Proceedings.................................................................................................S-36
Underwriting......................................................................................................S-36
Ratings Of The Securities.........................................................................................S-38
Legal Matters.....................................................................................................S-38
Experts...........................................................................................................S-38
Reports To Noteholders............................................................................................S-38
Global Clearance, Settlement And Tax Documentation Procedures.....................................................S-40
Glossary Of Terms.................................................................................................S-45
i
READING THE PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We provide information to you about the notes in two separate documents
that offer varying levels of detail:
* prospectus -- provides general information, some of which may not
apply to the notes; and
* prospectus supplement -- provides specific information relating to
the terms of the notes.
To the extent that any statements in this prospectus supplement differ
from or modify statements in the prospectus, you should rely on the information
in this prospectus supplement. References to "we", "our" and "us" refer to
Harley-Davidson Customer Funding Corp.
We include cross-references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further related discussions. The Table of Contents of this prospectus supplement
provides pages on which these captions are located.
You can find a glossary of the principal capitalized terms used in this
prospectus supplement beginning on page S-45 of this prospectus supplement.
If you have received a copy of this prospectus supplement and the
accompanying prospectus in an electronic format, and if the legal prospectus
delivery period has not expired, you may obtain a paper copy of this prospectus
supplement and the accompanying prospectus from Harley-Davidson Credit Corp. or
any of the underwriters by asking any of them for it.
ii
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights selected information from this prospectus
supplement and does not contain all the information that you need to consider in
making an investment decision. To understand all of the terms of the offering of
the notes, you should read this entire prospectus supplement and the
accompanying prospectus before making an investment decision. In addition, you
may wish to read the documents governing the transfers and servicing of the
contracts, the formation of the trusts and the issuance of the securities. Those
documents have been filed as exhibits to the registration statement.
There are material risks associated with an investment in the
securities. See "RISK FACTORS" in this prospectus supplement and in the
accompanying prospectus for a discussion of factors you should consider before
investing in the securities.
The Issuer or the Trust......... Harley-Davidson Motorcycle Trust [ ].
Seller and Servicer............. Harley-Davidson Credit Corp., a 100% owned
subsidiary of Harley-Davidson Financial
Services, Inc.
Depositor....................... Harley-Davidson Customer Funding Corp.,
a 100% owned subsidiary of
Harley-Davidson Credit Corp.
Trustee......................... [ ], will be the trustee for the
Trust.
Indenture Trustee............... [ ]. The indenture trustee will
also act as paying agent under the
indenture and the trust agreement.
Closing Date.................... On or about [ ].
TERMS OF THE NOTES:
AGGREGATE PRINCIPAL
CLASS AMOUNT INTEREST RATES
Class A-1 notes %
Class A-2 notes %
Class B notes %
The notes represent indebtedness of the
trust secured by the assets of the trust.
Payment Dates................... The trust will pay interest and principal on
the notes on the [ ] day of each
month or if that day is not a business day,
the next business day. The first payment
date is [ ].
Record Dates.................... The day immediately preceding the payment
date.
Interest........................ INTEREST PERIODS:
S-1
Interest on the notes will accrue in the
following manner:
DAY COUNT
FROM (INCLUDING) TO (EXCLUDING) CONVENTION
---------------- -------------- ----------
[ ] day of prior [ ] day of current 30/360
month month
The first interest period will begin on and
include the closing date and end on and
include [ ].
PAYMENT OF INTEREST:
On each payment date the trust will pay
interest on the notes which will be made
from available collections and other
amounts.
Interest payments on the Class A-1 notes and
Class A-2 notes will have the same priority.
The trust will make interest payments on the
Class B notes after paying interest on the
Class A-1 notes and Class A-2 notes.
See "CERTAIN INFORMATION REGARDING THE
NOTES-- DISTRIBUTIONS ON THE NOTEs" and
"DESCRIPTION OF THE NOTES--PAYMENTS OF
INTEREST" for a discussion of the
determination of the amounts available to
pay interest.
Principal....................... On each payment date, the trust will pay
principal on the notes which will be made
from available collections and other
amounts.
Generally, the trust will pay the principal
of the Class A-1 notes until paid in full,
and then on the Class A-2 notes until paid
in full and then on the Class B notes until
paid in full.
See "CERTAIN INFORMATION REGARDING THE
NOTES-- DISTRIBUTIONS ON THE NOTEs" and
"DESCRIPTION OF THE NOTES--PAYMENTS OF
PRINCIPAL" for a discussion of the
determination of amounts available to pay
principal.
Final Scheduled
Payment Dates................... The final scheduled payment dates of the
notes are set forth on the cover of this
prospectus supplement.
If the notes have not already been paid in
full, we will be obligated to pay the
outstanding principal amount of the notes in
full on their respective final scheduled
payment dates. Certain circumstances could
cause principal to be paid earlier or later,
or in reduced amounts. See "DESCRIPTION OF
THE NOTES--OPTIONAL REDEMPTION,"
S-2
"DESCRIPTION OF THE NOTES--MANDATORY
REDEMPTION FOLLOWING THE FUNDING PERIOD" in
this prospectus supplement and "DESCRIPTION
OF THE NOTES AND THE INDENTURE--THE
INDENTURE--EVENTS OF DEFAULT; RIGHTS UPON
EVENT OF DEFAULT" in the prospectus.
Optional Redemption............. The seller may cause the depositor to redeem
the notes in full if the aggregate
outstanding principal balance of the
contracts owned by the trust declines to
less than 10% of the sum of:
- the aggregate outstanding
principal balance of the
contracts owned by the trust as
of the closing date; and
- the initial amount on deposit
in the pre-funding account.
The redemption price will be equal to the
unpaid principal amount of the notes plus
accrued interest thereon. See "DESCRIPTION
OF THE NOTES--OPTIONAL REDEMPTION."
Mandatory Special
Redemption...................... The notes will be prepaid in part, without
premium, on the payment date on or
immediately following the last day of the
funding period in the event that any amount
remains on deposit in the pre-funding
account. The aggregate principal amount of
notes to be prepaid will be an amount equal
to the amount then on deposit in the
pre-funding account allocated pro rata.
The Contracts and Other
Assets of the Trust............. The property of the trust will be a pool of
fixed-rate, simple interest conditional
sales contracts relating to motorcycles
manufactured by Harley-Davidson, Inc. and
Buell Motorcycle Company, a wholly-owned
subsidiary of Harley-Davidson, Inc. The
contracts were originated by the seller
indirectly through Harley-Davidson
motorcycle dealers. Included in the trust's
assets are security interests in the
Harley-Davidson and Buell motorcycles
securing the contracts and proceeds, if any,
from certain insurance policies with respect
to such motorcycles.
The Contracts................... Our main source of funds for making payments
on the notes will be collections on the
contracts. The contracts sold to the trust
will be selected from contracts in the
depositor's portfolio based on the criteria
specified in the transfer and sale
agreement. The contracts arise and will
arise from loans to obligors located in the
50 states of the United States, Canada, the
District of Columbia and the U.S.
Territories.
S-3
On the closing date, pursuant to the sale
and servicing agreement, the depositor will
be obligated, subject only to the
availability thereof, to sell, and the trust
will be obligated to purchase, subject to
the satisfaction of certain conditions set
forth therein, subsequent contracts.
Following the transfer of subsequent
contracts to the trust, the aggregate
characteristics of the entire pool of
contracts may vary from those of the initial
contracts as to the criteria identified and
described above and in "THE CONTRACTS"
herein.
The last scheduled payment on the initial
contract with the latest maturity will occur
in [ ].
No contract (including any subsequent
contract sold to the trust after the closing
date) will have a scheduled maturity later
than [ ]. However, an obligor can generally
prepay its contract at any time without
penalty.
COMPOSITION OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
Aggregate Principal Balance...................................$_______________
Number of Contracts.....................................................______
Average Principal Balance...........................................$_________
Weighted Average Annual Percentage Rate................................._____%
(Range)......................................................___% to ___%
Weighted Average Original Term (in months)............................._______
(Range)........................................................___ to ___
Weighted Average Calculated Remaining Term (in months)..................._____
(Range)........................................................___ to ___
GEOGRAPHIC CONCENTRATION
PRINCIPAL BALANCE
STATE CONCENTRATION
----- -------------
[ ] ................ %
[ ] ................ %
[ ] ................ %
[ ] ................ %
[ ] ................ %
No other state represented more than 5% of
the aggregate principal balance of the
contracts as of the initial cutoff date.
S-4
Reserve Fund.................... On the closing date, the depositor will
establish a trust account in the name of the
indenture trustee which we refer to as the
"RESERVE FUND." The reserve fund provides
you with limited protection in the event
collections from obligors on the contracts
are insufficient to make payment on the
notes. We cannot assure you, however, that
this protection will be adequate to prevent
shortfalls in amounts available to make
payments on the notes.
The initial balance of the reserve fund will
be $________. We will be required to
maintain on deposit in the reserve fund on
each payment date a specified amount as set
forth under the caption "CERTAIN INFORMATION
REGARDING THE NOTES--CALCULATION OF RESERVE
FUND REQUIRED AMOUNT".
If the amount on deposit in the reserve fund
on any payment date is less than the
required amount, the trust will use the
funds available to it after payment of the
base servicing fee, reimbursement of
servicer advances and payment of interest
and principal on the securities to make a
deposit into the reserve fund. Amounts on
deposit in the reserve fund on any payment
date in excess of the required amount will
be paid to the depositor.
If on any payment date the funds available
to the trust to pay principal and interest
on the securities are insufficient to make
payments on the notes, the trust will use
funds in the reserve fund to cover any
shortfalls.
If on the final scheduled payment date of
any class of notes, the principal balance of
that class has not been paid in full, the
trust will use funds in the reserve fund to
pay those notes in full.
Pre-Funding
Account......................... On the closing date, we will fund an account
called the pre-funding account by depositing
$[ ] which will secure our obligations to
purchase subsequent contracts from the
seller and sell those contracts to the
trust. The amount in the pre-funding account
will be reduced by the amount used to
purchase subsequent contracts from the
seller. We expect that the pre-funded amount
will be reduced to less than $150,000 by the
payment date occurring in [ ]. Any
pre-funded amount remaining at the end of
this funding period will be paid to the
noteholders as described above in "SUMMARY
OF TERMS--MANDATORY SPECIAL REDEMPTION."
S-5
Interest Reserve
Account......................... On the closing date, we will fund an account
called the interest reserve account by
depositing $[ ] which will provide
additional funds to account for the fact
that the monthly investment earnings on
amounts in the pre-funding account (until
such amounts have been used to purchase
subsequent contracts) are expected to be
less than the weighted average of the
interest payments on the notes, as well as
the amount necessary to pay trustees' fees.
In addition to the initial deposit, all
investment earnings with respect to the
pre-funding account will be deposited into
the interest reserve account.
The interest reserve account is not designed
to provide any protection against losses on
the contracts in the trust. After the
funding period, money remaining in the
interest reserve account will be paid to us.
Ratings......................... On the closing date, the notes must have
received ratings from Standard & Poor's
Ratings Services, A Division of The
McGraw-Hill Companies, and/or Moody's
Investors Service, Inc. as set forth below:
STANDARD & POOR'S MOODY'S
----------------- -------
Class A-1
Class A-2
Class B
See "RATINGS OF THE NOTES."
Advances........................ The servicer is obligated to advance each
month an amount equal to accrued and unpaid
interest on the contracts which was
delinquent with respect to the related due
period, but only to the extent that the
servicer believes that the amount of such
advance will be recoverable from collections
on the contracts. The servicer will be
entitled to reimbursement of its outstanding
advances on any payment date by means of a
first priority withdrawal of certain funds
then held in the collection account. See
"CERTAIN INFORMATION REGARDING THE
NOTES--ADVANCES."
Mandatory Repurchase by
the Depositor................... Under the sale and servicing agreement, we
have agreed, in the event of a breach of
certain representations and warranties made
by us which materially and adversely affects
the trust's interest in any contract and
which has not been cured, to repurchase such
contract
S-6
within two business days prior to
the first determination date after the
servicer, the trustee, the indenture trustee
or we become aware of such breach. See
"DESCRIPTION OF TRANSFER AND SERVICING
AGREEMENTS--REPRESENTATIONS AND WARRANTIES
MADE BY THE SELLER AND THE DEPOSITOR" in the
prospectus.
Servicing Fees.................. The servicer will be entitled to receive a
monthly servicing fee equal to 1/12th of 1%
of the principal balance of the contracts.
The servicer will also be entitled to
receive any extension fees or late payment
penalty fees paid by obligors. The servicing
fees will be paid to the servicer prior to
any payments to the noteholders. See
"CERTAIN INFORMATION REGARDING THE
NOTES--SERVICING COMPENSATION AND
REIMBURSEMENT OF SERVICER ADVANCES."
Priority of Payments............ PRIOR TO ACCELERATION OF THE NOTES
On each payment date prior to the
acceleration of the notes, the trust will
apply collections on the contracts received
during the prior calendar month, servicer
advances and funds transferred from the
reserve fund to make the following payments
in the following order of priority:
- to the noteholders, the amount of any
mandatory special redemption;
- reimbursement of servicer advances;
- servicing fee;
- trustees' fees;
- interest on the Class A notes;
- interest on the Class B notes;
- principal on the Class A-1 notes until
paid in full;
- principal on the Class A-2 notes until
paid in full;
- principal on the Class B notes until
paid in full;
S-7
- to the reserve fund, the amount, if any,
needed to fund the reserve fund to the
required amount;
- any remaining amounts to the depositor as
certificateholder under the trust agreement.
AFTER ACCELERATION OF THE NOTES:
On each payment date following an event of
default under the indenture, all available
amounts will be paid sequentially to retire
each class of notes in full before principal
is paid on the next class beginning with
Class A-1.
Credit Enhancement.............. The credit enhancement for the securities is
as follows:
Class A-1 notes: - subordination of the Class A-2 notes and
Class B notes
- reserve fund
Class A-2 notes: - subordination of the Class B notes
- reserve fund
Class B notes: - reserve fund
Material Federal Income
Tax Consequences................ Winston & Strawn, as federal tax counsel to
the trust, has delivered its opinion that
the notes will be characterized as debt for
federal income tax purposes, and the trust
will not be characterized as an association
(or publicly traded partnership) taxable as
a corporation. The purpose of obtaining the
opinion of tax counsel is to provide
investors with greater assurance regarding
the character of the notes for federal
income tax purposes and that the issuer of
the notes will not be subject to federal
income tax at the entity level. However, an
opinon of tax counsel is not binding on the
Internal Revenue Service and there is no
assurance that the Internal Revenue Service
will not disagree with the opinion of tax
counsel. By purchasing a note, you will
agree to treat your note as debt for
federal, state and local income tax
purposes. As a result, payments received by
you will generally be treated as either
interest or principal and you will not be
considered an owner of an equity interest in
the trust.
The foregoing is a very general summary of
material federal income tax matters. These
general statements are subject to the
qualifications, clarifications, assumptions
and expanded discussion set forth in the
accompanying prospectus and in this
prospectus
S-8
supplement under the heading "MATERIAL
FEDERAL INCOME TAX CONSEQUENCES".
ERISA Considerations............ The Class A notes are generally eligible for
purchase by employee benefit plans and
individual retirement accounts and similar
arrangements, and by persons investing on
behalf of or with plan assets of such plans,
accounts and arrangements, subject to those
considerations and exceptions discussed
under "ERISA CONSIDERATIONS" in the
accompanying prospectus and this prospectus
supplement. The Class B notes are not
eligible for purchase by employee benefit
plans, individual retirement accounts or
similar arrangements, or by persons
investing on behalf of or with plan assets
of such plans, accounts and arrangements.
You should refer to "ERISA CONSIDERATIONS"
in the accompanying prospectus and this
prospectus supplement. If you are a benefit
plan fiduciary considering a purchase of the
notes you should, among other things,
consult with your counsel in determining
whether all required conditions have been
satisfied.
Marketing Address and
Telephone Numbers of
Principal Executive
Offices......................... The mailing address of the seller is 150
South Wacker Drive, Chicago, Illinois 60606,
telephone (312) 368-9501. The mailing
address of the depositor is 4150 Technology
Way, Carson City, Nevada 89706, telephone
(775) 886-3200. The principal office of the
trust is _____________, telephone
___________.
S-9
RISK FACTORS
The following risk factors and the risk factors in the accompanying
prospectus describe the principal risk factors relating to an investment in the
notes.
You should carefully consider the following risks before you invest in
the securities. You should also carefully consider the risk factors beginning on
page 9 of the accompanying prospectus.
SOME CLASSES OF SECURITIES WILL BE ENTITLED TO INTEREST OR PRINCIPAL PAYMENTS
BEFORE OTHER CLASSES
The trust will pay interest, principal or both on some classes of notes
prior to paying interest, principal or both on other classes of notes. The
subordination of some classes to others means that the subordinated classes are
more likely to suffer the consequences of delinquent payments and defaults on
the contracts than the classes having prior payment rights. See "CERTAIN
INFORMATION REGARDING THE NOTES PAYMENTS AND DISTRIBUTIONS ON THE NOTES" in this
prospectus supplement.
Moreover, the more senior classes of notes could lose the credit
enhancement provided by the more subordinate classes and the reserve fund if
delinquencies and defaults on contracts increase and the collections on
contracts and amounts in the reserve fund are insufficient to pay the more
senior classes of notes.
ADVERSE EVENTS IN [__________] HIGH CONCENTRATION STATES MAY CAUSE INCREASED
DEFAULTS AND DELINQUENCIES
If adverse events or economic conditions were particularly severe in a
geographic region where there is a substantial concentration of obligors, the
amount of delinquent payments and defaults on the contracts may increase. As a
result, the overall timing and amount of collections on the contracts may differ
from what you expect, and you may experience delays or reductions in payments.
The following are the approximate percentages of the initial contract
pool principal balance whose obligors are located in the following states:
- - [_______%] in [_______],
- - [_______%] in [_______],
- - [_______%] in [_______],
- - [_______%] in [_______], and
- - [_______%] in [_______].
The remaining states accounted for [___]% of the initial aggregate principal
balance of the contracts, and none of these remaining states accounted for more
than 5% of the aggregate
S-10
principal balance of the contracts. For a discussion of the breakdown of the
contracts by state, see "THE CONTRACTS" in this prospectus supplement.
Although we do not know of any matters likely to increase the rate of
delinquencies or defaults in these states, adverse events specific to a
geographic region would include natural disasters and regional economic
downturns. For example, a substantial downturn in the financial services
industry, which is highly concentrated in the states of New York and New Jersey,
or in the oil and gas industry, which is concentrated in the state of Texas
could reduce the income of obligors in those states and ultimately reduce the
related obligor's ability to make timely payments on their contracts. In
addition, the following economic conditions may affect payments:
- unemployment,
- interest rates,
- inflation rates, and
- consumer perceptions of the economy.
THE SECURITIES MAY NOT BE SUITABLE INVESTMENTS FOR ALL INVESTORS
The securities may not be a suitable investment for any investor that
requires a regular or predictable schedule of principal payments. We suggest
that only investors who, either alone or with their financial, tax and legal
advisors, have the expertise to analyze the prepayment, reinvestment and default
risks, the tax consequences of an investment and the interaction of these
factors consider purchasing the notes.
PREPAYMENTS, POTENTIAL LOSSES AND CHANGE IN ORDER OF PRIORITY OF PAYMENTS MAY
OCCUR FOLLOWING ACCELERATION OF THE NOTES
If the maturity dates of the notes are accelerated following an event
of default resulting from a payment default or the insolvency of the trust, the
trust will make no further distributions of interest in respect of the
subordinated classes of notes until the more senior classes of notes are paid in
full.
If the maturity dates of the notes are accelerated following an event
of default, the indenture trustee with the consent of the holders of all
outstanding notes may sell the trust assets. In such event, the trust may not
have sufficient funds to pay all of the securities in full.
In addition, if the maturity dates of the notes are accelerated
following an event of default and the indenture trustee determines that the
trust assets will not be sufficient on an ongoing basis to make all payments on
the notes as the payments would have become due if the maturity dates of the
notes had not been accelerated, the indenture trustee with the consent of the
holders of at least 66-2/3% of the Class A notes outstanding (or, if there are
no Class A notes outstanding, the Class B notes) may sell the trust assets for
an amount less than the aggregate outstanding principal amount of the notes. In
such event, the trust may not have sufficient funds to pay all of the notes in
full.
S-11
If you receive your principal earlier than expected, you may not be
able to reinvest the prepaid amount at a rate of return that is equal to or
greater than the rate of return on your securities. If the trust is required to
sell its assets in the circumstances described above, the amount received from
the sale may not be sufficient to pay all amounts owed to you.
BECAUSE THE NOTES ARE IN BOOK-ENTRY FORM, YOUR RIGHTS CAN ONLY BE EXERCISED
INDIRECTLY
Because the notes will be issued in book-entry form, you will be
required to hold your interest in the notes through The Depository Trust Company
in the United States, or Clearstream, Luxembourg, or the Euroclear System in
Europe. Transfers of interests in the notes must therefore be made in accordance
with the usual rules and operating procedures of those systems. So long as the
notes are in book-entry form, you will not be entitled to receive a physical
note representing your interest. The notes will remain in book-entry form except
in the limited circumstances described under the caption "INFORMATION REGARDING
THE SECURITIES--BOOK-ENTRY REGISTRATION" in the accompanying prospectus. Unless
and until the notes in this prospectus supplement cease to be held in book-entry
form, the indenture trustee will not recognize you as a "noteholder," as such
term is used in the indenture. As a result, you will only be able to exercise
the rights of noteholders indirectly through DTC, if in the United States, and
its participating organizations, or Clearstream and Euroclear, in Europe, and
their participating organizations. Holding the notes in book-entry form could
also limit your ability to pledge your notes to persons or entities that do not
participate in DTC, Clearstream or Euroclear and to take other actions that
require a physical note representing the notes.
Interest and principal on the notes will be paid by the trust to DTC as
the holder of record of the notes while they are held in book-entry form. DTC
will credit payments received from the trust to the accounts of its participants
which, in turn, will credit those amounts to noteholders either directly or
indirectly through indirect participants. This process may delay your receipt of
principal and interest payments from the trust.
S-12
THE TRUST
GENERAL
The trust is a business trust formed under the laws of the State of
Delaware pursuant to the trust agreement between the depositor and the trustee
for the transactions described herein. After its formation, the trust will
engage in only a limited set of activities. The trust's activities are limited
to:
- acquiring, holding and managing the contracts and the other assets
of the trust and proceeds therefrom;
- issuing the notes and a certificate;
- making payments on the notes and a certificate; and
- engaging in other activities that are necessary, suitable or
convenient to accomplish the foregoing purposes or that are
incidental to or connected with the foregoing purposes.
Under a transfer and sale agreement between the seller and the
depositor, the seller will sell all of the contracts and the related property to
the depositor.
Under a sale and servicing agreement among the trust, the depositor,
the servicer, the trustee and the indenture trustee, the depositor will transfer
all of the contracts and related property to the trust.
The property of the trust will consist of:
- the contracts and the right to receive all scheduled payments
and prepayments received on the contracts on or after the
cut-off date, but excluding any scheduled payments due on or
after, but received prior to, the cut-off date;
- security interests in the financed motorcycles securing the
contracts and any related property;
- rights with respect to any repossessed financed motorcycles;
- the rights to proceeds from claims on theft, physical damage,
credit life and disability insurance policies covering the
financed motorcycles or the obligors;
- certain rebates of premiums and other amounts relating to
insurance policies, extended service contracts or other repair
agreements and other items financed under the contracts;
- the depositor's rights against the seller under the transfer
and sale agreement pursuant to which the seller sold the pool
of contracts to the depositor;
S-13
- the right to receive payments from the depositor for the
repurchase of contracts which do not meet specified
representations made by depositor in the sale and servicing
agreement;
- the trust's rights against the servicer under the sale and
servicing agreement;
- amounts held in the collection account, the note distribution
account and the reserve fund to be established and maintained
under the sale and servicing agreement; and
- all proceeds of the foregoing.
The trust will issue a certificate to the depositor representing the
entire beneficial ownership interest in the trust.
The trust's principal offices will be in [ ], in care of [ ], as
trustee, at the address listed below under "THE TRUSTEE AND THE INDENTURE
TRUSTEE."
CAPITALIZATION
The following table illustrates the capitalization of the trust as of
the cut-off date, as if the issuance and sale of the notes had taken place, on
such date:
Class A-1 notes........................................................................$
Class A-2 notes........................................................................$
Class B notes..........................................................................$_________________
Total.............................................................................$
=======
THE INDENTURE AND THE ADMINISTRATION AGREEMENT
Under an indenture between the trust and the indenture trustee, the
indenture trustee will pledge the trust assets to secure the payment of the
notes.
Under an administration agreement among the trust, the indenture
trustee and Harley-Davidson Credit Corp., as administrator, the administrator
will agree to perform certain of the trust's administrative functions under the
indenture.
THE TRUSTEE AND THE INDENTURE TRUSTEE
[ ] will be the trustee under the trust agreement. The trustee is a
[_________] banking association and its principal offices are located at
[_____________].
[ ] will be the indenture trustee under the indenture agreement. The
indenture trustee is a [_________] and its principal offices are located at
[_____________].
The servicer will pay the fees of the trustee and the indenture trustee
in connection with their duties under the trust agreement and the indenture.
Each of the trustee and the indenture
S-14
trustee will also be entitled to indemnification by the servicer for, and will
be held harmless against, any loss, liability, fee, disbursement or expense
incurred by it not resulting from its own willful misfeasance, bad faith or
negligence. The servicer will also indemnify the trustee and the indenture
trustee for specified taxes that may be asserted in connection with the
transaction.
THE SELLER AND THE SERVICER
Harley-Davidson Credit Corp. will act as seller and servicer of the
contracts and will receive compensation and fees for such services. Information
regarding the seller and the servicer is set forth under the captions "THE
SELLER AND THE SERVICER" in the accompanying prospectus
USE OF PROCEEDS
The depositor will use the net proceeds received from the sale of the
notes (i) for the purchase of the initial contracts and related assets from the
seller and (ii) the remainder for the funding of the pre-funding account. The
seller will use the net proceeds from the depositor's purchase of the initial
contracts, as well as subsequent contracts, for the repayment of a substantial
portion of the outstanding principal of the warehouse lines through which it
finances its motorcycle conditional sales contracts. Following each such
repayment, it is expected that the warehouse lines will be used to fund a new
portfolio of motorcycle conditional sales contracts.
THE CONTRACTS
The contracts are (or will be, in the case of subsequent contracts)
fixed-rate simple interest conditional sales contracts relating to motorcycles
manufactured by Harley-Davidson, Inc. or Buell Motorcycle Company, a
wholly-owned subsidiary of Harley-Davidson, Inc. The contracts were originated
by the seller indirectly through Harley-Davidson motorcycle dealers and acquired
by the depositor in the ordinary course of the depositor's business. Each
contract has (or will have) a fixed annual percentage rate and provides for, if
timely made, payments of principal and interest which fully amortize the loan on
a simple interest basis over its term. The contracts have or will have the
following characteristics:
- the last scheduled payment of each initial contract is due no
later than [ ], and with respect to the contracts as a whole
(including any subsequent contracts conveyed to the trust after
the closing date), the last scheduled payment will be due no later
than [ ];
- the first scheduled payment date of contracts representing
approximately [ ]% of the aggregate principal balance of the
initial contracts as of the initial cutoff date is due no later
than [ ];
- the first scheduled payment date of contracts representing
approximately [ ]% of the aggregate principal balance of the
initial contracts as of the initial cutoff date is due no later
than [ ];
- the first scheduled payment date of contracts representing
approximately [ ]% of the aggregate principal balance of the
subsequent contracts as of the subsequent cutoff date will be due
no later than [ ];
S-15
- the first scheduled payment date of contracts representing
approximately [ ]% of the aggregate principal balance of the
subsequent contracts as of the subsequent cutoff date will be due
no later than [ ];
- approximately [ ]% of the principal balance of the initial
contracts as of the initial cutoff date is attributable to loans
to purchase motorcycles which were new and approximately [ ]%
is attributable to loans to purchase motorcycles which were used
at the time the related contract was originated.
- all initial contracts have a contractual rate of interest of at
least [ ]% per annum and not more than [ ]% per annum
and the weighted average contractual rate of interest of the
initial contracts as of the initial cutoff date is approximately
[ ]% per annum (see Table 1 below).
- the initial contracts have remaining maturities as of the initial
cutoff date of at least [ ] months but not more than
[ ] months and original maturities of at least [ ]
months but not more than [ ] months.
- the initial contracts have a weighted average term to scheduled
maturity, as of origination, of approximately [ ] months,
and a weighted average term to scheduled maturity as of the
initial cutoff date of approximately [ ] months (see
Tables 2 and 3 below).
- the average principal balance per initial contract as of the
initial cutoff date was approximately $[ ] and the principal
balances on the initial contracts as of the initial cutoff date
ranged from $[ ] to $[ ] (see Table 4 below).
- the contracts arise (or will arise) from loans to obligors located
in 50 states, the District of Columbia, the U.S. Territories and
Canada and with respect to the initial contracts, constitute the
following approximate amounts expressed as a percentage of the
aggregate principal balance of the initial contracts as of the
initial cutoff date:[ ]% in [ ], [ ]% in [ ]
and [ ]% in [ ] (see Table 5 below). No other state
represented more than 5.00% by aggregate principal balance of the
initial contracts.
Subsequent contracts will not need to satisfy any criteria except for
the criteria described in the preceding paragraph. Therefore, following the
transfer of the subsequent contracts to the trust, the aggregate characteristics
of the entire pool of the contracts, including the composition of the contracts,
the distribution by weighted average annual percentage rate of the contracts,
the distribution by calculated remaining term of the contracts, the distribution
by original term to maturity of the contracts, the distribution by current
balance of the contracts, and the geographic distribution of the contracts,
described in the following tables, may vary from those of the initial contracts
as of the initial cutoff date.
S-16
TABLE 1
DISTRIBUTION BY APR OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
PERCENT OF NUMBER TOTAL OUTSTANDING PERCENT OF POOL
RATE NUMBER OF CONTRACTS OF CONTRACTS(1) PRINCIPAL BALANCE BALANCE(1)
---- ------------------- --------------- ----------------- ---------------
8.500- 9.000%
9.001-10.000
10.001-11.000
11.001-12.000
12.001-13.000
13.001-14.000
14.001-15.000
15.001-16.000
16.001-17.000
17.001-18.000
18.001-19.000
19.001-20.000
20.001-21.000
21.001-22.000
22.001-23.000
23.001-23.990
Totals: 100.00% 100.00%
(1) Percentages may not add to 100.00% because of rounding.
TABLE 2
DISTRIBUTION BY CALCULATED REMAINING TERM
OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
CALCULATED
REMAINING PERCENT OF NUMBER TOTAL OUTSTANDING PERCENT OF
TERM (MONTHS) NUMBER OF CONTRACTS OF CONTRACTS (1) PRINCIPAL BALANCE POOL BALANCE (1)
------------- ------------------- ---------------- ----------------- ----------------
6 - 12
13 - 24
25 - 36
37 - 48
49 - 60
61 - 72
73 - 84
TOTALS: 100.00% 100.00%
(1) Percentages may not add to 100.00% because of rounding.
S-17
TABLE 3
DISTRIBUTION BY CALCULATED ORIGINAL
TERM TO MATURITY OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
ORIGINAL PERCENT OF NUMBER TOTAL OUTSTANDING PERCENT OF POOL
TERM (MONTHS) NUMBER OF CONTRACTS OF CONTRACTS (1) PRINCIPAL BALANCE BALANCE (1)
------------- ------------------- ----------------- ----------------- -----------
0 - 12
13 - 24
25 - 36
37 - 48
49 - 60
61 - 72
73 - 84
TOTALS: 100.00% 100.00%
(1) Percentages may not add to 100.00% because of rounding.
S-18
TABLE 4
DISTRIBUTION BY CURRENT BALANCE OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
NUMBER OF PERCENT OF NUMBER TOTAL OUTSTANDING PERCENT OF POOL
CURRENT BALANCE CONTRACTS OF CONTRACTS (1) PRINCIPAL BALANCE BALANCE (1)
--------------- --------- ---------------- ----------------- -----------
$ 0 - 1,000.00
$ 1,000.01 - 2,000.00
$ 2,000.01 - 3,000.00
$ 3,000.01 - 4,000.00
$ 4,000.01 - 5,000.00
$ 5,000.01 - 6,000.00
$ 6,000.01 - 7,000.00
$ 7,000.01 - 8,000.00
$ 8,000.01 - 9,000.00
$ 9,000.01 - 10,000.00
$ 10,000.01 - 11,000.00
$ 11,000.01 - 12,000.00
$ 12,000.01 - 13,000.00
$ 13,000.01 - 14,000.00
$ 14,000.01 - 15,000.00
$ 15,000.01 - 16,000.00
$ 16,000.01 - 17,000.00
$ 17,000.01 - 18,000.00
$ 18,000.01 - 19,000.00
$ 19,000.01 - 20,000.00
$ 20,000.01 - 21,000.00
$ 21,000.01 - 22,000.00
$ 22,000.01 - 23,000.00
$ 23,000.01 - 24,000.00
$ 24,000.01 - 25,000.00
$ 25,000.01 - 26,000.00
$ 26,000.01 - 27,000.00
$ 27,000.01 - 28,000.00
$ 28,000.01 - 29,000.00
$ 29,000.01 - 30,000.00
$ 30,000.01 - 31,000.00
$ 31,000.01 - 32,000.00
$ 32,000.01 - 33,000.00
$ 33,000.01 - [
]
TOTALS: 100.00% 100.00%
(1) Percentages may not add to 100.00% because of rounding.
S-19
TABLE 5
GEOGRAPHIC DISTRIBUTION OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
PERCENT OF NUMBER TOTAL OUTSTANDING PERCENT OF POOL
STATE NUMBER OF CONTRACTS OF CONTRACTS (1) PRINCIPAL BALANCE BALANCE (1)
----- ------------------- ---------------- ------------------ -----------
ALABAMA
ALASKA
ARIZONA
ARKANSAS
CALIFORNIA
COLORADO
CONNECTICUT
DELAWARE
DISTRICT OF COLUMBIA
FLORIDA
GEORGIA
HAWAII
IDAHO
ILLINOIS
INDIANA
IOWA
KANSAS
KENTUCKY
LOUISANA
MAINE
MARYLAND
MASSACHUSETTS
MICHIGAN
MINNESOTA
MISSISSIPPI
MISSOURI
MONTANA
NEBRASKA
NEVADA
NEW HAMPSHIRE
NEW JERSEY
NEW MEXICO
NEW YORK
NORTH CAROLINA
NORTH DAKOTA
OHIO
OKLAHOMA
OREGON
PENNSYLVANIA
S-20
TABLE 5
GEOGRAPHIC DISTRIBUTION OF THE INITIAL CONTRACTS
(CONTINUED)
PERCENT OF NUMBER TOTAL OUTSTANDING PERCENT OF POOL
STATE NUMBER OF CONTRACTS OF CONTRACTS (1) PRINCIPAL BALANCE BALANCE (1)
----- ------------------- ---------------- ------------------ -----------
RHODE ISLAND
SOUTH CAROLINA
SOUTH DAKOTA
TENNESSEE
TEXAS
UTAH
VERMONT
VIRGINIA
WASHINGTON
WEST VIRGINIA
WISCONSIN
WYOMING
CANADA
OTHER
TOTALS: 100.00% 100.00%
(1) Percentages may not add to 100.00% because of rounding.
S-21
DELINQUENCY, LOAN LOSS AND REPOSSESSION INFORMATION
The following tables set forth the delinquency experience and loan loss
and repossession experience of the seller's portfolio of conditional sales
contracts for motorcycles. These figures include data in respect of contracts
which the seller has previously sold with respect to prior securitizations and
for which the seller acts as servicer.
DELINQUENCY EXPERIENCE(1)/
(DOLLARS IN THOUSANDS)
AT DECEMBER 31,
--------------------------------------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
Number Number Number
of of of
contracts Amount contracts Amount contracts Amount
--------- ------ --------- ------ --------- ------
Portfolio ................. 91,556 $ 914,545.5 67,137 $ 651,248.7 45,258 $ 434,890.7
Period of Delinquency(2)/
30-59 Days ...... 2,868 $ 28,307.9 1,970 $ 17,768.1 1,264 $ 11,454.6
60-89 Days ...... 983 9,424.3 745 6,153.9 559 5,112.1
90 Days or more . 371 3,569.9 304 2,591.0 269 2,196.5
----- ------------- ----- ------------- ----- -------------
Total Delinquencies ....... 4,222 $ 41,302.1 3,019 $ 26,513.0 2,092 $ 18,763.2
===== ============= ===== ============= ===== =============
Total Delinquencies as a
Percent of Total Portfolio 4.61% 4.52% 4.50% 4.07% 4.62% 4.31%
1996 1995
---- ----
Number Number
of of
contracts Amount contracts Amount
--------- ------ --------- -------
Portfolio ................. 32,574 $ 303,682.4 20,590 $ 184,054.0
Period of Delinquency(2)/
30-59 Days ...... 904 $ 8,002.9 477 $ 4,043.3
60-89 Days ...... 374 3,170.7 157 1,298.7
90 Days or more . 213 1,880.6 140 1,120.2
------ ------------- --- -------------
Total Delinquencies ....... 1,491 $ 13,054.2 774 $ 6,462,2
====== ============= === =============
Total Delinquencies as a
Percent of Total Portfolio. 4.58% 4.30% 3.76% 3.51%
At March 31,
--------------------------------------- ------------
2000 1999
---- ----
Number Number
of of
contracts Amount contracts Amount
--------- ------ --------- ------
Portfolio.................... 98,306 $981,709.4 72,411 $712,081.0
Period of Delinquency(2)/
30-59 Days............... 2,343 $22,973.6 1,814 $17,246.9
60-89 Days.............. 587 5,543.9 606 5,403.9
90 Days or more.......... 235 2,363.5 355 3,099.5
--- ------- --- -------
Total Delinquencies.......... 3,165 $30,881.0 2,775 $25,750.3
===== ========= ===== =========
Total Delinquencies as a
Percent of Total Portfolio... 3.22% 3.15% 3.83% 3.62%
------------------
(1) Excludes contracts already in repossession, which
contracts the servicer does not consider outstanding.
(2) The period of delinquency is based on the number of
days payment are contractually past due (assuming
30-day months). Consequently, a contract due on the
first day of a month is not 30 days delinquent until
the first day of the next month.
S-22
LOAN LOSS/REPOSSESSION EXPERIENCE
(DOLLARS IN THOUSANDS)
Year Ended
December 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Principal Balance of All Contracts
Serviced(1)/.................... $918,481.6 $653,836.0 $436,771.0 $304,730.9 $184,548.7
Contract Liquidations(2)/........... 1.59% 1.54% 1.42% 0.74% 0.76%
Net Losses:
Dollars(3)/..................... $5,875.0 $5,245.3 $3,781.1 $1,639.5 $866.4
Percentage(4)/.................. 0.64% 0.80% 0.87% 0.54% 0.47%
Three Months Ended March 31,
---------------------------------------------------------------
2000 1999
---- ----
Principal Balance of All Contracts $985,715.0 $714,465.2
Serviced(1)/..................
Contract Liquidations(2)/............ 1.95% 1.67%
Net Losses:
Dollars(3)/...................... $1,995.5 $1,493.8
Percentage(4)/................... 0.81% 0.84%
------------------
(1) As of period end. Includes contracts already in repossession.
(2) As a percentage of the total number of contracts being
serviced as of period end, calculated on an annualized basis.
(3) The calculation of net loss includes actual charge-offs,
deficiency balances remaining after liquidation of repossessed
vehicles and expenses of repossession and liquidation, net of
recoveries.
(4) As a percentage of the principal amount of contracts being
serviced as of period end, calculated on an annualized basis.
THE DATA PRESENTED IN THE FOREGOING TABLES ARE FOR ILLUSTRATIVE PURPOSES ONLY
AND THERE IS NO ASSURANCE THAT THE DELINQUENCY, LOAN LOSS OR REPOSSESSION
EXPERIENCE OF THE CONTRACTS WILL BE SIMILAR TO THAT SET FORTH ABOVE.
TWELVE MONTHS ENDED DECEMBER 31, 1999 VERSUS TWELVE MONTHS ENDED DECEMBER 31,
1998.
The amounts classified as delinquent as a percentage of the portfolio
increased from 4.07% to 4.52%. The increase is attributable to a conversion to a
new servicing system in December 1999. The number of liquidations as a
percentage of the portfolio increased from 1.54% to 1.59%. Net losses as a
percentage of the outstanding principal amount of the contracts decreased from
0.80% to 0.64%. The decrease is attributable to more stringent collection
procedures implemented by the servicer. The number of contracts in the portfolio
increased from 67,137 to 91,556 due to an increase in Harley-Davidson motorcycle
production and HDFS's market share penetration of units financed.
TWELVE MONTHS ENDED DECEMBER 31, 1998 VERSUS TWELVE MONTHS ENDED DECEMBER 31,
1997.
The amounts classified as delinquent as a percentage of the portfolio
decreased from 4.31% to 4.07%. The decrease is attributable to the seasoning of
the portfolio. The number of liquidations as a percentage of the portfolio
increased from 1.42% to 1.54%. The increase is attributable to growth and
seasoning of the Delta loan program. Net losses as a percentage of the
outstanding principal amount of the contracts decreased from 0.87% to 0.80%. The
decrease is
S-23
attributable to more stringent collection procedures implemented by the
servicer. The number of contracts in the portfolio increased from 45,258 to
67,137 due to an increase in Harley-Davidson motorcycle production and HDFS's
market share penetration of units financed.
TWELVE MONTHS ENDED DECEMBER 31, 1997 VERSUS TWELVE MONTHS ENDED DECEMBER 31,
1996.
The amounts classified as delinquent as a percentage of the portfolio
increased from 4.30% to 4.31%. The number of liquidations as a percentage of the
portfolio increased from .74% to 1.42%. The increase is attributable to growth
and seasoning of the Delta loan program. Net losses as a percentage of the
outstanding principal amount of the contracts increased from 0.54% to 0.87%. The
increase is attributable to a lower collectors to account ratio due to the
launch of HDFS's credit card operation. The number of contracts in the portfolio
increased from 32,574 to 45,258 due to an increase in Harley-Davidson motorcycle
production and HDFS's market share penetration of units financed.
TWELVE MONTHS ENDED DECEMBER 31, 1996 VERSUS TWELVE MONTHS ENDED DECEMBER 31,
1995.
The amounts classified as delinquent as a percentage of the portfolio
increased from 3.51% to 4.30%. The increase is attributable to overall portfolio
growth. The number of liquidations as a percentage of the portfolio decreased
from 0.76% to 0.74%. Net losses as a percentage of the outstanding principal
amount of the contracts increased from 0.47% to 0.54%. The increase is
attributable to overall portfolio growth. The number of contracts in the
portfolio increased from 20,590 to 32,574 due to an increase in Harley-Davidson
motorcycle production and HDFS's market share penetration of units financed.
THREE MONTHS ENDED MARCH 31, 2000 VERSUS THREE MONTHS ENDED MARCH 31, 1999.
The amounts classified as delinquent as a percentage of the portfolio
decreased from 3.62% to 3.15%. The decrease is attributable to increased
collections. The number of liquidations as a percentage of the portfolio
increased from 1.67% to 1.95%. The increase is attributable to the growth and
seasoning of the Delta loan program. Net losses as a percentage of the
outstanding principal amount of the contracts decreased from 0.84% to 0.81%. The
decrease is attributable to increased recoveries on defaulted contracts. The
number of contracts in the portfolio increased from 72,411 to 98,306 due an
increase in Harley-Davidson motorcycle production and HDFS's market share
penetration of units financed. We know of no trends that are likely to increase
the rate of delinquencies or losses on the contracts.
S-24
YIELD AND PREPAYMENT CONSIDERATIONS
By their terms, the contracts may be prepaid, in whole or in part, at
any time. Each contract also contains a provision which permits the seller to
require full prepayment in the event of a sale of the related motorcycle
securing a contract. In addition, repurchases of the contracts from the trust by
the depositor, and concurrently from the depositor by the seller, could occur in
the event of a breach of certain representation and warranties with respect to
the contracts. Repurchases of contracts from the trust by the depositor, and
concurrently from the depositor by the seller, could also occur if the depositor
exercises its limited option to repurchase the contracts from the trust when the
aggregate outstanding principal balances of the contracts owned by the trust has
declined to less than 10% of the sum of:
- the aggregate outstanding principal balance of the
contracts owned by the trust as of the closing date; and
- the initial amount on deposit in the pre-funding account.
Any prepayments and repurchases of contracts will reduce the average
life of the notes and the interest received by the noteholders over the life of
the notes (for this purpose the term "PREPAYMENT" includes liquidations due to
default, as well as receipt of proceeds from credit life, credit disability and
casualty insurance policies). In addition, funds remaining in the pre-funding
account at the end of the funding period will be used to prepay outstanding
principal of the notes and as a result, the interest received by noteholders
over the life of the notes will be reduced.
THE DEPOSITOR
The depositor is a special purpose corporation formed in the State of
Nevada. All of the common stock of the depositor is owned by the seller. All of
the officers and directors of the depositor are employed by the seller, except
that at least two directors of the depositor are required to be independent of
the depositor. The depositor's business is limited to purchasing the contracts
and related assets (and other similar retail motorcycle installment conditional
sales contracts) from the seller, acting as the general partner of the trust and
other similar trusts and performing the obligations described in the sale and
servicing agreement and the transfer and sale agreement (as well as similar
agreements entered into in connection with the formation of similar trusts).
DESCRIPTION OF THE NOTES
This section supplements the information in the accompanying prospectus
under the caption "Description of the Notes and Indenture". However, as these
statements are only summaries, you should read the sale and servicing agreement
and indenture, forms of which have been filed as exhibits to the registration
statement of which the accompanying prospectus forms a part. A copy of the
indenture and the sale and servicing agreement are available to you upon request
to the depositor and will be filed with the Securities and Exchange Commission
following the issuance of the securities.
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GENERAL
The notes will be issued pursuant to the terms of the indenture between
the trust and the indenture trustee.
The trust will issue three classes of notes, consisting of two classes
of senior notes, designated as the
- - Class A-1 notes and
- - Class A-2 notes.
We refer to these notes as the "CLASS A NOTES." The trust will also
issue one class of subordinate notes, designated as the Class B notes.
The notes will be delivered in book-entry form only and be issued in
minimum denominations of $1,000.
INTEREST
Each class of notes will bear interest at the fixed rate per annum for
that class shown on the cover page of this prospectus supplement.
The trust will pay interest on the notes on each payment date with
Available Amounts and amounts withdrawn from the reserve fund as set forth under
"PAYMENTS AND DISTRIBUTIONS --DISTRIBUTIONS" below.
Interest will be payable to you monthly on the [_______] of each month
or, if that date is not a business day, on the next succeeding business day and
will be calculated on the basis of a 360-day year consisting of twelve 30-day
months for the interest period from and including the __th day of the prior
month (or from and including the closing date, in the case of the initial
payment date) to but excluding the __th day of the next month.
After the acceleration of the notes following an event of default
resulting from a payment default, the trust will not make interest payments on
the Class B Notes until the Class A Notes have been paid in full.
Interest payments on the Class A Notes will have the same priority. If
on any payment date the trust has insufficient funds to make a full payment of
interest on the Class A Notes, the holders of the Class A Notes will receive
their pro rata share of the amount available for interest on the Class A Notes.
If on any payment date, the trust does not have sufficient funds, to
make a full payment of interest on any class of notes, the amount of the
shortfall will be carried forward, and together with interest on the shortfall
amount at the applicable interest rate for that class, added to the amount of
interest the affected class of noteholders will be entitled to receive on the
next payment date.
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PRINCIPAL
On each payment date, principal on the notes will be payable in an
amount equal to the amount by which (1) the sum of the aggregate principal
balances of the notes as of the close of business on the prior payment date
exceeds (2) the aggregate principal balance of the contracts as of the end of
the prior calendar month, excluding certain non-collectible or defaulted
contracts and contracts to be repurchased by the depositor or purchased by the
servicer due to certain breaches. The trust will pay principal on the notes on
each payment date with Available Amounts and amounts withdrawn from the reserve
fund as set forth under "PAYMENTS AND DISTRIBUTIONS--DISTRIBUTIONS" below.
Principal of each class of notes is due and payable on the scheduled
final payment date for that class shown on the cover page of this prospectus
supplement.
OPTIONAL REDEMPTION
The notes may be redeemed in full on any payment date if the aggregate
outstanding principal balance of the contracts owned by the trust declines to
less than 10% of the sum of:
- the aggregate outstanding principal balance of the contracts
owned by the trust as of the closing date; and
- the initial amount on deposit in the pre-funding account.
The redemption price will equal the unpaid principal amount of the notes plus
accrued interest thereon.
MANDATORY REDEMPTION FOLLOWING THE FUNDING PERIOD
Noteholders will be prepaid in part, without premium, on the payment
date on or immediately following the last day of the funding period if any
amount remains on deposit in the pre-funding account after subsequent contracts
are transferred to the trust. The aggregate principal amount of notes to be
prepaid will be an amount equal to the amount then on deposit in the pre-funding
account allocated pro rata. If the amount on deposit in the pre-funding account
is less than $150,000, only the Class A-1 noteholders will be prepaid.
VOTING RIGHTS
This prospectus supplement and the accompanying prospectus specify
certain circumstances under which the consent, approval, direction or request of
the holders of a specified percentage of the outstanding principal amount of the
notes must be obtained, given or made, or under which such holders are permitted
to take an action or give a notice. While the Class A notes are outstanding,
only the holders of the Class A notes will have those rights, not the holders of
all of the notes or the Class B notes.
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NOTICES
You will be notified in writing by the indenture trustee of any event
of default, servicer default or termination of, or appointment of a successor
to, the servicer promptly upon a responsible officer obtaining actual knowledge
of these events. If notes are issued other than in book-entry form, those
notices will be mailed to the addresses of noteholders as they appear in the
register maintained by the indenture trustee prior to mailing. Those notices
will be deemed to have been given on the date of that publication or mailing.
CERTAIN INFORMATION REGARDING THE NOTES
THE ACCOUNTS
THE COLLECTION ACCOUNT
The indenture trustee will establish an account referred to as the
collection account in accordance with the sale and servicing agreement. The
servicer will cause all collections made on or in respect of the contracts
during a due period to be deposited in or credited to the collection account.
The servicer is required to deposit, without deposit into any intervening
account, into the collection account as promptly as possible, but in any case
not later than the second business day following the receipt thereof, all
amounts received on or in respect of the contracts. The servicer is required to
use its best efforts to cause an obligor to make all payments on the contracts
directly to one or more lockbox banks, acting as agent for the trust pursuant to
a lockbox agreement. Funds in the collection account will be invested in certain
eligible investments. All income or other gain from such investments will be
promptly deposited in, and any loss resulting from such investments shall be
charged to, the collection account.
THE PRE-FUNDING ACCOUNT
The indenture trustee will establish a trust account referred to as
the pre-funding account in accordance with the sale and servicing agreement.
During the funding period, the pre-funding account will be maintained by the
indenture trustee for your benefit to secure the depositor's obligations
under the sale and servicing agreement to purchase and transfer subsequent
contracts to the trust. On the closing date, the depositor will deposit
$[ ] into the pre-funding account. During the funding period, amounts on
deposit in the pre-funding account will be reduced by the amount thereof that
the depositor uses to purchase subsequent contracts from the seller and
contemporaneously transfer to the trust. The depositor expects that the
pre-funded amount will be reduced to less than $150,000 by the payment date
occurring in [ ]. Any pre-funded amount remaining at the end of the
funding period will be payable to the noteholders. See "DESCRIPTION OF THE
NOTES--MANDATORY SPECIAL REDEMPTION".
THE RESERVE FUND
The servicer will establish pursuant to the sale and servicing
agreement the reserve fund which will be a segregated account in the name of the
indenture trustee. The reserve fund will be created with an initial deposit by
the depositor on the closing date of an amount equal to
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$________, which is less than the amount that is required to be on deposit in
the reserve fund. The reserve fund will thereafter be funded as described below
under "--DISTRIBUTIONS".
Amounts held from time to time in the reserve fund will be held for the
benefit of noteholders and may be invested in investments acceptable to the
rating agencies rating the notes as being consistent with the ratings of the
notes at the direction of the servicer. Investment income on those investments
will be paid to the depositor, upon the direction of the servicer, to the extent
that funds on deposit in the reserve fund on any payment date exceed the amount
that is required to be on deposit in the reserve fund. If the amount on deposit
in the reserve fund on any payment date exceeds the amount that is required to
be on deposit in the reserve fund on that payment date, the indenture trustee
will withdraw that excess and pay it to the depositor. Upon any distribution to
the depositor of those excess amounts, the noteholders will not have any rights
in, or claims to, those amounts.
The servicer may, from time to time after the date of this prospectus
supplement, request each rating agency rating the notes to approve a formula for
determining the amount that is required to be on deposit in the reserve fund on
each payment date that is different from that described below. If each rating
agency delivers a letter to the indenture trustee and the trustee to the effect
that the use of any new formula will not result in a qualification, reduction or
withdrawal of its then-current rating of any class of the notes, then the amount
that is required to be on deposit in the reserve fund will be determined in
accordance with the new formula. The sale and servicing agreement will
accordingly be amended, without the consent of any noteholder, to reflect the
new calculation.
If Available Amounts for any payment date, after paying the base
servicing fee, reimbursing the servicer for servicer advances and paying the
trustees' fees, are insufficient to pay principal and interest on the notes, the
indenture trustee will withdraw funds from the reserve fund for distribution to
the noteholders to cover any shortfalls. If on the final scheduled payment date
of any class of notes, the principal amount of that class has not been paid in
full, the indenture trustee will withdraw funds from the reserve fund to pay
those notes in full.
None of the noteholders, the indenture trustee, the trustee or the
seller will be required to refund any amounts properly distributed or paid to
them, whether or not there are sufficient funds on any subsequent payment date
to make full distributions to the noteholders.
CALCULATION OF RESERVE FUND REQUIRED AMOUNT
On the closing date, the depositor will deposit a total of $[ ]
into the reserve fund initial deposit. With respect to any payment date, the
reserve fund required amount will equal the greater of (a) [ ]% of the
principal balance of the contracts in the trust as of the first day of the
immediately preceding due period; PROVIDED, HOWEVER, that if certain trigger
events occur, the reserve fund required amount will be equal to [ ]% of the
principal balance of the contracts in the trust as of the first day of the
immediately preceding due period and (b) [ ]% of the aggregate of the initial
note balances; PROVIDED, HOWEVER, in no event shall the reserve fund required
amount be greater than the aggregate outstanding principal balance of the
notes. As of
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any payment date, the amount of funds actually on deposit in the reserve fund
initial deposit may, in certain circumstances, be less than the reserve fund
required amount.
A "RESERVE FUND TRIGGER EVENT" will have been deemed to occur with
respect to any payment date if (i) the Average Delinquency Ratio for such
payment date is equal to or greater than (a) [ ]% with respect to any payment
date which occurs within the period from the closing date to, and inclusive of,
the first anniversary of the closing date, (b) [ ]% with respect to any payment
date which occurs within the period from the day after the first anniversary of
the closing date to, and inclusive of, the second anniversary of the closing
date, or (c) [ ]% for any payment date which occurs within the period from the
day after the second anniversary of the closing date to, and inclusive of, the
third anniversary of the closing date or (d) [ ]% for any payment date following
the third anniversary of the closing date; (ii) the Average Loss Ratio for such
payment date is equal to or greater than (a) [ ]% with respect to any payment
date which occurs within the period from the closing date to, and inclusive of,
the eighteen months following the closing date or (b) [ ]% with respect to any
payment date which occurs following the eighteen month period following the
closing date; or (iii) the Cumulative Loss Ratio for such payment date is equal
to or greater than (a) [ ]% with respect to any payment date which occurs within
the period from the closing date to, and inclusive of, the first anniversary of
the closing date, (b) [ ]% with respect to any payment date which occurs within
the period from the day after the first anniversary of the closing date to, and
inclusive of, the second anniversary of the closing date, (c) [ ]% for any
payment date which occurs within the period from the day after the second
anniversary of the closing date to, and inclusive of, the third anniversary of
the closing date, or (d) [ ]% following the third anniversary of the closing
date.
A reserve fund trigger event will be deemed to have terminated with
respect to a payment date if no reserve fund trigger event shall exist with
respect to [______] consecutive payment dates (inclusive of the respective
payment date).
INTEREST RESERVE ACCOUNT
The depositor will establish, and fund with an initial deposit on the
closing date, the interest reserve account, for the purpose of providing
additional funds for payment to the trust of carrying charges to pay certain
distributions on payment dates occurring during (and on the first payment date
following the end of) the funding period. In addition to the initial deposit,
all investment earnings with respect to the pre-funded account are to be
deposited into the interest reserve account and, pursuant to the sale and
servicing agreement, the depositor is obligated to pay to the trust, on each
payment date described above, amounts in respect of carrying charges from such
account.
The interest reserve account will be established to account for the
fact that a portion of the proceeds obtained from the sale of the notes will be
initially deposited in the pre-funding account rather than invested in
contracts, and the monthly investment earnings on amounts in the pre-funding
account (until such amounts have been used to purchase subsequent contracts) are
expected to be less than the weighted average of the interest rates of the
respective classes of notes with respect to the corresponding portion of the
principal balances of respective classes of notes, as well as the amount
necessary to pay the trustees' fees. The interest reserve account is
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not designed to provide any protection against losses on the contracts in the
trust. After the funding period, money in the interest reserve account will be
released to the depositor.
THE DISTRIBUTION ACCOUNT
The indenture trustee will establish and maintain with itself the
distribution account, in the name of the indenture trustee on behalf of the
noteholders, in which amounts released from the collection account for
distribution to noteholders will be deposited and from which all distributions
to noteholders will be made.
DETERMINATION OF OUTSTANDING PRINCIPAL BALANCES
Prior to each payment date, the servicer will calculate a seven-digit
decimal factor which represents:
- the unpaid principal amount of the Class A-1 notes, after giving
effect to payments to be made on such payment date, as a fraction
of the initial outstanding principal amount of the Class A-1
notes.
- the unpaid principal amount of the Class A-2 notes, after giving
effect to payments to be made on such payment date, as a fraction
of the initial outstanding principal amount of the Class A-2
notes.
- the unpaid principal amount of the Class B notes, after giving
effect to payments to be made on such payment date, as a fraction
of the initial outstanding principal amount of the Class B notes.
If the servicer were to perform such calculations on the closing date,
the resulting decimal factor for each of the notes would be 1.000000.
Thereafter, these decimal factors will decline in correspondence with reductions
in the outstanding principal amount of the notes. Your portion of the aggregate
outstanding principal amount of notes will be the product of:
- the original denomination of the class of notes you own; and
- the decimal factor relating to the class of notes at the time of
determination (calculated as described above).
You will receive reports on or about each payment date concerning
payments received on the contracts, the aggregate outstanding principal balance
of the contracts owned by the trust, the decimal factors described above and
various other items of information. In addition, noteholders of record during
any calendar year will be furnished information for tax reporting purposes not
later than the latest date permitted by law. See "DESCRIPTION OF THE TRANSFER
AND SERVICING AGREEMENTS--STATEMENTS TO SECURITYHOLDERS" in the accompanying
prospectus.
S-31
PAYMENTS AND DISTRIBUTIONS ON THE NOTES
AVAILABLE AMOUNTS
The trust will pay principal and interest in respect of the notes on
each payment date from Available Amounts for the payment date, as well as
amounts permitted to be withdrawn from the reserve fund. See "CERTAIN
INFORMATION REGARDING THE NOTES--THE ACCOUNTS--RESERVE FUND". "Available
Amounts" for any payment date are generally the sum of:
- - the following amounts on deposit in the collection account which the trust
received during the prior calendar month;
(1) all amounts allocable to scheduled principal or interest
payments on the contracts;
(2) prepayments of contracts; and
(3) proceeds of repossessed financed motorcycles and other
proceeds of defaulted contracts;
- - the purchase price paid by the depositor in repurchasing contracts from the
trust on that payment date as a result of a breach of the representations
and warranties with respect to those contracts in the sale and servicing
agreement;
- - servicer advances made by the servicer on that payment date in respect of
delinquent interest payments for the prior calendar month; and
- - the amount paid by the depositor to purchase the contracts when the
aggregate outstanding principal balance of the contracts is reduced to less
than 10% of the sum of (i) aggregate principal balance of the contracts
owned by the trust as of the closing date and (ii) the initial mount on
deposit in the pre-funding account.
The precise calculation of the funds available to the trust on each
payment date to make payments on the securities is set forth in the definition
of "Available Amounts" and the definitions of the defined terms contained in
that definition set forth in the Glossary. We refer you to those definitions.
SERVICING COMPENSATION AND REIMBURSEMENT OF SERVICER ADVANCES
On each payment date, the servicer will be entitled to receive:
- the base servicing fee in an amount equal to the product of one
twelfth of one percent (1%) and the aggregate principal balance of the
contracts as of the last day of the second calendar month preceding the
month in which that payment date falls; and
- any investment income earned on amounts on deposit in the collection
account during the prior calendar month.
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The servicer will also be entitled to retain any late payment fees, prepayment
charges, if any, and other similar fees and charges received during the prior
calendar month.
The servicer will reimburse itself for servicer advances out of:
- amounts received by the servicer from the obligors on account of the
related delinquent contract payments;
- the proceeds, net of expenses incurred by the servicer, of the sale
of the repossessed financed vehicles securing the related delinquent
contracts; and
- payments on other contracts when the servicer has determined that an
advance will not be recoverable from payments by the related obligor.
DISTRIBUTIONS
On each payment date prior to the acceleration of the notes, the
servicer will direct the indenture trustee to apply the Available Amounts,
together with amounts withdrawn from the reserve fund, to the following payments
and distributions in the following order of priority:
(1) reimbursement of servicer advances;
(2) payment of the base servicing fee;
(3) payment of the trustee's and the indenture trustee's fees;
(4) all accrued and unpaid interest on the Class A Notes,
including any accrued and unpaid interest on the Class A Notes
payable on prior payment dates plus interest on that accrued
and unpaid interest;
(5) all accrued and unpaid interest on the Class B Notes,
including any accrued and unpaid interest on the Class B Notes
payable on prior payment dates plus interest on that accrued
and unpaid interest;
(6) principal on the notes in the amounts and priority described
below under "PRINCIPAL";
(7) to the reserve fund, any amount necessary to increase the
amount on deposit in the reserve fund to the required amount;
and
(8) any remaining amounts to the depositor as certificateholder
under the trust agreement.
On each payment date after the acceleration of the notes following an
event of default resulting from a payment default, the trust will apply
Available Amounts, together with amounts withdrawn from the reserve fund, in the
same order as described above except that the trust will not pay interest on the
Class B Notes until the Class A Notes are paid in full.
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The trust is to make payments first from the Available Amounts, and
second, but only as to amounts described in clauses (4), (5) and (6) above, from
amounts permitted to be withdrawn from the reserve fund as described under
"RESERVE FUND" above.
PRINCIPAL
PRINCIPAL DISTRIBUTIONS BEFORE ACCELERATION OF NOTES
This chart summarizes how the trust will pay principal on the notes
before the acceleration of the maturity dates of the notes. The precise
calculation of the amount of principal payable on the notes on each payment date
is set forth in the definition of "TOTAL PRINCIPAL PAYMENT AMOUNT" and the
definitions of the defined terms used in that definition set forth in the
Glossary.
- ---------------------------- -----------------------------------------------------------------------------------------
CLASS PRINCIPAL PAYMENTS
- ---------------------------- -----------------------------------------------------------------------------------------
Class A-1 Notes - Begins receiving principal on first payment date
- Receives 100% of Total Principal Payment Amount until paid in full
- ---------------------------- -----------------------------------------------------------------------------------------
Class A-2 Notes - Begins receiving principal on payment date on which Class A-1 Notes are
paid in full
- Receives 100% of Total Principal Payment Amount until paid in full
- ---------------------------- -----------------------------------------------------------------------------------------
Class B Notes - Begins receiving principal on the payment date on which Class A-2 Notes
are paid in full
- Receives 100% of Total Principal Payment Amount until paid in full
- ---------------------------- -----------------------------------------------------------------------------------------
PRINCIPAL DISTRIBUTIONS AFTER ACCELERATION OF NOTES
After acceleration of the maturity dates of the notes, the trust will
pay principal on the notes as follows:
- ---------------------------- -----------------------------------------------------------------------------------------
CLASS PRINCIPAL PAYMENTS
- ---------------------------- -----------------------------------------------------------------------------------------
Class A-1 Notes, 100% of the Total Principal Payment Amount applied on
Class A-2 Notes a pro rata basis to each class until paid in full
- ---------------------------- -----------------------------------------------------------------------------------------
Class B Notes 100% of the Total Principal Payment Amount until paid in full
- ---------------------------- -----------------------------------------------------------------------------------------
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
TREATMENT OF TRUST
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Winston & Strawn, as federal tax counsel to the trust, will deliver its
opinion that the trust will not be an association (or a publicly traded
partnership) taxable as a corporation for federal income tax purposes. This
opinion will be based on the assumptions and qualifications described in the
accompanying prospectus under the caption "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES--OWNER TRUST". If certificates issued by the trust are at all times
required to be owned by a single person, such as the depositor, then, for
federal income tax purposes, the trust may be disregarded as a separate entity
from the owner of its certificates. On the other hand, if the trust issues
certificates to multiple owners, the trust would be characterized as a
partnership for federal income tax purposes.
TREATMENT OF INVESTORS IN NOTES
Each purchaser of the notes agrees to treat the notes as debt for
federal income tax purposes. An investor will be taxed on the amount of payments
of interest on a note as ordinary interest income at the time it accrues or is
received in accordance with the investor's regular method of accounting. An
investor who disposes of a note will recognize taxable gain or loss equal to the
difference between the amount realized and the investor's adjusted tax basis in
the note. Any gain or loss will be a capital gain or loss assuming the notes
constitute capital assets in the hands of the owner. Special rules apply to
investors who purchase notes at a discount or a premium. The foregoing general
description of the treatment of investors in notes is subject to the further
explanation, assumptions and qualifications set forth in the accompanying
prospectus.
ERISA CONSIDERATIONS
The Class A notes may be purchased by an employee benefit plan, an
individual retirement account or a similar arrangement (a "Plan") subject to
ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended (the
"Code"). A fiduciary of a Plan must determine that the purchase of a Class A
note is consistent with its fiduciary duties under ERISA and does not result in
a nonexempt prohibited transaction as defined in Section 406 of ERISA or Section
4975 of the Code. For additional information regarding treatment of the notes
under ERISA, see "ERISA CONSIDERATIONS" in the accompanying prospectus.
The Class A notes may not be purchased with the assets of a Plan if the
depositor, the servicer, the indenture trustee, the trustee or any of their
affiliates:
1. is a "fiduciary" as defined in Section 3(21) of ERISA or
Section 4975(e)(3) of the Code with respect to those Plan
assets; or
2. is an employer maintaining or contributing to the Plan.
Because it is not certain whether the Class B notes will be treated as
debt instruments without substantial equity features, the Class B notes may not
be purchased by any Plan, or by a person investing on behalf of or with plan
assets of a Plan. Each purchaser and transferee of a Class B note, by its
acceptance of the Class B note, will be deemed to represent that it is not a
Plan, and is not purchasing the note on behalf of or with plan assets of a Plan.
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LEGAL PROCEEDINGS
None of the depositor, the servicer, the seller, or the trust are
parties to any legal proceeding which could have a material adverse impact on
your interest in the securities or in the trust's assets.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement among the depositor, the seller and the underwriters, the depositor
has agreed to sell to each of the underwriters named below and each of those
underwriters has severally agreed to purchase the following respective initial
principal amounts of notes at the respective public offering prices less the
respective underwriting discounts shown on the cover page of this prospectus
supplement:
INITIAL PRINCIPAL INITIAL PRINCIPAL INITIAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF
UNDERWRITER CLASS A-1 NOTES CLASS A-2 NOTES CLASS B NOTES
- ----------- --------------- --------------- -------------
In the underwriting agreement, the underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the notes being
offered, if any of the notes are purchased. The underwriters have advised the
depositor that they propose initially to offer the notes to the public at the
respective public offering prices shown on the cover page of this prospectus
supplement, and to certain dealers at that price, less a concession not in
excess of the amount noted in the table below. The underwriters may allow and
the dealers may reallow to other dealers a discount not in excess of the amount
noted in the table below.
SELLING CONCESSION REALLOWANCE
CLASS NOT TO EXCEED NOT TO EXCEED
- ----- ------------- -------------
A-1
A-2
B
After the initial public offering of the securities, the offering prices and
other selling terms may be varied by the underwriters.
In connection with the offering of the notes, [_______________], on
behalf of the underwriters, may engage in overallotment, stabilizing
transactions or syndicate covering transactions in accordance with Regulation M
under the Securities Exchange Act of 1934. Overallotment transactions involve
syndicate sales in excess of the offering size creating a short position.
Stabilizing transactions permit bids to purchase the securities so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of
S-36
securities in the open market after the distribution has been completed in order
to cover short positions. Such over-allotment transactions, stabilizing and
syndicate covering transactions may cause the price of the securities to be
higher than they would otherwise be in the absence of those transactions. The
underwriters do not represent that the underwriters will engage in those
transactions nor that such transactions, once commenced, will not be
discontinued without notice.
Until the distribution of the notes is completed, rules of the SEC may
limit the ability of the underwriters and certain selling group members to bid
for and purchase the notes. As an exception to these rules, the underwriters are
permitted to engage in certain transactions that stabilize the price of the
notes. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the notes.
There is currently no secondary market for the notes and you should not
assume that one will develop. The underwriters currently expect, but are not
obligated to make a market in the notes. You should not assume that any such
market will develop, or if one does develop, that it will continue or provide
sufficient liquidity.
Neither the seller nor the underwriters make any representations or
prediction as to the direction or magnitude of any effect that the transactions
described above, if engaged in, may have on the prices of the notes. In
addition, neither the seller nor the underwriters make any representation that
the underwriters will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
The underwriters have represented and agreed that:
(i) they have not offered or sold and, prior to the expiration of the
period of six months from the closing date, will not offer or sell any notes to
persons in the United Kingdom, except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of notes
Regulation 1995;
(ii) they have complied and will comply with all applicable provisions
of the Financial Services Act 1986 with respect to anything done by it in
relation to the notes in, from or otherwise involving the United Kingdom; and
(iii) they have only issued or passed on and will only issue or pass on
in the United Kingdom any document received by it in connection with the issue
of the notes to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995,
or is a person to whom such document may otherwise lawfully be issued or passed
on.
The underwriting agreement provides that the seller and the depositor
will indemnify the underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended, or contribute to
payments the underwriters may be required to make in respect thereof.
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In the ordinary course of their respective businesses, the underwriters
and their respective affiliates have engaged and may in the future engage in
investment banking or commercial banking transactions with Harley-Davidson,
Inc., Harley-Davidson Credit Corp., Harley-Davidson Financial Services, Inc. or
any of their respective affiliates.
RATINGS OF THE SECURITIES
It is a condition of issuance that each of the Class A-1 notes and
Class A-2 notes be rated "____" by Standard & Poor's Rating Services and "____"
by Moody's Investors Services, Inc. and the Class B notes be rated at least
"____" by Standard & Poor's Rating Services and "_____" by Moody's Investors
Services, Inc.
There is no assurance that any such rating will continue for any period
of time or that it will not be revised or withdrawn entirely by the assigning
rating agency if, in its judgment, circumstances so warrant. A revision or
withdrawal of such rating may have an adverse effect on the market price of the
notes. A security rating is not a recommendation to buy, sell or hold the notes.
LEGAL MATTERS
Certain legal matters with respect to the notes, including certain
federal income tax matters, will be passed upon for the seller, servicer,
depositor and the trust by Winston & Strawn, Chicago, Illinois. Certain legal
matters for the underwriters will be passed upon by [___________].
EXPERTS
Ernst & Young LLP, independent auditors, have audited the balance sheet
of Harley-Davidson Motorcycle Trust [____] at [__________] as set forth in their
report. The depositor included this balance sheet in this prospectus supplement
in reliance on Ernst & Young LLP's report, given on their authority as experts
in accounting and auditing.
REPORTS TO NOTEHOLDERS
Unless and until the notes are issued in physical form, monthly and
annual unaudited reports containing information concerning the contracts will be
prepared by the servicer, and sent on behalf of the trust only to Cede & Co., as
nominee of DTC and registered holder of the notes. No financial reports will be
sent to you. See "CERTAIN INFORMATION REGARDING THE NOTES--BOOK-ENTRY
REGISTRATIOn" and "--STATEMENTS TO NOTEHOLDERS" in this prospectus supplement.
Such reports will not constitute financial statements prepared in accordance
with generally accepted accounting principles. The servicer will file with the
Securities and Exchange Commission such periodic reports with respect to the
trust as are required under the Securities Exchange Act of 1934, as amended and
the rules and regulations of the SEC thereunder.
We filed a registration statement relating to the notes with the SEC.
This prospectus is part of the registration statement, but the registration
statement includes additional information.
S-38
The servicer will file with the SEC all required reports and other
information about the trust.
You may read and copy any reports, statements or other information we
file at the SEC's reference room in Washington, D.C. You can request copies of
these documents, upon payment of a duplicating fee, by writing to the SEC.
Please call the SEC at (800) SEC-0330 for further information on the operation
of the public reference rooms. Our filings with the SEC are also available to
the public on the SEC Internet site (http://www.sec.gov).
The SEC allows us to "incorporate by reference" information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus supplement. Information that we file
later with the SEC will automatically update the information in this prospectus
supplement. In all cases, you should rely on the later information over
different information included in this prospectus supplement or the accompanying
prospectus. We incorporate by reference any future annual, monthly and special
SEC reports and proxy materials filed by or on behalf of the trust until we
terminate our offering of the notes.
As a recipient of this prospectus, you may request a copy of any
document we incorporate by reference, except exhibits to the documents (unless
the exhibits are specifically incorporated by reference), at no cost, by writing
or calling us at:
Harley-Davidson Financial Services, Inc.
150 South Wacker, Suite 3100
Chicago, Illinois 60606
Attention: Treasurer
(telephone (312) 368-9501;
facsimile (312) 368-4372).
S-39
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
Securities (the "GLOBAL SECURITIES") will be available only in book-entry form.
Investors in the Global Securities may hold such Global Securities through DTC
and, in the case of the Notes, Euroclear or Clearstream. The Global Securities
will be tradeable as home market instruments in both the European and U.S.
domestic markets. Initial settlement and all secondary trades will settle in
same-day funds.
Secondary market trading between investors holding Global Securities
through Euroclear and Clearstream will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance
with conventional eurobond practice (I.E. seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Euroclear or Clearstream and DTC
participants holding Global Securities will be effected on a
delivery-against-payment basis through the respective depositaries of Euroclear
and Clearstream (in such capacity) and as DTC participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect participants in DTC. As a result, Euroclear and
Clearstream will hold positions on behalf of their participants through their
respective depositaries, which in turn will hold such positions in accounts as
DTC participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to similar issues on pass-through
certificates. Investors' securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Euroclear or
Clearstream accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "LOCK-UP" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payments in same-day
funds.
SECONDARY MARKET TRADING
S-40
Since the purchaser determines the place of delivery, it is important
to establish the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between DTC
participants will be settled using the procedures applicable to similar issues
of pass-through certificates in same-day funds.
TRADING BETWEEN EUROCLEAR AND/OR CLEARSTREAM PARTICIPANTS. Secondary
market trading between Euroclear participants or Clearstream participants will
be settled using the procedures applicable to conventional eurobonds in same-day
funds.
TRADING BETWEEN DTC SELLER AND EUROCLEAR OR CLEARSTREAM PURCHASER. When
Global Securities are to be transferred from the account of a DTC participant to
the account of a Euroclear participant or a Clearstream participant, the
purchaser will send instructions to Euroclear or Clearstream through a Euroclear
participant or Clearstream participant at least one business day prior to
settlement. Euroclear or Clearstream will instruct the respective depositary, as
the case may be, to receive the Global Securities against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment date to and excluding the settlement date. Payment will then be
made by the respective depositary to the DTC participant's account against
delivery of the Global Securities. After settlement has been completed, the
Global Securities will be credited to the respective clearing system and by the
clearing system, in accordance with its usual procedures, to the Euroclear
participant's or Clearstream participant's account. The Global Securities credit
will appear the next day (European time) and the cash debit will be back-valued
to, and the interest on the Global Securities will accrue from, the value date;
(which would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (I.E., the trade fails),
the Euroclear or Clearstream cash debit will be valued instead as of the actual
settlement date.
Euroclear participants and Clearstream participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to pre-positions
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Euroclear or Clearstream. Under
this approach, they may take on credit exposure to Euroclear or Clearstream
until the Global Securities are credited to their accounts one day later.
As an alternative, if Euroclear or Clearstream has extended a line of
credit to them, Euroclear participants or Clearstream participants can elect to
pre-position funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, Euroclear participants or Clearstream
participants purchasing Global Securities would incur overdraft charges for one
day, assuming they cleared the overdraft when the Global Securities were
credited to their accounts. However, interest on the Global Securities would
accrue from the value date. Therefore, in many cases the investment income on
the Global Securities earned during that one-day period may substantially reduce
or offset the amount of such overdraft charges, although this
S-41
result will depend on each Euroclear participant's or Clearstream participant's
particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC participants can employ their usual procedures for sending Global Securities
to the respective Depositary for the benefit of Euroclear participants or
Clearstream participants. The sale proceeds will be available to the DTC seller
on the settlement date. Thus, to the DTC participant a cross-market transaction
will settle no differently than a trade between two DTC participants.
TRADING BETWEEN EUROCLEAR OR CLEARSTREAM SELLER AND DTC PURCHASER. Due
to time zone differences in their favor, Euroclear participants and Clearstream
participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC participant. The seller will send
instructions to Euroclear or Clearstream through a Euroclear participant or
Clearstream participant at least one business day prior to settlement. In these
cases, Euroclear or Clearstream will instruct the respective Depositary, as
appropriate, to deliver the bonds to the DTC participant's account against
payment. Payment will include interest accrued on the Global Securities from and
including the last coupon payment date to and excluding the settlement date. The
payment will then be reflected in the account of the Euroclear participant or
Clearstream participant the following day, and receipt of the cash proceeds in
the Euroclear participant's or Clearstream participant's account, would be
back-valued to the value date (which would be the preceding day, when settlement
occurred in New York). Should the Euroclear participant or Clearstream
participant have a line of credit with its respective clearing system and elect
to be in debit in anticipation or receipt of the sale proceeds in its account,
the back-valuation will extinguish any overdraft charges incurred over that
one-day-period. If settlement is not completed on the intended value date (I.E.,
the trade fails), receipt of the cash proceeds in the Euroclear participant's or
Clearstream participant's account would instead be valued as of the actual
settlement date. Finally, day traders that use, Euroclear or Clearstream and
that purchase Global Securities from DTC participants for delivery to Euroclear
participants or Clearstream participants should note that these trades would
automatically fail on the sale side unless affirmative action were taken. At
least three techniques should be readily available to eliminate this potential
problem:
(a) borrowing through Euroclear or Clearstream for one
day (until the purchase side of the day trade is
reflected in their Euroclear or Clearstream accounts)
in accordance with the clearing system's customary
procedures;
(b) borrowing the Global Securities in the U.S. from a
DTC participant no later than one day prior to
settlement, which would give the Global Securities
sufficient time to be reflected in their Euroclear or
Clearstream account in order to settle the sale side
of the trade; or
S-42
(c) staggering the value dates for the buy and sell sides
of the trade so that the value date for the purchase
from the DTC participant is at least one day prior to
the value date for the sale to the Euroclear
participant or Clearstream participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENT
A beneficial owner of Global Securities holding securities through
Euroclear or Clearstream (or through DTC if the holder has an address outside
the U.S.) will be subject to the 30% U.S. withholding tax that generally applies
to payments of interest (including original issued discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business in the chain of intermediaries between such beneficial owner and the
U.S. entity required to withhold tax complies with applicable certification
requirements and (ii) such beneficial owner takes one of the following steps to
obtain an exemption or reduced tax rate:
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8 OR FORM W-8BEN).
Beneficial owners of Securities that are non-U.S. Persons can obtain a
complete exemption from the withholding tax by filing a signed Form W-8
(Certificate of Foreign Status) or Form W-8BEN (Certificate of Foreign
Status of Beneficial Owner for United States Tax Withholding). If the
information shown on Form W-8 changes, a new Form W-8 or Form W-8BEN
must be filed within 30 days of such change. After December 31, 2000,
only Form W-8BEN will be acceptable
EXEMPTION FOR NON-U.S. PERSONS WILL EFFECTIVELY CONNECTED
INCOME (FORM 4224 OR FORM W-8ECI). A non-U.S. Person, including a
non-U.S. corporation or bank with a U.S. branch, for which the interest
income is effectively connected with its conduct of a trade or business
in the United States, can obtain an exemption from the withholding tax
by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the
United States) or Form W-8ECI (Certificate of Foreign Person's Claim
for Exemption from Withholding on Income Effectively Connected with the
Conduct of a Trade or Business in the United States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN
TREATY COUNTRIES (FORM 1001 OR FORM W-8BEN). Non-U.S. Persons that are
Securityholders residing in a country that has a tax treaty with the
United States can obtain an exemption or reduced tax rate (depending on
the treaty terms) by filing Form 1001 (Ownership, Exemption or Reduced
Rate Certificate). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer
alternatively files Form W-8 or Form W-8BEN (Certificate of Foreign
Status of Beneficial Owner for United States Tax Withholding). Form
1001 may be filed by the Securityholder or his agent. After December
31, 2000, only Form W-8BEN will be acceptable.
S-43
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain
a complete exemption from the withholding tax by filing Form W-9
(Payer's Request for Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURES. The holder of a
Global Security or in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through
whom it holds (the clearing agency, in the case of persons holding
directly on the books of the clearing agency). Form W-8, Form 1001 and
Form 4224 are effective until December 31, 2000. Form W-8BEN and Form
W-8ECI are effective until the third succeeding calendar year from the
date the form is signed.
The term "U.S. PERSON" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States, any state thereof or the District of Columbia, (iii) an estate
the income of which is includible in gross income for United States tax
purposes, regardless of its source or (iv) a trust if a court within the United
States is able to exercise primary supervision over the administration of the
trust and one or more United States persons have the authority to control all
substantial decisions of the trust. Notwithstanding the preceding sentence, to
the extent provided in Treasury regulations, certain trusts in existence on
August 20, 1996, and treated as United States persons under the United States
Internal Revenue Code of 1986, as amended (the "Code") and applicable Treasury
regulations thereunder prior to such date, that elect to continue to be treated
as United States persons under the Code or applicable Treasury regulations
thereunder also will be a U.S. Person. This summary does not deal with all
aspects of U.S. Federal income tax withholding that may be relevant to foreign
holders of the Global Securities. Investors are advised to consult their own tax
advisors for specific tax advice concerning their holding and disposing of the
Global Securities.
S-44
GLOSSARY OF TERMS
AVAILABLE AMOUNTS means, with respect to any payment date, the sum of
the Available Interest and the Available Principal for such payment date.
AVAILABLE INTEREST means, with respect to any payment date, the total,
without duplication, of the following amounts received by the servicer on or in
respect of the contracts during the prior calendar month:
* all amounts allocable to scheduled interest payments on the contracts;
* the interest component of all prepayments of contracts;
* the interest component of all proceeds of repossessed financed
motorcycles and other proceeds of defaulted contracts;
* the interest component of the purchase price paid by the depositor in
repurchasing contracts from the trust on that payment date as a result
of a breach of the representations and warranties with respect to those
contracts in the sale and servicing agreement;
* all amounts received in respect of carrying charges transferred from
the interest reserve account;
* all amounts received in respect of interest, dividends, gains, income
and earnings on investment of funds in the trust accounts;
* servicer advances made by the servicer on that payment date in respect
of delinquent interest payments for the prior calendar month; and
* the interest component of the amount paid by the seller to purchase the
contracts when the aggregate principal balance of the contracts is
reduced to less than 10% of the sum of (i) the aggregate outstanding
principal balance of the contracts as of the closing date and (ii) the
initial mount on deposit in the pre-funding account.
AVAILABLE PRINCIPAL means, with respect to any payment date, the total,
without duplication, of the following amounts received by the servicer on or in
respect of the contracts during the prior calendar month:
* all amounts allocable to scheduled principal payments on the contracts;
* the principal component of all prepayments of contracts;
* the principal component of all proceeds of repossessed motorcycles and
other proceeds of defaulted contracts;
S-45
* the principal component of the purchase price paid by the depositor in
repurchasing contracts from the trust on that payment date as a result
of a breach of the representations and warranties with respect to those
contracts in the sale and servicing agreement; and
* the principal component of the amount paid by the seller to purchase
the contracts when the aggregate principal balance of the contracts is
reduced to less than 10% of the sum of (i) the aggregate outstanding
principal balance of the contracts as of the closing date and (ii) the
initial amount on deposit in the pre-funding account.
AVERAGE DELINQUENCY RATIO with respect to any payment date, is equal to
the arithmetic average of the Delinquency Ratios for the payment date and the
two immediately preceding payment dates.
AVERAGE LOSS RATIO for any payment date is equal to the arithmetic
average of the Loss Ratios for such payment date and the two immediately
preceding payment dates. The "LOSS RATIO" for any payment date is equal to the
fraction (expressed as a percentage) derived by dividing (x) the Net Liquidation
Losses for all contracts that became Liquidated Contracts during the immediately
preceding month multiplied by 12 by (y) the outstanding Principal Balances of
all contracts as of the beginning of the related month.
CUMULATIVE LOSS RATIO for any payment date means the fraction
(expressed as a percentage) computed by the servicer by dividing (a) the
aggregate Net Liquidation Losses for all contracts since the cutoff date through
the end of the related month by (b) the sum of (i) the principal balance of the
contracts as of the cutoff date plus (b) the principal balance of any subsequent
contracts as of the related subsequent cutoff date.
DELINQUENCY AMOUNT as of any payment date means the principal balance
of all contracts that were delinquent 60 days or more as of the end of the
related month (including contracts in respect of which the related motorcycles
have been repossessed and are still inventory).
DELINQUENCY RATIO for any payment date is equal to the fraction
(expressed as a percentage) derived by dividing (a) the Delinquency Amount
during the immediately preceding month by (b) the Principal Balance of the
contracts as of the beginning of the related month.
A LIQUIDATED CONTRACT means any defaulted contract as to which the
servicer has determined that all amounts which it expects to recover from or on
account of such contract have been recovered; PROVIDED that any defaulted
contract in respect of which the related motorcycle has been realized upon and
disposed of and the proceeds of such disposition have been realized shall be
deemed to be a Liquidated Contract; and PROVIDED FURTHER, a contract which has
been repossessed and has not been sold by the servicer for a period in excess of
[___] days from such date of repossession or a contract which has been
delinquent more than [___] days shall be deemed to be a Liquidated Contract with
a zero balance.
NET LIQUIDATION LOSSES means, with respect to a Liquidated Contract,
the amount, if any, by which (a) the outstanding Principal Balance of such
Liquidated Contract plus accrued
S-46
and unpaid interest thereon at the annual interest rate stated in such
Liquidated Contract to the date on which such Liquidated Contract became a
Liquidated Contract exceeds (b) the Net Liquidation Proceeds for such Liquidated
Contract.
NET LIQUIDATION PROCEEDS means, as to any Liquidated Contract, the
proceeds realized on the sale or other disposition of the related motorcycle,
including proceeds realized on the repurchase of such motorcycle by the
originating dealer for breach of warranties, and the proceeds of any insurance
relating to such motorcycle, after payment of all expenses incurred thereby,
together, in all instances, with the expected or actual proceeds of any recourse
rights relating to such contract as well as any post disposition proceeds
received by the servicer.
PRINCIPAL BALANCE means, (a) with respect to any contract as of any
date, an amount equal to the unpaid principal balance of such contract as of the
opening of business on the cut-off date, reduced by all payments and other
amounts received by the servicer as of such date allocable to principal;
provided, however, that (i) if (x) a contract is repurchased by the depositor
because of a breach of a representation or warranty, or if (y) the depositor
gives notice of its intent to purchase the contracts in connection with an
optional termination of the trust, in each case the Principal Balance of such
contract or contracts shall be deemed to be zero for the prior calendar month in
which such event occurs and for each calendar month thereafter and (ii) from and
after the prior calendar month in which a contract becomes a defaulted contract,
the Principal Balance of such contract shall be deemed to be zero; and (b) where
the context requires, the aggregate Principal Balances described in clause (a)
for all such contracts.
The TOTAL PRINCIPAL PAYMENT AMOUNT for any payment date is the excess
of (x) the sum of the aggregate principal balance of the notes as of the close
of business on the prior payment date over (y) the principal balance of the
contracts as of the last day of the calendar month immediately preceding the
payment date.
UNITED STATES PERSONS means:
* A citizen or resident of the United States;
* A corporation or partnership organized in or under the laws of
the United States, any state thereof or the District of
Columbia;
* An estate the income of which is includible in gross income
for United States federal income tax purposes, regardless of
its source; or
A trust, (a) with respect to which a court within the United States is able to
exercise primary supervision over its administration, and one or more United
States fiduciaries have the authority to control all of its substantial
decisions, or (b) otherwise, the income of which is subject to U.S. federal
income tax regardless of its source.
S-47
HARLEY-DAVIDSON MOTORCYCLE TRUST [ ]
BALANCE SHEET AS OF [__________], [_____]
Assets -- Cash.................................................... $
Beneficial Equity................................................. $
Liabilities....................................................... $
NOTES TO THE BALANCE SHEET
Harley-Davidson Motorcycle Trust [ ] is a limited purpose business
trust established under the laws of the State of Delaware. It was formed on [ ]
under a trust agreement dated as of [ ] between the depositor and the trustee.
The activities of the trust are limited by the terms of the trust agreement to
acquiring, owning and managing loan contracts and related assets, issuing and
making payments on notes and certificates and other related activities. Prior to
and including [ ], the trust did not conduct any activities.
The depositor will pay all fees and expenses related to the
organization and operations of the trust, other than withholding taxes, imposed
by the United States or any other domestic taxing authority. The depositor has
also agreed to indemnify the indenture trustee and trustee and certain other
persons involved in the sale of notes.
S-48
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE SECURITIES OFFERED BY THIS PROSPECTUS SUPPLEMENT,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
$
HARLEY-DAVIDSON MOTORCYCLE TRUST [ ]
$[ ] [ ]% HARLEY-DAVIDSON MOTORCYCLE CONTRACT BACKED NOTES, CLASS A-1
$[ ] [ ]% HARLEY-DAVIDSON MOTORCYCLE CONTRACT BACKED NOTES, CLASS A-2
$[ ] [ ]% HARLEY DAVIDSON MOTORCYCLE CONTRACT BACKED, CLASS B
HARLEY-DAVIDSON CREDIT CORP.
SELLER AND SERVICER
HARLEY-DAVIDSON CUSTOMER FUNDING CORP.
DEPOSITOR
---------------------
PROSPECTUS SUPPLEMENT
---------------------
[UNDERWRITERS]
SUBJECT TO COMPLETION, DATED MAY 22, 2000
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED [______________]
THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY
BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
HARLEY-DAVIDSON MOTORCYCLE TRUST
ISSUER
$[ ] [ ]% HARLEY-DAVIDSON MOTORCYCLE CONTRACT BACKED CERTIFICATES, CLASS A
$[ ] [ ]% HARLEY-DAVIDSON MOTORCYCLE CONTRACT BACKED CERTIFICATES, CLASS B
HARLEY-DAVIDSON CUSTOMER FUNDING CORP.
DEPOSITOR
HARLEY-DAVIDSON CREDIT CORP.
SELLER AND SERVICER
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-10 IN THIS
PROSPECTUS SUPPLEMENT AND ON PAGE 9 OF THE PROSPECTUS.
The certificates will represent obligations of the Harley-Davidson
Motorcycle Trust [ ] only, and will not represent obligations of or interests in
Harley-Davidson Financial Services, Inc., Harley-Davidson Credit Corp.,
Harley-Davidson Customer Funding Corp., Harley-Davidson, Inc. or any of their
respective affiliates. This prospectus supplement may be used to offer and sell
the certificates only if accompanied by the prospectus.
The certificates are contract backed securities issued by the trust. The
assets underlying the certificates are fixed-rate, simple interest, conditional
sales contracts relating to the purchase of new or used motorcycles.
THE GRANTOR TRUST WILL ISSUE THE FOLLOWING CLASSES OF CERTIFICATES--
- ------------------------------------------------------------------------------------------------
PASS- FIRST FINAL
PRINCIPAL THROUGH PAYMENT SCHEDULED PRICE TO UNDERWRITING PROCEEDS TO
CLASS AMOUNT RATE DATE PAYMENT DATE PUBLIC DISCOUNT DEPOSITOR
- ------------------------------------------------------------------------------------------------
A $__________ ___% ___________ _____________ ______ ______ ______
- ------------------------------------------------------------------------------------------------
B $__________ ___% ___________ _____________ ______ ______ ______
- ------------------------------------------------------------------------------------------------
THE TOTAL PRICE TO THE PUBLIC IS $
--------------------
THE TOTAL UNDERWRITING DISCOUNT IS $
------------------
THE TOTAL PROCEEDS TO THE DEPOSITOR ARE $
-------------
CREDIT ENHANCEMENT:
- RESERVE FUND WITH AN INITIAL DEPOSIT OF $_________.
- SUBORDINATION OF THE CLASS B CERTIFICATES TO THE CLASS A
CERTIFICATES AS DESCRIBED IN THIS PROSPECTUS SUPPLEMENT.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
[UNDERWRITERS]
Prospectus Supplement dated [______________]
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Important Notice About Information Presented in this Prospectus Supplement
and the Accompanying Prospectus. . . . . . . . . . . . . . . . . . . . . . . . . . ii
Prospectus Supplement Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . .S-1
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-10
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-12
The Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-12
The Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-13
The Seller and the Servicer. . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-14
The Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-14
Yield and Prepayment Considerations. . . . . . . . . . . . . . . . . . . . . . . . .S-22
Pool Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-23
Description of the Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . .S-23
Payments on the Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-28
Ratings of the Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-30
Material Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . .S-31
ERISA Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-32
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-35
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-35
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-37
Global Clearance, Settlement and Tax Documentation Procedures. . . . . . . . . . . .S-38
Glossary of Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-43
i
READING THE PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We provide information to you about the certificates in two separate
documents that offer varying levels of detail:
- prospectus provides general information, some of which may not apply
to the certificates; and
- prospectus supplement provides specific information relating to the
terms of the certificates.
To the extent that any statements in this prospectus supplement differ from
or modify statements in the prospectus, you should rely on the information in
this prospectus supplement. References to "we", "our" and "us" refer to
Harley-Davidson Customer Funding Corp.
We include cross-references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further related discussions. The Table of Contents of this prospectus supplement
provides pages on which these captions are located.
You can find a glossary of the principal capitalized terms used in this
prospectus supplement beginning on page S-42 of this prospectus supplement.
If you have received a copy of this prospectus supplement and the
accompanying prospectus in an electronic format, and if the legal prospectus
delivery period has not expired, you may obtain a paper copy of this prospectus
supplement and the accompanying prospectus from Harley-Davidson Credit Corp. or
any of the underwriters by asking any of them for it.
ii
PROSPECTUS SUPPLEMENT SUMMARY
The following is only a summary of selected information from this
prospectus supplement and provides a general overview of relevant terms of the
certificates. It does not contain all the information that may be important to
you. You should read carefully this entire prospectus supplement and the
accompanying prospectus to understand all of the terms of the offering. In
addition, you may wish to read the documents governing the transfers and
servicing of the contracts, the formation of the trust and the issuance of the
certificates. Those documents have been filed as exhibits to the registration
statement.
There are material risks associated with an investment in the
securities. See "Risk Factors" in this prospectus supplement and in the
accompanying prospectus for a discussion of factors you should consider before
investing in the certificates.
Trust............................. Harley-Davidson Motorcycle Trust [ ].
The depositor will establish the trust
pursuant to a pooling and servicing
agreement.
Depositor......................... Harley-Davidson Customer Funding Corp., a
100% owned subsidiary of Harley-Davidson
Financial Services, Inc.. See "THE
DEPOSITOR" in this prospectus supplement.
Trustee........................... The trustee will be [ ],
acting not in its individual capacity but
solely as trustee under the pooling and
servicing agreement. The trustee's
address and phone number is [ ].
See "THE TRUST" in this prospectus
supplement.
Cut-off Date...................... [ ].
Closing Date...................... On or about [ ].
Terms of the Certificates:
A. Payment Dates.................. The trust will distribute interest and
principal in respect of the certificates
on the [ ] day of each month or if
that day is not a business day, the next
business day. The first payment date is
[----].
B. Record Dates.................. The day immediately preceding the payment
date.
C. Interest...................... PASS-THROUGH RATE:
The trust will distribute interest in
respect of the certificates at the
pass-through rates shown on the cover of
this prospectus supplement.
S-1
INTEREST PERIODS:
Interest on the certificates will accrue in
the following manner:
Interest Period
From To (excluding) Day Count
---- -------------- ---------
(including) Convention
----------- -----------
___ of prior ___ of 30/360
month current month
DISTRIBUTION OF INTEREST:
On each payment date after payment of the
base servicing fee and reimbursement of
servicer advances, the trust will
distribute interest in respect of the
certificates from the funds available to it
to pay interest and expenses on each
payment date.
The funds available to the trustee to
distribute interest in respect of the
certificates on each payment date will
generally consist of interest collections
on the contracts received by the servicer
during the prior calendar month, less the
base servicing fee payable to the servicer
and amounts applied to reimburse servicer
advances relating to delinquent interest
payments, and amounts withdrawn form the
reserve fund.
If the funds available to the trustee to
distribute interest in respect of the Class
A Certificates are insufficient on any
payment date, funds available to the
trustee on that payment date to distribute
principal in respect of the Class B
Certificates will be applied to distribute
interest in respect of the Class A
Certificates.
No distributions of interest in respect of
the Class B Certificates will be made on
any payment date until interest in respect
of the Class A Certificates has been
distributed.
See "DISTRIBUTIONS ON THE CERTIFICATES" in
this prospectus supplement.
S-2
E. Principal..................... On each payment date, the trust will
distribute principal of the certificates.
The funds available to the trustee to
distribute principal in respect of the
certificates on each payment date will
generally consist of collections on the
contracts received by the servicer during
the prior calendar month, less the base
servicing fee payable to the servicer,
amounts applied to reimburse servicer
advances and amounts distributed in respect
of interest on the certificates, and
amounts withdrawn from the reserve fund.
The amount of principal distributable will
be based on the amount by which:
- the aggregate principal balance of the
contracts as of the first day of the
calendar month prior to the month in
which that payment date occurs,
exceeds
- the aggregate principal balance of the
contracts as of the first day of the
calendar month in which that payment
date occurs.
The holders of the Class A Certificates and
the Class B Certificates will be entitled
to receive a PRO RATA share of the amounts
to be distributed in respect of principal.
However, no distributions of principal in
respect of the Class B Certificates will be
made on any payment date until interest and
principal in respect of the Class A
Certificates has been distributed.
See "DESCRIPTION OF THE CERTIFICATES--
PRINCIPAL" and "DISTRIBUTIONS ON THE
CERTIFICATES--DISTRIBUTIONS" in this
prospectus supplement.
E. Final Scheduled Payment Date... The trust will reduce the outstanding
principal balance of the certificates to
zero no later than the date shown on the
cover of this prospectus supplement.
F. Mandatory Prepayment........... The seller, at its option, may repurchase
the contracts on any payment date on which
the aggregate of the Class A certificate
balance and the Class B certificate
balance is less than 10% of the
S-3
initial aggregate Class A certificate
balance and the Class B certificate
balance. If the seller purchases the
contracts the trust will prepay the
certificates in full on the payment date.
See "DESCRIPTION OF THE
CERTIFICATES--MANDATORY PREPAYMENT" in this
prospectus supplement.
THE TRUST'S ASSETS
The Contracts..................... Our main source of funds for making
payments on the certificates will be
collections on the contracts. The
contracts sold to the trust will be
selected from contracts in the depositor's
portfolio based on the criteria specified
in the transfer and sale agreement. The
contracts arise and will arise from loans
to obligors located in the 50 states of
the United States, Canada, the District of
Columbia and the U.S. Territories.
Following the closing date, pursuant to the
sale and servicing agreement, the depositor
will be obligated, subject only to the
availability thereof, to sell, and the
trust will be obligated to purchase,
subject to the satisfaction of certain
conditions set forth therein, subsequent
contracts from time to time. Following the
transfer of subsequent contracts to the
trust, the aggregate characteristics of the
entire pool of contracts may vary from
those of the initial contracts as to the
criteria identified and described above and
in "The Contracts" herein.
The last scheduled payment on the initial
contract with the latest maturity will
occur in [ ].
No contract (including any subsequent
contract sole to the trust after the
closing date) will have a scheduled
maturity later than [ ]. However, an
obligor can generally prepay its contract
at any time without penalty.
COMPOSITION OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
S-4
Aggregate Principal Balance..$____________
Number of Contracts.................______
Average Principal Balance.......$_________
Weighted Average Annual Percentage Rate
("APR")............................._____%
(Range)..................___% to ___%
Weighted Average Original Term (in months)
-------
(Range)....................___ to ___
Weighted Average Calculated Remaining Term
(in months).........................._____
(Range)....................___ to ___
GEOGRAPHIC CONCENTRATION
State Principal Balance
Concentration
[ ] ........... %
[ ] ........... %
[ ] ........... %
[ ] ........... %
[ ] ........... %
No other state represented more than 5% of
the aggregate principal balance of the
contracts as of the initial cutoff date.
Reserve Fund...................... On the closing date, the depositor will
establish a reserve fund in the name of
__________, as collateral agent. The
reserve fund provides you with limited
protection in the event collections from
obligors on the contracts are insufficient
to make payment on the certificates. We
cannot assure you, however, that this
protection will be adequate to prevent
shortfalls in amounts available to make
distributions on the certificates.
The initial balance of the reserve fund
will be $________. We will be required to
maintain on deposit in the reserve fund on
each payment date a specified amount as set
forth under the caption "DESCRIPTION OF THE
CERTIFICATES--CALCULATION OF
S-5
RESERVE FUND REQUIRED AMOUNT".
If the amount on deposit in the reserve
fund on any payment date is less than the
required amount, the trustee will use the
funds available on that payment date after
payment of the base servicing fee,
reimbursement of servicer advances and
distributions of interest and principal in
respect of the certificates to make a
deposit into the reserve fund. Amounts on
deposit in the reserve fund on any payment
date in excess of the required amount will
be paid to the depositor.
If on any payment date the funds available
to the trustee to distribute principal and
interest in respect of the certificates are
insufficient, the trust will use funds in
the reserve fund to make distributions to
the certificateholders to cover any
shortfalls.
If on the final scheduled payment date of
the certificates, the certificate balances
of the certificates has not been reduced to
zero, the trustee will use funds in the
reserve fund to reduce the certificates
balances to zero.
Pre-Funding Account............... On the closing date, we will fund an
account called the pre-funding account by
depositing $[ ] which will
secure our obligation to purchase and
transfer subsequent contracts to the
trust. The amount in the pre-funding
account will be reduced by the amount used
to purchase subsequent contracts from the
seller. We expect that the pre-funded
amount will be reduced to less than
$150,000 by the payment date occurring in
[ ]. Any pre-funded amount
remaining at the end of the funding period
will be paid to the certificateholders as
described below in "SUMMARY OF TERMS --
MANDATORY SPECIAL REDEMPTION."
Mandatory Special Redemption...... The certificates will be prepaid in part,
without premium, on the payment date on or
immediately following the last day of the
funding period in the event that any
amount remains on deposit in the pre-
funding account. The aggregate principal
amount of certificates to be prepaid will
generally be an amount equal to the amount
then on deposit
S-6
in the pre-funding account allocated pro
rata.
Interest Reserve Account.......... On the closing date, we will fund an
account called the interest reserve
account by depositing $[ ]
which will provide additional funds to
account for the fact that the monthly
investment earnings on amounts in the pre-
funding account (until such amounts have
been used to purchase subsequent
contracts) are expected to be less than
the weighted average of the interest
payments on the notes, as well as the
amount necessary to pay trustees' fees.
In addition to the initial deposit, all
investment earnings with respect to the
pre-funding account will be deposited into
the interest reserve account.
The interest reserve account is not
designed to provide any protection against
losses on the contracts in the trust. After
the funding period, money remaining in the
interest reserve account will be released
to us.
Mandatory Repurchases by the
Seller............................ Under the transfer and sale agreement, the
seller has agreed, in the event of a
breach of certain representations and
warranties made by the seller and
contained therein which materially and
adversely affects the trust's interest in
any contract, to repurchase such contract
within two business days prior to the
first determination date after the
servicer, the trustee or we become aware
of such breach. See "DESCRIPTION OF
TRANSFER AND SALE
AGREEMENT--REPRESENTATIONS AND WARRANTIES
MADE BY THE SELLER AND THE DEPOSITOR" in
the prospectus.
Servicing; Servicing Fee.......... Harley-Davidson Credit Corp., as the
servicer, will be responsible for
servicing, managing and administering the
contracts and related interests, and
enforcing and making collections on the
contracts.
Advances:
The servicer will make advances for
delinquent interest payments on contracts
to the extent it determines that a contract
as to which it has made advances is a
defaulted contract.
Servicer advances will be reimbursed from
the
S-7
delinquent payments when made by the
obligors and from collections on other
contracts when the servicer determines that
the servicer advances will not be
recoverable from payments by the obligors.
Servicing Fee:
The servicer's base monthly fee payable on
each payment date will equal the product
of:
- one twelfth (1/12th) of one percent
(1%) and
- the aggregate principal balance of the
contracts as of the last day of the
second calendar month preceding the
month in which that payment date
falls.
The trust will pay the base servicing fee
to the servicer with the funds available to
it to pay interest and expenses on each
payment date after the reimbursement of
servicer advances.
The servicer will also be entitled to
retain any late payment fees, prepayment
charges, if any, and other similar fees and
charges.
See "DESCRIPTION OF THE TRANSFER AND
SERVICING AGREEMENT-SERVICING" in the
accompanying prospectus.
Credit Enhancement................ Losses and other shortfalls of cash flow
will be covered by payments on other
contracts, withdrawals from the reserve
fund and allocations of available funds to
the Class A Certificates.
The credit enhancement for the certificates
is as follows:
Class A Certificates - subordination
of the Class B
Certificates
- reserve fund
Class B Certificates - reserve fund
Ratings........................... On the closing date, each class of
certificates will have the following
ratings by Standard & Poor's Rating
Services and Moody's Investors Service,
S-8
Inc.:
Class S&P Moody's
----- --- -------
A
B
See "RATINGS OF THE CERTIFICATES" in this
prospectus supplement and "RATINGS OF THE
SECURITIES" in the accompanying prospectus.
Material Federal Income Tax
Consequences...................... Winston & Strawn, as federal tax counsel
to the trust, will deliver an opinion
that:
- the trust will be treated as a grantor
trust for federal income tax purposes
and not as an association (or publicly
traded partnership) taxable as a
corporation; and
- each certificateholder will be treated
as the owner of a pro rata undivided
interest in the income and assets of
the trust.
ERISA Considerations.............. Subject to the considerations and
conditions discussed under "ERISA
CONSIDERATIONS" in this prospectus
supplement, the Class A Certificates may
be purchased by an employee benefit plan
that is subject to ERISA or Section 4975
of the Code.
Employee benefit plans and other retirement
arrangements that are subject to ERISA or
Section 4975 of the Code are not permitted
to acquire or hold Class B Certificates
except through an "insurance company
general account" in the manner discussed
under "ERISA CONSIDERATIONS" in this
prospectus supplement and the accompanying
prospectus.
You should refer to "ERISA CONSIDERATIONS"
in the accompanying prospectus for more
detailed information regarding the ERISA
eligibility of any class of certificates.
Mailing Address and Telephone
Number of Principal Executive
Offices........................... The mailing address of the seller is 150
South Wacker Drive, Chicago, Illinois
60606, telephone (312) 368-9501. The
mailing address of the depositor is 4150
Technology Way, Carson City, Nevada 89706,
telephone (775) 886-3200.
S-9
RISK FACTORS
The following risk factors and the risk factors in the accompanying
prospectus describe the principal risk factors relating to an investment in the
certificates.
You should carefully consider the following risk factors before you invest
in the certificates. You should also carefully consider the risk factors
beginning on page 9 of the accompanying prospectus.
THE CLASS A CERTIFICATES WILL BE ENTITLED TO INTEREST OR PRINCIPAL DISTRIBUTIONS
BEFORE THE CLASS B CERTIFICATES
The holders of the Class B Certificates will not receive any distribution
of interest until the full amount of interest is distributed to the holders of
the Class A Certificates on each payment date. The holders of the Class B
Certificates will not receive any distribution of principal until the full
amount of principal and interest is distributed to the holders of the Class A
Certificates on each payment date. The subordination of the Class B Certificates
to the Class A Certificates means that the Class B Certificates are more likely
to suffer the consequences of delinquent payments and defaults on the contracts
than the Class A Certificates having prior distribution rights. See
"DISTRIBUTIONS ON THE CERTIFICATES --DISTRIBUTIONS" in this prospectus
supplement.
Moreover, the Class A Certificates could lose the credit enhancement
provided by the Class B Certificates and the reserve fund if delinquencies and
defaults on contracts increase and the collections on contracts and amounts in
the reserve fund are insufficient to make distributions in respect of even the
Class A Certificates.
ADVERSE EVENTS IN [_____] HIGH CONCENTRATION STATES MAY CAUSE INCREASED DEFAULTS
AND DELINQUENCIES
If adverse events or economic conditions were particularly severe in a
geographic region where there is a substantial concentration of obligors, the
amount of delinquent payments and defaults on the contracts may increase. As a
result, the overall timing and amount of collections on the contracts may differ
from what you expect, and you may experience delays or reductions in
distributions.
The following are the approximate percentages of the initial contract pool
principal balance whose obligors are located in the following states:
- [_______%] in [_______],
- [_______%] in [_______],
- [_______%] in [_______],
- [_______%] in [_______], and
- [_______%] in [_______].
S-10
The remaining states accounted for [___]% of the _______ aggregate
principal balance of the contracts, and none of these remaining states accounted
for more than 5% of the initial aggregate principal balance of the contracts.
For a discussion of the breakdown of the contracts by state, see "THE CONTRACTS"
in this prospectus supplement.
Although we do not know of any matters likely to increase the rate of
delinquencies or defaults in these states, an example of an adverse event
specific to a geographic region would include natural disasters and regional
economic downturns. For example, a substantial downturn in the financial
services industry, which is highly concentrated in the states of New York and
New Jersey, or in the oil and gas industry, which is concentrated in the state
of Texas could reduce the income of obligors in those states and ultimately
reduce the related obligor's ability to make timely payments on their contracts.
In addition, the following economic conditions may affect payments:
- unemployment,
- interest rates,
- inflation rates, and
- consumer perceptions of the economy.
THE CERTIFICATES MAY NOT BE SUITABLE INVESTMENTS FOR ALL INVESTORS
The certificates may not be a suitable investment for any investor that
requires a regular or predictable schedule of principal payments. We suggest
that only investors who, either alone or with their financial, tax and legal
advisors, have the expertise to analyze the prepayment, reinvestment and default
risks, the tax consequences of an investment and the interaction of these
factors consider purchasing the certificates.
BECAUSE THE CERTIFICATES ARE IN BOOK-ENTRY FORM, YOUR RIGHTS CAN ONLY BE
EXERCISED INDIRECTLY
Because the certificates will be issued in book-entry form, you will be
required to hold your interest in the certificates through The Depository Trust
Company in the United States, or Clearstream, Luxembourg, (formerly Cedelbank)
or the Euroclear System in Europe. Transfers of interests in the certificates
within DTC, Clearstream or Euroclear must be made in accordance with the usual
rules and operating procedures of those systems. So long as the certificates are
in book-entry form, you will not be entitled to receive a physical note
representing your interest. The certificates will remain in book-entry form
except in the limited circumstances described under the caption "INFORMATION
REGARDING THE CERTIFICATES--BOOK-ENTRY REGISTRATION" in the accompanying
prospectus. Unless and until the certificates in this prospectus supplement
cease to be held in book-entry form, the trustee will not recognize you as a
"certificateholder," as such term is used in the trust agreement. As a result,
you will only be able to exercise the rights of securityholders indirectly
through DTC, if in the United States, and its participating organizations, or
Clearstream and Euroclear, in Europe, and their participating organizations.
Holding the certificates in book-entry form could also limit your ability to
pledge your
S-11
certificates to persons or entities that do not participate in DTC,
Clearstream or Euroclear and to take other actions that require a physical note
representing the certificates.
Interest and principal on the certificates will be paid by the trust to DTC
as the record holder of the certificates while they are held in book-entry form.
DTC will credit payments received from the trust to the accounts of its
participants which, in turn, will credit those amounts to securityholders either
directly or indirectly through indirect participants. This process may delay
your receipt of principal and interest payments from the trust.
HOLDERS OF CLASS B CERTIFICATES MAY HAVE TO PAY TAXES ON AMOUNTS NOT ACTUALLY
RECEIVED.
For federal income tax purposes, amounts otherwise payable to the holders
of the Class A Certificates will be deemed to have been received by the holders
of the Class B Certificates and then paid by them to the holders of the Class A
Certificates pursuant to a guaranty. Accordingly, the holders of the Class A
Certificates could be liable for taxes on amounts not actually received. See
"MATERIAL FEDERAL INCOME TAX CONSEQUENCES" in the accompanying prospectus.
USE OF PROCEEDS
The depositor will use the net proceeds received from the sale of the
certificates (i) for the purchase of the initial contracts and related assets
from the seller and (ii) the remainder for the funding of the pre-funding
account. The seller will use the net proceeds from the depositor's purchase of
the initial contracts, as well as subsequent contracts, for the repayment of a
substantial portion of the outstanding principal of the warehouse lines through
which it finances its motorcycle conditional sales contracts. Following each
such repayment, it is expected that the warehouse lines will be used to fund a
new portfolio of motorcycle conditional sales contracts.
THE TRUST
GENERAL
The depositor will create the trust pursuant to a pooling and servicing
agreement among the depositor, the servicer and the trustee.
Under a transfer and sale agreement, the seller and the depositor will sell
all of the contracts and the related property to the depositor.
Pursuant to the pooling and servicing agreement, the depositor will
transfer all of the contracts and related property to the trust in exchange for
the certificates.
The property of the trust will consist of:
- the contracts and the right to receive all scheduled payments and
prepayments received on the contracts on or after the cut-off date,
but excluding any scheduled payments due on or after, but received
prior to, the cut-off date;
- security interests in the financed vehicles securing the contracts and
any related property;
S-12
- rights with respect to any repossessed financed vehicles;
- the rights to proceeds from claims on theft, physical damage, credit
life and disability insurance policies covering the financed vehicles
or the obligors;
- certain rebates of premiums and other amounts relating to insurance
policies, extended service contracts or other repair agreements and
other items financed under the contracts;
- the depositor's rights against the seller under the purchase agreement
pursuant to which the seller sold the pool of contracts to the
depositor and against the performance guarantor under the performance
guarantee pursuant to which the performance guarantor guaranteed the
seller's obligations under the purchase agreement;
- the right to receive payments from the depositor obligated to
repurchase contracts which do not meet specified representations made
by depositor in the pooling and servicing agreement;
- the trust's rights against the servicer under the pooling and
servicing agreements;
- amounts held in the collection account and the paid-ahead account to
be established and maintained under the pooling and servicing
agreement; and
- all proceeds of the foregoing.
The reserve fund, the pre-funding account and the interest reserve
account will be maintained in the name of ________, as collateral agent for the
benefit of the certificateholders, but will not be part of the trust.
The certificates represent fractional undivided interests in the trusts.
See "DESCRIPTION OF THE CERTIFICATES" in this prospectus supplement.
THE TRUSTEE
[ ] will be the trustee under the pooling and servicing agreement. The
trustee is a [_________] banking association and its principal offices are
located at [_____________]. The trustee may resign at any time, in which event
the servicer will be obligated to appoint a successor trustee. The servicer may
also remove the trustee if the trustee ceases to be eligible to continue as such
under the pooling and servicing agreement or if the trustee becomes insolvent.
In such circumstances, the servicer will also be obligated to appoint a
successor trustee. Any resignation or removal of the trustee and appointment of
a successor trustee will not become effective until acceptance of the
appointment by the successor trustee.
The servicer will pay the fees of the trustee in connection with its duties
under the pooling and servicing agreement. The trustee will also be entitled to
indemnification by the servicer for, and will be held harmless against, any
loss, liability, fee, disbursement or expense
S-13
incurred by the trustee not resulting from its own willful misfeasance, bad
faith or negligence. The servicer will also indemnify the trustee for specified
taxes that may be asserted in connection with the transaction.
THE SELLER AND THE SERVICER
Harley-Davidson Credit Corp. will act as seller and servicer of the
contracts and will receive compensation and fees for such services. Information
regarding the seller and the servicer is set forth under the captions "THE
SELLER AND THE SERVICER" in the accompanying prospectus.
THE CONTRACTS
DESCRIPTION OF THE CONTRACTS
The contracts are (or will be, in the case of subsequent contracts)
fixed-rate simple interest conditional sales contracts relating to motorcycles
manufactured by Harley-Davidson, Inc. or Buell Motorcycle Company, a
wholly-owned subsidiary of Harley-Davidson, Inc. The contracts were originated
by the seller indirectly through Harley-Davidson motorcycle dealers and acquired
by the depositor in the ordinary course of the depositor's business. Each
contract has (or will have) a fixed annual percentage rate and provides for, if
timely made, payments of principal and interest which fully amortize the loan on
a simple interest basis over its term. The contracts have or will have the
following characteristics:
- the last scheduled payment of each initial contract is due no later
than [ ], and with respect to the contracts as a whole (including any
subsequent contracts conveyed to the trust after the closing date),
the last scheduled payment will be due no later than [];
- the first scheduled payment date of contracts representing
approximately [ ]% of the aggregate principal balance of the initial
contracts as of the initial cutoff date is due no later than
[];
- the first scheduled payment date of contracts representing
approximately [ ]% of the aggregate principal balance of the initial
contracts as of the initial cutoff date is due no later than
[];
- the first scheduled payment date of contracts representing
approximately [ ]% of the aggregate principal balance of the
subsequent contracts as of the subsequent cutoff date will be due no
later than [ ];
- the first scheduled payment date of contracts representing
approximately [ ]% of the aggregate principal balance of the
subsequent contracts as of the subsequent cutoff date will be due no
later than [ ];
- approximately [ ]% of the principal balance of the initial contracts
as of the initial cutoff date is attributable to loans to purchase
motorcycles which were new and approximately [ ]% is attributable to
loans to purchase motorcycles which were used at the time the related
contract was originated.
- all initial contracts have a contractual rate of interest of at least
[ ]% per annum and not more than [ ]% per annum and the weighted
average contractual rate of interest
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of the initial contracts as of the initial cutoff date is approximately
[ ]% per annum (see Table 1 below).
- the initial contracts have remaining maturities as of the initial
cutoff date of at least [ ] months but not more than [ ] months and
original maturities of at least [ ] months but not more than [ ]
months.
- the initial contracts have a weighted average term to scheduled
maturity, as of origination, of approximately [ ] months, and a
weighted average term to scheduled maturity as of the initial cutoff
date of approximately [ ] months (see Tables 2 and 3 below).
- the average principal balance per initial contract as of the initial
cutoff date was approximately $[ ] and the principal balances on the
initial contracts as of the initial cutoff date ranged from $[ ] to
$[] (see Table 4 below).
- the contracts arise (or will arise) from loans to obligors located in
50 states, the District of Columbia, the U.S. Territories and Canada
and with respect to the initial contracts, constitute the following
approximate amounts expressed as a percentage of the aggregate
principal balance of the initial contracts as of the initial cutoff
date:[ ]% in [ ], [ ]% in [ ] and []%
in [ ] (see Table 5 below). No other state represented
more than 5.00% by aggregate principal balance of the initial
contracts.
Subsequent contracts will not need to satisfy any criteria except for the
criteria described in the preceding paragraph. Therefore, following the transfer
of the subsequent contracts to the trust, the aggregate characteristics of the
entire pool of the contracts, including the composition of the contracts, the
distribution by weighted average annual percentage rate of the contracts, the
distribution by calculated remaining term of the contracts, the distribution by
original term to maturity of the contracts, the distribution by current balance
of the contracts, and the geographic distribution of the contracts, described in
the following tables, may vary from those of the initial contracts as of the
initial cutoff date.
TABLE 1
DISTRIBUTION BY APR OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
PERCENT OF PERCENT OF
NUMBER OF NUMBER OF TOTAL OUTSTANDING POOL
RATE CONTRACTS CONTRACTS(1) PRINCIPAL BALANCE BALANCE(1)
---- --------- ------------ ----------------- ----------
8.500- 9.000%
9.001-10.000
10.001-11.000
11.001-12.000
12.001-13.000
13.001-14.000
14.001-15.000
15.001-16.000
16.001-17.000
17.001-18.000
18.001-19.000
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19.001-20.000
20.001-21.000
21.001-22.000
22.001-23.000
23.001-23.990
TOTALS: 100.00% 100.00%
(1) PERCENTAGES MAY NOT ADD TO 100.00% BECAUSE OF ROUNDING.
TABLE 2
DISTRIBUTION BY CALCULATED REMAINING TERM
OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
CALCULATED PERCENT OF
REMAINING NUMBER OF NUMBER OF TOTAL OUTSTANDING PERCENT OF
TERM (MONTHS) CONTRACTS CONTRACTS (1) PRINCIPAL BALANCE POOL BALANCE (1)
------------- --------- ------------- ----------------- ---------------
6 - 12
13 - 24
25 - 36
37 - 48
49 - 60
61 - 72
73 - 84
TOTALS: 100.00% 100.00%
(1) Percentages may not add to 100.00% because of rounding.
TABLE 3
DISTRIBUTION BY CALCULATED ORIGINAL
TERM TO MATURITY OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
PERCENT OF
ORIGINAL NUMBER OF NUMBER OF TOTAL OUTSTANDING PERCENT OF POOL
TERM (MONTHS) CONTRACTS CONTRACTS (1) PRINCIPAL BALANCE BALANCE (1)
------------- --------- ------------- ----------------- -----------
0 - 12
13 - 24
25 - 36
37 - 48
49 - 60
61 - 72
73 - 84
TOTALS: 100.00% 100.00%
(1) Percentages may not add to 100.00% because of rounding.
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TABLE 4
DISTRIBUTION BY CURRENT BALANCE OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
PERCENT OF
NUMBER OF NUMBER OF TOTAL OUTSTANDING PERCENT OF POOL
CURRENT BALANCE CONTRACTS CONTRACTS (1) PRINCIPAL BALANCE BALANCE (1)
--------------- --------- ------------- ----------------- -----------
$ 0 - 1,000.00
$ 1,000.01 - 2,000.00
$ 2,000.01 - 3,000.00
$ 3,000.01 - 4,000.00
$ 4,000.01 - 5,000.00
$ 5,000.01 - 6,000.00
$ 6,000.01 - 7,000.00
$ 7,000.01 - 8,000.00
$ 8,000.01 - 9,000.00
$ 9,000.01 - 10,000.00
$ 10,000.01 - 11,000.00
$ 11,000.01 - 12,000.00
$ 12,000.01 - 13,000.00
$ 13,000.01 - 14,000.00
$ 14,000.01 - 15,000.00
$ 15,000.01 - 16,000.00
$ 16,000.01 - 17,000.00
$ 17,000.01 - 18,000.00
$ 18,000.01 - 19,000.00
$ 19,000.01 - 20,000.00
$ 20,000.01 - 21,000.00
$ 21,000.01 - 22,000.00
$ 22,000.01 - 23,000.00
$ 23,000.01 - 24,000.00
$ 24,000.01 - 25,000.00
$ 25,000.01 - 26,000.00
$ 26,000.01 - 27,000.00
$ 27,000.01 - 28,000.00
$ 28,000.01 - 29,000.00
$ 29,000.01 - 30,000.00
$ 30,000.01 - 31,000.00
$ 31,000.01 - 32,000.00
$ 32,000.01 - 33,000.00
$ 33,000.01 - 33,764.16
TOTALS: 100.00% 100.00%
(1) Percentages may not add to 100.00% because of rounding.
S-17
TABLE 5
GEOGRAPHIC DISTRIBUTION OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
PERCENT OF
NUMBER OF NUMBER OF TOTAL OUTSTANDING PERCENT OF POOL
STATE CONTRACTS CONTRACTS (1) PRINCIPAL BALANCE BALANCE (1)
----- --------- ------------ ----------------- -----------
ALABAMA
ALASKA
ARIZONA
ARKANSAS
CALIFORNIA
COLORADO
CONNECTICUT
DELAWARE
DISTRICT OF COLUMBIA
FLORIDA
GEORGIA
HAWAII
IDAHO
ILLINOIS
INDIANA
IOWA
KANSAS
KENTUCKY
LOUISANA
MAINE
MARYLAND
MASSACHUSETTS
MICHIGAN
MINNESOTA
MISSISSIPPI
MISSOURI
MONTANA
NEBRASKA
NEVADA
NEW HAMPSHIRE
NEW JERSEY
NEW MEXICO
NEW YORK
NORTH CAROLINA
NORTH DAKOTA
OHIO
OKLAHOMA
OREGON
PENNSYLVANIA
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TABLE 5
GEOGRAPHIC DISTRIBUTION OF THE INITIAL CONTRACTS
(CONTINUED)
PERCENT OF
NUMBER OF NUMBER OF TOTAL OUTSTANDING PERCENT OF POOL
STATE CONTRACTS CONTRACTS (1) PRINCIPAL BALANCE BALANCE (1)
----- --------- ------------ ----------------- -----------
RHODE ISLAND
SOUTH CAROLINA
SOUTH DAKOTA
TENNESSEE
TEXAS
UTAH
VERMONT
VIRGINIA
WASHINGTON
WEST VIRGINIA
WISCONSIN
WYOMING
CANADA
OTHER
TOTALS: 100.00% 100.00%
(1) Percentages may not add to 100.00% because of rounding.
S-19
DELINQUENCY, LOAN LOSS AND REPOSSESSION INFORMATION
The following tables set forth the delinquency experience and loan loss and
repossession experience of the seller's portfolio of conditional sales contracts
for motorcycles. These figures include data in respect of contracts which the
seller has previously sold with respect to prior securitizations and for which
the seller acts as servicer.
DELINQUENCY EXPERIENCE(1)/
(DOLLARS IN THOUSANDS)
AT DECEMBER 31,
-----------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Number Number Number Number Number
of of of of of
contracts Amount contracts Amount contracts Amount contracts Amount contracts Amount
-----------------------------------------------------------------------------------------------------
Portfolio..................... 91,556 $914,545.5 67,137 $651,248.7 45,258 $434,890.7 32,574 $303,682.4 20,590 $184,054.0
Period of Delinquency(2)/
30-59 Days.................... 2,868 $28,307.9 1,970 $17,768.1 1,264 $11,454.6 904 $8,002.9 477 $4,043.3
60-89 Days.................... 983 9,424.3 745 6,153.9 559 5,112.1 374 3,170.7 157 1,298.7
90 Days or more............... 371 3,569.9 304 2,591.0 269 2,196.5 213 1,880.6 140 1,120.2
--- ------- --- ------- --- ------- --- ------- --- -------
Total Delinquencies........... 4,222 $41,302.1 3,019 $26,513.0 2,092 $18,763.2 1,491 $13,054.2 774 $6,462,2
Total Delinquencies as a ===== ========= ===== ========= ===== ========= ===== ========= === ========
Percent of Total Portfolio.... 4.61% 4.52% 4.50% 4.07% 4.62% 4.31% 4.58% 4.30% 3.76% 3.51%
At March 31,
---------------------------------------------
2000 1999
---- ----
Number Number
of of
contracts Amount contracts Amount
---------------------------------------------
Portfolio..................... 98,306 $981,709.4 72,411 $712,081.0
Period of Delinquency(2)/
30-59 Days.................... 2,343 $22,973.6 1,814 $17,246.9
60-89 Days.................... 587 5,543.9 606 5,403.9
90 Days or more............... 235 2,363.5 355 3,099.5
--- ------- --- -------
Total Delinquencies........... 3,165 $30,881.0 2,775 $25,750.3
===== ========= ===== =========
Total Delinquencies as a
Percent of Total Portfolio.... 3.22% 3.15% 3.83% 3.62%
------------------
(1) Excludes contracts already in repossession, which contracts the
servicer does not consider outstanding.
(2) The period of delinquency is based on the number of days payment
are contractually past due (assuming 30-day months).
Consequently, a contract due on the first day of a month is not
30 days delinquent until the first day of the next month.
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Loan Loss/Repossession Experience
(Dollars in Thousands)
Year Ended
December 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Principal Balance of All Contracts
Serviced(1)/..................... $918,481.6 $653,836.0 $436,771.0 $304,730.9 $184,548.7
Contract Liquidations(2)/.......... 1.59% 1.54% 1.42% 0.74% 0.76%
Net Losses:
Dollars(3)/...................... $5,875.0 $5,245.3 $3,781.1 $1,639.5 $866.4
Percentage(4)/................... 0.64% 0.80% 0.87% 0.54% 0.47%
Three Months Ended March 31,
----------------------------------------------
2000 1999
---- ----
Principal Balance of All Contracts
Serviced(1)/........................ $985,715.0 $714,465.2
Contract Liquidations(2)/........... 1.95% 1.68%
Net Losses:
Dollars(3)/...................... $1,995.5 $1,493.8
Percentage(4)/................... 0.81% 0.84%
------------------
(1) As of period end. Includes contracts already in repossession.
(2) As a percentage of the total number of contracts being serviced as of
period end, calculated on an annualized basis.
(3) The calculation of net loss includes actual charge-offs, deficiency
balances remaining after liquidation of repossessed vehicles and
expenses of repossession and liquidation, net of recoveries.
(4) As a percentage of the principal amount of contracts being serviced as
of period end, calculated on an annualized basis.
The data presented in the foregoing tables are for illustrative purposes
only and there is no assurance that the delinquency, loan loss or repossession
experience of the contracts will be similar to that set forth above.
TWELVE MONTHS ENDED DECEMBER 31, 1999 VERSUS TWELVE MONTHS ENDED DECEMBER 31,
1998.
The amounts classified as delinquent as a percentage of the portfolio
increased from 4.07% to 4.52%. The increase is attributable to a conversion to a
new servicing system in December 1999. The number of liquidations as a
percentage of the portfolio increased from 1.54% to 1.59%. Net losses as a
percentage of the outstanding principal amount of the contracts decreased from
0.80% to 0.64%. The decrease is attributable to more stringent collection
procedures implemented by the servicer. The number of contracts in the portfolio
increased from 67,137 to 91,556 due to an increase in Harley-Davidson motorcycle
production and HOFS's market share penetration of units financed.
TWELVE MONTHS ENDED DECEMBER 31, 1998 VERSUS TWELVE MONTHS ENDED DECEMBER 31,
1997.
The amounts classified as delinquent as a percentage of the portfolio
decreased from 4.31% to 4.07%. The decrease is attributable to the seasoning of
the portfolio. The number of liquidations as a percentage of the portfolio
increased from 1.42% to 1.54%. The increase is attributable to growth and
seasoning of the Delta loan program. Net losses as a percentage of the
outstanding principal amount of the contracts decreased from 0.87% to 0.80%. The
decrease is attributable to more stringent collection procedures implemented by
the servicer. The number of
S-21
contracts in the portfolio increased from 45,258 to 67,137 due to an increase in
Harley-Davidson motorcycle production and HDFS's market share penetration of
units financed.
TWELVE MONTHS ENDED DECEMBER 31, 1997 VERSUS TWELVE MONTHS ENDED DECEMBER 31,
1996.
The amounts classified as delinquent as a percentage of the portfolio
increased from 4.30% to 4.31%. The number of liquidations as a percentage of the
portfolio increased from 0.74% to 1.42%. The increase is attributable to growth
and seasoning of the Delta loan program. Net losses as a percentage of the
outstanding principal amount of the contracts increased from 0.54% to 0.87%. The
increase is attributable to a lower collectors to account ratio due to the
launch of HDFS's credit card operation. The number of contracts in the portfolio
increased from 32,574 to 45,258 due to an increase in Harley-Davidson motorcycle
production and HDFS's market share penetration of units financed.
TWELVE MONTHS ENDED DECEMBER 31, 1996 VERSUS TWELVE MONTHS ENDED DECEMBER 31,
1995.
The amounts classified as delinquent as a percentage of the portfolio
increased from 3.51% to 4.30%. The increase is attributable to overall portfolio
growth. The number of repossessions as a percentage of the portfolio decreased
from 0.76% to 0.74%. Net losses as a percentage of the outstanding principal
amount of the contracts increased from 0.47% to 0.54%. The increase is
attributable to overall portfolio growth. The number of contracts in the
portfolio increased from 20,590 to 32,574 due to an increase in Harley-Davidson
motorcycle production and HDFS's market share penetration of units financed.
THREE MONTHS ENDED MARCH 31, 2000 VERSUS THREE MONTHS ENDED MARCH 31, 1999.
The amounts classified as delinquent as a percentage of the portfolio decreased
from 3.62% to 3.15%. The decrease is attributable to increased collections. The
number of liquidations as a percentage of the portfolio increased from 1.67% to
1.95%. The increase is attributable to the growth and seasoning of the Delta
loan program. Net losses as a percentage of the outstanding principal amount of
the contracts decreased from 0.84% to 0.81%. The decrease is attributable to
increased recoveries on defaulted contracts. The number of contracts in the
portfolio increased from 72,411 to 98,306 due to an increase in Harley-Davidson
motorcycle production and HDFS's market share penetration of units financed. We
know of no trends that are likely to increase the rate of delinquencies or
losses on the contracts.
YIELD AND PREPAYMENT CONSIDERATIONS
By their terms, the contracts may be prepaid, in whole or in part, at any
time. Each contract also contains a provision which permits the seller to
require full prepayment in the event of a sale of the related motorcycle
securing a contract. In addition, repurchases of the contracts from the trust by
the depositor, and concurrently from the depositor by the seller, could occur in
the event of a breach of certain representation and warranties with respect to
the contracts. Repurchases of contracts from the trust by the depositor, and
concurrently from the depositor by the seller, could also occur if the depositor
exercises its limited option to repurchase the contracts from the trust when the
aggregate outstanding principal balances of the contracts owned by the trust has
declined to less than 10% of the sum of:
- the aggregate outstanding principal balance of the contracts owned by
the trust as of the closing date; and
S-22
- the initial amount on deposit in the pre-funding account.
Any prepayments and repurchases of contracts will reduce the average life
of the certificates and the interest received by the certificateholders over the
life of the certificate (for this purpose the term "PREPAYMENT" includes
liquidations due to default, as well as receipt of proceeds from credit life,
credit disability and casualty insurance policies). In addition, funds remaining
in the pre-funding account at the end of the funding period will be used to
prepay outstanding principal of the certificates and as a result, the interest
received by certificateholders over the life of the certificates will be
reduced.
The last scheduled payment on the initial contract with the latest maturity
will occur in [ ]. The last scheduled payment on the contract with the latest
maturity among the contracts as a whole, including any subsequent contracts,
will not occur later than [ ].
POOL FACTORS
The "CLASS A CERTIFICATE POOL FACTOR" will be a seven-digit decimal
indicating the certificate balance of the Class A Certificates on the payment
date as a fraction of the aggregate certificate balances of the contracts as of
the closing date. The "CLASS B CERTIFICATE POOL FACTOR" will be a seven-digit
decimal indicating the certificate balance of the Class B Certificates on the
payment date as a fraction of the aggregate certificate balances of the
contracts as of the closing date. The servicer will compute the pool factors
each month. Initially, each factor will be 1.0000000 and thereafter will decline
to reflect reductions in the certificate balances. The portion of the
certificate balance for any class of certificates for a given month allocable to
a certificateholder can be determined by multiplying the original denomination
of the holder's certificate by the related pool factor, as the case may be, for
that month.
You will receive monthly reports concerning the distributions received on
the contracts, the aggregate principal balance for the contracts, the related
certificate factors and various other items of information pertaining to the
trust. Furthermore, the trustee will furnish you with information for tax
reporting purposes not later than the latest date permitted by law. See
"DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--SERVICING--STATEMENTS TO
SECURITYHOLDERS" in the accompanying prospectus.
DESCRIPTION OF THE CERTIFICATES
This section supplements the information in the accompanying prospectus
under the caption "DESCRIPTION OF THE Certificates". However, as these
statements are only summaries, you should read the pooling and servicing
agreement, a form of which has been filed as an exhibit to the registration
statement of which the accompanying prospectus forms a part. A copy of the
pooling and servicing agreement is available to you upon request to the
depositor and will be filed with the Securities Exchange Commission following
the issuance of the certificates.
GENERAL
The certificates will be issued pursuant to the terms of the pooling and
servicing agreement among the trustee, the depositor and the servicer.
S-23
Two classes of certificates evidencing undivided ownership interests in the
trust, designated as the:
- Class A Certificates, and
- Class B Certificates will be issued.
The Class A Certificates will evidence in the aggregate an undivided
ownership interest of approximately ___% of the trust and the Class B
Certificates will evidence in the aggregate an undivided ownership interest of
approximately ____% of the trust.
The certificates will be delivered in book-entry form only and be issued in
minimum denominations of $1,000.
INTEREST
Interest will be distributable in respect of the certificates at the fixed
pass-through rates for each class of certificates shown on the cover page of
this prospectus supplement.
The trust will distribute interest in respect of the certificates on each
payment date from Available Interest and amounts withdrawn from the reserve fund
as set forth under "DISTRIBUTIONS ON THE CERTIFICATES--DISTRIBUTIONS" below.
Interest will be distributable to you monthly on the [_______] of each
month or, if that date is not a business day, on the next succeeding business
day and will be calculated for the interest period from and including the ____th
day of the prior month(or from and including the closing date, in the case of
the initial payment date) to but excluding the ____th day of the next month on
the basis of a 360-day year consisting of twelve 30-day months.
If on any payment date, the trust does not have sufficient funds to make a
full distribution of interest on any class the certificates, the amount of the
shortfall will be carried forward, and together with interest on the shortfall
amount at the applicable pass-through rate for that class, added to the amount
of interest distributable in respect of that class of certificates on the next
payment date.
PRINCIPAL
On each payment date, principal in respect of the certificates will be
distributable in an amount equal to the monthly principal for that payment date.
The holders of the Class A Certificates and the Class B Certificates will be
entitled to receive a PRO RATA share of the amounts to be distributed in respect
of principal. However, no distributions of principal in respect of the Class B
Certificates will be made on any payment date until interest and principal in
respect of the Class A Certificates has been distributed. Principal in respect
of the certificates will be distributed as set forth under "DISTRIBUTIONS ON THE
CERTIFICATES--DISTRIBUTIONS" below.
OPTIONAL PREPAYMENT
S-24
The seller, at its option, may repurchase all of the contracts owned by a
trust on any payment date following the date on which the aggregate principal
balance of the contracts is less than 10% of the aggregate principal balance of
the contracts as of the cut-off date. The purchase price to be paid in
connection with the purchase will be at least equal to the sum of:
- the unpaid certificate balance of the certificates as of that payment
date, together with all interest distributable in respect of the
certificates as of that payment date;
- unreimbursed servicer advances;
- accrued but unpaid servicer fees;
- any other amounts payable at the time from Available Amounts; minus
- amounts on deposit in the reserve fund.
If the seller does purchase the contracts, the certificates will be paid in
full on the payment date on which the purchase occurs.
VOTING RIGHTS
If a servicer default occurs, the trustee or holders of certificates
evidencing more than 50% of the aggregate principal balance of the contracts may
remove the servicer without the consent of any other holder of certificates. If
a servicer default occurs, holders of certificates evidencing more than 50% of
the aggregate principal balance of the contracts may waive any servicer default
other than a default in making any required deposits into the collection
account.
NOTICES
Certificateholders will be notified in writing by the trustee of any
servicer default or termination of, or appointment of a successor to, the
servicer promptly upon a responsible officer obtaining actual knowledge of these
events. Except for the monthly and annual reports to certificateholders
described this prospectus supplement, the trustee is not obligated under the
pooling and servicing agreement to forward any other notices to the
certificateholders. There are no provisions in the pooling and servicing
agreement for the regular or special meetings of certificateholders.
THE ACCOUNTS
THE COLLECTION ACCOUNT
The trustee will establish an account referred to as the collection
account. The servicer will cause all collections made on or in respect of the
contracts during a due period to be deposited in or credited to the collection
account. The servicer is required to deposit, without deposit into any
intervening account, into the collection account as promptly as possible, but in
any case not later than the second business day following the receipt thereof,
all amounts received on or in respect of the contracts. The servicer is required
to use its best efforts to cause an obligor to make all payments on the
contracts directly to one or more lockbox banks, acting as
S-25
agent for the trust pursuant to a lockbox agreement. Funds in the collection
account will be invested in certain eligible investments. All income or other
gain from such investments will be promptly deposited in, and any loss resulting
from such investments shall be charged to, the collection account.
THE PRE-FUNDING ACCOUNT
The trustee will establish a trust account referred to as the pre-funding
account in accordance with the sale and servicing agreement. During the funding
period, the pre-funding account will be maintained by the trustee for your
benefit to secure the depositor's obligations under the pooling and servicing
agreement to purchase and transfer subsequent contracts to the trust. On the
closing date, the depositor will deposit $[ ] into the pre-funding account.
During the funding period, amounts on deposit in the pre-funding account will be
reduced by the amount thereof that the depositor uses to purchase subsequent
contracts from the seller and contemporaneously transfer to the trust. The
depositor expects that the pre-funded amount will be reduced to less than
$150,000 by the payment date occurring in [ ]. Any pre-funded amount remaining
at the end of the funding period will be payable to the certificateholders. See
"DESCRIPTION OF THE CERTIFICATES -- MANDATORY SPECIAL REDEMPTION".
THE RESERVE FUND
The reserve fund will be a segregated account in the name of
[____________], as collateral agent. The reserve fund will be created with an
initial deposit by the depositor on the closing date of an amount equal to
$________ which is less than the amount that is required to be on deposit in the
reserve fund. The reserve fund will thereafter be funded as described above
under "DISTRIBUTIONS ON THE CERTIFICATES--DISTRIBUTIONS".
Amounts held from time to time in the reserve fund will be held for the
benefit of certificateholders and may be invested in investments acceptable to
the rating agencies rating certificates as being consistent with the ratings of
the certificates at the direction of the servicer. Investment income on those
investments will be paid to the depositor, upon the direction of the servicer,
to the extent that funds on deposit in the reserve fund on any payment date
exceed the amount that is required to be on deposit in the reserve fund. If the
amount on deposit in the reserve fund on any payment date exceeds the amount
that is required to be on deposit in the reserve fund on that payment date, the
collateral agent will withdraw that excess and pay it to the depositor. Upon any
distribution to the depositor of those excess amounts, neither the holders of
the Class A Certificates nor the holders of the Class B Certificates will have
any rights in, or claims to, those amounts.
The amount that is required to be on deposit in the reserve fund on each
payment date will initially be $[ ]. However, on any payment date, the
amount that is required to be on deposit in the reserve fund will be an
amount equal to $[ ].
The servicer may, from time to time after the date of this prospectus
supplement, request each rating agency rating the certificates to approve a
formula for determining the amount that is required to be on deposit in the
reserve fund on each payment date that is different from that described above.
If each rating agency delivers a letter to the trustee to the effect that the
use of
S-26
any new formula will not result in a qualification, reduction or withdrawal of
its then-current rating of any class of certificates, then the amount that is
required to be on deposit in the reserve fund on each payment date will be
determined in accordance with the new formula. The pooling and servicing
agreement will accordingly be amended, without the consent of any
certificateholder, to reflect the new calculation.
If the amounts of Available Interest and/or Available Principal available
to the trust for any payment date are insufficient to make distributions of
principal and interest on the certificates, the collateral agent will withdraw
funds from the reserve fund for distribution to the certificateholders to cover
any shortfalls. If on the final scheduled payment date, the certificate balance
of each class has not been reduced to zero, the collateral agent will withdraw
funds from the reserve fund to pay those certificates in full.
CALCULATION OF RESERVE FUND REQUIRED AMOUNT
On the closing date, the depositor will deposit a total of $[ ]
into the reserve fund initial deposit. With respect to any payment date, the
reserve fund required amount will equal the greater of (a) [ ]% of the
principal balance of the contracts in the trust as of the first day of the
immediately preceding due period; PROVIDED, HOWEVER, that if certain trigger
events occur, the reserve fund required amount will be equal to [ ]% of the
principal balance of the contracts in the trust as of the first day of the
immediately preceding due period and (b) [ ]% of the aggregate of the initial
certificate balances; PROVIDED, HOWEVER, in no event shall the reserve fund
required amount be greater than the aggregate outstanding principal balance
of the securities. As of any payment date, the amount of funds actually on
deposit in the reserve fund initial deposit may, in certain circumstances, be
less than the reserve fund required amount.
A "RESERVE FUND TRIGGER EVENT" will have been deemed to occur with
respect to any payment date if (i) the Average Delinquency Ratio for such
payment date is equal to or greater than (a) [ ]% with respect to any payment
date which occurs within the period from the closing date to, and inclusive
of, the first anniversary of the closing date, (b) [ ]% with respect to any
payment date which occurs within the period from the day after the first
anniversary of the closing date to, and inclusive of, the second anniversary
of the closing date, or (c) [ ]% for any payment date which occurs within the
period from the day after the second anniversary of the closing date to, and
inclusive of, the third anniversary of the closing date or (d) [ ]% for any
payment date following the third anniversary of the closing date; (ii) the
Average Loss Ratio for such payment date is equal to or greater than (a) [ ]%
with respect to any payment date which occurs within the period from the
closing date to, and inclusive of, the eighteen months following the closing
date or (b) [ ]% with respect to any payment date which occurs following the
eighteen month period following the closing date; or (iii) the Cumulative
Loss Ratio for such payment date is equal to or greater than (a) [ ]% with
respect to any payment date which occurs within the period from the closing
date to, and inclusive of, the first anniversary of the closing date, (b) [ ]
% with respect to any payment date which occurs within the period from the
day after the first anniversary of the closing date to, and inclusive of, the
second anniversary of the closing date, (c) [ ]% for any payment date which
occurs within the period from the day after the second anniversary of the
closing date to, and inclusive of, the third anniversary of the closing date,
or (d) [ ]% following the third anniversary of the closing date.
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A reserve fund trigger event will be deemed to have terminated with
respect to a payment date if no reserve fund trigger event shall exist with
respect to [ ] consecutive payment dates (inclusive of the respective payment
date).
INTEREST RESERVE ACCOUNT
The depositor will establish, and fund with an initial deposit on the
closing date, the interest reserve account, for the purpose of providing
additional funds for payment to the trust of carrying charges to pay certain
distributions on payment dates occurring during (and on the first payment date
following the end of) the funding period. In addition to the initial deposit,
all investment earnings with respect to the pre-funded account are to be
deposited into the interest reserve account and, pursuant to the sale and
servicing agreement, the depositor is obligated to pay to the trust, on each
payment date described above, amounts in respect of carrying charges from such
account.
The interest reserve account will be established to account for the fact
that a portion of the proceeds obtained from the sale of the certificates will
be initially deposited in the pre-funding account rather than invested in
contracts, and the monthly investment earnings on amounts in the pre-funding
account (until such amounts have been used to purchase subsequent contracts) are
expected to be less than the weighted average of the interest rates of the
respective classes of certificates with respect to the corresponding portion of
the principal balances of respective classes of certificates, as well as the
amount necessary to pay the trustees' fees. The interest reserve account is not
designed to provide any protection against losses on the contracts in the trust.
After the funding period, money in the interest reserve account will be released
to the depositor.
THE DISTRIBUTION ACCOUNT
The depositor will establish and maintain with an eligible institution the
certificate distribution account, in the name of the trust on behalf of the
certificateholders, in which amounts released from the collection account for
distribution to certificateholders will be deposited and from which all
distributions to certificateholders will be made.
MANDATORY REDEMPTION FOLLOWING THE FUNDING PERIOD
Certificateholders will be prepaid in part, without premium, on the
payment date on or immediately following the last day of the funding period
if any amount remains on deposit in the pre-funding account after subsequent
contracts are transferred to the trust. The aggregate principal amount of
certificates to be prepaid will be an amount equal to the amount then on
deposit in the pre-funding account allocated pro rata. If the amount on
deposit in the pre-funding account is less than $150,000, only the Class A
certificateholders will be prepaid.
PAYMENTS ON THE CERTIFICATES
AVAILABLE AMOUNTS
The trust will pay principal and interest in respect of the certificates on
each payment date from Available Amounts for the payment date, as well as
amounts permitted to be
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withdrawn from the reserve fund. See "CERTAIN INFORMATION REGARDING THE
NOTES--THE ACCOUNTS--RESERVE FUND". "Available Amounts" for any payment date are
generally the sum of:
- - the following amounts on deposit in the collection account which the trust
received during the prior calendar month;
(1) all amounts allocable to scheduled principal or interest payments on
the contracts;
(2) prepayments of contracts; and
(3) proceeds of repossessed financed motorcycles and other proceeds of
defaulted contracts;
- - the purchase price paid by the depositor in repurchasing contracts from the
trust on that payment date as a result of a breach of the representations
and warranties with respect to those contracts in the sale and servicing
agreement;
- - servicer advances made by the servicer on that payment date in respect of
delinquent interest payments for the prior calendar month; and
- - the amount paid by the depositor to purchase the contracts when the
aggregate outstanding principal balance of the contracts is reduced to less
than 10% of the sum of (i) aggregate principal balance of the contracts
owned by the trust as of the closing date and (ii) the initial mount on
deposit in the pre-funding account.
The precise calculation of the funds available to the trust on each payment
date to make payments on the certificates is set forth in the definition of
"Available Amounts" and the definitions of the defined terms contained in that
definition set forth in the Glossary. We refer you to those definitions.
SERVICING COMPENSATION AND REIMBURSEMENT OF SERVICER ADVANCES
On each payment date, the servicer will be entitled to receive:
- the base servicing fee in an amount equal to the product of one
twelfth of one percent (1%) and the aggregate principal balance of the
contracts as of the last day of the second calendar month preceding
the month in which that payment date falls; and
- any investment income earned on amounts on deposit in the collection
account during the prior calendar month.
The servicer will also be entitled to retain any late payment fees,
prepayment charges, if any, and other similar fees and charges received during
the prior calendar month.
The servicer will reimburse itself for servicer advances out of:
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- amounts received by the servicer from the obligors on account of the
related delinquent contract payments;
- the proceeds, net of expenses incurred by the servicer, of the sale of
the repossessed financed vehicles securing the related delinquent
contracts; and
- payments on other contracts when the servicer has determined that an
advance will not be recoverable from payments by the related obligor.
DISTRIBUTIONS
On each payment date, the trustee will distribute the following amounts in
the following order and priority from the following funds:
(1) from the Available Amounts, to the servicer, reimbursement of servicer
advances;
(2) from Available Interest, to the servicer, payment of the base
servicing fee;
(3) from Available Interest, to the Class A certificateholders, an amount
equal to the accrued and unpaid interest on the Class A Certificates,
including any accrued and unpaid interest on the Class A Certificates
payable on prior payment dates plus interest on that accrued and
unpaid interest, and if the remaining Available Interest is
insufficient, the Class A certificateholders will be entitled to
receive interest first from funds withdrawn from the reserve fund and
second, if those amounts are insufficient, from the Class B Percentage
of Available Principal;
(4) from Available Interest, to the Class B certificateholders, an amount
equal to the accrued and unpaid interest on the Class B Certificates,
including any accrued and unpaid interest on the Class B Certificates
payable on prior payment dates plus interest on that accrued and
unpaid interest and if the remaining Available Interest is
insufficient, the Class B certificateholders will be entitled to
receive interest from funds withdrawn from the reserve fund;
(5) from Available Amounts, to the Class A certificateholders, an amount
equal to the Class A Principal Distributable Amount for such payment
date and if the remaining Available Amounts are insufficient, the
Class A certificateholders will be entitled to receive principal from
funds withdrawn from the reserve fund;
(6) from Available Amounts, to the Class B certificateholders, an amount
equal to the Class B Principal Distributable Amount for such payment
date and if the remaining Available Amounts are insufficient, the
Class B certificateholders will be entitled to receive principal from
funds withdrawn from the reserve fund;
(7) from Available Amounts, to the reserve fund, an amount necessary to
increase the amount on deposit in the reserve fund to the required
amount; and
(8) any remaining Available Amounts to the depositor.
RATINGS OF THE CERTIFICATES
It is a condition of issuance that each of Standard & Poor's Rating
Services and Moody's Investors Service, Inc.
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- rate the Class A Certificates in its [___________] rating category,
- rate the Class B Certificates at least [___________] respectively.
The ratings address the likelihood of the timely receipt of interest and
distribution of principal in respect of each class of certificates on or before
the scheduled final payment date. The ratings will be based primarily upon the
contracts and the related property, the reserve fund, the yield supplement
account and the subordination provided by the Class B Certificates, in the case
of the Class A Certificates.
We cannot assure you that any rating will not be lowered or withdrawn by
the assigning rating agency. In the event that ratings with respect to the
certificates are qualified, reduced or withdrawn, no person or entity will be
obligated to provide any additional credit enhancement with respect to the
certificates.
The ratings should be evaluated independently from similar ratings on other
types of certificates. A rating is not a recommendation to buy, sell or hold the
certificates, inasmuch as these ratings do not comment as to market price or
suitability for a particular investor. The ratings do not address the likelihood
of distributions of principal in respect of any class of certificates prior to
the scheduled final payment date or the possibility of the imposition of United
States withholding tax with respect to non-United States Persons.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
TREATMENT OF TRUST AS GRANTOR TRUST
Winston & Strawn, as federal tax counsel to the trust, will deliver its
opinion that the trust will be treated for federal income tax purposes as a
grantor trust and not as an association (or a publicly traded partnership)
taxable as a corporation. They will further opine that each certificateholder
will be treated for federal income tax purposes as the owner of a pro rata
undivided interest in the income and assets of the trust. These opinions are
subject to the further explanation, assumptions and qualifications described in
the accompanying prospectus under the heading "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES--GRANTOR TRUST". For federal income tax purposes, the trust will be
deemed to have acquired the following assets: the principal and interest due
with respect to each contract (excluding the portion retained by the seller),
any rights to receive payments under a yield supplement agreement, and certain
other rights in favor of the trust with respect to payments due on the
contracts.
TAX TREATMENT OF INVESTORS
Each certificateholder will be required to report on its federal income tax
return its pro rata share of the entire income from the contracts in the trust,
including interest, original issue discount, prepayment fees, assumption fees,
any gains on disposition of contracts, and late payment charges. A
certificateholder will also be required to report any payments received under a
yield supplement agreement to the extent that these payments are treated as
income. Each certificateholder will be entitled to deduct its pro rata share of
servicing fees, prepayment fees, assumption fees, and any losses recognized upon
disposition of contracts. A
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certificateholder's recognition of income required to be reported on its return
and its ability to deduct expenses of the trust are subject to the further
explanation, assumptions and qualifications described in detail in the
accompanying prospectus.
ERISA CONSIDERATIONS
CLASS A CERTIFICATES
Subject to the considerations set forth below and under "ERISA
CONSIDERATIONS" in the accompanying prospectus, the Class A Certificates may be
purchased by an employee benefit plan, an individual retirement account or a
similar arrangement (a "Benefit Plan") subject to ERISA or Section 4975 of the
United States Internal Revenue Code of 1986, as amended (the "Code"). A
fiduciary of a Benefit Plan must determine that the purchase of a Class A
Certificate is consistent with its fiduciary duties under ERISA and does not
result in a nonexempt prohibited transaction as defined in Section 406 of ERISA
or Section 4975 of the Code.
The United States Department of Labor (the "DOL") has granted to [ ] and
[ ]administrative exemptions (Prohibited Transaction Exemptions [ ] and [ ], as
amended by Prohibited Transaction Exemption 97-34 (the "Exemptions")) from some
of the prohibited transaction rules of ERISA with respect to the initial
purchase, the holding and the subsequent resale by Benefit Plans of certificates
representing interests in asset-backed pass-through trusts that consist of
receivables, loans and other obligations that meet the conditions and
requirements of the Exemptions. The receivables covered by the Exemptions
include motor vehicle installment obligations such as the contracts. The
Exemptions also apply to transactions in connection with the servicing,
management and operation of the trust which might otherwise constitute
prohibited transactions.
Among the conditions that must be satisfied for either of the Exemptions to
apply to the acquisition by a Benefit Plan of the Class A Certificates are the
following:
1. The acquisition of the Class A Certificates by a Benefit Plan is on
terms (including the price for that Class A Certificates) that are at
least as favorable to the Benefit 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 the Benefit Plan are not subordinated to the rights and
interests evidenced by other certificates of the trust.
3. The Class A Certificates acquired by the Benefit Plan have received a
rating at the time of the acquisition that is in one of the three
highest generic rating categories from Standard & Poor's Rating
Services ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Duff &
Phelps Inc. ("D&P") or Fitch IBCA, Inc. ("Fitch" and together with
S&P, Moody's and D&P, the "Rating Services").
4. The trustee is not an affiliate of any member of the Restricted Group
(as defined below).
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5. The sum of all payments made to and retained by the underwriters in
connection with the purchase of the Class A Certificates represents
not more than reasonable compensation for underwriting the Class A
Certificates. The sum of all payments made to and retained by the
depositor pursuant to the transfer of the contracts to the trust
represents not more than the fair market value of those contracts. The
sum of all payments made to and retained by any servicer represents
not more than reasonable compensation for the servicer's services and
reimbursement of the servicer's reasonable expenses in connection
therewith.
6. The Benefit Plan investing in the Class A Certificates is an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D of
the Commission under the Securities Act of 1933, as amended.
The trust must also meet the following requirements:
1. The corpus of the trust must consist solely of assets of the type that
have been included in other investment pools.
2. Certificates in those other investment pools must have been rated in
one of the three highest generic rating categories of any of the
Rating Services for at least one year prior to the Benefit Plan's
acquisition of certificates.
3. Certificates evidencing interests in those other investment pools must
have been purchased by investors other than Benefit Plans for at least
one year prior to any Benefit Plan's acquisition of Class A
Certificates.
The Exemptions do not apply in all respects to Benefit Plans sponsored by
the seller, the underwriters, the trustee, the servicer, any obligor with
respect to the contracts included in the trust constituting more than 5% of the
aggregate unamortized principal balance of the assets in the trust or any
affiliate of those parties (the "Restricted Group"). As of the date hereof, no
obligor with respect to the contracts included in the trust constitutes more
than 5% of the aggregate unamortized principal balance of the trust (i.e., the
initial principal amount of the certificates). Moreover, each Exemption provides
relief from specified self-dealing/conflict of interest prohibited transactions
that may arise when a fiduciary causes a Benefit Plan to invest in a trust
holding receivables on which the fiduciary (or its affiliate) is obligor only
if, among other requirements,
1. in the case of the acquisition of Class A Certificates in connection
with the initial issuance, at least 50% of each class of certificates
in which Benefit Plans have invested is acquired by persons
independent of the Restricted Group and at least 50% of the aggregate
interest in the trust is acquired by persons independent of the
Restricted Group;
2. a Benefit Plan's investment in the Class A Certificates does not
exceed 25% of all of the Class A Certificates outstanding at the time
of the acquisition;
3. immediately after the acquisition, no more than 25% of the assets of a
Benefit Plan with respect to which a person has discretionary
authority or renders
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investment advice are invested in certificates representing interests
in trusts containing assets sold or serviced by the same entity;
4. the fiduciary (or its affiliate) is obligor with respect to 5 percent
or less of the fair market value of receivables held in the trust; and
5. the Benefit Plan is not sponsored by a member of the Restricted Group.
The seller believes that the Exemptions will apply to the acquisition,
holding and resale of the Class A Certificates by a Benefit Plan and that all
conditions of the Exemptions other than those within the control of investors
will be met. However, there can be no assurance that the DOL or the IRS will not
take a contrary position, nor that that position will be sustained. One or more
alternative exemptions may be available with respect to specified prohibited
transactions to which the Exemptions are not applicable, depending in part upon
the type of a Benefit Plan's fiduciary making the decision to acquire the Class
A Certificates and the circumstances under which that decision is made. See
"ERISA CONSIDERATIONS" in the accompanying Prospectus. Any Benefit Plan which
acquires a beneficial ownership interest in a Class A Certificates will be
deemed, by virtue of the acceptance and acquisition of that ownership interest,
to have represented to the depositor and the trustee that that Benefit Plan is
an "accredited investor" for purposes of Rule 501(a)(1) of Regulation D under
the Securities Act.
CLASS B CERTIFICATES
Class B Certificates may not be acquired by an employee benefit plan (as
defined in Section 3(3) of ERISA) that is subject to the provisions of Title I
of ERISA or a plan (as defined in Section 4975(e)(1) of the Code) or any person
acting on behalf of such a plan or using the assets of such a plan to acquire
the Class B Certificates or any entity whose underlying assets include plan
assets by reason of a plan's investment in the entity, except as provided below
with respect to insurance company general accounts. By its acceptance of a Class
B Certificate, each holder thereof will be deemed to have represented and
warranted that it is not subject to the foregoing limitation.
In 1995, the DOL issued PTCE 95-60. Section III of PTCE 95-60 exempts from
the application of the prohibited transaction provisions of Sections 406(a),
406(b) and 407(a) of ERISA and Section 4975 of the Code transactions in
connection with the servicing, management and operation of a trust (such as the
trust) in which an insurance company general account has an interest as a result
of its acquisition of certificates issued by the trust, provided that certain
conditions are satisfied. If these conditions are met, insurance company general
accounts would be allowed to purchase classes of certificates (such as the Class
B Certificates) which do not meet the requirements of the Exemptions solely
because they (i) are subordinated to other classes of certificates in the trust
and/or (ii) have not received a rating at the time of the acquisition in one of
the three generic highest rating categories from any of the Rating Services. All
other conditions of the Exemptions would have to be satisfied in order for PTCE
95-60 to be available. Before purchasing Class B Certificates, an insurance
company general account seeking to rely on Section III of PTCE 95-60 should
itself confirm that all applicable conditions and other requirements have been
satisfied.
S-34
ALL CERTIFICATES
A purchaser of the certificates should be aware, however, that even if the
conditions specified in one or more exemptions are met, the scope of the relief
provided by the applicable exemption or exemptions might not cover all acts that
might be construed as prohibited transactions.
Prospective Benefit Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of the Exemptions
or any other exemptions, and the potential consequences of any purchase in their
specific circumstances, prior to making an investment in a certificate.
A governmental plan as defined in Section 3(32) of ERISA is not subject to
ERISA or Code Section 4975. However, that governmental plan may be subject to
federal, state or local law which is to a material extent similar to the
provisions of ERISA or Code Section 4975 ("Similar Law"). A fiduciary of a
governmental plan should make its own determination as to the need for and
availability of any exemptive relief under such Similar Law.
LEGAL PROCEEDINGS
None of the depositor, the servicer, the seller or the trust are parties to
any legal proceeding which could have a material adverse impact on your interest
in the certificates or in the trust's assets.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
among the depositor, the seller and the underwriters, the depositor has agreed
to sell to each of the underwriters named below and each of those underwriters
has severally to purchase the following respective initial certificate balances
of the certificates at the respective public offering prices less the respective
underwriting discounts shown on the cover page of this prospectus supplement:
INITIAL CERTIFICATE
INITIAL CERTIFICATE BALANCE OF BALANCE OF
UNDERWRITER CLASS A CERTIFICATES CLASS B CERTIFICATES
----------- -------------------- --------------------
In the underwriting agreement, the underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the certificates
being offered, if any of the certificates are purchased. In the event of default
by the underwriters, the underwriting agreement provides that, in certain
circumstances, the underwriting agreement may be terminated.
Distribution of the certificates may be made by the underwriters from time
to time in one or more negotiated transactions, or otherwise, at varying prices
to be determined at the time of sale. The underwriters may effect such
transactions by selling the certificates to or through
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dealers, and such dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the underwriters. In connection with
the sale of the certificates, the underwriters may be deemed to have received
compensation from the seller in the form of underwriting compensation. The
underwriters and any dealers that participate with the underwriters in the
distribution of the certificates may be deemed to be an underwriter and any
commissions received by them and any profit on the resale of the certificates
positioned by them may be deemed to be underwriting discounts and commissions
under the Securities Act. The underwriters may allow and the dealers may reallow
to other dealers a discount not in excess of the amount noted in the table
below:
SELLING CONCESSION REALLOWANCE
CLASS NOT TO EXCEED NOT TO EXCEED
----- ------------- -------------
A
B
After the initial public offering of the certificates, the offering prices and
other selling terms may be varied by the underwriters.
In connection with the offering of the certificates, [____________], on
behalf of the underwriters, may engage in overallotment, stabilizing
transactions or syndicate covering transactions in accordance with Regulation M
under the Securities Exchange Act of 1934. Overallotment transactions involve
syndicate sales in excess of the offering size creating a syndicate short
position. Stabilizing transactions permit bids to purchase the certificates so
long as the stabilizing bids do not exceed a specified minimum. Syndicate
covering transactions involve purchases of certificates in the open market after
the distribution has been completed in order to cover syndicate short positions.
Such over-allotment transactions, stabilizing and syndicate covering
transactions may cause the price of the certificates to be higher than they
would otherwise be in the absence of those transactions. The underwriters do not
represent that the underwriters will engage in those transactions nor that such
transactions, once commenced, will not be discontinued without notice.
The depositor and some of its affiliates have agreed to indemnify the
underwriters against some liabilities in connection with the sale of
certificates, including liabilities under the Securities Act of 1933, as
amended.
The certificates have no established trading market. The underwriters have
advised us that the underwriters intend to make a market in the certificates but
are not obligated to do so and may discontinue market making at any time without
notice. No assurance can be given as to the liquidity of the trading market for
the certificates.
Neither the seller nor the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above, if engaged in, may have on the prices of the certificates. In
addition, neither the seller nor the underwriters make any representation that
the underwriter will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
The underwriters have represented and agreed that:
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(i) they have not offered or sold and, prior to the expiration of the
period of six months from the closing date, will not offer or sell any
certificates to persons in the United Kingdom, except to persons whose
ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which have not resulted
and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulation 1995;
(ii) they have complied and will comply with all applicable provisions
of the Financial Services Act 1986 with respect to anything done by
them in relation to the certificates in, from or otherwise involving
the United Kingdom; and
(iii) they have only issued or passed on and will only issue or pass
on in the United Kingdom any document received by it in connection
with the issue of the certificates to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1995, or is a person to
whom such document may otherwise lawfully be issued or passed on.
LEGAL MATTERS
Winston & Strawn, Chicago, Illinois, has provided a legal opinion relating
to the certificates in its capacity as special counsel to the depositor and the
servicer. Certain legal matters for the underwriters will be passed upon by
[___________]. The pooling and servicing agreement and the certificates will be
governed by the laws of the State of Illinois.
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Securities
(the "GLOBAL SECURITIES") will be available only in book-entry form. Investors
in the Global Securities may hold such Global Securities through DTC and, in the
case of the Notes, Euroclear or Clearstream. The Global Securities will be
tradeable as home market instruments in both the European and U.S. domestic
markets. Initial settlement and all secondary trades will settle in same-day
funds.
Secondary market trading between investors holding Global Securities
through Euroclear and Clearstream will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance
with conventional eurobond practice (I.E. seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Euroclear or Clearstream and DTC
participants holding Global Securities will be effected on a
delivery-against-payment basis through the respective depositaries of Euroclear
and Clearstream (in such capacity) and as DTC participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect participants in DTC. As a result, Euroclear and Clearstream will
hold positions on behalf of their participants through their respective
depositaries, which in turn will hold such positions in accounts as DTC
participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to similar issues on pass-through
certificates. Investors' securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Euroclear or
Clearstream accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "LOCK-UP" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payments in same-day
funds.
S-38
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish the time of the trade where both the purchaser's and seller's accounts
are located to ensure that settlement can be made on the desired value date.
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between DTC
participants will be settled using the procedures applicable to similar issues
of pass-through certificates in same-day funds.
TRADING BETWEEN EUROCLEAR AND/OR CLEARSTREAM PARTICIPANTS. Secondary market
trading between Euroclear participants or Clearstream participants will be
settled using the procedures applicable to conventional eurobonds in same-day
funds.
TRADING BETWEEN DTC SELLER AND EUROCLEAR OR CLEARSTREAM PURCHASER. When
Global Securities are to be transferred from the account of a DTC participant to
the account of a Euroclear participant or a Clearstream participant, the
purchaser will send instructions to Euroclear or Clearstream through a Euroclear
participant or Clearstream participant at least one business day prior to
settlement. Euroclear or Clearstream will instruct the respective depositary, as
the case may be, to receive the Global Securities against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment date to and excluding the settlement date. Payment will then be
made by the respective depositary to the DTC participant's account against
delivery of the Global Securities. After settlement has been completed, the
Global Securities will be credited to the respective clearing system and by the
clearing system, in accordance with its usual procedures, to the Euroclear
participant's or Clearstream participant's account. The Global Securities credit
will appear the next day (European time) and the cash debit will be back-valued
to, and the interest on the Global Securities will accrue from, the value date;
(which would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (I.E., the trade fails),
the Euroclear or Clearstream cash debit will be valued instead as of the actual
settlement date.
Euroclear participants and Clearstream participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to pre-positions
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Euroclear or Clearstream. Under
this approach, they may take on credit exposure to Euroclear or Clearstream
until the Global Securities are credited to their accounts one day later.
As an alternative, if Euroclear or Clearstream has extended a line of
credit to them, Euroclear participants or Clearstream participants can elect to
pre-position funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, Euroclear participants or Clearstream
participants purchasing Global Securities would incur overdraft charges for one
day, assuming they cleared the overdraft when the Global Securities were
credited to their accounts. However, interest on the Global Securities would
accrue from the value date. Therefore, in many cases the investment income on
the Global Securities earned during that one-day period may substantially reduce
or offset the amount of such overdraft charges, although this
S-39
result will depend on each Euroclear participant's or Clearstream participant's
particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary for the benefit of CEDEL Participants or Clearstream
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently than a trade between two DTC Participants.
TRADING BETWEEN EUROCLEAR OR CLEARSTREAM SELLER AND DTC PURCHASER. Due to
time zone differences in their favor, Euroclear participants and Clearstream
participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC participant. The seller will send
instructions to Euroclear or Clearstream through a Euroclear participant or
Clearstream participant at least one business day prior to settlement. In these
cases, Euroclear or Clearstream will instruct the respective Depositary, as
appropriate, to deliver the bonds to the DTC participant's account against
payment. Payment will include interest accrued on the Global Securities from and
including the last coupon payment date to and excluding the settlement date. The
payment will then be reflected in the account of the Euroclear participant or
Clearstream participant the following day, and receipt of the cash proceeds in
the Euroclear participant's or Clearstream participant's account, would be
back-valued to the value date (which would be the preceding day, when settlement
occurred in New York). Should the Euroclear participant or Clearstream
participant have a line of credit with its respective clearing system and elect
to be in debit in anticipation or receipt of the sale proceeds in its account,
the back-valuation will extinguish any overdraft charges incurred over that
one-day-period. If settlement is not completed on the intended value date (I.E.,
the trade fails), receipt of the cash proceeds in the Euroclear participant's or
Clearstream participant's account would instead be valued as of the actual
settlement date. Finally, day traders that use, Euroclear or Clearstream and
that purchase Global Securities from DTC participants for delivery to Euroclear
participants or Clearstream participants should note that these trades would
automatically fail on the sale side unless affirmative action were taken. At
least three techniques should be readily available to eliminate this potential
problem:
(a) borrowing through Euroclear or Clearstream for one day (until the
purchase side of the day trade is reflected in their Euroclear or
Clearstream accounts) in accordance with the clearing system's
customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC
participant no later than one day prior to settlement, which
would give the Global Securities sufficient time to be reflected
in their Euroclear or Clearstream account in order to settle the
sale side of the trade; or
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(c) staggering the value dates for the buy and sell sides of the
trade so that the value date for the purchase from the DTC
participant is at least one day prior to the value date for the
sale to the Euroclear participant or Clearstream participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENT
A beneficial owner of Global Securities holding securities through CEDEL or
Clearstream (or through DTC if the holder has an address outside the U.S.) will
be subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issued discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8 OR FORM W-8BEN). Beneficial
owners of Securities that are non-U.S. Persons can obtain a complete
exemption from the withholding tax by filing a signed Form W-8 (Certificate
of Foreign Status) or Form W-8BEN (Certificate of Foreign Status of
Beneficial Owner for United States Tax Withholding). If the information
shown on Form W-8 changes, a new Form W-8 or Form W-8BEN must be filed
within 30 days of such change. After December 31, 2000, only Form W-8BEN
will be acceptable
EXEMPTION FOR NON-U.S. PERSONS WILL EFFECTIVELY CONNECTED INCOME (FORM
4224 OR FORM W-8ECI). A non-U.S. Person, including a non-U.S. corporation
or bank with a U.S. branch, for which the interest income is effectively
connected with its conduct of a trade or business in the United States, can
obtain an exemption from the withholding tax by filing Form 4224 (Exemption
from Withholding of Tax on Income Effectively Connected with the Conduct of
a Trade or Business in the United States) or Form W-8ECI (Certificate of
Foreign Person's Claim for Exemption from Withholding on Income Effectively
Connected with the Conduct of a Trade or Business in the United States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY
COUNTRIES (FORM 1001 OR FORM W-8BEN). Non-U.S. Persons that are
Securityholders residing in a country that has a tax treaty with the United
States can obtain an exemption or reduced tax rate (depending on the treaty
terms) by filing Form 1001 (Ownership, Exemption or Reduced Rate
Certificate). If the treaty provides only for a reduced rate, withholding
tax will be imposed at that rate unless the filer alternatively files Form
W-8 or Form W-8BEN (Certificate of Foreign Status of Beneficial Owner for
United States Tax Withholding). Form 1001 may be filed by the
Securityholder or his agent. After December 31, 2000, only Form W-8BEN will
be acceptable.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
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U.S. FEDERAL INCOME TAX REPORTING PROCEDURES. The holder of a Global
Security or in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8, Form 1001 and Form 4224 are
effective until December 31, 2000. Form W-8BEN and Form W-8ECI are
effective until the third succeeding calendar year from the date the form
is signed.
The term "U.S. PERSON" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States, any state thereof or the District of Columbia, (iii) an estate
the income of which is includible in gross income for United States tax
purposes, regardless of its source or (iv) a trust if a court within the United
States is able to exercise primary supervision over the administration of the
trust and one or more United States persons have the authority to control all
substantial decisions of the trust. Notwithstanding the preceding sentence, to
the extent provided in Treasury regulations, certain trusts in existence on
August 20, 1996, and treated as United States persons under the United States
Internal Revenue Code of 1986, as amended (the "Code") and applicable Treasury
regulations thereunder prior to such date, that elect to continue to be treated
as United States persons under the Code or applicable Treasury regulations
thereunder also will be a U.S. Person. This summary does not deal with all
aspects of U.S. Federal income tax withholding that may be relevant to foreign
holders of the Global Securities. Investors are advised to consult their own tax
advisors for specific tax advice concerning their holding and disposing of the
Global Securities.
S-42
GLOSSARY OF TERMS
AVAILABLE AMOUNTS means, with respect to any payment date, the sum of the
Available Interest and the Available Principal for such payment date.
AVAILABLE INTEREST means, with respect to any payment date, the total,
without duplication, of the following amounts received by the servicer on or in
respect of the contracts during the prior calendar month:
- all amounts allocable to scheduled interest payments on the contracts;
- the interest component of all prepayments of contracts;
- the interest component of all proceeds of repossessed financed
motorcycles and other proceeds of defaulted contracts;
- the interest component of the purchase price paid by the depositor in
repurchasing contracts from the trust on that payment date as a result
of a breach of the representations and warranties with respect to
those contracts in the sale and servicing agreement;
- all amounts received in respect of carrying charges transferred from
the interest reserve account;
- all amounts received in respect of interest, dividends, gains, income
and earnings on investment of funds in the trust accounts;
- servicer advances made by the servicer on that payment date in respect
of delinquent interest payments for the prior calendar month; and
- the interest component of the amount paid by the seller to purchase
the contracts when the aggregate principal balance of the contracts is
reduced to less than 10% of the sum of (i) the aggregate outstanding
principal balance of the contracts as of the closing date and (ii) the
initial mount on deposit in the pre-funding account.
AVAILABLE PRINCIPAL means, with respect to any payment date, the total,
without duplication, of the following amounts received by the servicer on or in
respect of the contracts during the prior calendar month:
- all amounts allocable to scheduled principal payments on the
contracts;
- the principal component of all prepayments of contracts;
- the principal component of all proceeds of repossessed motorcycles and
other proceeds of defaulted contracts;
- the principal component of the purchase price paid by the depositor in
repurchasing contracts from the trust on that payment date as a result
of a breach of the representations and warranties with respect to
those contracts in the sale and servicing agreement; and
S-43
- the principal component of the amount paid by the seller to purchase
the contracts when the aggregate principal balance of the contracts is
reduced to less than 10% of the sum of (i) the aggregate outstanding
principal balance of the contracts as of the closing date and (ii) the
initial amount on deposit in the pre-funding account.
AVERAGE DELINQUENCY RATIO with respect to any payment date, is equal to the
arithmetic average of the Delinquency Ratios for the payment date and the two
immediately preceding payment dates.
AVERAGE LOSS RATIO for any payment date is equal to the arithmetic average
of the Loss Ratios for such payment date and the two immediately preceding
payment dates. The "LOSS RATIO" for any payment date is equal to the fraction
(expressed as a percentage) derived by dividing (x) the Net Liquidation Losses
for all contracts that became Liquidated Contracts during the immediately
preceding month multiplied by 12 by (y) the outstanding Principal Balances of
all contracts as of the beginning of the related month.
CUMULATIVE LOSS RATIO for any payment date means the fraction (expressed as
a percentage) computed by the servicer by dividing (a) the aggregate Net
Liquidation Losses for all contracts since the cutoff date through the end of
the related month by (b) the sum of (i) the principal balance of the contracts
as of the cutoff date plus (b) the principal balance of any subsequent contracts
as of the related subsequent cutoff date.
DELINQUENCY AMOUNT as of any payment date means the principal balance of
all contracts that were delinquent 60 days or more as of the end of the related
month (including contracts in respect of which the related motorcycles have been
repossessed and are still inventory).
DELINQUENCY RATIO for any payment date is equal to the fraction (expressed
as a percentage) derived by dividing (a) the Delinquency Amount during the
immediately preceding month by (b) the Principal Balance of the contracts as of
the beginning of the related month.
A LIQUIDATED CONTRACT means any defaulted contract as to which the servicer
has determined that all amounts which it expects to recover from or on account
of such contract have been recovered; PROVIDED that any defaulted contract in
respect of which the related motorcycle has been realized upon and disposed of
and the proceeds of such disposition have been realized shall be deemed to be a
Liquidated Contract; and PROVIDED FURTHER, a contract which has been repossessed
and has not been sold by the servicer for a period in excess of [___] days from
such date of repossession or a contract which has been delinquent more than
[___] days shall be deemed to be a Liquidated Contract with a zero balance.
NET LIQUIDATION LOSSES means, with respect to a Liquidated Contract, the
amount, if any, by which (a) the outstanding Principal Balance of such
Liquidated Contract plus accrued and unpaid interest thereon at the annual
interest rate stated in such Liquidated Contract to the date on which such
Liquidated Contract became a Liquidated Contract exceeds (b) the Net Liquidation
Proceeds for such Liquidated Contract.
S-44
NET LIQUIDATION PROCEEDS means, as to any Liquidated Contract, the proceeds
realized on the sale or other disposition of the related motorcycle, including
proceeds realized on the repurchase of such motorcycle by the originating dealer
for breach of warranties, and the proceeds of any insurance relating to such
motorcycle, after payment of all expenses incurred thereby, together, in all
instances, with the expected or actual proceeds of any recourse rights relating
to such contract as well as any post disposition proceeds received by the
servicer.
PRINCIPAL BALANCE means, (a) with respect to any contract as of any date,
an amount equal to the unpaid principal balance of such contract as of the
opening of business on the cut-off date, reduced by all payments and other
amounts received by the servicer as of such date allocable to principal;
provided, however, that (i) if (x) a contract is repurchased by the depositor
because of a breach of a representation or warranty, or if (y) the depositor
gives notice of its intent to purchase the contracts in connection with an
optional termination of the trust, in each case the Principal Balance of such
contract or contracts shall be deemed to be zero for the prior calendar month in
which such event occurs and for each calendar month thereafter and (ii) from and
after the prior calendar month in which a contract becomes a defaulted contract,
the Principal Balance of such contract shall be deemed to be zero; and (b) where
the context requires, the aggregate Principal Balances described in clause (a)
for all such contracts.
UNITED STATES PERSONS means:
- A citizen or resident of the United States;
- A corporation or partnership organized in or under the laws of
the United States, any state thereof or the District of Columbia;
- An estate the income of which is includible in gross income for
United States federal income tax purposes, regardless of its
source; or
A trust, (a) with respect to which a court within the United States is able to
exercise primary supervision over its administration, and one or more United
States fiduciaries have the authority to control all of its substantial
decisions, or (b) otherwise, the income of which is subject to U.S. federal
income tax regardless of its source.
S-45
Harley-Davidson Motorcycle Trust [ ]
BALANCE SHEET AS OF [__________], [_____]
Assets -- Cash............................ $
Beneficial Equity......................... $
Liabilities............................... $
NOTES TO THE BALANCE SHEET
Harley-Davidson Motorcycle Trust [ ] is a limited purpose business trust
established under the laws of the State of Delaware. It was formed on [ ] under
a trust agreement dated as of [ ] between the depositor and the trustee. The
activities of the trust are limited by the terms of the trust agreement to
acquiring, owning and managing loan contracts and related assets, issuing and
making payments on certificates and other related activities. Prior to and
including [ ], the trust did not conduct any activities.
The depositor will pay all fees and expenses related to the organization
and operations of the trust, other than withholding taxes, imposed by the United
States or any other domestic taxing authority. The depositor has also agreed to
indemnify the trustee and certain other persons involved in the sale of
certificates.
S-46
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE SECURITIES OFFERED BY THIS PROSPECTUS SUPPLEMENT,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
$
HARLEY-DAVIDSON MOTORCYCLE TRUST [ ]
$[ ] [ ]% HARLEY-DAVIDSON MOTORCYCLE CONTRACT BACKED CERTIFICATES, CLASS A
$[ ] [ ]% HARLEY-DAVIDSON MOTORCYCLE CONTRACT BACKED CERTIFICATES, CLASS B
HARLEY-DAVIDSON CREDIT CORP.
SELLER AND SERVICER
HARLEY-DAVIDSON CUSTOMER FUNDING CORP.
DEPOSITOR
---------------------
PROSPECTUS SUPPLEMENT
---------------------
[UNDERWRITERS]
SUBJECT TO COMPLETION, DATED MAY 22, 2000
PROSPECTUS
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
HARLEY-DAVIDSON MOTORCYCLE TRUSTS
HARLEY-DAVIDSON MOTORCYCLE CONTRACT BACKED NOTES
HARLEY-DAVIDSON MOTORCYCLE CONTRACT BACKED CERTIFICATES
(ISSUABLE IN SERIES)
HARLEY-DAVIDSON CUSTOMER FUNDING CORP.
AS DEPOSITOR
HARLEY-DAVIDSON CREDIT CORP.,
AS SELLER AND SERVICER
THE TRUSTS:
The depositor will form a new trust to issue each series of securities.
The trust will offer the securities under this prospectus and a prospectus
supplement which will be prepared separately for each series. Each trust will
own a pool of motorcycle retail installment contracts.
THE OFFERED SECURITIES:
- will consist of motorcycle contract backed securities sold
periodically in one or more series which may include one or more
classes of notes and/or one or more classes of certificates;
- will be paid only from the assets of the related trust;
- will be rated in one of the four highest rating categories by at
least one nationally recognized statistical rating organization;
- may have one or more forms of credit enhancement; and
- will be issued as part of a designated series that may include one
or more classes with payment rights that are senior or subordinate
to the rights of one or more of the other classes of securities.
-----------------
YOU SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" ON PAGE 9 OF THIS PROSPECTUS AND THE OTHER RISK FACTORS INCLUDED IN THE
ACCOMPANYING PROSPECTUS SUPPLEMENT.
-----------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED THAT
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-----------------
The amounts, prices and terms of each offering of securities will be
determined at the time of sale and will be described in a prospectus supplement
that will be attached to this prospectus.
This prospectus may not be used to offer and sell any series of
securities unless accompanied by the prospectus supplement for that series.
Prospectus dated ___________, 2000.
TABLE OF CONTENTS
PAGE
Important Notice About Information Presented in this Prospectus and the Accompanying Prospectus Supplement.....1
Prospectus Summary.............................................................................................1
Risk Factors...................................................................................................9
Harley-Davidson Motorcycles...................................................................................18
Other Manufacturers...........................................................................................18
Harley-Davidson Financial Services, Inc.......................................................................18
The Seller and Servicer.......................................................................................19
The Depositor.................................................................................................21
The Trusts....................................................................................................21
Use of Proceeds...............................................................................................23
The Trustee...................................................................................................23
Weighted Average Lives of the Securities......................................................................24
Factors and Trading Information...............................................................................25
Description of the Notes and Indenture........................................................................25
Description of the Certificates...............................................................................33
Information Regarding the Securities..........................................................................36
Description of the Transfer and Servicing Agreements..........................................................47
Legal Aspects of the Contracts................................................................................63
Material Federal Income Tax Consequences......................................................................70
ERISA Considerations..........................................................................................91
Ratings of the Securities.....................................................................................95
Plan of Distribution..........................................................................................95
Legal Matters.................................................................................................95
Where You Can Find More Information...........................................................................96
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS AND THE
ACCOMPANYING PROSPECTUS SUPPLEMENT
We provide information to you about the securities in two separate
documents that offer varying levels of detail:
- this prospectus - which provides general information, some of
which may not apply to a particular series of securities including
your series, and
- the accompanying prospectus supplement - which provides a summary
of the specific terms of your series of securities.
We have included cross-references in this prospectus and the
accompanying prospectus supplement to captions in these materials where you can
find further discussions. The table of contents included in this prospectus and
the accompanying prospectus supplement provide the pages on which these captions
are located. References to "we", "our" and "us" refer to Harley-Davidson
Customer Funding Corp.
Whenever we use words like "intends," "anticipates" or "expects" or
similar words in this prospectus, we are making a forward-looking statement, or
a projection of what we think will happen in the future. Forward-looking
statements are inherently subject to a variety of circumstances, many of which
are beyond our control and could cause actual results to differ materially from
what we anticipate. Any forward-looking statements in this prospectus speak only
as of the date of this prospectus. We do not assume any responsibility to update
or review any forward-looking statement contained in this prospectus to reflect
any change in our expectation about the subject of that forward-looking
statement or to reflect any change in events, conditions or circumstances on
which we have based any forward-looking statement.
You should rely only on the information contained in this document,
including the information described under the heading "WHERE YOU CAN FIND MORE
INFORMATION" in the prospectus. We have not authorized anyone to provide you
with any different information or make any representation not contained in this
prospectus. If anyone makes such a representation to you, you should not rely on
it.
PROSPECTUS SUMMARY
The following is only a summary of selected information from the
prospectus and provides a general overview of relevant terms of the securities.
It does not contain all the information that may be important to you. You should
read carefully this entire prospectus and the accompanying prospectus supplement
to understand all of the terms of the offering. In addition, you may wish to
read the documents governing the transfers and servicing of the contracts, the
formation of the trusts and the issuance of the securities. Those documents have
been filed as exhibits to the registration statement of which this prospectus is
a part.
There are material risks associated with an investment in the
securities. See "RISK FACTORS" in this prospectus and in the accompanying
prospectus supplement for a discussion of factors you should consider before
investing in the securities.
Trust............................... For each series of securities, the depositor will form either a grantor
trust or an owner trust. An "owner trust" will issue notes and
certificates and will be formed by a trust agreement between the
depositor and the trustee of the owner trust. A "grantor trust" will
issue only certificates and will be formed by a pooling and servicing
agreement among the depositor, the servicer and the trustee of the
grantor trust.
Depositor........................... Harley-Davidson Customer Funding Corp., a wholly-owned subsidiary of
Harley-Davidson Credit Corp. The depositor will deposit the contracts
into the trust.
Seller.............................. Harley-Davidson Credit Corp. will sell the contracts to the depositor for
deposit into the trust.
Originating Dealers................. Motorcycle dealers originate the contracts in accordance with the
underwriting standards set by Harley-Davidson Credit Corp. under dealer
agreements governing the assignment of the contracts to the seller. The
seller acquires the contracts from the originating dealers in the
ordinary course of its business pursuant to the dealer agreements.
Servicer............................ Harley-Davidson Credit Corp. will service the contracts unless otherwise
specified in your prospectus supplement.
Trustee............................. The trustee of the trust for your series of securities will be identified
in your prospectus supplement.
Indenture Trustee................... If the trust issues notes, the trustee for the indenture pursuant to
which the notes will be issued will be identified in your prospectus
supplement.
Administrator....................... Harley-Davidson Credit Corp. will provide notices and
1
perform other administrative functions of each trust.
The Securities...................... A series of securities may include:
- one or more of classes of notes which will be issued
pursuant to an indenture; and/or
- one or more classes of certificates, whether or not a class
of notes is issued as part of the series.
Terms of the Securities............. Your prospectus supplement provides the particular terms of your class of
notes and/or certificates, including:
- the stated principal amount of each class of notes and the
stated certificate balance of each class of certificates; and
- the interest rate, which may be fixed, variable, adjustable or
some combination of these rates, or method of determining the
interest rate.
The terms of a class of notes may differ from those of other
classes of notes of the same series and the terms of a class of
certificates may differ from those of other classes of
certificates of the same series in one or more aspects, including:
- timing and priority of payments;
- seniority;
- allocations of losses;
- interest rate or formula for calculating the interest rate;
- amount of interest or principal payments;
- whether interest or principal will be payable to holders of
the class if specified events occur;
- the right to receive collections from designated portions of
the contracts owned by the trust;
- scheduled final payment date; and
- the ability of holders of a class of notes or certificates to
direct the indenture trustee or the
2
trustee to take specified remedies.
Trust Assets........................ The property of each trust will primarily be a pool of contracts secured
by new and used motorcycles and amounts due or collected under the
contracts on or after a cut-off date specified in your prospectus
supplement and will include related assets including:
- security interests in the financed motorcycles;
- proceeds from claims on insurance policies covering the
financed motorcycles or the obligors;
- certain rebates of premiums and other amounts relating to
insurance policies and other items financed under the contracts;
- the rights of the depositor in the agreements identified in
your prospectus supplement;
- amounts deposited in bank accounts specified in your
prospectus supplement; and
- proceeds from liquidated assets, including repossessed
motorcycles.
The Contracts....................... All of the contracts will be retail installment contracts originated
directly by the seller or purchased by the seller from the originating
dealers or other entities that finance the retail purchase of new and
used motorcycles.
Your prospectus supplement provides information about:
- the initial aggregate principal balance of the contracts
transferred to the trust;
- the number of contracts;
- the average contract principal balance;
- the geographical distribution of the contracts;
- the distribution of the contracts by annual percentage rate;
- the remaining term of the contracts;
- the weighted average remaining term of the
3
contracts; and
- the weighted average annual percentage rate on the contracts.
Mandatory Purchase or Replacement of a
Contract............................ The depositor will make representations and warranties regarding the
contracts when it transfers the contracts to the trust, and the seller
will make representations and warranties regarding the contracts when it
sells the contracts to the depositor. In the event of an uncured breach
of any of these representations that materially and adversely affects the
trust's or securityholders' interest in a contract or the collectibility
of a contract, the depositor will be obligated to repurchase that
contract from the trust and the seller will be obligated to repurchase
that contract from the depositor. See "DESCRIPTION OF THE TRANSFER AND
SERVICING AGREEMENTS-REPRESENTATIONS AND WARRANTIES MADE BY THE SELLER
AND THE DEPOSITOR" in this prospectus.
Credit And Cash Flow
Enhancement......................... The depositor may arrange for protection from losses to one or
more classes of the securities. Credit enhancement may include:
- a cash collateral account;
- a spread account;
- subordination of one or more other classes of securities;
- one or more reserve funds;
- over-collateralization;
- letters of credit or other credit or liquidity facilities;
- surety bonds;
- guaranteed investment contracts;
- repurchase obligations;
- yield supplement agreements;
4
- cash deposits;
- swap or other interest rate protection agreements;
- third party payments or other support; or
- other arrangements which may become suitable in light of credit
enhancement practices or developments in the future.
In addition, the depositor may develop and include in the trusts
features designed to ensure the timely payment of amounts owed to
you. These cash flow enhancement features may include any one or
more of the following:
- yield supplement agreements;
- liquidity facilities;
- cash deposits;
- third party payments or other support; or
- other arrangements which may become suitable in
light of cash flow enhancement practices or
developments in the future.
Your prospectus supplement will describe the specific terms of any
credit or cash flow enhancement applicable to your securities.
Servicing; Servicing Fee............ The servicer will be responsible for servicing, managing and
administering the contracts and financed motorcycles, and maintaining
custody of, enforcing and making collections on the contracts.
The trust will pay the servicer a monthly fee equal to a
percentage of the principal balance of the contracts at the
beginning of each month. The fee will be payable out of amounts
received on the contracts.
The servicer will also receive additional servicing compensation
in the form of investment earnings on certain bank accounts of the
trust and late fees, prepayment fees and other administrative fees
and expenses or similar charges received in respect of the
contracts by the servicer during that month. See "DESCRIPTION OF
THE TRANSFER AND SERVICING AGREEMENTS-SERVICING-SERVICING
COMPENSATION AND
5
PAYMENT OF EXPENSES" in this prospectus.
Advances............................ The servicer may be obligated to advance interest that is due but unpaid
by an obligor. The servicer will not be obligated to make an advance if
it determines that it will not be able to recover that advance from an
obligor. The trust will reimburse the servicer for the advances the
servicer has made from late collections on the contracts for which it has
made advances or from collections generally if the servicer determines
that an advance will not be recoverable from an obligor.
Your prospectus supplement will describe the nature of the
servicer's obligation to make advances to the trust and the
reimbursement of those advances.
You should refer to "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS-SERVICING-ADVANCES" in this prospectus for more
detailed information on advances and reimbursement of advances.
Optional Purchase of
Contracts........................... Once the aggregate outstanding principal balance of the contracts is less
than 10% of the sum of (i) the aggregate outstanding principal balance of
the contracts owned by the trust as of the closing date and (ii) the
initial amount on deposit in the prefunding account, if any, the seller,
at its option, may repurchase all of the contracts held by the trust.
Upon such a purchase, the securities of that trust will be prepaid in
full. See "DESCRIPTION OF THE NOTES AND INDENTURE-OPTIONAL PURCHASE OF
CONTRACTS AND REDEMPTION OF NOTES" and "DESCRIPTION OF THE
CERTIFICATES-OPTIONAL PURCHASE OF CONTRACTS AND REDEMPTION OF
CERTIFICATES" in this prospectus.
TAX STATUS:
If your prospectus supplement specifies that the related trust will be
Grantor Trusts...................... treated as a "grantor trust," Winston & Strawn, as counsel to the trust,
will deliver an opinion that:
- the trust will be treated as a grantor trust for federal income
tax purposes and not as an "ASSOCIATION" or "PUBLICLY-TRADED
PARTNERSHIP" taxable as a corporation; and
- each certificateholder will be treated as the owner of a pro rata
undivided interest in the income and assets
6
of the trust.
Owner Trusts........................ If your prospectus supplement specifies that the related trust will be
treated as an "owner trust":
1. Winston & Strawn will deliver an opinion that:
- the notes will be characterized as debt for federal income tax
purposes; and
- the trust will not be characterized as an "ASSOCIATION" or
"PUBLICLY TRADED PARTNERSHIP" taxable as a corporation;
2. by purchasing a note, you will agree to treat your note as debt
for federal, state and local income tax purposes; and
3. by purchasing a certificate, you will agree to treat the trust as
a partnership in which you are a partner for federal, state and
local income tax purposes.
You should refer to "MATERIAL FEDERAL INCOME TAX CONSEQUENCES" in
this prospectus and your prospectus supplement for more detailed
information on the application of federal income tax laws and
consult your tax advisor about the federal income tax consequences
of purchasing, owning and disposing of notes and/or certificates,
and the tax consequences in any state or other taxing
jurisdiction.
FASITs.............................. If your prospectus supplement specifies that an election will be made for
the trust to be treated as a "financial asset securitization investment
trust," or FASIT, Winston & Strawn will deliver an opinion that, assuming
timely filing of a FASIT election and compliance with the terms of the
governing documents, the trust, or one or more segregated pools of trust
assets, will qualify as one or more FASITs.
ERISA Considerations................ Subject to the considerations described in "ERISA CONSIDERATIONS" in this
prospectus and your prospectus supplement, employee benefit plans that
are subject to the Employee Retirement Income Security Act of 1974, as
amended, may purchase:
- notes issued by an "owner trust"; and
- certificates of a class issued by a "grantor trust" that
7
are not subordinated to any other class.
Unless your prospectus supplement specifies otherwise, employee
benefit plans and individual retirement accounts may not purchase:
- subordinated classes of certificates issued by a "grantor trust";
or
- certificates issued by an "owner trust".
You should refer to "ERISA CONSIDERATIONS" in this prospectus and
your prospectus supplement for more detailed information regarding
the ERISA eligibility of any class of securities.
8
RISK FACTORS
The following risk factors and the risk factors in your prospectus
supplement describe the principal risk factors relating to an investment in the
securities. You should carefully consider the following risk factors and the
additional risk factors described in the section captioned "RISK FACTORS" in
your prospectus supplement before you invest in any class of securities.
YOU MUST RELY ON THE TRUST'S ASSETS FOR REPAYMENT WHICH MAY NOT BE SUFFICIENT TO
MAKE FULL PAYMENTS ON YOUR SECURITIES
The securities represent interests solely in the trust or indebtedness
of the trust and will not be insured or guaranteed by the originating dealers,
the seller, the servicer, the depositor, or any of their respective affiliates,
or the related trustee or any other person or entity. The only source of payment
for your securities is payments received on the contracts held by the trust and
credit enhancement, if any, for your securities. The amount of credit
enhancement available to cover shortfalls in distributions of interest on and
principal of your securities may be limited. If the credit enhancement is
exhausted, you will be paid solely from payments on the contracts.
YOU MAY EXPERIENCE REDUCED RETURNS ON YOUR INVESTMENT DUE TO PREPAYMENTS ON THE
CONTRACTS, REPURCHASES OF THE CONTRACTS, LIQUIDATIONS OF DEFAULTED CONTRACTS
AND EARLY TERMINATION OF THE TRUST
A higher than anticipated level of prepayments of the contracts or
liquidations of defaulted contracts may cause a trust to pay principal on your
securities sooner than you expected. Also, a trust may pay principal on your
securities sooner than you expected if the depositor or the servicer repurchases
contracts from the trust. You may not be able to reinvest the principal paid to
you at yields that are equivalent to the yields on your securities; therefore,
the ultimate return you receive on your investment in the securities may be less
than the return you expected on the securities.
The contracts included in the trust may be prepaid, in full or in part,
voluntarily or as a result of defaults, theft of or damage to the related
motorcycles or for other reasons. The depositor will be required to repurchase a
contract from the trust if a breach of its representations and warranties
relating to that contract materially and adversely affects the trust's or the
securityholders' interest in the contract or the collectibility of the contract.
In that event, the seller will be obligated to repurchase the contract from the
depositor. Certain motorcycle dealer agreements between each of the originating
dealers and the seller require the originating dealer to repurchase certain
motorcycles repossessed by the seller in the event of a default by the obligor
pursuant to contracts designated as full recourse. This recourse to the dealers
will be assigned by the seller to the depositor pursuant to the transfer and
sale agreement, assigned from the depositor to the trust pursuant to the
agreement and, if applicable, pledged by the trust to the indenture trustee
pursuant to the indenture. There can be no assurance that an originating dealer
will perform its obligations under such motorcycle dealer agreements if and when
required to do so. In addition, the servicer will be required to purchase
contracts from the trust if it breaches certain covenants with respect to those
contracts. The seller may direct the depositor to purchase all remaining
contracts from the trust when the aggregate outstanding principal balance of the
contracts is less than 10% of the sum of (i) the aggregate outstanding principal
balance of the contracts owned by the trust as of the closing date and (ii) the
initial amount on deposit in the pre-funding account, if any.
9
The depositor cannot fully predict the extent to which prepayments on
the contracts by the related obligors will shorten the life of the securities.
The rate of prepayments on the contracts may be influenced by a variety of
economic, social and other factors including:
- changes in customer requirements;
- the level of interest rates;
- the level of casualty losses; and
- the overall economic environment.
The depositor cannot assure you that prepayments on the contracts held
by the trust will conform to any historical experience. The depositor cannot
predict the actual rates of prepayments which will be experienced on the
contracts. However, your prospectus supplement may present information as to the
principal balances of the securities remaining on each payment date under
several hypothetical prepayment rates. You will bear all reinvestment risk
resulting from prepayments on the contracts and the corresponding acceleration
of payments on the securities. See "WEIGHTED AVERAGE LIVES OF THE SECURITIES" in
this prospectus.
CERTAIN EVENTS OF DEFAULT UNDER THE INDENTURE MAY RESULT IN INSUFFICIENT FUNDS
TO MAKE PAYMENTS ON YOUR SECURITIES
If the trust fails to pay principal of any class of notes on its final
scheduled payment date, or fails to pay interest on any class of notes within
five days of its due date, the indenture trustee or the holders of more than 50%
of the notes or the class or the classes of notes described in your prospectus
supplement may declare the entire amount of the notes to be due immediately. If
this happens, the holders of more than 50% (or such higher percentage as
specified in your prospectus supplement) of the notes or the class or classes of
notes described in your prospectus supplement may direct the indenture trustee
to sell the contracts and prepay the notes. In such event, there may not be
sufficient funds to pay all of the classes of securities in full.
PAID-AHEAD SIMPLE INTEREST CONTRACTS MAY AFFECT THE WEIGHTED AVERAGE LIFE OF THE
SECURITIES
If an obligor on a simple interest contract makes a payment on the
contract ahead of schedule, the weighted average life of the securities could be
affected. This is because the additional scheduled payments will be treated as a
principal prepayment and applied to reduce the principal balance of the related
contract. Obligors are generally not required to make any scheduled payments
during the period for which the contract was paid-ahead. During this period,
interest will continue to accrue on the contract principal balance, but the
contract would not be considered delinquent. Furthermore, when an obligor
resumes the required payments, they may be insufficient to cover the interest
that has accrued since the last payment by that obligor.
Generally paid-ahead payments shorten the weighted average lives of the
securities when the paid-ahead amount is applied to the payment of principal on
the securities; however, in certain circumstances the weighted average lives of
the securities may be extended. In addition, liquidation proceeds will be
applied first to reimburse any advances made by the servicer. Therefore, to the
extent the servicer makes advances on a paid-ahead simple interest contract
which subsequently goes into
10
default, the loss on this contract may be larger than would have been the case
had advances not been made.
The seller's portfolio of contracts has historically included simple
interest contracts which have been paid-ahead by one or more scheduled monthly
payments. We cannot predict the number of contracts which may become paid-ahead
simple interest contracts or the amount of scheduled payments which may be paid
ahead.
THE PRICE AT WHICH YOU CAN RESELL YOUR SECURITIES MAY DECREASE IF THE RATINGS OF
YOUR SECURITIES DECLINE
At the initial issuance of the offered securities, at least one
nationally recognized statistical rating organization will rate the offered
securities in one of the four highest rating categories. At any time, a rating
agency may lower its ratings of the offered securities or withdraw its ratings
entirely. If a rating assigned to any security is lowered or withdrawn for any
reason, you may not be able to resell your securities or you may be able to
resell them only at a substantial discount. For more detailed information
regarding the ratings assigned to the offered securities, see "RATINGS OF THE
SECURITIES" in this prospectus and in your prospectus supplement.
SUBORDINATION MAY CAUSE SOME CLASSES OF SECURITIES TO BEAR ADDITIONAL CREDIT
RISK AND DOES NOT ENSURE PAYMENT OF THE MORE SENIOR CLASSES OF SECURITIES
The trust may pay interest and principal on some classes of securities
prior to paying interest and principal on other classes of securities. The
subordination of some classes of securities to others means that the
subordinated classes of securities are more likely to suffer the consequences of
delinquent payments and defaults on the contracts than the more senior classes
of securities.
The senior classes of securities could lose the credit enhancement
provided by the subordinate classes if delinquencies and defaults on the
contracts increase and if the collections on the contracts and any credit
enhancement described in your prospectus supplement are insufficient to pay even
the senior classes of securities.
Your prospectus supplement will describe any subordination provisions
applicable to your securities.
FUTURE DELINQUENCY AND LOSS EXPERIENCE OF THE CONTRACTS MAY VARY SUBSTANTIALLY
FROM THE SERVICER'S HISTORICAL EXPERIENCE
In your prospectus supplement, we will present the historical
delinquency and loss experience of the portfolio of contracts originated
directly or purchased by the seller and serviced by the servicer. However, the
actual results for the contracts transferred to your trust could be
substantially worse. If so, you may not receive interest and principal payments
on your securities in the amounts and at the times you expect.
INTERESTS OF OTHER PERSONS IN THE CONTRACTS OR THE FINANCED MOTORCYCLES COULD
REDUCE THE FUNDS AVAILABLE TO MAKE PAYMENTS ON YOUR SECURITIES
A person could acquire an interest in a contract that is superior to
that of the trust because the servicer will retain possession of the contracts.
If a person purchases contracts, or takes a security interest therein, for value
in the ordinary course of its business and obtains possession of the contracts
without
11
actual knowledge of the trust's interest, that person will acquire an interest
in the contracts superior to the interest of the trust and some or all of the
collections on the contracts may be not available to make payments on the
securities.
A person could also acquire an interest in a financed motorcycle that
is superior to that of the trust because of the failure to identify the trust as
the secured party on the related certificate of title. The seller will assign
its security interests in the financed motorcycles to the depositor, and the
depositor will assign its security interests in the financed motorcycles to the
trust. The seller's assignment to the depositor, and the depositor's subsequent
assignment to the trust, are subject to state vehicle registration laws. These
registration laws require that the secured party's name appear on the
certificate or similar registration of title in order for the secured party's
security interest to be perfected. To facilitate servicing and reduce
administrative costs, the servicer will continue to hold the certificates of
title or ownership for the motorcycles and will not endorse or otherwise amend
the certificates of title or ownership to identify the trust as the new secured
party. As a result, the trust may not have a perfected security interest in the
financed motorcycles in certain states because the certificates or similar
registrations of title will not be amended to reflect the assignment of the
security interests in the financed motorcycles to the trust. In addition,
because the trust will not be identified as the secured party on any certificate
of title or similar registration of title, the security interest of the trust in
the motorcycles may be defeated through fraud, forgery, negligence or error.
The holders of some types of liens, such as tax liens or mechanics
liens, may have priority over the trust's security interest in the financed
motorcycles. The trust may lose its security interest in a financed motorcycle
confiscated by the government.
In the event that the trust must rely upon repossession and sale of the
financed motorcycle securing a defaulted contract to recover amounts due on the
defaulted contract, the trust's ability to realize upon the financed motorcycle
would be limited by the failure to have a perfected security interest in the
related financed motorcycle or the existence of a senior security interest in
the financed motorcycle. In this event, you may be subject to delays in payment
and may incur losses on your investment in the securities as a result of
defaults or delinquencies by obligors. See "LEGAL ASPECTS OF THE
CONTRACTS-SECURITY INTERESTS" in this prospectus.
LIMITATIONS ON ENFORCEABILITY OF SECURITY INTERESTS IN THE FINANCED MOTORCYCLES
MAY HINDER THE TRUST'S ABILITY TO REALIZE THE VALUE OF THE FINANCED
MOTORCYCLES
State law limitations on the enforceability of security interests and
the manner in which a secured party may dispose of collateral may limit or delay
the trust's ability to obtain or sell the financed motorcycles. This could
reduce or delay the availability of funds to make payments on your securities.
Under these state law limitations:
- some jurisdictions require that the obligor be notified of the
default and be given a period of time within which it may cure the
default prior to or after repossession; and
- the obligor may have the right to redeem collateral for its
obligations prior to actual sale by paying the secured party the
unpaid balance of the obligation plus the secured party's expenses
for repossessing, holding and preparing the collateral for
disposition.
12
CONTRACTS THAT FAIL TO COMPLY WITH CONSUMER PROTECTION LAWS MAY BE
UNENFORCEABLE, WHICH MAY RESULT IN LOSSES ON YOUR INVESTMENT
The contracts are consumer contracts subject to many federal and state
consumer protection laws. If any of the contracts do not comply with one or more
of these laws, the servicer may be prevented from or delayed in collecting
amounts due on the contracts. If that happens, payments on the securities could
be delayed or reduced. See "LEGAL ASPECTS OF THE CONTRACTS-CONSUMER PROTECTION
LAWS" in this prospectus.
Each of the depositor and seller will make representations and
warranties relating to the contracts' compliance with consumer protection laws
and the enforceability of the contracts. If those representations and warranties
are not true as to any contract and the breach materially and adversely affects
the trust's or the securityholders' interest in the contract or the
collectibility of the contract, the depositor will be obligated to repurchase
the contract from the trust and the seller will be required to repurchase the
contract from the depositor.
REPURCHASE OBLIGATION OF THE DEPOSITOR AND THE SELLER PROVIDES YOU ONLY LIMITED
PROTECTION AGAINST PRIOR LIENS ON THE CONTRACTS
Federal or state law may grant liens on contracts that have priority
over the trust's interest. If the creditor associated with any prior lien on a
contract exercises its remedies, the cash proceeds from the contract and related
financed motorcycle available to the trust will be reduced. In that event, there
may be a delay or reduction in distributions to you. An example of a lien
arising under federal or state law is a tax lien on property of the seller or
depositor arising prior to the time a contract is conveyed to the trust. Such a
tax lien would have priority over the interest of the trust in the contracts.
The seller will represent and warrant to the depositor, and the
depositor will represent and warrant to the trust, that there are no prior liens
on the contracts. In addition, the seller will represent and warrant to the
depositor, and the depositor will represent and warrant to the trust, that it
will not grant any lien on the contracts. If those representations and
warranties are not true as to any contract and the breach materially and
adversely affects the trust's or the securityholders' interest in the contract
or the collectibility of the contract, the depositor will be obligated to
repurchase the contract from the trust and the seller will be required to
repurchase the contract from the depositor. There can be no assurance that the
depositor or the seller will be able to repurchase a contract at the time when
it is asked to do so.
BANKRUPTCY OF THE OBLIGORS MAY REDUCE OR DELAY COLLECTIONS ON THE CONTRACTS, AND
THE SALE OF FINANCED MOTORCYCLES RELATING TO DEFAULTING OBLIGORS MAY BE
DELAYED OR MAY NOT RESULT IN COMPLETE RECOVERY OF AMOUNTS DUE
Bankruptcy and insolvency laws affect the risk of loss on the contracts
of obligors who become subject to bankruptcy proceedings. Those laws could
result in the write-off of contracts of bankrupt obligors or result in delay in
payments due on the contracts. For example, if the obligor becomes bankrupt or
insolvent, the trust may need the permission of a bankruptcy court to obtain and
sell its collateral. As a result, you may be subject to delays in receiving
payments, and you may also suffer losses if available credit enhancement for
losses is insufficient.
13
IF A BANKRUPTCY COURT DETERMINES THAT THE TRANSFER OF CONTRACTS FROM THE
ORIGINATING DEALERS TO THE SELLER OR FROM THE SELLER TO THE DEPOSITOR WAS NOT
A TRUE SALE, THEN PAYMENTS ON THE CONTRACTS COULD BE DELAYED RESULTING IN
LOSSES OR DELAYS IN PAYMENTS ON YOUR SECURITIES
If an originating dealer or the seller became a debtor in a bankruptcy
case, creditors of that party, or that party acting as debtor-in-possession, may
assert that the transfer of the contracts was ineffective to remove the
contracts from that party's estate. In that case, the distribution of payments
on the contracts to the trust might be subject to the automatic stay provisions
of the United States bankruptcy code. This would delay the distribution of those
payments to you for an uncertain period of time. Furthermore, reductions in
payments under the contracts to the trust may result if the bankruptcy court
rules in favor of the creditors or the debtor-in-possession. In either case, you
may experience delays or reductions in distributions or payments to you. In
addition, a bankruptcy trustee would have the power to sell the contracts if the
proceeds of the sale could satisfy the amount of the debt deemed owed by the
originating dealer or the seller, as the case may be. The bankruptcy trustee
could also substitute other collateral in lieu of the contracts to secure the
debt. Additionally, the bankruptcy court could adjust the debt if the
originating dealer or the seller were to file for reorganization under Chapter
11 of the bankruptcy code. Any of these actions could result in losses or delays
in payments on your securities. The originating dealers and the seller will each
represent and warrant that its conveyance of the contracts is a valid sale and
transfer of the contracts. See "LEGAL ASPECTS OF THE CONTRACTS-BANKRUPTCY
CONSIDERATIONS."
IF A BANKRUPTCY COURT DECIDES TO CONSOLIDATE THE ASSETS AND LIABILITIES OF THE
DEPOSITOR AND THE SELLER, PAYMENTS ON THE CONTRACTS COULD BE DELAYED
RESULTING IN LOSSES OR DELAYS IN PAYMENTS ON THE SECURITIES
If the seller became a debtor in a bankruptcy case, the seller, a
creditor or party acting as debtor-in-possession could request a bankruptcy
court to order that the seller's assets and liabilities be substantially
consolidated with the depositor's assets and liabilities. If the bankruptcy
court consolidated the assets and liabilities of the seller and the depositor,
delays and possible reductions in the amounts of distributions on the securities
could occur. See "LEGAL ASPECTS OF THE CONTRACTS-BANKRUPTCY CONSIDERATIONS."
PROCEEDS OF THE SALE OF CONTRACTS MAY NOT BE SUFFICIENT TO PAY YOUR SECURITIES
IN FULL; FAILURE TO PAY PRINCIPAL ON YOUR SECURITIES WILL NOT CONSTITUTE AN
EVENT OF DEFAULT UNTIL MATURITY
If so directed by the holders of the requisite percentage of
outstanding notes following an acceleration of the notes upon an event of
default, the indenture trustee in certain circumstances will sell the contracts
owned by the trust. However, there is no assurance that the market value of
those contracts will at any time be equal to or greater than the aggregate
outstanding principal balance of the securities. Therefore, upon a sale of the
contracts, there can be no assurance that sufficient funds will be available to
repay your securities in full. In addition, the amount of principal required to
be paid to you on each payment date will generally be limited to amounts
available in the collection account and the reserve fund, if any. The failure to
pay principal of your securities generally will not result in the occurrence of
an event of default until the final scheduled payment date for your securities.
See "DESCRIPTION OF THE NOTES AND INDENTURE-THE INDENTURE-EVENTS OF DEFAULT;
RIGHTS UPON EVENT OF DEFAULT" in this prospectus.
14
COMMINGLING OF COLLECTIONS COULD RESULT IN REDUCED PAYMENTS TO YOU
If permitted by the rating agencies, rating the securities the servicer
may hold collections it receives from the obligors on the contracts with its own
funds until the day prior to the next date on which distributions will be made
on the securities. If the servicer does not pay these amounts to the trust when
required to do so, the trust may be unable to make the payments owed on your
securities. In the event the servicer becomes a debtor in a bankruptcy case, the
trust may not have a perfected security interest in these collections. In either
case, you may suffer losses on your investment.
YOU MAY NOT BE ABLE TO RESELL YOUR SECURITIES
There is currently no secondary market for the securities. We cannot
assure you that a secondary market will develop and if it does develop how
liquid it will be. Thus, you may not be able to resell your securities at all,
or may be able to do so only at a substantial discount. The underwriters may
assist in resales of the securities but they are not obligated to do so.
IF THE TRUST ENTERS INTO A CURRENCY OR AN INTEREST RATE SWAP, PAYMENTS ON THE
SECURITIES WILL BE DEPENDENT ON PAYMENTS MADE UNDER THE SWAP AGREEMENT
If the trust enters into a swap agreement, its ability to protect
itself from shortfalls in cash flow caused by currency or interest rate changes
will depend to a large extent on the terms of the swap agreement and whether the
swap counterparty performs its obligations under the swap. If the trust does not
receive the payments it expects under the swap agreement, the trust may not have
adequate funds to make all payments owed on your securities when due.
THE RATING OF A SWAP COUNTERPARTY MAY AFFECT THE RATINGS OF THE SECURITIES
If a trust enters into a swap, the rating agencies that rate the
trust's securities will consider the provisions of the swap agreement and the
rating of the swap counterparty. If a rating agency downgrades the debt rating
of the swap counterparty, it may downgrade the rating of the securities. In such
an event, you may not be able to resell your securities or you may be able to
resell them only at a substantial discount.
YOU MAY EXPERIENCE REINVESTMENT RISK ASSOCIATED WITH PRE-FUNDING ACCOUNTS
If so provided in the prospectus supplement, on the closing date an
amount will be deposited into the pre-funding account. The amount on deposit in
the pre-funding account will be used to purchase subsequent contracts from the
depositor (which, concurrently will acquire such subsequent contracts from the
seller) from time to time during the funding period specified in the prospectus
supplement. If the principal amount of the eligible subsequent contracts
acquired by the seller from originating dealers during the funding period is
less than the amount on deposit in the pre-funding account, the seller may have
insufficient subsequent contracts to transfer to the depositor.
Any conveyance of subsequent contracts to a trust is also subject to
the satisfaction, on or before the related subsequent transfer date, of the
following conditions precedent, among others: (i) each such subsequent contract
must satisfy the eligibility criteria specified in the related transfer and sale
agreement, pooling and servicing agreement or sale and servicing agreement, as
applicable; (ii) the seller and the depositor shall not have selected such
subsequent contracts in a manner that is adverse to the interests of
15
holders of the securities; and (iii) as of the cutoff dates for such subsequent
contracts, all of the contracts in the trust, including the subsequent contracts
to be conveyed to the trust as of such date, must satisfy the parameters
described in the prospectus supplement.
To the extent that the amount on deposit in the pre-funding account has
not been applied to the purchase of subsequent contracts by the end of the
funding period, any amounts remaining in the pre-funding account will be
distributed as a prepayment of principal to you, in the amounts and pursuant to
the priorities set forth in the prospectus supplement. To the extent you receive
such a prepayment of principal, there may not then exist a comparably favorable
reinvestment opportunity and you will bear all reinvestment risk resulting from
such prepayments.
THE TRUST HAS LIMITED RECOURSE AGAINST THE SELLER AND THE DEPOSITOR
None of the seller, the depositor or any of their affiliates is
generally obligated to make any payments in respect of any notes, the
certificates or the contracts of the trust. However, in connection with the sale
of contracts by the depositor to the trust, the depositor will make
representations and warranties with respect to the characteristics of such
contracts and, in certain circumstances, the depositor may be required to
repurchase contracts with respect to which such representations and warranties
have been breached. The seller will correspondingly be obligated to the
depositor under the transfer and sale agreement (which rights of the depositor
against the seller will be assigned to the trust) to repurchase the contracts
from the depositor contemporaneously with the depositor's repurchase of the
contracts from the trust. See "DESCRIPTION OF THE SALE AND SERVICING AGREEMENTS
AND POOLING AND SERVICING AGREEMENTS-SALE AND ASSIGNMENT OF CONTRACTS".
THE TRUST DOES NOT HAVE SIGNIFICANT ASSETS OR SOURCES OF FUNDS OTHER THAN THE
CONTRACTS
The trust does not have and will not be permitted or expected to have,
any significant assets or sources of funds other than the contracts and, to the
extent provided in your prospectus supplement, a pre-funding account, a reserve
fund and any other credit enhancement or trust property. The notes will
represent obligations solely of, and the certificates will represent interests
solely in, the trust, and neither the notes nor the certificates will be insured
or guaranteed by the depositor, the servicer, the trustee, the indenture trustee
or any other person or entity (except as may be described in your prospectus
supplement). Consequently, you must rely for repayment upon payments on the
contracts and, if and to the extent available, amounts on deposit in the
pre-funding account (if any), the reserve fund (if any) and any other credit
enhancement, all as specified in your prospectus supplement. Any such credit
enhancement will not cover all contingencies, and losses in excess of amounts
available pursuant to any credit enhancement will be borne directly by you.
SOCIAL, ECONOMIC AND OTHER FACTORS MAY AFFECT THE PERFORMANCE OF THE CONTRACTS
AND THE AVAILABILITY OF SUBSEQUENT CONTRACTS
Economic conditions in countries, states or U.S. Territories where
obligors reside may affect the delinquency, loan loss and repossession
experience of the trust with respect to the contracts. The performance by such
obligors, or the ability of the seller to acquire from originating dealers
sufficient subsequent contracts for purchase with the amount on deposit in the
pre-funding account (if any), may be affected by a variety of social and
economic factors including, but not limited to, interest rates, unemployment
levels, the rate of inflation, and consumer perception of economic conditions
generally. However, neither the seller nor the depositor is able to determine or
predict whether or to what extent
16
economic or social factors will affect the performance by any obligors, or the
availability of subsequent contracts in cases where subsequent contracts are to
be transferred to the trust as specified in the prospectus supplement.
THE HOLDERS OF THE NOTES OR THE CLASS OR CLASSES OF NOTES DESCRIBED IN YOUR
PROSPECTUS SUPPLEMENT MAY REMOVE THE SERVICER WITHOUT THE CONSENT OF THE
HOLDERS OF THE CERTIFICATES OR THE OTHER CLASSES OF NOTES
To the extent specified in your prospectus supplement, if there is a
servicer default under the sale and servicing agreement, the indenture trustee
or the holders of either the notes or the class or classes of notes described in
your prospectus supplement may remove the servicer without the consent of the
indenture trustee or the holders of the certificates or the other classes of
notes. Neither the trustee nor the holders of the certificates will have the
ability, without the concurrence of the holders of the notes or certain classes
of notes, to remove the servicer if a servicer default occurs.
THE RATINGS ON YOUR SECURITIES MAY BE LOWERED OR WITHDRAWN
It is a condition to the issuance of the offered securities that they
be rated in one of the four highest rating categories by at least one nationally
recognized statistical rating organization. A rating is not a recommendation to
purchase, hold or sell securities inasmuch as such rating does not comment as to
market price or suitability for a particular investor. Ratings of securities
will address the likelihood of the payment of principal and interest thereon
pursuant to their terms. The ratings of securities will not address the
likelihood of an early return of invested principal. There can be no assurance
that a rating will remain for a given period of time or that a rating will not
be lowered or withdrawn entirely by a rating agency if in its judgment
circumstances in the future so warrant. For more detailed information regarding
the ratings assigned to any class of a particular series of securities, see
"RATINGS OF THE SECURITIES" in your prospectus supplement.
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HARLEY-DAVIDSON MOTORCYCLES
All of the motorcycles securing contracts were manufactured by
Harley-Davidson, Inc. ("HARLEY-DAVIDSON"), except that not more than 8.0% of the
contracts (including all subsequent contracts) may relate to, and be secured by,
motorcycles manufactured by Buell Motorcycle Company, a wholly-owned subsidiary
of Harley-Davidson ("BUELL"), and not more than 10.0% of the contracts
(including all subsequent contracts) may relate to, and be secured by,
motorcycles manufactured by other manufacturers as described below. Buell
produces "PERFORMANCE" motorcycles using engines and certain other parts
manufactured by Harley-Davidson.
Harley-Davidson produces and sells premium heavyweight motorcycles.
Within the heavyweight class, Harley-Davidson sells touring motorcycles
(equipped for long-distance touring), as well as custom motorcycles which
emphasize the distinctive styling associated with certain classic
Harley-Davidson motorcycles. Harley-Davidson motorcycles are based on variations
of five basic chassis designs and are powered by one of four air cooled, twin
cylinder engines of "V" configuration which have displacements of 883cc, 1200cc,
1340cc, 1450cc and 1550cc. Harley-Davidson manufactures its own engines and
frames and is the only major manufacturer of motorcycles in the United States.
Buell produces "SPORTS PERFORMANCE" and "SPORT TOURING" motorcycles
using Harley-Davidson engines that are further modified in the manufacturing
process, as well as certain other Harley-Davidson parts. The "SPORTS
PERFORMANCE" and "SPORT TOURING" aspect of the motorcycles refers to overall
handling characteristics of the motorcycle, including cornering, acceleration
and braking. Buell's overall share of the "SPORTS PERFORMANCE" and "SPORT
TOURING" market has grown to approximately 18% as of December 31, 1999.
OTHER MANUFACTURERS
Except as otherwise specified in your prospectus supplement, contracts
aggregating not more than 10.0% of the aggregate principal balances of all
contracts in a trust (including subsequent contracts) may relate to, and be
secured by, motorcycles manufactured by Honda, Yamaha, Suzuki, Kawasaki as well
as certain other manufacturers. Such motorcycles fall within two categories:
"touring cycles" (with displacements typically over 750cc) which are generally
intended for use in long distance travel, and "street legal cycles", which
include all other motorcycles which may be licensed for street use under
applicable state or local law and which are not generally viewed as falling with
the "touring cycle" category.
HARLEY-DAVIDSON FINANCIAL SERVICES, INC.
Harley-Davidson Financial Services, Inc. ("HDFS") (formerly known as
Eaglemark Financial Services, Inc.) is the financing division of
Harley-Davidson. HDFS was originally formed in June 1992 with a capital infusion
of $10,000,000 from Harley-Davidson and an additional $15,000,000 capital
contribution from a major institutional investor in January 1993. In November
1995, Harley-Davidson purchased the equity owned by the major institutional
investor and, as of December 31, 1999, HDFS is a wholly-owned subsidiary of
Harley-Davidson. The business of HDFS, through its 100% ownership of
Harley-Davidson Credit Corp., has been to provide financial services programs to
Harley-Davidson and Buell motorcycle dealers and customers in the United States
and Canada.
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In addition, HDFS markets the Harley-Davidson Chrome VISA card, through
licensing agreements, in the United States and Canada, and offers wholesale and
retail financing programs for Harley-Davidson's European motorcycle dealers
through joint ventures with other finance companies. HDFS also provides
financial services programs for personal aircraft products in the United States.
THE SELLER AND SERVICER
GENERAL
Harley-Davidson Credit Corp. ("HDCC") (formerly known as Eaglemark,
Inc.) is a Nevada corporation and is a wholly-owned subsidiary of HDFS. HDCC
began operations in January 1993 when it purchased the $85 million wholesale
financing portfolio of certain Harley-Davidson dealers from ITT Commercial
Finance; subsequently, HDCC entered the retail consumer finance business. HDCC
provides wholesale and retail financial services programs to Harley-Davidson and
Buell dealers and consumers in the United States and Canada.
Wholesale financial services include floorplan and open account
financing for motorcycles and motorcycle parts and accessories, real estate
loans, computer loans, showroom remodeling loans and, through Harley-Davidson
Insurance Services, Inc., a wholly-owned subsidiary of HDFS ("HDI"), the
brokerage of a range of commercial insurance products.
Retail financial services include installment lending for new and used
Harley-Davidson and Buell motorcycles and the brokerage of a range of motorcycle
insurance policies and extended service contracts through HDI. HDI acts as an
insurance agent and does not assume any underwriting risk with regard to
insurance policies and extended service agreements.
HDCC's financing, insurance and credit card programs are designed to
work together as a package that appeals to the needs of Harley-Davidson's
customers. The intent of such a package is to increase dealer and customer
loyalty to HDCC while improving revenue and profits over time. HDCC's principal
executive offices are located at 4150 Technology Way, Carson City, Nevada 89706
(telephone 775/886-3200). As of December 31, 1999, HDCC had total assets of
$814.1 million, and stockholder's equity of $131.9 million.
UNDERWRITING AND ORIGINATION
The contracts in each trust have been or will be purchased by the
seller from a network of Harley-Davidson dealers located throughout the United
States and, in certain instances, Canada. The seller's personnel contact dealers
and explain the seller's available financing plans, terms, prevailing rates and
credit and financing policies. If the dealer wishes to use the seller's
available customer financing, the dealer must make an application to the seller
for approval.
Contracts that the seller purchases are written on forms provided or
approved by the seller and are purchased on an individually approved basis in
accordance with the seller's guidelines. The dealer submits the customer's
credit application and purchase order to the seller's office where an analysis
of the creditworthiness of the proposed buyer is made. The analysis includes a
review of the proposed buyer's paying habits, collateral information, length and
likelihood of continued employment and certain other procedures. The seller's
current underwriting guidelines for contracts generally require that the monthly
payment on the contract, together with the obligor's other fixed monthly
obligations, not exceed 40% of the obligor's monthly gross income; provided,
however, that the seller may originate a contract in excess of 40% of
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an obligor's monthly gross income if the obligor makes a larger down payment or
has an exceptionally good credit rating or other offsetting factors exist. With
respect to contracts for new motorcycles, and for used motorcycles of model year
1991 or later, the seller generally finances up to 90% of the motorcycle's sales
price. The seller generally finances up to 85% of such amount for used
motorcycles of a model year earlier than 1991. The seller will also finance, as
part of the principal balance of the respective contract, certain dealer
installed accessories, sales tax and title fees as well as premiums for the term
of the contract on optional credit life and accident and health insurance,
premiums for extended warranty insurance, premiums for GAP insurance and
premiums for required physical damage insurance on the motorcycle. If the
application meets the seller's guidelines and the credit is approved, the seller
purchases the contract when the customer accepts delivery of the motorcycle.
INDIVIDUAL MOTORCYCLE INSURANCE
The terms of each contract require that for the life of the contract,
each motorcycle is to be covered by a collision and comprehensive insurance
policy which covers physical damage risks and names the seller as a loss payee.
The amount of insurance coverage is limited to the value of the motorcycle. In
the transfer and sale agreement, the seller will represent and warrant that each
motorcycle was covered by the required insurance at the time of the related
contract's origination. Pursuant to the contract terms, the servicer may "FORCE
PLACE" (i.e., purchase on its own, with a corresponding claim for reimbursement
against the obligor to the extent provided in the applicable contract) collision
and comprehensive insurance with respect to the related motorcycle in those
situations in which the obligor has not maintained the required insurance. If
the servicer does "FORCE PLACE" insurance, as conveyee and assignee of the
contracts, the trust will be entitled to the benefits of such insurance.
Following repossession of a motorcycle by the servicer, the servicer does not
maintain such insurance. In the event the servicer repossesses a motorcycle on
behalf of the trust, the servicer will act as self-insurer for any damage to
such motorcycle until it is resold.
COLLECTION PROCEDURES
The servicer will make reasonable efforts to collect all payments due
with respect to the contracts held by any trust and will, consistent with the
related sale and servicing agreement or pooling and servicing agreement, follow
such collection procedures as it follows with respect to comparable motor
vehicle retail installment sale contracts and installment loans it services for
itself or others.
The servicer's collection efforts include having personnel, using a
predictive dialer, call a delinquent obligor on a pre-determined basis every
third day in the event such obligor is eleven to twenty-nine days delinquent
(with the exception of first payment defaults and loans classified as "DELTA
ACCOUNTS" which are called beginning on the second day of delinquency). At
thirty days delinquent, the account is reassigned from the predictive dialer
team to a dedicated senior collection associate and is called every third day in
the event the obligor is thirty to less than ninety days delinquent and every
day in the event the obligor is greater than ninety days delinquent. The
servicer's general approach is to restructure a delinquent loan as opposed to
repossessing the related motorcycle; however, the servicer's approach with
respect to a specific obligor is affected by the obligor's responsiveness and
attitude. Consistent with this approach, the servicer may, in its discretion,
arrange with the obligor on a contract to extend or modify the payment schedule,
but no such arrangement will, for purposes of any sale and servicing agreement
or pooling and servicing agreement, modify the original due dates or the amount
of the scheduled payments or extend the final payment date of any contract
beyond the last day of the due
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period relating to the latest maturity date (as specified with respect to the
pool of contracts in the related prospectus supplement). The servicer may sell
the motorcycle securing the respective contract at public or private sale, or
take any other action permitted by applicable law. See "LEGAL ASPECTS OF THE
CONTRACTS" in this prospectus.
REPOSSESSION
Certain information concerning the experience of the seller pertaining
to delinquencies, repossessions and net losses with respect to new and used
motorcycle contracts will be set forth in the prospectus supplement. There can
be no assurance that the delinquency, repossession and net loss experience on
any particular pool of contracts will be comparable to prior experience or to
such information.
YEAR 2000
The seller and servicer initiated and completed a program designed to
resolve the potential impact of the year 2000 on the ability of its computerized
information systems to accurately process information that may be date
sensitive. The seller and servicer identified the critical data storage and
operating systems and developed plans to ensure the readiness of systems to
process dates beyond the year 2000. Furthermore, the seller and servicer
communicated with the originating dealers, financial institutions and suppliers
to determine the risk created by those parties' failure to remediate their own
year 2000 issues.
To date, neither the seller nor the servicer has experienced any
material problems relating to the year 2000 issue. In addition, neither the
seller nor the depositor expects to incur material costs in the future as a
result of the year 2000 issue. There is no assurance that neither the seller nor
servicer will experience problems in the future as a result of the year 2000
issue.
THE DEPOSITOR
The depositor will be Harley-Davidson Customer Funding Corp., a
special-purpose finance subsidiary of Harley-Davidson Credit Corp. All of the
common stock of the depositor will be owned by Harley-Davidson Credit Corp. All
of the officers and directors of the depositor will be employed by
Harley-Davidson Credit Corp. or Harley-Davidson Financial Services, Inc., except
that at least two directors of the depositor will at all times be independent of
Harley-Davidson Credit Corp., Harley Davidson Financial Services, Inc. and
Harley-Davidson, Inc.
THE TRUSTS
The depositor will establish each trust pursuant to a trust agreement
or a pooling and servicing agreement for the transactions described in this
prospectus. Each trust will be a common law trust or a statutory trust. Each
trust may issue one or more classes of securities, representing debt of or
beneficial ownership interests in the trust.
On or before the date of the initial issuance of any securities by a
trust, the seller will sell the pool of contracts and the related property to
the depositor pursuant to a transfer and sale agreement and the depositor will
transfer the pool of contracts and the related property to the trust in exchange
for the securities issued by the trust pursuant to a sale and servicing
agreement or a pooling and servicing agreement.
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To the extent provided in the prospectus supplement, the depositor may
convey additional contracts to the trust after the closing date as frequently as
daily during a funding period specified in the prospectus supplement. The trust
will purchase any contracts subsequently added to the trust with amounts
deposited in a pre-funding account on the closing date. Any subsequent contracts
will be required to conform to the requirements described in the prospectus
supplement. Any subsequent contracts will also be assets of the trust. Any funds
remaining on deposit in a pre-funding account at the end of the funding period
will be used to prepay principal on the securities as specified in your
prospectus supplement.
To the extent provided in the prospectus supplement, all or a portion
of the principal collected on the contracts may be applied by the trustee to the
acquisition of subsequent contracts during a period specified in the prospectus
supplement rather than used to make or distribute payments of principal to
securityholders during that period. These securities would then possess an
interest only period, also commonly referred to as a "REVOLVING PERIOD", which
will be followed by an "AMORTIZATION PERIOD", during which principal will be
paid. Any interest only or revolving period may terminate prior to the end of
the specified period and result in the earlier than expected principal repayment
of the securities.
The property of each trust, as further specified in your prospectus
supplement, will consist of:
- the contracts and the right to receive all scheduled payments
and prepayments received on the contracts on or after the
cut-off date, but excluding any scheduled payments due on or
after, but received prior to, the cut-off date;
- amounts that may be held in separate trust accounts maintained
by the trustee or the indenture trustee for the trust,
including any reserve fund or interest reserve account;
- security interests in the financed motorcycles securing the
contracts and any related property;
- rights with respect to any repossessed financed motorcycles;
- the rights to proceeds from claims on theft, physical damage,
credit life and disability insurance policies covering the
financed motorcycles or the obligors;
- certain rebates of premiums and other amounts relating to
insurance policies, extended service contracts or other repair
agreements and other items financed under the contracts;
- the depositor's rights against the seller under the transfer
and sale agreement pursuant to which the seller sold the pool
of contracts to the depositor;
- the right to receive payments from the depositor obligated to
repurchase contracts which do not meet specified
representations made by depositor in the sale and servicing
agreement or the pooling and servicing agreement;
- the trust's rights against the servicer under the sale and
servicing agreement or the pooling and servicing agreement;
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- credit or cash flow enhancement for the securities specified
in the prospectus supplement; and
- all proceeds of the foregoing.
The property of a trust may also include a derivative arrangement for
any series or any class of securities. A derivative arrangement may include a
guaranteed rate agreement, a maturity liquidity facility, a tax protection
agreement, an interest rate cap or floor agreement, an interest rate or currency
swap agreement or any other similar arrangement. If the property of the trust
includes any of these types of assets, additional information concerning them
will be provided to you in your prospectus supplement.
If the trust issues notes, the trust will pledge its assets to the
indenture trustee for the benefit of the noteholders to secure its obligations
under the notes.
No trust will engage in any business activity other than:
- issuing notes and/or ownership interests in the trust;
- purchasing contracts, security interests in the related
financed motorcycles and related property;
- holding and dealing with assets of the trust;
- making payments on the securities it issued;
- entering into and performing the duties, responsibilities and
functions required under the pooling and servicing agreement,
the sale and servicing agreement, the indenture and related
documents; and
- matters incidental to the foregoing.
The assets of a trust will be separate from the assets of all other
trusts created by the depositor. Accordingly, the assets of one trust will not
be available to make payments on the securities issued by any other trust.
USE OF PROCEEDS
Unless otherwise provided in the related prospectus supplement, the
trust will use the net proceeds received from the sale of the securities (i) to
purchase the initial contracts and related assets from the trust depositor, and
(ii) to make a deposit into the pre-funding account, if any. The seller will use
the net proceeds from the trust depositor's purchase of the initial contracts,
as well as subsequent contracts, for general corporate purposes.
THE TRUSTEE
The prospectus supplement will specify the trustee for each trust and,
if the trust is issuing notes, the indenture trustee under the indenture. The
trustee's or the indenture trustee's liability in connection with the issuance
and sale of the related securities is limited solely to the express obligations
set forth in the related trust agreement, pooling and servicing agreement, sale
and servicing agreement or indenture.
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A trustee may resign at any time, in which event, the depositor will be
obligated to appoint a successor. An indenture trustee may resign at any time,
in which event, the trust or the administrator, on the trust's behalf, will be
obligated to appoint a successor. A trustee that becomes insolvent or otherwise
ceases to be eligible to continue in that capacity under the related pooling and
servicing agreement or trust agreement may be removed by the depositor. An
indenture trustee that becomes insolvent or otherwise ceases to be eligible to
continue in its capacity under the indenture may be removed by the trust or the
administrator, on the trust's behalf. In those circumstances, the servicer or
the administrator, as the case may be, will be obligated to appoint a successor.
Any resignation or removal of a trustee will not become effective until
acceptance of the appointment of a successor trustee.
In addition, the holders of more than 50% of the aggregate principal
amount of the notes or the class or classes of the notes described in your
prospectus supplement may remove the indenture trustee without cause and may
appoint a successor indenture trustee. If a trust issues a class of notes that
is subordinated to one or more other classes of notes and an event of default
occurs under the indenture, the indenture trustee may be deemed to have a
conflict of interest under the Trust Indenture Act of 1939 and may be required
to resign as trustee for one or more of the classes of notes. In any such case,
the indenture will provide for a successor indenture trustee to be appointed for
those classes of notes.
Each of the trustee and the indenture trustee and any of its respective
affiliates may hold securities in its own name or as a pledgee. For the purpose
of meeting the legal requirements of some jurisdictions, the servicer and the
related trustee will have the power to appoint co-trustees or separate trustees
of all or any part of the trust.
You will find the addresses of the principal offices of the trust, the
trustee and, if applicable, the indenture trustee in your prospectus supplement.
WEIGHTED AVERAGE LIVES OF THE SECURITIES
The weighted average lives of the securities of any trust will be a
function of the weighted average lives of the contracts held by the trust. The
weighted average lives of the contracts will be influenced by the rate at which
the principal balances of the related contracts are paid. The term "WEIGHTED
AVERAGE LIFE" means the average amount of time during which each dollar of
principal of a contract is outstanding.
All of the contracts will be prepayable at any time without penalty to
the obligor. If full or partial prepayments are received on the contracts, the
actual weighted average lives of the contracts will be shorter than the
scheduled weighted average lives of the contracts set forth in your prospectus
supplement. Prepayments include optional prepayments by obligors, liquidations
due to default, partial prepayments from rebates of extended warranties and
insurance premiums, as well as receipts of proceeds from physical damage, credit
life and disability insurance policies. Prepayment rates are influenced by a
variety of economic, social and other factors, including the fact that an
obligor generally may not sell or transfer the financed motorcycle securing a
contract without obtaining the certificate of title from the servicer.
We cannot predict the rate of prepayment on the contracts in either
stable or changing interest rate environments. The servicer maintains limited
records of the historical prepayment experience of the contracts included in its
portfolio but is not aware of any publicly available industry statistics for the
entire industry that set forth prepayment experience for receivables similar to
the contracts. The servicer believes that its prepayment experience is
consistent with that generally found in the industry. However,
24
neither the servicer nor the depositor can assure you that prepayments will
conform to historical experience. The weighted average lives of the securities
will also be impacted to the extent that the depositor or the seller is
obligated to repurchase contracts from a given trust as a result of breaches of
particular representations and warranties relating to the contracts. See
"DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS-SALE AND ASSIGNMENT OF
CONTRACTS BY SELLER" and "-TRANSFER OF CONTRACTS BY DEPOSITOR" in this
prospectus. The weighted average lives of the securities will also be impacted
to the extent the servicer is obligated to purchase contracts from a given trust
as a result of breaches of certain covenants relating to the contracts. See
"DESCRIPTION OF THE TRANSFER AND SERVICING Agreements-Servicing" in this
prospectus. In addition, early retirement of the securities may be effected by
the exercise of the option of the depositor, at the direction of the servicer,
to purchase all of the contracts remaining in the trust when the aggregate
outstanding principal balance of the contracts is less than 10% of the sum of
(i) the aggregate outstanding principal balance of the contracts owned by the
trust as of the closing date and (ii) the initial amount on deposit in the
pre-funding account, if any. You will bear all of the reinvestment risk
resulting from the rate of prepayments of the contracts.
Your prospectus supplement may set forth additional information
regarding the maturity and prepayment considerations applicable to your pool of
contracts and your securities.
FACTORS AND TRADING INFORMATION
The "NOTE FACTOR" or, if applicable, the "CERTIFICATE FACTOR" for any
class of securities issued by an "owner trust" will be a seven-digit decimal
indicating the principal amount of that class of securities on the payment date
as a fraction of the respective principal amount of that class as of the closing
date. The servicer will compute the note factor and, if applicable, the
certificate factor each month. Initially, each factor will be 1.0000000 and
thereafter will decline to reflect reductions in the principal amount of each
class of notes and, if applicable, the reductions in the certificate balance.
The servicer will compute the principal amount by allocating payments in respect
of the contracts to principal and interest using the simple interest method. The
portion of the principal amount of any class of notes and of the certificate
balance for any class of certificates for a given month allocable to a
securityholder can be determined by multiplying the original denomination of the
holder's security by the related note factor or certificate factor, as the case
may be, for that month.
The "POOL FACTOR" for any class of certificates issued by a "grantor
trust" will be a seven-digit decimal indicating the principal amount of that
class of certificates on the payment date as a fraction of the respective
principal amount thereof as of the closing date. The servicer will compute the
pool factor each month and will calculate the pool factor by dividing the
certificate balance for that class of certificates as of the close of business
on the last day of the preceding month by the aggregate certificate balance of
the certificates as of the closing date.
You will receive monthly reports concerning the payments received on
the contracts, the aggregate principal balance of the contracts, the related
note factors, certificate factors, pool factors and various other items of
information pertaining to the trust. Furthermore, the trustee or the indenture
trustee will furnish you with information for tax reporting purposes not later
than on the latest date permitted by law. See "DESCRIPTION OF THE TRANSFER AND
SERVICING AGREEMENTS-SERVICING-STATEMENTS TO SECURITYHOLDERS" in this
prospectus.
DESCRIPTION OF THE NOTES AND INDENTURE
25
GENERAL
The issuance of each series of notes will be under an indenture, a form
of which was filed with the Securities and Exchange Commission as an exhibit to
the registration statement of which this prospectus is a part. In addition, a
copy of the indenture for a series of notes will be filed with the Securities
and Exchange Commission following the issuance of each series of securities.
This summary describes the material terms common to each indenture and the
notes. This summary is subject to, and qualified in its entirety by reference
to, all of the provisions of the indenture and the notes.
The notes will be issued in fully registered form only and will
represent the obligations of a separate trust. Notes will be available for
purchase by you in the denominations specified in your prospectus supplement.
Your prospectus supplement will provide additional information specific
to your notes.
PAYMENTS
Your prospectus supplement will describe as to your class of notes:
- the timing and priority of payments of principal and interest;
- the amount and method of determining payments of principal and
interest;
- the priority of the application of the trust's available funds
to its expenses and payments on its securities; and
- the interest rates or the formula for determining the interest
.
Your rights to receive payments may be senior or subordinate to the
rights of holders of other classes of notes. Furthermore, each class of notes
may have a different interest rate, which may be a fixed, variable or adjustable
interest rate or any combination of the foregoing. See "INFORMATION REGARDING
THE SECURITIES-INTEREST RATES" in this prospectus.
Payments of principal and interest on any class of notes will be made
on a pro rata basis among all noteholders of that class. If the amount of funds
available to make a payment on a class of notes is less than the required
payment, the noteholders will receive their pro rata share of the amount
available for that class.
PRO-RATA PAY/SUBORDINATE NOTES
One or more classes of notes may be payable on an interest only or
principal only basis. In addition, the notes may include two or more classes
that differ as to timing, sequential order, priority of payment, interest rate
or amount of payments of principal or interest or both. Payments of principal or
interest or both on any class may be made upon the occurrence of specified
events, in accordance with a schedule or formula, or on the basis of collections
from designated assets of the trust. A series may include one or more classes of
notes, as to which accrued interest will not be distributed but rather will be
added to the principal or notional balance of the notes on each payment date.
26
VARIABLE FUNDING NOTE
A trust may issue one or more classes of notes having particular
maturity dates and at the same time the trust may issue variable funding notes
which relate to those particular maturity dates. These notes may have a balance
that may decrease based on the amortization of contracts or increase based on
principal collections used to purchase additional contracts.
OPTIONAL PURCHASE OF CONTRACTS AND REDEMPTION OF NOTES
At its option, the seller may purchase all of the contracts owned by a
trust on any payment date following the date on which the aggregate outstanding
principal balance of the contracts is less than 10% of the sum of (i) the
aggregate outstanding principal balance of the contracts owned by the trust as
of the closing date and (ii) the initial amount on deposit in the pre-funding
account, if any. Except as otherwise described in your prospectus supplement,
the purchase price to be paid in connection with the purchase shall be at least
equal to the sum of:
- the unpaid principal balance of the contracts as of that
payment date;
- accrued but unpaid interest on the securities to that payment
date;
- unreimbursed servicer advances; and
- accrued but unpaid servicer fees.
If the seller purchases the contracts, the related notes will be repaid in full
on the payment date on which the purchase occurs. In no event will you or the
trust be subject to any liability to the seller as a result of or arising out of
the seller's optional purchase of the contracts.
VOTING RIGHTS
Your prospectus supplement may specify certain circumstances under
which the consent, approval, direction or request of the holders of a specified
percentage of the outstanding principal amount of the notes or certain classes
of notes must be obtained, given or made, or under which such holders are
permitted to take an action or give a notice. Your prospectus supplement may
further specify that one class of notes will control the voting with respect to
all classes of notes.
THE INDENTURE
MODIFICATION OF INDENTURE WITHOUT NOTEHOLDER CONSENT
The trust and the indenture trustee may, without your consent, correct
or supplement any provision in the indenture that is ambiguous or inconsistent
with any other provision of the indenture. In addition, if the indenture trustee
receives an opinion of counsel that a modification will not have a material
adverse effect on the noteholders, the trust and the indenture trustee may,
without your consent, enter into one or more supplemental indentures to, among
other things, add, modify or eliminate any provisions of the indenture or modify
your rights as a noteholder.
MODIFICATION OF INDENTURE WITH NOTEHOLDER CONSENT
27
With the consent of the holders of more than 50% (or such higher
percentage as specified in your prospectus supplement) of the outstanding
principal amount of the notes or the class or classes of notes described in your
prospectus supplement, the trust and the indenture trustee may modify the
indenture and your rights under it.
Without the consent of the holder of each outstanding note affected,
however, no modification may:
- reduce the principal amount or interest rate or change the due
date of any payment;
- impair your right to sue to enforce payment provisions of the
indenture;
- reduce the percentage of the aggregate principal amount of the
notes to amend certain sections of the indenture or certain
other related agreements;
- permit the creation of any lien on collateral under the
indenture ranking prior to or on a parity with the lien of the
indenture;
- adversely affect the manner of determining notes outstanding
for voting purposes;
- reduce the percentage of the aggregate principal amount of the
notes needed to sell or liquidate the assets of a trust if the
proceeds of sale will be insufficient to pay the notes in
full; or
- modify the provisions of the indenture relating to these types
of indenture modifications without the consent of all
noteholders.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
Events of default under each indenture will consist of:
- a default for five days or more in the payment of interest due
on any note;
- failure to pay the unpaid principal amount of any class of
notes when due and payable;
- a default in the observance or performance of any covenant or
agreement of the trust (other than those specifically
addressed above), which default continues for 30 days after
written notice thereof is given to the trust by the indenture
trustee or by holders of at least 25% of the aggregate
principal amount of the notes or the class or classes of notes
described in your prospectus supplement;
- any representation or warranty made by the trust in the
indenture or in any certificate delivered pursuant thereto was
incorrect as of the time made, and continues to be incorrect
for a period of 30 days after notice thereof is given to the
trust by the indenture trustee or by holders of at least 25%
of the aggregate principal amount of the notes or the class or
classes of notes described in your prospectus supplement; or
- events of bankruptcy, insolvency, receivership or liquidation
of the trust.
28
If an event of default should occur and be continuing with respect to
the notes of a series, other than an event of default caused by an event of
bankruptcy, insolvency, receivership or liquidation of the trust, the indenture
trustee or the holders of more than 66 2/3% (or a lesser percentage as specified
in your prospectus supplement, but in no case not less than 50%) of the
aggregate principal amount of the notes or the class or classes of notes
described in your prospectus supplement may declare the principal amount of the
notes to be immediately due and payable. If an event of default caused by an
event of bankruptcy, insolvency, receivership or liquidation of the trust should
occur and be continuing with respect to the notes of a series, the principal
amount of the notes will be immediately due and payable. This declaration may be
rescinded by the holders of more than 66 2/3% (or a lesser percentage as
specified in your prospectus, but in no case not less than 50%) of the aggregate
principal amount of the notes or the class or classes of notes described in your
prospectus supplement.
If the notes of a series have been declared to be due and payable
following an event of default, the indenture trustee may:
- institute proceedings to collect amounts due or foreclose on
the trust assets;
- exercise remedies as a secured party; or
- sell the trust assets, or elect to have the trust maintain
possession of the trust assets.
The indenture trustee, however, may not sell the trust assets following
an event of default other than a default in the payment of principal or a
default for five days or more in the payment of interest, unless:
- the holders of all the outstanding notes consent to the sale;
- the proceeds of the sale are sufficient to pay in full the
principal and accrued interest on all the outstanding notes at
the date of the sale; or
- there has been an event of default for failure to pay
principal or interest on the notes and the indenture trustee
determines that the trust assets would not be sufficient on an
ongoing basis to make all payments on the notes as the
payments would have become due if the obligations had not been
declared due and payable and the indenture trustee provides
written notice to the rating agencies and obtains the consent
of the holders of more than 66-2/3% (or a lesser percentage as
specified in your prospectus supplement, but in no case not
less than 50%) of the aggregate principal amount of the notes
or the class or classes of notes described in your prospectus
supplement.
Following a declaration upon an event of default that the notes are immediately
due and payable, the application of any proceeds of any sale of the trust assets
will be in the order of priority described in the prospectus supplement for your
class of notes.
If an event of default occurs and is continuing, the indenture trustee
will be under no obligation to exercise any of the rights or powers under the
indenture at the request or direction of any of the noteholders if the indenture
trustee reasonably believes it will not be adequately indemnified against the
costs, expenses and liabilities which it may incur in complying with that
request. Holders of more than 50% of the aggregate principal amount of the notes
or the class or classes of notes described in your
29
prospectus supplement will have the right to direct the time, method and place
of conducting any proceeding or any remedy available to the indenture trustee.
Additionally, holders of more than 50% of the aggregate principal amount of the
notes or the class or classes of notes described in your prospectus supplement
may, in some cases, waive any default, except a default in the payment of
principal or interest or a default in respect of a covenant or provision of the
indenture that cannot be modified without the waiver or consent of all of the
holders of the outstanding notes.
No holder of a note will have the right to institute any proceeding
with respect to the indenture, unless:
- the holder previously has given to the indenture trustee
written notice of a continuing event of default;
- the holders of not less than 25% in principal amount of the
outstanding notes or the class or classes of notes described
in your prospectus supplement make written request of the
indenture trustee to institute the proceeding in its own name
as indenture trustee;
- the holder or holders offer the indenture trustee reasonable
indemnity;
- the indenture trustee has for 60 days failed to institute the
proceeding; and
- no direction inconsistent with that written request has been
given to the indenture trustee during the 60-day period by the
holders of more than 50% of the notes or the class or classes
of notes described in your prospectus supplement.
Notwithstanding the foregoing, noteholders will have the absolute and
unconditional right to receive payment of principal of and interest on a note
and to institute suit for the enforcement of such payment, which right will not
be impaired without the individual noteholder's consent.
In addition, the indenture trustee and noteholders, by accepting the
notes, will covenant that they will not at any time institute against the
depositor or the trust any bankruptcy, reorganization or other proceeding under
any federal or state bankruptcy or similar law.
Neither the trustee, the holder of any certificate, the seller, the
depositor, or any of their respective owners, beneficiaries, agents, officers,
directors, employees, affiliates, successors or assigns will be personally
liable for the payment of the notes or for any agreement or covenant of the
trust contained in the indenture.
COVENANTS
Each indenture will provide that the trust may not consolidate with or
merge into any other entity, unless:
- the entity formed by or surviving the consolidation or merger
is organized under the laws of the United States, any state or
the District of Columbia;
30
- the entity expressly assumes the trust's obligation to make
due and punctual payments upon the notes and the performance
or observance of every agreement and covenant of the trust
under the indenture;
- no event of default shall have occurred and be continuing
immediately after the merger or consolidation;
- the rating agencies rating the notes (and, if so provided in
the indenture, the certificates) advise the indenture trustee
that the ratings then in effect would not be reduced or
withdrawn as a result of the merger or consolidation;
- the indenture trustee has received an opinion of counsel to
the effect that the consolidation or merger would have no
material adverse tax consequence to the trust or to any
noteholder or certificateholder; and
- any action as is necessary to maintain the lien and security
interest of the indenture trustee shall have been taken.
Each indenture will provide that the trust will not, among other
things:
- except as expressly permitted by the related indenture, trust
agreement, sale and servicing agreement or pooling and service
agreement, transfer any of the assets of the trust;
- claim any credit on or make any deduction from, the principal
and interest payable in respect of the related notes, other
than amounts withheld under the bankruptcy code or applicable
state law, or assert any claim against any present or former
holder of notes because of the payment of taxes levied or
assessed upon the trust;
- permit the validity or effectiveness of the indenture to be
impaired or permit the release of any person from any
covenants or obligations relating to the notes under the
indenture except as expressly permitted in the indenture; or
- except as expressly permitted in the indenture, permit any
lien or claim to burden any assets of the trust.
Each indenture will provide that each trust may engage in only those
activities specified above under "THE TRUSTS." Each trust will be prohibited
from incurring, assuming or guaranteeing any indebtedness other than
indebtedness incurred under the notes and the indenture or otherwise in
accordance with the related indenture, trust agreement and sale and servicing
agreement.
ANNUAL COMPLIANCE STATEMENT
Each trust will be required to file annually with the applicable
indenture trustee a written statement as to the fulfillment of its obligations
under the indenture.
31
INDENTURE TRUSTEE'S ANNUAL REPORT
Each indenture trustee will be required to mail each year to all
noteholders of the related series a brief report relating to:
- its eligibility and qualification to continue as indenture
trustee under the related indenture;
- any amounts advanced by it under the indenture;
- the amount, interest rate and maturity date of certain
indebtedness owing by the trust to the indenture trustee in
its individual capacity;
- the property and funds physically held by the indenture
trustee; and
- any action taken by it that materially affects the notes and
that has not been previously reported.
SATISFACTION AND DISCHARGE OF INDENTURE
The discharge of an indenture will occur with respect to the assets
securing the notes of a series upon the delivery to the related indenture
trustee for cancellation of all the notes or, with certain limitations, upon
deposit with the indenture trustee of funds sufficient for the payment in full
of all of the notes and payment of all amounts and obligations, if any, which
the trust owes to the noteholders or indenture trustee on behalf of the
noteholders.
TRUST ACCOUNTS
Under each indenture, if the applicable indenture trustee has a rating
of A-1+/P-1 by Standard & Poor's Rating Services and Moody's Investors Service,
Inc., the indenture trustee will establish and maintain segregated bank accounts
for the trust. If the applicable indenture trustee has a rating lower than
A-1+/P-1, the indenture trustee will establish and maintain segregated trust
accounts or accounts in a qualified institution. These accounts will include,
among others, a "COLLECTION ACCOUNT" and a "DISTRIBUTION ACCOUNT." The trust
accounts may, as described in the prospectus supplement for your notes, also
include a cash collateral or reserve fund account as credit enhancement.
"QUALIFIED INSTITUTION" means the corporate trust department of the
indenture trustee or any other depositary institution:
- organized under the laws of the United States or any state or
any domestic branch of a foreign bank;
- the deposits of which are insured by the Federal Deposit
Insurance Corporation; and
- which has, or whose parent corporation has, short-term or
long-term debt ratings acceptable to Moody's Investors
Service, Inc. and Standard & Poor's Ratings Services.
32
The indenture trustee will invest funds in the trust accounts at the
direction of the servicer. All investments will be generally limited to
investments acceptable to the rating agencies rating the notes as being
consistent with the ratings of those notes that will mature not later than the
business day preceding the applicable payment date or any later date approved by
the rating agencies. If the rating agencies permit the investment of funds on
deposit in a cash collateral or reserve fund account in investments that mature
beyond a payment date, the amount of cash available in the cash collateral or
reserve fund account may be less than the amount required to be withdrawn from
that trust account to cover shortfalls in collections on the contracts and a
temporary shortfall in the amounts paid to the noteholders may result.
Investment earnings on funds deposited in the trust accounts will be paid to the
person described in your prospectus supplement.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The issuance of each series of certificates will be under the terms of
a trust agreement or a pooling and servicing agreement, a form of each of which
has been filed with the Securities and Exchange Commission as an exhibit to the
registration statement of which this prospectus is a part. In addition, a copy
of the trust agreement or the pooling and servicing agreement for a series of
certificates will be filed with the Securities and Exchange Commission following
the issuance of the certificates. This summary describes the material terms
common to the certificates issued by each trust. This summary is subject to, and
qualified in its entirety by reference to, all the provisions of the
certificates, the trust agreement or pooling and servicing agreement, as
applicable.
The certificates of each series will be issued in fully registered form
only and will represent an ownership interest in the trust. Certificates will be
available for purchase by you in the denominations specified in your prospectus
supplement.
Your prospectus supplement will provide additional information specific
to your certificates.
DISTRIBUTIONS
Your prospectus supplement will describe as to your class of
certificates:
- the timing and priority of distributions on account of
principal and interest;
- the amount and method of determining distributions on account
of principal and interest;
- the priority of the application of the trust's available funds
to its expenses and distributions on its securities;
- allocation of losses on the contracts among the classes of
certificates; and
- the interest rates or the formula for determining the interest
rates.
Your rights to receive distributions may be senior or subordinate to
holders of other classes of certificates. Furthermore, each class of
certificates may have a different interest rate, which may be a fixed, variable
or adjustable interest rate or any combination of the foregoing. See
"INFORMATION REGARDING THE SECURITIES-INTEREST RATES" in this prospectus.
33
Distributions of principal and interest with respect to any class of
certificates will be made on a pro rata basis among all certificateholders of
that class. If the amount of funds available to make a distribution with respect
to a class of certificates is less than the required payment, the
certificateholders will receive their pro rata share of the amount available for
that class.
PRO-RATA PAY/SUBORDINATE CERTIFICATES
One or more classes of certificates may be payable on an interest only
or principal only basis. In addition, the certificates may include two or more
classes that differ as to timing, sequential order, priority of payment,
interest rate or amount of distributions of principal or interest or both.
Distributions of principal or interest or both on any class may be made upon the
occurrence of specified events, in accordance with a schedule or formula, or on
the basis of collections from designated assets of the trust. A series may
include one or more classes of certificates, as to which accrued interest will
not be distributed but rather will be added to the principal or notional balance
of the certificates on each payment date.
OPTIONAL PURCHASE OF CONTRACTS AND PREPAYMENT OF CERTIFICATES
At its option, the seller may purchase all of the contracts owned by a
trust on any payment date following the date on which the aggregate outstanding
principal balance of the contracts is less than 10% of the sum of (i) the
aggregate outstanding principal balance of the contracts owned by the trust as
of the closing date and (ii) the initial amount on deposit in the pre-funding
account, if any. Except as otherwise described in your prospectus supplement,
the purchase price to be paid in connection with the purchase shall be at least
equal to the sum of:
- the unpaid principal balance of the contracts as of that
payment date;
- accrued but unpaid interest on the certificates to the payment
date;
- unreimbursed servicer advances; and
- accrued but unpaid servicer fees.
If the seller purchases the contracts, the related certificates will be paid in
full on the payment date on which the purchase occurs. In no event will you or
the trust be subject to any liability to the seller as a result of or arising
out of the seller's optional purchase of the contracts.
THE POOLING AND SERVICING AGREEMENT
MODIFICATION OF THE POOLING AND SERVICING AGREEMENT WITHOUT
CERTIFICATEHOLDER CONSENT
In the case of a "grantor trust", the depositor and the trustee may,
without your consent, correct or supplement any provision in the pooling and
servicing agreement that is ambiguous or inconsistent with any other provision
of the pooling and servicing agreement. In addition, if the trustee receives an
opinion of counsel that a modification will not have a material adverse effect
on the certificateholders, the depositor and the trustee may, without your
consent, enter into one or more supplements to the pooling and servicing
agreement to, among other things, add, modify or eliminate any provisions of the
pooling and servicing agreement or modify your rights as a certificateholder.
34
MODIFICATION OF POOLING AND SERVICING AGREEMENT WITH CERTIFICATEHOLDER
CONSENT
With the consent of the holders of more than 50% of the outstanding
principal amount of the certificates or the class or classes of certificates
described in your prospectus supplement, the depositor and the trustee may
modify the pooling and servicing agreement and your rights under it.
Without the consent of the holder of each outstanding certificate
affected, however, no modification may:
- reduce the principal amount or pass-through rate or change the
due date of any distribution;
- modify the manner of application of collections in respect of
the contracts to distributions in respect of the certificates;
- impair your right to sue to enforce payment provisions of the
pooling and servicing agreement;
- reduce the percentage of the aggregate certificate balance of
the certificates needed for consents of certificateholders;
- permit the creation of any lien on collateral under the
pooling and servicing agreement ranking prior to or on a
parity with the lien of the pooling and servicing agreement;
- adversely affect the manner of determining certificates
outstanding for voting purposes; or
- modify the provisions of the pooling and servicing agreement
relating to these types of pooling and servicing agreement
modifications without the consent of all certificateholders.
TRUST ACCOUNTS
Under the pooling and servicing agreement or trust agreement, if the
applicable trustee has a rating of A-1+/P-1 by Standard & Poor's Rating Services
and Moody's Investors Service, Inc., the trustee will establish and maintain
segregated bank accounts for the trust. If the applicable trustee has a rating
lower than A-1+/P-1, the trustee will establish and maintain segregated trust
accounts or accounts in a qualified institution. These accounts will include,
among others, a "COLLECTION ACCOUNT".
"QUALIFIED INSTITUTION" means the corporate trust department of the
trustee or any other depositary institution:
- organized under the laws of the United States or any
state or any domestic branch of a foreign bank;
- the deposits of which are insured by the Federal
Deposit Insurance Corporation; and
35
- which has, or whose parent corporation has,
short-term or long-term debt ratings acceptable to
Moody's Investors Service, Inc. and Standard & Poor's
Ratings Services.
The trustee will invest funds in the trust accounts at the direction of the
servicer. All investments will be generally limited to investments acceptable to
the rating agencies rating the certificates as being consistent with the ratings
of those certificates that will mature not later than the business day preceding
the applicable payment date or any later date approved by the rating agencies.
See "DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS" in this
prospectus for summaries of the material terms of the trust agreements, sale and
servicing agreements and pooling and servicing agreements pursuant to which
certificates will be issued.
INFORMATION REGARDING THE SECURITIES
INTEREST RATES
A class of securities may bear interest at a fixed, variable or
adjustable rate per annum, as more fully described below and in your prospectus
supplement.
FIXED RATE SECURITIES. Each class of fixed rate securities will bear
interest at the applicable per annum interest rate or pass through rate,
specified in the applicable prospectus supplement. Interest on each class of
fixed rate securities will be computed on the basis of a 360-day year consisting
of twelve 30-day months or on such other day count basis as is specified in your
prospectus supplement.
FLOATING RATE SECURITIES. Each class of floating rate securities will
bear interest during each applicable interest period at a rate per annum
determined by reference to a base rate, plus or minus a specified spread, if
any, or multiplied by the spread multiplier, if any, as specified in the
applicable prospectus supplement. The "SPREAD" is a number of basis points to be
added to or subtracted from the related base rate. The "SPREAD MULTIPLIER" is a
percentage of the related base rate by which that base rate will be multiplied
to determine the applicable interest rate. Your prospectus supplement will
designate one of the following base rates as applicable to a floating rate
security:
- London interbank offered rate;
- commercial paper rates;
- Treasury rate;
- federal funds rate;
- negotiable certificates of deposit rate; or
- any other base rate that is set forth in your
prospectus supplement.
Your prospectus supplement will specify whether the interest rate will
be reset daily, weekly, monthly, quarterly, semiannually, annually or some other
specified period and the dates on which that interest rate will be reset. If the
reset date does not fall on a business day, then the reset date will be
36
postponed to the next succeeding business day; except that with respect to
securities having a base rate based on the London interbank offered rate, if the
reset date falls in the next succeeding calendar month, then the reset date will
be the immediately preceding business day.
Interest on each class of floating rate security will accrue on an
Actual/360 basis, an Actual/Actual basis, or a 30/360 basis. For floating rate
securities calculated on an Actual/360 basis and Actual/Actual basis, accrued
interest for each interest period will be calculated by multiplying:
1. the face amount of that floating rate security;
2. the applicable interest rate; and
3. the actual number of days in the related interest period, and
dividing the resulting product by 360 or the actual number of
days in the related year, as applicable.
For floating rate securities calculated on a 30/360 basis, accrued
interest for an interest period will be computed on the basis of a 360-day year
consisting of twelve 30-day months, irrespective of how many days are actually
in that interest period.
Floating rate securities may also have either or both of the following:
- a maximum limitation, or ceiling, on the rate at
which interest may accrue during any interest period;
and
- a minimum limitation, or floor, on the rate at which
interest may accrue during any interest period.
The applicable interest rate will in not exceed the maximum rate permitted by
applicable law.
Each trust issuing floating rate securities will appoint a calculation
agent to calculate interest rates on each class of floating rate securities.
Your prospectus supplement will set forth the identity of the calculation agent,
which may be the related trustee or indenture trustee with respect to that
series. All determinations of interest by the calculation agent shall, in the
absence of manifest error, be conclusive for all purposes and binding on the
holders of floating rate securities of a given class. All percentages resulting
from any calculation on floating rate securities will be rounded to the nearest
one hundred-thousandth of a percentage point, with five one millionths of a
percentage point rounded upwards, and all dollar amounts used in or resulting
from that calculation on floating rate securities will be rounded to the nearest
cent.
CD RATE SECURITIES. The base rate for any securities having a base rate
based on a CD rate for each reset date shall be either:
- the rate for negotiable certificates of deposit
having the index maturity designated in the
applicable prospectus supplement as published in
H.15(519) under the heading "CDs (Secondary Market)"
as of the second business day prior to the reset
date; or
- if that rate is not published prior to 3:00 p.m., New
York City time on that business day, the rate for
negotiable certificates of deposit having the index
maturity designated in the applicable prospectus
supplement as published in H.15 Daily Update under
the
37
heading "CDs (Secondary Market)" or such other
recognized electronic source used for the purpose of
displaying such rate; or
- if by 3:00 p.m., New York City time on that business
day, that rate is not yet published in either
H.15(519) or H.15 Daily Update or such other
recognized electronic source used for the purpose of
displaying such rate, the arithmetic mean of the
secondary market offered rates as of 10:00 a.m., New
York City time on that business day, of three leading
nonbank dealers in negotiable U.S. dollar
certificates of deposit in the City of New York
selected by the calculation agent for negotiable
certificates of deposit of major United States money
market banks with a remaining maturity closest to the
index maturity designated in the applicable
prospectus supplement in an amount that is
representative for a single transaction in that
market at that time.
"H.15(519)" means the publication entitled "Federal Reserve Statistical
Release H.15(519), Selected interest rates," or any successor publication,
published by the Board of Governors of the Federal Reserve System.
"H.15 DAILY UPDATE" means the publication entitled "H.15 Daily Update,
Selected interest rates," or any successor publication, published by the Board
of Governors of the Federal Reserve System.
COMMERCIAL PAPER RATE SECURITIES. The base rate of any securities
having a base rate based on commercial paper rates for each reset date shall be
either:
- the money market yield on the reset date of the rate
for commercial paper having the index maturity
specified in your prospectus supplement, as published
in H.15(519) under the heading "Commercial
Paper-Nonfinancial" as of the second business day
prior to the reset date; or
- if that rate is not published prior to 3:00 p.m., New
York City time on that business day, the money market
yield on the second business day prior to the reset
date of the rate for commercial paper of the
specified index maturity as published in H.15 Daily
Update or such other recognized electronic source
used for the purpose of displaying such rate under
the heading "Commercial Paper-Nonfinancial"; or
- if by 3:00 p.m., New York City time on that business
day, that rate is not yet published in either
H.15(519) or H.15 Daily Update or such other
recognized electronic source used for the purpose of
displaying such rate, the money market yield of the
arithmetic mean of the offered rates, as of 11:00
a.m., New York City time, on that date of three
leading dealers of commercial paper in the City of
New York selected by the calculation agent for
commercial paper of the specified index maturity
placed for an industrial issuer whose bonds are rated
"AA" or the equivalent by a nationally recognized
rating agency.
"MONEY MARKET YIELD" means a yield calculated in accordance with the
following formula:
D x 360
-----
Money Market Yield = 360 - (D x M) x 100
38
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the interest period for which interest is being calculated.
FEDERAL FUNDS RATE SECURITIES. The base rate for any securities having
a base rate based on the federal funds rate for each reset date shall be either:
- the rate set forth in H.15(519) for that date
opposite the caption "Federal Funds (Effective)" as
such rate is displayed on Bridge Telerate, Inc. Page
120 (or any other page as may replace that page); or
- if that rate does not appear on Bridge Telerate, Inc.
Page 120 or is not published in H.15(519) prior to
3:00 p.m., New York City time, the rate set forth in
H.15 Daily Update or such other recognized electronic
source used for the purpose of displaying such rate
under the heading "Federal Funds/Effective Rate"; or
- if by 3:00 p.m., New York City time, that rate does
not appear on Bridge Telerate, Inc. Page 120 or is
not yet published in either H.15(519) or H.15 Daily
Update or such other recognized electronic source
used for the purpose of displaying such rate, the
arithmetic mean of the rates for the last transaction
in overnight United States dollar federal funds
arranged by three leading brokers of federal funds
transactions in the City of New York selected by the
calculation agent prior to 9:00 a.m., New York City
time.
LIBOR SECURITIES. The base rate for any securities having a base rate
based on LIBOR will be determined by the calculation agent as follows:
1. On the second London business day prior to the reset date, the
calculation agent will determine the offered rates for
deposits in U.S. dollars for the period of the index maturity
specified in the applicable prospectus supplement, as either
- if "LIBOR Bloomberg" is specified in the applicable
prospectus supplement, the arithmetic mean of the
offered rates for deposits in the index currency
having the index maturity designated in the
applicable prospectus supplement, commencing on the
reset date, that appear on the page specified in the
applicable prospectus supplement as of 11:00 a.m.
London time, on the second London business day prior
to the reset date, if at least two offered rates
appear (unless, described above, only a single rate
is required) on that page, or
- if "LIBOR Telerate" is specified in the applicable
prospectus supplement, the rate for deposits in the
index currency having the index maturity designated
in the applicable prospectus supplement, commencing
on reset date that appears on the page specified in
the applicable prospectus supplement as of 11:00 a.m.
London time, on the second London business day prior
to the reset date.
2. If "LIBOR Bloomberg" is specified and fewer than two offered
rates appear on the designated page or if LIBOR Telerate is
specified and no rate appears on the designated
39
page, the calculation agent will request the principal London
offices of each of four major banks in the London interbank
market to provide the calculation agent with its offered
quotations for deposits in the index currency for the period
of the index maturity designated in the applicable prospectus
supplement, commencing on the reset date, to prime banks in
the London interbank market at approximately 11:00 a.m.,
London time, on the second London business day prior to the
reset date and in a principal amount that is representative
for a single transaction in that index currency in that market
at that time.
- If at least two of those quotations are provided,
LIBOR will be the arithmetic mean of those
quotations.
- If fewer than two quotations are provided, LIBOR will
be the arithmetic mean of the rates quoted at
approximately 11:00 a.m., in the applicable principal
financial center, on the second London business day
prior to the reset date by three major banks in that
principal financial center for loans in the index
currency to leading European banks, having the index
maturity designated in the applicable prospectus
supplement and in a principal amount that is
representative for a single transaction in that index
currency in that market at that time; provided,
however, that if the banks so selected by the
calculation agent are not quoting offered rates as
mentioned in this sentence, LIBOR will be LIBOR in
effect on the reset date.
"INDEX CURRENCY" means the currency specified in the applicable
prospectus supplement as the currency for which LIBOR shall be calculated. If no
currency is specified in the applicable prospectus supplement, the index
currency shall be U.S.
dollars.
"PRINCIPAL FINANCIAL CENTER" will generally be the capital city of the
country of the specified index currency, except that with respect to U.S.
dollars, Deutsche marks, Canadian dollars, Australian dollars, Italian lira,
Swiss francs, Dutch guilders and Euros, the principal financial center shall be
New York, Frankfurt, Toronto, Sydney, Milan, Zurich, Amsterdam and London,
respectively.
TREASURY RATE SECURITIES. The base rate for any securities
having a base rate based on the Treasury rate for each reset date shall be
either:
- the rate for the most recent auction of Treasury bills
having the index maturity specified in the applicable
prospectus supplement, as that rate shall be set forth
under the heading "Investment Rate" on the display on
Bridge Telerate, Inc. Page 56 or Bridge Telerate, Inc.
Page 57 (or such other page as may replace either of those
pages opposite the index maturity) or,
- if Treasury bills of the index maturity have been
auctioned but that rate for those Treasury bills does not
appear on either Bridge Telerate, Inc. Page 56 or Bridge
Telerate, Inc. Page 57 prior to 3:00 p.m., New York City
time, the auction average rate for those Treasury bills
announced by the United States Department of the Treasury,
or
- if the results of the auction of Treasury bills having the
specified index maturity are not announced as provided
above by 3:00 p.m., New York City time, or if that auction
is not held in a particular week, the rate published in
H.15(519) under the heading "U.S. Government
Securities-Treasury bills-Secondary market", or
40
- if that rate does not appear on H.15(519) by 3:00 p.m.,
New York City time, the rate set forth in H.15 Daily
Update or such other recognized electronic source used for
the purpose of displaying that rate under the heading
"U.S. Government Securities-Treasury bills-Secondary
market," or
- if those results are not published in H.15 Daily Update or
another recognized electronic source used for the purpose
of displaying such rate, by 3:00 p.m. New York City time,
the arithmetic mean of the secondary market bid rates, as
of approximately 3:30 p.m., New York City time, on that
date, of three leading primary United States government
securities dealers selected by the calculation agent for
the issue of Treasury bills with a remaining maturity
closest to the specified index maturity.
INDEXED SECURITIES. Any class of securities may consist of securities
in which the amounts payable on the final scheduled payment date and/or the
interest payable on any payment date is determined by reference to a measure
which will be related to the exchange rates of one or more currencies or
composite currencies or the price of commodities or stocks, on dates as
specified in the applicable prospectus supplement. Holders of indexed securities
may receive a principal amount on the related final scheduled payment date that
is greater than or less than the face amount of the indexed securities depending
upon the relative value on the related final payment date of the specified
indexed item. The applicable prospectus supplement will contain information as
to the method for determining the principal amount payable on the related final
scheduled payment date, if any, and, where applicable, historical information
with respect to the specific indexed item or items and special tax
considerations associated with an investment in indexed securities. For purposes
of determining the rights of a holder of a security indexed as to principal in
respect of voting for or against amendments to the related trust agreement,
indenture, or other related agreements, as the case may be, and modifications
and the waiver of rights under those agreements, the principal amount of that
indexed security shall be deemed to be the face amount thereof upon issuance
less any payments allocated to principal of that indexed security.
If the principal amount of an indexed security is based on an index
calculated or announced by a third party and that third party either suspends
the calculation or announcement of that index or changes the basis upon which
that index is calculated, then that index shall be calculated by an independent
calculation agent named in the applicable prospectus supplement on the same
basis, and subject to the same conditions and controls, as applied to the
original third party. If for any reason that index cannot be calculated on the
same basis and subject to the same conditions and controls as applied to the
original third party, then the principal amount of that indexed security shall
be calculated in the manner set forth in the applicable prospectus supplement.
Any determination of that independent calculation agent shall, in the absence of
manifest error, be binding on all parties.
The applicable prospectus supplement will describe whether the
principal amount of the related indexed security, if any, that would be payable
upon repayment prior to the applicable final scheduled payment date will be the
face amount of that indexed security, the principal amount of that indexed
security at the time of repayment or another amount described in that prospectus
supplement.
CREDIT AND CASH FLOW ENHANCEMENT
The amounts and types of credit and cash flow enhancement arrangements
and the applicable provider, if any, will be set forth in the applicable
prospectus supplement. This credit or cash flow enhancement may be in one or
more of the following forms:
41
- subordination of one or more classes of securities;
- spread account;
- reserve fund;
- over-collateralization;
- letter of credit;
- credit or liquidity facility;
- financial guaranty insurance policy;
- surety bond;
- guaranteed investment contract or other interest rate
protection agreement;
- repurchase obligation;
- yield supplement agreement;
- swap or other interest rate protection agreement;
- other agreements with respect to third party payments or other
support; or
- cash deposit or other arrangement that may be described in
your prospectus supplement.
Credit and cash flow enhancement is intended to enhance the likelihood
that you will receive the full amount of principal and interest due on your
securities and to decrease the likelihood that that you will experience losses.
The enhancement for a class or series of securities will not provide protection
against all risks of loss and will not guarantee repayment of the entire
principal of and interest on those securities. If losses occur which exceed the
amount covered by any credit or cash flow enhancement or which are not covered
by any credit or cash flow enhancement, you will bear your allocable share of
deficiencies, as described in your prospectus supplement. In addition, if a form
of enhancement covers more than one class or series of securities, you will be
subject to the risk that the enhancement will be exhausted by the claims of
securityholders of other classes or series.
If so provided in the prospectus supplement, the depositor or the trust
may replace the credit or cash flow enhancement for any class of securities with
another form of credit or cash flow enhancement without the consent of the
securityholders, provided that the rating agencies rating that class of
securities confirm that that substitution will not result in the reduction or
withdrawal of the rating of that class of securities.
RESERVE FUND
The depositor or a third party may establish for a series or class of
securities an account or reserve fund, which will be maintained with a
collateral agent or the related trustee or indenture trustee. The
42
reserve fund will be funded by an initial deposit by the depositor or a third
party on the closing date in the amount set forth in your prospectus supplement
and, if the related trust has a pre-funding account, will also be funded on each
date that the trust acquires subsequent contracts from the depositor to the
extent described in the applicable prospectus supplement. The amount on deposit
in the reserve fund will be increased on each payment date thereafter up to the
reserve fund required amount by the deposit in the reserve fund of the amount of
collections on the related contracts available therefor as described in the
prospectus supplement.
Your prospectus supplement will describe the circumstances and manner
under which payments may be made out of the reserve fund, either to make
payments or distributions to you or to the servicer or a third party. Monies on
deposit in the reserve fund may be invested in investments acceptable to the
rating agencies rating the securities as being consistent with the ratings of
those securities under the circumstances and in the manner described in the
related sale and servicing agreement, pooling and servicing agreement or
indenture. Earnings on investment of funds in the reserve fund in eligible
investments will be paid to the person described in your prospectus supplement
under the circumstances described in your prospectus supplement on each payment
date. Any monies remaining on deposit in the reserve fund upon termination of
the trust also will be released to the depositor or its assignee.
BOOK-ENTRY REGISTRATION
Each class of securities offered by this prospectus will be represented
by one or more certificates registered in the name of Cede & Co., as nominee of
The Depository Trust Company. Unless your prospectus supplement states
otherwise, you may hold your securities through DTC in the United States, or
Clearstream, Luxembourg or the Euroclear System in Europe, if you are a
participant of those systems, or indirectly through organizations that are
participants in those systems.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered under to Section 17A of the Securities Exchange Act
of 1934. DTC was created to hold securities for its direct participants and to
facilitate the clearance and settlement of securities transactions between its
direct participants through electronic book-entries, thereby eliminating the
need for physical movement of certificates. DTC's direct participants include:
- the underwriters offering the securities to you;
- securities brokers and dealers;
- banks;
- trust companies; and
- clearing corporations, and may include other
organizations.
Indirect access to the DTC system is also available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a direct participant, either directly or indirectly.
43
To facilitate subsequent transfers, DTC will register all deposited
securities in the name of DTC's nominee, Cede & Co. DTC has no knowledge of the
actual holders of the securities; DTC's records reflect only the identify of its
direct participants to whose accounts the securities are credited, which may or
may not be the securityholders. DTC's direct and indirect participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
You have no entitlement to receive a certificate representing your
interest in a class of securities. As long as the securities are registered in
the name of Cede & Co., any action to be taken by your or any other holders will
be taken by DTC upon instructions from DTC's participants. All distributions,
notices, reports and statements to you will be delivered to Cede & Co., as the
registered holder of the securities, for distribution to you in compliance with
DTC procedures.
You will receive all payments of principal and interest on the
securities through direct participants or indirect participants. DTC will
forward the payments to its direct participants which will forward them to the
indirect participants or securityholders. Under a book-entry format, you may
experience some delay in their receipt of payments, since payments will be
forwarded to Cede & Co. as nominee of DTC. The trustee or indenture trustee will
not recognize you as a holder of securities under the trust agreement, pooling
and servicing agreement or indenture. You may exercise the rights as a holders
of securities only indirectly through DTC and its direct participants and
indirect participants. Because DTC can act only on behalf of direct
participants, who in turn act on behalf of indirect participants, and on behalf
of banks, trust companies and other persons approved by it, there may be limits
on your ability to pledge the securities to persons or entities that do not
participate in the DTC system, or to otherwise act with respect to securities,
due to the absence of physical securities for the securities.
Arrangements among the various parties govern conveyance of notices and
other communications by:
- DTC to direct participants;
- by direct participants to indirect participants; and
- by direct participants and indirect participant to
holders, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Standing instructions and customary practices govern payments by DTC
participants to you, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name" and will be the
responsibility of the DTC participant and not of DTC, the indenture trustee, the
trustee, the depositor or the seller, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment or distribution of
principal and interest to DTC is the responsibility of the indenture trustee or
trustee, disbursement of the payments or distributions to direct participants
shall be the responsibility of DTC and disbursement of payments to you shall be
the responsibility of the direct participants and the indirect participants.
Purchases of securities under the DTC system must be made by or through
direct participants, which will receive a credit for the securities on DTC's
records. The ownership interest of each actual holder is in turn to be recorded
on the direct participants' and indirect participants' records. You will not
receive written confirmation from DTC of your purchase, but you are expected to
receive written confirmations providing details of the transaction, as well as
periodic statements of your holdings, from
44
the direct participant or indirect participant through which you entered into
the transaction. Entries made on the books of DTC's participants acting on
behalf of you evidence transfers of ownership interests in the securities.
DTC has advised the depositor that it will take any action permitted to
be taken by a holder of securities only at the direction of one or more direct
participants to whose accounts with DTC the securities are credited.
Additionally, DTC has advised the depositor that to the extent that the pooling
and servicing agreement, the trust agreement or the indenture, as applicable,
requires that any action may be taken only by holders representing a specified
percentage of the aggregate outstanding principal amount of the securities, DTC
will take the action only at the direction of and on behalf of direct
participants, whose holdings include undivided interests that satisfy the
specified percentage.
DTC may discontinue providing its services as securities depositary
with respect to any class of securities at any time by giving reasonable notice
to the trustee or the indenture trustee, as applicable. Under these
circumstances, in the event that a successor securities depositary is not
obtained, fully registered, certificated securities are required to be printed
and delivered. A trust may decide to discontinue use of the system of book-entry
transfers through DTC or a successor securities depositary. In that event, fully
registered, certificated securities will be delivered to you. See "-ISSUANCE OF
DEFINITIVE SECURITIES."
The information in this section concerning DTC and DTC's book-entry
system are from sources that the depositor believes to be reliable, but the
depositor does not take any responsibility for the accuracy of this information.
Clearstream and Euroclear will hold omnibus positions on behalf of the
participants in the Clearstream and Euroclear systems, respectively, through
customers' securities accounts in Clearstream's and Euroclear's names on the
books of their respective depositaries which in turn will hold these positions
in customers' securities accounts in the depositaries' names on the books of
DTC.
Clearstream is incorporated under the laws of Luxembourg as a
professional depositary. Clearstream holds securities for its participants and
facilitates the clearance and settlement of securities transactions between its
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates.
Indirect access to Clearstream is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Clearstream participant, either directly or
indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear and to clear and settle transactions between Euroclear's participants
through simultaneous electronic book entry delivery against payment, thereby
eliminating the need for physical movement of certificates and any risk from
lack of simultaneous transfers of securities and cash. The Brussels, Belgium
office of Morgan Guaranty Trust Company of New York operates Euroclear, under
contract with Euroclear Clearance Systems S.C., a Belgian cooperative
corporation. Euroclear's operator conducts all operations and all Euroclear
securities clearance accounts and Euroclear cash accounts are accounts with
Euroclear's operator. Euroclear Clearance Systems S.C. establishes policy for
Euroclear on behalf of Euroclear's participants, including banks, securities
brokers and dealers, and other professional financial intermediaries.
45
Indirect access to Euroclear is also available to other firms that
clear through or maintain a custodial relationship with a Euroclear participant,
either directly or indirectly.
Morgan Guaranty Trust Company of New York is the Belgian branch of a
New York banking corporation which is a member bank of the Federal Reserve
System. As such, the Board of Governors of the Federal Reserve System and the
New York Banking Department, as well as the Belgian Banking Commission,
regulates and examines it.
Euroclear holds all securities on a fungible basis without attribution
of specific certificates to specific securities clearance accounts. The
Euroclear operator acts under the Euroclear terms and conditions only on behalf
of Euroclear's participants, and has no record of or relationship with persons
holding through Euroclear's participants.
Transfers between direct participants will comply with DTC rules.
Transfers between Clearstream's participants and Euroclear's participants will
comply with their rules and operating procedures.
DTC will effect, under DTC rules, cross-market transfers between
persons holding directly or indirectly through DTC in the United States, on the
one hand, and directly or indirectly through Clearstream or Euroclear, on the
other, through the relevant European international clearing system through its
depository; however, these cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in this system as required by its rules and procedures and within
its established deadlines, European time. The relevant European international
clearing system will, if the transaction meets its settlement requirement,
deliver instructions to its depositary to take action to effect final settlement
on its behalf by delivering or receiving securities in DTC, and making or
receiving payment using its normal procedures for same-day funds settlement
applicable to DTC. Clearstream participants and Euroclear participants may not
deliver instructions directly to the depositories.
Because of time-zone differences, credits of securities in Clearstream
or Euroclear as a result of a transaction with a DTC participant will be made
during the subsequent securities settlement processing day, dated the business
day following the DTC settlement date, and the credits or any transactions in
the securities settled during the processing day will be reported to the
relevant Clearstream participant or Euroclear participant on that business day.
Cash received in Clearstream or Euroclear as a result of sales of securities by
or through a Clearstream participant or a Euroclear participant to a DTC
participant will be received with value on the DTC settlement date but will be
available in the relevant Clearstream or Euroclear cash account only as of the
business day following settlement in DTC.
Although DTC, Clearstream and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of securities among participants of
DTC, Clearstream and Euroclear, they are under no obligation to perform or
continue to perform these procedures and these procedures may be discontinued at
any time.
Except as required by law, none of the seller, the servicer, the
depositor, the trustee or the indenture trustee will have any liability for any
aspect of the records relating to, actions taken or implemented by, or payments
made on account of, beneficial ownership interests in the securities held
through DTC, or for maintaining, supervising or reviewing any records or actions
relating to beneficial ownership interests.
46
ISSUANCE OF DEFINITIVE SECURITIES
The trust will issue the notes, if any, and certificates in fully
registered, definitive form to beneficial owners or their nominees rather than
to DTC or its nominee, only if:
(1) DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to the securities, and the
trustee or the indenture trustee is unable to locate a qualified
successor;
(2) The administrator of the trust or the trustee, as
applicable, at its option, elects to terminate the book-entry system
through DTC; or
(3) After the occurrence of an event of default under the
indenture or a servicer default under the sale and servicing agreement
or the pooling and servicing agreement, holders representing more than
50% of the notes or the certificates, as the case may be, of that
series, acting together as a single class, advise the applicable
indenture trustee or trustee through DTC in writing that the
continuation of a book-entry system through DTC with respect to those
notes or certificates is no longer in the best interests of the holders
of those securities.
Upon the occurrence of any of the three events described immediately
above, the applicable indenture trustee or trustee must notify all beneficial
owners for each class of securities held through DTC of the availability of
securities in fully registered, definitive form. Upon surrender by DTC of the
global note representing the securities and instructions for reregistration, the
indenture trustee or trustee will issue these fully registered, definitive
securities, and the indenture trustee or trustee will recognize the holders of
fully registered, definitive securities.
Additionally, upon the occurrence of any event described above, the
indenture trustee or trustee will distribute principal of and interest on the
securities directly to you as required by the indenture, trust agreement or
pooling and servicing agreement, as applicable. Distributions will be made by
check, mailed to your address as it appears on the register maintained by the
applicable trustee or indenture trustee. Upon at least five days' notice to
holders of a class of securities, however, the indenture trustee or trustee will
make the final payment on any security only upon presentation and surrender of
the security at the office or agency specified in the notice of final
distribution to the securityholders. The indenture trustee or trustee will make
the final payment in this manner whether the securities are in book-entry form
or definitive form.
You may transfer any fully registered, definitive security of any class
at the offices of the indenture trustee or trustee or its agent in New York, New
York, which the indenture trustee or trustee shall designate on or prior to the
issuance of any fully registered, definitive securities with respect to that
class. There is no service charge for any registration of transfer or exchange,
but the indenture trustee or trustee may require payment of a sum sufficient to
cover any tax or other governmental charge imposed in connection with the
transfer or exchange.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
This section summarizes the material terms of the following agreements:
47
- the transfer and sale agreement pursuant to which the seller
will sell and assign all right, title and interest in the pool
of contracts and the related property to the depositor;
- the sale and servicing agreement or pooling and servicing
agreement pursuant to which the depositor will deposit the
pool of contracts and the related property to the trust and
the servicer will agree to service those contracts;
- the trust agreement, or in the case of a grantor trust, the
pooling and servicing agreement, pursuant to which a trust
will be created and certificates will be issued; and
- the administration agreement pursuant to which Harley-Davidson
Credit Corp. will undertake specified administrative duties
with respect to a trust that issues notes.
Forms of these documents, which we collectively refer to as the
"TRANSFER AND SERVICING AGREEMENTS", have been filed as exhibits to the
registration statement of which this prospectus is a part. In addition, a copy
of the relevant transfer and servicing agreements relating to a series of
securities will be filed with the Securities and Exchange Commission following
the sale of those securities. This summary describes the material terms expected
to be common to each transfer and servicing agreement. This summary is subject
to, and qualified in its entirety by reference to, all the provisions of the
transfer and servicing agreements relating to a particular series. You should
read the forms of the transfer and servicing agreements filed as noted above.
SALE AND ASSIGNMENT OF CONTRACTS BY SELLER
Harley-Davidson Credit Corp. will be the seller of the contracts and
the related property to the depositor for deposit into the trust. The seller
will acquire the contracts originated by the originating dealers throughout the
United States and, in certain instances, Canada, pursuant to dealer agreements.
On or before the applicable closing date, the seller will sell to the
depositor under a transfer and sale agreement all of its interest in the
following:
- the contracts and the right to receive all scheduled payments
and prepayments received on the contracts on or after the
cut-off date, but excluding any scheduled payments due on or
after, but received prior to, the cut-off date;
- security interests in the financed motorcycles securing the
contracts and any related property;
- the rights to proceeds from claims on theft, physical damage,
credit life and disability insurance policies covering the
financed motorcycles or the obligors;
- certain rebates of premiums and other amounts relating to
insurance policies, extended service contracts or other repair
agreements and other items financed under the contracts; and
- all proceeds of the foregoing.
48
TRANSFER OF CONTRACTS BY THE DEPOSITOR
Pursuant to a sale and servicing agreement or pooling and servicing
agreement, on the applicable closing date, the depositor will transfer to the
trust all of its interest in the following:
- all property acquired by the depositor from the seller under
the transfer and sale agreement;
- amounts that may be held in separate trust accounts maintained
by the trustee or indenture trustee for the trust, including
any reserve fund or interest reserve account;
- the depositor's rights against the seller under the transfer
and sale agreement pursuant to which the seller sold the pool
of contracts to the depositor; and
- all proceeds of the foregoing.
The depositor will designate the servicer as custodian to maintain
physical possession, as the trust's agent, of the retail installment contracts
and any other documents relating to the contracts. To facilitate servicing and
save administrative costs, the documents will not be physically segregated from
other similar documents that are in the servicer's possession. However, UCC
financing statements will be filed in the applicable jurisdictions reflecting:
- the sale and assignment of the contracts and the security
interests in the financed motorcycles by the originating
dealers to the seller;
- the sale and assignment of the contracts and the security
interests in the financed motorcycles and the related property
by the seller to the depositor;
- the transfer of the contracts, the security interests in the
financed motorcycles, the related property and the depositor's
rights against the seller under the transfer and sale
agreement; and
- if applicable, the pledge by the trust of the trust assets to
the indenture trustee.
The seller and servicer's accounting records and computer systems will
also reflect these assignments and, if applicable, the pledge. Because the
contracts will remain in the servicer's possession, if a subsequent purchaser
were able to take physical possession of the contracts without knowledge of the
assignment, the trust's interest in the contracts could be defeated. In
addition, in some cases, the trust's security interest in collections that have
been received by the servicer but not yet remitted to the related collection
account could be defeated. See "LEGAL ASPECTS OF THE CONTRACTS-SECURITY
INTERESTS" in this prospectus.
The depositor will cause the applicable trustee and the indenture
trustee, if any, concurrently with the depositor's transfer and assignment of
the contracts and related property to the trust, to execute and deliver the
related notes and/or certificates to the depositor. The depositor will apply the
net proceeds received from the sale of the certificates and the notes of a given
series to the purchase of the related contracts from the seller and, to the
extent specified in the applicable prospectus supplement, to make any required
initial deposit into the reserve fund and the interest reserve account, if any.
49
CONVEYANCE OF CONTRACTS
On the closing date:
- the seller will sell, transfer, assign, set over and otherwise
convey the initial contracts and related assets to the
depositor;
- the depositor will sell, transfer, assign, set over and otherwise
convey to the trust all right, title and interest in the initial
contracts and related assets; and
- if applicable, the trust will pledge to the indenture trustee all
right, title and interest in the initial contracts and related
assets.
The initial contracts will be described on a list delivered to the
trustee and, if applicable, the indenture trustee, and certified by a duly
authorized officer of the depositor. Such list will include the amount of
monthly payments due on each initial contract as of the initial cutoff date, the
contractual rate of interest on each contract and the maturity date of each
contract. Such list will be available for inspection by any securityholder at
the principal office of the servicer. Shortly after the conveyance of the
initial contracts to the trust, the servicer's compliance officer will have
completed a review of all the documents that the seller has customarily kept on
file relating to the contracts, including the certificates of title to, or other
evidence of a perfected security interest in, the related motorcycles, and
confirmed the accuracy of the list of initial contracts delivered to the trustee
and, if applicable, the indenture trustee. The depositor will deliver to the
trustee, and, if applicable, the indenture trustee, a report of a nationally
recognized independent public accounting firm which states that such firm has
performed specific procedures for a sample of the initial contracts supplied by
the seller. Any contract discovered not to agree with such list in a manner that
is materially adverse to the interests of the noteholders and, if applicable,
certificateholders, will be required to be repurchased by the seller, or, if the
discrepancy relates to the unpaid principal balance of a contract, the seller
may deposit cash in the collection account in an amount sufficient to offset
such discrepancy.
In addition to the initial contracts, the trust's assets will include
the trust's rights under the sale and servicing agreement in respect of the
depositor's obligation to purchase from the seller, and concurrently convey to
the trust, subsequent contracts purchased as of the applicable subsequent cutoff
date. Any conveyance of subsequent contracts will be subject to the satisfaction
of certain conditions including:
- each such subsequent contract satisfies the eligibility criteria
specified in the transfer and sale agreement and the related
subsequent purchase agreement executed thereunder;
- the depositor shall have delivered certain opinions of counsel to
the trustee, the underwriters and the rating agencies with respect
to the validity and other aspects of the conveyance of all such
subsequent contracts; and
- the rating agencies shall have each notified the depositor and the
trustees in writing that the ratings on the notes and, if
applicable, certificates will not be lowered following the
addition of such subsequent contracts.
50
REPRESENTATIONS AND WARRANTIES MADE BY THE SELLER AND THE DEPOSITOR
The seller will make certain representations and warranties in the
transfer and sale agreement with respect to each contract, including that
(references to the closing date below being deemed, in respect of subsequent
contracts, to refer to the date such subsequent contracts are transferred to the
depositor):
(a) as of the related cutoff date, the most recent scheduled
payment was made or was not delinquent more than 30 days and,
to the best of the seller's knowledge, all payments on the
contract were made by the obligor;
(b) as of the closing date, no provision of a contract has been
waived, altered or modified in any respect, except by
instruments or documents contained in the files customarily
maintained by the servicer for each contract;
(c) each contract is a genuine, legal, valid and binding
obligation of the obligor and is enforceable in accordance
with its terms (except as may be limited by laws affecting
creditors' rights generally);
(d) as of the closing date, no contract is subject to any right of
rescission, set-off, counterclaim or defense;
(e) as of the contract's origination date, each motorcycle
securing a contract is covered by certain insurance policies
described under "THE SELLER AND SERVICER-INDIVIDUAL MOTORCYCLE
INSURANCE";
(f) each contract was originated by a Harley-Davidson motorcycle
dealer in the ordinary course of such dealer's business (which
dealer had all necessary licenses and permits to originate the
contracts in the state where such dealer was located), was
fully and properly executed by the parties thereto and was
sold by such dealer to the seller without any fraud or
misrepresentation on the part of such dealer;
(g) no contract was originated in or is subject to the laws of any
jurisdiction whose laws would make the transfer, sale and
assignment of the contract pursuant to the transfer and sale
agreement or the sale and servicing agreement unlawful, void
or voidable;
(h) each contract and each sale of the related motorcycle complies
with all requirements of any applicable federal, state,
provincial, or local law and regulations thereunder,
including, without limitation, usury, truth in lending, motor
vehicle installment loan and equal credit opportunity laws,
with such compliance not being affected by the depositor's
conveyance and assignment of the contracts to the trust, or,
if applicable, the trust's pledge of the contracts to the
indenture trustee, and the seller will maintain in its
possession, available for inspection by or delivery to the
depositor, the trustee, and, if applicable, the indenture
trustee, evidence of compliance with all such requirements;
(i) as of the closing date no contract has been satisfied,
subordinated in whole or in part or rescinded and the
motorcycle securing the contract has not been released from
the lien of the contract in whole or in part;
(j) each contract creates a valid, subsisting and enforceable
first priority security interest in favor of the seller in the
motorcycle securing such contract; such security interest has
been conveyed and assigned by the seller to the depositor;
(k) the original certificate of title, certificate of lien or
other notification (the "LIEN CERTIFICATE") issued by the body
responsible for the registration of, and the issuance of
certificates of title relating to, motor vehicles and liens
thereon (the "REGISTRAR OF TITLES") of the applicable state to
a secured party which indicates the lien of the secured party
on such motorcycles is recorded on the original certificate
of title; and the original certificate
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of title for each such motorcycle shows, or if a new or
replacement Lien Certificate is being applied for with respect
to such motorcycle the Lien Certificate will be received
within 180 days of the closing date and will show, the seller
as original secured party under each contract and as the
holder of a first priority security interest in such
motorcycle (and with respect to each contract for which the
Lien Certificate has not yet been returned from the Registrar
of Titles, the seller has received written evidence from the
related dealer that such Lien Certificate showing the seller
as lienholder has been applied for);
(l) the seller's security interest has been validly assigned by
the seller to the depositor pursuant to UCC financing
statements in order that immediately after the sale, each
contract will be secured by an enforceable and perfected first
priority security interest in the related motorcycle in favor
of the trust as secured party, which security interest is
prior to all other liens upon and security interests in such
motorcycle which now exist or may hereafter arise or be
created (except, as to priority, for any lien for taxes,
labor, materials or any state law enforcement agency affecting
a motorcycle and for the lien of the indenture, if
applicable);
(m) all parties to each contract had capacity to execute such
contract;
(n) no contract has been sold, conveyed and assigned or pledged to
any other person other than the depositor, as transferee of
the seller and the trust as transferee of the depositor and,
if applicable, the indenture trustee as pledgee of the trust
and prior to the transfer of the contract to the depositor,
the seller had good and marketable title to each contract free
and clear of any encumbrance, equity, loan, pledge, charge,
claim or security interest, and as of the closing date, the
trust and the owner trustee or, if applicable, the indenture
trustee, will have a first priority perfected security
interest therein;
(o) as of the related cutoff date, there was no default, breach,
violation or event permitting acceleration under any contract
(except for payment delinquencies permitted by clause (a)
above), no event which with notice and the expiration of any
grace or cure period would constitute a default, breach,
violation or event permitting acceleration under such
contract, and the seller has not waived any of the foregoing;
(p) as of the closing date, there are, to the best of the seller's
knowledge, no liens or claims which have been filed for work,
labor or materials affecting a motorcycle securing a contract,
which are or may be liens prior or equal to the lien of the
contract;
(q) each contract has a fixed rate of interest and provides for
monthly payments of principal and interest which, if timely
made, would fully amortize the loan on a simple interest basis
over its term;
(r) each contract contains customary and enforceable provisions
such as to render the rights and remedies of the holder
thereof adequate for realization against the collateral of the
benefits of the security;
(s) the description of each contract set forth in the list
delivered to the trustee and, if applicable, the indenture
trustee is true and correct; and
(t) there is only one original of each contract.
The seller will also make certain representations and warranties with
respect to the contracts in the aggregate as set forth in your prospectus
supplement.
In the event of a breach of any representation or warranty with respect
to a contract that materially and adversely affects the trust's or any
noteholder's or certificateholder's interest in the contract or the
collectibility of the contract, the depositor will be obligated to repurchase
the contract from the trust and
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the seller will be obligated to repurchase the contract from the depositor.
Any purchase shall be made at least two business days prior to the first
determination date after the date on which the servicer, the trustee or the
indenture trustee becomes aware and gives notice to the depositor or the seller
of the breach or the depositor or the seller becomes aware of the breach at a
price equal to the required payoff amount of the contract. The related trustee
or the indenture trustee may enforce this purchase obligation on your behalf,
and will constitute your sole remedy available against the depositor or the
seller for any uncured breach of its representations and warranties in the sale
and servicing agreement or pooling and servicing agreement, as applicable, and
the transfer and sale agreement, except that the seller will indemnify the
trust, the trustee, and, if applicable, the indenture trustee against losses,
damages, liabilities and claims which may be asserted against any of them as a
result of third-party claims arising out of the facts giving rise to that
breach.
Upon the purchase by the seller of a contract, the indenture trustee,
if any, the trust and the depositor will release the contract and its interest
in the related financed motorcycles to the seller.
COLLECTION ACCOUNT
In the case of a trust issuing notes, the indenture trustee will
establish and maintain the collection account in the name of the indenture
trustee for the benefit of the noteholders under the indenture. In the case of a
trust issuing only certificates, the trustee will maintain the collection
account in the name of the trustee for the benefit of the certificateholders
under the pooling and servicing agreement.
The servicer will deposit the following amounts into the collection
account no later than the second business day after processing by the servicer:
- all payments made by the obligors under the contracts;
- all proceeds of the contracts and the financed motorcycles;
and
- all payments made by the seller under the related transfer and
sale agreement, or the depositor under the sale and servicing
agreement or pooling and servicing agreement to repurchase any
contract as a result of a breach of a representation or
warranty, as described under "-REPRESENTATIONS AND WARRANTIES
MADE BY THE SELLER AND THE DEPOSITOR" above.
However, if the conditions to making monthly deposits into the
collection account set forth in the sale and servicing agreement or pooling and
servicing agreement (including the satisfaction of the minimum ratings of the
servicer and the absence of a servicer default) are satisfied and if permitted
by the rating agencies rating the securities, the servicer may retain
collections received on the contracts during each month until the business day
immediately prior to the related payment date. Pending deposit into the
collection account, the servicer will not be obligated to segregate collections
from its own funds and may use collections for its own benefit. To the extent
set forth in the applicable prospectus supplement, the servicer may, in order to
satisfy the requirements set forth in the sale and servicing agreement or
pooling and servicing agreement obtain a letter of credit or other security for
the benefit of the related trust to secure timely remittances of collections on
the contracts.
The servicer may withdraw from the collection account any amounts
deposited in error or required to be repaid to an obligor, based on the
servicer's good-faith determination that the amount was deposited in error or
must be returned to the obligor.
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Collections on a contract made during a month will be applied in the
following order:
- first, to accrued interest;
- second, to pay any expenses and late or extension fees owing;
and
- third, to principal until the principal balance is brought
current.
Any collections on a contract remaining after those applications will
be considered an "EXCESS PAYMENT". Excess payments relating to contracts will be
applied as a prepayment of principal.
SERVICING
The servicer will be obligated under the sale and servicing agreement
or pooling and servicing agreement, as applicable, to service the contracts with
reasonable care, using that degree of skill and attention that the servicer
generally exercises with respect to all comparable motor vehicle retail
installment contracts it services for itself and others in accordance with its
credit and collections policies and applicable law. In performing these duties,
the servicer shall comply in all material respects with its credit and
collection policies and procedures described above under "THE SELLER AND
SERVICER-UNDERWRITING AND ORIGINATION", as modified from time to time. The
servicer may delegate servicing responsibilities to third parties or affiliates,
provided that the servicer will remain obligated to the related trust for the
proper performance of its servicing responsibilities.
The servicer is responsible for:
- reviewing the contract files in the normal course of business;
- monitoring and tracking any property and sales taxes to be
paid by obligors;
- billing, collecting and recording payments from obligors;
- communicating with and providing billing records to obligors;
- depositing funds into the collection account;
- receiving payments as the trust's agent on the insurance
policies maintained by the obligors and communicating with
insurers;
- issuing reports to the trustee and indenture trustee, if any,
specified in the relevant transfer and servicing agreements;
- repossessing and remarketing financed motorcycle following
obligor defaults; and
- paying the fees and ordinary expenses of the trusts, trustee
and the indenture trustee.
The servicer is obligated to act in a commercially reasonable manner
with respect to the repossession and disposition of financed motorcycles
following a contract default with a view to realizing proceeds at least equal to
the financed motorcycle's fair market value.
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If the servicer determines that eventual payment in full of a contract
is unlikely, the servicer will follow its normal practices and procedures to
recover all amounts due upon that contract, including repossessing and disposing
of the related financed motorcycle at a public or private sale, or taking any
other action permitted by applicable law. See "LEGAL ASPECTS OF THE CONTRACTS"
in this prospectus. The servicer will be entitled to recover all reasonable
out-of-pocket expenses incurred by it in liquidating a contract and disposing of
the related financed motorcycle.
The servicer may, consistent with its customary servicing procedures,
grant to the obligor on any contract an extension of payments due under such
contract if:
(i) the extension period is limited to 45 days;
(ii) the obligor has not received an extension during the
previous twelve-month period;
(iii) the evidence supports the obligor's willingness and
capability to resume monthly payments; and
(iv) such extension is consistent with the servicer's
customary servicing procedures and with the sale and servicing
agreement or pooling and servicing agreement.
Exceptions to this extension policy may be authorized by the servicer's
management on a case-by-case basis consistent with the servicer's prudent
business practices.
If so specified in your prospectus supplement, a "backup servicer" may
be appointed and assigned certain oversight servicing responsibilities with
respect to the contracts. The identity of any backup servicer, as well as a
description of its responsibilities, of any fees payable to such backup servicer
and the source of payment of such fees, will be included in your prospectus
supplement.
EVIDENCE AS TO COMPLIANCE
Annually, the servicer will be obligated to deliver to the trustee and
the indenture trustee if any, a report from a nationally recognized accounting
firm stating that the accounting firm has audited the financial statements of
the servicer and issued an opinion on those financial statements and that the
accounting firm has examined and provided a report as to the servicer's controls
over the servicing of the contracts.
Annually the servicer will be obligated to deliver to the trustee and
the indenture trustee, if any, a certificate signed by an officer stating that
the servicer has fulfilled its obligations under the sale and servicing
agreement or the pooling and servicing agreement, as applicable, during the
preceding twelve-month period in all material respects or, if there has been a
default in the fulfillment of any obligation, describing such default.
You may obtain copies of these reports and certificates by delivering a
request in writing to the trustee or the indenture trustee, as the case may be,
at the address set forth in your prospectus supplement.
SERVICER DEFAULT
A servicer default under a sale and servicing agreement or pooling and
servicing agreement will occur if:
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- the servicer fails to make any payment or deposit required under
the securities, the sale and servicing agreement, the pooling and
servicing agreement or the transfer and sale agreement and such
failure continues for four business days after the date on which
such payment or deposit was due;
- the servicer fails to observe or perform in any material respect
any covenant or agreement in the securities, the sale and
servicing agreement, the pooling and servicing agreement or the
transfer and sale agreement which continues unremedied for thirty
days after the date on which such failure commences;
- the servicer assigns its duties or rights under the sale and
servicing agreement, the pooling and servicing agreement or the
transfer and sale agreement, except as specifically permitted
under the sale and servicing agreement, the pooling and servicing
agreement or the transfer and sale agreement, or attempts to make
such an assignment;
- an involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect shall have been
commenced against the servicer and shall not have been dismissed
within 90 days, or a court having jurisdiction in the premises
enters a decree or order for relief in respect of the servicer in
an involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or appoints a
receiver, liquidator, assignee, custodian, trustee or sequestrator
(or similar official) of the servicer, or for any substantial
liquidation of its affairs;
- the servicer commences a voluntary case under any applicable
bankruptcy, insolvency or similar law, or consents to the entry of
an order for relief in an involuntary case under any such law, or
consents to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or sequestrator (or other
similar official) of the servicer or for any substantial part of
its property or shall have made any general assignment for the
benefit of creditors, or fails to, or admits in writing its
inability to, pay debts as they become due, or takes any corporate
action in furtherance of the foregoing;
- the failure of the servicer to deliver the monthly report pursuant
to the terms of the sale and servicing agreement or the pooling
and servicing agreement and such failure remains uncured for five
business days after the date on which such failure commences; or
- any representation, warranty or statement of the servicer made in
the sale and servicing agreement, the pooling and servicing
agreement or any certificate, report or other writing delivered
pursuant to the sale and servicing agreement or the pooling and
servicing agreement shall prove to be incorrect in any material
respect as of the time when the same shall have been made and the
incorrectness of such representation, warranty or statement has a
material adverse effect on the trust and, within 30 days after
written notice has been given to the servicer or the trust
depositor by the trustee or, if applicable, the indenture trustee,
the circumstances or condition in respect of which such
representation, warranty or statement was incorrect have not been
eliminated or otherwise cured.
The servicer will be required under the sale and servicing agreement or the
pooling and servicing agreement to give the trustees and, if applicable, the
indenture trustee, the rating agencies, the noteholders and the
certificateholders notice of an event of termination promptly upon the
occurrence of such event.
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RIGHTS UPON SERVICER DEFAULT
If a servicer default remains unremedied, the indenture trustee or the
holders of more than 50% of the aggregate principal amount of the notes or the
class or classes of notes described in your prospectus supplement or, if the
trust has no notes outstanding, the trustee or the holders of more than 50% of
the aggregate certificate balance of the certificates or the class or classes of
certificates described in your prospectus supplement may terminate all of the
rights and obligations of the servicer under the sale and servicing agreement or
pooling and servicing agreement. When this happens, the indenture trustee, the
trustee or a successor servicer selected by the indenture trustee or the trustee
will succeed to all the responsibilities, duties and liabilities of the servicer
under the sale and servicing agreement or pooling and servicing agreement.
If the indenture trustee or the trustee is unwilling or unable to act
as the successor servicer, it may appoint, or petition a court to appoint, a
successor servicer. The indenture trustee or the trustee may arrange for
compensation to the successor servicer but that compensation may not exceed the
base servicing fee payable to the servicer. Any successor servicer will not be
liable for any acts or omissions of the prior servicer occurring prior to a
transfer of the servicer's servicing and related functions or for any breach by
the prior servicer of any of its obligations.
If a trust has notes outstanding, the holders of more than 50% of the
aggregate principal amount of the notes or the class or classes of notes
described in your prospectus supplement may waive any servicer default, other
than a default in making any required deposits into the collection account. If a
trust has no notes outstanding, the holders of more than 50% of the aggregate
certificate balance of the certificates or the class or classes of certificates
described in your prospectus supplement may waive any servicer default, other
than a default in making any required deposits into the collection account.
Following an event of termination, the indenture trustee will terminate
the lockbox agreement and direct all obligors under the contracts to make all
payments under the contracts to the indenture trustee, or to a lockbox
established by the indenture trustee.
CERTAIN MATTERS REGARDING THE SERVICER
The servicer may not resign from its obligations under the sale and
servicing agreement or pooling and servicing agreement except if its duties are
no longer permissible under applicable law. No resignation will become effective
until a successor servicer has assumed the servicer's obligations and duties
under the sale and servicing agreement or pooling and servicing agreement.
Removal of the servicer is permissible only upon the occurrence of a servicer
default as discussed above.
Each sale and servicing agreement and pooling and servicing agreement
will provide that neither the servicer nor any of its directors, officers,
employees or agents will be under any liability to the trust or you for taking
any action or for refraining from taking any action pursuant to that agreement
or for errors in judgment; except that neither the servicer nor any person will
be protected against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of the
servicer's duties under that agreement or by reason of reckless disregard of its
obligations and duties under that agreement.
In addition, the servicer will not be obligated to appear in, prosecute
or defend any legal action that is not incidental to the servicer's servicing
responsibilities under the related sale and servicing
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agreement or pooling and servicing agreement and that, in its opinion, may cause
it to incur any expense or liability. The servicer may, however, undertake any
reasonable action that it may deem necessary or desirable in respect of that
agreement, the rights and duties of the parties thereto and the interests of the
securityholders under that agreement. In that event, the legal expenses and
costs of that action and any liability resulting therefrom will be expenses,
costs and liabilities of the servicer, and the servicer will not be entitled to
be reimbursed therefor.
Under the circumstances specified in each sale and servicing agreement
or pooling and servicing agreement, any entity into which the servicer may be
merged or consolidated, or any entity resulting from any merger or consolidation
to which the servicer is a party, or any entity succeeding to all or
substantially all of the business of the servicer will be the successor of the
servicer under that agreement.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Compensation to the servicer will include a base monthly fee equal:
- to the product of the percentage per annum specified in your
prospectus supplement multiplied by the monthly principal
balance of the contracts at the beginning of the month,
plus any
- late fees;
- prepayment charges, if any;
- documentation fees;
- extension fees and other administrative charges; and
- if specified in the prospectus supplement, investment
earnings on funds deposited in the trust accounts.
The servicer will pay all expenses incurred by it in connection with its
activities under the transfer and servicing agreements and the annual fees and
expenses of the trustee and the indenture trustee, if any. The servicer will be
authorized to waive any administrative fees or extension fees that may be
collected in the ordinary course of servicing any contract.
STATEMENTS TO TRUSTEES AND THE TRUST
On or prior to each payment date the servicer will provide to the
applicable indenture trustee, if any, and the applicable trustee a statement
setting forth with respect to a series of securities substantially the same
information that is required to be provided in the periodic reports to be
provided to securityholders of that series described under "-STATEMENTS TO
SECURITYHOLDERS" below.
STATEMENTS TO SECURITYHOLDERS
With respect to each series of securities that includes notes, on or
prior to each payment date, the servicer will prepare and provide to the related
indenture trustee a statement to be delivered to you on that payment date. With
respect to each series of securities that includes certificates, on or prior to
each
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payment date, the servicer will prepare and provide to the related trustee a
statement to be delivered to you on the payment date. Each statement will
include the following information:
- the amount of the payment allocable to the principal
amount of each class of those notes and to the certificate
balance of each class of those certificates;
- the amount of the payment allocable to interest on each
class of securities of that series;
- the amount of the distribution allocable to the yield
supplement deposit, if any;
- the aggregate principal balance of the contracts as of the
close of business on the last day of the preceding month;
- the amount of base servicing fees paid to the servicer;
- the interest rate or pass-through rate for the interest
period relating to the next succeeding payment date for
any class of notes or certificates of that series with
variable or adjustable rates;
- the amount, if any, otherwise distributable to one or more
subordinated classes of notes or certificates that has
instead been distributed to more senior classes of notes
or certificates on that payment date;
- the outstanding principal amount and the note factor for
each class of those notes, and either the certificate
balance and the certificate factor for each class of those
certificates or the outstanding principal amount and the
pool factor for each class of those certificates, each
after giving effect to all payments allocable to the
principal of each class of notes and to the certificate
balance of the certificates on that date;
- the amount of advances made by the servicer in respect of
the related contracts and the preceding month and the
amount of unreimbursed advances in respect of contracts
determined by the servicer to be defaulted contracts
during that month;
- the balance of any related reserve fund, interest reserve
account or other credit or liquidity enhancement on that
date, after giving effect to changes thereto on that date
and the amount of those changes;
- the total amount of monthly prepayments determined by the
servicer to be due in one or more future months on deposit
in the related trust account or held by the servicer, if
permitted by the rating agencies rating the securities,
with respect to the related contracts and the change in
that amount from the immediately preceding payment date;
- the number and aggregate principal balance of contracts
delinquent computed as of the end of the related due
period;
- the number and aggregate principal balance of contracts
that became liquidated contracts during the immediately
preceding due period, the amount of liquidation
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proceeds for such due period, the amount of liquidation
expenses being deducted from liquidation proceeds for such
due period, the net liquidation proceeds and the net
liquidation losses for such due period;
- average and cumulative loss and delinquency information as
of such payment date;
- the number of contracts and the aggregate principal
balance of such contracts, as of the first day of the due
period relating to such payment date (after giving effect
to payments received during such due period and to any
transfers of subsequent contracts to the trust occurring
on or prior to such payment date);
- the aggregate principal balance and number of contracts
that were repurchased by the depositor with respect to the
related due period, identifying such contracts and the
repurchase price for such contracts; and
- such other customary factual information as is available
to the servicer as the servicer deems necessary and can
reasonably obtain from its existing data base to enable
securityholders to prepare their tax returns.
You may obtain copies of the statements by delivering a request in
writing addressed to the applicable trustee or indenture trustee at its address
set forth in your prospectus supplement.
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of each trust, the applicable
trustee or indenture trustee will mail to each person who at any time during
that calendar year has been a securityholder with respect to that trust and
received any payment a statement containing information for the purposes of that
securityholder's preparation of federal income tax returns. See "MATERIAL
FEDERAL INCOME TAX CONSEQUENCES" in this prospectus.
COLLECTIONS
With respect to each trust, the servicer will deposit all payments on
the related contracts (from whatever source) and all proceeds of such contracts
collected during each collection period specified in your prospectus supplement
into the related collection account within two business days after receipt
thereof. The servicer is required to use its best efforts to cause an obligor to
make all payments on the contracts directly to one or more lockbox banks, acting
as agent for the trust pursuant to a lockbox administration agreement. In
addition, the servicer may in the future collect payments from obligors through
other methods, including direct debit programs and the internet.
ADVANCES
The servicer will be obligated to advance each month an amount equal to
accrued and unpaid interest on any contract which was delinquent with respect to
the related due period, but only to the extent that the servicer believes that
the amount of such advance will be recoverable from collections on the
contracts. The servicer will deposit any advances in the collection account no
later than the day preceding the related payment date. The servicer will be
entitled to recoup advances on a contract by means of a first priority
withdrawal from Available Amounts on any payment date. The servicer will not be
obligated to make an advance to the extent that it determines, in its sole
discretion, that the advance will not be recovered from subsequent collections
on or in respect of the related contract.
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All advances are reimbursable to the servicer, without interest, if and
when a payment relating to a contract with respect to which an advance has
previously been made is subsequently received. In addition, upon the
determination by the servicer that a contract is a defaulted contract, it will
be entitled to recover unreimbursed advances in respect of that contract from
collections on or in respect of other contracts. A defaulted contract means a
contract with respect to which there has occurred one or more of the following:
(i) all or some portion of any payment under the contract is 120 days or more
delinquent, (ii) repossession (and expiration of any redemption period) of a
motorcycle securing a contract or (iii) the servicer has determined in good
faith that an obligor is not likely to resume payment under a contract.
NET DEPOSITS
As an administrative convenience and as long as specified conditions
are satisfied, the servicer will be permitted to make the deposit of
collections, aggregate advances and payments for purchases of contracts from the
trust for or with respect to a month net of payments to be made to the servicer
with respect to that month. The servicer may cause to be made a single, net
transfer to the collection account. The servicer, however, will account to the
related trustee, and you with respect to each trust as if all deposits, payments
and transfers were made individually. With respect to any trust that issues both
certificates and notes, if the related payment dates are not the same for all
classes of securities, all distributions, deposits or other remittances made on
a payment date will be treated as having been distributed, deposited or remitted
on the same payment date for the applicable month for purposes of determining
other amounts required to be distributed, deposited or otherwise remitted on a
payment date.
LIST OF SECURITYHOLDERS
Three or more holders of the notes of any class in a series or one or
more holders of those notes of that class evidencing not less than 25% of the
aggregate principal amount of those notes then outstanding may, by written
request to the related indenture trustee, obtain access to the list of all
noteholders maintained by that indenture trustee for the purpose of
communicating with other noteholders with respect to their rights under the
related indenture or under those notes. An indenture trustee may elect not to
afford the requesting noteholders access to the list of noteholders if it agrees
to mail the desired communication or proxy, on behalf of and at the expense of
the requesting noteholders, to all noteholders of that series.
Three or more holders of the certificates of any class in a series or
one or more holders of those certificates of that class evidencing not less than
25% of the certificate balance of those certificates may, by written request to
the related trustee, obtain access to the list of all certificateholders
maintained by that trustee for the purpose of communicating with other
certificateholders with respect to their rights under the related trust
agreement or pooling and servicing agreement or under those certificates.
The related trustee will provide to the servicer within 15 days after
receipt of a written request from the servicer, a list of the names of all
noteholders or certificateholders of record as of the most recent applicable
record date.
No transfer and servicing agreement will provide for the holding of
annual or other meetings of securityholders.
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INSOLVENCY OF TRUST
Each trust agreement will provide that the related trustee does not
have the power to commence a voluntary proceeding in bankruptcy with respect to
the related trust without the unanimous prior approval of all certificateholders
of that trust and the delivery to that trustee by each certificateholder of a
certificate certifying that that certificateholder reasonably believes that that
trust is insolvent.
PAYMENT OF NOTES
Upon the payment in full of all outstanding notes issued by a trust and
the satisfaction and discharge of the related indenture, the trustee will
succeed to all the rights of the indenture trustee, and the certificateholders
of that series will succeed to all the rights of the noteholders of that series,
under the related sale and servicing agreement, except as otherwise provided in
the sale and servicing agreement.
ADMINISTRATION AGREEMENT
Harley-Davidson Credit Corp., in its capacity as administrator, will
enter into an administration agreement with each trust that issues notes and the
related indenture trustee pursuant to which the administrator will agree to
provide notices and perform other administrative obligations of the trust under
the related indenture. For its services under the administration agreement the
administrator may be entitled to receive a monthly administration fee, which
administration fee will be paid by the depositor. The amount of the
administration fee, if any, will be set forth in your prospectus supplement.
AMENDMENT
The parties may, without your consent, correct or supplement any
provision in the transfer and servicing agreements that is ambiguous or
inconsistent with any other provision in the transfer and servicing agreements.
In addition, the parties may amend any transfer and servicing agreement without
the consent of any securityholder to add any provisions to or change in any
manner or eliminate any of the provisions of a transfer and servicing agreement
if the indenture trustee or trustee receives an opinion of counsel that the
modification will not have a material adverse effect on the securityholders.
Any transfer and servicing agreement may also be amended in any respect
by the parties with the consent of the holders of more than 50% of the aggregate
principal amount of the notes or the class or classes of the notes described in
your prospectus supplement issued by the trust or, if the trust has no notes
outstanding, the holders of more than 50% of the aggregate certificate balance
of the certificates or the class or classes of the certificates described in
your prospectus supplement, except that no amendment:
- that reduces the amount or changes the timing of any
collections on any contracts or payments required to be
distributed on any security;
- that changes the interest rate on any security, that adversely
affects the priority of payment of principal or interest to
the securityholders; or
- that reduces the percentage of securityholders required to
consent to these amendments or any waiver under the transfer
and servicing agreement,
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may be effective without the consent of the holder of each security. Also, an
amendment under the foregoing sentence will not be effective unless each rating
agency rating the securities confirms that the amendment will not result in a
reduction, qualification or withdrawal of the ratings on the securities.
TERMINATION
The obligations of the servicer, the depositor, the trustee and
indenture trustee with respect to you pursuant to the trust agreement, the sale
and servicing agreement, pooling and servicing agreement or indenture will
terminate upon the earlier to occur of (i) the maturity or other liquidation of
the last contract and the disposition of any amounts received upon liquidation
of any property remaining in the trust, or (ii) the payment to all
securityholders of all amounts required to be paid to them pursuant to the
indenture and the trust agreement or pooling and servicing agreement; PROVIDED,
HOWEVER, in no event shall the trust continue beyond the expiration of 21 years
from the death of the last survivor of the descendants of Joseph P. Kennedy, the
late Ambassador of the United States to the Court of St. James, living on the
closing date (each a "TERMINATION EVENT"). The seller's representations,
warranties and indemnities will survive any termination of the sale and
servicing agreement or pooling and servicing agreement. Upon termination,
amounts in the collection account, if any, will be paid to the depositor.
The trustee and, if applicable, the indenture trustee will give written
notice of termination to each securityholder of record. The final distribution
to you will be made only upon surrender and cancellation of your notes or
certificates at the office or agency of the trustee or, if applicable, the
indenture trustee specified in the notice of termination. Any funds remaining in
the trust, after the trustee or, if applicable, the indenture trustee has taken
certain measures to locate you and such measures have failed, will be
distributed to the depositor.
LEGAL ASPECTS OF THE CONTRACTS
GENERAL
The transfer of the contracts to the applicable trust, the perfection
of the security interests in the contracts and the enforcement of rights to
realize on the motorcycles as collateral for the contracts are subject to a
number of federal and state laws. Uniform Commercial Code financing statements
will be filed in the applicable jurisdictions reflecting the transfer or pledge
of the contracts and the security interests in the motorcycles and the related
property by the seller to the depositor and by the depositor to the trust and,
if applicable, by the trust to the indenture trustee. A person could acquire an
interest in a contract that is superior to that of the trust or the indenture
trustee because the servicer will retain possession of the contracts. If a
person purchases contracts, or takes a security interest therein, for value in
the ordinary course of its business and obtains possession of the contracts
without actual knowledge of the trust's or indenture trustee's interest, that
person will acquire an interest in the contracts superior to the interest of the
trust or the indenture trustee.
SECURITY INTERESTS
GENERAL
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In states in which the contracts evidence the credit sale of new and
used motorcycles by originating dealers to obligors, the contracts also
constitute personal property security agreements and include grants of security
interests in the motorcycles under the applicable Uniform Commercial Code.
Perfection of security interests in financed motor motorcycles is generally
governed by the motor vehicle registration laws of the state in which the
vehicle is located. In most states, a security interest in a motor vehicle is
perfected by obtaining possession of the certificate of title to the motor
vehicle or notation of the secured party's lien on the motor vehicle's
certificate of title.
All contracts acquired by the seller from the originating dealers will
name the seller as obligee or assignee and as the secured party. The seller will
also take all actions necessary under the laws of the state in which the related
financed motorcycle is located to perfect its security interest in that financed
motorcycle, including, where applicable, having a notation of its lien recorded
on the related certificate of title and/or obtaining possession of that
certificate of title. Because Harley-Davidson Credit Corp. will continue to
service the contracts as servicer under the sale and servicing agreement or the
pooling and servicing agreement, as applicable, the obligors on the contracts
will not be notified of the sale from the seller to the depositor or the sale
from the depositor to the related trust or, if applicable, the pledge to the
related indenture trustee.
PERFECTION
The seller will sell and assign its security interest in the financed
motorcycles to the depositor and the depositor will assign its security interest
in the financed motorcycles to the trust and, if applicable, the trust will
assign its security interest in the financed motorcycles to the indenture
trustee. However, because of the administrative burden and expense, none of the
seller, the depositor or the related trust will amend any certificate of title
to identify the trust or indenture trustee as the new secured party on that
certificate of title relating to a financed motorcycle. However, UCC financing
statements with respect to the transfer to the depositor of the seller's
security interest in the financed motorcycles and the transfer to the trust of
the depositor's security interest in the financed motorcycles and, if
applicable, the transfer to the indenture trustee of the trust's security
interest in the financed motorcycles will be filed. In addition, the servicer
will continue to hold any certificates of title relating to the financed
motorcycles in its possession as custodian for that trust. See "DESCRIPTION OF
THE TRANSFER AND SERVICING AGREEMENTS" in this prospectus.
In most states, an assignment is an effective conveyance of a security
interest without amendment of any lien noted on a motor vehicle's certificate of
title. Although re-registration of the motor vehicle is not necessary to convey
a perfected security interest in the financed motorcycles to the trust or the
indenture trustee, because neither the trust nor the indenture trustee will be
listed as lienholder on the certificates of title, the security interest of that
trust or the indenture trustee in the motorcycle could be defeated through
fraud, forgery, negligence or error. In the absence of fraud or forgery by the
motorcycle owner or the servicer or administrative error by state or local
agencies, the notation of the seller's lien on the certificates of title will be
sufficient to protect the trust and the indenture trustee against the rights of
subsequent purchasers of a financed motorcycle or subsequent lenders who take a
security interest in a financed motorcycle. The seller and depositor will each
represent and warrant that the seller a perfected security interest in each
financed motorcycle. If there are any financed motorcycles as to which the
seller failed to obtain a perfected security interest, the security interest of
the trust and the indenture trustee would be subordinate to, among others,
subsequent purchasers of the financed motorcycles and holders of perfected
security interests in the financed motorcycles. To the extent that failure has a
material and adverse effect on the trust's, the indenture trustee's or any
securityholder's interest in the related contract
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or the collectibility of the contract, however, it would constitute a breach of
the warranties of the seller and the depositor. Accordingly, the depositor would
be required to repurchase the related contract from the trust and the seller
will be required to purchase that contract from the depositor, unless the breach
was cured. The depositor will assign to the related trust its rights to cause
the seller to repurchase that contract under the related transfer and sale
agreement and, if applicable, the related trust will pledge to the indenture
trustee its rights to cause the depositor to repurchase that contract under the
related sale and servicing agreement. See "DESCRIPTION OF THE TRANSFER AND
SERVICING AGREEMENTS" and "RISK FACTORS-INTERESTS OF OTHER PERSONS IN THE
CONTRACTS OR THE FINANCED MOTORCYCLES COULD REDUCE FUNDS AVAILABLE TO MAKE
PAYMENTS ON YOUR SECURITIES" in this prospectus.
CONTINUITY OF PERFECTION
Under the laws of most states, the perfected security interest in a
vehicle would continue for four months after the motor vehicle is moved to a
state that is different from the one in which it is initially registered and
thereafter until the owner re-registers the motor vehicle in the new state. A
majority of states generally require surrender of a certificate of title to
re-register a motor vehicle. In those states, such as California, that require a
secured party to hold possession of the certificate of title to maintain
perfection, the secured party would learn of the re-registration through the
request from the obligor under the related contract to surrender possession of
the certificate of title. In the case of motor motorcycles registered in states
providing for the notation of a lien on the certificate of title but not
possession by the secured party, such as Texas, the secured party would receive
notice of surrender from the state of re-registration if the security interest
is noted on the certificate of title. Thus, the secured party would have the
opportunity to re-perfect its security interest in the vehicle in the state of
relocation. However, these procedural safeguards will not protect the secured
party if through fraud, forgery or administrative error, the obligor somehow
procures a new certificate of title that does not list the secured party's lien.
Additionally, 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 the contracts, the servicer will take steps to
effect re-perfection upon receipt of notice of re-registration or information
from the obligor as to relocation. Similarly, when an obligor sells a financed
motorcycle, the servicer must surrender possession of the certificate of title
or will receive notice as a result of its lien noted on the certificate of title
and accordingly will have an opportunity to require satisfaction of the related
contract before release of the lien. The servicer will be obligated to take
appropriate steps, at the servicer's expense, to maintain perfection of security
interests in the financed motorcycles and will be obligated to purchase the
related contract if it fails to do so and that failure has a material and
adverse effect on the trust's or any securityholder's interest in the contract
or the collectibility of the contract.
PRIORITY OF LIENS ARISING BY OPERATION OF LAW
Under the laws of most states, liens for repairs performed on a motor
vehicle and liens for unpaid taxes take priority over even a perfected security
interest in a financed motorcycle. The Internal Revenue Code also grants
priority to specified federal tax liens over the lien of a secured party. The
laws of some states and federal law permit the confiscation of motor motorcycles
by governmental authorities under some circumstances if used in unlawful
activities, which may result in the loss of a secured party's perfected security
interest in the confiscated vehicle. The seller will represent and warrant to
the depositor and the depositor will represent and warrant to the trust that, to
its knowledge, as of the related closing date, each security interest in a
financed motorcycle is prior to all other present liens upon and security
interests in that financed motorcycle. However, liens for repairs or taxes could
arise, or the confiscation of a financed motorcycle could occur, at any time
during the term of a contract. No notice will be given to
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related trustee, indenture trustee or you in respect of a given trust if a
lien arises or confiscation occurs that would not give rise to the
depositor's or seller's repurchase obligation.
REPOSSESSION
In the event of default by an obligor, the holder of the related
contract has all the remedies of a secured party under the UCC, except where
specifically limited by other state laws. Among the UCC remedies, the secured
party has the right to perform repossession by self-help means, unless it would
constitute a breach of the peace or is otherwise limited by applicable state
law. Unless a motor vehicle financed by the seller is voluntarily surrendered,
self-help repossession is the method employed by the servicer in most states and
is accomplished simply by retaking possession of the financed motorcycle. In
cases where an obligor objects or raises a defense to repossession, or if
otherwise required by applicable state law, a court order must be obtained from
the appropriate state court, and that vehicle must then be recovered in
accordance with that order. In some jurisdictions, the secured party is required
to notify that obligor of the default and the intent to repossess the collateral
and to give that obligor a time period within which to cure the default prior to
repossession. In some states, an obligor has the right to reinstate its contract
and recover the collateral by paying the delinquent installments or other
amounts due.
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. In
most states, an obligor has the right to redeem the collateral prior to actual
sale by paying the secured party the unpaid principal balance of the obligation,
accrued interest on the obligation plus 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, an
obligor has the right to redeem the collateral prior to actual sale by payment
of delinquent installments or the unpaid balance.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of the motor vehicle generally will be applied
first to the expenses of resale and repossession and then to the satisfaction of
the indebtedness. While some states impose prohibitions or limitations on
deficiency judgments if the net proceeds from resale do not cover the full
amount of the indebtedness, a deficiency judgment can be sought in those states
that do not prohibit or limit those judgments. In addition to the notice
requirement described above, the UCC requires that every aspect of the sale or
other disposition, including the method, manner, time, place and terms, be
"commercially reasonable." Generally, courts have held that when a sale is not
"commercially reasonable," the secured party loses its right to a deficiency
judgment. However, the deficiency judgment would be a personal judgment against
the obligor for the shortfall, and a defaulting obligor can be expected to have
very little capital or sources of income available following repossession.
Therefore, in many cases, it may not be useful to seek a deficiency judgment or,
if one is obtained, it may be settled at a significant discount or be
uncollectible. In addition, the UCC permits the obligor or other interested
party to recover for any loss caused by noncompliance with the provisions of the
UCC. Also, prior to a sale, the UCC permits the obligor or other interested
person to prohibit the secured party from disposing of the collateral if it is
established that the secured party is not proceeding in accordance with the
"default" provisions under the UCC.
66
Occasionally, after resale of a repossessed vehicle and payment of all
expenses and indebtedness, there is a surplus of funds. In that case, the UCC
requires the creditor to remit the surplus to any holder of a subordinate lien
with respect to that vehicle or if no lienholder exists, the UCC requires the
creditor to remit the surplus to the obligor.
BANKRUPTCY CONSIDERATIONS
The depositor has taken steps that are intended to make it unlikely
that the voluntary or involuntary application for relief by the seller under the
United States Bankruptcy Code or similar applicable state laws will result in
consolidation of the assets and liabilities of the depositor with those of the
seller. These steps include the creation of the depositor as a wholly-owned,
limited purpose subsidiary pursuant to articles of incorporation and bylaws
containing restrictions on the nature of the depositor's business and on its
ability to commence a voluntary case or proceeding under any insolvency law
without the unanimous affirmative vote of all of its directors. In addition, to
the extent that the seller granted a security interest in the contracts to the
depositor, and that interest was validly perfected before the bankruptcy or
insolvency of the seller and was not taken or granted in contemplation of
insolvency or with the intent to hinder, delay or defraud the seller or its
creditors, that security interest should not be subject to avoidance, and
payments to the trust with respect to the contracts should not be subject to
recovery by a creditor or trustee in bankruptcy of the seller.
However, delays in payments on the securities and possible reductions
in the amount of those payments could occur if:
1. a court were to conclude that the assets and liabilities of
the depositor should be consolidated with those of the seller
in the event of the application of applicable insolvency laws
to the seller, as the case may be;
2. a filing were made under any insolvency law by or against the
depositor; or
3. an attempt were to be made to litigate any of the foregoing
issues.
On each closing date, Winston & Strawn will give an opinion to the
effect that, based on a reasoned analysis of analogous case law, although there
is no precedent based on directly similar facts, and, subject to facts,
assumptions and qualifications specified in the opinion and applying the
principles set forth in the opinion, in the event of a voluntary or involuntary
bankruptcy case in respect of the seller under Title 11 of the United States
Bankruptcy Code at a time when the seller was insolvent, the property of the
seller would not properly be substantively consolidated with the assets of the
depositor. Among other things, that opinion will assume that each of the
depositor and the seller will follow specified procedures in the conduct of its
affairs, including maintaining records and books of account separate from those
of the other, refraining from commingling its assets with those of the other,
and refraining from holding itself out as having agreed to pay, or being liable
for, the debts of the other. The depositor and the seller intend to follow these
and other procedures related to maintaining their separate identities. However,
there can be no assurance that a court would not conclude that the assets and
liabilities of the depositor should be consolidated with those of the seller.
The seller will represent and warrant that the sale of the related
contracts to the depositor is a valid sale. Notwithstanding the foregoing, if
the seller were to become a debtor in a bankruptcy case, a court could take the
position that the sale of contracts to the depositor should instead be treated
as a pledge of
67
those contracts to secure a borrowing of the seller. If a court were to reach
such conclusions, or a filing were made under any insolvency law by or against
the depositor, or if an attempt were made to litigate any of the foregoing
issues, delays and possible reduction in payments on the securities could occur.
In addition, if the transfer of contracts to the depositor is treated as a
pledge instead of a sale, a tax or government lien on the property of the seller
arising before the transfer of a contract to the depositor may have priority
over the depositor's interest in that contract.
The seller and the depositor will treat the transactions described in
this prospectus as a sale of the contracts to the depositor, so that the
automatic stay provisions of the United States Bankruptcy Code should not apply
to the contracts if the seller were to become a debtor in a bankruptcy case.
Furthermore, if an originating dealer or the seller became a debtor in
a bankruptcy case, creditors of that party, or that party acting as
debtor-in-possession, may assert that the transfer of the contracts was
ineffective to remove the contracts from that party's estate. In that case, the
distribution of payments on the contracts to the trust might be subject to the
automatic stay provisions of the United States bankruptcy code. This would delay
the distribution of those payments to you for an uncertain period of time.
Furthermore, reductions in payments under the contracts to the trust may result
if the bankruptcy court rules in favor of the creditors or the
debtor-in-possession. In either case, you may experience delays or reductions in
distributions or payments to you. In addition, a bankruptcy trustee would have
the power to sell the contracts if the proceeds of the sale could satisfy the
amount of the debt deemed owed by the originating dealer or the seller, as the
case may be. The bankruptcy trustee could also substitute other collateral in
lieu of the contracts to secure the debt. Additionally, the bankruptcy court
could adjust the debt if the originating dealer or the seller were to file for
reorganization under Chapter 11 of the bankruptcy code. Any of these actions
could result in losses or delays in payments on your securities. Each of the
originating dealers and the seller will represent and warrant that the
conveyance of the contracts by it is in each case a valid sale and transfer of
the contracts.
Also, cash collections on the contracts may be commingled with general
funds of the servicer and, in the event of a bankruptcy of the servicer, a court
may conclude that the trust does not have a perfected security interest in those
collections.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related
regulations impose substantial requirements upon lenders and servicers involved
in consumer finance. These laws include the Truth-in-Lending Act, the Equal
Credit Opportunity Act, the Federal Trade Commission Act, the Fair Credit
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
and Z, the Soldiers' and Sailors' Civil Relief Act of 1940, the Texas Consumer
Credit Code, state adoptions of the National Consumer Act and of the Uniform
Consumer Credit Code and state motor vehicle retail installment sales acts and
other similar laws. Also, state laws impose finance charge ceilings and other
restrictions on consumer transactions and require contract disclosures in
addition to those required under federal law. These requirements impose specific
statutory liabilities upon creditors who fail to comply with their provisions.
In some cases, this liability could affect an assignee's ability to enforce
consumer finance contracts such as the contracts.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade
Commission (the "FTC RULE"), the provisions of which are generally duplicated by
the Uniform Consumer Credit Code, other statutes or the common law in some
states, has the effect of subjecting a seller (and specified creditors and their
68
assignees) in a consumer credit transaction to all claims and defenses that the
obligor in the transaction could assert against the seller of the goods.
Liability under the FTC Rule is limited to the amounts paid by the obligor under
the contract, and the holder of the contract may also be unable to collect any
balance remaining due under that contract from the obligor.
Most of the contracts will be subject to the requirements of the FTC
Rule. Accordingly, each trust, as holder of the related contracts, will be
subject to any claims or defenses that the purchaser of the applicable financed
motorcycle may assert against the seller of the related financed motorcycle. As
to each obligor, these claims are limited to a maximum liability equal to the
amounts paid by the obligor on the related contract. Under most state motor
vehicle dealer licensing laws, sellers of motor motorcycles are required to be
licensed to sell motor motorcycles at retail sale. Furthermore, federal odometer
regulations promulgated under the Motor Vehicle Information and Cost Savings Act
require that all sellers of new and used motorcycles furnish a written statement
signed by the seller certifying the accuracy of the odometer reading. If the
originating dealer is not properly licensed or if a written odometer disclosure
statement was not provided to the purchaser of the related financed motorcycle,
an obligor may be able to assert a defense against the originating dealer. If an
obligor were successful in asserting any of those claims or defenses, that claim
or defense would constitute a breach of the depositor's representations and
warranties under the related sale and servicing agreement or pooling and
servicing agreement and a breach of the seller's warranties under the related
transfer and sale agreement and would, if the breach materially and adversely
affects the collectibility of the contract or the interests of the trust or the
securityholders in the contract, create an obligation of the depositor and the
seller, respectively, to repurchase the contract unless the breach is cured. See
"DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS" in this prospectus.
Courts have applied general equitable principles to secured parties
pursuing repossession and litigation involving deficiency balances. These
equitable principles may have the effect of relieving an obligor from some or
all of the legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies
of secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. Courts have generally upheld the notice provisions of the UCC and
related laws as reasonable or have found that the repossession and resale by the
creditor do not involve sufficient state action to afford constitutional
protection to borrowers.
The seller and the depositor will represent and warrant that each
contract complies with all requirements of law in all material respects.
Accordingly, if an obligor has a claim against a trust for violation of any law
and that claim materially and adversely affects that trust's or the
securityholder's interest in a contract or the collectibility of the contract,
that violation would constitute a breach of the representations and warranties
of the seller and the depositor would create an obligation of the seller and the
depositor to repurchase the contract unless the breach is cured. See
"DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS" in this prospectus.
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 secured party
to realize upon collateral or to enforce a deficiency judgment. For example, in
a Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
creditor from
69
repossessing a vehicle and, as part of the rehabilitation plan, reduce the
amount of the secured indebtedness to the market value of the vehicle at the
time of bankruptcy, as determined by the court, leaving the creditor 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.
Under the terms of the Soldiers' and Sailors' Relief Act of 1940 (the
"Relief Act"), an obligor who enters the military service after the origination
of that obligor's contract (including an obligor who is a member of the National
Guard or is in reserve status at the time of the origination of the obligor's
contract and is later called to active duty) may not be charged interest above
an annual rate of 6% during the period of that obligor's active duty status,
unless a court orders otherwise upon application of the lender. In addition,
some states, including California, allow members of its national guard to extend
payments on any contract obligation if called into active service by the
Governor for a period exceeding 7 days. It is possible that the foregoing could
have an effect on the ability of the servicer to collect the full amount of
interest owing on some of the contracts. In addition, both the Relief Act and
the laws of some states, including California, New York and New Jersey, impose
limitations that would impair the ability of the servicer to repossess the
released financed motorcycle during the obligor's period of active duty status.
Thus, if that contract goes into default, there may be delays and losses
occasioned by the inability to exercise the trust's rights with respect to the
contract and the related financed motorcycle in a timely fashion.
Any shortfall pursuant to either of the two preceding paragraphs, to
the extent not covered by amounts payable to the securityholders from amounts on
deposit in the related reserve fund or from coverage provided under any other
credit enhancement mechanism, could result in losses to the securityholders.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a discussion of the material United States federal
income tax consequences of the purchase, ownership and disposition of notes or
certificates issued by a trust as described in this prospectus. The discussion
that follows constitutes the opinion of Winston & Strawn, federal tax counsel to
the depositor. Winston & Strawn prepared or reviewed the statements in this
prospectus under the heading "MATERIAL FEDERAL INCOME TAX CONSEQUENCES" and is
of the opinion that those statements are correct in all material respects. The
conclusions of law contained in this discussion constitute the opinion of
Winston & Strawn, federal tax counsel, being rendered for the benefit of
investors in the notes or certificates. In addition to this opinion, Winston &
Strawn will separately provide to the depositor, each trust and certain other
parties to each of the transactions contemplated by this prospectus more limited
opinions regarding the classification of the trust and the characterization of
the notes and the certificates for federal income tax purposes. Those separate
opinions are fully described below with respect to each type of trust.
This discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "CODE"), existing and proposed Treasury
Regulations, current administrative rulings, judicial decisions and other
applicable authorities in effect as of the date of this prospectus, all of which
are subject to change, possibly with retroactive effect. There are no cases,
regulations, or Internal Revenue Service rulings on comparable transactions or
instruments to those described in this prospectus.
70
As a result, there can be no assurance that the Internal Revenue Service will
not challenge the conclusions of federal tax counsel reached in this description
of Material Federal Income Tax Consequences, and no ruling from the Internal
Revenue Service has been or will be sought on any of the issues discussed below.
Furthermore, legislative, judicial or administrative changes may occur, perhaps
with retroactive effect, which could affect the accuracy of the statements set
forth below.
This discussion does not attempt to deal with all aspects of federal
income taxation that may be relevant to all holders of notes and certificates in
light of their personal investment or tax circumstances. Also, this discussion
does not describe tax consequences to certain types of holders who may be
subject to special treatment under the federal income tax laws including,
without limitation, financial institutions, dealers in securities or currencies,
insurance companies, and persons who hold the notes or certificates as part of a
straddle, hedging or conversion transaction.
Investors and preparers of tax returns (including returns filed by any
trust described in this prospectus) should be aware that under applicable
Treasury Regulations a provider of advice on specific issues of law is not
considered an income tax return preparer unless the advice (1) is given with
respect to events that have occurred at the time the advice is rendered and is
not given with respect to the consequences of contemplated actions, and (2) is
directly relevant to the determination of an entry on a tax return. Accordingly,
taxpayers should consult their own tax advisors and tax return preparers
regarding the preparation of any item on a tax return, even where the
anticipated tax treatment has been discussed in this prospectus. The depositor
suggests that you consult with your own tax advisors as to the federal, state,
local, foreign and any other tax consequences to you of the purchase, ownership
and disposition of the notes and the certificates.
As mentioned above, the depositor and each trust (as well as certain
other parties to each transaction) will be provided with an opinion of Winston &
Strawn, as federal tax counsel, as described in the related prospectus
supplement, regarding certain specific federal income tax matters as discussed
below regarding the character of each trust and the notes and certificates (if
any) it issues. An opinion of federal tax counsel, however, is not binding on
the Internal Revenue Service or the courts. The form of that opinion will be
filed, together with the final documentation for the respective trust
transaction, with the Securities Exchange Commission under Form 8-K. For
purposes of the following summary, references to the trust, the notes, the
certificates and related terms, parties and documents refer to each trust and
the notes, certificates and related terms, parties and documents applicable to
such trust.
The federal income tax consequences to certificateholders will vary
depending on whether the trust is an owner trust or a grantor trust. As an
alternative to those two types of trusts, a trust could elect to be treated as a
financial asset securitization investment trust, generally referred to as a
FASIT. A summary of the federal income tax consequences pertaining to each type
of trust is set forth below. The prospectus supplement for each series of notes
or certificates will specify the treatment of the trust for federal income tax
purposes. To the extent any given series of notes or certificates differs from
the assumptions or conditions set forth in the following discussion or changes
occur in the relevant tax laws, or in their application, any additional tax
considerations will be disclosed in the applicable prospectus supplement. The
discussion of those additional tax considerations, to the extent they are
conclusions of law, will also constitute the opinion of federal tax counsel
being rendered for the benefit of investors as of the date of the prospectus
supplement. Because it will be later in time than the prospectus, that opinion
of federal tax counsel may modify, clarify, change or otherwise supplement the
opinion represented by the legal conclusions contained in this discussion of
Material Federal Income Tax Consequences.
71
OWNER TRUSTS
A trust structured as an owner trust will typically issue one or more
classes of notes, intended to be treated as debt for federal income tax
purposes, and certificates, representing equity interests in the trust. The
characterization of the trust for federal income tax purposes depends in part
upon whether the certificates are owned by a single holder, such as the
depositor, or by multiple holders. This summary of material federal income tax
consequences with respect to the issuance of notes or certificates by an owner
trust is divided into three parts. The first part describes characterization of
the trust as a pass-through entity rather than as a corporation or other entity
subject to tax at the entity level. The second part describes the taxation of an
investor in the notes. The third part describes taxation of an investor in the
certificates.
TAX CHARACTERIZATION OF OWNER TRUSTS
Winston & Strawn, as federal tax counsel to the depositor, will deliver
its opinion that a trust established as an owner trust will not be an
association (or a publicly traded partnership) taxable as a corporation for
federal income tax purposes. This opinion will be based on the assumptions that
the terms of the trust agreement and related documents will be complied with and
that the owner or owners of certificates issued by the trust will take all
action necessary, if any, or refrain from taking any inconsistent action so as
to ensure the trust is, for federal income tax purposes, either disregarded as a
separate entity from the depositor (or other sole certificateholder) or treated
as a partnership. Winston & Strawn's opinion is also based on its conclusions
that (1) the trust will constitute a business entity, (2) the nature of the
income of the trust will exempt it from the rule that certain publicly traded
partnerships are taxable as corporations, and (3) the trust, if a corporation,
would not constitute a regulated investment company under the federal income tax
laws.
If certificates issued by the trust are at all times required to be
owned by a single person, such as the depositor, then, for federal income tax
purposes, the trust may be disregarded as a separate entity from the owner of
its certificates. In this situation, although it is the opinion of Winston &
Strawn that the notes issued by the trust will be characterized as indebtedness
for federal income tax purposes (as discussed below), no assurance can be given
that this characterization of the notes will prevail. If the Internal Revenue
Service successfully asserted that one or more of the notes did not represent
debt for federal income tax purposes, the notes might be treated as equity
interests in the trust. As a result, the trust would be considered to have
multiple equity owners (rather than just the single owner of the trust
certificates). In that case, the trust would be characterized as a partnership
for federal income tax purposes and the tax consequences to holders of notes
which were recharacterized as equity would be similar to those discussed below
under "-TAX TREATMENT OF INVESTORS IN CERTIFICATES".
Rather than having a single owner of certificates issued by the trust,
it is possible that the trust may issue certificates to multiple owners. In that
situation, the certificate owners would be treated as equity owners of the trust
and the trust would be characterized as a partnership for federal income tax
purposes.
In any case where the trust is treated as a partnership for federal
income tax purposes, it is the opinion of Winston & Strawn that it will not
constitute a publicly traded partnership. That opinion will be based upon
Winston & Strawn's assumption that (1) the nature of the income of the trust
will exempt it from publicly traded partnership characterization and/or (2)
the trust will at all times have fewer than 100 owners of its equity
interests. If, contrary to the opinion of Winston & Strawn, the trust were
treated as a
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publicly traded partnership or were otherwise taxable as a corporation for
federal income tax purposes, it would be subject to corporate income tax on
its taxable income. The trust's taxable income would include all its income
on the receivables and other assets owned by the trust, which may be reduced
by the interest expense on the notes issued by the trust to the extent the
notes are properly characterized as debt. Any such corporate income tax could
materially reduce cash available to make payments on the notes and
distributions on the certificates. If the trust were classified as a
partnership, other than a publicly traded partnership taxable as a
corporation, the trust itself would not be subject to United States federal
income tax. Instead, holders of equity interests in the partnership would be
required to take into account their allocable share of the trust's income and
deductions as discussed below under "-TAX TREATMENT OF INVESTORS IN
CERTIFICATES."
TAX TREATMENT OF INVESTORS IN NOTES
TREATMENT OF THE NOTES AS INDEBTEDNESS. The depositor and the owners of
the notes, by their purchase of notes, will agree to treat the notes as debt for
federal income tax purposes. Winston & Strawn, as federal tax counsel, will,
except as otherwise provided in the related prospectus supplement, advise the
trust that the notes will be classified as debt for federal income tax purposes.
The discussion below assumes this characterization of the notes is correct.
INTEREST ON THE NOTES. An investor will be taxed on the amount of
payments of interest on a note as ordinary interest income at the time it
accrues or is received in accordance with the investor's regular method of
accounting for United States federal income tax purposes. This treatment assumes
that all payments on the notes are denominated in U.S. dollars. It also assumes
that the payment of interest on the notes constitutes "QUALIFIED STATED
INTEREST" under Treasury Regulations relating to original issue discount and
that an investor does not acquire its notes as "STRIPPED NOTES" or at an
original issue discount as discussed below. If these assumptions are incorrect
with respect to any notes issued by a trust, additional tax considerations with
respect to those notes will be disclosed in the related prospectus supplement.
A holder of a note that has a fixed maturity date of not more than one
year from the issue date of that note (which will be referred to in this
paragraph as a "short-term note") may be subject to special rules. An accrual
basis holder of a short-term note (and some cash method holders, including
regulated investment companies, as set forth in Section 1281 of the Code)
generally would be required to report interest income as interest accrues on a
straight-line basis or under a constant yield method over the term of each
interest period. Other cash basis holders of a short-term note would, in
general, be required to report interest income as interest is paid (or, if
earlier, upon the taxable disposition of the short-term note). However, a cash
basis holder of a short-term note reporting interest income as it is paid may be
required to defer a portion of any interest expense otherwise deductible on
indebtedness incurred to purchase or carry the short-term note until the taxable
disposition of the short-term note. A cash basis taxpayer may elect under
Section 1281 to accrue interest income on all nongovernment debt obligations
with a term of one year or less, in which case the taxpayer would not be subject
to the interest expense deferral rule referred to in the preceding sentence.
Special rules apply if a short-term note is purchased for more or less than its
principal amount.
SALE OR OTHER DISPOSITION OF A NOTE. An investor who disposes of a
note, whether by sale, exchange for other property, or payment by the trust,
will recognize taxable gain or loss equal to the difference between the amount
realized on the sale or other disposition, not including any amount attributable
to accrued but unpaid interest, and the investor's adjusted tax basis in the
note. In general, an
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investor's adjusted tax basis in a note will be equal to the investor's initial
purchase price increased by any accrued original issue discount or market
discount previously included in income by the investor and decreased by the
amount of any bond premium previously amortized and the amount of any payments,
other than payments of stated interest, previously received by the investor with
respect to the note. Any gain or loss recognized upon the sale or other
disposition of a note will be capital gain or loss so long as the note is a
"capital asset" in the hands of the investor. For non-corporate investors,
capital gain recognized on the sale or other disposition of a note held by the
investor for more than one year will be taxed at a maximum rate of 20%. Capital
gain for a note held for one year or less is taxed at the rates applicable to
ordinary income, i.e., up to 39.6%. Taxpayers must aggregate capital gains and
losses for each taxable year. In the event a taxpayer realizes a net capital
loss for any year there are limitations on the amount of these capital losses
which can be deducted.
PURCHASE AT A DISCOUNT. An investor who purchases a note as part of the
initial offering by the trust for an issue price that is less than its "STATED
REDEMPTION PRICE AT MATURITY" will generally be considered to have purchased the
note at an original issue discount for United States federal income tax
purposes. In general, the stated redemption price at maturity for a note is
equal to the principal amount. If a note is acquired with original issue
discount the investor will be required to include in income each year, taxable
as ordinary income in the same manner as cash interest payments, a portion of
the original issue discount. For cash basis investors, such as individuals, the
requirement that original issue discount be accrued as income each year means
the investor recognizes taxable income even though the investor does not receive
cash corresponding to that income. The amount of original issue discount accrued
as income each year is based upon a formula which looks at the constant yield on
the notes and the term to maturity so as to annually allocate a proportionate
share of original issue discount. Under these rules, investors generally will be
required to include in income increasingly greater amounts of original issue
discount in successive accrual periods. For purposes of calculating the daily
portion of original issue discount to be accrued as income, the method of
determining yield to maturity is not clear, and in particular it is not clear
whether prepayments on the underlying contracts should be taken into account in
determining such yield. In determining the weighted average maturity of the
notes for purposes of calculating original issue discount, the depositor expects
to use a reasonable assumption regarding prepayment of the contracts owned by
the trust. No representation is made as to the actual prepayments to be made on
the contracts. This method of calculating the accrual of original issue discount
will cause the accrual of original issue discount to either increase or decrease
(but never below zero) in any given accrual period to reflect the fact that
prepayments are occurring at a faster or slower rate than the prepayment
assumption used in respect of the contracts.
In determining whether a note has original issue discount, the issue
price of the note may not necessarily equal the investor's purchase price,
although they generally should be the same. The issue price of a note will equal
the initial offering price to the public, not including bond houses, brokers or
similar persons or organizations acting in the capacity of underwriters or
wholesalers, at which price a substantial amount of the notes is sold.
If an investor acquires a note in a secondary market transaction for a
purchase price which is less than the principal amount or other amount payable
at maturity of the note, the difference is referred to for tax purposes as
market discount. Similarly to original issue discount, an investor must accrue a
portion of the market discount each year. The amount of market discount which
accrues annually will be calculated on a straight-line basis over the remaining
term to maturity of the note unless the investor elects to accrue market
discount using the constant yield method, i.e., the original issue discount
method. Unlike original
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issue discount, however, an investor does not include accrued market discount in
ordinary income each year. Rather, the aggregate amount of accrued market
discount is included in income when an investor sells or otherwise disposes of
the note. At that time, the portion of the amount realized by the investor on
the sale or other disposition of the note equal to accrued market discount is
taxed as ordinary income, which has a maximum tax rate of 39.6%, rather than the
long term capital gain maximum tax rate of 20%.
If an investor would prefer to be taxed on the annual accrual of market
discount each year rather than being taxed on the aggregate amount of all
accrued market discount when the note is sold or otherwise disposed of, the
investor can file an election to do so. This election would apply to all of the
investor's debt investments acquired in or after the taxable year in which the
notes are acquired and not just to the notes issued by the trust.
Limitations imposed by the federal tax laws which are intended to match
deductions with the taxation of income may defer deductions for interest paid by
an investor on indebtedness incurred or continued, or short sale expenses
incurred, to purchase or carry a note with market discount. A noteholder who
elects to include market discount in gross income as it accrues is exempt from
this rule.
Whenever an investor accrues and includes in income an amount of
original issue discount or market discount, the investor's adjusted basis in the
corresponding note is increased by that same amount. As a result, the investor
would recognize a lower capital gain or greater capital loss on the sale or
other disposition of the note.
In general, if the amount of original issue discount or market discount
would be less than one-fourth of one percent (0.25%) of the note's principal or
other stated redemption price at maturity multiplied by the number of full years
included in determining the weighted average maturity of the notes, the investor
can disregard the original issue discount or market discount rules.
PURCHASE AT A PREMIUM. If an investor purchases a note for a price that
exceeds the principal amount or other amount payable at maturity, the investor
will be considered to have an amortizable bond premium. An investor can elect to
accrue a portion of the premium each year as a deduction to offset interest
income on the corresponding note. The amount of premium which can be amortized
and deducted each year is calculated using a constant yield method over the
remaining term to maturity of the note. The deduction is available only to
offset interest income on the corresponding note; it cannot be used as a
deduction to the extent it exceeds taxable note interest. The adjusted tax basis
which an investor has in a note must be reduced by the amount of premium for
which a deduction is claimed. Because the basis is reduced, the investor would
recognize a larger taxable capital gain, or a smaller capital loss, on the sale
or other disposition of the note. If an investor elects to amortize and deduct
premium, the election will apply to all of the investor's debt investments and
not just to the notes.
If an investor purchases in a secondary market transaction a note which
was originally issued with original issue discount for an amount which is less
than the sum of all amounts payable on the note after the purchase date other
than payments of qualified stated interest but in excess of its adjusted issue
price, I.E., the original issue price plus any accrued original issue discount
as those terms are described above, the excess is referred to for tax purposes
as "ACQUISITION PREMIUM." The investor would be permitted to reduce the daily
portions of original issue discount the investor would otherwise include in
income by an amount corresponding to the ratio of (1) the excess of the
investor's purchase price for the note over the adjusted issue price of the note
as of the purchase date to (2) the excess of all amounts payable on the
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note after the purchase date, other than payments of qualified stated interest,
over the note's adjusted issue price.
ELECTION TO TREAT ALL INTEREST AS ORIGINAL ISSUE DISCOUNT. An investor
may elect to include in gross income all interest that accrues on a note using
the constant-yield method described above under the heading "PURCHASE AT A
DISCOUNT" with modifications described below. For purposes of this election,
interest includes qualified stated interest, original issue discount, de minimis
original issue discount, market discount, de minimis market discount, and
unstated interest, as adjusted by any amortizable bond premium or acquisition
premium.
In applying the constant-yield method to a note with respect to which
this election has been made, the issue price of the note will equal the electing
investor's adjusted basis in the note immediately after its acquisition. The
issue date of the note will be the date of its acquisition by the electing
investor, and no payments on the note will be treated as payments of qualified
stated interest. This election, if made, may not be revoked without the consent
of the Internal Revenue Service. Investors should consult with their own tax
advisors as to the effect in their circumstances of making this election.
INFORMATION REPORTING AND BACKUP WITHHOLDING. The trust or an agent
acting on its behalf will be required to report annually to the Internal Revenue
Service, and to each non-corporate noteholder, the amount of interest paid on
the notes for each calendar year. Each non-corporate noteholder, other than
noteholders who are not subject to the reporting requirements, will be required
to provide, under penalties of perjury, a certificate, Form W-9, containing the
noteholder's:
(1) name,
(2) address,
(3) correct federal taxpayer identification number, and
(4) a statement that the noteholder is not subject to
backup withholding.
Should a non-exempt noteholder fail to provide the required certification, the
trust will be required to withhold or cause to be withheld 31% of the interest
otherwise payable to the noteholder and remit the withheld amounts to the
Internal Revenue Service as a credit against the noteholder's federal income tax
liability.
FOREIGN NOTEHOLDERS. Special tax rules apply to the purchase of notes
by foreign persons. For U.S. tax purposes, foreign investors include any person
who is not
(1) a citizen or resident of the United States,
(2) a corporation, partnership or other entity organized in or
under the laws of the United States, any state thereof or the
District of Columbia,
(3) an estate the income of which is includible in gross
income for U.S. federal income tax purposes, regardless of its
source,
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(4) a trust if a court within the United States is able to
exercise primary supervision over the administration of the
trust and one or more United States persons have the authority
to control all substantial decisions of the trust, or
(5) a trust that has a valid election in effect under
applicable United States Treasury Regulations to be treated as
a United States person.
Interest paid or accrued to a foreign investor that is not effectively
connected with the conduct of a trade or business within the United States by
the investor will generally be considered "portfolio interest" and not be
subject to United States federal income tax or withholding tax as long as the
foreign investor is not actually or constructively a 10 percent shareholder of
the trust or a controlled foreign corporation related to the trust through stock
ownership. Additionally, the foreign investor must provide or have a financial
institution provide on its behalf to the trust or paying agent an appropriate
statement or Form W-8 (or successor form), that is signed under penalties of
perjury, certifying that the beneficial owner of the note is a foreign person
and providing that foreign person's name and address. If the information
provided in this statement changes, the foreign investor must provide a new Form
W-8 (or successor form) within 30 days. If the foreign investor fails to satisfy
these requirements so that interest on the investor's notes was not portfolio
interest, interest payments would be subject to United States federal income and
withholding tax at a rate of 30% unless reduced or eliminated under an
applicable income tax treaty. To qualify for any reduction as the result of an
income tax treaty, the foreign investor must provide the paying agent with Form
1001 (or successor form).
The realization of any capital gain on the sale or other taxable
disposition of a note by a foreign investor will be exempt from United States
federal income and withholding tax, provided that (1) the gain is not
effectively connected with the conduct of a trade or business in the United
States by the investor, and (2) in the case of an individual foreign investor,
the investor is not present in the United States for 183 days or more during the
taxable year. If an individual foreign investor is present in the U.S. for 183
days or more during the taxable year, the gain on the sale or other disposition
of the notes could be subject to a 30% withholding tax unless reduced by treaty.
If the interest, gain or income on a note held by a foreign investor is
effectively connected with the conduct of a trade or business in the United
States by the investor, the noteholder will be subject to United States federal
income tax on the interest, gain or income at regular federal income tax rates.
At the same time, the noteholder may be exempt from withholding tax if a Form
4224 (or successor form) is furnished to the paying agent. In addition, if the
foreign investor is a foreign corporation, it may be subject to a branch profits
tax equal to 30% of its "EFFECTIVELY CONNECTED EARNINGS AND PROFITS" for the
taxable year, as adjusted for certain items, unless it qualifies for a lower
rate under an applicable tax treaty.
Regardless of when a foreign investor acquired a note, recently adopted
Treasury Regulations will become effective for note payments made after December
31, 2000. The new regulations make certain changes to the withholding, backup
withholding and information reporting rules just described and attempt to unify
certification requirements and modify reliance standards. It is suggested that
prospective investors consult their own tax advisors regarding the new
regulations.
If a foreign investor fails to provide necessary documentation to the
trust or its paying agent regarding the investor's taxpayer identification
number or certification of exempt status, a 31% backup withholding tax may be
applied to note payments to that investor. Any amounts withheld under the
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backup withholding rules will be allowed as a refund or a credit against the
foreign investor's U.S. federal income tax liability provided the required
information is furnished to the Internal Revenue Service.
POSSIBLE ALTERNATIVE TREATMENTS OF THE NOTES. If, contrary to the
opinion of Winston & Strawn, the Internal Revenue Service successfully asserted
that one or more of the notes did not represent debt for federal income tax
purposes, the notes might be treated as equity interests in the trust. If so
treated, the trust might be a publicly traded partnership taxable as a
corporation with the adverse consequences described above (and the resulting
taxable corporation would not be able to reduce its taxable income by deductions
for interest expense on notes recharacterized as equity). See "-OWNER TRUSTS-TAX
CHARACTERIZATION OF OWNER TRUSTS" in this prospectus. Alternatively, it is
possible that the trust might be treated as a partnership that would not be
taxable as a corporation. However, treatment of the notes as equity interests in
a partnership could have adverse tax consequences to certain holders. For
example, income to certain tax-exempt entities (including pension funds) could
constitute "UNRELATED BUSINESS TAXABLE INCOME;" income to foreign holders
generally would be subject to U.S. tax and U.S. tax return filing and
withholding requirements; individual holders might be subject to certain
limitations on their ability to deduct their share of trust expenses; and income
from the trust's assets would be taxable to noteholders without regard to
whether cash distributions are actually made from the trust or any particular
noteholder's method of accounting.
TAX TREATMENT OF INVESTORS IN CERTIFICATES
TREATMENT OF TRUST AS A PARTNERSHIP. As mentioned above, in any case
where the trust issues certificates to multiple owners, the trust will be
treated by the depositor as a partnership for federal income tax purposes. The
depositor and the servicer will agree, and each certificateholder will agree by
its purchase of certificates, to treat the trust as a partnership for purposes
of federal and state income tax, franchise tax and any other tax measured in
whole or in part by income, with the assets of the partnership being the assets
held by the trust, the partners of the partnership being the certificateholders,
and the notes being debt of the partnership. The trust, the depositor, and the
certificateholders will take all necessary actions, if any, and refrain from
taking any inconsistent actions, so as to ensure that the trust will be treated
as a partnership under the final Treasury Regulations which allow an entity to
elect status as a partnership.
A variety of alternative characterizations are possible. For example,
because the certificates have certain features characteristic of debt, the
certificates might be considered debt of the depositor or the trust. Any such
characterization should not result in materially adverse tax consequences to
certificateholders as compared to the consequences from treatment of the
certificates as equity in a partnership, described below. The following
discussion assumes that the certificates represent equity interests in a
partnership and that all payments on the certificates are denominated in U.S.
dollars.
PARTNERSHIP TAXATION. As a partnership, the trust will not be subject
to federal income tax. Rather, each certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the trust. The trust's income will consist
primarily of interest and finance charges earned on the contracts owned by the
trust (including appropriate adjustments for any market discount, original issue
discount and bond premium), any yield supplement deposits and any gain upon
collection or disposition of the contracts. The trust's deductions will consist
primarily of interest accruing with respect to the notes, servicing and other
fees, and losses or deductions upon collection or disposition of the contracts.
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The tax items of a partnership are allocable to the partners in
accordance with the applicable federal income tax laws and the partnership
agreement (I.E., the trust agreement and related documents). The trust agreement
will provide, in general, that the certificateholders will be allocated taxable
income of the trust for each month equal to the sum of (1) the interest that
accrues on the certificates in accordance with their terms for such month,
including interest accruing at the pass-through rate for such month and interest
on amounts previously due on the certificates but not yet distributed; (2) any
trust income attributable to discount on the contracts that corresponds to any
excess of the principal amount of the certificates over their initial issue
price; (3) monthly prepayment premium payable to the certificateholders; and (4)
any other amounts of income payable to the certificateholders for the month
including, for example, any yield supplement deposits. That allocation of income
will be reduced by any amortization by the trust of premium on contracts that
corresponds to any excess of the issue price of certificates over their
principal amount. All remaining taxable income of the trust will be allocated to
the trust depositor. Based on the economic arrangement of the parties, this
approach for allocating trust income should be permissible under the applicable
Treasury Regulations, although no assurance can be given that the Internal
Revenue Service would not require a greater amount of income to be allocated to
certificateholders.
Certificateholders may be allocated income equal to the entire
pass-through rate plus the other items described above, even though the trust
might not have sufficient cash to make current cash distributions equal to that
amount. In that situation, cash basis holders will in effect be required to
report income from the certificates on the accrual basis and certificateholders
may become liable for taxes on trust income even if they have not received cash
from the trust to pay such taxes. In addition, because tax allocations and tax
reporting will be done on a uniform basis for all certificateholders, but
certificateholders may be purchasing certificates at different times and at
different prices, certificateholders may be required to report on their tax
returns taxable income that is greater or less than the amount reported to them
by the trust. See the discussion below under "-ALLOCATIONS BETWEEN TRANSFERORS
AND TRANSFEREES."
Most or all of the taxable income allocated to a certificateholder that
is a tax-exempt entity (including an individual retirement account) will
constitute "UNRELATED BUSINESS TAXABLE INCOME" generally taxable to such a
holder for federal income tax purposes.
With respect to any certificateholder who is an individual, an
individual taxpayer's share of certain expenses of the trust (including fees to
the servicer, but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or in
part and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life of
the trust.
The trust will make all tax calculations relating to income and
allocations to certificateholders on an aggregate basis with respect to the
entire pool of contracts owned by the trust. If the Internal Revenue Service
were to require that such calculations be made separately for each contract, the
trust might be required to incur additional expense but it is believed that
there would not be a material adverse effect on certificateholders.
DISCOUNT AND PREMIUM. It is believed that the contracts will not be
issued with original issue discount, and, therefore, the trust should not have
income due to the accrual of original issue discount. However, the purchase
price paid by the trust for contracts may be greater or less than the remaining
principal balance of the contracts at the time of purchase. If so, the contracts
will have been acquired at a
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premium or market discount as the case may be. As indicated above, the trust
will make this calculation on an aggregate basis with respect to the entire pool
of contracts owned by the trust, but might be required to recompute it on a
contract-by contract basis.
If the trust acquires the contracts at a market discount or premium, it
will elect to include any such discount in income currently as it accrues over
the life of such contracts or to offset any such premium against interest income
on such contracts. See "-TAX TREATMENT OF INVESTORS IN NOTES-PURCHASE AT A
DISCOUNT" and "-PURCHASE AT A PREMIUM" in this prospectus. As indicated above, a
portion of such market discount income or premium deduction may be allocated to
certificateholders.
DISTRIBUTIONS TO CERTIFICATEHOLDERS. Certificateholders generally will
not recognize gain or loss with respect to distributions from the trust. A
certificateholder will recognize gain, however, to the extent that any money
distributed exceeds the certificateholder's adjusted basis in the certificates
(as described below under "-DISPOSITION OF CERTIFICATES") immediately before the
distribution. If a certificateholder is required to recognize an aggregate
amount of income (not including income attributable to disallowed itemized
deductions described above) over the life of the certificates that exceeds the
aggregate cash distributions with respect thereto, the amount of that excess
will generally give rise to a capital loss upon the retirement of the
certificates. Any gain or loss will generally be long-term gain or loss if the
holding period of the certificate is more than one year.
SECTION 708 TERMINATION. Under Section 708 of the Code, if 50% or more
of the outstanding equity interests in the trust are sold or exchanged within
any 12-month period, the trust will be deemed to terminate and then be
reconstituted for federal income tax purposes. If such a termination occurs, the
assets of the terminated trust (the "old trust") are deemed to be constructively
contributed to a reconstituted trust (the "new trust") in exchange for interests
in the new trust. Such interests would be deemed distributed to the partners, or
certificateholders, of the old trust in liquidation thereof, which would not
constitute a sale or exchange. Accordingly, if the sale of the trust's interests
terminated the partnership under Section 708 of the Code, the
certificateholder's basis in its ownership interest would not change. The
trust's taxable year would also terminate as a result of a constructive
termination and, if the certificateholder was on a different taxable year than
the trust, the termination could result in the bunching of more than twelve
months of the trust's income or loss in the certificateholder's income tax
return for the year in which the trust was deemed to terminate.
DISPOSITION OF CERTIFICATES. Generally, capital gain or loss will be
recognized on the sale of certificates, so long as the certificate is a "capital
asset" in the hands of the investor, in an amount equal to the difference
between the amount realized and the holder's tax basis in the certificates sold.
A certificateholder's tax basis in a certificate will generally equal the
holder's cost increased by the holder's share of trust income (that was
includible in the certificateholder's income) and decreased by any distributions
received with respect to such certificate. In addition, both the tax basis in
the certificates and the amount realized on a sale of a certificate would
include the holder's share of the notes and other liabilities of the trust. A
holder acquiring certificates at different prices may be required to maintain a
single aggregate adjusted tax basis in all of the certificates, and, upon sale
or other disposition of some of the certificates, allocate a portion of that
aggregate tax basis to the certificates sold (rather than maintaining a separate
tax basis in each certificate for purposes of computing gain or loss on a sale
of that certificate).
Any gain on the sale of a certificate attributable to the holder's
share of unrecognized accrued market discount on the contracts owned by the
trust would generally be treated as ordinary income to the
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holder and would give rise to special tax reporting requirements. The trust does
not expect to have any other assets that would give rise to such special
reporting requirements. Thus, to avoid those special reporting requirements, the
trust will elect to include market discount in income as it accrues as
previously stated.
ALLOCATIONS BETWEEN TRANSFERORS AND TRANSFEREES. In general, the
trust's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the certificateholders
in proportion to the principal amount of certificates owned by them as of the
close of the last day of the month. As a result, a holder purchasing
certificates may be allocated tax items (which will affect its tax liability and
tax basis) attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the trust might be reallocated among the certificateholders. The depositor
will be authorized to revise the trust's method of allocation between
transferors and transferees to conform to a method permitted by future
regulations.
SECTION 754 ELECTION. In the event that a certificateholder sells its
certificates at a profit or loss, the purchasing certificateholder will have a
higher or lower basis in the certificates than the selling certificateholder
had. The tax basis of the trust's assets will not be adjusted to reflect that
higher or lower basis unless the trust were to file an election under Section
754 of the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the trust will not make such election. As a
result, certificateholders might be allocated a greater or lesser amount of
trust income than would be appropriate based on their own purchase price for
certificates.
ADMINISTRATIVE MATTERS. The trustee is required to keep or have kept
complete and accurate books of the trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the trust will be the calendar year. The trustee will file a partnership
information return (Form 1065) with the Internal Revenue Service for each
taxable year of the trust and will report each certificateholder's allocable
share of items of trust income and expense to holders and the Internal Revenue
Service on Schedule K-l. The trustee will provide the Schedule K-1 information
to nominees that fail to provide the trust with the information statement
described below and such nominees will be required to forward such information
to the beneficial owners of the certificates. Generally, holders must file tax
returns that are consistent with the information return filed by the trust or be
subject to penalties unless the holder notifies the Internal Revenue Service of
all such inconsistencies.
Under Section 6031 of the Code, any person that holds certificates as a
nominee at any time during a calendar year is required to furnish the trust with
a statement containing certain information on the nominee, the beneficial owners
and the certificates so held. Such information includes (1) the name, address
and taxpayer identification number of the nominee and (2) as to each beneficial
owner (a) the name, address and identification number of such person, (b)
whether such person is a United States person, a tax-exempt entity, a foreign
government or an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (c) certain information on
certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold certificates
through a nominee are required to furnish directly to the trust information as
to themselves and their ownership of certificates (a registered clearing agency
is not required to furnish any such information statements to the trust). The
information referred to above for
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any calendar year must be furnished to the trust on or before the following
January 31. Nominees, brokers and financial institutions that fail to provide
the trust with the information described above may be subject to penalties.
The trust depositor will be designated as the tax matters partner for
the trust in the trust agreement and, as such, will be responsible for
representing the certificateholders in any dispute with the Internal Revenue
Service. The federal income tax laws provide for administrative examination of a
partnership as if the partnership were a separate and distinct taxpayer.
Generally, the statute of limitations for partnership items does not expire
before three years after the date on which the partnership information return is
filed. Any adverse determination following an audit of the return of the trust
by the appropriate taxing authorities could result in an adjustment of the
returns of the certificateholders, and, under certain circumstances, a
certificateholder may be precluded from separately litigating a proposed
adjustment to the items of the trust. An adjustment could also result in an
audit of a certificateholder's returns and adjustments of items not related to
the income and losses of the trust.
BACK-UP WITHHOLDING. Distributions made on the certificates and
proceeds from the sale of the certificates will be subject to a back-up
withholding tax of 31% if, in general, the certificateholder fails to comply
with certain identification procedures, unless the holder is an exempt recipient
under applicable tax law provisions. See "-TAX TREATMENT OF INVESTORS IN
NOTES-INFORMATION REPORTING AND BACKUP WITHHOLDING" in this prospectus.
FOREIGN CERTIFICATEHOLDERS. It is not clear whether the trust would be
considered to be engaged in a trade or business in the United States for
purposes of federal withholding taxes with respect to non-U.S. persons because
there is no clear authority dealing with that issue under facts substantially
similar to those described herein. Nevertheless, the trust will withhold as if
it were so engaged in order to protect the trust from possible adverse
consequences of a failure to withhold. The trust expects to withhold on the
portion of its taxable income that is allocable to foreign certificateholders,
as if such income were effectively connect to a U.S. trade or business, at a
rate of 35% for foreign holders that are taxable as corporations and 39.6% for
all other foreign holders. Subsequent adoption of Treasury Regulations or the
issuance of other administrative pronouncements may require the trust to change
its withholding procedures. In determining a holder's withholding status, the
trust may generally rely on Form W-8, Form W-9 (or successor forms) or the
holder's certification of nonforeign status signed under penalties of perjury.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the branch
profits tax) on its share of the trust's income. Each foreign holder must obtain
a taxpayer identification number from the Internal Revenue Service and submit
that number to the trust on Form W-8 (or successor form) in order to assure
appropriate crediting of the taxes withheld. A foreign holder generally would be
entitled to file with the Internal Revenue Service a claim for refund with
respect to taxes withheld by the trust, taking the position that no taxes were
due because the trust was not engaged in a U.S. trade or business (although no
assurance can be given as to the prospects for success of the refund claim).
However, even if such a position is successful, interest payments made (or
accrued) to a certificateholder who is a foreign person may be considered to be
guaranteed payments, but only to the extent such payments are determined without
regard to the income of the trust. It is unclear whether the Internal Revenue
Service would agree with that characterization. If these interest payments are
properly characterized as guaranteed payments, then the interest will not
constitute "PORTFOLIO INTEREST." As a result, certificateholders will be subject
to 30% U.S. withholding tax, unless reduced or eliminated pursuant to an
applicable treaty. In such case, a foreign
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holder would only be entitled to claim a refund for that portion of the taxes in
excess of the taxes that should be withheld with respect to the guaranteed
payments.
GRANTOR TRUSTS
This summary of material federal income tax consequences with respect
to the issuance of certificates by a grantor trust is divided into two parts.
The first part describes characterization of the trust as a grantor trust. The
second part describes taxation of an investor in certificates issued by a
grantor trust.
TAX CHARACTERIZATION OF GRANTOR TRUSTS
Winston & Strawn, as federal tax counsel, will deliver its opinion that
a trust structured as a grantor trust will be classified for federal income tax
purposes as a grantor trust and not as an association (or a publicly traded
partnership) taxable as a corporation and that, subject to the discussion below
under "-STRIPPED BONDS AND STRIPPED COUPONS", each certificateholder will be
treated for federal income tax purposes as the owner of a pro rata undivided
interest in the income and assets of the trust. The opinion of Winston & Strawn
does not foreclose the possibility of a contrary determination by the Internal
Revenue Service or by a court or of a contrary position by the Internal Revenue
Service or the Treasury Department in regulations or rulings issued in the
future.
For federal income tax purposes, the trust will be deemed to have
acquired the following assets: (1) the principal of each contract, plus a
portion of the interest due on each contract (the "TRUST STRIPPED BONDS"); (2)
the portion of the interest due on each contract not allocable to the Trust
Stripped Bonds or retained by the depositor (the "TRUST STRIPPED COUPONS"); (3)
the right to receive any yield supplement deposits; (4) the proceeds of certain
insurance policies on the financed assets; (5) rights under the trust agreement
and (6) rights under the security agreement in favor of the trust securing the
depositor's obligation to purchase subsequent contracts and deliver them to the
trust. Although a grantor trust may have certain rights with respect to a
reserve fund, pre-funding account or interest reserve account, such accounts
would not be assets of the trust.
It is possible, for federal income tax purposes, that the grantor trust
may be viewed as owning a single debt obligation having a principal amount equal
to the total stated principal amount of the entire pool of contracts and an
interest rate equal to the pass-through rate. Accordingly, the owners of
certificates would be viewed as owning an undivided interest in that single debt
obligation. In that case, the tax consequences to the certificate owners would
be the same as owners of notes owned by a trust structured as an owner trust
described above under the heading "-OWNER TRUSTS - TAX TREATMENT OF INVESTORS IN
NOTES."
The remainder of the discussion in this prospectus assumes that a
grantor trust certificateholder will be treated as owning an interest in each
contract, a portion of the interest payable on each contract, any right to
receive yield supplement deposits, and any other assets of the trust. However,
for administrative convenience, the servicer will report information to
investors and to the Internal Revenue Service on an aggregate basis (as though
all of the contracts and the rights to payments under the yield supplement
agreement were a single obligation). The amount and, in some instances,
character, of the income reported to a grantor trust certificateholder 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.
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TAX TREATMENT OF INVESTORS
CHARACTERIZATION OF INVESTMENT. As mentioned above, each grantor trust
certificateholder will be treated as the owner of a pro rata undivided interest
in each of the contracts in the trust, any right to receive yield supplement
deposits, and any other trust property. Any amounts received by a grantor trust
certificateholder in lieu of amounts due with respect to any contract because of
a default or delinquency in payment will be treated for federal income tax
purposes as having the same character as the payments they replace.
In each case where the interest rate on a contract exceeds the sum of
the certificate pass-through rate plus the servicing fee rate, for federal
income tax purposes, the depositor will be treated as having retained a fixed
portion of the interest due on the contract equal to the difference between (1)
the interest rate on each contract and (2) the sum of the pass-through rate and
the servicing fee rate. The depositor's retained yield with respect to the
contracts will be treated as "stripped coupons" within the meaning of Section
1286 of the Code and the contracts will be treated as "stripped bonds." See
"-STRIPPED BONDS AND STRIPPED COUPONS" below.
Each grantor trust certificateholder will be required to report on its
federal income tax return in accordance with that certificateholder's method of
accounting its pro rata share of the entire income from the contracts in the
trust represented by certificates, including interest, original issue discount,
prepayment fees, assumption fees, any gain recognized upon an assumption, late
payment charges received by the servicer and any gain recognized upon collection
or disposition of the contracts (but not including any portion of the
depositor's retained yield). A grantor trust certificateholder will also be
required to report under its usual method of accounting any payments received
under any yield supplement agreement to the extent that these payments are
treated as income. Each grantor trust certificateholder will be entitled to
deduct its pro rata share of servicing fees, prepayment fees, assumption fees,
any loss recognized upon an assumption, and late payment charges retained by the
servicer, provided that those amounts are reasonable compensation for services
rendered to the trust. Certificateholders that are individuals, estates or
trusts will be entitled to deduct their share of expenses only to the extent
those expenses exceed two percent of its adjusted gross income. Grantor trust
certificateholders who are individuals may be subject to additional deduction
limitations based on adjusted gross income.
A grantor trust certificateholder using the cash method of accounting
must take into account its pro rata share of income and deductions as and when
collected by or paid to the servicer. A grantor trust certificateholder using an
accrual method of accounting must take into account its pro rata share of income
and deductions as they become due or are paid, whichever is earlier. Because (1)
interest accrues on the contracts over differing monthly periods and is paid in
arrears and (2) interest collected on a contract generally is paid to
certificateholders in the following month, the amount of interest accruing to a
grantor trust certificateholder during any calendar month will not equal the
interest distributed in that month.
PURCHASE PRICE ALLOCATION. A certificateholder must allocate the cost
of its certificates among its allocable share of each of the separate assets of
the trust, in accordance with the proportion of the relative fair market values
of the assets as of the date the holder acquired its certificate, in order to
determine its initial tax basis for its pro rata portion of each asset held by
the trust. For this purpose, a certificateholder may treat the trust's rights in
the security interests, the individual insurance contracts, and other rights the
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trust may have which provide credit enhancement as part of the contracts such
that no separate allocation of the certificate cost and determination of basis
must be made to these rights.
In addition to the contracts however, the purchase price for
certificates should be allocated to the grantor trust certificateholder's
undivided interest in accrued but unpaid interest, amounts collected at the time
of purchase but not distributed, and, perhaps, rights to receive yield
supplement deposits. As a result, the portion of the purchase price allocable to
the grantor trust certificateholder's undivided interest in the contracts may be
decreased. The allocation of purchase price among the assets is important for
purposes of determining the amount of gain or loss recognized by a
certificateholder when the trust disposes of a contract and for calculating
discount or premium with respect to the contracts, all as discussed below.
STRIPPED BONDS AND STRIPPED COUPONS. Although the tax treatment of
stripped bonds is not entirely clear, based on recent guidance from the Internal
Revenue Service, each purchaser of a grantor trust certificate will be treated
as the purchaser of a stripped bond and coupon, to the extent that the contracts
consist of contracts having an interest rate in excess of the sum of the
pass-through rate plus the servicing fee rate. The stripped bond generally
should be treated as a single debt instrument issued on the day it is purchased
for purposes of calculating any original issue discount. Generally, under
applicable Treasury Regulations, if the discount on a stripped bond is larger
than a de minimis amount (one-fourth of one percent, or 0.25%, of the bond's
principal amount or other stated redemption price at maturity multiplied by the
full number of years included in determining the weighted average maturity of
the bonds) that stripped bond will be considered to have been issued with
original issue discount. See "-OWNER TRUSTS-TAX TREATMENT OF INVESTORS IN
NOTES-ORIGINAL ISSUE DISCOUNT." Although the matter is not entirely clear, each
certificateholder's share of the interest income on the contracts at the sum of
the pass-through rate and the fee servicing rate will be treated as "QUALIFIED
STATED INTEREST." The trustee will treat each holder's share of the interest
income in this manner for tax information reporting purposes. As a result, the
amount of original issue discount for each certificateholder will equal the
amount, if any, by which the portion of the certificate purchase price allocable
to the contracts is less than the remaining principal balance of those
contracts.
Generally, a certificateholder that acquires an undivided interest in
contracts constituting stripped bonds that have original issue discount
(referred to in this discussion as "stripped contracts") must include in gross
income the sum of the "daily portions" of the original issue discount for each
day on which it owns a certificate, including the date of purchase but excluding
the date of disposition. In the case of an original grantor trust
certificateholder, the daily portions of original issue discount with respect to
the stripped contracts generally would be determined as follows. A calculation
will be made of the portion of original issue discount that accrues on those
contracts during each successive monthly accrual period (or shorter period in
respect of the date of original issue or the final payment date). This will be
done, in the case of each full monthly accrual period, by adding (1) the present
value of all remaining payments to be received on the stripped contracts under
the prepayment assumption used in respect of the contracts and (2) any payments
received during that accrual period, and subtracting from that total the
"ADJUSTED ISSUE PRICE" of the stripped contracts at the beginning of that
accrual period. The adjusted issue price of the stripped contracts at the
beginning of the first accrual period is the amount of the purchase price paid
by the certificateholder for the certificate that is allocable to those
contracts. The adjusted issue price of the stripped contracts at the beginning
of a subsequent accrual period is the adjusted issue price at the beginning of
the immediately preceding accrual period plus the amount of original issue
discount allocable to that accrual period and reduced by the amount of any
payment on the stripped contracts
85
(other than qualified stated interest) made at the end of or during that accrual
period. The original issue discount accruing during that accrual period will
then be divided by the number of days in the period to determine the daily
portion of original issue discount for each day in the period. With respect to
an initial accrual period shorter than a full monthly accrual period, the daily
portions of original issue discount must be determined according to a reasonable
method, provided that the method is consistent with the method used to determine
the yield to maturity of the stripped contracts.
For purposes of calculating the daily portion of original issue
discount to be accrued as income, the method of determining yield to maturity is
not clear, and in particular it is not clear whether prepayments on the
underlying contracts should be taken into account in determining such yield. The
method of calculating the accrual of original issue discount as described above
will cause the accrual of original issue discount to either increase or decrease
(but never below zero) in any given accrual period to reflect the fact that
prepayments are occurring at a faster or slower rate than the prepayment
assumption used in respect of the stripped contracts. Subsequent purchasers that
purchase interests in stripped contracts at more than a de minimis discount
should consult their tax advisors with respect to the proper method to accrue
that original issue discount.
PREMIUM. A certificateholder that acquires an interest in contracts at
a premium over the stated redemption price at maturity of the contracts may
elect to amortize that premium under a constant interest method. A premium would
occur if the purchase price for a certificate exceeded the holder's
proportionate share of the remaining payments due on the contracts Amortizable
premium will be treated as an offset to interest income recognized by the holder
on its grantor trust certificate. However, the holder's tax basis for the
grantor trust certificate will be reduced to the extent that amortizable premium
is claimed as a deduction to offset interest payments. A certificateholder that
makes this election for a grantor trust certificate that is acquired at a
premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that the
certificateholder holds during the year of the election or thereafter.
It is not clear whether a reasonable prepayment assumption should be
used in computing amortization of premium allowable as a deduction. If a premium
is not subject to amortization using a reasonable prepayment assumption, the
holder of a certificate acquired at a premium should recognize a loss if a
contract is prepaid in full, equal to the difference between the portion of the
prepaid principal amount of that contract that is allocable to the grantor trust
certificate and the portion of the adjusted basis of the certificate that is
allocable to that contract. On the other hand, if a reasonable prepayment
assumption is used in calculating the amount of amortizable premium, it appears
that a loss would be available, if at all, only if prepayments occur at a rate
faster than the reasonable assumed prepayment rate. It is not clear whether any
other adjustments would be required to reflect differences between an assumed
prepayment rate and the actual rate of prepayments.
MARKET DISCOUNT. Generally, all discount on an interest in stripped
contracts will be treated as original issue discount under the stripped bond
rules of the Code, and the rules relating to market discount on bonds will not
apply. However, if the difference between the interest rate on the contracts and
the pass-through rate on the certificates were determined to constitute
reasonable compensation for services rendered to the trust, then the stripped
bond rules described above should not apply. In that event, a certificateholder
will be subject to the market discount rules to the extent that its undivided
interest in a contract is considered to have been purchased at a "MARKET
DISCOUNT." Generally, the amount of market discount is equal to the excess of
the portion of the principal amount of a contract allocable to a holder over
that holder's tax basis (i.e., the portion of the certificate purchase price
allocable to that contract). At
86
the present time there is no express authority for determining whether market
discount exists by reference to the entire pool of contracts rather than on a
contract-by-contract basis. Market discount with respect to a contract will be
considered to be zero if the amount allocable to the contract is less than
one-fourth of one percent (0.25%) of the stated redemption price at maturity of
the contracts multiplied by the weighted average maturity remaining after the
date of purchase.
Any principal payment (whether a scheduled payment or a prepayment) or
any gain on disposition of a market discount instrument is required to be
treated as ordinary income up to the amount of the accrued market discount at
that time. The amount of accrued market discount for purposes of determining the
tax treatment of subsequent principal payments or dispositions of the market
discount debt instrument is reduced by the amount so treated as ordinary income.
Market discount will generally be considered to accrue ratably, unless a
certificateholder elects to accrue on a constant interest method. In addition,
special rules may apply to the determination of the accrual of market discount
where the principal of an instrument is payable in more than one installment. A
holder's election to include market discount in income currently, once made,
applies to all market discount obligations acquired by the holder on or after
the first taxable year to which the election applies and may not be revoked
without the consent of the Internal Revenue Service.
A holder who acquired a grantor trust certificate at a market discount
may be required to defer a portion of its interest deductions for the taxable
year attributable to any indebtedness incurred or continued to purchase or carry
that certificate. For these purposes, the de minimis rule referred to above
applies. Any deferred interest expense would not exceed the market discount that
accrues during that taxable year and is, in general, allowed as a deduction not
later than the year in which the market discount is includible in income. If the
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by the holder in that taxable year or
thereafter, the interest expense deferral rule will not apply.
Because Treasury Regulations implementing the market discount rules
have not yet been issued, it is suggested that investors consult their own tax
advisors regarding the application of these rules and the advisability of making
the election to accrue market discount.
ELECTION TO TREAT ALL INTEREST AS ORIGINAL ISSUE DISCOUNT. The original
issue discount regulations permit a certificateholder to elect to accrue all
interest and discount (including de minimis discount), offset by any premium, in
income as interest based on a constant yield method. If that election were to be
made with respect to a grantor trust certificate with market discount, the
grantor trust certificateholder would be deemed to have made an election to
include in income currently market discount with respect to all other debt
instruments having market discount that the certificateholder acquires during
the year of the election or thereafter. Similarly, a certificateholder that
makes this election for a certificate that is acquired at a premium will be
deemed to have made an election to amortize bond premium with respect to all
debt instruments having amortizable bond premium that the certificateholder owns
or acquires. The election to accrue interest, discount and premium on a constant
yield method with respect to a grantor trust certificate is irrevocable except
with the approval of the Internal Revenue Service.
SALE OR EXCHANGE OF A CERTIFICATE. Sale or exchange of a grantor trust
certificate prior to its maturity will result in the recognition by the owner of
gain or loss equal to the difference, if any, between the amount received and
the owner's adjusted basis in the certificate. The adjusted basis generally will
equal the seller's purchase price for the certificate, increased by any accrued
market discount or original issue discount previously included in the seller's
gross income with respect to the certificate and reduced
87
by the amount of any previously amortized premium andby the amount of any
payments on the certificate, other than payments of qualified stated
interest, previously received by the seller. That gain or loss will be
capital gain or loss to an owner for which a grantor trust certificate is a
"CAPITAL ASSET" and will be long-term or short-term depending on whether the
certificate has been owned for the long-term capital gain holding period
(currently more than one year).
FOREIGN CERTIFICATEHOLDERS. Interest or discount income attributable to
contracts which is received by a foreign certificateholder will generally not be
subject to the normal 30% withholding tax imposed with respect to such payments,
provided that (1) the foreign certificateholder does not own, directly or
indirectly, 10% or more of, and is not a controlled foreign corporation related
to, the depositor and (2) the foreign holder fulfills certain certification
requirements. Under those requirements, the holder must certify, under penalty
of perjury, that it is not a "UNITED STATES PERSON" and provide its name and
address on Form W-8 (or successor form). For this purpose, United States person
generally means (a) a citizen or resident of the United States, (b) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, (c) an estate
the income of which is subject to United States federal income taxation
regardless of its source, (d) a trust if a court within the United States is
able to exercise primary jurisdiction over the administration of the trust and
one or more United States persons have the authority to control all substantial
decisions of the trust, or (e) a trust that has a valid election in effect under
applicable United States Treasury Regulations to be treated as a United States
person. Gain realized upon the sale of a certificate by a foreign
certificateholder generally will not be subject to United States withholding
tax. If, however, such interest or gain is effectively connected to the conduct
of a trade or business within the United States by such foreign
certificateholder (or in the case of gain if the certificateholder is an
individual who is present in the United States for a total of 183 days or more
during the taxable year in which such gain is realized), such holder will be
subject to United States federal income tax thereon at the regular rates and, in
addition, an investor that is a foreign corporation may be subject to a branch
profits tax equal to 30% (or lower applicable treaty rate) of its "effectively
connected earnings and profits" within the meaning of the Code for the taxable
year, as adjusted for certain items.
It is not entirely clear whether amounts received by a foreign
certificateholder that are attributable to payments of yield supplement deposits
received pursuant to any yield supplement agreement would not be subject to
withholding tax. Potential investors who are not United States persons should
consult their own tax advisors regarding the specific tax consequences to them
of owning a certificate issued by a grantor trust.
INFORMATION REPORTING AND BACKUP WITHHOLDING. The servicer will furnish
or make available, within a reasonable time after the end of each calendar year,
to each person who was a grantor trust certificateholder at any time during the
year, the information that is deemed necessary or desirable to assist
certificateholders in preparing their federal income tax returns, or to enable
holders to make that information available to beneficial owners or financial
intermediaries that hold grantor trust certificates as nominees on behalf of
beneficial owners. If a non-exempt holder, beneficial owner, financial
intermediary or other recipient of a payment on behalf of a non-exempt
beneficial owner fails to supply a certified taxpayer identification number or
if the Secretary of the Treasury determines that that person has not reported
all interest and dividend income required to be shown on its federal income tax
return, 31% backup withholding may be required with respect to any payments. Any
amounts deducted and withheld from a payment to a recipient would be allowed as
a credit against the recipient's federal income tax liability.
88
FASITS
GENERAL DESCRIPTION OF FASIT
Pursuant to legislation enacted by Congress in 1996, a new type of
entity was created called a "financial asset securitization investment trust,"
or FASIT. On February 7, 2000, the Internal Revenue Service released proposed
regulations regarding FASITs. As stated previously in this section of the
prospectus under the caption "GENERAL", the discussion with respect to FASITs is
based upon existing law, including the proposed FASIT regulations, all of which
are subject to change, possibly with retroactive effect.
Treatment of a trust as a FASIT is elective. The FASIT election will be
made by attaching a statement to the income tax return for the owner of the
"OWNERSHIP INTEREST" in the FASIT (as that interest is described below) for the
taxable year that includes the startup day of the FASIT. The owner of the
ownership interest may be the depositor or it may be an independent third party.
There is no prescribed form for the settlement electing FASIT status. If, as is
likely to be the case, an entity is formed to be the FASIT, the election
statement must be signed by the person who would be responsible for signing the
entity's tax return in the absence of FASIT treatment. On the other hand, if
instead of a separate entity the FASIT election is only to apply to a segregated
pool of assets, the election statement must be signed by each person who is the
owner, for federal income tax purposes, of assets in the pool immediately before
the startup day of the FASIT.
If a FASIT election is made for a trust, the accompanying prospectus
supplement will so indicate. For each trust for which one or more FASIT
elections are to be made, Winston & Strawn, as federal tax counsel, is of the
opinion that the trust, or one or more segregated pools of trust assets, will be
treated as a FASIT assuming that there is (1) compliance with the terms of the
pooling agreement (or similar governing documents pertaining to the acquisition
of assets by the trust) and (2) compliance with any changes in the federal
income tax laws pertaining to FASITs, including applicable provisions of the
Code, the proposed FASIT regulations or other treasury regulations, or any
judicial or administrative interpretations of the Code or regulations. The
pooling agreement (or similar governing documents) will require that
substantially all of the trust assets consist only of "PERMITTED ASSETS", as
described below and also contains certain other restrictions necessary for the
trust to be and continue to qualify as a FASIT. Based upon those same
assumptions, tax counsel is of the opinion that each trust, or one or more
segregated pools of trust assets, for which a FASIT election is made is
organized, operated and will continue to operate in a manner so as to qualify
for FASIT status.
Although the Internal Revenue Service recently published regulations in
proposed form with respect to FASITs, the regulations are only in proposed form
and do not attempt to deal with all aspects of FASIT taxation. Accordingly,
definitive statements cannot be made with respect to many aspects of the tax
treatment of FASITs and the holders of certificates issued by FASITs. Investors
should also note that the following FASIT discussion constitutes only a summary
of the United States federal income tax consequences to FASIT
certificateholders. With respect to each series of FASIT certificates, the
related prospectus supplement will provide a detailed discussion regarding the
federal income tax consequences associated with the particular transaction.
FASIT REQUIREMENTS
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A trust fund can qualify to elect FASIT status if it is not a
"regulated investment company" as described in Section 851(a) of the Code, it
issues only "regular interests" and one "ownership interest" (as described
below), and substantially all of its assets are "permitted assets." For this
purpose, permitted assets include (1) cash and cash equivalents, (2) any debt
instrument that provides for interest payments which (A) are payable based on a
fixed rate or certain variable rates, or (B) consist of a specified portion of
the interest payments on the trust assets, which portion does not vary during
the period such interest is outstanding, (3) foreclosure property, (4) certain
hedging instruments (i.e., swap contracts, futures contracts, and guarantee
arrangements) intended to hedge against the risks associated with being the
obligor on FASIT regular interests, (5) contract rights to acquire debt
instruments described in (2) above or hedges described in (4) above, and (6) any
regular interest in a real estate mortgage investment conduit, or REMIC, or in
another FASIT. The term "permitted asset" does not, however, include any debt
instrument issued by the holder of the ownership interest or any person related
to such holder.
In order for substantially all of a FASIT's assets to consist of
"permitted assets", the aggregate adjusted basis of assets held by the FASIT
which are not permitted assets must be less than 1% of the aggregate adjusted
basis of all of the FASIT's assets. The pooling agreement (or similar governing
documents) for each FASIT will require that substantially all of the FASIT's
assets consist of permitted assets at all times. However, there is the
possibility that changes in the assets owned by the FASIT could adversely affect
the ability of the FASIT to comply with the permitted asset requirement. Failure
of the FASIT to comply with this requirement could cause it to lose FASIT
status. However, certain mitigation provisions exist which may be available.
The Code does not provide comprehensive rules describing the
consequences of a cessation of FASIT status. Under the recently proposed
regulations the owner of the FASIT ownership interest would be deemed to dispose
of all of the FASIT's assets in a prohibited transaction and any gain would be
subject to the prohibited transactions tax. The regular interests will be deemed
satisfied for an amount which could generate cancellation of indebtedness income
for investors in those FASIT regular interests. The FASIT which ceased to so
qualify would, under the proposed rules, no longer be treated as a FASIT and
would be prohibited from making a new FASIT election. The trust would then be
classified under general tax principles. In that event, the trust could be
treated as an association or other entity subject to an entity level tax. The
regular interests owned by investors would also be reclassified under general
tax principles. Any of the foregoing could adversely affect investors.
On February 7, 2000, the Clinton Administration submitted to Congress
its budget proposals for fiscal year 2001. The budget proposals include a
provision which would impose on a FASIT secondary liability for the payment of
federal income tax due from the owner of the FASIT's single ownership interest.
As a result, if the proposal were to be enacted, the failure of the owner of the
ownership interest to pay taxes due could cause the holders of regular interests
to be adversely affected by reduced available funds for distribution by the
FASIT. It is unclear at this time whether the Clinton budget proposal will be
enacted.
TAX TREATMENT OF INVESTORS
FASIT interests will be classified as either FASIT regular interests,
which generally will be treated as debt for federal income tax purposes, or a
FASIT ownership interest, which is not treated as debt for such purposes, but
rather represents the residual equity interest in a FASIT. The tax treatment of
each type of interest is discussed briefly below.
90
REGULAR INTERESTS. The terms of a FASIT regular interest generally must
satisfy the following requirements: (1) a stated maturity of no greater than 30
years, (2) a specified principal amount, (3) the issue price of the interest
does not exceed 125% of its stated principal amount, (4) the yield to maturity
of the interest is less than the applicable federal rate published by the
Internal Revenue Service for the month of issue plus five percentage points, and
(5) if it pays interest, such interest is payable at either (a) a fixed rate
with respect to the principal amount of the regular interest or (b) certain
permissible variable rates with respect to such principal amount. Regular
interests which do not meet certain of those requirements, referred to as "high
yield interests," may be issued by a FASIT but are permitted to be held by only
certain types of investors such as domestic "C" corporations and other FASITs.
Certain other limitations also apply to high yield interests, such as limits on
the amount of FASIT interest income able to be offset by non-FASIT losses and
deductions otherwise available to the owner of the interest.
FASIT regular interests generally will be subject to the same federal
income tax treatment as applies to debt instruments generally. See "-OWNER
TRUSTS - TAX TREATMENT OF INVESTORS IN NOTES" in this prospectus. One
significant difference, however, is that the holder of a FASIT regular interest
must report income from its interest under the accrual method of accounting,
even if it otherwise uses the cash receipts and disbursement method. The sale or
other disposition of a FASIT regular interest generally will be subject to the
same rules as apply to debt instruments generally.
OWNERSHIP INTEREST. One interest issued by a trust electing to be
treated as a FASIT will be designated as the sole ownership interest in the
FASIT. The ownership interest need not have any particular economic
characteristics. However, the ownership interest must be held directly at all
times by an "ELIGIBLE CORPORATION" which includes a domestic "C" corporation
that is subject to tax and is not a pass-thru entity for tax purposes such as a
regulated investment company, real estate investment trust, real estate mortgage
investment conduit, or cooperative.
Because the ownership interest represents the residual equity interest
in a FASIT, the holder of a FASIT ownership interest determines its taxable
income by taking into account all assets, liabilities, and items of income,
gain, deduction, loss and credit of the related FASIT. In general the character
of the income to the holder of a FASIT ownership interest will be the same as
the character of such income to the FASIT, except that any tax-exempt interest
income taken into account by the holder of a FASIT ownership interest is treated
as ordinary income. In determining that taxable income, the holder of a FASIT
ownership interest must use a constant yield methodology and an accrual method
of accounting and generally will be subject to the same rules of taxation for
original issue discount, market discount, and amortizable premium as apply to
debt instruments generally. See "-OWNER TRUSTS-TAX TREATMENT OF INVESTORS IN
NOTES-PURCHASE AT A DISCOUNT" and "-PURCHASE AT A PREMIUM" in this prospectus.
In addition, a holder of a FASIT ownership interest is subject to the same
limitations on its ability to use non-FASIT losses and deductions to offset
income from the FASIT ownership interest as are holders of FASIT high-yield
regular interests.
Losses on dispositions of a FASIT ownership interest generally will be
disallowed as a deduction if within six months before or after the disposition,
the seller of the interest acquires any other FASIT ownership interest.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan, as well as
91
individual retirement accounts and some types of Keogh Plans (each a "Benefit
Plan"), from engaging in transactions involving "plan assets" with persons that
are "parties in interest" under ERISA or "disqualified persons" under the Code
with respect to that Benefit Plan. A violation of these "prohibited transaction"
rules may result in an excise tax or other penalties and liabilities under ERISA
and the Code for those persons. Employee benefit plans that are governmental
plans (as defined in Section 3(32) of ERISA) and some church plans (as defined
in Section 3(33) of ERISA) are not subject to ERISA requirements nor to Section
4975 of the Code. However, governmental plans may be subject to state or local
laws that impose similar requirements. In addition, governmental plans and
church plans that are "qualified" under Section 401(a) of the Code are subject
to restrictions with respect to prohibited transactions under Section
503(a)(1)(B) of the Code, the sanction for violation being loss of "qualified"
status.
Certain exemptions from the prohibited transaction rules could be
applicable to the purchase and holding of securities by a Benefit Plan depending
on the type and circumstances of the plan fiduciary making the decision to
acquire the securities. Potentially available exemptions would include, without
limitation, Prohibited Transaction Class Exemption ("PTCE") 90-1, which exempts
certain transactions involving insurance company pooled separate accounts; PTCE
95-60, which exempts certain transactions involving insurance company general
accounts; PTCE 91-38, which exempts certain transactions involving bank
collective investment funds; PTCE 84-14, which exempts certain transactions
effected on behalf of a plan by a "qualified professional asset manager"; and
PTCE 96-23, which exempts certain transactions effected on behalf of a plan by
an "in-house asset manager." Insurance company general accounts should also
discuss with their legal counsel the availability of exemptive relief under
Section 401(c) of ERISA. A purchaser of securities should be aware, however,
that even if the conditions specified in one or more exemptions are met, the
scope of the relief provided by the applicable exemption or exemptions might not
cover all acts that might be construed as prohibited transactions.
ERISA also imposes certain duties on persons who are fiduciaries of
Benefit Plans subject to ERISA, including the requirements of investment
prudence and diversification, and the requirement that such a Benefit Plan's
investments be made in accordance with the documents governing the Benefit Plan.
Under ERISA, any person who exercises any authority or control respecting the
management or disposition of the assets of a Benefit Plan is considered to be a
fiduciary of such Benefit Plan. Benefit Plan fiduciaries must determine whether
the acquisition and holding of securities and the operations of the trust would
result in prohibited transactions if Benefit Plans that purchase the securities
were deemed to own an interest in the underlying assets of the trust under the
rules discussed below. There may also be an improper delegation of the
responsibility to manage Benefit Plan assets if Benefit Plans that purchase the
securities are deemed to own an interest in the underlying assets of the trust.
Some transactions involving a trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Benefit Plan
that purchased notes or certificates if assets of the trust were deemed to be
assets of the Benefit Plan. Under a regulation issued by the United States
Department of Labor (the "Plan Assets Regulation"), the assets of a trust would
be treated as plan assets of a Benefit Plan for the purposes of ERISA and the
Code only if the Benefit Plan acquired an "equity interest" in the trust and
none of the exceptions contained in the Plan Assets Regulation was applicable.
An equity interest is defined under the Plan Assets Regulation as an interest
other than an instrument which is treated as indebtedness under applicable local
law and which has no substantial equity features. The likely treatment in this
context of notes and certificates of a given series will be discussed in your
prospectus supplement. However, it is anticipated that the certificates will be
considered equity interests
92
in the trust for purposes of the Plan Assets Regulation, and that the assets of
the trust may therefore constitute plan assets if certificates are acquired by
Benefit Plans. In such event, the fiduciary and prohibited transaction
restrictions of ERISA and section 4975 of the Code would apply to transactions
involving the assets of the trust. As a result, except in the case of senior
certificates with respect to which the Exemption is available (as described
below), certificates generally shall not be transferred and the trustee shall
not register any proposed transfer of certificates unless it receives (i) a
representation substantially to the effect that the proposed transferee is not a
Benefit Plan and is not acquiring the certificates on behalf of or with the
assets of a Benefit Plan (including assets that may be held in an insurance
company's separate or general accounts where assets in such accounts may be
deemed "plan assets" for purposes of ERISA), or (ii) an opinion of counsel in
form and substance satisfactory to the trustee and the depositor that the
purchase or holding of the certificates by or on behalf of a Benefit Plan will
not constitute a prohibited transaction, will not result in the assets of the
trust being deemed to be "plan assets" and subject to the fiduciary
responsibility provisions of ERISA or the prohibited transaction provisions of
ERISA and the Code or any similar law or and will not subject any trustee, the
certificate administrator or the depositor to any obligation in addition to
those undertaken in the trust agreement.
SENIOR CERTIFICATES ISSUED BY TRUSTS
Unless otherwise specified in your prospectus supplement, the following
discussion applies only to nonsubordinated certificates (referred to here in as
"senior certificates") issued by a trust.
The U.S. Department of Labor (the "DOL") has granted to the lead
underwriter named in your prospectus supplement an exemption (the "Exemption")
from certain of the prohibited transaction rules of ERISA with respect to the
initial purchase, the holding and the subsequent resale by Benefit Plans of
certificates representing interests in asset-backed pass-through trusts that
consist of certain receivables, loans and other obligations that meet the
conditions and requirements of the Exemption. The receivables covered by the
Exemption include motor vehicle installment sales contracts like those contained
in the trust. The Exemption may apply to the acquisition, holding and resale of
the senior certificates by a Benefit Plan, provided that certain conditions
(certain of which are described below) are met.
Among the conditions which must be satisfied for the Exemption to apply
to the senior certificates are the following:
(1) The acquisition of the senior certificates by a Benefit
Plan is on terms (including the price for the senior certificates) that
are at least as favorable to the Benefit Plan as they would be in an
arm's length transaction with an unrelated party;
(2) The rights and interests evidenced by the senior
certificates acquired by the Benefit Plan are not subordinated to the
rights and interests evidenced by other certificates of the trust;
(3) The senior certificates acquired by the Benefit Plan have
received a rating at the time of such acquisition that is in one of the
three highest generic rating categories from either Standard & Poor's
Rating Services, a division of The McGraw-Hill Companies, Inc., Moody's
Investors Service, Inc., Duff & Phelps Inc. or Fitch IBCA, Inc.;
(4) The trustee is not an affiliate of any other member of the
Restricted Group (as defined below);
93
(5) The sum of all payments made to the underwriters in
connection with the distribution of the senior certificates represents
not more than reasonable compensation for underwriting the senior
certificates; the sum of all payments made to and retained by the
seller pursuant to the sale of the receivables to the trust represents
not more than the fair market value of such receivables; and the sum of
all payments made to and retained by any servicer represents not more
than reasonable compensation for that servicer's services under the
sale and servicing agreement or pooling and servicing agreement and
reimbursement of the servicer's reasonable expenses in connection
therewith; and
(6) The Benefit Plan investing in senior certificates is an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D of
the Securities and Exchange Commission under the Securities Act of
1933.
On July 21, 1997, the DOL published in the Federal Register an
amendment to the Exemption, which extends exemptive relief to certain
mortgage-backed and asset-backed securities transactions using pre-funding
accounts for trusts issuing pass-through certificates. The amendment generally
allows mortgage loans or other secured receivables supporting payments to
certificateholders, and having a value equal to no more than twenty-five percent
(25%) of the total principal amount of the certificates being offered by the
trust, to be transferred to the trust within a 90-day or three-month period
following the closing date, instead of requiring that all such receivables be
either identified or transferred on or before the closing date. The relief is
available when certain conditions are met.
The Exemption would also provide relief from certain
self-dealing/conflict of interest prohibited transactions that may occur when
the fiduciary (or its affiliate) is an obligor on receivables held in the trust
only if, among other requirements, (i) in the case of the acquisition of senior
certificates in connection with the initial issuance, at least fifty (50)
percent of the senior certificates are acquired by persons independent of the
Restricted Group (as defined below), (ii) such fiduciary (or its affiliate) is
an obligor with respect to five (5) percent or less of the fair market value of
the obligations contained in the trust, (iii) the Benefit Plan's investment in
senior certificates of any class does not exceed twenty-five (25) percent of all
of the senior certificates of that class outstanding at the time of the
acquisition, and (iv) immediately after the acquisition, no more than
twenty-five (25) percent of the assets of any Benefit Plan with respect to which
the fiduciary has discretionary authority or renders investment advice are
invested in certificates representing an interest in one or more trusts
containing assets sold or serviced by the same entity. The Exemption does not
apply to Benefit Plans sponsored by the seller, any underwriter, the trustee,
any servicer, any obligor with respect to receivables included in the trust
constituting more than five percent of the aggregate unamortized principal
balance of the assets in the trust, or any affiliate of such parties (the
"Restricted Group").
Your prospectus supplement for each series of securities will indicate
the classes of securities, if any, offered thereby to which it is expected that
the Exemption will apply.
Due to the complexities of the "prohibited transaction" rules and the
penalties imposed upon persons involved in prohibited transactions, it is
important that the fiduciary of any Benefit Plan considering the purchase of
securities consult with its tax and/or legal advisors regarding whether the
assets of the related trust would be considered plan assets, the possibility of
exemptive relief from the prohibited transaction rules and other issues and
their potential consequences. Moreover, each Benefit Plan fiduciary should
determine whether, under the general fiduciary standards of investment prudence
and diversification, an investment in the securities is appropriate for the
Benefit Plan, taking into account
94
the overall investment policy of the Benefit Plan and the composition of the
Benefit Plan's investment portfolio.
RATINGS OF THE SECURITIES
No trust will sell securities under this prospectus unless one or more
nationally recognized statistical rating organizations rate the offered
securities in one of the four highest rating categories. Any rating that is made
may be lowered or withdrawn by the assigning rating agency at any time if, in
its judgment, circumstances so warrant. If a rating or ratings of securities is
qualified, reduced or withdrawn, no person or entity will be obligated to
provide any additional credit enhancement with respect to the securities so
qualified, reduced or withdrawn.
The ratings of the securities should be evaluated independently from
similar ratings on other types of securities. A rating is not a recommendation
to buy, sell or hold securities, inasmuch as a rating does not comment as to
market price or suitability for a particular investor. The ratings of the
securities do not address the likelihood of payment of principal on any class of
securities prior to the stated maturity date of the securities, or the
possibility of the imposition of United States withholding tax with respect to
non-United States persons.
PLAN OF DISTRIBUTION
Each trust may sell securities to or through underwriters by a
negotiated firm commitment underwriting and public reoffering by the
underwriters, and also may sell securities directly to other purchasers or
through agents. The depositor intends to offer the securities through these
various methods from time to time.
The seller, the depositor and certain of its affiliates may agree to
indemnify the underwriters and agents who participate in the distribution of the
securities against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or contribute to payments the underwritten
may be required to make.
Funds in cash collateral accounts and the trust accounts may, from time
to time, be invested in certain investments acquired from the underwriters.
LEGAL MATTERS
Winston & Strawn, Chicago, Illinois, will provide a legal opinion
relating to the securities in its capacity as special counsel to the trust, the
depositor, the seller and the servicer. In addition, certain United States
federal income tax matters will be passed upon for the related trust by Winston
& Strawn. Other legal matters for underwriters will be passed upon by counsel to
underwriters.
95
WHERE YOU CAN FIND MORE INFORMATION
Federal securities law requires the filing of certain information with
the Securities and Exchange Commission, including annual, quarterly and special
reports, proxy statements and other information. You can read and copy these
documents at the public reference facility maintained by the Securities and
Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. You can also read and copy the reports, proxy statements
and other information at the following regional offices of the Securities and
Exchange Commission:
New York Regional Office Chicago Regional Office
Seven World Trade Center Citicorp Center
Suite 1300 500 West Madison Street, Suite 1400
New York, NY 10048 Chicago, IL 60661
Please call the Securities and Exchange Commission at 1-800-SEC-0330
for more information about the public reference rooms or visit Securities and
Exchange Commission's web site at http://www.sec.gov to access available
filings.
The Securities and Exchange Commission allows offerors of securities to
incorporate by reference some of the information they file with it. This means
that offerors can disclose important information to you by referring you to
those documents. Documents incorporated by reference will be filed under the
depositor's name. The information that the depositor incorporates by reference
is considered to be part of this prospectus, and later information that the
depositor files with the Securities and Exchange Commission will automatically
update and supersede this information.
All documents filed by the depositor, on behalf of a respective trust,
under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934,
after the date of this prospectus and prior to the termination of the offering
of the securities will be incorporated by reference into this prospectus.
If you are a beneficial owner of the securities to whom a prospectus
has been delivered, the depositor will, on request, send you a copy of the
information that has been incorporated by reference in this prospectus. The
depositor will provide this information at no cost to you. Please address
requests to the depositor: c/o Harley-Davidson Credit Corp., 150 South Wacker
Drive, Chicago, Illinois 60606.
96
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following is an itemized list of the estimated expenses to be incurred in
connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions.
SEC Registration Fee $2,640
Printing and Engraving Expenses $50,000
Trustee's Fees and Expenses $12,500
Legal Fees and Expenses $150,000
Blue Sky Fees and Expenses $10,000
Accountants' Fees and Expenses $30,000
Rating Agency Fees $30,000
Miscellaneous Fees $50,000
-------
Total $325,150
========
- ---------------------------
* All amounts except the SEC Registration Fee are estimates of expenses
incurred or to be incurred in connection with the issuance and distribution
of the securities in an aggregate principal amount assumed for these
purposes to be equal to $10,000,000 of securities registered hereby.
Item 15. Indemnification of Directors and Officers
The Nevada General Corporation Law gives Nevada corporations broad powers to
indemnify their present and former directors and officers and those affiliated
corporations against expenses incurred in the defense of any lawsuit to which
they are made parties by reason of being or having been such directors or
officers, subject to specified conditions and exclusions; gives a director or
officer who successfully defends an action the right to be so indemnified; and
authorizes said corporation to buy director's and officers' liability insurance.
Such indemnification is not exclusive of any other right to which those
indemnified may be entitled under any bylaw, agreement, vote of stockholders or
otherwise.
The registrant has also purchased liability policies which indemnify the
registrant's officers and directors against loss arising from claims by reason
of their legal liability for acts as officers and directors, subject to
limitations and conditions as set forth in the policies.
Pursuant to agreements which the registrant may enter into with underwriters or
agents (forms of which will be included as exhibits to this registration
statement), officers and directors of the registrant, and affiliates thereof,
may be entitled to indemnification by such underwriters or agents against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended, arising from information which has been or will be furnished to the
registrant by such underwriters or agents that appears in the registration
statement or any prospectus.
Item 16. Exhibits
EXHIBITS
1.1 Form of Underwriting Agreement
3.1 Articles of Incorporation of the depositor
3.2 Bylaws of the depositor
4.1 Form of Trust Agreement (including form of certificate)
4.2 Form of Indenture (including form of notes)
5.1 Opinion of Winston & Strawn with respect to legality
8.1 Opinion of Winston & Strawn with respect to tax matters
10.1 Form of Transfer and Sale Agreement
10.2 Form of Sale and Servicing Agreement
10.3 Form of Pooling and Servicing Agreement
10.4 Form of Administration Agreement
23.1 Consent of Winston & Strawn (included in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP*
24.1 Power of Attorney (included on signature page)
25.1 Statement of Eligibility and Qualification under the Trust Indenture
Act of 1939 of indenture trustee*
99.1 Agreement to Deposit Contracts
99.2 Security Agreement
- ----------------------------------
* To be filed by amendment
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of 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 the 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 Securities and Exchange 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; or
(iii) 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.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offer therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
That insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 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 act and
will be governed by the final adjudication of such issue.
That, for purposes of determining any liability under the Securities Act of
1933, 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 by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
That, for the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3, has reasonable grounds to believe
that the security rating requirement set forth in the section captioned "RATINGS
OF SECURITIES" will be met by the time of sale of the securities and has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on May 22, 2000.
Harley-Davidson Customer Funding Corp.
By: /s/ Donna F. Zarcone
--------------------------------
Name: Donna F. Zarcone
Title: President
Know all men by these presents, that each person whose signature
appears below constitutes and appoints Michael E. Sulentic and Perry A. Glassgow
and each of them, as 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 any and all amendments (including post-effective amendments)
to this registration statement, and to sign any registration statement for the
same offering covered by this registration statement that is to be effective
upon filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933
(and all post-effective amendments thereto), and to file the same, with all
exhibits thereto and all documents in connection therewith with the Securities
and Exchange Commission granting to said attorney-in-fact 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, as amended,
this registration statement has been signed by the following persons in the
capacities indicated on May 22, 2000:
SIGNATURE TITLE
/s/ Donna F. Zarcone Director and President
--------------------------- (Principal Executive Officer)
Donna F. Zarcone
/s/ Michael E. Sulentic Chief Financial Officer
--------------------------- (Principal Financial Officer and
Michael E. Sulentic Principal Accounting Officer)
/s/ Steven F. Deli
--------------------------- Director
Steven F. Deli
/s/ Donovan A. Langford, III
--------------------------- Director
Donovan A. Langford, III
/s/ Peter M. Husting
--------------------------- Director
Peter M. Husting
EXHIBIT INDEX
1.1 Form of Underwriting Agreement
3.1 Articles of Incorporation of the depositor
3.2 Bylaws of the depositor
4.1 Form of Trust Agreement (including form of certificate)
4.2 Form of Indenture (including form of notes)
5.1 Opinion of Winston & Strawn with respect to legality
8.1 Opinion of Winston & Strawn with respect to tax matters
10.1 Form of Transfer and Sale Agreement
10.2 Form of Sale and Servicing Agreement
10.3 Form of Pooling and Servicing Agreement
10.4 Form of Administration Agreement
23.1 Consent of Winston & Strawn (included in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP*
24.1 Power of Attorney (included on signature page)
25.1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of
indenture trustee*
99.1 Agreement to Deposit Contracts
99.2 Security Agreement
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*To be filed by amendment