<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM --------------- TO ---------------
COMMISSION FILE NUMBER: 28050
------------------------
ONYX ACCEPTANCE CORPORATION
------------------------
<TABLE>
<S> <C>
DELAWARE 33-0577635
STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION IDENTIFICATION NO.)
</TABLE>
ONYX ACCEPTANCE CORPORATION
8001 IRVINE CENTER DRIVE, 5TH FLOOR
IRVINE, CA. 92618
(714) 450-5500
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of October 31, 1997, there were 6,017,635 Shares of registrant's Common
Stock, par value $.01 per share outstanding.
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<PAGE> 2
ONYX ACCEPTANCE CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition at September 30, 1997
(Unaudited) and December 31, 1996.......................................... 3
Consolidated Income Statements for the three months and nine months
ended September 30, 1997 (Unaudited) and September 30, 1996 (Unaudited).... 4
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 1997 (Unaudited), and September 30, 1996 (Unaudited)... 5
Notes to (Unaudited) Consolidated Financial Statements....................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................................ 8
PART II. OTHER INFORMATION
Item 5. Other Information............................................................. 12
Item 6. Exhibits and Reports on Form 8-K.............................................. 15
SIGNATURES............................................................................ 22
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
1996
SEPTEMBER 30, ------------
1997
-------------
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents........................................ $ 1,600,181 $ 603,028
Trust receivables................................................ 23,416,045 10,105,690
Contracts held for sale -- net of allowance(1)................... 55,030,450 12,562,072
Retained interest in securitized assets.......................... 42,264,344 29,632,039
Other assets..................................................... 5,241,899 3,774,123
------------- ------------
Total assets........................................... $ 127,552,919 $ 56,676,952
============= ============
LIABILITIES AND EQUITY
Liabilities
Debt............................................................. $ 73,440,450 $ 13,194,560
Other liabilities................................................ 14,217,607 5,568,577
------------- ------------
Total liabilities...................................... 87,658,057 18,763,137
Total equity........................................... 39,894,862 37,913,815
------------- ------------
Total liabilities and equity........................... $ 127,552,919 $ 56,676,952
============= ============
</TABLE>
- ---------------
(1) Net of Unearned Discounts
See accompanying notes to the unaudited consolidated financial statements
3
<PAGE> 4
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ --------------------------
1997 1996 1997 1996
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Finance revenue............................ $3,659,736 $2,994,193 $ 8,807,440 $ 7,881,973
Interest expense........................... 2,096,118 1,492,629 4,981,310 4,538,585
---------- ---------- ----------- -----------
Net finance revenue........................ 1,563,618 1,501,564 3,826,130 3,343,388
Provision for credit losses................ 100,045 167,963 604,639 142,893
---------- ---------- ----------- -----------
Net finance revenue after provision........ 1,463,573 1,333,601 3,221,491 3,200,495
Gain on sale of loans...................... 6,937,574 4,324,901 15,013,786 13,825,000
Service fee income......................... 1,049,636 476,562 6,644,991 2,262,158
EXPENSES:
Salaries and benefits...................... 4,644,626 2,292,540 12,389,370 6,153,899
Depreciation............................... 349,515 216,040 810,316 585,479
Occupancy.................................. 386,517 169,097 1,043,791 445,844
General and administrative expenses........ 2,943,706 1,583,093 7,343,420 3,603,978
---------- ---------- ----------- -----------
Total expenses............................. 8,324,364 4,260,770 21,586,897 10,789,200
---------- ---------- ----------- -----------
Net income before income taxes............. 1,126,419 1,874,294 3,293,371 8,498,453
Income taxes............................... 468,590 370,000 1,369,887 1,678,691
---------- ---------- ----------- -----------
Net income................................. $ 657,829 $1,504,294 $ 1,923,484 $ 6,819,762
========== ========== =========== ===========
Net income per share....................... $ 0.10 $ 0.23 $ 0.30 $ 1.29
Weighted average number of shares of Common
Stock and Common Stock Equivalents
outstanding.............................. 6,380,776 6,401,283 6,366,053 5,286,636
</TABLE>
See accompanying notes to the unaudited consolidated financial statements
4
<PAGE> 5
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
------------- -------------
(UNAUDITED)
<S> <C> <C>
Net cash (used) provided by operating activities............ $ (57,483,979) $ 77,442,628
INVESTING ACTIVITIES:
Purchases of property and equipment....................... (2,336,027) (878,302)
------------- -------------
Net cash used in investing activities.................. (2,336,027) (878,302)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... 30,337,128
Proceeds from exercise of options/warrants................ 57,562 13,795
Payments of IPO related and other capitalized fees........ (1,735,669)
Proceeds from drawdowns on warehouse line of credit....... 1,048,568
Proceeds (payments) on capital lease obligations.......... 513,704 (9,916)
Proceeds from drawdowns on excess servicing line of
credit................................................. 18,500,000 12,800,000
Payoff of excess servicing line of credit................. (12,800,000)
Payoff of dealer participation line of credit............. (10,617,786)
Paydown of commercial paper related to securitization..... (340,500,000) (291,000,000)
Proceeds from issuance of commercial paper................ 382,497,213 205,717,202
Payoff of subordinated debt............................... (10,000,000)
(Payments) proceeds on other debt......................... (251,320) 697,994
------------- -------------
Net cash provided by (used in) financing activities.... 60,817,159 (75,548,684)
------------- -------------
Increase in cash and cash equivalents.................. 997,153 1,015,642
Cash and cash equivalents at beginning of period............ 603,028 1,622,713
------------- -------------
Cash and cash equivalents at end of period............. $ 1,600,181 $ 2,638,355
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest................................. $ 4,818,269 $ 5,756,121
</TABLE>
See accompanying notes to the unaudited consolidated financial statements
5
<PAGE> 6
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The financial statements included herein are
unaudited and have been prepared in accordance with generally accepted
accounting principles for interim financial reporting and Securities and
Exchange Commission regulations. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
regulations. In the opinion of management, the financial statements reflect all
adjustments (of a normal and recurring nature) which are necessary to present
fairly the financial position, results of operations and cash flows for the
interim periods. Operating results for the nine months ended September 30, 1997
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997. For further information, refer to the financial
statements and footnotes thereto included in the Company's 1996 Annual Report on
Form 10-K and Annual Report on Form 10-K/A and 10-Q's for the quarters ended
March 31, 1997 and June 30, 1997, respectively.
NOTE 2 -- NEW ACCOUNTING PRONOUNCEMENT
Earnings Per Share. In February 1997, the Financial Accounting Standards
Board issued Statement No. 128, "Earnings per Share," ("SFAS 128") which is
required to be adopted on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. Under the new requirements for calculating basic
earnings per share, the dilutive effect of common stock equivalents will be
excluded. The Company has not yet determined what the impact of SFAS 128 will be
on the calculation of earnings per share but management does not believe the
impact is material.
NOTE 3 -- CONTRACTS HELD FOR SALE
Contracts held for sale consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Contracts held for sale........................... $ 62,313,172 $ 14,539,285
Less Unearned interest............................ 8,277,250 2,301,207
------------ ------------
54,035,922 12,238,078
Allowance for credit losses....................... (270,180) (61,190)
------------ ------------
53,765,742 12,176,888
Dealer participation.............................. 1,264,708 385,186
------------ ------------
Total............................................. $ 55,030,450 $ 12,562,072
============ ============
</TABLE>
NOTE 4 -- RETAINED INTEREST IN SECURITIZED ASSETS
SFAS 125 requires that following a transfer of financial assets, an entity
is to recognize the assets it controls and the liabilities it has incurred, and
derecognize assets for which control has been surrendered and liabilities that
have been extinguished.
Retained interests in securitized assets ("RISA") capitalized upon
securitization of contracts represent the present value of the estimated future
earnings to be received by Onyx from the excess spread created in securitization
transactions. Excess spread is calculated by taking the difference between the
coupon rate of the contracts sold and the certificate rate paid to the investors
less contractually specified servicing and guarantor fees and projected credit
losses, after giving effect to estimated prepayments.
6
<PAGE> 7
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Prepayment and credit loss assumptions are based on industry and the
Company's historical experience. Credit losses are projected using cumulative
loss frequency and severity estimates by management. All assumptions are
evaluated each quarter and adjusted, if appropriate, to reflect the actual
performance of the contracts.
Future earnings are discounted at a rate management believes to be
representative of market at the time of securitization. The balance of RISA is
amortized against actual excess spread income earned on a monthly basis over the
expected repayment life of the underlying contracts. RISAs are marked to market
each quarter. Market value changes are calculated by discounting the excess
spread using a current market discount rate. As of September 30, 1997 the market
value of RISAs approximated cost. Onyx retains the rights to service all
contracts it securitizes.
The following table presents the activity of the RISA.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1997
-----------------
<S> <C>
Balance December 31, 1996................................. $ 29,632,039
Additions................................................. 30,460,000
Amortizations............................................. (17,827,695)
-------------
Ending balance............................................ $ 42,264,344
=============
</TABLE>
In initially valuing the RISA, Onyx established an off balance sheet
allowance for expected future credit losses. The allowance is based upon
historical experience and management's estimate of future performance regarding
credit losses. The amount is reviewed periodically and adjustments are made if
actual experience or other factors indicate that future performance may differ
from management's prior expectations.
The following table presents the estimated future undiscounted retained
interest earnings to be received from securitizations. Estimated future
undiscounted RISA earnings are calculated by taking the difference between the
coupon rate of the contracts sold and the certificate rate paid to the
investors, less the contractually specified servicing fee of 1.0% and guarantor
fees, after giving effect to estimated prepayments and assuming no losses. To
arrive at the RISA, this amount is reduced by the off balance sheet allowance
established for potential future losses and by discounting to present value.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
Estimated net undiscounted RISA
earnings............................... $ 66,725,529 $ 41,493,370
Off balance sheet allowance for losses... 20,043,780 8,415,871
Discount to present value................ 4,417,405 3,445,460
------------ -------------
Retained interest in securitized
assets................................. $ 42,264,344 $ 29,632,039
============ =============
Outstanding balance of contracts sold
through securitizations................ $595,527,550 $ 388,427,211
============ =============
</TABLE>
Management believes that the off balance sheet allowance for losses is
currently adequate to absorb potential losses in the sold portfolio.
7
<PAGE> 8
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Onyx Acceptance Corporation (the "Company" or "Registrant") is a
specialized consumer finance company engaged in the purchase, securitization and
servicing of motor vehicle retail installment contracts ("Contracts") originated
by franchised and select independent automobile dealerships within California,
Arizona, Washington, Oregon, Idaho, Illinois, Indiana, Nevada and Florida. The
Company focuses its efforts on acquiring Contracts that are secured by late
model used and, to a lesser extent, new automobiles and entered into with
purchasers whom the Company believes have a favorable credit profile. As of
September 30, 1997, the Company had acquired over $1 billion in Contracts from
2,316 dealerships in California, Arizona, Washington, Oregon, Idaho, Illinois,
Indiana, Nevada and Florida.
The following table illustrates the changes in the Company's Contract
acquisition volume, total revenue, securitization activity and servicing
portfolio during the past seven fiscal quarters:
SELECTED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1996 1996 1996 1997 1997 1997
--------- -------- ------------- ------------ --------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Contracts purchased
during period.... $ 73,343 $ 83,555 $ 79,936 $ 83,006 $ 125,713 $145,548 $ 152,334
Average monthly
purchases during
period........... 24,433 27,852 26,645 27,669 41,904 48,516 50,778
Gain on Sale of
Contracts........ 5,325 4,175 4,325 4,303 3,776 4,300 6,938
Total revenue(1)... 6,775 6,353 6,303 5,790 7,223 8,711 9,551
Contracts
Securitized
during period.... 100,500 85,013 120,000 100,000 90,000 121,676 149,600
Servicing Portfolio
at period end.... 266,251 317,054 359,104 400,665 478,440 564,922 649,563
</TABLE>
- ---------------
(1) Total revenue is comprised of Net Interest Income, Servicing Fee Income and
Gain on Sale of Contracts.
Net income decreased from $1.5 million or $.23 per share in the third
quarter of 1996 to $657,829 or $.10 per share in the third quarter of 1997. Net
income for the nine month period ended September 30, 1997 decreased to $1.9
million or $.30 per share from $6.8 million or $1.29 per share for the like
period of 1996. Due to the utilization of NOL carryforwards, third quarter 1996
income was not fully tax effected (effective tax rate of 19.7%). These
carryforwards were not available to the Company in the third quarter of 1997,
when the effective tax rate was 41.6%. Assuming a statutory effective tax rate
of 41.6%, net income and net income per share for the third quarter 1996 would
have been $1.1 million and $0.17 per share, respectively.
CONTRACTS PURCHASED AND SERVICING PORTFOLIO.
The Company continued to experience significant growth in its purchased
volume of Contracts. This growth was due to the continued penetration within
existing markets during the third quarter. Purchased Contract volume increased
to $152.3 million for the third quarter of 1997 from $79.9 million for the third
quarter of 1996, representing an increase of 91%. For the nine month period
ended September 30, 1997 purchased Contracts volume was $423.6 million compared
to $236.8 million for the nine month period ending September 30, 1996. The
Company's servicing portfolio at September 30, 1997 was $649.6 million compared
to $359.1 million at September 30, 1996, an increase of 81%. Average Contracts
serviced for the nine months ended September 30, 1997 were $518.9 million as
compared to $337.5 million for the like period of 1996. Total revenues for the
third quarter of 1997 were $9.6 million compared to $6.3 million for the same
period of
8
<PAGE> 9
1996. Total revenues for the nine months ended September 30, 1997 were $25.5
million as compared to $19.4 million for the nine month period ended September
30, 1996.
RESULTS OF OPERATIONS
QUARTERS ENDED SEPTEMBER 30, 1997 AND 1996 AND NINE MONTHS ENDED SEPTEMBER 30,
1997 AND 1996
NET FINANCE REVENUE. Net finance revenue increased to $1.6 million for the
quarter ended September 30, 1997 from $1.5 million for the same period in 1996.
Net finance revenue for the nine month period ending September 30, 1997
increased by 14.4% to $3.8 million from $3.3 million for the like period of
1996. The period to period variances are primarily attributable to fluctuations
in Contracts held for sale during each period.
PROVISIONS FOR CREDIT LOSSES. During the quarter ended September 30, 1997,
the provision for credit losses totaled $100,045 compared to $167,963 for the
same period ended in 1996. Provision for credit losses for the nine month period
ended September 30, 1997 were $604,639 compared to $142,893 for the period ended
September 30, 1996. At September 30, 1997 Contracts held for sale were $55.0
million compared to $12.6 million at December 31, 1996.
GAIN ON SALE OF CONTRACTS. The Company completed a $149.6 million
securitization during the quarter ended September 30, 1997, resulting in a gain
on sale of Contracts of $6.9 million compared to a securitization of $120.0
million for the third quarter of 1996, resulting in a gain on sale of $4.3
million. Gain on sale of Contracts for the nine months period ending September
30, 1997 was $15.0 million with sales of $361.3 million compared to $13.8
million with sales of $305.5 million for the nine month period ending September
30, 1996.
SERVICING FEE INCOME. Servicing fee income increased to $1.0 million for
the quarter ended September 30, 1997 from $476,562 for the quarter ended
September 30, 1996. The increase was attributable to a significant increase in
the size of the servicing portfolio from $359.1 million at September 30, 1996 to
$649.6 million at September 30, 1997. Servicing fee income for the nine months
ending September 30, 1997 was $6.6 million compared to $2.3 million for the nine
months ending September 30, 1996.
SALARIES AND BENEFITS EXPENSE. The Company incurred salary and benefit
expenses of $4.6 million during the third quarter of 1997 compared with $2.3
million for the third quarter of 1996, an increase of 102%. This is attributable
to staffing of additional auto finance centers, growth of the servicing
portfolio and the fact that the number of employees at the Company increased
from 156 at September 30, 1996 to 302 at September 30, 1997. Salary and benefit
expenses for the nine month period ended September 30, 1997 were $12.4 million
compared to $6.2 million for the nine months ending September 30, 1996.
OTHER OPERATING EXPENSES. Other operating expenses increased by 93.8% to
$2.9 million for the quarter ended September 30, 1997 from $1.6 million for the
same period ended September 30, 1996. The increases are due to growth of the
servicing portfolio, growth in activity related to Contracts purchased and the
opening of new auto finance centers. Other operating expenses for the nine month
period ending September 30, 1997 were $7.3 million compared to $3.6 million for
the same period in 1996.
NET INCOME. The Company posted net income of $657,829 for the quarter ended
September 30, 1997 or $.10 per share compared to $1.5 million or $.23 per share
for the same period of 1996. Due to the utilization of NOL carryforwards, third
quarter 1996 income was not fully tax effected (effective tax rate of 19.7%).
These carryforwards were not available to the Company in the third quarter of
1997, when the effective tax rate was 41.6%. Assuming a statutory effective tax
rate of 41.6%, net income and net income per share for the third quarter 1996
would have been $1.1 million and $0.17 per share, respectively. For the nine
months ended September 30, 1997, net income was $1.9 million compared to $6.8
million for the period ending September 30, 1996.
9
<PAGE> 10
ASSET QUALITY
At September 30, 1997, delinquencies for the Servicing Portfolio equalled
2.35% or $15.3 million as compared to 1.67% at September 30, 1996 or $6.0
million.
Loan losses for the Servicing Portfolio as a percentage of average serviced
loans outstanding decreased to 2.16% during the third quarter of 1997 compared
to 2.28% for the third quarter of 1996. The portfolio, however, has sustained
higher than expected levels of delinquencies and loan losses due to the
continued recognition of loan losses on contracts purchased from dealerships,
primarily out of the Company's North Hollywood office. The Company announced
that the primary segment contributing to the higher than projected losses are
those contracts originated from dealerships serviced by the North Hollywood
office from July 1995 to July 1996. The Company expects the loans from this
segment of the portfolio to contribute a disproportionate share of the overall
loan losses of the Company through the fourth quarter of 1997. At September 30,
1997 off-balance sheet reserves as a percentage of contracts sold in
securitizations increased to 3.37% from 3.27% at June 30, 1997.
DELINQUENCY EXPERIENCE OF SERVICING PORTFOLIO
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED SEPTEMBER 30,
--------------------------------------------
1997 1996
-------------------- -------------------
NO. AMOUNT NO. AMOUNT
------- -------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Servicing portfolio................................ 62,977 $649,563 33,879 $359,104
Delinquencies(1)(2)
31-59 days....................................... 974 9,467 270 2,979
60-89 days....................................... 296 2,904 136 1,554
90+ days......................................... 264 2,920 128 1,461
Total.............................................. 1,534 15,291 534 5,994
Total delinquencies as a percent of Servicing
Portfolio........................................ 2.44% 2.35% 1.58% 1.67%
</TABLE>
- ---------------
(1) Delinquencies include principal amounts only.
(2) The period of delinquency is based on the number of days payments are
contractually past due.
LOAN LOSS EXPERIENCE OF SERVICING PORTFOLIO
<TABLE>
<CAPTION>
FOR THE QUARTERS
ENDED SEPTEMBER 30,
---------------------
1997 1996
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Period end contracts outstanding....................................... $649,563 $359,104
Average servicing portfolio(1)......................................... $606,412 $337,513
Number of gross charge-offs............................................ 603 298
Gross charge-offs.................................................... $3,678.6 $2,264.2
Net charge-offs(2)................................................... $3,270.0 $1,927.0
Annualized net charge-offs as a percent of average servicing
portfolio............................................................ 2.16% 2.28%
</TABLE>
- ---------------
(1) Average is based on daily balances.
(2) Net charge-offs are gross charge-offs minus recoveries of Contracts
previously charged off.
10
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
The Company requires substantial cash and capital resources to operate its
business. Its primary uses of cash include: (i) acquisition of Contracts; (ii)
payments of dealer participation; (iii) securitization costs, including cash
held in spread accounts; (iv) settlements of hedging transactions; (v) operating
expenses; (vi) income taxes; and (vii) interest expense. The capital resources
available to the Company include: (i) net interest income during the warehousing
period; (ii) contractual servicing fees; (iii) future servicing cash flows; (iv)
settlements of hedging transactions; (v) sales of contracts in securitizations;
and (vi) borrowings under its credit facilities.
Cash used in operating activities was $57.5 million for the nine months
ended September 30, 1997, compared to $77.4 million provided for the nine months
ended September 30, 1996. The substantial increase in cash used in operating
activities was attributable to the fact that for the nine month period ended
September 30, 1997 Contract purchases exceeded Contracts sold in securitizations
by $62.3 million. Cash used in investing activities was $2.3 for the three month
period ended September 30, 1997 compared to $878,302 for the three month period
ended September 30, 1996. Cash provided by financing activities was $60.8
million for the nine month period ended September 30, 1997, compared to $75.5
million used in financing activities for the nine month period ended September
30, 1996. Issuance of commercial paper was the primary source of cash provided
by financing activities during the quarter ended September 30, 1997. The
Company's wholly owned special purpose subsidiary, Onyx Acceptance Financial
Corporation ("OAFC"), is party to a $200 million auto loan warehouse program
(the "CP Facility") with Triple-A One Funding Corporation ("Triple-A"). Triple-A
is a commercial paper asset-backed conduit lender sponsored by Capital Markets
Assurance Corporation ("CapMAC") and is currently rated A-1/P-1 by Standard &
Poor's Ratings Group and Moody's Investor Services, Inc., respectively. This
facility provides funds to purchase Contracts. CapMAC provides credit
enhancement to Triple-A by issuing surety bonds covering all principal and
interest obligations owed by OAFC under a loan agreement with Triple-A. In
February of 1996, the Company became party to a revolving credit facility with
State Street Bank as Agent Bank (the "Revolving Credit Facility") under which
the Company could (subject to borrowing base availability) borrow up to $20
million for working capital and expenditures for which the Company's $200
million CP Facility is not otherwise available. During the quarter the Company
negotiated an increase in this facility allowing it to borrow up to $30 million.
Under the two year term of the Revolving Credit Facility, the available
borrowings are based on the following collateral based formula. The Company may
borrow up to the lesser of 65% of the net book value of the Company's excess
servicing and trust receivables deemed eligible by the lenders or 75% of the
value of such excess servicing and trust receivables determined by such lenders
in accordance with their collateral valuation model. The Revolving Credit
Facility converts from revolving loans to fully-amortizing two-year term loans
on June 30, 1998 or earlier upon the occurrence of certain "credit triggers."
SECURITIZATIONS. In September of 1997, the Company consummated a
securitization in the amount of $149.6 million, with a pass-through rate of
6.35% and a net interest rate spread inclusive of all costs of 3.30%. As a
result of this securitization, the Company realized a gain on sale of
approximately $6.9 million.
The Contracts originated and held by the Company during the warehousing
period are all fixed rate and accordingly, the Company has exposure to changes
in interest rates. The Company is able through the use of varying maturities on
advances from the CP Facility to lock in rates during the warehousing period,
when in management's judgment it is appropriate, to limit interest rate
exposure. Further, the Company employs a hedging strategy which primarily
includes the use of two-year Treasury securities forward agreements. These
hedges are entered into by the Company in numbers and amounts which generally
correspond to the anticipated principal amount of the related securitization. As
of October 31, 1997, the Company had in effect an interest rate hedge for $150
million which matures December 15, 1997 which the Company believes is adequate
to cover its next securitization.
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PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
FORWARD LOOKING INFORMATION
This report, including Management's Discussion and Analysis of Financial
Condition and Results of Operations, contains certain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, which can be identified by the use of forward-looking terminology such
as "may," "will," "expect," "anticipate," "estimate," "should" or "continue" or
the negative thereof or other variations thereon or comparable terminology. The
matters set forth in this Form 10-Q constitute cautionary statements identifying
important factors with respect to such forward-looking statements, including
certain risks and uncertainties, that could cause actual results to differ
materially from those in such forward-looking statements.
RISK FACTORS
Except for the historical information contained herein, the matters
discussed in this Quarterly Report are forward-looking statements which involve
risk and uncertainties, including but not limited to economic, competitive and
governmental factors affecting the Company's operations and other factors
discussed in the Company's filing with the Securities and Exchange Commission.
LIQUIDITY. The Company requires substantial cash to implement its business
strategy, including cash to: (i) acquire Contracts; (ii) pay dealer
participation; (iii) pay securitization costs including cash held in spread
accounts; (iv) settle hedge transactions; (v) satisfy working capital
requirements; (vi) pay operating expenses; (vii) pay income taxes; and (viii)
pay interest expense. These cash requirements increase as the Company's volume
of purchases of Contracts increases. A substantial portion of the Company's
revenues in any period is represented by gain on sale of Contracts in such
period but the cash underlying such revenues is received over the life of the
Contracts. In addition, cash paid by the Company for dealer participation is not
recovered at the time of securitizations, but over the life of the Contract. The
Company has operated and expects to continue to operate on a negative cash flow
basis as long as the volume of Contract purchases continues to grow. The Company
has historically funded these negative operating cash flows principally through
borrowings from financial institutions and sales of subordinated notes. No
assurance can be given, however, that the Company will have access to the
capital markets in the future for equity or debt issuances or for
Securitizations, or that financing through borrowings or other means will be
available on acceptable terms to satisfy the Company's cash requirements to
implement its business strategy. The Company's inability to access the capital
markets or obtain acceptable financing could have a material adverse effect on
the Company's results of operations and financial condition.
DEPENDENCE ON WAREHOUSE FINANCING. The Company depends on warehousing
facilities with financial institutions to finance the purchase of Contracts
pending securitization. The Company participates in a $200 million asset-backed
commercial paper conduit program (the "CP Facility"), of which CapMAC is the
program manager, to finance 95% of the purchase price of Contracts. The CP
Facility expires in September 1999, subject to the requirement that the related
liquidity facility provided by certain banks be extended annually. The Company
currently has (subject to borrowing base availability) a $30 million secured
revolving credit facility (the "Revolving Facility") with an institutional
lender for working capital and expenditures for which the Company's $200 million
CP Facility is not otherwise available. The Revolving Facility converts on June
30, 1998 into fully-amortizing two-year term loans maturing in July 2000. The
Company's business strategy will require continued availability of financing
during the warehousing period. There can be no assurance that such financing
will be available to the Company on favorable terms. The inability of the
Company to arrange new warehousing credit facilities or to extend its existing
credit facilities when they expire would have a material adverse effect on the
Company's results of operations and financial condition. The continued
availability of the CP Facility is subject to, among other things, maintenance
of a target net yield, and compliance by the Company with certain financial
covenants contained in the sale and servicing agreement between the Company, as
seller, and OAFC, as purchaser. These covenants include a minimum
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ratio of tangible net worth to total liabilities plus tangible net worth,
minimum operating cash flow, minimum amount of Contracts serviced by the Company
and minimum cash on hand. There can be no assurance, however, that the Company
will be able to comply with these covenants in the future. The continued
availability of the Revolving Facility is subject to, among other things,
substantially similar financial covenants to those of the CP Facility except
that leverage is measured as the ratio of net worth plus subordinated debt to
total liabilities plus net worth, and is tested on the last day of every month.
Additionally, the Company is subject under the documentation governing the
Revolving Facility, to minimum net worth and subordinated debt plus net worth
tests, a limitation on quarterly operating losses and covenants restricting
delinquencies, losses and prepayments of Contracts included in a Securitization.
DEPENDENCE ON SECURITIZATION PROGRAM. The Company relies significantly upon
securitizations to generate cash proceeds for repayment of its Credit Facilities
and to create availability to purchase additional Contracts. Further, gain on
sale of Contracts generated by the Company's securitizations represents a
significant portion of the Company's revenues. Several factors affect the
Company's ability to complete securitizations of its Contracts, including
conditions in the securities markets generally, conditions in the asset-backed
securities market specifically, the credit quality of the Company's portfolio of
Contracts and the Company's ability to obtain credit enhancement. If the Company
were unable to profitably securitize a sufficient number of its Contracts in a
particular financial reporting period, then the Company's revenues for such
period would decline and could result in lower income or a loss for such period.
In addition, unanticipated delays in closing a securitization could also
increase the Company's interest rate risk by increasing the warehousing period
for its Contracts.
DEPENDENCE ON CREDIT ENHANCEMENT. Each of the Company's securitizations has
utilized credit enhancement in the form of surety bonds issued by CapMAC in
order to achieve "AAA/Aaa" ratings. This form of credit enhancement reduces the
costs of the securitizations relative to alternative forms of credit
enhancements currently available to the Company. CapMAC is not required to
insure future securitizations nor is the Company restricted in its ability to
obtain credit enhancement from providers other than CapMAC or to use other forms
of credit enhancement. There can be no assurance that the Company will be able
to obtain credit enhancement in any form from CapMAC or any other provider of
credit enhancement on acceptable terms or that future securitizations will be
similarly rated. The Company also relies on CapMAC's surety bonds to reduce its
borrowing cost under the "A-1/P-1" rated CP Facility. A downgrading of CapMAC's
credit rating or CapMAC's withdrawal of credit enhancement could result in
higher interest costs for future Company securitizations and financing costs
during the warehousing period. Such events could have a material adverse effect
on the Company's results of operations and financial condition.
INTEREST RATE RISK. The Company's profitability is largely determined by
the difference, or "spread," between the effective rate of interest received by
the Company on the Contracts acquired by the Company and the interest rates
payable under its Credit Facilities during the warehousing period or for
certificates issued in securitizations. Several factors affect the Company's
ability to manage interest rate risk. First, the Contracts are purchased at
fixed interest rates, while amounts borrowed under certain of the Company's
credit facilities bear interest at variable rates that are subject to frequent
adjustment to reflect prevailing rates for short-term borrowings. The Company's
policy is to increase the buy rates it posts with dealerships for Contracts in
response to increases in its cost of funds during the Warehousing period.
However, there is generally a time lag before such increased borrowing costs can
be offset by increases in the buy rates for Contracts and, in certain instances,
the rates charged by its competitors may limit the Company's ability to pass
through its increased costs of warehousing financing. Second, the spread can be
adversely affected after a Contract is purchased and while it is held during the
warehousing period by increases in the prevailing rates in the commercial paper
markets. The CP Facility permits the Company to select maturities of up to 270
days for commercial paper issued under the CP Facility. Third, the interest rate
demanded by investors in securitizations is a function of prevailing market
rates for comparable transactions and the general interest rate environment.
Because the Contracts purchased by the Company have fixed rates, the Company
bears the risk of spreads narrowing because of interest-rate increases during
the period from the date the Contracts are purchased until the closing of its
securitization of such Contracts. The Company employs a hedging strategy that is
intended to minimize this risk which historically has involved the forward sale
of U.S. Treasury securities or use of a pre-funding
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structure for its securitizations. There can be no assurance, however, that this
strategy will consistently or completely offset adverse interest-rate movements
during the warehousing period or that the Company will not sustain losses on
hedging transactions. The Company's hedging strategy requires estimates by
management of monthly Contract acquisition volume and timing of its
securitizations. If such estimates are materially inaccurate, then the Company's
gains on sales of Contracts and results of operations could be adversely
affected. In addition, the Company has some interest rate exposure to falling
interest rates during the pre-funding period to the extent that the interest
rates charged on Contracts sold in a securitization with a pre-funding structure
decline below the rates prevailing at the time that the securitization closed.
Such a rate decline would reduce the interest rate spread because the interest
rate on the certificates would remain fixed. This, in time, would negatively
impact the Gains on Sale of Contracts and the Company's results of operations.
DEFAULT AND PREPAYMENT RISK. The Company's results of operations, financial
condition and liquidity depend, to a material extent, on the performance of
Contracts purchased and warehoused by the Company. A portion of the Contracts
acquired by the Company may default or prepay during the warehousing period. The
Company bears the risk of losses resulting from payment defaults during the
warehousing period. In the event of a payment default, the collateral value of
the financed vehicle may not cover the outstanding Contract balance and costs of
recovery. The Company maintains an allowance for credit losses on Contracts held
during the warehousing period which reflects management's estimates of
anticipated credit losses during such period. If the allowance is inadequate,
then the Company would recognize as an expense the losses in excess of such
allowance and results of operations could be adversely affected. In addition,
under the terms of the CP Facility, the Company will not be able to borrow
against defaulted Contracts. The Company's servicing income can also be
adversely affected by prepayment or default of Contracts in the servicing
portfolio. The Company's contractual servicing revenue is based on a percentage
of the outstanding balance of such Contracts. Thus, if Contracts are prepaid or
charged-off, then the Company's servicing revenue will decline to the extent of
such prepaid or charged-off Contracts. The level of delinquency and defaults on
Contracts warehoused and securitized has increased each quarter for the reasons
discussed above under "Results of Operations -- Asset Quality."
VARIABLE QUARTERLY EARNINGS. The Company's revenues and losses have
fluctuated in the past and are expected to fluctuate in the future principally
as a result of the timing and size of its securitizations. Several factors
affecting the Company's business can cause significant variations in its
quarterly results of operations. In particular, variations in the volume of the
Company's Contract acquisitions, the interest rate spreads between the Company's
cost of funds and the average interest rate of purchased Contracts, the
effectiveness of the Company's hedging strategies, the certificate rate for
securitizations, and the timing and size of securitizations, can result in
significant increases or decreases in the Company's revenues from quarter to
quarter. Any significant decrease in the Company's quarterly revenues could have
a material adverse effect on the Company's results of operations and its
financial condition.
DEPENDENCE ON KEY PERSONNEL. The Company's future operating results depend
in significant part upon the continued service of its key senior management
personnel, none of whom is bound by an employment agreement. The Company's
future operating results also depend in part upon its ability to attract and
retain qualified management, technical, and sales and support personnel for its
operations. Competition for such personnel is intense, and there can be no
assurance that the Company will be successful in attracting or retaining such
personnel. The loss of any key employee, the failure of any key employee to
perform in his or her current position or the Company's inability to attract and
retain skilled employees, as needed, could materially adversely affect the
Company's results of operations and financial condition.
COMPETITION. Competition in the field of financing retail motor vehicles
sales is intense. The automobile finance market is highly fragmented and
historically has been serviced by a variety of financial entities including the
captive finance affiliates of major automotive manufacturers, banks, savings
associations, independent finance companies, credit unions and leasing
companies. Several of these competitors have greater financial resources than
the Company and may have a significantly lower cost of funds. Many of these
competitors also have long-standing relationships with automobile dealerships
and offer dealerships or their customers other forms of financing or services
not provided by the Company. Furthermore, during the past two
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years, a number of automobile finance companies have completed public offerings
of common stock, the proceeds from which are to be used, at least in part, to
fund expansion and finance increased purchases of Contracts. The Company's
ability to compete successfully depends largely upon its relationships with
dealerships and the willingness of dealerships to offer those Contracts that
meet the Company's underwriting criteria to the Company for purchase. There can
be no assurance that the Company will be able to continue to compete
successfully in the markets it serves.
GEOGRAPHIC CONCENTRATION. To date, the Company has purchased the majority
of its Contracts in California. Accordingly, adverse economic conditions or
other factors particularly affecting this state could adversely affect the
delinquency, loan loss or repossession experience of the servicing portfolio.
THE EFFECT OF ADVERSE ECONOMIC CONDITIONS. The Company is a motor vehicle
consumer auto finance company whose activities are dependent upon the sale of
motor vehicles. The ability of the Company to continue to acquire Contracts in
the markets in which it operates and to expand into additional markets is
dependent upon the overall level of sales of new and used motor vehicles in
those markets. A prolonged downturn in the sale of new and used motor vehicles,
whether nationwide or in the markets in which the Company operates, could have
an adverse impact upon the Company, the results of its operations and its
ability to implement its business strategy.
The automobile industry generally is sensitive to adverse economic
conditions both nationwide and regionally in California and the western United
States. Periods of rising interest rates, reduced economic activity or higher
rates of unemployment generally result in a reduction in the rate of sales of
motor vehicles and higher default rates on motor vehicle loans. There can be no
assurance that such economic conditions will not occur, or that such conditions
will not result in such severe reductions in the Company's revenues or cash
flows available to the Company to permit the Company to remain current on its
credit facilities.
REGULATION. The Company's business is subject to numerous federal and state
consumer protection laws and regulations, which, among other things: (i) require
the Company to obtain and maintain certain licenses and qualifications; (ii)
limit the interest rates, fees and other charges the Company is allowed to
charge; (iii) limit or prescribe certain other terms of the Company's Contracts;
(iv) require specific disclosures; and (v) define the Company's rights to
repossess and sell collateral. The Company believes it is in compliance in all
material respects with all such laws and regulations, and that such laws and
regulations have had no material adverse effect on the Company's ability to
operate its business. However, the Company's failure to comply with applicable
laws and regulations, changes in existing laws or regulations, or in the
interpretation thereof, or the promulgation of any additional laws or
regulations could have a material adverse effect on the Company's results of
operations and financial condition.
POSSIBLE VOLATILITY OF STOCK PRICE. The market price of the Common Stock
could be subject to significant fluctuations in response to variations in
financial results or announcements of material events by the Company or its
competitors; in addition, changes in the general conditions of the economy or
financial markets could adversely affect the market price of the Common Stock.
POTENTIAL MARKET IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE. Sales of
substantial amounts of Common Stock on the public market could adversely affect
the market price of the Common Stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
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*3.1 Restated Articles of Incorporation of the Company.
*3.2 Bylaws of the Company.
*3.3 Amended and Restated Articles of Incorporation of the Company.
*3.4 Form of Certificate of Incorporation of the Company, a Delaware corporation.
*3.5 Form of Bylaws of the Company, a Delaware corporation.
*3.6 Form of Agreement and Plan of Merger of the Company, a Delaware corporation,
and the Company, a California corporation.
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*4.1 Specimen certificate representing shares of Common Stock of the Company.
+4.2 Rights Agreement dated as of July 8, 1997, between the Company and American
Stock Transfer and Trust Company, as Rights Agent (which includes the form of
Certificate of Designation for the Series A Participating Preferred Stock and
the form of Rights Certificate of the Company.
*10.1 Form of Indemnification Agreement of the Company, a Delaware corporation.
*10.2 Second Amended and Restated 1994 Stock Option Plan.
*10.3 Form of Notice of Grant of Stock Option under Second Amended and Restated 1994
Stock Option Plan.
*10.4 Form of Stock Option Agreement under Second Amended and Restated 1994 Stock
Option Plan.
*10.5 Form of Stock Purchase Agreement under Second Amended and Restated 1994 Stock
Option Plan.
*10.6 1994 Special Performance Option Grant Plan.
*10.7 Form of Notice of Grant of Stock Option under 1994 Special Performance Option
Grant Plan.
*10.8 Form of Stock Option Agreement under 1994 Special Performance Option Grant
Plan.
*10.9 Form of Stock Purchase Agreement under 1994 Special Performance Option Grant
Plan.
*10.10 Second Amended and Restated Loan and Security Agreement between Onyx
Acceptance Corporation and ContiTrade Services Corporation dated as of April
17, 1995.
*10.11 Letter Agreement between Onyx Acceptance Corporation and ContiTrade Services
Corporation regarding extension of the Dealer Participation Note Purchase
Facility and the Spread Account Deposit Note Purchase Facility dated August 7,
1995.
*10.12 Letter Agreement between Onyx Acceptance Corporation and ContiTrade Services
L.L.C. regarding extension of Contract Purchase Facility dated as of November
22, 1995.
*10.13 Third Amendment to Amended and Restated Investors' Rights Agreement between
and among Onyx Acceptance Corporation and the Investors identified therein
dated as of November 27, 1995.
*10.14 Warrant to purchase Common Stock in favor of ContiTrade Services Corporation
from Onyx Acceptance Corporation dated as of February 1, 1994.
*10.15 First Amendment to Co-Sale and First Refusal Agreement between and among Onyx
Acceptance Corporation, ContiFinancial Services Corporation, the Investors and
Managers, as defined therein, dated as of February 1, 1994.
*10.16 First Amendment to and Waiver of Certain Provisions of Investors' Rights
Agreement between Onyx Acceptance Corporation, ContiFinancial Services
Corporation, the Investors and the Management Holders, as defined therein,
dated as of February 1, 1994.
*10.17 Senior Subordinated Note and Warrant Purchase Agreement between and among Onyx
Acceptance Corporation, Capital Resource Lenders II, L.P. and Dominion Fund
III, L.P., dated as of November 17, 1994.
*10.18 Senior Subordinated Note due 1999 in favor of Capital Resource Lenders II,
L.P. from Onyx Acceptance Corporation dated as of November 17, 1994.
*10.19 Senior Subordinated Note due 1999 in favor of Dominion Fund III, L.P. from
Onyx Acceptance Corporation dated as of November 17, 1994.
*10.20 Warrant to purchase Common Stock in favor of Capital Resource Lenders II, L.P.
from Onyx Acceptance Corporation dated as of November 17, 1994.
*10.21 Warrant to purchase Common Stock in favor of Dominion Fund III, L.P. from Onyx
Acceptance Corporation dated as of November 17, 1994.
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*10.22 Amended and Restated Co-Sale and First Refusal Agreement between and among
Onyx Acceptance Corporation and the Shareholders identified therein dated as
of November 17, 1994.
*10.23 Amended and Restated Investors' Rights Agreement between and among Onyx
Acceptance Corporation, the Investors and the Management Holders identified
therein dated as of November 17, 1994.
*10.24 Amended and Restated Voting Agreement between and among Onyx Acceptance
Corporation and the Shareholders identified therein dated as of November 17,
1994.
*10.25 Preferred Stock Subordination Agreement between and among Onyx Acceptance
Corporation, Capital Resource Lenders II, L.P., Dominion Fund III, L.P. and
certain holders of Preferred Stock identified therein dated as of November 17,
1994.
*10.26 Subordination and Intercreditor Agreement between and among Onyx Acceptance
Corporation, ContiTrade Services Corporation, Capital Resource Lenders II,
L.P., Dominion Fund III, L.P., dated as of November 17, 1994.
*10.27 Amendment of Subordination and Intercreditor Agreement dated as of April 17,
1995, between and among Onyx Acceptance Corporation, Capital Resource Lenders
II, L.P., Dominion Fund III, L.P. and ContiTrade Services Corporation.
*10.28 ISDA Master Agreement between Onyx Acceptance Financial Corporation and
Dai-Ichi Kangyo Bank, Ltd. dated as of September 8, 1994.
*10.29 Side Letter to ISDA Master Agreement between Onyx Acceptance Corporation and
Dai-Ichi Kangyo Bank, Ltd. dated as of September 12, 1994.
*10.30 Sale and Servicing Agreement between Onyx Acceptance Corporation and Onyx
Acceptance Financial Corporation dated as of September 8, 1994.
*10.31 Triple-A One Funding Corporation Credit Agreement between and among Onyx
Acceptance Financial Corporation, Triple-A One Funding Corporation, CapMAC
Financial Services, Inc. and Capital Markets Assurance Corporation dated as of
September 8, 1994.
*10.32 Triple-A One Funding Corporation Note in favor of Onyx Acceptance Financial
Corporation from Triple-A One Funding Corporation dated as of September 12,
1994.
*10.33 Triple-A One Funding Corporation Security Agreement between and among Onyx
Acceptance Financial Corporation, Triple-A One Funding Corporation and Capital
Markets Assurance Corporation dated as of September 8, 1994.
*10.34 Subordinated Security Agreement between Onyx Acceptance Corporation and Onyx
Acceptance Financial Corporation dated as of September 8, 1994.
*10.35 Insurance and Indemnity Agreement between and among Onyx Acceptance
Corporation, Capital Markets Assurance Corporation, Onyx Acceptance Financial
Corporation and Triple-A One Funding Corporation dated as of September 8,
1994.
*10.36 Seller Note in favor of Onyx Acceptance Corporation from Onyx Acceptance
Financial Corporation dated September 12, 1994.
*10.37 Subordinated Note in favor of Onyx Acceptance Corporation from Onyx Acceptance
Financial Corporation dated September 12, 1994.
*10.38 Sublease and Administrative Services Agreement between Onyx Acceptance
Corporation and Onyx Acceptance Financial Corporation dated as of September 8,
1994.
*10.39 Tax Allocation Agreement between Onyx Acceptance Corporation and Onyx
Acceptance Financial Corporation dated as of September 1, 1994.
*10.40 Corporate Separateness Agreement between Onyx Acceptance Corporation and Onyx
Acceptance Financial Corporation dated September 8, 1994.
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*10.41 Amendment Number One to Security Agreement, Subordinated Security Agreement,
Sale and Servicing Agreement and Definitions List between and among Onyx
Acceptance Financial Corporation, Onyx Acceptance Corporation, Triple-A One
Funding Corporation and Capital Markets Assurance Corporation dated March 1,
1995.
*10.42 Series B Preferred Stock Purchase Agreement between Onyx Acceptance
Corporation and Comdisco, Inc. dated as of November 26, 1994.
*10.43 Series B Preferred Stock Purchase Agreement between Onyx Acceptance
Corporation and Jack Slevin dated as of November 26, 1994.
*10.44 Series B Preferred Stock Purchase Agreement between Onyx Acceptance
Corporation and Individuals' Venture Fund dated as of November 30, 1994.
*10.45 First Amendment to Amended and Restated Investors' Rights Agreement between
and among Onyx Acceptance Corporation and certain Investors identified therein
dated as of December 15, 1994.
*10.46 Pooling & Servicing Agreement between and among Onyx Acceptance Corporation,
Onyx Acceptance Financial Corporation and Bankers Trust Company dated as of
September 1, 1994.
*10.47 Indemnification Agreement between and among Onyx Acceptance Corporation, Onyx
Acceptance Financial Corporation, Capital Markets Assurance Corporation and
Merrill Lynch, Pierce, Fenner & Smith Incorporated dated as of September 27,
1994.
*10.48 Indemnification Agreement between Onyx Acceptance Corporation and Merrill
Lynch, Pierce, Fenner & Smith Incorporated dated as of September 28, 1994.
*10.49 Underwriting Agreement between and among Onyx Acceptance Corporation and
Merrill Lynch, Pierce, Fenner & Smith Incorporated dated as of September 28,
1994.
*10.50 Pooling & Servicing Agreement between and among Onyx Acceptance Corporation,
Onyx Acceptance Financial Corporation and Bankers Trust Company dated as of
April 1, 1995.
*10.51 Indemnification Agreement between and among Onyx Acceptance Corporation and
Merrill Lynch, Pierce, Fenner & Smith Incorporated dated as of April 11, 1995.
*10.52 Indemnification Agreement between and among Onyx Acceptance Corporation, Onyx
Acceptance Financial Corporation, Capital Markets Assurance Corporation,
ContiFinancial Services Corporation and Merrill Lynch, Pierce, Fenner & Smith
Incorporated dated as of April 11, 1995.
*10.53 Underwriting Agreement between Onyx Acceptance Financial Corporation and Onyx
Acceptance Corporation and Merrill Lynch, Pierce, Fenner & Smith Incorporated
dated as of April 11, 1995.
*10.54 Master Lease Agreement between Onyx Acceptance Corporation and Comdisco, Inc.
dated January 7, 1994.
*10.55 Warrant to purchase Series A Preferred Stock in favor of Comdisco, Inc. from
Onyx Acceptance Corporation dated as of January 7, 1994.
*10.56 Warrant to purchase Common Stock in favor of Lighthouse Capital Partners from
Onyx Acceptance Corporation dated November 3, 1995.
*10.57 Master Lease Agreement between Lighthouse Capital Partners and Onyx Acceptance
Corporation dated November 3, 1995.
*10.58 Second Amendment to Amended and Restated Investors' Rights Agreement between
and among Onyx Acceptance Corporation and the Investors identified therein
dated as of November 3, 1995.
*10.59 Agreement for On-Line Services between On-Line Computer Systems, Inc. and Onyx
Acceptance Corporation dated as of November 19, 1993.
*10.60 Agreement for On-Line Service between On-Line Computer Systems, Inc. and Onyx
Acceptance Financial Corporation dated as of September 7, 1994.
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*10.61 Option Agreement between Onyx Acceptance Corporation and John W. Hall dated as
of December 20, 1994.
*10.62 Promissory Note in favor of Onyx Acceptance Corporation from John Hall dated
as of December 20, 1994.
*10.63 Option Agreement between Onyx Acceptance Corporation and Brian Mac Innis dated
as of December 20, 1994.
*10.64 Promissory Note in favor of Onyx Acceptance Corporation from Brian MacInnis
dated as of December 20, 1994.
*10.65 Stock Purchase Agreement between and among Brian Mac Innis and certain
Investors identified therein dated as of June 7, 1995.
*10.66 Stock Purchase Agreement between and among John W. Hall and certain Investors
identified therein dated as of June 7, 1995.
*10.67 Sublease Agreement between Onyx Acceptance Corporation and AT&T Resource
Management Corporation dated as of August 31, 1993.
*10.68 Office Space Lease (Master Lease) between and among The Irvine Company and
American Telephone and Telegraph Company dated as of April 29, 1987.
*10.69 First Amendment To Sublease between and among AT&T Resource Management
Corporation and Onyx Acceptance Corporation dated as of September 1, 1993.
*10.70 Onyx Acceptance Corporation 401(k) Plan dated January 1, 1994.
*10.71 Pooling and Servicing Agreement between Onyx Acceptance Financial Corporation,
Onyx Acceptance Corporation and Bankers Trust Company dated as of January 1,
1996.
*10.72 Underwriting Agreement between Onyx Acceptance Financial Corporation and
Merrill Lynch, Pierce, Fenner & Smith Incorporated dated January 31, 1996.
*10.73 Indemnification Agreement by and among Capital Markets Assurance Corporation,
Onyx Acceptance Corporation, Onyx Acceptance Financial Corporation and Merrill
Lynch, Pierce, Fenner & Smith Incorporated dated January 31, 1996.
*10.74 Indemnification Agreement by and between Onyx Acceptance Corporation and
Merrill Lynch, Pierce, Fenner & Smith Incorporated dated as of January 31,
1996.
*10.75 Excess Servicing and Trust Receivable Revolving Credit and Term Loan Agreement
among Onyx Acceptance Corporation, State Street Bank and Trust Company and The
First National Bank of Boston dated as of January 31, 1996.
*10.76 Pledge and Security Agreement by and among Onyx Acceptance Corporation, State
Street Bank and Trust Company and The First National Bank of Boston dated as
of January 31, 1996.
*10.77 Subordination and Intercreditor Agreement by and among State Street Bank and
Trust Company, The First National Bank of Boston, Capital Resource Lenders II,
L.P., Dominion Fund III and Onyx Acceptance Corporation dated as of January
31, 1996.
*10.78 1996-1 Spread Account Trust Agreement between Onyx Acceptance Financial
Corporation and Bankers Trust (Delaware) dated as of February 6, 1996.
*10.79 1995-1 Spread Account Trust Agreement between Onyx Acceptance Financial
Corporation and Bankers Trust (Delaware) dated as of February 6, 1996.
*10.80 1995-1 Purchase Agreement between Onyx Acceptance Corporation and Onyx
Acceptance Financial Corporation dated as of February 6, 1996.
*10.81 1994-1 Spread Account Trust Agreement between Onyx Acceptance Financial
Corporation and Bankers Trust (Delaware) dated as of February 6, 1996.
*10.82 1994-1 Purchase Agreement between Onyx Acceptance Corporation and Onyx
Acceptance Financial Corporation dated as of February 6, 1996.
*10.83 Form of Dealer Agreement Non-Recourse (U) between Dealership and Onyx
Acceptance Corporation.
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*10.84 Form of Dealer Agreement Non-Recourse (N) between Dealership and Onyx
Acceptance Corporation.
*10.85 1996 Stock Option/Stock Issuance Plan. 11.1 Computation of Earnings per Share.
**10.86 Form of Pooling and Servicing Agreement between Onyx Acceptance Financial
Corporation, Onyx Acceptance Corporation and Bankers Trust Company in
connection with 1996-2 Grantor Trust.
**10.87 Form of Underwriting Agreement between Onyx Acceptance Financial Corporation
and Merrill Lynch, Pierce, Fenner and Smith Incorporated in connection with
1996-2 Grantor Trust.
**10.88 Form of Pooling and Servicing Agreement between Onyx Acceptance Financial
Corporation, Onyx Acceptance Corporation and Bankers Trust Company in
connection with 1996-3 Grantor Trust.
***10.89 Form of Underwriting Agreement between Onyx Acceptance Financial Corporation
and Merrill Lynch, Pierce, Fenner and Smith Incorporated in connection with
1996-3 Grantor Trust.
***10.90 Form of Pooling and Servicing Agreement between Onyx Acceptance Financial
Corporation, Onyx Acceptance Corporation and Bankers Trust Company in
connection with 1996-4 Grantor Trust.
***10.91 Form of Underwriting Agreement between Onyx Acceptance Financial Corporation
and Merrill Lynch, Pierce, Fenner and Smith Incorporated in connection with
1996-4 Grantor Trust.
****10.92 Form of Pooling and Servicing Agreement between Onyx Acceptance Financial
Corporation, Onyx Acceptance Corporation and Bankers Trust Company in
connection with 1997-1 Grantor Trust.
****10.93 Form of Underwriting Agreement between Onyx Acceptance Financial Corporation
and Merrill Lynch, Pierce, Fenner and Smith Incorporated in connection with
1997-1 Grantor Trust.
#10.94 Form of Pooling and Servicing Agreement between Onyx Acceptance Financial
Corporation, Onyx Acceptance Corporation and Bankers Trust Company in
connection with 1997-2 Grantor Trust
#10.95 Form of Underwriting Agreement between Onyx Acceptance Financial Corporation
and Merrill Lynch, Pierce, Fenner and Smith Incorporated in connection with
1997-2 Grantor Trust.
##10.96 Form of Pooling and Servicing Agreement between Onyx Acceptance Financial
Corporation, Onyx Acceptance Corporation and Bankers Trust Company in
connection with 1997-3 Grantor Trust.
##10.97 Form of Underwriting Agreement between Onyx Acceptance Financial Corporation
and Merrill Lynch Pierce, Fenner and Smith Incorporation in connection with
1997-3 Grantor Trust.
11.1 Computation of Earnings
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Incorporated by reference from the Company's Registration Statement on
Form S-1 (Registration No. 333-680).
** Incorporated by reference from the Company's Registration Statement on
Form S-1 (Registration No. 333-4220).
*** Incorporated by reference from the Company's Registration Statement on
Form S-1 (Registration No. 333-10461).
**** Incorporated by reference from the Company's Registration Statement on
Form S-1 (Registration No. 333-16601).
20
<PAGE> 21
***** Incorporated by reference from the Company's Registration Statement on
Form S-1 (Registration No. 333-22301).
# Incorporated by reference from the Company's Registration Statement on Form
S-1 (Registration No. 333-28893).
## Incorporated by reference from the Company's Registration Statement on Form
S-1 (Registration No. 333-33471)
+ Incorporated by reference from the Company's Current Report on Form 8-K
dated July 8, 1997.
(b) REPORTS ON FORM 8-K
Form 8-K dated July 8, 1997. Item 5 containing disclosure regarding the
adoption of the Company's shareholders' rights plan.
Form 8-K dated August 28, 1997. Item 5 providing the Distribution Date
Statement for Distribution Date of August 15, 1997 for the Onyx Acceptance
Grantor Trust 1997-1.
Form 8-K dated September 28, 1997. Item 5 providing the Distribution Date
Statement for Distribution Date of September 15, 1997 for the Onyx Acceptance
Grantor Trust 1997-1.
Form 8-K dated October 26, 1997. Item 5 providing the Distribution Date
Statement for Distribution Date of October 15, 1997 for the Onyx Acceptance
Grantor Trust 1997-1.
Form 8-K dated August 28, 1997. Item 5 providing the Distribution Date
Statement for Distribution Date of August 15, 1997 for the Onyx Acceptance
Grantor Trust 1997-2.
Form 8-K dated September 28, 1997. Item 5 providing the Distribution Date
Statement for Distribution Date of September 15, 1997 for the Onyx Acceptance
Grantor Trust 1997-2.
Form 8-K dated October 30, 1997. Item 5 providing the Distribution Date
Statement for Distribution Date of October 15, 1997 for the Onyx Acceptance
Grantor Trust 1997-2.
Form 8-K dated October 30, 1997. Item 5 providing the Distribution Date
Statement for Distribution Date at October 15, 1997 for the Onyx Acceptance
Grantor Trust 1997-3.
21
<PAGE> 22
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ONYX ACCEPTANCE CORPORATION
Date: November 13, 1997
By: JOHN W. HALL
----------------------------------
John W. Hall
Chief Executive Officer and
President
By: DON P. DUFFY
----------------------------------
Don P. Duffy
Executive Vice President and
Principal Financial Officer
22
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------------------------------
<C> <S>
11.1 Computation of Earnings Per Share
21.1 Subsidiaries of the Registrant
27.1 Financial Data Schedule
</TABLE>
23
<PAGE> 1
EXHIBIT 11.1
ONYX ACCEPTANCE CORPORATION
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -------------------------
1997 1996 1997 1996
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PRIMARY:
Net Income........................................... $657,829 $1,504,294 $1,923,484 $6,819,762
======== ========== ========== ==========
Shares as adjusted:
Weighted average common shares outstanding........... 6,016,471 5,874,703 5,997,612 4,760,056
Incremental shares from outstanding stock options and
warrants as determined under the treasury stock
method............................................. 364,305 526,580 368,441 526,580
-------- ---------- ---------- ----------
Shares as adjusted................................... 6,380,776 6,401,283 6,366,053 5,286,636
======== ========== ========== ==========
Net income per share................................. $0.10 $0.23 $0.30 $1.29
======== ========== ========== ==========
FULLY DILUTED:
Net Income........................................... $657,829 $1,504,294 $1,923,484 $6,819,762
======== ========== ========== ==========
Shares as adjusted:
Weighted average common shares outstanding........... 6,016,471 5,874,703 5,997,612 4,760,056
Incremental shares from outstanding stock options as
determined under the treasury stock method......... 364,305 526,580 368,441 526,580
-------- ---------- ---------- ----------
Shares as adjusted................................... 6,380,776 6,401,283 6,366,053 5,286,636
======== ========== ========== ==========
Net income per share................................. $0.10 $0.23 $0.30 $1.29
======== ========== ========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Onyx Acceptance Financial Corporation, a Delaware corporation
ABNI, Inc., a Delaware corporation
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,600,181
<SECURITIES> 0
<RECEIVABLES> 55,030,450
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 127,552,919
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 39,894,862
<TOTAL-LIABILITY-AND-EQUITY> 127,552,919
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 100,045
<INTEREST-EXPENSE> 2,096,118
<INCOME-PRETAX> 1,126,419
<INCOME-TAX> 468,540
<INCOME-CONTINUING> 657,829
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
