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REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MMCA AUTO OWNER TRUST 1997-1
(ISSUER WITH RESPECT TO THE NOTES)
MMCA AUTO RECEIVABLES, INC.
(ORIGINATOR OF THE TRUST DESCRIBED HEREIN)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 9999 33-0570905
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NO.) IDENTIFICATION NO.)
</TABLE>
6363 KATELLA AVENUE
CYPRESS, CALIFORNIA 90630-5205
(714) 236-1592
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ERIC L. ECKES
6363 KATELLA AVENUE
CYPRESS, CALIFORNIA 90630-5205
(714) 236-1509
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
SUSAN M. CURTIS, ESQ. DALE W. LUM, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP BROWN & WOOD LLP
919 Third Avenue 555 California Street
New York, New York 10022 San Francisco, CA 94104
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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 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,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
% Asset Backed Notes........... $1,000,000 100% $1,000,000 $303.03
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED , 1997
$
MMCA AUTO OWNER TRUST 1997-1
% ASSET BACKED NOTES
------------------------
MMCA AUTO RECEIVABLES, INC.
SELLER
SERVICER
------------------------
MMCA Auto Owner Trust 1997-1 (the "Trust") was formed pursuant to a Trust
Agreement dated as of , 1997, between MMCA Auto Receivables, Inc.
(the "Seller") and , as Owner Trustee. The Trust will issue
aggregate principal amount of % Asset Backed Notes (the "Notes")
pursuant to an Indenture to be dated as of , 1997, between the Trust
and Bank of Tokyo -- Mitsubishi Trust Company, as Indenture Trustee. The Trust
will also issue $ aggregate principal balance of % Asset Backed
Certificates (the "Certificates") and $ aggregate principal balance of a
Final Payment Certificate. The Certificates and the Final Payment Certificate
are not being offered hereby.
The assets of the Trust will include a pool of motor vehicle retail installment
sales contracts originated on or after , 199 and certain rights and
obligations thereunder (collectively, the "Receivables"), certain monies due or
received thereunder on or after , 1997 (the "Cutoff Date"), the
Seller's security interests in the new and used automobiles and light- and
medium-duty trucks securing the Receivables and certain other property, as more
fully described herein. The Notes will be secured by the assets of the Trust
pursuant to the Indenture.
Interest on the Notes will accrue at the rate of % per annum. Interest on the
Notes will generally be payable on the 15th day of each month (or, if the 15th
day of the month is not a Business Day, the next following Business Day)
beginning , 1997 (each, a "Payment Date"). Principal of the Notes will be
payable on each Payment Date to the extent described herein. The rights of
Certificateholders and the holder of the Final Payment Certificate are
subordinated to the rights of the Noteholders, to the extent described herein.
The Final Scheduled Payment Date for the Notes will be the Payment Date. The
Notes will be subject to redemption in whole, but not in part, on any Payment
Date on which the Servicer exercises its option to purchase the Receivables. The
Servicer may purchase the Receivables when the aggregate principal balance of
the Receivables shall have declined to 10% or less of the initial aggregate
principal balance of the Receivables purchased by the Trust.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK FACTORS"
ON PAGE HEREIN.
There currently is no secondary market for the Notes and there is no assurance
that one will develop. The Underwriters expect, but are not obligated, to make a
market in the Notes. There is no assurance that any such market will develop,
or, if one does develop, that it will continue.
THE NOTES REPRESENT OBLIGATIONS OF THE TRUST ONLY AND DO NOT REPRESENT
OBLIGATIONS OF OR INTERESTS IN THE SELLER, THE SERVICER OR ANY OF
THEIR RESPECTIVE AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<CAPTION>
Proceeds to
Proceeds to Underwriting the
Public(1) Discount Seller(1)(2)
------------ ------------ ------------
<S> <C> <C> <C>
Per Note........................................... % % %
Total.............................................. $ $ $
</TABLE>
(1) Plus accrued interest, if any, from , 1997.
(2) Before deducting expenses payable by the Seller estimated to be $ .
The Notes are offered by the several Underwriters when, as and if issued by
the Trust and accepted by the Underwriters and subject to their right to reject
orders in whole or in part. It is expected that delivery of the Notes in
book-entry form will be made through the facilities of The Depository Trust
Company, Cedel Bank, anonyme, and the Euroclear System on or about , 1997
against payment therefor in immediately available funds.
CREDIT SUISSE FIRST BOSTON
PROSPECTUS DATED , 1997.
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Certain persons participating in this offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the notes offered
hereby, including over-allotment, stabilizing transactions and syndicate short
covering transactions. For a description of these activities, see
"Underwriting."
AVAILABLE INFORMATION
The Seller has filed with the Securities and Exchange Commission (the
"Commission"), on behalf of the Trust, a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Notes offered pursuant to this Prospectus. For further information, reference is
made to such Registration Statement, and the exhibits thereto, which are
available for inspection without charge at the public reference facilities of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, as well as the
Regional Offices of the Commission at 500 West Madison, Chicago, Illinois 60661,
and 7 World Trade Center, New York, New York 10048. Copies of such information
can be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Such material may
also be obtained from the World Wide Web site maintained by the Commission
(http://www.sec.gov). The Servicer, on behalf of the Trust, will also file or
cause to be filed with the Commission such periodic reports as may be required
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the rules and regulations of the Commission thereunder.
REPORTS TO NOTEHOLDERS
Unless and until Definitive Notes are issued under the limited
circumstances described herein, monthly and annual reports concerning the
Receivables and the Trust will be prepared by the Servicer and sent on behalf of
the Trust only to Cede & Co., as nominee of The Depository Trust Company ("DTC")
and registered holder of the Notes. Such reports will not contain audited
financial statements with respect to the Trust. The Seller does not intend to
send any of its financial reports to Noteholders. See "Description of the
Notes -- Book Entry Registration" and "-- Statements to Noteholders."
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SUMMARY
This Summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus. Certain capitalized terms
used in this Summary are defined elsewhere in this Prospectus. See the Index of
Principal Terms for the location herein of the definitions of capitalized terms.
Issuer..................... MMCA Auto Owner Trust 1997-1 (the "Trust" or the
"Issuer"), a Delaware business trust established
pursuant to a Trust Agreement dated as of
, 1997 (as amended and
supplemented from time to time, the "Trust
Agreement") between the Seller and the Owner
Trustee.
Seller..................... MMCA Auto Receivables, Inc., a Delaware corporation
and a wholly-owned subsidiary of Mitsubishi
Motors Credit of America, Inc., a Delaware
corporation ("MMCA").
Servicer................... MMCA, a wholly-owned subsidiary of Mitsubishi Motor
Sales of America, Inc., a California corporation.
Indenture Trustee.......... Bank of Tokyo -- Mitsubishi Trust Company, as
trustee under the Indenture (the "Indenture
Trustee").
Owner Trustee.............. , as trustee under the Trust
Agreement (the "Owner Trustee").
The Securities............. The Trust will issue % Asset Backed Notes (the
"Notes") in an aggregate initial principal amount
of $ pursuant to an Indenture to be
dated as of , 1997 (as
amended and supplemented from time to time, the
"Indenture"), between the Trust and the Indenture
Trustee. The Notes will be secured by the assets
of the Trust pursuant to the Indenture. The Notes
will be offered for purchase in denominations of
$1,000 and integral multiples thereof. See
"Description of the Notes- General."
Concurrently with the issuance of the Notes, the
Trust will issue certificates of beneficial
interest evidencing an interest in the Trust
Property (the "Certificates") in an aggregate
principal balance of $ pursuant to the
Trust Agreement. The Certificates will be
subordinated to the Notes to the extent described
herein. The Certificates are not being offered
hereby and will be retained by the Seller or an
affiliate.
Concurrently with the issuance of the Notes and
Certificates, a separate certificate with an
initial principal balance of $(the "Final Payment
Certificate") evidencing an interest solely in
the portion of the Trust Property consisting of
the aggregate principal amount of the Last
Scheduled Payments will be issued by the Trust to
the Seller, as holder of the Final Payment
Certificate (in such capacity, the "Final Payment
Certificateholder"). In addition, the Final
Payment Certificateholder will receive investment
income on funds on deposit in the Collection
Account (net of losses and investment expenses).
The Final Payment Certificate will be
subordinated to the Notes to the extent described
herein.
Trust Assets............... The property of the Trust (the "Trust Property")
will include (i) the Receivables, (ii) with
respect to Actuarial Receivables, certain monies
due thereunder on or after ,
1997 (the "Cutoff Date"), and, with respect to
Simple Interest Receivables, certain monies
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due or received thereunder on or after the Cutoff
Date, (iii) the Seller's security interests in
the Financed Vehicles, (iv) certain bank
accounts, including the Reserve Account and the
Yield Supplement Account, (v) the Seller's rights
under any physical damage, credit life and
disability insurance policies relating to the
Financed Vehicles or the obligors under the
Receivables, (vi) certain rights related to
breaches of representations and warranties by
Dealers under Dealer Agreements, (vii) certain
rights under the Sale and Servicing Agreement,
(viii) certain rights under the Yield Supplement
Agreement and (ix) certain other property, as
more fully described herein. See "The Trust
Property."
The Receivables............ The Receivables will consist of a pool of retail
installment sale contracts secured by new and
used automobiles and light- and medium- duty
trucks, including rights to receive certain
payments made with respect to such Receivables,
security interests in the vehicles financed
thereby (the "Financed Vehicles"), and the
proceeds thereof. The Receivables will have an
aggregate principal balance of $ as of
the Cutoff Date.
The Receivables will be purchased by the Trust from
the Seller pursuant to a Sale and Servicing
Agreement, to be dated as of
, 1997 (as amended or
otherwise modified and in effect, the "Sale and
Servicing Agreement"), among the Trust, the
Seller and MMCA providing for such purchase on or
before the date of issuance of the Notes (the
"Closing Date"). The Receivables will be
purchased by the Seller from MMCA pursuant to a
Purchase Agreement, to be dated as of
, 1997 (as amended or
otherwise modified and in effect, the "Purchase
Agreement"), between the Seller and MMCA
providing for such purchase on or before the date
of issuance of the Notes. The Receivables will be
selected from the contracts owned by MMCA based
on the criteria specified in the Sale and
Servicing Agreement and described herein. No
Receivable will have a scheduled maturity later
than (the "Final Scheduled
Maturity Date"). See "The Receivables."
The "Pool Balance" at any time will represent the
aggregate principal balance of the Receivables at
the end of the preceding calendar month (each, a
"Collection Period"), after giving effect to all
payments (other than Payaheads) received from
obligors, and all Advances and Purchase Amounts
to be remitted by the Servicer or the Seller, as
the case may be, all for such Collection Period,
together with all losses realized on Receivables
liquidated during such Collection Period.
Registration of Notes...... The Notes will be represented initially by one or
more physical notes registered in the name of
Cede & Co. ("Cede"), as nominee of DTC.
Beneficial Owners of Notes may elect to hold
their Notes through DTC (in the United States) or
Cedel or Euroclear (in Europe). Transfers within
DTC, Cedel or Euroclear, as the case may be, will
be made in accordance with the usual rules and
operating procedures of the relevant system.
Cross-market transfers between persons holding
directly or indirectly through DTC in the United
States, on the one hand, and counterparties
holding directly or indirectly through Cedel or
Euroclear, on the other, will be effected in DTC
through the relevant Depositaries of Cedel or
Euroclear.
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No person acquiring a beneficial ownership interest
in the Notes (a "Note Owner") will be entitled to
receive a Definitive Note, except in certain
limited circumstances. Under the terms of the
Indenture, Note Owners will not be recognized as
Noteholders and will be permitted to exercise the
rights of the Noteholders only indirectly through
DTC. See "Description of the Notes--Definitive
Notes."
Payment Dates.............. Payments of interest and principal on the Notes
will be made on the 15th day of each month or, if
the 15th day of such month is not a Business Day,
the next following Business Day (each, a "Payment
Date") commencing , 1997.
Payments will be made to holders of record of the
Notes (the "Noteholders") as of the day
immediately preceding such Payment Date or, if
Definitive Notes are issued, as of the 15th day
of the preceding month (a "Record Date"). A
"Business Day" is a day other than a Saturday, a
Sunday or a day on which banking institutions or
trust companies in The City of New York or Los
Angeles, California are authorized by law,
regulation or executive order to be closed.
Interest................... The Notes will bear interest at the rate of % per
annum (the "Note Interest Rate"). Interest on the
outstanding principal amount of the Notes will
accrue at the Note Interest Rate from and
including , 1997 (in the case
of the first Payment Date) or from and including
the most recent Payment Date on which interest
has been paid to but excluding the following
Payment Date. Interest on the Notes will be
calculated on the basis of a 360-day year of
twelve 30-day months. See "Description of the
Notes--Interest."
Principal.................. Principal of the Notes will be payable on each
Payment Date in an amount equal to the Principal
Distribution Amount for such Pay-ment Date to the
extent described in "Description of the
Notes--The Indenture Cash Flows." The "Principal
Distribution Amount" for a Payment Date will be
the sum of the following amounts (but not in
excess of the outstanding principal amount of the
Notes) with respect to the preceding Collection
Period: (i) the Noteholders' Regular Principal
and (ii) the Noteholders' Accelerated Principal;
provided that, after payment in full of the
Notes, the Principal Distribution Amount will be
Certificateholders' Regular Principal.
No principal will be paid on the Certificates until
the Notes have been paid in full. See
"Description of the Notes--Principal."
The outstanding principal amount of the Notes, to
the extent not previously paid, will be payable
on the Payment Date (the
"Final Scheduled Payment Date").
Optional Redemption........ The Notes will be redeemed in whole, but not in
part, on any Payment Date on which the Servicer
exercises its option to purchase the Receivables,
which can occur after the Pool Balance declines
to 10% or less of the Initial Pool Balance, at a
redemption price equal to the unpaid principal
amount of the Notes and Certificates plus accrued
and unpaid interest thereon, together with the
unpaid principal amount of the Final Payment
Certificate. The Seller does not anticipate,
although no assurances can be given, that the
Pool Balance will decline to a level permitting
the Servicer to purchase the Receivables while
the Notes are outstanding.
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See "Description of the Notes--Optional
Redemption." The "Initial Pool Balance" will
equal the Pool Balance as of the Cutoff Date.
Reserve Account............ The Indenture Trustee, on behalf of the Trust, will
have the benefit of funds on deposit from time to
time in an account (the "Reserve Account")
maintained by the Indenture Trustee for the
purpose of providing funds for Advances and for
the payment of the Total Servicing Fee, the
Accrued Note Interest, the Noteholders' Regular
Principal and the Accrued Certificate Interest on
each Payment Date (the "Total Required Payment")
in the event of shortfalls in the Trust's receipt
of payments on the Receivables (after giving
effect to payments of any Yield Supplement
Amounts). The Reserve Account will be funded
initially by a deposit by the Seller on the
Closing Date of cash or Permitted Investments
having a value of $ (the "Reserve
Initial Deposit") and will be supplemented on
each Payment Date by application of funds from
the Collection Account to the extent remaining
after giving effect to the payment of the Total
Required Payment on such Payment Date. Amounts on
deposit in the Reserve Account on any Payment
Date (after giving effect to the payment in full
of the Total Required Payment on such Payment
Date) in excess of the Specified Reserve Balance
for such Payment Date will be released and
distributed to the Seller. Upon any such
distribution, the Noteholders and
Certificateholders will have no rights in, or
claims to, such amounts.
The "Specified Reserve Balance" with respect to any
Payment Date will be equal to $ ,
except that, if on any Payment Date (i) the
annualized average for the three preceding
Collection Periods of the ratio of the amount
equal to Realized Losses less Recoveries for each
such Collection Period to the Pool Balance
(excluding, for purposes of this calculation, the
aggregate principal amount of Last Scheduled
Payments) as of the first day of such Collection
Period exceeds % or (ii) the average for the
preceding three Collection Periods of the ratio
of the balance of Receivables (excluding, for
purposes of this calculation, the aggregate
principal amount of Last Scheduled Payments) that
are delinquent 60 days or more for each such
Collection Period (including Receivables with
respect to vehicles held in inventory which are
not yet charged-off) to such Pool Balance
(excluding, for purposes of this calculation, the
principal amount of Last Scheduled Payments) as
of the first day of such Collection Period
exceeds %, then the Specified Reserve
Balance shall be an amount equal to
$ . See "Description of the
Notes--Reserve Account."
In accordance with the Indenture, funds will be
withdrawn from the Reserve Account and deposited
in the Collection Account on each Payment Date to
make Advances and to pay the Total Required
Payment in the event of shortfalls in the Trust's
receipt of payments on the Receivables (after
giving effect to payments of any Yield Supplement
Amounts). However, in certain circumstances the
Reserve Account could be depleted with the result
that funds would not be available for deposit in
the Collection Account to make such Advances and
Total Required Payment. See "Risk
Factors--Limited Assets; Deficiencies from Sale
Upon Insolvency of Seller." The Reserve Account,
together with any amounts deposited therein from
time to time, will be Trust Property, and will be
pledged in accordance with the
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<PAGE> 8
Indenture by the Trust to the Indenture Trustee,
on behalf of the Noteholders, as secured party.
Yield Supplement
Agreement.................. MMCA will enter into a yield supplement agreement
(the "Yield Supplement Agreement") with the
Seller, which will sell and assign its rights
thereunder to the Owner Trustee for the benefit
of Certificateholders, who will pledge it to the
Indenture Trustee for the benefit of the
Noteholders. The Yield Supplement Agreement will,
with respect to each Receivable, provide for
payment on or before each Payment Date of an
amount (if positive) calculated by the Servicer
equal to one-twelfth of (i) interest on such
Receivable's principal balance (in the case of a
Final Payment Receivable, the Level-Pay Balance)
as of the first day of the related Collection
Period at a rate equal to the sum of the
Servicing Rate and the Weighted Average Rate for
such Collection Period, minus (ii) interest on
such Receivable at its annual percentage rate on
such Receivable's principal balance (in the case
of a Final Payment Receivable, the Level-Pay
Balance) as of the first day of the related
Collection Period (in the aggregate for all
Receivables with respect to any Payment Date, the
"Yield Supplement Amount").
The "Weighted Average Rate" means, with respect to
any Collection Period, a per annum rate equal to
(i) the sum of (a) the product of the Note
Interest Rate and the outstanding principal
amount of the Notes as of the preceding Payment
Date (after giving effect to any principal
payment made on such Payment Date) and (b) the
product of the Certificate Rate and the
Certificate Balance as of the preceding Payment
Date (after giving effect to any principal
payment made on such Payment Date), divided by
(ii) the sum of the outstanding principal amount
of the Notes and the Certificate Balance as of
the preceding Payment Date (after giving effect
to any principal payment made on such Payment
Date).
In order to maintain the ratings of the Notes and
the Certificates at their initial levels, the
Yield Supplement Amount payable under the Yield
Supplement Agreement will be supported by funds
on deposit in a segregated trust account to be
maintained with the Indenture Trustee for the
benefit of the Noteholders and the
Certificateholders (the "Yield Supplement
Account"). The Yield Supplement Account will be
funded on the Closing Date with an initial
deposit of $ . On each Payment Date,
the amount required to be on deposit in the Yield
Supplement Account will decline and be equal to
the sum of all projected Yield Supplement Amounts
for all future Payment Dates, assuming that
future scheduled payments on the Receivables are
made on their scheduled Due Dates. The amount on
deposit in the Yield Supplement Account will
decrease as payments are made from such Account
with respect to the Yield Supplement Amount and
funds in excess of the maximum required balance
are released to the Seller. See "Description of
the Notes--Yield Supplement Account."
Collection Account;
Priority of Payments..... Except under certain conditions described herein,
the Servicer will be required to remit
collections received with respect to the
Receivables within two Business Days of receipt
thereof to one or more accounts in the name of
the Indenture Trustee (the "Collection Account").
Pursuant to the Sale and Servicing Agreement, the
Servicer will have the power,
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which may be revoked by the Indenture Trustee or
by the Owner Trustee with the consent of the
Indenture Trustee, to instruct the Indenture
Trustee to withdraw funds on deposit in the
Collection Account (including funds, if any,
deposited therein from the Reserve Account, the
Yield Supplement Account and the Payahead
Account) and to apply such funds on each Payment
Date to the following (in the priority
indicated): (i) the Total Servicing Fee to the
Servicer, (ii) the Accrued Note Interest into the
Note Payment Account, (iii) the Noteholders'
Regular Principal into the Note Payment Account,
(iv) the Accrued Certificate Interest into the
Certificate Distribution Account, (v) on or after
the Payment Date on which the outstanding
principal amount of the Notes is reduced to zero,
the Certificateholders' Regular Principal into
the Certificate Distribution Account (vi) the
amount necessary to bring the amounts on deposit
in the Reserve Account up to the Specified
Reserve Balance into the Reserve Account, (vii)
any remaining funds attributable to the principal
amount of Last Scheduled Payments to the Final
Payment Certificateholder and (viii) the
Noteholders' Accelerated Principal into the Note
Payment Account; provided, however, that on each
Payment Date following the occurrence of an Event
of Default which has resulted in acceleration of
the Notes or following an Insolvency Event, the
principal amount of the Notes must be paid in
full prior to the distribution of any amounts on
the Certificates. See "Description of the
Notes--The Accounts" and "--The Indenture Cash
Flows."
Servicing Fee.............. A monthly fee for servicing the Receivables (the
"Servicing Fee") will be payable to the Servicer
on each Payment Date in an amount equal to the
product of one-twelfth of the Servicing Rate and
the Pool Balance as of the first day of the
Collection Period and will be payable generally
out of collections on the Receivables prior to
distributions to Noteholders. The "Servicing
Rate" will equal 1.00% per annum. As additional
servicing compensation, the Servicer will also be
entitled to earnings on amounts on deposit in the
Payahead Account, as well as Rule of 78's
Payments, disposition fees paid with respect to
Final Payment Receivables, late fees and certain
other administrative fees and charges (other than
extension fees) collected on the Receivables. See
"Description of the Transfer and Servicing
Agreements--Servicing Compensation."
Advances................... An advance from the Reserve Account will be made
for any portion of the scheduled payment (other
than Last Scheduled Payments) on each Actuarial
Receivable that has not been timely made (an
"Actuarial Advance" or an "Advance"). Subsequent
collections on Receivables will be used to
replenish the Reserve Account to the extent
described herein. See "Description of the
Notes--Reserve Account." No Advances will be made
with respect to Simple Interest Receivables.
Repurchases and Purchases
of Certain Receivables... The Seller will be obligated to repurchase any
Receivable if the interest of the Trust therein
is materially and adversely affected by a breach
of any representation or warranty made by the
Seller with respect to the Receivable, if the
breach has not been cured by the last day of the
Collection Period which includes the 60th day
after the date of discovery by or notice to the
Seller of the breach. MMCA will be obligated to
repurchase the Receivable from the Seller
pursuant to the Purchase
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<PAGE> 10
Agreement contemporaneously with the Seller's
repurchase from the Trust. See "Description of
the Transfer and Servicing Agreements--Mandatory
Repurchase of Receivables."
The Servicer will be obligated to purchase any
Receivable if, among other things, it extends the
date for final payment by the obligor of such
Receivable beyond the last day of the Collection
Period preceding the final scheduled Payment Date
with respect to the Certificates, extends any
Receivable for more than two months for each
twelve months of the original term of the
Receivable or fails to maintain a perfected
security interest in the related Financed
Vehicle. See "Description of the Transfer and
Servicing Agreements--Servicing Procedures."
Tax Status................. In the opinion of Skadden, Arps, Slate, Meagher &
Flom LLP, for Federal income and Delaware and
California income and franchise tax purposes, the
Notes will be characterized as debt, and the
Trust will not be characterized as an association
(or a publicly traded partnership) taxable as a
corporation. Each Noteholder, by the acceptance
of a Note, will agree to treat the Notes as
indebtedness. See "Certain Federal Income Tax
Consequences" and "Certain State Tax
Consequences."
Rating of the Notes........ It is a condition to the issuance of the Notes that
they be rated in the highest investment rating
category by at least one nationally recognized
rating agency. There can be no assurance that a
rating will not be lowered or withdrawn by a
rating agency if circumstances so warrant.
ERISA Considerations....... Subject to the considerations discussed under
"ERISA Considerations," the Notes may, in
general, be purchased by or on behalf of employee
benefit plans subject to ERISA. Any employee
benefit plan fiduciary considering a purchase of
Notes should, among other things, consult with
legal counsel regarding the availability of a
statutory or administrative exemption from the
prohibited transaction rules of ERISA and the
Code.
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<PAGE> 11
RISK FACTORS
LIMITED LIQUIDITY
There currently is no secondary market for the Notes, and there is no
assurance that one will develop. The Underwriters expect, but are not obligated,
to make a market in the Notes. There is no assurance that any such market will
develop or, if one does develop, that it will provide liquidity of investment or
will continue for the life of the Notes.
CERTAIN LEGAL ASPECTS -- THE RECEIVABLES
The Seller will cause financing statements to be filed with the appropriate
governmental authorities to perfect the interest of the Trust in its purchase of
the Receivables, and the Servicer will hold the Receivables, either directly or
through subservicers, as custodian for the Indenture Trustee following the sale
and assignment of the Receivables to the Trust. The Receivables will not be
segregated, stamped or otherwise marked to indicate that they have been sold to
the Trust. If, through inadvertence or otherwise, another party purchases (or
takes a security interest in) the Receivables for new value in the ordinary
course of business and obtains possession of the Receivables without actual
knowledge of the Trust's interest, the purchaser (or secured party) will acquire
an interest in the Receivables superior to the interest of the Trust. See
"Certain Legal Aspects of the Receivables -- Rights in the Receivables."
The Seller will assign its security interests in the Financed Vehicles
along with the sale and assignment of the Receivables to the Trust, and the
Servicer will hold the certificates of title or ownership relating to the
Financed Vehicles, either directly or through subservicers, as custodian for the
Indenture Trustee following the sale and assignment of the Receivables to the
Trust. The certificates of title or ownership will not be endorsed or otherwise
amended to identify the Trust as the new secured party. Because the Trust will
not be identified as the secured party on any certificates of title or
ownership, the security interest of the Trust in a Financed Vehicle (i) might be
defeated through fraud, forgery, negligence or error and (ii) may not be
perfected in every state. See "Certain Legal Aspects of the
Receivables -- Security Interests in the Financed Vehicles."
CERTAIN LEGAL ASPECTS -- BANKRUPTCY CONSIDERATIONS
The Seller has taken steps in structuring the transactions contemplated
hereby that are intended to ensure that the voluntary or involuntary application
for relief by MMCA under the United States Bankruptcy Code or similar state laws
("Insolvency Laws") will not result in consolidation of the assets and
liabilities of the Seller with those of MMCA. These steps include the creation
of the Seller as a separate, limited-purpose subsidiary pursuant to a
certificate of incorporation containing certain limitations (including
restrictions on the nature of the Seller's business and a restriction on the
Seller's ability to commence a voluntary case or proceeding under any Insolvency
Law without the prior unanimous affirmative vote of all of its directors).
However, there can be no assurance that the activities of the Seller would not
result in a court concluding that the assets and liabilities of the Seller
should be consolidated with those of MMCA in a proceeding under any Insolvency
Law. If a court were to reach such a conclusion, then delays in payments on the
Notes could occur or reductions in the amounts of such payments could result.
See "The Seller."
It is intended by MMCA and the Seller that the transfer of the Receivables
by MMCA to the Seller constitute a "true sale" of the Receivables to the Seller.
If the transfer constitutes such a "true sale," the Receivables and the proceeds
thereof would not be part of MMCA's bankruptcy estate should it become the
subject of a bankruptcy case subsequent to the transfer of the Receivables to
the Seller.
In Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir. 1993),
cert. denied, 114 S.Ct. 554 (1993), the United States Court of Appeals for the
10th Circuit suggested that even where a transfer of accounts from a seller to a
buyer constitutes a "true sale," the accounts would nevertheless constitute
property of the seller's estate in a bankruptcy of the seller. If MMCA or the
Seller were to become subject to a bankruptcy proceeding and a court were to
follow the Octagon court's reasoning, Noteholders might experience delays in
payment or possibly losses on their investment in the Notes. Counsel to the
Seller has advised the Seller that the reasoning of the Octagon case appears to
be inconsistent with other precedent. In addition, the Permanent Editorial Board
of
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<PAGE> 12
the UCC has issued an official commentary (PEB Commentary No. 14) which
characterizes the Octagon court's interpretation of Article 9 of the UCC as
erroneous. Such commentary states that nothing in Article 9 is intended to
prevent the transfer of ownership of accounts or chattel paper. See "The
Seller."
PREPAYMENT CONSIDERATIONS
The weighted average lives of the Notes may be reduced by prepayments in
full on Actuarial Receivables and full or partial prepayments on Simple Interest
Receivables. The Receivables are prepayable at any time. Prepayments may also
result from liquidations due to default, the receipt of proceeds from physical
damage insurance, repurchases by the Seller as a result of certain uncured
breaches of the warranties made by it in the Sale and Servicing Agreement with
respect to the Receivables, purchases by the Servicer as a result of certain
uncured breaches of the covenants made by it in the Sale and Servicing Agreement
with respect to the Receivables, or the Servicer exercising its optional
purchase right. The rate of prepayments on the Receivables may be influenced by
a variety of economic, social and other factors. See "The
Receivables -- Maturity and Prepayment Considerations."
MMCA does not generally maintain records of the historical prepayment
experience of its Motor Vehicle Contract or Truck Contract portfolio. No
assurance can be given that prepayments on the Receivables will conform to any
historical experience, and no prediction can be made as to the actual prepayment
rates which will be experienced on the Receivables. Note Owners will bear all
reinvestment risk resulting from the rate of prepayment of the Receivables.
LIMITED ASSETS; DEFICIENCIES FROM SALE UPON INSOLVENCY OF SELLER
Limited Assets. The Trust does not have, nor is it permitted or expected
to have, any significant assets or sources of funds other than the Receivables
and the right to receive payments under certain circumstances pursuant to the
Yield Supplement Agreement and from the Reserve Account. The Notes represent
obligations solely of the Trust. The Notes will not be insured or guaranteed by
the Seller, the Servicer, the Indenture Trustee, the Owner Trustee or any other
person or entity. Consequently, Noteholders must rely for payment upon payments
on the Receivables, payments under the Yield Supplement Agreement and, if and to
the extent available, amounts on deposit in the Reserve Account.
Amounts on deposit in the Reserve Account will be available on any Payment
Date to cover shortfalls in the Total Required Payment and to provide funds for
the making of Advances. See "Description of the Notes -- Reserve Account." If
the Reserve Account is exhausted, the Trust will depend solely on current
payments on the Receivables, proceeds from the liquidation of Defaulted
Receivables, Recoveries, and payments under the Yield Supplement Agreement to
make the Total Required Payment. See "Description of the Notes -- The Indenture
Cash Flows" and "-- Yield Supplement Agreement."
Although the Trust will covenant to sell the Receivables if directed to do
so by the Indenture Trustee in accordance with the Indenture following an
acceleration of the Notes upon an Event of Default, there is no assurance that
the market value of the Receivables will at any time be equal to or greater than
the aggregate outstanding principal of the Notes. Therefore, upon an Event of
Default with respect to the Notes there can be no assurance that sufficient
funds will be available to repay Noteholders in full. In addition, the amount of
principal required to be distributed to Noteholders under the Indenture will
generally be limited to amounts available to be deposited in the Note Payment
Account. Therefore, the failure to pay principal on the Notes may not result in
the occurrence of an Event of Default until the Final Scheduled Payment Date.
Deficiencies from Sale upon Insolvency of Seller. If an Insolvency Event
occurs with respect to the Seller while the Notes are outstanding, the Indenture
Trustee will be required to sell the Receivables in a commercially reasonable
manner on commercially reasonable terms, unless the Noteholders holding a
majority of the outstanding principal amount of the Notes, the
Certificateholders holding a majority of the principal balance of the
Certificates (other than the Seller) and the holders of certain interests, if
any, in the Reserve Account (other than the Seller), disapprove of such sale.
The proceeds of any such sale, disposition or liquidation of the Receivables
will be treated as collections on the Receivables and will be deposited in the
Collection Account. If the proceeds from the liquidation of the Receivables and
the amounts on deposit in the Reserve Account and the
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<PAGE> 13
Note Payment Account are not sufficient to pay the Notes in full, the amount of
principal returned to Noteholders will be reduced, and the Noteholders and the
Certificateholders will incur a loss on their investment. See "Description of
the Transfer and Servicing Agreements -- Insolvency Event."
LAST SCHEDULED PAYMENT RISK
On the maturity date of a Final Payment Receivable, an obligor thereunder
has the option to satisfy the amount then owed by the obligor by selling the
related Motor Vehicle to MMCA or its assignee for an amount equal to the Last
Scheduled Payment (reduced by certain charges) and paying any excess of the
total amount owed over the Last Scheduled Payment to MMCA (or its assignee).
Although the aggregate initial principal amount of the Notes and Certificates
will equal the Initial Pool Balance minus the aggregate principal amount of the
Last Scheduled Payments, and collections attributable to the principal amount of
Last Scheduled Payments are generally payable to the holder of the Final Payment
Certificate, collections attributable to Last Scheduled Payments will be
deposited into the Collection Account and will be available to make payments to
Noteholders and Certificateholders of the Total Required Amount and to make any
required deposits into the Reserve Fund prior to payment to the holder of the
Final Payment Certificate.
The amount realized by the Trust with respect to a Last Scheduled Payment
is likely to be less than the scheduled amount of the Last Scheduled Payment, if
the obligor exercises its option to sell the related Motor Vehicle to MMCA (on
behalf of the Trust). In such circumstances, MMCA as Servicer, either directly
or through an affiliate, will resell the Motor Vehicle at wholesale in a public
or private sale, on behalf of the Trust, and the amount realized on such sale is
likely to be less than the Last Scheduled Payment, in part as a result of MMCA's
method of setting the amount of the Last Scheduled Payment. The Last Scheduled
Payment on a Final Payment Receivable is determined by MMCA at the time the
related retail installment sales contract is entered into based on MMCA's
projection of the anticipated end of term wholesale value of the vehicle that is
being financed under such contract plus an additional amount that MMCA adds in
order to stimulate sales of Motor Vehicles through Final Payment Receivables by
reducing the amount of the earlier scheduled payments under those contracts. In
addition, if MMSA were no longer distributing Motor Vehicles in the United
States, or Mitsubishi Motors were no longer manufacturing Motor Vehicles, the
market for used Motor Vehicles manufactured by Mitsubishi Motors might be
adversely affected, and the proceeds realized by the Servicer upon the sale of
Motor Vehicles which obligors elect to sell to MMCA on the maturity date of a
Final Payment Receivable might be reduced.
In the event that sale proceeds of a Motor Vehicle sold on behalf of the
Trust in connection with the obligor's exercise of its right to sell the Motor
Vehicle to MMCA or its assignee are less than the related Last Scheduled
Payment, none of MMCA, the Servicer, the Seller or the Trust will have any
recourse to the obligor for any shortfall, nor will MMCA, the Servicer or the
Seller be obligated to pay any such shortfall to the Trust.
The obligor under a Final Payment Receivable also has the option to
refinance with MMCA the total amount then due, subject to certain conditions.
MMCA will be obligated to the extent it offers vehicle financing, but no
successor Servicer will be obligated, to provide such refinancing, although the
Seller may contract with third parties to provide refinancing if MMCA no longer
makes such refinancing available. If an obligor elects and qualifies for the
refinancing option, MMCA will pay the Trust an amount equal to the Last
Scheduled Payment plus any other amounts due from the obligor, less certain
amounts retained by the Servicer, for the Final Payment Receivable. If a
refinancing option is not available, more Motor Vehicles may be sold to the
Trust on the due date of the Last Scheduled Payment, and consequently more Motor
Vehicles may be sold by the Trust for prices less than the Last Scheduled
Payments.
MMCA does not require the related obligor under a Final Payment Receivable
to pay the "Gap Amount" in the event there is a total loss of the Motor Vehicle
caused by its theft or physical damage; provided the obligor has maintained the
insurance required by the Motor Vehicle Contract and is not in default
thereunder. The "Gap Amount" is the difference between the amount owed in
respect of the Final Payment Receivable as of the date of the total loss and
insurance proceeds (inclusive of any applicable deductible) received with
respect to the Motor Vehicle. In accordance with its customary servicing
practices and procedures, MMCA treats such Gap Amount, if any, as a non-cash
reduction of the principal of the related Last Scheduled Payment. Any such
reduction decreases the amount of Available Funds to the extent of any Gap
Amount in the related Collection Period.
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Because MMCA has been originating Final Payment Receivables only since
October 1993, MMCA does not have extensive historical experience with respect to
the percentage of Motor Vehicles purchased by obligors, refinanced or sold back
to MMCA or with respect to the amounts realized upon sale. However, because Last
Scheduled Payments are generally set higher than MMCA's estimate of the
wholesale value at the end of the contract and are dependent upon conditions in
the used car market at the time of resale, MMCA expects that, in the aggregate,
the amounts received from the sale of vehicles and payments of applicable excess
wear and tear and excess mileage charges will be less than the stated amounts of
the Last Scheduled Payments.
RATING
It is a condition to the issuance of the Notes that they be rated in the
highest investment rating category by at least one nationally recognized rating
agency (each, a "Rating Agency"). A security rating is not a recommendation to
buy, sell, or hold securities and may be revised or withdrawn at any time by the
assigning Rating Agency.
BOOK ENTRY REGISTRATION
The Notes will be represented initially by one or more physical notes
registered in the name of Cede as nominee of DTC. No Note Owner will be entitled
to receive a Definitive Note except in certain limited circumstances. Under the
terms of the Indenture, Note Owners will not be recognized as Noteholders, and
will be permitted to exercise the rights of the Noteholders only indirectly
through DTC. See "Description of the Notes -- Book Entry Registration" and
"-- Definitive Notes."
THE TRUST
GENERAL
The Issuer, MMCA Auto Owner Trust 1997-1, is a business trust formed under
the laws of the State of Delaware pursuant to the Trust Agreement for the
transactions described in this Prospectus. The Trust will hold the Receivables,
issue the Notes, the Certificates and the Final Payment Certificate and
distribute payments on the Notes, the Certificates and the Final Payment
Certificate. The Trust's principal offices are in the State of Delaware in care
of , as Owner Trustee, at the address listed below.
The Trust will initially be capitalized with the Notes, the Certificates
and the Final Payment Certificate. The Trust will purchase the Receivables from
the Seller pursuant to the Sale and Servicing Agreement in exchange for the
proceeds of the Notes, the Certificates, which have an original Certificate
Balance of $ and the Final Payment Certificate. The Seller or an
affiliate will retain the Certificates and the Final Payment Certificate. The
Seller will retain the right to the principal portion of Last Scheduled Payments
(after payment of the Total Required Payment and required transfers to the
Reserve Account) through retention of the Final Payment Certificate.
The Servicer will service the Receivables, either directly or through
subservicers, and will be paid the Servicing Fee out of collections from the
Receivables, prior to distributions to Noteholders. Certain other expenses of
the Trust will be paid by the Servicer or by the Seller as provided in the Sale
and Servicing Agreement. See "Description of the Transfer and Servicing
Agreements -- Servicing Procedures," "-- Servicing Compensation" and
"Description of the Notes -- The Indenture Cash Flows."
The Servicer will hold the Receivables and the certificates of title
relating to the Financed Vehicles as custodian for the Indenture Trustee.
However, the Receivables will not be marked or stamped to indicate that they
have been sold to the Trust, and the certificates of title for the Financed
Vehicles will not be endorsed or otherwise amended to identify the Trust as the
new secured party. Under such circumstances and in certain jurisdictions, the
Trust's security interest in the Receivables and the Financed Vehicles may be
defeated or may not be perfected. See "Certain Legal Aspects of the
Receivables."
The Trust will not acquire any assets other than the Trust Property, and it
is not anticipated that the Trust will have any need for additional capital
resources. Because the Trust will have no operating history upon its
establishment and will not engage in any business other than acquiring and
holding the Trust Property and issuing
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and distributing payments on the Notes, the Certificates and the Final Payment
Certificate, no historical or pro forma financial statements or ratios of
earnings to fixed charges with respect to the Trust have been included herein.
If the protection provided to the Noteholders by the subordination of the
Certificates and by the Final Payment Certificate and by amounts on deposit in
the Reserve Account and Yield Supplement Account from time to time is
insufficient, the Noteholders would have to look principally to the obligors on
the Receivables, the proceeds from the repossession and sale of Financed
Vehicles which secure Defaulted Receivables and the proceeds from recourse
against dealers with respect to the Receivables. In such event, certain factors,
such as the Trust's not having perfected security interests in the Financed
Vehicles in all states, may affect the Trust's ability to repossess and sell the
collateral securing the Receivables, and thus may reduce the proceeds to be
distributed to Noteholders. See "Description of the Notes -- The Indenture Cash
Flows" and "Certain Legal Aspects of the Receivables."
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the Trust as of the
Closing Date, as if the issuance and sale of the Notes, the Certificates and the
Final Payment Certificate had taken place on such date:
<TABLE>
<S> <C>
Notes....................................................... $
Certificates................................................
Final Payment Certificate................................... $
-------
Total..................................................
=======
</TABLE>
THE OWNER TRUSTEE
is the Owner Trustee under the Trust Agreement. The Owner
Trustee's Corporate Trust Office is located at . The Seller, the
Servicer and their respective affiliates may have other banking relationships
with the Owner Trustee and its affiliates in the ordinary course of their
businesses.
THE TRUST PROPERTY
The Notes will be collateralized by the Trust Property. The Trust Property
will include (i) the Receivables, (ii) with respect to Actuarial Receivables,
certain monies due thereunder on or after the Cutoff Date (including Payaheads)
and, with respect to Simple Interest Receivables, certain monies due or received
thereunder on or after the Cutoff Date, (iii) certain amounts and property from
time to time held in or credited to one or more accounts maintained by the
Indenture Trustee pursuant to the Sale and Servicing Agreement as described
below, including the Reserve Account and the Yield Supplement Account, (iv) the
Seller's security interests in the Financed Vehicles, (v) the Seller's rights to
receive proceeds from claims on physical damage, credit life and disability
insurance policies covering the Financed Vehicles or the obligors, (vi) certain
of the Seller's rights of recourse against the Dealers under the Dealer
Agreements relating to the Receivables, (vii) all of the Seller's right to
certain documents contained in the Receivable Files, (viii) certain rights under
the Sale and Servicing Agreement and the Yield Supplement Agreement, (ix)
certain rights under the Purchase Agreement, including the right of the Seller
to cause MMCA to repurchase certain Receivables from the Seller, (x) certain
payments and proceeds with respect to the Receivables held by the Servicer, (xi)
all property (including the right to receive future liquidation proceeds) that
shall have secured a Receivable (other than a Receivable repurchased by the
Seller or purchased by the Servicer) and that shall have been acquired by or on
behalf of the Trust, (xii) certain rebates of premiums and other amounts
relating to insurance policies and other items financed under the Receivables in
effect as of the Cutoff Date, and (xiii) all proceeds of the foregoing.
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MMCA'S VEHICLE CONTRACT PORTFOLIO
GENERAL
MMCA currently purchases motor vehicle and light-duty truck retail
installment contracts (the "Motor Vehicle Contracts") and medium-duty truck
retail installment contracts (the "Truck Contracts," and together with the Motor
Vehicle Contracts, the "Contracts") directly from authorized Mitsubishi motor
vehicle dealers and authorized Mitsubishi FUSO truck dealers (each, a "Dealer"),
respectively, throughout the United States. The Motor Vehicle Contracts and
Truck Contracts are originated by the Dealers who regularly sell such contracts
to MMCA and other finance providers. MMCA purchases Motor Vehicle Contracts and
Truck Contracts in accordance with its established underwriting procedures and
subject to the terms of its agreements (each, a "Dealer Agreement") with each
Dealer. Each Dealer Agreement, among other things, obligates the related Dealer
to repurchase any Motor Vehicle Contract or Truck Contract for the outstanding
principal balance thereof if the Dealer breaches certain representations and
warranties set forth in the agreement. Such representations and warranties
typically relate to the origination of the Motor Vehicle Contract or Truck
Contract and the security interest in the related motor vehicle or light-duty
truck (a "Motor Vehicle") or medium-duty truck (a "Truck") and not the
creditworthiness of the obligors under the Contract.
MMCA currently purchases Motor Vehicle Contracts relating to new Motor
Vehicles manufactured or distributed by Mitsubishi Motors and Motor Vehicle
Contracts relating to used Motor Vehicles manufactured by Mitsubishi Motors or
other motor vehicle manufacturers. MMCA has applied the same underwriting
standards to its purchases of Motor Vehicle Contracts whether or not the
Contracts related to Motor Vehicles manufactured or distributed by Mitsubishi
Motors. See "-- Underwriting."
MMCA has at all times purchased Truck Contracts relating to new Trucks
manufactured or distributed by Mitsubishi Motors and used Trucks manufactured or
distributed by Mitsubishi Motors or other truck manufacturers. MMCA has applied
the same underwriting standards to its purchases of Truck Contracts whether or
not the contracts related to Trucks manufactured or distributed by Mitsubishi
Motors. See "-- Underwriting."
UNDERWRITING
MMCA's underwriting standards emphasize each prospective obligor's ability
to pay and creditworthiness as well as the asset value of the Motor Vehicle or
Truck that secures the related Motor Vehicle Contract or Truck Contract.
Prior to its purchase of a Motor Vehicle Contract, MMCA reviews credit
applications from the obligors that include information about each obligor's
income, residential status, monthly mortgage or rent payments, credit
obligations, bank accounts, and other personal information. Upon receipt of a
credit application, MMCA obtains a credit report from an independent credit
bureau which MMCA reviews to determine the applicant's current credit status and
past credit performance. Where necessary, MMCA verifies the employment or the
income of an applicant. MMCA uses a credit scoring system and considers other
factors to reach each credit decision. In November 1996 MMCA introduced a new
credit scoring system for all Motor Vehicle Contracts, replacing the one that
had been used since June 1994. The new credit scoring system first assigns the
application to one of three credit segments: prime, limited credit experience
and non-prime. Each segment considers different credit application and credit
bureau report characteristics or assigns different weighting to certain
characteristics that are considered by all segments. This segmentation is based
solely upon the information in the applicant's credit bureau report. The new
credit scoring system identifies those aspects of an applicant's credit report
and credit application and the proposed financing arrangement that, based upon
the specific performance experience of MMCA's portfolio, are most predictive of
the probability that the applicant will pay MMCA as agreed. MMCA considers
attributes other than the credit score as part of its credit decision process,
including such factors as ratio of income to debt, an applicant's equity in the
Motor Vehicle, satisfactory existing account relationships, excellent recent
reported credit history and availability of an acceptable guarantor. MMCA
management sets limits on the percentage of credit decisions that approve credit
to applicants scoring below company credit score minimums and deny credit to
applicants scoring above such minimums. Prior to June 1994, MMCA used a credit-
scoring system for Motor Vehicle Contracts (other than Contracts relating to
Final Payment Receivables) that
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<PAGE> 17
took into account additional factors from the credit application. Where the
obligor of a Motor Vehicle Contract is a business entity, MMCA reviews credit
applications that include information about bank accounts, credit references and
financial results of such business entity. In addition, MMCA obtains and reviews
published credit reports on the business entity, where available. In some cases,
MMCA may require an individual to guarantee the business's obligation under the
Motor Vehicle Contract.
After considering the relevant information, an assessment is made of the
relative degree of credit risk of a particular application and the decision to
grant or deny credit for a Contract is made at the appropriate management level.
The application, if approved, is assigned to one of four credit tiers reflecting
its degree of credit risk. The interest rate for the customer's account is
determined by the credit tier, with the relatively more risky accounts receiving
a higher interest rate.
Prior to its purchase of a particular Truck Contract, MMCA reviews credit
applications from the obligors that include information about the business of
the applicant, its trade references, its bank references, and personal
information of sole proprietors, partners, or guarantors. MMCA does not use a
formal credit scoring system but considers, where appropriate, Dun & Bradstreet
reports, business checking account references, business credit references,
review of business financial statements and the projected income to be generated
from the Truck. An individual guarantor is generally required for a business
entity.
SERVICING AND COLLECTION
MMCA measures delinquency by the number of days elapsed from the date a
payment is due under the Motor Vehicle Contract or the Truck Contract (the "Due
Date"). MMCA considers a payment to be past due or delinquent when the obligor
fails to make at least 90% of a scheduled payment by the related Due Date. MMCA
generally begins collection activities with respect to delinquent Motor Vehicle
Contracts or Truck Contracts through telephone contact based upon the original
credit risk assigned to each obligor at contract origination. obligors
considered to be weaker credits are generally contacted by telephone when the
Receivable becomes 7 days delinquent, while obligors considered strong credits
with lesser risk are generally contacted when the Receivable becomes 15 days
delinquent. Computer generated delinquency notices are mailed to all delinquent
obligors on the 12th day of delinquency. MMCA also uses an automated system of
monitoring delinquency, which categorizes delinquent accounts into different
priorities of collection activity, based on the level of delinquency of each
account.
MMCA's collectors are assigned to specific delinquencies and attempt to
contact the delinquent obligor by telephone or by letter based on the term of
delinquency and the history of the account. Repossession procedures typically
begin when a Motor Vehicle Contract or Truck Contract becomes between 60 to 75
days delinquent. Repossession is carried out pursuant to applicable state law
and specific procedures adopted by MMCA.
If the Motor Vehicle or Truck securing a delinquent Contract is
repossessed, MMCA's current policy is generally to charge off the Motor Vehicle
Contract or Truck Contract on the date on which the proceeds of sale of the
Motor Vehicle or Truck are applied to the Contract balance and the deficiency is
determined. Prior to February, 1997, MMCA's policy was generally to charge off a
Contract on the earlier of the date on which the proceeds of sale of the
repossessed Financed Vehicle were applied to the Contract balance and the date
on which the Motor Vehicle Contract became 120 days delinquent or the Truck
Contract became 180 days delinquent if MMCA had not yet repossessed the related
Motor Vehicle or Truck. MMCA's current policy, which was first implemented in
February 1997, is to charge off a delinquent Contract as to which the related
Financed Vehicle has not been repossessed only at such time as it determines
that it will be unable to recover the Financed Vehicle (which time may be later
than the time at which the Contract would have been charged off under MMCA's
prior policy). Any deficiencies remaining after repossession and sale of the
related Motor Vehicle or Truck or after the full charge-off of the related Motor
Vehicle Contract or Truck Contract are pursued by MMCA to the extent practicable
and legally permitted. obligors are contacted, and when warranted by individual
circumstances, repayment schedules are established and monitored until the
deficiencies are either paid in full or become impractical to pursue.
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PHYSICAL DAMAGE INSURANCE
Each Contract generally requires the obligor to obtain physical damage
insurance covering loss or damage to the Motor Vehicle or Truck. The Dealer
Agreements include a requirement that the Dealers provide MMCA with written
confirmation that there is physical damage insurance acceptable to MMCA covering
each Motor Vehicle or Truck at the time that MMCA purchased the Motor Vehicle
Contracts or Truck Contracts from the Dealers. MMCA tracks the ongoing status of
insurance by the obligors, and attempts to cause the obligors to reinstate such
insurance in the event that is allowed to lapse; nevertheless, there is no
assurance that each Motor Vehicle or Truck will continue to be covered by
physical damage insurance for the entire term during which the related Contract
is outstanding.
DELINQUENCY AND LOSS EXPERIENCE
Set forth below is certain information concerning MMCA's combined portfolio
of Motor Vehicle Contracts and Truck Contracts, including Contracts previously
sold which MMCA continues to service. MMCA changed its credit scoring system for
Motor Vehicle Contracts (other than contracts relating to Final Payment
Receivables) in June 1994, and in November 1996, MMCA again changed its credit
scoring system and made the changes applicable to all types of Motor Vehicle
Contracts. See "MMCA's Vehicle Contract Portfolio--Underwriting." The
Receivables included in the Trust were originated more recently than, on
average, the receivables related to Motor Vehicles and Trucks in the tables set
forth below.
MMCA began originating Final Payment Receivables in October 1993. Because
Final Payment Receivables have been originated in large volume over only a short
period of time, the experience shown in the tables below may not be comparable
to the performance of such Final Payment Receivables to maturity.
Because (i) the composition of Receivables included in the Trust differs
from MMCA's combined portfolio, (ii) MMCA changed its underwriting criteria with
respect to non-Final Payment Receivables in 1994 and (iii) MMCA changed its
underwriting criteria again in November 1996 with respect to all types of
Receivables, no assurance can be given that the performance of the Receivables
included in the Trust will be similar to the historical performance of the
portfolio as a whole. Further, for the same reasons set forth above, the losses
and delinquencies experienced by the Trust may differ from the losses and
delinquencies experienced by the combined portfolio in the past or in the
future.
DELINQUENCY EXPERIENCE(1)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED
JUNE 30, DECEMBER 31,
------------------ ------------------------------
1997 1996 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Number of Contracts Outstanding at End of Period
Delinquencies as a Percent of Contracts
Outstanding(2)
30-59 Days...................................... % % % % %
60-89 Days %................................ % % % % %
90 Days or More................................. % % % % %
Repossessions as a Percent of Contracts Outstanding
(3)............................................... % % % % %
</TABLE>
- ---------------
(1) The information in the table includes Motor Vehicle Contracts for new and
used Motor Vehicles and Truck Contracts for new and used Trucks owned by
MMCA or previously sold by MMCA which MMCA continues to service. Delinquency
numbers are net of bankrupt accounts and repossessions.
(2) The period of delinquency is based on the number of days payments are
contractually past due.
(3) Repossessions means Contracts with respect to which the Financed Vehicle has
been repossessed but for which sale proceeds have not yet been applied to
the Contract balance.
17
<PAGE> 19
NET CREDIT LOSS AND REPOSSESSION EXPERIENCE(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
------------------ ------------------------------
1997 1996 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Amount Outstanding(2)............................... $ $ $ $ $
Average Amount Outstanding.......................... $ $ $ $ $
Number of Contracts Outstanding
Average Number of Contracts Outstanding
Charge-offs(3).................................... $ $ $ $ $
Recoveries(4)....................................... $ $ $ $ $
Net Losses.......................................... $ $ $ $ $
Number of Repossessions(5)
Number of Repossessions as a Percent of the Average
Number of Contracts Outstanding................... %(6) %(6) % %
Net Losses as a Percent of Average Amount
Outstanding....................................... %(6) %(6) % %
</TABLE>
- ---------------
(1) The information in the table includes Motor Vehicle Contracts and Truck
Contracts for new and used Motor Vehicles and Trucks owned by MMCA or
previously sold by MMCA which MMCA continues to service.
(2) Amount outstanding is remaining principal balance of the Contracts,
including Last Scheduled Payments to the extent attributable to principal on
Final Payment Receivables, plus any outstanding fees and charges and any
accrued unpaid interest. Averages are computed by taking a simple average of
the average months outstanding for each period presented.
(3) Charge-offs represent the total aggregate amount due on Motor Vehicle
Contracts and Truck Contracts determined to be uncollectible in the period,
less proceeds from disposition of related vehicles, other than recoveries
described in Note (4). Charge-offs do not include any losses on sales of
Motor Vehicles that were purchased by MMCA pursuant to the terms of a Final
Payment Receivable, because such losses would not constitute credit losses,
but Charge-offs do include losses with respect to both the amortizing
monthly installments and Last Scheduled Payment for Final Payment
Receivables which have defaulted]. Charge-offs do not include expenses
associated with collection, but do include expenses associated with
repossession or disposition of the vehicles. MMCA currently charges off a
Contract upon the earlier of (i) the date upon which the related Financed
Vehicle is sold following repossession or (ii) the date as of which MMCA
determines that it will be unable to recover the Financed Vehicle from the
obligor. Prior to February, 1997, MMCA had a policy of charging off Motor
Vehicle Contracts and Truck Contracts upon the earlier of the date of sale
of the repossessed Financed Vehicle and the dates as of which the Motor
Vehicle Contract or Truck Contract became 120 days and 180 days delinquent,
respectively.
(4) Recoveries generally include amounts received on Contracts following the
time at which the Contract is charged off.
(5) Number of Repossessions means the number of repossessed Motor Vehicles and
Trucks in a given period.
(6) Annualized Rate. The six-month period ending June 30, 1997 is not
necessarily indicative of a full year's actual results.
MMCA's retail loss experience is dependent upon the number of
repossessions, the amount outstanding at the time of repossession, and the
resale value of repossessed vehicles. Losses and delinquencies are affected by,
among other things, general and regional economic conditions and the supply of
and demand for automobiles and light- or medium-duty trucks.
THE RECEIVABLES
SELECTION CRITERIA
The Receivables were purchased by MMCA from Dealers in the ordinary course
of business in accordance with MMCA's underwriting standards. The Receivables
were selected from MMCA's portfolio by several criteria, including the
following: (i) each Receivable is secured by a new or used automobile or a
light- or medium-duty truck, (ii) each Receivable has an annual percentage rate
("APR") of at least 0% and not more than 30%; (iii) each Receivable had a
remaining maturity, as of the Cutoff Date, of not more than 60 months, and an
original maturity of not more than 60 months; (iv) each Receivable had an
original balance (net of unearned precomputed finance charges) of not more than
$60,000 and a remaining balance of not less than $100 as of the Cutoff Date; (v)
no Receivable was more than 30 days delinquent as of the Cutoff Date; (vi) no
Financed Vehicle had been repossessed as of the Cutoff Date; (vii) each
Receivable is an installment sales contract; (viii) each Receivable is an
Actuarial Receivable or a Simple Interest Receivable (and may also be a Final
Payment Receivable); (ix) each Receivable was originated on or after
, 199 ; (x) as of the Cutoff Date, MMCA has not received notice
that the obligor under any Receivable is the subject of a proceeding under the
18
<PAGE> 20
Bankruptcy Code of the United States; and (xi) each Receivable was originated in
the United States by a Dealer for the consumer or commercial sale of a Financed
Vehicle in the ordinary course of such Dealer's business.
CERTAIN CHARACTERISTICS
The composition of the Receivables as of the Cutoff Date and the
geographical distribution and distribution by APR of the Level Pay Pool Balance
as of the Cutoff Date are set forth in the following tables. "Level Pay Pool
Balance" means the Initial Pool Balance exclusive of the principal of Last
Scheduled Payments. See "Description of the Notes -- Final Payment Receivables."
COMPOSITION OF THE RECEIVABLES
<TABLE>
<S> <C> <C> <C> <C> <C>
Level Pay Pool Balance.................................... $
Aggregate Principal Portion of Last Scheduled Payments.... $
Number of Receivables
Average Principal Balance................................. $
(Range)................................................. $ to $
Average Original Amount Financed.......................... $
(Range)................................................. $ to $
Weighted Average APR...................................... %
(Range)................................................. % to %
Weighted Average Original Term to Maturity................ months
(Range)................................................. months
Weighted Average Remaining Term to Maturity............... months
(Range)................................................. to months
</TABLE>
19
<PAGE> 21
GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF LEVEL OF LEVEL
PAY POOL PAY POOL
STATE(1) BALANCE(2) STATE(1) BALANCE(2)
- ------------------------------------ ----------- ------------------------------------ -----------
<S> <C> <C> <C>
Alaska.............................. % Nebraska............................ %
Arizona............................. Nevada..............................
Arkansas............................ New Hampshire.......................
California.......................... New Jersey..........................
Colorado............................ New Mexico..........................
Connecticut......................... New York............................
Delaware............................ North Carolina......................
Florida............................. North Dakota........................
Georgia............................. Ohio................................
Idaho............................... Oklahoma............................
Illinois............................ Oregon..............................
Indiana............................. Pennsylvania........................
Iowa................................ Rhode Island........................
Kansas.............................. South Carolina......................
Kentucky............................ South Dakota........................
Louisiana........................... Tennessee...........................
Maine............................... Texas...............................
Maryland............................ Utah................................
Massachusetts....................... Vermont.............................
Michigan............................ Virginia............................
Minnesota........................... Washington..........................
Mississippi......................... West Virginia.......................
Missouri............................ Wisconsin...........................
Montana............................. Wyoming.............................
-------
TOTAL............................... 100.00%
=======
</TABLE>
- ---------------
(1) State of origination is based on the addresses of the originating Dealers.
(2) Percentages may not add to 100.00% due to rounding.
DISTRIBUTION BY APR
<TABLE>
<CAPTION>
PERCENTAGE
LEVEL PAY OF LEVEL
NUMBER OF POOL PAY POOL
APR RANGE (%) RECEIVABLES BALANCE(1) BALANCE(2)
----------------------------------------------------- --------- --------- ----------
<S> <C> <C> <C>
0.00 to 0.99......................................... $ %
1.00 to 1.99.........................................
2.00 to 2.99.........................................
3.00 to 3.99.........................................
4.00 to 4.99.........................................
5.00 to 5.99.........................................
6.00 to 6.99.........................................
7.00 to 7.99.........................................
8.00 to 8.99.........................................
9.00 to 9.99.........................................
10.00 to 10.99.......................................
11.00 to 11.99.......................................
12.00 to 12.99.......................................
13.00 to 13.99.......................................
</TABLE>
20
<PAGE> 22
<TABLE>
<CAPTION>
PERCENTAGE
LEVEL PAY OF LEVEL
NUMBER OF POOL PAY POOL
APR RANGE (%) RECEIVABLES BALANCE(1) BALANCE(2)
----------------------------------------------------- --------- --------- ----------
<S> <C> <C> <C>
14.00 to 14.99.......................................
15.00 to 15.99.......................................
16.00 to 16.99.......................................
17.00 to 17.99.......................................
18.00 to 18.99.......................................
19.00 to 19.99.......................................
20.00 to 20.99.......................................
21.00 to 21.99.......................................
22.00 to 22.99.......................................
23.00 to 23.99.......................................
24.00 to 24.99.......................................
25.00 to 25.99.......................................
TOTAL...................................... $ 100.00%
</TABLE>
- ---------------
(1) Remaining principal balance for Simple Interest Receivables and computed as
the present value of scheduled remaining payments for Actuarial Receivables.
(2) Percentages may not add to 100.00% due to rounding.
Approximately % of the total number of Receivables included in the Trust,
and approximately % of the Level Pay Pool Balance, relate to new automobiles
and light- or medium-duty trucks. Substantially all of such new automobiles and
light- or medium-duty trucks were manufactured or distributed by Mitsubishi
Motors. Approximately % of the total number of Receivables included in the
Trust, and approximately % of the Level Pay Pool Balance, relate to used
automobiles and light- or medium-duty trucks. Of the used vehicles,
approximately % of the total number of Receivables included in the Trust, and
approximately % of the Level Pay Pool Balance, relate to program automobiles
and light-duty trucks. Program automobiles are vehicles in the current and
immediately preceding model years which dealers have acquired under a
remarketing program administered by MMSA. This program allows dealers to offer
to purchasers of program automobiles the same rate of interest and terms offered
to new car buyers. Program vehicles are primarily automobiles returned to MMSA
by rental car companies, but also include off-lease MMSA and MMCA company and
employee lease vehicles and MMSA pool cars. Approximately % of the total
number of Receivables included in the Trust, and approximately % of the Level
Pay Pool Balance, relate to medium-duty trucks, the primary purchasers of which
are businesses.
PAYMENTS ON THE RECEIVABLES
Approximately % of the Level Pay Pool Balance was attributable to
Receivables that provide for the allocation of payments according to the
"actuarial" method ("Actuarial Receivables"). An Actuarial Receivable provides
for amortization of the loan over a series of fixed level monthly installments.
Each monthly installment is deemed to consist of an amount of interest equal to
one twelfth of the stated APR of the loan multiplied by the scheduled principal
balance. The remainder of the scheduled payment is applied to principal.
Generally, no adjustment is made in the event of early or late payments,
although in the latter case the obligor may be subject to a late payment charge.
Approximately % of the Level Pay Pool Balance was attributable to
Actuarial Receivables that provide that if the Receivable is prepaid in full,
the amount payable will be determined in accordance with a contractual
calculation that is based upon the "Rule of 78's." In the event of the
prepayment in full of such Actuarial Receivables, the excess of the amount that
would be due if the Receivable generally provided for allocation of payments
between principal and interest using the Rule of 78's over the amount that would
be payable upon such prepayment using the actuarial method (the "Rule of 78's
Payment") will not be used to make payments due to Noteholders but will be paid
to the Servicer.
21
<PAGE> 23
Approximately % of the Level Pay Pool Balance was attributable to
Receivables that provide for the allocation of payments according to the "simple
interest" method ("Simple Interest Receivables"). In November 1996, MMCA began
phasing out Motor Vehicle Contracts and Truck Contracts that provide for the
allocation of payments according to the "actuarial" method in favor of those
Contracts that provide for allocation of payments according to the "simple
interest" method. Since June 1997 MMCA has purchased only Motor Vehicle
Contracts and Truck Contracts which provide for allocation of payments according
to the "simple interest" method. A Simple Interest Receivable also provides for
the amortization of the amount financed under the Receivable over a series of
fixed level monthly payments. However, unlike the monthly payment under an
Actuarial Receivable, each monthly payment consists of an installment of
interest which is calculated on the basis of the outstanding principal balance
of the Receivable multiplied by the stated APR and further multiplied by the
period elapsed (as a fraction of a calendar year) since the preceding payment of
interest was made. As payments are received under a Simple Interest Receivable,
the amount received is applied first to interest accrued to the date of payment
and the balance is applied to reduce the unpaid principal balance. Accordingly,
if an obligor pays a fixed monthly installment before its scheduled due date,
the portion of the payment allocable to interest for the period since the
preceding payment was made will be less than it would have been had the payment
been made as scheduled, and the portion of the payment applied to reduce the
unpaid principal balance will be correspondingly greater. Conversely, if an
obligor pays a fixed monthly installment after its scheduled due date, the
portion of the payment allocable to interest for the period since the preceding
payment was made will be greater than it would have been had the payment been
made as scheduled, and the portion of the payment applied to reduce the unpaid
principal balance will be correspondingly less. In either case, the obligor pays
a fixed monthly installment until the final scheduled payment date, at which
time the amount of the final installment is increased or decreased as necessary
to repay the then outstanding principal balance. In the case of a Final Payment
Receivable that is a Simple Interest Receivable, this allocation of payments may
result in the remaining principal balance of the Final Payment Receivable on the
due date for the Last Scheduled Payment being greater or less than the Last
Scheduled Payment.
Approximately % of the Level Pay Pool Balance was attributable to Simple
Interest Receivables that are subject to a cap on the aggregate amount of
interest to be paid during the term of such Receivables ("Capped Receivables").
With respect to Capped Receivables, if the obligor consistently makes scheduled
payments after the scheduled Due Date, the amount of interest accrued over the
term of the loan will be less than would be the case in the absence of the cap
on the aggregate amount of interest payable over the term of a Capped
Receivable. If, as a result of such delinquencies, the aggregate amount of
interest paid under the Receivable reaches the lifetime cap, no further interest
will accrue and each scheduled payment due thereafter will be applied to the
reduction of principal.
Approximately % of the Initial Pool Balance was attributable to Final
Payment Receivables that provide for amortization of a portion of the amount
financed over a series of fixed level monthly installments in accordance with
the actuarial method or the simple interest method, but also provide for a
substantially larger final scheduled payment of principal together with one
month's interest after payment of such monthly installments. Upon termination of
a Final Payment Receivable, an obligor thereunder may satisfy the amount then
owed by the obligor by (1) paying the remaining principal amount of the
Receivable, all accrued and unpaid interest, plus any fees, charges, and other
amounts then owing, on the Due Date of the Last Scheduled Payment; (2)
refinancing the net amount then due, which may be greater or less than the Last
Scheduled Payment, subject to certain conditions; or (3) selling the related
Motor Vehicle to MMCA or its assignee for an amount equal to the Last Scheduled
Payment (reduced by certain charges) and paying any excess of the total amount
owed over the Last Scheduled Payment to MMCA. See "Description of the
Notes -- Final Payment Receivables."
The Receivables are prepayable by the obligors at any time. Prepayments may
also result from liquidations due to default, the receipt of proceeds from
physical damage or other insurance, repurchases by the Seller as a result of
certain uncured breaches of the warranties made by it in the Sale and Servicing
Agreement with respect to the Receivables, purchases by the Servicer as a result
of certain uncured breaches of the covenants made by it in the Sale and
Servicing Agreement with respect to the Receivables, or the Servicer exercising
its option to purchase all of the remaining Receivables. The rate of prepayments
on the Receivables may be influenced by a variety of economic, social, and other
factors. See "Maturity and Prepayment Considerations."
22
<PAGE> 24
MATURITY AND PREPAYMENT CONSIDERATIONS
Prepayments in full on Actuarial Receivables and full or partial
prepayments on Simple Interest Receivables will have the effect of reducing the
weighted average life of the Notes, while delinquencies by obligors under the
Simple Interest Receivables, as well as extensions and deferrals on the
Receivables, will have the effect of increasing the weighted average life of the
Notes. The Receivables may be prepaid by the obligors at any time and mandatory
prepayments of a Receivable may result from, among other things, the sale,
insured loss or other disposition of the Financed Vehicle or the Receivable
becoming a Defaulted Receivable. No assurance can be given as to the rate of
prepayments or as to whether there will be a substantial amount of prepayments,
nor can any assurance be given as to the level or timing of prepayments, since
prepayments are affected by numerous social, economic and other factors.
Noteholders will bear all reinvestment risk resulting from the rate of
prepayment of the Receivables.
The Receivables have different APRs, and the rates of prepayments of
Receivables with higher and lower APRs may differ. Higher rates of prepayments
of Receivables with higher APRs will decrease the amount available to cover
delinquencies and defaults on the Receivables and may decrease the amount
available to the Reserve Account. See "Description of the Notes -- The Indenture
Cash Flows" and "-- Reserve Account." The Yield Supplement Agreement will
mitigate this effect in the case of Receivables having APRs less than the sum of
the Servicing Rate and the Weighted Average Rate (in the case of Final Payment
Receivables, on the Level Pay Balance only).
Prepayments on receivables relating to Motor Vehicle Contracts and Truck
Contracts can be measured relative to a prepayment standard or model. The model
used in this Prospectus, the Absolute Prepayment Model ("ABS"), represents an
assumed rate of prepayment each month relative to the original number of
receivables in a pool of receivables. ABS further assumes that all the
receivables are the same size and amortize at the same rate and that each
receivable in each month of its life will either be paid as scheduled or be
prepaid in full. For example, in a pool of receivables originally containing
10,000 receivables, a 1% ABS rate means that 100 receivables prepay each month.
ABS does not purport to be an historical description of prepayment experience or
a prediction of the anticipated rate of prepayment of any pool of receivables,
including the Receivables.
As the rate of payment of principal of the Notes will depend on the rate of
payment (including prepayments) of the principal balance of the Receivables,
final payment of the Notes could occur significantly earlier than the Final
Scheduled Payment Date. Reinvestment risk associated with early payment of the
Notes will be borne exclusively by the Noteholders.
The tables captioned "Projected Note Amortization and Projected Collections
at 0.0% ABS", "Projected Note Amortization and Projected Collections at 1.0%
ABS", "Projected Note Amortization and Projected Collections at 1.5% ABS", and
"Projected Note Amortization and Projected Collections at 1.8% ABS" (the "ABS
Tables") have been prepared on the basis of the characteristics of the
Receivables. The ABS Tables assume that (i) the Receivables prepay in full at
the specified constant percentage of ABS monthly, with no defaults, losses or
repurchases, (ii) each scheduled monthly payment on the Receivables is made on
the last day of each month, and each month has 30 days, (iii) payments on the
Notes are made on each Payment Date (and each such date is assumed to be the
15th day of each applicable month), and (iv) the Servicer does exercise its
option to purchase the Receivables. The pool has an assumed cutoff date of the
close of business on , 1997. The ABS Tables indicate the
percent of the initial principal balance of the Notes that is projected to be
outstanding after each of the Payment Dates shown at various constant ABS
percentages, as well as collections of principal and interest on the
Receivables.
The ABS Tables also assume that the Receivables have been aggregated into 3
hypothetical level payment pools with all of the Receivables within each such
pool having the following characteristics and that the level scheduled monthly
payment for each of the 3 pools (which is based on its aggregate principal
balance, APR, original term to maturity and remaining term to maturity as of the
Cutoff Date) will be such that each pool will be fully amortized by the end of
its remaining term to maturity.
23
<PAGE> 25
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
ORIGINAL TERM REMAINING
AGGREGATE WEIGHTED TERM TERM
PRINCIPAL AVERAGE TO MATURITY TO MATURITY
LEVEL PAYMENT POOL BALANCE APR (IN MONTHS) (IN MONTHS)
- ---------------------------------------------- --------- --------- -------------- -----------
<S> <C> <C> <C> <C>
1............................................. $ %
2.............................................
3.............................................
</TABLE>
The ABS Tables also assume that the principal amount of the Last Scheduled
Payments have been aggregated into 5 hypothetical last scheduled payment pools
with all of the Final Payment Receivables within each pool having the following
characteristics and that the principal amount is due at the maturity of the
pool.
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
ORIGINAL TERM REMAINING
AGGREGATE WEIGHTED TERM TERM
PRINCIPAL AVERAGE TO MATURITY TO MATURITY
LAST SCHEDULED PAYMENT POOL BALANCE APR (IN MONTHS) (IN MONTHS)
- ---------------------------------------------- --------- --------- -------------- -----------
<S> <C> <C> <C> <C>
1............................................. $ %
2.............................................
3.............................................
4.............................................
5.............................................
</TABLE>
The actual characteristics and performance of the Receivables will differ
from the assumptions used in constructing the ABS Tables. The assumptions used
are hypothetical and have been provided only to give a general sense of how the
principal cash flow might behave under varying prepayment scenarios. For
example, it is very unlikely that the Receivables will prepay at the same level
of ABS. Moreover, the diverse terms of Receivables within each of the 3
hypothetical level payment pools and the 5 hypothetical last scheduled payment
pools could produce slower or faster principal distributions than indicated in
the ABS Tables at the various constant percentages of ABS specified, even if the
original and remaining terms to maturity of the Receivables are as assumed. Any
difference between such assumptions and the actual characteristics and
performance of the Receivables, or actual prepayment experience, will affect the
percentages of initial balances outstanding over time, as well as collections of
interest and principal on Receivables. Numbers in the tables below are shown in
thousands.
24
<PAGE> 26
PROJECTED NOTE AMORTIZATION AND PROJECTED
COLLECTIONS ON THE RECEIVABLES AT 0.0% ABS
<TABLE>
<CAPTION>
PROJECTED LAST SCHEDULED
NOTE PRINCIPAL PROJECTED LEVEL PAYMENT PAYMENT
BALANCE INTEREST PRINCIPAL PRINCIPAL
PAYMENT DATE OUTSTANDING COLLECTIONS COLLECTIONS COLLECTIONS
- ----------------------------------------- -------------- ---------- ------------- --------------
<S> <C> <C> <C> <C>
10/15/97................................. $ $ $ $
11/15/97.................................
12/15/97.................................
01/15/98.................................
02/15/98.................................
03/15/98.................................
04/15/98.................................
05/15/98.................................
06/15/98.................................
07/15/98.................................
08/15/98.................................
09/15/98.................................
10/15/98.................................
11/15/98.................................
12/15/98.................................
01/15/99.................................
02/15/99.................................
03/15/99.................................
04/15/99.................................
05/15/99.................................
06/15/99.................................
07/15/99.................................
08/15/99.................................
09/15/99.................................
10/15/99.................................
11/15/99.................................
12/15/99.................................
01/15/00.................................
02/15/00.................................
03/15/00.................................
04/15/00.................................
05/15/00.................................
06/15/00.................................
07/15/00.................................
08/15/00.................................
09/15/00.................................
10/15/00.................................
11/15/00.................................
12/15/00.................................
</TABLE>
25
<PAGE> 27
PROJECTED NOTE AMORTIZATION AND PROJECTED
COLLECTIONS ON THE RECEIVABLES AT 1.0% ABS
<TABLE>
<CAPTION>
PROJECTED LAST SCHEDULED
NOTE PRINCIPAL PROJECTED LEVEL PAYMENT PAYMENT
BALANCE INTEREST PRINCIPAL PRINCIPAL
PAYMENT DATE OUTSTANDING COLLECTIONS COLLECTIONS COLLECTIONS
- ----------------------------------------- -------------- ---------- ------------- --------------
<S> <C> <C> <C> <C>
09/15/97................................. $ $ $ $
10/15/97.................................
11/15/97.................................
12/15/97.................................
01/15/98.................................
02/15/98.................................
03/15/98.................................
04/15/98.................................
05/15/98.................................
06/15/98.................................
07/15/98.................................
08/15/98.................................
09/15/98.................................
10/15/98.................................
11/15/98.................................
12/15/98.................................
01/15/99.................................
02/15/99.................................
03/15/99.................................
04/15/99.................................
05/15/99.................................
06/15/99.................................
07/15/99.................................
08/15/99.................................
09/15/99.................................
10/15/99.................................
11/15/99.................................
12/15/99.................................
01/15/00.................................
02/15/00.................................
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04/15/00.................................
05/15/00.................................
06/15/00.................................
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01/15/01.................................
02/15/01.................................
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09/15/01.................................
10/15/01.................................
11/15/01.................................
12/15/01.................................
</TABLE>
26
<PAGE> 28
PROJECTED NOTE AMORTIZATION AND PROJECTED
COLLECTIONS ON THE RECEIVABLES AT 1.5% ABS
<TABLE>
<CAPTION>
PROJECTED LAST SCHEDULED
NOTE PRINCIPAL PROJECTED LEVEL PAYMENT PAYMENT
BALANCE INTEREST PRINCIPAL PRINCIPAL
PAYMENT DATE OUTSTANDING COLLECTIONS COLLECTIONS COLLECTIONS
- ----------------------------------------- -------------- ---------- ------------- --------------
<S> <C> <C> <C> <C>
09/15/97................................. $ $ $ $
10/15/97.................................
11/15/97.................................
12/15/97.................................
01/15/98.................................
02/15/98.................................
03/15/98.................................
04/15/98.................................
05/15/98.................................
06/15/98.................................
07/15/98.................................
08/15/98.................................
09/15/98.................................
10/15/98.................................
11/15/98.................................
12/15/98.................................
01/15/99.................................
02/15/99.................................
03/15/99.................................
04/15/99.................................
05/15/99.................................
06/15/99.................................
07/15/99.................................
08/15/99.................................
09/15/99.................................
10/15/99.................................
11/15/99.................................
12/15/99.................................
01/15/00.................................
02/15/00.................................
03/15/00.................................
04/15/00.................................
05/15/00.................................
06/15/00.................................
07/15/00.................................
08/15/00.................................
09/15/00.................................
10/15/00.................................
11/15/00.................................
12/15/00.................................
01/15/01.................................
02/15/01.................................
03/15/01.................................
04/15/01.................................
05/15/01.................................
06/15/01.................................
07/15/01.................................
08/15/01.................................
09/15/01.................................
10/15/01.................................
11/15/01.................................
12/15/01.................................
</TABLE>
27
<PAGE> 29
PROJECTED NOTE AMORTIZATION AND PROJECTED
COLLECTIONS ON THE RECEIVABLES AT 1.8% ABS
<TABLE>
<CAPTION>
PROJECTED LAST SCHEDULED
NOTE PRINCIPAL PROJECTED LEVEL PAYMENT PAYMENT
BALANCE INTEREST PRINCIPAL PRINCIPAL
PAYMENT DATE OUTSTANDING COLLECTIONS COLLECTIONS COLLECTIONS
- ----------------------------------------- -------------- ---------- ------------- --------------
<S> <C> <C> <C> <C>
08/15/97................................. $ $ $ $
09/15/97.................................
10/15/97.................................
11/15/97.................................
12/15/97.................................
01/15/98.................................
02/15/98.................................
03/15/98.................................
04/15/98.................................
05/15/98.................................
06/15/98.................................
07/15/98.................................
08/15/98.................................
09/15/98.................................
10/15/98.................................
11/15/98.................................
12/15/98.................................
01/15/99.................................
02/15/99.................................
03/15/99.................................
04/15/99.................................
05/15/99.................................
06/15/99.................................
07/15/99.................................
08/15/99.................................
09/15/99.................................
10/15/99.................................
11/15/99.................................
12/15/99.................................
01/15/00.................................
02/15/00.................................
03/15/00.................................
04/15/00.................................
05/15/00.................................
06/15/00.................................
07/15/00.................................
08/15/00.................................
09/15/00.................................
10/15/00.................................
11/15/00.................................
12/15/00.................................
01/15/01.................................
02/15/01.................................
03/15/01.................................
04/15/01.................................
05/15/01.................................
06/15/01.................................
07/15/01.................................
08/15/01.................................
09/15/01.................................
10/15/01.................................
11/15/01.................................
12/15/01.................................
</TABLE>
THE ABS TABLES HAVE BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED ABOVE
(INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND PERFORMANCE OF THE
RECEIVABLES WHICH WILL DIFFER FROM THE ACTUAL CHARACTERISTICS AND PERFORMANCE
THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
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<PAGE> 30
POOL FACTORS AND OTHER INFORMATION
The "Note Pool Factor" will be a seven-digit decimal which the Servicer
will compute each month indicating the remaining outstanding principal amount of
the Notes as of the close of business on the Payment Date in that month, as a
fraction of the initial outstanding principal amount of the Notes. The Note Pool
Factor will be 1.0000000 as of the Closing Date, and thereafter will decline to
reflect reductions in the outstanding principal amount of the Notes. A
Noteholder's portion of the aggregate outstanding principal amount of the Notes
is the product of (i) the original denomination of the Noteholder's Note and
(ii) the Note Pool Factor.
Pursuant to the Indenture, the Noteholders will receive monthly reports
concerning the payments received on the Receivables, the Pool Balance, the Note
Pool Factor and various other items of information. 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
Notes -- Statements to Noteholders."
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of the Notes
will be applied to the purchase of the Receivables from MMCA.
THE SELLER
The Seller, a wholly-owned subsidiary of MMCA, was incorporated in the
State of Delaware on July 8, 1993. The Seller was organized for limited
purposes, which include purchasing receivables from MMCA and transferring such
receivables to third parties and any activities incidental to and necessary or
convenient for the accomplishment of such purposes. The principal executive
offices of the Seller are located at 6363 Katella Avenue, Cypress, California
90630-5205. The telephone number of such offices is (714) 236-1592.
The Seller has taken steps in structuring the transactions contemplated
hereby that are intended to ensure that the voluntary or involuntary application
for relief by MMCA under any Insolvency Law will not result in consolidation of
the assets and liabilities of the Seller with those of MMCA. These steps include
the creation of the Seller as a separate, limited-purpose subsidiary pursuant to
a certificate of incorporation containing certain limitations (including
restrictions on the nature of the Seller's business and a restriction on the
Seller's ability to commence a voluntary case or proceeding under any Insolvency
Law without the unanimous affirmative vote of all of its directors). However,
there can be no assurance that the activities of the Seller would not result in
a court concluding that the assets and liabilities of the Seller should be
consolidated with those of MMCA in a proceeding under any Insolvency Law.
The Seller has received the advice of counsel to the effect that, subject
to certain facts, assumptions and qualifications, it would not be a proper
exercise by a court of its equitable discretion to disregard the separate
corporate existence of the Seller and to require the consolidation of the assets
and liabilities of the Seller with the assets and liabilities of MMCA in the
event of the application of the Federal bankruptcy laws to MMCA. Among other
things, it is assumed by counsel that the Seller will follow certain procedures
in the conduct of its affairs, including maintaining records and books of
account separate from those of MMCA, refraining from commingling its assets with
those of MMCA and refraining from holding itself out as having agreed to pay, or
being liable for, the debts of MMCA. The Seller intends to follow and has
represented to such counsel that it will follow these and other procedures
related to maintaining its separate corporate identity. However, in the event
that the Seller did not follow these procedures, there can be no assurance that
a court would not conclude that the assets and liabilities of the Seller should
be consolidated with those of MMCA. If a court were to reach such a conclusion,
or a filing were made under any Insolvency Law by or against the Seller, or if
an attempt were made to litigate any of the foregoing issues, delays in payments
on the Notes could occur or reductions in the amounts of such payments could
result.
It is intended by MMCA and the Seller that the transfer of the Receivables
by MMCA to the Seller under the Purchase Agreement constitute a "true sale" of
the Receivables to the Seller. If the transfer constitutes such a "true sale,"
the Receivables and the proceeds thereof would not be part of MMCA's bankruptcy
estate under
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<PAGE> 31
Section 541 of the Bankruptcy Code should MMCA become the subject of a
bankruptcy case subsequent to the transfer of the Receivables to the Seller.
The Seller has received the advice of counsel to the effect that, subject
to certain facts, assumptions and qualifications, in the event MMCA were to
become the subject of a voluntary or involuntary case under the Bankruptcy Code
subsequent to the transfer of the Receivables to the Seller, the transfer of the
Receivables by MMCA to the Seller pursuant to the Purchase Agreement would be
characterized as a "true sale" of the Receivables from MMCA to the Seller and
the Receivables and the proceeds thereof would not form part of MMCA's
bankruptcy estate pursuant to Section 541 of the Bankruptcy Code.
In Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir. 1993),
cert. denied, 114 S.Ct. 554 (1993), the United States Court of Appeals for the
10th Circuit suggested that even where a transfer of accounts from a seller to a
buyer constitutes a "true sale," the accounts would nevertheless constitute
property of the seller's bankruptcy estate in a bankruptcy of the seller. If
MMCA or the Seller were to become subject to a bankruptcy proceeding and a court
were to follow the Octagon court's reasoning, Noteholders might experience
delays in payment or possibly losses on their investment in the Notes. As part
of the advice of counsel described above, counsel has advised the Seller that
the reasoning of the Octagon case appears to be inconsistent with other
precedent. In addition, the Permanent Editorial Board of the UCC has issued an
official commentary (PEB Commentary No. 14) which characterizes the Octagon
court's interpretation of Article 9 of the UCC as erroneous. Such commentary
states that nothing in Article 9 is intended to prevent the transfer of
ownership of accounts or chattel paper.
THE SERVICER
Mitsubishi Motors Credit of America, Inc. ("MMCA") primarily provides
retail and wholesale financing, retail leasing, and certain other financial
services to authorized Mitsubishi automobile and truck dealers and their
customers in the United States. MMCA was incorporated in the State of Delaware
in August 1990 and commenced operations in March 1991.
MMCA is a wholly-owned subsidiary of Mitsubishi Motor Sales of America,
Inc. ("MMSA"), which is engaged in the wholesale distribution of automobiles and
light trucks throughout the United States manufactured by Mitsubishi Motors
Corporation and its affiliates (collectively, "Mitsubishi Motors"). MMSA is a
subsidiary of Mitsubishi Motors Corporation, a Japanese corporation that is a
worldwide manufacturer and distributor of motor vehicles and trucks. Mitsubishi
Motors Corporation owns 97.2% of the stock of MMSA. Mitsubishi Corporation, a
Japanese corporation that is a worldwide general trading company, owns 2.0% of
the stock of MMSA. Mitsubishi International Corporation, a New York corporation
that is a worldwide trading company and a wholly-owned subsidiary of Mitsubishi
Corporation, owns 0.8% of the stock of MMSA.
The national headquarters of MMCA is located at 6363 Katella Avenue,
Cypress, CA 90630. Its telephone number is (714) 236-1500. MMCA has five
regional offices throughout the United States.
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the Indenture, a form of which has
been filed as an exhibit to the Registration Statement of which this Prospectus
forms a part. The following summary does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the Notes and the
Indenture.
The Notes will be offered for purchase in denominations of $1,000 and
integral multiples thereof and will be represented initially by physical notes
registered in the name of Cede as nominee of DTC. No Note Owner will be entitled
to receive a definitive note representing such person's beneficial ownership
interest in the Notes except in the event that Definitive Notes are issued under
the limited circumstances described herein. Unless and until Definitive Notes
are issued, all references to actions by Noteholders shall refer to actions
taken by DTC upon instructions from its Direct Participants (as defined herein)
and all references to payments, notices, reports, and
30
<PAGE> 32
statements to Noteholders shall refer to payments, notices, reports, and
statements to DTC or Cede, as the registered holder of the Notes, for payment or
distribution to Note Owners in accordance with DTC's procedures with respect
thereto. See "-- Book Entry Registration" and "-- Definitive Notes."
BOOK ENTRY REGISTRATION
Beneficial owners of Notes may hold their Notes through DTC (in the United
States) or Cedel or Euroclear (in Europe) if they are participants of such
systems, or indirectly through organizations that are participants in such
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 pursuant to Section 17A of the Exchange Act. DTC
was created to hold securities for its participating organizations ("Direct
Participants") and to facilitate the clearance and settlement of securities
transactions between Direct Participants through electronic book-entries,
thereby eliminating the need for physical movement of certificates. Direct
Participants include securities brokers and dealers, banks, trust companies, and
clearing corporations, and may include certain other organizations. Indirect
access to the DTC systems 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 ("Indirect
Participants").
To facilitate subsequent transfers, all Notes deposited by DTC Participants
with DTC are registered in the name of DTC's nominee, Cede. The deposit of Notes
with DTC and their registration in the name of Cede effects no change in
beneficial ownership. DTC has no knowledge of the actual Note Owners of the
Notes; DTC's records reflect only the identity of the DTC Participants to whose
accounts such Notes are credited, which may or may not be the Note Owners. The
DTC Participants will remain responsible for keeping account of their holdings
on behalf of their customers.
No Noteholder will be entitled to receive a certificate representing such
person's interest in a class of Notes. Unless and until Definitive Notes are
issued under the limited circumstances described below, all references herein to
actions by Noteholders shall refer to actions taken by DTC upon instructions
from DTC Participants, and all references herein to distributions, notices,
reports and statements to Noteholders shall refer to distributions, notices,
reports and statements to Cede, as the registered holder of the Notes, for
distribution to Noteholders in accordance with DTC procedures.
Note Owners will receive all payments of principal and interest on the
Notes through Direct Participants or Indirect Participants. DTC will forward
such payments to its Direct Participants which thereafter will forward them to
Indirect Participants or Note Owners. Under a book-entry format, Note Owners may
experience some delay in their receipt of payments, since such payments will be
forwarded to Cede as nominee of DTC. Note Owners will not be recognized by the
Indenture Trustee as Noteholders, as such term is used in the Indenture. Note
Owners will be permitted to exercise the rights as Noteholders 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 certain banks, trust companies, and
other persons approved by it, the ability of a Note Owner to pledge the Notes to
persons or entities that do not participate in the DTC system, or to otherwise
act with respect to such Notes, may be limited due to the absence of physical
notes for such Notes.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
Participants and Indirect Participants to Note Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time. Payments by DTC Participants to Note Owners
will be governed by standing instructions and customary practices, 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 such DTC
Participant and not of DTC, the Indenture Trustee, the Owner Trustee, the
Seller, or the Servicer, subject to any statutory or regulatory requirements as
may be in effect from time to time. Payment of principal and interest to DTC is
the responsibility of the Indenture Trustee, disbursement of such payments to
DTC Participants shall be the responsibility of DTC, and disbursement of such
payments to Note Owners shall be the responsibility of DTC Participants and
Indirect Participants.
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<PAGE> 33
Purchases of Notes under the DTC system must be made by or through DTC
Participants, which will receive a credit for the Notes on DTC's records. The
ownership interest of each actual Note Owner is in turn to be recorded on the
DTC Participants' and Indirect Participants' records. Note Owners will not
receive written confirmation from DTC of their purchase, but Note Owners are
expected to receive written confirmations providing details of the transaction,
as well as periodic statements of their holdings, from the DTC Participant or
Indirect Participant through which the Note Owner entered into the transaction.
Transfers of ownership interests in the Notes are to be accomplished by entries
made on the books of DTC Participants acting on behalf of Note Owners. Note
Owners will not receive physical notes representing their ownership interest in
Notes, except in the event that use of the book-entry system for the Notes is
discontinued.
Neither DTC nor Cede will comment or vote with respect to the Notes. DTC
has advised the Seller that it will take any action permitted to be taken by a
Noteholder under the Indenture only at the direction of one or more Direct
Participants to whose accounts with DTC the Notes are credited. Additionally,
DTC has advised the Seller that to the extent that the Indenture requires that
any action may be taken only by holders of Notes representing a specified
percentage of the aggregate outstanding principal amount thereof, DTC will take
such action only at the direction of and on behalf of Direct Participants whose
holdings include undivided interests that satisfy such specified percentage.
Under its usual procedures, DTC will mail an "Omnibus Proxy" to the Indenture
Trustee as soon as possible after any applicable record date with respect to a
consent or vote. The Omnibus Proxy will assign Cede's consenting or voting
rights to those Direct Participants to whose accounts the Notes or Certificates
will be credited on that record date (identified on a listing attached to the
Omnibus Proxy).
DTC may discontinue providing its services as securities depository with
respect to the Notes at any time by giving reasonable notice to the Indenture
Trustee. Under such circumstances, in the event that a successor securities
depository is not obtained, Definitive Notes are required to be printed and
delivered. The Seller may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
Definitive Notes will be delivered to Noteholders. See "--Definitive Notes."
Cedel and Euroclear will hold omnibus positions on behalf of the Cedel
Participants and the Euroclear Participants, respectively, through customers'
securities accounts in Cedel's and Euroclear's names on the books of their
respective depositaries (each, a "Depositary" and collectively, the
"Depositaries") which in turn will hold such positions in customers' securities
accounts in the Depositaries' names on the books of DTC.
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
the ordinary way in accordance with their applicable rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, 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 in accordance with normal procedures for
same-day funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities in Cedel or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the Business Day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant Cedel
Participant or Euroclear Participant on such Business Day. Cash received in
Cedel or Euroclear as a result of sales of securities by or through a Cedel
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
Cedel or Euroclear cash account only as of the Business Day following settlement
in DTC.
32
<PAGE> 34
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Seller believes to be reliable, but the
Seller takes no responsibility for the accuracy thereof.
Cedel Bank, societe anonyme ("Cedel") is incorporated under the laws of
Luxembourg as a professional depository. Cedel holds securities for its
participating organizations ("Cedel Participants") and facilitates the clearance
and settlement of securities transactions between Cedel Participants through
electronic book-entry changes in accounts of Cedel Participants, thereby
eliminating the need for physical movement of certificates. Transactions may be
settled in Cedel in any of 36 currencies, including United States dollars. Cedel
provides to its Cedel Participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Cedel interfaces with domestic
markets in several countries. As a professional depository, Cedel is subject to
regulation by the Luxembourg Monetary Institute. Cedel Participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations and may include the underwriters of the Notes.
Indirect access to Cedel is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Cedel Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ("Euroclear Participants") and to clear and
settle transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating the need for
physical movement of certificates and any risk from lack of simultaneous
transfers of securities and cash. Transactions may now be settled in any of 34
currencies, including United States dollars. The Euroclear System includes
various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. The Euroclear
System is operated by Morgan Guaranty Trust Company of New York, Brussels,
Belgium office (the "Euroclear Operator" or "Euroclear"), under contract with
Euroclear Clearance System, S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for the Euroclear System on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
underwriters of the Notes. Indirect access to the Euroclear System is also
available to other firms that clear through or maintain a custodial relationship
with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific securities
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of or relationship with persons holding through Euroclear Participants.
Payments on Notes held through Cedel or Euroclear will be credited to the
cash accounts of Cedel Participants or Euroclear Participants in accordance with
the relevant system's rules and procedures, to the extent received by its
Depositary. Such payments will be subject to tax reporting in accordance with
relevant United States tax laws and regulations. See "Certain U.S. Federal
Income Tax Consequences." Cedel or the Euroclear Operator, as the case may be,
will take any other action permitted to be taken by a Noteholder under the
related Agreement on behalf of a Cedel Participant or Euroclear Participant only
in accordance with its relevant rules and procedures and subject to its
Depositary's ability to effect such actions on its behalf through DTC.
33
<PAGE> 35
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Notes among participants of DTC, Cedel and
Euroclear, they are under no obligation to perform or continue to perform such
procedures and such procedures may be discontinued at any time.
DEFINITIVE NOTES
The Notes will be issued in fully registered, certificated form
("Definitive Notes") to Noteholders or their nominees, rather than to DTC or its
nominee, only if (i) the Trust, the Administrator or the Servicer advises the
Indenture Trustee in writing that DTC is no longer willing or able to discharge
properly its responsibilities as depository with respect to the Notes and the
Indenture Trustee or the Administrator is unable to locate a qualified
successor, (ii) the Administrator, at its option, elects to terminate the
book-entry system through DTC, or (iii) after the occurrence of an Event of
Default or an Event of Servicing Termination with respect to the Notes, Note
Owners representing in the aggregate not less than 51% of the aggregate
outstanding principal amount of the Notes advise the Indenture Trustee and DTC
through Direct Participants in writing, and DTC shall so notify the Indenture
Trustee, that the continuation of a book-entry system through DTC (or a
successor thereto) is no longer in the best interest of Note Owners.
Upon the occurrence of any event described in the immediately preceding
paragraph, DTC is required to notify all Direct Participants of the availability
through DTC of Definitive Notes. Upon surrender by DTC of the definitive notes
representing the Notes and receipt by the Indenture Trustee of instructions for
re-registration, the Indenture Trustee will reissue the Notes as Definitive
Notes, and thereafter the Indenture Trustee will recognize the holders of such
Definitive Notes as Noteholders.
Payments of principal of, and interest on, the Definitive Notes will be
made by the Indenture Trustee directly to Noteholders in accordance with the
procedures set forth herein and in the Indenture. Distributions of principal and
interest on each Payment Date will be made to Noteholders in whose names the
Definitive Notes were registered at the close of business on the preceding
Record Date. Such payments will be made by check mailed to the address of such
Noteholder as it appears on the register maintained by the Indenture Trustee.
The final payment on any Definitive Note, however, will be made only upon
presentation and surrender of such Definitive Note at the office or agency
specified in the notice of final payment mailed to Noteholders.
Definitive Notes will be transferable and exchangeable at the offices of
the Indenture Trustee. No service charge will be imposed for any registration of
transfer or exchange, but the Indenture Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith.
INTEREST
Interest on the outstanding principal amount of the Notes will accrue at
the Note Interest Rate and will be payable to the Noteholders monthly on each
Payment Date, commencing , 1997. Interest will accrue from and
including , 1997 (in the case of the first Payment Date) or
from and including the most recent Payment Date on which interest has been paid
to but excluding the following Payment Date and will be calculated on the basis
of a 360-day year of twelve 30-day months. Interest payable on a Payment Date
will be calculated on the basis of the outstanding principal amount of the Notes
as of the preceding Payment Date, after giving effect to any payments of
principal on the Notes on such preceding Payment Date (or, in the case of the
first Payment Date, on the basis of the initial outstanding principal amount of
the Notes). Interest accrued as of any Payment Date but not paid on such Payment
Date will be due on the next Payment Date, together with interest on such amount
at the Note Interest Rate (to the extent permitted by law). Interest payments on
the Notes will generally be derived from the Available Funds remaining after the
payment of the Total Servicing Fee for the related Collection Period and from
the Reserve Account. See "-- The Indenture Cash Flows" and "-- Reserve Account."
PRINCIPAL
Principal payments will be made to the Noteholders on each Payment Date in
an amount equal to the Principal Distribution Amount in respect of such Payment
Date, subject to certain limitations. Following the occurrence and during the
continuation of an Event of Default resulting in an acceleration of the Notes or
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following an Insolvency Event, the Noteholders will be entitled to be paid in
full before any distributions may be made on the Certificates. See "-- The
Indenture Cash Flows" and "Reserve Account."
The principal amount of the Notes, to the extent not previously paid, will
be due on the Final Scheduled Payment Date. The actual date on which the
aggregate outstanding principal amount of the Notes is paid in full may be
earlier than the Final Scheduled Payment Date based on a variety of factors.
OPTIONAL REDEMPTION
The Notes will be redeemed in whole, but not in part, on any Payment Date
on which the Servicer exercises its option to purchase the Receivables. The
Servicer may purchase the Receivables when the Pool Balance shall have declined
to 10% or less of the Initial Pool Balance. The redemption price will be equal
to the unpaid principal amount of the Notes and the Certificates plus accrued
and unpaid interest thereon, together with the unpaid principal amount of the
Final Payment Certificate. The Seller does not anticipate, although no
assurances can be given, that the Pool Balance will decline to a level
permitting the Servicer to purchase the Receivables while the Notes are
outstanding.
THE INDENTURE TRUSTEE
Bank of Tokyo -- Mitsubishi Trust Company, a New York banking corporation,
will be the Indenture Trustee. The Indenture Trustee's Corporate Trust Office is
located at 1251 Avenue of the Americas, New York, New York 10006. The Seller,
the Servicer, and their respective affiliates may have other banking
relationships with the Indenture Trustee and its affiliates in the ordinary
course of their businesses.
THE ACCOUNTS
The Servicer will establish one or more accounts, in the name of the
Indenture Trustee on behalf of the Noteholders and the Certificateholders, into
which all payments made on or with respect to the Receivables will be deposited
and into which amounts on deposit in the Reserve Account may be transferred from
time to time (the "Collection Account"). The Servicer will also establish and
maintain (i) an 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 (the "Note Payment Account"), (ii) an account, in
the name of the Owner Trustee, on behalf of the holders of record of the
Certificates (the "Certificateholders"), in which amounts released from the
Collection Account for distribution to Certificateholders will be deposited and
from which all distributions to Certificateholders will be made (the
"Certificate Distribution Account"), and (iii) an account, in the name of the
Indenture Trustee on behalf of the Noteholders and the Certificateholders, in
which early payments with respect to Actuarial Receivables by or on behalf of
the obligors which constitute neither current scheduled payments nor full
prepayments ("Payaheads") will be deposited until such time as the payment falls
due or until such funds are applied to shortfalls in the scheduled payments with
respect to Actuarial Receivables (the "Payahead Account", and together with the
Collection Account and the Note Payment Account, the "Trust Accounts"). The
Seller will also establish and maintain the Reserve Account and the Yield
Supplement Account each in the name of the Indenture Trustee for the benefit of
the Noteholders and the Certificateholders. The Trust Accounts, the Reserve
Account and the Yield Supplement Account shall each be a segregated trust
account initially established with the Indenture Trustee and maintained with the
Indenture Trustee so long as permitted by the Rating Agencies. In the event that
the Rating Agencies no longer permit the Trust Accounts, the Reserve Account and
the Yield Supplement Account to be located at the Indenture Trustee, such
accounts shall be moved to either a Qualified Institution or a Qualified Trust
Institution. A "Qualified Institution" is a depository institution organized
under the laws of the United States or any state thereof or incorporated under
the laws of a foreign jurisdiction with a branch or agency located in the United
States authorized to take deposits and subject to supervision and examination by
Federal or state banking authorities, having a short-term deposit rating
acceptable to the Rating Agencies, and, if such institution is organized under
the laws of the United States, the deposits of which are insured by the Federal
Deposit Insurance Corporation or any successor thereto. A "Qualified Trust
Institution" is the corporate trust department of an institution organized under
the laws of the United States or any state thereof or incorporated under the
laws of a foreign jurisdiction with a branch or agency located in the United
States and
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subject to supervision and examination by Federal or state banking authorities,
with authority to act under such laws as trustee or in any other fiduciary
capacity, having not less than $1 billion in assets under fiduciary management
and a long-term deposit rating acceptable to the Rating Agencies.
Funds in the Collection Account, the Payahead Account, the Reserve Account
and the Yield Supplement Account will be invested in Permitted Investments as
provided in the Sale and Servicing Agreement. "Permitted Investments" are
generally limited to investments acceptable to the Rating Agencies as being
consistent with the ratings of the Notes. Permitted Investments are limited to
obligations or securities that mature not later than the Business Day
immediately preceding the next Payment Date. Any earnings (net of losses and
investment expenses) on amounts on deposit in the Collection Account will be
paid to the Final Payment Certificateholder. Any earnings (net of losses and
investment expenses) on amounts on deposit in the Payahead Account will be paid
to the Servicer as additional servicing compensation and will not be available
to Noteholders, and any earnings (net of losses and investment expenses) on the
Reserve Account and the Yield Supplement Account will be paid to the Seller;
provided that earnings on amounts on deposit in the Reserve Account will be paid
to the Seller only to the extent that the amounts on deposit in the Reserve
Account are in excess of the Specified Reserve Balance.
YIELD SUPPLEMENT AGREEMENT
Simultaneously with the sale and assignment of the Receivables by MMCA to
the Seller, MMCA and the Seller will enter into the Yield Supplement Agreement,
pursuant to which MMCA will be obligated to pay the Yield Supplement Amount, if
any, on, each Payment Date. The Seller will assign the Yield Supplement
Agreement to the Trust, and the Trust will pledge it to the Indenture Trustee
for the benefit of the Noteholders and the Certificateholders.
YIELD SUPPLEMENT ACCOUNT
Payments of the Yield Supplement Amount due under the Yield Supplement
Agreement will be secured by funds on deposit in an account (the "Yield
Supplement Account") of the Indenture Trustee for the benefit of the Noteholders
and the Certificateholders. The Yield Supplement Account shall initially be a
segregated trust deposit account in the corporate trust department of the
Indenture Trustee; provided, that if the Rating Agencies no longer permit the
Yield Supplement Account to be held at the Indenture Trustee, the Yield
Supplement Account shall be moved to a Qualified Institution or a Qualified
Trust Institution. Notwithstanding the foregoing, in the event that MMCA either
obtains a letter of credit (a "Yield Supplement Letter of Credit") securing
timely remittance to the Indenture Trustee of amounts due from MMCA under the
Yield Supplement Agreement or otherwise satisfies certain other conditions
satisfactory to the Rating Agencies, the Yield Supplement Account may be
terminated. The Yield Supplement Account will be funded on the Closing Date with
an initial deposit of $ . On each Payment Date, the amount required to
be on deposit in such Yield Supplement Account or to be available under such
Yield Supplement Letter of Credit will decline and be equal to the sum of all
projected Yield Supplement Amounts for all future Payment Dates, assuming that
future scheduled payments on the Receivables are made on their scheduled Due
Dates. The amount on deposit in the Yield Supplement Account will decrease as
payments are made from such Account with respect to the Yield Supplement Amounts
and funds in excess of the maximum required balance are released to the Seller.
The Yield Supplement Letter of Credit, if any, will be issued by a bank
that has a long-term debt rating sufficient to maintain the rating of the Notes
and the Certificates at the initial level by the Rating Agencies. In the event
that the rating of the letter of credit bank that issues any Yield Supplement
Letter of Credit is reduced below the level required to maintain the ratings of
the Notes and the Certificates at their initial levels according to the criteria
of the Rating Agencies, the Indenture Trustee will be required either to obtain
a suitable replacement Yield Supplement Letter of Credit, to obtain funds in the
required amount for deposit in the Yield Supplement Account or to draw the full
amount available under the Yield Supplement Letter of Credit and deposit such
funds in the Yield Supplement Account maintained for the benefit of the
Noteholders and the Certificateholders.
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THE INDENTURE CASH FLOWS
Deposits to the Collection Account. On or before the seventh Business Day,
but no later than the tenth calendar day, of the month in which a Payment Date
occurs (the "Determination Date"), the Servicer will calculate the Available
Funds, the Noteholders' Regular Principal, the Total Servicing Fee, the Accrued
Note Interest, the Noteholders' Accelerated Principal, the Principal
Distribution Amount, the Accrued Certificate Interest, [the principal amount of
Last Scheduled Payments] and the Yield Supplement Amount, if any, in each case,
with respect to such Payment Date.
On or before each Payment Date, the Servicer will cause the Available Funds
for such Payment Date to be deposited into the Collection Account. On or before
each Payment Date, the Servicer shall notify the Indenture Trustee to withdraw
from the Reserve Account and deposit in the Collection Account an amount equal
to the lesser of (i) the amount of cash or other immediately available funds in
the Reserve Account on such Payment Date (prior to giving effect to any
withdrawals therefrom relating to such Payment Date), and (ii) the amount, if
any, by which (x) the Total Required Payment exceeds (y) the Available Funds for
such Payment Date.
The "Available Funds" for a Payment Date to be deposited into the
Collection Account shall be the sum of the following amounts with respect to the
preceding Collection Period: (i) all collections on the Receivables (including
amounts withdrawn from the Payahead Account but excluding amounts deposited into
the Payahead Account and excluding Rule of 78's Payments)); (ii) all proceeds of
the liquidation of Defaulted Receivables which became Defaulted Receivables
during the related Collection Period, net of expenses incurred by the Servicer
in connection with such liquidation and any amounts required by law to be
remitted to the obligor on such Defaulted Receivable ("Liquidation Proceeds");
(iii) any recoveries in respect of Defaulted Receivables liquidated in prior
Collection Periods ("Recoveries"); (iv) all extension fees paid with respect to
the Receivables; (v) the Purchase Amount of each Receivable that was repurchased
by the Seller or purchased by the Servicer under an obligation which arose
during the related Collection Period; (vi) all Advances made from the Reserve
Account; (vii) the Yield Supplement Amount; and (viii) certain partial
prepayments of any refunded item included in the principal balance of a
Receivable, such as extended warranty protection plan costs, or physical damage,
credit life, disability insurance premiums, or any partial prepayment which
causes a reduction in the obligor's periodic payment to an amount below the
scheduled payment as of the Cutoff Date.
A "Defaulted Receivable" is a Receivable as to which (a) the related
Financed Vehicle has been repossessed and liquidated, (b) a scheduled payment
is, in the case of Motor Vehicles, 120 or more days past due or, in the case of
Trucks, 180 days past due and, in either case, the Servicer has not repossessed
the related Financed Vehicle or (c) the Servicer has determined, in accordance
with its customary standards, policies and procedures, that payment in full is
unlikely and has either repossessed and liquidated the related Financed Vehicle
or repossessed and held the related Financed Vehicle in its repossession
inventory for 90 days, which 90 days shall not, when added to the aggregate
number of days since a scheduled payment was due but not paid, exceed 180 days.
The Available Funds on any Payment Date shall exclude all payments and
proceeds (including Liquidation Proceeds) of any Receivables the Purchase Amount
of which has been included in the Available Funds in a prior Collection Period
(which shall be paid to the Seller or Servicer, as applicable).
The "Principal Distribution Amount" with respect to the Notes for a Payment
Date shall be the sum of Noteholders' Regular Principal and Noteholders'
Accelerated Principal; provided that the Principal Distribution Amount shall not
exceed the outstanding principal amount of the Notes and, after the Notes have
been paid in full, the Principal Distribution Amount with respect to the
Certificates shall be Certificateholders' Regular Principal, and the Principal
Distribution Amount shall not exceed the Certificate Balance.
Monthly Withdrawals from Collection Account. On each Payment Date, the
Indenture Trustee shall make the following withdrawals from the Collection
Account and make deposits, distributions and payments in the amounts and in the
order of priority specified below (provided that, with respect to clauses
(i)-(vi) below, each such payment shall be made first from Available Funds not
attributable to the principal of Last Scheduled
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Payments plus any charges due with respect to any Final Payment Receivable and
then, to the extent an insufficiency shall exist, from Available Funds
attributable to the principal of Last Scheduled Payments):
(i) to the Servicer, the Total Servicing Fee;
(ii) to the Note Payment Account, the Accrued Note Interest;
(iii) to the Note Payment Account, the Noteholders' Regular Principal;
(iv) to the Certificate Distribution Account, the Accrued Certificate
Interest;
(v) on or after the Payment Date on which the outstanding principal
amount of the Notes is reduced to zero, to the Certificate Distribution
Account, the Certificateholders' Regular Principal;
(vi) to the Reserve Account, the amount required to bring the amount
in the Reserve Account up to the Specified Reserve Balance;
(vii) to the Final Payment Certificateholder, any remaining Available
Funds attributable to the principal of Last Scheduled Payments;
(viii) to the Note Payment Account, the Noteholders' Accelerated
Principal; and
(ix) to the Seller, any remaining portion of Available Funds.
Notwithstanding the foregoing, following the occurrence and during the
continuation of an Event of Default, which has resulted in an acceleration of
the Notes or following an Insolvency Event, the Available Funds remaining after
the application of clauses (i) and (ii) above will be deposited in the Note
Payment Account to the extent necessary to reduce the principal amount of the
Notes to zero, and the Certificateholders will not receive any distributions
until the principal amount and accrued interest on the Notes has been paid in
full.
For purposes hereof, the following terms have the following meanings:
"Accrued Certificate Interest" means, with respect to any Payment Date, the
sum of the Certificateholders' Monthly Accrued Certificate Interest for such
Payment Date and the Certificateholders' Interest Carryover Shortfall for such
Payment Date.
"Accrued Note Interest" means, with respect to any Payment Date, the sum of
the Noteholders' Monthly Accrued Note Interest for such Payment Date and the
Noteholders' Interest Carryover Shortfall for such Payment Date.
"Certificate Balance" equals, initially, $ and, thereafter, equals
the initial Certificate Balance, reduced by all amounts allocable to principal
previously distributed to Certificateholders.
"Certificateholders' Interest Carryover Shortfall" means, with respect to
any Payment Date, the excess of the Certificateholders' Monthly Accrued
Certificate Interest for the preceding Payment Date and any outstanding
Certificateholders' Interest Carryover Shortfall from the close of business on
such preceding Payment Date, over the amount in respect of interest that is
actually deposited in the Certificate Distribution Account on such preceding
Payment Date, plus 30 days' interest on such excess, to the extent permitted by
law, at the Certificate Rate.
"Certificateholders' Monthly Accrued Certificate Interest" means, with
respect to any Payment Date, 30 days of interest at the Certificate Rate on the
Certificate Balance as of the immediately preceding Payment Date, after giving
effect to all distributions of principal to the Certificateholders on or prior
to such Payment Date (or, in the case of the first Payment Date, the initial
Certificate Balance).
"Certificateholders' Principal Carryover Shortfall" means, with respect to
any Payment Date, the excess of the Principal Distribution Amount and any
outstanding Certificateholders' Principal Carryover Shortfall from the preceding
Payment Date over the amount in respect of principal that is actually deposited
in the Certificate Distribution Account.
"Certificateholders' Regular Principal" shall mean, with respect to any
Payment Date prior to the Payment Date on which the Notes are paid in full,
zero; and with respect to any Payment Date on or after the Payment
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Date on which the Notes are paid in full, the sum of (i) the Scheduled Principal
for such Payment Date (less, on the Payment Date on which the Notes are paid in
full, the portion thereof payable on the Notes) plus (ii) any outstanding
Certificateholders' Principal Carryover Shortfall from the close of business on
the preceding Payment Date; provided, however, that the Certificateholders'
Regular Principal shall not exceed the Certificate Balance; and provided,
further, that on the Certificateholders' final scheduled Payment Date, the
principal required to be included in the Certificateholders' Regular Principal
will include the lesser of (a)(i) any scheduled payments of principal due and
remaining unpaid on each Actuarial Receivable and (ii) any principal due and
remaining unpaid on each Simple Interest Receivable, in each case, in the Trust
as of the Final Scheduled Maturity Date or (b) the amount that is necessary
(after giving effect to the other amounts to be deposited in the Certificate
Distribution Account on such Payment Date and allocable to principal) to reduce
the Certificate Balance to zero.
"Certificate Rate" means, with respect to the Certificates, % per
annum.
"Noteholders' Accelerated Principal" means (a) with respect to each Payment
Date following the Closing Date on which the difference between the Pool Balance
(exclusive of the aggregate principal amount of Last Scheduled Payments) and the
aggregate outstanding principal balance of the Notes and Certificates on such
Payment Date (before giving effect to any distribution of principal of the Notes
or the Certificates on such Payment Date) is less than $ (such
deficiency with respect to any Payment Date is referred to as the "Deficiency
Amount"), 100% of the portion, if any, of Available Funds remaining for such
Payment Date, and (b) with respect to the Payment Date on which the difference
between the Pool Balance (exclusive of the aggregate principal amount of Last
Scheduled Payments) and the aggregate outstanding principal balance of the Notes
and Certificates on such Payment Date (before giving effect to any distributions
of principal of the Notes or the Certificates on such Payment Date) equals or
exceeds $ , and on each Payment Date following such Payment Date,
% of the portion, if any, of Available Funds remaining for such Payment
Date, in each case after giving effect to the payment of (i) the Total Servicing
Fee, (ii) the Accrued Note Interest, (iii) the Noteholders' Regular Principal,
(iv) the Accrued Certificate Interest, (v) the amount, if any, required to be
deposited in the Reserve Account on such Payment Date and (vi) amounts in
respect of the principal of Last Scheduled Payments remaining after payments of
clauses (i)-(v) above required to be paid to the Seller as holder of the Final
Payment Certificate; provided, however, on any Payment Date that the
Noteholders' Accelerated Principal is calculated pursuant to clause (a) above,
the Noteholders' Accelerated Principal shall not exceed the Deficiency Amount
with respect to such Payment Date; provided further, however, that the
Noteholders' Accelerated Principal with respect to any Payment Date shall not
exceed the outstanding principal amount of the Notes (after giving effect to
payments of Noteholders' Regular Principal on such Payment Date).
"Noteholders' Interest Carryover Shortfall" means, with respect to any
Payment Date, the excess of the Noteholders' Monthly Accrued Note Interest for
the preceding Payment Date and any outstanding Noteholders' Interest Carryover
Shortfall from the close of business on such preceding Payment Date, over the
amount in respect of interest that is actually deposited in the Note Payment
Account on such preceding Payment Date, plus 30 days' interest on such excess,
to the extent permitted by law, at the Note Interest Rate.
"Noteholders' Monthly Accrued Note Interest" means, with respect to any
Payment Date, 30 days of interest at the Note Interest Rate on the aggregate
principal balance of the Notes as of the immediately preceding Payment Date,
after giving effect to all payments of principal to Noteholders on or prior to
such Payment Date (or, in the case of the first Payment Date, the initial
principal balance of the Notes).
"Noteholders' Principal Carryover Shortfall" means, as of the close of any
Payment Date, the excess of the Principal Distribution Amount and any
outstanding Noteholders' Principal Carryover Shortfall from the preceding
Payment Date over the amount in respect of principal that is actually deposited
in the Note Payment Account.
"Noteholders' Regular Principal" shall mean, with respect to any Payment
Date, the sum of (i) the Scheduled Principal for such Payment Date plus (ii) any
outstanding Noteholders' Principal Carryover Shortfall from the close of
business on the preceding Payment Date; provided, however, that the Noteholders'
Regular Principal shall not exceed the outstanding principal balance of the
Notes; and provided, further, that, on the Final Scheduled Payment Date, the
principal required to be deposited in the Note Payment Account will include the
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amount necessary (after giving effect to the other amounts to be deposited in
the Note Payment Account on such Payment Date and allocable to principal) to
reduce the outstanding principal amount of the Notes to zero.
"Note Interest Rate" means, with respect to the Notes, % per annum.
"Realized Losses" means the excess of the principal balance of a Defaulted
Receivable (exclusive of the principal of a Last Scheduled Payment) that has
been liquidated over the Liquidation Proceeds relating thereto to the extent
allocable to principal.
"Scheduled Principal" means, with respect to any Payment Date, the sum of
(a) collections received during the preceding Collection Period of principal on
Simple Interest Receivables, other than collections of principal attributable to
the Last Scheduled Payment of a Simple Interest Receivable that is a Final
Payment Receivable, to the extent that such collections of principal are
attributable to the Last Scheduled Payment, and other than any charges for
excess wear and tear and excess mileage, (b) the principal portion of each
Scheduled Payment (other than a Last Scheduled Payment on a Final Payment
Receivable) due on any Actuarial Receivable during the preceding Collection
Period and (c) the amount of Realized Losses with respect to Receivables which
became Defaulted Receivables during the preceding Collection Period.
"Total Required Payment" means, on any Payment Date, the Total Servicing
Fee, the Accrued Note Interest, the Noteholders' Regular Principal and the
Accrued Certificate Interest.
RESERVE ACCOUNT
The Reserve Account will be held in the name of the Indenture Trustee for
the benefit of Noteholders and Certificateholders and established by the Seller.
To the extent that amounts on deposit in the Reserve Account are exhausted,
Noteholders and Certificateholders will have no recourse to the assets of the
Seller as a source of payment.
The Reserve Account will be funded by a deposit by the Seller on the
Closing Date in the amount of the Reserve Initial Deposit. The amount on deposit
in the Reserve Account will increase from time to time by application of certain
funds from the Collection Account up to the Specified Reserve Balance and will
decrease on each Payment Date by (i) any Advance with respect to such Payment
Date, (ii) any shortfall, if any, between the Total Required Payment and
Available Funds and (iii) distribution of amounts in the Reserve Account in
excess of the Specified Reserve Balance to the Seller with respect to such
Payment Date.
On each Payment Date, after payment of the Total Required Payment for such
Payment Date (and, after the Notes have been paid in full, the
Certificateholders' Regular Principal for such Payment Date), the Indenture
Trustee will withdraw from the Collection Account and deposit into the Reserve
Account, to the extent of funds available in the Collection Account, the amount
required to bring the amount in the Reserve Account up to the Specified Reserve
Balance. Amounts on deposit in the Reserve Account will be invested by the
Seller in Permitted Investments. On any Payment Date, after giving effect to all
payments required to be made on such day and to the extent that the amount on
deposit in the Reserve Account (including amounts attributable to investment
income, net of losses and investment expenses) is in excess of the Specified
Reserve Balance, such excess will be withdrawn from the Reserve Account and paid
to the Seller on such Payment Date. Upon the distribution of any such amounts
from the Reserve Account, the Noteholders and the Certificateholders will not
have any rights in, or claims to, such amounts.
Amounts on deposit in the Reserve Account from time to time are intended to
enhance the likelihood of receipt by Noteholders and Certificateholders of
amounts due them and to decrease the likelihood that the Noteholders and
Certificateholders will experience losses. If the amount required to be
withdrawn from the Reserve Account to cover shortfalls in Available Funds
exceeds the amount on deposit in the Reserve Account, a temporary shortfall in
the amounts distributed to the Noteholders and Certificateholders could result.
In addition, depletion of the Reserve Account ultimately could result in losses
to Noteholders and Certificateholders.
"Specified Reserve Balance" with respect to any Payment Date means
$ , except that, if on any Payment Date (i) the annualized average for
the preceding three Collection Periods of the ratio of the amount equal to
Realized Losses less Recoveries for each such Collection Period to the Pool
Balance (excluding, for
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purposes of this calculation, the aggregate principal amount of Last Scheduled
Payments) as of the first day of each such Collection Period exceeds % or
(ii) the average for the preceding three Collection Periods of the ratio of the
balance of Receivables (excluding, for purposes of this calculation, the
aggregate principal amount of Last Scheduled Payments) that are delinquent 60
days or more for each such Collection Period (including Receivables with respect
to vehicles held in inventory which are not yet charged-off) to such Pool
Balance (excluding for the purposes of this calculation, the aggregate principal
amount of Last Scheduled Payments) exceeds %, then the Specified Reserve
Balance shall be an amount equal to $ . In no circumstances will the
Seller be required to deposit any amounts in the Reserve Account other than the
Reserve Initial Deposit to be made on the Closing Date.
FINAL PAYMENT RECEIVABLES
Certain of the Motor Vehicle Contracts (the "Final Payment Receivables")
provide for level monthly payments that do not amortize the entire amount
financed over the term of the Receivable, plus one substantially larger payment
(the "Last Scheduled Payment"). MMCA sets the Last Scheduled Payment for a
particular model of Motor Vehicle at the time the related Contract is entered
into. The Final Payment Receivables provide for a series of scheduled payments
which, if each is made on its scheduled Due Date, will amortize the initial
principal amount of the Receivable minus the principal portion of the Last
Scheduled Payment (such amount, the "Level Pay Balance") by the Due Date
immediately preceding the maturity date of the Receivable. Upon termination of
the Receivable, the obligor thereunder will owe (assuming that all payments have
been made on their scheduled Due Dates) an amount consisting of interest for the
period from the preceding Due Date through the maturity date and the remaining
principal amount of the Receivable. The net amount actually due from an obligor
on a Final Payment Receivable upon termination may be greater or less than the
Last Scheduled Payment as a result of (i) in the case of a Simple Interest
Receivable, changes in the amortization schedule of the Receivable as a result
of early or late payments by the obligor during the term of the Receivable and
the application of certain day counting conventions, and (ii) additional fees
and charges that may be owed by the obligor with respect to the Receivable or
the Financed Vehicle, including late charges and charges for excess wear and
tear and excess mileage on the Financed Vehicle.
The initial aggregate principal amount of the Notes and Certificates will
equal the aggregate principal amount of the Receivables on the Cutoff Date minus
the aggregate of the principal portions of the Last Scheduled Payments on the
Final Payment Receivables. The Last Scheduled Payments had an aggregate
principal balance of $ as of the Cutoff Date.
Collections attributable to Last Scheduled Payments, including payments by
obligors in respect of charges for excess wear and tear and excess mileage, with
respect to any Collection Period, will be deposited by the Servicer during such
Collection Period into the Collection Account and, on the related Payment Date,
will be available to pay the Total Required Payment and to make required
deposits into the Reserve Account. Any amount remaining will be payable to the
holder of the Final Payment Certificate.
Upon termination of a Final Payment Receivable, an obligor thereunder may
satisfy the amount then owed by the obligor by (1) paying the remaining
principal amount of the Receivable, all accrued and unpaid interest, plus any
fees, charges, and other amounts then owing, on the Due Date of the Last
Scheduled Payment; (2) refinancing the net amount then due, which may be greater
or less than the Last Scheduled Payment, subject to certain conditions; or (3)
selling the related Motor Vehicle to MMCA or its assignee for an amount equal to
the Last Scheduled Payment (reduced by certain charges) and paying any excess of
the total amount owed over the Last Scheduled Payment to MMCA. MMCA will sell
its rights to the Final Payment Receivables, including the Last Scheduled
Payments and amounts paid in respect of late charges and excess wear and tear
and excess mileage, to the Seller, which will sell its rights to the Trust. If
the obligor elects the option to sell the Motor Vehicle to MMCA or its assignee
at the end of the Contract, the Servicer, either directly or through an
affiliate, will then sell the Motor Vehicle at wholesale, by either public or
private sale. The sale proceeds (net of any amounts required to be refunded to
the obligors, including any amount due an obligor who has paid early on a Simple
Interest Receivable) plus amounts paid in respect of excess wear and tear and
excess mileage will be deposited into the Collection Account as described above.
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If the obligor sells the Motor Vehicle to MMCA, it is anticipated that the
full amount of the Last Scheduled Payment will not be realized upon the
subsequent sale of the Motor Vehicle by MMCA. MMCA sets the Last Scheduled
Payment for a particular model of Motor Vehicle at the time the related retail
installment sales contract is entered into by reference to its estimate of the
wholesale market value of such model at the end of the Motor Vehicle Contract's
term. However, in connection with sales incentive programs for particular
models, MMCA may increase the Last Scheduled Payments set forth in Motor Vehicle
Contracts to levels above its estimate of the wholesale market values of such
Motor Vehicle at the end of their respective Motor Vehicle Contract terms, in
order to stimulate sales of particular models by reducing the amount of the
amortizing monthly installments which would be owed by obligors.
MMCA does not require the related obligor under a Final Payment Receivable
to pay the "Gap Amount" in the event there is a total loss of the Motor Vehicle
caused by its theft or physical damage, provided that the obligor has maintained
the insurance required by the Motor Vehicle Contract and is not in default
thereunder. The "Gap Amount" is the difference between the amount owed in
respect of the Final Payment Receivable as of the date of the total loss and
insurance proceeds (inclusive of any applicable deductible) received with
respect to the Motor Vehicle. In accordance with its customary servicing
practices and procedures, MMCA treats such Gap Amount, if any, as a non-cash
reduction of the principal of the related Last Scheduled Payment.
In the event that a Last Scheduled Payment is not collected in full, such
shortfall would reduce the Available Funds available to pay the Total Required
Payment and to make required transfers, if any, from the Collection Account to
the Reserve Account. None of MMCA, the Servicer, the Seller or the Trust will
have any recourse to the obligor for any shortfall, nor will MMCA, the Servicer
or the Seller be obligated to pay any such shortfall to the Trust.
SUBORDINATION OF THE CERTIFICATES AND THE FINAL PAYMENT CERTIFICATE
The rights of Certificateholders and the Final Payment Certificateholder to
receive distributions of interest and principal are subordinated to a certain
extent to the rights of Noteholders to receive payments of interest and
principal. In addition, the Certificateholders will have no right to receive
distributions of principal until the principal amount of the Notes has been paid
in full. Consequently, funds on deposit in the Collection Account (including
amounts deposited therein from the Reserve Account) will be applied to the
payment of Noteholders' Accrued Interest and Noteholders' Regular Principal
before distributions of interest on the Certificates and will be applied to the
payment of principal on the Notes before distributions of principal on the
Certificates and principal in respect of Last Scheduled Payments to the Final
Payment Certificateholder. In addition, following the occurrence of certain
Events of Default, an acceleration of the Notes or an Insolvency Event, the
Noteholders will be entitled to be paid in full before the Certificateholders
and the Final Payment Certificateholder are entitled to any distributions. The
subordination of the Certificates and the Final Payment Certificates is intended
to enhance the likelihood of receipt by Noteholders of amounts due them and to
decrease the likelihood that the Noteholders will experience losses.
ADVANCES
To the extent the collection of interest and principal on an Actuarial
Receivable (other than a Last Scheduled Payment) with respect to a Collection
Period falls short of the scheduled payment due thereon, after application of
amounts on deposit in the Payahead Account by the Indenture Trustee with respect
to such shortfall, the Servicer will cause an Advance to be made from the
Reserve Account on or before the related Payment Date. Subsequent collections on
Receivables will be used to replenish the Reserve Account to the extent
described in "-- The Indenture Cash Flows."
COLLECTIONS ON THE RECEIVABLES
The Servicer will deposit all payments on Receivables (from whatever
source) and all proceeds of Receivables (other than certain amounts payable to
the Servicer under the Sales and Servicing Agreement, which are not required to
be deposited in the Collection Account) into the Collection Account not later
than two business days after receipt thereof unless either (i) the Servicer
shall have a rating acceptable to the Rating
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Agencies with respect to its short-term indebtedness, MMCA is the Servicer, and
no Events of Servicing Termination have occurred, or (ii) the Trust shall have
received written notice from each of the Rating Agencies that the then
outstanding ratings on the Notes or the Certificates would not be lowered or
withdrawn as a result, in which case such amounts will be paid into the
Collection Account on the Payment Date. The Seller and the Servicer will also
deposit into the Collection Account on the Payment Date the Purchase Amount of
each Receivable to be repurchased or purchased by it pursuant to an obligation
that arose during the preceding Collection Period. The Servicer will be entitled
to withhold, or to be reimbursed from amounts otherwise payable into, or on
deposit in, the Collection Account with respect to a Collection Period, the
amounts previously deposited in the Collection Account but later determined to
have resulted from mistaken deposits or posting or checks returned unpaid for
insufficient funds or other reasons.
In those cases where a subservicer is servicing a Receivable pursuant to a
subservicing agreement, as described below, the Servicer will cause the
subservicer to remit to the Collection Account the amounts collected by such
subservicer on or with respect to the Receivables being serviced by it, within
the period after receipt, and subject to the limitations, described above.
As an administrative convenience, unless the Servicer is required to remit
collections within two Business Days of receipt thereof, the Servicer will be
permitted to make the deposit of collections and Purchase Amounts for or with
respect to the Collection Period net of distributions to be made to the Servicer
with respect to the Collection Period. The Servicer, however, will account to
the Indenture Trustee and the Noteholders as if all deposits, distributions and
transfers were made individually.
STATEMENTS TO NOTEHOLDERS
On or prior to each Payment Date, the Servicer will prepare and provide to
the Indenture Trustee a statement to be delivered to the Noteholders on such
Payment Date. Each such statement to be delivered to Noteholders will include
the following information as to the Notes with respect to such Payment Date and
the related Collection Period:
(i) the amount of the distribution allocable to principal of the
Notes;
(ii) the amount of the distribution allocable to interest on or with
respect to the Notes;
(iii) the amount of distribution allocable to the Yield Supplement
Amount;
(iv) the amount of the Total Servicing Fee and any additional
servicing compensation paid to the Servicer with respect to such Collection
Period;
(v) the aggregate outstanding principal amount of the Notes and the
Note Pool Factor, after giving effect to payments allocated to principal
reported under clause (i) above;
(vi) the Pool Balance and the Level Pay Pool Balance (calculated as of
the close of business on the last day of the preceding Collection Period);
(vii) the amounts of the Noteholders' Interest Carryover Shortfall and
the Noteholders' Principal Carryover Shortfall, if any, for such Payment
Date;
(viii) the amount of the aggregate Realized Losses, if any, for such
Collection Period;
(ix) the balance of the Reserve Account on such Payment Date, after
giving effect to changes therein on such Payment Date; and
(x) the amount of Actuarial Advances, if any, for such Collection
Period;
(xi) the amount distributed as interest on or with respect to the
Certificates on such Payment Date;
(xii) the amount of the Certificateholders' Interest Carryover
Shortfall, if any, for such Payment Date; and
(xiii) the aggregate Purchase Amount of Receivables repurchased by the
Seller or purchased by the Servicer during such Collection Period.
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Each amount set forth pursuant to clauses (i), (ii), (v) and (vii) above
will be expressed in the aggregate and as a dollar amount per $1,000 of original
denomination of the Notes. Copies of such statements may be obtained by Note
Owners by a request in writing addressed to the Indenture Trustee.
Within a reasonable period of time after the end of each calendar year, but
not later than the latest date permitted by law, the Indenture Trustee will
furnish to each person who at any time during such calendar year was a
Noteholder a statement containing the sum of the amounts described in (i), (ii),
(iii), (iv) and (vii) above for the purposes of such Noteholder's preparation of
Federal income tax returns. See "Certain Federal Income Tax Consequences" and
"-- Book Entry Registration."
INDENTURE
Events of Default. The "Events of Default" in the Indenture consist of (i)
a default for five days or more in the payment of interest on any Note when the
same becomes due and payable; (ii) a default in the payment of principal of, or
any installment of principal of, any Note when the same becomes due and payable;
(iii) a default in the observance or performance of any material covenant or
agreement of the Trust made in the Indenture, or any representation or warranty
of the Trust made in the Indenture or in any certificate or writing delivered
pursuant thereto proves to have been incorrect in any material respect as of the
time when made, and the continuation of such default for a period of 60 days or
in the case of a materially incorrect representation or warranty, 30 days, after
notice thereof is given to the Trust by the Indenture Trustee or the Trust and
the Indenture Trustee by the holders of not less than 25% of the aggregate
principal amount of the Notes, or (iv) certain events of bankruptcy, insolvency,
receivership or liquidation of the Trust. (Indenture, Section 5.1).
Noteholders holding not less than a majority of the aggregate principal
amount of the Notes may waive any past default or Event of Default prior to the
declaration of the acceleration of the maturity of the Notes, except a default
(i) in payment of principal of or interest on any of the Notes or (ii) in
respect of any covenant or provision in the Indenture which cannot be modified
or amended without unanimous consent of the Noteholders. (Indenture, Section
5.12). Any such waiver could be treated, for Federal income tax purposes, as a
constructive exchange of the Notes by the Noteholders for deemed new Notes upon
which gain or loss would be recognized.
Remedies. If an Event of Default should occur and be continuing, the
Indenture Trustee or the holders of a majority of the aggregate principal amount
of the Notes may declare the principal of the Notes to be immediately due and
payable. Such declaration may be rescinded by the holders of a majority of the
aggregate principal amount of the Notes before a judgment or decree for payment
of the amount due has been obtained by the Indenture Trustee if (i) the Trust
has deposited with the Indenture Trustee an amount sufficient to pay (x) all
interest on and principal of the Notes as if the Event of Default giving rise to
such declaration had not occurred and (y) all amounts advanced by the Indenture
Trustee and its costs and expenses and (ii) all Events of Default (other than
the nonpayment of principal of the Notes that has become due solely by such
acceleration) have been cured or waived. (Indenture, Section 5.2). Any such
rescission could be treated, for Federal income tax purposes, as a constructive
exchange of the Notes by the Noteholders for deemed new Notes upon which gain or
loss would be recognized.
If the Notes have been declared due and payable following an Event of
Default, the Indenture Trustee may institute proceedings to collect amounts due,
exercise remedies as a secured party, including foreclosure or sale of the Trust
Property, or elect to maintain the Trust Property and continue to apply proceeds
from the Trust Property as if there had been no declaration of acceleration. The
Indenture Trustee may not, however, unless it is required to sell the Trust
Property pursuant to the Trust Agreement as a result of an Insolvency Event
occurring with respect to the Seller, sell the Trust Property following an Event
of Default, other than a default in the payment of any principal or a default
for five days or more in the payment of any interest on the Notes, unless (i)
100% of the Noteholders consent thereto, (ii) the proceeds of such sale are
sufficient to pay in full the principal of and the accrued interest on the then
outstanding Notes and Certificates or (iii) the Indenture Trustee determines
that the Trust Property would not be sufficient on an ongoing basis to make all
payments on the Notes as such payments would have become due if such obligations
had not been declared due and payable, and the Indenture Trustee obtains the
consent of holders of 66 2/3% of the aggregate principal amount of the Notes.
The Indenture Trustee may, but need not, obtain and rely upon an opinion of an
independent accountant or investment banking
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firm as to the sufficiency of the Trust Property to pay interest on and
principal of the Notes on an ongoing basis. (Indenture, Section 5.4).
In the event of a sale of the Trust Property, as a result of an Insolvency
Event occurring with respect to the Seller or following the occurrence of an
Event of Default under the circumstances described in the preceding paragraph
pursuant to the direction of the Indenture Trustee or the Noteholders, the
proceeds of such sale will be distributed first to the Indenture Trustee for
amounts due as compensation or indemnity payments pursuant to the terms of the
Indenture; second to the Servicer for amounts due in respect of unpaid Total
Servicing Fee; third to the Noteholders for interest which is due and unpaid;
and fourth to the Noteholders for principal which is due and unpaid. Any
remaining amounts will be distributed to the Certificateholders for amounts due
and unpaid in accordance with the terms of the Trust Agreement. (Indenture,
Section 5.4).
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, in case an Event of Default occurs and is continuing with
respect to the Notes, the Indenture Trustee will be under no obligation to
exercise any of the rights or powers under the Indenture at the request or
direction of any of the Noteholders, if the Indenture Trustee reasonably
believes it will not be adequately indemnified against the costs, expenses and
liabilities which might be incurred by it in complying with such request.
Subject to such provisions for indemnification and certain limitations contained
in the Indenture, the holders of not less than a majority of the aggregate
principal amount of the Notes will have the right to direct the time, method and
place of conducting any proceeding or any remedy available to the Indenture
Trustee or exercising any trust power conferred on the Indenture Trustee, and
the holders of not less than a majority of the aggregate principal amount of the
Notes may, in certain cases, waive any default with respect thereto, except a
default in the payment of principal or interest or a default in respect of a
covenant or provision of the Indenture that cannot be modified without the
waiver or consent of all of the holders of the outstanding Notes. Until such
time, if any, as Definitive Notes have been issued, the Indenture Trustee will
act only in accordance with the instructions of Cede, as nominee for DTC.
However, under the Rules, DTC will act only in accordance with the instructions
of the Participants to whom Notes are credited, which will in turn act in
accordance with the instructions of persons holding beneficial interests in such
Notes through such Participants. Accordingly, although only Cede will be
entitled to vote under the Indenture, Note Owners will be entitled to instruct
DTC as to the manner in which to vote. (Indenture, Sections 5.11 and 5.12).
No Noteholder will have the right to institute any proceeding with respect
to the Indenture, unless (i) such Noteholder previously has given to the
Indenture Trustee written notice of a continuing Event of Default, (ii) the
holders of not less than 25% of the aggregate principal amount of the Notes have
made written request of the Indenture Trustee to institute such proceeding in
its own name as Indenture Trustee, (iii) such Noteholder or Noteholders have
offered the Indenture Trustee reasonable indemnity, (iv) the Indenture Trustee
has for 60 days failed to institute such proceeding and (v) no direction
inconsistent with such written request has been given to the Indenture Trustee
during such 60-day period by the holders of a majority of the aggregate
principal amount of the Notes. (Indenture, Section 5.6).
Neither the Indenture Trustee nor the Owner Trustee in their respective
individual capacities, nor any holder of a Certificate, nor any of their
respective owners, beneficiaries, agents, officers, directors, employees,
successors or assigns will, in the absence of an express agreement to the
contrary, be personally liable for the payment of interest on or principal of
the Notes or for the agreements of the Trust and the Owner Trustee, in its
capacity as trustee, contained in the Indenture.
Certain Covenants. The Trust will not, among other things, (i) except as
expressly permitted by the Indenture, the Transfer and Servicing Agreements or
certain related documents (collectively, the "Basic Documents") sell, transfer,
exchange or otherwise dispose of any of the assets of the Trust, (ii) claim any
credit on or make any deduction from the principal and interest payable in
respect of the Notes (other than amounts withheld under the 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, (iii)
dissolve or liquidate in whole or in part or (iv) permit (x) the validity or
effectiveness of the Indenture to be impaired, (y) any person to be released
from any covenants or obligations with respect to the Notes under the Indenture
except as may be expressly permitted thereby or (z) any lien, charge, excise,
claim, security interest, mortgage or other encumbrance to be created on or
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extend to or otherwise arise upon or burden the assets of the Trust or any part
thereof, or any interest therein or the proceeds therefrom. (Indenture, Section
3.8).
The Trust may not engage in any activities other than financing, acquiring,
owning, pledging and managing the Receivables as contemplated by the Basic
Documents and activities incidental thereto. (Indenture, Section 3.12).
The Trust will not incur, assume or guarantee any indebtedness other than
indebtedness incurred pursuant to the Notes and the Certificates or otherwise in
accordance with the Basic Documents. (Indenture, Section 3.13).
The Trust will not make any payments to Certificateholders in respect of
their Certificates for any Collection Period unless the Accrued Note Interest,
Noteholders' Regular Principal and the Total Servicing Fee have been provided
for. No principal will be paid on the Certificates until the Notes have been
paid in full.
The Trust will or will cause the Servicer to deliver to the Indenture
Trustee on the business day preceding each Payment Date the disbursement and
payment instructions as required pursuant to the Indenture. (Indenture, Section
8.3).
Replacement of Indenture Trustee. Noteholders holding not less than a
majority of the aggregate principal amount of the Notes may remove the Indenture
Trustee without cause by so notifying the Indenture Trustee and the Trust, and
following such removal may appoint a successor Indenture Trustee. Any successor
Indenture Trustee must at all times satisfy the requirements of Section 310(a)
of the Trust Indenture Act of 1939, as amended, and must have a combined capital
and surplus of at least $50,000,000 and a long term debt rating of investment
grade or better by each Rating Agency.
The Indenture Trustee may resign at any time by so notifying the Trust and
the Noteholders. The Trust will be required to remove the Indenture Trustee if
the Indenture Trustee (i) ceases to be eligible to continue as the Indenture
Trustee, (ii) is adjudged to be bankrupt or insolvent, (iii) comes under the
charge of a receiver or other public officer, or (iv) otherwise becomes
incapable of acting. Upon the resignation or required removal of the Indenture
Trustee, or the failure of the Noteholders to appoint a successor Indenture
Trustee following the removal without cause of the Indenture Trustee, the Trust
will be required promptly to appoint a successor Indenture Trustee. (Indenture,
Section 6.8).
Duties of Indenture Trustee. Except during the continuance of an Event of
Default, the Indenture Trustee will (i) perform such duties and only such duties
as are specifically set forth in the Indenture, (ii) rely, as to the truth of
the statements and the correctness of the opinions expressed therein, on
certificates or opinions furnished to the Indenture Trustee which conform to the
requirements of the Indenture, and (iii) examine any such certificates and
opinions which are specifically required to be furnished to the Indenture
Trustee by the Indenture to determine whether or not they conform to the
requirements of the Indenture. Upon the continuance of an Event of Default, the
Indenture Trustee will be required to exercise the rights and powers vested in
it by the Indenture and use the same degree of care and skill in the exercise
thereof as a prudent person would exercise or use under the circumstances in the
conduct of such person's own affairs. (Indenture, Section 6.1).
Compensation and Indemnity. The Servicer will (i) pay to the Indenture
Trustee from time to time reasonable compensation for its services, (ii)
reimburse the Indenture Trustee for all expenses, advances and disbursements
reasonably incurred and (iii) indemnify the Indenture Trustee for, and hold it
harmless against, any and all losses, liability or expense (including attorneys'
fees) incurred by it in connection with the performance of its duties. The
Indenture Trustee will not be indemnified against any loss, liability or expense
incurred by it through its own willful misconduct, negligence or bad faith,
except that, the Indenture Trustee will not be liable (i) for any error of
judgment made by it in good faith unless it is proved that the Indenture Trustee
was negligent in ascertaining the pertinent facts, (ii) with respect to any
action it takes or omits to take in good faith in accordance with a direction
received by it from Noteholders in accordance with the terms of the Indenture,
and (iii) for interest on any money received by it except as the Indenture
Trustee and the Trust may agree in writing. The Indenture Trustee will not be
deemed to have knowledge of any event unless an officer of the Indenture Trustee
has actual knowledge thereof or has received written notice thereof in
accordance with the provisions of the Indenture. (Indenture, Sections 1 and
6.7).
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Access to Noteholder Lists. If Definitive Notes are issued in the limited
circumstances described herein and the Indenture Trustee is not the Note
Registrar, the Trust will furnish or cause to be furnished to the Indenture
Trustee a list of the names and addresses of the Noteholders (i) as of each
Record Date, within five days thereafter and (ii) as of not more than 10 days
prior to the time such list is furnished, within 30 days after receipt by the
Trust of a written request therefor. (Indenture, Section 7.1).
Annual Compliance Statement. The Trust will be required to file annually
with the Indenture Trustee a written statement as to the fulfillment of its
obligations under the Indenture. (Indenture, Section 3.9).
Satisfaction and Discharge of Indenture. The Indenture will be discharged
with respect to the collateral securing the Notes upon the delivery to the
Indenture Trustee for cancellation of all the Notes or, with certain
limitations, including receipt of certain opinions with respect to tax matters,
upon deposit with the Indenture Trustee of funds sufficient for the payment in
full of all of the Notes (including interest and any fees due and payable to the
Owner Trustee or the Indenture Trustee). (Indenture, Section 4.1).
Modification of Indenture. Without the consent of the Noteholders, the
Owner Trustee, on behalf of the Trust, and the Indenture Trustee, upon request
by the Trust, may execute a supplemental indenture for the purpose of adding to
the covenants of the Trust, curing any ambiguity, correcting or supplementing
any provision which may be inconsistent with any other provision or making any
other provision with respect to matters or questions arising under the Indenture
which will not be inconsistent with other provisions of the Indenture; provided
that (x) such action will not, (i) as evidenced by an opinion of counsel (which
may be internal counsel to the Seller or the Servicer (an "Opinion of
Counsel")), materially adversely affect the interests of any Noteholder and (ii)
as confirmed by each Rating Agency rating the Notes, cause the then- current
rating assigned to the Notes to be withdrawn or reduced and (y) an Opinion of
Counsel as to certain tax matters is delivered. (Indenture, Section 9.1).
Without the consent of the holder of each outstanding Note affected
thereby, however, no supplemental indenture may (i) change the Final Scheduled
Payment Date or the due date of any installment of principal of or interest on
any Note or reduce the principal amount thereof, the interest rate specified
thereon or the redemption price with respect thereto or change any place of
payment where, or the coin or currency in which, any Note or any interest
thereon is payable, (ii) impair the right to institute suit for the enforcement
of certain provisions of the Indenture regarding payment, (iii) reduce the
percentage of the aggregate principal amount of the Notes the consent of the
holders of which is required for any such supplemental indenture or for any
waiver of compliance with certain provisions of the Indenture or of certain
defaults thereunder (and their consequences) as provided for in the Indenture,
(iv) modify or alter the provisions of the Indenture regarding the voting of
Notes held by the Trust, the Seller, the Servicer, an affiliate of any of them
or any obligor on the Notes, (v) reduce the percentage of the aggregate
principal amount of the Notes the consent of the holders of which is required to
direct the Indenture Trustee to sell or liquidate the Trust Property if the
proceeds of such sale would be insufficient to pay the principal amount and
accrued but unpaid interest on the Notes, (vi) decrease the percentage of the
aggregate principal amount of the Notes required to amend the sections of the
Indenture which specify the applicable percentage of the aggregate principal
amount of the Notes necessary to amend the Indenture or the other Basic
Documents or (vii) permit the creation of any lien ranking prior to or on a
parity with the lien of the Indenture with respect to any of the collateral for
the Notes or, except as otherwise permitted or contemplated in the Indenture,
terminate the lien of the Indenture on any such collateral or deprive the holder
of any Note of the security afforded by the lien of the Indenture. (Indenture,
Section 9.2).
The Owner Trustee, on behalf of the Trust, and the Indenture Trustee, upon
request by the Trust, may also enter into supplemental indentures, with the
consent of not less than a majority of the aggregate principal balance of the
Notes and with written notice to the Rating Agencies, for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
of the Indenture or of modifying in any manner the rights of Noteholders;
provided, that (x) such action will not, (i) as evidenced by an Opinion of
Counsel, materially adversely affect the interests of any Noteholder and (ii) as
confirmed by each Rating Agency rating the Notes, cause the then- current rating
assigned to the Notes to be withdrawn or reduced and (y) an Opinion of Counsel
as to certain tax matters is delivered. (Indenture, Section 9.1).
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The Trust Agreement will require the Owner Trustee to give the
Certificateholders 30 days written notice of any proposed supplemental indenture
if it materially adversely affects the Certificateholders or if Noteholders'
consent is required and provides that the Owner Trustee will not enter into such
amendment unless Certificateholders holding 25% or more of the Certificate
Balance consent in writing. (Trust Agreement, Sections 4.1 and 11.1).
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The Trust will purchase the Receivables, and the Servicer will undertake to
service the Receivables pursuant to the Sale and Servicing Agreement. The Trust
will be created and the Certificates will be issued pursuant to the Trust
Agreement. MMCA will undertake certain administrative duties with respect to the
Trust pursuant to the Administration Agreement (together with the Sale and
Servicing Agreement and the Trust Agreement, the "Transfer and Servicing
Agreements"). Forms of the Transfer and Servicing Agreements have been filed as
an exhibit to the Registration Statement of which this Prospectus forms a part.
The following summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the provisions of the Transfer and
Servicing Agreements.
SALE AND ASSIGNMENT OF THE RECEIVABLES
Prior to the time of issuance of the Notes, pursuant to the Purchase
Agreement MMCA will sell and assign to the Seller, without recourse, its entire
right, title and interest in, to and under the Receivables, including its
security interests in the Financed Vehicles. At the time of issuance of the
Notes, the Seller will sell and assign to the Trustee, without recourse, the
Seller's entire interest in the Receivables, including its security interests in
the Financed Vehicles. Each Receivable conveyed by the Seller to the Trust will
be identified in a schedule incorporated by reference into the Sale and
Servicing Agreement. The Owner Trustee will, concurrently with such sale and
assignment, execute, authenticate and deliver the Certificates. The net proceeds
received from the sale of the Notes and the Certificates will be applied to the
purchase of the Receivables.
In the Purchase Agreement, MMCA will represent and warrant to the Seller,
and in the Sale and Servicing Agreement the Seller will represent and warrant to
the Owner Trustee, among other things, that (i) the information provided with
respect to the Receivables is correct in all material respects; (ii) the obligor
on each Receivable is required to obtain physical damage insurance in accordance
with MMCA's normal requirements; (iii) at the date of issuance of the Notes, the
Receivables are free and clear of all security interests, liens, charges, and
encumbrances and no setoffs, defenses, or counterclaims against it have been
asserted or threatened; (iv) at the date of issuance of the Notes, each of the
Receivables is or will be secured by a first perfected security interest in the
Financed Vehicle in favor of MMCA; and (v) each Receivable, at the time it was
originated, complied, and at the date of issuance of the Notes, complies in all
material respects with applicable Federal and state laws, including consumer
credit, truth in lending, equal credit opportunity, and disclosure laws.
The only recourse the Noteholders, the Indenture Trustee, the
Certificateholders or the Owner Trustee will have against MMCA and the Seller
for breach of any of the foregoing representations and warranties with respect
to a Receivable will be to require MMCA and the Seller to repurchase the
Receivable. See "-- Mandatory Repurchase of Receivables." The Owner Trustee, the
Indenture Trustee, the Trust and the Servicer will covenant in the Sale and
Servicing Agreement not to institute or join in the institution of any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding,
or other similar proceeding against the Seller for a period of one year and a
day after any securities rated by a rating agency were issued by the Seller or
by a trust for which the Seller was the depositor.
To assure uniform quality in servicing the Receivables and to reduce
administrative costs, the Trust will appoint the Servicer as initial custodian
of the Receivables. The Servicer, in its capacity as custodian, will hold the
Receivables and all documents and instruments relating thereto (each, a
"Receivable File"), either directly or through subservicers, on behalf of the
Trust. The Receivables will not be stamped or otherwise marked to reflect the
sale and assignment of the Receivables to the Trust and will not be segregated
from other receivables held by the Servicer or the subservicers. However,
Uniform Commercial Code financing statements reflecting the sale and assignment
of the Receivables by MMCA to the Seller and by the Seller to the Trust will be
filed, and the
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Servicer's accounting records and computer systems will be marked to reflect
such sale and assignment. See "The Trust" and "Certain Legal Aspects of the
Receivables."
MANDATORY REPURCHASE OF RECEIVABLES
In the event of a breach or failure to be true of any representation or
warranty with respect to the Receivables described in "-- Sale and Assignment of
the Receivables," which breach or failure materially and adversely affects the
interests of the Trust in a Receivable, the Seller, unless such breach or
failure has been cured by the last day of the Collection Period which includes
the 60th day after the date on which the Seller becomes aware of, or receives
written notice from the Owner Trustee or the Servicer of, such breach or
failure, will be required to repurchase the Receivable from the Trust, and MMCA
will be required to repurchase such Receivable from the Seller, for the Purchase
Amount. The Purchase Amount is payable on the Payment Date immediately following
such Collection Period. The obligation of the Seller to repurchase a Receivable
is not conditioned on performance by MMCA of its obligation to repurchase a
Receivable. The repurchase obligation will constitute the sole remedy available
to the Noteholders, the Indenture Trustee, the Certificateholders or the Owner
Trustee against the Seller and MMCA for any such uncured breach or failure.
The "Purchase Amount" means, with respect to a Payment Date and a
Receivable to be purchased or repurchased on such Payment Date by the Seller or
Servicer, an amount equal to the sum of (a) the outstanding principal balance of
such Receivable as of the first day of the Collection Period preceding the
Collection Period in which such Payment Date occurs and (b) an amount equal to
the amount of accrued and unpaid interest on such principal balance at the
related APR from the date a payment was last made by or on behalf of the obligor
through the due date for payment of such Receivable in the Collection Period
preceding the Collection Period in which such Payment Date occurs and in the
case of clauses (a) and (b), after giving effect to the receipt of monies
collected on such Receivable in such preceding Collection Period.
SERVICING PROCEDURES
The Servicer will make reasonable efforts to collect all payments due with
respect to the Receivables in a manner consistent with the Sale and Servicing
Agreement and will exercise the degree of skill and care that the Servicer
exercises with respect to comparable motor vehicle receivables owned and/or
serviced by the Servicer for itself and others.
Although it has no current plans to do so, the Servicer may enter into
subservicing agreements with Eligible Servicers for the subservicing of
Receivables. Any such subservicing agreements will contain provisions identical
to those contained in the Sale and Servicing Agreement and may contain such
other provisions as are not inconsistent with the terms of the Sale and
Servicing Agreement. The Servicer may terminate a subservicing agreement and
either service the related Receivables directly or enter into a new subservicing
agreement for such Receivables with another subservicer, provided that any such
subservicer is an Eligible Servicer. Notwithstanding any subservicing agreement,
the Servicer will remain obligated and liable to the Trust, the Noteholders and
the Certificateholders for servicing and administering the Receivables in
accordance with the Sale and Servicing Agreement as if the Servicer alone were
servicing the Receivables. References herein to actions required or permitted to
be taken, or restrictions on actions to be taken, by the Servicer include such
actions by a subservicer. References herein to amounts received by the Servicer
include amounts received by a subservicer.
"Eligible Servicer" means a person which, at the time of its appointment as
Servicer or as a subservicer, (i) has a net worth of not less than $50,000,000,
(ii) is servicing a portfolio of motor vehicle retail installment sales
contracts and/or motor vehicle loans, (iii) is legally qualified, and has the
capacity, to service the Receivables, (iv) has demonstrated the ability to
service a portfolio of motor vehicle retail installment sales contracts and/or
motor vehicle loans similar to the Receivables professionally and competently in
accordance with standards of skill and care that are consistent with prudent
industry standards, and (v) is qualified and entitled to use pursuant to a
license or other written agreement, and agrees to maintain the confidentiality
of, the software which the Servicer or any subservicer uses in connection with
performing its duties and responsibilities under the Sale and Servicing
Agreement or the related subservicing agreement or obtains rights to use, or
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develops at its own expense, software which is adequate to perform its duties
and responsibilities under the Sale and Servicing Agreement or the related
subservicing agreement.
The Servicer will covenant in the Sale and Servicing Agreement that: (i)
the Financed Vehicle securing each Receivable will not be released from the
security interest granted by the Receivable in whole or in part, except as
contemplated by the Sale and Servicing Agreement, (ii) the Servicer will not
(nor will it permit any subservicer to) impair in any material respect the
rights of the Trust, the Indenture Trustee, the Noteholders, the Owner Trustee
or the Certificateholders in the Receivables, or, subject to clause (iii) elow,
otherwise amend or alter the terms thereof if, as a result of such amendment or
alteration, the interests of the Trust, the Noteholders or the
Certificateholders under the Sale and Servicing Agreement would be materially
adversely affected; and (iii) the Servicer will not increase or decrease the
number or amount of scheduled payments or the amount financed under a
Receivable, or extend, rewrite or otherwise modify the payment terms of a
Receivable; provided, however, that the Servicer may extend any Receivable for
credit-related reasons that would be acceptable to the Servicer with respect to
Contracts serviced by it for its own account in accordance with its customary
standards if the cumulative extensions with respect to any Receivable shall not
cause the term of any such Receivable to extend beyond the last day of the
Collection Period (the "Final Scheduled Maturity Date") immediately preceding
the final scheduled Payment Date with respect to the Certificates; provided
further that such extensions, in the aggregate, do not exceed two months for
each twelve months of the original term of the Receivable.
In the event of a breach by the Servicer of any covenant described above
that materially and adversely affects the interests of the Trust, the
Noteholders or the Certificateholders in a Receivable, the Servicer, unless such
breach has been cured by the last day of the Collection Period which includes
the 60th day after the date on which the Servicer becomes aware of, or receives
written notice of, such breach, will be required to purchase the Receivable from
the Trust for the Purchase Amount on the Payment Date immediately following such
Collection Period; provided, however, that with respect to a breach of the
covenant described in clause (iii) of the preceding paragraph, the Servicer will
be required to purchase the related Receivable from the Trust at the end of the
Collection Period in which such breach occurs. The purchase obligation will
constitute the sole remedy available to the Noteholders, the Indenture Trustee,
the Owner Trustee or the Certificateholders against the Servicer for any such
uncured breach, except with respect to certain indemnities of the Servicer under
the Agreement related thereto.
The Sale and Servicing Agreement will also generally require the Servicer
to charge off a Receivable as in conformity with its normal practice and to
follow such of its normal collection practices and procedures as it deems
necessary or advisable, and that are consistent with the standard of care
required by the Sale and Servicing Agreement, to realize upon any Receivable.
Currently, MMCA charges off a Contract at the time that the related Financed
Vehicle has been repossessed and sold, and the proceeds of sale of the Financed
Vehicle are applied against the amount owing on the Contract, or at such time as
MMCA determines that it will not recover the Financed Vehicle. The Servicer may
sell the Financed Vehicle securing such Receivable at judicial sale or take any
other action permitted by applicable law. See "Certain Legal Aspects of the
Receivables." The net proceeds of such sale will be deposited in the Collection
Account at the time and in the manner described above.
The Sale and Servicing Agreement will provide that the Servicer will defend
and indemnify the Trust, the Indenture Trustee, the Owner Trustee, the
Noteholders and the Certificateholders against any and all costs, expenses,
losses, damages, claims, and liabilities, including reasonable fees and expenses
of counsel and expenses of litigation, arising out of or resulting from the use,
ownership or operation by the Servicer or any affiliate thereof of any Financed
Vehicle or in respect of any action taken by the Servicer with respect to any
Receivable or Financed Vehicle. The Servicer's obligations to indemnify the
Trust, the Indenture Trustee, the Owner Trustee, the Noteholders and the
Certificateholders for the Servicer's actions or omissions will survive the
removal of the Servicer, but will not apply to any action or omission of a
successor Servicer.
SERVICING COMPENSATION
The Servicer will be entitled to receive the Servicing Fee for each
Collection Period, in an amount equal to the product of one-twelfth of the
Servicing Rate and the Pool Balance as of the first day of such Collection
Period. The "Servicing Rate" will equal 1.00% per annum. The Servicer will also
be entitled to receive, as
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additional servicing compensation, earnings on amounts on deposit in the
Payahead Account, Rule of 78's Payments, all disposition fees paid with respect
to Final Payment Receivables and all administrative fees and charges and all
late payment fees paid with respect to the Receivables, other than fees paid in
connection with extension or deferral of payments on a Receivable, which will be
deposited in the Collection Account. The Servicing Fee, together with any
portion of the Servicing Fee that remains unpaid from prior Payment Dates (the
"Total Servicing Fee"), will be paid out of collections on or in respect of the
Receivables, prior to distributions to Noteholders and Certificateholders.
The Servicing Fee and the additional servicing compensation will compensate
the Servicer for performing the functions of a third party servicer of Motor
Vehicle Contracts and Truck Contracts and for administering the Receivables on
behalf of the Noteholders and Certificateholders, including collecting payments,
accounting for collections, furnishing monthly and annual statements to the
Indenture Trustee and the Owner Trustee with respect to distributions,
responding to inquiries of obligors, investigating delinquencies, and providing
collection and repossession services in cases of obligor default. In addition,
the Servicing Fee and the additional servicing compensation will further
compensate the Servicer for certain taxes, accounting fees, outside auditor
fees, data processing costs, and other costs incurred by the Servicer under the
Sale and Servicing Agreement in connection with administering and servicing the
Receivables.
EVIDENCE AS TO COMPLIANCE
The Sale and Servicing Agreement will provide that a firm of independent
certified public accountants, who may provide audit and other services to the
Servicer or the Seller, will furnish to the Indenture Trustee and the Owner
Trustee, on or before May 31 of each year, beginning May 31, 1999, a report of
examination as to compliance by the Servicer during the 12 months (or longer
period in the case of the first such report) ended the preceding December 31
with certain standards relating to the servicing of the Receivables.
The Sale and Servicing Agreement will also provide for delivery to the
Indenture Trustee and the Owner Trustee, on or before May 31 of each year,
beginning May 31, 1999, of a certificate signed by an officer of the Servicer
stating that the Servicer has fulfilled its obligations under the Sale and
Servicing Agreement throughout the 12 months (or longer period in the case of
the first such certificate) ended the preceding December 31 or, if there has
been a default in the fulfillment of any such obligation, describing each such
default.
Noteholders may obtain copies of such statements and certificates by
written request addressed to the Indenture Trustee.
CERTAIN MATTERS REGARDING THE SERVICER
The Sale and Servicing Agreement will provide that the Servicer may not
resign from its obligations and duties as Servicer thereunder, except upon a
determination that the Servicer's performance of such duties is no longer
permissible under applicable law. No such resignation will become effective
until the Indenture Trustee or a successor servicer has assumed the Servicer's
servicing obligations and duties under the Sale and Servicing Agreement.
Any corporation or other entity into which the Servicer may be merged or
consolidated, or that may result from any merger, conversion or consolidation to
which the Servicer is a party, or any entity that may succeed by purchase and
assumption to all or substantially all the business of the Servicer, where the
Servicer is not the surviving entity and where such corporation is an Eligible
Servicer and assumes the obligations of the Servicer under the Sale and
Servicing Agreement, will be the successor to the Servicer under the Sale and
Servicing Agreement.
INDEMNIFICATION AND LIMITS ON LIABILITY
The Sale and Servicing Agreement will provide that the Servicer will be
liable only to the extent of the obligations specifically undertaken by it under
the Sale and Servicing Agreement and will have no other obligations or
liabilities thereunder.
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The Sale and Servicing Agreement will also provide that the Servicer will
be under no obligation to appear in, prosecute, or defend any legal action that
is not incidental to the Servicer's servicing responsibilities under the Sale
and Servicing Agreement and that, in its opinion, may cause it to incur any
expense or liability. The Servicer may, however, at its expense undertake any
reasonable action that it may deem necessary or desirable in respect of the Sale
and Servicing Agreement and the rights and duties of the parties thereto and the
interests of the Noteholders and Certificateholders thereunder.
EVENTS OF SERVICING TERMINATION
The following events will constitute "Events of Servicing Termination"
under the Sale and Servicing Agreement: (i) any failure by the Servicer to
deliver to the Indenture Trustee the monthly certificate pursuant to the Sale
and Servicing Agreement detailing the collections and distributions for any
Collection Period (which failure continues beyond the earlier of three business
days from the date such Servicer's certificate was due to be delivered and the
Payment Date next succeeding such Collection Period), (ii) any failure by the
Servicer to deliver to the Collection Account or any other account, any required
payment or deposit, which failure continues unremedied for five business days
following the due date, (iii) any failure by the Servicer duly to observe or
perform in any material respect any other covenant or agreement in the Notes or
the Certificates and the Sale and Servicing Agreement, which failure materially
and adversely affects the rights of Noteholders or Certificateholders and which
continues unremedied for 30 days after written notice of such failure is given
to the Servicer by the Indenture Trustee or the Owner Trustee, as applicable
(the "Applicable Trustee"), or to the Seller or the Servicer and the Applicable
Trustee by the holders of Notes or Certificates, as applicable, evidencing not
less than 25% in aggregate principal amount of the outstanding Notes or
Certificates, (iv) certain events of bankruptcy, receivership, insolvency,
readjustment of debt, marshalling of assets and liabilities, or similar
proceedings with respect to the Seller or the Servicer and certain actions by
the Seller or the Servicer indicating its insolvency or reorganization pursuant
to bankruptcy, receivership, conservatorship, insolvency, or similar
proceedings, and (v) failure of the Servicer to be an Eligible Servicer. The
holders of Notes evidencing not less than a majority of the aggregate principal
amount of the outstanding Notes (or the holders of Certificates evidencing not
less than a majority of the Certificate Balance, in the case of any default
which does not adversely affect the Indenture Trustee or the Noteholders) may,
on behalf of all Noteholders, Certificateholders, and the Final Payment
Certificateholder, waive any Event of Servicing Termination except an event
resulting from the failure to make any required deposit or payment to any
account.
The Indenture Trustee will have no obligation to notify Noteholders of any
event which, with lapse of time to cure, would become an Event of Servicing
Termination, until after the expiration of any applicable cure period.
RIGHTS UPON AN EVENT OF SERVICING TERMINATION
As long as an Event of Servicing Termination remains unremedied, the
Indenture Trustee or the holders of Notes evidencing not less than a majority of
the aggregate principal amount of the outstanding Notes may terminate the
Servicer's rights and obligations under the Sale and Servicing Agreement,
whereupon the Indenture Trustee or a servicer appointed by the Indenture Trustee
will succeed to all the responsibilities, duties, and liabilities of the
Servicer under the Sale and Servicing Agreement. Thereafter, the successor
Servicer will be entitled to the compensation otherwise payable to the Servicer
and will be entitled to similar compensation arrangements. In the event that the
Indenture Trustee is unwilling or legally unable so to act, the Indenture
Trustee may appoint, or petition a court of competent jurisdiction for the
appointment of, an Eligible Servicer to act as successor to the outgoing
Servicer under the Sale and Servicing Agreement. In no event may the servicing
compensation to be paid to such successor be greater than the servicing
compensation payable to the Servicer under the Sale and Servicing Agreement. In
the event of the bankruptcy of the Servicer, the bankruptcy trustee or the
Servicer, as debtor in possession, may have the power to prevent a termination
of the Servicer's rights and obligations under the Sale and Servicing Agreement.
AMENDMENT
The Transfer and Servicing Agreements may be amended by the parties thereto
without the consent of the Noteholders or the Certificateholders, to cure any
ambiguity, to correct or supplement any provision therein
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which may be inconsistent with any other provision therein, to add, change or
eliminate any other provision with respect to matters or questions arising under
the Transfer and Servicing Agreements which are not inconsistent with the
provisions of the Transfer and Servicing Agreements; provided that such action
will not, as evidenced by an Opinion of Counsel satisfactory to the Indenture
Trustee and the Owner Trustee, materially and adversely affect the interest of
any Noteholder or Certificateholder.
The Transfer and Servicing Agreements may also be amended by the Seller,
the Servicer, the Owner Trustee and the Indenture Trustee with the consent of
the holders of Notes evidencing not less than 51% of the aggregate principal
amount of then outstanding Notes and the holders of Certificates evidencing not
less than 51% of the Certificate Balance for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Transfer and Servicing Agreements or of modifying the rights of Noteholders
or Certificateholders. However, no such amendment may (i) increase or reduce in
any manner the amount of, or accelerate or delay the timing of, or change the
allocation or priority of, collections of payments on Receivables or
distributions that are required to be made on any Note or Certificate or change
the Note Interest Rate, Certificate Rate or the Specified Reserve Balance,
without the consent of all adversely affected Noteholders or Certificateholders,
(ii) reduce the aforesaid percentage of the Notes and the Certificates which is
required to consent to any such amendment, without the consent of all
Noteholders or Certificateholders affected thereby, or (iii) adversely affect
the ratings of the Notes or the Certificates by the Rating Agencies without the
consent, respectively, of holders of Notes evidencing not less than 66 2/3% of
the aggregate principal amount of then outstanding Notes or holders of
Certificates evidencing not less than 66 2/3% of the Certificate Balance. See
"Description of the Notes -- Book Entry Registration."
INSOLVENCY EVENT
If any of certain events of insolvency, readjustment of debt, marshalling
of assets and liabilities, or similar proceedings with respect to such person
indicating its insolvency or inability to pay its obligations (each, an
"Insolvency Event") occurs with respect to the Seller, the Receivables shall be
sold and the Trust will be terminated 90 days after the date of such Insolvency
Event, unless, before the end of such 90-day period, the Owner Trustee shall
have received written instructions from (i) Noteholders holding a majority of
the outstanding principal amount of the Notes, (ii) the Certificateholders
holding a majority of the Certificate Balance (other than the Seller), and (iii)
holders of interests in the Reserve Account (other than the Seller) having
interests with a value in excess of 50% of all interests in Reserve Account held
by such persons), to the effect that such Noteholders, Certificateholders and
holders, if any, of interests in the Reserve Account, as applicable, disapprove
of the sale of the Receivables and termination of the Trust and in connection
therewith, the Indenture Trustee (i) appoints an entity to acquire an interest
in the Trust and to act as a substitute "general partner" for Federal income tax
purposes and (ii) obtains an Opinion of Counsel that the Trust will thereafter
not be classified as an association taxable as a corporation for Federal income
tax and applicable state tax purposes. Promptly after the occurrence of any
Insolvency Event with respect to the Seller, notice thereof is required to be
given to Noteholders, Certificateholders and holders of interests in the Reserve
Account; provided, however, that any failure to give such required notice will
not prevent or delay termination of the Trust. Upon termination (except in the
circumstances described above), the Owner Trustee shall direct the Indenture
Trustee promptly to sell the assets of the Trust (other than the Trust Accounts,
the Certificate Distribution Account, the Reserve Account and the Yield
Supplement Account) in a commercially reasonable manner and on commercially
reasonable terms. The proceeds from any such sale, disposition or liquidation of
the Receivables will be treated as collections on the Receivables and deposited
in the Collection Account. If the proceeds from the sale of the Receivables and
amounts on deposit in the Reserve Account, the Yield Supplement Account, the
Note Payment Account and the Collection Account are not sufficient to pay the
Notes in full, the amount of principal returned to the Noteholders will be
reduced and the Noteholders will incur a loss. See "Risk Factors -- Limited
Assets; Deficiencies from Sale Upon Insolvency of Seller."
SELLER LIABILITY
Under the Trust Agreement, the Seller will agree to be liable directly to
an injured party for the entire amount of any losses, claims, damages or
liabilities (other than those incurred by a Noteholder or a
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Certificateholder in the capacity of an investor) arising out of or based on the
arrangement created by the Trust Agreement as though such arrangement created a
partnership under the Delaware Revised Uniform Limited Partnership Act of which
the Seller were a general partner.
TERMINATION
The obligations of the Seller, the Servicer, the Owner Trustee and the
Indenture Trustee pursuant to the Indenture and the Transfer and Servicing
Agreements will, except with respect to certain reporting requirements,
terminate upon the earliest of (i) the Payment Date next succeeding the
Servicer's purchase of the Receivables, as described below, (ii) payment to
Noteholders and Certificateholders of all amounts required to be paid to them
pursuant to the Transfer and Servicing Agreements and (iii) the Payment Date
next succeeding the month which is six months after the maturity or other
liquidation of the last Receivable and the disposition of any amounts received
upon liquidation of any property remaining in the Trust in accordance with the
terms and priorities set forth in the Transfer and Servicing Agreements.
In order to avoid excessive administrative expense, the Servicer will be
permitted, at its option, in the event that the Pool Balance as of the close of
business on the last day of a Collection Period has declined to 10% or less of
the Initial Pool Balance to purchase from the Trust, on any Payment Date
occurring in a subsequent Collection Period, all remaining Receivables in the
Trust at a purchase price equal to unpaid principal amount of the Notes and the
Certificates plus accrued and unpaid interest thereon, together with the unpaid
principal amount of the Final Payment Certificate. The exercise of this right
will effect an early retirement of the Notes and the Certificates.
The Indenture Trustee will give written notice of termination of the Trust
to each Noteholder of record. The final distribution to any Noteholder will be
made only upon surrender and cancellation of such holder's Note (whether a
Definitive Note or the one or more physical notes representing the Notes) at the
office or agency of the Indenture Trustee specified in the notice of
termination. Any funds remaining in the Trust, after the Indenture Trustee has
taken certain measures to locate a Noteholder and such measures have failed,
will be distributed to the Servicer or as otherwise provided in the Transfer and
Servicing Agreements.
ADMINISTRATION AGREEMENT
MMCA, in its capacity as administrator (the "Administrator"), will enter
into an Administration Agreement (as amended and supplemented from time to time,
an "Administration Agreement") with the Trust and the Indenture Trustee pursuant
to which the Administrator will agree, to the extent provided in the
Administration Agreement, to provide the notices and to perform other
administrative obligations required by the Indenture. As compensation for the
performance of the Administrator's obligations under the Administration
Agreement and as reimbursement for its expenses relating thereto, the
Administrator will be entitled to a monthly administration fee, which fee will
be paid by the Servicer.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
RIGHTS IN THE RECEIVABLES
The Receivables are "chattel paper" as defined in the Uniform Commercial
Code (the "UCC"). Pursuant to the UCC, for most purposes, a sale of chattel
paper is treated in a manner similar to a transaction creating a security
interest in chattel paper. MMCA and the Seller will cause financing statements
to be filed with the appropriate governmental authorities to perfect the
interest of the Seller and the Trust, as the case may be, in its purchase of the
Receivables.
Pursuant to the Sale and Servicing Agreement, the Servicer will hold the
Receivables, either directly or through subservicers, as custodian for the
Indenture Trustee and the Trust following the sale and assignment of the
Receivables to the Trust. The Seller will take such action as is required to
perfect the rights of the Indenture Trustee and the Trust in the Receivables.
The Receivables will not be stamped, or otherwise marked, to indicate that they
have been sold to the Trust. If, through inadvertence or otherwise, another
party purchases (or takes a
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security interest in) the Receivables for new value in the ordinary course of
business and takes possession of the Receivables without actual knowledge of the
Trust's interest, the purchaser (or secured party) will acquire an interest in
the Receivables superior to the interest of the Trust.
Under the Sale and Servicing Agreement, the Servicer will be obligated from
time to time to take such actions as are necessary to protect and perfect the
Trust's interest in the Receivables and their proceeds.
SECURITY INTERESTS IN THE FINANCED VEHICLES
Generally, retail installment sales contracts such as the Receivables
evidence the credit sale of automobiles and light- and medium-duty trucks by
dealers to obligors; the contracts also constitute personal property security
agreements and include grants of security interests in the vehicles under the
UCC. Perfection of security interests in motor vehicles is generally governed by
the motor vehicle registration laws of the state in which the vehicle is
located. In most states in which the Receivables have been originated, a
security interest in the vehicle is perfected by notation of the secured party's
lien on the vehicle's certificate of ownership or title.
MMCA's practice is to take such action as is required in order to perfect
its security interest in a Motor Vehicle or Truck under the laws of the
jurisdiction in which the Motor Vehicle or Truck is registered. If MMCA, because
of clerical error or otherwise, has failed to take such action with respect to a
Financed Vehicle, it will not have a perfected security interest in the Financed
Vehicle, and its security interest may be subordinate to the interests of, among
others, subsequent purchasers of the Financed Vehicle that give value without
notice of MMCA's security interest and to whom a certificate of ownership is
issued in such purchaser's name, holders of perfected security interests in the
Financed Vehicle, and the trustee in bankruptcy of the obligor. MMCA's security
interest may also be subordinate to such third parties in the event of fraud or
forgery by the obligor or administrative error by state recording officials or
in the circumstances noted below. As described more fully below, MMCA and the
Seller will warrant in the Purchase Agreement and the Sale and Servicing
Agreement, respectively, that an enforceable first priority perfected security
interest exists for the benefit of the Seller and Trust, respectively, with
respect to each Financed Vehicle and will be required to repurchase the related
Receivable in the event of an uncured breach of such warranty.
Pursuant to the Purchase Agreement, MMCA will assign its security interests
in the Financed Vehicles, along with the sale and assignment of the Receivables,
to the Seller, and pursuant to the Sale and Servicing Agreement, the Seller will
assign its security interests in the Financed Vehicles, along with the sale and
assignment of the Receivables, to the Trust. The Servicer will hold the
certificates of title relating to the Financed Vehicles, either directly or
through subservicers, as custodian for the Indenture Trustee and the Trust
following such sale and assignment. The certificates of title will not be
endorsed or otherwise amended to identify the Trust as the new secured party,
however, because of the administrative burden and expense involved. The Seller
will assign its rights under the Purchase Agreement to the Trust.
In most states, an assignment of a security interest in a Financed Vehicle
along with the applicable Receivable is an effective conveyance of a security
interest without amendment of any lien noted on a vehicle's certificate of title
or ownership, and the assignee succeeds thereby to the assignor's rights as
secured party. However, because the Trust will not be identified as the secured
party on any such certificate, the security interest of the Trust in any
Financed Vehicle could be defeated through fraud, forgery, negligence or error
and may not be perfected in every state. In most states, in the absence of fraud
or forgery by the vehicle owner or of fraud, forgery, negligence or error by
MMCA or administrative error by state or local agencies, the notation of MMCA's
lien on the certificates of ownership or possession of such certificates with
such notation will be sufficient to protect the Trust against the rights of
subsequent purchasers of a Financed Vehicle or subsequent lenders who take a
security interest in a Financed Vehicle. If there are any Financed Vehicles as
to which the Trust fails to obtain a perfected security interest, its security
interest would be subordinate to, among others, subsequent purchasers of the
Financed Vehicles and holders of perfected security interests.
MMCA and the Seller will warrant in the Purchase Agreement and the Sale and
Servicing Agreement, respectively, as to each Receivable that, on the Closing
Date, there will exist a valid, subsisting, and enforceable first priority
perfected security interest in the Financed Vehicle securing the Receivable
(subject to any statutory or other lien arising by operation of law after the
Closing Date which is prior to such security interest) and, at
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such time as enforcement of such security interest is sought, there shall exist
a valid, subsisting, and enforceable first priority perfected security interest
in the Financed Vehicle for the benefit of the Seller and the Trust,
respectively (subject to any statutory or other lien arising by operation of law
after the Closing Date which is prior to such security interest). In the event
of an uncured breach of such warranty, MMCA and the Seller, pursuant to the
terms of the Purchase Agreement and the Sale and Servicing Agreement,
respectively, will be required to repurchase such Receivable for its Purchase
Amount. This repurchase obligation will constitute the sole remedy available to
the Trust and the Noteholders for such breach. MMCA's and the Seller's
warranties with respect to perfection and enforceability of a security interest
in a Financed Vehicle will not cover statutory or other liens arising after the
Closing Date by operation of law which are prior to such security interest.
Accordingly, any such lien would not by itself give rise to a repurchase
obligation on the part of MMCA and the Seller.
Under the laws of most states, a perfected security interest in a motor
vehicle continues for four months after the motor vehicle is moved to a new
state from the one in which it was initially registered and thereafter until the
motor vehicle owner re-registers the motor vehicle in the new state, but in any
event not beyond the surrender of the certificate. A majority of states require
surrender of a certificate of title to re-register a motor vehicle and require
that notice of such surrender be given to each secured party noted on the
certificate of title. In those states that require a secured party to take
possession of a certificate of title to perfect a security interest, the secured
party would learn of the re-registration through the request from the obligor to
surrender possession of the certificate of title. In those states that require a
secured party to note its lien on a certificate of title to perfect a security
interest but do not require possession of the certificate of title, the secured
party would learn of the re-registration through the notice from the state
department of motor vehicles that the certificate of title had been surrendered.
The requirements that a certificate of title be surrendered and that notices of
such surrender be given to each secured party also apply to re-registrations
effected following a sale of a motor vehicle. MMCA would therefore have the
opportunity to re-perfect its security interest in a Financed Vehicle in the
state of re-registration following relocation of the obligor and would be able
to require satisfaction of the related Receivable following a sale of the
Financed Vehicle. In states that do not require a certificate of title for
registration of a motor vehicle, re-registration could defeat perfection. In the
ordinary course of servicing Contracts, MMCA takes steps to effect reperfection
upon receipt of notice of re-registration or information from the obligor as to
relocation.
Under the laws of many states, liens for repairs performed on a motor
vehicle and liens for unpaid taxes take priority over a perfected security
interest in the motor vehicle. MMCA and the Seller will warrant in the Purchase
Agreement and the Sale and Servicing Agreement, respectively, that, as of the
Closing Date, to the best of its knowledge, no such liens are pending. In the
event of a breach of such warranty which has a material and adverse effect on
the interests of the Trust, the Noteholders or the Certificateholders, MMCA and
the Seller, pursuant to the terms of the Purchase Agreement and the Sale and
Servicing Agreement, respectively, will be required to repurchase the Receivable
secured by the Financed Vehicle involved. This repurchase obligation will
constitute the sole remedy available to the Trust, the Noteholders and the
Certificateholders for such breach. Any liens for repairs or taxes arising at
any time after the Closing Date during the term of a Receivable would not give
rise to a repurchase obligation on the part of MMCA and the Seller.
REPOSSESSION
In the event of a default by an obligor, the holder of a receivable has all
the remedies of a secured party under the UCC, except where specifically limited
by other state laws or by contract. The remedies of a secured party under the
UCC include the right to repossession by means of self-help, unless such means
would constitute a breach of the peace. Self-help repossession is the method
employed by MMCA in most cases, and is accomplished simply by taking possession
of the motor vehicle. Generally, where the obligor objects or raises a defense
to repossession, a court order must be obtained from the appropriate state court
and the motor vehicle must then be repossessed in accordance with that order. In
the event of a default by an obligor, many jurisdictions require that the
obligor be notified of the default and be given a time period within which he
may cure the default prior to or after repossession. Generally, this right of
reinstatement may be exercised on a limited number of occasions during the term
of a Receivable.
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NOTICE OF SALE; REDEMPTION RIGHTS
The UCC and other state laws require the secured party to provide an
obligor with reasonable notice of the date, time, and place of any public sale
and/or the date after which any private sale of the collateral may be held. The
obligor generally has the right to redeem the collateral prior to actual sale by
paying the secured party the unpaid principal amount of the obligation, accrued
and unpaid interest, plus, in most cases, reasonable expenses for repossessing,
holding, and preparing the collateral for disposition and arranging for its sale
plus, in some jurisdictions, reasonable attorneys' fees. In some states, the
obligor has the right, prior to actual sale, to reinstatement of the original
loan terms and to return of the collateral by payment of delinquent installments
of the unpaid amount and cure any other defaults.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of Financed Vehicles generally will be applied first
to the expenses of repossession and resale and then to the satisfaction of the
indebtedness on the related receivable. While some states impose prohibitions or
limitations on deficiency judgments if the net proceeds from resale do not cover
the full amount of the indebtedness, a deficiency judgment can be sought in
those states that do not prohibit or limit such judgments. Any such deficiency
judgment would be a personal judgment against the obligor for the shortfall,
however, and a defaulting obligor may have very little capital or few sources of
income available following repossession. Therefore, in many cases, it may not be
useful to seek a deficiency judgment or, if one is obtained, it may be settled
at a significant discount or not paid at all. MMCA generally seeks to recover
any deficiency existing after repossession and sale of a motor vehicle.
Occasionally, after resale of a repossessed motor vehicle and payment of
all expenses and indebtedness, there is a surplus of funds. In that case, the
UCC requires the secured party to remit the surplus to any other holder of a
lien with respect to the motor vehicle or, if no such lienholder exists or funds
remain after paying such other lienholder, to the former owner of the motor
vehicle.
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, M and Z,
and other similar acts, state adaptations of the Uniform Consumer Credit Code
and state motor vehicle retail installment sales acts, 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 the ability of an
assignee, such as the Trust, to enforce consumer and commercial finance
contracts such as the Receivables. The "Credit Practices" Rule of the Federal
Trade Commission (the "FTC") imposes additional restrictions on contract
provisions and credit practices.
The FTC's holder-in-due-course rule (the "FTC Rule") has the effect of
subjecting a holder of an obligation created in a consumer credit transaction to
all claims and defenses which the purchaser could assert against the seller of
the goods. Liability under the FTC Rule is limited to the amounts paid by the
purchaser under the contract, and the holder of the contract may also be unable
to collect any balance remaining due thereunder from the purchaser. The FTC Rule
is generally duplicated by state statutes or the common law in certain states.
Accordingly, the Indenture Trustee and the Trust, as holders of the Receivables,
may be subject to claims or defenses, if any, that the purchaser of a Financed
Vehicle may assert against the seller of such vehicle.
Under the motor vehicle dealer licensing laws of most states, sellers of
motor vehicles are required to be licensed to sell such vehicles at retail sale
and to originate certain installment sales contracts in connection with such
sales. In addition, with respect to used motor vehicles, the FTC's Rule on Sale
of Used Vehicles requires that all sellers of used motor vehicles prepare,
complete and display a "Buyer's Guide" which explains the warranty coverage for
such vehicles. Federal Odometer Regulations promulgated under the Motor Vehicle
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Information and Cost Savings Act require that all sellers of motor vehicles
furnish a written statement signed by the seller certifying the accuracy of the
odometer reading. If a seller is not properly licensed, or if either a Buyer's
Guide or Odometer Disclosure Statement was not properly provided to the
purchaser of a Financed Vehicle, such purchaser may be able to assert a defense
as to a retail installment sales contract against the seller of such vehicle or
of a subsequent holder of the retail installment sales contract.
Courts have applied general equitable principles to secured parties
pursuing repossession or litigation involving deficiency balances. These
equitable principles may have the effect of relieving an obligor from some or
all of the legal consequences of a default.
MMCA and the Seller will warrant in the Purchase Agreement and the Sale and
Servicing Agreement, respectively, as to each Receivable that such Receivable
complied at the time it was originated and as of the Closing Date in all
material respects with all requirements of applicable law. If, as of the Cutoff
Date, an obligor had a claim against the Trust for violation of any law, and
such claim materially and adversely affected the Trust's interest in a
Receivable, such violation would create an obligation of MMCA and the Seller
under the Purchase Agreement and the Sale and Servicing Agreement, respectively,
to repurchase the Receivable unless the breach were cured. This repurchase
obligation will constitute the sole remedy of the Trust, the Noteholders and the
Certificateholders against the Seller in respect of any such uncured breach. See
"Description of the Transfer and Servicing Agreements -- Sale and Assignment of
the Receivables."
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including insolvency laws, may interfere
with or affect the ability of a lender to realize upon collateral or enforce a
deficiency judgment. For example, in a Chapter 13 proceeding under the United
States Bankruptcy Code, a court may prevent a lender from repossessing a motor
vehicle and, as part of the rehabilitation plan, reduce the amount of the
secured indebtedness to the market value of such vehicle at the time of
bankruptcy (as determined by the court), leaving the party providing financing
as a general unsecured creditor for the remainder of the indebtedness. A
bankruptcy court may also reduce the monthly payments due under a contract or
change the rate of interest and time of repayment of the indebtedness.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Set forth below is a summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the Notes. This
discussion is based upon current provisions of the Internal Revenue Code of
1986, as amended (the "Code"), existing and proposed Treasury Regulations
thereunder, current administrative rulings, judicial decisions and other
applicable authorities in effect as of the date hereof, all of which are subject
to change, possibly with retroactive effect. There can be no assurance that the
Internal Revenue Service ("IRS") will not challenge the conclusions reached
herein, and no ruling from the IRS has been or will be sought on any of the
issues discussed below.
This summary does not purport to deal with all aspects of Federal income
taxation that may be relevant to Note Owners in light of their personal
investment circumstances nor, except for certain limited discussions of
particular topics, to certain types of Note Owners subject to special treatment
under the Federal income tax laws (e.g., financial institutions, broker-dealers,
life insurance companies and tax-exempt organizations). This information is
directed to Note Owners who hold the Notes as "capital assets" within the
meaning of Section 1221 of the Code.
GENERAL
Tax Status of the Notes and the Trust. On the Closing Date, Skadden, Arps,
Slate, Meagher & Flom LLP ("Special Tax Counsel") will render its opinion that
for Federal income tax purposes under existing law, and subject to customary
assumptions and qualifications set forth therein: (i) the Notes will be treated
as debt, and (ii) the Trust will not be classified as an association (or
publicly traded partnership) taxable as a corporation. The Seller, the Owner
Trustee and the Indenture Trustee have agreed, and the Noteholders will agree by
their
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purchase of Notes, to treat the Notes for Federal, state and local income and
franchise tax purposes as indebtedness of the Trust.
Stated Interest. Stated interest on the Notes will be taxable as ordinary
income for Federal income tax purposes when received or accrued in accordance
with a Note Owner's method of tax accounting.
Original Issue Discount. A Note will be treated as issued with Original
Issue Discount ("OID") if the excess of the Note's "stated redemption price at
maturity" over the issue price equals or exceeds a de minimis amount equal to
1/4 of 1 percent of the Note's stated redemption price at maturity multiplied
by the number of complete years (based on the anticipated weighted average life
of a Note) to its maturity.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Note and its issue price. A holder of a Note
must include such OID in gross income as ordinary interest income as it accrues
under a method taking into account an economic accrual of the discount. In
general, OID must be included in income in advance of the receipt of the cash
representing that income. The amount of OID on a Note will be considered to be
zero if it is less than a de minimis amount determined as described above.
The issue price of a Note will generally be the initial offering price at
which a substantial amount of the Notes are sold. The Trust intends to treat the
issue price as including, in addition, the amount paid by the Noteholder for
accrued interest that relates to a period prior to the Closing Date of such
Note. Under applicable Treasury regulations governing the accrual of OID (the
"OID Regulations"), the stated redemption price at maturity is the sum of all
payments on the Note other than any "qualified stated interest" payments.
Qualified stated interest is defined as any one of a series of payments equal to
the product of the outstanding principal balance of the Note and a single fixed
rate, or certain variable rates of interest that is unconditionally payable at
least annually.
The Holder of a Note issued with OID must include in gross income, for all
days during its taxable year on which it holds such Note, the sum of the "daily
portions" of such OID. Such daily portions are computed by allocating to each
day during a taxable year a pro rata portion of the OID that accrued during the
relevant accrual period. In the case of an obligation the principal on which is
subject to prepayment as a result of prepayments on the underlying collateral,
(a "Prepayable Obligation"), such as the Notes, OID is computed by taking into
account the anticipated rate of prepayments assumed in pricing the debt
instrument (the "Prepayment Assumption"). The Prepayment Assumption that will be
used in determining the rate of accrual of original issue discount, premium and
market discount, if any, is % ABS. The amount of OID that will accrue
during an accrual period (generally the period between interest payments or
compounding dates) is the excess (if any) of the sum of (a) the present value of
all payments remaining to be made on the Note as of the close of the accrual
period and (b) the payments during the accrual period of amounts included in the
stated redemption price of the Note, over the "adjusted issue price" of the Note
at the beginning of the accrual period. An "accrual period" is the period over
which OID accrues, and may be of any length, provided that each accrual period
is no longer than one year and each scheduled payment of interest or principal
occurs on either the last day or the first day of an accrual period. The Issuer
intends to report OID on the basis of an accrual period that corresponds to the
interval between payment dates. The adjusted issue price of a Note is the sum of
its issue price plus prior accruals of OID, reduced by the total payments made
with respect to such Note in all prior periods, other than qualified stated
interest payments. The present value of the remaining payments is determined on
the basis of three factors: (i) the original yield to maturity of the Note
(determined on the basis of compounding at the end of each accrual period and
properly adjusted for the length of the accrual period), (ii) events which have
occurred before the end of the accrual period and (iii) the assumption that the
remaining payments will be made in accordance with the original Prepayment
Assumption.
The effect of this method is to increase the portions of OID required to be
included in income by a Noteholder to take into account prepayments on the
Receivables at a rate that exceeds the Prepayment Assumption, and to decrease
(but not below zero for any period) the portions of OID required to be included
in income by a Noteholder to take into account prepayments with respect to the
Receivables at a rate that is slower than the Prepayment Assumption. Although
OID will be reported to Noteholders based on the Prepayment Assumption, no
representation is made to Noteholders that Receivables will be prepaid at that
rate or at any other rate.
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A holder of a Note that acquires the Note for an amount that exceeds its
stated redemption price will not include any OID in gross income. A subsequent
holder of a Note which acquires the Notes for an amount that is less than its
stated redemption price will be required to include OID in gross income, but
such a holder who purchases such Note for an amount that exceeds its adjusted
issue price will be entitled (as will an initial holder who pays more than a
Note's issue price) to reduce the amount of OID included in income in each
period by the amount of OID multiplied by a fraction, the numerator of which is
the excess of (w) the purchaser's adjusted basis in the Note immediately after
purchase thereof over (x) the adjusted issue price of the Note, and the
denominator of which is the excess of (y) all amounts remaining to be paid on
the Note after the purchase date, other than qualified stated interest, over (z)
the adjusted issue price of the Note.
Total Accrual Election. As an alternative to separately accruing stated
interest, OID, de minimis OID, market discount, de minimis market discount,
unstated interest, premium, and acquisition premium, a holder of a Note may
elect to include all income that accrues on the Note using the constant yield
method. If a Noteholder makes this election, income on a Note will be calculated
as though (i) the issue price of the Note were equal to the Noteholder's
adjusted basis in the Note immediately after its acquisition by the Noteholder;
(ii) the Note were issued on the Noteholder's acquisition date; and (iii) none
of the interest payments on the Note were "qualified stated interest." A
Noteholder may make such an election for an Note that has premium or market
discount, respectively, only if the Noteholder makes, or has previously made, an
election to amortize bond premium or to include market discount in income
currently. See "-- Market Discount" and "-- Amortizable Bond Premium."
Market Discount. The Notes, whether or not issued with original issue
discount, will be subject to the "market discount rules" of section 1276 of the
Code. In general, these rules provide that if the Note Owner-purchases a Note at
a market discount (that is, a discount from its stated redemption price at
maturity or, if the Notes were issued with OID, its original issue price plus
any accrued original issue discount that exceeds a de minimis amount specified
in the Code) and thereafter (a) recognizes gain upon a disposition, or (b)
receives payments of principal, the lesser of (i) such gain or principal payment
or (ii) the accrued market discount will be taxed as ordinary interest income.
Generally, the accrued market discount will be the total market discount on the
Note multiplied by a fraction, the numerator of which is the number of days the
Note Owner held the Note and the denominator of which is the number of days from
the date the Note Owner acquired the Note until its maturity date. The Note
Owner may elect, however, to determine accrued market discount under the
constant-yield method.
Limitations imposed by the Code which are intended to match deductions with
the taxation of income may defer deductions for interest on indebtedness
incurred or continued, or short-sale expenses incurred, to purchase or carry a
Note with accrued market discount. A Note Owner may elect to include market
discount in gross income as it accrues and, if the Note Owner makes such an
election, is exempt from this rule. Any such election will apply to all debt
instruments acquired by the taxpayer on or after the first day of the first
taxable year to which such election applies. The adjusted basis of a Note
subject to such election will be increased to reflect market discount included
in gross income, thereby reducing any gain or increasing any loss on a sale or
taxable disposition.
Amortizable Bond Premium. In general, if a Note Owner purchases a Note at
a premium (that is, an amount in excess of the amount payable upon the maturity
thereof), such Note Owner will be considered to have purchased such Note with
"amortizable bond premium" equal to the amount of such excess. Such Note Owner
may elect to amortize such bond premium as an offset to interest income and not
as a separate deduction item as it accrues under a constant-yield method over
the remaining term of the Note. Such Note Owner's tax basis in the Note will be
reduced by the amount of the amortized bond premium. Any such election shall
apply to all debt instruments (other than instruments the interest on which is
excludible from gross income) held by the Note Owner at the beginning of the
first taxable year for which the election applies or thereafter acquired and is
irrevocable without the consent of the IRS. Bond premium on a Note held by a
Note Owner who does not elect to amortize the premium will decrease the gain or
increase the loss otherwise recognized on the disposition of the Note.
Disposition of Notes. A Note Owner's adjusted tax basis in a Note will be
its cost, increased by the amount of any OID, market discount and gain
previously included in income with respect to the Note, and reduced by the
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amount of any payment on the Note that is not qualified stated interest and the
amount of bond premium previously amortized with respect to the Note. A Note
Owner will generally recognize gain or loss on the sale or retirement of a Note
equal to the difference between the amount realized on the sale or retirement
and the tax basis of the Note. Such gain or loss will be capital gain or loss
(except to the extent attributable to OID not previously accrued, accrued but
unpaid interest, or as described above under "-- Market Discount") and will be
long-term capital gain or loss if the Note was held for more than one year. In
addition, if the Prepayable Obligation rules apply, any OID that has not accrued
at the time of the payment in full of a Note will be treated as ordinary income.
WAIVERS AND AMENDMENTS
The Indenture permits the Noteholders to waive an Event of Default or
rescind an acceleration of the Notes in some circumstances upon a vote of the
requisite percentage of Noteholders. Any such waiver or rescission, or any
amendment of the terms of the Notes, could be treated for Federal income tax
purposes as a constructive exchange by a Noteholder of the Notes for new Notes,
upon which gain or loss would be recognized.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Indenture Trustee will be required to report annually to the IRS, and
to each Note Owner, the amount of interest paid on the Notes (and the amount
withheld for Federal income taxes, if any) for each calendar year, except as to
exempt recipients (generally, corporations, tax-exempt organizations, qualified
pension and profit-sharing trusts, individual retirement accounts, or
nonresident aliens who provide certification as to their status). Each Note
Owner (other than Note Owners who are not subject to the reporting requirements)
will be required to provide, under penalties of perjury, a certificate
containing the Note Owner's name, address, correct Federal taxpayer
identification number (which includes a social security number) and a statement
that the Note Owner is not subject to backup withholding. Should a non-exempt
Note Owner fail to provide the required certification or should the IRS notify
the Indenture Trustee or the Issuer that the Note Owner has provided an
incorrect Federal taxpayer identification number or is otherwise subject to
backup withholding, the Indenture Trustee will be required to withhold (or cause
to be withheld) 31% of the interest otherwise payable to the Note Owner, and
remit the withheld amounts to the IRS as a credit against the Note Owner's
Federal income tax liability.
TAX CONSEQUENCES TO FOREIGN INVESTORS
The following information describes the U.S. Federal income tax treatment
of investors that are not U.S. persons (each, a "Foreign Person"). The term
"Foreign Person" means any person other than (i) a citizen or resident of the
United States, (ii) a corporation, partnership or other entity organized in or
under the laws of the United States or any political subdivision thereof or
(iii) an estate or trust the income of which is includible in gross income for
U.S. Federal income tax purposes, regardless of its source.
(a) Interest paid or accrued to a Foreign Person that is not
effectively connected with the conduct of a trade or business within the
United States by the Foreign Person will generally be considered "portfolio
interest" and generally will not be subject to United States Federal income
tax and withholding tax, as long as the Foreign Person (i) is not actually
or constructively a "10 percent shareholder" of the Trust or a "controlled
foreign corporation" with respect to which the Trust is a "related person"
within the meaning of the Code, and (ii) provides an appropriate statement,
signed under penalties of perjury, certifying that the Note Owner is a
Foreign Person and providing that Foreign Person's name and address. If the
information provided in this statement changes, the Foreign Person must so
inform the Indenture Trustee within 30 days of such change. The statement
generally must be provided in the year a payment occurs or in either of the
two preceding years. If such interest were not portfolio interest, then it
would be subject to United States Federal income and withholding tax at a
rate of 30 percent unless reduced or eliminated pursuant to an applicable
income tax treaty.
(b) Any capital gain realized on the sale or other taxable disposition
of a Note by a Foreign Person will be exempt from United States Federal
income and withholding tax, provided that (i) the gain is not effectively
connected with the conduct of a trade or business in the United States by
the Foreign Person, and
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(ii) in the case of an individual Foreign Person, the Foreign Person is not
present in the United States for 183 days or more in the taxable year and
certain other requirements are met.
(c) If the interest, gain or income on a Note held by a Foreign Person
is effectively connected with the conduct of a trade or business in the
United States by the Foreign Person, the Note Owner (although exempt from
the withholding tax previously discussed if a duly executed Form 4224 is
furnished) generally will be subject to United States Federal income tax on
the interest, gain or income at regular Federal income tax rates. In
addition, if the Foreign Person is a foreign corporation, it may be subject
to a branch profits tax under the Code equal to 30 percent of its
"effectively connected earnings and profits" for the taxable year, as
adjusted for certain items, unless it qualified for a lower rate under an
applicable tax treaty.
Recently proposed Treasury regulations (the "Proposed Regulations") could
affect the procedures to be followed by a non-U.S. Person in complying with the
United Stated federal withholding, backup withholding, and information reporting
rules. The Proposed Regulations are not currently effective but, if finalized in
their current form, would be effective for payments made after December 31,
1997. Prospective investors are advised to consult their own tax advisers
regarding the effect, if any, of the Proposed Regulations on the purchase,
ownership, and disposition of the Notes.
CERTAIN STATE TAX CONSEQUENCES
Set forth below is a summary of certain state income tax consequences of
the purchase, ownership and disposition of the Notes. Because of the variation
in each state's income tax laws, it is impossible to predict tax consequences to
Noteholders in all states. Noteholders are urged to consult their tax advisors
with respect to state tax consequences arising out of the purchase, ownership
and disposition of Notes.
The Trust has been organized as a Delaware business trust, and the Seller
and Servicer are headquartered in the State of California; however, in the
opinion of Special Tax Counsel, assuming that the Notes are treated as debt for
federal income tax purposes, (i) the Notes will be treated as debt for Delaware
and California income and franchise tax purposes, (ii) the Trust will not be
subject to Delaware or California income or franchise taxes at the entity level,
and (iii) Noteholders not otherwise subject to taxation in California or
Delaware, respectively, would not become subject to taxation in California or
Delaware, respectively, solely because of a Noteholder's ownership of a Note.
THE FEDERAL AND STATE TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A NOTEHOLDER'S
PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX
ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF ACQUIRING, HOLDING AND
DISPOSING OF NOTES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX
LAWS.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA")
and the Code impose certain restrictions on (a) employee benefit plans (as
defined in Section 3(3) of ERISA), (b) plans described in Section 4975(e)(1) of
the Code, including individual retirement accounts or Keogh Plans, (c) any
entities whose underlying assets include plan assets by reason of a plan's
investment in such entities (each of (a), (b) and (c) a "Benefit Plan") and (d)
persons who have certain specified relationships to a Benefit Plan
("Parties-in-Interest" under ERISA and "Disqualified Persons" under the Code).
Moreover, based on the reasoning of the United States Supreme Court in John
Hancock Life Ins. Co. v. Harris Trust and Sav. Bank, 114 S.Ct. 517 (1993), the
general account of an insurance company may be deemed to include assets of
Benefit Plans investing in its general account (e.g., through the purchase of an
annuity contract), and the insurance company might be treated as a
Party-in-Interest with respect to a Benefit Plan by virtue of such an
investment. ERISA also imposes certain duties on persons who are fiduciaries of
Benefit Plans subject to ERISA and prohibits certain transactions between a
Benefit Plan and Parties-in-Interest or Disqualified Persons with respect to
such Benefit Plan.
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Certain transactions involving the Trust might be deemed to constitute
prohibited transactions under ERISA and the Code if assets of the Trust were
deemed to be assets of a Benefit Plan. Under a regulation issued by the United
States Department of Labor (the "Plan Assets Regulation"), the assets of the
Trust would be treated as plan assets of a Benefit Plan for purposes of ERISA
and the Code only if the Benefit Plan acquires an "Equity Interest" in the Trust
and none of the exceptions contained in the Plan Assets Regulation (discussed
below) is applicable. An Equity Interest is defined under the Plan Assets
Regulation as an interest other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features. The Seller believes that the Notes should be treated as indebtedness
without substantial equity features for purposes of the Plan Assets Regulation.
However, without regard to whether the Notes are treated as an Equity Interest
for such purposes, the acquisition or holding of Notes by or on behalf of a
Benefit Plan could be considered to give rise to a prohibited transaction if the
Trust, the Owner Trustee, the Indenture Trustee, any holder of the Certificates
or any of their respective affiliates, is or becomes a party in interest or a
disqualified person with respect to such Benefit Plan. In such case, certain
exemptions from the prohibited transaction rules could be applicable depending
on the type and circumstances of the Benefit Plan fiduciary making the decision
to acquire a Note. Included among these exemptions are: Prohibited Transaction
Class Exemption ("PTCE") 90-1, regarding investments by insurance company pooled
separate accounts; PTCE 91-38, regarding investments by bank collective
investment funds; PTCE 84-14, regarding transactions effected by "qualified
professional asset managers"; and PTCE 95-60, regarding investments by insurance
company general accounts. A violation of the prohibited transaction rules may
result in the imposition of an excise tax and other liabilities under ERISA and
the Code, unless one or more statutory or administrative exemptions is
available.
Prior to making an investment in the Notes, prospective Benefit Plan
investors should consult with their legal advisors concerning the impact of
ERISA and the Code and the potential consequences of such investment with
respect to their specific circumstances. Moreover, each Benefit Plan fiduciary
should take into account, among other considerations, whether the fiduciary has
the authority to make the investment; the composition of the Benefit Plan's
portfolio with respect to diversification by type of asset; the Benefit Plan's
funding objectives; the tax effects of the investment; and whether under the
general fiduciary standards of investment procedure and diversification an
investment in the Notes is appropriate for the Benefit Plan, taking into account
the overall investment policy of the Benefit Plan and the composition of the
Benefit Plan's investment portfolio.
63
<PAGE> 65
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Seller has agreed to sell to each of the
Underwriters named below (collectively, the "Underwriters"), and each of the
Underwriters, for whom Credit Suisse First Boston Corporation is acting as
representative (the "Representative"), has severally agreed to purchase from the
Seller, the principal amount of the Notes set forth opposite its name below:
<TABLE>
<CAPTION>
AGGREGATE
PRINCIPAL AMOUNT
OF NOTES TO BE
UNDERWRITERS PURCHASED
------------------------------------------------------------- ----------------
<S> <C>
Credit Suisse First Boston Corporation....................... $
----------
Total.............................................. $
==========
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all the Notes
offered hereby if any of the Notes are purchased. In the event of a default by
any Underwriter, the Underwriting Agreement provides that, in certain
circumstances, purchase commitments of the non-defaulting Underwriters may be
increased or the Underwriting Agreement may be terminated.
The Seller has been advised by the Representative that the several
Underwriters propose initially to offer the Notes to the public at the price set
forth on the cover page hereof, and to certain dealers at such price less a
concession not in excess of % per Note. The Underwriters may allow and such
dealers may reallow a concession not in excess of % per Note to certain
other dealers. After the initial public offering, the public offering price and
such concessions may be changed.
The Representative has informed the Seller that it does not expect
discretionary sales by the Underwriters to exceed 5% of the principal amount of
the Notes being offered hereby.
Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. Overallotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the securities in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the Underwriters to reclaim a selling concession from a
syndicate member when the securities originally sold by such syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the securities to be higher than it would
otherwise be in the absence of such transactions.
The closing of the sale of the Notes is conditioned on the closing of the
sale of the Certificates.
The Indenture Trustee may, from time to time, invest the funds in the Trust
Accounts, the Yield Supplement Account and the Reserve Account in Permitted
Investments acquired from the Underwriters.
64
<PAGE> 66
In the ordinary course of business, the Underwriters and their affiliates
have engaged and may engage in investment banking and commercial banking
transactions with the Servicer and its affiliates.
MMCA and the Seller have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act or to
contribute to payments the Underwriters may be required to make in respect
thereof.
LEGAL OPINIONS
The validity of the Notes and certain Federal income tax matters will be
passed upon for the Seller by Skadden, Arps, Slate, Meagher & Flom LLP, New
York, New York. The validity of the Notes will be passed upon for the
Underwriters by Brown & Wood LLP, San Francisco, California.
65
<PAGE> 67
INDEX OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
ABS.............................................................................. 25
ABS Tables....................................................................... 27
Accrued Certificate Interest..................................................... 41
Accrued Note Interest............................................................ 41
Actuarial Advance................................................................ 9
Actuarial Receivables............................................................ 21, 23, 24
Administration Agreement......................................................... 58
Administrator.................................................................... 58
Advance.......................................................................... 9
Applicable Trustee............................................................... 55
APR.............................................................................. 21
Available Funds.................................................................. 39
Basic Documents.................................................................. 49
Benefit Plan..................................................................... 67
Business Day..................................................................... 5
Capped Receivables............................................................... 24
Cede............................................................................. 5
Cedel............................................................................ 35
Certificate Balance.............................................................. 41
Certificate Distribution Account................................................. 38
Certificateholders............................................................... 38
Certificateholders' Interest Carryover Shortfall................................. 41
Certificateholders' Monthly Accrued Certificate Interest......................... 41
Certificateholders' Principal Carryover Shortfall................................ 41
Certificateholders' Regular Principal............................................ 41
Certificate Rate................................................................. 41
Certificates..................................................................... cover, 3
Closing Date..................................................................... 4
Code............................................................................. 62
Collection Account............................................................... 7, 8, 38
Collection Period................................................................ 4
Commission....................................................................... 2
Contracts........................................................................ 16
Cutoff Date...................................................................... cover, 4
Dealer........................................................................... 16
Dealer Agreement................................................................. 16
Defaulted Receivable............................................................. 40
Definitive Notes................................................................. 36
Depositary....................................................................... 34
Determination Date............................................................... 39
Direct Participants.............................................................. 33
Disqualified Persons............................................................. 67
DTC.............................................................................. 2
</TABLE>
66
<PAGE> 68
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Due Date......................................................................... 18
Eligible Servicer................................................................ 53
ERISA............................................................................ 10, 67
Euroclear........................................................................ 35
Events of Default................................................................ 47
Events of Servicing Termination.................................................. 55
Exchange Act..................................................................... 2
Final Payment Certificate........................................................ 3
Final Payment Certificateholder.................................................. 3-4
Final Payment Receivables........................................................ 24
Final Scheduled Maturity Date.................................................... 4, 53
Final Scheduled Payment Date..................................................... 6
Financed Vehicles................................................................ 4
Force Placed Insurance........................................................... 19
Foreign Person................................................................... 65
FTC.............................................................................. 61
FTC Rule......................................................................... 14, 45
Gap Amount....................................................................... 3
Indenture........................................................................ 3
Indenture Trustee................................................................ 3, 36
Indirect Participants............................................................ 33
Initial Pool Balance............................................................. 6
Insolvency Event................................................................. 57
Insolvency Laws.................................................................. 11
IRS.............................................................................. 62
Issuer........................................................................... 3
Last Scheduled Payment........................................................... 40
Level Pay Balance................................................................ 44
Level Pay Pool Balance........................................................... 21
Liquidation Proceeds............................................................. 39
Mitsubishi Motors................................................................ 32
MMCA............................................................................. 3, 32
MMSA............................................................................. 32
Motor Vehicle.................................................................... 16
Motor Vehicle Contracts.......................................................... 16
Noteholders...................................................................... 5
Noteholders' Accelerated Principal............................................... 41
Noteholders' Interest Carryover Shortfall........................................ 42
Noteholders' Monthly Accrued Note Interest....................................... 42
Noteholders' Principal Carryover Shortfall....................................... 42
Noteholders' Regular Principal................................................... 42
Note Interest Rate............................................................... 5, 42
Note Owner....................................................................... 5
Note Payment Account............................................................. 38
Note Pool Factor................................................................. 31
</TABLE>
67
<PAGE> 69
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Notes............................................................................ cover, 3
OID.............................................................................. 63
OID Regulations.................................................................. 63
Opinion of Counsel............................................................... 50
Owner Trustee.................................................................... 3
Parties-in-Interest.............................................................. 67
Payaheads........................................................................ 38
Payahead Account................................................................. 38
Payment Date..................................................................... cover, 5
Permitted Investments............................................................ 38
Plan Assets Regulation........................................................... 67
Pool Balance..................................................................... 4
Prepayable Obligation............................................................ 63
Prepayment Assumption............................................................ 63
Principal Distribution Amount.................................................... 6, 40
PTCE............................................................................. 67
Purchase Agreement............................................................... 4
Purchase Amount.................................................................. 52
Qualified Institution............................................................ 38
Qualified Trust Institution...................................................... 38
Rating Agency.................................................................... 14
Realized Losses.................................................................. 42
Receivable File.................................................................. 52
Receivables...................................................................... 4, 21
Record Date...................................................................... 5
Recoveries....................................................................... 39
Representative................................................................... 68
Reserve Account.................................................................. 6
Reserve Initial Deposit.......................................................... 6
Rule of 78's Payment............................................................. 24
Rules............................................................................ 48
Sale and Servicing Agreement..................................................... 4
Scheduled Principal.............................................................. 42
Securities Act................................................................... 2
Seller........................................................................... 3
Servicing Fee.................................................................... 9
Servicing Rate................................................................... 9, 55
Simple Interest Receivables...................................................... 24
Special Tax Counsel.............................................................. 62
Specified Reserve Balance........................................................ 7, 43
Total Required Payment........................................................... 6, 43
Total Servicing Fee.............................................................. 8, 54
Transfer and Servicing Agreements................................................ 51
Truck............................................................................ 16
Truck Contracts.................................................................. 16
</TABLE>
68
<PAGE> 70
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Trust............................................................................ cover, 3
Trust Accounts................................................................... 38
Trust Agreement.................................................................. 3
Trust Property................................................................... 4
UCC.............................................................................. 58
Underwriters..................................................................... 68
Underwriting Agreement........................................................... 68
Weighted Average Rate............................................................ 8
Yield Supplement Account......................................................... 8, 39
Yield Supplement Agreement....................................................... 7, 38
Yield Supplement Amount.......................................................... 8
Yield Supplement Letter of Credit................................................ 39
</TABLE>
69
<PAGE> 71
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered MMCA Auto
Owner Trust 1997-1 Asset Backed Notes, will be available only in book-entry
form. Investors in the Notes may hold such Notes through any of DTC, Cedel, or
Euroclear. The Notes 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 Notes through Cedel and
Euroclear will be conducted in the ordinary way in accordance with their normal
rules and operating procedures and in accordance with conventional eurobond
practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Notes directly through
DTC will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Notes will be effected on a delivery-against-payment basis
through the respective Depositaries of Cedel and Euroclear (in such capacity)
and as DTC Participants.
Non-U.S. holders (as described below) of Notes 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 Notes will be held in book-entry form by DTC in the name of Cede & Co.
as nominee of DTC. Investors' interests in the Notes will be represented through
financial institutions acting on their behalf as direct and indirect
Participants in DTC. As a result, Cedel and Euroclear will hold positions on
behalf of their participants through their respective Depositaries, which in
turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Notes through DTC will follow the
settlement practices applicable to U.S. corporate debt obligations. Investor
securities custody accounts will be credited with their holdings against payment
in same-day funds on the settlement date.
Investors electing to hold their Notes through Cedel or Euroclear 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. Notes will be credited to the securities custody accounts on
the settlement date against payment in the same-day funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to 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 U.S. corporate
debt obligations in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When Notes
are to be transferred from the account of a DTC Participant to the accounts of a
Cedel Participant or a Euroclear Participant, the purchaser will send
instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business
70
<PAGE> 72
day prior to settlement. Cedel or Euroclear, as the case may be, will instruct
the respective Depositary to receive the Notes against payment. Payment will
include interest accrued on the Notes from and including the last coupon payment
date to and excluding the settlement date, on the basis of a 360-day year
consisting of twelve 30-day months. Payment will then be made by the Depositary
to the DTC Participant's account against delivery of the Notes. After settlement
has been completed, the Notes will be credited to the respective clearing system
and by the clearing system, in accordance with its usual procedures, to the
Cedel Participant's or Euroclear Participant's account. The Notes credit will
appear the next day (European time) and the cash debit will be back-valued to,
and the interest on the Notes will accrue from, the value date (which would be
the preceding day when settlement occurred in New York). If settlement is not
completed on the intended value date (i.e., the trade fails), the Cedel or
Euroclear cash debit will be valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Notes are
credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to pre-position
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, Cedel Participants or Euroclear Participants purchasing Notes
would incur overdraft charges for one day, assuming they cleared the overdraft
when the Notes were credited to their accounts. However, interest on the Notes
would accrue from the value date. Therefore, in many cases the investment income
on the Notes earned during that one-day period may substantially reduce or
offset the amount of such overdraft charges, although this result will depend on
each Cedel Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Notes to the
respective Depositary for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participants a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between Cedel or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Notes are to be
transferred by the respective clearing system, through the respective
Depositary, to a DTC Participant. The seller will send instructions to Cedel or
Euroclear through a Cedel Participant or Euroclear Participant at least one
business day prior to settlement. In these cases, Cedel or Euroclear will
instruct the respective Depositary, as appropriate, to deliver the bonds to the
DTC Participant's account against payment. Payment will include interest accrued
on the Notes from and including the last coupon payment date to and excluding
the settlement date on the basis of a 360-day year consisting of twelve 30-day
months. The payment will then be reflected in the account of the Cedel
Participant or Euroclear Participant the following day, and receipt of the cash
proceeds in the Cedel Participant's or Euroclear Participant's account would be
back-valued to the value date (which would be the preceding day, when settlement
occurred in New York). Should the Cedel Participant or Euroclear Participant
have a line of credit with its respective clearing system and elect to be in
debt in anticipation of receipt of the sale proceeds in its account, the
back-valuation will extinguish any overdraft 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 Cedel Participant's or
Euroclear Participant's account would instead be valued as of the actual
settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Notes
from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
71
<PAGE> 73
(b) borrowing the Notes in the U.S. from a DTC Participant no later
than one day prior to settlement, which would give the Notes sufficient
time to be reflected in their Cedel or Euroclear account in order to settle
the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase form the DTC Participant is at
least one day prior to the value date for the sale to the Cedel Participant
or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Notes holding securities through Cedel or Euroclear
(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 issue discount) on registered debt issued by U.S. Persons,
unless (i) each clearing system, bank, or other financial institution that holds
customers' securities in the ordinary course of its trade or business in the
chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Notes that
are non-U.S. Persons can obtain a complete exemption from the withholding tax by
filing a signed Form W-8 (Certificate of Foreign Status). If the information
shown on Form W-8 changes, a new Form W-8 must be filed within 30 days of such
change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. persons resident in treaty countries
(Form 1001). Non-U.S. Persons that are Note Owners 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. Form 1001 may be filed by the Note Owner or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Note Owner or, in the
case of a Form 1001 or a Form 4224 filer, his agent, files by submitting the
appropriate form to the person through whom it holds (the clearing agency, in
the case of persons holding directly on the books of the clearing agency). Form
W-8 and Form 1001 are effective for three calendar years and Form 4224 is
effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate the income
of which is includible in gross income for United States tax purposes,
regardless of its source, or (iv) a trust if a U.S. court is able to exercise
primary supervision over the administration of such trust and one or more U.S.
fiduciaries has the authority to control all substantial decisionf of the trust.
This summary does not deal with all aspects of U.S. Federal income tax
withholding that may be relevant to foreign holders of the Notes. Investors are
advised to consult their own tax advisors for specific tax advice concerning
their holding and disposing of the Notes.
Recently proposed Treasury regulations (the "Proposed Regulations") could
affect the procedures to be followed by a non-U.S. Person in complying with the
United Stated federal withholding, backup withholding, and information reporting
rules. The Proposed Regulations are not currently effective but, if finalized in
their
72
<PAGE> 74
current form, would be effective for payments made after December 31, 1997.
Prospective investors are advised to consult their own tax advisers regarding
the effect, if any, of the Proposed Regulations on the purchase, ownership, and
disposition of the Notes.
73
<PAGE> 75
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE SELLER, THE SERVICER OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROSPECTUS, NOR ANY SALE MADE HEREUNDER, SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE SELLER OR THE SERVICER SINCE SUCH DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................... 2
Reports to Noteholders.................. 2
Summary................................. 3
Risk Factors............................ 10
The Trust............................... 13
The Trust Property...................... 14
MMCA's Vehicle Contract Portfolio....... 15
The Receivables......................... 18
Pool Factors and Other Information...... 29
Use of Proceeds......................... 29
The Seller.............................. 29
The Servicer............................ 30
Description of the Notes................ 30
Description of the Transfer and
Servicing Agreements.................. 48
Certain Legal Aspects of the
Receivables........................... 54
Certain Federal Income Tax
Consequences.......................... 58
Certain State Tax Consequences.......... 62
ERISA Considerations.................... 62
Underwriting............................ 64
Legal Opinions.......................... 65
Index of Principal Terms................ 66
Annex I................................. 70
</TABLE>
UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
MMCA
AUTO OWNER TRUST
1997-1
$
% Asset Backed Notes
MMCA Auto
Receivables, Inc.
Seller
Servicer
PROSPECTUS
Credit Suisse first boston logo
<PAGE> 76
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Registration Fee................................................. $ *
Printing and Engraving........................................... $ *
Trustee's Fee.................................................... $ *
Legal Fees and Expenses.......................................... $ *
Blue Sky Fees and Expenses....................................... $ *
Accountant's Fees and Expenses................................... $ *
Rating Agency Fees............................................... $ *
Miscellaneous Fees and Expenses.................................. $ *
------
Total Expenses......................................... $ *
======
</TABLE>
- ---------------
* To be supplied by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of Delaware provides as follows:
145 Indemnification of Officers, Directors, Employees and Agents;
Insurance
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of
this
II-1
<PAGE> 77
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification
of the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made
(1) by a majority vote of the directors who are not parties to such action,
suit or proceeding, even though less than a quorum, or (2) if there are no
such directors, or if such directors so direct, by independent legal
counsel in a written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by other employees and agents may be
so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding
such office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability
under this section.
(h) For purposes of this section, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include
any excise taxes assessed on a person with respect to any employee benefit
plan; and references to "serving at the request of the corporation" shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
II-2
<PAGE> 78
(k) The Court of Chancery is hereby vested with exclusive jurisdiction
to hear and determine all actions for advancement of expenses or
indemnification brought under this section or under any bylaw, agreement,
vote of stockholders or disinterested directors, or otherwise. The Court of
Chancery may summarily determine a corporation's obligation to advance
expenses (including attorneys' fees).
Article VIII of the By-Laws of MMCA Auto Receivables, Inc. provides as
follows:
Section 1. Definitions. For purposes of this Article VIII: (i)
"Corporation" shall be deemed to mean this Corporation and shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers, employees and agents so that any person who
is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another legal entity shall stand in
the same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued; (ii) a "legal
entity" is a corporation, partnership, joint venture, trust or other enterprise;
(iii) a "proceeding" is any action, suit, or proceeding, whether civil,
criminal, administrative, arbitrative or investigative, including an action or
suit by or in the right of the Corporation to procure a judgment in its favor,
and any appeal in such an action, suit, or proceeding, and any inquiry or
investigation that could lead to such action, suit or proceeding; and (iv) a
"qualified position" with respect to any legal entity is a position as a
director or an officer of such legal entity or a position held by a director,
officer or employee of such legal entity which does or might constitute him a
fiduciary with respect to any employee benefit plan for the employees of such
legal entity under any Federal or state law regulating employee benefit plans.
Section 2. Mandatory Indemnification. The Corporation shall indemnify
each person who was or is a party or is threatened to be made a party to any
proceeding by reason of the fact that he is serving in a qualified position with
respect to the Corporation or is serving in a similar capacity with respect to
any other legal entity at the request of the Corporation, against all expenses
(including attorneys' fees and costs of investigation and litigation),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with any such proceeding to the maximum extent permitted
under the General Corporation Law of the State of Delaware (the "Delaware Law",
which term shall be deemed to include the General Corporation Law of the State
of Delaware or any successor statute or section thereof, as now written or
hereafter amended). The termination of any proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not of itself create a presumption that such person acted in such a manner
as to make him ineligible for indemnification. The right of a person to be
indemnified hereunder shall be a contract right and shall include the right to
be paid by the Corporation all expenses incurred in defending any such
proceeding in advance of its final disposition upon compliance with the
provisions of Delaware Law then in effect concerning advancement of expenses.
Section 3. Permissive Indemnification. In addition to the indemnification
provided for in Section 2, the Corporation shall have the power to indemnify or
contract in advance to indemnify, to a lesser or the same extent that
indemnification is required under Section 2, any person who was or is a party or
is threatened to be made a party to any proceeding by reason of the fact that he
is serving in any capacity with respect to the Corporation or with respect to
any other legal entity at the request of the Corporation.
Section 4. Determination that Indemnification is Proper. Any
indemnification under this Article VIII (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that such indemnification is permitted under Delaware Law, or, in
the case of indemnification under Section 3, is proper because the requirements
specified by the Corporation with respect to such indemnification have been met.
Such determination shall be made (i) by the Board of Directors by a majority
vote of a quorum consisting of directors who neither are nor were parties to the
proceeding, or (ii) if such a quorum is not obtainable or, even though
obtainable, a majority of disinterested directors so directs, by independent
legal counsel in a written opinion, or (iii) by the stockholders. In making a
determination the directors may rely, as to all questions of law, on the advice
of independent legal counsel.
II-3
<PAGE> 79
Section 5. Claims for Indemnification or Advances. If a claim for
indemnification or advancement of expenses hereunder is not paid in full by the
Corporation within 60 days after a written claim has been received by the
Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim, and if successful in
whole or in part, the claimant shall be entitled to be paid the expenses of
prosecuting such claim. It shall be a defense to any such action that such
indemnification or advancement of costs of defense are not permitted under
Delaware Law, but the burden of proving such defense shall be on the
Corporation.
Section 6. Miscellaneous. Every reference in this Article VIII to persons
who are entitled to indemnification and advancement of expenses shall include
all persons who formerly occupied any of the positions hereinabove set forth in
this Article VIII, to the extent they would have been entitled to
indemnification and advancement of expenses under the provisions of this Article
VIII if they still held such positions and their respective heirs, executors and
administrators. Indemnification or advancement of expenses provided pursuant to
the foregoing provisions of this Article VIII shall not be exclusive of any
other rights of indemnification or advancement of expenses to which any person
may be entitled. Such rights include, but are not limited to, any and all rights
under insurance policies that may be purchased and maintained by the Corporation
or others, whether or not the Corporation would have the power to indemnify such
person in the particular instance under the provisions of this Article VIII, but
no person shall be entitled to indemnification by the Corporation to the extent
he is indemnified by any other party, including an insurer.
Section 7. Insurance. The Corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer or employee of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer or employee of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power or the obligation to
indemnify him against such liability under the provisions of this Article VIII.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
1.1 -- Form of Underwriting Agreement***
3.1 -- Certificate of Incorporation of the Seller*
3.2 -- Bylaws of the Seller**
4.1 -- Form of Trust Agreement of the Trust between the Seller and the Owner Trustee***
4.2 -- Form of Sale and Servicing Agreement among the Seller, the Servicer and the
Trust***
4.3 -- Form of Indenture between the Trust and the Indenture Trustee***
4.4 -- Form of Administration Agreement among the Trust, the Administrator and the
Indenture Trustee***
4.5 -- Form of Note (contained in Exhibit 4.3)***
5.1 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP re Legality***
8.1 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP re Tax Matters***
10.1 -- Form of Purchase Agreement between Mitsubishi Motors Credit of America, Inc. and
the Seller***
23.1 -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP (contained in Exhibit
5.1)***
23.2 -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP (contained in Exhibit
8.1)***
24 -- Powers of Attorney (included in this Registration Statement as page II-6)
25 -- Form T-1 of Indenture Trustee***
</TABLE>
- ---------------
* Incorporated by reference to Exhibit 3.1 of Registration Statement No.
33-67014.
II-4
<PAGE> 80
** Incorporated by reference to Exhibit 3.2 of Registration Statement No.
33-67014.
*** To be filed by amendment.
(b) Financial Statement Schedules
Not applicable.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes as follows:
(a) To provide to the Underwriter at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriter to permit prompt delivery to each
purchaser.
(b) 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 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) 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.
(d) For the purpose of determining any liability under the Securities
Act of 1933, each post effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 81
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cypress, State of
California, on August 5, 1997.
MMCA AUTO RECEIVABLES, INC.
By /s/ SEIICHI UO
------------------------------------
Seiichi Uo
Director and President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints Eric L. Eckes, J. Sean Plater, and Tatsuo Nonaka,
and each of them, his true and lawful attorneys-in-fact and agents with full
power 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 file the same, with all exhibits thereto,
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------- ---------------
<C> <S> <C>
/s/ SEIICHI UO Director and President August 5, 1997
- ------------------------------------------ (principal executive officer)
Seiichi Uo
/s/ HIDEYUKI KITAMURA Secretary and Treasurer August 5, 1997
- ------------------------------------------ (principal financial officer and
Hideyuki Kitamura principal accounting officer)
/s/ JOHN MAYNARD Director August 5, 1997
- ------------------------------------------
John Maynard
/s/ MASAKI TAKAHASHI Director August 5, 1997
- ------------------------------------------
Masaki Takahashi
/s/ CHARLES A. TREDWAY Director August 5, 1997
- ------------------------------------------
Charles A. Tredway
/s/ YASUHIRO HAGIHARA Director August 5, 1997
- ------------------------------------------
Yasuhiro Hagihara
</TABLE>
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<PAGE> 82
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------ ------------
<C> <C> <S> <C>
1.1 -- Form of Underwriting Agreement***
3.1 -- Certificate of Incorporation of the Seller*
3.2 -- Bylaws of the Seller**
4.1 -- Form of Trust Agreement of the Trust between the Seller and the Owner
Trustee***
4.2 -- Form of Sale and Servicing Agreement among the Seller, the Servicer and
the Trust***
4.3 -- Form of Indenture between the Trust and the Indenture Trustee***
4.4 -- Form of Administration Agreement among the Trust, the Administrator and
the Indenture Trustee***
4.5 -- Form of Note (contained in Exhibit 4.3)***
5.1 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP re Legality***
8.1 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP re Tax Matters***
10.1 -- Form of Purchase Agreement between Mitsubishi Motors Credit of America,
Inc. and the Seller***
23.1 -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP (contained in
Exhibit 5.1)***
23.2 -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP (contained in
Exhibit 8.1)***
24 -- Powers of Attorney (included in this Registration Statement as page
II-6)
25 -- Form T-1 of Indenture Trustee***
</TABLE>
- ---------------
* Incorporated by reference to Exhibit 3.1 of Registration Statement No.
33-67014.
** Incorporated by reference to Exhibit 3.2 of Registration Statement No.
33-67014.
*** To be filed by amendment.
