Registration No. 333-66063
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
Registration Statement Under The Securities Act of 1933
MMCA AUTO OWNER TRUST 1998-2
(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)
Delaware 9999 33-0570905
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code No.)
organization)
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)
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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)
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Copies to:
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, California 94104
Approximate date 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, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration 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. |_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Proposed
Maximum
Proposed Maximum Aggregate Amount of
Title of Each Class of Amount to Offering Price Offering Registration
Securities to be Registered be Registered per Unit(1) Price(1) Fee (2)
- --------------------------- ------------- ---------------- --------- ------------
<S> <C> <C> <C> <C>
% Class A-1 Asset $ 250,000 100% $ 250,000 $ 69.50
Backed Notes................
% Class A-2 Asset $ 250,000 100% $ 250,000 $ 69.50
Backed Notes................
% Class A-3 Asset $ 250,000 100% $ 250,000 $ 69.50
Backed Notes................
% Class B Asset Backed $ 250,000 100% $ 250,000 $ 69.50
Notes.......................
============================ ================================ ============== ============
</TABLE>
(1)Estimated solely for the purpose of calculating the registration fee.
(2)Previously paid.
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 Securities and
Exchange Commission, acting pursuant to said Section 8(a), may determine.
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The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS Dated , 1998
PROSPECTUS
$
MMCA Auto Owner Trust 1998-2
$ % Class A-1 Asset Backed Notes
$ % Class A-2 Asset Backed Notes
$ % Class A-3 Asset Backed Notes
$ % Class B Asset Backed Notes
MMCA Auto Receivables, Inc.
Seller
[LOGO]
Servicer
Consider carefully the risk factors beginning on page 11 of this prospectus.
The Notes represent obligations of the trust and are backed only by the
assets of the trust. The Notes do not represent obligations of or interests
in MMCA Auto Receivables, Inc., Mitsubishi Motors Credit of America,
Inc. or any of their respective affiliates.
Total Securities To Be Issued:
Original Price to
Principal Public Underwriting Proceeds
Amount (1) Discount to Seller(1)(2)
------------ ------------ ------------ ---------------
Class A-1 Notes $ % % %
Class A-2 Notes $ % % %
Class A-3 Notes $ % % %
Class B Notes $ % % %
Certificates (3) $ N/A N/A N/A
Total $ $ $ $
(1) Plus accrued interest, if any, from , 1998.
(2) Before deducting expenses, estimated to be $ .
(3) Not offered by this prospectus.
Interest and principal on the Notes and the Certificates will be payable on
the 15th day of each month. If the 15th day is not a business day, the
payment will be made on the next business day. The first payment date will
be , 1998.
All principal will be paid to the Class A-1 Notes until the Class A-1 Notes
are fully paid. After the Class A-1 Notes are fully paid, all principal
will be paid to the Class A-2 Notes and the Class B Notes until the Class
A-2 Notes are fully paid. After the Class A-2 Notes are fully paid, all
principal will be paid to the Class A-3 Notes and the Class B Notes until
the Class A-3 Notes and the Class B Notes are fully paid. After the Class
A-3 Notes and the Class B Notes are fully paid, all principal will be paid
to the Certificates until the Certificates are fully paid.
The Certificates are not offered by this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed on the
adequacy or accuracy of this prospectus. Any representation to the contrary
is a criminal offense.
We expect that delivery of the Notes will be made in book-entry form only
through the facilities of The Depository Trust Company against payment on
or about
, 1998.
Underwriters of the Class A Notes
Merrill Lynch & Co.
Underwriter of the Class B Notes
Merrill Lynch & Co.
The date of this Prospectus is , 1998
IMPORTANT NOTICE
ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS
You should rely only on information on the notes provided in this
prospectus. We have not authorized anyone to provide you with different
information.
We include cross-references in this prospectus to captions in these
materials where you can find further related discussions. The following
table of contents provides the pages on which these captions are located.
You can find a listing of the pages where capitalized terms used in this
prospectus are defined under the caption "Index of Principal Terms"
beginning on page 84 in this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved these securities or determined that this prospectus
is accurate or complete. Any representation to the contrary is a criminal
offense.
TABLE OF CONTENTS
Page
----
SUMMARY OF TERMS...................................................6
The Trust..........................................................6
Seller of the Receivables to the Trust.............................6
Servicer of the Receivables........................................6
Indenture Trustee..................................................6
Owner Trustee......................................................6
The Notes..........................................................6
Payment Dates......................................................6
Available Funds....................................................6
Interest Payments..................................................6
Principal Payments.................................................6
Subordination......................................................7
Final Payment Dates................................................7
Trust Property.....................................................7
The Receivables....................................................8
Negative Carry Account.............................................8
Optional Redemption................................................9
Mandatory Redemption...............................................9
Credit Enhancement.................................................9
Investments; Releases to Seller...................................10
Priority of Distributions.........................................10
Tax Status........................................................10
ERISA Considerations..............................................10
Legal Investment..................................................10
Rating of the Notes...............................................10
RISK FACTORS......................................................11
THE TRUST.........................................................20
General...........................................................20
Capitalization of the Trust.......................................21
The Owner Trustee.................................................21
THE TRUST PROPERTY................................................21
MMCA'S VEHICLE CONTRACT
PORTFOLIO.........................................................21
General...........................................................21
Underwriting......................................................22
Servicing and Collection..........................................23
Physical Damage Insurance.........................................23
Delinquency, Credit Loss and Returned
Vehicle Loss Experience...........................................24
THE RECEIVABLES...................................................26
Selection Criteria................................................27
Certain Characteristics...........................................28
Payments on the Receivables.......................................31
Maturity and Prepayment
Considerations....................................................32
POOL FACTORS AND OTHER
INFORMATION.......................................................39
USE OF PROCEEDS...................................................39
THE SELLER........................................................39
THE SERVICER......................................................40
DESCRIPTION OF THE NOTES..........................................40
General...........................................................40
Book Entry Registration...........................................41
Definitive Notes..................................................44
Interest..........................................................45
Principal.........................................................45
Mandatory Redemption..............................................46
Optional Redemption...............................................47
The Indenture Trustee.............................................47
The Accounts......................................................47
Yield Supplement Agreement........................................48
Yield Supplement Account..........................................48
The Indenture Cash Flows..........................................49
Negative Carry Account............................................53
Reserve Account and Supplemental
Reserve Account...................................................54
Final Payment Receivables.........................................56
Subordination of the Class B Notes and
the Certificates..................................................57
Advances..........................................................57
Collections on the Receivables....................................58
Statements to Noteholders.........................................59
Indenture.........................................................60
DESCRIPTION OF THE TRANSFER
AND SERVICING AGREEMENTS..........................................64
Sale and Assignment of the Initial
Receivables and the Subsequent
Receivables.......................................................64
Pre-Funding.......................................................66
Mandatory Repurchase of Receivables...............................66
Servicing Procedures..............................................67
Servicing Compensation............................................68
Evidence as to Compliance.........................................69
Certain Matters Regarding the Servicer............................69
Indemnification and Limits on Liability...........................69
Events of Servicing Termination...................................69
Rights Upon an Event of Servicing
Termination ......................................................70
Amendment.........................................................70
Termination.......................................................71
Administration Agreement..........................................71
CERTAIN LEGAL ASPECTS OF THE
RECEIVABLES.......................................................72
Rights in the Receivables.........................................72
Security Interests in the Financed
Vehicles..........................................................72
Repossession......................................................74
Notice of Sale; Redemption Rights.................................74
Deficiency Judgments and Excess
Proceeds..........................................................74
Consumer Protection Laws..........................................74
Other Limitations.................................................75
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES......................................................75
General...........................................................76
Waivers and Amendments............................................78
Information Reporting and Backup
Withholding.......................................................78
Tax Consequences to Foreign Investors.............................79
CERTAIN STATE TAX
CONSEQUENCES......................................................79
ERISA CONSIDERATIONS..............................................80
Plan Asset Considerations.........................................80
Special Considerations Applicable to
Insurance Company General Accounts................................80
General Investment Considerations.................................81
UNDERWRITING......................................................81
LEGAL OPINIONS....................................................83
REPORTS TO NOTEHOLDERS............................................83
WHERE YOU CAN FIND MORE
INFORMATION.......................................................83
INDEX OF PRINCIPAL TERMS..........................................84
ANNEX A...........................................................88
SUMMARY OF TERMS
The following summary is a short description of the main terms of the
offering of the Notes. For that reason, this summary does not contain all
of the information that may be important to you. You will find a detailed
description of the terms of the offering of the Notes following this
summary.
The Trust
o MMCA Auto Owner Trust 1998-2.
Seller of the Receivables to the Trust
o MMCA Auto Receivables, Inc.
Servicer of the Receivables
o Mitsubishi Motors Credit of America, Inc.
Indenture Trustee
o Bank of Tokyo-Mitsubishi Trust Company.
Owner Trustee
o Wilmington Trust Company.
The Notes
o The Trust is offering the following Notes pursuant
to this prospectus:
o % Class A-1 Asset Backed Notes in the
aggregate principal amount of $[ ];
o % Class A-2 Asset Backed Notes in the
aggregate principal amount of $[ ];
o % Class A-3 Asset Backed Notes in the
aggregate principal amount of $[ ];
and
o % Class B Asset Backed Notes in the aggregate
principal amount of $[ ].
The Trust is also issuing $[ ] aggregate principal amount of Asset Backed
Certificates. The Trust is not offering the Certificates pursuant to this
prospectus.
Payment Dates
Interest and principal on the Notes will be paid on the 15th day of each
calendar month. If the 15th day of the month is not a business day,
interest and principal on the Notes will be paid on the next business day.
The first payment date will be [ ], 1999.
Available Funds
Payments on the Notes will be made from collections on the receivables
during the preceding calendar month and amounts withdrawn from certain bank
accounts of the Trust.
Payments on the Notes will be made only after reimbursing the Servicer for
advances made by the Servicer and payment of the servicing fee.
Interest Payments
Interest will accrue on the Notes at the rates per annum specified above.
For the first interest payment, interest on each class of Notes will
accrue from the closing date. Following the first payment date, interest on
the Class A-1 Notes will accrue from each payment date to the day prior to
the following payment date and will be calculated using a 360-day year and
the actual number of days during the interest accrual period. Interest on
the other classes of Notes will accrue from the 15th day of each calendar
month to the 14th day of the following calendar month and will be
calculated using a 360- day year of twelve 30-day months.
On each payment date, interest on the Notes will be paid from available
funds in the following order of priority:
o on the Class A-1 Notes, the Class A-2 Notes and the Class A-3 Notes,
ratably without distinction among classes; and
o after payment of interest on the Class A Notes,
on the Class B Notes.
Principal Payments
On each payment date, principal on the Notes will be paid from collections
on the receivables during the preceding calendar month and amounts
withdrawn from certain bank accounts after payment of interest on the
Notes. The principal paid on the Notes generally will equal the principal
scheduled to be paid on the receivables during the preceding calendar
month.
On each payment date, principal on the Notes will be paid in the following
order of priority:
(i) to the Class A-1 Notes until the amount paid to the Class A-1 Notes
on such payment date is equal to 100% of the principal scheduled to be
paid on the receivables during the preceding calendar month;
(ii) after the Class A-1 Notes are paid in full,
(A) to the Class A-2 Notes until % of the principal scheduled to be
paid on the receivables during the preceding calendar month has
been paid to the Class A-2 Notes on such payment date; then
(B) to the Class B Notes until % of the principal scheduled to be paid
on the receivables during the preceding calendar month has been
paid to the Class B Notes on such payment date; and
(iii) after the Class A-2 Notes are paid in full,
(A) to the Class A-3 Notes until % of the principal scheduled to be
paid on the receivables during the preceding calendar month has
been paid to the Class A-3 Notes on such payment date; then
(B) to the Class B Notes until % of the principal scheduled to be paid
on the receivables during the preceding calendar month has been
paid to the Class B Notes on such payment date.
If an event of default under the indenture occurs, the order of priority
for principal payments will change. Following an event of default under the
indenture, principal on the Notes will be paid in the following order of
priority:
o to the Class A Notes, ratably without distinction among classes, until
the Class A Notes are paid in full; and
o after the Class A Notes are paid in full, to the Class B Notes, until
the Class B Notes are paid in full.
Subordination
Class B Notes
The Class B Notes will be subordinated to the Class A Notes as follows:
o no interest will be payable on the Class B Notes on any payment date
until all interest payable on the Class A Notes on that payment date is
paid;
o no principal will be payable on the Class B
Notes until the Class A-1 Notes are paid in full;
and
o if an event of default under the indenture occurs, no principal will be
payable on the Class B Notes until all principal required to be paid on
the Class A Notes is paid in full.
Certificates
The Certificates will be subordinated to the Notes as follows:
o no distributions will be made on the Certificates on any payment date
until all interest and principal required to be paid on the Notes and
any deposits required to be made to certain reserve accounts on that
payment date have been paid in full.
Final Payment Dates
The outstanding principal amount of each class of Notes, to the extent not
previously paid, will be paid in full on the date specified below for such
class of Notes:
o the Class A-1 Notes: [ ]
o the Class A-2 Notes: [ ]
o the Class A-3 Notes: [ ]
o the Class B Notes: [ ]
Trust Property
The property of the Trust will include:
o the receivables and the collections on the receivables;
o security interests in the vehicles financed by the receivables;
o certain bank accounts;
o rights to proceeds under certain insurance policies that cover the
obligors under the receivables or the vehicles financed by the
receivables; and
o certain remedies for breaches of representations and warranties made by
the dealers that originated the receivables.
The Receivables
The receivables are motor vehicle retail installment sale contracts secured
by the related motor vehicles.
The Seller will transfer to the Trust two types of receivables on the
closing date and during the pre-funding period:
o receivables that provide for equal monthly payments that amortize the
entire amount financed over the term of the receivable; and
o receivables that provide for equal monthly payments and one
substantially larger final payment.
Initial Receivables
On the closing date, the Seller will transfer to the
Trust receivables with an aggregate principal balance
of $[ ] as of [ ], 1998.
As of [ ], 1998:
o the aggregate principal balance of the equal monthly payments to be
made on the receivables that the Seller will transfer to the Trust on
the closing date was $[ ]; and
o the aggregate principal balance of the substantially larger final
payments to be made on certain of the receivables that the Seller will
transfer to the Trust on the closing date was $[ ].
Additional Receivables
In addition to the receivables that the Seller will transfer to the Trust
on the closing date, it is anticipated that the Seller will transfer
additional receivables to the Trust during a pre-funding period beginning
on the closing date and ending not later than the [ ] payment date.
The Trust will pay the purchase price for such additional receivables with
funds on deposit in a pre-funding account. The Seller will deposit $[ ] to
the pre-funding account on the closing date. The Seller expects the
receivables that it will transfer to the Trust during the pre-funding
period to have an aggregate principal balance approximately equal to $[ ].
The pre-funding period will end earlier than the [ ] payment date if:
o the amount remaining on deposit in the pre-
funding account is less than $100,000;
o an event of default under the indenture occurs;
o the Servicer defaults in the performance of its
servicing obligations; or
o the Seller or the Servicer is the subject of
insolvency proceedings.
In selecting the receivables transferred to the Trust during the
pre-funding period, the Seller may use credit criteria that are different
from those that the Seller applied in selecting the receivables transferred
to the Trust on the closing date. However, the entire pool of receivables
will not deviate from the following characteristics on each date as of
which the Seller transfers additional receivables to the Trust (after
giving effect to the transfer of such additional receivables):
o the weighted average remaining maturity of the
entire pool of receivables in the Trust will not be
more than [ ] months; and
o for receivables that amortize to one substantially larger final
payment, the average principal amount of such final payment as a
percentage of the aggregate original principal balance of such
receivables, in each case as of the related dates of origination, will
not be greater than [ ]%.
Negative Carry Account
The Indenture Trustee will establish a negative carry account to provide a
source of funds to cover any shortfall on each payment date during the
pre-funding period between:
o the net earnings from the investment of the
funds on deposit in the pre-funding account, and
o the portion of the interest payable on the Notes that is effectively
backed by funds on deposit in the pre-funding account.
On each payment date, the Indenture Trustee will withdraw funds in the
amount of such shortfall from the negative carry account and deposit such
shortfall and the net earnings from the investment of funds in the
pre-funding account to the collection account. The Seller will deposit $[ ]
to the negative carry account on the closing date.
Optional Redemption
The Servicer will be entitled to purchase the receivables on any payment
date on which the aggregate principal balance of the receivables is 10% or
less of the aggregate principal balance of the receivables as of the dates
as of which the receivables were transferred to the Trust by the Seller.
On the payment date on which the Servicer exercises its option to purchase
the receivables, the Notes will be redeemed at a price equal to the unpaid
principal amount of the Notes plus accrued and unpaid interest thereon.
Mandatory Redemption
On the first payment date occurring on or after the last day of the
pre-funding period, any funds remaining in the pre-funding account (after
any purchase of receivables on such date) will be distributed as principal
on the Notes.
Credit Enhancement
The credit enhancement for the Notes will be as follows:
o credit enhancement for the Class A Notes is
provided by the subordination of the Class B
Notes and the Certificates;
o credit enhancement for the Class B Notes is
provided by the subordination of the Certificates; and
o credit enhancement for the Class A Notes and the Class B Notes is
provided by the reserve account, the supplemental reserve account and
the yield supplement account.
Reserve Account and Supplemental Reserve Account
The Indenture Trustee will establish a reserve account and a supplemental
reserve account to provide credit enhancement for the Notes and the
Certificates. On each payment date, the Indenture Trustee will use funds on
deposit in the supplemental reserve account to pay the following amounts,
but only to the extent collections on the receivables are insufficient to
pay such amounts:
(i) the amounts payable to the Servicer; and
(ii) to the extent of any remaining funds, the
amounts payable on the Notes.
If the funds on deposit in the supplemental reserve account are
insufficient to pay such amounts, the Indenture Trustee will use funds on
deposit in the reserve account to make up the shortfall.
On the closing date, the Seller will deposit $[ ] to the reserve account.
On each date during the pre-funding period on which the Seller transfers
additional receivables to the Trust, the Indenture Trustee will transfer an
amount equal to [ ]% of the aggregate principal balance of those additional
receivables from the pre-funding account to the reserve account.
The Seller will not make an initial deposit to the supplemental reserve
account.
On each payment date, the Indenture Trustee will deposit into the reserve
account and the supplemental reserve account, to the extent necessary to
rein state the required balances of such accounts, any collections on the
receivables remaining after payment of (i) the amounts payable to the
Servicer and (ii) the amounts payable on the Notes.
Yield Supplement Account
The Indenture Trustee will establish a yield supplement account to provide
a source of funds to cover any shortfall on each payment date between:
o the collections of interest on certain receivables,
and
o the portion of the servicing fee and interest pay able on the Notes
that is effectively backed by the collections of interest on those
receivables.
On each payment date, the Indenture Trustee will withdraw funds in the
amount of such shortfall from the yield supplement account and deposit such
short fall to the collection account.
On the closing date, Seller will deposit $[ ] to the yield supplement
account. On each date during the pre-funding period on which the Seller
transfers additional receivables to the Trust, the Indenture Trustee will
transfer from the pre-funding account to the yield supplement account an
amount equal to the expected shortfall between the collections of interest
on those receivables on all future payment dates.
Investments; Releases to Seller
The Servicer will direct the Indenture Trustee to invest the funds on
deposit in the Trust's bank accounts in investments satisfying certain
criteria. On each payment date, the Indenture Trustee will release to the
Seller any funds on deposit in the negative carry account, the reserve
account, the supplemental reserve account and the yield supplement account
in excess of the required balances of those accounts.
Priority of Distributions
On each payment date, the Indenture Trustee will distribute the available
funds on deposit in the collection account to pay the following amounts in
the following order of priority after reimbursement of Servicer advances:
(i) the servicing fee payable to the Servicer;
(ii) the deposit to the note payment account of the
interest and principal payable on the Notes;
(iii) the deposit to the reserve account of the
amount necessary to reinstate the required balance
of the reserve account; and
(iv) the deposit to the supplemental reserve account of the amount
necessary to reinstate the required balance of the supplemental
reserve account.
Tax Status
In the opinion of Skadden, Arps, Slate, Meagher & Flom LLP, for federal
income and Delaware and California income and franchise tax purposes:
o the Notes will be characterized as debt; and
o the Trust will not be characterized as an association
(or a publicly traded partnership) taxable as
a corporation.
By your acceptance of a Note, you will agree to treat the Note as
indebtedness for tax purposes.
ERISA Considerations
Subject to the considerations discussed under "ERISA Considerations" in
this prospectus, the Notes are generally eligible for purchase by employee
benefit plans.
Legal Investment
The Class A-1 Notes are structured to be eligible for purchase by money
market funds under Rule 2a-7 under the Investment Company Act of 1940, as
amended. A money market fund should consult its legal advisors regarding
the eligibility of the Class A-1 Notes under Rule 2a-7 and whether an
investment by the money market fund in the Class A-1 Notes satisfies the
money market fund's investment policies and objectives.
Rating of the Notes
The following are conditions to the issuance of the Notes:
o each class of Class A Notes be rated "Aaa" by
Moody's Investors Service, Inc. and "AAA" by
Standard & Poor's, a division of The McGraw-
Hill Companies, and
o the Class B Notes be rated "A" by Moody's
Investors Service, Inc. and "A" by Standard &
Poor's.
There is no assurance that a rating will not be lowered or withdrawn by
Moody's Investors Service, Inc. or Standard & Poor's if circumstances so
warrant.
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase Notes.
Absence of Secondary
Market for Notes
Could Limit Ability
to Resell Notes The absence of a secondary market for the Notes
could limit your ability to resell your Notes.
There currently is no secondary market for the
Notes. The underwriters for the Notes expect to
make a market in each class of Notes but will not
be obligated to do so. There is no assurance that a
secondary market for the Notes will develop. If a
secondary market for the Notes does develop, there
is no assurance that it will continue or that you
will be able to resell your Notes.
Interests of Other
Persons in Receivables
and Vehicles Could be
Superior to Trusts's
Interests Another person could acquire an interest in a
receivable that is superior to the Trust's interest
in the receivable because the receivables will not
be segregated or marked as belonging to the Trust.
The Seller will cause financing statements to be
filed with the appropriate governmental authorities
to perfect the Trust's interest in the receivables.
The Servicer will continue to hold the receivables,
either directly or through subservicers. However,
the Servicer will not segregate, stamp or otherwise
mark the receivables to indicate that they have
been sold to the Trust. If another party purchases
(or takes a security interest in) one or more
receivables for new value in the ordinary course of
business and obtains possession of a receivable
without actual knowledge of the Trust's interest
because of the failure to segregate or mark the
receivable, the purchaser (or secured party) will
acquire an interest in such receivable superior to
the interest of the Trust.
Another person could acquire an interest in a
vehicle financed by a receivable that is superior
to the Trust's interest in the vehicle because of
the failure to identify the Trust as the secured
party in the related certificate of title. The
Seller will assign to the Trust its security
interests in the vehicles financed by the
receivables. The Servicer will continue to hold the
certificates of title or ownership for the
vehicles, either directly or through subservicers.
However, the Servicer will not endorse or otherwise
amend the certificates of title or ownership 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 owner
ship, the security interest of the Trust in the
vehicles (i) may be defeated through fraud,
forgery, negligence or error and (ii) may not be
perfected in every state.
Bankruptcy of Mitsubishi
Motors Credit of America,
Inc. Could Result in
Losses or Delays in
Payments on the Notes If Mitsubishi Motors Credit of America, Inc.
("MMCA") becomes subject to bankruptcy proceedings,
you could experience losses or delays in the
payments on your Notes. MMCA will sell the
receivables to the Seller, and the Seller will in
turn transfer the receivables to the Trust.
However, if MMCA becomes subject to a bankruptcy
proceeding, the court in the bankruptcy proceeding
could conclude that MMCA effectively still owns the
receivables by concluding that the sale to the
Seller was not a "true sale" or that the Seller
should be consolidated with MMCA for bankruptcy
purposes. If the court were to reach this
conclusion, you could experience losses or delays
in payments on your Notes as a result of, among
other things:
o the "automatic stay" which prevents secured
creditors from exercising remedies against a
debtor in bankruptcy without permission from
the court and provisions of the U.S.
Bankruptcy Code that permit substitution of
collateral in certain circumstances;
o certain tax or government liens on MMCA's
property (that arose prior to the transfer of
a receivable to the Trust) having a right to
be paid from collections before the
collections are used to make payments on your
Notes; and
o the Trust not having a perfected security
interest in (a) one or more of the vehicles
securing the receivables or (b) any cash
collections held by MMCA at the time that a
bankruptcy proceeding begins.
The Seller has taken steps in structuring the
transactions described in this prospectus to
minimize the risk that a court would consolidate
the Seller with MMCA for bankruptcy purposes or
conclude that the sale to the Servicer was not a
"true sale".
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 ever becomes
subject to a bankruptcy proceeding and the court
follows the Octagon court's reasoning, you could
experience losses or delays in payments on your
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 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.
Class B Notes are
Subject to Greater
Credit Risk Because
the Class B Notes
are Subordinate to
Class A Notes The Class B Notes bear greater credit risk than
the Class A Notes because payments of interest
and principal on the Class B Notes are subordinated
to payments of interest and principal on the Class
A Notes.
Interest payments on the Class B Notes will be
subordinated to interest payments on the Class A
Notes. No interest will be paid on the Class B
Notes on any payment date until the interest due on
the Class A Notes on such payment date has been
paid in full.
Principal payments on the Class B Notes will be
subordinated to principal payments on the Class A-1
Notes. No principal will be paid on the Class B
Notes until the Class A-1 Notes have been paid in
full.
On any payment date, the principal payments on the
Class B Notes will be subordinated to the principal
payments on the Class A-2 Notes. On any payment
date, if the amount on deposit in the note payment
account that is available for payment of principal
is less than the aggregate amount of principal
payable on the Class A-2 Notes and the Class B
Notes on that payment date, the amount available
for payment of principal will be applied to make
the required payment of principal to the Class A-2
Notes prior to any payment of principal to the
Class B Notes.
On any payment date, the principal payments on the
Class B Notes will subordinated to the principal
payments on the Class A-3 Notes. On any payment
date, if the amount on deposit in the note payment
account that is available for payment of principal
is less than the aggregate amount of principal
payable on the Class A-3 Notes and the Class B
Notes on that payment date, the amount available
for payment of principal will be applied to make
the required payment of principal to the Class A-3
Notes prior to any payment of principal to the
Class B Notes.
If an event of default under the indenture occurs,
interest and principal payments on the Class B
Notes will be subordinated to interest and
principal payments on the Class A Notes. No
interest or principal payments will be made on the
Class B Notes following an event of default under
the indenture until all interest payable on the
Class A Notes and the principal amount of the Class
A Notes has been paid in full.
Payment of Principal
on Class B Notes Prior
to Payment in Full of
Class A-2 and Class A-3
Notes Could Increase
Losses on Class A-2
and Class A-3 Notes
Following an Event
of Default You could suffer a greater loss in your investment
in the Class A-2 Notes or the Class A-3 Notes upon
an event of default under the indenture than would
otherwise be the case because a portion of the
principal of the Class B Notes will be paid before
payment in full of the Class A-2 Notes and any
payment of principal on the Class A-3 Notes. If an
event of default under the indenture occurs and the
Indenture Trustee sells the receivables to pay
principal on the Notes, the proceeds of such sale
may be insufficient to pay the Class A-2 Notes and
the Class A-3 Notes in full. In such circumstance,
investors in the Class A-2 Notes and the Class A-3
Notes could suffer a loss on their investment even
though investors in the Class B Notes had been paid
a portion of their principal prior to the
occurrence of the event of default.
Potential You May Be
Required to Reinvest
Your Principal in the
Notes at a Lower Rate
of Return Because of
Prepayments on the
Notes You may receive payment of principal on your Notes
earlier than you expect for the reasons set forth
below. You may not be able to reinvest the
principal paid to you earlier than you expected at
a rate of return that is equal to or greater than
the rate of return on your Notes.
Potential Prepayment of Notes Due to Failure to
Transfer a Sufficient Number of Additional
Receivables to the Trust. The Notes will be prepaid
in part if the aggregate principal balance of the
additional receivables transferred to the Trust
during the pre-funding period is less than the
amount deposited to the pre-funding account on the
closing date. If the aggregate principal balance of
eligible receivables originated and sold by MMCA to
the Seller during the pre-funding period is less
than the amount deposited to the Trust's
pre-funding account on the closing date, the Seller
will not be able to transfer to the Trust
receivables with an aggregate principal balance
approximately equal to the amount deposited to the
pre-funding account on the closing date. In such
event, the Indenture Trustee will withdraw the
amount remaining in the pre-funding account for
payment as principal on the Notes on the payment
date occurring on or immediately following the end
of the pre-funding period.
The ability of the Seller to apply the entire
amount deposited to the pre-funding account on the
closing date to the transfer of additional
receivables to the Trust during the pre-funding
period is indirectly dependent upon the manufacture
and distribution of motor vehicles by Mitsubishi
Motors Corporation and its affiliates. The Seller
will not be able to transfer additional receivables
to the Trust following the closing date unless MMCA
purchases those receivables. MMCA's purchase of
receivables in turn depends primarily upon the
manufacture and distribution of motor vehicles by
Mitsubishi Motors Corporation and its affiliates
because MMCA mostly finances vehicles manufactured
by them. If Mitsubishi Motors Corporation and its
affiliates were to temporarily or permanently stop
manufacturing or distributing motor vehicles, then
MMCA's ability to originate receivables for sale to
the Seller would be adversely affected.
Potential Prepayment of Notes Due to Changes in
Pool Characteristics Following Addition of
Receivables During Pre-Funding Period. Changes in
the overall characteristics of the Trust's pool of
receivables resulting from the addition of
receivables during the pre-funding period may cause
the Notes to be prepaid at a higher rate than would
otherwise be the case. The receivables to be
transferred by the Seller to the Trust during the
pre-funding period may be originated by MMCA using
credit criteria that is different from the credit
criteria used by MMCA in originating the
receivables transferred to the Trust on the closing
date. The different credit criteria may change the
overall characteristics of the entire pool of
receivables, including the rate of prepayment on
the receivables. The rate of prepayment on the
receivables will be reflected in the rate of
prepayment on the Notes.
Potential Prepayment of Notes Due to Prepayment of
Receivables. Prepayments on the receivables by the
related obligors and purchases of the receivables
by the Seller and the Servicer will shorten the
life of the Notes to an extent that cannot be fully
predicted. The receivables included in the Trust
may be prepaid, in full or in part, voluntarily or
as a result of defaults, theft of or damage to the
related vehicles or other reasons. MMCA will be
required to repurchase receivables from the Seller,
and the Seller will be required to repurchase
receivables from the Trust, if MMCA breaches its
representations and warranties with respect to the
receivables. MMCA, in its capacity as Servicer,
will also be required to purchase receivables from
the Trust if it breaches its servicing obligations.
The Servicer will also be entitled to purchase all
remaining receivables from the Trust once the
aggregate principal balance of the receivables is
10% or less of the aggregate principal balance of
the receivables as of the dates on which they were
transferred to the Trust.
An incentive program offered by MMCA to obligors on
receivables that provide for a substantially larger
final payment encourages a higher level of prepayments
on such receivables than otherwise would be
the case. An obligor on a receivable that provides
for a substantially larger final payment is
entitled to return the related vehicle at the end
of the term of the receivable instead of making the
final payment in cash. The obligor will be required
to pay a specified amount in cash for any excess
wear and tear and any excess mileage on the
returned vehicle. MMCA will resell any returned
vehicles on behalf of the Trust. The amount
realized on the sale of the returned vehicle is
generally expected to be less than the principal
amount of the final payment. To reduce losses
resulting from obligors returning their respective
vehicles at the end of the term of their
receivables instead of making the final payment in
cash, MMCA offers incentives for obligors to prepay
their contracts and return their vehicles early,
provided that they purchase a new vehicle
manufactured by Mitsubishi Motors Corporation or
one of its affiliates. Under this program, MMCA
sells the returned vehicle to a dealer at a price
based on MMCA's then-current assessment of the
market value of the vehicle. MMCA intends the
program to result in no greater a returned vehicle
loss than would be the case if the obligor had
returned the vehicle at the end of the term of the
receivable and the vehicle was sold at such time.
The rate of prepayments on the receivables may be
influenced by a variety of economic, social and
other factors in addition to those described in the
two preceding paragraphs.
MMCA does not generally maintain records of the
historical prepayment experience of its portfolio
of receivables. No prediction can be made as to the
actual prepayment rates which will be experienced
on the receivables. You will bear all reinvestment
risk resulting from prepayments on the receivables
and the corresponding acceleration of payments on
the Notes.
The final payment of each class of Notes is
expected to occur on or prior to its final payment
date because of the prepayment and purchase
considerations set forth above. If sufficient funds
are not available to pay any class of Notes in full
on or prior to its final payment date, an event of
default will occur and final payment of such class
of Notes could occur later than such date.
Potential Loss on
Notes Due to Changes
in Pool Characteristics in
Connection With the
Transfer of Additional
Receivables to
the Trust Changes in the overall characteristics of the
Trust's pool of receivables resulting from the
addition of receivables during the pre-funding
period may increase the risk that you will
experience losses or delays in payments on your
Notes. The receivables transferred to the Trust
during the pre-funding period may be originated at
a later date using credit criteria different from
those that were applicable at the origination of
the receivables transferred to the Trust on the
closing date. In addition, following the transfer
of additional receivables to the Trust, the
characteristics of the entire pool of receivables
in the Trust may vary from those of the pool of
receivables on the closing date. The
characteristics that may vary include: (i) the
average principal balance; (ii) the average
original amount financed; (iii) the average
principal amount of the substantially larger final
payment on certain receivables; (iv) the
distribution by annual percentage rate on the
underlying contract; and (v) the payment frequency.
The changes in such characteristics may result in a
higher rate of delinquencies and losses on the
receivables than would otherwise be the case. A
higher rate of delinquencies and losses on the
receivables may be reflected in the timing and
amount of payment of principal and interest on the
Notes and the Certificates.
Potential Loss on
Notes Due to Limited
Assets of the Trust The only source of funds for payments on the Notes
will be the assets of the Trust, which are limited
to the receivables and funds on deposit in the
Trust's bank accounts. You may suffer a loss on
your Notes if the assets of the Trust are
insufficient to pay the principal amount of the Notes
in full. The Notes are obligations solely of the
Trust. The Notes will not be insured or guaranteed
by MMCA, including in its capacity as Servicer,
the Seller, the Indenture Trustee, the Owner
Trustee or any other person or entity.
Consequently, you must rely for payment of the
Notes upon payments on the receivables (including
sales proceeds of vehicles returned to MMCA in
payment of the final payment on the receivable),
and, to the extent available, funds on deposit in
the Trust's bank accounts.
Funds on deposit in the supplemental reserve
account and, to the extent such funds are
insufficient, funds on deposit in the reserve
account, will be available on each payment date to
cover the amounts payable to the Servicer and the
interest and principal payable on the Notes on such
payment date to the extent of any shortfall in the
collections on the receivables and the other funds
that are intended to pay such amounts. If the
amounts on deposit in the supplemental reserve
account and the reserve account are exhausted at
any time, the Trust will depend solely on collec-
tions on the receivables, amounts advanced by the
Servicer, recoveries on defaulted receivables and
withdrawals from the Trust's other bank accounts.
The Indenture authorizes the Indenture Trustee to
sell the receivables following an acceleration of
the maturity dates of the Notes. However, the
amount received by the Indenture Trustee upon
selling the receivables may be less than the
aggregate principal amount of the outstanding
Notes. In such circumstance, the principal amount
of your Notes may not be paid in full.
Potential Loss on Notes
in Connection with
Sales of Vehicles
Financed By Receivables
that Include a
Substantially Larger
Final Payment Certain of the receivables provide for a
substantially larger final payment that the related
obligor will not have to pay if the obligor returns
the related vehicle to MMCA at the end of the term
of the receivable. MMCA will resell the returned
vehicle on behalf of the Trust and use the proceeds
of the sale to pay principal on the Notes. You may
experience delays or losses in the payment of
principal on your Notes if the sale proceeds of
such returned vehicles is lower than anticipated at
the origination of the receivables.
MMCA expects the amount realized on the sale
of a returned vehicle to be less than the
final payment it replaces, in part due to
MMCA's method of setting the amount of the
final payment. MMCA sets the final payment at the
time the related receivable is entered into. The
amount of the final payment is based on MMCA's
projection of the anticipated end of term wholesale
value of the vehicle that is being financed plus an
additional amount that MMCA adds in order to be
able to reduce the amount of the level scheduled
payments under those contracts. MMCA reduces the
amount of the level scheduled payments to stimulate
sales. The amount realized on the sale of a
returned vehicle may also be reduced by market
conditions. In particular, if MMCA were no longer
distributing motor vehicles in the United States or
Mitsubishi Motors Corporation and its affiliates
were no longer manufacturing motor vehicles, the
market for used motor vehicles manufactured by
Mitsubishi Motors Corporation and its affiliates
might be adversely affected.
If an obligor exercises its right to sell the motor
vehicle to MMCA and MMCA sells the motor vehicle on
behalf of the Trust for less than the final
payment, none of MMCA, including in its capacity as
the Servicer, the Seller or the Trust will have any
recourse to the obligor for any shortfall. In
addition, neither MMCA, including in its capacity
as the Servicer, nor the Seller will be obligated
to pay any shortfall to the Trust. The Servicer
will advance the full amount owed by the obligor
with respect to a final payment on the payment date
immediately following the calendar month in which
the final payment is owed. However, the Servicer
will be reimbursed for the advance on one or more
subsequent payment dates out of subsequent
collections on the related receivable to the extent
allocable to the reimbursement of the advance and
otherwise out of collections on other receivables.
Potential Loss on
Notes If MMCA Does
Not Refinance
Receivables
that Include a
Substantially
Larger Final Payment The obligor under a receivable that provides for a
substantially larger final payment also has the
option to refinance with MMCA the total amount due
at the end of the term of the receivable, subject
to the satisfaction of certain conditions. MMCA
will be obligated to provide such financing to the
extent it offers vehicle financing. No successor to
MMCA as Servicer will be obligated to provide such
refinancing. If at any time MMCA no longer makes
refinancing available, the Seller may contract with
third parties to do so. If a refinancing option is
not available, more obligors may return their
vehicles on the due date of the final payment
instead of paying the final payment through
refinancing of the motor vehicle, and consequently
more motor vehicles may be sold by MMCA on behalf
of the Trust for prices less than the final
payment.
Potential Loss on
Notes if Vehicles
Financed by Receivables
that Include a
Substantially Larger
Final Payment are
Stolen or Destroyed MMCA does not require the obligor under a
receivable that provides for a substantially larger
final payment to pay the "gap amount" if theft or
physical damage to the vehicle results in a total
loss of the motor vehicle. The "gap amount" is the
difference between the amount owed in respect of
the 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 any gap
amount as a non-cash reduction of the principal
amount of the final payment. Any such reduction
will decrease the amount of collections available
to the Trust.
Lack of Historical
Data Regarding the
Return Rates of
Vehicles Financed by
Receivables that
Include a
Substantially Larger
Final Payment Receivables that provide for a substantially larger
final payment have matured in large volumes only in
recent years. MMCA therefore does not have exten-
sive historical information regarding (i) the
percentage of motor vehicles that will be returned
to MMCA upon the maturity of receivables that
provide for a substantially larger final payment or
(ii) MMCA's loss experience upon resale of such
motor vehicles. MMCA expects that, in the
aggregate, the amounts received by MMCA from the
sale of such vehicles will be less than the princi-
pal amounts of the final payment because, as
discussed above, final payments are set higher than
MMCA's estimate of the wholesale value at the end
of the related contracts.
Potential Loss on
Notes Due to
Geographic
Concentration
of Receivables Economic conditions in the states where the
obligors under the receivables reside may affect
the delinquency, loan loss and repossession
experience of the Trust with respect to the
receivables. Based on the principal balance of the
original pool of receivables as of the date as of
which the receivables were acquired by the Trust, %
of the receivables were originated in California, %
in Texas and % in Florida. Accordingly, adverse
economic conditions or other factors affecting
California, Texas or Florida could have an
especially significant effect on the delinquency,
loan loss or repossession experience of the Trust.
The delinquency, loan loss or repossession
experience of the Trust may be reflected in the
timing and amount of payment of principal and
interest on the Notes and the Certificates.
Prepayments, Potential
Losses and Change in
Order of Priority of
Principal Payments
Following an Event
of Default under
Indenture If the maturity dates of the Notes are accelerated
following the occurrence of an event of default
under the indenture, the Indenture Trustee may sell
the receivables and prepay the Notes in advance of
their respective maturity dates. You may not be
able to reinvest the principal repaid to you
earlier than expected at a rate of return that is
equal to or greater than the rate of return on your
Notes. You also may not be paid the principal
amount of your Notes in full if the assets of the
Trust are insufficient to pay the aggregate
principal amount of the Notes in full. In addition,
the acceleration of the maturity dates will change
the order of priority for the payment of principal
on the different classes of Notes. If the maturity
dates of the Notes are accelerated, the Indenture
Trustee will pay the principal available for
distribution on the Notes (i) to the Class A Notes
ratably in proportion to the respective principal
balances of the Class A-1 Notes, the Class A-2
Notes and the Class A-3 Notes until all the Class A
Notes are paid in full and (ii) then to the Class B
Notes until the Class B Notes are paid in full.
Potential Delays in
Payments on Notes Due
to Potential Computer
Program Problems
Beginning in
the Year 2000 The payment of principal and interest on the Notes
could be delayed if MMCA, in its capacity as
Servicer, or the Indenture Trustee experience
problems in their respective computer programs
relating to the year 2000. Many existing computer
programs use only two digits to identify a year in
the date field. These programs could fail or
produce erroneous results during the transition
from the year 1999 to the year 2000. MMCA has
evaluated the impact of preparing its systems for
the year 2000. It has identified areas of potential
impact and is implementing conversion efforts. It
believes its mission-critical applications,
including its systems for operations, collections
on the receivables and servicing the receivables,
are already year 2000 compliant, subject to further
testing. MMCA's target is to have all systems ready
for the year 2000 in advance of December 31, 1999.
If MMCA, in its capacity as the Servicer, or the
Indenture Trustee do not have computerized systems
that are year 2000 compliant by the year 2000,
MMCA's ability to service the receivables or the
Indenture Trustee's ability to make distributions
on the Notes, as the case may be, may be materially
and adversely affected.
THE TRUST
General
MMCA Auto Owner Trust 1998-2 (the "Trust") is a business trust formed
under the laws of the State of Delaware pursuant to a Trust Agreement,
dated as of , 1998 (as amended and supplemented from time to time, the
"Trust Agreement"), between the Seller and Wilmington Trust Company in its
capacity as the owner trustee (the "Owner Trustee") of the Trust. The Trust
was formed for purposes of the transactions described in this Prospectus.
The Trust will hold title to the Receivables, the Pre-Funding Account and
the other assets of the Trust and the proceeds therefrom, issue the Notes
and the Certificates and distribute payments on the Notes and the
Certificates. The Trust's principal offices are in the State of Delaware in
care of Wilmington Trust Company, as Owner Trustee, at the address listed
below. See "--The Owner Trustee."
The Trust will initially be capitalized through the issuance of the
Notes and the $[ ] Asset Backed Certificates (the "Certificates"). The
Certificates evidence beneficial ownership of the Trust and will entitle
Certificateholders to receive distributions of amounts not required to be
used to make payments on the Notes or to pay expenses of the Trust. The
Certificates will be subordinated to the Notes to the extent described
herein. The principal amount of the Certificates will be reduced on each
Payment Date by principal payments made on the Certificates. The
Certificates are not being offered hereby and will be retained by the
Seller or an affiliate.
The Trust will purchase the Initial Receivables from the Seller
pursuant to the Sale and Servicing Agreement in exchange for the proceeds
of the Notes and the issuance to the Seller or an affiliate thereof of the
Certificates. The Seller or an affiliate will retain the Certificates.
The Servicer will service the Receivables, either directly or through
subservicers, and will be paid the Total 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
or ownership relating to the Financed Vehicles as custodian for the
Indenture Trustee and the Trust. However, the Receivables will not be
marked or stamped to indicate that they have been sold to the Trust, and
the certificates of title or ownership 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 and distributing payments on the
Notes and the Certificates, 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 amounts on deposit in the Supplemental Reserve
Account, the Reserve Account, the Negative Carry Account and the Yield
Supplement Account from time to time is insufficient, the Noteholders would
have to look principally to the Receivables that are not Defaulted
Receivables, the proceeds from the repossession and sale of Financed
Vehicles which secure Defaulted Receivables and the proceeds from recourse,
if any, against Dealers with respect to the Receivables for payment of the
Notes. 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:
Class A-1 Notes.................................... $
Class A-2 Notes....................................
Class A-3 Notes....................................
Class B Notes......................................
Certificates....................................... __________
Total........................................ $
==========
The Owner Trustee
Wilmington Trust Company is the Owner Trustee under the Trust
Agreement. The Owner Trustee's Corporate Trust Office is located at Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001.
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 secured by the property of the Trust (the "Trust
Property"). The Trust Property will include (i) a pool of motor vehicle
retail installment sale contracts originated on and after and certain
rights and obligations thereunder (collectively, the "Receivables"), (ii)
with respect to Actuarial Receivables, certain monies due thereunder on or
after the related Cutoff Date (including Payaheads) and, with respect to
Simple Interest Receivables, certain monies due or received thereunder on
or after the related 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 Pre-Funding Account, the Reserve Account, the
Supplemental Reserve Account, the Negative Carry 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, theft 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 rights 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 liquidation
proceeds and recoveries and Financed Vehicles and the proceeds thereof
acquired by the Trust pursuant to the terms of a Final Payment Receivable)
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 related Cutoff Date, and (xiii)
all proceeds of the foregoing.
MMCA'S VEHICLE CONTRACT PORTFOLIO
General
MMCA currently purchases motor vehicle and light-duty truck retail
installment sale contracts (the "Motor Vehicle Contracts") and medium-duty
truck retail installment sale contracts (the "Truck Contracts," and,
together with the Motor Vehicle Contracts, the "Contracts") directly from
authorized Mitsubishi Motors motor vehicle dealers and authorized
Mitsubishi Motors FUSO truck dealers (each, a "Dealer"), respectively,
throughout the United States. The Contracts are originated by Dealers who
regularly sell such contracts to MMCA and other finance providers. MMCA
purchases 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 that it sold to MMCA 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 automobile or light-duty truck (a
"Motor Vehicle") or medium-duty truck (a "Truck") and not the
creditworthiness of the obligor 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 or
distributed 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 manufactur-
ers. 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 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' 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 Contract becomes 7 days
delinquent, while obligors considered strong credits with lesser risk are
generally contacted when the Contract 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.
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 related Motor Vehicle Contract or Truck Contract 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 it 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, Credit Loss and Returned Vehicle 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. MMCA changed its
credit scoring system again in November 1996 and made the changes
applicable to all types of Motor Vehicle Contracts. See "-Underwriting"
above. The Initial Receivables were originated more recently than, on
average, the receivables related to Motor Vehicles and Trucks in the tables
in the following pages.
Because (i) the composition of Initial Receivables included in the
Trust differs from, and the Subsequent Receivables to be included in the
Trust are anticipated to differ from, MMCA's combined portfolio, (ii) MMCA
changed its underwriting criteria with respect to non-Final Payment
Receivables in June 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 as are set forth above, the
delinquencies, credit losses and returned vehicle losses experienced by the
Trust may differ from the delinquencies, credit losses and returned vehicle
losses experienced by the combined portfolio in the past or in the future.
<TABLE>
<CAPTION>
Delinquency Experience (1)
As of September 30, As of December 31,
------------------- ------------------------
1998 1997 1997 1996 1995
-------- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Number of Contracts Outstanding at End
of Period.............................. 129,738 126,493 123,274 122,224 107,507
Delinquencies as a Percent of
Contracts Outstanding (2)
30-59 Days.......................... 3.42% 4.14% 4.42% 5.13% 4.00%
60-89 Days.......................... 0.94% 1.20% 1.56% 1.69% 0.92%
90 Days or More..................... 0.33% 0.28% 0.51% 0.54% 0.30%
Repossessions as a Percent of
Contracts Outstanding (2)(3)........... 0.76% 1.26% 0.96% 1.41% 1.70%
</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 more than
10% of a payment is contractually past due, and the percent
represents delinquent dollars as a percent of dollars outstanding.
(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.
<TABLE>
<CAPTION>
Net Credit Loss and Repossession Experience (1)
(Dollars in thousands)
Nine Months Ended
September 30, Year Ended December 31,
----------------------- ----------------------------------
1998 1997 1997 1996 1995
---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Amount Outstanding (2)....... $1,934,366 $1,823,622 $1,769,219 $1,687,592 $1,436,009
Average Amount Outstanding
(3).......................... $1,820,045 $1,768,391 $1,776,481 $1,590,046 $1,221,467
Number of Contracts
Outstanding.................. 129,738 126,493 123,274 122,224 107,507
Average Number of Contracts
Outstanding (3)............ 124,704 124,952 124,945 117,048 93,879
Charge-offs (4).............. $ 39,700 $ 55,632 $ 73,242 $ 84,872 $ 20,171
Recoveries (5)............... $ 7,515 $ 10,404 $ 13,126 $ 7,372 $ 1,058
Net Losses................... $ 32,185 $ 45,228 $ 60,116 $ 77,500 $ 19,113
Number of Repossessions (6).. 3,673 5,976 7,382 6,712 4,260
Number of Repossessions
as a Percent of the Average
Number of Contracts
Outstanding (7)............ 3.93% 6.38% 5.91% 5.73% 4.54%
Net Losses as a Percent of
Average Amount Outstanding
(7)......................... 2.36% 3.41% 3.38% 4.87% 1.56%
</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.
(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 and unpaid interest.
(3) Averages are computed by taking a simple average of the average
months outstanding for each period presented.
(4) Charge-offs represent the total aggregate amount due on Motor Vehicle
Contracts and Truck Contracts that is determined to be uncollectible
in the period, less proceeds from disposition of related vehicles,
other than recoveries described in Note (5). The calculation of
Charge-offs for the Contracts in the portfolio includes both earned
but unpaid finance charges and Last Scheduled Payments. 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 Payments 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. Contracts of bankrupt obligors are included only if
charged off.
(5) Recoveries generally consist of amounts received on Contracts
following the time at which the Contract is charged off net of
collection expenses.
(6) Number of Repossessions means the number of repossessed Motor
Vehicles and Trucks in a given period.
(7) Annualized rate. The nine-month period ending September 30, 1998 is
not necessarily indicative of a full year's actual results. MMCA's
credit 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.
MMCA began originating Final Payment Receivables in October 1993.
Because Final Payment Receivables have matured in large volumes only more
recently, the experience shown in the tables below may not be comparable to
the actual performance of the Final Payment Receivables included in the
Trust Property.
<TABLE>
<CAPTION>
Final Payment Receivables: Loss Experience on Returned Vehicles (1)
Nine Months Ended
September 30, Year Ended December 31,
----------------------- ----------------------------------
1998 1997 1997 1996 1995
---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Total Number of Final Payment
Receivables Scheduled to
Terminate..................... 13,958 5,462 10,716 1,022 34
Total Number of Vehicles
Returned to MMCA.............. 3,466 1,365 2,926 435 7
Return Ratio (2)................ 24.83% 24.99% 27.31% 42.56% 20.59%
Total Losses on Returned
Vehicles Sold (3)............. $4,911,496 $2,699,576 $5,371,694 $726,208 $12,464
Total Number of Returned
Vehicles Sold................. 2,884 1,322 2,578 432 7
Average Loss per Returned
Vehicle Sold (3).............. $ 1,703 $ 2,027 $ 2,084 $ 1,681 $ 1,781
</TABLE>
- -----------
(1) The information in the table includes Motor Vehicles returned upon
the expiration of the related Contracts and Motor Vehicles returned
under MMCA's program that offers attractive terms to owners of Motor
Vehicles to prepay their accounts in connection with their respective
purchases of a new Motor Vehicle.
(2) The number of vehicles returned to MMCA as a percentage of the number
of Final Payment Receivables scheduled to
terminate in the related period.
(3) Losses are calculated without deduction for auction or other
disposition expenses on resale.
MMCA's loss experience on returned Motor Vehicles is dependent upon
the number of Motor Vehicles returned, any programs offered by MMCA that
permit the early return of Motor Vehicles, the amount of the related
receivables outstanding at the time the Motor Vehicles are returned and the
resale value of the returned Motor Vehicles.
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 include
the Initial Receivables purchased as of the Initial Cutoff Date and any
Subsequent Receivables purchased as of the related Subsequent Cutoff Date.
As of the Initial Cutoff Date, the Initial Receivables had an aggregate
principal balance of $ , which consisted of a Level Pay Pool Balance of $
and a Last Scheduled Payment Pool Balance of $ .
The Receivables will be purchased by the Trust from the Seller
pursuant to a Sale and Servicing Agreement, to be dated as of , 1998
(as amended or supplemented from time to time, the "Sale and Servicing
Agreement"), among the Trust, the Seller and MMCA providing for the
purchase of the Initial Receivables on or before the date of issuance of
the Notes (the "Closing Date") and any Subsequent Receivables on the
related Subsequent Transfer Date. The Receivables will be purchased by the
Seller from MMCA pursuant to a Purchase Agreement, to be dated as of
, 1998 (as amended or supplemented from time to time, the
"Purchase Agreement"), between the Seller and MMCA, providing for the
purchase of the Initial Receivables on or before the Closing Date and any
Subsequent Receivables on the related Subsequent Transfer Date. 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 (including the aggregate principal balance of
Last Scheduled Payments) at the end of the preceding Collection Period or,
with respect to any time during the first Collection Period, on the Initial
Cutoff Date, after giving effect to all payments (other than Payaheads)
received from obligors, and the principal component of all Advances and
Purchase Amounts to be remitted by the Servicer or the Seller, as the case
may be, for such Collection Period, and reduced by the principal amount of
Receivables that became Defaulted Receivables during such Collection
Period. The "Initial Pool Balance" means the sum of (i) the Pool Balance as
of the Initial Cutoff Date plus (ii) the aggregate principal balance of all
Subsequent Receivables sold to the Trust as of their respective Subsequent
Cutoff Dates.
Selection Criteria
The Initial Receivables were purchased, and to the extent not already
purchased the Subsequent Receivables will be purchased, by MMCA from
Dealers in the ordinary course of business in accordance with MMCA's
underwriting standards. The Initial Receivables were selected, and the
Subsequent Receivables will be 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 related Cutoff
Date of not more than 60 months, and an original maturity of not more than
60 months; (iv) each Receivable had an original principal balance (net of
unearned precomputed finance charges) of not more than $60,000 and a
remaining principal balance of not less than $100 as of the related Cutoff
Date; (v) no Receivable was more than 30 days delinquent as of the related
Cutoff Date; (vi) no Financed Vehicle had been repossessed as of the
related Cutoff Date; (vii) each Receivable is an installment sale 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 during or after ; (x) as of the related Cutoff
Date, no obligor under a Receivable is the subject of a proceeding under
the United States Bankruptcy Code; 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. In
addition, the pool of Receivables will not deviate from the following
characteristics as of each Subsequent Transfer Date (after giving effect to
Subsequent Receivables sold to the Trust on such Subsequent Transfer Date):
(1) the weighted average remaining maturity of the Receivables will not be
more than [ ] months; and (2) the average Last Scheduled Payment of the
Final Payment Receivables as a percentage of the aggregate original
Principal Balance of the Final Payment Receivables, in each case as of the
related dates of origination, will not be greater than [ ]%.
The Initial Receivables will represent approximately % of an amount
equal to the sum of the initial principal amount of the Notes and the
initial principal amount of the Certificates. Except for the criteria
described in the preceding paragraph, there will be no required
characteristics of the Subsequent Receivables. Therefore, following the
transfer of Subsequent Receivables to the Trust, the aggregate
characteristics of the entire pool of Receivables, including the
composition of the Receivables, the geographic distribution of the
Receivables and the distribution by APR of the Receivables described in the
following tables may vary from those of the Initial Receivables. Following
the end of the Pre-Funding Period, the Seller will file a report on Form
8-K containing information comparable to that contained in the tables set
forth below regarding the aggregate characteristics of the entire pool of
Receivables, after the addition of the Subsequent Receivables.
Certain Characteristics
The composition of the Initial Receivables as of , 1998
and the geographical distribution and distribution by APR of the Pool
Balance of the Initial Receivables as of , 1998 are set forth in the
following tables. "Level Pay Pool Balance" means the Pool Balance exclusive
of the Last Scheduled Payment Pool Balance. See "Description of the
Notes-Final Payment Receivables." "Last Scheduled Payment Pool Balance"
means the aggregate principal balance of Last Scheduled Payments.
Composition of the Initial Receivables as of the Initial Cutoff Date
Pool Balance.................................... $
Level Pay Pool Balance.......................... $
Last Scheduled Payment Pool Balance............. $
Number of Receivables
Average Principal Balance....................... $
(Range)...................................$ to $
Average Original Amount Financed................ $
(Range)...................................$ to $
Average Level Pay Balance....................... $
(Range)...................................$ to $
Average Last Scheduled Payment Balance (1)......$
(Range)...................................$ to $
Weighted Average APR............................ %
(Range)................................... 0.00% to %
Weighted Average Original Term to Maturity...... months
(Range)................................. 12 months to 60 months
Weighted Average Remaining Term to Maturity..... months
(Range)................................... 3 months to 60 months
- -----------
(1) Based on Final Payment Receivable balances only.
Geographic Distribution of the Initial Receivables
as of the Initial Cutoff Date
Percentage Percentage
of Pool of Pool
State(1) Balance(2) State(1) Balance(2)
- -------- ---------- ------- ----------
Alabama.................... % Montana.................... %
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.................... Total 100.00%
- -----------
(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 of the Initial Receivables as of the Initial Cutoff Date
Percentage
Number of Pool of Pool
APR Range(%) Receivables Balance(1)(2) Balance(3)
- ------------ ----------- ------------- -----------
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...................
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................... ----------- ------------- -----------
Total............................ $ %
============= ===========
- -----------
(1)Remaining principal balance for Simple Interest Receivables, and the
present value of scheduled remaining payments for Actuarial Receivables.
(2)Pool Balance does not add up to Initial Pool Balance because of rounding.
(3)Percentages may not add to 100.00% due to rounding.
Based on the Pool Balance as of the Initial Cutoff Date,
approximately % of the total number of Receivables and
approximately % of the 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 and approximately % of the Pool Balance as
of the Initial Cutoff Date relate to used automobiles and light-
or medium-duty trucks. Of the new and used vehicles, approximately % of
the total number of Receivables and approximately % of the Pool Balance
as of the Initial Cutoff Date 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 MMCA. 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 MMCA by rental car companies, but also include off-lease MMCA
company and employee lease vehicles and MMCA pool cars. Approximately %
of the total number of Receivables and approximately % of the Pool
Balance as of the Initial Cutoff Date, relate to medium-duty trucks, the
primary purchasers of which are businesses. Of the used vehicles,
approximately % of the total number of Receivables and approximately
% of the Pool Balance as of the Initial Cutoff Date relate to
refinanced program automobiles and light- or medium-duty trucks manufactured
in prior model years which are financed at the original rates set forth in
the related Contracts or at used vehicle rates.
Payments on the Receivables
Approximately % of the Pool Balance as of the Initial Cutoff Date was
attributable to Receivables that provide for the allocation of payments
according to the "actuarial" method ("Actuarial Receivables") excluding
Actuarial Receivables of the type described in the immediately following
paragraph. 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 Pool Balance as of the Initial Cutoff Date 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.
Approximately % of the Pool Balance as of the Initial Cutoff Date was
attributable to Receivables that provide for the allocation of payments
according to the "simple interest" method ("Simple Interest Receivables")
including Simple Interest Receivables of the type described in the
immediately following paragraph. 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 the 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 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 Pool Balance as of the Initial Cutoff Date 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 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 Pool Balance as of the Initial Cutoff Date was
attributable to Final Payment Receivables. Such Receivables 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 maturity 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 will be 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 representations and
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."
Maturity and Prepayment Considerations
Prepayments in full on Actuarial Receivables and full or partial
prepayments on Simple Interest Receivables generally 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 generally,
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. To the extent that MMCA or
any affiliate of MMCA maintains any program which has the effect of
encouraging prepayments, prepayments may increase. MMCA currently maintains
a program that offers attractive terms to obligors to prepay their accounts
and return their vehicles early, provided that they purchase a new
Mitsubishi Motors vehicle, which has the effect of encouraging prepayments.
No prediction can be made of the effect of such programs on prepayments,
and MMCA is not required to establish or maintain any such program.
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 and the Supplemental
Reserve Account. See "Description of the Notes -The Indenture Cash Flows"
and " Reserve Account and Supplemental 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.
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 of any class could occur
significantly earlier than the Final Payment Date for such class.
Reinvestment risk associated with early payment of the Notes will be borne
exclusively by the Noteholders.
% of the Pool Balance as of the Initial Cutoff Date
consists of the principal balance of the Last Scheduled Payments.
Accordingly, a portion of the principal amount of the Notes is expected to
be paid from Last Scheduled Payments. All of the Last Scheduled Payments on
Initial Receivables that are Final Payment Receivables are due, as of the
Closing Date, between and . Accordingly, significant payments of
principal are likely to be made during such period. The average amount of a
Last Scheduled Payment on an Initial Receivable that is a Final Payment
Receivable is approximately $ , which is approximately % of
the average principal balance of an Initial Receivable that is a Final
Payment Receivable.
The tables captioned "Projected Class A-1 Note Amortization",
"Projected Class A-2 Note Amortization", "Projected Class A-3 Note
Amortization" and "Projected Class B Note Amortization" (collectively, the
"ABS Tables") assume that (i) the Yield Supplement Amount is deposited into
the Collection Account each period, (ii) the Negative Carry Amount is
deposited into the Collection Account each period, (iii) the Initial
Pre-Funded Amount is applied in its entirety to the purchase of Subsequent
Receivables and the related deposits to the Reserve Account and the Yield
Supplement Account; (iv) the Receivables prepay in full at the specified
constant percentage of ABS monthly, with no defaults, losses or
repurchases, (v) each scheduled monthly payment on the Receivables is made
on the last day of each month, and each month has 30 days, (vi) 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), (vii) the Closing Date is ,
1998, (viii) the Servicer does exercise its option to purchase the
Receivables and (ix) MMCA's program to manage end-of-term risks and
mitigate returned vehicle losses by offering attractive terms to owners of
Motor Vehicles to prepay their accounts and return their Motor Vehicles
early, provided that they purchase a new Motor Vehicle, does not extend to
the Receivables. The ABS Tables indicate the percent of the initial
principal balance of each class of the Notes that is projected to be
outstanding after each of the Payment Dates shown at various constant ABS
percentages.
The ABS Tables also assume that the Receivables have been aggregated
into four 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 four pools (which is based
on its aggregate principal balance, APR, original term to maturity and
remaining term to maturity as of the Initial Cutoff Date) will be such that
each pool will be fully amortized by the end of its remaining term to
maturity.
Weighted Weighted
Average Average
Level Aggregate Weighted Original Term Remaining Term
Payment Principal Average to Maturity to Maturity
Pool Balance APR (in months) (in months)
- ------- --------- -------- ------------- --------------
1 ..................... $ %
2 .....................
3 .....................
4 .....................
The ABS Tables also assume that the principal amounts of the Last
Scheduled Payments on the Receivables have been aggregated into four
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.
Weighted
Weighted Average
Last Average Remaining Term
Scheduled Aggregate Weighted Original Term to
Payment Principal Average to Maturity Maturity
Pool Balance APR (in months) (in months)
- --------- --------- -------- ------------- --------------
1 ..................... $ %
2 .....................
3 .....................
4 .....................
The actual characteristics and performance of the Receivables in the
Trust 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 four hypothetical level payment
pools and the four 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. In
addition, the characteristics of the Subsequent Receivables are expected to
be different from the characteristics of the Initial Receivables. See "The
Receivables-Selection Criteria" herein. 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.
The ABS Tables have been prepared based on the assumptions described
above and should be read in conjunction therewith.
Projected Class A-1 Note Amortization
Percent of Initial Note Principal Amount
Class A-1 Note Balance (%)
-------------------------------------------
Payment Date 0.0% ABS 1.0% ABS 1.5% ABS 2.0% ABS
- ------------ -------- -------- -------- --------
January 15, 1999.................
February 15, 1999................
March 15, 1999...................
April 15, 1999...................
May 15, 1999.....................
June 15, 1999....................
July 15, 1999....................
August 15, 1999..................
September 15, 1999...............
October 15, 1999.................
................................. -------- -------- -------- --------
Weighted Average Life (yrs)......
Projected Class A-2 Note Amortization
Percent of Initial Note Principal Amount
Class A-2 Note Balance (%)
-------------------------------------------
Payment Date 0.0% ABS 1.0% ABS 1.5% ABS 2.0% ABS
- ------------ -------- -------- -------- --------
January 15, 1999.................
February 15, 1999................
March 15, 1999...................
April 15, 1999...................
May 15, 1999.....................
June 15, 1999....................
July 15, 1999....................
August 15, 1999..................
September 15, 1999...............
October 15, 1999.................
November 15, 1999................
December 15, 1999................
January 15, 2000.................
February 15, 2000................
March 15, 2000...................
April 15, 2000...................
May 15, 2000.....................
June 15, 2000....................
July 15, 2000....................
August 15, 2000..................
September 15, 2000...............
................................. -------- -------- -------- --------
Weighted Average Life (yrs)......
Projected Class A-3 Note Amortization
Percent of Initial Note Principal Amount
Class A-3 Note Balance (%)
-------------------------------------------
Payment Date 0.0% ABS 1.0% ABS 1.5% ABS 2.0% ABS
- ------------ -------- -------- -------- --------
January 15, 1999.................
February 15, 1999................
March 15, 1999...................
April 15, 1999...................
May 15, 1999.....................
June 15, 1999....................
July 15, 1999....................
August 15, 1999..................
September 15, 1999...............
October 15, 1999.................
November 15, 1999................
December 15, 1999................
January 15, 2000.................
February 15, 2000................
March 15, 2000...................
April 15, 2000...................
May 15, 2000.....................
June 15, 2000....................
July 15, 2000....................
August 15, 2000..................
September 15, 2000...............
October 15, 2000.................
November 15, 2000................
December 15, 2000................
January 15, 2001.................
February 15, 2001................
March 15, 2001...................
April 15, 2001...................
May 15, 2001.....................
June 15, 2001....................
July 15, 2001....................
August 15, 2001..................
September 15, 2001...............
October 15, 2001.................
November 15, 2001................
December 15, 2001................
January 15, 2002.................
February 15, 2002................
................................. -------- -------- -------- --------
Weighted Average Life (yrs)......
Projected Class B Note Amortization
Percent of Initial Note Principal Amount
Class B Note Balance (%)
-------------------------------------------
Payment Date 0.0% ABS 1.0% ABS 1.5% ABS 2.0% ABS
- ------------ -------- -------- -------- --------
January 15, 1999.................
February 15, 1999................
March 15, 1999...................
April 15, 1999...................
May 15, 1999.....................
June 15, 1999....................
July 15, 1999....................
August 15, 1999..................
September 15, 1999...............
October 15, 1999.................
November 15, 1999................
December 15, 1999................
January 15, 2000.................
February 15, 2000................
March 15, 2000...................
April 15, 2000...................
May 15, 2000.....................
June 15, 2000....................
July 15, 2000....................
August 15, 2000..................
September 15, 2000...............
October 15, 2000.................
November 15, 2000................
December 15, 2000................
January 15, 2001.................
February 15, 2001................
March 15, 2001...................
April 15, 2001...................
May 15, 2001.....................
June 15, 2001....................
July 15, 2001....................
August 15, 2001..................
September 15, 2001...............
October 15, 2001.................
November 15, 2001................
December 15, 2001................
January 15, 2002.................
February 15, 2002................
................................. -------- -------- -------- --------
Weighted Average Life (yrs)......
POOL FACTORS AND OTHER INFORMATION
The "Note Pool Factor" for each class of Notes will be a seven-digit
decimal which the Servicer will compute each month indicating the remaining
outstanding principal amount of the Notes of each class 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 of such class. The Note Pool
Factor for each class of Notes 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 of a class will be the product of
(i) the original denomination of the Noteholder's Note and (ii) the Note
Pool Factor for such Class.
Pursuant to the Sale and Servicing Agreement, 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 Initial Receivables from MMCA
and to make the deposits required to be made by the Seller on the Closing
Date to the Pre-Funding Account, the Negative Carry Account, the Yield
Supplement Account and the Reserve Account.
THE SELLER
MMCA Auto Receivables, Inc. (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 is not
currently subject to the informational requirements of the Exchange Act and
the Commission's rules and regulations thereunder except for the filing of
Current Reports on Form 8-K in connection with the Trust and the other
trusts it has originated and will originate in the future. For further
information regarding the periodic reports concerning the Trust and the
Receivables that will be filed with the Commission, reference is made to
the information that is available as described under "Where You Can Find
More Information."
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 maintenance 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 on the Closing Date and each Subsequent
Transfer Date under the Purchase Agreement constitute a "true sale" of the
Receivables to the Seller. If such transfers constitute such a "true sale,"
the Receivables and the proceeds thereof would not be part of MMCA's
bankruptcy estate under Section 541 of the United States Bankruptcy Code
should MMCA become the subject of a bankruptcy case subsequent to the
transfers 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
United States Bankruptcy Code subsequent to the transfers of the
Receivables to the Seller on the Closing Date and each Subsequent Transfer
Date, the transfers 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 United States Bankruptcy Code. See "Risk Factors-Certain Legal
Aspects-Bankruptcy Considerations."
THE SERVICER
Mitsubishi Motors Credit of America, Inc. ("MMCA" or the "Servicer")
is a Delaware corporation which 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"), a California corporation which is engaged in the
wholesale distribution of automobiles and light-duty 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 90630-5205. Its telephone number is (714) 236-1500. MMCA has
five regional offices throughout the United States.
DESCRIPTION OF THE NOTES
General
The Trust will issue the % Class A-1 Notes in the aggregate principal
amount of $ (the "Class A-1 Notes"), the % Class A-2 Notes in the aggregate
principal amount of $ (the "Class A-2 Notes"), the % Class A-3 Notes in the
aggregate principal amount of $ (the "Class A-3 Notes" and, together with
the Class A-1 Notes and the Class A-2 Notes, the "Class A Notes") and the %
Class B Notes in the aggregate principal amount of $ (the "Class B Notes"
and, together with the Class A Notes, the "Notes") pursuant to an indenture
to be dated as of , 1998 (as amended and supplemented from time to time the
"Indenture"), between the Trust and Bank of Tokyo-Mitsubishi Trust Company
in its capacity as indenture trustee (the "Indenture Trustee"). A form of
the Indenture 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, the Indenture, the Trust Agreement and the Sale
and Servicing Agreement.
The Notes of each class will be offered for purchase in minimum
denominations of $1,000 and integral multiples thereof and will be
represented initially by one or more physical notes registered in the name
of Cede & Co. ("Cede") as nominee of The Depository Trust Company ("DTC").
No person acquiring a beneficial ownership interest in the Notes (a "Note
Owner") will be entitled to receive a definitive note representing such
person's beneficial ownership interest in the applicable class of 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 and all
references to payments, notices, reports and 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 system is also available to
others such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a Direct Participant,
either directly or indirectly ("Indirect Participants" and, together with
Direct Participants, "DTC Participants").
To facilitate subsequent transfers, all Notes deposited with DTC will
be registered in the name of DTC's nominee, Cede. The deposit of Notes with
DTC and their registration in the name of Cede will effect 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 Direct 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 of 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 Direct Participants
shall be the responsibility of DTC and disbursement of such payments to
Note Owners shall be the responsibility of Direct Participants and Indirect
Participants.
Purchases of Notes under the DTC system must be made by or through
Direct 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 Direct 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 Direct 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 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 Direct 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 through the relevant Depositaries of Cedel
or Euroclear; 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 day, dated the
Business Day following the DTC settlement date, and such credits or any
transactions in such securities settled during such processing day 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.
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 Federal Income Tax Consequences" and Annex A. 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.
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 of each class 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 or a
successor clearing agency 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, 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 in writing 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 and
the Indenture Trustee 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. Payments 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
The Class A-1 Notes will bear interest at the rate of % per annum
(the "Class A-1 Rate"), the Class A-2 Notes will bear interest at the rate
of % per annum (the "Class A-2 Rate"), the Class A-3 Notes will bear
interest at the rate of % per annum (the "Class A-3 Rate") and the Class B
Notes will bear interest at a rate of % per annum (the "Class B Rate"). The
interest rates for the various classes of Notes are referred to herein
collectively as the "Note Interest Rates."
Interest on the outstanding principal amount of each class of the
Notes will accrue at the applicable Note Interest Rate and will be payable
to the applicable Noteholders monthly on the 15th of each month or, if the
15th day of the month is not a Business Day, the next following Business
Day (each, a "Payment Date"), commencing , 1999. Payments will be made to
holders of record of the Notes (the "Noteholders") as of the Business Day
immediately preceding each Payment Date or, if Definitive Notes are issued,
as of the 15th day of the preceding month unless such day is not a Business
Day, in which case the immediately preceding Business Day (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 New York, New York, Los
Angeles, California or Wilmington, Delaware are authorized or obligated by
law, regulation or executive order to be closed. Interest will accrue (i)
with respect to the Class A-1 Notes, from and including the Closing Date
(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 (ii) with respect to the Class A-2 Notes, the
Class A-3 Notes and the Class B Notes, from and including the Closing Date
(in the case of the first Payment Date) or from and including the 15th day
of the calendar month preceding each Payment Date to but excluding the 15th
day of the following calendar month (each such period, an "Interest
Period"). Interest will be calculated in the case of the Class A-1 Notes on
the basis of the actual number of days elapsed and a 360-day year, and in
the case of the Class A-2 Notes, the Class A-3 Notes and the Class B Notes
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 of each class as of the preceding Payment Date, after
giving effect to any payments of principal of 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 of such class).
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 applicable 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, to the extent the Available Funds remaining
are insufficient, from amounts on deposit in the Supplemental Reserve
Account and, to the extent such amounts are insufficient, from amounts on
deposit in the Reserve Account. See "-The Indenture Cash Flows," "-Reserve
Account and Supplemental Reserve Account."
Interest payments to all classes of Class A Notes will have the same
priority of payment, and interest payments to the Class B Notes will be
subordinated to interest payments on the Class A Notes. Under certain
circumstances, the amount available for interest payments could be less
than the amount of interest payable on the Notes on any Payment Date, in
which case Class A Noteholders will be paid interest in full prior to
payments of interest on the Class B Notes and, if the amount available for
interest payments is less than the amount of interest payable on the Class
A Notes, each class of Class A Noteholders will receive their ratable share
(based upon the aggregate amount of interest due to such class of
Noteholders) of the aggregate amount available to be distributed in respect
of interest on the Notes. An Event of Default will occur if the full amount
of interest due to all classes of Noteholders is not paid within five days.
No distributions will be made on the Certificates on any Payment Date until
the interest and principal payable on the Notes on such Payment Date are
paid in full.
Principal
Principal payments will be made to the Noteholders on each Payment
Date in an amount equal in the aggregate to the Principal Distribution
Amount in respect of such Payment Date, subject to certain limitations.
Certificateholders will not be entitled to receive payments of principal
until all classes of Notes have been paid in full. Following the occurrence
and during the continuation of an Event of Default resulting in an
acceleration of the Notes, the Noteholders will be paid in full before any
distributions may be made on the Certificates. See "-The Indenture Cash
Flows" , "-Reserve Account and Supplemental Reserve Account."
On each Payment Date, an amount equal to the Principal Distribution
Amount will be paid to the holders of the Class A-1 Notes (the "Class A-1
Noteholders") until the Class A-1 Notes have been paid in full. On each
Payment Date on and after the Payment Date on which the Class A-1 Notes
have been paid in full, (a) an amount equal to the Class A Noteholders'
Percentage of the difference between (x) the Principal Distribution Amount
and (y) any portion of the Principal Distribution Amount applied on such
Payment Date to reduce the outstanding principal amount of the Class A-1
Notes to zero will be paid (i) to the holders of the Class A-2 Notes (the
"Class A-2 Noteholders") until the Class A-2 Notes have been paid in full
and (ii) following payment in full of the Class A-2 Notes, to the holders
of the Class A-3 Notes (the "Class A-3 Noteholders" and, together with the
Class A-1 Noteholders and the Class A-2 Noteholders, the "Class A
Noteholders") until the Class A-3 Notes have been paid in full and (b)
following payment of the Class A Noteholders' Percentage of the Principal
Distribution Amount on such Payment Date, an amount equal to the Class B
Noteholders' Percentage of the difference between (x) the Principal
Distribution Amount and (y) any portion of the Principal Distribution
Amount applied on such Payment Date to reduce the outstanding principal
amount of the Class A-1 Notes to zero will be paid to the holders of the
Class B Notes (the "Class B Noteholders") until the Class B Notes have been
paid in full; provided, however, that on each Payment Date occurring on or
after the date on which the maturity dates of the Notes have been
accelerated following the occurrence of an Event of Default, an amount
equal to the Principal Distribution Amount will be paid (i) to the Class
A-1 Noteholders, the Class A-2 Noteholders and the Class A-3 Noteholders
pro rata in proportion to the respective principal balances of the Class
A-1 Notes, the Class A-2 Notes and the Class A-3 Notes until all of such
classes have been paid in full and (ii) following payment in full of the
Class A Notes, to the Class B Noteholders until the Class B Notes have been
paid in full. As used herein, "Class A Noteholders' Percentage" means %,
the percentage equivalent of a fraction, the numerator of which is an
amount equal to the sum of the initial principal balances of the Class A-2
Notes and the Class A-3 Notes, and the denominator of which is an amount
equal to the sum of the initial principal balances of the Class A-2 Notes,
the Class A-3 Notes and the Class B Notes. As used herein, "Class B
Noteholders' Percentage" means %, the percentage equivalent of a fraction,
the numerator of which is the initial principal balance of the Class B
Notes, and the denominator of which is an amount equal to the sum of the
initial principal balances of the Class A-2 Notes, the Class A-3 Notes and
the Class B Notes.
The outstanding principal balance, if any, of each class of Notes
will be payable in full on the date specified below for such class of Notes
to the extent not previously paid:
(i) for the Class A-1 Notes, [ ] (the "Class
A-1 Final Payment Date");
(ii) for the Class A-2 Notes, [ ] (the "Class A-2 Final Payment
Date");
(iii) for the Class A-3 Notes, [ ] (the "Class A-3 Final Payment
Date"); and
(iv) for the Class B Notes, [ ] (the "Class B Final Payment Date"
and, together with the foregoing, each a "Final Payment Date").
The actual date on which the aggregate outstanding principal amount
of any class of Notes is paid may be earlier or later than the respective
Final Payment Dates based on a variety of factors, including those
described under "Risk Factors-Maturity and Prepayment Considerations" and
"The Receivables-Maturity and Prepayment Considerations."
Mandatory Redemption
On the Payment Date on or immediately following the last day of the
Pre-Funding Period, any funds remaining in the Pre-Funding Account (after
giving effect to the purchase of all Subsequent Receivables, including any
such purchase on such date) exclusive of any net earnings from the
investment of funds on deposit in the Pre-Funding Account will be applied
to redeem the Notes then outstanding in the same sequence and proportions
that would apply if such remaining funds were a part of the Principal
Distribution Amount.
Optional Redemption
The Notes (and the Certificates) 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 on any
Payment Date with respect to which the Pool Balance as of the end of the
related Collection Period is 10% or less of the Initial Pool Balance. The
redemption price will be equal to the unpaid principal amount of the Notes
plus accrued and unpaid interest thereon, together with the unpaid
principal amount of the Certificates. 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 10020-1104. 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 an account in the name of the Indenture
Trustee on behalf of the Noteholders and the Certificateholders (the
"Collection Account") into which payments made on or with respect to the
Receivables and Advances made by the Servicer will be deposited and into
which amounts on deposit in the Reserve Account, the Supplemental Reserve
Account, the Negative Carry Account and the Yield Supplement Account may be
transferred from time to time, other than certain amounts payable to the
Servicer under the Sale and Servicing Agreement that are not required to be
so deposited or transferred. The Servicer will also establish and maintain
(i) an account in the name of the Indenture Trustee on behalf of the
Noteholders and the Certificateholders in which the Initial Pre-Funded
Amount will be deposited on the Closing Date (the "Pre-Funding Account"),
(ii) 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 payments
to Noteholders will be made (the "Note Payment Account"), (iii) 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 (iv) 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 Pre-Funding Account, the Collection Account
and the Note Payment Account, the "Trust Accounts"). The Seller will also
establish and maintain the Reserve Account, the Supplemental Reserve
Account and the Yield Supplement Account, each in the name of the Indenture
Trustee for the benefit of the Noteholders and the Certificateholders and
the Negative Carry Account in the name of the Indenture Trustee for the
exclusive benefit of the Noteholders. The Trust Accounts, the Reserve
Account, the Supplemental Reserve Account, the Negative Carry 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 each of Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies ("Standard & Poors" and, together
with Moody's, each a "Rating Agency"). In the event that a Rating Agency no
longer permits the Trust Accounts, the Reserve Account, the Supplemental
Reserve Account, the Negative Carry 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 qualified to take deposits and subject to supervision and
examination by Federal or state banking authorities, having a short-term
deposit rating acceptable to each Rating Agency, 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 qualified to take deposits
and 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 each
Rating Agency.
Funds in the Collection Account, the Pre-Funding Account, the
Payahead Account, the Reserve Account, the Supplemental Reserve Account,
the Negative Carry Account and the Yield Supplement Account will be
invested in Permitted Investments as provided in the Sale and Servicing
Agreement. "Permitted Investments" generally will be limited to investments
acceptable to each Rating Agency as being consistent with the ratings of
the Notes. Permitted Investments will be limited to obligations or
securities that mature not later than the Business Day immediately
preceding the next Payment Date (or the payment due date, in the case of a
Payahead). Any earnings (net of losses and investment expenses) on amounts
on deposit in the Collection Account will be paid to the
Certificateholders. 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, and any
amounts released from the Reserve Account, the Supplemental Reserve
Account, the Negative Carry Account and the Yield Supplement Account will
be distributed to the Seller; provided that earnings on amounts on deposit
in the Reserve Account will be distributed to the Seller only to the extent
that the amounts on deposit in the Reserve Account exceed the Specified
Reserve Balance, earnings on amounts on deposit in the Supplemental Reserve
Account will be distributed to the Seller only to the extent that the
amounts on deposit in the Supplemental Reserve Account exceed the Maximum
Supplemental Reserve Amount and earnings on amounts on deposit in the
Negative Carry Account will be distributed to the Seller only to the extent
that the amounts on deposit in the Negative Carry Account exceed the
Required Negative Carry Account Balance.
Yield Supplement Agreement
Simultaneously with the sale and assignment of the Initial
Receivables by MMCA to the Seller, MMCA and the Seller will enter into a
yield supplement agreement (the "Yield Supplement Agreement"), pursuant to
which MMCA will be obligated to pay the Yield Supplement Amount, if any, to
the Trust on the Business Day prior to each Payment Date. The "Yield
Supplement Amount" with respect to any Payment Date will be determined by
aggregating with respect to all of the Receivables the amount (if positive)
calculated by the Servicer with respect to each Receivable equal to
one-twelfth of (i) interest on such Receivable's principal balance as of
the first day of the related Collection Period at a rate equal to the sum
of (A) the Servicing Rate for the related Collection Period, (B) the
Weighted Average Rate for such Payment Date and (C) %, minus (ii) interest
on such Receivable's principal balance as of the first day of the related
Collection Period at the APR on such Receivable. 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.
The "Weighted Average Rate" means, with respect to any Payment Date,
a per annum rate equal to the product of (i) twelve and (ii) the aggregate
amount of the Monthly Accrued Note Interest for the Notes on such Payment
Date divided by the sum of the outstanding principal amount of the Notes as
of the preceding Payment Date (after giving effect to any principal payment
made on such preceding Payment Date) or, with respect to the first Payment
Date, as of the Closing Date.
Yield Supplement Account
Payments of the Yield Supplement Amount due under the Yield
Supplement Agreement will be secured by funds on deposit in a segregated
trust deposit account to initially be established with the Indenture
Trustee for the benefit of the Noteholders and the Certificateholders (the
"Yield Supplement Account"). The Yield Supplement Account shall initially
be a segregated trust deposit account in the corporate trust department of
the Indenture Trustee. 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 each Rating Agency, then subject
to the delivery of certain tax opinions the Yield Supplement Account may be
terminated. The Yield Supplement Account will be funded on the Closing Date
with an initial deposit to be specified in the Sale and Servicing
Agreement. On each Subsequent Transfer Date, the Indenture Trustee will
make an additional deposit to the Yield Supplement Account from funds on
deposit in the Pre-Funding Account that otherwise would be distributable to
the Seller as payment for the Subsequent Receivables sold to the Trust on
such Subsequent Transfer Date.
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 after giving effect to the withdrawal or drawing, as the
case may be, required to be made therefrom on such Payment Date will be an
amount equal to the sum of all projected Yield Supplement Amounts for all
future Payment Dates, which will be determined 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 debt rating sufficient to maintain the rating of each class
of Notes at the initial level at which it was rated by each Rating Agency.
In the event that the rating of the letter of credit bank that issues any
Yield Supplement Letter of Credit is reduced below any such rating, the
Indenture Trustee will be required 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.
The Indenture Cash Flows
Deposits to the Collection Account. On or before the seventh Business
Day, but no later than the tenth calendar day (the "Determination Date"),
of the month in which a Payment Date occurs, the Servicer will calculate
the Available Funds, the Total Available Funds, the Total Servicing Fee,
the Accrued Note Interest, the Principal Distribution Amount, the principal
attributable to Last Scheduled Payments, the Negative Carry Amount, if any,
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
each Payment Date, the Servicer will notify the Indenture Trustee to (a)
withdraw from the Supplemental Reserve Account for payment to the Servicer
of an amount equal to the lesser of (i) the amount of cash or other
immediately available funds in the Supplemental Reserve Account on such
Payment Date (prior to giving effect to any deposits thereto or withdrawals
therefrom relating to such Payment Date), and (ii) the amount, if any, by
which (x) the aggregate amount of Advances that are due and payable to the
Servicer on such Payment Date exceeds (y) the amount paid to the Servicer
with respect to such Advances out of the Collection Account on such Payment
Date and (b) withdraw from the Reserve Account for payment to the Servicer
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 deposits thereto or withdrawals therefrom
relating to such Payment Date), and (ii) the amount, if any, by which (x)
the aggregate amount of Advances that are due and payable to the Servicer
on such Payment Date exceeds (y) the amount paid to the Servicer with
respect to such Advances out of the Collection Account on such Payment Date
and the amount withdrawn from the Supplemental Reserve Account on such
Payment Date pursuant to clause (a) above.
On or before each Payment Date, the Servicer will also notify the
Indenture Trustee to (a) withdraw from the Supplemental 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 Supplemental
Reserve Account on such Payment Date (after giving effect to any
withdrawals therefrom relating to such Payment Date to pay all or part of
the Advances that are due and payable to the Servicer on such Payment Date
but prior to giving effect to any deposits thereto or any other withdrawals
therefrom relating to such Payment Date), and (ii) the amount, if any, by
which (x) the Total Required Payment for such Payment Date exceeds (y) the
Available Funds for such Payment Date and (b) 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 (after giving effect to any
withdrawals therefrom relating to such Payment Date to pay all or part of
the Advances that are due and payable to the Servicer on such Payment Date
but prior to giving effect to any deposits thereto or any other withdrawals
therefrom relating to such Payment Date), and (ii) the amount, if any, by
which (x) the Total Required Payment for such Payment Date exceeds (y) an
amount equal to the sum of the Available Funds for such Payment Date and
amounts withdrawn from the Supplemental Reserve Account on such Payment
Date pursuant to clause (a) above.
The "Available Funds" for a Payment Date to be deposited into the
Collection Account on or prior to such Payment Date shall equal (a) the sum
of the following amounts with respect to the preceding calendar month,
beginning , 1998 (the related "Collection Period"): (i) all collections on
the Receivables including Payaheads withdrawn from the Payahead Account but
excluding Payaheads deposited into the Payahead Account and excluding Rule
of 78's Payments (and including the proceeds of sale by the Trust of any
Financed Vehicle sold to the Trust upon termination, including a
prepayment, of a Final Payment Receivable); (ii) all proceeds of the
liquidation of 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 Receivables that became
Defaulted Receivables in prior Collection Periods ("Recoveries"); (iv) all
extension and deferral 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 or prior
to the related Collection Period (net of applicable expenses); (vi) all
Actuarial Advances and Last Scheduled Payment Advances deposited to the
Collection Account on such Payment Date by the Servicer; (vii) the Yield
Supplement Amount for such Payment Date; (viii) the Negative Carry Amount
for such Payment Date; (ix) 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 related Cutoff Date; and (x) with respect to the Payment Date on or
immediately following the last day of the Pre-Funding Period, any funds
remaining in the Pre-Funding Account (after giving effect to the purchase
of all Subsequent Receivables, including any purchase on the last day of
the Pre-Funding Period) exclusive of any net earnings on funds on deposit
in the Pre-Funding Account, minus (b) the aggregate amount of the funds
described in clause (a) above that are used in the related Collection
Period to reimburse the Servicer for the aggregate amount of Advances
previously made by the Servicer that are due and payable to the Servicer
with respect to such Payment Date.
A "Defaulted Receivable" will be a Receivable (other than a
Receivable with respect to which payment of the Purchase Amount has been
made by the Seller or the Servicer) as to which (a) the related Financed
Vehicle has been repossessed and liquidated, (b) a scheduled payment
(including, in the case of a Final Payment Receivable, the amount owed by
an obligor with respect to a Last Scheduled Payment but excluding charges
for excess wear and tear or excess mileage) 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 eventual payment in full
(including, in the case of a Final Payment Receivable, the amount owed by
an obligor with respect to a Last Scheduled Payment but excluding charges
for excess wear and tear or excess mileage) of the Contract 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 for a
prior Collection Period (which shall be paid to the Seller or Servicer, as
applicable).
The "Total Available Funds" for a Payment Date is an amount equal to
the Available Funds for such Payment Date plus the amounts, if any,
deposited by the Indenture Trustee to the Collection Account from the
Supplemental Reserve Account and the Reserve Account on such Payment Date.
Monthly Withdrawals from Collection Account. On each Payment Date,
the Indenture Trustee shall make the following withdrawals of Total
Available Funds in respect of the related Collection Period from the
Collection Account and make deposits, distributions and payments in the
amounts and in the order of priority specified below:
(i) to the Servicer, the Total Servicing Fee;
(ii) to the Note Payment Account, the Accrued Note Interest for each
class of Notes;
(iii) to the Note Payment Account, the Principal Distribution Amount;
(iv) to the Reserve Account, the amount, if any, required to bring
the amount in the Reserve Account up to the Specified Reserve
Balance;
(v) to the Supplemental Reserve Account, the amount, if any,
required to bring the amount in the Supplemental Reserve
Account up to the Maximum Supplemental Reserve Amount; and
(vi) to the Certificate Distribution Account, any remaining portion
of Total 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, the Total 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. In such event, the amount available to make payments
of principal of the Notes will be paid in the following order of priority:
(i) to the Class A-1 Noteholders, the Class A-2 Noteholders and the Class
A-3 Noteholders pro rata in proportion to the respective principal balances
of the Class A-1 Notes, the Class A-2 Notes and the Class A-3 Notes until
all of such classes have been paid in full and (ii) then to the Class B
Noteholders until the Class B Notes have been paid in full.
For purposes hereof, the following terms have the following meanings:
"Accrued Note Interest" means, with respect to any Payment Date
and each class of Notes, the sum of the Monthly Accrued Note Interest
and the Interest Carryover Shortfall for such class for such Payment
Date.
"Certificate Balance" equals, initially, $ and, thereafter,
equals the initial Certificate Balance minus all amounts paid as
principal on the Certificates.
"Interest Carryover Shortfall" means, with respect to any
Payment Date and any class of Notes, the excess of the sum of the
Monthly Accrued Note Interest for the preceding Payment Date and any
outstanding 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 with respect to such class, plus interest
on such excess, to the extent permitted by law, at the applicable
Note Interest Rate for the related Interest Period.
"Monthly Accrued Note Interest" means, with respect to any
Payment Date and (i) any class of Notes, interest accrued for the
related Interest Period at the applicable Note Interest Rate for such
class on the aggregate principal balance of the Notes of such class
as of the immediately preceding Payment Date, after giving effect to
all payments of principal to Noteholders on or prior to such
preceding Payment Date (or, in the case of the first Payment Date,
the initial principal amount of the Notes); and (ii) with respect to
the Notes collectively, the sum of Monthly Accrued Note Interest for
each class.
"Note Interest Rate" means in the case of (i) the Class A-1
Notes, % per annum, (ii) the Class A-2 Notes, % per annum, (iii) the
Class A-3 Notes, % per annum and (iv) the Class B Notes,
% per annum. Interest on the Class A-1 Notes will be calculated on
the basis of the actual number of days elapsed and a 360-day year,
and interest on the Class A-2 Notes, the Class A-3 Notes and the
Class B Notes will be calculated on the basis of a 360-day year
consisting of twelve 30-day months.
"Principal Carryover Shortfall" means, as of the close of
business on any Payment Date, the excess of the Principal
Distribution Amount and any outstanding Principal Carryover Shortfall
from the preceding Payment Date over the amount in respect of
principal that is actually deposited in the Note Payment Account on
such Payment Date.
"Principal Distribution Amount" means, with respect to any
Payment Date, the sum of (i) the Scheduled Principal for such Payment
Date (including, in the case of a Final Payment Receivable, the
amount owed by an obligor with respect to a Last Scheduled Payment),
(ii) any outstanding Principal Carryover Shortfall as of the close of
business on the preceding Payment Date and (iii) with respect to the
Payment Date on or immediately following the end of the Pre-Funding
Period, any funds remaining in the Pre-Funding Account (after giving
effect to the purchase of all Subsequent Receivables, including any
purchase on the last day of the Pre-Funding Period) exclusive of any
net earnings on funds on deposit in the Pre-Funding Account;
provided, however, that the Principal Distribution Amount shall not
exceed the outstanding aggregate principal balance of the Notes; and
provided further, that, on the Final Payment Date for each class of
Notes, the principal required to be deposited in the Note Payment
Account will include the 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 such class of Notes to zero.
"Realized Losses" means with respect to each Payment Date and
each Receivable that became a Defaulted Receivable during the related
Collection Period, the excess of the principal balance of such
Defaulted Receivable (including the principal of a Last Scheduled
Payment) over the Liquidation Proceeds attributable to the principal
balance of such Defaulted Receivable.
"Scheduled Principal" shall mean, with respect to any Payment
Date, the sum of (a) the sum of (i) collections received during the
related Collection Period of principal on Simple Interest
Receivables, including collections of principal attributable to the
Last Scheduled Payment of a Simple Interest Receivable that is a
Final Payment Receivable and charges for excess wear and tear and
excess mileage but excluding collections of principal that would be
attributable to the Last Scheduled Payment of a Simple Interest
Receivable that is a Final Payment Receivable except that a Last
Scheduled Payment Advance has been made with respect to such Last
Scheduled Payment and (ii) Last Scheduled Payment Advances made on
such Payment Date with respect to Simple Interest Receivables that
are Final Payment Receivables, (b) the principal portion of each
scheduled payment, including a Last Scheduled Payment on a Final
Payment Receivable, due on any Actuarial Receivable during the
related Collection Period, (c) (without duplication of amounts taken
into account under (a) or (b)) the outstanding principal balance of
(i) Receivables prepaid in full during the related Collection Period,
and (ii) Receivables which became Defaulted Receivables during the
related Collection Period, (d) the Purchase Amount of each Receivable
that was repurchased by the Seller or purchased by the Servicer
during such Collection Period, to the extent attributable to
principal, (e) the proceeds of any other sale of a Receivable to the
extent allocable to principal, and (f) partial prepayments
attributable to any refunded item included in the amount financed,
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 be
below the scheduled payment as of the related Cutoff Date; provided,
however, that in calculating the Scheduled Principal, (x) all
payments and proceeds (including Liquidation Proceeds) of any
purchased Receivables the Purchase Amount of which has been included
in Scheduled Principal in a prior Collection Period (which shall be
paid to the Seller or Servicer, as applicable) and (y) all amounts
released from the Pre-Funding Account will be excluded.
"Total Required Payment" means, on any Payment Date, the Total
Servicing Fee, the Accrued Note Interest and the Principal
Distribution Amount.
On each Payment Date, unless the maturity dates of the Notes have
been accelerated following the occurrence of an Event of Default, all
amounts on deposit in the Note Payment Account will be paid in the
following order of priority:
(a) to the Class A Noteholders, the Accrued Note Interest on
the applicable class of Class A Notes;
(b) following payment in full of the Accrued Note Interest
payable to the Class A Noteholders, the Accrued Note Interest on the
Class B Notes;
(c) to the Class A-1 Noteholders, the Principal Distribution
Amount until the Class A-1 Notes have been paid in full;
(d) following payment in full of the Class A-1 Notes, to the
Class A-2 Noteholders, the Class A Noteholders' Percentage of the
remaining Principal Distribution Amount until the Class A-2 Notes
have been paid in full;
(e) following payment in full of the Class A-2 Notes, to the
Class A-3 Noteholders, the Class A Noteholders' Percentage of the
remaining Principal Distribution Amount until the Class A-3 Notes
have been paid in full; and
(f) following payment in full of the Class A-1 Notes and
payment of the Class A Noteholders' Percentage of the Principal
Distribution Amount on such Payment Date, to the Class B Noteholders,
the Class B Noteholders' Percentage of the Principal Distribution
Amount until the Class B Notes have been paid in full.
On each Payment Date, all amounts on deposit in the Certificate
Distribution Account will be distributed to the Certificateholders.
On each Payment Date occurring on or after the acceleration of the
maturity dates of the Notes following the occurrence of an Event of
Default, all amounts on deposit in the Note Payment Account will be paid:
(a) to the Indenture Trustee, certain expenses and other amounts payable to
the Indenture Trustee; (b) to the Servicer, the amounts due and unpaid in
respect of the Total Servicing Fee; (c) to the Class A Noteholders, the
Accrued Note Interest on the applicable class of Class A Notes; (d) to the
Class B Noteholders, the Accrued Note Interest on the Class B Notes; (e) to
the Class A Noteholders, the Principal Distribution Amount pro rata in
proportion to the respective principal balances of the Class A-1 Notes, the
Class A-2 Notes and the Class A-3 Notes until each of such classes has been
paid in full; (f) to the Class B Noteholders, the Principal Distribution
Amount until the Class B Notes have been paid in full and (g) to the
Certificateholders.
Negative Carry Account
An account to be known as the "Negative Carry Account" will be
established by the Seller and held in the name of the Indenture Trustee for
the exclusive benefit of the Noteholders. The Negative Carry Account will
be created with an initial deposit by the Seller of $ (the "Negative Carry
Account Initial Deposit"), which is equal to the Maximum Negative Carry
Amount as of the Closing Date. The "Maximum Negative Carry Amount" means,
as of any date of determination, the product of (a) the Weighted Average
Rate as of such date minus %, multiplied by (b) the product of the Note
Percentage and the Pre-Funded Amount as of such date, multiplied by (c) the
percentage equivalent of a fraction, the numerator of which is the actual
number of days until the expected end of the Pre-Funding Period and the
denominator of which is 360. "Note Percentage" means, as of any date of
determination, the percentage equivalent of a fraction, the numerator of
which is the aggregate principal amount of the Notes as of such date, and
the denominator of which is an amount equal to the sum of the aggregate
principal amount of the Notes as of such date and aggregate principal
amount of the Certificates as of such date.
On each Payment Date, the Servicer will instruct the Indenture
Trustee to withdraw from the Negative Carry Account and deposit into the
Collection Account an amount equal to the Negative Carry Amount for the
related Collection Period. For each Collection Period, the "Negative Carry
Amount" will be calculated by the Servicer as the difference (if positive)
between (1) the product of (a) the Accrued Note Interest for such
Collection Period, multiplied by (b) the Pre-Funded Percentage as of the
Payment Date occurring in such Collection Period, or in the case of the
first Payment Date, the Closing Date, minus (2) the net investment earnings
on the Pre-Funded Amount from and including the Payment Date occurring in
such Collection Period or, in the case of the first Collection Period, the
Closing Date, to but excluding the immediately following Payment Date. The
"Pre-Funded Percentage" means, as of any date of determination, the
percentage equivalent of a fraction, the numerator of which is the
Pre-Funded Amount as of such date and the denominator of which is the sum
of the Pool Balance and the Pre-Funded Amount, in each case as of such
date, after taking into account all transfers of Subsequent Receivables on
or prior to such date.
The amount required to be on deposit in the Negative Carry Account
(the "Required Negative Carry Account Balance") as of any Payment Date will
be equal to the lesser of (x) the Negative Carry Account Initial Deposit
minus all previous withdrawals of the Negative Carry Amount from the
Negative Carry Account, including any withdrawals of the Negative Carry
Amount therefrom on such Payment Date and (y) the Maximum Negative Carry
Amount as of such Payment Date. If the amount on deposit in the Negative
Carry Account on any Payment Date (after giving effect to the withdrawal of
the Negative Carry Amount, if any, for such Payment Date) is greater than
the Required Negative Carry Account Balance, the excess will be released to
the Seller. All amounts remaining on deposit in the Negative Carry Account
on the Payment Date on or immediately following the last day of the
Pre-Funding Period (after giving effect to all withdrawals therefrom on
such Payment Date for deposit to the Collection Account on such Payment
Date) will be released to the Seller.
Reserve Account and Supplemental Reserve Account
Accounts to be known as the "Reserve Account" and the "Supplemental
Reserve Account" will be established by the Seller and held in the name of
the Indenture Trustee for the benefit of Noteholders and
Certificateholders.
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 $ , which is equal to the Pool Balance as of the Initial Cutoff Date
multiplied by %. On each Subsequent Transfer Date, cash or Permitted
Investments having a value approximately equal to % of the aggregate
principal balance as of the related Subsequent Cutoff Date of the
Subsequent Receivables conveyed to the Trust on such Subsequent Transfer
Date will be withdrawn from the Pre-Funding Account from amounts otherwise
distributable to the Seller in connection with the sale of Subsequent
Receivables and deposited in the Reserve Account. The amount initially
deposited in the Reserve Account by the Seller together with the aggregate
amount transferred from the Pre-Funding Account to the Reserve Account on
the Subsequent Transfer Dates is the "Reserve Initial Deposit." The
Supplemental Reserve Account will not be funded by an initial deposit on
the Closing Date.
On or before each Payment Date, the Servicer will instruct the
Indenture Trustee to withdraw from the Supplemental Reserve Account to the
extent of the funds available therein the following amounts in the
following order of priority: (i) an amount equal to the shortfall, if any,
between the aggregate amount of Advances previously made by the Servicer
that are due and payable to the Servicer on such Payment Date and the
aggregate amount of the collections on the Receivables that are paid to the
Servicer on such Payment Date as reimbursement for such Advances, which
will be paid to the Servicer, and (ii) an amount equal to the shortfall, if
any, between the Total Required Payment for such Payment Date and Available
Funds allocable to the payment of the Total Required Payment, which will be
deposited to the Collection Account on such Payment Date. On each Payment
Date, the Servicer will instruct the Indenture Trustee to withdraw from the
Reserve Account to the extent of funds available in the Reserve Account the
shortfall, if any, between the funds available in the Supplemental Reserve
Account on such Payment Date and the amounts described in clauses (i) and
(ii) of the preceding sentence, for application in the same order of
priority.
On each Payment Date, after payment of the amount owed to the
Servicer for Advances and the Total Servicing Fee for such Payment Date and
the deposit to the Note Payment Account of an amount equal to the Accrued
Note Interest for each class of Notes and the Principal Distribution Amount
for such Payment Date, the Indenture Trustee will make the following
withdrawals from the Total Available Funds in the Collection Account in the
following order of priority, to the extent of the remaining funds available
therein: (i) the withdrawal from the Collection Account for deposit to the
Reserve Account of the amount, if any, required to bring the amount in the
Reserve Account up to the Specified Reserve Balance for such Payment Date
after giving effect to any withdrawals made from the Reserve Account on
such Payment Date, and (ii) the withdrawal from the Collection Account for
deposit to the Supplemental Reserve Account of the amount, if any, required
to bring the amount in the Supplemental Reserve Account up to the Maximum
Supplemental Reserve Amount for such Payment Date after giving effect to
any withdrawals made from the Supplemental Reserve Account on such Payment
Date.
Amounts on deposit in the Reserve Account and the Supplemental
Reserve Account will be invested by the Seller in Permitted Investments. On
any Payment Date, to the extent that the amounts on deposit in the Reserve
Account and the Supplemental Reserve Account (including amounts
attributable to investment income, net of losses and investment expenses)
exceed the required balances in such accounts after giving effect to the
withdrawals to be made from such accounts on such Payment Date, such excess
will be withdrawn from the Reserve Account or the Supplemental Reserve
Account, as the case may be, and paid to the Seller on such Payment Date.
The Noteholders will not have any rights in, or claims to, any such amounts
paid to the Seller.
Amounts on deposit in the Reserve Account and the Supplemental
Reserve Account from time to time are intended to enhance the likelihood of
receipt by Noteholders of amounts due them and to decrease the likelihood
that the Noteholders will experience losses. If the aggregate amount
required to be withdrawn from the Reserve Account and the Supplemental
Reserve Account on any Payment Date to reimburse the Servicer for Advances
and to cover shortfalls in Available Funds exceeds the aggregate amount on
deposit in the Reserve Account and the Supplemental Reserve Account, a
temporary shortfall in the amounts distributed to the Noteholders could
result. In addition, depletion of the Reserve Account and the Supplemental
Reserve Account ultimately could result in losses to Noteholders. To the
extent that amounts on deposit in the Reserve Account and the Supplemental
Reserve Account are exhausted, Noteholders and Certificateholders will have
no recourse to the assets of the Seller as a source of payment.
The "Specified Reserve Balance" with respect to any Payment Date will
be an amount equal to the lesser of (i) $ and (ii) an amount equal to (x)
the outstanding principal amount of the Notes as of such Payment Date
(after giving effect to any principal payment made on such Payment Date)
less (y) the amounts on deposit in the Supplemental Reserve Account on such
Payment Date (after giving effect to any deposits to or withdrawals from
the Supplemental Reserve Account on such Payment Date). The "Maximum
Supplemental Reserve Amount" with respect to any Payment Date will be an
amount equal to the lesser of (i) $ and (ii) the outstanding principal
amount of the Notes on such Payment Date (after giving effect to any
principal payment made on such Payment Date). The Servicer may, from time
to time after the date of this Prospectus, request each Rating Agency to
approve a reduction in the Specified Reserve Balance or the Maximum
Supplemental Reserve Amount or a change in the manner in by which the
Reserve Account or the Supplemental Reserve Account is funded. If each
Rating Agency delivers a letter to the Indenture Trustee to the effect that
the reduction in the Specified Reserve Balance or the Maximum Supplemental
Reserve Amount, as the case may be, or the change in the manner in which
the Reserve Account or the Supplemental Reserve Account is funded, as the
case may be, will not result in the qualification, reduction or withdrawal
of its then-current rating of any class of Notes, then subject to delivery
of certain tax opinions the required balance of the account will be reduced
or the account will be funded in the manner proposed by the Servicer, as
the case may be. The Indenture will accordingly be amended to reflect the
change in the required balance of the account or the change in the manner
in which the account is funded, as the case may be, without the consent of
any Noteholders.
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 maturity 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 maturity 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 charges for
excess wear and tear and excess mileage on the Financed Vehicle.
The initial aggregate principal amount of the Notes and Certificates
will be an amount equal to the sum of the aggregate principal amount of the
Initial Receivables and the Pre-Funded Amount on the Initial Cutoff Date,
including the aggregate of the principal portions of the Last Scheduled
Payments on the Final Payment Receivables. As of the Initial Cutoff Date,
the Last Scheduled Payments of the Initial Receivables had an aggregate
principal balance of $ .
Collections attributable to Last Scheduled Payments, plus payments by
related obligors in respect of charges for excess wear and tear and excess
mileage (but not disposition fees, which are payable to the Servicer) 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 reimburse the Servicer for Advances, to
pay the Total Required Payment and to make required deposits into the
Reserve Account and the Supplemental Reserve Account. Any amount remaining
will be paid in accordance with the priority of payments described herein.
See "-The Indenture Cash Flows."
Upon maturity 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 (which, in the case of a Simple Interest
Receivable, may be greater than or less than the Last Scheduled Payment),
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 charges for excess wear and tear and
excess mileage and by a disposition fee payable to the Servicer) and paying
any excess of the total amount owed (calculated as in clause (1)) 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 excess wear and tear and excess mileage (but not disposition
fees), to the Seller, which will sell its rights to the Trust. If the
payments by or on behalf of an obligor on a Final Payment Receivable in the
Collection Period in which the Last Scheduled Payment is due that are
attributable to the Last Scheduled Payment and the amounts, if any, in the
Payahead Account allocable to the payment of the Last Scheduled Payment are
less than the amount due with respect to such Last Scheduled Payment, the
Servicer will make a Last Scheduled Payment Advance on the following
Payment Date in an amount equal to such shortfall. The Servicer will be
reimbursed for the amount of the Last Scheduled Payment Advance on each
subsequent Payment Date (i) out of payments by or on behalf of the related
obligor in the preceding Collection Period to the extent such payments are
allocable to the reimbursement of the Last Scheduled Payment Advance and
(ii) out of collections on other Receivables in the preceding Collection
Period to the extent of losses on the related Receivable that the Servicer
has recorded in its books and records during the preceding Collection
Period, but only to the extent such losses are allocable to the Last
Scheduled Payment and the Last Scheduled Payment Advance has not otherwise
been reimbursed. See "-The Indenture Cash Flows" and "-Reserve Account and
Supplemental Reserve Account."
If the obligor sells the Motor Vehicle to MMCA (acting on behalf of
the Trust), it is anticipated that the full amount of the Last Scheduled
Payment will not be realized upon the subsequent sale of the Motor Vehicle
on behalf of the Trust. MMCA sets the Last Scheduled Payment for a
particular model of Motor Vehicle at the time the related retail
installment sale 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 the related Motor Vehicles 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 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. 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
(including payment by the obligor 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 the full amount owed by an obligor under a Final
Payment Receivable is not collected, the shortfall will 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 and the Supplemental 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 Class B Notes and the Certificates
The rights of Certificateholders to receive distributions are
subordinated to the rights of Noteholders to receive payments of interest
and principal to the extent set forth herein. Funds on deposit in the
Collection Account (including amounts deposited therein from the Reserve
Account and the Supplemental Reserve Account) will be applied to the
payment to the Servicer of Advances to the extent due and payable to the
Servicer and Rule of 78's Payments due and payable to the Servicer, the
payment of the Total Servicing Fee, the Accrued Note Interest on the Notes
and principal payable on the Notes on such Payment Date (including the
Principal Distribution Amount) and to making the required deposits to the
Reserve Account and the Supplemental Reserve Account before distributions
on the Certificates. In addition, following the occurrence of an Event of
Default that has resulted in an acceleration of the Notes, the Noteholders
will be entitled to be paid in full before the Certificateholders are
entitled to any distributions. The foregoing subordination of the
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. No payments of interest will be made on
the Class B Notes on any Payment Date until all interest due to the Class A
Notes has been paid. No payment of principal will be made on the Class B
Notes on any Payment Date until the Class A-1 Notes have been paid in full
and the Class A Noteholders' Percentage of the Principal Distribution
Amount has been paid. Upon an acceleration of the maturity dates of the
Notes following an Event of Default, no payment of principal will be made
on the Class B Notes until the Class A Notes have been paid in full. See
"-The Indenture Cash Flows" herein.
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 is less than the scheduled payment due thereon, after
application of amounts on deposit in the Payahead Account by the Indenture
Trustee against such shortfall, the Servicer will make an advance of the
remaining amount (such an advance, an "Actuarial Advance") on the related
Payment Date. The Servicer will be reimbursed for each Actuarial Advance
(i) on each subsequent Payment Date out of any payments by or on behalf of
the related obligor in the preceding Collection Period to the extent such
payments are allocable to the reimbursement of the Actuarial Advance and
(ii) on the Payment Date following the Collection Period in which the
related Actuarial Receivable becomes a Defaulted Receivable out of
collections on other Receivables in the preceding Collection Period to the
extent the Servicer has not previously been reimbursed for the amount of
such Actuarial Advance. In addition, the Servicer will make an advance for
any portion of a Last Scheduled Payment on an Actuarial Receivable or a
Simple Interest Receivable for the Collection Period in which such payment
becomes due from the related obligor to the extent such payment has not
been made by or on behalf of such obligor, including amounts in the
Payahead Account allocable to such Last Scheduled Payment (such advance, a
"Last Scheduled Payment Advance" and, together with an Actuarial Advance,
each an "Advance"). The Servicer will be reimbursed for the amount of a
Last Scheduled Payment Advance on each Payment Date following the Payment
Date on which the Last Scheduled Payment Advance was made (i) out of any
payments by or on behalf of the related obligor in the preceding Collection
Period to the extent such payments are allocable to the reimbursement of
the Last Scheduled Payment Advance and (ii) out of collections on other
Receivables in the preceding Collection Period to the extent of losses on
the related Receivable that the Servicer has recorded in its books and
records during the preceding Collection Period, but only to the extent such
losses are allocable to the Last Scheduled Payment and the Last Scheduled
Payment Advance has not otherwise been reimbursed. If MMCA is replaced in
its capacity as Servicer, the successor Servicer will not be required to
make Advances. In the absence of Advances by the Servicer, Noteholders must
rely for payment of the Notes upon payments on the Receivables (including
sales proceeds of Financed Vehicles returned to the Servicer for sale),
payments under the Yield Supplement Agreement and the Yield Supplement
Account, withdrawals from the Negative Carry Account and, to the extent
available, amounts on deposit in the Reserve Account and the Supplemental
Reserve Account. See "--The Indenture Cash Flows" and "--Reserve Account
and Supplemental Reserve Account" herein.
Collections on the Receivables
The Servicer will deposit all payments on the Receivables (from
whatever source) and all proceeds of the Receivables (other than certain
amounts payable to the Servicer under the Sale and Servicing Agreement that
are not required to be deposited in the Collection Account) into the
Collection Account not later than two Business Days after receipt thereof
unless (i) the Servicer shall have a rating acceptable to each Rating
Agency 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 Rating Agency that no
outstanding rating on any class of Notes would be lowered or withdrawn as a
result, in which case such amounts will be paid into the Collection Account
on the Business Day prior to each Payment Date. The Seller and the Servicer
will also deposit into the Collection Account on each Payment Date the
Purchase Amount of each Receivable required to be repurchased or purchased
by either of them pursuant to an obligation that arose during the related
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. 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 payment allocable to principal of each class
of Notes;
(ii) the amount of the payment allocable to interest on or with
respect to each class of Notes;
(iii) the Yield Supplement Amount;
(iv) the amount of the Total Servicing Fee with respect to such
Collection Period;
(v) the aggregate outstanding principal amount of each class of the
Notes and the applicable Note Pool Factor, after giving effect
to payments allocated to principal
reported under clause (i) above;
(vi) the Pool Balance, the Level Pay Pool Balance and the Last
Scheduled Payment Pool Balance (calculated as of the close of
business on the last day of the related Collection Period);
(vii) the amounts of the Interest Carryover Shortfall and the
Principal Carryover Shortfall, if any, for such Payment Date
and the portion thereof attributable to each class of Notes;
(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;
(x) the balance of the Supplemental Reserve Account on such Payment
Date, after giving effect to changes therein on such Payment
Date;
(xi) the amount of Actuarial Advances and Last Scheduled Payment
Advances, if any, for such Collection Period;
(xii) the aggregate Purchase Amount of Receivables repurchased by the
Seller or purchased by the Servicer during such Collection
Period;
(xiii)for each such Payment Date during the Pre-Funding Period, if any,
the remaining Pre-Funded
Amount; and
(xiv) for the first such date that is on or immediately following the
end of the Pre-Funding Period, if any, the amount of any
remaining Pre-Funded Amount that has not been used to fund the
purchase of Subsequent Receivables and is being passed through
as payments of principal on the Notes.
Each amount set forth pursuant to clauses (i), (ii), (iii), (iv) and
(vii) above will be expressed in the aggregate and as a dollar amount per
$1,000 of original denomination of the Notes or class of Notes, as
applicable. 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 clauses (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 of all classes; 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 outstanding, voting as a group, 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 outstanding
principal amount of the Notes of all classes, voting as a group, 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, 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 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 outstanding Notes,
voting as a group, to such sale. The Indenture Trustee may, but need not,
obtain and rely upon an opinion of an independent accountant or investment
banking firm as to the sufficiency of the Trust Property to pay interest on
and principal of the Notes on an ongoing basis. (Indenture, Sections 5.4
and 5.5).
In the event of a sale of the Trust Property 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 Fees; 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 and the Sale and Servicing
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 outstanding Notes,
voting as a group, will have the right to direct the time, method and place
of conducting any proceeding or any remedy available to the Indenture
Trustee with respect to the Notes or exercising any trust power conferred
on the Indenture Trustee, subject to certain limitations, and the holders
of not less than a majority of the aggregate principal amount of the
outstanding Notes, voting as a group, 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. (Indenture, Sections 5.11 and 5.12).
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 DTC 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 DTC
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.
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 outstanding 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
outstanding. (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 or 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 (w) the validity or effectiveness of the
Indenture to be impaired, (x) 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, (y) any lien, charge, excise, claim,
security interest, mortgage or other encumbrance to be created on or extend
to or otherwise arise upon or burden the assets of the Trust or any part
thereof, or any interest therein or the proceeds therefrom or (z) the lien
of the Indenture not to constitute a valid, first priority (other than with
respect to any such tax, mechanics or other lien) security interest in the
Trust Property. (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, 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, the Principal Distribution Amount, the Total Servicing Fee and
the deposits, if any, required to be made to the Reserve Account and the
Supplemental Reserve Account have been provided for.
The Trust will or will cause the Servicer to deliver to the Indenture
Trustee on or prior to each Payment Date the disbursement and payment
instructions as required pursuant to the Indenture. (Sale and Servicing
Agreement, Section 4.9).
Replacement of Indenture Trustee. Noteholders holding not less than a
majority of the aggregate principal amount of the outstanding Notes, voting
as a group, 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 by each
Rating Agency or otherwise acceptable to each Rating Agency. (Indenture,
Sections 6.8 and 6.11).
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 (i) will perform such duties and
only such duties as are specifically set forth in the Indenture, (ii) may
in the absence of bad faith, 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) will 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 Trust 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 of Default 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 6.1 and 6.7).
Access to Noteholder Lists. If Definitive Notes are issued in the
limited circumstances described herein and the Indenture Trustee is not the
registrar for the Notes, 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, among other things, 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 any class of Notes, cause
the then-current rating assigned to any class of Notes to be withdrawn,
reduced or qualified and (y) an Opinion of Counsel as to certain tax
matters is delivered. (Indenture, Section 9.1).
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
amount of the outstanding Notes, voting as a group, and with prior written
notice to each Rating Agency, 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 any class of Notes, cause
the then- current rating assigned to any such class of Notes to be
withdrawn, reduced or qualified 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
Payment Date for any class of Notes 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, change the provisions of the Indenture relating to the
application of collections on, or the proceeds of the sale of, the Trust
Property to payment of principal of or interest on the Notes, or change any
place of payment where, or the coin or currency in which, any Note or any
interest thereon is payable, (ii) impair the right to institute suit for
the enforcement of certain provisions of the Indenture regarding payment,
(iii) reduce the percentage of the aggregate outstanding 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 outstanding
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 and the
Certificates, (vi) modify any provision of the Indenture specifying a
percentage of the aggregate principal amount of the Notes necessary to
amend the Indenture or the other Basic Documents except to increase any
percentage specified in the Indenture or to provide that certain additional
provisions of the Indenture or the Basic Documents cannot be modified or
waived without the consent of the holder of each outstanding Note affected
thereby, (vii) modify any provisions of the Indenture in such manner as to
affect the calculation of the amount of any payment of interest or
principal due on any Note on any Payment Date or to affect the rights of
the holders of Notes to the benefit of any provisions for the mandatory
redemption of the Notes contained in the Indenture or (viii) permit the
creation of any lien ranking prior to or on a parity with the lien of the
Indenture with respect to any of the Trust Property 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 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
any Noteholders' consent is required and provides that the Owner Trustee
will not enter into such amendment unless Certificateholders holding a
majority of the Certificate Balance including, for this purpose,
Certificates held by the Seller or any affiliate of the Seller, consent in
writing. (Trust Agreement, Section 4.1).
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The Trust will purchase a pool of motor vehicle retail installment
sale contracts (the "Initial Receivables") on the Closing Date. It is
anticipated that the Trust will purchase additional motor vehicle retail
installment sale contracts (the "Subsequent Receivables") on one or more
Subsequent Transfer Dates with an aggregate principal balance approximately
equal to the Initial Pre-Funded Amount. The Initial Receivables and the
Subsequent Receivables are referred to collectively in this Prospectus as
the "Receivables". 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 exhibits to the Registration Statement of which this Prospectus
forms a part. The following summary does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the provisions
of the Transfer and Servicing Agreements.
Sale and Assignment of the Initial Receivables and the Subsequent 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 Initial Receivables,
including its security interests in the related 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 Initial
Receivables, including its security interests in the related Financed
Vehicles. Each Initial Receivable conveyed by the Seller to the Trust will
be identified in a schedule attached to the Sale and Servicing Agreement.
The Initial Receivables will be sold and assigned by MMCA to the Seller and
sold and assigned by the Seller to the Trust as of [ ], 1998 (the "Initial
Cutoff Date"). The Owner Trustee will, concurrently with such sale and
assignment of the Initial Receivables, execute, authenticate and deliver
the Certificates. The net proceeds received from the sale of the Notes will
be applied to the purchase of the Initial Receivables on the Closing Date
and to the deposits required to be made to the Reserve Account, the Pre-
Funding Account, the Negative Carry Account and the Yield Supplement
Account on the Closing Date.
It is anticipated that Subsequent Receivables will be conveyed to the
Trust monthly on dates specified by the Seller (each, a "Subsequent
Transfer Date") occurring during a period beginning on the Closing Date and
ending not later than [ ] (the "Pre-Funding Period"). The Seller will
designate as a cutoff date (each, a "Subsequent Cutoff Date" and, together
with the Initial Cutoff Date, each a "Cutoff Date") the date as of which
particular Subsequent Receivables are conveyed to the Trust. On or prior to
each Subsequent Transfer Date, MMCA will sell and assign to the Seller,
without recourse, its entire right, title and interest in, to and under the
Subsequent Receivables to be transferred by the Seller to the Trust on such
date, including MMCA's security interests in the related Financed Vehicles.
On each Subsequent Transfer Date, subject to the conditions described
below, the Seller will sell and assign to the Trust, without recourse, the
Seller's entire interest in the Subsequent Receivables designated by the
Seller as of the related Subsequent Cutoff Date. Upon the conveyance of
Subsequent Receivables to the Trust on a Subsequent Transfer Date, (i) the
Pool Balance will increase in an amount equal to the aggregate principal
balance of the Subsequent Receivables, (ii) an amount equal to % of the
aggregate principal balance of the Subsequent Receivables will be withdrawn
from the Pre-Funding Account from funds otherwise distributable to the
Seller as payment for the Subsequent Receivables and deposited in the
Reserve Account, (iii) an amount equal to the projected Yield Supplement
Amounts for all future Payment Dates for the Subsequent Receivables
conveyed to the Trust on such Subsequent Transfer Date will be withdrawn
from the Pre-Funding Account from funds otherwise distributable to the
Seller as payment for the Subsequent Receivables and deposited in the Yield
Supplement Account and (iv) an amount equal to the excess of the aggregate
principal balance of such Subsequent Receivables over the amount described
in clauses (ii) and (iii) will be withdrawn from the Pre-Funding Account
and paid to the Seller.
Any conveyance of Subsequent Receivables is subject to the
satisfaction, on or before the related Subsequent Transfer Date, of the
following conditions precedent, among others: (i) each such Subsequent
Receivable must satisfy the eligibility criteria specified in the Sale and
Servicing Agreement (see "The Receivables--Selection Criteria" herein);
(ii) the Seller shall not have selected such Subsequent Receivables in a
manner that it believes is adverse to the interests of the Noteholders or
the Certificateholders; (iii) as of the related Subsequent Cutoff Date, the
Receivables, including any Subsequent Receivables conveyed by the Seller as
of such Subsequent Cutoff Date, must satisfy certain criteria described
under "The Receivables--Selection Criteria" herein; (iv) the applicable
Reserve Account deposit for such Subsequent Transfer Date shall have been
made; (v) the applicable Yield Supplement Account deposit for such
Subsequent Transfer Date shall have been made; (vi) the Seller shall have
executed and delivered to the Trust (with a copy to the Indenture Trustee)
a written assignment conveying such Subsequent Receivables to the Trust
(including a schedule identifying such Subsequent Receivables); (vii) the
Seller shall have delivered certain opinions of counsel to the Rating
Agencies with respect to the transfer of such Subsequent Receivables;
(viii) the Trust and the Indenture Trustee shall have received written
confirmation from a firm of certified independent public accountants that,
as of the end of the preceding Collection Period, the Receivables in the
Trust at that time, including the Subsequent Receivables conveyed by the
Seller, satisfied certain parameters described under "The
Receivables-Selection Criteria" herein; and (ix) the Rating Agencies shall
have received written notification from the Seller of the addition of all
such Subsequent Receivables.
Except for the criteria described in the preceding paragraph, there
will be no required characteristics of the Subsequent Receivables.
Therefore, following the transfer of Subsequent Receivables to the Trust,
the aggregate characteristics of the entire pool of Receivables may vary
from those of the Initial Receivables. See "Risk Factors--Changes in Pool
Characteristics as a Result of Pre-Funding" and "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 in the schedule of Initial Receivables attached to the
Sale and Servicing Agreement and each schedule of Subsequent Receivables
attached to the related assignment is correct in all material respects;
(ii) MMCA shall have determined whether or not the obligor on each
Receivable has maintained physical damage insurance (which shall not be
force-placed insurance) covering the Financed Vehicle in accordance with
its normal requirements; (iii) at the Closing Date or the related
Subsequent Transfer Date, as applicable, 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 Closing Date or the related Subsequent Transfer Date, as
applicable, each of the Receivables is or will be secured by a perfected
first priority 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 Trust, 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 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."
Pre-Funding
The Trust will pay the purchase price for Subsequent Receivables with funds
on deposit in an account to be known as the "Pre-Funding Account". The
Seller will deposit an amount equal to $ (the "Initial Pre-Funded Amount")
in the Pre-Funding Account on the Closing Date. The Seller expects to sell
Subsequent Receivables to the Trust with an aggregate principal balance
approximately equal to the Initial Pre-Funded Amount. Prior to being used
to purchase Subsequent Receivables or paid to holders of the Notes as
described under "Description of the Notes-Mandatory Redemption," funds on
deposit in the Pre-Funding Account will be invested from time to time in
Permitted Investments. The net earnings from the investment of funds on
deposit in the Pre-Funding Account will be transferred to the Collection
Account on a monthly basis on the Business Day preceding each Payment Date.
The Pre-Funding Period will end earlier than the date specified above
when (i) the amount of funds on deposit in the Pre-Funding Account (the
"Pre-Funded Amount") is reduced to less than $100,000 because of purchases
of Subsequent Receivables, (ii) there is an Event of Default under the
Indenture or a Servicer Default under the Sale and Servicing Agreement or
(iii) the Seller or the Servicer becomes subject to certain insolvency
events. Any funds remaining on deposit in the Pre-Funding Account at the
end of the Pre-Funding Period will be payable to the Noteholders as
described under "Description of the Notes-Mandatory Redemption" herein.
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 Initial Receivables and the Subsequent Receivables,"
which breach or failure materially and adversely affects the interest 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 will be payable on the Payment
Date immediately following such Collection Period. The obligation of the
Seller to repurchase a Receivable will not be 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 Trust, 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 the Servicer, an amount equal to the sum of (a) the outstanding
principal balance of such Receivable as of the first day of the related
Collection Period 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 such Receivable in the related Collection Period and in the case of
clauses (a) and (b), after giving effect to the receipt of monies collected
on such Receivable in such 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 or 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
substantially 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 and the Owner
Trustee 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 sale contracts and/or motor vehicle loans, (iii) is
legally qualified, and has the capacity, to service the Receivables, (iv)
has demonstrated the ability to service a portfolio of motor vehicle retail
installment sale 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 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) below, otherwise amend or alter the terms thereof if, as a result of
such amendment or alteration, the interests of the Trust, the Noteholders,
the Indenture Trustee, the Owner Trustee, 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 comparable
motor vehicle receivables that it services for itself or others 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 Final Scheduled Maturity Date; 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 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 Trust,
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 Sale and Servicing Agreement related
thereto.
The Sale and Servicing Agreement will also generally require the
Servicer to charge off a Receivable 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 also require the Servicer to
make Actuarial Advances and Last Scheduled Payment Advances for which the
Servicer will be reimbursed in the manner described under "Description of
the Notes-Advances."
The Sale and Servicing Agreement will provide that the Servicer will
defend and indemnify the Trust, the Indenture Trustee, the Owner Trustee,
the Noteholders, the Certificateholders and the Seller 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
negligence, willful misfeasance or bad faith of the Servicer in the
performance of its duties (other than errors in judgment) or by reason of
reckless disregard of its obligations and duties, under any Basic Document
to which it is a party. The Servicer's obligations to indemnify the Trust,
the Indenture Trustee, the Owner Trustee, the Noteholders, the Seller 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 a fee for servicing the
Receivables each Collection Period (the "Servicing Fee"), 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 additional servicing compensation, earnings (net of losses and
investment expenses) 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 Total
Available Funds 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 the
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, the Seller or MMCA, will furnish to the Indenture
Trustee and the Owner Trustee, on or before May 31 of each year, beginning
May 31, 2000, 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, 2000, of a certificate signed by an officer of the
Servicer stating that to the best of such officer's knowledge the Servicer
has fulfilled its obligations under the 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.
Note Owners 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 and becomes the Administrator under the Administration
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 of the
business of the Servicer, where the Servicer is not the surviving entity
and where such corporation or other entity 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.
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 the
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 Owner Trustee or 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 related Payment
Date), (ii) any failure by the Servicer to deliver to the Collection
Account or any other account, any required payment or deposit under the
Sale and Servicing Agreement, 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, the Certificates or 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, the Servicer, the Owner Trustee and the
Indenture Trustee by the holders of Notes or Certificates, as applicable,
evidencing not less than 25% in aggregate principal amount of the
outstanding Notes (voting as a group) 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 51% of the aggregate principal amount of the
outstanding Notes (voting as a group) (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 and Certificateholders,
waive any Event of Servicing Termination except an event resulting from the
failure to make any required deposit to or payment from any account. For
purposes of the foregoing, Notes or Certificates owned by the Seller, the
Servicer, or any affiliate of either shall not be considered to be
"outstanding."
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 which
may be inconsistent with any other provision therein, and to add, change or
eliminate any other provision of the applicable Transfer and Servicing
Agreement which are not inconsistent with the provisions of such Transfer
and Servicing Agreement; provided that such action will not, as evidenced
by an Opinion of Counsel to the Indenture Trustee and the Owner Trustee,
materially and adversely affect the interest of any Noteholder or
Certificateholder or, with respect to the Trust Agreement, have certain
adverse tax consequences.
The Transfer and Servicing Agreements may also be amended by the
parties thereto (with, in the case of the Sale and Servicing Agreement,
consent of the Indenture Trustee and with, in the case of the
Administration Agreement, the Seller) with the consent of the holders of
Notes evidencing not less than 51% of the aggregate principal amount of
then outstanding Notes, voting as a group, 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 any Note Interest Rate, rate of interest
on the Certificates, the Specified Reserve Balance or the Maximum
Supplemental Reserve Amount, 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 any class of
Notes 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 the then outstanding Notes of such class. Additionally, with respect to
an amendment of the Trust Agreement, an Opinion of Counsel to the effect
that such amendment will not have certain adverse tax consequences shall be
furnished to the Indenture Trustee and the Owner Trustee. See "Description
of the Notes-Book Entry Registration."
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 one year 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 the outstanding
principal amount of the Notes and the Certificates, in each case plus
accrued and unpaid interest thereon. The exercise of this right will effect
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 Seller
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, the "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 on the Closing Date and each Subsequent
Transfer Date. 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 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 sale 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 (including California, Florida and Texas, the states
in which the largest number of Financed Vehicles are located), 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 the 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 on the Closing Date and each Subsequent Transfer Date. 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. See "Risk Factors-Certain Legal Aspects-The
Receivables."
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 or the related Subsequent Transfer 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
or the related Subsequent Transfer Date which is prior to such security
interest) and, at 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 or the
related Subsequent Transfer 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, the Noteholders and the Certificateholders
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 or
the related Subsequent Transfer 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, such as California, 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, such as Texas and Florida 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, including California, Florida and
Texas, 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 or
the related Subsequent Transfer 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 interest of the Trust in a Receivable,
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 or
the related Subsequent Transfer 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.
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 sale 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 sale 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 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 sale contract against the seller of such vehicle or of
a subsequent holder of the retail installment sale 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 or the related Subsequent Transfer Date in all material respects with
all requirements of applicable law. If, as of the related 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 Initial Receivables and the
Subsequent 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 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. 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 1.5% 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 Trust 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.
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 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 Trust 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, any
state or the District of Columbia (unless, in the case of a partnership,
Treasury regulations provide otherwise), (iii) an estate the income of
which is includible in gross income for U.S. Federal income 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. persons has authority to control all substantial decisions of
the trust.
(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 (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.
Recent Treasury regulations could affect the procedures to be
followed by a non-U.S. Person in complying with the United States federal
withholding, backup withholding, and information reporting rules. The
regulations are not currently effective but will generally be effective for
payments made after December 31, 1998. Prospective investors are advised to
consult their own tax advisors regarding the effect, if any, of the
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 advisers 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 Mut. 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 ERISA and the Code prohibit certain transactions between a
Benefit Plan and Parties-in-Interest or Disqualified Persons with respect
to such Benefit Plan.
Plan Asset Considerations
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 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"; PTCE 95-60, regarding investments by insurance company general
accounts; and PTCE 96-23, regarding investments effected by in-house asset
managers. 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.
Special Considerations Applicable to Insurance Company General Accounts
It should be noted that the Small Business Job Protection Act of 1996
added new Section 401(c) of ERISA relating to the status of the assets of
insurance company general accounts under ERISA and Section 4975 of the
Code. Pursuant to Section 401(c), the Department of Labor is required to
issue final regulations (the "General Account Regulations") with respect to
insurance policies issued on or before December 31, 1998 that are supported
by an insurer's general account. The General Account Regulations are to
provide guidance on which assets held by the insurer constitute "plan
assets" for purposes of the fiduciary responsibility provisions of ERISA
and Section 4975 of the Code. Section 401(c) also provides that, except in
the case of avoidance of the General Account Regulation and actions brought
by the Secretary of Labor relating to certain breaches of fiduciary duties
that also constitute breaches of state or federal criminal law, until the
date that is 18 months after the General Account Regulations become final,
no person shall be subject to liability under the fiduciary responsibility
and prohibited transaction provisions of ERISA and Section 4975 of the Code
on the basis of a claim that the assets of the general account of an
insurance company constitute the assets of any plan. The plan asset status
of insurance company separate accounts is unaffected by new Section 401(c)
of ERISA, and separate account assets continue to be treated as the assets
of any plan invested in the separate account. Insurance companies should
consult with their counsel regarding the potential impact of Section 401(c)
on their purchase of Notes.
As of the date hereof, the Department of Labor has issued proposed
regulations under Section 401(c). It should be noted that if the General
Account Regulations are adopted substantially in the form in which
proposed, the General Account Regulations may not exempt the assets of
insurance company general accounts from treatment as "plan assets" of plans
holding policies issued after December 31, 1998. The proposed regulations
should not, however, adversely affect the applicability of PTCE 95-60 to
purchases of Notes.
General Investment Considerations
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 prudence
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.
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 Merrill Lynch, Pierce, Fenner &
Smith Incorporated 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>
Principal Principal Principal Principal
Amount Amount Amount Amount
of Class A-1 of Class A-2 of Class A-3 of Class B
Underwriters Notes Notes Notes Notes
- ------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Merrill Lynch, Pierce, $ $ $ $
Fenner & Smith
Incorporated.........
[..........................]
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 price to the public, the underwriting discount and commissions of
the Underwriters, the selling concessions that the Underwriters may allow
to certain dealers, the discounts that certain dealers may reallow to
certain other dealers and the proceeds to the Seller in the offering of the
Notes, each expressed as a percentage of the principal amount of the Class
A-1 Notes, the Class A-2 Notes, the Class A-3 Notes and the Class B Notes
and as an aggregate dollar amount, will be as follows:
<TABLE>
<CAPTION>
Selling
Underwriting Concessions, Proceeds to
Price to Discounts and Not to Reallowance, the
Public (1) Commissions Exceed Not to Exceed Seller(1)(2)
---------- ------------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Class A-1 Notes % % % % %
Class A-2 Notes % % % % %
Class A-3 Notes % % % % %
Class B Notes % % % % %
Total $ $ $ $ $
</TABLE>
_______________
(1) Plus accrued interest, if any, from , 1998.
(2) Before deducting expenses payable by the Seller estimated at $ .
Until the distribution of the Notes is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling
group members to bid for and purchase the Notes. As an exception to these
rules, the Underwriters are permitted to engage in certain transactions
that stabilize the price of the Notes. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of
the Notes.
If the Underwriters create a short position in the Notes in
connection with this offering, (i.e., they sell more Notes than are set
forth on the cover page of this Prospectus), the Underwriters may reduce
that short position by purchasing Notes in the open market.
The Underwriters may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the Underwriters
purchase Notes in the open market to reduce the Underwriters' short
position or to stabilize the price of the Notes, they may reclaim the
amount of the selling concession from any Underwriter or selling group
member who sold those Notes as part of the offering.
In general, purchases of a security for the purpose of stabilization
or to reduce a short position could cause the price of the security to be
higher than it might be in the absence of such purchases. The imposition of
a penalty bid might also have an effect on the price of a security to the
extent that it were to discourage resales of the security.
Neither the Seller nor any of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of the Notes.
In addition, neither the Seller nor any of the Underwriters makes any
representation that the Underwriters will engage in such transactions or
that such transactions, once commenced, will not be discontinued without
notice.
The closing of the sale of the Notes is conditioned on the issuance
of the Certificates.
The Indenture Trustee may, from time to time, invest the funds in the
Trust Accounts, the Negative Carry Account, the Yield Supplement Account,
the Reserve Account and the Supplemental Reserve Account in Permitted
Investments acquired from the Underwriters.
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 of
1933, as amended (the "Securities Act") or to contribute to payments the
Underwriters may be required to make in respect thereof.
Upon receipt of a request by an investor who has received an
electronic Prospectus from an Underwriter or a request by such investor's
representative within the period during which
there is an obligation to deliver a Prospectus,
the Seller or the Underwriters will promptly deliver, or cause to be
delivered, without charge, a paper copy of the Prospectus.
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. Brown & Wood LLP, San Francisco, California, will act
as counsel to the Underwriters.
REPORTS TO NOTEHOLDERS
Unless and until Definitive Notes are issued under the limited
circumstances described under "Description of the Notes-Definitive Notes,"
all notices, reports and statements to Noteholders, including any monthly
and annual reports concerning the Trust and the Receivables, will be
prepared by the Servicer and sent on behalf of the Trust only to DTC or
Cede as nominee of DTC and registered holder of the Notes. See "Description
of the Notes-General," "-Book Entry Registration" and "-Definitive Notes."
Such notices, reports and statements will not contain audited financial
statements with respect to the Trust. The Servicer also does not intend to
send any financial reports of the Servicer or the Seller to Noteholders.
See "Where You Can Find More Information."
WHERE YOU CAN FIND MORE INFORMATION
The Seller, as originator of the Trust, filed with the Securities and
Exchange Commission (the "Commission") a registration statement under the
Securities Act relating to the Notes.
This Prospectus is part of the registration
statement, but the registration statement includes additional information.
The Servicer, on behalf of the Seller in its capacity as originator
of the Trust, will file or cause to be filed with the Commission such
periodic reports with respect to the Trust as may be required under the
Securities and Exchange Act of 1934, as amended (the "Exchange Act") and
the rules and regulations of the Commission thereunder.
You may read and copy any notices, reports, statements or other
information the Servicer files or causes to be filed at the Commission's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549.
You can request copies of these documents, upon payment of a duplicating
fee, by writing to the Commission. Please call the Commission at (800)
SEC-0330 for further information on the operation of the public reference
rooms. Our filings with the Commission are also available to the public on
the Commission's Internet site (http://www.sec.gov.), which contains
reports, proxy and information statements, and other information regarding
issuers that file publicly with the Commission.
INDEX OF PRINCIPAL TERMS
Page
ABS.........................................................................33
ABS Tables..................................................................33
accrual period..............................................................77
Accrued Note Interest.......................................................51
Actuarial Advance...........................................................57
Actuarial Receivables.......................................................31
Administration Agreement....................................................71
Administrator...............................................................71
Advance.....................................................................58
Applicable Trustee..........................................................70
APR.........................................................................27
Available Funds.............................................................50
Basic Documents.............................................................61
Benefit Plan................................................................80
Business Day................................................................45
Capped Receivables..........................................................32
Cede........................................................................41
Cedel.......................................................................43
Cedel Participants..........................................................43
Certificate Balance.........................................................51
Certificate Distribution Account............................................47
Certificateholders..........................................................47
Certificates................................................................20
Class A Noteholders.........................................................46
Class A Noteholders' Percentage.............................................46
Class A Notes...............................................................40
Class A-1 Final Payment Date................................................46
Class A-1 Noteholders.......................................................46
Class A-1 Notes.............................................................40
Class A-1 Rate..............................................................45
Class A-2 Final Payment Date................................................46
Class A-2 Noteholders.......................................................46
Class A-2 Notes.............................................................40
Class A-2 Rate..............................................................45
Class A-3 Final Payment Date................................................46
Class A-3 Noteholders.......................................................46
Class A-3 Notes.............................................................40
Class A-3 Rate..............................................................45
Class B Final Payment Date..................................................46
Class B Noteholders.........................................................46
Class B Noteholders' Percentage.............................................46
Class B Notes...............................................................40
Class B Rate................................................................45
Closing Date................................................................26
Code........................................................................76
Collection Account..........................................................47
Collection Period...........................................................50
Commission..................................................................83
Contracts...................................................................21
Cooperative ................................................................43
Cutoff Date.................................................................64
Dealer......................................................................21
Dealer Agreement............................................................21
Defaulted Receivable........................................................50
Definitive Notes............................................................44
Depositaries................................................................42
Depositary..................................................................42
Determination Date..........................................................49
Direct Participants.........................................................41
DTC.........................................................................41
DTC Participants............................................................41
Due Date....................................................................23
Eligible Servicer...........................................................67
Equity Interest.............................................................80
ERISA.......................................................................80
Euroclear...................................................................43
Euroclear Operator..........................................................43
Euroclear Participants......................................................43
Events of Default...........................................................60
Events of Servicing Termination.............................................69
Exchange Act................................................................83
Final Payment Date..........................................................46
Final Payment Receivables...................................................56
Final Scheduled Maturity Date...............................................27
Financed Vehicles...........................................................26
Foreign Person..............................................................79
FTC.........................................................................75
FTC Rule....................................................................75
Gap Amount..................................................................57
General Account Regulations.................................................80
Indenture...................................................................40
Indenture Trustee...........................................................40
Indirect Participants.......................................................41
Initial Cutoff Date.........................................................64
Initial Pool Balance........................................................27
Initial Pre-Funded Amount...................................................66
Initial Receivable..........................................................64
Insolvency Laws.............................................................39
Interest Carryover Shortfall................................................51
Interest Period.............................................................45
IRS.........................................................................76
Last Scheduled Payment......................................................56
Last Scheduled Payment Advance..............................................58
Last Scheduled Payment Pool Balance.........................................28
Level Pay Balance...........................................................56
Level Pay Pool Balance......................................................28
Liquidation Proceeds........................................................50
Maximum Negative Carry Amount...............................................53
Maximum Supplemental Reserve Amount.........................................55
Mitsubishi Motors...........................................................40
MMCA....................................................................11, 40
MMSA........................................................................40
Monthly Accrued Note Interest...............................................51
Moody's.....................................................................47
Motor Vehicle...............................................................22
Motor Vehicle Contracts.....................................................21
Negative Carry Account......................................................53
Negative Carry Account Initial Deposit......................................53
Negative Carry Amount.......................................................54
Note Interest Rate..........................................................52
Note Interest Rates.........................................................45
Note Owner..................................................................41
Note Payment Account........................................................47
Note Percentage.............................................................54
Note Pool Factor............................................................39
Noteholders.................................................................45
Notes.......................................................................40
OID.........................................................................76
OID Regulations.............................................................76
Opinion of Counsel..........................................................63
Owner Trustee...............................................................20
Parties-in-Interest.........................................................80
Payahead Account............................................................47
Payaheads...................................................................47
Payment Date................................................................45
Permitted Investments.......................................................48
Plan Assets Regulation......................................................80
Pool Balance................................................................27
Pre-Funded Amount...........................................................66
Pre-Funded Percentage.......................................................54
Pre-Funding Account.....................................................47, 66
Pre-Funding Period..........................................................64
Prepayable Obligation.......................................................76
Prepayment Assumption.......................................................76
Principal Carryover Shortfall...............................................52
Principal Distribution Amount...............................................52
PTCE........................................................................80
Purchase Agreement..........................................................27
Purchase Amount.............................................................66
Qualified Institution.......................................................47
Qualified Trust Institution.................................................48
Rating Agency...............................................................47
Realized Losses.............................................................52
Receivable File.............................................................66
Receivables.............................................................21, 64
Record Date.................................................................45
Recoveries..................................................................50
Representative..............................................................81
Required Negative Carry Account Balance.....................................54
Reserve Account.............................................................54
Reserve Initial Deposit.....................................................54
Rule of '78's...............................................................31
Rule of 78's Payment........................................................31
Sale and Servicing Agreement................................................26
Scheduled Principal.........................................................52
Securities Act..............................................................83
Seller......................................................................39
Servicer....................................................................40
Servicing Fee...............................................................68
Servicing Rate..............................................................68
Simple Interest Receivables.................................................31
Special Tax Counsel.........................................................76
Specified Reserve Balance...................................................55
Standard & Poor's...........................................................47
Subsequent Cutoff Date......................................................64
Subsequent Receivables......................................................64
Subsequent Transfer Date....................................................64
Supplemental Reserve Account................................................54
Terms and Conditions........................................................44
Total Available Funds.......................................................51
Total Required Payment......................................................53
Total Servicing Fee.........................................................68
Transfer and Servicing Agreements...........................................64
Truck.......................................................................22
Truck Contracts.............................................................21
Trust.......................................................................20
Trust Accounts..............................................................47
Trust Agreement.............................................................20
Trust Property..............................................................21
UCC.........................................................................72
Underwriters................................................................81
Underwriting Agreement......................................................81
U.S. Person.................................................................90
Weighted Average Rate.......................................................48
Yield Supplement Account....................................................48
Yield Supplement Agreement..................................................48
Yield Supplement Amount.....................................................48
Yield Supplement Letter of Credit...........................................49
ANNEX A
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered MMCA
Auto Owner Trust 1998-2 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 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, which with respect to the Class A-1 Notes
will be on the basis of a 360-day year and the actual number of days
elapsed and with respect to the Class A-2 Notes, the Class A-3 Notes and
the Class B Notes will be 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, which with respect to the Class A-1 Notes will be on the basis of a
360-day year and the actual number of days elapsed and with respect to the
Class A-2 Notes, the Class A-3 Notes and the Class B Notes will be 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;
(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 from the DTC
Participant is at least one day prior to the value date for the sale
to the Cedel Participant or Euroclear Participant.
Certain U.S. Federal 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). A non-U.S. Person, including a non-U.S. corporation or bank
with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
Exemption or reduced rate for non-U.S. persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are 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 (including an entity treated as a
corporation or partnership) organized in or under the laws of the United
States or any state or the District of Columbia (unless, in the case of a
partnership, Treasury regulations provide otherwise), (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. persons has the authority to control all substantial
decisions 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.
Recent Treasury regulations could affect the procedures to be
followed by a non-U.S. Person in complying with the United States federal
withholding, backup withholding, and information reporting rules. The
regulations are not currently effective but, if finalized in their current
form, would be effective for payments made after December 31, 1998.
Prospective investors are advised to consult their own tax advisors
regarding the effect, if any, of the regulations on the purchase, ownership
and disposition of the Notes.
MMCA AUTO OWNER TRUST 1998-2
$ % Class A-1 Asset Backed Notes
$ % Class A-2 Asset Backed Notes
$ % Class A-3 Asset Backed Notes
$ % Class B Asset Backed Notes
MMCA Auto Receivables, Inc.
Seller
[LOGO]
Servicer
------------------------
PROSPECTUS
------------------------
Underwriters of the Class A Notes
Merrill Lynch & Co.
[ ]
Underwriter of the Class B Notes
Merrill Lynch & Co.
You should rely only on the information contained in or incorporated
by reference in this prospectus. We have not authorized anyone to provide
you with different information.
We are not offering the notes in any state where the offer of the
notes is not permitted.
We do not claim the accuracy of the information in this prospectus as
of any date other than the date stated on the cover of this prospectus.
Dealers will deliver a prospectus when acting as underwiters of the
notes and with respect to their unsold allotments or subscriptions. In
addition, all dealers that effect transactions in the notes, whether or not
participating in the offering of the notes, will be required to deliver a
prospectus until , .
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
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 ............................................... $ *
============
- ----------------------------
* 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 shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by the
person in connection with such action, suit or proceeding if the person
acted in good faith and in a manner the person reasonably believed to be in
or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe
the person's conduct was unlawful. 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
the person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that the person's conduct was
unlawful.
(b) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that the person is or
was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or
settlement of such action or suit if the person acted in good faith and in
a manner the person reasonably believed to be in or not opposed to the best
interests of the corporation and 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 present or former director or officer 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 section, or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith.
(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 present or former director, officer, employee or agent is proper in
the circumstances because the person has met the applicable standard of
conduct set forth in subsections (a) and (b) of this section. Such
determination shall be made, with respect to a person who is a director or
officer at the time of determination, (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even
though less than a quorum, (2) by a committee of such directors designated
by majority vote of such directors, even though less than a quorum, (3) if
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion, or (4) 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 such person is not
entitled to be indemnified by the corporation as authorized in this
section. Such expenses (including attorneys' fees) incurred by former
directors and officers or other employees and agents may be so paid upon
such terms and conditions, if any, as the corporation 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 such person's 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 such person and incurred by such person in
any such capacity, or arising out of such person's status as such, whether
or not the corporation would have the power to indemnify such person
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 such
person 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 such person 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.
(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.
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
Number Description
1.1 - Form of Underwriting Agreement****
3.1 - Certificate of Incorporation of the Seller*
3.2 - Bylaws of the Seller**
4.1 - Form of Amended and Restated Trust Agreement of the Trust
between the Seller and the Owner 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 ****
10.2 - Yield Supplement Agreement****
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***
24.1 - Board Resolutions of the Seller****
25 - Form T-1 of Indenture Trustee****
- -----------
* 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.
*** Previously filed.
**** 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 Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters 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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 to Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Cypress, State of California, on November 4, 1998.
MMCA AUTO RECEIVABLES, INC.
By: /s/ Hiroshi Yajima*
-----------------------------------
Hiroshi Yajima
Director and President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement
has been signed below by the following persons in the capacities and on the
dates indicated:
Signature Title Date
/s/ Hiroshi Yajima *
- ---------------------------------- Director and President November 4, 1998
Hiroshi Yajima (principal executive
officer)
/s/ Hideyuki Kitamura *
- ---------------------------------- Secretary and Treasurer November 4, 1998
Hideyuki Kitamura (principal financial
officer and principal
accounting officer)
/s/ John Maynard *
- ---------------------------------- Director November 4, 1998
John Maynard
/s/ Masaki Takahashi *
- ---------------------------------- Director November 4, 1998
Masaki Takahashi
/s/ Charles A. Tredway *
- ---------------------------------- Director November 4, 1998
Charles A. Tredway
/s/ Yasuhiro Hagihara *
- ---------------------------------- Director November 4, 1998
Yasuhiro Hagihara
*By: /s/ J. Sean Plater
----------------------------------
J. Sean Plater
Attorney-in-fact
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Description Page
- ------- ----------- ------------
1.1 Form of Underwriting Agreement****
3.1 Certificate of Incorporation of the Seller*
3.2 Bylaws of the Seller**
4.1 Form of Amended and Restated 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****
10.2 Yield Supplement Agreement****
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***
24.1 Board Resolutions of the Seller****
25 Form T-1 of Indenture Trustee****
- -----------
* 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.
*** Previously filed.
**** To be filed by amendment.
