<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 14, 1998.
REGISTRATION NO. 333-58869
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
MMCA AUTO OWNER TRUST 1998-1
(ISSUER WITH RESPECT TO THE NOTES)
MMCA AUTO RECEIVABLES, INC.
(ORIGINATOR OF THE TRUST DESCRIBED HEREIN)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
DELAWARE 9999 33-0570905
<S> <C> <C>
(State or other jurisdiction (Primary Standard Industrial
of Classification Code No.) (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
6363 KATELLA AVENUE
CYPRESS, CALIFORNIA 90630-5205
(714) 236-1592
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
--------------------------
ERIC L. ECKES
6363 KATELLA AVENUE
CYPRESS, CALIFORNIA 90630-5205
(714) 236-1509
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
Susan M. Curtis, Esq. Dale W. Lum, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP Brown & Wood LLP
919 Third Avenue 555 California Street
New York, New York 10022 San Francisco, California 94104
</TABLE>
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. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE (2)
<S> <C> <C> <C> <C>
5.621% Class A-1 Asset Backed Notes......... $200,000,000 100% $200,000,000 $59,000.00
5.720% Class A-2 Asset Backed Notes......... $250,000,000 100% $250,000,000 $73,750.00
5.860% Class A-3 Asset Backed Notes......... $322,056,000 100% $322,056,000 $95,006.52
6.070% Class B Asset Backed Notes........... $60,462,000 100% $60,462,000 $17,836.29
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Previously paid.
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<PAGE>
PROSPECTUS
$832,518,000
MMCA AUTO OWNER TRUST 1998-1
$200,000,000 5.621% CLASS A-1 ASSET BACKED NOTES
$250,000,000 5.72% CLASS A-2 ASSET BACKED NOTES
$322,056,000 5.86% CLASS A-3 ASSET BACKED NOTES
$60,462,000 6.07% CLASS B ASSET BACKED NOTES
------------------
MMCA AUTO RECEIVABLES, INC.
SELLER
[LOGO]
SERVICER
------------------------------
MMCA Auto Owner Trust 1998-1 (the "Trust") was formed pursuant to a Trust
Agreement dated as of July 9, 1998, between MMCA Auto Receivables, Inc. (the
"Seller") and Wilmington Trust Company, as Owner Trustee. The Trust will issue
$832,518,000 aggregate principal amount of Asset Backed Notes (collectively, the
"Notes") consisting of $200,000,000 aggregate principal amount of 5.621% Class
A-1 Asset Backed Notes (the "Class A-1 Notes"), $250,000,000 aggregate principal
amount of 5.72% Class A-2 Asset Backed Notes (the "Class A-2 Notes"),
$322,056,000 aggregate principal amount of 5.86% Class A-3 Asset Backed Notes
(the "Class A-3 Notes") and $60,462,000 aggregate principal amount of 6.07%
Class B Asset Backed Notes (the "Class B Notes"), pursuant to an Indenture to be
dated as of August 1, 1998, between the Trust and Bank of Tokyo-Mitsubishi Trust
Company, as Indenture Trustee. The Trust will also issue $97,669,451.88
aggregate principal amount of Asset Backed Certificates (the "Certificates").
The Certificates are not being offered hereby.
The assets of the Trust will include a pool of motor vehicle retail
installment sale contracts originated on or after April 1, 1994 and certain
rights and obligations thereunder (collectively, the "Receivables"), certain
monies due or received thereunder on or after August 1, 1998 (the "Cutoff
Date"), the Seller's security interests in the new and used automobiles and
light- and medium-duty trucks securing the Receivables and certain other
property, as more fully described herein. The Notes will be secured by the
assets of the Trust pursuant to the Indenture. Interest on the Notes will accrue
at the rates per annum set forth herein. Interest accrued on the Notes for each
Interest Period will generally be payable on the 15th day of each month (or, if
the 15th day of the month is not a Business Day, the next following Business
Day) beginning September 15, 1998 (each, a "Payment Date"). Principal of the
Notes will be payable on each Payment Date to the extent described herein. The
rights of Certificateholders will be subordinated to the rights of the
Noteholders to the extent described herein.
The Final Payment Date for the Class A-1 Notes will be the August 1999
Payment Date, the Final Payment Date for the Class A-2 Notes will be the August
2004 Payment Date, the Final Payment Date for the Class A-3 Notes will be the
August 2004 Payment Date and the Final Payment Date for the Class B Notes will
be the August 2004 Payment Date. The Notes will be subject to redemption in
whole, but not in part, on any Payment Date on which the Servicer exercises its
option to purchase the Receivables. The Servicer may purchase the Receivables on
any Payment Date with respect to which the aggregate principal balance of the
Receivables as of the end of the related Collection Period is 10% or less of the
aggregate principal balance of the Receivables as of the Cutoff Date.
------------------------------
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" BEGINNING ON PAGE 13 HEREIN.
---------------------
THE NOTES REPRESENT OBLIGATIONS OF THE TRUST ONLY AND DO NOT REPRESENT
OBLIGATIONS OF OR INTERESTS IN THE SELLER, THE SERVICER OR ANY OF THEIR
RESPECTIVE AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO THE
PUBLIC(1) COMMISSIONS(2) SELLER(1)(3)
<S> <C> <C> <C>
Per Class A-1 Note................................... 100% .11% 99.89%
Per Class A-2 Note................................... 99.998812% .21% 99.788812%
Per Class A-3 Note................................... 99.990796% .25% 99.740796%
Per Class B Note..................................... 99.990291% .35% 99.640291%
Total................................................ $832,479,517.71 $1,761,757 $830,717,760.71
</TABLE>
(1) Plus accrued interest, if any, from the date of initial issuance.
(2) The Seller has agreed to indemnify the several Underwriters against certain
liabilities under the Securities Act of 1933. See "Underwriting."
(3) Before deducting expenses payable by the Seller estimated at $902,080.
------------------------------
The Notes are offered subject to prior sale when, as and if issued by the
Trust and accepted by the Underwriters and subject to their right to reject
orders in whole or in part. It is expected that delivery of the Notes in
book-entry form will be made through the facilities of The Depository Trust
Company, Cedel Bank, societe anonyme, and the Euroclear System on or about
August 20, 1998.
------------------------------
UNDERWRITERS OF THE CLASS A NOTES
MERRILL LYNCH & CO.
CREDIT SUISSE FIRST BOSTON
LEHMAN BROTHERS
J.P. MORGAN & CO.
UNDERWRITER OF THE CLASS B NOTES
MERRILL LYNCH & CO.
------------------
The date of this Prospectus is August 13, 1998.
<PAGE>
Certain persons participating in this offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the Notes offered
hereby, including over-allotment, stabilizing transactions, syndicate short
covering transactions and penalty bids. For a description of these activities,
see "Underwriting."
AVAILABLE INFORMATION
The Seller has filed with the Securities and Exchange Commission (the
"Commission"), on behalf of the Trust, a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Notes offered pursuant to this Prospectus. For further information, reference is
made to such Registration Statement, and the exhibits thereto, which are
available for inspection without charge at the public reference facilities of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, as well as the
Regional Offices of the Commission at 500 West Madison, Chicago, Illinois 60661,
and 7 World Trade Center, New York, New York 10048. Copies of such information
can be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Such material may
also be obtained from the World Wide Web site maintained by the Commission
(http://www.sec.gov). The Servicer, on behalf of the Trust, will also file or
cause to be filed with the Commission such periodic reports as may be required
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the rules and regulations of the Commission thereunder.
REPORTS TO NOTEHOLDERS
Unless and until Definitive Notes are issued under the limited circumstances
described herein, monthly and annual reports concerning the Receivables and the
Trust will be prepared by the Servicer and sent on behalf of the Trust only to
Cede & Co., as nominee of The Depository Trust Company ("DTC") and registered
holder of the Notes. Such reports will not contain audited financial statements
with respect to the Trust. The Seller does not intend to send any of its
financial reports to Noteholders. See "Description of the Notes--Book Entry
Registration" and "--Statements to Noteholders."
2
<PAGE>
SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. CERTAIN CAPITALIZED TERMS
USED IN THIS SUMMARY ARE DEFINED ELSEWHERE IN THIS PROSPECTUS. SEE THE INDEX OF
PRINCIPAL TERMS FOR THE LOCATION HEREIN OF THE DEFINITIONS OF CAPITALIZED TERMS.
<TABLE>
<S> <C>
Issuer.................. MMCA Auto Owner Trust 1998-1 (the "Trust" or the "Issuer"), a
Delaware business trust established pursuant to a Trust Agreement
dated as of July 9, 1998 (as amended and supplemented from time
to time, the "Trust Agreement") between the Seller and the Owner
Trustee.
Seller.................. MMCA Auto Receivables, Inc., a Delaware corporation and a wholly-
owned subsidiary of Mitsubishi Motors Credit of America, Inc., a
Delaware corporation ("MMCA").
Servicer................ MMCA, a wholly-owned subsidiary of Mitsubishi Motor Sales of
America, Inc., a California corporation ("MMSA").
Indenture Trustee....... Bank of Tokyo-Mitsubishi Trust Company, as trustee under the
Indenture (the "Indenture Trustee").
Owner Trustee........... Wilmington Trust Company, as trustee under the Trust Agreement
(the "Owner Trustee").
The Notes............... The Trust will issue the Notes in an aggregate initial principal
amount of $832,518,000 pursuant to an Indenture to be dated as of
August 1, 1998 (as amended and supplemented from time to time,
the "Indenture"), between the Trust and the Indenture Trustee.
The Notes will be issued in four classes consisting of: (1)
5.621% Class A-1 Asset Backed Notes (the "Class A-1 Notes") in
the aggregate initial principal amount of $200,000,000, (2) 5.72%
Class A-2 Asset Backed Notes (the "Class A-2 Notes") in the
aggregate initial principal amount of $250,000,000, (3) 5.86%
Class A-3 Asset Backed Notes (the "Class A-3 Notes" and, together
with the Class A-1 Notes and the Class A-2 Notes, the "Class A
Notes") in the aggregate initial principal amount of $322,056,000
and (4) 6.07% Class B Asset Backed Notes (the "Class B Notes"
and, together with the Class A Notes, the "Notes") in the
aggregate initial principal amount of $60,462,000. The Notes will
be secured by the assets of the Trust pursuant to the Indenture.
The Notes will be offered for purchase in denominations of $1,000
and integral multiples thereof. See "Description of the
Notes--General."
Concurrently with the issuance of the Notes, the Trust will issue
certificates of beneficial interest evidencing interests in the
Trust Property (the "Certificates") in an aggregate principal
amount of $97,669,451.88 pursuant to the Trust Agreement. The
Certificates will be subordinated to the Notes to the extent
described herein. The Certificates are not being offered hereby
and will be retained by the Seller or an affiliate.
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
initial principal amount of the Certificates will equal
$97,669,451.88. Thereafter, the principal amount of the
Certificates will be
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
reduced on each Payment Date by principal payments made on the
Certificates.
Trust Assets............ The property of the Trust (the "Trust Property") will include (i)
the Receivables, (ii) with respect to Actuarial Receivables,
certain monies due thereunder on or after August 1, 1998 (the
"Cutoff Date"), and, with respect to Simple Interest Receivables,
certain monies due or received thereunder on or after the Cutoff
Date, (iii) the Seller's security interests in the Financed
Vehicles, (iv) certain bank accounts, including the Reserve
Account, the Supplemental Reserve Account and the Yield
Supplement Account, (v) the Seller's rights under any physical
damage, credit life, theft and disability insurance policies
covering the Financed Vehicles or the obligors under the
Receivables, (vi) certain rights related to breaches of
representations and warranties by Dealers under Dealer
Agreements, (vii) certain rights under the Sale and Servicing
Agreement, (viii) certain rights under the Yield Supplement
Agreement and (ix) certain other property, as more fully
described herein. See "The Trust Property."
The Receivables......... The Receivables will consist of a pool of retail installment sale
contracts secured by new and used automobiles and light- and
medium-duty trucks, including rights to receive certain payments
made with respect to such Receivables, security interests in the
vehicles financed thereby (the "Financed Vehicles"), and the
proceeds thereof. As of the Cutoff Date, the Receivables had an
aggregate principal balance of $930,187,451.88 (the "Initial Pool
Balance"), which consisted of a Level Pay Pool Balance of
$624,383,716.12 and a Last Scheduled Payment Pool Balance of
$305,803,735.76.
The Receivables will be purchased by the Trust from the Seller
pursuant to a Sale and Servicing Agreement, to be dated as of
August 1, 1998 (as amended or supplemented from time to time, the
"Sale and Servicing Agreement"), among the Trust, the Seller and
MMCA providing for such purchase on or before the date of
issuance of the Notes (the "Closing Date"). The Receivables will
be purchased by the Seller from MMCA pursuant to a Purchase
Agreement, to be dated as of August 1, 1998 (as amended or
supplemented from time to time, the "Purchase Agreement"),
between the Seller and MMCA, providing for such purchase on or
before the Closing 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 July 30,
2003 (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 calendar month commencing August 1998 (each, a
"Collection Period") or, with respect to any time during the
first Collection Period, on the 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,
all for such Collection Period, and reduced by the principal
amount of Receivables that became Defaulted Receivables during
such Collection Period.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Registration of Notes... The Notes will be represented initially by one or more physical
notes registered in the name of Cede & Co. ("Cede"), as nominee
of DTC. Beneficial owners of Notes may elect to hold their Notes
through DTC (in the United States) or Cedel or Euroclear (in
Europe). Transfers within DTC, Cedel or Euroclear, as the case
may be, will be made in accordance with the usual rules and
operating procedures of the relevant system. Cross-market
transfers between persons holding directly or indirectly through
DTC in the United States, on the one hand, and counterparties
holding directly or indirectly through Cedel or Euroclear, on the
other, will be effected in DTC through the relevant Depositaries
of Cedel or Euroclear.
No person acquiring a beneficial ownership interest in the Notes
(a "Note Owner") will be entitled to receive a Definitive Note,
except in certain limited circumstances. Under the terms of the
Indenture, Note Owners will not be recognized as Noteholders and
will be permitted to exercise the rights of the Noteholders only
indirectly through DTC and its participants. See "Description of
the Notes--Definitive Notes."
Payment Dates........... Payments of interest on and principal of the Notes will be made
on the 15th day of each month or, if the 15th day of such month
is not a Business Day, the next following Business Day (each, a
"Payment Date"), commencing September 15, 1998. Payments will be
made to holders of record of the Notes (the "Noteholders") as of
the day immediately preceding each Payment Date or, if Definitive
Notes are issued, as of the 15th day of the preceding month (a
"Record Date"). A "Business Day" is a day other than a Saturday,
a Sunday or a day on which banking institutions or trust
companies in New York, New York, Los Angeles, California or
Wilmington, Delaware are authorized or obligated by law,
regulation or executive order to be closed.
Note Interest Rates..... The Class A-1 Notes will bear interest at the rate of 5.621% per
annum (the "Class A-1 Rate"), the Class A-2 Notes will bear
interest at the rate of 5.72% per annum (the "Class A-2 Rate"),
the Class A-3 Notes will bear interest at the rate of 5.86% per
annum (the "Class A-3 Rate") and the Class B Notes will bear
interest at a rate of 6.07% 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................ Interest on the outstanding principal amount of each class of the
Notes will accrue at the applicable Note Interest Rate (a) 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 (b) 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. 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. 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 of twelve 30-day months. No payments
of interest will be made on the Class B Notes on any Payment Date
until all interest
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
then due to the Class A Notes has been paid. See "Description of
the Notes--Interest."
Principal............... Principal of the Notes will be payable on each Payment Date in an
aggregate amount equal to the Principal Distribution Amount for
such Payment Date to the extent described in "Description of the
Notes--The Indenture Cash Flows." The "Principal Distribution
Amount" for a Payment Date will be the sum of (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) plus (ii) any outstanding
Principal Carryover Shortfall as of the close of business on the
preceding Payment Date; 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.
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. Notwithstanding the foregoing, 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 90.44%, the percentage equivalent
of a fraction, the numerator of which is
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
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 9.56%, 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.
To the extent not previously paid, the outstanding principal
amount of (i) the Class A-1 Notes will be payable on the August
1999 Payment Date (the "Class A-1 Final Payment Date"), (ii) the
Class A-2 Notes will be payable on the August 2004 Payment Date
(the "Class A-2 Final Payment Date"), (iii) the Class A-3 Notes
will be payable on the August 2004 Payment Date (the "Class A-3
Final Payment Date") and (iv) the Class B Notes will be payable
on the August 2004 Payment Date (the "Class B Final Payment Date"
and, collectively with the foregoing, the "Final Payment Dates").
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, which can occur 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, at a redemption price 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. See "Description of the Notes--Optional Redemption."
Reserve Account......... The Indenture Trustee, on behalf of the Trust, will have the
benefit of funds on deposit from time to time in an account (the
"Reserve Account") maintained in the name of the Indenture
Trustee for the payment of the Total Servicing Fee, the Accrued
Note Interest and the Principal Distribution Amount on each
Payment Date (the "Total Required Payment") and to reimburse the
Servicer for the aggregate amount of Advances previously made by
the Servicer that are due and payable to the Servicer on such
Payment Date, in each case to the extent that the sum of (i) the
Trust's receipt of payments on the Receivables (after giving
effect to payments of any Yield Supplement Amounts and any
Advances) that are allocable to the payment of the Total Required
Payment and the reimbursement of Advances and (ii) amounts on
deposit in the Supplemental Reserve Account are insufficient to
pay the Total Required Payment and reimburse the Servicer for
Advances. See "Description of the Notes -- Reserve Account." 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 $1,395,281 (the "Reserve Initial Deposit") and
will be supplemented on each Payment Date by application of funds
from the Collection Account to the extent remaining after giving
effect to the reimbursement of Advances due and payable to the
Servicer and the
</TABLE>
7
<PAGE>
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<S> <C>
payment of the Total Required Payment on such Payment Date.
However, in certain circumstances the Reserve Account could be
depleted with the result that funds would not be available from
the Reserve Account for deposit in the Collection Account to make
the Total Required Payment and to reimburse the Servicer for
Advances. See "Risk Factors--Limited Assets; Deficiencies from
Sale Upon Insolvency of Seller." The Reserve Account, together
with any amounts deposited therein from time to time, will be
Trust Property, and will be pledged in accordance with the
Indenture by the Trust to the Indenture Trustee, on behalf of the
Noteholders, as secured party.
Amounts on deposit in the Reserve Account on any Payment Date
(after giving effect to deposits thereto and withdrawals
therefrom on such Payment Date) in excess of the Specified
Reserve Balance for such Payment Date will be released and
distributed to the Seller. Upon any such distribution, the
Noteholders will have no rights in, or claims to, such amounts.
The "Specified Reserve Balance" with respect to any Payment Date
will be an amount equal to the lesser of (i) $6,976,406 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). See
"Description of the Notes--Reserve Account."
Supplemental Reserve
Account............... The Indenture Trustee, on behalf of the Trust, will have the
benefit of funds on deposit from time to time in an account (the
"Supplemental Reserve Account") maintained in the name of the
Indenture Trustee for the payment of the Total Required Payment
with respect to each Payment Date and to reimburse the Servicer
for the aggregate amount of Advances previously made by the
Servicer that are due and payable to the Servicer on such Payment
Date, in each case in the event of shortfalls in the Trust's
receipt of payments on the Receivables (after giving effect to
payments of any Yield Supplement Amounts and any Advances) that
are allocable to the payment of the Total Required Payment and
the reimbursement of Advances. The Supplemental Reserve Account
will be funded on each Payment Date by application of funds from
the Collection Account to the extent remaining after giving
effect to the reimbursement of Advances due and payable to the
Servicer, the payment of the Total Required Payment and the
deposit to the Reserve Account of the amount, if any, necessary
to reinstate the balance in the Reserve Account to the Specified
Reserve Balance (after giving effect to withdrawals therefrom on
such Payment Date). The Seller will not make a deposit to the
Supplemental Reserve Account on the Closing Date. In certain
circumstances the Supplemental Reserve Account could be depleted
with the result that funds would not be available from the
Supplemental Reserve Account for deposit in the Collection
Account to pay the Total Required Payment and to reimburse the
Servicer for Advances. See "Risk Factors--Limited Assets;
Deficiencies from Sale Upon Insolvency of Seller." The
Supplemental Reserve Account,
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together with any amounts deposited therein from time to time,
will be Trust Property, and will be pledged in accordance with
the Indenture by the Trust to the Indenture Trustee, on behalf of
the Noteholders, as secured party.
Amounts on deposit in the Supplemental Reserve Account on any
Payment Date (after giving effect to deposits thereto and
withdrawals therefrom on such Payment Date) in excess of the
Maximum Supplemental Reserve Amount for such Payment Date will be
released for distribution to the Seller. Upon any such
distribution, the Noteholders will have no rights in, or claims
to, such amounts.
The "Maximum Supplemental Reserve Amount" with respect to any
Payment Date will be an amount equal to the lesser of (i)
$18,603,749 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). See "Description of the
Notes--Supplemental Reserve Account."
Yield Supplement
Agreement............. MMCA will enter into a yield supplement agreement (the "Yield
Supplement Agreement") with the Seller, which will sell and
assign its rights thereunder to the Owner Trustee for the benefit
of Certificateholders, who will pledge such rights to the
Indenture Trustee for the benefit of the Noteholders. The Yield
Supplement Agreement will, with respect to each Receivable,
provide for payment on the Business Day prior to each Payment
Date of an amount (if positive) calculated by the Servicer equal
to one-twelfth of (i) interest on such Receivable's principal
balance as of the first day of the related Collection Period at a
rate equal to the sum of (A) the Servicing Rate for such
Collection Period, (B) the Weighted Average Rate for such
Collection Period and (C) 2.00%, minus (ii) interest on such
Receivable's principal balance as of the first day of the related
Collection Period at the annual percentage rate on such
Receivable (in the aggregate for all Receivables with respect to
any Payment Date, the "Yield Supplement Amount").
The "Weighted Average Rate" means, with respect to any 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.
The Yield Supplement Amount payable under the Yield Supplement
Agreement will be supported by funds on deposit in a segregated
trust deposit account to be maintained with the Indenture Trustee
for the benefit of the Noteholders and the Certificateholders
(the "Yield Supplement Account"). The Yield Supplement Account
will be funded on the Closing Date with an initial deposit in an
amount to be specified in the Sale and Servicing Agreement. The
amount required to be on deposit in the Yield Supplement Account
on each Payment Date, after giving effect to withdrawals required
to be made therefrom on such Payment Date, will be an amount
equal to the sum of all projected Yield Supplement Amounts for
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all future Payment Dates, assuming that future scheduled payments
on the Receivables are made on their scheduled Due Dates. The
amount, if any, by which the amount in the Yield Supplement
Account on each Payment Date after giving effect to withdrawals
required to be made therefrom on such Payment Date exceeds the
amount required to be on deposit in the Yield Supplement Account
for such Payment Date will be released to the Seller. The amount
on deposit in the Yield Supplement Account will therefore
decrease as withdrawals are made with respect to the Yield
Supplement Amount and funds in excess of the maximum required
balance are released to the Seller. See "Description of the
Notes--Yield Supplement Account."
Collection Account;
Priority of
Payments.............. Except under certain conditions described herein, the Servicer
will be required to remit collections received with respect to
the Receivables within two Business Days of receipt thereof to an
account in the name of the Indenture Trustee (the "Collection
Account"). Pursuant to the Sale and Servicing Agreement, the
Servicer will have the power, which may be revoked by the
Indenture Trustee or by the Owner Trustee with the consent of the
Indenture Trustee, to instruct the Indenture Trustee to withdraw
funds on deposit in the Collection Account for the related
Collection Period (including funds, if any, deposited therein
from the Reserve Account, the Supplemental Reserve Account, the
Yield Supplement Account and the Payahead Account) following the
withdrawal therefrom of the amount necessary to reimburse the
Servicer for Advances previously made by the Servicer to the
extent due and payable to the Servicer on such Payment Date and
Rule of 78's Payments due and payable to the Servicer on such
Payment Date and to apply such funds on each Payment Date to the
following (in the priority indicated): (i) the Total Servicing
Fee to the Servicer, (ii) the Accrued Note Interest into the Note
Payment Account, (iii) the Principal Distribution Amount into the
Note Payment Account, (iv) any amount necessary to bring the
amounts on deposit in the Reserve Account up to the Specified
Reserve Balance into the Reserve Account, (v) any amount
necessary to bring the amounts on deposit in the Supplemental
Reserve Account up to the Maximum Supplemental Reserve Amount and
(vi) any remaining funds to the Certificate Distribution Account.
Notwithstanding the foregoing, on each Payment Date following the
occurrence of an Event of Default which has resulted in
acceleration of the Notes, the principal amount of the Class A
Notes must be paid in full prior to any payment of principal on
the Class B Notes and the principal amount of the Class B Notes
must be paid in full prior to the distribution of any amounts on
the Certificates. See "Description of the Notes--The Accounts"
and "--The Indenture Cash Flows."
Servicing Fee........... A monthly fee for servicing the Receivables (the "Servicing Fee")
will be payable to the Servicer on each Payment Date in an amount
equal to the product of one-twelfth of the Servicing Rate and the
Pool Balance as of the first day of the related Collection Period
and will be payable generally out of collections on the
Receivables prior to distributions to Noteholders. The "Servicing
Rate" will equal 1.00% per annum. As additional servicing
compensation, the Servicer will also be entitled to earnings (net
of losses and investment expenses) on amounts on deposit in the
Payahead Account, as well as Rule of 78's Payments, disposition
fees paid with respect to Final
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Payment Receivables, late fees and certain other administrative
fees and charges (other than extension or deferral fees)
collected on the Receivables. See "Description of the Transfer
and Servicing Agreements--Servicing Compensation."
Advances................ The Servicer will make an advance in respect of each Collection
Period for any portion of the scheduled payment on each Actuarial
Receivable that has not been timely made (an "Actuarial
Advance"). In addition, the Servicer will make an advance for any
portion of the Last Scheduled Payment on an Actuarial Receivable
or a Simple Interest Receivable in respect of the Collection
Period in which such payment becomes due to the extent such
payment has not been made (such an advance, a "Last Scheduled
Payment Advance" and, together with an Actuarial Advance, each an
"Advance"). Subsequent collections on Receivables and funds on
deposit in the Supplemental Reserve Account and the Reserve
Account will be used to reimburse the Servicer for Advances to
the extent described herein. See "Description of the Notes--The
Indenture Cash Flows," "--Reserve Account" and "--Supplemental
Reserve Account."
Repurchases and
Purchases of Certain
Receivables........... The Seller will be obligated to repurchase any Receivable if the
interest of the Trust therein is materially and adversely
affected by a breach of any representation or warranty made by
the Seller with respect to the Receivable, if the breach has not
been cured by the last day of the Collection Period which
includes the 60th day after the date of discovery by or notice to
the Seller of the breach. MMCA will be obligated to repurchase
the Receivable from the Seller pursuant to the Purchase
Agreement. See "Description of the Transfer and Servicing
Agreements--Mandatory Repurchase of Receivables."
The Servicer will be obligated to purchase any Receivable if,
among other things, it extends the date for final payment by the
obligor of such Receivable beyond the last day of the Collection
Period preceding the Final Scheduled Maturity Date, extends any
Receivable for more than two months for each twelve months of the
original term of the Receivable or fails to maintain a perfected
security interest in the related Financed Vehicle. See
"Description of the Transfer and Servicing Agreements--Servicing
Procedures."
Tax Status.............. In the opinion of Skadden, Arps, Slate, Meagher & Flom LLP, for
Federal income and Delaware and California income and franchise
tax purposes, the Notes will be characterized as debt, and the
Trust will not be characterized as an association (or a publicly
traded partnership) taxable as a corporation. Each Noteholder, by
the acceptance of a Note, will agree to treat the Notes as
indebtedness. See "Certain Federal Income Tax Consequences" and
"Certain State Tax Consequences."
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
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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..... It is a condition to the issuance of the Notes that each class of
Class A Notes be rated "Aaa" by Moody's Investors Service, Inc.
("Moody's") and "AAA" by Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies ("Standard & Poor's" and,
together with Moody's, each a "Rating Agency"), and that the
Class B Notes be rated "A1" by Moody's and "A" by Standard &
Poor's. There can be no assurance that a rating will not be
lowered or withdrawn by a Rating Agency if circumstances so
warrant.
ERISA Considerations.... Subject to the considerations discussed under "ERISA
Considerations," the Notes may, in general, be purchased by or on
behalf of employee benefit plans subject to ERISA. Any employee
benefit plan fiduciary considering a purchase of Notes should,
among other things, consult with legal counsel regarding the
availability of a statutory or administrative exemption from the
prohibited transaction rules of ERISA and the Code.
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RISK FACTORS
LIMITED LIQUIDITY
There currently is no secondary market for the Notes, and there is no
assurance that one will develop. The Underwriters expect, but will not be
obligated, to make a market in each class of Notes. There is no assurance that
any such market will develop or, if one does develop, that it will provide
liquidity of investment or will continue for the life of the related Notes.
CERTAIN LEGAL ASPECTS -- THE RECEIVABLES
The Seller will cause financing statements to be filed with the appropriate
governmental authorities to perfect the interest of the Trust in the
Receivables, and the Servicer will hold the Receivables, either directly or
through subservicers, as custodian for the Indenture Trustee and the Trust
following the sale and assignment of the Receivables to the Trust. The
Receivables will not be segregated, stamped or otherwise marked to indicate that
they have been sold to the Trust. If, through inadvertence or otherwise, another
party purchases (or takes a security interest in) one or more Receivables for
new value in the ordinary course of business and obtains possession of the
Receivables without actual knowledge of the Trust's interest, the purchaser (or
secured party) will acquire an interest in such Receivables superior to the
interest of the Trust. See "Certain Legal Aspects of the Receivables--Rights in
the Receivables."
The Seller will assign its security interests in the Financed Vehicles to
the Trust in connection with the sale and assignment of the Receivables to the
Trust. Following the sale and assignment of the Receivables to the Trust, the
Servicer will hold the certificates of title or ownership relating to the
Financed Vehicles, either directly or through subservicers, as custodian for the
Indenture Trustee and the Trust. The certificates of title or ownership will not
be endorsed or otherwise amended to identify the Trust as the new secured party.
Because the Trust will not be identified as the secured party on any
certificates of title or ownership, the security interest of the Trust in a
Financed Vehicle (i) might be defeated through fraud, forgery, negligence or
error and (ii) may not be perfected in every state. See "Certain Legal Aspects
of the Receivables--Security Interests in the Financed Vehicles."
CERTAIN LEGAL ASPECTS -- BANKRUPTCY CONSIDERATIONS
The Seller has taken steps in structuring the transactions contemplated
hereby that are intended to ensure that the voluntary or involuntary application
for relief by MMCA under the United States Bankruptcy Code or similar state laws
("Insolvency Laws") will not result in consolidation of the assets and
liabilities of the Seller with those of MMCA. These steps include the
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 prior unanimous affirmative vote of all of its directors).
However, there can be no assurance that the activities of the Seller would not
result in a court concluding that the assets and liabilities of the Seller
should be consolidated with those of MMCA in a proceeding under any Insolvency
Law. If a court were to reach such a conclusion, then delays in payments on the
Notes could occur or reductions in the amounts of such payments could result.
See "The Seller."
It is intended by MMCA and the Seller that the transfer of the Receivables
by MMCA to the Seller constitute a "true sale" of the Receivables to the Seller.
If the transfer constitutes such a "true sale," the Receivables and the proceeds
thereof would not be part of MMCA's bankruptcy estate should it become the
subject of a bankruptcy case subsequent to the transfer of the Receivables to
the Seller.
In OCTAGON GAS SYSTEMS, INC. V. RIMMER, 995 F.2d 948 (10th Cir. 1993), CERT.
DENIED, 114 S. Ct. 554 (1993), the United States Court of Appeals for the 10th
Circuit suggested that even where a transfer of accounts from a seller to a
buyer constitutes a "true sale," the accounts would nevertheless constitute
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property of the seller's estate in a bankruptcy of the seller. If MMCA or the
Seller were to become subject to a bankruptcy proceeding and a court were to
follow the OCTAGON court's reasoning, Noteholders might experience delays in
payment or possibly losses on their investment in the Notes. Counsel to the
Seller has advised the Seller that the reasoning of the OCTAGON case appears to
be inconsistent with other precedent. In addition, the Permanent Editorial Board
of the UCC has issued an official commentary (PEB Commentary No. 14) which
characterizes the OCTAGON court's interpretation of Article 9 of the UCC as
erroneous. Such commentary states that nothing in Article 9 is intended to
prevent the transfer of ownership of accounts or chattel paper. See "The
Seller."
MATURITY AND PREPAYMENT CONSIDERATIONS
The weighted average life of each class of Notes may be reduced by
prepayments in full on Actuarial Receivables and full or partial prepayments on
Simple Interest Receivables (including any such prepayments by obligors in
response to programs maintained by MMCA or any of its affiliates that provide
special incentives for obligors to prepay all or part of the principal balance
of their respective Receivables) because the rate of payment of principal of
each class of Notes depends on the rate of payment (including prepayments) of
the principal balance of the Receivables. The Receivables are prepayable at any
time. Prepayments may also result from liquidations due to default, the receipt
of proceeds from physical damage or other insurance, repurchases by the Seller
as a result of certain uncured breaches of the warranties made by it in the Sale
and Servicing Agreement with respect to the Receivables, purchases by the
Servicer as a result of certain uncured breaches of the covenants made by it in
the Sale and Servicing Agreement with respect to the Receivables, or the
Servicer exercising its optional purchase right. See "The Receivables--Maturity
and Prepayment Considerations."
Currently, MMCA has in place a program to manage end-of-term risk and
mitigate returned vehicle losses by offering attractive terms to obligors to
prepay their contracts and return their vehicles early, provided that they
purchase a new Mitsubishi Motors vehicle. Under this program, the returned
vehicle is sold to a dealer at a price calculated, based on MMCA's then-current
assessment of the market value of the vehicle, 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-term and the vehicle was sold at such time. The program
applies to the Final Payment Receivables and therefore has the effect of
encouraging a higher level of prepayments on the Final Payment Receivables
(including Last Scheduled Payments) than would otherwise be the case.
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 Motor Vehicle Contract or Truck Contract portfolio. No
assurance can be given that prepayments on the Receivables will conform to any
historical experience, and no prediction can be made as to the actual prepayment
rates which will be experienced on the Receivables. Noteholders will bear all
reinvestment risk resulting from the rate of prepayment of the Receivables and
corresponding payments on the Notes.
It is expected that the final payment of each class of Notes will occur on
or prior to its respective Final Payment Date because of the considerations set
forth above. However, if sufficient funds are not available to pay any class of
Notes in full on or prior to its respective Final Payment Date, an Event of
Default will occur and final payment of such class of Notes could occur later
than such date.
LIMITED ASSETS; DEFICIENCIES FROM SALE UPON INSOLVENCY OF SELLER
LIMITED ASSETS. The Trust does not have, nor is it permitted or expected to
have, any significant assets or sources of funds other than the Receivables, the
Reserve Account, the Supplemental Reserve Account and the right to receive
payments under certain circumstances pursuant to the Yield Supplement Agreement.
The Notes represent obligations solely of the Trust. The Notes will not be
insured or guaranteed by the Seller, the Servicer, the Indenture Trustee, the
Owner Trustee or any other person or
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entity. Consequently, 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 and, to the extent available, amounts
on deposit in the Reserve Account and the Supplemental Reserve Account.
Amounts on deposit in the Supplemental Reserve Account and, to the extent
such amounts are insufficient, amounts on deposit in the Reserve Account will be
available on any Payment Date to cover the Total Required Payment and 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 to the extent of any shortfalls in the Trust's receipt of payments
on Receivables (after giving effect to payments of any Yield Supplement Amounts
and any Advances) that are allocable to the payment of the Total Required
Payment and the reimbursement of Advances. See "Description of the Notes--The
Indenture Cash Flows", "--Reserve Account" and "--Supplemental Reserve Account."
If the amounts on deposit in the Supplemental Reserve Account and the Reserve
Account were exhausted, the Trust would depend solely on current payments on the
Receivables, Advances by the Servicer, proceeds from the liquidation of
Defaulted Receivables, Recoveries and payments under the Yield Supplement
Agreement and the Yield Supplement Account to make the Total Required Payment.
See "Description of the Notes--The Indenture Cash Flows" and "--Yield Supplement
Agreement."
Although the Indenture authorizes the Indenture Trustee to sell the
Receivables in accordance with the Indenture following an acceleration of the
Notes upon an Event of Default, there is no assurance that the market value of
the Receivables will at any time be equal to or greater than the aggregate
outstanding principal amount of the Notes. Therefore, upon an Event of Default,
there can be no assurance that sufficient funds will be available to repay
Noteholders in full. In addition, the amount of principal required to be
distributed to Noteholders, in the aggregate under the Indenture on any Payment
Date, other than a Final Payment Date with respect to any class of Notes, will
generally be limited to amounts available to be deposited in the Note Payment
Account. Therefore, the failure to pay principal on a class of Notes may not
result in the occurrence of an Event of Default until the Final Payment Date for
that class of Notes.
LAST SCHEDULED PAYMENT RISK
The aggregate initial principal amount of the Notes will exceed 100% of the
Level Pay Pool Balance and thus, payment of the Notes will depend in part upon
collections received with respect to Last Scheduled Payments. Collections
attributable to the Last Scheduled Payments will be deposited along with other
collections on the Receivables into the Collection Account and will be treated
as part of the Principal Distribution Amount.
The amount realized by the Trust with respect to a Last Scheduled Payment on
a Final Payment Receivable is likely to be less than the scheduled amount of the
Last Scheduled Payment if the obligor exercises its option to sell the related
Motor Vehicle to MMCA (acting on behalf of the Trust as assignee of the Final
Payment Receivable). In such circumstances, MMCA as Servicer, either directly or
through an affiliate, will resell the Motor Vehicle at wholesale in a public or
private sale, on behalf of the Trust. The amount realized on such sale is
expected to be less than the Last Scheduled Payment, in part as a result of
MMCA's method of setting the amount of the Last Scheduled Payment. The Last
Scheduled Payment on a Final Payment Receivable is determined by MMCA at the
time the related retail installment sale contract is entered into. The amount of
the Last Scheduled Payment is based on MMCA's projection of the anticipated end
of term wholesale value of the vehicle that is being financed under such
Contract, plus an additional amount that MMCA adds in order to stimulate sales
of Motor Vehicles by reducing the amount of the earlier scheduled payments under
those contracts. In addition, if MMCA were no longer distributing Motor Vehicles
in the United States, or Mitsubishi Motors were no longer manufacturing Motor
Vehicles, the market for used Motor Vehicles manufactured by Mitsubishi Motors
might be adversely affected, and the proceeds realized by the Servicer upon the
sale of Motor Vehicles which obligors elect to sell to MMCA on the maturity date
of a Final Payment Receivable might be reduced.
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In the event that sale proceeds of a Motor Vehicle sold on behalf of the
Trust in connection with the obligor's exercise of its right to sell the Motor
Vehicle to MMCA or its assignee are less than the related Last Scheduled
Payment, none of MMCA, the Servicer, the Seller or the Trust will have any
recourse to the obligor for any shortfall, nor will MMCA, the Servicer or the
Seller be obligated to pay any such shortfall to the Trust. Although the
Servicer will make a Last Scheduled Payment Advance of the full amount owed by
the obligor with respect to a Last Scheduled Payment on the Payment Date
immediately following the Collection Period in which the Last Scheduled Payment
is owed, the Servicer will be reimbursed for such Last Scheduled Payment Advance
on each Payment Date subsequent to the Payment Date on which the Last Scheduled
Payment Advance was made in an amount equal to the sum of (i) the 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) the aggregate amount 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 "Description of the Notes--Reserve Account" and
"--Supplemental Reserve Account" herein.
The obligor under a Final Payment Receivable also has the option to
refinance with MMCA the total amount then due, subject to certain conditions.
MMCA will be obligated to the extent it offers vehicle financing, but no
successor Servicer will be obligated, to provide such refinancing, although the
Seller may contract with third parties to provide refinancing if MMCA no longer
makes such refinancing available. If a refinancing option is not available, more
Motor Vehicles may be sold to the Trust on the Due Date of the Last Scheduled
Payment, and consequently more Motor Vehicles may be sold by the Servicer on
behalf of the Trust for prices less than the Last Scheduled Payments. MMCA has a
program which encourages owners of Mitsubishi Motors vehicles to replace their
respective Mitsubishi Motors vehicle with a new Mitsubishi Motors vehicle by
offering attractive terms to such owners to prepay their accounts so long as
such owners replace their existing Mitsubishi Motors vehicle with a new
Mitsubishi Motors vehicle. The MMCA program, which permits obligors to return
their vehicles prior to the scheduled end of the Receivable's term, encourages a
higher level of prepayments on the Receivables (including Last Scheduled
Payments) than would otherwise be the case.
MMCA does not require the obligor under a Final Payment Receivable to pay
the "Gap Amount" in the event that there is a total loss of the Motor Vehicle
caused by its theft or physical damage, provided that the obligor has maintained
the insurance required by the Motor Vehicle Contract and is not in default
thereunder. The "Gap Amount" is the difference between the amount owed in
respect of the Final Payment Receivable as of the date of the total loss and
insurance proceeds (inclusive of any applicable deductible) received with
respect to the Motor Vehicle. In accordance with its customary servicing
practices and procedures, MMCA treats such Gap Amount, if any, as a non-cash
reduction of the principal of the related Last Scheduled Payment. Any such
reduction will decrease the amount of Available Funds to the Trust to the extent
of any Gap Amount in the related Collection Period.
Because MMCA has been originating Final Payment Receivables only since
October 1993, MMCA does not have extensive historical experience with respect to
the percentage of Motor Vehicles purchased by obligors, refinanced or sold back
to MMCA or with respect to the amounts realized upon sale. However, because Last
Scheduled Payments are generally set higher than MMCA's estimate of the
wholesale value at the end of the Contract, and are dependent upon conditions in
the used car market at the time of resale, MMCA expects that, in the aggregate,
the amounts received from the sale of vehicles and payments of applicable excess
wear and tear and excess mileage charges will be less than the stated amounts of
the Last Scheduled Payments.
GEOGRAPHIC CONCENTRATION
Economic conditions in the states where the obligors under the Contracts
reside may affect the delinquency, loan loss and repossession experience of the
Trust with respect to the Contracts. Based on the
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Cutoff Date Pool Balance, 11.54% of the Receivables will have been originated in
California, 21.86% in Texas and 10.40% in Florida. Accordingly, adverse economic
conditions or other factors affecting California, Texas or Florida in particular
could adversely affect the delinquency, loan loss or repossession experience of
the Trust.
EVENT OF DEFAULT CONSIDERATIONS
If the maturity dates of the Notes have been accelerated following the
occurrence of an Event of Default, the Notes may be prepaid in advance of their
respective maturity dates. The acceleration of the maturity dates following the
occurrence of an Event of Default will also change the order of priority for the
payment of principal on the different classes of Notes. If the maturity dates of
the Notes have been accelerated following the occurrence of an Event of Default,
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) then to the Class B Noteholders until the Class B Notes are paid in full.
BOOK ENTRY REGISTRATION
The Notes of each class will be represented initially by one or more
physical notes registered in the name of Cede as nominee of DTC. No Note Owner
will be entitled to receive a Definitive Note except in certain limited
circumstances. Under the terms of the Indenture, Note Owners will not be
recognized as Noteholders, and will be permitted to exercise the rights of the
Noteholders only indirectly through DTC and its participants. See "Description
of the Notes--Book Entry Registration" and "--Definitive Notes."
RISK OF 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, to
already be 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, including in its capacity as the Servicer, the Owner Trustee or the
Indenture Trustee do not have computerized systems that are year 2000 compliant
by the year 2000, the ability to service the Receivables (in the case of the
Servicer), to make distributions to the Noteholders (in the case of the
Indenture Trustee) and to make distributions to the Certificateholders (in the
case of the Owner Trustee) may be materially and adversely affected.
THE TRUST
GENERAL
The Issuer, MMCA Auto Owner Trust 1998-1, is a business trust formed under
the laws of the State of Delaware pursuant to the Trust Agreement for the
transactions described in this Prospectus. The Trust will hold title to the
Receivables, 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 Certificates. The Trust will purchase the Receivables from the Seller
pursuant to the Sale and Servicing Agreement in exchange
17
<PAGE>
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 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:
<TABLE>
<S> <C>
Class A-1 Notes............................................. $200,000,000.00
Class A-2 Notes............................................. 250,000,000.00
Class A-3 Notes............................................. 322,056,000.00
Class B Notes............................................... 60,462,000.00
Certificates................................................ 97,669,451.88
--------------
Total..................................................... $930,187,451.88
--------------
--------------
</TABLE>
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.
18
<PAGE>
THE TRUST PROPERTY
The Notes will be secured by the Trust Property. The Trust Property will
include (i) the Receivables, (ii) with respect to Actuarial Receivables, certain
monies due thereunder on or after the Cutoff Date (including Payaheads) and,
with respect to Simple Interest Receivables, certain monies due or received
thereunder on or after the Cutoff Date, (iii) certain amounts and property from
time to time held in or credited to one or more accounts maintained by the
Indenture Trustee pursuant to the Sale and Servicing Agreement as described
below, including the Reserve Account, the Supplemental Reserve Account and the
Yield Supplement Account, (iv) the Seller's security interests in the Financed
Vehicles, (v) the Seller's rights to receive proceeds from claims on physical
damage, credit life, 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 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 manufacturers. MMCA has applied
the same underwriting standards to its purchases of Truck Contracts whether or
not the Contracts related to Trucks manufactured or distributed by Mitsubishi
Motors. See "--Underwriting."
19
<PAGE>
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
20
<PAGE>
Due Date. MMCA generally begins collection activities with respect to delinquent
Motor Vehicle Contracts or Truck Contracts through telephone contact based upon
the original credit risk assigned to each obligor at contract origination.
Obligors considered to be weaker credits are generally contacted by telephone
when the Receivable becomes 7 days delinquent, while obligors considered strong
credits with lesser risk are generally contacted when the Receivable becomes 15
days delinquent. Computer generated delinquency notices are mailed to all
delinquent obligors on the 12th day of delinquency. MMCA also uses an automated
system of monitoring delinquency, which categorizes delinquent accounts into
different priorities of collection activity, based on the level of delinquency
of each account.
MMCA's collectors are assigned to specific delinquencies and attempt to
contact the delinquent obligor by telephone or by letter based on the term of
delinquency and the history of the account. Repossession procedures typically
begin when a Motor Vehicle Contract or Truck Contract becomes between 60 to 75
days delinquent. Repossession is carried out pursuant to applicable state law
and specific procedures adopted by MMCA.
If the Motor Vehicle or Truck securing a delinquent Contract is repossessed,
MMCA's current policy is generally to charge off the Motor Vehicle Contract or
Truck Contract on the date on which the proceeds of sale of the Motor Vehicle or
Truck are applied to the Contract balance and the deficiency is determined.
Prior to February 1997, MMCA's policy was generally to charge off a Contract on
the earlier of the date on which the proceeds of sale of the repossessed
Financed Vehicle were applied to the Contract balance and the date on which the
Motor Vehicle Contract became 120 days delinquent or the Truck Contract became
180 days delinquent if MMCA had not yet repossessed the related Motor Vehicle or
Truck. MMCA's current policy, which was first implemented in February 1997, is
to charge off a delinquent Contract as to which the related Financed Vehicle has
not been repossessed only at such time as it determines that it will be unable
to recover the Financed Vehicle (which time may be later than the time at which
the Contract would have been charged off under MMCA's prior policy). Any
deficiencies remaining after repossession and sale of the related Motor Vehicle
or Truck or after the full charge-off of the related Motor Vehicle Contract or
Truck Contract are pursued by MMCA to the extent practicable and legally
permitted. Obligors are contacted, and when warranted by individual
circumstances, repayment schedules are established and monitored until the
deficiencies are either paid in full or become impractical to pursue.
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, and in November 1996, MMCA again changed its credit
scoring system and made the changes applicable to all types of Motor Vehicle
Contracts. See "--Underwriting" above. The Receivables were originated more
recently than, on average, the receivables related to Motor Vehicles and Trucks
in the tables in the following pages.
21
<PAGE>
MMCA began originating Final Payment Receivables in October 1993. Because
Final Payment Receivables have been originated in large volume over only a short
period of time, the experience shown in the tables below may not be comparable
to the actual performance of the Final Payment Receivables included in the Trust
Property.
Because (i) the composition of Receivables included in the Trust differs
from MMCA's combined portfolio, (ii) MMCA changed its underwriting criteria with
respect to non-Final Payment Receivables in 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.
DELINQUENCY EXPERIENCE (1)
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
-------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Number of Contracts Outstanding at End of Period................ 126,005 126,080 123,274 122,224 107,507
Delinquencies as a Percent of Contracts Outstanding (2)
30-59 Days.................................................... 3.55% 4.27% 4.42% 5.13% 4.00%
60-89 Days.................................................... 1.12% 1.30% 1.56% 1.69% 0.92%
90 Days or More............................................... 0.26% 0.30% 0.51% 0.54% 0.30%
Repossessions as a Percent of Contracts Outstanding (2)(3)...... 0.69% 1.10% 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.
22
<PAGE>
NET CREDIT LOSS AND REPOSSESSION EXPERIENCE (1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------------- ----------------------------------------
1998 1997 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Amount Outstanding (2)......................... $ 1,861,071 $ 1,802,327 $ 1,769,219 $ 1,687,592 $ 1,436,009
Average Amount Outstanding (3)................. $ 1,776,937 $ 1,747,828 $ 1,776,481 $ 1,590,046 $ 1,221,467
Number of Contracts Outstanding................ 126,005 126,080 123,274 122,224 107,507
Average Number of Contracts Outstanding (3).... 122,927 124,304 124,945 117,048 93,879
Charge-offs (4)................................ $ 28,212 $ 40,008 $ 73,242 $ 84,872 $ 20,171
Recoveries (5)................................. $ 5,192 $ 7,483 $ 13,126 $ 7,372 $ 1,058
Net Losses..................................... $ 23,020 $ 32,525 $ 60,116 $ 77,500 $ 19,113
Number of Repossessions (6).................... 2,531 4,006 7,382 6,712 4,260
Number of Repossessions as a Percent of the
Average Number of Contracts Outstanding
(7).......................................... 4.12% 6.45% 5.91% 5.73% 4.54%
Net Losses as a Percent of Average Amount
Outstanding (7).............................. 2.59% 3.72% 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 six-month period ending June 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.
23
<PAGE>
FINAL PAYMENT RECEIVABLES: LOSS EXPERIENCE ON RETURNED VEHICLES (1)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 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....................... 10,849 1,349 10,716 1,022 34
Total Number of Vehicles Returned to MMCA...... 2,550 383 2,926 435 7
Return Ratio (2)............................... 23.50% 28.39% 27.31% 42.56% 20.59%
Total Losses on Returned Vehicles Sold (3)..... $ (3,084,377) $ (628,759) $ (5,371,694) $ (726,208) $ (12,464)
Total Number of Returned Vehicles Sold......... 1,643 364 2,578 432 7
Average Loss per Returned Vehicle Sold (3)..... $ (1,877) $ (1,727) $ (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
SELECTION CRITERIA
The Receivables were purchased by MMCA from Dealers in the ordinary course
of business in accordance with MMCA's underwriting standards. The Receivables
were selected from MMCA's portfolio by several criteria, including the
following: (i) each Receivable is secured by a new or used automobile or a
light- or medium-duty truck; (ii) each Receivable has an annual percentage rate
("APR") of at least 0% and not more than 30%; (iii) each Receivable had a
remaining maturity as of the Cutoff Date of not more than 60 months, and an
original maturity of not more than 60 months; (iv) each Receivable had an
original 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 Cutoff Date; (v) no Receivable was more than 30 days delinquent as of the
Cutoff Date; (vi) no Financed Vehicle had been repossessed as of the Cutoff
Date; (vii) each Receivable is an installment 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 April 1994; (x) as of the 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.
24
<PAGE>
CERTAIN CHARACTERISTICS
The composition of the Receivables as of July 31, 1998 and the geographical
distribution and distribution by APR of the Pool Balance as of July 31, 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 RECEIVABLES
<TABLE>
<S> <C>
Pool Balance........................................................ $930,187,451.88
Level Pay Pool Balance.............................................. $624,383,716.12
Last Scheduled Payment Pool Balance................................. $305,803,735.76
Number of Receivables............................................... 53,764
Average Principal Balance........................................... $17,301.31
(Range)........................................................... $224.07 to $53,096.25
Average Original Amount Financed.................................... $20,326.90
$3,063.76 to
(Range)........................................................... $56,598.00
Average Level Pay Balance........................................... $11,613.42
(Range)........................................................... $130.75 to $53,096.25
Average Last Scheduled Payment Balance (1).......................... $10,191.42
(Range)........................................................... $2,203.84 to 27,911.36
Weighted Average APR................................................ 5.938%
(Range)........................................................... 0.00% to 23.591%
Weighted Average Original Term to Maturity.......................... 49.96 months
(Range)........................................................... 12 months to 60 months
Weighted Average Remaining Term to Maturity......................... 38.96 months
(Range)........................................................... 5 months to 60 months
</TABLE>
- ------------------------------
(1) Based on Final Payment Receivable balances only.
25
<PAGE>
GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF POOL OF POOL
STATE(1) BALANCE(2) STATE(1) BALANCE(2)
- -------------------------------------------- ----------- -------------------------------------------- -----------
<S> <C> <C> <C>
Alaska...................................... 0.10% Nebraska.................................... 0.17%
Arizona..................................... 1.15 Nevada...................................... 0.28
Arkansas.................................... 1.09 New Hampshire............................... 0.17
California.................................. 11.54 New Jersey.................................. 1.44
Colorado.................................... 0.41 New Mexico.................................. 0.79
Connecticut................................. 1.91 New York.................................... 3.28
Delaware.................................... 0.56 North Carolina.............................. 1.24
Florida..................................... 10.40 North Dakota................................ 0.05
Georgia..................................... 6.04 Ohio........................................ 1.12
Idaho....................................... 0.07 Oklahoma.................................... 1.38
Illinois.................................... 7.28 Oregon...................................... 0.48
Indiana..................................... 0.63 Pennsylvania................................ 1.81
Iowa........................................ 0.75 Rhode Island................................ 0.13
Kansas...................................... 0.14 South Carolina.............................. 2.64
Kentucky.................................... 0.41 South Dakota................................ 0.03
Louisiana................................... 6.09 Tennessee................................... 1.83
Maine....................................... 0.27 Texas....................................... 21.86
Maryland.................................... 4.06 Utah........................................ 0.21
Massachusetts............................... 0.82 Vermont..................................... 0.06
Michigan.................................... 0.35 Virginia.................................... 2.70
Minnesota................................... 0.50 Washington.................................. 0.40
Mississippi................................. 2.01 West Virginia............................... 0.04
Missouri.................................... 0.99 Wisconsin................................... 0.33
Montana..................................... 0.00
-----------
Total....................................... 100.00%
-----------
-----------
</TABLE>
- ------------------------
(1) State of origination is based on the addresses of the originating Dealers.
(2) Percentages may not add to 100.00% due to rounding.
26
<PAGE>
DISTRIBUTION BY APR
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF POOL OF POOL
APR RANGE(%) RECEIVABLES BALANCE(1)(2) BALANCE(3)
- ------------------------------------------------------------------------ ----------- -------------- -----------
<S> <C> <C> <C>
0.00 to 0.99............................................................ 6,590 $ 138,737,916 14.92%
1.00 to 1.99............................................................ 834 12,001,556 1.29
2.00 to 2.99............................................................ 5,492 74,929,996 8.06
3.00 to 3.99............................................................ 8,287 167,741,036 18.03
4.00 to 4.99............................................................ 3,373 56,853,896 6.11
5.00 to 5.99............................................................ 5,420 74,795,400 8.04
6.00 to 6.99............................................................ 5,116 85,786,440 9.22
7.00 to 7.99............................................................ 2,986 51,501,743 5.54
8.00 to 8.99............................................................ 1,860 44,478,497 4.78
9.00 to 9.99............................................................ 3,835 74,711,093 8.03
10.00 to 10.99.......................................................... 3,137 49,460,484 5.32
11.00 to 11.99.......................................................... 2,158 35,343,241 3.80
12.00 to 12.99.......................................................... 1,111 16,072,235 1.73
13.00 to 13.99.......................................................... 931 13,181,497 1.42
14.00 to 14.99.......................................................... 802 11,692,473 1.26
15.00 to 15.99.......................................................... 507 6,955,436 0.75
16.00 to 16.99.......................................................... 274 3,667,060 0.39
17.00 to 17.99.......................................................... 236 3,020,022 0.32
18.00 to 18.99.......................................................... 415 4,766,504 0.51
19.00 to 19.99.......................................................... 169 1,766,456 0.19
20.00 to 20.99.......................................................... 81 993,157 0.11
21.00 to 21.99.......................................................... 56 629,174 0.07
22.00 to 22.99.......................................................... 88 1,063,667 0.11
23.00 to 23.99.......................................................... 6 38,474 0.00
----------- -------------- -----------
Total................................................................... 53,764 $ 930,187,453 100.00%
----------- -------------- -----------
----------- -------------- -----------
</TABLE>
- ------------------------
(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 Initial Pool Balance, approximately 88.51% of the total number
of Receivables and approximately 93.29% 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 11.49% of the total number of Receivables and
approximately 6.71% of the Pool Balance as of the Cutoff Date, relate to used
automobiles and light- or medium-duty trucks. Of the new and used vehicles,
approximately 3.16% of the total number of Receivables and approximately 2.26%
of the Pool Balance as of the 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 0.85% of the total number of
Receivables and approximately 1.29% of the Pool Balance as of the Cutoff Date,
relate to medium-duty trucks, the primary purchasers of which are businesses. Of
the used vehicles,
27
<PAGE>
approximately 6.75% of the total number of Receivables and approximately 3.38%
of the Pool Balance as of the 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 30.07% of the Initial Pool Balance 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 1.54% of the Initial Pool Balance was attributable to
Actuarial Receivables that provide that if the Receivable is prepaid in full,
the amount payable will be determined in accordance with a contractual
calculation that is based upon the "Rule of 78's." In the event of the
prepayment in full of such Actuarial Receivables, the excess of the amount that
would be due if the receivable generally provided for allocation of payments
between principal and interest using the Rule of 78's over the amount that would
be payable upon such prepayment using the actuarial method (the "Rule of 78's
Payment") will not be used to make payments due to Noteholders but will be paid
to the Servicer.
Approximately 68.38% of the Initial Pool Balance 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.
28
<PAGE>
Approximately 0.60% of the Initial Pool Balance was attributable to Simple
Interest Receivables that are subject to a cap on the aggregate amount of
interest to be paid during the term of such receivables ("Capped Receivables").
With respect to Capped Receivables, if the obligor consistently makes scheduled
payments after the 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 54.51% of the Initial Pool Balance 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 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, 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
29
<PAGE>
available to the Reserve Account and the Supplemental Reserve Account. See
"Description of the Notes --The Indenture Cash Flows", " --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.
32.88% of the Initial Pool Balance 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 Final Payment Receivables are due, as of the Closing Date,
between January 1, 1999 and July 26, 2003. Accordingly, significant payments of
principal are likely to be made during such period. The average amount of a Last
Scheduled Payment on a Final Payment Receivable is approximately $10,191.42,
which is approximately 60.31% of the average principal balance of 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 Receivables prepay in full at the specified constant
percentage of ABS monthly, with no defaults, losses or repurchases, (iii) each
scheduled monthly payment on the Receivables is made on the last day of each
month, and each month has 30 days, (iv) 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), (v) the Closing Date is August 20, 1998 and the Servicer does
exercise its option to purchase the Receivables and (vi) 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
30
<PAGE>
principal balance, APR, original term to maturity and remaining term to maturity
as of the Cutoff Date) will be such that each pool will be fully amortized by
the end of its remaining term to maturity.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
LEVEL AGGREGATE WEIGHTED ORIGINAL TERM REMAINING TERM
PAYMENT PRINCIPAL AVERAGE TO MATURITY TO MATURITY
POOL BALANCE APR (IN MONTHS) (IN MONTHS)
- ----------------------------------------------- ----------------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C>
1.............................................. $ 59,708,523.93 5.132% 44 19
2.............................................. 92,718,218.65 7.586 46 31
3.............................................. 246,794,803.00 3.943 48 45
4.............................................. 225,162,170.54 6.256 60 57
</TABLE>
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.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
LAST WEIGHTED AVERAGE REMAINING TERM
SCHEDULED AGGREGATE WEIGHTED ORIGINAL TERM TO
PAYMENT PRINCIPAL AVERAGE TO MATURITY MATURITY
POOL BALANCE APR (IN MONTHS) (IN MONTHS)
- ----------------------------------------------- ----------------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C>
1.............................................. $ 124,727,877.89 5.465% 46 17
2.............................................. 97,304,428.23 7.588 47 31
3.............................................. 78,876,224.82 8.258 46 42
4.............................................. 4,895,204.82 12.290 60 56
</TABLE>
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. 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.
31
<PAGE>
PROJECTED CLASS A-1 NOTE AMORTIZATION
PERCENT OF INITIAL NOTE PRINCIPAL AMOUNT
<TABLE>
<CAPTION>
CLASS A-1 NOTE BALANCE (%)
----------------------------------------------------------
PAYMENT DATE 0.0% ABS 1.0% ABS 1.5% ABS 2.0% ABS
- -------------------------------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
August 20, 1998..................................................... 1.00 1.00 1.00 1.00
September 15, 1998.................................................. 93 88 84 80
October 15, 1998.................................................... 86 76 69 61
November 15, 1998................................................... 79 63 54 42
December 15, 1998................................................... 71 52 39 23
January 15, 1999.................................................... 64 40 24 5
February 15, 1999................................................... 57 28 10 0
March 15, 1999...................................................... 49 17 0 0
April 15, 1999...................................................... 42 5 0 0
May 15, 1999........................................................ 35 0 0 0
June 15, 1999....................................................... 27 0 0 0
July 15, 1999....................................................... 20 0 0 0
August 15, 1999..................................................... 12 0 0 0
September 15, 1999.................................................. 5 0 0 0
October 15, 1999.................................................... 0 0 0 0
--- --- --- ---
Weighted Average Life (yrs)......................................... 0.60 0.38 0.30 0.24
</TABLE>
32
<PAGE>
PROJECTED CLASS A-2 NOTE AMORTIZATION
PERCENT OF INITIAL NOTE PRINCIPAL AMOUNT
<TABLE>
<CAPTION>
CLASS A-2 NOTE BALANCE (%)
----------------------------------------------------------
PAYMENT DATE 0.0% ABS 1.0% ABS 1.5% ABS 2.0% ABS
- -------------------------------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
August 20, 1998..................................................... 100 100 100 100
September 15, 1998.................................................. 100 100 100 100
October 15, 1998.................................................... 100 100 100 100
November 15, 1998................................................... 100 100 100 100
December 15, 1998................................................... 100 100 100 100
January 15, 1999.................................................... 100 100 100 100
February 15, 1999................................................... 100 100 100 90
March 15, 1999...................................................... 100 100 97 78
April 15, 1999...................................................... 100 100 87 65
May 15, 1999........................................................ 100 96 77 53
June 15, 1999....................................................... 100 88 67 41
July 15, 1999....................................................... 100 80 57 29
August 15, 1999..................................................... 100 72 48 18
September 15, 1999.................................................. 100 64 39 6
October 15, 1999.................................................... 98 56 30 0
November 15, 1999................................................... 93 49 21 0
December 15, 1999................................................... 87 41 12 0
January 15, 2000.................................................... 36 0 0 0
February 15, 2000................................................... 31 0 0 0
March 15, 2000...................................................... 25 0 0 0
April 15, 2000...................................................... 21 0 0 0
May 15, 2000........................................................ 16 0 0 0
June 15, 2000....................................................... 12 0 0 0
July 15, 2000....................................................... 7 0 0 0
August 15, 2000..................................................... 3 0 0 0
September 15, 2000.................................................. 0 0 0 0
--- --- --- ---
Weighted Average life (yrs)......................................... 1.51 1.19 1.02 0.80
</TABLE>
33
<PAGE>
PROJECTED CLASS A-3 NOTE AMORTIZATION
PERCENT OF INITIAL NOTE PRINCIPAL AMOUNT
<TABLE>
<CAPTION>
CLASS A-3 NOTE BALANCE (%)
----------------------------------------------------------
PAYMENT DATE 0.0% ABS 1.0% ABS 1.5% ABS 2.0% ABS
- -------------------------------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
August 20, 1998..................................................... 100 100 100 100
September 15, 1998.................................................. 100 100 100 100
October 15, 1998.................................................... 100 100 100 100
November 15, 1998................................................... 100 100 100 100
December 15, 1998................................................... 100 100 100 100
January 15, 1999.................................................... 100 100 100 100
February 15, 1999................................................... 100 100 100 100
March 15, 1999...................................................... 100 100 100 100
April 15, 1999...................................................... 100 100 100 100
May 15, 1999........................................................ 100 100 100 100
June 15, 1999....................................................... 100 100 100 100
July 15, 1999....................................................... 100 100 100 100
August 15, 1999..................................................... 100 100 100 100
September 15, 1999.................................................. 100 100 100 100
October 15, 1999.................................................... 100 100 100 97
November 15, 1999................................................... 100 100 100 88
December 15, 1999................................................... 100 100 100 80
January 15, 2000.................................................... 100 100 84 66
February 15, 2000................................................... 100 95 78 60
March 15, 2000...................................................... 100 90 73 54
April 15, 2000...................................................... 100 85 68 49
May 15, 2000........................................................ 100 81 63 44
June 15, 2000....................................................... 100 77 59 39
July 15, 2000....................................................... 100 73 54 34
August 15, 2000..................................................... 100 69 50 29
September 15, 2000.................................................. 99 65 46 25
October 15, 2000.................................................... 95 61 42 20
November 15, 2000................................................... 92 57 38 16
December 15, 2000................................................... 88 53 34 12
January 15, 2001.................................................... 84 50 30 8
February 15, 2001................................................... 81 46 26 5
March 15, 2001...................................................... 50 25 12 0
April 15, 2001...................................................... 47 23 10 0
May 15, 2001........................................................ 45 20 7 0
June 15, 2001....................................................... 42 17 5 0
July 15, 2001....................................................... 39 15 2 0
August 15, 2001..................................................... 36 13 0 0
September 15, 2001.................................................. 34 10 0 0
October 15, 2001.................................................... 31 8 0 0
November 15, 2001................................................... 28 6 0 0
December 15, 2001................................................... 25 3 0 0
January 15, 2002.................................................... 22 1 0 0
February 15, 2002................................................... 0 0 0 0
--- --- --- ---
Weighted Average Life (yrs)......................................... 2.85 2.35 2.05 1.76
</TABLE>
34
<PAGE>
PROJECTED CLASS B NOTE AMORTIZATION
PERCENT OF INITIAL NOTE PRINCIPAL AMOUNT
<TABLE>
<CAPTION>
CLASS B NOTE BALANCE (%)
----------------------------------------------------------
PAYMENT DATE 0.0% ABS 1.0% ABS 1.5% ABS 2.0% ABS
- -------------------------------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
August 20, 1998..................................................... 100 100 100 100
September 15, 1998.................................................. 100 100 100 100
October 15, 1998.................................................... 100 100 100 100
November 15, 1998................................................... 100 100 100 100
December 15, 1998................................................... 100 100 100 100
January 15, 1999.................................................... 100 100 100 100
February 15, 1999................................................... 100 100 100 96
March 15, 1999...................................................... 100 100 99 90
April 15, 1999...................................................... 100 100 94 85
May 15, 1999........................................................ 100 98 90 79
June 15, 1999....................................................... 100 95 86 74
July 15, 1999....................................................... 100 91 81 69
August 15, 1999..................................................... 100 88 77 64
September 15, 1999.................................................. 100 84 73 59
October 15, 1999.................................................... 99 81 69 54
November 15, 1999................................................... 97 78 65 50
December 15, 1999................................................... 94 74 62 45
January 15, 2000.................................................... 72 56 47 37
February 15, 2000................................................... 70 53 44 34
March 15, 2000...................................................... 67 50 41 31
April 15, 2000...................................................... 65 48 38 28
May 15, 2000........................................................ 63 46 36 25
June 15, 2000....................................................... 61 43 33 22
July 15, 2000....................................................... 60 41 31 19
August 15, 2000..................................................... 58 39 28 17
September 15, 2000.................................................. 56 37 26 14
October 15, 2000.................................................... 54 34 23 12
November 15, 2000................................................... 52 32 21 9
December 15, 2000................................................... 50 30 19 7
January 15, 2001.................................................... 48 28 17 5
February 15, 2001................................................... 46 26 15 3
March 15, 2001...................................................... 28 14 7 0
April 15, 2001...................................................... 27 13 5 0
May 15, 2001........................................................ 25 11 4 0
June 15, 2001....................................................... 24 10 3 0
July 15, 2001....................................................... 22 8 1 0
August 15, 2001..................................................... 20 7 0 0
September 15, 2001.................................................. 19 6 0 0
October 15, 2001.................................................... 17 4 0 0
November 15, 2001................................................... 16 3 0 0
December 15, 2001................................................... 14 2 0 0
January 15, 2002.................................................... 13 1 0 0
February 15, 2002................................................... 0 0 0 0
--- --- --- ---
Weighted Average Life (yrs)......................................... 2.27 1.85 1.60 1.34
</TABLE>
35
<PAGE>
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 Receivables from MMCA.
THE SELLER
The Seller, a wholly-owned subsidiary of MMCA, was incorporated in the State
of Delaware on July 8, 1993. The Seller was organized for limited purposes,
which include purchasing receivables from MMCA and transferring such receivables
to third parties and any activities incidental to and necessary or convenient
for the accomplishment of such purposes. The principal executive offices of the
Seller are located at 6363 Katella Avenue, Cypress, California 90630-5205. The
telephone number of such offices is (714) 236-1592.
The Seller has taken steps in structuring the transactions contemplated
hereby that are intended to ensure that the voluntary or involuntary application
for relief by MMCA under any Insolvency Law will not result in consolidation of
the assets and liabilities of the Seller with those of MMCA. These steps include
the 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
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any Insolvency Law by or against the Seller, or if an attempt were made to
litigate any of the foregoing issues, delays in payments on the Notes could
occur or reductions in the amounts of such payments could result.
It is intended by MMCA and the Seller that the transfer of the Receivables
by MMCA to the Seller under the Purchase Agreement constitute a "true sale" of
the Receivables to the Seller. If the transfer constitutes such a "true sale,"
the Receivables and the proceeds thereof would not be part of MMCA's bankruptcy
estate under Section 541 of the United States Bankruptcy Code should MMCA become
the subject of a bankruptcy case subsequent to the transfer of the Receivables
to the Seller.
The Seller has received the advice of counsel to the effect that, subject to
certain facts, assumptions and qualifications, in the event MMCA were to become
the subject of a voluntary or involuntary case under the United States
Bankruptcy Code subsequent to the transfer of the Receivables to the Seller, the
transfer of the Receivables by MMCA to the Seller pursuant to the Purchase
Agreement would be characterized as a "true sale" of the Receivables from MMCA
to the Seller and the Receivables and the proceeds thereof would not form part
of MMCA's bankruptcy estate pursuant to Section 541 of the United States
Bankruptcy Code. See "Risk Factors--Certain Legal Aspects--Bankruptcy
Considerations."
THE SERVICER
Mitsubishi Motors Credit of America, Inc. ("MMCA") primarily provides retail
and wholesale financing, retail leasing and certain other financial services to
authorized Mitsubishi automobile and truck dealers and their customers in the
United States. MMCA was incorporated in the State of Delaware in August 1990 and
commenced operations in March 1991.
MMCA is a wholly-owned subsidiary of Mitsubishi Motor Sales of America, Inc.
("MMSA"), which is engaged in the wholesale distribution of automobiles and
light-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 Notes will be issued pursuant to the Indenture, a form of which has been
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part. The following summary does not purport to be complete and is subject to,
and qualified in its entirety by reference to, the Notes, the Indenture, the
Trust Agreement and the Sale and Servicing Agreement.
The Notes of each class will be offered for purchase in denominations of
$1,000 and integral multiples thereof and will be represented initially by
physical notes registered in the name of Cede as nominee of DTC. No Note Owner
will be entitled to receive a definitive note representing such person's
beneficial ownership interest in the 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
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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
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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 on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with
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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.
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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
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Indenture Trustee. The final payment on any Definitive Note, however, will be
made only upon presentation and surrender of such Definitive Note at the office
or agency specified in the notice of final payment mailed to Noteholders.
Definitive Notes will be transferable and exchangeable at the offices of the
Indenture Trustee. No service charge will be imposed for any registration of
transfer or exchange, but the Indenture Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith.
INTEREST
Interest on the outstanding principal amount of each class of the Notes will
accrue at the applicable Note Interest Rate and will be payable to the
applicable Noteholders monthly on each Payment Date, commencing September 15,
1998. 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.
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,
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including interest, 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 90.44%, 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
9.56%, 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 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."
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.
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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 a Collection Account, in the name of the
Indenture Trustee on behalf of the Noteholders and the Certificateholders, 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 and the Supplemental Reserve 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, 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"), (ii) an account, in the name of the Owner Trustee, on behalf of the
holders of record of the Certificates (the "Certificateholders"), in which
amounts released from the Collection Account for distribution to
Certificateholders will be deposited and from which all distributions to
Certificateholders will be made (the "Certificate Distribution Account") and
(iii) an account, in the name of the Indenture Trustee on behalf of the
Noteholders and the Certificateholders, in which early payments with respect to
Actuarial Receivables by or on behalf of the obligors which constitute neither
current scheduled payments nor full prepayments ("Payaheads") will be deposited
until such time as the payment falls due or until such funds are applied to
shortfalls in the scheduled payments with respect to Actuarial Receivables (the
"Payahead Account", and together with the Collection Account and the Note
Payment Account, the "Trust Accounts"). The Seller will also establish and
maintain the Reserve Account, 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. The Trust Accounts, the Reserve
Account, the Supplemental Reserve Account and the Yield Supplement Account shall
each be a segregated trust account initially established with the Indenture
Trustee and maintained with the Indenture Trustee so long as permitted by each
Rating Agency. In the event that a Rating Agency no longer permits the Trust
Accounts, the Reserve Account, the Supplemental Reserve Account and the Yield
Supplement Account to be located at the Indenture Trustee, such accounts shall
be moved to either a Qualified Institution or a Qualified Trust Institution. A
"Qualified Institution" is a depository institution organized under the laws of
the United States or any state thereof or incorporated under the laws of a
foreign jurisdiction with a branch or agency located in the United States
authorized to take deposits and subject to supervision and examination by
Federal or state banking authorities, having a short-term deposit rating
acceptable to 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 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 Payahead Account, the Reserve Account,
the Supplemental Reserve 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
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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 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 and 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.
YIELD SUPPLEMENT AGREEMENT
Simultaneously with the sale and assignment of the Receivables by MMCA to
the Seller, MMCA and the Seller will enter into the Yield Supplement Agreement,
pursuant to which MMCA will be obligated to pay the Yield Supplement Amount, if
any, to the Trust on the Business Day prior to each Payment Date. The Seller
will assign the Yield Supplement Agreement to the Trust, and the Trust will
pledge it to the Indenture Trustee for the benefit of the Noteholders.
YIELD SUPPLEMENT ACCOUNT
Payments of the Yield Supplement Amount due under the Yield Supplement
Agreement will be secured by funds on deposit in 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 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
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Servicer will calculate the Available Funds, the Total Servicing Fee, the
Accrued Note Interest, the Principal Distribution Amount, the principal
attributable to Last Scheduled Payments, and the Yield Supplement Amount, if
any, in each case with respect to such Payment Date.
On or before each Payment Date, the Servicer will cause the Available Funds
for such Payment Date to be deposited into the Collection Account. On each
Payment Date, the Servicer will 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 (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 and deposit in the Collection Account an amount equal to the lesser of
(i) the amount of cash or other immediately available funds in the Reserve
Account on such Payment Date (prior to giving effect to any 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 also notify the Indenture
Trustee to (a) withdraw from the Supplemental 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 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 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 (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 shall equal (a) the sum of the following amounts with respect to 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; (vii) the Yield Supplement Amount; and (viii) 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
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insurance premiums, or any partial prepayment which causes a reduction in the
obligor's periodic payment to an amount below the scheduled payment as of the
Cutoff Date, 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).
MONTHLY WITHDRAWALS FROM COLLECTION ACCOUNT. On each Payment Date, the
Indenture Trustee shall make the following withdrawals of 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 required to bring the amount in
the Reserve Account up to the Specified Reserve Balance;
(v) to the Supplemental Reserve Account, the amount 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
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 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.
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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, $97,669,451.88 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,
5.621% per annum, (ii) the Class A-2 Notes, 5.72% per annum, (iii) the Class
A-3 Notes, 5.86% per annum and (iv) the Class B Notes, 6.07% 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) plus (ii) any outstanding Principal
Carryover Shortfall as of the close of business on the preceding Payment
Date; 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.
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"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 Cutoff Date; provided, however, that in calculating the
Scheduled Principal, 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) 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, Monthly Accrued Note Interest on the
applicable class of Class A Notes;
(b) following payment in full of the Monthly Accrued Note Interest
payable to the Class A Noteholders, Monthly 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.
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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, Monthly Accrued Note Interest on
the applicable class of Class A Notes; (d) to the Class B Noteholders, Monthly
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.
RESERVE ACCOUNT
The Reserve Account will be held in the name of the Indenture Trustee for
the benefit of Noteholders and Certificateholders and established by the Seller.
To the extent that amounts on deposit in the Supplemental Reserve Account and
the Reserve Account are exhausted, Noteholders and Certificateholders will have
no recourse to the assets of the Seller as a source of payment.
The Reserve Account will be funded by a deposit by the Seller on the Closing
Date in the amount of the Reserve Initial Deposit. The amount on deposit in the
Reserve Account will increase from time to time by application of certain funds
from the Collection Account up to the Specified Reserve Balance for each Payment
Date and will decrease on each Payment Date by (i) the shortfall, if any,
between (x) the aggregate amount of Advances that are due and payable to the
Servicer on such Payment Date and (y) an amount equal to the sum of the
aggregate amount of the collections on the Receivables and other amounts
received with respect to the Receivables in the related Collection Period that
are paid to the Servicer as reimbursement for such Advances and amounts on
deposit in the Supplemental Reserve Account on such Payment Date (prior to
giving effect to any deposits thereto or withdrawals therefrom on such Payment
Date), (ii) the shortfall, if any, between (x) the Total Required Payment and
(y) an amount equal to the sum of Available Funds allocable to the payment of
the Total Required Payment with respect to such Payment Date and amounts on
deposit in the Supplemental Reserve Account on such Payment Date (after giving
effect to any withdrawals therefrom on such Payment Date to pay the aggregate
amount of Advances due and payable to the Servicer such Payment Date but prior
to giving effect to any deposits thereto or any other withdrawals therefrom on
such Payment Date) and (iii) distribution to the Seller of amounts in the
Reserve Account in excess of the Specified Reserve Balance with respect to such
Payment Date.
On each Payment Date, after payment of the Total Required Payment for such
Payment Date, the Indenture Trustee will withdraw from the Collection Account
and deposit into the Reserve Account, to the extent of funds available in the
Collection Account, the amount, if any, required to bring the amount in the
Reserve Account up to the Specified Reserve Balance. Amounts on deposit in the
Reserve Account will be invested by the Seller in Permitted Investments. On any
Payment Date, after giving effect to all payments required to be made on such
day and to the extent that the amounts on deposit in the Reserve Account
(including amounts attributable to investment income, net of losses and
investment expenses) exceed the Specified Reserve Balance, such excess will be
withdrawn from the Reserve Account and paid to the Seller on such Payment Date.
Upon the distribution of any such amounts from the Reserve Account, the
Noteholders will not have any rights in, or claims to, such amounts.
Amounts on deposit in the Reserve Account from time to time are intended to
enhance the likelihood of receipt by Noteholders of amounts due them and to
decrease the likelihood that the Noteholders will experience losses. If the
amount required to be withdrawn from the Reserve Account to cover shortfalls in
Available Funds and to reimburse the Servicer for Advances exceeds the amount on
deposit in the Reserve
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Account, a temporary shortfall in the amounts distributed to the Noteholders
could result. In addition, depletion of the Reserve Account ultimately could
result in losses to Noteholders.
The "Specified Reserve Balance" with respect to any Payment Date will be an
amount equal to the lesser of (i) $6,976,406 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 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 a change in the manner in by which the 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
change in the manner in which the 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 Specified Reserve Balance will be reduced or the Reserve
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
Specified Reserve Balance or the change in the manner in which the Reserve
Account is funded, as the case may be, without the consent of any Noteholders.
SUPPLEMENTAL RESERVE ACCOUNT
The Supplemental Reserve Account will be held in the name of the Indenture
Trustee for the benefit of Noteholders and Certificateholders and established by
the Seller. To the extent that amounts on deposit in the Supplemental Reserve
Account and the Reserve Account are exhausted, Noteholders and
Certificateholders will have no recourse to the assets of the Seller as a source
of payment.
The Supplemental Reserve Account will increase on each Payment Date by
deposits thereto of certain funds from the Collection Account up to the Maximum
Supplemental Reserve Amount and will decrease on each Payment Date by (i) the
shortfall, if any, between the aggregate amount of Advances that are due and
payable to the Servicer on such Payment Date and the aggregate amount of the
collections on the Receivables and other amounts received with respect to the
Receivables in the related Collection Period that are paid to the Servicer as
reimbursement for such Advances, (ii) the shortfall, if any, between the Total
Required Payment and Available Funds allocable to the payment of the Total
Required Payment with respect to such Payment Date, and (iii) distribution to
the Seller of amounts in the Supplemental Reserve Account in excess of the
Maximum Supplemental Reserve Amount with respect to such Payment Date.
On each Payment Date, after payment of the Total Required Payment for such
Payment Date and a deposit to the Reserve Account of the amount, if any,
necessary to reinstate the balance in the Reserve Account (after taking into
account the withdrawals therefrom on such Payment Date) to an amount equal to
the Specified Reserve Balance, the Indenture Trustee will withdraw from the
Collection Account and deposit into the Supplemental Reserve Account, to the
extent of funds available in the Collection Account, the amount, if any,
required to bring the amount in the Supplemental Reserve Account up to the
Maximum Supplemental Reserve Amount. Amounts on deposit in the Supplemental
Reserve Account will be invested by the Seller in Permitted Investments. The
Seller will not make a deposit to the Supplemental Reserve Account on the
Closing Date. On any Payment Date, after giving effect to all payments required
to be made on such day, to the extent that the amounts on deposit in the
Supplemental Reserve Account (including amounts attributable to investment
income, net of losses and investment expenses) exceed the Maximum Supplemental
Reserve Amount, such excess will be withdrawn from the Supplemental Reserve
Account and distributed to the Seller on such Payment Date. Upon the
distribution of any such amounts from the Supplemental Reserve Account, the
Noteholders will not have any rights in, or claims to, such amounts.
Amounts on deposit in 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
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Noteholders will experience losses. If the amount required to be withdrawn from
the Supplemental Reserve Account to cover shortfalls in Available Funds on any
Payment Date exceeds the amount on deposit in the Supplemental Reserve Account
and the Reserve Account on such Payment Date, a temporary shortfall in the
amounts distributed to the Noteholders could result. In addition, depletion of
the Supplemental Reserve Account and the Reserve Account ultimately could result
in losses to Noteholders.
The "Maximum Supplemental Reserve Amount" with respect to any Payment Date
will be an amount equal to the lesser of (i) $18,603,749 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 Maximum Supplemental Reserve Amount or a change in
the manner in which 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 Maximum Supplemental Reserve Amount or the change in the manner
in which 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 Specified Reserve Balance will be such reduced amount or the Supplemental
Reserve 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 Maximum Supplemental Reserve Amount or the change in the manner in which the
Supplemental Reserve 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
equal the aggregate principal amount of the Receivables on the Cutoff Date,
including the aggregate of the principal portions of the Last Scheduled Payments
on the Final Payment Receivables. As of the Cutoff Date, the Last Scheduled
Payments had an aggregate principal balance of $305,803,735.76.
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."
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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," "--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, provided that the obligor has maintained the
insurance required by the Motor Vehicle Contract and is not in default
thereunder. The "Gap Amount" is the difference between the amount owed in
respect of the Final Payment Receivable as of the date of the total loss and
insurance proceeds (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.
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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
Monthly 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 and, to the extent
available, amounts on deposit in the Reserve Account and the Supplemental
Reserve Account. See "--The Indenture Cash Flows", "--Reserve Account" and
"--Supplemental Reserve Account" herein.
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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 Sales 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;
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(xi) the amount of Actuarial Advances and Last Scheduled Payment Advances, if
any, for such Collection Period; and
(xii) the aggregate Purchase Amount of Receivables repurchased by the Seller or
purchased by the Servicer during such Collection Period.
Each amount set forth pursuant to clauses (i), (ii), (iii), (v) 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
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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).
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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) permit 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
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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
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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 the Receivables, and the Servicer will undertake to
service the Receivables pursuant to the Sale and Servicing Agreement. The Trust
will be created and the Certificates will be issued pursuant to the Trust
Agreement. MMCA will undertake certain administrative duties with respect to the
Trust pursuant to the Administration Agreement (together with the Sale and
Servicing Agreement and the Trust Agreement, the "Transfer and Servicing
Agreements"). Forms of the Transfer and Servicing Agreements have been filed as
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.
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SALE AND ASSIGNMENT OF THE RECEIVABLES
Prior to the time of issuance of the Notes, pursuant to the Purchase
Agreement MMCA will sell and assign to the Seller, without recourse, its entire
right, title and interest in, to and under the Receivables, including its
security interests in the Financed Vehicles. At the time of issuance of the
Notes, the Seller will sell and assign to the Trustee, without recourse, the
Seller's entire interest in the Receivables, including its security interests in
the Financed Vehicles. Each Receivable conveyed by the Seller to the Trust will
be identified in a schedule attached to the Sale and Servicing Agreement. The
Owner Trustee will, concurrently with such sale and assignment, execute,
authenticate and deliver the Certificates. The net proceeds received from the
sale of the Notes will be applied to the purchase of the Receivables.
In the Purchase Agreement, MMCA will represent and warrant to the Seller,
and in the Sale and Servicing Agreement the Seller will represent and warrant to
the Owner Trustee, among other things, that (i) the information provided in the
schedule of Receivables 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, 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, 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."
MANDATORY REPURCHASE OF RECEIVABLES
In the event of a breach or failure to be true of any representation or
warranty with respect to the Receivables described in "--Sale and Assignment of
the Receivables," which breach or failure materially and adversely affects the
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
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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,
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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.
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SERVICING COMPENSATION
The Servicer will be entitled to receive the Servicing Fee for each
Collection Period, in an amount equal to the product of one-twelfth of the
Servicing Rate and the Pool Balance as of the first day of such Collection
Period. The "Servicing Rate" will equal 1.00% per annum. The Servicer will also
be entitled to receive, as 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 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, 1999, a
report of examination as to compliance by the Servicer during the 12 months (or
shorter period in the case of the first such report) ended the preceding
December 31 with certain standards relating to the servicing of the Receivables.
The Sale and Servicing Agreement will also provide for delivery to the
Indenture Trustee and the Owner Trustee, on or before May 31 of each year,
beginning May 31, 1999, of a certificate signed by an officer of the Servicer
stating that 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 shorter 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.
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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.
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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."
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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. 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
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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. 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
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purchasers of a Financed Vehicle or subsequent lenders who take a security
interest in a Financed Vehicle. If there are any Financed Vehicles as to which
the Trust fails to obtain a perfected security interest, its security interest
would be subordinate to, among others, subsequent purchasers of the Financed
Vehicles and holders of perfected security interests.
MMCA and the Seller will warrant in the Purchase Agreement and the Sale and
Servicing Agreement, respectively, as to each Receivable that, on the Closing
Date, there will exist a valid, subsisting, and enforceable first priority
perfected security interest in the Financed Vehicle securing the Receivable
(subject to any statutory or other lien arising by operation of law after the
Closing Date which is prior to such security interest) and, at such time as
enforcement of such security interest is sought, there shall exist a valid,
subsisting, and enforceable first priority perfected security interest in the
Financed Vehicle for the benefit of the Seller and the Trust, respectively
(subject to any statutory or other lien arising by operation of law after the
Closing Date which is prior to such security interest). In the event of an
uncured breach of such warranty, MMCA and the Seller, pursuant to the terms of
the Purchase Agreement and the Sale and Servicing Agreement, respectively, will
be required to repurchase such Receivable for its Purchase Amount. This
repurchase obligation will constitute the sole remedy available to the Trust,
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 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, 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 during the term of a
Receivable would not give rise to a repurchase obligation on the part of MMCA
and the Seller.
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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
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statutory liabilities upon creditors who fail to comply with their provisions.
In some cases, this liability could affect the ability of an assignee, such as
the Trust, to enforce consumer and commercial finance contracts such as the
Receivables. The "Credit Practices" Rule of the Federal Trade Commission (the
"FTC") imposes additional restrictions on contract provisions and credit
practices.
The FTC's holder-in-due-course rule (the "FTC Rule") has the effect of
subjecting a holder of an obligation created in a consumer credit transaction to
all claims and defenses which the purchaser could assert against the seller of
the goods. Liability under the FTC Rule is limited to the amounts paid by the
purchaser under the contract, and the holder of the contract may also be unable
to collect any balance remaining due thereunder from the purchaser. The FTC Rule
is generally duplicated by state statutes or the common law in certain states.
Accordingly, the Indenture Trustee and the Trust, as holders of the Receivables,
may be subject to claims or defenses, if any, that the purchaser of a Financed
Vehicle may assert against the seller of such vehicle.
Under the motor vehicle dealer licensing laws of most states, sellers of
motor vehicles are required to be licensed to sell such vehicles at retail sale
and to originate certain installment sales contracts in connection with such
sales. In addition, with respect to used motor vehicles, the FTC's Rule on Sale
of Used Vehicles requires that all sellers of used motor vehicles prepare,
complete and display a "Buyer's Guide" which explains the warranty coverage for
such vehicles. Federal Odometer Regulations promulgated under the Motor Vehicle
Information and Cost Savings Act require that all sellers of motor vehicles
furnish a written statement signed by the seller certifying the accuracy of the
odometer reading. If a seller is not properly licensed, or if either a Buyer's
Guide or Odometer Disclosure Statement was not properly provided to the
purchaser of a Financed Vehicle, such purchaser may be able to assert a defense
as to a retail installment sales contract against the seller of such vehicle or
of a subsequent holder of the retail installment 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 in all
material respects with all requirements of applicable law. If, as of the Cutoff
Date, an obligor had a claim against the Trust for violation of any law, and
such claim materially and adversely affected the Trust's interest in a
Receivable, such violation would create an obligation of MMCA and the Seller
under the Purchase Agreement and the Sale and Servicing Agreement, respectively,
to repurchase the Receivable unless the breach were cured. This repurchase
obligation will constitute the sole remedy of the Trust, the Noteholders, and
the Certificateholders, against the Seller in respect of any such uncured
breach. See "Description of the Transfer and Servicing Agreements--Sale and
Assignment of the Receivables."
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including insolvency laws, may interfere
with or affect the ability of a lender to realize upon collateral or enforce a
deficiency judgment. For example, in a Chapter 13 proceeding under the United
States Bankruptcy Code, a court may prevent a lender from repossessing a motor
vehicle and, as part of the rehabilitation plan, reduce the amount of the
secured indebtedness to the market value of such vehicle at the time of
bankruptcy (as determined by the court), leaving the party providing financing
as a general unsecured creditor for the remainder of the indebtedness. A
bankruptcy court may also reduce the monthly payments due under a contract or
change the rate of interest and time of repayment of the indebtedness.
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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
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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 Issuer intends
to report OID on the basis of an accrual period that corresponds to the interval
between payment dates. The adjusted issue price of a Note is the sum of its
issue price plus prior accruals of OID, reduced by the total payments made with
respect to such Note in all prior periods, other than qualified stated interest
payments. The present value of the remaining payments is determined on the basis
of three factors: (i) the original yield to maturity of the Note (determined on
the basis of compounding at the end of each accrual period and properly adjusted
for the length of the accrual period), (ii) events which have occurred before
the end of the accrual period and (iii) the assumption that the remaining
payments will be made in accordance with the original Prepayment Assumption.
The effect of this method is to increase the portions of OID required to be
included in income by a Noteholder to take into account prepayments on the
Receivables at a rate that exceeds the Prepayment Assumption, and to decrease
(but not below zero for any period) the portions of OID required to be included
in income by a Noteholder to take into account prepayments with respect to the
Receivables at a rate that is slower than the Prepayment Assumption. Although
OID will be reported to Noteholders based on the Prepayment Assumption, no
representation is made to Noteholders that Receivables will be prepaid at that
rate or at any other rate.
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
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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
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calendar year, except as to exempt recipients (generally, corporations,
tax-exempt organizations, qualified pension and profit-sharing trusts,
individual retirement accounts, or nonresident aliens who provide certification
as to their status). Each Note Owner (other than Note Owners who are not subject
to the reporting requirements) will be required to provide, under penalties of
perjury, a certificate containing the Note Owner's name, address, correct
Federal taxpayer identification number (which includes a social security number)
and a statement that the Note Owner is not subject to backup withholding. Should
a non-exempt Note Owner fail to provide the required certification or should the
IRS notify the Indenture Trustee or the Issuer that the Note Owner has provided
an incorrect Federal taxpayer identification number or is otherwise subject to
backup withholding, the Indenture Trustee will be required to withhold (or cause
to be withheld) 31% of the interest otherwise payable to the Note Owner, and
remit the withheld amounts to the IRS as a credit against the Note Owner's
Federal income tax liability.
TAX CONSEQUENCES TO FOREIGN INVESTORS
The following information describes the U.S. Federal income tax treatment of
investors that are not U.S. persons (each, a "Foreign Person"). The term
"Foreign Person" means any person other than (i) a citizen or resident of the
United States, (ii) a corporation, partnership or other entity organized in or
under the laws of the United States, 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.
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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 INS. CO. V. HARRIS TRUST AND SAV. BANK, 114 S.Ct. 517 (1993), the
general account of an insurance company may be deemed to include assets of
Benefit Plans investing in its general account (e.g., through the purchase of an
annuity contract), and the insurance company might be treated as a
Party-in-Interest with respect to a Benefit Plan by virtue of such an
investment. ERISA also imposes certain duties on persons who are fiduciaries of
Benefit Plans subject to ERISA and prohibits certain transactions between a
Benefit Plan and Parties-in-Interest or Disqualified Persons with respect to
such Benefit Plan.
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
76
<PAGE>
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
77
<PAGE>
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........................... $ 50,000,000 $ 62,500,000 $ 80,556,000 $ 60,462,000
Credit Suisse First Boston Corporation........... 50,000,000 62,500,000 80,500,000 -
Lehman Brothers Inc.............................. 50,000,000 62,500,000 80,500,000 -
J.P. Morgan Securities Inc....................... 50,000,000 62,500,000 80,500,000 -
-------------- -------------- -------------- -------------
Total............................................ $ 200,000,000 $ 250,000,000 $ 322,056,000 $ 60,462,000
-------------- -------------- -------------- -------------
-------------- -------------- -------------- -------------
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all the Notes offered
hereby if any of the Notes are purchased. In the event of a default by any
Underwriter, the Underwriting Agreement provides that, in certain circumstances,
purchase commitments of the non-defaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
The Seller has been advised by the Representative that the several
Underwriters propose initially to offer the Notes to the public at the public
offering prices set forth on the cover page hereof, and to certain dealers at
such prices less a concession not in excess of .07% of the principal amount of
the Class A-1 Notes, .13% of the principal amount of the Class A-2 Notes, .15%
of the principal amount of the Class A-3 Notes and .25% of the principal amount
of the Class B Notes. The Underwriters may allow and such dealers may reallow a
discount not in excess of .04% of the principal amount of the Class A-1 Notes,
.075% of the principal amount of the Class A-2 Notes, .09% of the principal
amount of the Class A-3 Notes and .15% of the principal amount of the Class B
Notes on sales to certain other dealers. After the initial public offering, the
public offering price, concessions and discounts may be changed.
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.
78
<PAGE>
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 Yield Supplement Account and the 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 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.
79
<PAGE>
INDEX OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
ABS................................................................................................... 30
ABS Tables............................................................................................ 30
Accrual Period........................................................................................ 73
Accrued Note Interest................................................................................. 48
Actuarial Advance..................................................................................... 11, 54
Actuarial Receivables................................................................................. 28
Administration Agreement.............................................................................. 67
Administrator......................................................................................... 67
Advance............................................................................................... 11, 54
Applicable Trustee.................................................................................... 65
APR................................................................................................... 24
Available Funds....................................................................................... 46
Basic Documents....................................................................................... 58
Benefit Plan.......................................................................................... 76
Business Day.......................................................................................... 5
Capped Receivables.................................................................................... 29
Cede.................................................................................................. 5
Cedel................................................................................................. 40
Cedel Participants.................................................................................... 40
Certificate Balance................................................................................... 48
Certificate Distribution Account...................................................................... 44
Certificateholders.................................................................................... 44
Certificates.......................................................................................... 1, 3
Class A Noteholders................................................................................... 6, 43
Class A Noteholders' Percentage....................................................................... 6, 43
Class A Notes......................................................................................... 3
Class A-1 Final Payment Date.......................................................................... 7
Class A-1 Noteholders................................................................................. 6, 43
Class A-1 Notes....................................................................................... 1, 3
Class A-1 Rate........................................................................................ 5
Class A-2 Final Payment Date.......................................................................... 7
Class A-2 Noteholders................................................................................. 6, 43
Class A-2 Notes....................................................................................... 1, 3
Class A-2 Rate........................................................................................ 5
Class A-3 Final Payment Date.......................................................................... 7
Class A-3 Noteholders................................................................................. 6, 43
Class A-3 Notes....................................................................................... 1, 3
Class A-3 Rate........................................................................................ 5
Class B Final Payment Date............................................................................ 7
Class B Noteholders................................................................................... 6, 43
Class B Noteholders' Percentage....................................................................... 6, 43
Class B Notes......................................................................................... 1, 3
Class B Rate.......................................................................................... 5
Closing Date.......................................................................................... 4
Code.................................................................................................. 72
Collection Account.................................................................................... 10
Collection Period..................................................................................... 4
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Commission............................................................................................ 2
Contracts............................................................................................. 19
Cooperative........................................................................................... 40
Cutoff Date........................................................................................... 1, 4
Dealer................................................................................................ 19
Dealer Agreement...................................................................................... 19
Defaulted Receivable.................................................................................. 47
Definitive Notes...................................................................................... 41
Depositaries.......................................................................................... 39
Depositary............................................................................................ 39
Determination Date.................................................................................... 45
Direct Participants................................................................................... 38
Disqualified Persons.................................................................................. 76
DTC................................................................................................... 2
DTC Participants...................................................................................... 38
Due Date.............................................................................................. 20
Eligible Servicer..................................................................................... 62
Equity Interest....................................................................................... 76
ERISA................................................................................................. 76
Euroclear............................................................................................. 40
Euroclear Operator.................................................................................... 40
Euroclear Participants................................................................................ 40
Events of Default..................................................................................... 56
Events of Servicing Termination....................................................................... 65
Exchange Act.......................................................................................... 2
Final Payment Receivables............................................................................. 52
Final Scheduled Maturity Date......................................................................... 4
Final Payment Dates................................................................................... 7
Financed Vehicles..................................................................................... 4
Foreign Person........................................................................................ 75
FTC................................................................................................... 71
FTC Rule.............................................................................................. 71
Gap Amount............................................................................................ 16, 53
Indenture............................................................................................. 3
Indenture Trustee..................................................................................... 3
Indirect Participants................................................................................. 38
Initial Pool Balance.................................................................................. 4
Insolvency Laws....................................................................................... 13
Interest Carryover Shortfall.......................................................................... 48
Interest Period....................................................................................... 42
IRS................................................................................................... 72
Issuer................................................................................................ 3
Last Scheduled Payment................................................................................ 52
Last Scheduled Payment Advance........................................................................ 11, 54
Last Scheduled Payment Pool Balance................................................................... 25
Level Pay Balance..................................................................................... 52
Level Pay Pool Balance................................................................................ 25
Liquidation Proceeds.................................................................................. 46
Maximum Supplemental Reserve Amount................................................................... 9, 52
Mitsubishi Motors..................................................................................... 37
</TABLE>
81
<PAGE>
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
MMCA.................................................................................................. 3, 37
MMSA.................................................................................................. 3, 37
Monthly Accrued Note Interest......................................................................... 48
Moody's............................................................................................... 12
Motor Vehicle......................................................................................... 19
Motor Vehicle Contracts............................................................................... 19
Note Interest Rate.................................................................................... 5, 48
Note Owner............................................................................................ 5
Note Payment Account.................................................................................. 44
Note Pool Factor...................................................................................... 36
Noteholders........................................................................................... 5
Notes................................................................................................. 1, 3
OID................................................................................................... 72
OID Regulations....................................................................................... 72
Opinion of Counsel.................................................................................... 59
Owner Trustee......................................................................................... 3
Parties-in-Interest................................................................................... 76
Payaheads............................................................................................. 44
Payahead Account...................................................................................... 44
Payment Date.......................................................................................... 1, 5
Permitted Investments................................................................................. 44
Plan Assets Regulation................................................................................ 76
Pool Balance.......................................................................................... 4
Prepayable Obligation................................................................................. 73
Prepayment Assumption................................................................................. 73
Principal Carryover Shortfall......................................................................... 48
Principal Distribution Amount......................................................................... 48
PTCE.................................................................................................. 77
Purchase Agreement.................................................................................... 4
Purchase Amount....................................................................................... 62
Qualified Institution................................................................................. 44
Qualified Trust Institution........................................................................... 44
Rating Agency......................................................................................... 12
Realized Losses....................................................................................... 48
Receivable File....................................................................................... 61
Receivables........................................................................................... 1
Record Date........................................................................................... 5
Recoveries............................................................................................ 46
Representative........................................................................................ 78
Reserve Account....................................................................................... 7
Reserve Initial Deposit............................................................................... 7
Rule of 78's.......................................................................................... 28
Rule of 78's Payment.................................................................................. 28
Sale and Servicing Agreement.......................................................................... 4
Scheduled Principal................................................................................... 49
Securities Act........................................................................................ 2
Seller................................................................................................ 1
Servicing Fee......................................................................................... 10
Servicing Rate........................................................................................ 10, 64
Simple Interest Receivables........................................................................... 28
</TABLE>
82
<PAGE>
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Special Tax Counsel................................................................................... 72
Specified Reserve Balance............................................................................. 8, 51
Standard & Poor's..................................................................................... 12
Supplemental Reserve Account.......................................................................... 8
Terms and Conditions.................................................................................. 41
Total Required Payment................................................................................ 7, 49
Total Servicing Fee................................................................................... 64
Transfer and Servicing Agreements..................................................................... 60
Truck................................................................................................. 19
Truck Contracts....................................................................................... 19
Trust................................................................................................. 1, 3
Trust Accounts........................................................................................ 44
Trust Agreement....................................................................................... 3
Trust Property........................................................................................ 4
UCC................................................................................................... 67
Underwriters.......................................................................................... 78
Underwriting Agreement................................................................................ 78
U.S. Person........................................................................................... A-4
Weighted Average Rate................................................................................. 9
Yield Supplement Account.............................................................................. 9
Yield Supplement Agreement............................................................................ 9
Yield Supplement Amount............................................................................... 9
Yield Supplement Letter of Credit..................................................................... 45
</TABLE>
83
<PAGE>
ANNEX A
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered MMCA Auto
Owner Trust 1998-1 Asset Backed Notes will be available only in book-entry form.
Investors in the Notes may hold such Notes through any of DTC, Cedel, or
Euroclear. The Notes will be tradeable as home market instruments in both the
European and U.S. domestic markets. Initial settlement and all secondary trades
will settle in same-day funds.
Secondary market trading between investors holding Notes through Cedel and
Euroclear will be conducted in the ordinary way in accordance with their normal
rules and operating procedures and in accordance with conventional eurobond
practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Notes directly through
DTC will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Notes will be effected on a delivery-against-payment basis
through the respective Depositaries of Cedel and Euroclear (in such capacity)
and as DTC Participants.
Non-U.S. holders (as described below) of Notes will be subject to U.S.
withholding taxes unless such holders meet certain requirements and deliver
appropriate U.S. tax documents to the securities clearing organizations or their
participants.
INITIAL SETTLEMENT
All Notes will be held in book-entry form by DTC in the name of Cede & Co.
as nominee of DTC. Investors' interests in the Notes will be represented through
financial institutions acting on their behalf as direct and indirect
participants in DTC. As a result, Cedel and Euroclear will hold positions on
behalf of their participants through their respective Depositaries, which in
turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Notes through DTC will follow the
settlement practices applicable to U.S. corporate debt obligations. Investor
securities custody accounts will be credited with their holdings against payment
in same-day funds on the settlement date.
Investors electing to hold their Notes through Cedel or Euroclear accounts
will follow the settlement procedures applicable to conventional eurobonds,
except that there will be no temporary global security and no "lock-up" or
restricted period. Notes will be credited to the securities custody accounts on
the settlement date against payment in the same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between DTC
Participants will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
TRADING BETWEEN CEDEL AND/OR EUROCLEAR PARTICIPANTS. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
A-1
<PAGE>
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, on
the basis of a 360-day year consisting of twelve 30-day months. Payment will
then be made by the Depositary to the DTC Participant's account against delivery
of the Notes. After settlement has been completed, the Notes will be credited to
the respective clearing system and by the clearing system, in accordance with
its usual procedures, to the Cedel Participant's or Euroclear Participant's
account. The Notes credit will appear the next day (European time) and the cash
debit will be back-valued to, and the interest on the Notes will accrue from,
the value date (which would be the preceding day when settlement occurred in New
York). If settlement is not completed on the intended value date (i.e., the
trade fails), the Cedel or Euroclear cash debit will be valued instead as of the
actual settlement date.
Cedel Participants and Euroclear Participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Notes are
credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to pre-position
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, Cedel Participants or Euroclear Participants purchasing Notes
would incur overdraft charges for one day, assuming they cleared the overdraft
when the Notes were credited to their accounts. However, interest on the Notes
would accrue from the value date. Therefore, in many cases the investment income
on the Notes earned during that one-day period may substantially reduce or
offset the amount of such overdraft charges, although this result will depend on
each Cedel Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Notes to the
respective Depositary for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participants a cross-market transaction will
settle no differently than a trade between two DTC Participants.
TRADING BETWEEN CEDEL OR EUROCLEAR SELLER AND DTC PURCHASER. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Notes are to be
transferred by the respective clearing system, through the respective
Depositary, to a DTC Participant. The seller will send instructions to Cedel or
Euroclear through a Cedel Participant or Euroclear Participant at least one
business day prior to settlement. In these cases, Cedel or Euroclear will
instruct the respective Depositary, as appropriate, to deliver the bonds to the
DTC Participant's account against payment. Payment will include interest accrued
on the Notes from and including the last coupon payment date to and excluding
the settlement date on the basis of a 360-day year consisting of twelve 30-day
months. The payment will then be reflected in the account of the Cedel
Participant or Euroclear Participant the following day, and receipt of the cash
proceeds in the Cedel Participant's or Euroclear Participant's account would be
back-valued to the value date (which would be the preceding day, when settlement
occurred in New York). Should the Cedel Participant or Euroclear Participant
have a line of credit with its respective clearing system and elect to be in
debt in anticipation of receipt of the sale proceeds in its account, the
back-valuation will extinguish any overdraft charges incurred over that one-day
period. If settlement is not completed on the intended value date (i.e., the
trade fails), receipt of the cash proceeds in the Cedel Participant's or
Euroclear Participant's account would instead be valued as of the actual
settlement date.
A-2
<PAGE>
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.
A-3
<PAGE>
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.
A-4
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE SELLER, THE SERVICER OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION BY ANYONE IN ANY STATE
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS, NOR ANY SALE MADE HEREUNDER, SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE SELLER OR
THE SERVICER SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AVAILABLE INFORMATION........................... 2
REPORTS TO NOTEHOLDERS.......................... 2
SUMMARY......................................... 3
RISK FACTORS.................................... 13
THE TRUST....................................... 17
THE TRUST PROPERTY.............................. 19
MMCA'S VEHICLE CONTRACT PORTFOLIO............... 19
THE RECEIVABLES................................. 24
POOL FACTORS AND OTHER INFORMATION.............. 36
USE OF PROCEEDS................................. 36
THE SELLER...................................... 36
THE SERVICER.................................... 37
DESCRIPTION OF THE NOTES........................ 37
DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS.................................... 60
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES........ 67
CERTAIN FEDERAL INCOME TAX CONSEQUENCES......... 72
CERTAIN STATE TAX CONSEQUENCES.................. 76
ERISA CONSIDERATIONS............................ 76
UNDERWRITING.................................... 78
LEGAL OPINIONS.................................. 79
INDEX OF PRINCIPAL TERMS........................ 80
ANNEX A......................................... A-1
</TABLE>
--------------------------
UNTIL NOVEMBER 11, 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. UPON RECEIPT OF A
REQUEST BY AN INVESTOR, OR SUCH INVESTOR'S REPRESENTATIVE, WITHIN THE PERIOD
DURING WHICH THERE IS A PROSPECTUS DELIVERY OBLIGATION, THE SELLER OR THE
UNDERWRITERS WILL TRANSMIT OR CAUSE TO BE TRANSMITTED PROMPTLY, WITHOUT CHARGE
AND IN ADDITION TO ANY SUCH DELIVERY REQUIREMENTS, A PAPER COPY OF THE
PROSPECTUS OR A PROSPECTUS ENCODED IN AN ELECTRONIC FORMAT.
$832,518,000
MMCA
AUTO OWNER TRUST
1998-1
$200,000,000
CLASS A-1
5.621% ASSET BACKED NOTES
$250,000,000
CLASS A-2
5.72% ASSET BACKED NOTES
$322,056,000
CLASS A-3
5.86% ASSET BACKED NOTES
$60,462,000
CLASS B
6.07% ASSET BACKED NOTES
MMCA AUTO
RECEIVABLES, INC.
SELLER
[LOGO]
SERVICER
--------------
PROSPECTUS
--------------
MERRILL LYNCH & CO.
CREDIT SUISSE FIRST BOSTON
LEHMAN BROTHERS
J.P. MORGAN & CO.
AUGUST 13, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Registration Fee............................................... $245,592.81
Printing and Engraving......................................... $84,000.00
Trustee's Fee.................................................. $20,000.00
Legal Fees and Expenses........................................ $215,000.00
Blue Sky Fees and Expenses..................................... $10,000.00
Accountant's Fees and Expenses................................. $94,000.00
Rating Agency Fees............................................. $228,487.00
Miscellaneous Fees and Expenses................................ $ 5,000.00
----------
Total Expenses................................................. $902,079.81
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of Delaware provides as follows:
145 Indemnification of Officers, Directors, Employees and Agents; Insurance
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a 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
II-1
<PAGE>
this section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the present or
former director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in subsections
(a) and (b) of this section. Such determination shall be made 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 he 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 his official capacity
and as to action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
II-2
<PAGE>
(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
II-3
<PAGE>
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.
II-4
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------------
<C> <S>
1.1 --Form of Underwriting Agreement***
3.1 --Certificate of Incorporation of the Seller*
3.2 --Bylaws of the Seller**
4.1 --Form of 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***
</TABLE>
- ------------------------
* Incorporated by reference to Exhibit 3.1 of Registration Statement No.
33-67014.
** Incorporated by reference to Exhibit 3.2 of Registration Statement No.
33-67014.
*** Previously filed.
(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
II-5
<PAGE>
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b) (1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
(d) For the purpose of determining any liability under the Securities
Act of 1933, each post effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Cypress, State of California, on August 14, 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. 2 to the 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
- ------------------------------ (principal executive August 14, 1998
Hiroshi Yajima officer)
Secretary and Treasurer
/s/ HIDEYUKI KITAMURA * (principal financial
- ------------------------------ officer and principal August 14, 1998
Hideyuki Kitamura accounting officer)
/s/ JOHN MAYNARD * Director
- ------------------------------ August 14, 1998
John Maynard
/s/ MASAKI TAKAHASHI * Director
- ------------------------------ August 14, 1998
Masaki Takahashi
/s/ CHARLES A. TREDWAY * Director
- ------------------------------ August 14, 1998
Charles A. Tredway
/s/ YASUHIRO HAGIHARA * Director
- ------------------------------ August 14, 1998
Yasuhiro Hagihara
*By: /s/ J. SEAN PLATER
------------------------
J. Sean Plater
ATTORNEY-IN-FACT
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------- -------------
<C> <S> <C>
1.1 Form of Underwriting Agreement***
3.1 Certificate of Incorporation of the Seller*
3.2 Bylaws of the Seller**
4.1 Form of 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***
</TABLE>
- ------------------------
* Incorporated by reference to Exhibit 3.1 of Registration Statement No.
33-67014.
** Incorporated by reference to Exhibit 3.2 of Registration Statement No.
33-67014.
*** Previously Filed.
