As filed with the Securities and Exchange Commission on July 10, 1998.
REGISTRATION NO. 333-
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM S-1
Registration Statement Under The Securities Act of 1933
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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)
DELAWARE 9999 33-0570905
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification
or organization) Code No.) No.)
6363 KATELLA AVENUE
CYPRESS, CALIFORNIA 90630-5205
(714) 236-1592
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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ERIC L. ECKES
6363 KATELLA AVENUE
CYPRESS, CALIFORNIA 90630-5205
(714) 236-1509
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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COPIES TO:
SUSAN M. CURTIS, ESQ. Dale W. Lum, Esq.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP Brown & Wood LLP
919 THIRD AVENUE 555 California Street
NEW YORK, NEW YORK 10022 San Francisco, California 94104
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. |_|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities
Act registration number of the earlier effective registration statement for
the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT TO OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF BE PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
% Class A-1 Asset Backed Notes........ $200,000 100% $ $59
% Class A-2 Asset Backed Notes........ $200,000 100% $ $59
% Class A-3 Asset Backed Notes........ $200,000 100% $ $59
% Class A-4 Asset Backed Notes........ $200,000 100% $ $59
% Class B Asset Backed Notes.......... $200,000 100% $ $59
</TABLE>
- --------------
(1) Estimated solely for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND
EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
=============================================================================
[FLAG]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may
not be sold nor may offers to buy be accepted without the
delivery of a final prospectus. This prospectus shall not
constitute an offer to sell or the solicitation of an
offer to buy nor shall there be any sale of these
securities in any State in which such offer,
solicitation or sale would be unlawful prior
to registration or qualification under the
securities laws of any such State.
SUBJECT TO COMPLETION, Dated , 1998
PROSPECTUS
$
MMCA AUTO OWNER TRUST 1998-1
$ % Class A-1 Asset Backed Notes
$ % Class A-2 Asset Backed Notes
$ % Class A-3 Asset Backed Notes
$ % Class A-4 Asset Backed Notes
$ % 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 , 1998, between MMCA Auto Receivables,
Inc. (the "Seller") and Wilmington Trust Company, as Owner Trustee. The
Trust will issue $ aggregate principal amount of Asset Backed Notes
(collectively, the "Notes") consisting of $ aggregate principal
amount of % Class A-1 Asset Backed Notes (the "Class A-1 Notes"),
$ aggregate principal amount of % Class A-2 Asset Backed Notes
(the "Class A-2 Notes"), $ aggregate principal amount of % Class
A-3 Asset Backed Notes (the "Class A-3 Notes"), $ aggregate principal
amount of % Class A-4 Asset Backed Notes (the "Class A-4 Notes"), and
$ aggregate principal amount of % Class B Asset Backed Notes (the
"Class B Notes"), pursuant to an Indenture to be dated as of , 1998,
between the Trust and Bank of Tokyo-Mitsubishi Trust Company, as Indenture
Trustee. The Trust will also issue $ 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 , 1998 and certain
rights and obligations thereunder (collectively, the "Receivables"),
certain monies due or received thereunder on or after , 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 , 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 1999
[Special] Payment Date, the Final Payment Date for the Class A-2 Notes will
be the Payment Date, the Final Payment Date for the Class A-3
Notes will be the Payment Date, the Final Payment Date for the
Class A-4 Notes will be the Payment Date and the Final Payment
Date for the Class B Notes will be the Payment Date. The Notes
will be subject to redemption in whole, but not in part, on any Payment
Date on which the Servicer exercises its option to purchase the
Receivables. The Servicer may purchase the Receivables 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 [14] 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.
Underwriting
Price to Discounts and Proceeds to the
Public(1) Commissions Seller(1)(2)
Per Class A-1 Note........ % % %
Per Class A-2 Note........ % % %
Per Class A-3 Note........ % % %
Per Class A-4 Note........ % % %
Per Class B Note.......... % % %
------------ ------------- --------------
Total..................... $ $ $
- -----------------
(1) Plus accrued interest, if any, from , 1998.
(2) Before deducting expenses payable by the Seller estimated to be $ .
The Notes are offered by the several Underwriters when, as and if
issued by the Trust and accepted by the Underwriters and subject to their
right to reject orders in whole or in part. It is expected that delivery of
the Notes in book-entry form will be made through the facilities of The
Depository Trust Company, Cedel Bank, societe anonyme, and the Euroclear
System on or about , 1998 against payment therefor in immediately
available funds.
------------
MERRILL LYNCH & CO.
------------
The date of this Prospectus is , 1998.
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."
SUMMARY
This Summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Certain
capitalized terms used in this Summary are defined elsewhere in this
Prospectus. See the Index of Principal Terms for the location herein of the
definitions of capitalized terms.
Issuer ..................... MMCA Auto Owner Trust 1998-1 (the "Trust" or
the "Issuer"), a Delaware business trust
established pursuant to a Trust Agreement
dated as of , 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 Notes in an aggregate
initial principal amount of $ pursuant
to an Indenture to be dated as of , 1998
(as amended and supplemented from time to
time, the "Indenture"), between the Trust and
the Indenture Trustee. The Notes will be
issued in five classes consisting of: (1)
% Class A-1 Asset Backed Notes (the "Class
A-1 Notes") in the aggregate initial principal
amount of $ , (2) % Class A-2 Asset
Backed Notes (the "Class A-2 Notes") in the
aggregate initial principal amount of $ ,
(3) % Class A-3 Asset Backed Notes (the
"Class A-3 Notes") in the aggregate initial
principal amount of $ , (4) % Class
A-4 Asset Backed Notes (the "Class A-4 Notes"
and, together with the Class A-1 Notes, the
Class A-2 Notes and the Class A-3 Notes, the
"Class A Notes") in the aggregate initial
principal amount of $ and (5) %
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 $ . The Notes will be
secured by the assets of the Trust pursuant to
the Indenture. The Notes will be offered for
purchase in denominations of $1,000 and
integral multiples thereof. See "Description
of the Notes--General."
Concurrently with the issuance of the Notes,
the Trust will issue certificates of
beneficial interest evidencing an interest in
the Trust Property (the "Certificates") in an
aggregate principal amount of $ pursuant
to the Trust Agreement. The Certificates will
be subordinated to the Notes to the extent
described herein. The Certificates are not
being offered hereby and will be retained by
the Seller or an affiliate.
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 $ .
Thereafter, the principal amount of the
Certificates from time to time will be reduced
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
, 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 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 will have (i)
an aggregate principal balance (including the
aggregate principal balance of Last Scheduled
Payments) of $ (the "Initial Pool
Balance"), (ii) a Level Pay Pool Balance of
$ and (iii) a Last Scheduled Payment Pool
Balance of $ .
The Receivables will be purchased by the Trust
from the Seller pursuant to a Sale and
Servicing Agreement, to be dated as of ,
1998 (as amended or supplemented from time to
time, the "Sale and Servicing Agreement"),
among the Trust, the Seller and MMCA providing
for 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 , 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 , (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 (each, a
"Collection Period", provided that the first
Collection Period will be August 1998) 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 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.
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. See
"Description of the Notes--Definitive Notes."
Payment Dates .............. Payments of interest and principal on the
Notes will be made on the 15th day of each
month or, if the 15th day of such month is not
a Business Day, the next following Business
Day (each, a "Payment Date"), commencing ,
1998. [In the case of the Class A-1 Notes
only, a payment date will occur on ,
(the "Special Payment Date"), if the Class A-1
Notes have not been previously paid in full.
Any principal amount of the Class A- 1 Notes
that remains outstanding will be paid on the
Special Payment Date.] Payments will be made
to holders of record of the Notes (the
"Noteholders") as of the day immediately
preceding each Payment Date [(including, in
the case of the Class A-1 Notes, the Special
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 % per annum (the "Class A-1 Rate"),
the Class A-2 Notes will bear interest at the
rate of % per annum (the "Class A-2 Rate"),
the Class A-3 Notes will bear interest at the
rate of % per annum (the "Class A-3 Rate"),
the Class A-4 Notes will bear interest at the
rate of % per annum (the "Class A-4 Rate")
and the Class B Notes will bear interest at a
rate of % per annum (the "Class B Rate").
The interest rates for the various classes of
Notes are referred to herein collectively as
the "Note Interest Rates."
Interest ................... Interest on the outstanding principal amount
of the Notes will accrue at the applicable
Note Interest Rate 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.
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,
the Class A-4 Notes and the Class B Notes will
be calculated on the basis of a 360-day year
of twelve 30-day months. See "Description of
the Notes--Interest."
Principal .................. Principal of the Notes will be payable on each
Payment Date in an 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
the following amounts (but not in excess of
the outstanding principal amount of the Notes)
with respect to the related Collection Period:
(i) the Regular Principal and (ii) the
Accelerated Principal.
On each Payment Date, an amount equal to the
sum of 100% of the Regular Principal and 100%
of the Accelerated Principal 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 sum of the Class A
Noteholders' Percentage of Regular Principal
and 100% of the Accelerated Principal 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, (ii) then to
the holders of the Class A-3 Notes (the "Class
A-3 Noteholders") until the Class A-3 Notes
have been paid in full and (iii) then to the
holders of the Class A-4 Notes (the "Class A-4
Noteholders" and, together with the Class A-1
Noteholders, the Class A-2 Noteholders and the
Class A-3 Noteholders, the "Class A
Noteholders") until the Class A-4 Notes have
been paid in full and (b) an amount equal to
the sum of the Class B Noteholders' Percentage
of Regular Principal and, following payment in
full of the Class A-4 Notes, 100% of the
Accelerated Principal 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, 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
sum of 100% of the Regular Principal and 100%
of the Accelerated Principal will be paid to
(i) the Class A-1 Noteholders, the Class A-2
Noteholders, the Class A-3 Noteholders and the
Class A-4 Noteholders pro rata in proportion
to the respective principal balances of the
Class A-1 Notes, the Class A-2 Notes, the
Class A-3 Notes and the Class A-4 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. As used
herein, "Class A Noteholders' Percentage"
means %, the percentage equivalent of a
fraction, the numerator of which is an amount
equal to the sum of the initial principal
balances of the Class A-2 Notes, the Class A-3
Notes and the Class A-4 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, the
Class A-4 Notes and the Class B Notes. As used
herein, "Class B Noteholders' Percentage"
means %, the percentage equivalent of a
fraction, the numerator of which is the
initial principal balance of the Class B
Notes, and the denominator of which is an
amount equal to the sum of the initial
principal balances of the Class A-2 Notes, the
Class A-3 Notes, the Class A-4 Notes and the
Class B Notes.
The outstanding principal amount of the Class
A-1 Notes, to the extent not previously paid,
will be payable on the [Special] Payment Date
(the "Class A-1 Final Payment Date"), the
outstanding principal amount of the Class A-2
Notes, to the extent not previously paid, will
be payable on the Payment Date (the "Class A-2
Final Payment Date"), the outstanding
principal balance of the Class A-3 Notes, to
the extent not previously paid, will be
payable on the Payment Date (the "Class A-3
Final Payment Date"), the outstanding
principal balance of the Class A-4 Notes, to
the extent not previously paid, will be
payable on the Payment Date (the "Class A-4
Final Payment Date") and the outstanding
principal balance of the Class B Notes, to the
extent not previously paid, will be payable on
the 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 Regular Principal on each Payment Date
(the "Total Required Payment") and to
reimburse the Servicer for Advances made by
the Servicer that are due and payable to the
Servicer with respect to 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
Reserve Account will be funded initially by a
deposit by the Seller on the Closing Date of
cash or Permitted Investments having a value
of $ (the "Reserve Initial Deposit") and
will be supplemented on each Payment Date by
application of funds from the Collection
Account to the extent remaining after giving
effect to the payment of the Total Required
Payment on such Payment Date. Amounts on
deposit in the Reserve Account on any Payment
Date (after giving effect to 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 generally will be equal to
$ . See "Description of the Notes--
Reserve Account."
In accordance with the Indenture, funds will
be withdrawn from the Reserve Account and
deposited in the Collection Account on each
Payment Date to pay the Total Required Payment
and to reimburse the Servicer for Advances
that are due and payable to the Servicer with
respect to 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 Advances) that are allocable to
the payment of the Total Required Payment and
the reimbursement of Advances. However, in
certain circumstances the Reserve Account
could be depleted with the result that funds
would not be available for deposit in the
Collection Account to make such Advances and
the Total Required Payment. See "Risk Factors
--Limited Assets; Deficiencies from Sale Upon
Insolvency of Seller." The Reserve Account,
together with any amounts deposited therein
from time to time, will be Trust Property, and
will be pledged in accordance with the
Indenture by the Trust to the Indenture
Trustee, on behalf of the Noteholders, as
secured party.
Yield Supplement
Agreement .................. MMCA will enter into a yield supplement
agreement (the "Yield Supplement Agreement")
with the Seller, which will sell and assign
its rights thereunder to the Owner Trustee for
the benefit of Certificateholders, who will
pledge 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 or
before each Payment Date of an amount (if
positive) calculated by the Servicer equal to
one-twelfth of (i) interest on such
Receivable's principal balance as of the first
day of the related Collection Period at a rate
equal to the sum of the Servicing Rate and the
Weighted Average Rate for such Collection
Period, minus (ii) interest on such
Receivable's principal balance as of the first
day of the related Collection Period at the
annual percentage rate on such Receivables (in
the aggregate for all Receivables with respect
to any Payment Date, the "Yield Supplement
Amount").
The "Weighted Average Rate" means, with
respect to any Collection Period and the
related Payment Date, a per annum rate equal
to (i) the product of the Note Interest Rate
for each class of Notes and the outstanding
principal amount of such class of Notes as of
the preceding Payment Date or, with respect to
the first Collection Period and the first
Payment Date, as of the Closing Date (after
giving effect to any principal payment made on
such preceding Payment Date), divided by (ii)
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).
In order to maintain the ratings of the Notes
at their initial levels, the Yield Supplement
Amount payable under the Yield Supplement
Agreement will be supported by funds on
deposit in a segregated trust account to be
maintained with the Indenture Trustee for the
benefit of the Noteholders and the
Certificateholders (the "Yield Supplement
Account"). The Yield Supplement Account will
be funded on the Closing Date with an initial
deposit in an amount to be specified in the
Yield Supplement 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 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 required balance
are released to the Seller. See "Description
of the Notes--Yield Supplement Account."
Collection Account;
Priority of Payments ....... Except under certain conditions described
herein, the Servicer will be required to remit
collections received with respect to the
Receivables within two Business Days of
receipt thereof to one or more accounts in the
name of the Indenture Trustee (the "Collection
Account"). Pursuant to the Sale and Servicing
Agreement, the Servicer will have the power,
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 Yield Supplement Account and the Payahead
Account) and to apply such funds on each
Payment Date to the following (in the priority
indicated): (i) the Total Servicing Fee to the
Servicer, (ii) the Accrued Note Interest into
the Note Payment Account, (iii) the Regular
Principal 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) the Accelerated Principal into
the Note Payment Account and (vi) any
remaining funds to the Certificate
Distribution Account; provided, however, that
on each Payment Date following the occurrence
of an Event of Default which has resulted in
acceleration of the Notes or following an
Insolvency Event with respect to the Seller,
the principal amount of the Class A Notes must
be paid in full prior to any payment of
principal to 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 on amounts on deposit in
the Payahead Account, as well as Rule of 78's
Payments, disposition fees paid with respect
to Final Payment Receivables, late fees and
certain other administrative fees and charges
(other than extension 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 for
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 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" and "--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 contemporaneously with the
Seller's repurchase from the Trust. See
"Description of the Transfer and Servicing
Agreements--Mandatory Repurchase of
Receivables."
The Servicer will be obligated to purchase any
Receivable if, among other things, it extends
the date for final payment by the obligor of
such Receivable beyond the last day of the
Collection Period preceding the Final
Scheduled 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 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
Rating 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 "A" 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.
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 the Notes. There is no assurance that any
such market will develop or, if one does develop, that it will provide
liquidity of investment or will continue for the life of the Notes.
CERTAIN LEGAL ASPECTS -- THE RECEIVABLES
The Seller will cause financing statements to be filed with the
appropriate governmental authorities to perfect the interest of the Trust
in 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 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 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 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, the Servicer exercising its optional
purchase right or prepayments by obligors in response to programs
maintained by MMSA or any of its affiliates that provide special incentives
for obligors to prepay all or part of the principal balance of their
respective Receivables. 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 accounts 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 extends to the Receivables (including Final Payment
Receivables) and therefore has the effect of encouraging a higher level of
prepayments on the 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.
In addition, the application of the Accelerated Principal will also
reduce the weighted average life of each class of Notes as compared with
the weighted average life of such class if principal payments had been made
only from Regular Principal. See "The Receivables--Maturity and
Prepayment Considerations."
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 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 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.
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 Advances 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" and "--Reserve
Account." If the amount on deposit in 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 with respect to any class of Notes,
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 with respect to the
Notes, there can be no assurance that sufficient funds will be available to
repay Noteholders in full. In addition, the amount of principal required to
be distributed to Noteholders, 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.
Deficiencies from Sale upon Insolvency of Seller. If an Insolvency
Event occurs with respect to the Seller while the Notes are outstanding,
the Indenture Trustee will be required to sell the Receivables in a
commercially reasonable manner on commercially reasonable terms, unless the
Noteholders holding a majority of the outstanding principal amount of each
class of Notes, the Certificateholders, if any, holding a majority of the
principal balance of the Certificates (other than the Seller) and the
holders of certain interests, if any, in the Reserve Account (other than
the Seller), disapprove of such sale. The proceeds of any such sale,
disposition or liquidation of the Receivables will be treated as
collections on the Receivables and will be deposited in the Collection
Account. If the proceeds from the liquidation of the Receivables and the
amounts on deposit in the Reserve Account and the Note Payment Account are
not sufficient to pay the Notes in full, the amount of principal returned
to Noteholders will be reduced and the Noteholders will incur a loss on
their investment. See "Description of the Transfer and Servicing Agreements
- --Insolvency Event."
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 Regular Principal.
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 MMSA were no longer distributing
Motor Vehicles in the United States, or Mitsubishi Motors were no longer
manufacturing Motor Vehicles, the market for used Motor Vehicles
manufactured by Mitsubishi Motors might be adversely affected, and the
proceeds realized by the Servicer upon the sale of Motor Vehicles which
obligors elect to sell to MMCA on the maturity date of a Final Payment
Receivable might be reduced.
In the event that sale proceeds of a Motor Vehicle sold on behalf of
the Trust in connection with the obligor's exercise of its right to sell
the Motor Vehicle to MMCA or its assignee are less than the related Last
Scheduled Payment, none of MMCA, the Servicer, the Seller or the Trust will
have any recourse to the obligor for any shortfall, nor will MMCA, the
Servicer or the Seller be obligated to pay any such shortfall to the Trust.
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 in
the month in which it is owed, such Last Scheduled Payment Advance will be
reimbursed subsequently upon the resale of the related Motor Vehicle on
behalf of the Trust, and any shortfall between the sale proceeds and the
amount advanced will be reimbursed to the Servicer from collections on
other Receivables and, if such amounts are insufficient, from the Reserve
Account to the extent funds on deposit in the Reserve Account are allocable
to such purpose. See "Description of the Notes--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 Trust for prices less than the Last
Scheduled Payments. MMCA's program, which encourages owners of Mitsubishi
Motors vehicles to replace their respective Mitsubishi Motors vehicle with
a new Mitsubishi Motor 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 Cutoff
Date Pool Balance, % of the Receivables will have been originated in
California, % in Texas and % 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, 100% of the Regular Principal and 100%
of the Accelerated Principal will be paid (i) to the Class A-1 Noteholders,
the Class A-2 Noteholders, the Class A-3 Noteholders and the Class A-4
Noteholders pro rata in proportion to the respective principal balances of
the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes and the Class
A-4 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. See "Description of
the Notes--Book Entry Registration" and "--Definitive Notes."
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 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 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 approximate capitalization of the
Trust as of the Closing Date.
Class A-1 Notes............................ $
Class A-2 Notes............................
Class A-3 Notes............................
Class A-4 Notes............................
Class B Notes..............................
Certificates...............................
--------------
Total................................. $
==============
THE OWNER TRUSTEE
Wilmington Trust Company is the Owner Trustee under the Trust
Agreement. The Owner Trustee's Corporate Trust Office is located at Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001.
The Seller, the Servicer and their respective affiliates may have other
banking relationships with the Owner Trustee and its affiliates in the
ordinary course of their businesses.
THE TRUST PROPERTY
The Notes will be secured by the Trust Property. The Trust Property
will include (i) the Receivables, (ii) with respect to Actuarial
Receivables, certain monies due thereunder on or after the Cutoff Date
(including Payaheads) and, with respect to Simple Interest Receivables,
certain monies due or received thereunder on or after the Cutoff Date,
(iii) certain amounts and property from time to time held in or credited to
one or more accounts maintained by the Indenture Trustee pursuant to the
Sale and Servicing Agreement as described below, including the Reserve
Account and the Yield Supplement Account, (iv) the Seller's security
interests in the Financed Vehicles, (v) the Seller's rights to receive
proceeds from claims on physical damage, credit life, 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 motor vehicle dealers and authorized Mitsubishi FUSO
truck dealers (each, a "Dealer"), respectively, throughout the United
States. The Contracts are originated by the 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."
UNDERWRITING
MMCA's underwriting standards emphasize each prospective obligor's
ability to pay and creditworthiness as well as the asset value of the Motor
Vehicle or Truck that secures the related Motor Vehicle Contract or Truck
Contract.
Prior to its purchase of a Motor Vehicle Contract, MMCA reviews
credit applications from the obligors that include information about each
obligor's income, residential status, monthly mortgage or rent payments,
credit obligations, bank accounts and other personal information. Upon
receipt of a credit application, MMCA obtains a credit report from an
independent credit bureau which MMCA reviews to determine the applicant's
current credit status and past credit performance. Where necessary, MMCA
verifies the employment or the income of an applicant. MMCA uses a credit
scoring system and considers other factors to reach each credit decision.
In November 1996, MMCA introduced a new credit scoring system for all Motor
Vehicle Contracts, replacing the one that had been used since June 1994.
The new credit scoring system first assigns the application to one of three
credit segments: prime, limited credit experience and non-prime. Each
segment considers different credit application and credit bureau report
characteristics or assigns different weighting to certain characteristics
that are considered by all segments. This segmentation is based solely upon
the information in the applicant's credit bureau report. The new credit
scoring system identifies those aspects of an applicant's credit report and
credit application and the proposed financing arrangement that, based upon
the specific performance experience of MMCA's portfolio, are most
predictive of the probability that the applicant will pay MMCA as agreed.
MMCA considers attributes other than the credit score as part of its credit
decision process, including such factors as ratio of income to debt, an
applicant's equity in the Motor Vehicle, satisfactory existing account
relationships, excellent recent reported credit history and availability of
an acceptable guarantor. MMCA management sets limits on the percentage of
credit decisions that approve credit to applicants scoring below company
credit score minimums and deny credit to applicants scoring above such
minimums. Prior to June 1994, MMCA used a credit-scoring system for Motor
Vehicle Contracts (other than Contracts relating to Final Payment
Receivables) that took into account additional factors from the credit
application. Where the obligor of a Motor Vehicle Contract is a business
entity, MMCA reviews credit applications that include information about
bank accounts, credit references and financial results of such business
entity. In addition, MMCA obtains and reviews published credit reports on
the business entity, where available. In some cases, MMCA may require an
individual to guarantee the business' obligation under the Motor Vehicle
Contract.
After considering the relevant information, an assessment is made of
the relative degree of credit risk of a particular application and the
decision to grant or deny credit for a Contract is made at the appropriate
management level. The application, if approved, is assigned to one of four
credit tiers reflecting its degree of credit risk. The interest rate for
the customer's account is determined by the credit tier, with the
relatively more risky accounts receiving a higher interest rate.
Prior to its purchase of a particular Truck Contract, MMCA reviews
credit applications from the obligors that include information about the
business of the applicant, its trade references, its bank references and
personal information of sole proprietors, partners or guarantors. MMCA does
not use a formal credit scoring system but considers, where appropriate,
Dun & Bradstreet reports, business checking account references, business
credit references, review of business financial statements and the
projected income to be generated from the Truck. An individual guarantor is
generally required for a business entity.
SERVICING AND COLLECTION
MMCA measures delinquency by the number of days elapsed from the date
a payment is due under the Motor Vehicle Contract or the Truck Contract
(the "Due Date"). MMCA considers a payment to be past due or delinquent
when the obligor fails to make at least 90% of a scheduled payment by the
related Due Date. MMCA generally begins collection activities with respect
to delinquent Motor Vehicle Contracts or Truck Contracts through telephone
contact based upon the original credit risk assigned to each obligor at
contract origination. Obligors considered to be weaker credits are
generally contacted by telephone when the 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 set forth
below.
MMCA began originating Final Payment Receivables in October 1993.
Because Final Payment Receivables have been originated in large volume over
only a short period of time, the experience shown in the tables below may
not be comparable to the 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>
Number of Contracts Outstanding at 126,080 123,274 122,224 107,507
End of Period.......................
Delinquencies as a Percent of
Contracts Outstanding (2)
30-59 Days.......................... 4.27% 4.42% 5.13% 4.00%
60-89 Days.......................... 1.30% 1.56% 1.69% 0.92%
90 Days or More..................... 0.30% 0.51% 0.54% 0.30%
Repossessions as a Percent of 1.10% 0.96% 1.41% 1.70%
Contracts Outstanding (2)(3)..........
</TABLE>
- ----------------
(1) The information in the table includes Motor Vehicle Contracts for new
and used Motor Vehicles and Truck Contracts for new and used Trucks
owned by MMCA or previously sold by MMCA which MMCA continues to
service. Delinquency numbers are net of bankrupt accounts and
repossessions.
(2) The period of delinquency is based on the number of days payments are
contractually past due, 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.
NET CREDIT LOSS AND REPOSSESSION EXPERIENCE (1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
----------------------- ------------------------------------
1998 1997 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Amount Outstanding (2)............. $1,802,327 $1,769,219 $1,687,592 $1,436,009
Average Amount Outstanding......... $1,747,828 $1,776,481 $1,590,046 $1,221,467
Number of Contracts Outstanding.... 126,080 123,274 122,224 107,507
Average Number of Contracts
Outstanding...................... 124,304 124,945 117,048 93,879
Charge-offs (3).................... $ 40,008 $ 73,242 $ 84,872 $ 20,171
Recoveries (4)..................... $ 7,483 $ 13,126 $ 7,372 $ 1,058
Net Losses......................... $ 32,525 $ 60,116 $ 77,500 $ 19,113
Number of Repossessions (5)........ 4,006 7,382 6,712 4,260
Number of Repossessions as a
Percent of the Average Number
of Contracts Outstanding (6)..... 6.45% 5.91% 5.73% 4.54%
Net Losses as a Percent of
Average Amount Outstanding(6).... 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. Averages are computed by
taking a simple average of the average months outstanding for each
period presented.
(3) Charge-offs represent the total aggregate amount due on Motor Vehicle
Contracts and Truck Contracts that is determined to be uncollectible
in the period, less proceeds from disposition of related vehicles,
other than recoveries described in Note (4). 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.
(4) Recoveries generally consist of amounts received on Contracts
following the time at which the Contract is charged off.
(5) Number of Repossessions means the number of repossessed Motor Vehicles
and Trucks in a given period.
(6) Annualized rate. The six-month period ending June 30, 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.
<TABLE>
<CAPTION>
FINAL PAYMENT RECEIVABLES: LOSS EXPERIENCE ON RETURNED VEHICLES (1)
AS OF 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)/Gains on
Returned and Sold
Vehicles (3)................ $(3,084,377) $ (628,759) $(5,371,694) $ (726,208) $ (12,464)
Total Number of Vehicles
Returned and Sold........... 1,643 364 2,578 432 7
Average (Loss)/Gain per $ (1,877) $ (1,727) $ (2,084) $ (1,681) $ (1,781)
Returned and Sold
Vehicle (3).................
</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 ; (x) as of the Cutoff Date, no obligor under a Receivable is
the subject of a proceeding under the Bankruptcy Code of the United States;
and (xi) each Receivable was originated in the United States by a Dealer
for the consumer or commercial sale of a Financed Vehicle in the ordinary
course of such Dealer's business.
CERTAIN CHARACTERISTICS
The composition of the Receivables as of , 1998 and the
geographical distribution and distribution by APR of the Pool Balance as
of , 1998 are set forth in the following tables. "Level Pay Pool
Balance" means the Pool Balance as of such date exclusive of the Last
Scheduled Payment Pool Balance. See "Description of the Notes--Final
Payment Receivables." "LastScheduled Payment Pool Balance" means the
aggregate principal balance of Last Scheduled Payments.
COMPOSITION OF THE RECEIVABLES
Pool Balance....................................... $
Level Pay Pool Balance............................. $
Last Scheduled Payment Pool Balance................ $
Number of Receivables..............................
Average Principal Balance.......................... $
(Range).......................................... $ to $
Average Original Amount Financed................... $
(Range).......................................... $ to $
Average Level Pay Balance.......................... $
(Range).......................................... $ to $
Average Last Scheduled Payment Balance............. $
(Range).......................................... $ to $
Weighted Average APR............................... %
(Range).......................................... 0.00% to %
Weighted Average Original Term to Maturity......... months
(Range).......................................... months to 60 months
Weighted Average Remaining Term to Maturity........ months
(Range).......................................... months to 60 months
GEOGRAPHIC DISTRIBUTION
Percentage Percentage
of Pool of Pool
STATE(1) Balance(2) State(1) Balance(2)
- -------- ---------- -------- ----------
Alaska.................. % Montana.................. %
Arizona................. Nebraska.................
Arkansas................ Nevada...................
California.............. New Hampshire............
Colorado................ New Jersey...............
Connecticut............. New Mexico...............
Delaware................ New York.................
Florida................. North Carolina...........
Georgia................. North Dakota.............
Hawaii.................. Ohio.....................
Idaho................... Oklahoma.................
Illinois................ Oregon...................
Indiana................. Rhode Island.............
Iowa.................... South Carolina...........
Kansas.................. South Dakota.............
Kentucky................ Tennessee................
Louisiana............... Texas....................
Maine................... Utah.....................
Maryland................ Vermont..................
Massachusetts........... Virginia.................
Michigan................ Washington...............
Minnesota............... West Virginia............
Mississippi............. Wisconsin................
Missouri................ Wyoming..................
Total.................... 100.00%
======
- --------------------
(1) State of origination is based on the addresses of the originating
Dealers.
(2) Percentages may not add to 100.00% due to rounding.
DISTRIBUTION BY APR
Percentage
Number of Pool of Pool
APR Range (%) Receivables Balance(1) Balance(2)
- ------------- ----------- ---------- ----------
0.00 to 0.99......................... $ %
1.00 to 1.99.........................
2.00 to 2.99.........................
3.00 to 3.99.........................
4.00 to 4.99.........................
5.00 to 5.99.........................
6.00 to 6.99.........................
7.00 to 7.99.........................
8.00 to 8.99.........................
9.00 to 9.99.........................
10.00 to 10.99.......................
11.00 to 11.99.......................
12.00 to 12.99.......................
13.00 to 13.99.......................
14.00 to 14.99.......................
15.00 to 15.99.......................
16.00 to 16.99.......................
17.00 to 17.99.......................
18.00 to 18.99.......................
19.00 to 19.99.......................
20.00 to 20.99.......................
21.00 to 21.99.......................
22.00 to 22.99.......................
23.00 to 23.99.......................
----------- ---------- ----------
Total................................ $ 100.00%
=========== ========== ==========
- ------------------
(1) Remaining principal balance for Simple Interest Receivables, and the
present value of scheduled remaining payments for Actuarial Receivables.
(2) Percentages may not add to 100.00% due to rounding.
Based on the Initial Pool Balance, approximately % of the total
number of Receivables and approximately % of the Pool Balance, relate
to new automobiles and light- or medium-duty trucks. Substantially all of
such new automobiles and light- or medium-duty trucks were manufactured or
distributed by Mitsubishi Motors. Approximately % of the total number
of Receivables and approximately % of the Pool Balance as of the
Cutoff Date, relate to used automobiles and light- or medium-duty trucks.
Of the new and used vehicles, approximately % of the total number of
Receivables and approximately % of the Pool Balance as of the 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 MMSA. This program allows dealers to offer to purchasers of program
automobiles the same rate of interest and terms offered to new car buyers.
Program vehicles are primarily automobiles returned to MMSA by rental car
companies, but also include off-lease MMSA and MMCA company and employee
lease vehicles and MMSA pool cars. Approximately % of the total number
of Receivables and approximately % of the Pool Balance as of the
Cutoff Date, relate to medium-duty trucks, the primary purchasers of which
are businesses.
PAYMENTS ON THE RECEIVABLES
Approximately % of the Pool Balance was attributable to
Receivables that provide for the allocation of payments according to the
"actuarial" method ("Actuarial Receivables"). An Actuarial Receivable
provides for amortization of the loan over a series of fixed level monthly
installments. Each monthly installment is deemed to consist of an amount
of interest equal to one twelfth of the stated APR of the loan multiplied
by the scheduled principal balance. The remainder of the scheduled payment
is applied to principal. Generally, no adjustment is made in the event of
early or late payments, although in the latter case the obligor may be
subject to a late payment charge.
Approximately % of the 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 % of the Pool Balance was attributable to
receivables that provide for the allocation of payments according to the
"simple interest" method ("Simple Interest Receivables"). In November 1996,
MMCA began phasing out Motor Vehicle Contracts and Truck Contracts that
provide for the allocation of payments according to the actuarial method in
favor of those Contracts that provide for allocation of payments according
to the "simple interest" method. Since June 1997, MMCA has purchased only
Motor Vehicle Contracts and Truck Contracts which provide for allocation of
payments according to the "simple interest" method. A Simple Interest
Receivable also provides for the amortization of the amount financed under
the receivable over a series of fixed level monthly payments. However,
unlike the monthly payment under an Actuarial Receivable, each monthly
payment consists of an installment of interest which is calculated on the
basis of the outstanding principal balance of the receivable multiplied by
the stated APR and further multiplied by the period elapsed (as a fraction
of a calendar year) since the preceding payment of interest was made. As
payments are received under a Simple Interest Receivable, the amount
received is applied first to interest accrued to the date of payment and
the balance is applied to reduce the unpaid principal balance. Accordingly,
if an obligor pays a fixed monthly installment before the Due Date, the
portion of the payment allocable to interest for the period since the
preceding payment was made will be less than it would have been had the
payment been made as scheduled, and the portion of the payment applied to
reduce the unpaid principal balance will be correspondingly greater.
Conversely, if an obligor pays a fixed monthly installment after its Due
Date, the portion of the payment allocable to interest for the period since
the preceding payment was made will be greater than it would have been had
the payment been made as scheduled, and the portion of the payment applied
to reduce the unpaid principal balance will be correspondingly less. In
either case, the obligor pays a fixed monthly installment until the final
scheduled payment date, at which time the amount of the final installment
is increased or decreased as necessary to repay the then outstanding
principal balance. In the case of a Final Payment Receivable that is a
Simple Interest Receivable, this allocation of payments may result in the
remaining principal balance of the Final Payment Receivable on the due date
for the Last Scheduled Payment being greater or less than the Last
Scheduled Payment.
Approximately % of the Pool Balance was attributable to Simple
Interest Receivables that are subject to a cap on the aggregate amount of
interest to be paid during the term of such receivables ("Capped
Receivables"). With respect to Capped Receivables, if the obligor
consistently makes scheduled payments after the Due Date, the amount of
interest accrued over the term of the loan will be less than would be the
case in the absence of the cap on the aggregate amount of interest payable
over the term of a Capped Receivable. If, as a result of such
delinquencies, the aggregate amount of interest paid under the receivable
reaches the lifetime cap, no further interest will accrue and each
scheduled payment due thereafter will be applied to the reduction of
principal.
Approximately % of the Pool Balance 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 termination of a Final Payment Receivable, an obligor
thereunder may satisfy the amount then owed by the obligor by (1) paying
the remaining principal amount of the receivable, all accrued and unpaid
interest, plus any fees, charges, and other amounts then owing, on the Due
Date of the Last Scheduled Payment; (2) refinancing the net amount then
due, which may be greater or less than the Last Scheduled Payment, subject
to certain conditions; or (3) selling the related Motor Vehicle to MMCA or
its assignee for an amount equal to the Last Scheduled Payment (reduced by
certain charges) and paying any excess of the total amount owed over the
Last Scheduled Payment to MMCA. See "Description of the Notes--Final
Payment Receivables."
The Receivables 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 MMSA or any affiliate of
MMSA maintains any program which has the effect of encouraging prepayments,
prepayments may increase. No prediction can be made of the effect of such
programs on prepayments, and MMSA is not required to establish or maintain
any such program.
The Receivables have different APRs, and the rates of prepayments of
Receivables with higher and lower APRs may differ. Higher rates of
prepayments of Receivables with higher APRs will decrease the amount
available to cover delinquencies and defaults on the Receivables and may
decrease the amount available to the Reserve Account. See "Description of
the Notes--The Indenture Cash Flows" and "-- eserve 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. In
addition, the use of Accelerated Principal to pay principal on the Notes
will have the effect of accelerating the repayment of the Notes.
Reinvestment risk associated with early payment of the Notes will be borne
exclusively by the Noteholders.
% of the Initial Pool Balance and % of the Initial Pool
Balance minus the initial principal balance of the Certificates consists
of 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 and . 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 $ , which is approximately % 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", "Projected Class A-4 Note Amortization" and "Projected Class
B Note Amortization" (collectively, the "ABS Tables") have been prepared on
the basis of the characteristics of a sample pool of Contracts (the "Sample
Pool") as of , 1998.
The composition of the receivables comprising the Sample Pool (the
"Sample Pool Receivables") as of , 1998 is set forth in the following
table.
COMPOSITION OF THE SAMPLE POOL RECEIVABLES
Pool Balance of Sample Pool........................ $
Level Pay Pool Balance of the Sample Pool.......... $
Last Scheduled Payment Pool Balance of the
Sample Pool..................................... $
Number of Sample Pool Receivables..................
Average Principal Balance.......................... $
(Range)...................................... $ to $
Average Original Amount Financed................... $
(Range)...................................... $ to $
Average Level Pay Balance.......................... $
(Range)...................................... $ to $
Average Last Scheduled Payment Balance............. $
(Range)...................................... $ to $
Weighted Average APR............................... %
(Range)...................................... 0.00% to %
Weighted Average Original Term to Maturity......... months
(Range)...................................... months to 60 months
Weighted Average Remaining Term to Maturity........ months
(Range)...................................... months to 60 months
The ABS Tables assume that (i) the Sample Pool Receivables prepay in
full at the specified constant percentage of ABS monthly, with no defaults,
losses or repurchases, (ii) each scheduled monthly payment on the Sample
Pool Receivables is made on the last day of each month, and each month has
30 days, (iii) payments on the Notes are made on each Payment Date (and
each such date is assumed to be the 15th day of each applicable month),
(iv) the Servicer does exercise its option to purchase the Sample Pool
Receivables, (v) Accelerated Principal is paid on each Payment Date in
accordance with the applicable assumptions (including the prepayment speed)
and the terms of the Indenture 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 Sample Pool 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, as well as collections of principal and
interest on the Sample Pool Receivables.
The ABS Tables also assume that the Sample Pool Receivables have been
aggregated into four hypothetical level payment pools with all of the
Sample Pool Receivables within each such pool having the following
characteristics and that the level scheduled monthly payment for each of
the four pools (which is based on its aggregate principal balance, APR,
original term to maturity and remaining term to maturity as of , 1998) will
be such that each pool will be fully amortized by the end of its remaining
term to maturity.
WEIGHTED
WEIGHTED AVERAGE
AVERAGE REMAINING
LEVEL AGGREGATE WEIGHTED ORIGINAL TERM TERM TO
PAYMENT PRINCIPAL AVERAGE TO MATURITY MATURITY
POOL BALANCE APR (IN MONTHS) (IN MONTHS)
- ------- --------- -------- ------------- -----------
1 .............. $ %
2 ..............
3 ..............
4 ..............
The ABS Tables also assume that the principal amounts of the Last
Scheduled Payments on the Sample Pool Receivables have been aggregated into
five hypothetical last scheduled payment pools with all of the Final
Payment Receivables within each pool having the following characteristics
and that the principal amount is due at the maturity of the pool.
WEIGHTED
WEIGHTED AVERAGE
LAST AVERAGE REMAINING
SCHEDULED AGGREGATE WEIGHTED ORIGINAL TERM TERM TO
PAYMENT PRINCIPAL AVERAGE TO MATURITY MATURITY
POOL BALANCE APR (IN MONTHS) (IN MONTHS)
- --------- --------- -------- ------------- -----------
1 ............. $ %
2 .............
3 .............
4 .............
5 .............
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 five 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 (INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND
PERFORMANCE OF THE RECEIVABLES IN THE SAMPLE POOL WHICH DIFFER FROM THE
ACTUAL CHARACTERISTICS OF THE RECEIVABLES IN THE TRUST AND PERFORMANCE
THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
PROJECTED CLASS A-1 NOTE AMORTIZATION
CLASS A-1 NOTE BALANCE (%)
------------------------------------------------------
Payment Date 0.0% ABS 1.0% ABS 1.5% ABS 2.0% ABS
- -------------------- ------------ ------------ ------------ ------------
----- ----- ----- -----
Average Life (yrs)
PROJECTED CLASS A-2 NOTE AMORTIZATION
CLASS A-2 NOTE BALANCE (%)
------------------------------------------------------
Payment Date 0.0% ABS 1.0% ABS 1.5% ABS 2.0% ABS
- -------------------- ------------ ------------ ------------ ------------
----- ----- ----- -----
Average Life (yrs)
PROJECTED CLASS A-3 NOTE AMORTIZATION
CLASS A-3 NOTE BALANCE (%)
--------------------------------------------------------
Payment Date 0.0% ABS 1.0% ABS 1.5% ABS 2.0% ABS
- -------------------- ------------ ------------ ------------ ------------
----- ----- ----- -----
Average Life (yrs)
PROJECTED CLASS A-4 NOTE AMORTIZATION
CLASS A-4 NOTE BALANCE (%)
------------------------------------------------------
Payment Date 0.0% ABS 1.0% ABS 1.5% ABS 2.0% ABS
- -------------------- ------------ ------------ ------------ ------------
----- ----- ----- -----
Average Life (yrs)
PROJECTED CLASS B NOTE AMORTIZATION
CLASS B NOTE BALANCE (%)
------------------------------------------------------
Payment Date 0.0% ABS 1.0% ABS 1.5% ABS 2.0% ABS
- -------------------- ------------ ------------ ------------ ------------
----- ----- ----- -----
Average Life (yrs)
POOL FACTORS AND OTHER INFORMATION
The "Note Pool Factor" for each class of Notes will be a seven-digit
decimal which the Servicer will compute each month indicating the remaining
outstanding principal amount of the Notes of each class as of the close of
business on the Payment Date in that month, as a fraction of the initial
outstanding principal amount of the Notes of such class. The Note Pool
Factor for each class of Notes will be 1.0000000 as of the Closing Date,
and thereafter will decline to reflect reductions in the outstanding
principal amount of the Notes. A Noteholder's portion of the aggregate
outstanding principal amount of the Notes of a class will be the product of
(i) the original denomination of the Noteholder's Note and (ii) the Note
Pool Factor for such Class.
Pursuant to the Sale and Servicing Agreement, the Noteholders will
receive monthly reports concerning the payments received on the
Receivables, the Pool Balance, the Note Pool Factor and various other items
of information. Noteholders of record during any calendar year will be
furnished information for tax reporting purposes not later than the latest
date permitted by law. See "Description of the Notes--Statements to
Noteholders."
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of the
Notes will be applied to the purchase of the Receivables from MMCA.
THE SELLER
The Seller, a wholly-owned subsidiary of MMCA, was incorporated in
the State of Delaware on July 8, 1993. The Seller was organized for limited
purposes, which include purchasing receivables from MMCA and transferring
such receivables to third parties and any activities incidental to and
necessary or convenient for the accomplishment of such purposes. The
principal executive offices of the Seller are located at 6363 Katella
Avenue, Cypress, California 90630-5205. The telephone number of such
offices is (714) 236-1592.
The Seller has taken steps in structuring the transactions
contemplated hereby that are intended to ensure that the voluntary or
involuntary application for relief by MMCA under any Insolvency Law will
not result in consolidation of the assets and liabilities of the Seller
with those of MMCA. These steps include the creation of the Seller as a
separate, limited-purpose subsidiary pursuant to a certificate of
incorporation containing certain limitations (including restrictions on the
nature of the Seller's business and a restriction on the Seller's ability
to commence a voluntary case or proceeding under any Insolvency Law without
the unanimous affirmative vote of all of its directors). However, there can
be no assurance that the activities of the Seller would not result in a
court concluding that the assets and liabilities of the Seller should be
consolidated with those of MMCA in a proceeding under any Insolvency Law.
The Seller has received the advice of counsel to the effect that,
subject to certain facts, assumptions and qualifications, it would not be a
proper exercise by a court of its equitable discretion to disregard the
separate corporate existence of the Seller and to require the consolidation
of the assets and liabilities of the Seller with the assets and liabilities
of MMCA in the event of the application of the Federal bankruptcy laws to
MMCA. Among other things, it is assumed by counsel that the Seller will
follow certain procedures in the conduct of its affairs, including
maintaining records and books of account separate from those of MMCA,
refraining from commingling its assets with those of MMCA and refraining
from holding itself out as having agreed to pay, or being liable for, the
debts of MMCA. The Seller intends to follow and has represented to such
counsel that it will follow these and other procedures related to
maintaining its separate corporate identity. However, in the event that the
Seller did not follow these procedures, there can be no assurance that a
court would not conclude that the assets and liabilities of the Seller
should be consolidated with those of MMCA. If a court were to reach such a
conclusion, or a filing were made under any Insolvency Law by or against
the Seller, or if an attempt were made to litigate any of the foregoing
issues, delays in payments on the Notes could occur or reductions in the
amounts of such payments could result.
It is intended by MMCA and the Seller that the transfer of the
Receivables by MMCA to the Seller under the Purchase Agreement constitute a
"true sale" of the Receivables to the Seller. If the transfer constitutes
such a "true sale," the Receivables and the proceeds thereof would not be
part of MMCA's bankruptcy estate under 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
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.
In Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir.
1993), cert. denied, 114 S.Ct. 554 (1993), the United States Court of
Appeals for the 10th Circuit suggested that even where a transfer of
accounts from a seller to a buyer constitutes a "true sale," the accounts
would nevertheless constitute property of the seller's bankruptcy estate in
a bankruptcy of the seller. If MMCA or the Seller were to become subject to
a bankruptcy proceeding and a court were to follow the Octagon court's
reasoning, Noteholders might experience delays in payment or possibly
losses on their investment in the Notes. As part of the advice of counsel
described above, counsel has advised the Seller that the reasoning of the
Octagon case appears to be inconsistent with other precedent. In addition,
the Permanent Editorial Board of the UCC has issued an official commentary
(PEB Commentary No. 14) which characterizes the Octagon court's
interpretation of Article 9 of the UCC as erroneous. Such commentary states
that nothing in Article 9 is intended to prevent the transfer of ownership
of accounts or chattel paper.
THE SERVICER
Mitsubishi Motors Credit of America, Inc. ("MMCA") primarily provides
retail and wholesale financing, retail leasing and certain other financial
services to authorized Mitsubishi automobile and truck dealers and their
customers in the United States. MMCA was incorporated in the State of
Delaware in August 1990 and commenced operations in March 1991.
MMCA is a wholly-owned subsidiary of Mitsubishi Motor Sales of
America, Inc. ("MMSA"), which is engaged in the wholesale distribution of
automobiles and light-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 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 as Noteholders only indirectly through DTC and its
Direct Participants and Indirect Participants. Because DTC can act only on
behalf of Direct Participants, who in turn act on behalf of Indirect
Participants, and on behalf of certain banks, trust companies and other
persons approved by it, the ability of a Note Owner to pledge the Notes to
persons or entities that do not participate in the DTC system, or to
otherwise act with respect to such Notes, may be limited due to the absence
of physical notes for such Notes.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
Participants and Indirect Participants to Note Owners will be governed by
arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payments by DTC
Participants to Note Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts
of customers in bearer form or registered in "street name" and will be the
responsibility of such DTC Participant and not of DTC, the Indenture
Trustee, the Owner Trustee, the Seller or the Servicer, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal and interest to DTC is the responsibility of the
Indenture Trustee, disbursement of such payments to 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 its rules and procedures and within its established
deadlines (European time). The relevant European international clearing
system will, if the transaction meets its settlement requirements, deliver
instructions to its Depositary to take action to effect final settlement on
its behalf by delivering or receiving securities in DTC, and making or
receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Cedel Participants and Euroclear Participants
may not deliver instructions directly to the
Depositaries.
Because of time-zone differences, credits of securities in Cedel or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing day, dated the
Business Day following the DTC settlement date, and such credits or any
transactions in such securities settled during such processing day will be
reported to the relevant Cedel Participant or Euroclear Participant on such
Business Day. Cash received in Cedel or Euroclear as a result of sales of
securities by or through a Cedel Participant or a Euroclear Participant to
a DTC Participant will be received with value on the DTC settlement date
but will be available in the relevant Cedel or Euroclear cash account only
as of the Business Day following settlement in DTC.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that the Seller believes to be
reliable, but the Seller takes no responsibility for the accuracy thereof.
Cedel Bank, societe anonyme ("Cedel") is incorporated under the laws
of Luxembourg as a professional depository. Cedel holds securities for its
participating organizations ("Cedel Participants") and facilitates the
clearance and settlement of securities transactions between Cedel
Participants through electronic book-entry changes in accounts of Cedel
Participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in Cedel in any of 36 currencies,
including United States dollars. Cedel provides to its Cedel Participants,
among other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and
borrowing. Cedel interfaces with domestic markets in several countries. As
a professional depository, Cedel is subject to regulation by the Luxembourg
Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers
and dealers, banks, trust companies, clearing corporations and certain
other organizations and may include the underwriters of the Notes. Indirect
access to Cedel is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Cedel Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ("Euroclear Participants") and to
clear and settle transactions between Euroclear Participants through
simultaneous electronic book-entry delivery against payment, thereby
eliminating the need for physical movement of certificates and any risk
from lack of simultaneous transfers of securities and cash. Transactions
may now be settled in any of 34 currencies, including United States
dollars. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in
several countries generally similar to the arrangements for cross-market
transfers with DTC described above. The Euroclear System is operated by
Morgan Guaranty Trust Company of New York, Brussels, Belgium office (the
"Euroclear Operator" or "Euroclear"), under contract with Euroclear
Clearance System, S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and
all Euroclear securities clearance accounts and Euroclear cash accounts are
accounts with the Euroclear Operator, not the Cooperative. The Cooperative
establishes policy for the Euroclear System on behalf of Euroclear
Participants. Euroclear Participants include banks (including central
banks), securities brokers and dealers and other professional financial
intermediaries and may include the underwriters of the Notes. Indirect
access to the Euroclear System is also available to other firms that clear
through or maintain a custodial relationship with a Euroclear Participant,
either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such,
it is regulated and examined by the Board of Governors of the Federal
Reserve System and the New York State Banking Department, as well as the
Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of the Euroclear System and
applicable Belgian law (collectively, the "Terms and Conditions"). The
Terms and Conditions govern transfers of securities and cash within the
Euroclear System, withdrawal of securities and cash from the Euroclear
System, and receipts of payments with respect to securities in the
Euroclear System. All securities in the Euroclear System are held on a
fungible basis without attribution of specific securities to specific
securities clearance accounts. The Euroclear Operator acts under the Terms
and Conditions only on behalf of Euroclear Participants and has no record
of or relationship with persons holding through Euroclear Participants.
Payments on Notes held through Cedel or Euroclear will be credited to
the cash accounts of Cedel Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by its Depositary. Such payments will be subject to tax reporting
in accordance with relevant United States tax laws and regulations. See
"Certain Federal Income Tax Consequences" and Annex A. Cedel or the
Euroclear Operator, as the case may be, will take any other action
permitted to be taken by a Noteholder under the related agreement on behalf
of a Cedel Participant or Euroclear Participant only in accordance with its
relevant rules and procedures and subject to its Depositary's ability to
effect such actions on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Notes among participants of
DTC, Cedel and Euroclear, they are under no obligation to perform or
continue to perform such procedures and such procedures may be discontinued
at any time.
DEFINITIVE NOTES
The Notes of each class will be issued in fully registered,
certificated form ("Definitive Notes") to Noteholders or their nominees,
rather than to DTC or its nominee, only if (i) the Trust, the Administrator
or the Servicer advises the Indenture Trustee in writing that DTC or a
successor clearing agency is no longer willing or able to discharge
properly its responsibilities as depository with respect to the Notes and
the Indenture Trustee or the Administrator is unable to locate a qualified
successor, (ii) the Administrator, at its option, elects to terminate the
book-entry system through DTC, or (iii) after the occurrence of an Event of
Default or an Event of Servicing Termination with respect to the Notes,
Note Owners representing in the aggregate not less than 51% of the
aggregate outstanding principal amount of the Notes advise the Indenture
Trustee and DTC through Direct Participants in writing, and DTC shall so
notify the Indenture Trustee, that the continuation of a book-entry system
through DTC (or a successor thereto) is no longer in the best interest of
Note Owners.
Upon the occurrence of any event described in the immediately
preceding paragraph, DTC is required to notify all Direct Participants of
the availability through DTC of Definitive Notes. Upon surrender by DTC of
the definitive notes representing the Notes and receipt by the Indenture
Trustee of instructions for re-registration, the Indenture Trustee will
reissue the Notes as Definitive Notes, and thereafter the Indenture Trustee
will recognize the holders of such Definitive Notes as Noteholders.
Payments of principal of, and interest on, the Definitive Notes will
be made by the Indenture Trustee directly to Noteholders in accordance with
the procedures set forth herein and in the Indenture. Payments of principal
and interest on each Payment Date will be made to Noteholders in whose
names the Definitive Notes were registered at the close of business on the
preceding Record Date. Such payments will be made by check mailed to the
address of such Noteholder as it appears on the register maintained by the
Indenture Trustee. The final payment on any Definitive Note, however, will
be made only upon presentation and surrender of such Definitive Note at the
office or agency specified in the notice of final payment mailed to
Noteholders.
Definitive Notes will be transferable and exchangeable at the offices
of the Indenture Trustee. No service charge will be imposed for any
registration of transfer or exchange, but the Indenture Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
INTEREST
Interest on the outstanding principal amount of each class of Notes
will accrue at the applicable Note Interest Rate and will be payable to the
Noteholders monthly on each Payment Date, commencing ,1998. Interest will
accrue 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 (each
such period, an "Interest Period") and 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,
Class A-4 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 on the Notes on such preceding Payment Date (or, in the case of
the first Payment Date, on the basis of the initial outstanding principal
amount of the Notes 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 from the
Reserve Account. See "--The Indenture Cash Flows" and "--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, or following an Insolvency Event with respect to
the Seller, the Noteholders will be paid in full before any distributions,
including interest, may be made on the Certificates. See "--The Indenture
Cash Flows" and "--Reserve Account."
On each Payment Date, an amount equal to the sum of 100% of the
Regular Principal and 100% of the Accelerated Principal 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 sum of the Class A Noteholders' Percentage of
Regular Principal and 100% of the Accelerated Principal 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, (ii) then to the holders of the
Class A-3 Notes (the "Class A-3 Noteholders") until the Class A-3 Notes
have been paid in full and (iii) then to the holders of the Class A-4 Notes
(the "Class A-4 Noteholders" and, together with the Class A-1 Noteholders,
the Class A-2 Noteholders and the Class A-3 Noteholders, the "Class A
Noteholders") until the Class A-4 Notes have been paid in full and (b) an
amount equal to the sum of the Class B Noteholders' Percentage of Regular
Principal and, following payment in full of the Class A-4 Notes, 100% of
the Accelerated Principal 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, 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 sum of 100% of
the Regular Principal and 100% of the Accelerated Principal will be paid to
(i) the Class A-1 Noteholders, the Class A-2 Noteholders, the Class A-3
Noteholders and the Class A-4 Noteholders pro rata in proportion to the
respective principal balances of the Class A-1 Notes, the Class A-2 Notes,
the Class A-3 Notes and the Class A-4 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. As used herein, "Class A Noteholders'
Percentage" means %, the percentage equivalent of a fraction, the numerator
of which is an amount equal to the sum of the initial principal balances of
the Class A-2 Notes, the Class A-3 Notes and the Class A-4 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, the Class A-4 Notes
and the Class B Notes. As used herein, "Class B Noteholders' Percentage"
means %, the percentage equivalent of a fraction, the numerator of which is
the initial principal balance of the Class B Notes, and the denominator of
which is an amount equal to the sum of the initial principal balances of
the Class A-2 Notes, the Class A-3 Notes, the Class A-4 Notes and the Class
B Notes.
[In the case of the Class A-1 Notes, if the outstanding principal
payment has not been paid in full on or prior to the Payment Date, the
remaining principal balance of the Class A-1 Notes will be due and payable
on the Special Payment Date.] The actual date on which the aggregate
outstanding principal amount of any class of Notes is paid may be earlier
or later than the respective Final Payment Dates based on a variety of
factors, including those described under "Risk Factors--Maturity and
Prepayment Considerations" and "The Receivables--Maturity and Prepayment
Considerations."
OPTIONAL REDEMPTION
The Notes (and the Certificates) will be redeemed in whole, but not
in part, on any Payment Date on which the Servicer exercises its option to
purchase the Receivables. The Servicer may purchase the Receivables on any
Payment Date with respect to which the Pool Balance as of the end of the
related Collection Period is 10% or less of the Initial Pool Balance. The
redemption price will be equal to the unpaid principal amount of the Notes
plus accrued and unpaid interest thereon, together with the unpaid
principal amount of the Certificates. The Seller does not anticipate,
although no assurances can be given, that the Pool Balance will decline to
a level permitting the Servicer to purchase the Receivables while the Notes
are outstanding.
THE INDENTURE TRUSTEE
Bank of Tokyo-Mitsubishi Trust Company, a New York banking
corporation, will be the Indenture Trustee. The Indenture Trustee's
Corporate Trust Office is located at 1251 Avenue of the Americas, New York,
New York 10020-1104. The Seller, the Servicer, and their respective
affiliates may have other banking relationships with the Indenture Trustee
and its affiliates in the ordinary course of their businesses.
THE ACCOUNTS
The Servicer will establish one or more Collection Accounts, in the
name of the Indenture Trustee on behalf of the Noteholders and the
Certificateholders, into which all payments made on or with respect to the
Receivables and Advances made by the Servicer will be deposited and into
which amounts on deposit in the Reserve Account may be transferred from
time to time other than amounts withdrawn from the Reserve Account to
reimburse the Servicer for Advances made by the Servicer, which amounts
will be paid directly to the Servicer. 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 and the Yield
Supplement Account, each in the name of the Indenture Trustee for the
benefit of the Noteholders and the Certificateholders. The Trust Accounts,
the Reserve Account and the Yield Supplement Account shall each be a
segregated trust account initially established with the Indenture Trustee
and maintained with the Indenture Trustee so long as permitted by each
Rating Agency. In the event that a Rating Agency no longer permits the
Trust Accounts, the Reserve Account and the Yield Supplement Account to be
located at the Indenture Trustee, such accounts shall be moved to either a
Qualified Institution or a Qualified Trust Institution. A "Qualified
Institution" is a depository institution organized under the laws of the
United States or any state thereof or incorporated under the laws of a
foreign jurisdiction with a branch or agency located in the United States
authorized to take deposits and subject to supervision and examination by
Federal or state banking authorities, having a short-term deposit rating
acceptable to 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 and the Yield Supplement Account will be invested in Permitted
Investments as provided in the Sale and Servicing Agreement. "Permitted
Investments" generally will be limited to investments acceptable to each
Rating Agency as being consistent with the ratings of the Notes. Permitted
Investments will be limited to obligations or securities that mature not
later than the Business Day immediately preceding the next Payment Date (or
the payment due date, in the case of a Payahead). Any earnings (net of
losses and investment expenses) on amounts on deposit in the Collection
Account will be paid to the Certificateholders. Any earnings (net of losses
and investment expenses) on amounts on deposit in the Payahead Account will
be paid to the Servicer as additional servicing compensation and will not
be available to Noteholders, and any earnings (net of losses and investment
expenses) on, and any amounts released from, the Reserve Account and the
Yield Supplement Account will be paid to the Seller; provided that earnings
on amounts on deposit in the Reserve Account will be paid to the Seller
only to the extent that the amounts on deposit in the Reserve Account
exceed the Specified Reserve Balance.
YIELD SUPPLEMENT AGREEMENT
Simultaneously with the sale and assignment of the Receivables by
MMCA to the Seller, MMCA and the Seller will enter into the Yield
Supplement Agreement, pursuant to which MMCA will be obligated to pay the
Yield Supplement Amount, if any, to the Trust on or before 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; provided, that if each Rating Agency no longer permits
the Yield Supplement Account to be held at the Indenture Trustee, the Yield
Supplement Account shall be moved to a Qualified Institution or a Qualified
Trust Institution. Notwithstanding the foregoing, in the event that MMCA
either obtains a letter of credit (a "Yield Supplement Letter of Credit")
securing timely remittance to the Indenture Trustee of amounts due from
MMCA under the Yield Supplement Agreement or otherwise satisfies certain
other conditions satisfactory to each Rating Agency, 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 Yield
Supplement 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 either to obtain a suitable replacement
Yield Supplement Letter of Credit, to obtain funds in the required amount
for deposit in the Yield Supplement Account or to draw the full amount
available under the Yield Supplement Letter of Credit and deposit such
funds in the Yield Supplement Account.
THE INDENTURE CASH FLOWS
Deposits to the Collection Account. On or before the seventh Business
Day, but no later than the tenth calendar day (the "Determination Date"),
of the month in which a Payment Date occurs, the Servicer will calculate
the Available Funds, the Regular Principal, the Total Servicing Fee, the
Accrued Note Interest, the Accelerated Principal, 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 shall notify the Indenture Trustee to
withdraw from the Reserve Account and deposit in the Collection Account an
amount equal to the lesser of (i) the amount of cash or other immediately
available funds in the Reserve Account on such Payment Date (prior to
giving effect to any withdrawals therefrom relating to such Payment Date),
and (ii) the amount, if any, by which (x) the Total Required Payment
exceeds (y) the Available Funds for such Payment Date.
The "Available Funds" for a Payment Date to be deposited into the
Collection Account shall equal (a) the sum of the following amounts with
respect to the related Collection Period: (i) all collections on the
Receivables (including amounts withdrawn from the Payahead Account but
excluding amounts deposited into the Payahead Account and excluding Rule of
78's Payments (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; (vi) all 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
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 that are due
and payable to the Servicer with respect to such Payment Date.
A "Defaulted Receivable" will be a Receivable as to which (a) the
related Financed Vehicle has been repossessed and liquidated, (b) a
scheduled payment is, in the case of Motor Vehicles, 120 or more days past
due or, in the case of Trucks, 180 days past due and, in either case, the
Servicer has not repossessed the related Financed Vehicle or (c) the
Servicer has determined, in accordance with its customary standards,
policies and procedures, that payment in full of the Contract is unlikely
and has either repossessed and liquidated the related Financed Vehicle or
repossessed and held the related Financed Vehicle in its repossession
inventory for 90 days, which 90 days shall not, when added to the aggregate
number of days since a scheduled payment was due but not paid, exceed 180
days.
The Available Funds on any Payment Date shall exclude all payments
and proceeds (including Liquidation Proceeds) of any Receivables the
Purchase Amount of which has been included in the Available Funds for a
prior Collection Period (which shall be paid to the Seller or Servicer, as
applicable).
The "Principal Distribution Amount" with respect to the Notes (in the
aggregate) for a Payment Date shall be the sum of Regular Principal and
Accelerated Principal; provided that the Principal Distribution Amount with
respect to the Notes shall not exceed the outstanding principal amount of
the Notes.
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 Regular Principal;
(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 Note Payment Account, the Accelerated Principal; 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, or following an Insolvency Event, the Available
Funds remaining after the application of clauses (i) and (ii) above will be
deposited in the Note Payment Account to the extent necessary to reduce the
principal amount of the Notes to zero, and the Certificateholders will not
receive any distributions until the principal amount and accrued interest
on the Notes has been paid in full. In such event, the amount available to
make payments of principal on the Notes will be paid in the following order
of priority: (i) to the Class A-1 Noteholders, the Class A-2 Noteholders,
the Class A-3 Noteholders and the Class A-4 Noteholders pro rata in
proportion to the respective principal balances of the Class A-1 Notes, the
Class A-2 Notes, the Class A-3 Notes and the Class A-4 Notes until all of
such classes have been paid in full and (ii) then to the Class B
Noteholders until the Class B Notes have been paid in full.
For purposes hereof, the following terms have the following meanings:
"Accelerated Principal" means (a) with respect to each Payment Date
on which the difference between the Pool Balance as of the beginning of the
related Collection Period and the aggregate outstanding principal balance
of the Notes and Certificates on such Payment Date (before giving effect to
any distribution of principal of the Notes on such Payment Date) is less
than $ (such deficiency with respect to any Payment Date is referred
to as the "Deficiency Amount"), 100% of the portion, if any, of Available
Funds remaining for such Payment Date, and (b) with respect to any other
Payment Date, % of the portion, if any, of Available Funds remaining
for such Payment Date, in each case after giving effect to the payment of
(i) the Total Required Payment, (ii) the amount, if any, required to be
deposited in the Reserve Account on such Payment Date; provided, however
that, on any Payment Date that the Accelerated Principal is calculated
pursuant to clause (a) above, the Accelerated Principal shall not exceed
the sum of the Deficiency Amount with respect to such Payment Date plus
the amount calculated pursuant to clause (b); provided further, that the
Accelerated Principal with respect to any Payment Date shall not exceed the
outstanding principal amount of the Notes (after giving effect to payments
of Regular Principal on such Payment Date).
"Accrued Note Interest" means, with respect to any Payment Date and
each class of Notes, the sum of the Monthly Accrued Note Interest and the
Interest Carryover Shortfall for such class for such Payment Date.
"Certificate Balance" equals, initially, $ and, thereafter,
equals the initial Certificate Balance minus all amounts paid as principal
on the Certificates.
"Interest Carryover Shortfall" means, with respect to any Payment
Date and any class of Notes, the excess of the Monthly Accrued Note
Interest for the preceding Payment Date and any outstanding Interest
Carryover Shortfall from the close of business on such preceding Payment
Date, over the amount in respect of interest that is actually deposited in
the Note Payment Account on such preceding Payment Date with respect to
such class, plus interest on such excess, to the extent permitted by law,
at the applicable Note Interest Rate for the related Interest Period.
"Monthly Accrued Note Interest" means, with respect to any Payment
Date and (i) any class of Notes, interest accrued for the related Interest
Period at the applicable Note Interest Rate for such class on the aggregate
principal balance of the Notes of such class as of the immediately
preceding Payment Date, after giving effect to all payments of principal to
Noteholders on or prior to such preceding Payment Date (or, in the case of
the first Payment Date, the initial principal amount of the Notes); and
(ii) with respect to the Notes collectively, the sum of Monthly Accrued
Note Interest for each class.
"Note Interest Rate" means in the case of (i) the Class A-1 Notes,
% per annum, (ii) the Class A-2 Notes, % per annum, (iii) the Class
A-3 Notes, % per annum, (iv) the Class A-4 Notes, % per annum and
(v) the Class B Notes, % per annum. Interest on the Class A-1 Notes
will be calculated on the basis of the actual number of days elapsed and a
360-day year, and interest on the Class A-2 Notes, the Class A-3 Notes, the
Class A-4 Notes and 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.
"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.
"Regular Principal" 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 Regular Principal 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.
"Scheduled Principal" shall mean, with respect to any Payment Date,
the sum of (a) 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, (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 (including a
sale occurring as a result of the bankruptcy of the Seller), 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 Regular Principal.
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 Noteholders of each class, Monthly Accrued Note
Interest on the applicable class of Notes;
(b) to the Class A-1 Noteholders, 100% of Regular Principal and
100% of Accelerated Principal until the Class A-1 Notes have been paid
in full;
(c) to the Class A-2 Noteholders, the Class A Noteholders'
Percentage of Regular Principal and 100% of Accelerated Principal
until the Class A-2 Notes have been paid in full;
(d) to the Class A-3 Noteholders, the Class A Noteholders'
Percentage of Regular Principal and 100% of Accelerated Principal
until the Class A-3 Notes have been paid in full;
(e) to the Class A-4 Noteholders, the Class A Noteholders'
Percentage of Regular Principal and 100% of Accelerated Principal
until the Class A-4 Notes have been paid in full;
and
(f) to the Class B Noteholders, the Class B Noteholders'
Percentage of Regular Principal and, after the Class A-4 Notes have
been paid in full, 100% of Accelerated Principal until the Class B
Notes have been paid in full.
On each Payment Date, all amounts on deposit in the Certificate
Distribution Account will be distributed to the Certificateholders.
On each Payment Date occurring on or after the acceleration of the
maturity dates of the Notes following the occurrence of an Event of
Default, all amounts on deposit in the Note Payment Account will be paid:
(a) to the Noteholders of each class, Monthly Accrued Note Interest on
the applicable class of Notes; (b) to the Class A Noteholders, 100% of
Regular Principal and 100% of Accelerated Principal pro rata in proportion
to the respective principal balances of the Class A-1 Notes, the Class A-2
Notes, the Class A-3 Notes and the Class A-4 Notes until each of such
classes have been paid in full; and (c) to the Class B Noteholders, 100% of
Regular Principal and 100% of Accelerated Principal until the Class B Notes
have been paid in full.
RESERVE ACCOUNT
The Reserve Account will be held in the name of the Indenture Trustee
for the benefit of Noteholders and Certificateholders and established by
the Seller. To the extent that amounts on deposit in the Reserve Account
are exhausted, Noteholders and Certificateholders will have no recourse to
the assets of the Seller as a source of payment.
The Reserve Account will be funded by a deposit by the Seller on the
Closing Date in the amount of the Reserve Initial Deposit. The amount on
deposit in the Reserve Account will increase from time to time by
application of certain funds from the Collection Account up to the
Specified Reserve Balance for each Payment Date and will decrease on each
Payment Date by (i) the shortfall, if any, between the Total Required
Payment and Available Funds allocable to the payment of the Total Required
Amount with respect to such Payment Date, (ii) the shortfall, if any,
between the aggregate amount of Advances that are due and payable to the
Servicer with respect to 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 and (iii) distribution of
amounts in the Reserve Account in excess of the Specified Reserve Balance
to the Seller with respect to such Payment Date.
On each Payment Date, after payment of the Total Required Payment for
such Payment Date, 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 amount
on deposit in the Reserve Account (including amounts attributable to
investment income, net of losses and investment expenses) exceeds 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 exceeds the amount on deposit in the
Reserve 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
means $ , subject to the next succeeding sentence. The Servicer may,
from time to time after the date of this Prospectus, request each Rating
Agency to approve a formula for determining the Specified Reserve Balance
that is different from the one described above and would result in a
decrease in the amount of the Specified Reserve Balance or change the
manner by which the Reserve Account is funded. If each Rating Agency
delivers a letter to the Indenture Trustee to the effect that the use of
any such new formulation 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
determined in accordance with such new formula. The Indenture will
accordingly be amended to reflect such new calculation 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 termination of the Receivable, the obligor
thereunder will owe (assuming that all payments have been made on their
scheduled Due Dates) an amount consisting of interest for the period from
the preceding Due Date through the maturity date and the remaining
principal amount of the Receivable. The net amount actually due from an
obligor on a Final Payment Receivable upon termination may be greater or
less than the Last Scheduled Payment as a result of (i) in the case of a
Simple Interest Receivable, changes in the amortization schedule of the
Receivable as a result of early or late payments by the obligor during the
term of the Receivable and the application of certain day counting
conventions, and (ii) additional fees and charges that may be owed by the
obligor with respect to the Receivable or the Financed Vehicle, including
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 $ .
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 pay the Total Required Payment and the
Accelerated Principal, to make required deposits into the Reserve Account
and to reimburse the Servicer for Advances. Any amount remaining will be
paid in accordance with the priority of payments described herein. See
"--The Indenture Cash Flows."
Upon scheduled termination of a Final Payment Receivable, an obligor
thereunder may satisfy the amount then owed by the obligor by (1) paying
the remaining principal amount of the Receivable (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 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 obligor elects the option to sell the Motor Vehicle to MMCA or its
assignee at the end of the Contract, the Servicer will make a Last
Scheduled Payment Advance with respect to the Collection Period in which
such payment was due and will, either directly or through an affiliate,
then sell the Motor Vehicle at wholesale, by either public or private sale.
The sale proceeds (net of any amounts required to be refunded to the
obligors, including any amount due an obligor who has paid early on a
Simple Interest Receivable and disposition fees paid to the Servicer) plus
amounts paid in respect of excess wear and tear and excess mileage, will be
used to reimburse the related Last Scheduled Payment Advance and any excess
will be deposited into the Collection Account as described above.
Collections on other Receivables and, to the extent such collections are
insufficient, funds on deposit in the Reserve Account, to the extent funds
on deposit in the Reserve Account are allocable to such purpose, will be
applied to reimburse the Servicer for the amount, if any, by which the sale
proceeds and amounts paid in respect of excess wear and tear and excess
mileage upon the sale of the related Motor Vehicle are less than the
related Last Scheduled Payment Advance on the Payment Date immediately
following the Collection Period in which the related Motor Vehicle is sold
by the Servicer or the Servicer makes a final determination that the
related Motor Vehicle is unlikely to be recovered from the related obligor.
See "--The Indenture Cash Flows" and "--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, to make
required transfers, if any, from the Collection Account to the Reserve
Account and to pay Regular and Accelerated Principal. None of MMCA, the
Servicer, the Seller or the Trust will have any recourse to the obligor for
any shortfall, nor will MMCA, the Servicer or the Seller be obligated to
pay any such shortfall to the Trust.
SUBORDINATION OF THE CLASS B NOTES AND THE CERTIFICATES
The rights of Certificateholders to receive distributions are
subordinated to the rights of Noteholders to receive payments of interest
and principal to the extent set forth herein. Funds on deposit in the
Collection Account (including amounts deposited therein from the Reserve
Account) will be applied to the payment of Monthly Accrued Note Interest on
the Notes, and principal payable on the Notes on such Payment Date
(including Regular Principal and Accelerated Principal) before
distributions on the Certificates. In addition, following the occurrence of
an Event of Default that has resulted in an acceleration of the Notes or an
Insolvency Event with respect to the Seller, 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. The Class B Notes are subordinated to the Class A Notes to the
extent set forth herein. No payments of interest will be made on the Class
B Notes on any Payment Date until all interest then due to the Class A
Notes has been paid, and no payments of principal will be made on the Class
B Notes upon an acceleration of the maturity dates of the Notes following
an Event of Default until the Class A Notes have been paid in full.
ADVANCES
To the extent the collection of interest and principal on an
Actuarial Receivable (other than a Last Scheduled Payment) with respect to
a Collection Period falls short of the scheduled payment due thereon, after
application of amounts on deposit in the Payahead Account by the Indenture
Trustee with respect to such shortfall, the Servicer will make an advance
of such amount (such an advance, an "Actuarial Advance") on the related
Payment Date. 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 such obligor (such advance, a "Last Scheduled Payment Advance" and,
together with an Actuarial Advance, each an "Advance"). Collections on
other Receivables and, to the extent such collections are insufficient,
funds on deposit in the Reserve Account, to the extent funds on deposit in
the Reserve Account are allocable to such purpose, will be applied to
reimburse the Servicer for the amount, if any, by which the net sale
proceeds and amounts paid in respect of excess wear and tear and excess
mileage upon the sale of the related Motor Vehicle or Truck are less than
the related Advance on the Payment Date immediately following the
Collection Period in which the related Motor Vehicle is sold by the
Servicer or the Servicer makes a final determination that the related Motor
Vehicle is unlikely to be recovered from the related obligor. See "--The
Indenture Cash Flows" and "--Reserve Account" herein.
COLLECTIONS ON THE RECEIVABLES
The Servicer will deposit all payments on Receivables (from whatever
source) and all proceeds of Receivables (other than certain amounts payable
to the Servicer under the Sales and Servicing Agreement 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 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 amount of Actuarial Advances and Last Scheduled Payment
Advances, if any, for such Collection Period; and
(xi) 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 (i), (ii), (iii), (iv) and (vii) above for the purposes of
such Noteholder's preparation of Federal income tax returns. See Certain
Federal Income Tax Consequences" and "--Book Entry Registration."
INDENTURE
Events of Default. The "Events of Default" in the Indenture consist
of (i) a default for five days or more in the payment of interest on any
Note when the same becomes due and payable; (ii) a default in the payment
of principal of, or any installment of principal of, any Note when the same
becomes due and payable; (iii) a default in the observance or performance
of any material covenant or agreement of the Trust made in the Indenture,
or any representation or warranty of the Trust made in the Indenture or in
any certificate or writing delivered pursuant thereto proves to have been
incorrect in any material respect as of the time when made, and the
continuation of such default for a period of 60 days or in the case of a
materially incorrect representation or warranty, 30 days, after notice
thereof is given to the Trust by the Indenture Trustee or the Trust and the
Indenture Trustee by the holders of not less than 25% of the aggregate
principal amount of the Notes of all classes; or (iv) certain events of
bankruptcy, insolvency, receivership or liquidation of the Trust.
(Indenture, Section 5.1).
Noteholders holding not less than a majority of the aggregate
principal amount of the Notes outstanding, voting as a group, may waive any
past default or Event of Default prior to the declaration of the
acceleration of the maturity of the Notes, except a default (i) in payment
of principal of or interest on any of the Notes or (ii) in respect of any
covenant or provision in the Indenture which cannot be modified or amended
without unanimous consent of the Noteholders. (Indenture, Section 5.12).
Any such waiver could be treated, for Federal income tax purposes, as a
constructive exchange of the Notes by the Noteholders for deemed new Notes
upon which gain or loss would be recognized.
Remedies. If an Event of Default should occur and be continuing, the
Indenture Trustee or the holders of a majority of the aggregate outstanding
principal amount of the Notes of all classes, voting as a group, may
declare the principal of the Notes to be immediately due and payable. Such
declaration may be rescinded by the holders of a majority of the aggregate
principal amount of the Notes before a judgment or decree for payment of
the amount due has been obtained by the Indenture Trustee if (i) the Trust
has deposited with the Indenture Trustee an amount sufficient to pay (x)
all interest on and principal of the Notes as if the Event of Default
giving rise to such declaration had not occurred and (y) all amounts
advanced by the Indenture Trustee and its costs and expenses and (ii) all
Events of Default (other than the nonpayment of principal of the Notes that
has become due solely by such acceleration) have been cured or waived.
(Indenture, Section 5.2). Any such rescission could be treated, for Federal
income tax purposes, as a constructive exchange of the Notes by the
Noteholders for deemed new Notes upon which gain or loss would be
recognized.
If the Notes have been declared due and payable following an Event of
Default, the Indenture Trustee may institute proceedings to collect amounts
due, exercise remedies as a secured party, including foreclosure or sale of
the Trust Property, or elect to maintain the Trust Property and continue to
apply proceeds from the Trust Property as if there had been no declaration
of acceleration. The Indenture Trustee may not, however, unless it is
required to sell the Trust Property pursuant to the Trust Agreement as a
result of an Insolvency Event occurring with respect to the Seller, sell
the Trust Property following an Event of Default, other than a default in
the payment of any principal or a default for five days or more in the
payment of any interest on the Notes, unless (i) 100% of the Noteholders
consent thereto, (ii) the proceeds of such sale are sufficient to pay in
full the principal of and the accrued interest on the then outstanding
Notes 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 as a result of an
Insolvency Event occurring with respect to the Seller or following the
occurrence of an Event of Default under the circumstances described in the
preceding paragraph pursuant to the direction of the Indenture Trustee or
the Noteholders, the proceeds of such sale will be distributed first to the
Indenture Trustee for amounts due as compensation or indemnity payments
pursuant to the terms of the Indenture; second to the Servicer for amounts
due in respect of unpaid Total Servicing 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, and the holders of not less than a majority of
the aggregate principal amount of the outstanding Notes, voting as a group,
may, in certain cases, waive any default with respect thereto, except a
default in the payment of principal or interest or a default in respect of
a covenant or provision of the Indenture that cannot be modified without
the waiver or consent of all of the holders of the outstanding Notes.
(Indenture, Sections 5.11 and 5.12). Until such time, if any, as Definitive
Notes have been issued, the Indenture Trustee will act only in accordance
with the instructions of Cede, as nominee for DTC. However, under the
rules, DTC will act only in accordance with the instructions of the DTC
Participants to whom Notes are credited, which will in turn act in
accordance with the instructions of persons holding beneficial interests in
such Notes through such DTC Participants. Accordingly, although only Cede
will be entitled to vote under the Indenture, Note Owners will be entitled
to instruct DTC as to the manner in which to vote.
No Noteholder will have the right to institute any proceeding with
respect to the Indenture, unless (i) such Noteholder previously has given
to the Indenture Trustee written notice of a continuing Event of Default,
(ii) the holders of not less than 25% of the aggregate principal amount of
the Notes outstanding have made written request of the Indenture Trustee to
institute such proceeding in its own name as Indenture Trustee, (iii) such
Noteholder or Noteholders have offered the Indenture Trustee reasonable
indemnity, (iv) the Indenture Trustee has for 60 days failed to institute
such proceeding and (v) no direction inconsistent with such written request
has been given to the Indenture Trustee during such 60-day period by the
holders of a majority of the aggregate principal amount of the Notes
outstanding. (Indenture, Section 5.6).
Neither the Indenture Trustee nor the Owner Trustee in their
respective individual capacities, nor any holder of a Certificate, nor any
of their respective owners, beneficiaries, agents, officers, directors,
employees, successors or assigns will, in the absence of an express
agreement to the contrary, be personally liable for the payment of interest
on or principal of the Notes or for the agreements of the Trust and the
Owner Trustee, in its capacity as trustee, contained in the Indenture.
Certain Covenants. The Trust will not, among other things, (i) except
as expressly permitted by the Indenture, the Transfer and Servicing
Agreements or certain related documents (collectively, the "Basic
Documents") sell, transfer, exchange or otherwise dispose of any of the
assets of the Trust, (ii) claim any credit on or make any deduction from
the principal or interest payable in respect of the Notes (other than
amounts withheld under the Code or applicable state law) or assert any
claim against any present or former holder of Notes because of the payment
of taxes levied or assessed upon the Trust, (iii) dissolve or liquidate in
whole or in part or (iv) permit (x) the validity or effectiveness of the
Indenture to be impaired, (y) any person to be released from any covenants
or obligations with respect to the Notes under the Indenture except as may
be expressly permitted thereby or (z) any lien, charge, excise, claim,
security interest, mortgage or other encumbrance to be created on or extend
to or otherwise arise upon or burden the assets of the Trust or any part
thereof, or any interest therein or the proceeds therefrom. (Indenture,
Section 3.8).
The Trust may not engage in any activities other than financing,
acquiring, owning, pledging and managing the Receivables as contemplated by
the Basic Documents and activities incidental thereto. (Indenture, Section
3.12).
The Trust will not incur, assume or guarantee any indebtedness other
than indebtedness incurred pursuant to the Notes, 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, Regular Principal, Accelerated Principal and the Total Servicing
Fee 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. (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 will (i) perform such duties and
only such duties as are specifically set forth in the Indenture, (ii) in
the absence of bad faith, rely, as to the truth of the statements and the
correctness of the opinions expressed therein, on certificates or opinions
furnished to the Indenture Trustee which conform to the requirements of the
Indenture, and (iii) examine any such certificates and opinions which are
specifically required to be furnished to the Indenture Trustee by the
Indenture to determine whether or not they conform to the requirements of
the Indenture. Upon the continuance of an Event of Default, the Indenture
Trustee will be required to exercise the rights and powers vested in it by
the Indenture and use the same degree of care and skill in the exercise
thereof as a prudent person would exercise or use under the circumstances
in the conduct of such person's own affairs. (Indenture, Section 6.1).
Compensation and Indemnity. The Servicer will (i) pay to the
Indenture Trustee from time to time reasonable compensation for its
services, (ii) reimburse the Indenture Trustee for all expenses, advances
and disbursements reasonably incurred and (iii) indemnify the Indenture
Trustee for, and hold it harmless against, any and all losses, liability or
expense (including attorneys' fees) incurred by it in connection with the
performance of its duties. The Indenture Trustee will not be indemnified
against any loss, liability or expense incurred by it through its own
willful misconduct, negligence or bad faith, except that, the Indenture
Trustee will not be liable (i) for any error of judgment made by it in good
faith unless it is proved that the Indenture Trustee was negligent in
ascertaining the pertinent facts, (ii) with respect to any action it takes
or omits to take in good faith in accordance with a direction received by
it from Noteholders in accordance with the terms of the Indenture, and
(iii) for interest on any money received by it except as the Indenture
Trustee and the Trust may agree in writing. The Indenture Trustee will not
be deemed to have knowledge of any Event 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 adding to the covenants of the Trust, curing any ambiguity, correcting
or supplementing any provision which may be inconsistent with any other
provision or making any other provision with respect to matters or
questions arising under the Indenture which will not be inconsistent with
other provisions of the Indenture; provided that (x) such action will not,
(i) as evidenced by an opinion of counsel (which may be internal counsel to
the Seller or the Servicer (an "Opinion of Counsel")), materially adversely
affect the interests of any Noteholder and (ii) as confirmed by each Rating
Agency rating any class of Notes, cause the then-current rating assigned to
any class of Notes to be withdrawn, reduced or qualified and (y) an Opinion
of Counsel as to certain tax matters is delivered. (Indenture, Section
9.1).
The Owner Trustee, on behalf of the Trust, and the Indenture Trustee,
upon request by the Trust, may also enter into supplemental indentures,
with the consent of not less than a majority of the aggregate principal
amount of the outstanding Notes, voting as a group, and with prior written
notice to each Rating Agency, for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of the
Indenture or of modifying in any manner the rights of Noteholders;
provided, that (x) such action will not, (i) as evidenced by an Opinion of
Counsel, materially adversely affect the interests of any Noteholder and
(ii) as confirmed by each Rating Agency rating any class of Notes, cause
the then- current rating assigned to any such class of Notes to be
withdrawn, reduced or qualified and (y) an Opinion of Counsel as to certain
tax matters is delivered. (Indenture, Section 9.1).
Without the consent of the holder of each outstanding Note affected
thereby, however, no supplemental indenture may (i) change the Final
Payment Date for any class of Notes or the due date of any installment of
principal of or interest on any Note or reduce the principal amount
thereof, the interest rate specified thereon or the redemption price with
respect thereto 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, (vi) decrease the percentage of the aggregate principal
amount of the Notes required to amend the sections of the Indenture which
specify the applicable percentage of the aggregate principal amount of the
outstanding Notes necessary to amend the Indenture or the other Basic
Documents or (vii) permit the creation of any lien ranking prior to or on a
parity with the lien of the Indenture with respect to any of the 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.
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 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 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 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 payment of 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
identical to those contained in the Sale and Servicing Agreement and may
contain such other provisions as are not inconsistent with the terms of the
Sale and Servicing Agreement. The Servicer may terminate a subservicing
agreement and either service the related Receivables directly or enter into
a new subservicing agreement for such Receivables with another subservicer,
provided that any such subservicer is an Eligible Servicer. Notwithstanding
any subservicing agreement, the Servicer will remain obligated and liable
to the Trust and the Owner Trustee for servicing and administering the
Receivables in accordance with the Sale and Servicing Agreement as if the
Servicer alone were servicing the Receivables. References herein to actions
required or permitted to be taken, or restrictions on actions to be taken,
by the Servicer include such actions by a subservicer. References herein to
amounts received by the Servicer include amounts received by a subservicer.
"Eligible Servicer" means a person which, at the time of its
appointment as Servicer or as a subservicer, (i) has a net worth of not
less than $50,000,000, (ii) is servicing a portfolio of motor vehicle
retail installment sale contracts and/or motor vehicle loans, (iii) is
legally qualified, and has the capacity, to service the Receivables, (iv)
has demonstrated the ability to service a portfolio of motor vehicle retail
installment sale contracts and/or motor vehicle loans similar to the
Receivables professionally and competently in accordance with standards of
skill and care that are consistent with prudent industry standards, and (v)
is qualified and entitled to use pursuant to a license or other written
agreement, and agrees to maintain the confidentiality of, the software
which the Servicer or any subservicer uses in connection with performing
its duties and responsibilities under the Sale and Servicing Agreement or
the related subservicing agreement or obtains rights to use, or develops at
its own expense, software which is adequate to perform its duties and
responsibilities under the Sale and Servicing Agreement or the related
subservicing agreement.
The Servicer will covenant in the Sale and Servicing Agreement that:
(i) the Financed Vehicle securing each Receivable will not be released from
the security interest granted by the Receivable in whole or in part, except
as contemplated by the Sale and Servicing Agreement; (ii) the Servicer will
not (nor will it permit any subservicer to) impair in any material respect
the rights of the Trust, the Indenture Trustee, the Noteholders, the Owner
Trustee or the Certificateholders in the Receivables, or, subject to clause
(iii) below, otherwise amend or alter the terms thereof if, as a result of
such amendment or alteration, the interests of the Trust, the Noteholders,
the Indenture Trustee, the Owner Trustee, or the Certificateholders under
the Sale and Servicing Agreement would be materially adversely affected;
and (iii) the Servicer will not increase or decrease the number or amount
of scheduled payments or the amount financed under a Receivable, or extend,
rewrite or otherwise modify the payment terms of a Receivable; provided,
however, that the Servicer may extend any Receivable for credit-related
reasons that would be acceptable to the Servicer with respect to comparable
motor vehicle receivables that it services for itself or others in
accordance with its customary standards if the cumulative extensions with
respect to any Receivable shall not cause the term of any such Receivable
to extend beyond the Final Scheduled Maturity Date; provided further that
such extensions, in the aggregate, do not exceed two months for each twelve
months of the original term of the Receivable.
In the event of a breach by the Servicer of any covenant described
above that materially and adversely affects the interests of the Trust, in
a Receivable, the Servicer, unless such breach has been cured by the last
day of the Collection Period which includes the 60th day after the date on
which the Servicer becomes aware of, or receives written notice of, such
breach, will be required to purchase the Receivable from the Trust for the
Purchase Amount on the Payment Date immediately following such Collection
Period; provided, however, that with respect to a breach of the covenant
described in clause (iii) of the preceding paragraph, the Servicer will be
required to purchase the related Receivable from the Trust at the end of
the Collection Period in which such breach occurs. The purchase obligation
will constitute the sole remedy available to the Noteholders, the 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" herein.
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) with respect to
any Receivable or Financed Vehicle. The Servicer's obligations to indemnify
the Trust, the Indenture Trustee, the Owner Trustee, the Noteholders, the
Seller and the Certificateholders for the Servicer's actions or omissions
will survive the removal of the Servicer, but will not apply to any action
or omission of a successor Servicer.
SERVICING COMPENSATION
The Servicer will be entitled to receive 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
on amounts on deposit in the Payahead Account, Rule of 78's Payments, all
disposition fees paid with respect to Final Payment Receivables and all
administrative fees and charges and all late payment fees paid with respect
to the Receivables, other than fees paid in connection with extension or
deferral of payments on a Receivable, which will be deposited in the
Collection Account. The Servicing Fee, together with any portion of the
Servicing Fee that remains unpaid from prior Payment Dates (the "Total
Servicing Fee"), will be paid out of collections on or in respect of the
Receivables, prior to distributions to Noteholders and Certificateholders.
The Servicing Fee and the additional servicing compensation will
compensate the Servicer for performing the functions of a third party
servicer of Motor Vehicle Contracts and Truck Contracts and for
administering the Receivables on behalf of the Noteholders and 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.
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, 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 or the Servicer and
the Applicable Trustee by the holders of Notes or Certificates, as
applicable, evidencing not less than 25% in aggregate principal amount of
the outstanding Notes (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 a majority 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 or payment to any account. For purposes of the foregoing, Notes or
Certificates owned by the Seller, the Servicer, or any affiliate of either
shall not be considered to be "outstanding."
The Indenture Trustee will have no obligation to notify Noteholders
of any event which, with lapse of time to cure, would become an Event of
Servicing Termination, until after the expiration of any applicable cure
period.
RIGHTS UPON AN EVENT OF SERVICING TERMINATION
As long as an Event of Servicing Termination remains unremedied, the
Indenture Trustee or the holders of Notes evidencing not less than a
majority of the aggregate principal amount of the outstanding Notes may
terminate the Servicer's rights and obligations under the Sale and
Servicing Agreement, whereupon the Indenture Trustee or a servicer
appointed by the Indenture Trustee will succeed to all the
responsibilities, duties, and liabilities of the Servicer under the Sale
and Servicing Agreement. Thereafter, the successor Servicer will be
entitled to the compensation otherwise payable to the Servicer and will be
entitled to similar compensation arrangements. In the event that the
Indenture Trustee is unwilling or legally unable so to act, the Indenture
Trustee may appoint, or petition a court of competent jurisdiction for the
appointment of, an Eligible Servicer to act as successor to the outgoing
Servicer under the Sale and Servicing Agreement. In no event may the
servicing compensation to be paid to such successor be greater than the
servicing compensation payable to the Servicer under the Sale and Servicing
Agreement. In the event of the bankruptcy of the Servicer, the bankruptcy
trustee or the Servicer, as debtor in possession, may have the power to
prevent a termination of the Servicer's rights and obligations under the
Sale and Servicing Agreement.
AMENDMENT
The Transfer and Servicing Agreements may be amended by the parties
thereto without the consent of the Noteholders or the Certificateholders,
to cure any ambiguity, to correct or supplement any provision therein which
may be inconsistent with any other provision therein, to add, change or
eliminate any other provision with respect to matters or questions arising
under the Transfer and Servicing Agreements which are not inconsistent with
the provisions of the Transfer and Servicing Agreements; provided that such
action will not, as evidenced by an Opinion of Counsel satisfactory to the
Indenture Trustee and the Owner Trustee, materially and adversely affect
the interest of any Noteholder or Certificateholder.
The Transfer and Servicing Agreements may also be amended by the
parties thereto (with, in the case of the Sale and Servicing Agreement,
consent of the Indenture Trustee) with the consent of the holders of Notes
evidencing not less than 51% of the aggregate principal amount of then
outstanding Notes, 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 or the Specified Reserve Balance, without the consent
of all adversely affected Noteholders or Certificateholders, (ii) reduce
the aforesaid percentage of the Notes and the Certificates which is
required to consent to any such amendment, without the consent of all
Noteholders or Certificateholders affected thereby, or (iii) adversely
affect the ratings of 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 then outstanding Notes of such class.
See "Description of the Notes--Book Entry Registration."
INSOLVENCY EVENT
If any of certain events of bankruptcy, insolvency, readjustment of
debt, marshalling of assets and liabilities, or similar proceedings with
respect to such person indicating its insolvency or inability to pay its
obligations (each, an "Insolvency Event") occurs with respect to the
Seller, the Receivables shall be sold and the Trust will be terminated 90
days after the date of such Insolvency Event, unless, before the end of
such 90-day period, the Owner Trustee shall have
received written instructions from (i) Noteholders holding a majority of
the outstanding principal amount of the Notes of each class (other than the
Seller), (ii) the Certificateholders holding a majority of the Certificate
Balance (other than the Seller), and (iii) holders of interests, if any, in
the Reserve Account (other than the Seller) having interests with a value
in excess of 50% of all interests in Reserve Account held by such persons,
to the effect that such Noteholders, Certificateholders and holders, if
any, of interests in the Reserve Account, as applicable, disapprove of the
sale of the Receivables and termination of the Trust and in connection
therewith, the Indenture Trustee (i) appoints an entity to acquire an
interest in the Trust and to act as a substitute "general partner" for
Federal income tax purposes and (ii) obtains an Opinion of Counsel that the
Trust will thereafter not be classified as an association or publicly
traded partnership taxable as a corporation for federal income tax and
applicable state tax purposes. Promptly after the occurrence of any
Insolvency Event with respect to the Seller, notice thereof is required to
be given to Noteholders, Certificateholders and holders of interests in the
Reserve Account; provided, however, that any failure to give such required
notice will not prevent or delay termination of the Trust. Upon termination
(except in the circumstances described above), the Owner Trustee shall
direct the Indenture Trustee promptly to sell the assets of the Trust
(other than the Trust Accounts, the Certificate Distribution Account, the
Reserve Account and the Yield Supplement Account) in a commercially
reasonable manner and on commercially reasonable terms. The proceeds from
any such sale, disposition or liquidation of the Receivables will be
treated as collections on the Receivables and deposited in the Collection
Account. If the proceeds from the sale of the Receivables and amounts on
deposit in the Reserve Account, the Yield Supplement Account, the Note
Payment Account and the Collection Account are not sufficient to pay the
Notes in full, the amount of principal returned to the Noteholders will be
reduced and the Noteholders will incur a loss. See "Risk Factors--Limited
Assets; Deficiencies from Sale Upon Insolvency of Seller."
SELLER LIABILITY
Under the Trust Agreement, the Seller will agree to be liable
directly to an injured party for the entire amount of any losses, claims,
damages, liabilities and expenses of the Trust (other than those incurred
by a Noteholder or a Certificateholder in the capacity of an investor)
arising out of or based on the arrangement created by the Trust Agreement
as though such arrangement created a partnership under the Delaware Revised
Uniform Limited Partnership Act of which the Seller were a general partner.
TERMINATION
The obligations of the Seller, the Servicer, the Owner Trustee and
the Indenture Trustee pursuant to the Indenture and the Transfer and
Servicing Agreements will, except with respect to certain reporting
requirements, terminate upon the earliest of (i) the Payment Date next
succeeding the Servicer's purchase of the Receivables, as described below,
(ii) payment to Noteholders and Certificateholders of all amounts required
to be paid to them pursuant to the Transfer and Servicing Agreements, (iii)
the Payment Date next succeeding the date upon which the Receivables are
sold following an Insolvency Event and (iv) 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 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 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 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 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, 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 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.
REPOSSESSION
In the event of a default by an obligor, the holder of a receivable
has all the remedies of a secured party under the UCC, except where
specifically limited by other state laws or by contract. The remedies of a
secured party under the UCC include the right to repossession by means of
self-help, unless such means would constitute a breach of the peace.
Self-help repossession is the method employed by MMCA in most cases, and is
accomplished simply by taking possession of the motor vehicle. Generally,
where the obligor objects or raises a defense to repossession, a court
order must be obtained from the appropriate state court and the motor
vehicle must then be repossessed in accordance with that order. In the
event of a default by an obligor, many jurisdictions require that the
obligor be notified of the default and be given a time period within which
he may cure the default prior to or after repossession. Generally, this
right of reinstatement may be exercised on a limited number of occasions
during the term of a Receivable.
NOTICE OF SALE; REDEMPTION RIGHTS
The UCC and other state laws require the secured party to provide an
obligor with reasonable notice of the date, time, and place of any public
sale and/or the date after which any private sale of the collateral may be
held. The obligor generally has the right to redeem the collateral prior to
actual sale by paying the secured party the unpaid principal amount of the
obligation, accrued and unpaid interest, plus, in most cases, reasonable
expenses for repossessing, holding, and preparing the collateral for
disposition and arranging for its sale plus, in some jurisdictions,
reasonable attorneys' fees. In some states, the obligor has the right,
prior to actual sale, to reinstatement of the original loan terms and to
return of the collateral by payment of delinquent installments of the
unpaid amount and cure any other defaults.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of Financed Vehicles generally will be applied
first to the expenses of repossession and resale and then to the
satisfaction of the indebtedness on the related Receivable. While some
states impose prohibitions or limitations on deficiency judgments if the
net proceeds from resale do not cover the full amount of the indebtedness,
a deficiency judgment can be sought in those states that do not prohibit or
limit such judgments. Any such deficiency judgment would be a personal
judgment against the obligor for the shortfall, however, and a defaulting
obligor may have very little capital or few sources of income available
following repossession. Therefore, in many cases, it may not be useful to
seek a deficiency judgment or, if one is obtained, it may be settled at a
significant discount or not paid at all. MMCA generally seeks to recover
any deficiency existing after repossession and sale of a motor vehicle.
Occasionally, after resale of a repossessed motor vehicle and payment
of all expenses and indebtedness, there is a surplus of funds. In that
case, the UCC requires the secured party to remit the surplus to any other
holder of a lien with respect to the motor vehicle or, if no such
lienholder exists or funds remain after paying such other lienholder, to
the former owner of the motor vehicle.
CONSUMER PROTECTION LAWS
Numerous Federal and state consumer protection laws and related
regulations impose substantial requirements upon lenders and servicers
involved in consumer finance. These laws include the Truth-in-Lending Act,
the Equal Credit Opportunity Act, the Federal Trade Commission Act, the
Fair Credit Billing Act, the Fair Credit Reporting Act, the Fair Debt
Collection Practices Act, the Magnuson-Moss Warranty Act, the Federal
Reserve Board's Regulations B, M and Z, and other similar acts, state
adaptations of the Uniform Consumer Credit Code and state motor vehicle
retail installment sale acts, and other similar laws. Also, state laws
impose finance charge ceilings and other restrictions on consumer
transactions and require contract disclosures in addition to those required
under Federal law. These requirements impose specific statutory liabilities
upon creditors who fail to comply with their provisions. In some cases,
this liability could affect the ability of an assignee, such as the Trust,
to enforce consumer and commercial finance contracts such as the
Receivables. The "Credit Practices" Rule of the Federal Trade Commission
(the "FTC") imposes additional restrictions on contract provisions and
credit practices.
The FTC's holder-in-due-course rule (the "FTC Rule") has the effect
of subjecting a holder of an obligation created in a consumer credit
transaction to all claims and defenses which the purchaser could assert
against the seller of the goods. Liability under the FTC Rule is limited to
the amounts paid by the purchaser under the contract, and the holder of the
contract may also be unable to collect any balance remaining due thereunder
from the purchaser. The FTC Rule is generally duplicated by state statutes
or the common law in certain states. Accordingly, the Indenture Trustee and
the Trust, as holders of the Receivables, may be subject to claims or
defenses, if any, that the purchaser of a Financed Vehicle may assert
against the seller of such vehicle.
Under the motor vehicle dealer licensing laws of most states, sellers
of motor vehicles are required to be licensed to sell such vehicles at
retail sale and to originate certain installment 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.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Set forth below is a summary of certain United States Federal income
tax consequences of the purchase, ownership and disposition of the Notes.
This discussion is based upon current provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), existing and proposed Treasury
Regulations thereunder, current administrative rulings, judicial decisions
and other applicable authorities in effect as of the date hereof, all of
which are subject to change, possibly with retroactive effect. There can be
no assurance that the Internal Revenue Service ("IRS") will not challenge
the conclusions reached herein, and no ruling from the IRS has been or will
be sought on any of the issues discussed below.
This summary does not purport to deal with all aspects of Federal
income taxation that may be relevant to Note Owners in light of their
personal investment circumstances nor, except for certain limited
discussions of particular topics, to certain types of Note Owners subject
to special treatment under the Federal income tax laws (e.g., financial
institutions, broker-dealers, life insurance companies and tax-exempt
organizations). This information is directed to Note Owners who hold the
Notes as "capital assets" within the meaning of Section 1221 of the Code.
GENERAL
Tax Status of the Notes and the Trust. On the Closing Date, Skadden,
Arps, Slate, Meagher & Flom LLP ("Special Tax Counsel") will render its
opinion that for Federal income tax purposes under existing law, and
subject to customary assumptions and qualifications set forth therein: (i)
the Notes will be treated as debt, and (ii) the Trust will not be
classified as an association (or publicly traded partnership) taxable as a
corporation. The Seller, the Owner Trustee and the Indenture Trustee have
agreed, and the Noteholders will agree by their purchase of Notes, to treat
the Notes for Federal, state and local income and franchise tax purposes as
indebtedness of the Trust.
Stated Interest. Stated interest on the Notes will be taxable as
ordinary income for Federal income tax purposes when received or accrued in
accordance with a Note Owner's method of tax accounting.
Original Issue Discount. A Note will be treated as issued with
Original Issue Discount ("OID") if the excess of the Note's "stated
redemption price at maturity" over the issue price equals or exceeds a de
minimis amount equal to 1/4 of 1 percent of the Note's stated redemption
price at maturity multiplied by the number of complete years (based on the
anticipated weighted average life of a Note) to its maturity.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Note and its issue price. A holder of a
Note must include such OID in gross income as ordinary interest income as
it accrues under a method taking into account an economic accrual of the
discount. In general, OID must be included in income in advance of the
receipt of the cash representing that income. The amount of OID on a Note
will be considered to be zero if it is less than a de minimis amount
determined as described above.
The issue price of a Note will generally be the initial offering
price at which a substantial amount of the Notes are sold. The Trust
intends to treat the issue price as including, in addition, the amount paid
by the Noteholder for accrued interest that relates to a period prior to
the Closing Date. Under applicable Treasury regulations governing the
accrual of OID (the "OID Regulations"), the stated redemption price at
maturity is the sum of all payments on the Note other than any "qualified
stated interest" payments. Qualified stated interest is defined as any one
of a series of payments equal to the product of the outstanding principal
balance of the Note and a single fixed rate, or certain variable rates of
interest that is unconditionally payable at least annually.
The Holder of a Note issued with OID must include in gross income,
for all days during its taxable year on which it holds such Note, the sum
of the "daily portions" of such OID. Such daily portions are computed by
allocating to each day during a taxable year a pro rata portion of the OID
that accrued during the relevant accrual period. In the case of an
obligation the principal on which is subject to prepayment as a result of
prepayments on the underlying collateral (a "Prepayable Obligation"), such
as the Notes, OID is computed by taking into account the anticipated rate
of prepayments assumed in pricing the debt instrument (the "Prepayment
Assumption"). The Prepayment Assumption that will be used in determining
the rate of accrual of original issue discount, premium and market
discount, if any, is 1.5% ABS. The amount of OID that will accrue during an
accrual period (generally the period between interest payments or
compounding dates) is the excess (if any) of the sum of (a) the present
value of all payments remaining to be made on the Note as of the close of
the accrual period and (b) the payments during the accrual period of
amounts included in the stated redemption price of the Note, over the
"adjusted issue price" of the Note at the beginning of the accrual period.
An "accrual period" is the period over which OID accrues, and may be of any
length, provided that each accrual period is no longer than one year and
each scheduled payment of interest or principal occurs on either the last
day or the first day of an accrual period. The 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 the Notes were issued with OID, its original issue
price plus any accrued original issue discount that exceeds a de minimis
amount specified in the Code) and thereafter (a) recognizes gain upon a
disposition, or (b) receives payments of principal, the lesser of (i) such
gain or principal payment or (ii) the accrued market discount will be taxed
as ordinary interest income. Generally, the accrued market discount will be
the total market discount on the Note multiplied by a fraction, the
numerator of which is the number of days the Note Owner held the Note and
the denominator of which is the number of days from the date the Note Owner
acquired the Note until its maturity date. The Note Owner may elect,
however, to determine accrued market discount under the constant-yield
method.
Limitations imposed by the Code which are intended to match
deductions with the taxation of income may defer deductions for interest on
indebtedness incurred or continued, or short-sale expenses incurred, to
purchase or carry a Note with accrued market discount. A Note Owner may
elect to include market discount in gross income as it accrues and, if the
Note Owner makes such an election, is exempt from this rule. Any such
election will apply to all debt instruments acquired by the taxpayer on or
after the first day of the first taxable year to which such election
applies. The adjusted basis of a Note subject to such election will be
increased to reflect market discount included in gross income, thereby
reducing any gain or increasing any loss on a sale or taxable disposition.
Amortizable Bond Premium. In general, if a Note Owner purchases a
Note at a premium (that is, an amount in excess of the amount payable upon
the maturity thereof), such Note Owner will be considered to have purchased
such Note with "amortizable bond premium" equal to the amount of such
excess. Such Note Owner may elect to amortize such bond premium as an
offset to interest income and not as a separate deduction item as it
accrues under a constant-yield method over the remaining term of the Note.
Such Note Owner's tax basis in the Note will be reduced by the amount of
the amortized bond premium. Any such election shall apply to all debt
instruments (other than instruments the interest on which is excludible
from gross income) held by the Note Owner at the beginning of the first
taxable year for which the election applies or thereafter acquired and is
irrevocable without the consent of the IRS. Bond premium on a Note held by
a Note Owner who does not elect to amortize the premium will decrease the
gain or increase the loss otherwise recognized on the disposition of the
Note.
Disposition of Notes. A Note Owner's adjusted tax basis in a Note
will be its cost, increased by the amount of any OID, market discount and
gain previously included in income with respect to the Note, and reduced by
the amount of any payment on the Note that is not qualified stated interest
and the amount of bond premium previously amortized with respect to the
Note. A Note Owner will generally recognize gain or loss on the sale or
retirement of a Note equal to the difference between the amount realized on
the sale or retirement and the tax basis of the Note. Such gain or loss
will be capital gain or loss (except to the extent attributable to OID not
previously accrued, accrued but unpaid interest, or as described above
under "--Market Discount") and will be long-term capital gain or loss if
the Note was held for more than one year. In addition, if the Prepayable
Obligation rules apply, any OID that has not accrued at the time of the
payment in full of a Note will be treated as ordinary income.
WAIVERS AND AMENDMENTS
The Indenture permits the Noteholders to waive an Event of Default or
rescind an acceleration of the Notes in some circumstances upon a vote of
the requisite percentage of Noteholders. Any such waiver or rescission, or
any amendment of the terms of the Notes, could be treated for Federal
income tax purposes as a constructive exchange by a Noteholder of the Notes
for new Notes, upon which gain or loss would be recognized.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Indenture Trustee will be required to report annually to the IRS,
and to each Note Owner, the amount of interest paid on the Notes (and the
amount withheld for Federal income taxes, if any) for each calendar year,
except as to exempt recipients (generally, corporations, tax-exempt
organizations, qualified pension and profit-sharing trusts, individual
retirement accounts, or nonresident aliens who provide certification as to
their status). Each Note Owner (other than Note Owners who are not subject
to the reporting requirements) will be required to provide, under penalties
of perjury, a certificate containing the Note Owner's name, address,
correct Federal taxpayer identification number (which includes a social
security number) and a statement that the Note Owner is not subject to
backup withholding. Should a non-exempt Note Owner fail to provide the
required certification or should the IRS notify the Indenture Trustee or
the 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.
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 advisers 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 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 liability under the fiduciary responsibility and prohibited transaction
provisions of ERISA and Section 4975 of the Code may result 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" after
December 31, 1998. The proposed regulations should not, however, adversely
affect the applicability of PTCE 95-60 to purchases of Notes.
GENERAL INVESTMENT CONSIDERATIONS
Prior to making an investment in the Notes, prospective Benefit Plan
investors should consult with their legal advisors concerning the impact of
ERISA and the Code and the potential consequences of such investment with
respect to their specific circumstances. Moreover, each Benefit Plan
fiduciary should take into account, among other considerations, whether the
fiduciary has the authority to make the investment; the composition of the
Benefit Plan's portfolio with respect to diversification by type of asset;
the Benefit Plan's funding objectives; the tax effects of the investment;
and whether under the general fiduciary standards of investment prudence
and diversification an investment in the Notes is appropriate for the
Benefit Plan, taking into account the overall investment policy of the
Benefit Plan and the composition of the Benefit Plan's investment
portfolio.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
agreement (the "Underwriting Agreement"), the Seller has agreed to sell to
each of the Underwriters named below (collectively, the "Underwriters"),
and each of the Underwriters, for whom Merrill Lynch, Pierce, Fenner &
Smith Incorporated is acting as representative (the "Representative"), has
severally agreed to purchase from the Seller, the principal amount of the
Notes set forth opposite its name below:
<TABLE>
<CAPTION>
Principal Principal Principal Principal Principal
Amount Amount Amount Amount Amount
of Class A-1 of Class A-2 of Class A-3 of Class A-4 of Class B
UNDERWRITERS Notes Notes Notes Notes Notes
------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Merrill Lynch, Pierce,
Fenner & Smith
Incorporated........... $ $ $ $ $
[ ]............. $ $ $ $ $
Total.................... $ $ $ $ $
========== =========== =========== =========== =========
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all the
Notes offered hereby if any of the Notes are purchased. In the event of a
default by any Underwriter, the Underwriting Agreement provides that, in
certain circumstances, purchase commitments of the non-defaulting
Underwriters may be increased or the Underwriting Agreement may be
terminated.
The Seller has been advised by the Representative that the several
Underwriters propose initially to offer the Notes to the public at the
prices set forth on the cover page hereof, and to certain dealers at such
prices less a concession not in excess of % of the principal amount of
the Class A-1 Notes, % of the principal amount of the Class A-2 Notes,
% of the principal amount of the Class A-3 Notes, % of the
principal amount of the Class A-4 Notes and % of the principal amount
of the Class B Notes. The Underwriters may allow and such dealers may
reallow a concession not in excess of % of the principal amount of the
Class A-1 Notes, % of the principal amount of the Class A-2 Notes,
% of the principal amount of the Class A-3 Notes, % of the
principal amount of the Class A-4 Notes and % of the principal amount
of the Class B Notes on sales to certain other dealers. After the initial
public offering, the public offering price and such concessions may be
changed.
The Representative has informed the Seller that it does not expect
discretionary sales by the Underwriters to exceed % of the principal
amount of the Notes being offered hereby.
The Underwriters may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in
accordance with Regulation M under the Exchange Act. Overallotment involves
syndicate sales in excess of the offering size, which creates a syndicate
short position. Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of the
securities in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the
Underwriters to reclaim a selling concession from a syndicate member when
the securities originally sold by such syndicate member are purchased in a
syndicate covering transaction to cover syndicate short positions. Such
stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the securities to be higher than it would otherwise
be in the absence of such transactions.
The closing of the sale of the Notes is conditioned on the 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.
INDEX OF PRINCIPAL TERMS
Page
----
ABS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ABS Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Accelerated Principal . . . . . . . . . . . . . . . . . . . . . . . . . 47
Accrual Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Accrued Note Interest . . . . . . . . . . . . . . . . . . . . . . . . . 47
Actuarial Advance . . . . . . . . . . . . . . . . . . . . . . . . . 12, 52
Actuarial Receivables . . . . . . . . . . . . . . . . . . . . . . . . . 28
Administration Agreement . . . . . . . . . . . . . . . . . . . . . . . 64
Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 52
Applicable Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 62
APR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Available Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Basic Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Benefit Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Capped Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Cedel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Cedel Participants . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Certificate Balance . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Certificate Distribution Account . . . . . . . . . . . . . . . . . . . 44
Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 5
Class A Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . 8, 43
Class A Noteholders' Percentage . . . . . . . . . . . . . . . . . 8, 43, 49
Class A Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Class A-1 Final Payment Date . . . . . . . . . . . . . . . . . . . . . . 9
Class A-1 Noteholders . . . . . . . . . . . . . . . . . . . . . . . . 8, 43
Class A-1 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 5
Class A-1 Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Class A-2 Final Payment Date . . . . . . . . . . . . . . . . . . . . . . 9
Class A-2 Noteholders . . . . . . . . . . . . . . . . . . . . . . . . 8, 43
Class A-2 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 5
Class A-2 Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Class A-3 Final Payment Date . . . . . . . . . . . . . . . . . . . . . . 9
Class A-3 Noteholders . . . . . . . . . . . . . . . . . . . . . . . . 8, 43
Class A-3 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 5
Class A-3 Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Class A-4 Final Payment Date . . . . . . . . . . . . . . . . . . . . . . 9
Class A-4 Noteholders . . . . . . . . . . . . . . . . . . . . . . . . 8, 43
Class A-4 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 5
Class A-4 Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Class B Final Payment Date . . . . . . . . . . . . . . . . . . . . . . . 9
Class B Noteholders . . . . . . . . . . . . . . . . . . . . . . . . 8, 43
Class B Noteholders' Percentage . . . . . . . . . . . . . . . . 8, 43, 49
Class B Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 5
Class B Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Collection Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Cooperative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Cutoff Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 6
Dealer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Dealer Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Defaulted Receivable . . . . . . . . . . . . . . . . . . . . . . . . . 46
Deficiency Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Definitive Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Depositaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Depositary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Determination Date . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Direct Participants . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Disqualified Persons . . . . . . . . . . . . . . . . . . . . . . . . . 73
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
DTC Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Due Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Eligible Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Equity Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Euroclear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Euroclear Operator . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Euroclear Participants . . . . . . . . . . . . . . . . . . . . . . . . 41
Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Events of Servicing Termination . . . . . . . . . . . . . . . . . . . . 62
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Final Payment Receivables . . . . . . . . . . . . . . . . . . . . . . . 50
Final Scheduled Maturity Date . . . . . . . . . . . . . . . . . . . . . . 6
Final Payment Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Financed Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Foreign Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
FTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
FTC Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Gap Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17, 51
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Indirect Participants . . . . . . . . . . . . . . . . . . . . . . . . . 39
Initial Pool Balance . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Insolvency Event . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Insolvency Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Interest Carryover Shortfall . . . . . . . . . . . . . . . . . . . . . 47
Interest Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Last Scheduled Payment . . . . . . . . . . . . . . . . . . . . . . . . 50
Last Scheduled Payment Advance . . . . . . . . . . . . . . . . . . 12, 52
Last Scheduled Payment Pool Balance . . . . . . . . . . . . . . . . . . 24
Level Pay Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Level Pay Pool Balance . . . . . . . . . . . . . . . . . . . . . . . . 24
Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 46
Mitsubishi Motors . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
MMCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5, 38
MMSA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5, 38
Monthly Accrued Note Interest . . . . . . . . . . . . . . . . . . . . . 48
Moody's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Motor Vehicle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Motor Vehicle Contracts . . . . . . . . . . . . . . . . . . . . . . . . 20
Note Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . 7, 48
Note Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Note Payment Account . . . . . . . . . . . . . . . . . . . . . . . . . 44
Note Pool Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 5
OID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
OID Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Owner Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Parties-in-Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Payaheads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Payahead Account . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 7
Permitted Investments . . . . . . . . . . . . . . . . . . . . . . . . . 45
Plan Assets Regulation . . . . . . . . . . . . . . . . . . . . . . . . 73
Pool Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Prepayable Obligation . . . . . . . . . . . . . . . . . . . . . . . . . 69
Prepayment Assumption . . . . . . . . . . . . . . . . . . . . . . . . . 69
Principal Carryover Shortfall . . . . . . . . . . . . . . . . . . . . . 48
Principal Distribution Amount . . . . . . . . . . . . . . . . . . . . 8, 46
PTCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Purchase Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Qualified Institution . . . . . . . . . . . . . . . . . . . . . . . . . 44
Qualified Trust Institution . . . . . . . . . . . . . . . . . . . . . . 45
Rating Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Realized Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Receivable File . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Regular Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Reserve Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Reserve Initial Deposit . . . . . . . . . . . . . . . . . . . . . . . . . 9
Rule of 78's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Rule of 78's Payment . . . . . . . . . . . . . . . . . . . . . . . . . 28
Sale and Servicing Agreement . . . . . . . . . . . . . . . . . . . . . . 6
Sample Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Sample Pool Receivables . . . . . . . . . . . . . . . . . . . . . . . . 30
Scheduled Principal . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Servicing Rate . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 60
Simple Interest Receivables . . . . . . . . . . . . . . . . . . . . . . 28
Special Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Special Tax Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Specified Reserve Balance . . . . . . . . . . . . . . . . . . . . . . 9, 50
Standard & Poor's . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Terms and Conditions . . . . . . . . . . . . . . . . . . . . . . . . . 41
Total Required Payment . . . . . . . . . . . . . . . . . . . . . . . 9, 49
Total Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Transfer and Servicing Agreements . . . . . . . . . . . . . . . . . . . 58
Truck . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Truck Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 5
Trust Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Trust Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
UCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . . . . 74
U.S. Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-3
Weighted Average Rate . . . . . . . . . . . . . . . . . . . . . . . . . 10
Yield Supplement Account . . . . . . . . . . . . . . . . . . . . . . . 10
Yield Supplement Agreement . . . . . . . . . . . . . . . . . . . . . . 10
Yield Supplement Amount . . . . . . . . . . . . . . . . . . . . . . . . 10
Yield Supplement Letter of Credit . . . . . . . . . . . . . . . . . . . 45
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.
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.
Finally, day traders that use Cedel or Euroclear and that purchase
Notes from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would automatically fail on the
sale side unless affirmative action were taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until
the purchase side of the day trade is reflected in their Cedel or
Euroclear accounts) in accordance with the clearing system's
customary procedures;
(b) borrowing the Notes in the U.S. from a DTC Participant no
later than one day prior to settlement, which would give the Notes
sufficient time to be reflected in their Cedel or Euroclear account
in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of
the trade so that the value date for the purchase from the DTC
Participant is at least one day prior to the value date for the sale
to the Cedel Participant or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Notes holding securities through Cedel or
Euroclear (or through DTC if the holder has an address outside the U.S.)
will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank, or other
financial institution that holds customers' securities in the ordinary
course of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes
one of the following steps to obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Notes
that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign
Status). If the information shown on Form W-8 changes, a new Form W-8 must
be filed within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income
(Form 4224). A non-U.S. Person, including a non-U.S. corporation or bank
with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
Exemption or reduced rate for non-U.S. persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are Note Owners residing in a
country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing
Form 1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty
provides only for a reduced rate, withholding tax will be imposed at that
rate unless the filer alternatively files Form W-8. Form 1001 may be filed
by the Note Owner or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Note Owner or, in
the case of a Form 1001 or a Form 4224 filer, his agent, files by
submitting the appropriate form to the person through whom it holds (the
clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership (including an entity treated as a
corporation or partnership) organized in or under the laws of the United
States or any state or the District of Columbia (unless, in the case of a
partnership, Treasury regulations provide otherwise), (iii) an estate the
income of which is includible in gross income for United States tax
purposes, regardless of its source, or (iv) a trust if a U.S. court is able
to exercise primary supervision over the administration of such trust and
one or more U.S. persons has the authority to control all substantial
decisions of the trust. This summary does not deal with all aspects of U.S.
Federal income tax withholding that may be relevant to foreign holders of
the Notes. Investors are advised to consult their own tax advisors for
specific tax advice concerning their holding and disposing of the Notes.
Recent Treasury regulations could affect the procedures to be
followed by a non-U.S. Person in complying with the United Stated 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 advisers
regarding the effect, if any, of the regulations on the purchase,
ownership, and disposition of the Notes.
===================================== ==================================
NO DEALER, SALESPERSON OR OTHER $
PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR
INCORPORATED BY REFERENCE 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 MMCA
PROSPECTUS DOES NOT CONSTITUTE AN Auto Owner Trust
OFFER OR A SOLICITATION BY ANYONE IN 1998-1
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 Class A-1
CIRCUMSTANCES, CREATE ANY IMPLICATION % Asset Backed Notes
THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE SELLER OR THE SERVICER $
SINCE THE DATE HEREOF OR THAT THE Class A-2
INFORMATION CONTAINED OR INCORPORATED % Asset Backed Notes
BY REFERENCE HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE. $
Class A-3
--------------- % Asset Backed Notes
TABLE OF CONTENTS $
PAGE Class A-4
% Asset Backed Notes
Available Information............ 4
Reports to Noteholders........... 4 Class B
Summary.......................... 5 % Asset Backed Notes
Risk Factors..................... 14
The Trust........................ 18
The Trust Property............... 19
MMCA's Vehicle Contract
Portfolio...................... 20
The Receivables.................. 24
Pool Factors and Other
Information.................... 37 MMCA Auto
Use of Proceeds.................. 37 Receivables, Inc.
The Seller....................... 37 Seller
The Servicer..................... 38
Description of the Notes......... 38
Description of the Transfer
and Servicing Agreements....... 58
Certain Legal Aspects of the
Receivables.................... 64
Certain Federal Income Tax
Consequences................... 68 [LOGO]
Certain State Tax Consequences... 72 Servicer
ERISA Considerations............. 73
Underwriting..................... 74
Legal Opinions................... 75
Index of Principal Terms......... 76
Annex A..........................A-1
--------------- ---------------
UNTIL , 1998 (90 DAYS AFTER
THE DATE OF THIS PROSPECTUS), ALL PROSPECTUS
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 Merrill Lynch & Co.
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.
====================================== ==================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution
Registration Fee........................................... $ *
Printing and Engraving..................................... $ *
Trustee's Fee.............................................. $ *
Legal Fees and Expenses.................................... $ *
Blue Sky Fees and Expenses................................. $ *
Accountant's Fees and Expenses............................. $ *
Rating Agency Fees......................................... $ *
Miscellaneous Fees and Expenses............................ $ *
---------
Total Expenses............................................. $ *
=========
- ------------------
* To be supplied by amendment.
ITEM 14. Indemnification of Directors and Officers
Section 145 of the General Corporation Law of Delaware provides as
follows:
145 Indemnification of Officers, Directors, Employees and Agents;
Insurance
(a) A corporation 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
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.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive
jurisdiction to hear and determine all actions for advancement of expenses
or indemnification brought under this section or under any bylaw,
agreement, vote of stockholders or disinterested directors, or otherwise.
The Court of Chancery may summarily determine a corporation's obligation to
advance expenses (including attorneys' fees).
Article VIII of the By-Laws of MMCA Auto Receivables, Inc. provides as
follows:
Section 1. Definitions. For purposes of this Article VIII: (i)
"Corporation" shall be deemed to mean this Corporation and shall include,
in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power
and authority to indemnify its directors, officers, employees and agents so
that any person who is or was a director, officer, employee or agent of
such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of
another legal entity shall stand in the same position under the provisions
of this Article VIII with respect to the resulting or surviving corporation
as he would have with respect to such constituent corporation if its
separate existence had continued; (ii) a "legal entity" is a corporation,
partnership, joint venture, trust or other enterprise; (iii) a "proceeding"
is any action, suit, or proceeding, whether civil, criminal,
administrative, arbitrative or investigative, including an action or suit
by or in the right of the Corporation to procure a judgment in its favor,
and any appeal in such an action, suit, or proceeding, and any inquiry or
investigation that could lead to such action, suit or proceeding; and (iv)
a "qualified position" with respect to any legal entity is a position as a
director or an officer of such legal entity or a position held by a
director, officer or employee of such legal entity which does or might
constitute him a fiduciary with respect to any employee benefit plan for
the employees of such legal entity under any Federal or state law
regulating employee benefit plans.
Section 2. Mandatory Indemnification. The Corporation shall indemnify
each person who was or is a party or is threatened to be made a party to
any proceeding by reason of the fact that he is serving in a qualified
position with respect to the Corporation or is serving in a similar
capacity with respect to any other legal entity at the request of the
Corporation, against all expenses (including attorneys' fees and costs of
investigation and litigation), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with any
such proceeding to the maximum extent permitted under the General
Corporation Law of the State of Delaware (the "Delaware Law", which term
shall be deemed to include the General Corporation Law of the State of
Delaware or any successor statute or section thereof, as now written or
hereafter amended). The termination of any proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not of itself create a presumption that such person acted
in such a manner as to make him ineligible for indemnification. The right
of a person to be indemnified hereunder shall be a contract right and shall
include the right to be paid by the Corporation all expenses incurred in
defending any such proceeding in advance of its final disposition upon
compliance with the provisions of Delaware Law then in effect concerning
advancement of expenses.
Section 3. Permissive Indemnification. In addition to the
indemnification provided for in Section 2, the Corporation shall have the
power to indemnify or contract in advance to indemnify, to a lesser or the
same extent that indemnification is required under Section 2, any person
who was or is a party or is threatened to be made a party to any proceeding
by reason of the fact that he is serving in any capacity with respect to
the Corporation or with respect to any other legal entity at the request of
the Corporation.
Section 4. Determination that Indemnification is Proper. Any
indemnification under this Article VIII (unless ordered by a court) shall
be made by the Corporation only as authorized in the specific case upon a
determination that such indemnification is permitted under Delaware Law,
or, in the case of indemnification under Section 3, is proper because the
requirements specified by the Corporation with respect to such
indemnification have been met. Such determination shall be made (i) by the
Board of Directors by a majority vote of a quorum consisting of directors
who neither are nor were parties to the proceeding, or (ii) if such a
quorum is not obtainable or, even though obtainable, a majority of
disinterested directors so directs, by independent legal counsel in a
written opinion, or (iii) by the stockholders. In making a determination
the directors may rely, as to all questions of law, on the advice of
independent legal counsel.
Section 5. Claims for Indemnification or Advances. If a claim for
indemnification or advancement of expenses hereunder is not paid in full by
the Corporation within 60 days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim, and if
successful in whole or in part, the claimant shall be entitled to be paid
the expenses of prosecuting such claim. It shall be a defense to any such
action that such indemnification or advancement of costs of defense are not
permitted under Delaware Law, but the burden of proving such defense shall
be on the Corporation.
Section 6. Miscellaneous. Every reference in this Article VIII to
persons who are entitled to indemnification and advancement of expenses
shall include all persons who formerly occupied any of the positions
hereinabove set forth in this Article VIII, to the extent they would have
been entitled to indemnification and advancement of expenses under the
provisions of this Article VIII if they still held such positions and their
respective heirs, executors and administrators. Indemnification or
advancement of expenses provided pursuant to the foregoing provisions of
this Article VIII shall not be exclusive of any other rights of
indemnification or advancement of expenses to which any person may be
entitled. Such rights include, but are not limited to, any and all rights
under insurance policies that may be purchased and maintained by the
Corporation or others, whether or not the Corporation would have the power
to indemnify such person in the particular instance under the provisions of
this Article VIII, but no person shall be entitled to indemnification by
the Corporation to the extent he is indemnified by any other party,
including an insurer.
Section 7. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer or
employee of the Corporation, or is or was serving at the request of the
Corporation as a director, officer or employee of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising
out of his status as such, whether or not the Corporation would have the
power or the obligation to indemnify him against such liability under the
provisions of this Article VIII.
ITEM 15. Recent Sales of Unregistered Securities
Not applicable.
ITEM 16. Exhibits and Financial Statement Schedules
(a) Exhibits
NUMBER DESCRIPTION
- ------ -----------
1.1 - Form of Underwriting Agreement***
3.1 - Certificate of Incorporation of the Seller*
3.2 - Bylaws of the Seller**
4.1 - Form of Trust Agreement of the Trust between the Seller and the
Owner Trustee***
4.2 - Form of Sale and Servicing Agreement among the Seller, the
Servicer and the Trust***
4.3 - Form of Indenture between the Trust and the Indenture Trustee***
4.4 - Form of Administration Agreement among the Trust, the
Administrator and the Indenture Trustee***
4.5 - Form of Note (contained in Exhibit 4.3)***
5.1 - Opinion of Skadden, Arps, Slate, Meagher & Flom LLP re Legality***
8.1 - Opinion of Skadden, Arps, Slate, Meagher & Flom LLP re Tax
Matters***
10.1 - Form of Purchase Agreement between Mitsubishi Motors Credit of
America, Inc. and the Seller***
10.2 - Yield Supplement Agreement***
23.1 - Consent of Skadden, Arps, Slate, Meagher & Flom LLP (contained
in Exhibit 5.1)***
23.2 - Consent of Skadden, Arps, Slate, Meagher & Flom LLP (contained
in Exhibit 8.1)***
24 - Powers of Attorney
24.1 - Board Resolutions of the Seller***
25 - Form T-1 of Indenture Trustee***
- ----------------
* Incorporated by reference to Exhibit 3.1 of Registration Statement
No. 33-67014.
** Incorporated by reference to Exhibit 3.2 of Registration Statement
No. 33-67014.
*** To be filed by amendment.
(b) Financial Statement Schedules
Not applicable.
ITEM 17. Undertakings
The undersigned Registrant hereby undertakes as follows:
(a) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered
in such names as required by the Underwriters to permit prompt delivery
to each
purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of
such issue.
(c) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed
as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to
Rule 424(b) (1) or (4) or 497(h) under the Securities Act of 1933 shall
be deemed to be part of this Registration Statement as of the time it
was declared effective.
(d) For the purpose of determining any liability under the Securities
Act of 1933, each post effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Cypress, State of California, on July 9, 1998.
MMCA Auto Receivables, Inc.
By: /s/ Hiroshi Yajima
---------------------------------
Hiroshi Yajima
Director and President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Eric L. Eckes, J. Sean Plater, and
Tatsuo Nonaka, and each of them, his true and lawful attorneys-in-fact and
agents with full power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments, including
post-effective amendments, to this Registration Statement, and to file the
same, with all exhibits thereto, and all documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Hiroshi Yajima Director and President July 9, 1998
------------------------ (principal executive
Hiroshi Yajima officer)
/s/ Hideyuki Kitamura Secretary and Treasurer July 9 , 1998
------------------------- (principal financial
Hideyuki Kitamura officer and principal
accounting officer)
/s/ John Maynard Director July 9, 1998
------------------------
John Maynard
/s/ Masaki Takahashi Director July 9 , 1998
------------------------
Masaki Takahashi
/s/ Charles A. Tredway Director July 9 , 1998
------------------------
Charles A. Tredway
/s/ Yasuhiro Hagihara Director July 9, 1998
------------------------
Yasuhiro Hagihara
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ------------ ------------
1.1 Form of Underwriting Agreement***
3.1 Certificate of Incorporation of the Seller*
3.2 Bylaws of the Seller**
4.1 Form of Trust Agreement of the Trust between the
Seller and the Owner Trustee***
4.2 Form of Sale and Servicing Agreement among the
Seller, the Servicer and the Trust***
4.3 Form of Indenture between the Trust and the
Indenture Trustee***
4.4 Form of Administration Agreement among the Trust,
the Administrator and the Indenture Trustee***
4.5 Form of Note (contained in Exhibit 4.3)***
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
re Legality***
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
re Tax Matters***
10.1 Form of Purchase Agreement between Mitsubishi
Motors Credit of America, Inc. and the Seller***
10.2 Yield Supplement Agreement***
23.1 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(contained in Exhibit 5.1)***
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(contained in Exhibit 8.1)***
24 Powers of Attorney 24.1 Board Resolutions of the
Seller***
25 Form T-1 of Indenture Trustee***
- ---------------
* Incorporated by reference to Exhibit 3.1 of Registration Statement
No. 33-67014.
** Incorporated by reference to Exhibit 3.2 of Registration Statement
No. 33-67014.
*** To be filed by amendment.
