Registration No. 333-
- -----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM S-1
Registration Statement Under The Securities Act of 1933
-----------
MMCA AUTO OWNER TRUST 1998-2
(Issuer with respect to the Notes)
MMCA AUTO RECEIVABLES, INC.
(Originator of the Trust described herein)
(Exact name of registrant as specified in its charter)
Delaware 9999 33-0570905
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification
organization) Code 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)
-----------
Eric L. Eckes
6363 Katella Avenue
Cypress, California 90630-5205
(714) 236-1509
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-----------
Copies to:
Susan M. Curtis, Esq. Dale W. Lum, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP Brown & Wood LLP
919 Third Avenue 555 California Street
New York, New York 10022 San Francisco, California 94104
Approximate date of proposed sale to the public: As soon as practicable
after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. |_|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities
Act registration number of the earlier effective registration statement for
the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. |_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==============================================================================================================
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to Offering Price Aggregate Registration
Securities to be Registered be Registered per Unit(1) Offering Price(1) Fee
<S> <C> <C> <C> <C>
% Class A-1 Asset Backed
Notes..................... $ 250,000 100% $ $ 69.50
% Class A-2 Asset Backed
Notes.................... $ 250,000 100% $ $ 69.50
% Class A-3 Asset Backed
Notes................... $ 250,000 100% $ $ 69.50
% Class B Asset Backed Notes. $ 250,000 100% $ $ 69.50
================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee.
</TABLE>
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]
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS Dated , 1998
PROSPECTUS
$
MMCA Auto Owner Trust 1998-2
$ % Class A-1 Asset Backed Notes
$ % Class A-2 Asset Backed Notes
$ % Class A-3 Asset Backed Notes
$ % Class B Asset Backed Notes
MMCA Auto Receivables, Inc.
Seller
[LOGO]
Servicer
The trust will issue the following classes of notes:
<TABLE>
<CAPTION>
Class A Notes
------------------------------------------------
Class A-1 Class A-2 Class A-3 Class B
Notes Notes Notes Notes
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Principal Amount...................... $ $ $ $
------------- ------------- ------------- -------------
Interest Rate......................... % % % %
------- -------- ------- -------
Payment Dates......................... Monthly Monthly Monthly Monthly
First Payment Date.................... -------------- ------------ ----------- -------------
Final Payment Date.................... -------------- ------------ ----------- -------------
Price to Public (1)................... % % % %
------- ------- ------- -------
Underwriting Discounts
and Commissions (2)................ % % % %
------- ------- ------ -------
Proceeds to Seller (3)................ % % % %
------- ------- ------ -------
- --------------------
(1) Plus accrued interest, if any, from , 1998. The total
price to the public (including such accrued interest) = $ .
(2) Total underwriting discounts and commissions = $ .
(3) Total proceeds to the Seller = $ .
</TABLE>
The Class B Notes will be subordinated to the Class A Notes. Subordination
of the Class B Notes will provide credit enhancement for the Class A Notes.
The trust is also issuing $ % Asset Backed Certificates. The certificates
will be subordinated to both the Class A Notes and the Class B Notes, which
will provide additional credit enhancement to both classes of Notes. This
prospectus relates only to the offering of the Class A Notes and the Class
B Notes. The certificates are not offered under this prospectus.
Consider carefully the risk factors beginning on page 13 of this
prospectus.
The notes represent obligations of the trust and are backed only by the
assets of the trust. The notes do not represent obligations of or interests
in MMCA Auto Receivables, Inc., Mitsubishi Motors Credit of America, Inc.
or any of their respective affiliates.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed on the
adequacy or accuracy of this prospectus. Any representation to the contrary
is a criminal offense.
These securities are offered subject to availability.
Underwriters of the Class A Notes
Merrill Lynch & Co.
Underwriter of the Class B Notes
Merrill Lynch & Co.
The date of this Prospectus is , 1998
IMPORTANT NOTICE
ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS
You should rely only on information on the notes provided in this
prospectus. We have not authorized anyone to provide you with different
information.
We include cross-references in this prospectus to captions in these
materials where you can find further related discussions. The following
table of contents provides the pages on which these captions are located.
You can find a listing of the pages where capitalized terms used in this
prospectus are defined under the caption "Index of Principal Terms"
beginning on page 85 in this prospectus.
Neither the Securities and Exchange Commission (the "Commission") nor any
state securities commission has approved these securities or determined
that this prospectus is accurate or complete. Any representation to the
contrary is a criminal offense.
TABLE OF CONTENTS
Page
SUMMARY..................................................................5
Offered Notes............................................................5
Subordination............................................................5
Seller...................................................................5
Servicer.................................................................6
Indenture Trustee........................................................6
Owner Trustee............................................................6
Payment Dates; Record Dates..............................................6
Interest Payments........................................................6
Principal Payments.......................................................7
Final Payment Dates......................................................8
Optional Redemption......................................................8
Mandatory Redemption.....................................................8
Trust Property...........................................................8
The Initial Receivables..................................................9
Pre-Funding..............................................................9
Negative Carry Account..................................................10
Credit Enhancement......................................................10
Reserve Account and
Supplemental Reserve Account.......................................10
Yield Supplement Account.............................................11
Certificates and Class B Notes.......................................11
Priority of Distributions...............................................11
Tax Status..............................................................11
ERISA Considerations....................................................11
Legal Investment........................................................12
Rating of the Notes.....................................................12
RISK FACTORS............................................................13
Limited Ability to Resell Notes.........................................13
Certain Legal Aspects - The Receivables.................................13
Certain Legal Aspects - Bankruptcy
Considerations.......................................................13
Possible Prepayments as a Result
of Pre-Funding.......................................................14
Trust's Dependence Upon MMCA
for Subsequent Receivables...........................................14
Changes in Pool Characteristics as a
Result of Pre-Funding................................................15
Maturity and Prepayment Considerations..................................15
Limited Assets; Deficiencies from Sale
upon Insolvency of Seller............................................16
Last Scheduled Payment Risk.............................................17
Geographic Concentration................................................18
Event of Default Considerations.........................................19
Book Entry Registration.................................................19
Risk of Year 2000.......................................................19
THE TRUST...............................................................20
General.................................................................20
Capitalization of the Trust.............................................21
The Owner Trustee.......................................................21
THE TRUST PROPERTY......................................................21
MMCA'S VEHICLE CONTRACT
PORTFOLIO ...........................................................21
General.................................................................21
Underwriting............................................................22
Servicing and Collection................................................23
Physical Damage Insurance...............................................23
Delinquency, Credit Loss and
Returned Vehicle Loss Experience.....................................24
THE RECEIVABLES.........................................................26
Selection Criteria......................................................27
Certain Characteristics.................................................28
Payments on the Receivables.............................................31
Maturity and Prepayment Considerations..................................32
POOL FACTORS AND OTHER
INFORMATION..........................................................39
USE OF PROCEEDS.........................................................39
THE SELLER..............................................................39
THE SERVICER............................................................40
DESCRIPTION OF THE NOTES................................................40
General.................................................................40
Book Entry Registration.................................................41
Definitive Notes........................................................44
Interest................................................................45
Principal...............................................................45
Mandatory Redemption....................................................46
Optional Redemption.....................................................46
The Indenture Trustee...................................................47
The Accounts............................................................47
Yield Supplement Agreement..............................................48
Yield Supplement Account................................................48
The Indenture Cash Flows................................................49
Negative Carry Account..................................................53
Reserve Account and Supplemental
Reserve Account......................................................54
Final Payment Receivables...............................................55
Subordination of the Class B Notes
and the Certificates.................................................57
Advances................................................................57
Collections on the Receivables..........................................58
Statements to Noteholders...............................................58
Indenture...............................................................59
Events of Default....................................................59
Remedies.............................................................60
Certain Covenants....................................................61
Replacement of Indenture Trustee.....................................62
Duties of Indenture Trustee..........................................62
Compensation and Indemnity...........................................62
Access to Noteholder Lists...........................................62
Annual Compliance Statement..........................................62
Satisfaction and Discharge of Indenture..............................63
Modification of Indenture............................................63
DESCRIPTION OF THE TRANSFER
AND SERVICING AGREEMENTS.............................................64
Sale and Assignment of the Initial
Receivables and the Subsequent Receivables...........................64
Pre-Funding.............................................................66
Mandatory Repurchase of Receivables.....................................66
Servicing Procedures....................................................66
Servicing Compensation..................................................68
Evidence as to Compliance...............................................69
Certain Matters Regarding the Servicer..................................69
Indemnification and Limits on Liability.................................69
Events of Servicing Termination.........................................69
Rights Upon an Event of Servicing
Termination..........................................................70
Amendment...............................................................70
Termination.............................................................71
Administration Agreement................................................71
CERTAIN LEGAL ASPECTS OF
THE RECEIVABLES......................................................72
Rights in the Receivables...............................................72
Security Interests in the Financed Vehicles.............................72
Repossession............................................................74
Notice of Sale; Redemption Rights.......................................74
Deficiency Judgments and Excess Proceeds................................74
Consumer Protection Laws................................................75
Other Limitations.......................................................75
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES.........................................................76
General.................................................................76
Tax Status of the Notes and the Trust................................76
Stated Interest......................................................76
Original Issue Discount..............................................76
Total Accrual Election...............................................77
Market Discount......................................................78
Amortizable Bond Premium.............................................78
Disposition of Notes.................................................78
Waivers and Amendments..................................................78
Information Reporting and Backup
Withholding..........................................................78
Tax Consequences to Foreign Investors...................................79
CERTAIN STATE TAX CONSEQUENCES..........................................80
ERISA CONSIDERATIONS....................................................80
Plan Asset Considerations...............................................80
Special Considerations Applicable to
Insurance Company General Accounts...................................81
General Investment Considerations.......................................81
UNDERWRITING............................................................84
LEGAL OPINIONS..........................................................84
WHERE YOU CAN FIND MORE
INFORMATION.............................................................84
INDEX OF PRINCIPAL TERMS................................................85
ANNEX A.................................................................89
SUMMARY
o This summary highlights selected information from this prospectus and
does not contain all of the information that you need to consider in
making your investment decision. To understand all of the terms of the
offering of the notes, read carefully this entire prospectus.
o This summary provides an overview of certain calculations, cash flows
and other information to aid your understanding and is qualified by the
full description of these calculations, cash flows and other
information in this prospectus.
Offered Notes Subordination
MMCA Auto Owner Trust 1998-2 The Class B Notes will be
(the "Trust") is offering the subordinated to the Class A Notes as
following notes pursuant to follows:
this prospectus:
o no interest will be paid on
o [ ]% Class A-1 Asset the Class B Notes on any
Backed Notes (the "Class payment date until all
A-1 Notes") in the interest owed on the Class A
aggregate principal Notes through that payment
amount of $[ ]; date has been paid in full;
o [ ]% Class A-2 Asset o no principal will be paid
Backed Notes (the "Class on the Class B Notes on any
A-2 Notes") in the payment date until the Class
aggregate principal A-1 Notes have been paid in
amount of $[ ]; full and all principal owed
on the Class A-2 Notes and
o [ ]% Class A-3 Asset the Class A-3 Notes through
Backed Notes (the "Class that payment date has been
A-3 Notes" and, together paid in full; and
with the Class A-1 Notes
and the Class A-2 Notes, o upon an acceleration of the
the "Class A Notes") in maturity of the Notes
the aggregate principal following an event of default
amount of $[ ]; and under the Indenture, no
principal will be paid on the
o [ ]% Class B Asset Backed Class B Notes on any payment
Notes (the "Class B date until the Class A Notes
Notes" and, together with have been paid in full.
the Class A Notes, the
"Notes") in the aggregate The Certificates will be
principal amount of $[ ]. subordinated to the Notes as
follows:
The Trust is also issuing $[ ]
[ ]% Asset Backed Certificates o no distributions will be
(the "Certificates"). The made on the Certificates on
Certificates are not being any payment date until all
offered pursuant to this interest and principal owed
prospectus. on the Notes through that
payment date have been paid
Each class of Notes is being in full.
offered as book-entry
securities clearing through For a more detailed description of
The Depository Trust Company the subordination of the Class B
(in the United States) or Notes and the Certificates, see
Cedel Bank, societe anonyme or "Description of the
the Euroclear System (in Notes-Subordination of the Class B
Europe) in minimum Notes and the Certificates" in this
denominations of $1,000 and in prospectus.
integral multiples thereof.
Seller
For a more detailed
description of the Notes, see MMCA Auto Receivables, Inc., a
"Description of the Notes" in Delaware corporation (the "Seller").
this prospectus. The Seller's principal executive
offices are located at 6363 Katella
Avenue, Cypress, California
90630-5205 (telephone: (714) 236-1592).
For a more detailed
description of the Seller, see
"The Seller" in this
prospectus.
Servicer Interest Payments
Mitsubishi Motors Credit of Interest will accrue on the Notes at
America, Inc., a Delaware the following rates per annum:
corporation ("MMCA" or the
"Servicer"). For a more o the Class A-1 Notes: %
detailed description of the per annum (the "Class A-1
Servicer, see "The Servicer" Rate");
in this prospectus.
o the Class A-2 Notes: %
Indenture Trustee per annum (the "Class A-2
Rate");
Bank of Tokyo-Mitsubishi Trust
Company will be the trustee o the Class A-3 Notes: %
(the "Indenture Trustee") per annum (the "Class A-3
under the indenture (the Rate"); and
"Indenture") pursuant to which
the Notes will be issued. For o the Class B Notes: %
a more detailed description of per annum (the "Class B Rate").
the Indenture Trustee, see
"Description of the Notes-The On each payment date, interest will
Indenture Trustee" in this be paid on the principal amount of
prospectus. each class of Notes as of the
preceding payment date or, with
Owner Trustee respect to the first payment date,
the initial principal amount of such
Wilmington Trust Company will class of Notes, in the following
be the trustee (the "Owner order of priority:
Trustee") under the trust
agreement (the "Trust o to the holders of the Class A
Agreement") pursuant to which Notes (the "Class A
the Trust will be created. For Noteholders") ratably in
a more detailed description of proportion to the respective
the Owner Trustee, see "The principal balances of the
Trust-The Owner Trustee" in Class A-1 Notes, the Class
this prospectus. A-2 Notes and the Class A-3
Notes until the interest
Payment Dates; Record Dates payable on the Class A Notes
has been paid in full; and
Payments on the Notes will be
made on the 15th day of each o once the interest payable on
calendar month or, if the 15th the Class A Notes has been
day of such calendar month is paid in full, to the holders
not a business day, the next of the Class B Notes (the
business day, beginning with "Class B Noteholders" and,
[ ], 1999. together with the Class A
Noteholders, the
Payments will be made on each "Noteholders") until the
payment date to holders of interest payable on the Class
record of the Notes as of the B Notes has been paid in
business day immediately full.
preceding such payment date
or, if the holders are issued Interest on the Class A-1 Notes will
individual fully registered be calculated on the basis of the
certificated notes following actual number of days elapsed and a
the occurrence of certain 360-day year.
circumstances described under
"Description of the Notes - Interest on the Class A-2 Notes, the
Definitive Notes," as of the Class A-3 Notes and the Class B
15th day of the preceding Notes will be calculated on the
calendar month or, if such basis of a 360-day year of twelve
15th day is not a business 30-day months.
day, the next business day.
For a more detailed For a more detailed description of
description of the payment the interest payable on the Notes,
dates and record dates for the see "Description of the
Notes, see "Description of the Notes-Interest" in this prospectus.
Notes-Interest" in this
prospectus.
Principal Payments On the payment date on which the
Class A-1 Notes have been paid in
The amount available on any full, the Class A-2 Noteholders will
payment date for the payment be paid the Class A Noteholders'
of principal on the Notes is Percentage of the remaining
the "Principal Distribution Principal Distribution Amount and on
Amount." The Principal each following Payment Date the
Distribution Amount for any Class A-2 Noteholders will be paid
payment date will generally be the Class A Noteholders' Percentage
based upon the amount of of the Principal Distribution Amount
principal scheduled to be paid until the Class A-2 Notes are paid
on the Receivables during the in full. After such payments are
preceding calendar month. For made to the Class A-2 Noteholders,
a more detailed description of the Class B Noteholders will be paid
the Principal Distribution the Class B Noteholders' Percentage
Amount, see "Description of of the Principal Distribution Amount
the Notes-The Indenture Cash (which with respect to the payment
Flows" in this prospectus. date on which the Class A-1 Notes
are paid in full will be the
On each payment date, remaining Principal Distribution
principal will be paid on the Amount).
Notes as follows:
On the payment date on which the
(i) the entire Principal Class A-2 Notes have been paid in
Distribution Amount will be full, the remaining Class A
paid to the Class A-1 Noteholders' Percentage of the
Noteholders until the Class Principal Distribution Amount, and
A-1 Notes are paid in full; on each following payment date, the
and entire Class A Noteholders'
Percentage of the Principal
(ii)on the payment date on Distribution Amount, will be paid to
which the Class A-1 Notes the Class A-3 Noteholders until the
have been paid in full, the Class A-3 Notes are paid in full.
remaining Principal After such payments are made to the
Distribution Amount, and on Class A-3 Noteholders, the Class B
each following payment date, Noteholders will be paid the Class B
the entire Principal Noteholders' Percentage of the
Distribution Amount, will be Principal Distribution Amount.
divided between the
remaining Class A No distributions will be made on the
Noteholders and the Class B Certificates on any payment date
Noteholders as follows: until all interest and principal
owed on the Notes as of that payment
(A) the remaining Class A date have been paid in full.
Noteholders will be paid a
fixed percentage of the "Class A Noteholders' Percentage"
Principal Distribution means %, which is the percentage
Amount that is referred to equivalent of a fraction, the
in this prospectus as the numerator of which is equal to the
"Class A Noteholders' sum of the initial principal amounts
Percentage"; and of the Class A-2 Notes and the Class
A-3 Notes, and the denominator of
(B) after payment of the which is equal to the sum of the
Class A Noteholders' initial principal amounts of the
Percentage of the Class A-2 Notes, the Class A-3 Notes
Principal Distribution and the Class B Notes.
Amount to the remaining
Class A Noteholders, the "Class B Noteholders' Percentage"
Class B Noteholders will means %, which is the percentage
be paid a fixed percentage equivalent of a fraction, the
of the Principal numerator of which is the initial
Distribution Amount that principal amount of the Class B
is referred to in this Notes, and the denominator of which
prospectus as the "Class B is equal to the sum of the initial
Noteholders' Percentage". principal amounts of the Class A-2
Notes, the Class A-3 Notes and the
No share of the Class A Class B Notes.
Noteholders' Percentage of the
Principal Distribution Amount Optional Redemption
will be paid to the Class A-3
Noteholders until the Class Any Notes that remain outstanding on
A-2 Notes have been paid in any payment date on which the
full. Thus, although the Class Servicer exercises its option to
B Notes are subordinate to the purchase the Receivables will be
Class A-3 Notes, part of the redeemed at a price equal to the
principal of the Class B Notes unpaid principal amount of the Notes
will be paid prior to payment plus accrued and unpaid interest
of any principal on the Class thereon. The Servicer will be able
A-3 Notes unless the maturity to exercise its option to purchase
dates of the Notes are the Receivables on any payment date
accelerated following an event as of which the aggregate principal
of default under the Indenture balance of the Receivables is 10% or
as discussed below. less of an amount equal to the sum
of (i) the aggregate principal
However, on each payment date balance of the Initial Receivables
occurring on and after an as of the Initial Cut-Off Date and
acceleration of the maturity (ii) the amount to be deposited to
dates of the Notes following the Trust's Pre-Funding Account on
an event of default under the the closing date. For a more
Indenture, principal payments detailed description of the
will be made as follows: Servicer's option to purchase of the
Receivables, see "Description of the
o to the Class A Noteholders Notes-Optional Redemption" in this
ratably in proportion to prospectus.
the respective principal
balances of the Class A-1 Mandatory Redemption
Notes, the Class A-2 Notes
and the Class A- 3 Notes, As described below under
until the Class A Notes "Pre-Funding" in this Summary, the
have been paid in full; Trust will have a Pre-Funding
and Period. On the payment date on or
immediately following the last day
o once the Class A Notes of the Pre-Funding Period, any funds
have been paid in full, to remaining in the Trust's Pre-Funding
the Class B Noteholders, Account (after any purchase of
until the Class B Notes Receivables on such date) will be
have been paid in full. applied to redeem the Notes then
outstanding in whole or in part in
In addition, to the extent not the same sequence and proportions
previously paid, the that would apply if such remaining
outstanding principal amount funds were a part of the Principal
of each class of Notes will be Distribution Amount. For a more
payable on the related Final detailed description of the
Payment Date set forth below mandatory redemption of the Notes,
under "Final Payment Dates" in see "Description of the
this Summary. Notes-Mandatory Redemption" in this
prospectus.
For a more detailed
description of the principal Trust Property
payable on the Notes, see
"Description of the The property of the Trust will
Notes-Principal" in this include:
prospectus.
o the Receivables and related
Final Payment Dates collections as described
below under "The Initial
The outstanding principal Receivables" and
amount, if any, of each class "Pre-Funding" in this
of Notes will be payable in Summary;
full on the date specified
below for such class of Notes o security interests in the
to the extent not previously vehicles financed by the
paid: Receivables;
o the Class A-1 Notes: [ o certain bank accounts
] (the "Class A-1 established for the Trust;
Final Payment Date");
Pre-Funding
o the Class A-2 Notes: [
] (the In addition to the Initial
"Class A-2 Final Receivables, the Trust will (subject
Payment Date"); to availability and certain
conditions) purchase additional
o the Class A-3 Notes: motor vehicle retail installment
[ ] sales contracts (the "Subsequent
(the "Class A-3 Final Receivables") from the Seller during
Payment Date"); and a period beginning on the closing
date and ending not later than the
o the Class B Notes: close of business on the [ ] payment
[ ] date (the "Pre-Funding Period"). The
(the "Class B Final Initial Receivables together with
Payment Date" and, the Subsequent Receivables are
together with the referred to as the "Receivables" in
foregoing, each a "Final this prospectus.
Payment Date").
The Trust will pay the purchase
For a more detailed price for Subsequent Receivables
description of the Final with funds on deposit in an account
Payment Dates for the Notes, (the "Pre-Funding Account") to be
see "Description of the maintained in the name of the
Notes-Principal" in this Indenture Trustee. The Seller will
prospectus. deposit an amount equal to $[ ] (the
"Initial Pre-Funded Amount") in the
o rights to proceeds under Pre-Funding Account on the closing
certain insurance date. The Seller expects to sell
policies covering the Subsequent Receivables to the Trust
obligors under the with an aggregate principal balance
Receivables and the approximately equal to the Initial
vehicles financed by the Pre-Funded Amount during the Pre-
Receivables; and Funding Period.
o certain rights relating The Pre-Funding Period will end
to breaches of earlier than the date specified
representations and above if:
warranties of the
dealers that originated o the amount on deposit in the
the Receivables under Pre-Funding Account is
the agreements pursuant reduced to less than $100,000
to which the dealers prior to such date because of
sold the Receivables to purchases of Subsequent
MMCA. Receivables;
For a more detailed o there is an event of default
description of the property of under the Indenture or a
the Trust, see "The Trust default by the Servicer in
Property" in this prospectus. the performance of its
servicing obligations; or
The Initial Receivables
o the Seller or the Servicer
On the closing date, the Trust are subject to insolvency
will acquire a pool of motor proceedings.
vehicle retail installment
sale contracts (the "Initial Any funds remaining on deposit in
Receivables") with an the Pre-Funding Account at the end
aggregate principal balance of of the Pre-Funding Period will be
$[ ] as of [ ], payable to the Noteholders as
1998 (the "Initial Cutoff Date"). described under "Mandatory
Redemption" in this Summary. Prior
As of the Initial Cutoff Date: to being used to purchase Subsequent
Receivables or paid to the
o the Level Pay Pool Noteholders, funds on deposit in the
Balance of the Initial Pre-Funding Account will be invested
Receivables was $[ ]; in investments satisfying certain
and criteria. The net earnings from such
investments will be transferred to
o the Last Scheduled the Trust's collection account on
Payment Pool Balance of the business day preceding each
the Initial Receivables payment date.
was $[ ].
The "Level Pay Pool Balance" Funds on deposit in the Negative
is the aggregate principal Carry Account on any payment date in
balance of the Receivables excess of the required balance will
less the Last Scheduled be released to the Seller. Any
Payment Pool Balance of the amounts remaining on deposit in the
Receivables. Negative Carry Account at the end of
the Pre-Funding Period will be
The "Last Scheduled Payment released to the Seller.
Pool Balance" is the aggregate
principal balance of the Last For a more detailed description of
Scheduled Payments of the the Negative Carry Account, see
Receivables that are Final "Description of the Notes-Negative
Payment Receivables. "Final Carry Account" in this prospectus.
Payment Receivables" are
Receivables that provide for Credit Enhancement
level monthly payments that do
not amortize the entire amount Reserve Account and Supplemental
financed over the term of the Reserve Account
Receivable and one
substantially larger final As credit enhancement for the Notes,
payment which constitutes the accounts to be known as the "Reserve
remaining amount financed, Account" and the "Supplemental
which is the "Last Scheduled Reserve Account" will be maintained
Payment". in the name of the Indenture
Trustee.
For a more detailed
description of the Initial The Reserve Account and the
Receivables, see "The Supplemental Reserve Account will be
Receivables" in this funded as follows:
prospectus.
o on the closing date, the
Subsequent Receivables may be Seller will deposit $ into
originated at a later date the Reserve Account;
than the Initial Receivables,
using credit criteria o no deposit will be made to
different from those that were the Supplemental Reserve
applied to the Initial Account on the closing date;
Receivables. In addition,
following the transfer of o on the date of each sale of
Subsequent Receivables to the Subsequent Receivables to the
Trust, the characteristics of Trust, the Indenture Trustee
the entire pool of Receivables will transfer an amount equal
included in the Trust may vary to % of the aggregate
from those of the Initial principal balance of those
Receivables. However, the pool Subsequent Receivables as of
of Receivables will not the related Subsequent
deviate from the following Cut-Off Date from the
characteristics as of each Pre-Funding Account to the
date on which Subsequent Reserve Account; and
Receivables are added to the
pool (after giving effect to o on each payment date, any
the addition of such Subsequent collections remaining after
Receivables): (1) the the payment of (i) the
weighted average remaining maturity amounts payable to the
of the Receivables will not be Servicer and (ii) the
more than [ ] months; and (2) interest and principal
the average Last Scheduled payable to the Noteholders
Payment of the Final will be deposited (A) to the
Payment Receivables as a Reserve Account to the extent
percentage of the aggregate necessary to reinstate the
original principal balances of required balance of the
the Final Payment Receivables, Reserve Account and (B) to
in each case as of the related the extent of any remaining
dates of origination, will not collections, to the
be greater than [ ]%. Supplemental Reserve Account
to the extent necessary to
For a more detailed reinstate the required
description of the Pre-Funding balance of the Supplemental
Period and the Subsequent Reserve Account.
Receivables, see "Description
of the Transfer and Servicing Priority of Distributions
Agreements-Pre-Funding" and
"The Receivables" in this On each payment date, funds on
prospectus. deposit in the Trust's collection
account will be distributed in the
Negative Carry Account following order of priority after
withdrawing the amount, if any,
In order to provide a source necessary to reimburse the Servicer
of funds to cover anticipated for advances previously made by the
negative carry resulting from Servicer that are due and payable to
the difference between the the Servicer:
weighted average interest rate
on the Notes and the net (i) the servicing fee payable to
earnings from the investment the Servicer;
of funds on deposit in the
Pre-Funding Account, an (ii) the interest and principal
account to be known as the payable to the Noteholders in
"Negative Carry Account" will the order of priority described
be maintained in the name of under "Interest" and "Principal"
the Indenture Trustee. On or in this Summary;
prior to the closing date, the
Seller will deposit $[ ] into (iii) the deposit to the Reserve
the Negative Carry Account. On Account of the amount, if any,
each payment date during the needed to reinstate the required
Pre-Funding Period, an amount balance of the Reserve Account;
equal to the Negative Carry and
Amount for that payment date
will be transferred from the (iv) the deposit to the
Negative Carry Account to the Supplemental Reserve Account of
Trust's collection account. the amount, if any, needed to
reinstate the required balance
As more fully described under of the Supplemental Reserve
"Description of the Account.
Notes-Negative Carry Account,"
the "Negative Carry Amount" For a more detailed description of
for a payment date is the the priority of distributions, see
excess, if any, of: "Description of the Notes-The
Indenture Cash Flows" in this
o the portion of the prospectus.
interest payable on the
Notes on such payment date Tax Status
that is effectively backed
by funds on deposit in the In the opinion of Skadden, Arps,
Pre-Funding Account, Slate, Meagher & Flom LLP, for
rather than collections of Federal income and Delaware and
interest on the California income and franchise tax
Receivables, over purposes:
o the net earnings from the o the Notes will be
investment of the funds on characterized as debt; and
deposit in the Pre-Funding
Account since the o the Trust will not be
preceding payment date. characterized as an association
(or a publicly traded
Funds on deposit in the partnership) taxable as a
Supplemental Reserve Account corporation.
and, to the extent such funds
are insufficient, funds on Each Noteholder, by the acceptance
deposit in the Reserve of a Note, will agree to treat the
Account, will be available on Notes as indebtedness.
each payment date to pay (i)
the amounts payable to the For a more detailed description of
Servicer and (ii) the interest the tax status of the Notes and the
and principal payable to the Trust, see "Certain Federal Income
Noteholders. Tax Consequences" and "Certain State
Tax Consequences" in this
Funds on deposit in the prospectus.
Reserve Account and the
Supplemental Reserve Account
on any payment date in excess
of the required balances of
such accounts will be released
to the Seller.
For a more detailed
description of the Reserve
Account and the Supplemental
Reserve Account , see
"Description of the
Notes-Reserve Account and
Supplemental Reserve Account"
in this prospectus.
Yield Supplement Account
An account to be known as the
"Yield Supplement Account"
will be maintained in the name
of the Indenture Trustee to
cover shortfalls, if any, in
the yield on certain
Receivables and the portion of
the servicing fee and the
interest payable on the Notes
that is effectively backed by
collections of interest on
such Receivables.
The Yield Supplement Account
will be funded by an initial
deposit by the Seller on the
closing date and by an
additional transfer of funds
from the Pre-Funding Account
on each date on which
Subsequent Receivables are
sold to the Trust.
Funds on deposit on the Yield
Supplement Account on any
payment date in excess of the
required balance of the
account will be released to
the Seller.
For a more detailed
description of the Yield
Supplement Account, see
"Description of the
Notes-Yield Supplement
Account" in this prospectus.
Certificates and Class B Notes
The subordination of the
Certificates to the Notes and
the Class B Notes to the Class
A Notes will provide
additional credit enhancement
as described under
"Subordination" in this
Summary.
ERISA Considerations
Subject to the considerations
discussed under "ERISA
Considerations" in this
prospectus, the Notes may, in
general, be purchased by or on
behalf of employee benefit
plans subject to the Employee
Retirement Income Security Act
of 1974, as amended ("ERISA").
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:
o each class of Class A
Notes be rated "Aaa" by
Moody's Investors Service,
Inc. ("Moody's") and "AAA"
by Standard & Poor's, a
division of The
McGraw-Hill Companies
("Standard & Poor's"
and, together with
Moody's, each a "Rating
Agency"); and
o 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 Moody's or
Standard & Poor's if
circumstances so warrant.
RISK FACTORS
You should consider the following risk factors in deciding whether
to purchase Notes.
Limited Ability to Resell
Notes There currently is no secondary market for the
Notes. The underwriters for the Notes expect
to make a market in each class of Notes but
will not be obligated to do so. There is no
assurance that a secondary market for the
Notes will develop. If a secondary market for
the Notes does develop, it might not be
sufficiently liquid to allow Noteholders to
resell any of their Notes and might not
continue.
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. 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 vehicles financed by the Receivables to
the Trust in connection with each sale and
assignment of the Receivables to the Trust.
Following each sale and assignment of the
Receivables to the Trust, the Servicer will
hold the certificates of title or ownership
relating to such 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 vehicle financed by the Receivables (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 MMCA will sell the Receivables to the Seller,
and the Seller will in turn sell the
Receivables to the Trust. However, a court
could conclude that MMCA or the Seller
effectively still owns the Receivables, either
because such sales were not "true sales" or
because the court concludes that for
bankruptcy purposes the Seller should be
treated as the same person as MMCA or that the
Trust should be treated as the same person as
either MMCA or the Seller. If this were to
occur, then a Noteholder could experience
delays or reductions in payments as a result
of, among other things:
o the "automatic stay" which prevents
secured creditors from exercising remedies
against a debtor in bankruptcy without
permission from the court and provisions
of the U.S. Bankruptcy Code that permit
substitution of collateral in certain
circumstances;
o certain tax or government liens on MMCA's
or the Seller's property (that arose prior
to the transfer of a Receivable to the
Trust) having a right to be paid from
collections before the collections are
used to make payments on the Notes; and
o the Trust might not have a perfected
interest in (a) one or more of the motor
vehicles securing the Receivables and (b)
any cash collections held by MMCA at the
time that a bankruptcy proceeding begins.
The Seller has taken steps in structuring the
transactions contemplated herein to ensure
that a court would not treat the Seller as the
same person as MMCA or the Trust as the same
person as either MMCA or 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."
Possible Prepayments as
a Result of Pre-Funding If the aggregate principal balance of eligible
Receivables purchased by MMCA during the
Pre-Funding Period is less than the Initial
Pre-Funded Amount, the Seller may not have
sufficient Receivables to sell to the Trust
during the Pre-Funding Period. To the extent
that the aggregate principal balance of the
Subsequent Receivables sold during the
Pre-Funding Period is less than the Initial
Pre-Funded Amount, an amount equal to the
excess will be applied to prepay the Notes in
the same sequence and proportions that would
apply if such remaining funds were a part of
the Principal Distribution Amount. See
"Description of the Notes-Mandatory
Redemption." Any such prepayment will shorten
the weighted average life of the affected
Notes to an extent that cannot be predicted
with assurance, since the amount of such
prepayment cannot be predicted with assurance.
Trust's Dependence Upon
MMCA for Subsequent
Receivables The Seller will not be able to convey
Subsequent Receivables to the Trust unless
dealers generate receivables for sale to MMCA
and by MMCA to the Seller. The dealers'
ability to generate receivables in turn
depends primarily upon the manufacture and
distribution of motor vehicles by Mitsubishi
Motors Corporation and its affiliates
("Mitsubishi Motors"). If, during the
Pre-Funding Period, Mitsubishi Motors were to
temporarily or permanently stop manufacturing
or distributing motor vehicles or consumer
demand for such vehicles were to temporarily
or permanently decline, the number of
receivables originated by dealers would
decrease. This would adversely affect the
Seller's ability to sell Subsequent
Receivables to the Trust. MMCA's use of
incentive programs may also affect the rate at
which dealers originate receivables, and
neither the Seller nor the Trust has any
control over MMCA's future use of such
incentives.
Changes in Pool
Characteristics as a
Result of Pre-Funding The only required characteristics of the
Subsequent Receivables will be the eligibility
criteria that the Subsequent Receivables must
satisfy at the time of their addition, which
are set forth in the agreements pursuant to
which the Receivables will be sold by MMCA to
the Seller and by the Seller to the Trust.
Subsequent Receivables may be originated at a
later date using credit criteria different
from those that were applied to the Initial
Receivables. In addition, following the
transfer of Subsequent Receivables to the
Trust, the characteristics of the entire pool
of Receivables, including the composition of
the Receivables, whether the related motor
vehicle is new or used, the distribution by
annual percentage rate on the underlying
contract, payment frequency, average maturity,
current principal balance and geographic
distribution, may vary from those of the
Initial Receivables. See "The
Receivables-Selection Criteria." The weighted
average life of the Notes may be influenced by
the rate at which the principal balances of
the Receivables are paid and variations in
that rate will affect the weighted average
life of the Notes. See "The
Receivables-Maturity and Prepayment
Considerations."
Maturity and Prepayment
Considerations The Receivables included in the Trust may be
prepaid, in full or in part, voluntarily or as
a result of defaults, casualties to the
related motor vehicles or other reasons. Also,
MMCA may be required to repurchase Receivables
from the Trust because of breaches of
representations and warranties made by MMCA
with respect to the Receivables. MMCA, in its
capacity as Servicer, may also be required to
purchase Receivables from the Trust because of
a breach of its servicing obligations. The
Servicer will also have a right to purchase
all remaining Receivables from the Trust
pursuant to an optional redemption as
described under "The Description of the
Notes-Optional Redemption." Each such
prepayment, repurchase or purchase will
shorten the life of the Notes. See "The
Receivables-Maturity and Prepayment
Considerations."
Currently, MMCA has in place a program to
manage end-of-term risk and mitigate returned
vehicle losses by offering attractive terms to
obligors to prepay their contracts and return
their vehicles early, provided that they
purchase a new vehicle manufactured by
Mitsubishi Motors. Under this program, the
returned vehicle is sold to a dealer at a
price based on MMCA's then-current assessment
of the market value of the vehicle. The price
is intended to result in no greater a returned
vehicle loss than would be the case if the
obligor had returned the vehicle at the
end-of-term and the vehicle was sold at such
time. The program applies to the Final Payment
Receivables and therefore has the effect of
encouraging a higher level of prepayments on
the Final Payment Receivables (including Last
Scheduled Payments) than would otherwise be
the case.
The rate of prepayments on the Receivables may
be influenced by a variety of economic, social
and other factors in addition to those
described in the two preceding paragraphs.
MMCA does not generally maintain records of
the historical prepayment experience of its
portfolio of receivables. No assurance can be
given that prepayments on the Receivables will
conform to any historical experience. In
addition, no prediction can be made as to the
actual prepayment rates which will be
experienced on the Receivables. Noteholders
will bear all reinvestment risk resulting from
the rate of prepayment of the Receivables and
corresponding payments on the Notes.
It is anticipated 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 The Trust does not have, nor is it permitted
or expected to have, any significant assets or
sources of funds other than the Receivables,
the Reserve Account, the Supplemental Reserve
Account, the Negative Carry Account and the
right to receive withdrawals from the Yield
Supplement Account. The Notes represent
obligations solely of the Trust. The Notes
will not be insured or guaranteed by the
Seller, the Servicer, the Indenture Trustee,
the Owner Trustee or any other person or
entity. Consequently, Noteholders must rely
for payment of the Notes upon payments on the
Receivables (including sales proceeds of
Financed Vehicles returned to the Servicer for
sale), and, to the extent available, amounts
on deposit in the Reserve Account, the
Supplemental Reserve Account, the Negative
Carry Account and the Yield Supplement
Account.
Funds on deposit in the Supplemental Reserve
Account and, to the extent such funds are
insufficient, funds on deposit in the Reserve
Account, will be available on each payment
date to cover the amounts payable to the
Servicer and the interest and principal
payable on the Notes with respect to such
payment date to the extent of any shortfall in
the collections on the Receivables and the
other funds that are intended to pay such
amounts. See "Description of the Notes-The
Indenture Cash Flows,"-Reserve Account and
Supplemental Reserve Account." If the amounts
on deposit in the Supplemental Reserve Account
and the Reserve Account were exhausted, the
Trust would depend solely on current payments
on the Receivables, Advances by the Servicer,
recoveries on defaulted Receivables, payments
under the Negative Carry Account and payments
under the Yield Supplement Account and the
related yield supplement agreement to make
required payments. 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 under the Indenture, 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 under the Indenture, there
can be no assurance that sufficient funds will
be available to repay Noteholders in full. In
addition, the aggregate amount of principal
required to be distributed to Noteholders 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 payment account for the
Notes. Therefore, the failure to pay principal
on a class of Notes may not result in the
occurrence of an event of default under the
Indenture until the Final Payment Date for
that class of Notes.
Last Scheduled
Payment Risk The aggregate initial principal amount of the
Notes will exceed 100% of the Level Pay Pool
Balance and thus, payment of the Notes will
depend in part upon collections received with
respect to Last Scheduled Payments.
Collections attributable to the Last Scheduled
Payments will be deposited along with other
collections on the Receivables into the
Collection Account and will be treated as part
of the Principal Distribution Amount.
The amount realized by the Trust with respect
to a Last Scheduled Payment on a Final Payment
Receivable is likely to be less than the
scheduled amount of the Last Scheduled Payment
if the obligor exercises its option to sell
the related motor vehicle to MMCA (acting on
behalf of the Trust as assignee of the Final
Payment Receivable). In such circumstances,
MMCA as Servicer, either directly or through
an affiliate, will resell the related 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 the related contract, plus an
additional amount that MMCA adds in order to
stimulate sales of motor vehicles by reducing
the amount of the earlier scheduled payments
under those contracts. In addition, if MMCA
were no longer distributing motor vehicles in
the United States, or Mitsubishi Motors was 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, including in
its capacity as the Servicer, the Seller or
the Trust will have any recourse to the
obligor for any shortfall. In addition,
neither MMCA, including in its capacity as the
Servicer, nor the Seller be obligated to pay
any such shortfall to the Trust. The Servicer
will advance the full amount owed by the
obligor with respect to a Last Scheduled
Payment on the payment date immediately
following the calendar month in which the Last
Scheduled Payment is owed. However, the
Servicer will be reimbursed for the advance on
one or more subsequent payment dates out of
subsequent collections on the related
Receivable to the extent allocable to the
reimbursement of the advance and otherwise out
of collections on other Receivables. See
"Description of the Notes-Advances."
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 provide
such financing to the extent it offers vehicle
financing. No successor Servicer will be
obligated to provide such refinancing. If at
any time MMCA no longer makes refinancing
available, the Seller may contract with third
parties to do so. If a refinancing option is
not available, more motor vehicles may be sold
to the Trust on the due date of the Last
Scheduled Payment, and consequently more motor
vehicles may be sold by the Servicer on behalf
of the Trust for prices less than the Last
Scheduled Payments. In addition, MMCA has a
program that offers attractive terms to owners
of Mitsubishi Motors vehicles to prepay their
accounts and return their vehicles early if
they purchase a new Mitsubishi Motors vehicle.
This program encourages a higher level of
prepayments on the Receivables (including Last
Scheduled Payments) than would otherwise be
the case by permitting obligors to return
their vehicles prior to the scheduled end of
the Receivable's term.
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. 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 collections available to the Trust
to the extent of any Gap Amount in the
preceding calendar month.
Final Payment Receivables have been maturing
in large volumes only in recent years. MMCA
therefore does not have extensive historical
information regarding the percentage of motor
vehicles that will be sold back to MMCA upon
the maturity of Final Payment Receivables or
MMCA's loss experience upon resale of such
motor vehicles. However, MMCA expects that, in
the aggregate, the amounts received by MMCA
from the sale of vehicles that secure Final
Payment Vehicles and payments of applicable
excess wear and tear and excess mileage
charges on such vehicles will be less than the
stated amounts of the Last Scheduled Payments
because Last Scheduled Payments are generally
set higher than MMCA's estimate of the
wholesale value at the end of the related
contracts and are dependent upon conditions in
the used car market at the time of resale.
Geographic Concentration Economic conditions in the states where the
obligors under the Receivables reside may
affect the delinquency, loan loss and
repossession experience of the Trust with
respect to the Receivables. Based on the
principal balance of the Initial Receivables
as of the Initial Cutoff Date, % of the
Initial 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 under the Indenture, the
Notes may be prepaid in advance of their
respective maturity dates. The acceleration of
the maturity dates following the occurrence of
an event of default will also change the order
of priority for the payment of principal on
the different classes of Notes. If the
maturity dates of the Notes have been
accelerated following the occurrence of an
event of default, the Principal Distribution
Amount will be paid (i) to the holders of the
Class A-1 Notes, the Class A-2 Notes and the
Class A-3 Notes pro rata in proportion to the
respective principal balances of the Class A-1
Notes, the Class A-2 Notes and the Class A-3
Notes until all of such classes have been paid
in full and (ii) then to the Class B
Noteholders until the Class B Notes are paid
in full.
Book Entry Registration The Notes of each class will be represented
initially by one or more physical notes
registered in the name of Cede & Co. ("Cede"),
as nominee of The Depository Trust Company
("DTC"). No Noteholder will be entitled to
receive a physical note in fully registered
certificated form except in certain limited
circumstances described under "Description of
the Notes-Definitive Notes." Under the terms
of the indenture relating to the Notes,
Noteholders will not be recognized as such,
and will be permitted to exercise the rights
of the Noteholders only indirectly through DTC
and its participants. See "Description of the
Notes-Book Entry Registration."
Risk of Year 2000 Many existing computer programs use only two
digits to identify a year in the date field.
These programs could fail or produce erroneous
results during the transition from the year
1999 to the year 2000.
MMCA has evaluated the impact of preparing its
systems for the year 2000. It has identified
areas of potential impact and is implementing
conversion efforts. It believes its
mission-critical applications, including its
systems for operations, collections on the
Receivables and servicing the Receivables, to
already be year 2000 compliant, subject to
further testing. MMCA's target is to have all
systems ready for the year 2000 in advance of
December 31, 1999.
If MMCA, including in its capacity as the
Servicer, or the Indenture Trustee do not have
computerized systems that are year 2000
compliant by the year 2000, the Servicer's
ability to service the Receivables or the
Indenture Trustee's ability to make
distributions to the Noteholders, as the case
may be, may be materially and adversely
affected.
THE TRUST
General
The Trust, MMCA Auto Owner Trust 1998-2, is a business trust formed
under the laws of the State of Delaware pursuant to a Trust Agreement,
dated as of , 1998 (as amended and supplemented from time to
time, the "Trust Agreement"), between the Seller and the Owner Trustee. The
Trust was formed for purposes of the transactions described in this
Prospectus. The Trust will hold title to the Receivables, the Pre-Funding
Account and the other assets of the Trust and the proceeds therefrom, issue
the Notes and the Certificates and distribute payments on the Notes and the
Certificates. The Trust's principal offices are in the State of Delaware in
care of Wilmington Trust Company, as Owner Trustee, at the address listed
below. See "--The Owner Trustee."
The Trust will initially be capitalized through the issuance of the
Notes and the Certificates. The Certificates evidence beneficial ownership
of the Trust and will entitle Certificateholders to receive distributions
of amounts not required to be used to make payments on the Notes or to pay
expenses of the Trust. The Certificates will be subordinated to the Notes
to the extent described herein. The initial principal amount of the
Certificates will equal $ . Thereafter, the principal amount of the
Certificates will be reduced on each Payment Date by principal payments
made on the Certificates. The Certificates are not being offered hereby and
will be retained by the Seller or an affiliate.
The Trust will purchase the Initial Receivables from the Seller
pursuant to the Sale and Servicing Agreement in exchange for the proceeds
of the Notes and the issuance to the Seller or an affiliate thereof of the
Certificates. The Seller or an affiliate will retain the Certificates.
The Servicer will service the Receivables, either directly or
through subservicers, and will be paid the Total Servicing Fee out of
collections from the Receivables, prior to distributions to Noteholders.
Certain other expenses of the Trust will be paid by the Servicer or by the
Seller as provided in the Sale and Servicing Agreement. See "Description of
the Transfer and Servicing Agreements-Servicing Procedures," "-Servicing
Compensation" and "Description of the Notes-The Indenture Cash Flows."
The Servicer will hold the Receivables and the certificates of
title or ownership relating to the Financed Vehicles as custodian for the
Indenture Trustee and the Trust. However, the Receivables will not be
marked or stamped to indicate that they have been sold to the Trust, and
the certificates of title or ownership for the Financed Vehicles will not
be endorsed or otherwise amended to identify the Trust as the new secured
party. Under such circumstances and in certain jurisdictions, the Trust's
security interest in the Receivables and the Financed Vehicles may be
defeated or may not be perfected. See "Certain Legal Aspects of the
Receivables."
The Trust will not acquire any assets other than the Trust Property
and it is not anticipated that the Trust will have any need for additional
capital resources. Because the Trust will have no operating history upon
its establishment and will not engage in any business other than acquiring
and holding the Trust Property and issuing and distributing payments on the
Notes and the Certificates, no historical or pro forma financial statements
or ratios of earnings to fixed charges with respect to the Trust have been
included herein.
If the protection provided to the Noteholders by the subordination
of the Certificates and by amounts on deposit in the Supplemental Reserve
Account, the Reserve Account, the Negative Carry Account and the Yield
Supplement Account from time to time is insufficient, the Noteholders would
have to look principally to the Receivables that are not Defaulted
Receivables, the proceeds from the repossession and sale of Financed
Vehicles which secure Defaulted Receivables and the proceeds from recourse,
if any, against Dealers with respect to the Receivables for payment of the
Notes. In such event, certain factors, such as the Trust's not having
perfected security interests in the Financed Vehicles in all states, may
affect the Trust's ability to repossess and sell the collateral securing
the Receivables, and thus may reduce the proceeds to be distributed to
Noteholders. See "Description of the Notes-The Indenture Cash Flows" and
"Certain Legal Aspects of the Receivables."
Capitalization of the Trust
The following table illustrates the capitalization of the Trust as
of the Closing Date:
Class A-1 Notes............................................... $
Class A-2 Notes...............................................
Class A-3 Notes...............................................
Class B Notes.................................................
Certificates..................................................
Total................................................ $
The Owner Trustee
Wilmington Trust Company is the Owner Trustee under the Trust
Agreement. The Owner Trustee's Corporate Trust Office is located at Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001.
The Seller, the Servicer and their respective affiliates may have other
banking relationships with the Owner Trustee and its affiliates in the
ordinary course of their businesses.
THE TRUST PROPERTY
The Notes will be secured by the property of the Trust (the "Trust
Property"). The Trust Property will include (i) a pool of motor vehicle
retail installment sale contracts originated on and after and certain
rights and obligations thereunder (collectively, the "Receivables"), (ii)
with respect to Actuarial Receivables, certain monies due thereunder on or
after the related Cutoff Date (including Payaheads) and, with respect to
Simple Interest Receivables, certain monies due or received thereunder on
or after the related Cutoff Date, (iii) certain amounts and property from
time to time held in or credited to one or more accounts maintained by the
Indenture Trustee pursuant to the Sale and Servicing Agreement as described
below, including the Pre-Funding Account, the Reserve Account, the
Supplemental Reserve Account, the Negative Carry Account and the Yield
Supplement Account, (iv) the Seller's security interests in the Financed
Vehicles, (v) the Seller's rights to receive proceeds from claims on
physical damage, credit life, theft and disability insurance policies
covering the Financed Vehicles or the obligors, (vi) certain of the
Seller's rights of recourse against the Dealers under the Dealer Agreements
relating to the Receivables, (vii) all of the Seller's rights to certain
documents contained in the Receivable Files, (viii) certain rights under
the Sale and Servicing Agreement and the Yield Supplement Agreement, (ix)
certain rights under the Purchase Agreement, including the right of the
Seller to cause MMCA to repurchase certain Receivables from the Seller, (x)
certain payments and proceeds with respect to the Receivables held by the
Servicer, (xi) all property (including the right to receive liquidation
proceeds and recoveries and Financed Vehicles and the proceeds thereof
acquired by the Trust pursuant to the terms of a Final Payment Receivable)
that shall have secured a Receivable (other than a Receivable repurchased
by the Seller or purchased by the Servicer) and that shall have been
acquired by or on behalf of the Trust, (xii) certain rebates of premiums
and other amounts relating to insurance policies and other items financed
under the Receivables in effect as of the related Cutoff Date, and (xiii)
all proceeds of the foregoing.
MMCA'S VEHICLE CONTRACT PORTFOLIO
General
MMCA currently purchases motor vehicle and light-duty truck retail
installment sale contracts (the "Motor Vehicle Contracts") and medium-duty
truck retail installment sale contracts (the "Truck Contracts," and,
together with the Motor Vehicle Contracts, the "Contracts") directly from
authorized Mitsubishi Motors motor vehicle dealers and authorized
Mitsubishi Motors FUSO truck dealers (each, a "Dealer"), respectively,
throughout the United States. The Contracts are originated by Dealers who
regularly sell such contracts to MMCA and other finance providers. MMCA
purchases Contracts in accordance with its established underwriting
procedures and subject to the terms of its agreements (each, a "Dealer
Agreement") with each Dealer. Each Dealer Agreement, among other things,
obligates the related Dealer to repurchase any Motor Vehicle Contract or
Truck Contract that it sold to MMCA for the outstanding principal balance
thereof if the Dealer breaches certain representations and warranties set
forth in the agreement. Such representations and warranties typically
relate to the origination of the Motor Vehicle Contract or Truck Contract
and the security interest in the related automobile or light-duty truck (a
"Motor Vehicle") or medium-duty truck (a "Truck") and not the
creditworthiness of the obligor under the Contract.
MMCA currently purchases Motor Vehicle Contracts relating to new
Motor Vehicles manufactured or distributed by Mitsubishi Motors and Motor
Vehicle Contracts relating to used Motor Vehicles manufactured or
distributed by Mitsubishi Motors or other motor vehicle manufacturers. MMCA
has applied the same underwriting standards to its purchases of Motor
Vehicle Contracts whether or not the Contracts related to Motor Vehicles
manufactured or distributed by Mitsubishi Motors. See "-Underwriting."
MMCA has at all times purchased Truck Contracts relating to new
Trucks manufactured or distributed by Mitsubishi Motors and used Trucks
manufactured or distributed by Mitsubishi Motors or other truck
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
Servicing and Collection
MMCA measures delinquency by the number of days elapsed from the date
a payment is due under the Motor Vehicle Contract or the Truck Contract (the
"Due Date"). MMCA considers a payment to be past due or delinquent when the
obligor fails to make at least 90% of a scheduled payment by the related
Due Date. MMCA generally begins collection activities with respect to
delinquent Motor Vehicle Contracts or Truck Contracts through telephone
contact based upon the original credit risk assigned to each obligor at
contract origination. Obligors considered to be weaker credits are
generally contacted by telephone when the Contract becomes 7 days
delinquent, while obligors considered strong credits with lesser risk are
generally contacted when the Contract becomes 15 days delinquent. Computer
generated delinquency notices are mailed to all delinquent obligors on the
12th day of delinquency. MMCA also uses an automated system of monitoring
delinquency, which categorizes delinquent accounts into different
priorities of collection activity, based on the level of delinquency of
each account.
MMCA's collectors are assigned to specific delinquencies and
attempt to contact the delinquent obligor by telephone or by letter based
on the term of delinquency and the history of the account. Repossession
procedures typically begin when a Motor Vehicle Contract or Truck Contract
becomes between 60 to 75 days delinquent. Repossession is carried out
pursuant to applicable state law and specific procedures adopted by MMCA.
If the Motor Vehicle or Truck securing a delinquent Contract is
repossessed, MMCA's current policy is generally to charge off the Motor
Vehicle Contract or Truck Contract on the date on which the proceeds of
sale of the Motor Vehicle or Truck are applied to the Contract balance and
the deficiency is determined. Prior to February 1997, MMCA's policy was
generally to charge off a Contract on the earlier of the date on which the
proceeds of sale of the repossessed Financed Vehicle were applied to the
Contract balance and the date on which the Motor Vehicle Contract became
120 days delinquent or the Truck Contract became 180 days delinquent if
MMCA had not yet repossessed the related Motor Vehicle or Truck. MMCA's
current policy, which was first implemented in February 1997, is to charge
off a delinquent Contract as to which the related Financed Vehicle has not
been repossessed only at such time as it determines that it will be unable
to recover the Financed Vehicle (which time may be later than the time at
which the Contract would have been charged off under MMCA's prior policy).
Any deficiencies remaining after repossession and sale of the related Motor
Vehicle or Truck or after the full charge-off of the related Motor Vehicle
Contract or Truck Contract are pursued by MMCA to the extent practicable
and legally permitted. Obligors are contacted, and when warranted by
individual circumstances, repayment schedules are established and monitored
until the deficiencies are either paid in full or become impractical to
pursue.
Physical Damage Insurance
Each Contract generally requires the obligor to obtain physical
damage insurance covering loss or damage to the Motor Vehicle or Truck. The
Dealer Agreements include a requirement that the Dealers provide MMCA with
written confirmation that there is physical damage insurance acceptable to
MMCA covering each Motor Vehicle or Truck at the time that MMCA purchased
the related Motor Vehicle Contract or Truck Contract from the Dealers. MMCA
tracks the ongoing status of insurance by the obligors, and attempts to
cause the obligors to reinstate such insurance in the event that it is
allowed to lapse; nevertheless, there is no assurance that each Motor
Vehicle or Truck will continue to be covered by physical damage insurance
for the entire term during which the related Contract is outstanding.
Delinquency, Credit Loss and Returned Vehicle Loss Experience
Set forth below is certain information concerning MMCA's combined
portfolio of Motor Vehicle Contracts and Truck Contracts, including
Contracts previously sold which MMCA continues to service. MMCA changed its
credit scoring system for Motor Vehicle Contracts (other than contracts
relating to Final Payment Receivables) in June 1994. MMCA changed its
credit scoring system again in November 1996 and made the changes
applicable to all types of Motor Vehicle Contracts. See "-Underwriting"
above. The Initial Receivables were originated more recently than, on
average, the receivables related to Motor Vehicles and Trucks in the tables
in the following pages.
Because (i) the composition of Initial Receivables included in the
Trust differs from, and the Subsequent Receivables to be included in the
Trust are anticipated to differ from, MMCA's combined portfolio, (ii) MMCA
changed its underwriting criteria with respect to non-Final Payment
Receivables in June 1994 and (iii) MMCA changed its underwriting criteria
again in November 1996 with respect to all types of receivables, no
assurance can be given that the performance of the Receivables included in
the Trust will be similar to the historical performance of the portfolio as
a whole. Further, for the same reasons as are set forth above, the
delinquencies, credit losses and returned vehicle losses experienced by the
Trust may differ from the delinquencies, credit losses and returned vehicle
losses experienced by the combined portfolio in the past or in the future.
<TABLE>
<CAPTION>
Delinquency Experience (1)
As of September 30, As of December 31,
------------------- -----------------------------
1998 1997 1997 1996 1995
--------- -------- -------- -------- ---------
Number of Contracts Outstanding at End of
<S> <C> <C> <C> <C> <C>
Period......................................... 129,738 126,493 123,274 122,224 107,507
Delinquencies as a Percent of Contracts
Outstanding (2)
30-59 Days.................................. 3.42% 4.14% 4.42% 5.13% 4.00%
60-89 Days.................................. 0.94% 1.20% 1.56% 1.69% 0.92%
90 Days or More............................. 0.33% 0.28% 0.51% 0.54% 0.30%
Repossessions as a Percent of Contracts 0.76% 1.26% 0.96% 1.41% 1.70%
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 more than
10% of a payment is contractually past due, and the percent
represents delinquent dollars as a percent of dollars outstanding.
(3) Repossessions means Contracts with respect to which the Financed
Vehicle has been repossessed but for which sale proceeds have not
yet been applied to the Contract balance.
<TABLE>
<CAPTION>
Net Credit Loss and Repossession Experience (1)
(Dollars in thousands)
Nine Months Ended
September 30, Year Ended December 31,
---------------------------- -----------------------------------------
1998 1997 1997 1996 1995
------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Amount Outstanding (2)............. $1,934,366 $1,823,622 $1,769,219 $1,687,592 $1,436,009
Average Amount Outstanding (3)..... $1,820,045 $1,768,391 $1,776,481 $1,590,046 $1,221,467
Number of Contracts Outstanding.... 129,738 126,493 123,274 122,224 107,507
Average Number of Contracts
Outstanding (3).................. 124,704 124,952 124,945 117,048 93,879
Charge-offs (4).................... $ 39,700 $ 55,632 $ 73,242 $ 84,872 $ 20,171
Recoveries (5)..................... $ 7,515 $ 10,404 $ 13,126 $ 7,372 $ 1,058
Net Losses......................... $ 32,185 $ 45,228 $ 60,116 $ 77,500 $ 19,113
Number of Repossessions (6)........ 3,673 5,976 7,382 6,712 4,260
Number of Repossessions
as a Percent of the Average
Number of Contracts Outstanding
(7).............................. 3.93% 6.38% 5.91% 5.73% 4.54%
Net Losses as a Percent of
Average Amount Outstanding (7)... 2.36% 3.41% 3.38% 4.87% 1.56%
</TABLE>
___________________
(1) The information in the table includes Motor Vehicle Contracts for
new and used Motor Vehicles and Truck Contracts for new and used
Trucks owned by MMCA or previously sold by MMCA which MMCA
continues to service.
(2) Amount outstanding is remaining principal balance of the Contracts,
including Last Scheduled Payments to the extent attributable to
principal on Final Payment Receivables, plus any outstanding fees
and charges and any accrued and unpaid interest.
(3) Averages are computed by taking a simple average of the average
months outstanding for each period presented.
(4) Charge-offs represent the total aggregate amount due on Motor
Vehicle Contracts and Truck Contracts that is determined to be
uncollectible in the period, less proceeds from disposition of
related vehicles, other than recoveries described in Note (5). The
calculation of Charge-offs for the Contracts in the portfolio
includes both earned but unpaid finance charges and Last Scheduled
Payments. Charge-offs do not include any losses on sales of Motor
Vehicles that were purchased by MMCA pursuant to the terms of a
Final Payment Receivable, because such losses would not constitute
credit losses, but Charge-offs do include losses with respect to
both the amortizing monthly installments and Last Scheduled
Payments for Final Payment Receivables which have defaulted.
Charge-offs do not include expenses associated with collection, but
do include expenses associated with repossession or disposition of
the vehicles. MMCA currently charges off a Contract upon the
earlier of (i) the date upon which the related Financed Vehicle is
sold following repossession or (ii) the date as of which MMCA
determines that it will be unable to recover the Financed Vehicle
from the obligor. Prior to February 1997, MMCA had a policy of
charging off Motor Vehicle Contracts and Truck Contracts upon the
earlier of the date of sale of the repossessed Financed Vehicle and
the dates as of which the Motor Vehicle Contract or Truck Contract
became 120 days and 180 days delinquent, respectively. Contracts of
bankrupt obligors are included only if charged off.
(5) Recoveries generally consist of amounts received on Contracts
following the time at which the Contract is charged off net of
collection expenses.
(6) Number of Repossessions means the number of repossessed Motor
Vehicles and Trucks in a given period.
(7) Annualized rate. The nine-month period ending September 30, 1998 is
not necessarily indicative of a full year's actual results. MMCA's
credit loss experience is dependent upon the number of
repossessions, the amount outstanding at the time of repossession,
and the resale value of repossessed vehicles. Losses and
delinquencies are affected by, among other things, general and
regional economic conditions and the supply of and demand for
automobiles and light- or medium-duty trucks.
MMCA began originating Final Payment Receivables in October 1993.
Because Final Payment Receivables have matured in large volumes only more
recently, the experience shown in the tables below may not be comparable to
the actual performance of the Final Payment Receivables included in the
Trust Property.
<TABLE>
<CAPTION>
Final Payment Receivables: Loss Experience on Returned Vehicles (1)
Nine Months Ended
September 30, Year Ended December 31,
---------------------------- -----------------------------------------
1998 1997 1997 1996 1995
------------ ------------ ------------ ------------- ------------
Total Number of Final Payment
<S> <C> <C> <C> <C> <C>
Receivables Scheduled to Terminate.. 13,958 5,462 10,716 1,022 34
Total Number of Vehicles
Returned to MMCA.................... 3,466 1,365 2,926 435 7
Return Ratio (2)...................... 24.83% 24.99% 27.31% 42.56% 20.59%
Total Losses on Returned
Vehicles Sold (3)................... $4,911,496 $2,699,576 $5,371,694 $726,208 $12,464
Total Number of Returned
Vehicles Sold....................... 2,884 1,322 2,578 432 7
Average Loss per Returned
Vehicle Sold (3).................... $ 1,703 $ 2,027 $ 2,084 $ 1,681 $ 1,781
</TABLE>
- -------------
(1) The information in the table includes Motor Vehicles returned upon
the expiration of the related Contracts and Motor Vehicles returned
under MMCA's program that offers attractive terms to owners of
Motor Vehicles to prepay their accounts in connection with their
respective purchases of a new Motor Vehicle.
(2) The number of vehicles returned to MMCA as a percentage of the
number of Final Payment Receivables scheduled to terminate in the
related period.
(3) Losses are calculated without deduction for auction or other
disposition expenses on resale.
MMCA's loss experience on returned Motor Vehicles is dependent upon
the number of Motor Vehicles returned, any programs offered by MMCA
that permit the early return of Motor Vehicles, the amount of the
related receivables outstanding at the time the Motor Vehicles are
returned and the resale value of the returned Motor Vehicles.
THE RECEIVABLES
The Receivables will consist of a pool of retail installment sale
contracts secured by new and used automobiles and light- and medium-duty
trucks, including rights to receive certain payments made with respect to
such Receivables, security interests in the vehicles financed thereby (the
"Financed Vehicles") and the proceeds thereof. The Receivables will include
the Initial Receivables purchased as of the Initial Cutoff Date and any
Subsequent Receivables purchased as of the related Subsequent Cutoff Date
(the Initial Cutoff Date or any Subsequent Cutoff Date being individually
referred to herein as a "Cutoff Date"). As of the Initial Cutoff Date, the
Initial Receivables had an aggregate principal balance of $ , which
consisted of a Level Pay Pool Balance of $ and a Last Scheduled Payment
Pool Balance of $ .
The Receivables will be purchased by the Trust from the Seller
pursuant to a Sale and Servicing Agreement, to be dated as of ----------,
1998 (as amended or supplemented from time to time, the "Sale and Servicing
Agreement"), among the Trust, the Seller and MMCA providing for the
purchase of the Initial Receivables on or before the date of issuance of
the Notes (the "Closing Date") and any Subsequent Receivables on the
related Subsequent Transfer Date. The Receivables will be purchased by the
Seller from MMCA pursuant to a Purchase Agreement, to be dated as of , 1998
(as amended or supplemented from time to time, the "Purchase Agreement"),
between the Seller and MMCA, providing for the purchase of the Initial
Receivables on or before the Closing Date and any Subsequent Receivables on
the related Subsequent Transfer Date. The Receivables will be selected from
the Contracts owned by MMCA based on the criteria specified in the Sale and
Servicing Agreement and described herein. No Receivable will have a
scheduled maturity later than (the "Final Scheduled Maturity Date"). See
"The Receivables."
The "Pool Balance" at any time will represent the aggregate
principal balance of the Receivables (including the aggregate principal
balance of Last Scheduled Payments) at the end of the preceding Collection
Period or, with respect to any time during the first Collection Period, on
the Initial Cutoff Date, after giving effect to all payments (other than
Payaheads) received from obligors, and the principal component of all
Advances and Purchase Amounts to be remitted by the Servicer or the Seller,
as the case may be, for such Collection Period, and reduced by the
principal amount of Receivables that became Defaulted Receivables during
such Collection Period. The "Initial Pool Balance" means the sum of (i) the
Pool Balance as of the Initial Cutoff Date plus (ii) the aggregate
principal balance of all Subsequent Receivables sold to the Trust as of
their respective Subsequent Cutoff Dates.
Selection Criteria
The Initial Receivables were purchased, and to the extent not
already purchased the Subsequent Receivables will be purchased, by MMCA
from Dealers in the ordinary course of business in accordance with MMCA's
underwriting standards. The Initial Receivables were selected, and the
Subsequent Receivables will be selected, from MMCA's portfolio by several
criteria, including the following: (i) each Receivable is secured by a new
or used automobile or a light- or medium-duty truck; (ii) each Receivable
has an annual percentage rate ("APR") of at least 0% and not more than 30%;
(iii) each Receivable had a remaining maturity as of the related Cutoff
Date of not more than 60 months, and an original maturity of not more than
60 months; (iv) each Receivable had an original principal balance (net of
unearned precomputed finance charges) of not more than $60,000 and a
remaining principal balance of not less than $100 as of the related Cutoff
Date; (v) no Receivable was more than 30 days delinquent as of the related
Cutoff Date; (vi) no Financed Vehicle had been repossessed as of the
related Cutoff Date; (vii) each Receivable is an installment sale contract;
(viii) each Receivable is an Actuarial Receivable or a Simple Interest
Receivable (and may also be a Final Payment Receivable); (ix) each
Receivable was originated during or after ; (x) as of the related Cutoff
Date, no obligor under a Receivable is the subject of a proceeding under
the United States Bankruptcy Code; and (xi) each Receivable was originated
in the United States by a Dealer for the consumer or commercial sale of a
Financed Vehicle in the ordinary course of such Dealer's business. In
addition, the pool of Receivables will not deviate from the following
characteristics as of each Subsequent Transfer Date (after giving effect to
Subsequent Receivables sold to the Trust on such Subsequent Transfer Date):
(1) the weighted average remaining maturity of the Receivables will not be
more than [ ] months; and (2) the average Last Scheduled Payment of the
Final Payment Receivables as a percentage of the aggregate original
Principal Balance of the Final Payment Receivables, in each case as of the
related dates of origination, will not be greater than [ ]%.
The Initial Receivables will represent approximately % of an amount
equal to the sum of the initial principal amount of the Notes and the
initial principal amount of the Certificates. Except for the criteria
described in the preceding paragraph, there will be no required
characteristics of the Subsequent Receivables. Therefore, following the
transfer of Subsequent Receivables to the Trust, the aggregate
characteristics of the entire pool of Receivables, including the
composition of the Receivables, the geographic distribution of the
Receivables and the distribution by APR of the Receivables described in the
following tables may vary from those of the Initial Receivables. Following
the end of the Pre-Funding Period, the Seller will file a report on Form
8-K containing information comparable to that contained in the tables set
forth below regarding the aggregate characteristics of the entire pool of
Receivables, after the addition of the Subsequent Receivables.
Certain Characteristics
The composition of the Initial Receivables as of , 1998
and the geographical distribution and distribution by APR of the Pool
Balance of the Initial Receivables as of , 1998 are set forth in
the following tables. "Level Pay Pool Balance" means the Pool Balance
exclusive of the Last Scheduled Payment Pool Balance. See "Description of
the Notes-Final Payment Receivables." "Last Scheduled Payment Pool Balance"
means the aggregate principal balance of Last Scheduled Payments.
Composition of the Initial Receivables as of the Initial Cutoff Date
Pool Balance.......................................... $
Level Pay Pool Balance................................ $
Last Scheduled Payment Pool Balance................... $
Number of Receivables
Average Principal Balance............................. $
(Range).......................................$ to $
Average Original Amount Financed...................... $
(Range).......................................$ to $
Average Level Pay Balance............................. $
(Range).......................................$ to $
Average Last Scheduled Payment Balance (1)............$
(Range).......................................$ to $
Weighted Average APR.................................. %
(Range)....................................... 0.00% to %
Weighted Average Original Term to Maturity............ months
(Range)....................................... 12 months to 60 months
Weighted Average Remaining Term to Maturity........... months
(Range)....................................... 3 months to 60 months
- -----------
(1) Based on Final Payment Receivable balances only.
Geographic Distribution of the Initial Receivables as of the Initial Cutoff Date
<TABLE>
<CAPTION>
Percentage Percentage
of Pool of Pool
State(1) Balance(2) State(1) Balance(2)
- -------- --------- -------- ----------
<S> <C> <C> <C>
Alaska.......................... % Nebraska........................ %
Arizona......................... Nevada..........................
Arkansas........................ New Hampshire...................
California...................... New Jersey......................
Colorado........................ New Mexico......................
Connecticut..................... New York........................
Delaware........................ North Carolina..................
Florida......................... North Dakota....................
Georgia......................... Ohio............................
Idaho........................... Oklahoma........................
Illinois........................ Oregon..........................
Indiana......................... Pennsylvania....................
Iowa............................ Rhode Island....................
Kansas.......................... South Carolina..................
Kentucky........................ South Dakota....................
Louisiana....................... Tennessee.......................
Maine........................... Texas...........................
Maryland........................ Utah............................
Massachusetts................... Vermont.........................
Michigan........................ Virginia........................
Minnesota....................... Washington......................
Mississippi..................... West Virginia...................
Missouri........................ Wisconsin....................... ------
Montana.........................
Total 100.00%
</TABLE>
- -----------
(1) State of origination is based on the addresses of the
originating Dealers.
(2) Percentages may not add to 100.00% due to rounding.
<TABLE>
<CAPTION>
Distribution by APR of the Initial Receivables as of the Initial Cutoff Date
Percentage
Number of Pool of Pool
APR Range(%) Receivables Balance(1)(2) Balance(3)
- ------------ ----------- ------------- ----------
<C> <C> <C>
0.00 to 0.99........................................ $ %
1.00 to 1.99........................................
2.00 to 2.99........................................
3.00 to 3.99........................................
4.00 to 4.99........................................
5.00 to 5.99........................................
6.00 to 6.99........................................
7.00 to 7.99........................................
8.00 to 8.99........................................
9.00 to 9.99........................................
10.00 to 10.99......................................
11.00 to 11.99......................................
12.00 to 12.99......................................
13.00 to 13.99......................................
14.00 to 14.99......................................
15.00 to 15.99......................................
16.00 to 16.99......................................
17.00 to 17.99......................................
18.00 to 18.99......................................
19.00 to 19.99......................................
20.00 to 20.99......................................
21.00 to 21.99......................................
22.00 to 22.99......................................
23.00 to 23.99......................................----------- ------------- ----------
Total............................................... $============ ==========%
- -----------
(1) Remaining principal balance for Simple Interest Receivables, and the
present value of scheduled remaining payments for Actuarial Receivables.
(2) Pool Balance does not add up to Initial Pool Balance because of rounding.
(3) Percentages may not add to 100.00% due to rounding.
Based on the Pool Balance as of the Initial Cutoff Date,
approximately % of the total number of Receivables and approximately
% of the Pool Balance, relate to new automobiles and light- or
medium-duty trucks. Substantially all of such new automobiles and light- or
medium-duty trucks were manufactured or distributed by Mitsubishi Motors.
Approximately % of the total number of Receivables and approximately %
of the Pool Balance as of the Initial Cutoff Date, relate to used
automobiles and light- or medium-duty trucks. Of the new and used vehicles,
approximately % of the total number of Receivables and approximately
% of the Pool Balance as of the Initial Cutoff Date, relate to program
automobiles and light-duty trucks. Program automobiles are vehicles in the
current and immediately preceding model years which dealers have acquired
under a remarketing program administered by MMCA. This program allows
dealers to offer to purchasers of program automobiles the same rate of
interest and terms offered to new car buyers. Program vehicles are
primarily automobiles returned to MMCA by rental car companies, but also
include off-lease MMCA company and employee lease vehicles and MMCA pool
cars. Approximately % of the total number of Receivables and
approximately % of the Pool Balance as of the Initial Cutoff Date,
relate to medium-duty trucks, the primary purchasers of which are
businesses. Of the used vehicles, approximately % of the total number
of Receivables and approximately % of the Pool Balance as of the
Initial Cutoff Date, relate to refinanced program automobiles and light-or
medium-duty trucks manufactured in prior model years which are financed at
the original rates set forth in the related Contracts or at used vehicle
rates.
Payments on the Receivables
Approximately % of the Pool Balance as of the Initial Cutoff Date
was attributable to Receivables that provide for the allocation of payments
according to the "actuarial" method ("Actuarial Receivables") excluding
Actuarial Receivables of the type described in the immediately following
paragraph. An Actuarial Receivable provides for amortization of the loan
over a series of fixed level monthly installments. Each monthly installment
is deemed to consist of an amount of interest equal to one twelfth of the
stated APR of the loan multiplied by the scheduled principal balance. The
remainder of the scheduled payment is applied to principal. Generally, no
adjustment is made in the event of early or late payments, although in the
latter case the obligor may be subject to a late payment charge.
Approximately % of the Pool Balance as of the Initial Cutoff Date
was attributable to Actuarial Receivables that provide that if the
Receivable is prepaid in full, the amount payable will be determined in
accordance with a contractual calculation that is based upon the "Rule of
78's." In the event of the prepayment in full of such Actuarial
Receivables, the excess of the amount that would be due if the Receivable
generally provided for allocation of payments between principal and
interest using the Rule of 78's over the amount that would be payable upon
such prepayment using the actuarial method (the "Rule of 78's Payment")
will not be used to make payments due to Noteholders but will be paid to
the Servicer.
Approximately % of the Pool Balance as of the Initial Cutoff Date
was attributable to Receivables that provide for the allocation of payments
according to the "simple interest" method ("Simple Interest Receivables")
including Simple Interest Receivables of the type described in the
immediately following paragraph. In November 1996, MMCA began phasing out
Motor Vehicle Contracts and Truck Contracts that provide for the allocation
of payments according to the actuarial method in favor of those Contracts
that provide for allocation of payments according to the "simple interest"
method. Since June 1997, MMCA has purchased only Motor Vehicle Contracts
and Truck Contracts which provide for allocation of payments according to
the "simple interest" method. A Simple Interest Receivable also provides
for the amortization of the amount financed under the Receivable over a
series of fixed level monthly payments. However, unlike the monthly payment
under an Actuarial Receivable, each monthly payment consists of an
installment of interest which is calculated on the basis of the outstanding
principal balance of the Receivable multiplied by the stated APR and
further multiplied by the period elapsed (as a fraction of a calendar year)
since the preceding payment of interest was made. As payments are received
under a Simple Interest Receivable, the amount received is applied first to
interest accrued to the date of payment and the balance is applied to
reduce the unpaid principal balance. Accordingly, if an obligor pays a
fixed monthly installment before the Due Date, the portion of the payment
allocable to interest for the period since the preceding payment was made
will be less than it would have been had the payment been made as
scheduled, and the portion of the payment applied to reduce the unpaid
principal balance will be correspondingly greater. Conversely, if an
obligor pays a fixed monthly installment after its Due Date, the portion of
the payment allocable to interest for the period since the preceding
payment was made will be greater than it would have been had the payment
been made as scheduled, and the portion of the payment applied to reduce
the unpaid principal balance will be correspondingly less. In either case,
the obligor pays a fixed monthly installment until the final scheduled
payment date, at which time the amount of the final installment is
increased or decreased as necessary to repay the then outstanding principal
balance. In the case of a Final Payment Receivable that is a Simple
Interest Receivable, this allocation of payments may result in the
remaining principal balance of the Final Payment Receivable on the Due Date
for the Last Scheduled Payment being greater or less than the Last
Scheduled Payment.
Approximately % of the Pool Balance as of the Initial Cutoff
Date was attributable to Simple Interest Receivables that are subject to a
cap on the aggregate amount of interest to be paid during the term of such
Receivables ("Capped Receivables"). With respect to Capped Receivables, if
the obligor consistently makes scheduled payments after the Due Date, the
amount of interest accrued over the term of the loan will be less than
would be the case in the absence of the cap on the aggregate amount of
interest payable over the term of a Capped Receivable. If, as a result of
such delinquencies, the aggregate amount of interest paid under the
Receivable reaches the lifetime cap, no further interest will accrue and
each scheduled payment due thereafter will be applied to the reduction of
principal.
Approximately % of the Pool Balance as of the Initial Cutoff Date
was attributable to Final Payment Receivables. Such Receivables provide for
amortization of a portion of the amount financed over a series of fixed
level monthly installments in accordance with the actuarial method or the
simple interest method, but also provide for a substantially larger final
scheduled payment of principal together with one month's interest after
payment of such monthly installments. Upon maturity of a Final Payment
Receivable, an obligor thereunder may satisfy the amount then owed by the
obligor by (1) paying the remaining principal amount of the Receivable, all
accrued and unpaid interest, plus any fees, charges, and other amounts then
owing, on the Due Date of the Last Scheduled Payment; (2) refinancing the
net amount then due, which may be greater or less than the Last Scheduled
Payment, subject to certain conditions; or (3) selling the related Motor
Vehicle to MMCA or its assignee for an amount equal to the Last Scheduled
Payment (reduced by certain charges) and paying any excess of the total
amount owed over the Last Scheduled Payment to MMCA. See "Description of
the Notes - Final Payment Receivables."
The Receivables will be prepayable by the obligors at any time.
Prepayments may also result from liquidations due to default, the receipt
of proceeds from physical damage or other insurance, repurchases by the
Seller as a result of certain uncured breaches of the representations and
warranties made by it in the Sale and Servicing Agreement with respect to
the Receivables, purchases by the Servicer as a result of certain uncured
breaches of the covenants made by it in the Sale and Servicing Agreement
with respect to the Receivables, or the Servicer exercising its option to
purchase all of the remaining Receivables. The rate of prepayments on the
Receivables may be influenced by a variety of economic, social, and other
factors. See "- Maturity and Prepayment Considerations."
Maturity and Prepayment Considerations
Prepayments in full on Actuarial Receivables and full or partial
prepayments on Simple Interest Receivables generally will have the effect
of reducing the weighted average life of the Notes, while delinquencies by
obligors under the Simple Interest Receivables, as well as extensions and
deferrals on the Receivables generally, will have the effect of increasing
the weighted average life of the Notes. The Receivables may be prepaid by
the obligors at any time and mandatory prepayments of a Receivable may
result from, among other things, the sale, insured loss or other
disposition of the Financed Vehicle or the Receivable becoming a Defaulted
Receivable. No assurance can be given as to the rate of prepayments or as
to whether there will be a substantial amount of prepayments, nor can any
assurance be given as to the level or timing of prepayments, since
prepayments are affected by numerous social, economic and other factors.
Noteholders will bear all reinvestment risk resulting from the rate of
prepayment of the Receivables. To the extent that MMCA or any affiliate of
MMCA maintains any program which has the effect of encouraging prepayments,
prepayments may increase. MMCA currently maintains a program that offers
attractive terms to obligors to prepay their accounts and return their
vehicles early, provided that they purchase a new Mitsubishi Motors
vehicle, has the effect of encouraging prepayments. No prediction can be
made of the effect of such programs on prepayments, and MMCA is not
required to establish or maintain any such program.
The Receivables have different APRs, and the rates of prepayments
of Receivables with higher and lower APRs may differ. Higher rates of
prepayments of Receivables with higher APRs will decrease the amount
available to cover delinquencies and defaults on the Receivables and may
decrease the amount available to the Reserve Account and the Supplemental
Reserve Account. See "Description of the Notes -The Indenture Cash Flows",
" -Reserve Account and Supplemental Reserve Account." The Yield Supplement
Agreement will mitigate this effect in the case of Receivables having APRs
less than the sum of the Servicing Rate and the Weighted Average Rate.
Prepayments on receivables relating to Motor Vehicle Contracts and
Truck Contracts can be measured relative to a prepayment standard or model.
The model used in this Prospectus, the Absolute Prepayment Model ("ABS"),
represents an assumed rate of prepayment each month relative to the
original number of receivables in a pool of receivables. ABS further
assumes that all the receivables are the same size and amortize at the same
rate and that each receivable in each month of its life will either be paid
as scheduled or be prepaid in full. For example, in a pool of receivables
originally containing 10,000 receivables, a 1% ABS rate means that 100
receivables prepay each month. ABS does not purport to be an historical
description of prepayment experience or a prediction of the anticipated
rate of prepayment of any pool of receivables, including the Receivables.
As the rate of payment of principal of the Notes will depend on the
rate of payment (including prepayments) of the principal balance of the
Receivables, final payment of the Notes of any class could occur
significantly earlier than the Final Payment Date for such class.
Reinvestment risk associated with early payment of the Notes will be borne
exclusively by the Noteholders.
% of the Pool Balance as of the Initial Cutoff Date consists of
the principal balance of the Last Scheduled Payments. Accordingly, a
portion of the principal amount of the Notes is expected to be paid from
Last Scheduled Payments. All of the Last Scheduled Payments on Initial
Receivables that are Final Payment Receivables are due, as of the Closing
Date, between and . Accordingly, significant payments
of principal are likely to be made during such period. The average amount
of a Last Scheduled Payment on an Initial Receivable that is a Final
Payment Receivable is approximately $ , which is approximately
% of the average principal balance of an Initial Receivable that is a
Final Payment Receivable.
The tables captioned "Projected Class A-1 Note Amortization",
"Projected Class A-2 Note Amortization", "Projected Class A-3 Note
Amortization" and "Projected Class B Note Amortization" (collectively, the
"ABS Tables") assume that (i) the Yield Supplement Amount is deposited into
the Collection Account each period, (ii) the Negative Carry Amount is
deposited into the Collection Account each period, (iii) the Initial
Pre-Funded Amount is applied in its entirety to the purchase of Subsequent
Receivables and the related deposits to the Reserve Account and the Yield
Supplement Account; (iv) the Receivables prepay in full at the specified
constant percentage of ABS monthly, with no defaults, losses or
repurchases, (v) each scheduled monthly payment on the Receivables is made
on the last day of each month, and each month has 30 days, (vi) payments on
the Notes are made on each Payment Date (and each such date is assumed to
be the 15th day of each applicable month), (vii) the Closing Date is
, 1998, (viii) the Servicer does exercise its option to purchase
the Receivables and (ix) MMCA's program to manage end-of-term risks and
mitigate returned vehicle losses by offering attractive terms to owners of
Motor Vehicles to prepay their accounts and return their Motor Vehicles
early, provided that they purchase a new Motor Vehicle, does not extend to
the Receivables. The ABS Tables indicate the percent of the initial
principal balance of each class of the Notes that is projected to be
outstanding after each of the Payment Dates shown at various constant ABS
percentages.
The ABS Tables also assume that the Receivables have been
aggregated into four hypothetical level payment pools with all of the
Receivables within each such pool having the following characteristics and
that the level scheduled monthly payment for each of the four pools (which
is based on its aggregate principal balance, APR, original term to maturity
and remaining term to maturity as of the Cutoff Date) will be such that
each pool will be fully amortized by the end of its remaining term to
maturity.
</TABLE>
<TABLE>
<CAPTION>
Weighted
Average Weighted Average
Level Aggregate Weighted Original Term Remaining Term
Payment Principal Average to Maturity to Maturity
Pool Balance APR (in months) (in months)
- ------- --------- -------- ------------- ----------------
<S> <C> <C> <C>
1 ............................ $ %
2 ............................
3 ............................
4 ............................
</TABLE>
The ABS Tables also assume that the principal amounts of the Last
Scheduled Payments on the Receivables have been aggregated into four
hypothetical last scheduled payment pools with all of the Final Payment
Receivables within each pool having the following characteristics and that
the principal amount is due at
the maturity of the pool.
<TABLE>
<CAPTION>
Weighted Weighted Average
Last Average Remaining Term
Scheduled Aggregate Weighted Original Term to
Payment Principal Average to Maturity Maturity
Pool Balance APR (in months) (in months)
- ---- ------- --- ----------- -----------
<S> <C> <C>
1 ............................ $ %
2 ............................
3 ............................
4 ............................
</TABLE>
The actual characteristics and performance of the Receivables in
the Trust will differ from the assumptions used in constructing the ABS
Tables. The assumptions used are hypothetical and have been provided only
to give a general sense of how the principal cash flow might behave under
varying prepayment scenarios. For example, it is very unlikely that the
Receivables will prepay at the same level of ABS. Moreover, the diverse
terms of Receivables within each of the four hypothetical level payment
pools and the four hypothetical last scheduled payment pools could produce
slower or faster principal distributions than indicated in the ABS Tables
at the various constant percentages of ABS specified, even if the original
and remaining terms to maturity of the Receivables are as assumed. In
addition, the characteristics of the Subsequent Receivables are expected to
be different from the characteristics of the Initial Receivables. See "The
Receivables-Selection Criteria" herein. Any difference between such
assumptions and the actual characteristics and performance of the
Receivables, or actual prepayment experience, will affect the percentages
of initial balances outstanding over time, as well as collections of
interest and principal on Receivables.
The ABS Tables have been prepared based on the assumptions
described above and should be read in conjunction therewith.
Projected Class A-1 Note Amortization
Percent of Initial Note Principal Amount
Class A-1 Note Balance (%)
-----------------------------------------------------
Payment Date 0.0% ABS 1.0% ABS 1.5% ABS 2.0% ABS
- ------------ -------- -------- -------- --------
January 15, 1999......
February 15, 1999.....
March 15, 1999........
April 15, 1999........
May 15, 1999..........
June 15, 1999.........
July 15, 1999.........
August 15, 1999.......
September 15, 1999....
October 15, 1999......
...................... -------- -------- -------- --------
Weighted Average
Life (yrs)..........
Projected Class A-2 Note Amortization
Percent of Initial Note Principal Amount
Class A-2 Note Balance (%)
-----------------------------------------------------
Payment Date 0.0% ABS 1.0% ABS 1.5% ABS 2.0% ABS
- ------------ -------- -------- -------- --------
January 15, 1999......
February 15, 1999.....
March 15, 1999........
April 15, 1999........
May 15, 1999..........
June 15, 1999.........
July 15, 1999.........
August 15, 1999.......
September 15, 1999....
October 15, 1999......
November 15, 1999.....
December 15, 1999.....
January 15, 2000......
February 15, 2000.....
March 15, 2000........
April 15, 2000........
May 15, 2000..........
June 15, 2000.........
July 15, 2000.........
August 15, 2000.......
September 15, 2000....
...................... -------- -------- -------- --------
Weighted Average
Life (yrs)..........
Projected Class A-3 Note Amortization
Percent of Initial Note Principal Amount
Class A-3 Note Balance (%)
-----------------------------------------------------
Payment Date 0.0% ABS 1.0% ABS 1.5% ABS 2.0% ABS
- ------------ -------- -------- -------- --------
January 15, 1999......
February 15, 1999.....
March 15, 1999........
April 15, 1999........
May 15, 1999..........
June 15, 1999.........
July 15, 1999.........
August 15, 1999.......
September 15, 1999....
October 15, 1999......
November 15, 1999.....
December 15, 1999.....
January 15, 2000......
February 15, 2000.....
March 15, 2000........
April 15, 2000........
May 15, 2000..........
June 15, 2000.........
July 15, 2000.........
August 15, 2000.......
September 15, 2000....
October 15, 2000......
November 15, 2000.....
December 15, 2000.....
January 15, 2001......
February 15, 2001.....
March 15, 2001........
April 15, 2001........
May 15, 2001..........
June 15, 2001.........
July 15, 2001.........
August 15, 2001.......
September 15, 2001....
October 15, 2001......
November 15, 2001.....
December 15, 2001.....
January 15, 2002......
February 15, 2002.....
...................... -------- -------- -------- --------
Weighted Average
Life (yrs)..........
Projected Class B Note Amortization
Percent of Initial Note Principal Amount
Class B Note Balance (%)
-----------------------------------------------------
Payment Date 0.0% ABS 1.0% ABS 1.5% ABS 2.0% ABS
- ------------ -------- -------- -------- --------
January 15, 1999......
February 15, 1999.....
March 15, 1999........
April 15, 1999........
May 15, 1999..........
June 15, 1999.........
July 15, 1999.........
August 15, 1999.......
September 15, 1999....
October 15, 1999......
November 15, 1999.....
December 15, 1999.....
January 15, 2000......
February 15, 2000.....
March 15, 2000........
April 15, 2000........
May 15, 2000..........
June 15, 2000.........
July 15, 2000.........
August 15, 2000.......
September 15, 2000....
October 15, 2000......
November 15, 2000.....
December 15, 2000.....
January 15, 2001......
February 15, 2001.....
March 15, 2001........
April 15, 2001........
May 15, 2001..........
June 15, 2001.........
July 15, 2001.........
August 15, 2001.......
September 15, 2001....
October 15, 2001......
November 15, 2001.....
December 15, 2001.....
January 15, 2002......
February 15, 2002.....
...................... -------- -------- -------- --------
Weighted Average
Life (yrs)..........
POOL FACTORS AND OTHER INFORMATION
The "Note Pool Factor" for each class of Notes will be a
seven-digit decimal which the Servicer will compute each month indicating
the remaining outstanding principal amount of the Notes of each class as of
the close of business on the Payment Date in that month, as a fraction of
the initial outstanding principal amount of the Notes of such class. The
Note Pool Factor for each class of Notes will be 1.0000000 as of the
Closing Date, and thereafter will decline to reflect reductions in the
outstanding principal amount of the Notes. A Noteholder's portion of the
aggregate outstanding principal amount of the Notes of a class will be the
product of (i) the original denomination of the Noteholder's Note and (ii)
the Note Pool Factor for such Class.
Pursuant to the Sale and Servicing Agreement, the Noteholders will
receive monthly reports concerning the payments received on the
Receivables, the Pool Balance, the Note Pool Factor and various other items
of information. Noteholders of record during any calendar year will be
furnished information for tax reporting purposes not later than the latest
date permitted by law. See "Description of the Notes-Statements to
Noteholders."
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of the
Notes will be applied to the purchase of the Initial Receivables from MMCA
and to make the deposits required to be made by the Seller on the Closing
Date to the Pre-Funding Account, the Negative Carry Account, the Yield
Supplement Account and the Reserve
Account.
THE SELLER
MMCA Auto Receivables, Inc. (the "Seller"), a wholly-owned
subsidiary of MMCA, was incorporated in the State of Delaware on July 8,
1993. The Seller was organized for limited purposes, which include
purchasing receivables from MMCA and transferring such receivables to third
parties and any activities incidental to and necessary or convenient for
the accomplishment of such purposes. The principal executive offices of the
Seller are located at 6363 Katella Avenue, Cypress, California 90630-5205.
The telephone number of such offices is (714) 236-1592. The Seller is not
currently subject to the informational requirements of the Exchange Act and
the Commission's rules and regulations thereunder except for the filing of
Current Reports on Form 8-K in connection with the Trust and the other
trusts it has originated and will originate in the future. For further
information regarding the periodic reports concerning the Trust and the
Receivables that will be filed with the Commission, reference is made to
the information that is available as described under "Where You Can Find
More Information."
The Seller has taken steps in structuring the transactions
contemplated hereby that are intended to ensure that the voluntary or
involuntary application for relief by MMCA under the United States
Bankruptcy Code or similar state laws ("Insolvency Laws") will not result
in consolidation of the assets and liabilities of the Seller with those of
MMCA. These steps include the maintenance of the Seller as a separate,
limited-purpose subsidiary pursuant to a certificate of incorporation
containing certain limitations (including restrictions on the nature of the
Seller's business and a restriction on the Seller's ability to commence a
voluntary case or proceeding under any Insolvency Law without the unanimous
affirmative vote of all of its directors). However, there can be no
assurance that the activities of the Seller would not result in a court
concluding that the assets and liabilities of the Seller should be
consolidated with those of MMCA in a proceeding under any Insolvency Law.
The Seller has received the advice of counsel to the effect that,
subject to certain facts, assumptions and qualifications, it would not be a
proper exercise by a court of its equitable discretion to disregard the
separate corporate existence of the Seller and to require the consolidation
of the assets and liabilities of the Seller with the assets and liabilities
of MMCA in the event of the application of the Federal bankruptcy laws to
MMCA. Among other things, it is assumed by counsel that the Seller will
follow certain procedures in the conduct of its affairs, including
maintaining records and books of account separate from those of MMCA,
refraining from commingling its assets with those of MMCA and refraining
from holding itself out as having agreed to pay, or being liable for, the
debts of MMCA. The Seller intends to follow and has represented to such
counsel that it will follow these and other procedures related to
maintaining its separate corporate identity. However, in the event that the
Seller did not follow these procedures, there can be no assurance that a
court would not conclude that the assets and liabilities of the Seller
should be consolidated with those of MMCA. If a court were to reach such a
conclusion, or a filing were made under any Insolvency Law by or against
the Seller, or if an attempt were made to litigate any of the foregoing
issues, delays in payments on the Notes could occur or reductions in the
amounts of such payments could result.
It is intended by MMCA and the Seller that the transfer of the
Receivables by MMCA to the Seller on the Closing Date and each Subsequent
Transfer Date under the Purchase Agreement constitute a "true sale" of the
Receivables to the Seller. If such transfers constitute such a "true sale,"
the Receivables and the proceeds thereof would not be part of MMCA's
bankruptcy estate under Section 541 of the United States Bankruptcy Code
should MMCA become the subject of a bankruptcy case subsequent to the
transfers of the Receivables to the Seller.
The Seller has received the advice of counsel to the effect that,
subject to certain facts, assumptions and qualifications, in the event MMCA
were to become the subject of a voluntary or involuntary case under the
United States Bankruptcy Code subsequent to the transfers of the
Receivables to the Seller on the Closing Date and each Subsequent Transfer
Date, the transfers of the Receivables by MMCA to the Seller pursuant to
the Purchase Agreement would be characterized as a "true sale" of the
Receivables from MMCA to the Seller and the Receivables and the proceeds
thereof would not form part of MMCA's bankruptcy estate pursuant to Section
541 of the United States Bankruptcy Code. See "Risk Factors-Certain Legal
Aspects-Bankruptcy Considerations."
THE SERVICER
Mitsubishi Motors Credit of America, Inc. ("MMCA" or the
"Servicer") is a Delaware corporation which primarily provides retail and
wholesale financing, retail leasing and certain other financial services to
authorized Mitsubishi automobile and truck dealers and their customers in
the United States. MMCA was incorporated in the State of Delaware in August
1990 and commenced operations in March 1991.
MMCA is a wholly-owned subsidiary of Mitsubishi Motor Sales of
America, Inc. ("MMSA"), a California corporation which is engaged
in the wholesale distribution of automobiles and light-duty trucks
throughout the United States manufactured by Mitsubishi Motors Corporation
and its affiliates (collectively, "Mitsubishi Motors"). MMSA is a
subsidiary of Mitsubishi Motors Corporation, a Japanese corporation that is
a worldwide manufacturer and distributor of motor vehicles and trucks.
Mitsubishi Motors Corporation owns 97.2% of the stock of MMSA. Mitsubishi
Corporation, a Japanese corporation that is a worldwide general trading
company, owns 2.0% of the stock of MMSA. Mitsubishi International
Corporation, a New York corporation that is a worldwide trading company and
a wholly-owned subsidiary of Mitsubishi Corporation, owns 0.8% of the stock
of MMSA.
The national headquarters of MMCA is located at 6363 Katella
Avenue, Cypress, CA 90630-5205. Its telephone number is (714) 236-1500.
MMCA has five regional offices throughout the United States.
DESCRIPTION OF THE NOTES
General
The Trust will issue the Notes in an aggregate 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. A form of the Indenture has been filed as an exhibit to
the Registration Statement of which this Prospectus forms a part. The
following summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the Notes, the Indenture, the
Trust Agreement and the Sale and Servicing Agreement.
The Notes of each class will be offered for purchase in
denominations of $1,000 and integral multiples thereof and will be
represented initially by one or more physical notes registered in the name
of Cede & Co. ("Cede") as nominee of The Depository Trust Company ("DTC").
No person acquiring a beneficial ownership interest in the Notes (a "Note
Owner") will be entitled to receive a definitive note representing such
person's beneficial ownership interest in the applicable class of Notes
except in the event that Definitive Notes are issued under the limited
circumstances described herein. Unless and until Definitive Notes are
issued, all references to actions by Noteholders shall refer to actions
taken by DTC upon instructions from its Direct Participants and all
references to payments, notices, reports and statements to Noteholders
shall refer to payments, notices, reports and statements to DTC or Cede, as
the registered holder of the Notes, for payment or distribution to Note
Owners in accordance with DTC's procedures with respect thereto. See "-Book
Entry Registration" and "-Definitive Notes."
Book Entry Registration
Beneficial owners of Notes may hold their Notes through DTC (in the
United States) or Cedel or Euroclear (in Europe) if they are participants
of such systems, or indirectly through organizations that are participants
in such systems.
DTC is a limited purpose trust company organized under the laws of
the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to Section 17A of the Exchange
Act. DTC was created to hold securities for its participating organizations
("Direct Participants") and to facilitate the clearance and settlement of
securities transactions between Direct Participants through electronic
book-entries, thereby eliminating the need for physical movement of
certificates. Direct Participants include securities brokers and dealers,
banks, trust companies and clearing corporations, and may include certain
other organizations. Indirect access to the DTC system is also available to
others such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a Direct Participant,
either directly or indirectly ("Indirect Participants" and, together with
Direct Participants, "DTC Participants").
To facilitate subsequent transfers, all Notes deposited with DTC
will be registered in the name of DTC's nominee, Cede. The deposit of Notes
with DTC and their registration in the name of Cede will effect no change
in beneficial ownership. DTC has no knowledge of the actual Note Owners of
the Notes; DTC's records reflect only the identity of the Direct
Participants to whose accounts such Notes are credited, which may or may
not be the Note Owners. The DTC Participants will remain responsible for
keeping account of their holdings on behalf of their customers.
No Noteholder will be entitled to receive a certificate
representing such person's interest in a class of Notes. Unless and until
Definitive Notes are issued under the limited circumstances described
below, all references herein to actions by Noteholders shall refer to
actions taken by DTC upon instructions from DTC Participants, and all
references herein to distributions, notices, reports and statements to
Noteholders shall refer to distributions, notices, reports and statements
to Cede, as the registered holder of the Notes, for distribution to
Noteholders in accordance with DTC procedures.
Note Owners will receive all payments of principal and interest on
the Notes through Direct Participants or Indirect Participants. DTC will
forward such payments to its Direct Participants which thereafter will
forward them to Indirect Participants or Note Owners. Under a book-entry
format, Note Owners may experience some delay in their receipt of payments,
since such payments will be forwarded to Cede as nominee of DTC. Note
Owners will not be recognized by the Indenture Trustee as Noteholders, as
such term is used in the Indenture. Note Owners will be permitted to
exercise the rights of Noteholders only indirectly through DTC and its
Direct Participants and Indirect Participants. Because DTC can act only on
behalf of Direct Participants, who in turn act on behalf of Indirect
Participants, and on behalf of certain banks, trust companies and other
persons approved by it, the ability of a Note Owner to pledge the Notes to
persons or entities that do not participate in the DTC system, or to
otherwise act with respect to such Notes, may be limited due to the absence
of physical notes for such Notes.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
Participants and Indirect Participants to Note Owners will be governed by
arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payments by DTC
Participants to Note Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts
of customers in bearer form or registered in "street name" and will be the
responsibility of such DTC Participant and not of DTC, the Indenture
Trustee, the Owner Trustee, the Seller or the Servicer, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal and interest to DTC is the responsibility of the
Indenture Trustee, disbursement of such payments to Direct Participants
shall be the responsibility of DTC and disbursement of such payments to
Note Owners shall be the responsibility of Direct Participants and Indirect
Participants.
Purchases of Notes under the DTC system must be made by or through
Direct Participants, which will receive a credit for the Notes on DTC's
records. The ownership interest of each actual Note Owner is in turn to be
recorded on the Direct Participants' and Indirect Participants' records.
Note Owners will not receive written confirmation from DTC of their
purchase, but Note Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of
their holdings, from the Direct Participant or Indirect Participant through
which the Note Owner entered into the transaction. Transfers of ownership
interests in the Notes are to be accomplished by entries made on the books
of DTC Participants acting on behalf of Note Owners. Note Owners will not
receive physical notes representing their ownership interest in Notes,
except in the event that use of the book-entry system for the Notes is
discontinued.
Neither DTC nor Cede will comment or vote with respect to the
Notes. DTC has advised the Seller that it will take any action permitted to
be taken by a Noteholder under the Indenture only at the direction of one
or more Direct Participants to whose accounts with DTC the Notes are
credited. Additionally, DTC has advised the Seller that to the extent that
the Indenture requires that any action may be taken only by holders of
Notes representing a specified percentage of the aggregate outstanding
principal amount thereof, DTC will take such action only at the direction
of and on behalf of Direct Participants whose holdings include undivided
interests that satisfy such specified percentage. Under its usual
procedures, DTC will mail an "Omnibus Proxy" to the Indenture Trustee as
soon as possible after any applicable record date with respect to a consent
or vote. The Omnibus Proxy will assign Cede's consenting or voting rights
to those Direct Participants to whose accounts the Notes will be credited
on that record date (identified on a listing attached to the Omnibus
Proxy).
DTC may discontinue providing its services as securities depository
with respect to the Notes at any time by giving reasonable notice to the
Indenture Trustee. Under such circumstances, in the event that a successor
securities depository is not obtained, Definitive Notes are required to be
printed and delivered. The Seller may decide to discontinue use of the
system of book-entry transfers through DTC (or a successor securities
depository). In that event, Definitive Notes will be delivered to
Noteholders. See "-Definitive Notes."
Cedel and Euroclear will hold omnibus positions on behalf of the
Cedel Participants and the Euroclear Participants, respectively, through
customers' securities accounts in Cedel's and Euroclear's names on the
books of their respective depositaries (each, a "Depositary" and
collectively, the "Depositaries") which in turn will hold such positions in
customers' securities accounts in the Depositaries' names on the books of
DTC.
Transfers between Direct Participants will occur in accordance with
DTC rules. Transfers between Cedel Participants and Euroclear Participants
will occur in the ordinary way in accordance with their applicable rules
and operating procedures.
Cross-market transfers between persons holding directly or
indirectly through DTC, on the one hand, and directly or indirectly through
Cedel Participants or Euroclear Participants, on the other, will be
effected in DTC in accordance with DTC rules through the relevant
Depositaries of Cedel or Euroclear; however, such cross-market transactions
will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in
accordance with its rules and procedures and within its established
deadlines (European time). The relevant European international clearing
system will, if the transaction meets its settlement requirements, deliver
instructions to its Depositary to take action to effect final settlement on
its behalf by delivering or receiving securities in DTC, and making or
receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Cedel Participants and Euroclear Participants
may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities in Cedel or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing day, dated the
Business Day following the DTC settlement date, and such credits or any
transactions in such securities settled during such processing day will be
reported to the relevant Cedel Participant or Euroclear Participant on such
Business Day. Cash received in Cedel or Euroclear as a result of sales of
securities by or through a Cedel Participant or a Euroclear Participant to
a DTC Participant will be received with value on the DTC settlement date
but will be available in the relevant Cedel or Euroclear cash account only
as of the Business Day following settlement in DTC.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that the Seller believes to be
reliable, but the Seller takes no responsibility for the accuracy thereof.
Cedel Bank, societe anonyme ("Cedel") is incorporated under the
laws of Luxembourg as a professional depository. Cedel holds securities for
its participating organizations ("Cedel Participants") and facilitates the
clearance and settlement of securities transactions between Cedel
Participants through electronic book-entry changes in accounts of Cedel
Participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in Cedel in any of 36 currencies,
including United States dollars. Cedel provides to its Cedel Participants,
among other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and
borrowing. Cedel interfaces with domestic markets in several countries. As
a professional depository, Cedel is subject to regulation by the Luxembourg
Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers
and dealers, banks, trust companies, clearing corporations and certain
other organizations and may include the underwriters of the Notes. Indirect
access to Cedel is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Cedel Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ("Euroclear Participants") and to
clear and settle transactions between Euroclear Participants through
simultaneous electronic book-entry delivery against payment, thereby
eliminating the need for physical movement of certificates and any risk
from lack of simultaneous transfers of securities and cash. Transactions
may now be settled in any of 34 currencies, including United States
dollars. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in
several countries generally similar to the arrangements for cross-market
transfers with DTC described above. The Euroclear System is operated by
Morgan Guaranty Trust Company of New York, Brussels, Belgium office (the
"Euroclear Operator" or "Euroclear"), under contract with Euroclear
Clearance System, S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and
all Euroclear securities clearance accounts and Euroclear cash accounts are
accounts with the Euroclear Operator, not the Cooperative. The Cooperative
establishes policy for the Euroclear System on behalf of Euroclear
Participants. Euroclear Participants include banks (including central
banks), securities brokers and dealers and other professional financial
intermediaries and may include the underwriters of the Notes. Indirect
access to the Euroclear System is also available to other firms that clear
through or maintain a custodial relationship with a Euroclear Participant,
either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such,
it is regulated and examined by the Board of Governors of the Federal
Reserve System and the New York State Banking Department, as well as the
Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of the Euroclear System and
applicable Belgian law (collectively, the "Terms and Conditions"). The
Terms and Conditions govern transfers of securities and cash within the
Euroclear System, withdrawal of securities and cash from the Euroclear
System, and receipts of payments with respect to securities in the
Euroclear System. All securities in the Euroclear System are held on a
fungible basis without attribution of specific securities to specific
securities clearance accounts. The Euroclear Operator acts under the Terms
and Conditions only on behalf of Euroclear Participants and has no record
of or relationship with persons holding through Euroclear Participants.
Payments on Notes held through Cedel or Euroclear will be credited
to the cash accounts of Cedel Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by its Depositary. Such payments will be subject to tax reporting
in accordance with relevant United States tax laws and regulations. See
"Certain Federal Income Tax Consequences" and Annex A. Cedel or the
Euroclear Operator, as the case may be, will take any other action
permitted to be taken by a Noteholder under the related agreement on behalf
of a Cedel Participant or Euroclear Participant only in accordance with its
relevant rules and procedures and subject to its Depositary's ability to
effect such actions on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Notes among participants of
DTC, Cedel and Euroclear, they are under no obligation to perform or
continue to perform such procedures and such procedures may be discontinued
at any time.
Definitive Notes
The Notes of each class will be issued in fully registered,
certificated form ("Definitive Notes") to Noteholders or their nominees,
rather than to DTC or its nominee, only if (i) the Trust, the Administrator
or the Servicer advises the Indenture Trustee in writing that DTC or a
successor clearing agency is no longer willing or able to discharge
properly its responsibilities as depository with respect to the Notes and
the Indenture Trustee or the Administrator is unable to locate a qualified
successor, (ii) the Administrator, at its option, elects to terminate the
book-entry system through DTC, or (iii) after the occurrence of an Event of
Default or an Event of Servicing Termination, Note Owners representing in
the aggregate not less than 51% of the aggregate outstanding principal
amount of the Notes advise the Indenture Trustee and DTC in writing that
the continuation of a book-entry system through DTC (or a successor
thereto) is no longer in the best interest of Note Owners.
Upon the occurrence of any event described in the immediately
preceding paragraph, DTC is required to notify all Direct Participants and
the Indenture Trustee of the availability through DTC of Definitive Notes.
Upon surrender by DTC of the definitive notes representing the Notes and
receipt by the Indenture Trustee of instructions for re-registration, the
Indenture Trustee will reissue the Notes as Definitive Notes, and
thereafter the Indenture Trustee will recognize the holders of such
Definitive Notes as Noteholders.
Payments of principal of, and interest on, the Definitive Notes
will be made by the Indenture Trustee directly to Noteholders in accordance
with the procedures set forth herein and in the Indenture. Payments of
principal and interest on each Payment Date will be made to Noteholders in
whose names the Definitive Notes were registered at the close of business
on the preceding Record Date. Such payments will be made by check mailed to
the address of such Noteholder as it appears on the register maintained by
the Indenture Trustee. The final payment on any Definitive Note, however,
will be made only upon presentation and surrender of such Definitive Note
at the office or agency specified in the notice of final payment mailed to
Noteholders.
Definitive Notes will be transferable and exchangeable at the
offices of the Indenture Trustee. No service charge will be imposed for any
registration of transfer or exchange, but the Indenture Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection
therewith.
Interest
The Class A-1 Notes will bear interest at the rate of % per
annum (the "Class A-1 Rate"), the Class A-2 Notes will bear interest at the
rate of % per annum (the "Class A-2 Rate"), the Class A-3 Notes will
bear interest at the rate of % per annum (the "Class A-3 Rate") and the
Class B Notes will bear interest at a rate of % per annum (the "Class B
Rate"). The interest rates for the various classes of Notes are referred to
herein collectively as the "Note Interest Rates."
Interest on the outstanding principal amount of each class of the
Notes will accrue at the applicable Note Interest Rate and will be payable
to the applicable Noteholders monthly on the 15th of each month or, if the
15th day of the month is not a Business Day, the next following Business
Day (each, a "Payment Date"), commencing , 1999. Payments will
be made to holders of record of the Notes (the "Noteholders") as of the
Business Day immediately preceding each Payment Date or, if Definitive
Notes are issued, as of the 15th day of the preceding month unless such day
is not a Business Day, in which case the immediately following Business Day
(a "Record Date"). A "Business Day" is a day other than a Saturday, a
Sunday or a day on which banking institutions or trust companies in New
York, New York, Los Angeles, California or Wilmington, Delaware are
authorized or obligated by law, regulation or executive order to be closed.
Interest will accrue (i) with respect to the Class A-1 Notes, from and
including the Closing Date (in the case of the first Payment Date) or from
and including the most recent Payment Date on which interest has been paid,
to but excluding the following Payment Date and (ii) with respect to the
Class A-2 Notes, the Class A-3 Notes and the Class B Notes, from and
including the Closing Date (in the case of the first Payment Date) or from
and including the 15th day of the calendar month preceding each Payment
Date to but excluding the 15th day of the following calendar month (each
such period, an "Interest Period"). Interest will be calculated in the case
of the Class A-1 Notes on the basis of the actual number of days elapsed
and a 360-day year, and in the case of the Class A-2 Notes, the Class A-3
Notes and the Class B Notes on the basis of a 360-day year of twelve 30-day
months. Interest payable on a Payment Date will be calculated on the basis
of the outstanding principal amount of the Notes of each class as of the
preceding Payment Date, after giving effect to any payments of principal of
the Notes on such preceding Payment Date (or, in the case of the first
Payment Date, on the basis of the initial outstanding principal amount of
the Notes of such class). Interest accrued as of any Payment Date but not
paid on such Payment Date will be due on the next Payment Date, together
with interest on such amount at the applicable Note Interest Rate (to the
extent permitted by law). Interest payments on the Notes will generally be
derived from the Available Funds remaining after the payment of the Total
Servicing Fee for the related Collection Period and, to the extent the
Available Funds remaining are insufficient, from amounts on deposit in the
Supplemental Reserve Account and, to the extent such amounts are
insufficient, from amounts on deposit in the Reserve Account. See "-The
Indenture Cash Flows," "-Reserve Account and Supplemental Reserve Account."
Interest payments to all classes of Class A Notes will have the
same priority of payment, and interest payments to the Class B Notes will
be subordinated to interest payments on the Class A Notes. Under certain
circumstances, the amount available for interest payments could be less
than the amount of interest payable on the Notes on any Payment Date, in
which case Class A Noteholders will be paid interest in full prior to
payments of interest on the Class B Notes and, if the amount available for
interest payments is less than the amount of interest payable on the Class
A Notes, each class of Class A Noteholders will receive their ratable share
(based upon the aggregate amount of interest due to such class of
Noteholders) of the aggregate amount available to be distributed in respect
of interest on the Notes. An Event of Default will occur if the full amount
of interest due to all classes of Noteholders is not paid within five days.
No distributions will be made on the Certificates on any Payment Date until
the interest and principal payable on the Notes on such Payment Date are
paid in full.
Principal
Principal payments will be made to the Noteholders on each Payment
Date in an amount equal in the aggregate to the Principal Distribution
Amount in respect of such Payment Date, subject to certain limitations.
Certificateholders will not be entitled to receive payments of principal
until all classes of Notes have been paid in full. Following the occurrence
and during the continuation of an Event of Default resulting in an
acceleration of the Notes, the Noteholders will be paid in full before any
distributions, including interest, may be made on the Certificates. See
"-The Indenture Cash Flows", "-Reserve Account and Supplemental Reserve
Account."
On each Payment Date, an amount equal to the Principal Distribution
Amount will be paid to the holders of the Class A-1 Notes (the "Class A-1
Noteholders") until the Class A-1 Notes have been paid in full. On each
Payment Date on and after the Payment Date on which the Class A-1 Notes
have been paid in full, (a) an amount equal to the Class A Noteholders'
Percentage of the difference between (x) the Principal Distribution Amount
and (y) any portion of the Principal Distribution Amount applied on such
Payment Date to reduce the outstanding principal amount of the Class A-1
Notes to zero will be paid (i) to the holders of the Class A-2 Notes (the
"Class A-2 Noteholders") until the Class A-2 Notes have been paid in full
and (ii) following payment in full of the Class A-2 Notes, to the holders
of the Class A-3 Notes (the "Class A-3 Noteholders" and, together with the
Class A-1 Noteholders and the Class A-2 Noteholders, the "Class A
Noteholders") until the Class A-3 Notes have been paid in full and (b)
following payment of the Class A Noteholders' Percentage of the Principal
Distribution Amount or payment in full of the Class A-3 Notes on such
Payment Date, an amount equal to the Class B Noteholders' Percentage of the
difference between (x) the Principal Distribution Amount and (y) any
portion of the Principal Distribution Amount applied on such Payment Date
to reduce the outstanding principal amount of the Class A-1 Notes to zero
will be paid to the holders of the Class B Notes (the "Class B
Noteholders") until the Class B Notes have been paid in full; provided,
however, that on each Payment Date occurring on or after the date on which
the maturity dates of the Notes have been accelerated following the
occurrence of an Event of Default, an amount equal to the Principal
Distribution Amount will be paid (i) to the Class A-1 Noteholders, the
Class A-2 Noteholders and the Class A-3 Noteholders pro rata in proportion
to the respective principal balances of the Class A-1 Notes, the Class A-2
Notes and the Class A-3 Notes until all of such classes have been paid in
full and (ii) following payment in full of the Class A Notes, to the Class
B Noteholders until the Class B Notes have been paid in full. As used
herein, "Class A Noteholders' Percentage" means %, the percentage
equivalent of a fraction, the numerator of which is an amount equal to the
sum of the initial principal balances of the Class A-2 Notes and the Class
A-3 Notes, and the denominator of which is an amount equal to the sum of
the initial principal balances of the Class A-2 Notes, the Class A-3 Notes
and the Class B Notes. As used herein, "Class B Noteholders' Percentage"
means %, the percentage equivalent of a fraction, the numerator of which is
the initial principal balance of the Class B Notes, and the denominator of
which is an amount equal to the sum of the initial principal balances of
the Class A-2 Notes, the Class A-3 Notes and the Class B Notes.
The actual date on which the aggregate outstanding principal amount
of any class of Notes is paid may be earlier or later than the respective
Final Payment Dates based on a variety of factors, including those
described under "Risk Factors-Maturity and Prepayment Considerations" and
"The Receivables-Maturity and Prepayment Considerations."
Mandatory Redemption
On the Payment Date on or immediately following the last day of the
Pre-Funding Period, any funds remaining in the Pre-Funding Account (after
giving effect to the purchase of all Subsequent Receivables, including any
such purchase on such date) will be applied to redeem the Notes then
outstanding in the same sequence and proportions that would apply if such
remaining funds were a part of the Principal Distribution Amount.
Optional Redemption
The Notes (and the Certificates) will be redeemed in whole, but not
in part, on any Payment Date on which the Servicer exercises its option to
purchase the Receivables. The Servicer may purchase the Receivables on any
Payment Date with respect to which the Pool Balance as of the end of the
related Collection Period is 10% or less of the Initial Pool Balance. The
redemption price will be equal to the unpaid principal amount of the Notes
plus accrued and unpaid interest thereon, together with the unpaid
principal amount of the Certificates. The Seller does not anticipate,
although no assurances can be given, that the Pool Balance will decline to
a level permitting the Servicer to purchase the Receivables while the Notes
are outstanding.
The Indenture Trustee
Bank of Tokyo-Mitsubishi Trust Company, a New York banking
corporation, will be the Indenture Trustee. The Indenture Trustee's
Corporate Trust Office is located at 1251 Avenue of the Americas, New York,
New York 10020-1104. The Seller, the Servicer, and their respective
affiliates may have other banking relationships with the Indenture Trustee
and its affiliates in the ordinary course of their businesses.
The Accounts
The Servicer will establish an account in the name of the Indenture
Trustee on behalf of the Noteholders and the Certificateholders (the
"Collection Account") into which payments made on or with respect to the
Receivables and Advances made by the Servicer will be deposited and into
which amounts on deposit in the Reserve Account and the Supplemental
Reserve Account may be transferred from time to time, other than certain
amounts payable to the Servicer under the Sale and Servicing Agreement that
are not required to be so deposited or transferred. The Servicer will also
establish and maintain (i) an account in the name of the Indenture Trustee
on behalf of the Noteholders in which the Initial Pre-Funded Amount will be
deposited on the Closing Date (the "Pre-Funding Account"), (ii) an account,
in the name of the Indenture Trustee on behalf of the Noteholders, in which
amounts released from the Collection Account for distribution to
Noteholders will be deposited and from which all payments to Noteholders
will be made (the "Note Payment Account"), (iii) an account, in the name of
the Owner Trustee, on behalf of the holders of record of the Certificates
(the "Certificateholders"), in which amounts released from the Collection
Account for distribution to Certificateholders will be deposited and from
which all distributions to Certificateholders will be made (the
"Certificate Distribution Account") and (iv) an account, in the name of the
Indenture Trustee on behalf of the Noteholders and the Certificateholders,
in which early payments with respect to Actuarial Receivables by or on
behalf of the obligors which constitute neither current scheduled payments
nor full prepayments ("Payaheads") will be deposited until such time as the
payment falls due or until such funds are applied to shortfalls in the
scheduled payments with respect to Actuarial Receivables (the "Payahead
Account," and together with the Pre-Funding Account, the Collection Account
and the Note Payment Account, the "Trust Accounts"). The Seller will also
establish and maintain the Reserve Account, the Supplemental Reserve
Account, the Negative Carry Account and the Yield Supplement Account, each
in the name of the Indenture Trustee for the benefit of the Noteholders and
the Certificateholders. The Trust Accounts, the Reserve Account, the
Supplemental Reserve Account, the Negative Carry Account and the Yield
Supplement Account shall each be a segregated trust account initially
established with the Indenture Trustee and maintained with the Indenture
Trustee so long as permitted by each Rating Agency. In the event that a
Rating Agency no longer permits the Trust Accounts, the Reserve Account,
the Supplemental Reserve Account, the Negative Carry Account and the Yield
Supplement Account to be located at the Indenture Trustee, such accounts
shall be moved to either a Qualified Institution or a Qualified Trust
Institution. A "Qualified Institution" is a depository institution
organized under the laws of the United States or any state thereof or
incorporated under the laws of a foreign jurisdiction with a branch or
agency located in the United States qualified to take deposits and subject
to supervision and examination by Federal or state banking authorities,
having a short-term deposit rating acceptable to each Rating Agency, and,
if such institution is organized under the laws of the United States, the
deposits of which are insured by the Federal Deposit Insurance Corporation
or any successor thereto. A "Qualified Trust Institution" is the corporate
trust department of an institution organized under the laws of the United
States or any state thereof or incorporated under the laws of a foreign
jurisdiction with a branch or agency located in the United States qualified
to take deposits and subject to supervision and examination by Federal or
state banking authorities, with authority to act under such laws as trustee
or in any other fiduciary capacity, having not less than $1 billion in
assets under fiduciary management and a long-term deposit rating acceptable
to each Rating Agency.
Funds in the Collection Account, the Pre-Funding Account, the
Payahead Account, the Reserve Account, the Supplemental Reserve Account,
the Negative Carry Account and the Yield Supplement Account will be
invested in Permitted Investments as provided in the Sale and Servicing
Agreement. "Permitted Investments" generally will be limited to investments
acceptable to each Rating Agency as being consistent with the ratings of
the Notes. Permitted Investments will be limited to obligations or
securities that mature not later than the Business Day immediately
preceding the next Payment Date (or the payment due date, in the case of a
Payahead). Any earnings (net of losses and investment expenses) on amounts
on deposit in the Collection Account will be paid to the
Certificateholders. Any earnings (net of losses and investment expenses) on
amounts on deposit in the Payahead Account will be paid to the Servicer as
additional servicing compensation and will not be available to Noteholders,
and any earnings (net of losses and investment expenses) on, and any
amounts released from the Reserve Account, the Supplemental Reserve
Account, the Negative Carry Account and the Yield Supplement Account will
be distributed to the Seller; provided that earnings on amounts on deposit
in the Reserve Account will be distributed to the Seller only to the extent
that the amounts on deposit in the Reserve Account exceed the Specified
Reserve Balance, earnings on amounts on deposit in the Supplemental Reserve
Account will be distributed to the Seller only to the extent that the
amounts on deposit in the Supplemental Reserve Account exceed the Maximum
Supplemental Reserve Amount and earnings on amounts on deposit in the
Negative Carry Account will be distributed to the Seller only to the extent
that the amounts on deposit in the Negative Carry Account exceed the
Required Negative Carry Account Balance.
Yield Supplement Agreement
Simultaneously with the sale and assignment of the Initial
Receivables by MMCA to the Seller, MMCA and the Seller will enter into a
yield supplement agreement (the "Yield Supplement Agreement"), pursuant to
which MMCA will be obligated to pay the Yield Supplement Amount, if any, to
the Trust on the Business Day prior to each Payment Date. The "Yield
Supplement Amount" will be determined by aggregating with respect to all of
the Receivables the amount (if positive) calculated by the Servicer with
respect to each Receivable equal to one-twelfth of (i) interest on such
Receivable's principal balance as of the first day of the related
Collection Period at a rate equal to the sum of (A) the Servicing Rate for
such Collection Period, (B) the Weighted Average Rate for such Collection
Period and (C) %, minus (ii) interest on such Receivable's principal
balance as of the first day of the related Collection Period at the APR on
such Receivable. The Seller will assign the Yield Supplement Agreement to
the Trust, and the Trust will pledge it to the Indenture Trustee for the
benefit of the Noteholders.
The "Weighted Average Rate" means, with respect to any Payment
Date, a per annum rate equal to the product of (i) twelve and (ii) the
aggregate amount of the Monthly Accrued Note Interest for the Notes on such
Payment Date divided by the sum of the outstanding principal amount of the
Notes as of the preceding Payment Date (after giving effect to any
principal payment made on such preceding Payment Date) or, with respect to
the first Payment Date, as of the Closing Date.
Yield Supplement Account
Payments of the Yield Supplement Amount due under the Yield
Supplement Agreement will be secured by funds on deposit in a segregated
trust deposit account to initially be established with the Indenture
Trustee for the benefit of the Noteholders and the Certificateholders (the
"Yield Supplement Account"). The Yield Supplement Account shall initially
be a segregated trust deposit account in the corporate trust department of
the Indenture Trustee. Notwithstanding the foregoing, in the event that
MMCA either obtains a letter of credit (a "Yield Supplement Letter of
Credit") securing timely remittance to the Indenture Trustee of amounts due
from MMCA under the Yield Supplement Agreement or otherwise satisfies
certain other conditions satisfactory to each Rating Agency, then subject
to the delivery of certain tax opinions the Yield Supplement Account may be
terminated. The Yield Supplement Account will be funded on the Closing Date
with an initial deposit to be specified in the Sale and Servicing
Agreement. On each Subsequent Transfer Date, the Indenture Trustee will
make an additional deposit to the Yield Supplement Account from funds on
deposit in the Pre-Funding Account that otherwise would be distributable to
the Seller as payment for the Subsequent Receivables sold to the Trust on
such Subsequent Transfer Date.
On each Payment Date, the amount required to be on deposit in such
Yield Supplement Account or to be available under such Yield Supplement
Letter of Credit after giving effect to the withdrawal or drawing, as the
case may be, required to be made therefrom on such Payment Date will be an
amount equal to the sum of all projected Yield Supplement Amounts for all
future Payment Dates, which will be determined assuming that future
scheduled payments on the Receivables are made on their scheduled Due
Dates. The amount on deposit in the Yield Supplement Account will decrease
as payments are made from such account with respect to the Yield Supplement
Amounts and funds in excess of the maximum required balance are released to
the Seller.
The Yield Supplement Letter of Credit, if any, will be issued by a
bank that has a debt rating sufficient to maintain the rating of each class
of Notes at the initial level at which it was rated by each Rating Agency.
In the event that the rating of the letter of credit bank that issues any
Yield Supplement Letter of Credit is reduced below any such rating, the
Indenture Trustee will be required to obtain a suitable replacement Yield
Supplement Letter of Credit, to obtain funds in the required amount for
deposit in the Yield Supplement Account or to draw the full amount
available under the Yield Supplement Letter of Credit and deposit such
funds in the Yield Supplement Account.
The Indenture Cash Flows
Deposits to the Collection Account. On or before the seventh
Business Day, but no later than the tenth calendar day (the "Determination
Date"), of the month in which a Payment Date occurs, the Servicer will
calculate the Available Funds, the Total Servicing Fee, the Accrued Note
Interest, the Principal Distribution Amount, the principal attributable
to Last Scheduled Payments, the Negative Carry Amount, if any, and the
Yield Supplement Amount, if any, in each case with respect to such Payment
Date.
On or before each Payment Date, the Servicer will cause the
Available Funds for such Payment Date to be deposited into the Collection
Account. On each Payment Date, the Servicer will notify the Indenture
Trustee to (a) withdraw from the Supplemental Reserve Account for payment
to the Servicer an amount equal to the lesser of (i) the amount of cash or
other immediately available funds in the Supplemental Reserve Account on
such Payment Date (prior to giving effect to any deposits thereto or
withdrawals therefrom relating to such Payment Date), and (ii) the amount,
if any, by which (x) the aggregate amount of Advances that are due and
payable to the Servicer on such Payment Date exceeds (y) the amount paid to
the Servicer with respect to such Advances out of the Collection Account on
such Payment Date and (b) withdraw from the Reserve Account for payment to
the Servicer an amount equal to the lesser of (i) the amount of cash or
other immediately available funds in the Reserve Account on such Payment
Date (prior to giving effect to any deposits thereto or withdrawals
therefrom relating to such Payment Date), and (ii) the amount, if any, by
which (x) the aggregate amount of Advances that are due and payable to the
Servicer on such Payment Date exceeds (y) the amount paid to the Servicer
with respect to such Advances out of the Collection Account on such Payment
Date and the amount withdrawn from the Supplemental Reserve Account on such
Payment Date pursuant to clause (a) above.
On or before each Payment Date, the Servicer will also notify the
Indenture Trustee to (a) withdraw from the Supplemental Reserve Account and
deposit in the Collection Account an amount equal to the lesser of (i) the
amount of cash or other immediately available funds in the Supplemental
Reserve Account on such Payment Date (after giving effect to any
withdrawals therefrom relating to such Payment Date to pay all or part of
the Advances that are due and payable to the Servicer on such Payment Date
but prior to giving effect to any deposits thereto or any other withdrawals
therefrom relating to such Payment Date), and (ii) the amount, if any, by
which (x) the Total Required Payment for such Payment Date exceeds (y) the
Available Funds for such Payment Date and (b) withdraw from the Reserve
Account and deposit in the Collection Account an amount equal to the lesser
of (i) the amount of cash or other immediately available funds in the
Reserve Account on such Payment Date (after giving effect to any
withdrawals therefrom relating to such Payment Date to pay all or part of
the Advances that are due and payable to the Servicer on such Payment Date
but prior to giving effect to any deposits thereto or any other withdrawals
therefrom relating to such Payment Date), and (ii) the amount, if any, by
which (x) the Total Required Payment for such Payment Date exceeds (y) an
amount equal to the sum of the Available Funds for such Payment Date and
amounts withdrawn from the Supplemental Reserve Account on such Payment
Date pursuant to clause (a) above.
The "Available Funds" for a Payment Date to be deposited into the
Collection Account shall equal (a) the sum of the following amounts with
respect to the preceding calendar month, beginning __________, 1998 (the
related "Collection Period"): (i) all collections on the Receivables
including Payaheads withdrawn from the Payahead Account but excluding
Payaheads deposited into the Payahead Account and excluding Rule of 78's
Payments (and including the proceeds of sale by the Trust of any Financed
Vehicle sold to the Trust upon termination, including a prepayment, of a
Final Payment Receivable); (ii) all proceeds of the liquidation of
Receivables which became Defaulted Receivables during the related
Collection Period, net of expenses incurred by the Servicer in connection
with such liquidation and any amounts required by law to be remitted to the
obligor on such Defaulted Receivable ("Liquidation Proceeds"); (iii) any
recoveries in respect of Receivables that became Defaulted Receivables in
prior Collection Periods ("Recoveries"); (iv) all extension and deferral
fees paid with respect to the Receivables; (v) the Purchase Amount of each
Receivable that was repurchased by the Seller or purchased by the Servicer
under an obligation which arose during or prior to the related Collection
Period (net of applicable expenses); (vi) all Actuarial Advances and Last
Scheduled Payment Advances; (vii) the Yield Supplement Amount; (viii) the
Negative Carry Amount; (ix) partial prepayments of any refunded item
included in the principal balance of a Receivable, such as extended
warranty protection plan costs, or physical damage, credit life, disability
insurance premiums, or any partial prepayment which causes a reduction in
the obligor's periodic payment to an amount below the scheduled payment as
of the related Cutoff Date; and (x) with respect to the Payment Date on or
immediately following the last day of the Pre-Funding Period, any funds
remaining in the Pre-Funding Account (after giving effect to the purchase
of all Subsequent Receivables, including any purchase on the last day of
the Pre-Funding Period), minus (b) the aggregate amount of the funds
described in clause (a) above that are used in the related Collection
Period to reimburse the Servicer for the aggregate amount of Advances
previously made by the Servicer that are due and payable to the Servicer
with respect to such Payment Date.
A "Defaulted Receivable" will be a Receivable (other than a
Receivable with respect to which payment of the Purchase Amount has been
made by the Seller or the Servicer) as to which (a) the related Financed
Vehicle has been repossessed and liquidated, (b) a scheduled payment
(including, in the case of a Final Payment Receivable, the amount owed by
an obligor with respect to a Last Scheduled Payment but excluding charges
for excess wear and tear or excess mileage) is, in the case of Motor
Vehicles, 120 or more days past due or, in the case of Trucks, 180 days
past due and, in either case, the Servicer has not repossessed the related
Financed Vehicle or (c) the Servicer has determined, in accordance with its
customary standards, policies and procedures, that eventual payment in full
(including, in the case of a Final Payment Receivable, the amount owed by
an obligor with respect to a Last Scheduled Payment but excluding charges
for excess wear and tear or excess mileage) of the Contract is unlikely and
has either repossessed and liquidated the related Financed Vehicle or
repossessed and held the related Financed Vehicle in its repossession
inventory for 90 days, which 90 days shall not, when added to the aggregate
number of days since a scheduled payment was due but not paid, exceed 180
days.
The Available Funds on any Payment Date shall exclude all payments
and proceeds (including Liquidation Proceeds) of any Receivables the
Purchase Amount of which has been included in the Available Funds for a
prior Collection Period (which shall be paid to the Seller or Servicer, as
applicable).
Monthly Withdrawals from Collection Account. On each Payment Date,
the Indenture Trustee shall make the following withdrawals of Available
Funds in respect of the related Collection Period from the Collection
Account and make deposits, distributions and payments in the amounts and in
the order of priority
specified below:
(i) to the Servicer, the Total Servicing Fee;
(ii) to the Note Payment Account, the Accrued Note Interest
for each class of Notes;
(iii) to the Note Payment Account, the Principal Distribution
Amount;
(iv) to the Reserve Account, the amount required to bring
the amount in the Reserve Account up to the Specified Reserve
Balance;
(v) to the Supplemental Reserve Account, the amount required
to bring the amount in the Supplemental Reserve Account up to the
Maximum Supplemental Reserve Amount; and
(vi) to the Certificate Distribution Account, any remaining
portion of Available Funds.
Notwithstanding the foregoing, following the occurrence and during
the continuation of an Event of Default which has resulted in an
acceleration of the Notes, the Available Funds remaining after the
application of clauses (i) and (ii) above will be deposited in the Note
Payment Account to the extent necessary to reduce the principal amount of
the Notes to zero, and the Certificateholders will not receive any
distributions until the principal amount and accrued interest on the Notes
has been paid in full. In such event, the amount available to make payments
of principal of the Notes will be paid in the following order of priority:
(i) to the Class A-1 Noteholders, the Class A-2 Noteholders and the Class
A-3 Noteholders pro rata in proportion to the respective principal balances
of the Class A-1 Notes, the Class A-2 Notes and the Class A-3 Notes until
all of such classes have been paid in full and (ii) then to the Class B
Noteholders until the Class B Notes have been paid in full.
For purposes hereof, the following terms have the following
meanings:
"Accrued Note Interest" means, with respect to any Payment
Date and each class of Notes, the sum of the Monthly Accrued Note
Interest and the Interest Carryover Shortfall for such class for
such Payment Date.
"Certificate Balance" equals, initially, $ and, thereafter,
equals the initial Certificate Balance minus all amounts paid as
principal on the Certificates.
"Interest Carryover Shortfall" means, with respect to any
Payment Date and any class of Notes, the excess of the sum of the
Monthly Accrued Note Interest for the preceding Payment Date and
any outstanding Interest Carryover Shortfall from the close of
business on such preceding Payment Date, over the amount in respect
of interest that is actually deposited in the Note Payment Account
on such preceding Payment Date with respect to such class, plus
interest on such excess, to the extent permitted by law, at the
applicable Note Interest Rate for the related Interest Period.
"Monthly Accrued Note Interest" means, with respect to any
Payment Date and (i) any class of Notes, interest accrued for the
related Interest Period at the applicable Note Interest Rate for
such class on the aggregate principal balance of the Notes of such
class as of the immediately preceding Payment Date, after giving
effect to all payments of principal to Noteholders on or prior to
such preceding Payment Date (or, in the case of the first Payment
Date, the initial principal amount of the Notes); and (ii) with
respect to the Notes collectively, the sum of Monthly Accrued Note
Interest for each class.
"Note Interest Rate" means in the case of (i) the Class A-1
Notes, % per annum, (ii) the Class A-2 Notes, % per annum, (iii)
the Class A-3 Notes, % per annum and (iv) the Class B Notes, % per
annum. Interest on the Class A-1 Notes will be calculated on the
basis of the actual number of days elapsed and a 360-day year, and
interest on the Class A-2 Notes, the Class A-3 Notes and the Class
B Notes will be calculated on the basis of a 360-day year
consisting of twelve 30-day months.
"Principal Carryover Shortfall" means, as of the close of
business on any Payment Date, the excess of the Principal
Distribution Amount and any outstanding Principal Carryover
Shortfall from the preceding Payment Date over the amount in
respect of principal that is actually deposited in the Note Payment
Account on such Payment Date.
"Principal Distribution Amount" means, with respect to any
Payment Date, the sum of (i) the Scheduled Principal for such
Payment Date (including, in the case of a Final Payment Receivable,
the amount owed by an obligor with respect to a Last Scheduled
Payment), (ii) any outstanding Principal Carryover Shortfall as of
the close of business on the preceding Payment Date and (iii) with
respect to the Payment Date on or immediately following the end of
the Pre-Funding Period, any funds remaining in the Pre-Funding
Account (after giving effect to the purchase of all Subsequent
Receivables, including any purchase on the last day of the
Pre-Funding Period); provided, however, that the Principal
Distribution Amount shall not exceed the outstanding aggregate
principal balance of the Notes; and provided, further, that, on the
Final Payment Date for each class of Notes, the principal required
to be deposited in the Note Payment Account will include the amount
necessary (after giving effect to the other amounts to be deposited
in the Note Payment Account on such Payment Date and allocable to
principal) to reduce the outstanding principal amount of such class
of Notes to zero.
"Realized Losses" means with respect to each Payment Date
and each Receivable that became a Defaulted Receivable during the
related Collection Period, the excess of the principal balance of
such Defaulted Receivable (including the principal of a Last
Scheduled Payment) over the Liquidation Proceeds attributable to
the principal balance of such Defaulted Receivable.
"Scheduled Principal" shall mean, with respect to any
Payment Date, the sum of (a) the sum of (i) collections received
during the related Collection Period of principal on Simple
Interest Receivables, including collections of principal
attributable to the Last Scheduled Payment of a Simple Interest
Receivable that is a Final Payment Receivable and charges for
excess wear and tear and excess mileage but excluding collections
of principal that would be attributable to the Last Scheduled
Payment of a Simple Interest Receivable that is a Final Payment
Receivable except that a Last Scheduled Payment Advance has been
made with respect to such Last Scheduled Payment and (ii) Last
Scheduled Payment Advances made on such Payment Date with respect
to Simple Interest Receivables that are Final Payment Receivables,
(b) the principal portion of each scheduled payment, including a
Last Scheduled Payment on a Final Payment Receivable, due on any
Actuarial Receivable during the related Collection Period, (c)
(without duplication of amounts taken into account under (a) or
(b)) the outstanding principal balance of (i) Receivables prepaid
in full during the related Collection Period, and (ii) Receivables
which became Defaulted Receivables during the related Collection
Period, (d) the Purchase Amount of each Receivable that was
repurchased by the Seller or purchased by the Servicer during such
Collection Period, to the extent attributable to principal, (e) the
proceeds of any other sale of a Receivable to the extent allocable
to principal, and (f) partial prepayments attributable to any
refunded item included in the amount financed, such as extended
warranty protection plan costs or physical damage, credit life,
disability insurance premiums, or any partial prepayment which
causes a reduction in the obligor's periodic payment to be below
the scheduled payment as of the related Cutoff Date; provided,
however, that in calculating the Scheduled Principal, (x) all
payments and proceeds (including Liquidation Proceeds) of any
purchased Receivables the Purchase Amount of which has been
included in Scheduled Principal in a prior Collection Period (which
shall be paid to the Seller or Servicer, as applicable) and (y) all
amounts released from the Pre-Funding Account will be excluded.
"Total Required Payment" means, on any Payment Date, the
Total Servicing Fee, the Accrued Note Interest and the Principal
Distribution Amount.
On each Payment Date, unless the maturity dates of the Notes have
been accelerated following the occurrence of an Event of Default, all
amounts on deposit in the Note Payment Account will be paid in the
following order of priority:
(a) to the Class A Noteholders, the Accrued Note Interest on
the applicable class of Class A Notes;
(b) following payment in full of the Accrued Note Interest
payable to the Class A Noteholders, the
Accrued Note Interest on the Class B Notes;
(c) to the Class A-1 Noteholders, the Principal Distribution
Amount until the Class A-1 Notes have been paid in full;
(d) following payment in full of the Class A-1 Notes, to the
Class A-2 Noteholders, the Class A Noteholders' Percentage of the
remaining Principal Distribution Amount until the Class A-2 Notes
have been paid in full;
(e) following payment in full of the Class A-2 Notes, to the
Class A-3 Noteholders, the Class A Noteholders' Percentage of the
remaining Principal Distribution Amount until the Class A-3 Notes
have been paid in full; and
(f) following payment in full of the Class A-1 Notes and
payment of the Class A Noteholders' Percentage of the Principal
Distribution Amount on such Payment Date, to the Class B
Noteholders, the Class B Noteholders' Percentage of the Principal
Distribution Amount until the Class B
Notes have been paid in full.
On each Payment Date, all amounts on deposit in the Certificate
Distribution Account will be distributed to the Certificateholders.
On each Payment Date occurring on or after the acceleration of the
maturity dates of the Notes following the occurrence of an Event of
Default, all amounts on deposit in the Note Payment Account will be paid:
(a) to the Indenture Trustee, certain expenses and other amounts payable to
the Indenture Trustee; (b) to the Servicer, the amounts due and unpaid in
respect of the Total Servicing Fee; (c) to the Class A Noteholders, the
Accrued Note Interest on the applicable class of Class A Notes; (d) to the
Class B Noteholders, the Accrued Note Interest on the Class B Notes; (e) to
the Class A Noteholders, the Principal Distribution Amount pro rata in
proportion to the respective principal balances of the Class A-1 Notes, the
Class A-2 Notes and the Class A-3 Notes until each of such classes has been
paid in full; (f) to the Class B Noteholders, the Principal Distribution
Amount until the Class B Notes have been paid in full and (g) to the
Certificateholders.
Negative Carry Account
The Negative Carry Account will be held in the name of the
Indenture Trustee and established by the Seller. The Negative Carry Account
will be created with an initial deposit by the Seller of $ (the "Negative
Carry Account Initial Deposit"), which is equal to the Maximum Negative
Carry Amount as of the Closing Date. The "Maximum Negative Carry Amount"
means, as of any date of determination, the product of (a) the Weighted
Average Rate as of such date minus %, multiplied by (b) the product of the
Note Percentage and the Pre-Funded Amount as of such date, multiplied by
(c) the percentage equivalent of a fraction, the numerator of which is the
actual number of days until the expected end of the Pre-Funding Period and
the denominator of which is 360. "Note Percentage" means, as of any date of
determination, the percentage equivalent of a fraction, the numerator of
which is the aggregate principal amount of the Notes as of such date and
the denominator of which is an amount equal to the sum of the aggregate
principal amount of the Notes as of such date and aggregate principal
amount of the Certificates as of such date.
On each Payment Date, the Servicer will instruct the Indenture
Trustee to withdraw from the Negative Carry Account and deposit into the
Collection Account an amount equal to the Negative Carry Amount for the
related Collection Period. For each Collection Period, the "Negative Carry
Amount" will be calculated by the Servicer as the difference (if positive)
between (1) the product of (a) the Accrued Note Interest for such
Collection Period, multiplied by (b) the Pre-Funded Percentage as of the
immediately prior Payment Date, or in the case of the first Payment Date,
the Closing Date, minus (2) the net investment earnings on the Pre-Funded
Amount from and including the Payment Date occurring in such Collection
Period to but excluding the immediately following Payment Date. The
"Pre-Funded Percentage" means, as of any Payment Date, the percentage
equivalent of a fraction, the numerator of which is the Pre-Funded Amount
as of such Payment Date and the denominator of which is the sum of the Pool
Balance and the Pre-Funded Amount, in each case as of such Payment Date,
after taking into account all transfers of Subsequent Receivables on or
prior to such Payment Date.
The amount required to be on deposit in the Negative Carry Account
(the "Required Negative Carry Account Balance") as of any Payment Date will
be equal to the lesser of (x) the Negative Carry Account Initial Deposit
minus all previous withdrawals from the Negative Carry Account including
any withdrawals therefrom on such Payment Date and (y) the Maximum Negative
Carry Amount as of such Payment Date. If the amount on deposit in the
Negative Carry Account on any Payment Date (after giving effect to the
withdrawal of the Negative Carry Amount for such Payment Date) is greater
than the Required Negative Carry Account Balance, the excess will be
released to the Seller. All amounts remaining on deposit in the Negative
Carry Account on the Payment Date on or immediately following the last day
of the Pre-Funding Period (after giving effect to all withdrawals therefrom
on such Payment Date for deposit to the Collection Account on such Payment
Date) will be released to the Seller.
Reserve Account and Supplemental Reserve Account
The Reserve Account and the Supplemental Reserve Account will be
established by the Seller and held in the name of the Indenture Trustee for
the benefit of Noteholders and Certificateholders.
The Reserve Account will be funded initially by a deposit by the
Seller on the Closing Date of cash or Permitted Investments having a value
of $ , which is equal to the Pool Balance as of the Initial
Cutoff Date multiplied by %. On each Subsequent Transfer Date, cash or
Permitted Investments having a value approximately equal to % of the
aggregate principal balance as of the related Subsequent Cutoff Date of the
Subsequent Receivables conveyed to the Trust on such Subsequent Transfer
Date will be withdrawn from the Pre-Funding Account from amounts otherwise
distributable to the Seller in connection with the sale of Subsequent
Receivables and deposited in the Reserve Account. The amount initially
deposited in the Reserve Account by the Seller together with the aggregate
amount transferred from the Pre-Funding Account to the Reserve Account on
the Subsequent Transfer Dates is the "Reserve Initial Deposit." The
Supplemental Reserve Account will not be funded by an initial deposit on
the Closing Date.
On each Payment Date, the Servicer will instruct the Indenture
Trustee to withdraw from the Supplemental Reserve Account to the extent of
the funds available therein the following amounts in the following order of
priority: (i) an amount equal to the shortfall, if any, between the
aggregate amount of Advances previously made by the Servicer that are due
and payable to the Servicer on such Payment Date and the aggregate amount
of the collections on the Receivables that are paid to the Servicer as
reimbursement for such Advances, which will be paid to the Servicer, and
(ii) an amount equal to the shortfall, if any, between the Total Required
Payment for such Payment Date and Available Funds allocable to the payment
of the Total Required Payment, which will be deposited to the Collection
Account. On each Payment Date, the Servicer will instruct the Indenture
Trustee to withdraw from the Reserve Account to the extent of funds
available in the Reserve Account the shortfall, if any, between the funds
available in the Supplemental Reserve Account on such Payment Date and the
amounts described in clauses (i) and (ii) of the preceding sentence, for
application in the same order of priority.
On each Payment Date, after payment of the amount owed to the
Servicer for Advances and Total Required Payment for such Payment Date, the
Indenture Trustee will withdraw from the Collection Account to the extent
of the funds available therein and deposit into the Reserve Account the
amount, if any, required to bring the amount in the Reserve Account up to
the Specified Reserve Balance after giving effect to any withdrawals to be
made from the Reserve Account on such Payment Date. On each Payment Date,
after payment of the amounts owed to the Servicer for Advances and the
Total Required Payment and the deposit to the Reserve Account, the
Indenture Trustee will withdraw from the Collection Account and deposit in
the Supplemental Reserve Account the amount, if any, required to bring the
amount in the Supplemental Reserve Account up to the Maximum Supplemental
Reserve Amount after giving effect to any withdrawals to be made from the
Supplemental Reserve Account on such Payment Date.
Amounts on deposit in the Reserve Account and the Supplemental
Reserve Account will be invested by the Seller in Permitted Investments. On
any Payment Date, to the extent that the amounts on deposit in the Reserve
Account and the Supplemental Reserve Account (including amounts
attributable to investment income, net of losses and investment expenses)
exceed the required balances in such accounts after giving effect to the
withdrawals to be made from such accounts on such Payment Date, such excess
will be withdrawn from the Reserve Account or the Supplemental Reserve
Account, as the case may be, and paid to the Seller on such Payment Date.
The Noteholders will not have any rights in, or claims to, any such amounts
paid to the Seller.
Amounts on deposit in the Reserve Account and the Supplemental
Reserve Account from time to time are intended to enhance the likelihood of
receipt by Noteholders of amounts due them and to decrease the likelihood
that the Noteholders will experience losses. If the aggregate amount
required to be withdrawn from the Reserve Account and the Supplemental
Reserve Account on any Payment Date to reimburse the Servicer for Advances
and to cover shortfalls in Available Funds exceeds the aggregate amount on
deposit in the Reserve Account and the Supplemental Reserve Account, a
temporary shortfall in the amounts distributed to the Noteholders could
result. In addition, depletion of the Reserve Account and the Supplemental
Reserve Account ultimately could result in losses to Noteholders. To the
extent that amounts on deposit in the Reserve Account and the Supplemental
Reserve Account are exhausted, Noteholders and Certificateholders will have
no recourse to the assets of the Seller as a source of payment.
The "Specified Reserve Balance" with respect to any Payment Date
will be an amount equal to the lesser of (i) $ and (ii) an amount equal to
(x) the outstanding principal amount of the Notes as of such Payment Date
(after giving effect to any principal payment made on such Payment Date)
less (y) the amounts on deposit in the Supplemental Reserve Account on such
Payment Date (after giving effect to any deposits to or withdrawals from
the Supplemental Reserve Account on such Payment Date). The "Maximum
Supplemental Reserve Amount" with respect to any Payment Date will be an
amount equal to the lesser of (i) $ and (ii) the outstanding principal
amount of the Notes on such Payment Date (after giving effect to any
principal payment made on such Payment Date). The Servicer may, from time
to time after the date of this Prospectus, request each Rating Agency to
approve a reduction in the Specified Reserve Balance or the Maximum
Supplemental Reserve Amount or a change in the manner in by which the
Reserve Account or the Supplemental Reserve Account is funded. If each
Rating Agency delivers a letter to the Indenture Trustee to the effect that
the reduction in the Specified Reserve Balance or the Maximum Supplemental
Reserve Amount, as the case may be, or the change in the manner in which
the Reserve Account or the Supplemental Reserve Account is funded, as the
case may be, will not result in the qualification, reduction or withdrawal
of its then-current rating of any class of Notes, then subject to delivery
of certain tax opinions the required balance of the account will be reduced
or the account will be funded in the manner proposed by the Servicer, as
the case may be. The Indenture will accordingly be amended to reflect the
change in the required balance of the account or the change in the manner
in which the account is funded, as the case may be, without the consent of
any Noteholders.
Final Payment Receivables
Certain of the Motor Vehicle Contracts (the "Final Payment
Receivables") provide for level monthly payments that do not amortize the
entire amount financed over the term of the Receivable, plus one
substantially larger payment (the "Last Scheduled Payment"). MMCA sets the
Last Scheduled Payment for a particular model of Motor Vehicle at the time
the related Contract is entered into. The Final Payment Receivables provide
for a series of scheduled payments which, if each is made on its scheduled
Due Date, will amortize the initial principal amount of the Receivable
minus the principal portion of the Last Scheduled Payment (such amount, the
"Level Pay Balance") by the Due Date immediately preceding the maturity
date of the Receivable. Upon maturity of the Receivable, the obligor
thereunder will owe (assuming that all payments have been made on their
scheduled Due Dates) an amount consisting of interest for the period from
the preceding Due Date through the maturity date and the remaining
principal amount of the Receivable. The net amount actually due from an
obligor on a Final Payment Receivable upon maturity may be greater or less
than the Last Scheduled Payment as a result of (i) in the case of a Simple
Interest Receivable, changes in the amortization schedule of the Receivable
as a result of early or late payments by the obligor during the term of the
Receivable and the application of certain day counting conventions, and
(ii) additional fees and charges that may be owed by the obligor with
respect to the Receivable or the Financed Vehicle, including charges for
excess wear and tear and excess mileage on the Financed Vehicle.
The initial aggregate principal amount of the Notes and
Certificates will be an amount equal to the sum of the aggregate principal
amount of the Initial Receivables and the Pre-Funded Amount on the Initial
Cutoff Date, including the aggregate of the principal portions of the Last
Scheduled Payments on the Final Payment Receivables. As of the Initial
Cutoff Date, the Last Scheduled Payments of the Initial Receivables had an
aggregate principal balance of $ __________.
Collections attributable to Last Scheduled Payments, plus payments
by related obligors in respect of charges for excess wear and tear and
excess mileage (but not disposition fees, which are payable to the
Servicer) with respect to any Collection Period will be deposited by the
Servicer during such Collection Period into the Collection Account and, on
the related Payment Date, will be available to reimburse the Servicer for
Advances, to pay the Total Required Payment and to make required deposits
into the Reserve Account and the Supplemental Reserve Account. Any amount
remaining will be paid in accordance with the priority of payments
described herein. See "-The Indenture Cash Flows."
Upon maturity of a Final Payment Receivable, an obligor thereunder
may satisfy the amount then owed by the obligor by (1) paying the remaining
principal amount of the Receivable (which, in the case of a Simple Interest
Receivable, may be greater than or less than the Last Scheduled Payment),
all accrued and unpaid interest, plus any fees, charges, and other amounts
then owing on the Due Date of the Last Scheduled Payment; (2) refinancing
the net amount then due, which may be greater or less than the Last
Scheduled Payment, subject to certain conditions; or (3) selling the
related Motor Vehicle to MMCA or its assignee for an amount equal to the
Last Scheduled Payment (reduced by charges for excess wear and tear and
excess mileage and by a disposition fee payable to the Servicer) and paying
any excess of the total amount owed (calculated as in clause (1)) over the
Last Scheduled Payment to MMCA. MMCA will sell its rights to the Final
Payment Receivables, including the Last Scheduled Payments and amounts paid
in respect of excess wear and tear and excess mileage (but not disposition
fees), to the Seller, which will sell its rights to the Trust. If the
payments by or on behalf of an obligor on a Final Payment Receivable in the
Collection Period in which the Last Scheduled Payment is due that are
attributable to the Last Scheduled Payment and the amounts, if any, in the
Payahead Account allocable to the payment of the Last Scheduled Payment are
less than the amount due with respect to such Last Scheduled Payment, the
Servicer will make a Last Scheduled Payment Advance on the following
Payment Date in an amount equal to such shortfall. The Servicer will be
reimbursed for the amount of the Last Scheduled Payment Advance on each
subsequent Payment Date (i) out of payments by or on behalf of the related
obligor in the preceding Collection Period to the extent such payments are
allocable to the reimbursement of the Last Scheduled Payment Advance and
(ii) out of collections on other Receivables in the preceding Collection
Period to the extent of losses on the related Receivable that the Servicer
has recorded in its books and records during the preceding Collection
Period, but only to the extent such losses are allocable to the Last
Scheduled Payment and the Last Scheduled Payment Advance has not otherwise
been reimbursed. See "-The Indenture Cash Flows," "-Reserve Account and
Supplemental Reserve Account."
If the obligor sells the Motor Vehicle to MMCA (acting on behalf of
the Trust), it is anticipated that the full amount of the Last Scheduled
Payment will not be realized upon the subsequent sale of the Motor Vehicle
on behalf of the Trust. MMCA sets the Last Scheduled Payment for a
particular model of Motor Vehicle at the time the related retail
installment sale contract is entered into by reference to its estimate of
the wholesale market value of such model at the end of the Motor Vehicle
Contract's term. However, in connection with sales incentive programs for
particular models, MMCA may increase the Last Scheduled Payments set forth
in Motor Vehicle Contracts to levels above its estimate of the wholesale
market values of the related Motor Vehicles at the end of their respective
Motor Vehicle Contract terms, in order to stimulate sales of particular
models by reducing the amount of the amortizing monthly installments which
would be owed by obligors.
MMCA does not require the obligor under a Final Payment Receivable
to pay the "Gap Amount" in the event there is a total loss of the Motor
Vehicle caused by its theft or physical damage. The "Gap Amount" is the
difference between the amount owed in respect of the Final Payment
Receivable as of the date of the total loss and insurance proceeds
(including payment by the obligor of any applicable deductible) received
with respect to the Motor Vehicle. In accordance with its customary
servicing practices and procedures, MMCA treats such Gap Amount, if any, as
a non-cash reduction of the principal of the related Last Scheduled
Payment.
In the event that the full amount owed by an obligor under a Final
Payment Receivable is not collected, the shortfall will reduce the
Available Funds available to pay the Total Required Payment and to make
required transfers, if any, from the Collection Account to the Reserve
Account and the Supplemental Reserve Account. None of MMCA, the Servicer,
the Seller or the Trust will have any recourse to the obligor for any
shortfall, nor will MMCA, the Servicer or the Seller be obligated to pay
any such shortfall to the Trust.
Subordination of the Class B Notes and the Certificates
The rights of Certificateholders to receive distributions are
subordinated to the rights of Noteholders to receive payments of interest
and principal to the extent set forth herein. Funds on deposit in the
Collection Account (including amounts deposited therein from the Reserve
Account and the Supplemental Reserve Account) will be applied to the
payment to the Servicer of Advances to the extent due and payable to the
Servicer and Rule of 78's Payments due and payable to the Servicer, the
payment of the Total Servicing Fee, the Accrued Note Interest on the Notes
and principal payable on the Notes on such Payment Date (including the
Principal Distribution Amount) and to making the required deposits to the
Reserve Account and the Supplemental Reserve Account before distributions
on the Certificates. In addition, following the occurrence of an Event of
Default that has resulted in an acceleration of the Notes, the Noteholders
will be entitled to be paid in full before the Certificateholders are
entitled to any distributions. The foregoing subordination of the
Certificates is intended to enhance the likelihood of receipt by
Noteholders of amounts due them and to decrease the likelihood that the
Noteholders will experience losses. No payments of interest will be made on
the Class B Notes on any Payment Date until all interest due to the Class A
Notes has been paid. No payment of principal will be made on the Class B
Notes on any Payment Date until the Class A-1 Notes have been paid in full
and the Class A Noteholders' Percentage of the Principal Distribution
Amount has been paid. Upon an acceleration of the maturity dates of the
Notes following an Event of Default, no payment of principal will be made
on the Class B Notes until the Class A Notes have been paid in full. See
"-The Indenture Cash Flows" herein.
Advances
To the extent the collection of interest and principal on an
Actuarial Receivable (other than a Last Scheduled Payment) with respect to
a Collection Period is less than the scheduled payment due thereon, after
application of amounts on deposit in the Payahead Account by the Indenture
Trustee against such shortfall, the Servicer will make an advance of the
remaining amount (such an advance, an "Actuarial Advance") on the related
Payment Date. The Servicer will be reimbursed for each Actuarial Advance
(i) on each subsequent Payment Date out of any payments by or on behalf of
the related obligor in the preceding Collection Period to the extent such
payments are allocable to the reimbursement of the Actuarial Advance and
(ii) on the Payment Date following the Collection Period in which the
related Actuarial Receivable becomes a Defaulted Receivable out of
collections on other Receivables in the preceding Collection Period to the
extent the Servicer has not previously been reimbursed for the amount of
such Actuarial Advance. In addition, the Servicer will make an advance for
any portion of a Last Scheduled Payment on an Actuarial Receivable or a
Simple Interest Receivable for the Collection Period in which such payment
becomes due from the related obligor to the extent such payment has not
been made by or on behalf of such obligor, including amounts in the
Payahead Account allocable to such Last Scheduled Payment (such advance, a
"Last Scheduled Payment Advance" and, together with an Actuarial Advance,
each an "Advance"). The Servicer will be reimbursed for the amount of a
Last Scheduled Payment Advance on each Payment Date following the Payment
Date on which the Last Scheduled Payment Advance was made (i) out of any
payments by or on behalf of the related obligor in the preceding Collection
Period to the extent such payments are allocable to the reimbursement of
the Last Scheduled Payment Advance and (ii) out of collections on other
Receivables in the preceding Collection Period to the extent of losses on
the related Receivable that the Servicer has recorded in its books and
records during the preceding Collection Period, but only to the extent such
losses are allocable to the Last Scheduled Payment and the Last Scheduled
Payment Advance has not otherwise been reimbursed. If MMCA is replaced in
its capacity as Servicer, the successor Servicer will not be required to
make Advances. In the absence of Advances by the Servicer, Noteholders must
rely for payment of the Notes upon payments on the Receivables (including
sales proceeds of Financed Vehicles returned to the Servicer for sale),
payments under the Yield Supplement Agreement and the Yield Supplement
Account, withdrawals from the Negative Carry Account and, to the extent
available, amounts on deposit in the Reserve Account and the Supplemental
Reserve Account. See "-The Indenture Cash Flows", "-Reserve Account and
Supplemental Reserve Account" herein.
Collections on the Receivables
The Servicer will deposit all payments on the Receivables (from
whatever source) and all proceeds of the Receivables (other than certain
amounts payable to the Servicer under the Sale and Servicing Agreement that
are not required to be deposited in the Collection Account) into the
Collection Account not later than two Business Days after receipt thereof
unless (i) the Servicer shall have a rating acceptable to each Rating
Agency with respect to its short-term indebtedness, MMCA is the Servicer,
and no Events of Servicing Termination have occurred or (ii) the Trust
shall have received written notice from each Rating Agency that no
outstanding rating on any class of Notes would be lowered or withdrawn as a
result, in which case such amounts will be paid into the Collection Account
on the Business Day prior to each Payment Date. The Seller and the Servicer
will also deposit into the Collection Account on each Payment Date the
Purchase Amount of each Receivable required to be repurchased or purchased
by either of them pursuant to an obligation that arose during the related
Collection Period. The Servicer will be entitled to withhold, or to be
reimbursed from amounts otherwise payable into, or on deposit in, the
Collection Account with respect to a Collection Period, the amounts
previously deposited in the Collection Account but later determined to have
resulted from mistaken deposits or posting or checks returned unpaid for
insufficient funds or other reasons.
In those cases where a subservicer is servicing a Receivable
pursuant to a subservicing agreement, as described below, the Servicer will
cause the subservicer to remit to the Collection Account the amounts
collected by such subservicer on or with respect to the Receivables being
serviced by it, within the period after receipt, and subject to the
limitations, described above.
As an administrative convenience, unless the Servicer is required
to remit collections within two Business Days of receipt thereof, the
Servicer will be permitted to make the deposit of collections and Purchase
Amounts for or with respect to the Collection Period net of distributions
to be made to the Servicer with respect to the Collection Period. The
Servicer, however, will account to the Indenture Trustee and the
Noteholders as if all deposits, distributions and transfers were made
individually.
Statements to Noteholders
On or prior to each Payment Date, the Servicer will prepare and
provide to the Indenture Trustee a statement to be delivered to the
Noteholders. Each such statement to be delivered to Noteholders will
include the following information as to the Notes with respect to such
Payment Date and the related Collection
Period:
(i) the amount of the payment allocable to principal of each class of Notes;
(ii) the amount of the payment allocable to interest on or with respect to
each class of Notes;
(iii) the Yield Supplement Amount;
(iv) the amount of the Total Servicing Fee with respect to such Collection
Period;
(v) the aggregate outstanding principal amount of each class of the
Notes and the applicable Note Pool Factor, after giving effect to
payments allocated to principal reported under clause (i) above;
(vi) the Pool Balance, the Level Pay Pool Balance and the Last Scheduled
Payment Pool Balance (calculated as of the close of business on the
last day of the related Collection Period);
(vii) the amounts of the Interest Carryover Shortfall and the Principal
Carryover Shortfall, if any, for such Payment Date and the portion
thereof attributable to each class of Notes;
(viii) the amount of the aggregate Realized Losses, if any, for such
Collection Period;
(ix) the balance of the Reserve Account on such Payment Date, after
giving effect to changes therein on such Payment Date;
(x) the balance of the Supplemental Reserve Account on such Payment
Date, after giving effect to changes therein on such Payment Date;
(xi) the amount of Actuarial Advances and Last Scheduled Payment
Advances, if any, for such Collection Period;
(xii) the aggregate Purchase Amount of Receivables repurchased by the
Seller or purchased by the Servicer during such Collection Period;
(xiii) for each such Payment Date during the Pre-Funding Period, if any,
the remaining Pre-Funded Amount; and
(xiv) for the first such date that is on or immediately following the end
of the Pre-Funding Period, if any, the amount of any remaining
Pre-Funded Amount that has not been used to fund the purchase of
Subsequent Receivables and is being passed through as payments of
principal on the Notes.
Each amount set forth pursuant to clauses (i), (ii), (iii), (iv)
and (vii) above will be expressed in the aggregate and as a dollar amount
per $1,000 of original denomination of the Notes or class of Notes, as
applicable. Copies of such statements may be obtained by Note Owners by a
request in writing addressed to the Indenture Trustee.
Within a reasonable period of time after the end of each calendar
year, but not later than the latest date permitted by law, the Indenture
Trustee will furnish to each person who at any time during such calendar
year was a Noteholder a statement containing the sum of the amounts
described in clauses (i), (ii), (iii), (iv) and (vii) above for the
purposes of such Noteholder's preparation of Federal income tax returns.
See "Certain Federal Income Tax Consequences" and "-Book Entry
Registration."
Indenture
Events of Default. The "Events of Default" in the Indenture consist
of (i) a default for five days or more in the payment of interest on any
Note when the same becomes due and payable; (ii) a default in the payment
of principal of, or any installment of principal of, any Note when the same
becomes due and payable; (iii) a default in the observance or performance
of any material covenant or agreement of the Trust made in the Indenture,
or any representation or warranty of the Trust made in the Indenture or in
any certificate or writing delivered pursuant thereto proves to have been
incorrect in any material respect as of the time when made, and the
continuation of such default for a period of 60 days or in the case of a
materially incorrect representation or warranty, 30 days, after notice
thereof is given to the Trust by the Indenture Trustee or the Trust and the
Indenture Trustee by the holders of not less than 25% of the aggregate
principal amount of the Notes of all classes; or (iv) certain events of
bankruptcy, insolvency, receivership or liquidation of the Trust.
(Indenture, Section 5.1).
Noteholders holding not less than a majority of the aggregate
principal amount of the Notes outstanding, voting as a group, may waive any
past default or Event of Default prior to the declaration of the
acceleration of the maturity of the Notes, except a default (i) in payment
of principal of or interest on any of the Notes or (ii) in respect of any
covenant or provision in the Indenture which cannot be modified or amended
without unanimous consent of the Noteholders. (Indenture, Section 5.12).
Any such waiver could be treated, for Federal income tax purposes, as a
constructive exchange of the Notes by the Noteholders for deemed new Notes
upon which gain or loss would be recognized.
Remedies. If an Event of Default should occur and be continuing,
the Indenture Trustee or the holders of a majority of the aggregate
outstanding principal amount of the Notes of all classes, voting as a
group, may declare the principal of the Notes to be immediately due and
payable. Such declaration may be rescinded by the holders of a majority of
the aggregate principal amount of the Notes before a judgment or decree for
payment of the amount due has been obtained by the Indenture Trustee if (i)
the Trust has deposited with the Indenture Trustee an amount sufficient to
pay (x) all interest on and principal of the Notes as if the Event of
Default giving rise to such declaration had not occurred and (y) all
amounts advanced by the Indenture Trustee and its costs and expenses and
(ii) all Events of Default (other than the nonpayment of principal of the
Notes that has become due solely by such acceleration) have been cured or
waived. (Indenture, Section 5.2). Any such rescission could be treated, for
Federal income tax purposes, as a constructive exchange of the Notes by the
Noteholders for deemed new Notes upon which gain or loss would be
recognized.
If the Notes have been declared due and payable following an Event
of Default, the Indenture Trustee may institute proceedings to collect
amounts due, exercise remedies as a secured party, including foreclosure or
sale of the Trust Property, or elect to maintain the Trust Property and
continue to apply proceeds from the Trust Property as if there had been no
declaration of acceleration. The Indenture Trustee may not, however, sell
the Trust Property following an Event of Default, other than a default in
the payment of any principal or a default for five days or more in the
payment of any interest on the Notes, unless (i) 100% of the Noteholders
consent thereto, (ii) the proceeds of such sale are sufficient to pay in
full the principal of and the accrued interest on the then outstanding
Notes or (iii) the Indenture Trustee determines that the Trust Property
would not be sufficient on an ongoing basis to make all payments on the
Notes as such payments would have become due if such obligations had not
been declared due and payable, and the Indenture Trustee obtains the
consent of holders of 66 2/3% of the aggregate principal amount of the
outstanding Notes, voting as a group, to such sale. The Indenture Trustee
may, but need not, obtain and rely upon an opinion of an independent
accountant or investment banking firm as to the sufficiency of the Trust
Property to pay interest on and principal of the Notes on an ongoing basis.
(Indenture, Sections 5.4 and 5.5).
In the event of a sale of the Trust Property following the
occurrence of an Event of Default under the circumstances described in the
preceding paragraph pursuant to the direction of the Indenture Trustee or
the Noteholders, the proceeds of such sale will be distributed first to the
Indenture Trustee for amounts due as compensation or indemnity payments
pursuant to the terms of the Indenture; second to the Servicer for amounts
due in respect of unpaid Total Servicing Fees; third to the Noteholders for
interest which is due and unpaid; and fourth to the Noteholders for
principal which is due and unpaid. Any remaining amounts will be
distributed to the Certificateholders for amounts due and unpaid in
accordance with the terms of the Trust Agreement and the Sale and Servicing
Agreement. (Indenture, Section 5.4).
Subject to the provisions of the Indenture relating to the duties
of the Indenture Trustee, in case an Event of Default occurs and is
continuing with respect to the Notes, the Indenture Trustee will be under
no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the Noteholders, if the Indenture
Trustee reasonably believes it will not be adequately indemnified against
the costs, expenses and liabilities which might be incurred by it in
complying with such request. Subject to such provisions for indemnification
and certain limitations contained in the Indenture, the holders of not less
than a majority of the aggregate principal amount of the outstanding Notes,
voting as a group, will have the right to direct the time, method and place
of conducting any proceeding or any remedy available to the Indenture
Trustee with respect to the Notes or exercising any trust power conferred
on the Indenture Trustee, subject to certain limitations, and the holders
of not less than a majority of the aggregate principal amount of the
outstanding Notes, voting as a group, may, in certain cases, waive any
default with respect thereto, except a default in the payment of principal
or interest or a default in respect of a covenant or provision of the
Indenture that cannot be modified without the waiver or consent of all of
the holders of the outstanding Notes. (Indenture, Sections 5.11 and 5.12).
Until such time, if any, as Definitive Notes have been issued, the
Indenture Trustee will act only in accordance with the instructions of
Cede, as nominee for DTC. However, under the rules, DTC will act only in
accordance with the instructions of the DTC Participants to whom Notes are
credited, which will in turn act in accordance with the instructions of
persons holding beneficial interests in such Notes through such DTC
Participants. Accordingly, although only Cede will be entitled to vote
under the Indenture, Note Owners will be entitled to instruct DTC as to the
manner in which to vote.
No Noteholder will have the right to institute any proceeding with
respect to the Indenture, unless (i) such Noteholder previously has given
to the Indenture Trustee written notice of a continuing Event of Default,
(ii) the holders of not less than 25% of the aggregate principal amount of
the Notes outstanding have made written request of the Indenture Trustee to
institute such proceeding in its own name as Indenture Trustee, (iii) such
Noteholder or Noteholders have offered the Indenture Trustee reasonable
indemnity, (iv) the Indenture Trustee has for 60 days failed to institute
such proceeding and (v) no direction inconsistent with such written request
has been given to the Indenture Trustee during such 60-day period by the
holders of a majority of the aggregate principal amount of the Notes
outstanding. (Indenture, Section 5.6).
Neither the Indenture Trustee nor the Owner Trustee in their
respective individual capacities, nor any holder of a Certificate, nor any
of their respective owners, beneficiaries, agents, officers, directors,
employees, successors or assigns will, in the absence of an express
agreement to the contrary, be personally liable for the payment of interest
on or principal of the Notes or for the agreements of the Trust and the
Owner Trustee, in its capacity as trustee, contained in the Indenture.
Certain Covenants. The Trust will not, among other things, (i)
except as expressly permitted by the Indenture, the Transfer and Servicing
Agreements or certain related documents (collectively, the "Basic
Documents") sell, transfer, exchange or otherwise dispose of any of the
assets of the Trust, (ii) claim any credit on or make any deduction from
the principal or interest payable in respect of the Notes (other than
amounts withheld under the Code or applicable state law) or assert any
claim against any present or former holder of Notes because of the payment
of taxes levied or assessed upon the Trust, (iii) dissolve or liquidate in
whole or in part or (iv) permit (w) the validity or effectiveness of the
Indenture to be impaired, (x) any person to be released from any covenants
or obligations with respect to the Notes under the Indenture except as may
be expressly permitted thereby, (y) any lien, charge, excise, claim,
security interest, mortgage or other encumbrance to be created on or extend
to or otherwise arise upon or burden the assets of the Trust or any part
thereof, or any interest therein or the proceeds therefrom or (z) the lien
of the Indenture not to constitute a valid, first priority (other than with
respect to any such tax, mechanics or other lien) security interest in the
Trust Property. (Indenture, Section 3.8).
The Trust may not engage in any activities other than financing,
acquiring, owning, pledging and managing the Receivables as contemplated by
the Basic Documents and activities incidental thereto.
(Indenture, Section 3.12).
The Trust will not incur, assume or guarantee any indebtedness
other than indebtedness incurred pursuant to the Notes, or otherwise in
accordance with the Basic Documents. (Indenture, Section 3.13).
The Trust will not make any payments to Certificateholders in
respect of their Certificates for any Collection Period unless the Accrued
Note Interest, the Principal Distribution Amount, the Total
Servicing Fee and the deposits,
if any, required to be made to the Reserve Account and the Supplemental
Reserve Account have been provided for.
The Trust will or will cause the Servicer to deliver to the
Indenture Trustee on or prior to each Payment Date the disbursement and
payment instructions as required pursuant to the Indenture. (Sale and
Servicing Agreement,
Section 4.9).
Replacement of Indenture Trustee. Noteholders holding not less than
a majority of the aggregate principal amount of the outstanding Notes,
voting as a group, may remove the Indenture Trustee without cause by so
notifying the Indenture Trustee and the Trust, and following such removal
may appoint a successor Indenture Trustee. Any successor Indenture Trustee
must at all times satisfy the requirements of Section 310(a) of the Trust
Indenture Act of 1939, as amended, and must have a combined capital and
surplus of at least $50,000,000 and a long-term debt rating of investment
grade by each Rating Agency or otherwise acceptable to each Rating Agency.
(Indenture, Sections 6.8 and 6.11).
The Indenture Trustee may resign at any time by so notifying the
Trust and the Noteholders. The Trust will be required to remove the
Indenture Trustee if the Indenture Trustee (i) ceases to be eligible to
continue as the Indenture Trustee, (ii) is adjudged to be bankrupt or
insolvent, (iii) comes under the charge of a receiver or other public
officer, or (iv) otherwise becomes incapable of acting. Upon the
resignation or required removal of the Indenture Trustee, or the failure of
the Noteholders to appoint a successor Indenture Trustee following the
removal without cause of the Indenture Trustee, the Trust will be required
promptly to appoint a successor Indenture Trustee. (Indenture, Section
6.8).
Duties of Indenture Trustee. Except during the continuance of an
Event of Default, the Indenture Trustee (i) will perform such duties and
only such duties as are specifically set forth in the Indenture, (ii) may
in the absence of bad faith, rely, as to the truth of the statements and
the correctness of the opinions expressed therein, on certificates or
opinions furnished to the Indenture Trustee which conform to the
requirements of the Indenture, and (iii) will examine any such certificates
and opinions which are specifically required to be furnished to the
Indenture Trustee by the Indenture to determine whether or not they conform
to the requirements of the Indenture. Upon the continuance of an Event of
Default, the Indenture Trustee will be required to exercise the rights and
powers vested in it by the Indenture and use the same degree of care and
skill in the exercise thereof as a prudent person would exercise or use
under the circumstances in the conduct of such person's own affairs.
(Indenture, Section 6.1).
Compensation and Indemnity. The Trust will (i) pay to the Indenture
Trustee from time to time reasonable compensation for its services, (ii)
reimburse the Indenture Trustee for all expenses, advances and
disbursements reasonably incurred and (iii) indemnify the Indenture Trustee
for, and hold it harmless against, any and all losses, liability or expense
(including attorneys' fees) incurred by it in connection with the
performance of its duties. The Indenture Trustee will not be indemnified
against any loss, liability or expense incurred by it through its own
willful misconduct, negligence or bad faith, except that the Indenture
Trustee will not be liable (i) for any error of judgment made by it in good
faith unless it is proved that the Indenture Trustee was negligent in
ascertaining the pertinent facts, (ii) with respect to any action it takes
or omits to take in good faith in accordance with a direction received by
it from Noteholders in accordance with the terms of the Indenture, and
(iii) for interest on any money received by it except as the Indenture
Trustee and the Trust may agree in writing. The Indenture Trustee will not
be deemed to have knowledge of any Event of Default unless an officer of
the Indenture Trustee has actual knowledge thereof or has received written
notice thereof in accordance with the provisions of the Indenture.
(Indenture, Sections 6.1 and 6.7).
Access to Noteholder Lists. If Definitive Notes are issued in the
limited circumstances described herein and the Indenture Trustee is not the
registrar for the Notes, the Trust will furnish or cause to be furnished to
the Indenture Trustee a list of the names and addresses of the Noteholders
(i) as of each Record Date, within five days thereafter and (ii) as of not
more than 10 days prior to the time such list is furnished, within 30 days
after receipt by the Trust of a written request therefor. (Indenture,
Section 7.1).
Annual Compliance Statement. The Trust will be required to file
annually with the Indenture Trustee a written statement as to the
fulfillment of its obligations under the Indenture. (Indenture, Section
3.9).
Satisfaction and Discharge of Indenture. The Indenture will be
discharged with respect to the collateral securing the Notes upon the
delivery to the Indenture Trustee for cancellation of all the Notes or,
with certain limitations, including receipt of certain opinions with
respect to tax matters, upon deposit with the Indenture Trustee of funds
sufficient for the payment in full of all of the Notes (including interest
and any fees due and payable to the Owner Trustee or the Indenture
Trustee). (Indenture, Section 4.1).
Modification of Indenture. Without the consent of the Noteholders,
the Owner Trustee, on behalf of the Trust, and the Indenture Trustee, upon
request by the Trust, may execute a supplemental indenture for the purpose
of, among other things, adding to the covenants of the Trust, curing any
ambiguity, correcting or supplementing any provision which may be
inconsistent with any other provision or making any other provision with
respect to matters or questions arising under the Indenture which will not
be inconsistent with other provisions of the Indenture; provided that (x)
such action will not, (i) as evidenced by an opinion of counsel (which may
be internal counsel to the Seller or the Servicer (an "Opinion of
Counsel")), materially adversely affect the interests of any Noteholder and
(ii) as confirmed by each Rating Agency rating any class of Notes, cause
the then-current rating assigned to any class of Notes to be withdrawn,
reduced or qualified and (y) an Opinion of Counsel as to certain tax
matters is delivered. (Indenture, Section 9.1).
The Owner Trustee, on behalf of the Trust, and the Indenture
Trustee, upon request by the Trust, may also enter into supplemental
indentures, with the consent of not less than a majority of the aggregate
principal amount of the outstanding Notes, voting as a group, and with
prior written notice to each Rating Agency, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the
provisions of the Indenture or of modifying in any manner the rights of
Noteholders; provided, that (x) such action will not, (i) as evidenced by
an Opinion of Counsel, materially adversely affect the interests of any
Noteholder and (ii) as confirmed by each Rating Agency rating any class of
Notes, cause the then- current rating assigned to any such class of Notes
to be withdrawn, reduced or qualified and (y) an Opinion of Counsel as to
certain tax matters is delivered. (Indenture, Section 9.1).
Without the consent of the holder of each outstanding Note affected
thereby, however, no supplemental indenture may (i) change the Final
Payment Date for any class of Notes or the due date of any installment of
principal of or interest on any Note or reduce the principal amount
thereof, the interest rate specified thereon or the redemption price with
respect thereto, change the provisions of the Indenture relating to the
application of collections on, or the proceeds of the sale of, the Trust
Property to payment of principal of or interest on the Notes, or change any
place of payment where, or the coin or currency in which, any Note or any
interest thereon is payable, (ii) impair the right to institute suit for
the enforcement of certain provisions of the Indenture regarding payment,
(iii) reduce the percentage of the aggregate outstanding principal amount
of the Notes the consent of the holders of which is required for any such
supplemental indenture or for any waiver of compliance with certain
provisions of the Indenture or of certain defaults thereunder and their
consequences as provided for in the Indenture, (iv) modify or alter the
provisions of the Indenture regarding the voting of Notes held by the
Trust, the Seller, the Servicer, an affiliate of any of them or any obligor
on the Notes, (v) reduce the percentage of the aggregate outstanding
principal amount of the Notes the consent of the holders of which is
required to direct the Indenture Trustee to sell or liquidate the Trust
Property if the proceeds of such sale would be insufficient to pay the
principal amount and accrued but unpaid interest on the Notes and the
Certificates, (vi) modify any provision of the Indenture specifying a
percentage of the aggregate principal amount of the Notes necessary to
amend the Indenture or the other Basic Documents except to increase any
percentage specified in the Indenture or to provide that certain additional
provisions of the Indenture or the Basic Documents cannot be modified or
waived without the consent of the holder of each outstanding Note affected
thereby, (vii) modify any provisions of the Indenture in such manner as to
affect the calculation of the amount of any payment of interest or
principal due on any Note on any Payment Date or to affect the rights of
the holders of Notes to the benefit of any provisions for the mandatory
redemption of the Notes contained in the Indenture or (viii) permit the
creation of any lien ranking prior to or on a parity with the lien of the
Indenture with respect to any of the Trust Property or, except as otherwise
permitted or contemplated in the Indenture, terminate the lien of the
Indenture on any such collateral or deprive the holder of any Note of the
security afforded by the lien of the Indenture. (Indenture, Section 9.2).
The Trust Agreement will require the Owner Trustee to give the
Certificateholders 30 days' written notice of any proposed supplemental
indenture if it materially adversely affects the Certificateholders or if
any Noteholders' consent is required and provides that the Owner Trustee
will not enter into such amendment unless Certificateholders holding a
majority of the Certificate Balance including, for this purpose,
Certificates held by the Seller or any affiliate of the Seller, consent in
writing. (Trust Agreement, Section 4.1).
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The Trust will purchase the Initial Receivables on the Closing
Date. It is anticipated that the Trust will purchase Subsequent Receivables
on one or more Subsequent Transfer Dates with an aggregate principal
balance approximately equal to the Initial Pre-Funded Amount less the
amounts to be transferred from the Pre-Funding Account to the Reserve
Account and the Yield Supplement Account in connection with such purchases.
The Servicer will undertake to service the Receivables pursuant to the Sale
and Servicing Agreement. The Trust will be created and the Certificates
will be issued pursuant to the Trust Agreement. MMCA will undertake certain
administrative duties with respect to the Trust pursuant to the
Administration Agreement (together with the Sale and Servicing Agreement
and the Trust Agreement, the "Transfer and Servicing Agreements"). Forms of
the Transfer and Servicing Agreements have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part. The following
summary does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the provisions of the Transfer and Servicing
Agreements.
Sale and Assignment of the Initial Receivables and the Subsequent Receivables
Prior to the time of issuance of the Notes, pursuant to the
Purchase Agreement MMCA will sell and assign to the Seller, without
recourse, its entire right, title and interest in, to and under the Initial
Receivables, including its security interests in the related Financed
Vehicles. At the time of issuance of the Notes, the Seller will sell and
assign to the Trustee, without recourse, the Seller's entire interest in
the Initial Receivables, including its security interests in the related
Financed Vehicles. Each Initial Receivable conveyed by the Seller to the
Trust will be identified in a schedule attached to the Sale and Servicing
Agreement. The Owner Trustee will, concurrently with such sale and
assignment of the Initial Receivables, execute, authenticate and deliver
the Certificates. The net proceeds received from the sale of the Notes will
be applied to the purchase of the Initial Receivables on the Closing Date
and to the deposits required to be made to the Reserve Account, the
Pre-Funding Account, the Negative Carry Account and the Yield Supplement
Account on the Closing Date.
It is anticipated that Subsequent Receivables will be conveyed to
the Trust monthly on dates specified by the Seller (each, a "Subsequent
Transfer Date") occurring during the Pre-Funding Period. The Seller will
designate as a cutoff date (each, a "Subsequent Cutoff Date") the date as
of which particular Subsequent Receivables are conveyed to the Trust. On or
prior to each Subsequent Transfer Date, MMCA will sell and assign to the
Seller, without recourse, its entire right, title and interest in, to and
under the Subsequent Receivables to be transferred by the Seller to the
Trust on such date, including MMCA's security interests in the related
Financed Vehicles. On each Subsequent Transfer Date, subject to the
conditions described below, the Seller will sell and assign to the Trust,
without recourse, the Seller's entire interest in the Subsequent
Receivables designated by the Seller as of the related Subsequent Cutoff
Date. Upon the conveyance of Subsequent Receivables to the Trust on a
Subsequent Transfer Date, (i) the Pool Balance will increase in an amount
equal to the aggregate principal balance of the Subsequent Receivables,
(ii) an amount equal to % of the aggregate principal balance of the
Subsequent Receivables will be withdrawn from the Pre-Funding Account from
funds otherwise distributable to the Seller as payment for the Subsequent
Receivables and deposited in the Reserve Account, (iii) an amount equal to
the projected Yield Supplement Amounts for all future Payment Dates for the
Subsequent Receivables conveyed to the Trust on such Subsequent Transfer
Date will be withdrawn from the Pre-Funding Account from funds otherwise
distributable to the Seller as payment for the Subsequent Receivables and
deposited in the Yield Supplement Account and (iv) an amount equal to the
excess of the aggregate principal balance of such Subsequent Receivables
over the amount described in clauses (ii) and (iii) will be withdrawn from
the Pre-Funding Account and paid to the Seller.
Any conveyance of Subsequent Receivables is subject to the
satisfaction, on or before the related Subsequent Transfer Date, of the
following conditions precedent, among others: (i) each such Subsequent
Receivable must satisfy the eligibility criteria specified in the Sale and
Servicing Agreement (see "The Receivables--Selection Criteria" herein);
(ii) the Seller shall not have selected such Subsequent Receivables in a
manner that it believes is adverse to the interests of the Noteholders or
the Certificateholders; (iii) as of the related Subsequent Cutoff Date, the
Receivables, including any Subsequent Receivables conveyed by the Seller as
of such Subsequent Cutoff Date, must satisfy certain criteria described
under "The Receivables--Selection Criteria" herein; (iv) the applicable
Reserve Account deposit for such Subsequent Transfer Date shall have been
made; (v) the applicable Yield Supplement Account deposit for such
Subsequent Transfer Date shall have been made; (vi) the Seller shall have
executed and delivered to the Trust (with a copy to the Indenture Trustee)
a written assignment conveying such Subsequent Receivables to the Trust
(including a schedule identifying such Subsequent Receivables); (vii) the
Seller shall have delivered certain opinions of counsel to the Trustee, the
Indenture Trustee and the Rating Agencies with respect to the transfer of
such Subsequent Receivables ; (viii) the Trust and the Indenture Trustee
shall have received written confirmation from a firm of certified
independent public accountants that, as of the end of the preceding
Collection Period, the Receivables in the Trust at that time, including the
Subsequent Receivables conveyed by the Seller, satisfied certain parameters
described under "The Receivables" herein; and (ix) the Rating Agencies
shall have received written notification from the Seller of the addition of
all such Subsequent Receivables.
Except for the criteria described in the preceding paragraph, there
will be no required characteristics of the Subsequent Receivables.
Therefore, following the transfer of Subsequent Receivables to the Trust,
the aggregate characteristics of the entire pool of Receivables may vary
from those of the Initial Receivables. See "Risk Factors--Changes in Pool
Characteristics as a Result of Pre-Funding" and "The Receivables."
In the Purchase Agreement, MMCA will represent and warrant to the
Seller, and in the Sale and Servicing Agreement the Seller will represent
and warrant to the Owner Trustee, among other things, that (i) the
information provided in the schedule of Initial Receivables attached to the
Sale and Servicing Agreement and each schedule of Subsequent Receivables
attached to the related assignment is correct in all material respects;
(ii) MMCA shall have determined whether or not the obligor on each
Receivable has maintained physical damage insurance (which shall not be
force-placed insurance) covering the Financed Vehicle in accordance with
its normal requirements; (iii) at the Closing Date or the related
Subsequent Transfer Date, as applicable, the Receivables are free and clear
of all security interests, liens, charges, and encumbrances and no setoffs,
defenses, or counterclaims against it have been asserted or threatened;
(iv) at the Closing Date or the related Subsequent Transfer Date, as
applicable, each of the Receivables is or will be secured by a perfected
first priority security interest in the Financed Vehicle in favor of MMCA;
and (v) each Receivable, at the time it was originated, complied, and at
the date of issuance of the Notes, complies in all material respects with
applicable Federal and state laws, including consumer credit, truth in
lending, equal credit opportunity and disclosure laws.
The only recourse the Noteholders, the Trust, the Indenture
Trustee, the Certificateholders or the Owner Trustee will have against MMCA
and the Seller for breach of any of the foregoing representations and
warranties with respect to a Receivable will be to require MMCA and the
Seller to repurchase the Receivable. See "-Mandatory Repurchase of
Receivables." The Owner Trustee, the Indenture Trustee, the Trust and the
Servicer will covenant in the Sale and Servicing Agreement not to institute
or join in the institution of any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceeding, or other similar proceeding against
the Seller for a period of one year and a day after any securities rated by
a Rating Agency were issued by the Seller or by a trust for which the
Seller was the depositor.
To assure uniform quality in servicing the Receivables and to
reduce administrative costs, the Trust will appoint the Servicer as initial
custodian of the Receivables. The Servicer, in its capacity as custodian,
will hold the Receivables and all documents and instruments relating
thereto (each, a "Receivable File"), either directly or through
subservicers, on behalf of the Trust. The Receivables will not be stamped
or otherwise marked to reflect the sale and assignment of the Receivables
to the Trust and will not be segregated from other receivables held by the
Servicer or the subservicers. However, Uniform Commercial Code financing
statements reflecting the sale and assignment of the Receivables by MMCA to
the Seller and by the Seller to the Trust will be filed, and the Servicer's
accounting records and computer systems will be marked to reflect such sale
and assignment. See "The Trust" and "Certain Legal Aspects of the
Receivables."
Pre-Funding
The Trust will pay the purchase price for Subsequent Receivables
with funds on deposit in the Pre-Funding Account. The Seller will deposit
an amount equal to $ __________ (the "Initial Pre-Funded Amount") in the
Pre-Funding Account on the Closing Date. The Seller expects to sell
Subsequent Receivables to the Trust with an aggregate principal balance
approximately equal to the Initial Pre-Funded Amount less the amounts to be
transferred from the Pre-Funding Account to the Reserve Account and the
Yield Supplement Account on each Subsequent Transfer Date in connection
with such sales. Prior to being used to purchase Subsequent Receivables or
paid to holders of the Notes as described under "Description of the
Notes-Mandatory Redemption," funds on deposit in the Pre-Funding Account
will be invested from time to time in Permitted Investments. The net
earnings from the investment of funds on deposit in the Pre-Funding Account
will be transferred to the Collection Account on a monthly basis on the
Business Day preceding each Payment Date.
The Pre-Funding Period will end earlier than the date specified
above when (i) the amount of funds on deposit in the Pre-Funding Account
(the "Pre-Funded Amount") is reduced to less than $100,000 because of
purchases of Subsequent Receivables, (ii) there is an Event of Default
under the Indenture or a Servicer Default under the Sale and Servicing
Agreement or (iii) the Seller or the Servicer becomes subject to certain
insolvency events. Any funds remaining on deposit in the Pre-Funding
Account at the end of the Pre-Funding Period will be payable to the
Noteholders as described under "Description of the Notes-Mandatory
Redemption" herein.
Mandatory Repurchase of Receivables
In the event of a breach or failure to be true of any
representation or warranty with respect to the Receivables described in
"-Sale and Assignment of the Initial Receivables and the Subsequent
Receivables," which breach or failure materially and adversely affects the
interest of the Trust in a Receivable, the Seller, unless such breach or
failure has been cured by the last day of the Collection Period which
includes the 60th day after the date on which the Seller becomes aware of,
or receives written notice from the Owner Trustee or the Servicer of, such
breach or failure, will be required to repurchase the Receivable from the
Trust, and MMCA will be required to repurchase such Receivable from the
Seller, for the Purchase Amount. The Purchase Amount will be payable on the
Payment Date immediately following such Collection Period. The obligation
of the Seller to repurchase a Receivable will not be conditioned on
performance by MMCA of its obligation to repurchase a Receivable. The
repurchase obligation will constitute the sole remedy available to the
Noteholders, the Trust, the Indenture Trustee, the Certificateholders or
the Owner Trustee against the Seller and MMCA for any such uncured breach
or failure.
The "Purchase Amount" means, with respect to a Payment Date and a
Receivable to be purchased or repurchased on such Payment Date by the
Seller or the Servicer, an amount equal to the sum of (a) the outstanding
principal balance of such Receivable as of the first day of the related
Collection Period and (b) an amount equal to the amount of accrued and
unpaid interest on such principal balance at the related APR from the date
a payment was last made by or on behalf of the obligor through the Due Date
for such Receivable in the related Collection Period and in the case of
clauses (a) and (b), after giving effect to the receipt of monies collected
on such Receivable in such Collection Period.
Servicing Procedures
The Servicer will make reasonable efforts to collect all payments
due with respect to the Receivables in a manner consistent with the Sale
and Servicing Agreement and will exercise the degree of skill and care that
the Servicer exercises with respect to comparable motor vehicle receivables
owned and/or serviced by the Servicer for itself or others.
Although it has no current plans to do so, the Servicer may enter
into subservicing agreements with Eligible Servicers for the subservicing
of Receivables. Any such subservicing agreements will contain provisions
substantially identical to those contained in the Sale and Servicing
Agreement and may contain such other provisions as are not inconsistent
with the terms of the Sale and Servicing Agreement. The Servicer may
terminate a subservicing agreement and either service the related
Receivables directly or enter into a new subservicing agreement for such
Receivables with another subservicer, provided that any such subservicer is
an Eligible Servicer. Notwithstanding any subservicing agreement, the
Servicer will remain obligated and liable to the Trust and the Owner
Trustee for servicing and administering the Receivables in accordance with
the Sale and Servicing Agreement as if the Servicer alone were servicing
the Receivables. References herein to actions required or permitted to be
taken, or restrictions on actions to be taken, by the Servicer include such
actions by a subservicer. References herein to amounts received by the
Servicer include amounts received by a subservicer.
"Eligible Servicer" means a person which, at the time of its
appointment as Servicer or as a subservicer, (i) has a net worth of not
less than $50,000,000, (ii) is servicing a portfolio of motor vehicle
retail installment sale contracts and/or motor vehicle loans, (iii) is
legally qualified, and has the capacity, to service the Receivables, (iv)
has demonstrated the ability to service a portfolio of motor vehicle retail
installment sale contracts and/or motor vehicle loans similar to the
Receivables professionally and competently in accordance with standards of
skill and care that are consistent with prudent industry standards, and (v)
is qualified and entitled to use pursuant to a license or other written
agreement, and agrees to maintain the confidentiality of, the software
which the Servicer or any subservicer uses in connection with performing
its duties and responsibilities under the Sale and Servicing Agreement or
the related subservicing agreement or obtains rights to use, or develops at
its own expense, software which is adequate to perform its duties and
responsibilities under the Sale and Servicing Agreement or the related
subservicing agreement.
The Servicer will covenant in the Sale and Servicing Agreement
that: (i) the Financed Vehicle securing each Receivable will not be
released from the security interest granted by the Receivable in whole or
in part, except as contemplated by the Sale and Servicing Agreement; (ii)
the Servicer will not (nor will it permit any subservicer to) impair in any
material respect the rights of the Trust, the Indenture Trustee, the
Noteholders, the Owner Trustee or the Certificateholders in the
Receivables, or, subject to clause (iii) below, otherwise amend or alter
the terms thereof if, as a result of such amendment or alteration, the
interests of the Trust, the Noteholders, the Indenture Trustee, the Owner
Trustee, or the Certificateholders under the Sale and Servicing Agreement
would be materially adversely affected; and (iii) the Servicer will not
increase or decrease the number or amount of scheduled payments or the
amount financed under a Receivable, or extend, rewrite or otherwise modify
the payment terms of a Receivable; provided, however, that the Servicer may
extend any Receivable for credit-related reasons that would be acceptable
to the Servicer with respect to comparable motor vehicle receivables that
it services for itself or others in accordance with its customary standards
if the cumulative extensions with respect to any Receivable shall not cause
the term of any such Receivable to extend beyond the Final Scheduled
Maturity Date; provided further that such extensions, in the aggregate, do
not exceed two months for each twelve months of the original term of the
Receivable.
In the event of a breach by the Servicer of any covenant described
above that materially and adversely affects the interests of the Trust in a
Receivable, the Servicer, unless such breach has been cured by the last day
of the Collection Period which includes the 60th day after the date on
which the Servicer becomes aware of, or receives written notice of, such
breach, will be required to purchase the Receivable from the Trust for the
Purchase Amount on the Payment Date immediately following such Collection
Period; provided, however, that with respect to a breach of the covenant
described in clause (iii) of the preceding paragraph, the Servicer will be
required to purchase the related Receivable from the Trust at the end of
the Collection Period in which such breach occurs. The purchase obligation
will constitute the sole remedy available to the Noteholders, the Trust,
the Indenture Trustee, the Owner Trustee, or the Certificateholders against
the Servicer for any such uncured breach, except with respect to certain
indemnities of the Servicer under the Sale and Servicing Agreement related
thereto.
The Sale and Servicing Agreement will also generally require the
Servicer to charge off a Receivable in conformity with its normal practice
and to follow such of its normal collection practices and procedures as it
deems necessary or advisable, and that are consistent with the standard of
care required by the Sale and Servicing Agreement, to realize upon any
Receivable. Currently, MMCA charges off a Contract at the time that the
related Financed Vehicle has been repossessed and sold, and the proceeds of
sale of the Financed Vehicle are applied against the amount owing on the
Contract, or at such time as MMCA determines that it will not recover the
Financed Vehicle. The Servicer may sell the Financed Vehicle securing such
Receivable at judicial sale or take any other action permitted by
applicable law. See "Certain Legal Aspects of the Receivables." The net
proceeds of such sale will be deposited in the Collection Account at the
time and in the manner described above.
The Sale and Servicing Agreement will also require the Servicer to
make Actuarial Advances and Last Scheduled Payment Advances for which the
Servicer will be reimbursed in the manner described under "Description of
the Notes-Advances."
The Sale and Servicing Agreement will provide that the Servicer
will defend and indemnify the Trust, the Indenture Trustee, the Owner
Trustee, the Noteholders, the Certificateholders and the Seller against any
and all costs, expenses, losses, damages, claims, and liabilities,
including reasonable fees and expenses of counsel and expenses of
litigation, arising out of or resulting from the use, ownership or
operation by the Servicer or any affiliate thereof of any Financed Vehicle,
or in respect of any negligence, willful misfeasance or bad faith of the
Servicer in the performance of its duties (other than errors in judgment)
or by reason of reckless disregard of its obligations and duties, under any
Basic Document to which it is a party. The Servicer's obligations to
indemnify the Trust, the Indenture Trustee, the Owner Trustee, the
Noteholders, the Seller and the Certificateholders for the Servicer's
actions or omissions will survive the removal of the Servicer, but will not
apply to any action or omission of a successor Servicer.
Servicing Compensation
The Servicer will be entitled to receive a fee for servicing the
Receivables each Collection Period (the "Servicing Fee"), in an amount
equal to the product of one-twelfth of the Servicing Rate and the Pool
Balance as of the first day of such Collection Period. The "Servicing Rate"
will equal 1.00% per annum. The Servicer will also be entitled to receive,
as additional servicing compensation, earnings (net of losses and
investment expenses) on amounts on deposit in the Payahead Account, Rule of
78's Payments, all disposition fees paid with respect to Final Payment
Receivables and all administrative fees and charges and all late payment
fees paid with respect to the Receivables, other than fees paid in
connection with extension or deferral of payments on a Receivable, which
will be deposited in the Collection Account. The Servicing Fee, together
with any portion of the Servicing Fee that remains unpaid from prior
Payment Dates (the "Total Servicing Fee"), will be paid out of Available
Funds prior to distributions to Noteholders and Certificateholders.
The Servicing Fee and the additional servicing compensation will
compensate the Servicer for performing the functions of a third party
servicer of Motor Vehicle Contracts and Truck Contracts and for
administering the Receivables on behalf of the Noteholders and the
Certificateholders, including collecting payments, accounting for
collections, furnishing monthly and annual statements to the Indenture
Trustee and the Owner Trustee with respect to distributions, responding to
inquiries of obligors, investigating delinquencies, and providing
collection and repossession services in cases of obligor default. In
addition, the Servicing Fee and the additional servicing compensation will
further compensate the Servicer for certain taxes, accounting fees, outside
auditor fees, data processing costs, and other costs incurred by the
Servicer under the Sale and Servicing Agreement in connection with
administering and servicing the Receivables.
Evidence as to Compliance
The Sale and Servicing Agreement will provide that a firm of
independent certified public accountants, who may provide audit and other
services to the Servicer, the Seller or MMCA, will furnish to the Indenture
Trustee and the Owner Trustee, on or before May 31 of each year, beginning
May 31, 2000, a report of examination as to compliance by the Servicer
during the 12 months (or longer period in the case of the first such
report) ended the preceding December 31 with certain standards relating to
the servicing of the Receivables.
The Sale and Servicing Agreement will also provide for delivery to
the Indenture Trustee and the Owner Trustee, on or before May 31 of each
year, beginning May 31, 2000, of a certificate signed by an officer of the
Servicer stating that to the best of such officer's knowledge the Servicer
has fulfilled its obligations under the Sale and Servicing Agreement
throughout the 12 months (or longer period in the case of the first such
certificate) ended the preceding December 31 or, if there has been a
default in the fulfillment of any such obligation, describing each such
default.
Note Owners may obtain copies of such statements and certificates
by written request addressed to the Indenture Trustee.
Certain Matters Regarding the Servicer
The Sale and Servicing Agreement will provide that the Servicer may
not resign from its obligations and duties as Servicer thereunder, except
upon a determination that the Servicer's performance of such duties is no
longer permissible under applicable law. No such resignation will become
effective until the Indenture Trustee or a successor servicer has assumed
the Servicer's servicing obligations and duties under the Sale and
Servicing Agreement and becomes the Administrator under the Administration
Agreement.
Any corporation or other entity into which the Servicer may be
merged or consolidated, or that may result from any merger, conversion or
consolidation to which the Servicer is a party, or any entity that may
succeed by purchase and assumption to all or substantially all of the
business of the Servicer, where the Servicer is not the surviving entity
and where such corporation or other entity is an Eligible Servicer and
assumes the obligations of the Servicer under the Sale and Servicing
Agreement, will be the successor to the Servicer under the Sale and
Servicing Agreement.
Indemnification and Limits on Liability
The Sale and Servicing Agreement will provide that the Servicer
will be liable only to the extent of the obligations specifically
undertaken by it under the Sale and Servicing Agreement and will have no
other obligations or liabilities thereunder.
The Sale and Servicing Agreement will also provide that the
Servicer will be under no obligation to appear in, prosecute or defend any
legal action that is not incidental to the Servicer's servicing
responsibilities under the Sale and Servicing Agreement and that, in its
opinion, may cause it to incur any expense or liability. The Servicer may,
however, at its expense undertake any reasonable action that it may deem
necessary or desirable in respect of the Sale and Servicing Agreement and
the rights and duties of the parties thereto and the interests of the
Noteholders and the Certificateholders thereunder.
Events of Servicing Termination
The following events will constitute "Events of Servicing
Termination" under the Sale and Servicing Agreement: (i) any failure by the
Servicer to deliver to the Owner Trustee or the Indenture Trustee the
monthly certificate pursuant to the Sale and Servicing Agreement detailing
the collections and distributions for any Collection Period (which failure
continues beyond the earlier of three business days from the date such
Servicer's certificate was due to be delivered and the related Payment
Date), (ii) any failure by the Servicer to deliver to the Collection
Account or any other account, any required payment or deposit under the
Sale and Servicing Agreement, which failure continues unremedied for five
business days following the due date, (iii) any failure by the Servicer
duly to observe or perform in any material respect any other covenant or
agreement in the Notes, the Certificates or the Sale and Servicing
Agreement, which failure materially and adversely affects the rights of
Noteholders or Certificateholders and which continues unremedied for 30
days after written notice of such failure is given to the Servicer by the
Indenture Trustee or the Owner Trustee, as applicable (the "Applicable
Trustee"), or to the Seller, the Servicer, the Owner Trustee and the
Indenture Trustee by the holders of Notes or Certificates, as applicable,
evidencing not less than 25% in aggregate principal amount of the
outstanding Notes (voting as a group) or Certificates, (iv) certain events
of bankruptcy, receivership, insolvency, readjustment of debt, marshalling
of assets and liabilities, or similar proceedings with respect to the
Seller or the Servicer and certain actions by the Seller or the Servicer
indicating its insolvency or reorganization pursuant to bankruptcy,
receivership, conservatorship, insolvency, or similar proceedings, and (v)
failure of the Servicer to be an Eligible Servicer. The holders of Notes
evidencing not less than 51% of the aggregate principal amount of the
outstanding Notes (voting as a group) (or the holders of Certificates
evidencing not less than a majority of the Certificate Balance, in the case
of any default which does not adversely affect the Indenture Trustee or the
Noteholders) may, on behalf of all Noteholders and Certificateholders,
waive any Event of Servicing Termination except an event resulting from the
failure to make any required deposit to or payment from any account. For
purposes of the foregoing, Notes or Certificates owned by the Seller, the
Servicer, or any affiliate of either shall not be considered to be
"outstanding."
The Indenture Trustee will have no obligation to notify Noteholders
of any event which, with lapse of time to cure, would become an Event of
Servicing Termination, until after the expiration of any applicable cure
period.
Rights Upon an Event of Servicing Termination
As long as an Event of Servicing Termination remains unremedied,
the Indenture Trustee or the holders of Notes evidencing not less than a
majority of the aggregate principal amount of the outstanding Notes may
terminate the Servicer's rights and obligations under the Sale and
Servicing Agreement, whereupon the Indenture Trustee or a servicer
appointed by the Indenture Trustee will succeed to all the
responsibilities, duties, and liabilities of the Servicer under the Sale
and Servicing Agreement. Thereafter, the successor Servicer will be
entitled to the compensation otherwise payable to the Servicer and will be
entitled to similar compensation arrangements. In the event that the
Indenture Trustee is unwilling or legally unable so to act, the Indenture
Trustee may appoint, or petition a court of competent jurisdiction for the
appointment of, an Eligible Servicer to act as successor to the outgoing
Servicer under the Sale and Servicing Agreement. In no event may the
servicing compensation to be paid to such successor be greater than the
servicing compensation payable to the Servicer under the Sale and Servicing
Agreement. In the event of the bankruptcy of the Servicer, the bankruptcy
trustee or the Servicer, as debtor in possession, may have the power to
prevent a termination of the Servicer's rights and obligations under the
Sale and Servicing Agreement.
Amendment
The Transfer and Servicing Agreements may be amended by the parties
thereto without the consent of the Noteholders or the Certificateholders,
to cure any ambiguity, to correct or supplement any provision therein which
may be inconsistent with any other provision therein, and to add, change or
eliminate any other provision of the applicable Transfer and Servicing
Agreement which are not inconsistent with the provisions of such Transfer
and Servicing Agreement; provided that such action will not, as evidenced
by an Opinion of Counsel to the Indenture Trustee and the Owner Trustee,
materially and adversely affect the interest of any Noteholder or
Certificateholder or, with respect to the Trust Agreement, have certain
adverse tax consequences.
The Transfer and Servicing Agreements may also be amended by the
parties thereto (with, in the case of the Sale and Servicing Agreement,
consent of the Indenture Trustee and with, in the case of the
Administration Agreement, the Seller) with the consent of the holders of
Notes evidencing not less than 51% of the aggregate principal amount of
then outstanding Notes, voting as a group, and the holders of Certificates
evidencing not less than 51% of the Certificate Balance, for the purpose of
adding any provisions to or changing in any manner or eliminating any of
the provisions of the Transfer and Servicing Agreements or of modifying the
rights of Noteholders or Certificateholders. However, no such amendment may
(i) increase or reduce in any manner the amount of, or accelerate or delay
the timing of, or change the allocation or priority of, collections of
payments on Receivables or distributions that are required to be made on
any Note or Certificate, or change any Note Interest Rate, rate of interest
on the Certificates, the Specified Reserve Balance or the Maximum
Supplemental Reserve Amount, without the consent of all adversely affected
Noteholders or Certificateholders, (ii) reduce the aforesaid percentage of
the Notes and the Certificates which is required to consent to any such
amendment, without the consent of all Noteholders or Certificateholders
affected thereby, or (iii) adversely affect the ratings of any class of
Notes by the Rating Agencies without the consent, respectively, of holders
of Notes evidencing not less than 66 2/3% of the aggregate principal amount
of the then outstanding Notes of such class. Additionally, with respect to
an amendment of the Trust Agreement, an Opinion of Counsel to the effect
that such amendment will not have certain adverse tax consequences shall be
furnished to the Indenture Trustee and the Owner Trustee. See "Description
of the Notes-Book Entry Registration."
Termination
The obligations of the Seller, the Servicer, the Owner Trustee and
the Indenture Trustee pursuant to the Indenture and the Transfer and
Servicing Agreements will, except with respect to certain reporting
requirements, terminate upon the earliest of (i) the Payment Date next
succeeding the Servicer's purchase of the Receivables, as described below,
(ii) payment to Noteholders and Certificateholders of all amounts required
to be paid to them pursuant to the Transfer and Servicing Agreements and
(iii) the Payment Date next succeeding the month which is one year after
the maturity or other liquidation of the last Receivable and the
disposition of any amounts received upon liquidation of any property
remaining in the Trust in accordance with the terms and priorities set
forth in the Transfer and Servicing Agreements.
In order to avoid excessive administrative expense, the Servicer
will be permitted, at its option, in the event that the Pool Balance as of
the close of business on the last day of a Collection Period has declined
to 10% or less of the Initial Pool Balance, to purchase from the Trust, on
any Payment Date occurring in a subsequent Collection Period, all remaining
Receivables in the Trust at a purchase price equal to the outstanding
principal amount of the Notes and the Certificates, in each case plus
accrued and unpaid interest thereon. The exercise of this right will effect
early retirement of the Notes and the Certificates.
The Indenture Trustee will give written notice of termination of
the Trust to each Noteholder of record. The final distribution to any
Noteholder will be made only upon surrender and cancellation of such
holder's Note (whether a Definitive Note or the one or more physical notes
representing the Notes) at the office or agency of the Indenture Trustee
specified in the notice of termination. Any funds remaining in the Trust,
after the Indenture Trustee has taken certain measures to locate a
Noteholder and such measures have failed, will be distributed to the Seller
or as otherwise provided in the Transfer and Servicing Agreements.
Administration Agreement
MMCA, in its capacity as administrator (the "Administrator"), will
enter into an Administration Agreement (as amended and supplemented from
time to time, the "Administration Agreement") with the Trust and the
Indenture Trustee pursuant to which the Administrator will agree, to the
extent provided in the Administration Agreement, to provide the notices and
to perform other administrative obligations required by the Indenture. As
compensation for the performance of the Administrator's obligations under
the Administration Agreement and as reimbursement for its expenses relating
thereto, the Administrator will be entitled to a monthly administration
fee, which fee will be paid by the Servicer.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
Rights in the Receivables
The Receivables are "chattel paper" as defined in the Uniform
Commercial Code (the "UCC"). Pursuant to the UCC, for most purposes, a sale
of chattel paper is treated in a manner similar to a transaction creating a
security interest in chattel paper. MMCA and the Seller will cause
financing statements to be filed with the appropriate governmental
authorities to perfect the interest of the Seller and the Trust, as the
case may be, in its purchase of the Receivables.
Pursuant to the Sale and Servicing Agreement, the Servicer will
hold the Receivables, either directly or through subservicers, as custodian
for the Indenture Trustee and the Trust following the sale and assignment
of the Receivables to the Trust on the Closing Date and each Subsequent
Transfer Date. The Seller will take such action as is required to perfect
the rights of the Indenture Trustee and the Trust in the Receivables. The
Receivables will not be stamped, or otherwise marked, to indicate that they
have been sold to the Trust. If, through inadvertence or otherwise, another
party purchases (or takes a security interest in) the Receivables for new
value in the ordinary course of business and takes possession of the
Receivables without actual knowledge of the Trust's interest, the purchaser
(or secured party) will acquire an interest in the Receivables superior to
the interest of the Trust.
Under the Sale and Servicing Agreement, the Servicer will be
obligated from time to time to take such actions as are necessary to
protect and perfect the Trust's interest in the Receivables and their
proceeds.
Security Interests in the Financed Vehicles
Generally, retail installment sale contracts such as the
Receivables evidence the credit sale of automobiles and light- and
medium-duty trucks by dealers to obligors; the contracts also constitute
personal property security agreements and include grants of security
interests in the vehicles under the UCC. Perfection of security interests
in motor vehicles is generally governed by the motor vehicle registration
laws of the state in which the vehicle is located. In most states in which
the Receivables have been originated (including California, Florida and
Texas, the states in which the largest number of Financed Vehicles are
located), a security interest in the vehicle is perfected by notation of
the secured party's lien on the vehicle's certificate of ownership or
title.
MMCA's practice is to take such action as is required in order to
perfect its security interest in a Motor Vehicle or Truck under the laws of
the jurisdiction in which the Motor Vehicle or Truck is registered. If
MMCA, because of clerical error or otherwise, has failed to take such
action with respect to a Financed Vehicle, it will not have a perfected
security interest in the Financed Vehicle, and its security interest may be
subordinate to the interests of, among others, subsequent purchasers of the
Financed Vehicle that give value without notice of MMCA's security interest
and to whom a certificate of ownership is issued in such purchaser's name,
holders of perfected security interests in the Financed Vehicle, and the
trustee in bankruptcy of the obligor. MMCA's security interest may also be
subordinate to such third parties in the event of fraud or forgery by the
obligor or administrative error by state recording officials or in the
circumstances noted below. As described more fully below, MMCA and the
Seller will warrant in the Purchase Agreement and the Sale and Servicing
Agreement, respectively, that an enforceable first priority perfected
security interest exists for the benefit of the Seller and the Trust,
respectively, with respect to each Financed Vehicle and will be required to
repurchase the related Receivable in the event of an uncured breach of such
warranty.
Pursuant to the Purchase Agreement, MMCA will assign its security
interests in the Financed Vehicles, along with the sale and assignment of
the Receivables, to the Seller, and pursuant to the Sale and Servicing
Agreement, the Seller will assign its security interests in the Financed
Vehicles, along with the sale and assignment of the Receivables, to the
Trust on the Closing Date and each Subsequent Transfer Date. The Servicer
will hold the certificates of title relating to the Financed Vehicles,
either directly or through subservicers, as custodian for the Indenture
Trustee and the Trust following such sale and assignment. The certificates
of title will not be endorsed or otherwise amended to identify the Trust as
the new secured party, however, because of the administrative burden and
expense involved. The Seller will assign its rights under the Purchase
Agreement to the Trust. See "Risk Factors-Certain Legal Aspects-The
Receivables."
In most states, an assignment of a security interest in a Financed
Vehicle along with the applicable Receivable is an effective conveyance of
a security interest without amendment of any lien noted on a vehicle's
certificate of title or ownership, and the assignee succeeds thereby to the
assignor's rights as secured party. However, because the Trust will not be
identified as the secured party on any such certificate, the security
interest of the Trust in any Financed Vehicle could be defeated through
fraud, forgery, negligence or error and may not be perfected in every
state. In most states, in the absence of fraud or forgery by the vehicle
owner or of fraud, forgery, negligence or error by MMCA or administrative
error by state or local agencies, the notation of MMCA's lien on the
certificates of ownership or possession of such certificates with such
notation will be sufficient to protect the Trust against the rights of
subsequent purchasers of a Financed Vehicle or subsequent lenders who take
a security interest in a Financed Vehicle. If there are any Financed
Vehicles as to which the Trust fails to obtain a perfected security
interest, its security interest would be subordinate to, among others,
subsequent purchasers of the Financed Vehicles and holders of perfected
security interests.
MMCA and the Seller will warrant in the Purchase Agreement and the
Sale and Servicing Agreement, respectively, as to each Receivable that, on
the Closing Date or the related Subsequent Transfer Date, there will exist
a valid, subsisting, and enforceable first priority perfected security
interest in the Financed Vehicle securing the Receivable (subject to any
statutory or other lien arising by operation of law after the Closing Date
or the related Subsequent Transfer Date which is prior to such security
interest) and, at such time as enforcement of such security interest is
sought, there shall exist a valid, subsisting, and enforceable first
priority perfected security interest in the Financed Vehicle for the
benefit of the Seller and the Trust, respectively (subject to any statutory
or other lien arising by operation of law after the Closing Date or the
related Subsequent Transfer Date which is prior to such security
interest). In the event of an uncured breach of such warranty, MMCA and the
Seller, pursuant to the terms of the Purchase Agreement and the Sale and
Servicing Agreement, respectively, will be required to repurchase such
Receivable for its Purchase Amount. This repurchase obligation will
constitute the sole remedy available to the Trust, the Noteholders and the
Certificateholders for such breach. MMCA's and the Seller's warranties with
respect to perfection and enforceability of a security interest in a
Financed Vehicle will not cover statutory or other liens arising after the
Closing Date or the related Subsequent Transfer Date by operation of law
which are prior to such security interest. Accordingly, any such lien would
not by itself give rise to a repurchase obligation on the part of MMCA and
the Seller.
Under the laws of most states, a perfected security interest in a
motor vehicle continues for four months after the motor vehicle is moved to
a new state from the one in which it was initially registered and
thereafter until the motor vehicle owner re-registers the motor vehicle in
the new state, but in any event not beyond the surrender of the
certificate. A majority of states require surrender of a certificate of
title to re-register a motor vehicle and require that notice of such
surrender be given to each secured party noted on the certificate of title.
In those states, such as California, that require a secured party to take
possession of a certificate of title to perfect a security interest, the
secured party would learn of the re-registration through the request from
the obligor to surrender possession of the certificate of title. In those
states that require a secured party to note its lien on a certificate of
title to perfect a security interest but do not require possession of the
certificate of title, such as Texas and Florida the secured party would
learn of the re-registration through the notice from the state department
of motor vehicles that the certificate of title had been surrendered. The
requirements that a certificate of title be surrendered and that notices of
such surrender be given to each secured party also apply to
re-registrations effected following a sale of a motor vehicle. MMCA would
therefore have the opportunity to re-perfect its security interest in a
Financed Vehicle in the state of re-registration following relocation of
the obligor and would be able to require satisfaction of the related
Receivable following a sale of the Financed Vehicle. In states that do not
require a certificate of title for registration of a motor vehicle,
re-registration could defeat perfection. In the ordinary course of
servicing Contracts, MMCA takes steps to effect reperfection upon receipt
of notice of re-registration or information from the obligor as to
relocation.
Under the laws of many states, including California, Florida and
Texas, liens for repairs performed on a motor vehicle and liens for unpaid
taxes take priority over a perfected security interest in the motor
vehicle. MMCA and the Seller will warrant in the Purchase Agreement and the
Sale and Servicing Agreement, respectively, that, as of the Closing Date or
the related Subsequent Transfer Date, to the best of its knowledge, no such
liens are pending. In the event of a breach of such warranty which has a
material and adverse effect on the interest of the Trust in a Receivable,
MMCA and the Seller, pursuant to the terms of the Purchase Agreement and
the Sale and Servicing Agreement, respectively, will be required to
repurchase the Receivable secured by the Financed Vehicle involved. This
repurchase obligation will constitute the sole remedy available to the
Trust, the Noteholders and the Certificateholders for such breach. Any
liens for repairs or taxes arising at any time after the Closing Date or
the related Subsequent Transfer Date during the term of a Receivable would
not give rise to a repurchase obligation on the part of MMCA and the
Seller.
Repossession
In the event of a default by an obligor, the holder of a receivable
has all the remedies of a secured party under the UCC, except where
specifically limited by other state laws or by contract. The remedies of a
secured party under the UCC include the right to repossession by means of
self-help, unless such means would constitute a breach of the peace.
Self-help repossession is the method employed by MMCA in most cases, and is
accomplished simply by taking possession of the motor vehicle. Generally,
where the obligor objects or raises a defense to repossession, a court
order must be obtained from the appropriate state court and the motor
vehicle must then be repossessed in accordance with that order. In the
event of a default by an obligor, many jurisdictions require that the
obligor be notified of the default and be given a time period within which
he may cure the default prior to or after repossession. Generally, this
right of reinstatement may be exercised on a limited number of occasions
during the term of a Receivable.
Notice of Sale; Redemption Rights
The UCC and other state laws require the secured party to provide
an obligor with reasonable notice of the date, time, and place of any
public sale and/or the date after which any private sale of the collateral
may be held. The obligor generally has the right to redeem the collateral
prior to actual sale by paying the secured party the unpaid principal
amount of the obligation, accrued and unpaid interest, plus, in most cases,
reasonable expenses for repossessing, holding, and preparing the collateral
for disposition and arranging for its sale plus, in some jurisdictions,
reasonable attorneys' fees. In some states, the obligor has the right,
prior to actual sale, to reinstatement of the original loan terms and to
return of the collateral by payment of delinquent installments of the
unpaid amount and cure any other defaults.
Deficiency Judgments and Excess Proceeds
The proceeds of resale of Financed Vehicles generally will be
applied first to the expenses of repossession and resale and then to the
satisfaction of the indebtedness on the related Receivable. While some
states impose prohibitions or limitations on deficiency judgments if the
net proceeds from resale do not cover the full amount of the indebtedness,
a deficiency judgment can be sought in those states that do not prohibit or
limit such judgments. Any such deficiency judgment would be a personal
judgment against the obligor for the shortfall, however, and a defaulting
obligor may have very little capital or few sources of income available
following repossession. Therefore, in many cases, it may not be useful to
seek a deficiency judgment or, if one is obtained, it may be settled at a
significant discount or not paid at all. MMCA generally seeks to recover
any deficiency existing after repossession and sale of a motor vehicle.
Occasionally, after resale of a repossessed motor vehicle and
payment of all expenses and indebtedness, there is a surplus of funds. In
that case, the UCC requires the secured party to remit the surplus to any
other holder of a lien with respect to the motor vehicle or, if no such
lienholder exists or funds remain after paying such other lienholder, to
the former owner of the motor vehicle.
Consumer Protection Laws
Numerous Federal and state consumer protection laws and related
regulations impose substantial requirements upon lenders and servicers
involved in consumer finance. These laws include the Truth-in-Lending Act,
the Equal Credit Opportunity Act, the Federal Trade Commission Act, the
Fair Credit Billing Act, the Fair Credit Reporting Act, the Fair Debt
Collection Practices Act, the Magnuson-Moss Warranty Act, the Federal
Reserve Board's Regulations B, M and Z, and other similar acts, state
adaptations of the Uniform Consumer Credit Code and state motor vehicle
retail installment sale acts, and other similar laws. Also, state laws
impose finance charge ceilings and other restrictions on consumer
transactions and require contract disclosures in addition to those required
under Federal law. These requirements impose specific statutory liabilities
upon creditors who fail to comply with their provisions. In some cases,
this liability could affect the ability of an assignee, such as the Trust,
to enforce consumer and commercial finance contracts such as the
Receivables. The "Credit Practices" Rule of the Federal Trade Commission
(the "FTC") imposes additional restrictions on contract provisions and
credit practices.
The FTC's holder-in-due-course rule (the "FTC Rule") has the effect
of subjecting a holder of an obligation created in a consumer credit
transaction to all claims and defenses which the purchaser could assert
against the seller of the goods. Liability under the FTC Rule is limited to
the amounts paid by the purchaser under the contract, and the holder of the
contract may also be unable to collect any balance remaining due thereunder
from the purchaser. The FTC Rule is generally duplicated by state statutes
or the common law in certain states. Accordingly, the Indenture Trustee and
the Trust, as holders of the Receivables, may be subject to claims or
defenses, if any, that the purchaser of a Financed Vehicle may assert
against the seller of such vehicle.
Under the motor vehicle dealer licensing laws of most states,
sellers of motor vehicles are required to be licensed to sell such vehicles
at retail sale and to originate certain installment sale contracts in
connection with such sales. In addition, with respect to used motor
vehicles, the FTC's Rule on Sale of Used Vehicles requires that all sellers
of used motor vehicles prepare, complete and display a "Buyer's Guide"
which explains the warranty coverage for such vehicles. Federal Odometer
Regulations promulgated under the Motor Vehicle Information and Cost
Savings Act require that all sellers of motor vehicles furnish a written
statement signed by the seller certifying the accuracy of the odometer
reading. If a seller is not properly licensed, or if either a Buyer's Guide
or Odometer Disclosure Statement was not properly provided to the purchaser
of a Financed Vehicle, such purchaser may be able to assert a defense as to
a retail installment sale contract against the seller of such vehicle or of
a subsequent holder of the retail installment sale contract.
Courts have applied general equitable principles to secured parties
pursuing repossession or litigation involving deficiency balances. These
equitable principles may have the effect of relieving an obligor from some
or all of the legal consequences of a default.
MMCA and the Seller will warrant in the Purchase Agreement and the
Sale and Servicing Agreement, respectively, as to each Receivable that such
Receivable complied at the time it was originated and as of the Closing
Date or the related Subsequent Transfer Date in all material respects with
all requirements of applicable law. If, as of the related Cutoff Date, an
obligor had a claim against the Trust for violation of any law, and such
claim materially and adversely affected the Trust's interest in a
Receivable, such violation would create an obligation of MMCA and the
Seller under the Purchase Agreement and the Sale and Servicing Agreement,
respectively, to repurchase the Receivable unless the breach were cured.
This repurchase obligation will constitute the sole remedy of the Trust,
the Noteholders, and the Certificateholders, against the Seller in respect
of any such uncured breach. See "Description of the Transfer and Servicing
Agreements-Sale and Assignment of the Initial Receivables and the
Subsequent Receivables."
Other Limitations
In addition to the laws limiting or prohibiting deficiency
judgments, numerous other statutory provisions, including insolvency laws,
may interfere with or affect the ability of a lender to realize upon
collateral or enforce a deficiency judgment. For example, in a Chapter 13
proceeding under the United States Bankruptcy Code, a court may prevent a
lender from repossessing a motor vehicle and, as part of the rehabilitation
plan, reduce the amount of the secured indebtedness to the market value of
such vehicle at the time of bankruptcy (as determined by the court),
leaving the party providing financing as a general unsecured creditor for
the remainder of the indebtedness. A bankruptcy court may also reduce the
monthly payments due under a contract or change the rate of interest and
time of repayment of the indebtedness.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Set forth below is a summary of certain United States Federal
income tax consequences of the purchase, ownership and disposition of the
Notes. This discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), existing and proposed
Treasury regulations thereunder, current administrative rulings, judicial
decisions and other applicable authorities in effect as of the date hereof,
all of which are subject to change, possibly with retroactive effect. There
can be no assurance that the Internal Revenue Service ("IRS") will not
challenge the conclusions reached herein, and no ruling from the IRS has
been or will be sought on any of the issues discussed below.
This summary does not purport to deal with all aspects of Federal
income taxation that may be relevant to Note Owners in light of their
personal investment circumstances nor, except for certain limited
discussions of particular topics, to certain types of Note Owners subject
to special treatment under the Federal income tax laws (e.g., financial
institutions, broker-dealers, life insurance companies and tax-exempt
organizations). This information is directed to Note Owners who hold the
Notes as "capital assets" within the meaning of Section 1221 of the Code.
General
Tax Status of the Notes and the Trust. On the Closing Date,
Skadden, Arps, Slate, Meagher & Flom LLP ("Special Tax Counsel") will
render its opinion that for Federal income tax purposes under existing law,
and subject to customary assumptions and qualifications set forth therein:
(i) the Notes will be treated as debt, and (ii) the Trust will not be
classified as an association (or publicly traded partnership) taxable as a
corporation. The Seller, the Owner Trustee and the Indenture Trustee have
agreed, and the Noteholders will agree by their purchase of Notes, to treat
the Notes for Federal, state and local income and franchise tax purposes as
indebtedness of the Trust.
Stated Interest. Stated interest on the Notes will be taxable as
ordinary income for Federal income tax purposes when received or accrued in
accordance with a Note Owner's method of tax accounting.
Original Issue Discount. A Note will be treated as issued with
Original Issue Discount ("OID") if the excess of the Note's "stated
redemption price at maturity" over the issue price equals or exceeds a de
minimis amount equal to 1/4 of 1 percent of the Note's stated redemption
price at maturity multiplied by the number of complete years (based on the
anticipated weighted average life of a Note) to its maturity.
In general, OID, if any, will equal the difference between the
stated redemption price at maturity of a Note and its issue price. A holder
of a Note must include such OID in gross income as ordinary interest income
as it accrues under a method taking into account an economic accrual of the
discount. In general, OID must be included in income in advance of the
receipt of the cash representing that income. The amount of OID on a Note
will be considered to be zero if it is less than a de minimis amount
determined as described above.
The issue price of a Note will generally be the initial offering
price at which a substantial amount of the Notes are sold. The Trust
intends to treat the issue price as including, in addition, the amount paid
by the Noteholder for accrued interest that relates to a period prior to
the Closing Date. Under applicable Treasury regulations governing the
accrual of OID (the "OID Regulations"), the stated redemption price at
maturity is the sum of all payments on the Note other than any "qualified
stated interest" payments. Qualified stated interest is defined as any one
of a series of payments equal to the product of the outstanding principal
balance of the Note and a single fixed rate, or certain variable rates of
interest that is unconditionally payable at least annually.
The holder of a Note issued with OID must include in gross income,
for all days during its taxable year on which it holds such Note, the sum
of the "daily portions" of such OID. Such daily portions are computed by
allocating to each day during a taxable year a pro rata portion of the OID
that accrued during the relevant accrual period. In the case of an
obligation the principal on which is subject to prepayment as a result of
prepayments on the underlying collateral (a "Prepayable Obligation"), such
as the Notes, OID is computed by taking into account the anticipated rate
of prepayments assumed in pricing the debt instrument (the "Prepayment
Assumption"). The Prepayment Assumption that will be used in determining
the rate of accrual of original issue discount, premium and market
discount, if any, is 1.5% ABS. The amount of OID that will accrue during an
accrual period (generally the period between interest payments or
compounding dates) is the excess (if any) of the sum of (a) the present
value of all payments remaining to be made on the Note as of the close of
the accrual period and (b) the payments during the accrual period of
amounts included in the stated redemption price of the Note, over the
"adjusted issue price" of the Note at the beginning of the accrual period.
An "accrual period" is the period over which OID accrues, and may be of any
length, provided that each accrual period is no longer than one year and
each scheduled payment of interest or principal occurs on either the last
day or the first day of an accrual period. The Trust intends to report OID
on the basis of an accrual period that corresponds to the interval between
Payment Dates. The adjusted issue price of a Note is the sum of its issue
price plus prior accruals of OID, reduced by the total payments made with
respect to such Note in all prior periods, other than qualified stated
interest payments. The present value of the remaining payments is
determined on the basis of three factors: (i) the original yield to
maturity of the Note (determined on the basis of compounding at the end of
each accrual period and properly adjusted for the length of the accrual
period), (ii) events which have occurred before the end of the accrual
period and (iii) the assumption that the remaining payments will be made in
accordance with the original Prepayment Assumption.
The effect of this method is to increase the portions of OID
required to be included in income by a Noteholder to take into account
prepayments on the Receivables at a rate that exceeds the Prepayment
Assumption, and to decrease (but not below zero for any period) the
portions of OID required to be included in income by a Noteholder to take
into account prepayments with respect to the Receivables at a rate that is
slower than the Prepayment Assumption. Although OID will be reported to
Noteholders based on the Prepayment Assumption, no representation is made
to Noteholders that Receivables will be prepaid at that rate or at any
other rate.
A holder of a Note that acquires the Note for an amount that
exceeds its stated redemption price will not include any OID in gross
income. A subsequent holder of a Note which acquires the Notes for an
amount that is less than its stated redemption price will be required to
include OID in gross income, but such a holder who purchases such Note for
an amount that exceeds its adjusted issue price will be entitled (as will
an initial holder who pays more than a Note's issue price) to reduce the
amount of OID included in income in each period by the amount of OID
multiplied by a fraction, the numerator of which is the excess of (w) the
purchaser's adjusted basis in the Note immediately after purchase thereof
over (x) the adjusted issue price of the Note, and the denominator of which
is the excess of (y) all amounts remaining to be paid on the Note after the
purchase date, other than qualified stated interest, over (z) the adjusted
issue price of the Note.
Total Accrual Election. As an alternative to separately accruing
stated interest, OID, de minimis OID, market discount, de minimis market
discount, unstated interest, premium, and acquisition premium, a holder of
a Note may elect to include all income that accrues on the Note using the
constant yield method. If a Noteholder makes this election, income on a
Note will be calculated as though (i) the issue price of the Note were
equal to the Noteholder's adjusted basis in the Note immediately after its
acquisition by the Noteholder; (ii) the Note were issued on the
Noteholder's acquisition date; and (iii) none of the interest payments on
the Note were "qualified stated interest." A Noteholder may make such an
election for an Note that has premium or market discount, respectively,
only if the Noteholder makes, or has previously made, an election to
amortize bond premium or to include market discount in income currently.
See "Market Discount" and "-Amortizable Bond Premium."
Market Discount. The Notes, whether or not issued with original
issue discount, will be subject to the "market discount rules" of section
1276 of the Code. In general, these rules provide that if the Note Owner
purchases a Note at a market discount (that is, a discount from its stated
redemption price at maturity or, if the Notes were issued with OID, its
original issue price plus any accrued original issue discount that exceeds
a de minimis amount specified in the Code) and thereafter (a) recognizes
gain upon a disposition, or (b) receives payments of principal, the lesser
of (i) such gain or principal payment or (ii) the accrued market discount
will be taxed as ordinary interest income. Generally, the accrued market
discount will be the total market discount on the Note multiplied by a
fraction, the numerator of which is the number of days the Note Owner held
the Note and the denominator of which is the number of days from the date
the Note Owner acquired the Note until its maturity date. The Note Owner
may elect, however, to determine accrued market discount under the
constant-yield method.
Limitations imposed by the Code which are intended to match
deductions with the taxation of income may defer deductions for interest on
indebtedness incurred or continued, or short-sale expenses incurred, to
purchase or carry a Note with accrued market discount. A Note Owner may
elect to include market discount in gross income as it accrues and, if the
Note Owner makes such an election, is exempt from this rule. Any such
election will apply to all debt instruments acquired by the taxpayer on or
after the first day of the first taxable year to which such election
applies. The adjusted basis of a Note subject to such election will be
increased to reflect market discount included in gross income, thereby
reducing any gain or increasing any loss on a sale or taxable disposition.
Amortizable Bond Premium. In general, if a Note Owner purchases a
Note at a premium (that is, an amount in excess of the amount payable upon
the maturity thereof), such Note Owner will be considered to have purchased
such Note with "amortizable bond premium" equal to the amount of such
excess. Such Note Owner may elect to amortize such bond premium as an
offset to interest income and not as a separate deduction item as it
accrues under a constant-yield method over the remaining term of the Note.
Such Note Owner's tax basis in the Note will be reduced by the amount of
the amortized bond premium. Any such election shall apply to all debt
instruments (other than instruments the interest on which is excludible
from gross income) held by the Note Owner at the beginning of the first
taxable year for which the election applies or thereafter acquired and is
irrevocable without the consent of the IRS. Bond premium on a Note held by
a Note Owner who does not elect to amortize the premium will decrease the
gain or increase the loss otherwise recognized on the disposition of the
Note.
Disposition of Notes. A Note Owner's adjusted tax basis in a Note
will be its cost, increased by the amount of any OID, market discount and
gain previously included in income with respect to the Note, and reduced by
the amount of any payment on the Note that is not qualified stated interest
and the amount of bond premium previously amortized with respect to the
Note. A Note Owner will generally recognize gain or loss on the sale or
retirement of a Note equal to the difference between the amount realized on
the sale or retirement and the tax basis of the Note. Such gain or loss
will be capital gain or loss (except to the extent attributable to OID not
previously accrued, accrued but unpaid interest, or as described above
under "-Market Discount") and will be long-term capital gain or loss if the
Note was held for more than one year. In addition, if the Prepayable
Obligation rules apply, any OID that has not accrued at the time of the
payment in full of a Note will be treated as ordinary income.
Waivers and Amendments
The Indenture permits the Noteholders to waive an Event of Default
or rescind an acceleration of the Notes in some circumstances upon a vote
of the requisite percentage of Noteholders. Any such waiver or rescission,
or any amendment of the terms of the Notes, could be treated for Federal
income tax purposes as a constructive exchange by a Noteholder of the Notes
for new Notes, upon which gain or loss would be recognized.
Information Reporting and Backup Withholding
The Indenture Trustee will be required to report annually to the
IRS, and to each Note Owner, the amount of interest paid on the Notes (and
the amount withheld for Federal income taxes, if any) for each calendar
year, except as to exempt recipients (generally, corporations, tax-exempt
organizations, qualified pension and profit-sharing trusts, individual
retirement accounts, or nonresident aliens who provide certification as to
their status). Each Note Owner (other than Note Owners who are not subject
to the reporting requirements) will be required to provide, under penalties
of perjury, a certificate containing the Note Owner's name, address,
correct Federal taxpayer identification number (which includes a social
security number) and a statement that the Note Owner is not subject to
backup withholding. Should a non-exempt Note Owner fail to provide the
required certification or should the IRS notify the Indenture Trustee or
the Trust that the Note Owner has provided an incorrect Federal taxpayer
identification number or is otherwise subject to backup withholding, the
Indenture Trustee will be required to withhold (or cause to be withheld)
31% of the interest otherwise payable to the Note Owner, and remit the
withheld amounts to the IRS as a credit against the Note Owner's Federal
income tax liability.
Tax Consequences to Foreign Investors
The following information describes the U.S. Federal income tax
treatment of investors that are not U.S. persons (each, a "Foreign
Person"). The term "Foreign Person" means any person other than (i) a
citizen or resident of the United States, (ii) a corporation, partnership
or other entity organized in or under the laws of the United States, any
state or the District of Columbia (unless, in the case of a partnership,
Treasury regulations provide otherwise), (iii) an estate the income of
which is includible in gross income for U.S. Federal income tax purposes,
regardless of its source or (iv) a trust if a U.S. court is able to
exercise primary supervision over the administration of such trust and one
or more U.S. persons has authority to control all substantial decisions of
the trust.
(a) Interest paid or accrued to a Foreign Person that is not
effectively connected with the conduct of a trade or business
within the United States by the Foreign Person will generally be
considered "portfolio interest" and generally will not be subject
to United States Federal income tax and withholding tax, as long as
the Foreign Person (i) is not actually or constructively a "10
percent shareholder" of the Trust or a "controlled foreign
corporation" with respect to which the Trust is a "related person"
within the meaning of the Code, and (ii) provides an appropriate
statement, signed under penalties of perjury, certifying that the
Note Owner is a Foreign Person and providing that Foreign Person's
name and address. If the information provided in this statement
changes, the Foreign Person must so inform the Indenture Trustee
within 30 days of such change. The statement generally must be
provided in the year a payment occurs or in either of the two
preceding years. If such interest were not portfolio interest, then
it would be subject to United States Federal income and withholding
tax at a rate of 30 percent unless reduced or eliminated pursuant
to an applicable income tax treaty.
(b) Any capital gain realized on the sale or other taxable
disposition of a Note by a Foreign Person will be exempt from
United States Federal income and withholding tax, provided that (i)
the gain is not effectively connected with the conduct of a trade
or business in the United States by the Foreign Person, and (ii) in
the case of an individual Foreign Person, the Foreign Person is not
present in the United States for 183 days or more in the taxable
year and certain other requirements are met.
(c) If the interest, gain or income on a Note held by a
Foreign Person is effectively connected with the conduct of a trade
or business in the United States by the Foreign Person, the Note
Owner (although exempt from the withholding tax previously
discussed if a duly executed Form 4224 is furnished) generally will
be subject to United States Federal income tax on the interest,
gain or income at regular Federal income tax rates. In addition, if
the Foreign Person is a foreign corporation, it may be subject to a
branch profits tax under the Code equal to 30 percent of its
"effectively connected earnings and profits" for the taxable year,
as adjusted for certain items, unless it qualified for a lower rate
under an applicable tax treaty.
Recent Treasury regulations could affect the procedures to be
followed by a non-U.S. Person in complying with the United States federal
withholding, backup withholding, and information reporting rules. The
regulations are not currently effective but will generally be effective for
payments made after December 31, 1998. Prospective investors are advised to
consult their own tax advisors regarding the effect, if any, of the
regulations on the purchase, ownership and disposition of the Notes.
CERTAIN STATE TAX CONSEQUENCES
Set forth below is a summary of certain state income tax
consequences of the purchase, ownership and disposition of the Notes.
Because of the variation in each state's income tax laws, it is impossible
to predict tax consequences to Noteholders in all states. Noteholders are
urged to consult their tax advisors with respect to state tax consequences
arising out of the purchase, ownership and disposition of Notes.
The Trust has been organized as a Delaware business trust, and the
Seller and Servicer are headquartered in the State of California; however,
in the opinion of Special Tax Counsel, assuming that the Notes are treated
as debt for federal income tax purposes, (i) the Notes will be treated as
debt for Delaware and California income and franchise tax purposes, (ii)
the Trust will not be subject to Delaware or California income or franchise
taxes at the entity level, and (iii) Noteholders not otherwise subject to
taxation in California or Delaware, respectively, would not become subject
to taxation in California or Delaware, respectively, solely because of a
Noteholder's ownership of a Note.
The Federal and state tax discussions set forth above are included
for general information only and may not be applicable depending upon a
Noteholder's particular tax situation. Prospective purchasers should
consult their tax advisers with respect to the tax consequences to them of
acquiring, holding and disposing of Notes, including the tax consequences
under state, local, foreign and other tax laws and the possible effects of
changes in federal or other tax laws.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code impose certain restrictions on (a) employee benefit
plans (as defined in Section 3(3) of ERISA), (b) plans described in Section
4975(e)(1) of the Code, including individual retirement accounts or Keogh
Plans, (c) any entities whose underlying assets include plan assets by
reason of a plan's investment in such entities (each of (a), (b) and (c) a
"Benefit Plan") and (d) persons who have certain specified relationships to
a Benefit Plan ("Parties-in-Interest" under ERISA and "Disqualified
Persons" under the Code). Moreover, based on the reasoning of the United
States Supreme Court in John Hancock Life 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 person shall be subject to liability under the fiduciary responsibility
and prohibited transaction provisions of ERISA and Section 4975 of the Code
on the basis of a claim that the assets of the general account of an
insurance company constitute the assets of any plan. The plan asset status
of insurance company separate accounts is unaffected by new Section 401(c)
of ERISA, and separate account assets continue to be treated as the assets
of any plan invested in the separate account. Insurance companies should
consult with their counsel regarding the potential impact of Section 401(c)
on their purchase of Notes.
As of the date hereof, the Department of Labor has issued proposed
regulations under Section 401(c). It should be noted that if the General
Account Regulations are adopted substantially in the form in which
proposed, the General Account Regulations may not exempt the assets of
insurance company general accounts from treatment as "plan assets" of plans
holding policies issued after December 31, 1998. The proposed regulations
should not, however, adversely affect the applicability of PTCE 95-60 to
purchases of Notes.
General Investment Considerations
Prior to making an investment in the Notes, prospective Benefit
Plan investors should consult with their legal advisors concerning the
impact of ERISA and the Code and the potential consequences of such
investment with respect to their specific circumstances. Moreover, each
Benefit Plan fiduciary should take into account, among other
considerations, whether the fiduciary has the authority to make the
investment; the composition of the Benefit Plan's portfolio with respect to
diversification by type of asset; the Benefit Plan's funding objectives;
the tax effects of the investment; and whether under the general fiduciary
standards of investment prudence and diversification an investment in the
Notes is appropriate for the Benefit Plan, taking into account the overall
investment policy of the Benefit Plan and the composition of the Benefit
Plan's investment portfolio.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
agreement (the "Underwriting Agreement"), the Seller has agreed to sell to
each of the Underwriters named below (collectively, the "Underwriters"),
and each of the Underwriters, for whom Merrill Lynch, Pierce, Fenner &
Smith Incorporated is acting as representative (the "Representative"), has
severally agreed to purchase from the Seller, the principal amount of the
Notes set forth opposite its name below:
<TABLE>
<CAPTION>
Principal Principal Principal Principal
Amount Amount Amount Amount
of Class A-1 of Class A-2 of Class A-3 of Class B
Underwriters Notes Notes Notes Notes
- ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Merrill Lynch, Pierce, Fenner &
Smith Incorporated.......... $ $ $ $
[................................] ------------ ------------ ------------ -----------
Total.............................$ $ $ $
============= ============= ============= ============
</TABLE>
In the Underwriting Agreement, the several Underwriters have
agreed, subject to the terms and conditions set forth therein, to purchase
all the Notes offered hereby if any of the Notes are purchased. In the
event of a default by any Underwriter, the Underwriting Agreement provides
that, in certain circumstances, purchase commitments of the non-defaulting
Underwriters may be increased or the Underwriting Agreement may be
terminated.
The price to the public, the underwriting discount and commissions
of the Underwriters, the selling concessions that the Underwriters may
allow to certain dealers, the discounts that certain dealers may reallow to
certain other dealers and the proceeds to the Seller in the offering of the
Notes, each expressed as a percentage of the principal amount of the Class
A-1 Notes, the Class A-2 Notes, the Class A-3 Notes and the Class B Notes
and as an aggregate dollar amount, will be as follows:
<TABLE>
<CAPTION>
Underwriting Selling
Price to Discounts and Concessions, Reallowance, Proceeds to the
Public (1) Commissions Not to Exceed Not to Exceed Seller(1)(2)
---------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Class A-1 Notes % % % % %
Class A-2 Notes % % % % %
Class A-3 Notes % % % % %
Class B Notes % % % % %
Total $ $ $ $ $
</TABLE>
- -------------------
(1) Plus accrued interest, if any, from , 1998.
(2) Before deducting expenses payable by the Seller estimated at $ .
Until the distribution of the Notes is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling
group members to bid for and purchase the Notes. As an exception to these
rules, the Underwriters are permitted to engage in certain transactions
that stabilize the price of the Notes. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of
the Notes.
If the Underwriters create a short position in the Notes in
connection with this offering, (i.e., they sell more Notes than are set
forth on the cover page of this Prospectus), the Underwriters may reduce
that short position by purchasing Notes in the open market.
The Underwriters may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the Underwriters
purchase Notes in the open market to reduce the Underwriters' short
position or to stabilize the price of the Notes, they may reclaim the
amount of the selling concession from any Underwriter or selling group
member who sold those Notes as part of the offering.
In general, purchases of a security for the purpose of
stabilization or to reduce a short position could cause the price of the
security to be higher than it might be in the absence of such purchases.
The imposition of a penalty bid might also have an effect on the price of a
security to the extent that it were to discourage resales of the security.
Neither the Seller nor any of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of the Notes.
In addition, neither the Seller nor any of the Underwriters makes any
representation that the Underwriters will engage in such transactions or
that such transactions, once commenced, will not be discontinued without
notice.
The closing of the sale of the Notes is conditioned on the issuance
of the Certificates.
The Indenture Trustee may, from time to time, invest the funds in
the Trust Accounts, the Negative Carry Account, the Yield Supplement
Account, the Reserve Account and the Supplemental Reserve Account in
Permitted Investments acquired from the Underwriters.
In the ordinary course of business, the Underwriters and their
affiliates have engaged and may engage in investment banking and commercial
banking transactions with the Servicer and its affiliates.
MMCA and the Seller have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended (the "Securities Act") or to contribute to payments the
Underwriters may be required to make in respect thereof.
Upon receipt of a request by an investor who has received an
electronic Prospectus from an Underwriter or a request by such investor's
representative within the period during which there is an obligation to
deliver a Prospectus, the Seller or the Underwriters will promptly deliver,
or cause to be delivered, without charge, a paper copy of the Prospectus.
LEGAL OPINIONS
The validity of the Notes and certain Federal income tax matters
will be passed upon for the Seller by Skadden, Arps, Slate, Meagher & Flom
LLP, New York, New York. Brown & Wood LLP, San Francisco, California, will
act as counsel to the Underwriters.
REPORTS TO NOTEHOLDERS
Unless and until Definitive Notes are issued under the limited
circumstances described under "Description of the Notes-Definitive Notes,"
all notices, reports and statements to Noteholders, including any monthly
and annual reports concerning the Trust and the Receivables, will be
prepared by the Servicer and sent on behalf of the Trust only to DTC or
Cede as nominee of DTC and registered holder of the Notes. See "Description
of the Notes-General," "-Book Entry Registration" and "-Definitive Notes."
Such notices, reports and statements will not contain audited financial
statements with respect to the Trust. The Servicer also does not intend to
send any financial reports of the Servicer or the Seller to Noteholders.
See "Where You Can Find More Information."
WHERE YOU CAN FIND MORE INFORMATION
The Seller, as originator of the Trust, filed with the Commission a
registration statement under the Securities Act relating to the Notes. This
Prospectus is part of the registration statement, but the registration
statement includes additional information.
The Servicer, on behalf of the Seller in its capacity as originator
of the Trust, will file or cause to be filed with the Commission such
periodic reports with respect to the Trust as may be required under the
Securities and Exchange Act of 1934, as amended (the "Exchange Act") and
the rules and regulations of the Commission
thereunder.
You may read and copy any notices, reports, statements or other
information the Servicer files or causes to be filed at the Commission's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549.
You can request copies of these documents, upon payment of a duplicating
fee, by writing to the Commission. Please call the Commission at (800)
SEC-0330 for further information on the operation of the public reference
rooms. Our filings with the Commission are also available to the public on
the Commission's Internet site (http://www.sec.gov.), which contains
reports, proxy and information statements, and other information regarding
issuers that file publicly with the Commission.
INDEX OF PRINCIPAL TERMS
Page
----
ABS.....................................................................33
ABS Tables..............................................................33
accrual period .........................................................77
Accrued Note Interest...................................................51
Actuarial Advance.......................................................57
Actuarial Receivables...................................................31
Administration Agreement................................................71
Administrator...........................................................71
Advance.................................................................57
Applicable Trustee......................................................70
APR.....................................................................27
Basic Documents.........................................................61
Benefit Plan............................................................80
Business Day............................................................45
Capped Receivables......................................................32
Cede................................................................19, 40
Cedel...................................................................43
Cedel Participants......................................................43
Certificate Balance.....................................................51
Certificate Distribution Account........................................47
Certificateholders......................................................47
Certificates.............................................................5
Class A Noteholders..................................................6, 46
Class A Noteholders' Percentage......................................7, 46
Class A Notes............................................................5
Class A-1 Final Payment Date.............................................8
Class A-1 Noteholders...................................................46
Class A-1 Notes..........................................................5
Class A-1 Rate ......................................................6, 45
Class A-2 Final Payment Date.............................................8
Class A-2 Noteholders...................................................46
Class A-2 Notes..........................................................5
Class A-2 Rate ......................................................6, 45
Class A-3 Final Payment Date.............................................8
Class A-3 Noteholders...................................................46
Class A-3 Notes..........................................................5
Class A-3 Rate ......................................................6, 45
Class B Final Payment Date...............................................8
Class B Noteholders..................................................6, 46
Class B Noteholders' Percentage......................................7, 46
Class B Notes............................................................5
Class B Rate.........................................................6, 45
Closing Date............................................................26
Code....................................................................76
Collection Account......................................................47
Collection Period.......................................................50
Commission...............................................................2
Contracts...............................................................21
Cooperative.............................................................43
Cutoff Date.............................................................26
Dealer..................................................................22
Dealer Agreement........................................................22
Defaulted Receivable....................................................50
Definitive Notes........................................................44
Depositaries............................................................42
Depositary..............................................................42
Determination Date......................................................49
Direct Participants.....................................................41
DTC.................................................................19, 41
DTC Participants........................................................41
Due Date................................................................23
Eligible Servicer.......................................................67
ERISA...............................................................12, 80
Euroclear...............................................................43
Euroclear Operator......................................................43
Euroclear Participants..................................................43
Events of Default.......................................................59
Exchange Act............................................................84
Final Payment Date.......................................................8
Final Payment Receivables............................................9, 55
Final Scheduled Maturity Date...........................................27
Financed Vehicles.......................................................26
Foreign Person .........................................................79
FTC.....................................................................75
FTC Rule................................................................75
Gap Amount..........................................................18, 57
General Account Regulations.............................................81
Indenture............................................................6, 40
Indenture Trustee........................................................6
Indirect Participants...................................................41
Initial Cutoff Date......................................................9
Initial Pool Balance....................................................27
Initial Pre-Funded Amount............................................9, 66
Initial Receivables......................................................9
Insolvency Laws.........................................................39
Interest Carryover Shortfall............................................51
Interest Period.........................................................45
IRS.....................................................................76
Last Scheduled Payment...............................................9, 55
Last Scheduled Payment Advance..........................................57
Last Scheduled Payment Pool Balance..................................9, 28
Level Pay Balance.......................................................55
Level Pay Pool Balance...............................................9, 28
Liquidation Proceeds....................................................50
Maximum Negative Carry Amount...........................................53
Maximum Supplemental Reserve Amount.....................................55
Mitsubishi Motors...................................................15, 40
MMCA.................................................................6, 40
MMSA....................................................................40
Monthly Accrued Note Interest...........................................51
Moody's.................................................................12
Motor Vehicle...........................................................22
Motor Vehicle Contracts.................................................21
Negative Carry Account..................................................10
Negative Carry Account Initial Deposit..................................53
Negative Carry Amount...............................................10, 53
Note Interest Rate......................................................51
Note Interest Rates.....................................................45
Note Owner..............................................................41
Note Payment Account....................................................47
Note Percentage.........................................................53
Note Pool Factor........................................................39
Noteholders..........................................................6, 45
Notes....................................................................5
OID.....................................................................76
OID Regulations.........................................................76
Opinion of Counsel......................................................63
Owner Trustee............................................................6
Payahead Account........................................................47
Payaheads...............................................................47
Payment Date............................................................45
Permitted Investments...................................................47
Plan Assets Regulation..................................................80
Pool Balance............................................................27
Pre-Funded Amount.......................................................66
Pre-Funded Percentage...................................................54
Pre-Funding Account..................................................9, 47
Pre-Funding Period.......................................................9
Prepayable Obligation...................................................77
Prepayment Assumption...................................................77
Principal Carryover Shortfall...........................................51
Principal Distribution Amount........................................7, 52
PTCE....................................................................81
Purchase Agreement......................................................27
Purchase Amount.........................................................66
Qualified Institution...................................................47
Qualified Trust Institution.............................................47
Rating Agency...........................................................12
Realized Losses.........................................................52
Receivable File.........................................................65
Receivables..........................................................9, 21
Record Date.............................................................45
Recoveries..............................................................50
Representative..........................................................81
Required Negative Carry Account Balance.................................54
Reserve Account.........................................................10
Reserve Initial Deposit.................................................54
Rule of 78's Payment....................................................31
Sale and Servicing Agreement............................................26
Scheduled Principal.....................................................52
Securities Act .........................................................83
Seller...............................................................5, 39
Servicer.............................................................6, 40
Servicing Fee...........................................................68
Servicing Rate .........................................................68
Simple Interest Receivables.............................................31
Special Tax Counsel.....................................................76
Specified Reserve Balance...............................................55
Standard & Poor's.......................................................12
Subsequent Cutoff Date..................................................64
Subsequent Receivables...................................................9
Subsequent Transfer Date................................................64
Supplemental Reserve Account............................................10
Terms and Conditions....................................................44
Total Required Payment..................................................52
Total Servicing Fee.....................................................68
Transfer and Servicing Agreements.......................................64
Truck...................................................................22
Truck Contracts.........................................................21
Trust....................................................................5
Trust Accounts .........................................................47
Trust Agreement......................................................6, 20
Trust Property .........................................................21
U.S. Person.............................................................92
UCC.....................................................................72
Underwriters............................................................81
Underwriting Agreement..................................................81
Weighted Average Rate...................................................48
Yield Supplement Account............................................11, 48
Yield Supplement Agreement..............................................48
Yield Supplement Amount.................................................48
Yield Supplement Letter of Credit.......................................48
ANNEX A
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered MMCA
Auto Owner Trust 1998-2 Asset Backed Notes will be available only in
book-entry form. Investors in the Notes may hold such Notes through any of
DTC, Cedel, or Euroclear. The Notes will be tradeable as home market
instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Notes through
Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Notes directly
through DTC will be conducted according to the rules and procedures
applicable to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Notes will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedel and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Notes will be subject to
U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
Initial Settlement
All Notes will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Notes will be
represented through financial institutions acting on their behalf as direct
and indirect participants in DTC. As a result, Cedel and Euroclear will
hold positions on behalf of their participants through their respective
Depositaries, which in turn will hold such positions in accounts as DTC
Participants.
Investors electing to hold their Notes through DTC will follow the
settlement practices applicable to U.S. corporate debt obligations.
Investor securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold their Notes through Cedel or Euroclear
accounts will follow the settlement procedures applicable to conventional
eurobonds, except that there will be no temporary global security and no
"lock-up" or restricted period. Notes will be credited to the securities
custody accounts on the settlement date against payment in the same-day
funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is
important to establish at the time of the trade where both the purchaser's
and seller's accounts are located to ensure that settlement can be made on
the desired value date.
Trading between DTC Participants. Secondary market trading between
DTC Participants will be settled using the procedures applicable to U.S.
corporate debt obligations in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary
market trading between Cedel Participants or Euroclear Participants will be
settled using the procedures applicable to conventional eurobonds in
same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When
Notes are to be transferred from the account of a DTC Participant to the
accounts of a Cedel Participant or a Euroclear Participant, the purchaser
will send instructions to Cedel or Euroclear through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. Cedel
or Euroclear, as the case may be, will instruct the respective Depositary
to receive the Notes against payment. Payment will include interest accrued
on the Notes from and including the last coupon payment date to and
excluding the settlement date, which with respect to the Class A-1 Notes
will be on the basis of a 360-day year and the actual number of days
elapsed and with respect to the Class A-2 Notes, the Class A-3 Notes and
the Class B Notes will be on the basis of a 360-day year consisting of
twelve 30-day months. Payment will then be made by the Depositary to the
DTC Participant's account against delivery of the Notes. After settlement
has been completed, the Notes will be credited to the respective clearing
system and by the clearing system, in accordance with its usual procedures,
to the Cedel Participant's or Euroclear Participant's account. The Notes
credit will appear the next day (European time) and the cash debit will be
back-valued to, and the interest on the Notes will accrue from, the value
date (which would be the preceding day when settlement occurred in New
York). If settlement is not completed on the intended value date (i.e., the
trade fails), the Cedel or Euroclear cash debit will be valued instead as
of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to
pre-position funds for settlement, either from cash on hand or existing
lines of credit, as they would for any settlement occurring within Cedel or
Euroclear. Under this approach, they may take on credit exposure to Cedel
or Euroclear until the Notes are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of
credit to them, Cedel Participants or Euroclear Participants can elect not
to pre-position funds and allow that credit line to be drawn upon the
finance settlement. Under this procedure, Cedel Participants or Euroclear
Participants purchasing Notes would incur overdraft charges for one day,
assuming they cleared the overdraft when the Notes were credited to their
accounts. However, interest on the Notes would accrue from the value date.
Therefore, in many cases the investment income on the Notes earned during
that one-day period may substantially reduce or offset the amount of such
overdraft charges, although this result will depend on each Cedel
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business
hours, DTC Participants can employ their usual procedures for sending Notes
to the respective Depositary for the benefit of Cedel Participants or
Euroclear Participants. The sale proceeds will be available to the DTC
seller on the settlement date. Thus, to the DTC Participants a cross-market
transaction will settle no differently than a trade between two DTC
Participants.
Trading between Cedel or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, Cedel Participants and Euroclear
Participants may employ their customary procedures for transactions in
which Notes are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will
send instructions to Cedel or Euroclear through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. In
these cases, Cedel or Euroclear will instruct the respective Depositary, as
appropriate, to deliver the bonds to the DTC Participant's account against
payment. Payment will include interest accrued on the Notes from and
including the last coupon payment date to and excluding the settlement
date, which with respect to the Class A-1 Notes will be on the basis of a
360-day year and the actual number of days elapsed and with respect to the
Class A-2 Notes, the Class A-3 Notes and the Class B Notes will be on the
basis of a 360-day year consisting of twelve 30-day months. The payment
will then be reflected in the account of the Cedel Participant or Euroclear
Participant the following day, and receipt of the cash proceeds in the
Cedel Participant's or Euroclear Participant's account would be back-valued
to the value date (which would be the preceding day, when settlement
occurred in New York). Should the Cedel Participant or Euroclear
Participant have a line of credit with its respective clearing system and
elect to be in debt in anticipation of receipt of the sale proceeds in its
account, the back-valuation will extinguish any overdraft charges incurred
over that one-day period. If settlement is not completed on the intended
value date (i.e., the trade fails), receipt of the cash proceeds in the
Cedel Participant's or Euroclear Participant's account would instead be
valued as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase
Notes from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would automatically fail on the
sale side unless affirmative action were taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until
the purchase side of the day trade is reflected in their Cedel or
Euroclear accounts) in accordance with the clearing system's
customary procedures;
(b) borrowing the Notes in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the
Notes sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of
the trade so that the value date for the purchase from the DTC
Participant is at least one day prior to the value date for the
sale to the Cedel Participant or Euroclear Participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Notes holding securities through Cedel or
Euroclear (or through DTC if the holder has an address outside the U.S.)
will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank, or other
financial institution that holds customers' securities in the ordinary
course of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes
one of the following steps to obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of
Notes that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign
Status). If the information shown on Form W-8 changes, a new Form W-8 must
be filed within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income
(Form 4224). A non-U.S. Person, including a non-U.S. corporation or bank
with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
Exemption or reduced rate for non-U.S. persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are Note Owners residing in a
country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing
Form 1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty
provides only for a reduced rate, withholding tax will be imposed at that
rate unless the filer alternatively files Form W-8. Form 1001 may be filed
by the Note Owner or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Note Owner or, in
the case of a Form 1001 or a Form 4224 filer, his agent, files by
submitting the appropriate form to the person through whom it holds (the
clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the
United States, (ii) a corporation or partnership (including an entity
treated as a corporation or partnership) organized in or under the laws of
the United States or any state or the District of Columbia (unless, in the
case of a partnership, Treasury regulations provide otherwise), (iii) an
estate the income of which is includible in gross income for United States
tax purposes, regardless of its source, or (iv) a trust if a U.S. court is
able to exercise primary supervision over the administration of such trust
and one or more U.S. persons has the authority to control all substantial
decisions of the trust. This summary does not deal with all aspects of U.S.
Federal income tax withholding that may be relevant to foreign holders of
the Notes. Investors are advised to consult their own tax advisors for
specific tax advice concerning their holding and disposing of the Notes.
Recent Treasury regulations could affect the procedures to be
followed by a non-U.S. Person in complying with the United States federal
withholding, backup withholding, and information reporting rules. The
regulations are not currently effective but, if finalized in their current
form, would be effective for payments made after December 31, 1998.
Prospective investors are advised to consult their own tax advisors
regarding the effect, if any, of the regulations on the purchase, ownership
and disposition of the Notes.
MMCA AUTO OWNER TRUST 1998-2
$ % Class A-1 Asset Backed Notes
$ % Class A-2 Asset Backed Notes
$ % Class A-3 Asset Backed Notes
$ % Class B Asset Backed Notes
MMCA Auto Receivables, Inc.
Seller
[LOGO]
Servicer
-----------------------------
PROSPECTUS
-----------------------------
Underwriters of the Class A Notes
Merrill Lynch & Co.
[ ]
Underwriter of the Class B Notes
Merrill Lynch & Co.
You should rely only on the information contained in or
incorporated by reference in this prospectus. We have not authorized anyone
to provide you with different information.
We are not offering the notes in any state where the offer of the
notes is not permitted.
We do not claim the accuracy of the information in this prospectus
as of any date other than the date stated on the cover of this prospectus.
Dealers will deliver a prospectus when acting as underwiters of the
notes and with respect to their unsold allotments or subscriptions. In
addition, all dealers that effect transactions in the notes, whether or not
participating in the offering of the notes, will be required to deliver a
prospectus until __________, ____.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Registration Fee...........................................$ *
Printing and Engraving.....................................$ *
Trustee's Fee..............................................$ *
Legal Fees and Expenses....................................$ *
Blue Sky Fees and Expenses.................................$ *
Accountant's Fees and Expenses.............................$ *
Rating Agency Fees.........................................$ *
Miscellaneous Fees and Expenses............................$ *
---------------
Total Expenses ............................................$ *
===============
- ----------------------------
* To be supplied by amendment.
Item 14. Indemnification of Directors and Officers
Section 145 of the General Corporation Law of Delaware provides as
follows:
145 Indemnification of Officers, Directors, Employees and Agents;
Insurance
(a) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by the
person in connection with such action, suit or proceeding if the person
acted in good faith and in a manner the person reasonably believed to be in
or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe
the person's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
the person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that the person's conduct was
unlawful.
(b) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that the person is or
was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or
settlement of such action or suit if the person acted in good faith and in
a manner the person reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person
is fairly and reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of
this section, or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification
of the present or former director, officer, employee or agent is proper in
the circumstances because the person has met the applicable standard of
conduct set forth in subsections (a) and (b) of this section. Such
determination shall be made, with respect to a person who is a director or
officer at the time of determination, (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even
though less than a quorum, (2) by a committee of such directors designated
by majority vote of such directors, even though less than a quorum, (3) if
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion, or (4) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the corporation as authorized in this
section. Such expenses (including attorneys' fees) incurred by former
directors and officers or other employees and agents may be so paid upon
such terms and conditions, if any, as the corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action
in such person's official capacity and as to action in another capacity
while holding such office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against such person and incurred by such person in
any such capacity, or arising out of such person's status as such, whether
or not the corporation would have the power to indemnify such person
against such liability under this section.
(h) For purposes of this section, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as such
person would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include
any excise taxes assessed on a person with respect to any employee benefit
plan; and references to "serving at the request of the corporation" shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner such person reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive
jurisdiction to hear and determine all actions for advancement of expenses
or indemnification brought under this section or under any bylaw,
agreement, vote of stockholders or disinterested directors, or otherwise.
The Court of Chancery may summarily determine a corporation's obligation to
advance expenses (including attorneys' fees).
Article VIII of the By-Laws of MMCA Auto Receivables, Inc.
provides as follows:
Section 1. Definitions. For purposes of this Article VIII: (i)
"Corporation" shall be deemed to mean this Corporation and shall include,
in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power
and authority to indemnify its directors, officers, employees and agents so
that any person who is or was a director, officer, employee or agent of
such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of
another legal entity shall stand in the same position under the provisions
of this Article VIII with respect to the resulting or surviving corporation
as he would have with respect to such constituent corporation if its
separate existence had continued; (ii) a "legal entity" is a corporation,
partnership, joint venture, trust or other enterprise; (iii) a "proceeding"
is any action, suit, or proceeding, whether civil, criminal,
administrative, arbitrative or investigative, including an action or suit
by or in the right of the Corporation to procure a judgment in its favor,
and any appeal in such an action, suit, or proceeding, and any inquiry or
investigation that could lead to such action, suit or proceeding; and (iv)
a "qualified position" with respect to any legal entity is a position as a
director or an officer of such legal entity or a position held by a
director, officer or employee of such legal entity which does or might
constitute him a fiduciary with respect to any employee benefit plan for
the employees of such legal entity under any Federal or state law
regulating employee benefit plans.
Section 2. Mandatory Indemnification. The Corporation shall indemnify
each person who was or is a party or is threatened to be made a party to
any proceeding by reason of the fact that he is serving in a qualified
position with respect to the Corporation or is serving in a similar
capacity with respect to any other legal entity at the request of the
Corporation, against all expenses (including attorneys' fees and costs of
investigation and litigation), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with any
such proceeding to the maximum extent permitted under the General
Corporation Law of the State of Delaware (the "Delaware Law", which term
shall be deemed to include the General Corporation Law of the State of
Delaware or any successor statute or section thereof, as now written or
hereafter amended). The termination of any proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not of itself create a presumption that such person acted
in such a manner as to make him ineligible for indemnification. The right
of a person to be indemnified hereunder shall be a contract right and shall
include the right to be paid by the Corporation all expenses incurred in
defending any such proceeding in advance of its final disposition upon
compliance with the provisions of Delaware Law then in effect concerning
advancement of expenses.
Section 3. Permissive Indemnification. In addition to the
indemnification provided for in Section 2, the Corporation shall have the
power to indemnify or contract in advance to indemnify, to a lesser or the
same extent that indemnification is required under Section 2, any person
who was or is a party or is threatened to be made a party to any proceeding
by reason of the fact that he is serving in any capacity with respect to
the Corporation or with respect to any other legal entity at the request of
the Corporation.
Section 4. Determination that Indemnification is Proper. Any
indemnification under this Article VIII (unless ordered by a court) shall
be made by the Corporation only as authorized in the specific case upon a
determination that such indemnification is permitted under Delaware Law,
or, in the case of indemnification under Section 3, is proper because the
requirements specified by the Corporation with respect to such
indemnification have been met. Such determination shall be made (i) by the
Board of Directors by a majority vote of a quorum consisting of directors
who neither are nor were parties to the proceeding, or (ii) if such a
quorum is not obtainable or, even though obtainable, a majority of
disinterested directors so directs, by independent legal counsel in a
written opinion, or (iii) by the stockholders. In making a determination
the directors may rely, as to all questions of law, on the advice of
independent legal counsel.
Section 5. Claims for Indemnification or Advances. If a claim for
indemnification or advancement of expenses hereunder is not paid in full by
the Corporation within 60 days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim, and if
successful in whole or in part, the claimant shall be entitled to be paid
the expenses of prosecuting such claim. It shall be a defense to any such
action that such indemnification or advancement of costs of defense are not
permitted under Delaware Law, but the burden of proving such defense shall
be on the Corporation.
Section 6. Miscellaneous. Every reference in this Article VIII to
persons who are entitled to indemnification and advancement of expenses
shall include all persons who formerly occupied any of the positions
hereinabove set forth in this Article VIII, to the extent they would have
been entitled to indemnification and advancement of expenses under the
provisions of this Article VIII if they still held such positions and their
respective heirs, executors and administrators. Indemnification or
advancement of expenses provided pursuant to the foregoing provisions of
this Article VIII shall not be exclusive of any other rights of
indemnification or advancement of expenses to which any person may be
entitled. Such rights include, but are not limited to, any and all rights
under insurance policies that may be purchased and maintained by the
Corporation or others, whether or not the Corporation would have the power
to indemnify such person in the particular instance under the provisions of
this Article VIII, but no person shall be entitled to indemnification by
the Corporation to the extent he is indemnified by any other party,
including an insurer.
Section 7. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer or
employee of the Corporation, or is or was serving at the request of the
Corporation as a director, officer or employee of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising
out of his status as such, whether or not the Corporation would have the
power or the obligation to indemnify him against such liability under the
provisions of this Article VIII.
Item 15. Recent Sales of Unregistered Securities
Not applicable.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
Number Description
- ------ -----------
1.1 - Form of Underwriting Agreement***
3.1 - Certificate of Incorporation of the Seller*
3.2 - Bylaws of the Seller**
4.1 - Form of Amended and Restated Trust Agreement of the Trust
between the Seller and the Owner and the Owner Trustee***
4.2 - Form of Sale and Servicing Agreement among the Seller, the
Servicer and the Trust***
4.3 - Form of Indenture between the Trust and the
Indenture Trustee***
4.4 - Form of Administration Agreement among the
Trust, the Administrator and the Indenture Trustee***
4.5 - Form of Note (contained in Exhibit 4.3)***
5.1 - Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
re Legality***
8.1 - Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
re Tax Matters***
10.1 - Form of Purchase Agreement between Mitsubishi Motors Credit
of America, Inc. and the Seller***
10.2 - Yield Supplement Agreement***
23.1 - Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(contained in Exhibit 5.1)***
23.2 - Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(contained in Exhibit 8.1)***
24 - Powers of Attorney 24.1 - Board Resolutions of the Seller***
25 - Form T-1 of Indenture Trustee***
- -----------
* Incorporated by reference to Exhibit 3.1 of Registration
Statement No. 33-67014.
** Incorporated by reference to Exhibit 3.2 of Registration
Statement No. 33-67014.
*** 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 October 23, 1998.
MMCA AUTO RECEIVABLES, INC.
By: /s/ Hiroshi Yajima
-----------------------------------
Hiroshi Yajima
Director and President
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 Ocober 23, 1998
- --------------------------- (principal executive
Hiroshi Yajima officer)
/s/ Hideyuki Kitamura Secretary and Treasurer October 23, 1998
- --------------------------- (principal financial
Hideyuki Kitamura officer and principal
accounting officer)
/s/ John Maynard Director October 23, 1998
- ---------------------------
John Maynard
/s/ Masaki Takahasi Director October 23, 1998
- ---------------------------
Masaki Takahashi
/s/ Charles A. Tredway Director October 23, 1998
- ---------------------------
Charles A. Tredway
/s/ Yasuhiro Hagihara Director October 23, 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 Amended and Restated Trust Agreement of
the Trust between the Seller and the Owner
Trustee***
4.2 Form of Sale and Servicing Agreement among the Seller,
the Servicer and the Trust***
4.3 Form of Indenture between the Trust and the
Indenture Trustee***
4.4 Form of Administration Agreement among the Trust, the
Administrator Indenture 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.
