AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER , 1997
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------------
DAIMLER-BENZ AUTO GRANTOR TRUST 1997-A
(TRUST IN WHICH THE CERTIFICATES REPRESENT UNDIVIDED INTERESTS)
DAIMLER-BENZ VEHICLE RECEIVABLES CORPORATION
(ORIGINATOR OF THE TRUST DESCRIBED HEREIN)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 9999 13-3770955
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NO.) IDENTIFICATION
NO.)
1201 NORTH MARKET STREET
SUITE 1406
WILMINGTON, DELAWARE 19801
(302) 426-1900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
HARVEY S. TRAISON C/O DAIMLER-BENZ NORTH AMERICA CORPORATION
375 PARK AVENUE, SUITE 3001
NEW YORK, NEW YORK 10152
(212) 909-9700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
STEVEN J. MOLITOR, ESQ. ANDREW M. FAULKNER, ESQ.
MORGAN, LEWIS & BOCKIUS LLP SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
101 PARK AVENUE 919 THIRD AVENUE
NEW YORK, NEW YORK 10178-0060 NEW YORK, NEW YORK 10022
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES
EFFECTIVE.
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE
OFFERED ON A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE
SECURITIES ACT OF 1933, CHECK THE FOLLOWING BOX. |_|
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN
OFFERING PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT OF 1933, 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 OF 1933, CHECK THE FOLLOWING BOX AND LIST
THE SECURITIES ACT REGISTRATION STATEMENT 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, PLEASE CHECK THE FOLLOWING BOX. |_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===================================================================================================
TITLE OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE AGGREGATE REGISTRATION FEE**
REGISTERED PER CERTIFICATE* OFFERING PRICE*
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET BACKED
CERTIFICATES $1,000,000 100% $1,000,000 $303.03
===================================================================================================
</TABLE>
* Estimated solely for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED SEPTEMBER____, 1997
Prospectus
[NEW LOGO]
DAIMLER-BENZ AUTO GRANTOR TRUST 1997-A
$______________
___% Asset Backed Certificates, Class A
DAIMLER-BENZ VEHICLE RECEIVABLES CORPORATION
Seller
MERCEDES-BENZ CREDIT CORPORATION
Servicer
The _____% Asset Backed Certificates (the "Certificates") will consist of
two Classes of Certificates, the Class A Certificates and the Class B
Certificates. Only the Class A Certificates are being offered hereby. The
Class A Certificates will evidence in the aggregate an undivided ownership
interest of _____% of the principal balance of, and a portion of the
interest accruing under, the Receivables in a trust (the "Trust") to be
formed pursuant to a Pooling and Servicing Agreement to be entered into
among Daimler-Benz Vehicle Receivables Corporation, as Seller (the
"Seller"), Mercedes-Benz Credit Corporation, in its individual capacity and
as Servicer (the "Servicer"), and [TRUSTEE], as Trustee, Payahead Agent,
Class A Agent and Class B Agent. The Class B Certificates, which will
initially be retained by the Seller, will evidence in the aggregate an
undivided ownership interest of _____% of the principal balance of, and a
portion of the interest accruing under, the Receivables in the Trust. The
Class A Certificates and the Class B Certificates represent in the
aggregate an undivided ownership interest of 100% of the Trust, other than
the Retained Yield, which the Seller will retain the right to receive. The
rights of the Class B Certificateholders to receive distributions with
respect to the Receivables are subordinated to the rights of the Class A
Certificateholders, to the extent described herein. To the extent that the
amount of principal collections allocable to the Class A Certificates with
respect to any Distribution Date is less than the amount of principal to be
paid to the Class A Certificateholders on such Distribution Date pursuant
to the Pooling and Servicing Agreement such shortfall may be covered out of
available interest collections after the application of such amounts to the
payment of interest on the Class A Certificates and the Class B
Certificates.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" BEGINNING ON PAGE ___.
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST AND DO NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF THE SELLER, THE SERVICER OR ANY OF THEIR
RESPECTIVE AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------
Price Proceeds to
to Public Underwriting the
(1) Discount Seller (1)(2)
- ------------------------------------------------------------------------
Per Class A Certificate % % %
- ------------------------------------------------------------------------
Total $ $ $
- ------------------------------------------------------------------------
(1) Plus accrued interest at the Pass-Through Rate calculated from November
____, 1997.
(2) Before deducting expenses payable by the Seller estimated to be
$__________.
The Class A Certificates are offered by the Underwriters when, as and if
issued and accepted by the Underwriters and subject to their right to
reject orders in whole or in part. It is expected that the Class A
Certificates will be delivered in book-entry form on or about ___________,
1997, through the facilities of The Depository Trust Company ("DTC")
against payment therefor in immediately available funds.
J.P. MORGAN SECURITIES INC.
___________, 1997.
Principal, and interest at the Pass-Through Rate of ____% per annum,
will be distributed on the 20th day of each month (or, if the 20th day of
any month is not a business day, the next following business day) beginning
________, 1997 (each, a "Distribution Date"). The final scheduled
Distribution Date on the Certificates will be ________, 2002 (the "Final
Scheduled Distribution Date"). The Trust Property will include a pool of
retail installment contracts (collectively, the "Receivables"), certain
monies due thereunder on or after _________, 1997 (the "Cutoff Date"), the
Seller's security interests in the new and used Mercedes-Benz automobiles
securing the Receivables, a Shortfall Amount Agreement between
Mercedes-Benz Credit Corporation and the Seller (see "The
Certificates--Shortfall Amount Agreement") and certain other property. See
"The Trust Property." The aggregate principal balance of the Receivables on
the Cutoff Date was $______________.
The Class A Certificates will be represented initially by
certificates registered in the name of Cede & Co., as nominee of DTC. The
interests of beneficial owners of the Class A Certificates will be
represented by book entries on the records of DTC and participating members
thereof. Definitive Class A Certificates will be available only under the
limited circumstances described herein.
There currently is no secondary market for the Class A Certificates
and there is no assurance that one will develop. The Underwriters expect,
but are not obligated, to make a market in the Class A Certificates and may
discontinue market making at any time. Accordingly, no assurance can be
given as to the liquidity of, or trading market for, the Certificates.
AVAILABLE INFORMATION
The Seller has filed with the Securities and Exchange Commission (the
"Commission"), on behalf of the Trust, a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Class A Certificates offered pursuant to this Prospectus. For further
information, reference is made to such Registration Statement, and the
exhibits thereto, which are available for inspection without charge at the
public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as the Regional Offices of the Commission
at 500 West Madison Street, Chicago, Illinois 60661, and 7 World Trade
Center, New York, New York 10048. Copies of such information can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Such reports and
other documents may also be obtained from the web site that the Commission
maintains at http://www.sec.gov. The Servicer, on behalf of the Trust, will
also file or cause to be filed with the Commission such periodic reports as
may be required under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the rules and regulations of the Commission thereunder and
the January 6, 1995 "no-action" letter of the Commission's Division of
Corporation Finance regarding Daimler-Benz Vehicle Trust 1994-A, but only
to the extent that the continued registration of the Class A Certificates
under the Exchange Act is required to qualify the Class A Certificates as
"publicly offered securit(ies)" pursuant to the regulations of the United
States Department of Labor promulgated under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). See "ERISA Considerations."
REPORTS TO THE CLASS A CERTIFICATEHOLDERS
Unless and until definitive Class A Certificates are issued, monthly
and annual reports concerning the Receivables and the Trust will be
prepared by the Servicer and sent by the Trustee, on behalf of the Trust,
only to Cede & Co., as nominee of DTC and as registered holder of the Class
A Certificates, pursuant to the Agreement (as defined herein). Such reports
may be available to beneficial owners of Certificates ("Certificate
Owners") in accordance with the regulations and procedures of DTC. Such
reports will not contain audited financial statements with respect to the
Trust. The Seller does not intend to send any of its financial reports to
Certificateholders or to Certificate Owners. See "The Certificates--Book
Entry Registration" and "--Statements to Class A Certificateholders."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
CLASS A CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SELLER, THE SERVICER,
[TRUSTEE] OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS, NOR ANY SALE MADE HEREUNDER, SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
UNTIL _______ __, 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A CERTIFICATES, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
TABLE OF CONTENTS
PAGE
Available Information................................................ 2
Reports to the Class A Certificateholders............................ 2
Prospectus Summary................................................... 4
Risk Factors......................................................... 11
Formation of the Trust............................................... 14
The Trust Property................................................... 14
MBCC's Motor Vehicle Contract Portfolio.............................. 15
The Receivables...................................................... 18
Yield Considerations................................................. 23
Pool Factors and Other Information................................... 24
Use of Proceeds...................................................... 24
The Seller........................................................... 24
The Servicer......................................................... 25
The Certificates..................................................... 26
Certain Legal Aspects of the Receivables............................. 43
Certain Federal Income Tax Consequences.............................. 48
ERISA Considerations................................................. 53
Underwriting......................................................... 54
Validity of the Certificates......................................... 55
Index of Principal Terms............................................. 56
PROSPECTUS SUMMARY
This Prospectus Summary is qualified in its entirety by reference to
the detailed information appearing elsewhere in this Prospectus. Certain
capitalized terms used in this Prospectus Summary are defined elsewhere in
this Prospectus. See the Index of Principal Terms for the location herein
of the definitions of capitalized terms.
Issuer........................Daimler-Benz Auto Grantor Trust 1997-A (the
"Trust"), to be formed by the Seller pursuant
to a Pooling and Servicing Agreement to be
dated as of _________, 1997 (the
"Agreement"), among the Seller, the Servicer,
MBCC, the Payahead Agent, the Class A Agent,
the Class B Agent and the Trustee.
Seller........................Daimler-Benz Vehicle Receivables Corporation,
a wholly-owned subsidiary of Mercedes-Benz
Credit Corporation ("MBCC").
Servicer......................MBCC, a wholly-owned subsidiary of
Daimler-Benz North America Corporation
("DBNA").
The Certificates..............The Certificates consist of two classes,
entitled _____% Asset Backed Certificates,
Class A (the "Class A Certificates"), and
_____% Asset Backed Certificates, Class B
(the "Class B Certificates"). Only the Class
A Certificates are being offered hereby. Each
Certificate will represent an undivided
ownership interest in certain assets of the
Trust.
Class A Certificates..........The Class A Certificates will evidence, in the
aggregate, an undivided ownership interest of
approximately _____% (the "Class A
Percentage") of the principal balance of, and
a portion of the interest accruing under, the
Receivables held by the Trust (which
principal initially represents
$______________). See "The Certificates --
Distributions on Certificates." The Class A
Certificates will be offered for purchase in
denominations of $1,000 and integral
multiples thereof. See "The
Certificates--General."
Class B Certificates..........The Class B Certificates will evidence, in the
aggregate, an undivided ownership interest of
approximately _____% (the "Class B
Percentage") of the principal balance of, and
a portion of the interest accruing under, the
Receivables held by the Trust (which
principal initially represents
$____________). The Class B Certificates are
subordinated to the Class A Certificates, to
the extent described herein. The Class B
Certificates are not being offered hereby.
The Seller will initially retain the Class B
Certificates but may, in its discretion,
subsequently sell all or part of the Class B
Certificates.
Retained Yield. ..............The Seller will retain the right to receive
distributions (the "Retained Yield"), with
respect to each Receivable, equal to the
interest accrued on such Receivable, during
each period between payment dates for such
Receivable, at a rate equal to the excess, if
any, of (i) the annual percentage rate of
interest ("APR") of such Receivable over (ii)
the sum of the Pass-Through Rate plus the
Servicing Rate.
Trust Property................The property of the Trust (the "Trust
Property") will include (i) a pool of retail
installment contracts (collectively, the
"Receivables") secured by new and used
Mercedes-Benz automobiles, together with all
accessions thereto, (the "Financed
Vehicles"), (ii) all monies due under the
Receivables on or after __________, 1997 (the
"Cutoff Date") (but excluding Excess
Amounts), (iii) all amounts and property from
time to time held in or credited to the
Collection Account and the Certificate
Account, (iv) all of the Seller's security
interests in the Financed Vehicles, (v) all
rights to receive payments under certain
circumstances from the Reserve Funds, (vi)
all of the Seller's rights under the
Shortfall Amount Agreement, (vii) all of the
Seller's rights to receive proceeds from
claims on physical damage, credit life and
disability insurance policies covering the
Financed Vehicles or from the obligors under
the Receivables (the "Obligors"), (viii) all
of the Seller's right to all documents
contained in the Receivable Files, (ix)
certain rights under the Purchase Agreement,
(x) all of the Seller's rights, if any, of
recourse against Dealers arising out of
breaches by Dealers in connection with the
Receivables, (xi) all property (including the
right to receive future Liquidation Proceeds
and Recoveries) that secures a Receivable and
that will have been acquired by or on behalf
of the Trustee, (xii) the Servicing Guaranty
Agreement, and (xiii) all proceeds (within
the meaning of Section 9-306 of the Uniform
Commercial Code (the "UCC")) of the
foregoing. See "The Trust Property."
The Receivables will be purchased by the
Seller from MBCC pursuant to a Purchase
Agreement (the "Purchase Agreement") between
the Seller and MBCC providing for such
purchase on or before the date of initial
issuance of the Certificates (the "Closing
Date").
Pass-Through Rate.............___% per annum, calculated on the basis of a
360-day year consisting of twelve 30-day
months (the "Pass-Through Rate").
Distribution Date.............The 20th day of each month (or, if such 20th
day is not a business day, the next following
business day) (each, a "Distribution Date")
beginning __________, 1997.
Interest......................On each Distribution Date, the Trustee will
distribute an amount pro rata to the holders
of record of Class A Certificates (the "Class
A Certificateholders") as of the 19th day of
the current calendar month (or, if Definitive
Certificates are issued, the last day of the
calendar month immediately preceding such
Distribution Date) (the "Record Date"). Such
amount will be equal to 30 days' interest at
the Pass-Through Rate on the Class A
Principal Balance as of the first day of the
preceding calendar month (less principal
distributions to be made on the Distribution
Date in such month) generally to the extent
of funds available from (i) the Available
Interest after payment of the Servicing Fee,
(ii) the Class A Reserve Fund and (iii) the
Class B Percentage of the Available
Principal.
The "Class A Principal Balance" will
initially equal $_____________ (the "Original
Class A Principal Balance") and will
thereafter be reduced by all amounts
previously distributed to Class A
Certificateholders and allocable to
principal. See "The Certificates--
Distributions on Certificates."
Principal.....................On each Distribution Date, the Trustee will
distribute pro rata to Class A
Certificateholders, as of the related Record
Date, Class A Principal, generally to the
extent of funds available from (i) Available
Principal, (ii) the Class A Reserve Fund and
(iii) Available Interest remaining after
payment of the Servicing Fee, Class A
Interest, Class A Interest Carryover
Shortfall, Class B Interest and Class B
Interest Carryover Shortfall.
"Class A Principal" will consist of the Class
A Percentage of (a) the principal portion of
all scheduled payments due on Receivables
during the preceding Collection Period; (b)
the Principal Balance of each Receivable that
became a Prepaid Receivable during the
preceding Collection Period (except to the
extent included in (a) or (d)); (c) the
Principal Balance of each Receivable that was
purchased by the Servicer or repurchased by
the Seller, in each case, under an obligation
that arose during the preceding Collection
Period (except to the extent included in
(a)); and (d) the Principal Balance of each
Receivable which became a Defaulted
Receivable during the preceding Collection
Period (except to the extent included in (a)
or (b)).
A "Collection Period" with respect to a
Distribution Date will be the calendar month
preceding the month in which such
Distribution Date occurs. See "The
Certificates--Distributions on Certificates."
A "Prepaid Receivable" is a Receivable which
is prepaid in full or accelerated under
certain circumstances or with respect to
which the related Financed Vehicle is
repossessed and sold or becomes a total loss.
A "Defaulted Receivable" is a Receivable
which by its terms is in default and as to
which the Servicer has determined, in
accordance with its customary standards,
policies and procedures that payment in full
is unlikely or the Servicer has repossessed
and disposed of the Financed Vehicle.
Registration of Certificates..The Class A Certificates will be represented
initially by physical certificates registered
in the name of Cede & Co. as nominee of The
Depository Trust Company ("DTC"). No person
acquiring a beneficial ownership interest in
the Class A Certificates ("Class A
Certificate Owners" or "Certificate Owners")
will be entitled to receive a definitive
certificate representing such person's
interest in the Trust except in certain
limited circumstances, as described herein.
Under the terms of the Agreement, unless
definitive certificates are issued, Class A
Certificate Owners will not be recognized as
Class A Certificateholders and will be
permitted to exercise the rights of the Class
A Certificateholders only indirectly through
DTC. See "The Certificates -- General,""--
Book Entry Registration" and "-- Definitive
Certificates."
Servicing Fee.................A monthly fee for servicing the Receivables
will be payable to the Servicer on each
Distribution Date in an amount equal to
one-twelfth of the product of the Servicing
Rate and the Pool Balance as of the first day
of the preceding Collection Period, and will
be payable generally out of collections of
interest on the Receivables prior to
distributions to the Certificateholders (the
"Servicing Fee").
The "Servicing Rate" will equal 1.00% per
annum. The Servicer will also be entitled to
receive other amounts, including all late
payment fees and charges paid with respect to
the Receivables as additional servicing
compensation. If it is acceptable to each
Rating Agency without a reduction in the
rating of the Class A Certificates, the
Servicing Fee in respect of a Collection
Period (together with any portion of the
Servicing Fee that remains unpaid from prior
Collection Periods) will be paid at the
beginning of such Collection Period out of
collections for such Collection Period. See
"The Certificates--Servicing Compensation."
Pool Balance..................The "Pool Balance" means, as of any date, the
aggregate outstanding Principal Balance of
the Receivables (excluding Defaulted
Receivables) as of the close of business on
such date.
Subordination.................The rights of holders of record of the Class B
Certificates (the "Class B
Certificateholders" and, together with the
Class A Certificateholders, the
"Certificateholders") to receive
distributions to which they would otherwise
be entitled with respect to the Receivables
will be subordinated to the rights of the
Class A Certificateholders to the extent
described herein. See "The
Certificates--Distributions on Certificates"
and "--Subordination of the Class B
Certificates and Retained Yield; Reserve
Funds."
The Class B Certificateholders generally will
not receive distributions of interest on a
Distribution Date (other than from the Class
B Reserve Fund) unless the Class A
Certificateholders receive the full amount of
interest due to them on such Distribution
Date (including from amounts on deposit in
the Class A Reserve Fund), and the Class B
Certificateholders will not receive
distributions of principal on a Distribution
Date (other than from the Class B Reserve
Fund) unless the Class A Certificateholders
receive the full amount of interest and
principal due to them on such Distribution
Date (including from amounts on deposit in
the Class A Reserve Fund). However,
distributions of interest on the Class B
Certificates will not be subordinated to
distributions of principal on the Class A
Certificates.
In addition, the rights of the Seller to
receive the Retained Yield will be
subordinated to the rights of the Class A and
Class B Certificateholders to receive amounts
due to each of them. Accordingly, the Seller
will not receive distributions attributable
to the Retained Yield on any Distribution
Date unless all interest and principal due to
the Class A Certificateholders and Class B
Certificateholders have been paid and amounts
on deposit in the Class A Reserve Fund and
Class B Reserve Fund are at least equal to
the Specified Class A Reserve Balance and
Specified Class B Reserve Balance,
respectively (each as defined below).
Reserve Funds.................General. A separate reserve fund will be
created for the Class A .Certificates and the
Class B Certificates (the "Class A Reserve
Fund" and the "Class B Reserve Fund,"
respectively, and collectively, the "Reserve
Funds"). Amounts on deposit in the Class A
Reserve Fund will be available on any
Distribution Date to cover Shortfall Amounts
(as defined below) and shortfalls in
distributions of interest and principal on
the Class A Certificates to the extent
attributable to losses and delinquencies on
the Receivables. Amounts on deposit from time
to time in the Class A Reserve Fund and the
Class B Reserve Fund will be invested, as
provided in the Agreement, in Eligible
Investments maturing on or prior to the next
succeeding Distribution Date; provided,
however, that to the extent permitted by the
Rating Agencies, amounts on deposit in the
Class A Reserve Fund and the Class B Reserve
Fund may be invested in Eligible Investments
that mature later than the next succeeding
Distribution Date.
Class A Reserve Initial Deposit. The Class A
Reserve Fund will be funded by the Seller
with cash or Eligible Investments maturing on
or prior to the initial Distribution Date and
having, on the Closing Date, a value of
approximately $___________ (the "Class A
Reserve Initial Deposit"). The Class A
Reserve Initial Deposit will be augmented on
each Distribution Date by the deposit in the
Class A Reserve Fund of cash otherwise
distributable to the Seller as Retained Yield
to the extent necessary to maintain the
amount in the Class A Reserve Fund at an
amount equal to the Specified Class A Reserve
Balance (as defined below).
Amounts in the Class A Reserve Fund on any
Distribution Date (reduced by the amount of
all distributions made on such Distribution
Date) in excess of the Specified Class A
Reserve Balance for such Distribution Date
generally will be released for deposit into
the Class B Reserve Fund or, to the extent
the amount on deposit therein is equal to the
Specified Class B Reserve Balance (as defined
below), for payment to the Seller.
Specified Class A Reserve Balance. The
"Specified Class A Reserve Balance" with
respect to any Distribution Date will equal
$___________, except where on any
Distribution Date (i) the annualized average
for the preceding three Collection Periods of
the ratios of net losses (that is, the net
balances of all Receivables which are
determined to be uncollectible in the
applicable Collection Period, less any
Liquidation Proceeds or Recoveries received
in such Collection Period) to the Pool
Balance as of the first day of each such
Collection Period exceeds ____% or (ii) the
average for the preceding three Collection
Periods of the ratios of the balance of
Receivables that are delinquent 60 days or
more to such outstanding Pool Balance exceeds
____%, then the Specified Class A Reserve
Balance for such Distribution Date will equal
$____________. See "The Certificates--
Subordination of the Class B Certificates and
Retained Yield; Reserve Funds."
The Seller may reduce the Specified Class A
Reserve Balance provided that both Rating
Agencies confirm in writing to the Class A
Agent and the Seller prior to such reduction
that such reduction will not result in a
lowering of or a withdrawal of the then
current rating of the Class A Certificates.
Specified Class B Reserve Balance. The
"Specified Class B Reserve Balance" will
initially be zero and remain zero for so long
as the Seller retains the Class B
Certificates. At such time, if any, as the
Seller determines to sell the Class B
Certificates, the Specified Class B Reserve
Balance will be an amount determined by the
Seller in consultation with the Rating
Agencies in order to achieve the desired
rating for the Class B Certificates.
Shortfall Amount..............The "Shortfall Amount" is the amount calculated
by the Servicer with respect to each Prepaid
Receivable (excluding any Defaulted
Receivable) during a Collection Period equal
to the excess, if any, of (i) the sum of (x)
the Principal Balance of such Receivable on
the books of the Trust at the beginning of
the Collection Period in which such
Receivable becomes a Prepaid Receivable plus
(y) one month's interest on such Principal
Balance at the APR of such Receivable over
(ii) the amount received from the related
Obligor in connection with such prepayment.
Shortfall Amount Agreement....MBCC will enter into a shortfall amount
agreement (the "Shortfall Amount Agreement")
with the Seller, which will assign the
Shortfall Amount Agreement to the Trust. To
the extent that amounts on deposit in the
Class A Reserve Fund are not sufficient on
any Distribution Date to cover the Shortfall
Amounts with respect to such Distribution
Date, pursuant to the Shortfall Amount
Agreement, MBCC will pay to the Certificate
Account the amount of such insufficiency. See
"The Certificates -- Shortfall Amount
Agreement."
Advances......................The Servicer each month will advance to the
Trust, in respect of each Receivable, that
portion of scheduled payments that was not
timely made (an "Advance"). The Servicer will
be entitled to reimbursement of Advances from
subsequent payments on or with respect to the
Receivables. The Servicer will not be
required to make any Advance to the extent
that it does not expect to recoup the Advance
from subsequent collections or recoveries.
See "The Certificates-- Advances."
Repurchases and Purchases of
Certain Receivables.........The Seller will be obligated to repurchase any
Receivable if the interest of the Trust and
the Certificateholders therein is materially
and adversely affected by a breach of any
representation or warranty made by the Seller
with respect to the Receivable, if the breach
has not been cured by the last day of the
Collection Period, which includes the 60th
day after the date of discovery by or notice
to the Seller of the breach. Simultaneously
with the Seller's repurchase from the Trust,
MBCC will be obligated to repurchase the
Receivable from the Seller pursuant to the
Purchase Agreement. See "The
Certificates--Mandatory Repurchase of
Receivables."
The Servicer will be obligated to purchase
any Receivable if, among other things, the
Servicer (i) extends the date for final
payment by the Obligor of such Receivable
beyond the last day of the Collection Period
immediately preceding the Final Scheduled
Distribution Date, (ii) changes the amount or
the number of the scheduled payments of such
Receivable or (iii) fails to maintain a
perfected security interest in the related
Financed Vehicle in accordance with the
Servicer's customary servicing procedures.
See "The Certificates--Servicing
Procedures."
Optional Purchase.............In the event that the Pool Balance as of the
last day of a Collection Period has declined
to 10% or less of the initial Pool Balance,
the Servicer may purchase all remaining
Receivables at a purchase price equal to the
aggregate of the Purchase Amounts thereof on
the Distribution Date occurring in any
subsequent Collection Period which follows
the Collection Period in which appropriate
notice is given to Certificateholders. See
"The Certificates--Termination."
Trustee.......................[TRUSTEE] (the "Trustee").
Class A Agent, Class B
Agent and Payahead Agent....[TRUSTEE](the "Class A Agent," the "Class B
Agent" and the "Payahead Agent").
Tax Status....................In the opinion of Morgan, Lewis & Bockius LLP,
special tax counsel to the Seller, the Trust
will be classified for federal income tax
purposes as a grantor trust and not as a
partnership or as an association taxable as a
corporation. Class A Certificateholders must
report their respective allocable shares of
income earned on Trust assets (excluding
certain amounts retained by the Seller as
described herein) and, subject to certain
limitations applicable to individuals,
estates and trusts, may deduct their
respective allocable shares of reasonable
servicing and other fees. See "Certain
Federal Income Tax Consequences."
Rating........................It is a condition to the issuance of the Class
A Certificates that the Class A Certificates
be rated Aaa by Moody's Investors Service,
Inc. ("Moody's") and AAA by Standard & Poor's
Ratings Services, a Division of The
McGraw-Hill Companies, Inc. ("S&P") (each, a
"Rating Agency"). The rating assigned to the
Class A Certificates by a Rating Agency will
reflect such Rating Agency's assessment of
the likelihood that Class A
Certificateholders will receive the payments
of interest and principal required to be made
under the Agreement, in the case of
principal, on or prior to the Final Scheduled
Distribution Date, and in the case of
interest, on each Distribution Date. A rating
of a security is not a recommendation to buy,
sell or hold securities and may be revised or
withdrawn at any time by the assigning Rating
Agency.
ERISA Considerations..........Under final regulations issued by the
Department of Labor, the Trust's .assets
would not be deemed to be "plan assets" of an
employee benefit plan and certain other
retirement plans and arrangements (all of
which are hereinafter referred to as a
"Plan"), subject to ERISA, acquiring a Class
A Certificate if certain conditions are met,
including the condition that the Class A
Certificates be held by at least 100 persons
upon completion of the public offering being
made hereby. The Underwriters expect,
although no assurances can be given, that the
Class A Certificates will be held by at least
100 persons, and it is anticipated that the
other conditions of the regulations will be
met. If the Trust's assets were deemed to be
"plan assets" of a Plan, by virtue of such
Plan's acquisition of a Class A Certificate,
certain transactions concerning the Trust's
assets could result in a prohibited
transaction or other violations of the
fiduciary responsibility provisions of ERISA
and Section 4975 of the Internal Revenue Code
of 1986, as amended. Accordingly, the
fiduciary contemplating the purchase of Class
A Certificates should consult its counsel
before making a purchase. See "ERISA
Considerations."
RISK FACTORS
Investors should consider, among other things, the following factors
in connection with the purchase of the Class A Certificates.
LIMITED LIQUIDITY
There currently is no secondary market for the Class A Certificates.
The Underwriters expect, but are not obligated, to make a market in the
Class A Certificates and may discontinue market making at any time. There
is no assurance that any such market will develop or, if one does develop,
that it will provide liquidity of investment or will continue for the life
of the Class A Certificates.
POTENTIAL PRIORITY OF CERTAIN OTHER INTERESTS
The Seller will cause financing statements to be filed with the
appropriate governmental authorities to perfect the interest of the Trust
in its purchase of the Receivables, and the Servicer will hold the
Receivables, either directly or through subservicers, as custodian for the
Trustee following the sale and assignment of the Receivables to the Trust.
The Receivables will not be segregated, stamped or otherwise marked to
indicate that they have been sold to the Trust. If, through inadvertence or
otherwise, another party purchases (or takes a security interest in) the
Receivables for new value in the ordinary course of business and 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 and as a result
reductions in the amounts of distributions to Certificateholders could
result. See "Certain Legal Aspects of the Receivables--Rights in the
Receivables."
The Seller will assign its security interests in the Financed
Vehicles along with the sale and assignment of the Receivables to the
Trustee, and the Servicer will hold the certificates of title or ownership
relating to the Financed Vehicles, either directly or through subservicers,
as custodian for the Trustee following the sale and assignment of the
Receivables to the Trust. The certificates of title or ownership will not
be endorsed or otherwise amended to identify the Trust as the new secured
party. Because the Trust will not be identified as the secured party on any
certificates of title or ownership, the security interest of the Trust in a
Financed Vehicle (i) might be defeated through fraud, forgery, negligence
or error and (ii) may not be perfected in every state and as a result
reductions in the amounts of distributions to Certificateholders could
result. See "Certain Legal Aspects of the Receivables--Security Interests
in the Financed Vehicles."
POTENTIAL EFFECTS OF INSOLVENCY
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 MBCC under Title 11 of the United
States Code (the "Bankruptcy Code") or similar state laws (collectively,
"Insolvency Laws") will not result in consolidation of the assets and
liabilities of the Seller with those of MBCC. These steps include the
creation of the Seller as a separate, limited-purpose subsidiary of MBCC
pursuant to a certificate of incorporation containing certain limitations
(including restrictions on the nature of the Seller's business and a
restriction on the Seller's ability to commence a voluntary case or
proceeding under any Insolvency Law without the prior unanimous affirmative
vote of all of its directors). However, there can be no assurance that the
activities of the Seller would not result in a court concluding that the
assets and liabilities of the Seller should be consolidated with those of
MBCC in a proceeding under any Insolvency Law. 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, then delays in distributions on the Certificates could
occur or reductions in the amounts of such distributions could result. See
"The Seller."
It is intended by MBCC and the Seller that the transfer of the
Receivables by MBCC to the Seller under the Purchase Agreement constitute a
"true sale" of the Receivables to the Seller. If the transfer constitutes
such a "true sale," the Receivables and the proceeds thereof would not be
part of MBCC's bankruptcy estate under Section 541 of the Bankruptcy Code
should MBCC become the subject of a bankruptcy case subsequent to the
transfer of the Receivables to the Seller.
In Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir.
1993), cert. denied, 114 S. Ct. 554 (1993), the United States Court of
Appeals for the 10th Circuit suggested that even where a transfer of
accounts from a seller to a buyer constitutes a "true sale," the accounts
would nevertheless constitute property of the seller's estate in a
bankruptcy of the seller. If MBCC or the Seller were to become subject to a
bankruptcy proceeding and a court were to follow the Octagon court's
reasoning, Certificateholders might experience delays in payment or
possibly losses on their investment in the Certificates. As part of the
opinion of Seller's special counsel regarding the "true sale" of the
Receivables by MBCC to the Seller described herein, such counsel will
advise the Seller that the reasoning of the Octagon case appears to be
inconsistent with precedent and the UCC. See "The Seller."
PREPAYMENT CONSIDERATIONS
The weighted average life of the Class A Certificates may be reduced
by prepayments in full on Receivables. The Receivables are prepayable at
any time. Prepayments may also result from liquidations due to default, the
receipt of proceeds from physical damage insurance, repurchases by the
Seller as a result of certain uncured breaches of the warranties made by it
in the 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
Agreement with respect to the Receivables, or the Servicer exercising its
optional purchase right. The rate of prepayments on the Receivables may be
influenced by a variety of economic, social, and other factors, including
the fact that if an Obligor sells or transfers a Financed Vehicle, the
related Receivable must be repaid in full.
MBCC does not generally maintain records of the historical prepayment
experience of its Motor Vehicle Contract portfolio. MBCC believes that its
prepayment experience is consistent with that generally found in the
consumer automobile finance industry. However, no assurance can be given
that prepayments on the Receivables will conform to historical experience
and no prediction can be made as to the actual prepayment experience on the
Receivables. See "The Receivables -- Maturity and Prepayment Assumptions."
Any reinvestment risk resulting from the rate of prepayments of the
Receivables and the distribution of such prepayments to Class A
Certificateholders will be borne entirely by the Class A
Certificateholders. There can be no assurance that the Certificateholders
will be able to reinvest funds in an instrument with a comparable interest
rate in the event the Certificates are prepaid.
LIMITED ASSETS; SUBORDINATION
The Trust does not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables and other
Trust Property, including the right to receive payments under certain
circumstances pursuant to the Shortfall Amount Agreement and from the
Reserve Funds. The Class A Certificates represent interests solely in the
Trust and the Class A Certificates are not obligations of, and will not be
insured or guaranteed by, the Seller, the Servicer, DBNA, the Trustee or
any other person or entity. Consequently, Class A Certificateholders must
rely for payment upon payments on or on account of the Receivables (to the
extent described herein), payments under the Shortfall Amount Agreement
and, if and to the extent available, amounts on deposit in the Class A
Reserve Fund.
Amounts on deposit in the Class A Reserve Fund will be available on
any Distribution Date to cover Shortfall Amounts and shortfalls in
distributions of interest and principal on the Class A Certificates to the
extent attributable to losses and delinquencies on the Receivables. If the
Class A Reserve Fund is exhausted, the Trust will depend solely on current
payments on the Receivables (to the extent available to make payments to
the Class A Certificateholders) and payments under the Shortfall Amount
Agreement to make distributions on the Class A Certificates. See "The
Certificates--Shortfall Amount Agreement" and "--Distributions on
Certificates." Although the Class B Certificates will be subordinate to the
Class A Certificates to the extent described herein, distributions of
interest due to the Class B Certificateholders will not be subordinate to
distributions of principal due to the Class A Certificateholders. Moreover,
the Class A Certificateholders will not be entitled to distributions from
amounts on deposit in the Class B Reserve Fund.
RISK OF DELINQUENCIES, REPOSSESSIONS AND LOSSES; SOCIAL, LEGAL AND ECONOMIC
FACTORS
Delinquencies, repossessions and losses on Motor Vehicle Contracts
are sensitive to a variety of social, legal and economic factors. Economic
factors include the rate of inflation, unemployment levels and relative
interest rates. Social, legal and economic factors in the States of
California, Florida and Texas may have a disproportionate effect on the
Trust because of the concentration of Receivables in such states. See "The
Receivables -- Geographic Distribution of the Receivables." The Seller is
unable to determine and has no basis to predict whether, or to what extent,
social, legal or economic factors will affect future payment patterns.
LIMITED NATURE OF CERTIFICATE RATING
It is a condition to the issuance of the Class A Certificates that
the Class A Certificates be rated Aaa by Moody's and AAA by S&P. The rating
is based primarily on the credit quality of the Receivables and the level
of subordination of the Class B Certificates. There is no assurance that
the rating will remain for any given period of time or that the rating will
not be lowered or withdrawn entirely by the assigning Rating Agency, if in
its judgment circumstances in the future so warrant. The rating assigned to
the Class A Certificates by a Rating Agency will reflect such Rating
Agency's assessment of the likelihood that Class A Certificateholders will
receive the payments of interest and principal required to be made under
the Agreement, in the case of principal, on or prior to the Final Scheduled
Distribution Date, and in the case of interest, on each Distribution Date.
The rating is not a recommendation to purchase, hold or sell Class A
Certificates, inasmuch as rating does not comment as to market price or
suitability for a particular investor.
NEWLY FORMED TRUST
The Seller will establish the Trust by selling and assigning the
Receivables and certain other Trust Property to the Trustee in exchange for
the Certificates. The Trust will have no operating history and will not
acquire any assets other than the Trust Property, nor will the Trust engage
in any business activity other than acquiring and holding Trust Property
and proceeds therefrom, issuing Certificates, making payments thereon and
related activities. See "Formation of the Trust."
EFFECTS OF BOOK-ENTRY REGISTRATION OF THE CLASS A CERTIFICATES
The Class A Certificates will be represented initially by physical
certificates registered in the name of Cede & Co. as nominee of DTC, and
will not be registered in the names of the Certificate Owners or their
nominees. No Class A Certificate Owner will be entitled to receive a
definitive certificate representing such person's interest in the Trust
except in certain limited circumstances, as described herein. Under the
terms of the Agreement, unless definitive certificates are issued, Class A
Certificate Owners will not be recognized as Certificateholders, and will
be permitted to exercise the rights of the Certificateholders only
indirectly through DTC. See "The Certificates -- General," "-- Book Entry
Registration" and "-- Definitive Certificates." Unless and until Definitive
Certificates are issued, monthly and annual reports concerning the Trust
will be sent to Cede & Co., as nominee of DTC, and registered holder of the
Class A Certificates and not directly to Certificate Owners who may obtain
such reports through DTC and its Indirect Participants. See "Reports to the
Class A Certificateholders."
TAX ACCOUNTING ISSUES
There is uncertainty with respect to a number of issues that could
affect the amount, character and timing of income required to be reported
by Class A Certificate Owners for federal income tax purposes because there
are no judicial or administrative authorities addressing substantially
similar facts. In general, these issues include whether the Internal
Revenue Service will view the Class A Certificate Owners as owning
undivided interests in each Receivable and each other asset of the Trust
or, alternatively, as owning an undivided interest in a single debt
obligation of the Seller; the allocation of tax basis among various items,
including the Shortfall Amount Agreement; the methodology and assumptions
relating to the calculation of original issue discount; and the treatment
and characterization of certain payments, including whether any portion of
the Servicing Fees would be treated as "stripped coupons" under Section
1286 of the Code. Furthermore, for administrative convenience, the Servicer
intends to adopt certain conventions for calculating income on the
Receivables which include estimation of accrued amounts on and calculating
income from all of the Receivables and the Shortfall Amount Agreement on an
aggregate basis. The use of such methods could result in the income
reported to Class A Certificate Owners for any period being different from
the income that would be reported if income were reported on a
Receivable-by-Receivable basis over the period during which income accrues
on each Receivable. If reporting on such basis results in under- reporting
of income, or if the Internal Revenue Service were to take a position
different from that adopted by the Trust with respect to any issue, a Class
A Certificate Owner could be required to pay interest on underpayments of
tax and could be subject to penalties for under reporting of income. For a
further discussion of the foregoing, see "Certain Federal Income Tax
Consequences--Tax Accounting Issues" herein.
FORMATION OF THE TRUST
The Seller will establish the Trust by selling and assigning the
Receivables and certain other Trust Property to the Trustee in exchange for
the Certificates. Prior to such sale and assignment, the Trust will have no
assets or obligations or any operating history. The Trust will not engage
in any activity other than acquiring and holding Trust Property and
proceeds therefrom, issuing Certificates, making payments thereon and
related activities.
The Servicer will service the Receivables, either directly or through
subservicers, and will be paid the Servicing Fee out of collections from
the Receivables, prior to distributions to Certificateholders. Certain
other expenses of the Trust will be paid by or on behalf of the Servicer or
the Seller as provided in the Agreement. See "The Certificates--Servicing
Procedures," "--Servicing Compensation" and "--Distributions on
Certificates."
The Servicer will hold the Receivables and the certificates of title
or ownership relating to the Financed Vehicles as custodian for the
Trustee. However, the Receivables will not be marked or stamped to indicate
that they have been sold to the Trust, and the certificates of title 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 interest in the
Receivables and the Financed Vehicles may be defeated. 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, issuing the Certificates and distributing
payments on 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.
THE TRUST PROPERTY
Each Certificate will represent a fractional undivided interest in
certain assets of the Trust. The Trust Property will include (i) the
Receivables, (ii) all monies due thereunder on or after the Cutoff Date
(but excluding Excess Amounts), (iii) all amounts and property from time to
time held in or credited to the Collection Account and the Certificate
Account, (iv) all of the Seller's security interests in the Financed
Vehicles, (v) all rights to receive payments under certain circumstances
from the Reserve Funds, (vi) all of the Seller's rights under the Shortfall
Amount Agreement, (vii) all of the Seller's rights to receive proceeds from
claims on physical damage, credit life and disability insurance policies
covering the Financed Vehicles or the Obligors, (viii) all of the Seller's
right to all documents contained in the Receivable Files, (ix) certain
rights under the Purchase Agreement, including the right of the Seller to
cause MBCC to repurchase Receivables from time to time from the Seller
under certain circumstances specified therein, (x) all of the Seller's
rights, if any, of recourse against Dealers arising out of breaches by
Dealers in connection with the Receivables, (xi) all property (including
the right to receive future Liquidation Proceeds and Recoveries) that
secures a Receivable and that will have been acquired by or on behalf of
the Trustee, (xii) the Servicing Guaranty Agreement, and (xiii) all
proceeds (within the meaning of Section 9-306 of the UCC) of the foregoing.
MBCC'S MOTOR VEHICLE CONTRACT PORTFOLIO
GENERAL
MBCC currently purchases motor vehicle retail installment contracts
(the "Motor Vehicle Contracts") directly from authorized Mercedes-Benz
motor vehicle dealers ("Dealers") throughout the United States. The Motor
Vehicle Contracts are originated by the Dealers who regularly sell such
contracts to MBCC as well as to other finance sources. MBCC purchases Motor
Vehicle Contracts in accordance with its established underwriting
procedures, subject to the terms of an agreement with a Dealer (the "Dealer
Agreement").
The Dealer Agreement, among other things, obligates the Dealer to
repurchase any Motor Vehicle Contract for the outstanding principal balance
if the Dealer breaches certain representations and warranties. Each Dealer
warrants that (i) all Motor Vehicle Contracts are genuine and the only
instruments executed for the related motor vehicle (a "Motor Vehicle")
described therein, and are and will continue free from defenses and
off-sets; (ii) all statements contained therein will be true, and unpaid
balances shown therein correct; (iii) all amounts and numbers submitted to
MBCC will be correct and accurately reflect the true nature of the
agreement between the obligor and the Dealer; (iv) the transactions conform
to all applicable laws and regulations; (v) the contents of any form used
other than MBCC's will be legally sufficient and enforceable; (vi) the
automobile(s) shall have been delivered and accepted and the Dealer will
comply with all of its obligations with respect thereto; (vii) each
instrument will evidence a valid reservation of title to, or first lien
upon, the Motor Vehicle and will have been so filed and re- corded, if
permitted or required by law, as to be effective against all persons and to
preserve the priority of such lien; and (viii) such Motor Vehicle shall be
insured for fire, theft, combined additional coverage, and collision in a
manner and with insurance carriers satisfactory to MBCC. Upon breach of any
representation or warranty made by a Dealer with respect to a Motor Vehicle
Contract, MBCC has a right of recourse against such Dealer to require it to
repurchase such contract. Generally, in determining whether to exercise
such right, MBCC considers the prior performance of the Dealer and other
business and commercial considerations. MBCC, as Servicer, is obligated to
enforce such rights with respect to Dealer Agreements relating to the
Receivables in accordance with such customary practices, and the right to
any proceeds received upon such enforcement will be conveyed to the Trust
under the Agreement. All terms of the Dealer Agreements which are material
to the Certificateholders are described in this Prospectus.
MBCC purchases Motor Vehicle Contracts relating to new Motor Vehicles
manufactured by Daimler-Benz and Motor Vehicle Contracts relating to used
Motor Vehicles manufactured by Daimler-Benz and other automobile
manufacturers. MBCC applies the same underwriting standards to its purchase
of Motor Vehicle Contracts whether or not the Motor Vehicle Contract
relates to a Motor Vehicle manufactured by Daimler-Benz. See
"--Underwriting" below.
UNDERWRITING
MBCC's National Car Office (NCO), which is located in Atlanta,
Georgia, oversees and coordinates the activities of the car financing
operations throughout the United States. The NCO maintains three regional
offices that are dedicated to supporting and servicing Dealers and
customers throughout the United States. Through these regional offices,
which are located in Atlanta, Georgia, Wilmington, Delaware and Portland,
Oregon, MBCC purchases Motor Vehicle Contracts from Dealers using
consistent underwriting policies and procedures. The Receivables were
originated by Dealers in accordance with MBCC's requirements under existing
agreements with such Dealers and were purchased in accordance with MBCC's
underwriting standards which emphasize, among other factors, the
applicant's willingness and ability to repay according to the terms of the
Receivable.
Applications received from Dealers must be signed by the applicant
and must contain, among other information, the applicant's name, address,
residential status, source and amount of monthly income and the amount of
monthly rent or mortgage payment. All applications are checked for
completeness and entered into MBCC's on- line credit applications system.
In conjunction with the entering of the application information, credit
bureau reports on the customer are collected and attached electronically to
the application form. Credit bureau reports utilized most often include
TRW, Trans Union and Equifax.
A preliminary review of the application is then performed and, if
deemed necessary, additional information is requested from the Dealer. When
all relevant information is obtained the credit analysis commences. At a
minimum, this analysis includes (i) a review of credit bureau reports,
including the timeliness of payment history and the amount of payments;
(ii) budget analysis, including such ratios as Motor Vehicle Contract
payment to income and total debt payment to total income; (iii)
verification of the value of the Motor Vehicle if the credit request is for
a used vehicle; and (iv) analysis of employment history, with particular
attention to time spent with current employer. The credit decision is based
upon the information described above as well as the applicant's credit
score as obtained from a statistically derived credit scoring process and
other qualitative considerations. The final credit decision is made based
upon the degree of credit risk perceived and the amount of credit
requested.
After analysis the credit decision is communicated to the Dealer. If
the credit is accepted, and the applicant agrees to the terms of the
contract, the contract is funded.
SERVICING AND COLLECTION
MBCC measures delinquency by the number of days elapsed from the date
a payment is due under the Motor Vehicle Contract (the "Due Date"). MBCC
considers a payment to be past due or delinquent when the obligor fails to
pay $50 or more of a scheduled payment by the related Due Date. MBCC
generally begins collection activities with respect to delinquent Motor
Vehicle Contracts on the 11th day after the Due Date if payment has not
been received. MBCC 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.
MBCC's collectors are assigned to specific obligors 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 becomes between 60 to 90 days
delinquent. Repossession is carried out pursuant to specific procedures
adopted by MBCC.
Any deficiencies remaining after repossession and sale of the related
Motor Vehicle or after the full charge-off of the related Motor Vehicle
Contract are pursued by MBCC 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
MBCC's Motor Vehicle Contracts require obligors to maintain specific
levels of physical damage insurance during the term of the contract. At the
time of purchase, the Dealer and the obligor sign a statement indicating
that the level of insurance required by MBCC is in place as well as
providing the name and address of the insurance company. However, on an
ongoing basis, MBCC does not monitor the insurance coverage on the Motor
Vehicles to ensure that such coverage is maintained. In the event that the
Servicer is notified that such insurance coverage is not maintained, the
Servicer has the right, but is not obligated, to declare the contract to be
in default. The Servicer is not obligated, and does not intend, to purchase
required insurance on any Financed Vehicle and charge the Obligor for the
cost of such insurance if the Obligor fails to do so.
DELINQUENCY AND LOSS EXPERIENCE
Set forth below is certain information concerning MBCC's portfolio of
Motor Vehicle Contracts. There is no assurance that the behavior of the
Receivables will be comparable to MBCC's experience shown in the following
tables.
<TABLE>
<CAPTION>
DELINQUENCY EXPERIENCE OF THE PORTFOLIO(1)
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
1997 1996 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Gross Balance Outstanding
at end of period.................... ______ ______ ______ ______ ______ ______
Gross Balance Past Due as a
Percentage of Gross Balance
31-60 Days.......................... ____% ____% ____% ____% ____% ____%
61-90 Days.......................... ____ ____ ____ ____ ____ ____
91 Days or More..................... ____ ____ ____ ____ ____ ____
TOTAL .......................... % % % % % %
====== ====== ====== ====== ====== ======
</TABLE>
(1) The period of delinquency is based on the number of days payments are
contractually past due. Percentages are calculated by dividing the gross
remaining balance past due by the gross balances of the portfolio at the
end of the period.
<TABLE>
<CAPTION>
NET CREDIT LOSS AND REPOSSESSION EXPERIENCE OF THE PORTFOLIO(1)
(DOLLARS IN THOUSANDS)
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
1997 1996 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Principal Amount Outstanding.... $_______ $_______ $_______ $_______ $_______ $_______
Average Principal Amount
Outstanding.................. $_______ $_______ $_______ $_______ $_______ $_______
Number of Contracts Outstanding. ______ ______ ______ ______ ______ ______
Average Number of
Contracts Outstanding......... ______ ______ ______ _____ ______ ______
Net Losses(2)................... $______ $______ $______ $_____ $______ $______
Number of Repossessions as
a Percent of the Average Number
of Contracts Outstanding(3)... ____% ____% ____% ____% ____% ____%
Net Losses as a Percentage
of Principal Outstanding...... ____%(4) ____%(4) ____% ____% ____% ____%
Net Losses as a Percentage
of Average Principal
Outstanding................... ____%(4) ____%(4) ____% ____% ____% ____%
</TABLE>
(1) The information in the table includes United States Motor Vehicle
Contracts for new and used automobiles. All amounts and percentages
except as indicated are based on the principal balances of the Motor
Vehicle Contracts net of unearned finance and other charges. Averages
are computed by taking a simple average of month end outstandings for
each period presented.
(2) Net Losses are equal to the total aggregate principal balance of retail
installment contracts determined to be uncollectible in the period less
the net proceeds from disposition of the related Motor Vehicles and any
recoveries received.
(3) Number of Repossessions means the number of repossessed Motor Vehicles
in a given period.
(4) Annualized rate. The nine-month period ending [ENTER PERIOD], 1997 is
not necessarily indicative of a full year's actual results.
MBCC's retail loss experience is dependent upon receivables levels,
the number of repossessions, the amount outstanding at the time of
repossession, and the resale value of repossessed vehicles.
As of the Cutoff Date, approximately __% of the number of contracts
and approximately __% by principal balance of the contracts in MBCC's total
portfolio of Motor Vehicle Contracts consisted of contracts attributable to
the purchase of used automobiles.
THE RECEIVABLES
SELECTION CRITERIA
The Receivables were purchased by MBCC from Dealers in the ordinary
course of business in accordance with MBCC's underwriting standards. The
Receivables were selected from the MBCC portfolio by several criteria,
including the following: (i) each Receivable was secured by a new or used
Mercedes-Benz automobile; (ii) each Receivable had an annual percentage
rate of interest ("APR") of at least ___% and not more than ___%; (iii)
each Receivable had a remaining maturity, as of the Cutoff Date, of not
more than ___ months, and an original maturity of not more than ___ months;
(iv) each Receivable had a remaining balance (net of unearned precomputed
finance charges, as of the Cutoff Date) of not more than $______ and not
less than $_____; (v) no Receivable was more than 30 days delinquent as of
the Cutoff Date; (vi) no Financed Vehicle had been repossessed as of the
Cutoff Date; (vii) each Receivable was a Fully Amortizing Receivable;
(viii) no Obligor under a Receivable was, as of the Cutoff Date, to the
knowledge of MBCC the subject of a proceeding under the Bankruptcy Code;
(ix) each Receivable was originated in the United States by a Dealer in
connection with the retail sale of a Financed Vehicle in the ordinary
course of such Dealer's business; and (x) the Obligor under each Receivable
had a current billing address in the United States as of the Cutoff Date.
The Receivables are believed by MBCC to be representative of all the Motor
Vehicle Contracts in MBCC's portfolio that meet the above criteria.
CERTAIN CHARACTERISTICS
The composition, geographical distribution and distribution by APR of
the Receivables as of the Cutoff Date are set forth in the following
tables:
COMPOSITION OF THE RECEIVABLES
Aggregate Principal Balance $______________
Number of Receivables ______
Average Remaining Principal Balance $_________
Average Original Amount Financed $_________
(Range) $________ to $_________
Weighted Average APR ____%
(Range) ____% to ____%
Weighted Average Original Term to Maturity _____ months
(Range) _ to __ months
Weighted Average Remaining Term to Maturity _____ months
(Range) _ to __ months
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES(1)
PERCENTAGE PERCENTAGE
OF AGGREGATE OF AGGREGATE
PRINCIPAL PRINCIPAL
STATE BALANCE STATE BALANCE
Alabama................... % Montana................... %
Alaska.................... Nebraska..................
Arizona................... Nevada....................
Arkansas.................. New Hampshire.............
California................ New Jersey................
Colorado.................. New Mexico................
Connecticut............... New York..................
Delaware.................. North Carolina............
District of Columbia...... North Dakota..............
Florida................... Ohio ....................
Georgia................... Oklahoma..................
Hawaii.................... Oregon....................
Idaho .................... Pennsylvania..............
Illinois.................. Rhode Island..............
Indiana................... South Carolina............
Iowa .................... South Dakota..............
Kansas.................... Tennessee.................
Kentucky.................. Texas ....................
Louisiana................. Utah ....................
Maine .................... Vermont...................
Maryland.................. Virginia..................
Massachusetts............. Washington................
Michigan.................. West Virginia.............
Minnesota................. Wisconsin.................
Mississippi............... Wyoming...................
Missouri.................. All Other(2)..............
Total(3)............ %
=========
(1) Based on the addresses of the Obligors as reflected on the records of
MBCC.
(2) No other state accounts for more than 1% of the initial outstanding
Pool Balance.
(3) Percentages may not add to 100.00% due to rounding.
DISTRIBUTION BY APR OF THE RECEIVABLES
PERCENTAGE
OF
TOTAL AGGREGATE TOTAL AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
APR RANGE (%) RECEIVABLES BALANCE BALANCE
- ------------- ----------- ------- -------
1.00 to 2.0.................... _____ $ ___________ _____ %
2.01 to 3.00.................... _____ ___________ _____
3.01 to 4.00.................... _____ ___________ _____
4.01 to 5.00.................... _____ ___________ _____
5.01 to 6.00.................... _____ ___________ _____
6.01 to 7.00.................... _____ ___________ _____
7.01 to 8.00.................... _____ ___________ _____
8.01 to 9.00.................... _____ ___________ _____
9.01 to10.00.................... _____ ___________ _____
10.01 to11.00.................... _____ ___________ _____
11.01 to12.00.................... _____ ___________ _____
12.01 to13.00.................... _____ ___________ _____
13.01 to14.00.................... _____ ___________ _____
14.01 to15.00.................... _____ ___________ _____
15.01 to16.00.................... _____ ___________ _____
16.01 to17.00.................... _____ ___________ _____
17.01 to18.00.................... _____ ___________ _____
18.01 to19.00.................... _____ ___________ _____
19.01 to20.00.................... _____ ___________ _____
20.01 to21.00.................... _____ ___________ _____
Total (1).................. _____ $__________ _____%
===== =========== =====
(1) Percentages may not add to 100.00% due to rounding.
Approximately _____% of the total number of Receivables included in
the Trust, and approximately _____% by principal balance of the Receivables
included in the Trust, relate to new Mercedes-Benz automobiles.
Approximately _____% of the total number of Receivables included in the
Trust, and approximately _____% by principal balance of the Receivables
included in the Trust, relate to used Mercedes-Benz automobiles.
PAYMENTS ON THE RECEIVABLES
MBCC generally allocates payments received on all of the Receivables
according to the "actuarial" method. The actuarial method 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 a percentage 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 is subject
to a late payment penalty.
Notwithstanding that scheduled payments are allocated by MBCC on the
actuarial method, in the event of a Prepaid Receivable, the amount owing by
the Obligor will be determined by considering that previous payments on the
Receivable were allocated according to the "simple interest" method. Unlike
the actuarial method, the simple interest method treats each monthly
payment as including 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, the simple interest method provides that 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,
under the simple interest method, if an obligor pays a fixed monthly
installment before its scheduled due date, the portion of the payment
allocable to interest for the period since the preceding payment was made
will be less than it would have been had the payment been made as
scheduled, and the portion of the payment applied to reduce the unpaid
principal balance will be correspondingly greater. Conversely, under the
simple interest method, if an obligor pays a fixed monthly installment
after its scheduled due date, the portion of the payment allocable to
interest for the period since the preceding payment was made will be
greater than it would have been had the payment been made as scheduled, and
the portion of the payment applied to reduce the unpaid principal balance
will be correspondingly less.
Many of the Receivables generally also provide that, in the event of
a Prepaid Receivable, if the amount owing by the Obligor determined by the
"Rule of 78's" would be more favorable to the Obligor, the amount owing may
be determined in accordance with such Rule.
Because of the method of determining the amount owing by the Obligor
in the event of a Prepaid Receivable, the amount received or receivable
from the Obligor upon such Receivable might not in certain cases be equal
to the full Principal Balance of the Receivable as reflected on the books
of the Trust together with a full month's interest on such Principal
Balance at the APR of the Receivable. Such cases would generally be limited
to circumstances in which the Obligor had been making payments of the
monthly amount owed on the Receivable earlier than the date scheduled for
such monthly payment.
"Principal Balance" means, with respect to any Receivable as of any
date, the Amount Financed minus the sum of: (i) that portion of all
scheduled payments due on or prior to such date and, with respect to
periods prior to the initial Collection Period, the amount indicated in
such Receivable as required to be paid by the Obligor in each such period,
whether or not paid, allocable to principal in accordance with the
actuarial method, and (ii) any prepayment in full applied by the Servicer
to reduce the unpaid principal balance of such Receivable. The Principal
Balance of any Receivable for any Collection Period after the Collection
Period in which it becomes a Defaulted Receivable will be zero. "Pool
Balance" means, as of any date, the aggregate outstanding Principal Balance
of the Receivables (excluding Defaulted Receivables) as of the close of
business on such date. The "Amount Financed" in respect of a Receivable
means the amount originally advanced under such Receivable toward the
purchase price of the related Financed Vehicle and related costs.
MBCC has agreed in the Shortfall Amount Agreement to pay to the
Seller (and the Seller has assigned its rights to such payment to the
Trust), to the extent there are insufficient funds in the Class A Reserve
Fund, the amount (the "Shortfall Amount") for each Receivable representing
the excess of (i) the sum of (x) the Principal Balance on the books of the
Trust at the beginning of the Collection Period in which the Receivable
becomes a Prepaid Receivable plus (y) one month's interest on such
Principal Balance at the APR of such Receivable over (ii) the amount
received from the related Obligor in connection with such prepayment.
In the event that the amount received from an Obligor on a Prepaid
Receivable exceeds the Principal Balance of such Receivable on the books of
the Trust at the beginning of the Collection Period in which such
Receivable becomes a Prepaid Receivable plus one month's interest on such
Principal Balance at the APR of such Receivable, the excess (the "Excess
Amount") will be payable to MBCC and will not be an asset of the Trust. To
the extent that the funds on deposit in the Class A Reserve Fund on any
Distribution Date are less than the Specified Class A Reserve Balance, the
Servicer will be required to deposit investment earnings on the amounts on
deposit in the Collection Account and the Payahead Account and MBCC will be
required to deposit Excess Amounts in the Class A Reserve Fund in an
aggregate amount not greater than the excess of the aggregate Shortfall
Amount for the related Collection Period over the amount deposited therein
by MBCC with respect to such Shortfall Amounts on such Distribution Date.
The Receivables are prepayable by the Obligors at any time.
Prepayments may also result from liquidations due to default, the receipt
of proceeds from physical damage or other insurance, repurchases by the
Seller as a result of certain uncured breaches of the warranties made by it
in the 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
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, including the fact that if an Obligor sells or
transfers a Financed Vehicle, the related Receivable must be repaid in
full.
MATURITY AND PREPAYMENT ASSUMPTIONS
Prepayments in full on Receivables will have the effect of reducing
the weighted average life of the Certificates, while delinquencies by
Obligors under the Receivables, as well as extensions on the Receivables,
will have the effect of increasing the weighted average life of the
Certificates except to the extent that the Servicer has made Advances with
respect to such delinquent Receivables. The Receivables may be prepaid 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. MBCC does not
generally maintain records of the historical prepayment experience of its
Motor Vehicle Contract portfolio. 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, because prepayments are affected by numerous social, economic
and other factors. Certificateholders will bear all reinvestment risk
resulting from the rate of prepayment of the Receivables.
It is generally recognized by the consumer automobile finance
industry that the average actual maturity of a motor vehicle loan portfolio
tends to be less than the average stated contractual maturity. In general,
based on industry experience, in each month approximately ___% to ___% of
the installment sale contracts in motor vehicle portfolios similar to the
Receivables are prepaid in full. MBCC believes that its prepayment
experience (including the Servicer's experience with respect to
Daimler-Benz Auto Grantor Trust 1993-A and Daimler-Benz Auto Grantor Trust
1995-A) has been consistent with that generally found in the consumer
automobile finance industry. However, no assurance can be given that
prepayments on the Receivables will conform to historical experience and no
prediction can be made as to the actual prepayment experience on the
Receivables. The rate of prepayments on the Receivables may be influenced
by a variety of economic, social and other factors, including the fact that
an Obligor may not sell or transfer a Financed Vehicle without the consent
of the Servicer unless the Obligor prepays in full. Any reinvestment risk
resulting from the rate of prepayments of the Receivables and the
distribution of such prepayments to Class A Certificateholders will be
borne entirely by the Class A Certificateholders. In addition, early
retirement of the Certificates may be effected by the exercise of the
option of the Servicer, or any successor to the Servicer, to purchase all
of the Receivables remaining in the Trust when the Pool Balance is 10% or
less of the initial Pool Balance. See "The Certificates--Termination."
YIELD CONSIDERATIONS
Interest on the Receivables will be passed through to Class A
Certificateholders on each Distribution Date to the extent of the
Pass-Through Rate, applied to the Class A Principal Balance on the first
day of the preceding Collection Period (reduced by the amount of
distributions of principal to be made on the Distribution Date occurring in
such Collection Period). In the event of prepayments on Receivables, Class
A Certificateholders will receive an amount equal to thirty (30) days'
interest on such Class A Principal Balance to the extent that amounts,
including amounts otherwise allocable to the Class B Certificates or the
Seller, are available from the Available Interest (after reduction of the
Servicing Fee), the Class A Reserve Fund and the Class B Percentage of the
Available Principal and are sufficient for such purpose. If such amounts
are insufficient, the amount of interest distributed to the Class A
Certificateholders may be less than that described above. See "The
Certificates--Distributions on Certificates."
Although the Receivables have different APRs, disproportionate rates
of prepayments between Receivables with APRs greater than or less than a
rate equal to the sum of the Pass-Through Rate and the Servicing Rate will
generally not affect the yield to Certificateholders. However, 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 and from the Reserve Funds. See "The
Certificates--Distributions on Certificates" and " --Subordination of the
Class B Certificates and Retained Yield; Reserve Funds."
POOL FACTORS AND OTHER INFORMATION
The "Class A Pool Factor" will be a seven-digit decimal which the
Servicer will compute each month equal to the Class A Principal Balance as
of the close of business on the Distribution Date in that month, divided by
the original Class A Principal Balance. The Class A Pool Factor will be
l.0000000 as of the date of the initial issuance of the Certificates (the
"Closing Date"), and thereafter will decline to reflect reductions in the
Class A Principal Balance.
A Class A Certificate Owner's portion of the Class A Principal
Balance is the product of (i) the original principal balance of the
beneficial interest in the Class A Certificates purchased by such Class A
Certificate Owner and (ii) the Class A Pool Factor.
Pursuant to the Agreement, the Class A Certificateholders will
receive from the Trustee monthly reports concerning the payments received
on the Receivables, the Pool Balance, the Class A Pool Factor and various
other items of information. Class A Certificateholders of record during any
calendar year will be furnished information by the Trustee for tax
reporting purposes not later than the latest date permitted by law. See
"The Certificates--Statements to Class A Certificateholders." Such monthly
reports and annual tax information may be available to Certificate Owners
in accordance with the regulations and procedures of DTC. See "Reports to
the Class A Certificateholders."
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of the
Class A Certificates will be applied to the purchase of the Receivables
from MBCC.
THE SELLER
Corporate Formation and Existence. The Seller, a wholly-owned
subsidiary of MBCC, was incorporated in the State of Delaware on May 24,
1994. The Seller was organized for limited purposes, which include
purchasing receivables from MBCC 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 1201 North Market Street, Suite 1406, Wilmington,
Delaware 19801. The telephone number of such offices is (302) 426-1900.
Bankruptcy Considerations. The Seller has taken steps in structuring
the transactions contemplated hereby that are intended to prevent any
voluntary or involuntary application for relief by MBCC under any
Insolvency Law from resulting in consolidation of the assets and
liabilities of the Seller with those of MBCC. These steps include the
creation of the Seller as a separate, limited-purpose subsidiary pursuant
to a certificate of incorporation containing certain limitations (including
restrictions on the nature of the Seller's business and a restriction on
the Seller's ability to commence a voluntary case or proceeding under any
Insolvency Law without the prior unanimous affirmative vote of all of its
directors). However, there can be no assurance that the activities of the
Seller would not result in a court concluding that the assets and
liabilities of the Seller should be consolidated with those of MBCC in a
proceeding under any Insolvency Law.
The Seller will receive the opinion of its special counsel, Morgan,
Lewis & Bockius LLP ("Special 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
MBCC in the event of the application of the federal bankruptcy laws to
MBCC. Among other things, it will be assumed by Special 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
MBCC, refraining from commingling its assets with those of MBCC and
refraining from holding itself out as having agreed to pay, or being liable
for, the debts of MBCC. 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, 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 MBCC. 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, then delays in distributions on the Certificates could
occur or reductions in the amounts of such distributions could result.
"True Sale" Considerations. It is intended by MBCC and the Seller
that the transfer of the Receivables by MBCC to the Seller under the
Purchase Agreement constitute a "true sale" of the Receivables to the
Seller. If the transfer constitutes such a "true sale," the Receivables and
the proceeds thereof would not be part of MBCC's bankruptcy estate under
Section 541 of the Bankruptcy Code should MBCC become the subject of a
bankruptcy case subsequent to the transfer of the Receivables to the
Seller.
The Seller will receive the opinion of its Special Counsel to the
effect that, subject to certain facts, assumptions and qualifications, in
the event MBCC were to become the subject of a voluntary or involuntary
case under the Bankruptcy Code subsequent to the transfer of the
Receivables to the Seller, the transfer of the Receivables by MBCC to the
Seller pursuant to the Purchase Agreement would be characterized as a "true
sale" of the Receivables from MBCC to the Seller and the Receivables and
the proceeds thereof would not form part of MBCC's bankruptcy estate
pursuant to Section 541 of the Bankruptcy Code.
In Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir.
1993), cert. denied, 114 S. Ct. 554 (1993), the United States Court of
Appeals for the 10th Circuit suggested that even where a transfer of
accounts from a seller to a buyer constitutes a "true sale," the accounts
would nevertheless constitute property of the seller's bankruptcy estate in
a bankruptcy of the seller. If MBCC or the Seller were to become subject to
a bankruptcy proceeding and a court were to follow the Octagon court's
reasoning, Certificateholders might experience delays in payment or
possibly losses on their investment in the Certificates. As part of the
opinion of Special Counsel described above, such counsel will advise the
Seller that the reasoning of the Octagon case appears to be inconsistent
with precedent and the UCC.
THE SERVICER
MBCC was incorporated in the State of Delaware on April 14, 1981 and
is a wholly owned subsidiary of DBNA. DBNA, based in New York City, was
established as a holding company in 1982 to achieve synergies and financial
benefits through the consolidation of certain Daimler-Benz activities in
North America.
MBCC and its subsidiaries comprise the captive finance company for
the Daimler-Benz group in North America. The Company provides a variety of
comprehensive financial services to dealers and customers of products
manufactured or distributed by Daimler-Benz companies in North America.
MBCC and certain of its subsidiaries primarily provide retail and wholesale
financing, leasing, and other financial services to authorized
Mercedes-Benz automobile and Freightliner commercial vehicle dealers and
their customers. Additionally, a wholly owned subsidiary provides financing
for both Daimler-Benz and other manufacturer's products. The headquarters
of MBCC are located at 201 Merritt 7, Suite 700, Norwalk, Connecticut,
06856-5425. Its telephone number is (203) 847-4500.
DBNA is a wholly-owned subsidiary of Daimler-Benz AG, which is
headquartered in Stuttgart, Germany. Daimler-Benz AG and its consolidated
subsidiaries (collectively "Daimler-Benz") is the largest industrial group
in Germany and a leading provider of traffic and transportation products
and services worldwide. Daimler-Benz business units include passenger cars
and commercial vehicles (Mercedes-Benz), aircraft, space systems, defense
and civil systems, propulsion systems (Daimler-Benz Aerospace), IT services
and mobile communications services, trading, insurance brokerage, and
financial services to primarily support the sale of Daimler-Benz products
(Daimler-Benz InterServices - debis), as well as rail systems (Adtranz) and
microelectronics (Temic). For the year ended December 31, 1996,
Daimler-Benz AG reported consolidated revenues of U.S. $69 billion and net
income of U.S. $844 million, according to United States generally accepted
accounting principles.
THE CERTIFICATES
The Class A Certificates will be issued pursuant to the Agreement.
Copies of the Agreement may be obtained by the Class A Certificateholders
upon written request to the Trustee and may be available to Certificate
Owners in accordance with the regulations and procedures of DTC. The
following summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the Agreement.
GENERAL
The Class A Certificates will be offered for purchase in
denominations of $1,000 and integral multiples thereof and will be
represented initially by physical certificates registered in the name of
Cede & Co. as nominee of DTC. No Class A Certificate Owner will be entitled
to receive a definitive certificate representing such person's interest in
the Trust except in the event that Definitive Certificates are issued under
the limited circumstances described herein. Unless and until Definitive
Certificates are issued, all references to actions by Class A
Certificateholders will refer to actions taken by DTC upon instructions
from its Direct Participants and all references to distributions, notices,
reports, and statements to Class A Certificateholders will refer to
distributions, notices, reports, and statements to DTC which distributions,
notices, reports and statements may be available to Certificate Owners in
accordance with the regulations and procedures of DTC. See "Reports to the
Class A Certificateholders," "--Book Entry Registration" and "--Definitive
Certificates."
In general, it is intended that Class A Certificateholders receive,
on each Distribution Date, the Class A Percentage of the aggregate
scheduled payments of principal (including Advances) and the aggregate
prepayments in full of principal on the Receivables made during or with
respect to the preceding calendar month (the "Collection Period"), plus an
amount equal to 30 days' interest at the Pass-Through Rate on the Class A
Principal Balance. See "--Distributions on Certificates." Principal and
interest to be distributed to Class A Certificateholders may be provided by
payments made by or on behalf of Obligors (to the extent available for
payment to the Class A Certificateholders), the payment of Purchase Amounts
by the Seller or the Servicer, Advances made by the Servicer, draws from
the Class A Reserve Fund, payments under the Shortfall Amount Agreement,
proceeds from physical damage insurance, net liquidation proceeds upon the
repossession and sale of Financed Vehicles or net recoveries of
deficiencies from Obligors after the repossession and sale of Financed
Vehicles. See "--Sale and Assignment of the Receivables" and "--Servicing
Procedures." In the event that, on any Distribution Date, funds available
from the foregoing sources are insufficient to provide for such
distributions, any shortfall will be payable on the subsequent
Distribution Date, to the extent funds are available therefor.
The Certificates will evidence interests in the Trust created
pursuant to the Agreement. The Class A Certificates will evidence in the
aggregate an undivided ownership interest (the "Class A Percentage") of
___% of the initial Principal Balance of, and a portion of the interest
accruing under, the Receivables held by the Trust and the Class B
Certificates will evidence in the aggregate an undivided ownership interest
(the "Class B Percentage") of approximately ___% of the initial Principal
Balance of, and a portion of the interest accruing under, the Receivables
held by the Trust. The Class B Certificates, which are not being offered
hereby, will be retained initially by the Seller, but the Seller may, at
its discretion, subsequently sell all or part of the Class B Certificates.
BOOK ENTRY REGISTRATION
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 UCC, 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").
Class A Certificate Owners that are not Direct Participants or
Indirect Participants but desire to purchase, sell, or otherwise transfer
ownership of, or other interests in, Class A Certificates may do so only
through Direct Participants or Indirect Participants. In addition, Class A
Certificate Owners will receive all distributions from the Trustee through
Direct Participants or Indirect Participants. DTC will forward such
payments to its Direct Participants which thereafter will forward them to
Indirect Participants or Class A Certificate Owners. It is anticipated that
the only "Class A Certificateholder" will be Cede & Co. as nominee of DTC.
Class A Certificate Owners will not be recognized by the Trustee as Class A
Certificateholders, as such term is used in the Agreement, and Class A
Certificate Owners will be permitted to exercise the rights of Class A
Certificateholders only indirectly through DTC and its Direct Participants
and Indirect Participants.
Under the rules, regulations, and procedures creating and affecting
DTC and its operations (the "Rules"), DTC will be required to make
book-entry transfers of Class A Certificates among Direct Participants and
to receive and transmit payments with respect to the Class A Certificates.
Direct Participants and Indirect Participants with which Class A
Certificate Owners have accounts with respect to the Class A Certificates
similarly are required to make book-entry transfers and receive and
transmit such payments on behalf of their respective Class A Certificate
Owners.
Because DTC can only act 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
Class A Certificate Owner to pledge Class A Certificates to persons or
entities that do not participate in the DTC system, or to otherwise act
with respect to such Class A Certificates, may be limited due to the
absence of physical certificates for such Certificates.
DTC has advised the Seller that it will take any action permitted to
be taken by a Class A Certificateholder under the Agreement only at the
direction of one or more Direct Participants to whose accounts with DTC the
Class A Certificates are credited. Additionally, DTC has advised the Seller
that to the extent that the Agreement requires that any action may be taken
only by holders of Class A Certificates representing specified percentages
of the aggregate outstanding principal balance 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
percentages. DTC may take conflicting actions with respect to other
undivided interests to the extent that such actions are taken on behalf of
Direct Participants whose holdings include such undivided interests.
None of the Seller, the Servicer or the Trustee will have any
liability for any aspect of the records relating to or payment made on
account of beneficial ownership interests of the Class A Certificates held
by Cede & Co., as nominee of DTC, or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
DEFINITIVE CERTIFICATES
The Class A Certificates will be issued in fully registered,
certificated form ("Definitive Certificates") to Class A Certificate Owners
or their nominees, rather than to DTC or its nominee, only if (i) the
Seller advises the Trustee in writing that DTC is no longer willing or able
to discharge properly its responsibilities as depository with respect to
the Class A Certificates and the Trustee or the Seller is unable to locate
a qualified successor, (ii) the Seller, at its option, elects to terminate
the book-entry system through DTC, or (iii) after the occurrence of an
Event of Servicing Termination, with respect to the Class A Certificates,
Class A Certificate Owners representing in the aggregate not less than a
majority of the aggregate outstanding Class A Principal Balance advise the
Trustee and DTC through Direct Participants in writing, and DTC will so
notify the Trustee, that the continuation of a book-entry system through
DTC (or a successor thereto) is no longer in the Class A Certificate
Owners' best interests.
Upon the occurrence of any event described in the immediately
preceding paragraph, the Trustee is required to notify all Direct
Participants through DTC of the availability of Definitive Certificates.
Upon surrender by DTC of the physical certificates representing the Class A
Certificates and receipt by the Trustee of instructions from DTC for
re-registration, the Trustee will reissue the Class A Certificates as
Definitive Certificates, and thereafter the Trustee will recognize the
registered holders of such Definitive Certificates as Class A
Certificateholders under the Agreement ("Holders").
Distributions of principal of, and interest on, the Definitive
Certificates will be made by the Trustee directly to Holders in accordance
with the procedures set forth herein and in the Agreement. Distributions of
principal and interest on each Distribution Date will be made to Holders in
whose names the Definitive Certificates were registered at the close of
business on the preceding Record Date. Such distributions will be made by
check mailed to the address of such Holder as it appears on the register
maintained by the Trustee. The final payment on any Definitive Certificate,
however, will be made only upon presentation and surrender of such
Definitive Certificate at the office or agency specified in the notice of
final distribution mailed to Holders.
Definitive Certificates will be transferable and exchangeable at the
offices of the Trustee. No service charge will be imposed for any
registration of transfer or exchange, but the Trustee may require payment
of a sum sufficient to cover any tax or other governmental charge imposed
in connection therewith.
SALE AND ASSIGNMENT OF THE RECEIVABLES
At or prior to the time of issuance of the Class A Certificates,
pursuant to the Purchase Agreement MBCC will sell and assign to the Seller,
without recourse, its entire interest in the Receivables (other than
payments with respect to Excess Amounts), including its security interests
in the Financed Vehicles. At the time of issuance of the Class A
Certificates the Seller will sell and assign to the Trustee, without
recourse, the Seller's entire interest in the Receivables, including its
security interests in the Financed Vehicles. Each Receivable conveyed by
the Seller to the Trust will be identified in a schedule incorporated by
reference into the Agreement. The Trustee will, concurrently with such sale
and assignment, execute, authenticate and deliver the Certificates to the
Seller in exchange for the Receivables. The Seller will sell the Class A
Certificates to the Underwriters. See "Underwriting."
In the Purchase Agreement, MBCC will represent and warrant to the
Seller, and in the Agreement, the Seller will represent and warrant to the
Trustee, among other things, that (i) the information provided with respect
to the Receivables is correct in all material respects; (ii) the Obligor on
each Receivable is required to obtain physical damage insurance in
accordance with MBCC's normal requirements; (iii) at the date of issuance
of the Certificates, 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, to the best of MBCC's or
the Seller's knowledge, as relevant, threatened (other than the interest of
the Trustee); (iv) to the best of MBCC's or the Seller's knowledge, as
relevant, at the date of issuance of the Certificates, each of the
Receivables is or will be secured by a first perfected security interest in
the Financed Vehicle in favor of MBCC; and (v) each Receivable, at the time
it was originated, complied, and at the date of issuance of the
Certificates 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 Trustee and the Certificateholders will have
against the Seller for breach or failure to be true of any of the foregoing
representations and warranties with respect to a Receivable will be to
require the Seller to repurchase the Receivable. See "--Mandatory
Repurchase of Receivables."
To assure uniform quality in servicing the Receivables and to reduce
administrative costs, the Trustee will appoint the Servicer as initial
custodian of the Receivables. The Servicer, in its capacity as custodian,
will hold the Receivables and all electronic entries, documents,
instruments and writings relating thereto (each, a "Receivable File"),
either directly or through subservicers, on behalf of the Trustee for the
benefit of Certificateholders. 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, UCC financing statements reflecting
the sale and assignment of the Receivables by MBCC to the Seller and by the
Seller to the Trustee will be filed, and the Servicer's accounting records
and computer systems will be marked to reflect such sale and assignment.
See "Formation of the Trust" and "Certain Legal Aspects of the
Receivables."
MANDATORY REPURCHASE OF RECEIVABLES
In the event of a breach or failure to be true of any representation
or warranty with respect to the Receivables described in "--Sale and
Assignment of the Receivables," which breach or failure materially and
adversely affects the interests of the Trust and the Certificateholders 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 Trustee or the Servicer of, such breach or failure, will be required to
repurchase the Receivable from the Trustee, and MBCC will be required to
repurchase such Receivable from the Seller, in each case as of the first
day of the subsequent Collection Period, for the Purchase Amount. The
Purchase Amount is payable on the Distribution Date in such subsequent
Collection Period. The obligation of the Seller to repurchase a Receivable
is not conditioned on performance by MBCC of its obligation to repurchase a
Receivable. The repurchase obligation will constitute the sole remedy
available to the Certificateholders or the Trustee against the Seller for
any such uncured breach or failure. No Class A Certificateholder will have
any right under the Agreement to institute any proceeding with respect to
the Agreement, unless such holder has given the Trustee written notice of
default and unless the holders of Certificates evidencing not less than a
majority of the sum of the Class A Principal Balance and Class B Principal
Balance (excluding any Certificates held by the Seller or any Affiliate (as
defined in the Agreement) of the Seller) have made a written request to the
Trustee to institute such proceeding in its own name as Trustee thereunder
and have offered to the Trustee reasonable indemnity, and the Trustee for
30 days has neglected or refused to institute any such proceeding.
The "Purchase Amount" of any Receivable means, with respect to any
Distribution Date and a Purchased Receivable on such Distribution Date, an
amount equal to the sum of (a) the outstanding principal balance of such
Receivable as of the first day of the Collection Period preceding the
Collection Period in which such Distribution Date occurs, and (b) the
amount of accrued interest on such principal balance at the related APR
from the date a payment was last made by or on behalf of the Obligor
through the due date for payment of such Receivable in the Collection
Period preceding the Collection Period in which such Distribution Date
occurs, and after giving effect to the receipt of monies collected on such
Receivable in such preceding Collection Period and any Payahead Balance
with respect to such Receivable.
ACCOUNTS
The Trustee will establish two accounts in the name of the Trustee on
behalf of the Trust and the Certificateholders, the first into which
certain payments made on or with respect to the Receivables will be
deposited (the "Collection Account") and the second from which all
distributions with respect to the Receivables and the Certificates will be
made (the "Certificate Account"). The Seller will establish the Class A
Reserve Fund as an account with the Class A Agent, on behalf of the Trust
and the Class A Certificateholders and will establish the Class B Reserve
Fund as an account with the Class B Agent on behalf of the Trust and the
Class B Certificateholders. The Collection Account, the Certificate
Account, the Reserve Funds and the Payahead Account (as described below)
are collectively referred to as the "Accounts." The Reserve Funds and the
Payahead Account will not be assets of the Trust.
Each Account will be maintained at all times in an Eligible Deposit
Account. "Eligible Deposit Account" means either (a) a segregated account
with an Eligible Bank or (b) a segregated trust account with the trust
department of a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District
of Columbia (or any domestic branch of a foreign bank), having trust powers
and acting as trustee for funds deposited in such account, so long as the
long-term unsecured debt of such depository institution will have a credit
rating from each Rating Agency in one of its generic rating categories
which signifies investment grade (which, for Moody's, is Baa3 or higher,
and for S&P, is BBB- or higher).
"Eligible Bank" means any depository institution with trust powers
(which may be the Trustee), organized under the laws of the United States
of America or any one of the states thereof or the District of Columbia ,
which has a net worth in excess of $50,000,000, the deposits of which are
insured to the full extent permitted by law by the Federal Deposit
Insurance Corporation (the "FDIC"), which is subject to supervision and
examination by federal or state banking authorities and which has (i) a
rating of P-1 from Moody's and A-1+ from S&P with respect to short-term
deposit obligations, or (ii) if such institution has issued long-term
unsecured debt obligations, a rating of A2 or higher from Moody's and AAA
from S&P with respect to long-term unsecured debt obligations.
Funds in the Accounts will be invested as provided in the Agreement
in Eligible Investments. "Eligible Investments" are generally limited to
investments acceptable to the Rating Agencies as being consistent with the
rating of the Class A Certificates. Eligible Investments are limited to
obligations or securities that mature not later than the next Distribution
Date. However, to the extent permitted by each Rating Agency, funds on
deposit in the Reserve Funds may be invested in securities that will not
mature prior to the next Distribution Date with respect to the Certificates
and will not be sold to meet any shortfalls. Investment earnings on amounts
on deposit in the Collection Account will be deposited in the Class A
Reserve Fund in an amount not to exceed the Shortfall Amount with respect
to such Distribution Date to the extent that the funds on deposit therein
are less than the Specified Class A Reserve Balance. Any earnings (net of
losses and investment expenses) on amounts on deposit in the other
Accounts, except as otherwise specified herein, will be paid to the Seller,
the Class B Certificateholders, MBCC or the Servicer, as specified in the
Agreement, and will not be available to Class A Certificateholders.
The Trustee will also establish an account (the "Payahead Account"),
on behalf of the Obligors, in which payments by or on behalf of an Obligor
on a Receivable received during each Collection Period and not due in such
Collection Period (other than prepayments in full) or not overdue from a
prior Collection Period ("Payaheads") and not permitted to be held by the
Servicer will be deposited until such time as the payment falls due,
whereupon the payment will be transferred to the Certificate Account on the
Distribution Date in the Collection Period following the scheduled payment
due date. Such amounts will be permitted to be held by the Servicer if
either (i) each Monthly Remittance Condition is satisfied or (ii) a Monthly
Remittance Condition is not satisfied but such failure will not affect the
rating of the Class A Certificates by the Rating Agencies. Until such time
as payments are transferred from the Payahead Account to the Certificate
Account, they will not constitute collected interest or collected
principal, and will not be available for distribution to the
Certificateholders. Investment earnings on amounts on deposit in the
Payahead Account with respect to any Collection Period will be deposited in
the Class A Reserve Fund in an amount not to exceed the Shortfall Amount
with respect to such Distribution Date to the extent that the funds on
deposit therein are less than the Specified Class A Reserve Balance on the
related Distribution Date.
COLLECTIONS ON THE RECEIVABLES
The Servicer will deposit all payments on Receivables, including
Liquidation Proceeds and Recoveries, but excluding (i) Payaheads (which
will be deposited in the Payahead Account or held by the Servicer), (ii)
Excess Amounts (which will be paid to MBCC), and (iii) certain amounts
payable to the Servicer under the Agreement, including late fees and
charges on the Receivables (which are not required to be deposited in the
Collection Account), into the Collection Account not later than two
business days after receipt thereof unless:
(x) (i) MBCC is the Servicer, (ii) the obligation of the Servicer to
make required remittances under the Agreement on each Distribution Date is
unconditionally guaranteed by DBNA pursuant to a guaranty agreement in
favor of the Trustee (the "Servicing Guaranty Agreement") and DBNA will
have a rating of at least P-1 from Moody's and at least A-1 from S&P with
respect to its short-term obligations and (iii) no Event of Servicing
Termination shall have occurred (each, a "Monthly Remittance Condition"),
or
(y) the failure to satisfy a Monthly Remittance Condition will not
affect the rating of the Class A Certificates as confirmed in writing by
the Rating Agencies, in which case such amounts will be paid into the
Collection Account on the Distribution Date.
The Seller or the Servicer will also deposit into the Collection
Account on the Distribution Date the Purchase Amount of each Receivable to
be repurchased or purchased by it pursuant to an obligation that arose
during the preceding Collection Period. The Servicer will be entitled to
withhold, or to be reimbursed from amounts otherwise payable into, or on
deposit in, the Collection Account with respect to a Collection Period, the
amounts previously deposited in the Collection Account but later determined
to have resulted from mistaken deposits or postings 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 relevant 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, so long as no Event of Servicing
Termination has occurred, the Servicer will be permitted to make deposits
of amounts for a Collection Period net of distributions to be made to it
with respect to such Collection Period. The Servicer will account to the
Trustee and to the Certificateholders, however, as if all such deposits and
distributions were made individually.
SERVICING PROCEDURES
The Servicer will make reasonable efforts to collect all payments due
with respect to the Receivables in a manner consistent with the Agreement
and will exercise the degree of skill and care that the Servicer exercises
with respect to similar motor vehicle receivables owned and/or serviced by
the Servicer.
Although it has no current plans to do so, the Servicer may enter
into subservicing agreements with Eligible Servicers for the subservicing
of Receivables. Any such subservicing agreements will contain provisions
identical to those contained in the Agreement and may contain such other
provisions as are not inconsistent with the terms of the 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 Trustee and
the Certificateholders for servicing and administering the Receivables in
accordance with the 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) any subsidiary of DBNA or (b) any
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 installment 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 installment 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 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 Agreement or the related subservicing agreement.
The Servicer will covenant in the Agreement that: (A) 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 Agreement; (B) the Servicer will not (nor will it
permit any subservicer to) impair in any material respect, the rights of
the Certificateholders in the Receivables, certain rights under the Dealer
Agreements related to breach of representations and warranties of Dealers
with respect to the Receivables, or any physical damage or other insurance
policy; and (C) the Servicer will not increase or decrease the number or
amount of 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 Motor
Vehicle Contracts serviced by it for its own account in accordance with its
customary standards if the cumulative extensions with respect to any
Receivable will not cause the term of such Receivable to extend beyond the
last day of the Collection Period immediately preceding the Final Scheduled
Distribution Date (the "Final Scheduled Maturity Date"); provided, further,
that such extensions will not be made if the extension would modify the
terms of such Receivable in such a manner so as to constitute a
cancellation of such Receivable and the creation of a new Receivable for
federal income tax purposes.
In the event of a breach by the Servicer of any covenant described
above that materially and adversely affects the interest of the Trust and
the Certificateholders in a Receivable, 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, the Servicer will be required to purchase as of the first
day of the subsequent Collection Period the Receivable from the Trustee for
the Purchase Amount which will be paid on the Distribution Date in such
subsequent Collection Period or earlier under certain circumstances;
provided, however, that the Servicer will be required to purchase any
Receivable from the Trustee which has been extended beyond the Final
Scheduled Maturity Date. The purchase obligation will constitute the sole
remedy available to the Certificateholders or the Trust against the
Servicer for any such uncured breach, except with respect to certain
indemnities of the Servicer under the Agreement related thereto.
The Agreement will also require the Servicer to charge-off a
Receivable as a Defaulted Receivable in accordance with its customary
standards 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 Agreement, to realize upon any
Receivable. The Servicer may sell each 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 realization will be deposited in the Collection Account at
the time and in the manner described above.
The Agreement will provide that the Servicer will defend and
indemnify the Trust and the Certificateholders against any and all costs,
expenses, losses, damages, claims, and liabilities, including reasonable
fees and expenses of counsel and expenses of litigation, arising out of or
resulting from the use, ownership, or operation by the Servicer or any
affiliate thereof of any Financed Vehicle or in respect of any action taken
by the Servicer with respect to any Receivable or Financed Vehicle;
provided that the Servicer will have no obligation to indemnify the Trust
and the Certificateholders against any credit losses on any Receivable
serviced by the Servicer in accordance with the requirements of the
Agreement. The Servicer's obligations to indemnify the Trust 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.
ADVANCES
To the extent the collection of interest and principal on a
Receivable with respect to a Collection Period is less than the respective
scheduled payment, an Advance will be made by the Servicer. The amount of
an Advance will be equal to that portion of the scheduled payment of a
Receivable that was not timely made by the Obligor. On or before the
applicable Distribution Date, the Servicer will cause the Advance to be
deposited in the Collection Account. The Servicer will recoup the Advance
from subsequent payments by or on behalf of the respective Obligor or from
insurance or Liquidation Proceeds with respect to the Receivable, or, upon
the determination that reimbursement from the preceding sources is
unlikely, will recoup the Advance from any collections made on other
Receivables.
The Servicer will not be required to make any Advance with respect to
a Receivable to the extent that it does not expect to recoup the Advance
from subsequent payments on such Receivable. In determining whether to make
an Advance in connection with a delinquent Receivable, the Servicer will
consider certain factors with respect to the delinquent Receivable. Among
such factors will be the payment history for such Receivable, the financial
condition of the Obligor, and the Obligor's reason for the delinquency. The
Servicer's decision not to make an Advance in connection with a delinquent
Receivable would generally coincide with the charge-off of such Receivable.
SERVICING COMPENSATION
The Servicer will be entitled to receive the Servicing Fee for each
Collection Period, in an amount equal to one-twelfth of the product of the
Servicing Rate and the Pool Balance as of the first day of such Collection
Period. If it is acceptable to each Rating Agency without a reduction in
the rating of the Class A Certificates, the Servicing Fee in respect of a
Collection Period (together with any portion of the Servicing Fee that
remains unpaid from prior Collection Periods) at the option of the Servicer
may be paid at or as soon as possible after the beginning of such
Collection Period out of the first collections of interest received on the
Receivables for such Collection Period. The Servicing Rate will equal 1.00%
per annum. The Servicer will also be entitled to receive as additional
servicing compensation, to the extent not required to be deposited in the
Class A Reserve Fund, earnings on amounts on deposit in the Collection
Account and, the Payahead Account, and all late payment and prepayment fees
actually collected and other administrative fees and expenses paid with
respect to the Receivables. The Servicing Fee will be paid out of
collections from the Receivables, prior to distributions to the
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 for administering the Receivables
on behalf of the Certificateholders, including collecting payments,
accounting for collections, furnishing monthly and annual statements to the
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 provide further compensation for
certain taxes, accounting fees, outside auditor fees, data processing
costs, and other costs incurred by the Servicer under the Agreement in
connection with administering and servicing the Receivables.
SHORTFALL AMOUNT AGREEMENT
Payments of Shortfall Amounts will be made from funds on deposit in
the Class A Reserve Fund or, as described below, from amounts to be paid by
MBCC pursuant to the Shortfall Amount Agreement. Amounts withdrawn from the
Class A Reserve Fund or paid by MBCC with respect to Shortfall Amounts will
be applied as Available Principal or Available Interest, as applicable.
Simultaneously with the sale and assignment of the Receivables by
MBCC to the Seller, MBCC and the Seller will enter into the Shortfall
Amount Agreement. The Shortfall Amount Agreement will provide for the
payment by MBCC into the Certificate Account on each Distribution Date of
the excess of the Shortfall Amounts, if any, with respect to such
Distribution Date over the amount available for the payment of such amounts
in the Class A Reserve Fund. The Seller will assign the Shortfall Amount
Agreement to the Trust.
DISTRIBUTIONS ON CERTIFICATES
Determination of Distributable Amounts. On or before the earlier of
(a) the sixteenth calendar day of each month and (b) the third business day
preceding the Distribution Date in each month (the "Determination Date"),
the Servicer will inform the Trustee of the amount of aggregate collections
on the Receivables; the aggregate Advances to be made by the Servicer; the
aggregate Purchase Amount of Receivables to be repurchased by the Seller or
to be purchased by the Servicer; the aggregate Shortfall Amounts; all with
respect to the preceding Collection Period.
The Servicer will determine on each Determination Date the Total
Available Amount, the Available Interest, the Available Principal, the
Shortfall Amount, the Class A Distributable Amount, the Class B
Distributable Amount and the Retained Yield and, based on the Total
Available Amount and the other distributions to be made on such
Distribution Date, as described below, the Servicer will determine the
amount to be distributed to Certificateholders of each class and to the
Seller as Retained Yield.
On or before each Distribution Date the Trustee, acting in accordance
with the instructions of the Servicer, will transfer the Total Available
Amount from the Collection Account to the Certificate Account. On or before
each Distribution Date, the Servicer will cause such amounts to be
transferred from the Payahead Balance to the Certificate Account as
constitute scheduled payments due during the related Collection Period or
as may be applied to full prepayments on the Receivables. On or before each
Distribution Date, the Servicer will cause Advances relating to such
Distribution Date to be deposited in the Collection Account.
The "Total Available Amount" for a Distribution Date (being the funds
available for distribution to Certificateholders of each class with respect
to such Distribution Date in accordance with the priorities described
below) will be the sum of the Available Interest and Available Principal.
The "Available Interest" for a Distribution Date will be the sum of
the following amounts with respect to the preceding Collection Period: (i)
that portion of all collections on the Receivables (including amounts
withdrawn from the Payahead Balances but excluding amounts added to the
Payahead Balances) allocable to interest due on such Receivables during
such Collection Period; (ii) all proceeds of the liquidation of Defaulted
Receivables which become Defaulted Receivables during such 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 each such Defaulted Receivable ("Liquidation Proceeds") to the extent
allocable to interest due thereon in accordance with the Servicer's
customary servicing procedures and all proceeds of Defaulted Receivables
which became Defaulted Receivables during prior Collection Periods, 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 ("Recoveries"); (iii) all Advances made by the Servicer of
interest due on Receivables; (iv) the Purchase Amount of each Receivable
that was repurchased by the Seller or purchased by the Servicer under an
obligation which arose during such Collection Period (each such Receivable
a "Purchased Receivable"), to the extent allocable to accrued interest
thereon; and (v) the portion of Shortfall Amounts, if any, allocable to
interest received by the Trustee. A "Defaulted Receivable" is a Receivable
which by its terms is in default and as to which the Servicer has
determined, in accordance with its customary standards, policies and
procedures, that payment in full is unlikely or the Servicer has
repossessed and disposed of the Financed Vehicle.
The "Available Principal" for a Distribution Date will be the sum of
the following amounts with respect to the preceding Collection Period: (i)
that portion of all collections on the Receivables (including amounts
withdrawn from the Payahead Balances but excluding amounts added to the
Payahead Balances) allocable to principal; (ii) all Liquidation Proceeds
allocable to principal in accordance with the Servicer's customary
servicing procedures; (iii) all Advances made by the Servicer of principal
due on the Receivables; (iv) to the extent allocable to principal, the
Purchase Amount received with respect to each Purchased Receivable; and (v)
the portion of the Shortfall Amounts, if any, allocable to principal
received by the Trustee.
The Available Interest and the Available Principal on any
Distribution Date will exclude the following:
(i) amounts received on Receivables (including Purchase Amounts)
to the extent that unreimbursed Advances have previously been made by
the Servicer;
(ii) Liquidation Proceeds and Recoveries with respect to a
particular Receivable to the extent of any unreimbursed Advances; and
(iii) the amount received upon the prepayment in full of a
Receivable to the extent that such amount is an Excess Amount.
The "Payahead Balance" on a Receivable means the sum, on the last day
of a Collection Period, of all Payaheads made by or on behalf of the
Obligor with respect to such Receivable (including any amount paid by or on
behalf of the Obligor prior to the Cutoff Date that is due on or after the
Cutoff Date and was not used to reduce the principal balance of such
Receivable), as reduced by applications of previous Payaheads with respect
to such Receivable.
Calculation of Distributable Amounts. The "Class A Distributable
Amount" with respect to a Distribution Date will be an amount equal to the
sum of:
(i) the "Class A Principal," consisting of the Class A Percentage
of:
(a) the principal portion of all scheduled payments due on
Receivables during the preceding Collection Period;
(b) the Principal Balance of each Receivable that became a
Prepaid Receivable during the preceding Collection Period (except
to the extent included in (a) above or (d) below);
(c) the Principal Balance of each Receivable that was
purchased by the Servicer or repurchased by the Seller, in each
case, under an obligation that arose during the preceding
Collection Period (except to the extent included in (a) above);
and
(d) the Principal Balance of each Receivable which became a
Defaulted Receivable during the preceding Collection Period
(except to the extent included in (a) or (b) above);
(ii) the "Class A Interest," consisting of an amount equal to 30
days' interest at the Pass-Through Rate, on the Class A Principal
Balance on the first day of the related Collection Period (less
principal distributions to be made on the Distribution Date in such
Collection Period);
(iii) the Class A Interest Carryover Shortfall as of the close of
business on the preceding Distribution Date; plus
(iv) the Class A Principal Carryover Shortfall as of the close of
business on the preceding Distribution Date.
In addition to the items specified in clauses (i)(a) through (d)
above, on the Final Scheduled Distribution Date, Class A Principal will
include the lesser of (x) the Class A Percentage of any payments of
principal due and remaining unpaid on each Receivable in the Trust as of
the last day of the preceding Collection Period (except to the extent
covered by Advances), and (y) the portion of such amount necessary (after
giving effect to the other amounts described above to be distributed to the
Class A Certificateholders on such Distribution Date and allocable to
principal) to reduce the Class A Principal Balance to zero.
"Class A Interest Carryover Shortfall" means, as of the close of
business on any Distribution Date, the excess, if any, of the Class A
Interest for such Distribution Date plus any outstanding Class A Interest
Carryover Shortfall from the preceding Distribution Date over the amount of
interest that the Class A Certificateholders actually received on such
current Distribution Date (plus thirty (30) days' interest on the amount of
such excess, to the extent permitted by law, at the Pass-Through Rate).
"Class A Principal Carryover Shortfall" means, as of the close of
business on any Distribution Date, the excess of Class A Principal plus any
outstanding Class A Principal Carryover Shortfall from the preceding
Distribution Date over the amount of principal that the Class A
Certificateholders actually received on such current Distribution Date.
The "Class A Principal Balance" will equal, initially, the Original
Class A Principal Balance and, thereafter, the Original Class A Principal
Balance, reduced by all amounts previously distributed to Class A
Certificateholders and allocable to principal.
The "Class B Distributable Amount" with respect to a Distribution Date
will be an amount equal to the sum of:
(i) the "Class B Principal," consisting of the Class B Percentage
of the amounts set forth under (i)(a) through (i)(d) above with respect
to the Class A Principal;
(ii) the "Class B Interest," consisting of an amount equal to 30
days' interest at the Pass-Through Rate, on the Class B Principal
Balance on the first day of the related Collection Period (less
principal distributions to be made on the Distribution Date in such
Collection Period);
(iii) the Class B Interest Carryover Shortfall as of the close
of business on the preceding Distribution Date; plus
(iv) the Class B Principal Carryover Shortfall as of the close
of business on the preceding Distribution Date.
In addition, on the Final Scheduled Distribution Date the "Class B
Principal" will include the lesser of (x) the Class B Percentage of any
payments of principal due and remaining unpaid on each Receivable in the
Trust as of the Final Scheduled Maturity Date (except to the extent
previously Advanced) and (y) the portion of such amount that is necessary
(after giving effect to the other amounts to be distributed to the Class B
Certificateholders on such Distribution Date and allocable to principal) to
reduce the Class B Principal Balance to zero, and, in the case of clauses
(x) and (y) in this paragraph, remaining after any required distribution of
the amount described in clause (x) or (y) of the paragraph above describing
the inclusion of certain items in the definition of "Class A Principal"
with respect to the Final Scheduled Distribution Date.
"Class B Interest Carryover Shortfall" means, as of the close of
business on any Distribution Date, the excess, if any, of the Class B
Interest for such Distribution Date plus any outstanding Class B Interest
Carryover Shortfall from the preceding Distribution Date over the amount of
interest that the Class B Certificateholders actually received on such
current Distribution Date (plus thirty (30) days' interest on the amount of
such excess, to the extent permitted by law, at the Pass-Through Rate).
"Class B Principal Carryover Shortfall" means, as of the close of
business on any Distribution Date, the excess of Class B Principal plus any
outstanding Class B Principal Carryover Shortfall from the preceding
Distribution Date over the amount of principal that the Class B
Certificateholders actually received on such current Distribution Date.
The "Class B Principal Balance" will equal, initially, $_____________
(the "Original Class B Principal Balance") and, thereafter, the Original
Class B Principal Balance, reduced by all amounts previously distributed to
Class B Certificateholders and allocable to principal.
Payment of Distributable Amounts. Prior to each Distribution Date,
the Servicer will calculate the amount to be distributed to each class of
Certificateholders. On each Distribution Date, the Trustee will distribute
to Certificateholders the following amounts from the sources specified in
the following order of priority:
(i) to the Class A Certificateholders, an amount equal to the
Class A Interest and any outstanding Class A Interest Carryover
Shortfall as of the close of the preceding Distribution Date, such
amount to be paid (a) first, from the Class A Percentage of Available
Interest (after reducing Available Interest by payment of the
Servicing Fee, including any unpaid Servicing Fees with respect to
prior Collection Periods); (b) second, from the amounts available in
the Class A Reserve Fund; (c) third, from the Class B Percentage of
Available Interest (after reducing Available Interest by payment of
the Servicing Fee, including any unpaid Servicing Fees with respect
to prior Collection Periods); and (d) fourth, from the Class B
Percentage of Available Principal;
(ii) to the Class B Certificateholders, an amount equal to the
Class B Interest and any outstanding Class B Interest Carryover
Shortfall as of the close of the preceding Distribution Date, such
amount to be paid (a) first, from Available Interest (after payment
to the Class A Certificateholders of the amount set forth above in
clause (i)), and (b) second, from the amounts available in the Class
B Reserve Fund;
(iii) to the Class A Certificateholders, an amount equal to
Class A Principal and any outstanding Class A Principal Carryover
Shortfall as of the close of the preceding Distribution Date, such
amount to be paid (a) first, from the Class A Percentage of Available
Principal; (b) second, from Available Interest remaining after the
payment of the amounts set forth in clauses (i) and (ii); (c) third,
from amounts available in the Class A Reserve Fund; and (d) fourth,
from the Class B Percentage of the Available Principal; and
(iv) to the Class B Certificateholders, an amount equal to
Class B Principal and any outstanding Class B Principal Carryover
Shortfall as of the close of the preceding Distribution Date, such
amount to be paid (a) first, from the Class B Percentage of Available
Principal, (b) second, from the Available Interest remaining after
the payment of the amounts set forth in clauses (i), (ii), and (iii);
and (c) third, from amounts available in the Class B Reserve Fund.
Any portion of Available Interest remaining after distributions are
made as set forth above to the Class A Certificateholders and the Class B
Certificateholders will be (i) first, deposited in the Class A Reserve Fund
to the extent that the amount on deposit therein (after giving effect to
any deposit thereto by MBCC or the Servicer with respect to Shortfall
Amounts) is less than the Specified Class A Reserve Balance; (ii) second,
deposited in the Class B Reserve Fund to the extent that the amount on
deposit therein is less than the Specified Class B Reserve Balance and
(iii) third, distributed to the Seller in payment of Retained Yield.
SUBORDINATION OF THE CLASS B CERTIFICATES AND RETAINED YIELD; RESERVE FUNDS
The rights of the Class B Certificateholders to receive distributions
with respect to the Receivables will be subordinated, to the extent
described above and in the Agreement, to the rights of the Class A
Certificateholders in the event of defaults and delinquencies on the
Receivables. Thus, the Class B Certificateholders generally will not
receive distributions of interest on a Distribution Date (other than from
the Class B Reserve Fund) unless the Class A Certificateholders receive the
full amount of interest due to them on such Distribution Date (including
from amounts on deposit in the Class A Reserve Fund), and the Class B
Certificateholders will not receive distributions of principal on a
Distribution Date (other than from the Class B Reserve Fund) unless the
Class A Certificateholders receive the full amount of interest and
principal due to them on such Distribution Date (including from amounts on
deposit in the Class A Reserve Fund). Distributions of interest on the
Class B Certificates will not be subordinate to distributions of principal
on the Class A Certificates.
In addition, the rights of the Seller to receive the Retained Yield
will be subordinate to the rights of the Class A and Class B
Certificateholders to receive amounts due to each of them. Accordingly, the
Seller will not receive distributions attributable to the Retained Yield on
any Distribution Date unless all interest and principal due to the Class A
and Class B Certificateholders have been paid and amounts on deposit in
each Reserve Fund at least equal the Class A Specified Reserve Balance or
the Class B Specified Reserve Balance, as the case may be.
In the event of losses and delinquencies on the Receivables, the
protection afforded to the Class A Certificateholders will be effected by
the application of Available Interest and Available Principal for each
Distribution Date in the priority specified under "-- Distributions on
Certificates -- Payment of Distributable Amounts." In addition, the Class A
Certificateholders will have the benefit of the Class A Reserve Fund.
The Class A Reserve Fund will not be a part of or otherwise
includible in the Trust and will be an Eligible Deposit Account initially
held by the Class A Agent. On each Distribution Date, if the amounts on
deposit in the Class A Reserve Fund are less than the Specified Class A
Reserve Balance, the Trustee will, after payment of amounts required to be
distributed to the Class A Certificateholders and Class B
Certificateholders and the payment of the Servicing Fee due with respect to
the related Collection Period (including any unpaid Servicing Fees with
respect to prior Collection Periods) withdraw from the Collection Account
and deposit in the Class A Reserve Fund the amount remaining in the
Collection Account that would otherwise be distributed to the Seller as
Retained Yield, or such lesser portion thereof as is sufficient to restore
the amount in the Class A Reserve Fund to such Specified Class A Reserve
Balance. If the amount on deposit in the Class A Reserve Fund on such
Distribution Date (after giving effect to all deposits or withdrawals
therefrom on such Distribution Date) is greater than the Specified Class A
Reserve Balance for such Distribution Date, the Class A Agent will release
such excess amount from the Class A Reserve Fund and (i) deposit such
excess amount in the Class B Reserve Fund to the extent that the amount on
deposit therein is less than the Specified Class B Reserve Balance, and
(ii) distribute any remaining excess to the Seller. Upon any deposit of
amounts in the Class B Reserve Fund or distribution to the Seller, the
Class A Certificateholders will have no rights in, or claims to, such
amounts.
Amounts held from time to time in the Class A Reserve Fund will
continue to be held solely for the benefit of the Class A
Certificateholders and amounts held in the Class B Reserve Fund will be
held solely for the benefit of the Class B Certificateholders. Amounts held
in the Class B Reserve Fund will not be available to cover shortfalls in
amounts due to the Class A Certificateholders. Amounts on deposit from time
to time in the Class A Reserve Fund and Class B Reserve Fund will be
invested, as provided in the Agreement, in Eligible Investments maturing on
or prior to the next succeeding Distribution Date; provided, however, that
to the extent permitted by the Rating Agencies, amounts on deposit in the
Class A Reserve Fund and the Class B Reserve Fund may be invested in
Eligible Investments that mature later than the next Distribution Date. The
Seller will be entitled to receive all investment earnings on amounts in
the Reserve Funds. Investment earnings on amounts in the Reserve Funds will
not be available for distribution to the Certificateholders or otherwise
subject to any claims or rights of the Class A Certificateholders or the
Class B Certificateholders.
The ability of the Class A Reserve Fund to maintain the Specified
Class A Reserve Balance at any time after the Closing Date will be affected
by the delinquency, credit loss and repossession and prepayment experience
of the Receivables and, therefore, cannot be accurately predicted.
The subordination of the Class B Certificates and the creation of the
Class A Reserve Fund are intended to enhance the likelihood of receipt by
Class A Certificateholders of the full amount of principal and interest on
the Receivables due to them and to decrease the likelihood that the Class A
Certificateholders will experience losses. However, in certain
circumstances, the Class A Reserve Fund could be depleted and shortfalls
could result.
STATEMENTS TO CLASS A CERTIFICATEHOLDERS
On each Distribution Date, the Trustee will include with the
distribution to each Class A Certificateholder a statement prepared by the
Servicer setting forth the following information for the preceding
Collection Period:
(i) the amount of the distribution allocable to principal;
(ii) the amount of the distribution allocable to interest;
(iii) the amount of the Servicing Fee and additional servicing
compensation from administrative fees and charges (including
late fees and charges) collected on the Receivables paid to the
Servicer with respect to such Collection Period;
(iv) the Class A Principal Balance, the Class A Pool Factor, the
Class B Pool Factor, if applicable, and the Class B Principal
Balance as of such Distribution Date, after giving effect to
payments allocated to principal reported under clause (i) above;
(v) the Pool Balance as of the close of business on the last day of
such Collection Period;
(vi) the amount of the Class A Interest Carryover Shortfall, Class B
Interest Carryover Shortfall, Class A Principal Carryover
Shortfall and Class B Principal Carryover Shortfall, if any, for
such Distribution Date;
(vii) the amount, if any, otherwise distributable to the Seller that
is distributed to Class A Certificateholders and Class B
Certificateholders on such Distribution Date;
(viii) the balance of the Reserve Funds on such Distribution Date,
after giving effect to changes therein on such Distribution
Date; and
(ix) the aggregate Purchase Amount of Receivables repurchased by the
Seller or purchased by the Servicer.
Each amount set forth pursuant to clauses (i), (ii), (iii) and (vii)
above will be expressed in the aggregate and as a dollar amount per $1,000
of original denomination of the Certificates.
Within a reasonable period of time after the end of each calendar
year, but not later than the latest date permitted by law, the Trustee will
furnish to each person who at any time during such calendar year was a
Certificateholder a statement prepared by the Servicer containing the sum
of the amounts described in clauses (i), (ii), (iii) and (vii) above and
such other information as is available to the Servicer as the Servicer
deems necessary or desirable to enable Certificateholders to prepare their
federal income tax returns. See "Certain Federal Income Tax Consequences."
Such monthly reports and annual tax statements may be available to
Certificate Owners in accordance with the regulations and procedures of
DTC. See "Reports to the Class A Certificateholders."
EVIDENCE AS TO COMPLIANCE
The Agreement will provide that a firm of independent certified
public accountants, who may provide audit and other services to the
Servicer, will furnish to the Trustee, on or before March 31 of each year,
beginning March 31, 1999, a report of examination as to compliance by the
Servicer during the 12 months (or longer period in the case of the first
such report) ended the preceding December 31 with certain standards
relating to the servicing of the Receivables.
The Agreement will also provide for delivery to the Trustee, on or
before March 31 of each year, beginning March 31, 1999, of a certificate
signed by an officer of the Servicer stating that the Servicer has
fulfilled its obligations under the 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.
Certificateholders and Certificate Owners may obtain copies of such
reports of examination as to compliance by the Servicer and copies of such
certificates signed by an officer of the Servicer by written request
addressed to the Trustee. See "--The Trustee."
CERTAIN MATTERS REGARDING THE SERVICER
The 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 obligations or duties is no longer
permissible under applicable law.
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 is an Eligible Servicer and assumes the
obligations of the Servicer under the Agreement, will be the successor to
the Servicer under the Agreement.
INDEMNIFICATION AND LIMITS ON LIABILITY
The Agreement will provide that the Servicer will be liable only to
the extent of the obligations specifically undertaken by it under the
Agreement and will have no other obligations or liabilities thereunder.
The 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 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 Agreement and the
rights and duties of the parties thereto and the interests of the
Certificateholders thereunder.
EVENTS OF SERVICING TERMINATION
The following events will constitute "Events of Servicing
Termination" under the Agreement: (i) any failure by the Servicer to
deliver to the Trustee on or before the Determination Date the certificate
required to be delivered pursuant to the Agreement with respect to the
preceding 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 Distribution Date next succeeding such Collection
Period), (ii) any failure by the Servicer (or, for so long as the Servicer
is an Affiliate (as defined in the Agreement) of the Seller, the Seller) to
deliver to the Collection Account or any other Account any required payment
or deposit including, so long as MBCC is the Servicer, pursuant to the
Shortfall Amount Agreement, which failure continues unremedied for five
business days following the due date, (iii) any failure by the Servicer
(or, for so long as the Servicer is an Affiliate (as defined in the
Agreement) of the Seller, the Seller) duly to observe or perform in any
material respect any other covenant or agreement in the Certificates and
the Agreement, which failure materially and adversely affects the rights of
Certificateholders and which continues unremedied for 90 days after written
notice of such failure is given to the Servicer by the Trustee or to the
Servicer and the Trustee by the Certificateholders evidencing not less than
25% of the aggregate Class A Principal Balance and the Class B Principal
Balance (excluding any Certificates held by the Seller or any Affiliate (as
defined in the Agreement) of the Seller), (iv) certain events of
bankruptcy, receivership, insolvency, readjustment of debt, marshalling of
assets and liabilities, or similar proceedings and certain actions by 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 Certificateholders evidencing not less than a majority of the Class A
Principal Balance and the Class B Principal Balance (excluding any
Certificates held by the Seller or any Affiliate (as defined in the
Agreement) of the Seller) may waive any Event of Servicing Termination
except an event resulting from the failure to make any required deposit or
payment to any Account.
The Trustee will have no obligation to notify Class A
Certificateholders 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
Trustee or the Certificateholders evidencing not less than a majority of
the Class A Principal Balance and the Class B Principal Balance (excluding
any Certificates held by the Seller or any Affiliate (as defined in the
Agreement) of the Seller) may terminate the Servicer's rights and
obligations under the Agreement, whereupon the Trustee or a servicer
appointed by the Trustee will succeed to all the responsibilities, duties,
and liabilities of the Servicer under the Agreement. Thereafter, the
successor Servicer will be entitled to the compensation payable to the
Servicer. In the event that the Trustee is unwilling or legally unable so
to act, the 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 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 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 Agreement.
AMENDMENT
The Agreement may be amended by the Seller, the Servicer, MBCC, the
Payahead Agent, the Class A Agent, the Class B Agent and the Trustee,
without the consent of the Certificateholders, (i) to cure any ambiguity,
to correct or supplement any provision therein which may be inconsistent
with any other provision therein, to add, change or eliminate any other
provision with respect to matters or questions arising under the Agreement
which are not inconsistent with the provisions of the Agreement; provided
that such action will not, in the opinion of counsel (which may be internal
counsel to the Seller or the Servicer) satisfactory to the Trustee,
materially and adversely affect the interest of any Certificateholder, and
(ii) to provide for the transfer of the Class B Certificates; provided that
certain conditions specified in the Agreement are satisfied prior to such
transfer, including written confirmation from each Rating Agency that such
transfer will not result in the qualification, downgrading or withdrawal of
the then current rating assigned to the Class A Certificates by such Rating
Agency, and that such amendment will not change the timing of, or the
amount of, any distributions that the Class A Certificateholders are
entitled to receive under the Agreement; and provided, further, that an
opinion of independent outside counsel will be delivered to the Trustee to
the effect that such amendment will not adversely affect the status of the
Trust as a grantor trust for federal or applicable state tax purposes.
The Agreement also may be amended by the Seller, the Servicer and the
Trustee with the consent of the Class A Certificateholders and Class B
Certificateholders, each voting as a class, evidencing not less than a
majority of the Class A Principal Balance and Class B Principal Balance,
respectively, for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of the Agreement or
modifying the rights of the 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 Certificate, without the consent of all adversely affected
Certificateholders, (ii) reduce the aforesaid percentage of the Class A
Principal Balance or Class B Principal Balance, which is required to
consent to any such amendment, without the consent of all
Certificateholders of the relevant class, or (iii) adversely affect the
rating of the Class A Certificates by the Rating Agencies without the
consent of Class A Certificateholders evidencing not less than 66 2/3% of
the Class A Principal Balance, except that, the interest evi- denced by any
Class A Certificate or interest in the Retained Yield registered in the
name of the Seller, the Servicer, or any person actually known to an
authorized officer of the Trustee to be an Affiliate (as defined in the
Agreement) of the Seller or the Servicer, will not be taken into account in
determining whether the requisite percentage necessary to effect any such
consent will have been obtained.
LIST OF CERTIFICATEHOLDERS
If Definitive Certificates have been issued, the Trustee, upon
written request of the Certificateholders evidencing not less than 25% of
the aggregate Class A Principal Balance, will afford such
Certificateholders access during business hours to the current list of
Certificateholders for purposes of communicating with other Class A
Certificateholders with respect to their rights under the Agreement. Prior
to such time, neither the Trustee nor DTC will have an obligation to
maintain, or provide Class A Certificate Owners with access to, a list of
Class A Certificate Owners.
The Agreement will not provide for holding any annual or other
meetings of Certificateholders.
TERMINATION
The obligations of the Seller, the Servicer, and the Trustee under
the Agreement will, except with respect to certain reporting requirements,
terminate upon the earliest of (i) the Distribution Date next succeeding
the Servicer's purchase of the Receivables, as described below, (ii)
payment to Certificateholders of all amounts required to be paid to them
pursuant to the Agreement and (iii) the Distribution Date next succeeding
the month which is six months after the maturity or other liquidation of
the last Receivable and the disposition of any amounts received upon
liquidation of any property remaining in the Trust in accordance with the
terms and priorities set forth in the Agreement.
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
last day of a Collection Period has declined to 10% or less of the initial
Pool Balance, to purchase from the Trust, on the Distribution Date
occurring in any subsequent Collection Period which follows the Collection
Period in which appropriate notice is given to Certificateholders (with
effect from the first day of the Collection Period in which such
Distribution Date occurs), all remaining Receivables in the Trust at a
purchase price equal to the aggregate of the Purchase Amounts thereof. The
exercise of this right will effect an early retirement of the Certificates.
The Trustee will give written notice of termination of the Trust to
each Certificateholder of record. The final distribution to any
Certificateholder will be made only upon surrender and cancellation of such
holder's Certificate (whether a Definitive Certificate or the physical
certificate representing the Certificates) at the office or agency of the
Trustee specified in the notice of termination. Any funds remaining in the
Trust, after the Trustee has taken certain measures to locate a
Certificateholder and such measures have failed, will be distributed to the
Servicer or as otherwise provided in the Agreement.
THE TRUSTEE
[TRUSTEE] will be the Trustee. The Trustee, in its individual
capacity or otherwise, and any of its affiliates, may hold Certificates in
their own names or as pledgee. In addition, for the purpose of meeting the
legal requirements of certain jurisdictions, the Servicer and the Trustee,
acting jointly (or in some instances, the Trustee, acting alone), will have
the power to appoint co-trustees or separate trustees of all or any part of
the Trust. In the event of such appointment, all rights, powers, duties,
and obligations conferred or imposed upon the Trustee by the Agreement will
be conferred or imposed upon the Trustee and such co-trustee or separate
trustee jointly, or, in any jurisdiction where the Trustee is incompetent
or unqualified to perform certain acts, singly upon such co-trustee or
separate trustee who will exercise and perform such rights, powers, duties,
and obligations solely at the direction of the Trustee.
The Trustee may resign at any time, in which event the Servicer will
be obligated to appoint a successor trustee. The Servicer may also remove
the Trustee if the Trustee ceases to be eligible to serve, becomes legally
unable to act, is adjudged insolvent, or is placed in receivership or
similar proceedings. In such circumstances, the Servicer will be obligated
to appoint a successor trustee. Any resignation or removal of the Trustee
and appointment of a successor trustee will not become effective until
acceptance of the appointment by the successor trustee.
The Agreement will provide that the Servicer will pay or cause to be
paid the Trustee's fees. The Agreement will also provide that the Trustee
will be entitled to indemnification by the Servicer for, and will be held
harmless against, certain loss, liability, or expense incurred by the
Trustee not resulting from the Trustee's own willful misfeasance, bad
faith, or negligence. Indemnification will be unavailable to the Trustee to
the extent that any such loss, liability, or expense results from a breach
of any of the Trustee's representations or warranties set forth in the
Agreement, and for any tax, other than those for which the Seller or the
Servicer is required to indemnify the Trustee.
The Trustee's Corporate Trust Office is located at [TRUSTEE ADDRESS].
The Seller, the Servicer, and their respective affiliates may have other
banking relationships with the Trustee and its affiliates in the ordinary
course of their business.
In addition, [TRUSTEE] will act as Class A Agent, Class B Agent and
Payahead Agent.
DUTIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or
sufficiency of the Agreement, any Dealer Agreement, the Certificates (other
than the execution and authentication of the Certificates), the
Receivables, or any related documents, and will not be accountable for the
use or application by the Seller or the Servicer of any funds paid to the
Seller or the Servicer in respect of the Certificates or the Receivables or
for any monies prior to the time such monies are deposited into the
Collection Account. The Trustee will be accountable for any monies
deposited into any Account only if the Trustee is maintaining such account.
The Trustee will not independently verify the Receivables.
If no Event of Servicing Termination has occurred and is continuing,
the Trustee will be required to perform only those duties specifically
required of it under the Agreement. Generally, those duties are limited to
the receipt of the various certificates, reports, or other instruments
required to be furnished by the Servicer to the Trustee under the
Agreement, in which case the Trustee will only be required to examine such
instruments to determine whether they conform to the requirements of the
Agreement.
The Trustee will be under no obligation to exercise any of the rights
or powers vested in it by the Agreement or to institute, conduct, or defend
any litigation thereunder or in relation thereto at the request, order, or
direction of any of the Certificateholders, unless such Certificateholders
have offered the Trustee reasonable security or indemnity against the
costs, expenses, and liabilities which may be incurred therein or thereby.
No Class A Certificateholder will have any right under the Agreement to
institute any proceeding with respect to the Agreement, unless such Class A
Certificateholder has given the Trustee written notice of default and
unless the holders of Certificates evidencing not less than a majority of
the Class A Principal Balance and the Class B Principal Balance (excluding
any Certificates held by the Seller or any Affiliate (as defined in the
Agreement) of the Seller) have made a written request to the Trustee to
institute such proceeding in its own name as Trustee thereunder and have
offered to the Trustee reasonable indemnity, and the Trustee for 30 days
has neglected or refused to institute any such proceeding.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
RIGHTS IN THE RECEIVABLES
The Receivables are "chattel paper" as defined in the UCC in effect
in each relevant state. 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. MBCC 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 the Receivables.
Pursuant to the Agreement, the Servicer will hold the Receivables,
either directly or through subservicers, as custodian for the Trustee
following the sale and assignment of the Receivables to the Trust. The
Seller will take such action as is required to perfect the rights of the
Trustee in the Receivables. The Receivables will not be segregated,
stamped, or otherwise marked, to indicate that they have been sold to the
Trust. If, through inadvertence or otherwise, another party purchases (or
takes a security interest in) the Receivables for new value in the ordinary
course of business and 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 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 contracts such as the Receivables
evidence the credit sale of automobiles by dealers to obligors; the
contracts also constitute personal property security agreements and include
grants of security interests in the vehicles under the UCC. Perfection of
security interests in motor vehicles is generally governed by the motor
vehicle registration laws of the state in which the vehicle is located. In
most states in which the Receivables have been originated, a security
interest in the vehicle is perfected by notation of the secured party's
lien on the vehicle's certificate of ownership or title.
MBCC's practice is to take such action as is required in order to
perfect its security interest in a Motor Vehicle under the laws of the
jurisdiction in which the Motor Vehicle is registered. If MBCC, 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 MBCC's security interest and to whom a
certificate of ownership or title is issued in such purchaser's name,
holders of perfected security interests in the Financed Vehicle, and the
trustee in bankruptcy of the Obligor. MBCC'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, MBCC and the
Seller (i) will represent and warrant in the Purchase Agreement and the
Agreement, respectively, that, to the best of their knowledge, an
enforceable first priority perfected security interest exists for the
benefit of the Seller and Trustee, respectively, with respect to each
Financed Vehicle and (ii) will be required to repurchase the related
Receivable in the event of an uncured breach or failure to be true of such
representation or warranty if the interests of the Seller and the Trustee,
respectively, therein are materially and adversely affected by such breach
or failure. This repurchase obligation will constitute the sole remedy
available to the Trust and the Certificateholders for such breach or
failure.
Pursuant to the Purchase Agreement, MBCC 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 Agreement, the Seller
will assign its security interests in the Financed Vehicles, along with the
sale and assignment of the Receivables, to the Trust. The Servicer will
hold the certificates of title relating to the Financed Vehicles, either
directly or through subservicers, as custodian for the Trustee following
such sale and assignment. The certificates of title will not be endorsed or
otherwise amended to identify the Trust as the new secured party, however,
because of the administrative burden and expense involved. The Seller will
assign its rights under the Purchase Agreement to the Trust.
In most states, an assignment of a security interest in a Financed
Vehicle along with the applicable Receivable is an effective conveyance of
a security interest without amendment of any lien noted on such Financed
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. In most states, in
the absence of fraud or forgery by the Financed Vehicle owner or of fraud,
forgery, negligence or error by MBCC or administrative error by state or
local agencies, the notation of MBCC'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.
MBCC and the Seller will represent and warrant in the Purchase
Agreement and the Agreement, respectively, as to each Receivable that to
the best of their knowledge, immediately prior to the sale, assignment, and
transfer of each Receivable by MBCC to the Seller, such Receivable was
secured by a validly perfected first priority security interest in the
related Financed Vehicle in favor of MBCC as secured party and, at such
time as enforcement of such security interest is sought, there will exist a
valid, subsisting, and enforceable first priority perfected security
interest in such Financed Vehicle for the benefit of the Trustee (subject
to any statutory or other liens arising after the Closing Date by operation
of law or any rights of third parties arising after the Closing Date as a
result of the fraud or forgery of the vehicle owner or administrative error
by state recording officials which are prior to such security interest). In
the event of an uncured breach or failure to be true of such representation
or warranty, MBCC and the Seller, pursuant to the terms of the Purchase
Agreement and the Agreement, respectively, will be required to repurchase
such Receivable for its Purchase Amount if the interests of the Seller or
the Trust, respectively, therein are materially and adversely affected by
such breach or failure. This repurchase obligation will constitute the sole
remedy available to the Trust and the Certificateholders for such breach or
failure. MBCC's and the Seller's warranties with respect to perfection and
enforceability of a security interest in a Financed Vehicle will not cover
statutory or other liens arising after the Closing Date by operation of law
or any rights of third parties arising as a result of the fraud or forgery
of the vehicle owner as described above or administrative error by state
recording officials as described above which are prior to such security
interest. Accordingly, any such lien or right would not by itself give rise
to a repurchase obligation on the part of MBCC 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 requires surrender of a certificate of
title to re-register a motor vehicle and requires that notice of such
surrender be given to each secured party noted on the certificate of title.
In those states that require a secured party to take possession of a
certificate of title to perfect a security interest, the secured party
would learn of the re-registration through the request from the obligor to
surrender possession of the certificate of title. In those states that
require a secured party to note its lien on a certificate of title to
perfect a security interest but do not require possession of the
certificate of title, the secured party would learn of the re-registration
through the notice from the state department of motor vehicles that the
certificate of title had been surrendered. The requirements that a
certificate of title be surrendered and that notices of such surrender
be given to each secured party also apply to re-registrations effected
following a sale of a motor vehicle. MBCC 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 motor vehicle installment
contracts, MBCC takes steps to effect re-perfection upon receipt of notice
of re-registration or information from the Obligor as to relocation.
Under the laws of many states, liens for repairs performed on a motor
vehicle and liens for unpaid taxes take priority over a perfected security
interest in the motor vehicle. The Code also grants priority to certain
federal tax liens over the lien of a secured party. The laws of certain
states and federal law permit the confiscation of motor vehicles under
certain circumstances if used in unlawful activities, which may result in
the loss of a secured party's perfected security interest in the
confiscated motor vehicle. MBCC and the Seller will warrant in the Purchase
Agreement and the Agreement, respectively, that, to the best of their
knowledge, as of the Closing Date, no such liens or rights of confiscation
are pending. In the event of a breach or failure to be true of such
representation or warranty which has a material and adverse effect on the
interests of the Trust and the Certificateholders, MBCC and the Seller,
pursuant to the terms of the Purchase Agreement and the 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 and the Certificateholders for such
breach. Any liens for repairs or taxes or rights of confiscation arising at
any time after the Closing Date during the term of a Receivable would not
give rise to a repurchase obligation on the part of MBCC and the Seller.
REPOSSESSION
In the event of a default by an obligor under a retail installment
contract, the holder of a receivable such as 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 MBCC 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 repossession.
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 balance of the
obligation plus, in most cases, reasonable expenses for repossessing,
holding, and preparing the collateral for disposition and arranging for its
sale plus, in many 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 balance. Generally, this right of
reinstatement may be exercised on a limited number of occasions in any
one-year period.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The resale proceeds 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 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. MBCC 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 lienholders, 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, Z, and AA, and other similar acts, state
adoptions of the National Consumer Act and of the Uniform Consumer Credit
Code and state motor vehicle retail installment sales acts, retail
installment sales acts, and other similar laws. Also, state laws impose
finance charge and late 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
Trustee, to enforce Receivables to the extent they are consumer finance
contracts subject to such requirements. 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 seller (and certain related lenders and their assignees) in
a consumer credit transaction and any assignee of the seller 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 Trustee, as holder of the Receivables,
will 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 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 used 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 contract against the seller of such vehicle or of a
subsequent holder of the retail installment 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.
MBCC and the Seller will represent and warrant in the Purchase
Agreement and the Agreement, respectively, as to each Receivable that such
Receivable complied at the time it was originated and as of the Closing
Date in all material respects with all requirements of applicable law. If,
as of the Cutoff Date, an Obligor had a claim against the Trust for
violation of any law and such claim materially and adversely affected the
Trust's interest in a Receivable, such violation would create an obligation
of MBCC and the Seller under the Purchase Agreement and the Agreement,
respectively, to repurchase the Receivable unless the breach were cured.
This repurchase obligation will constitute the sole remedy of the Trustee
and the Certificateholders against the Seller in respect of any such
uncured breach. See "The Certificates--Sale and Assignment of the
Receivables."
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including Insolvency Laws, may
interfere with or affect the ability of a lender to realize upon collateral
or enforce a deficiency judgment. For example, in a proceeding under the
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
The following is a general discussion of the material United States
federal income tax consequences of the purchase, ownership and disposition
of Class A Certificates which are anticipated to be relevant to most
categories of investors. This summary is based upon laws, regulations,
rulings and decisions currently in effect, all of which are subject to
change, which change may be retroactive. The discussion does not cover all
federal income tax consequences which may be material to all categories of
investors, some of which may be subject to special rules, and does not
discuss the status of the Trust or the Class A Certificates or the tax
treatment of any Class A Certificate Owner under the laws of any foreign,
state or local jurisdiction. In addition, this summary is generally limited
to investors who will hold the Class A Certificates as "capital assets"
(generally, property held for investment) within the meaning of Section
1221 of the Internal Revenue Code of 1986, as amended (the "Code").
Prospective investors should note that no rulings have been or will be
sought from the Internal Revenue Service (the "IRS") with respect to any of
the federal income tax consequences discussed below, and no assurance can
be given that the IRS will not take contrary positions.
INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS TO DETERMINE THE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THEIR
PURCHASE, OWNERSHIP AND DISPOSITION OF THE CLASS A CERTIFICATES.
TAX STATUS AS A GRANTOR TRUST; SCOPE OF TAX OPINION
Morgan, Lewis & Bockius LLP, special tax counsel to the Seller
("Special Tax Counsel"), has advised that, in its opinion, for federal
income tax purposes, (i) the Trust will be classified as a grantor trust
and not as a partnership or as an association which is taxable as a
corporation and (ii) each Class A Certificate Owner will be treated as an
owner of an undivided pro rata interest in the income (other than the
Retained Yield) and corpus attributable to the Trust. In addition, Special
Tax Counsel has prepared or reviewed the statements in this Prospectus
under the headings "Prospectus Summary--Tax Status" and "Certain Federal
Income Tax Consequences," and is of the opinion that such statements, to
the extent that such statements describe matters of federal income tax law,
are correct in all material respects. Such statements constitute an
explanatory discussion of the possible effects of the classification of the
Trust as a grantor trust for federal income tax purposes on investors
generally and of related tax matters affecting investors generally.
Further, such statements do not purport to furnish information in the level
of detail or with the attention to an investor's specific tax circumstances
that would be provided by an investor's tax advisor. Accordingly, each
investor is advised to consult its tax advisor with regard to the tax
consequences to it of investing in the Class A Certificates.
TREATMENT OF CLASS A CERTIFICATE OWNERS' INVESTMENTS IN THE CERTIFICATES
Classification as a grantor trust should cause each Class A
Certificate Owner to be treated for federal income tax purposes as if it
owned directly its interest in each asset owned by the Trust, received or
accrued directly its share of income paid to or accrued by the Trust and
paid or incurred directly its share of reasonable expenses paid or incurred
by the Trust. Accordingly, each Class A Certificate Owner should be viewed
as owning an interest in each Receivable and each other asset which is held
by the Trust. It is also possible that each Class A Certificate Owner would
be considered to own an undivided interest in a single debt obligation of
the Seller and generally having a principal amount equal to the total
stated principal amount of the Receivables and an interest rate equal to
the applicable Pass-Through Rate. Special Tax Counsel is unable to opine as
to which characterization will govern because no authority exists
addressing the characterization of transactions having assets and other
characteristics identical to those of the Trust. The Agreement will express
the intent of the Seller to sell, and the Class A Certificate Owners to
purchase, the Receivables (other than the Retained Yield and Excess
Amounts) and the Seller, each Certificateholder and each Class A
Certificate Owner, by accepting a beneficial interest in a Certificate,
will agree to treat the Class A Certificates as ownership interests in the
Receivables. Unless otherwise specified, the remainder of this section will
discuss the manner in which income would be reported if each Class A
Certificate Owner were viewed as owning an interest in each Receivable and
each other asset which is held by the Trust.
TAX ACCOUNTING ISSUES
For administrative convenience, the Servicer intends to report
information with respect to a Class A Certificate Owner's investment in a
Class A Certificate on an aggregate basis as though such Class A
Certificate Owner's investment in the Receivables and other assets will be
equal to such Class A Certificate Owner's share of the initial Class A
Principal Balance and on which interest and Shortfall Amounts are payable
at a combined rate equal to the sum of the Pass-Through Rate and the
Servicing Rate. Unless otherwise specified, the remainder of this section
will discuss the manner in which income would be reported on an
asset-by-asset basis, although the Servicer will report on an aggregate
basis.
If the IRS were to require reporting on an asset-by-asset basis, the
timing, amount and character of income reportable to Class A Certificate
Owners for any period could differ from that which is reportable on an
aggregate basis. If reporting on an aggregate basis results in
under-reporting of income, or if the IRS were to take a position different
from that adopted by the Trust with respect to any issue, a Class A
Certificate Owner could be required to pay interest on underpayments of tax
and could be subject to penalties for under-reporting of income. Special
Tax Counsel is unable to opine with respect to a number of issues which
could affect the timing, amount and characterization of income because no
authority exists addressing the characterization of transactions having
assets and other characteristics identical to those of the Trust.
Except to the extent that the original issue discount rules are
applicable (as discussed below), ordinary income on the Class A Certificate
Owner's interest in the Receivables and other Trust assets will be
reportable by a Class A Certificate Owner in accordance with its usual
method of accounting as such amounts are accrued on the Receivables or, in
the case of Class A Certificate Owners who are cash basis taxpayers,
ordinary income will be reportable when received by the Servicer as agent
for the Class A Certificate Owners. Because items of income generally
accrue on the Receivables over various monthly periods ending in the
calendar month preceding the calendar month which includes the related
Distribution Date, in general, distributions made on a Class A Certificate
will represent amounts which accrued over a period that began between 75
and 45 days prior to such Distribution Date. The portion of each
distribution to a Class A Certificate Owner that is allocable to principal
on the Receivables (other than amounts representing accrued market
discount, as described below) will reduce the tax basis of such Class A
Certificate Owner's interest in the Receivables. See "-- Payments Under the
Shortfall Amount Agreement -- Shortfall Amounts."
PAYMENTS UNDER THE SHORTFALL AMOUNT AGREEMENT
Excess Amounts. Excess Amounts are to be retained by MBCC. It is
possible that Excess Amounts will be viewed as constructively received by
the Trust and then paid to MBCC as a fee for the rights granted under the
Shortfall Amount Agreement, in which case such Excess Amounts may be
includible in income by the Class A Certificate Owners and deductible by
Class A Certificate Owners subject to the rules discussed below. See "--
Servicing Fees."
Shortfall Amounts. A Shortfall Amount compensates the Class A
Certificate Owners for the excess, if any, of the interest which would have
accrued on a Receivable at its APR prior to prepayment or acceleration
using the actuarial method over the interest which actually accrued on such
Receivable at such rate over such period using the simple interest method.
See "The Receivables -- Payments on the Receivables." Shortfall Amounts are
paid to Class A Certificate Owners from amounts on deposit in the Class A
Reserve Fund or by MBCC pursuant to the Shortfall Amount Agreement to
eliminate this difference in yield. A Class A Certificate Owner may be
required to allocate a portion of its purchase price for a Receivable to
its contingent right to receive Shortfall Amounts. See "-- Application of
the Original Issue Discount Rules to the Receivables."
Shortfall Amounts should be treated as ordinary income which is not
interest income. However, because the Trust will have accounted for each
Receivable (in accordance with its terms) using the actuarial method, by
the time a Shortfall Amount is received, a Class A Certificate Owner on the
accrual basis method of accounting should previously have overcounted (and
thus may have over-reported with respect to prior collection periods) its
interest income by an amount equal to the Shortfall Amount, which amount
should instead have been accounted for as a recovery of basis. A Class A
Certificate Owner that takes the position that the Shortfall Amount should
be treated as basis recovery (because an identical amount was previously
over-reported as income) could be challenged by the IRS if the difference
in character (basis recovery vs. interest) or timing of the reported
amounts affects such Class A Certificate Owner's tax liability. Another
possible alternative is that the Shortfall Amounts could be treated as an
adjustment to the purchase price of the Receivables. In that event, the
amount of discount on the Receivables would increase compared with the
amount of such discount if the Shortfall Amounts were not treated as an
adjustment to the purchase price of Receivables.
It is not clear whether payments analogous to the Shortfall Amounts
should be treated as "fixed or determinable annual or periodic" income
(within the meaning of Section 871(a)(1) or 881(a)(1) of the Code) and,
therefore, subject to United States withholding tax. Furthermore, Shortfall
Amounts will not be treated as interest and, therefore, will not qualify as
"portfolio interest" (within the meaning of Section 871(h)(2) or 881(c)(2)
of the Code).
APPLICATION OF THE ORIGINAL ISSUE DISCOUNT RULES TO THE RECEIVABLES
The Receivables bear interest at varying rates. Because the Seller
will retain the Retained Yield, the issuance of the Class A Certificates
will result in the separation of ownership ("'stripping") of a portion of
the rights to interest payments on those Receivables (the "High Yield
Receivables") that bear an interest rate which is greater than the sum of
the Pass-Through Rate and the Servicing Rate from the principal of and
remaining interest on such Receivables. Those Receivables that bear an
interest rate which is equal to the sum of the Pass-Through Rate and the
Servicing Rate do not provide rights to receive interest in excess of the
sum of the Pass-Through Rate and the Servicing Rate and, therefore, will
not be treated as stripped instruments.
As discussed below, the stripping of the High Yield Receivables may
result in original issue discount ("OID"). Furthermore, in determining
whether the High Yield Receivables (or any High Yield Receivable) purchased
by the Class A Certificate Owners have OID or whether any other Receivables
(or any other Receivable) have market discount, the purchase price of a
Class A Certificate should be allocated among the High Yield Receivables
and the Trust's other assets based on their respective fair market values.
The Trust's other assets include the Class A Certificate Owner's undivided
interest in accrued but unpaid interest and amounts collected as of the
time of purchase but not yet distributed, and, possibly, contingent rights
to receive Shortfall Amounts pursuant to the Shortfall Amount Agreement. As
a result, the portion of the purchase price allocable to a Class A
Certificate Owner's undivided interest in the Receivables (or any
Receivable) will be decreased and the potential OID or market discount on
the Receivables (or any Receivable) could be increased.
The "stripped bond" rules of Section 1286 of the Code will apply to
the High Yield Receivables (the "stripped Receivables"). Under Section 1286
of the Code, a stripped bond is treated as if it had been newly issued on
the date of the stripping with an issue price equal to the purchase price
allocable to the stripped bond (based on its fair market value). If the
stated redemption price at maturity exceeds the issue price, the difference
is treated as OID. Under regulations under Section 1286 of the Code and
under the OID provisions of the Code (the "OID Regulations"), it appears
that the interest on the stripped Receivables would be treated as
"qualified stated interest." Thus, the stated redemption price at maturity
should not include such interest payments, and should therefore equal the
principal amount of the stripped Receivables.
It is unclear under Section 1286 of the Code and the OID Regulations
whether stripped bonds which are deemed to be issued in a single
transaction should be aggregated. The OID Regulations generally provide for
the aggregation of debt instruments issued by a single "issuer" to a single
holder. Although it is not clear whether the Seller, as the entity
stripping the Receivables, should be treated as the "issuer" of the
stripped Receivables for purposes of the OID Regulations, as described
above, the Servicer will prepare reports as if the OID Regulations allow
aggregation.
The rules that follow would apply regardless of whether the stripped
Receivables are aggregated (and thus treated as a single Receivable for OID
purposes) or not aggregated (and thus analyzed on a
Receivable-by-Receivable basis for OID purposes), although the amount and
timing of OID recognition may differ under the two methods.
If the excess of a stripped Receivable's "stated redemption price at
maturity" (which should equal the Receivable's principal amount) over the
purchase price which the Class A Certificate Owner is deemed to have paid
for such stripped Receivable is less than a statutorily defined de minimis
amount, such stripped Receivable would not be treated as having OID. In
general, the amount of OID on a stripped Receivable will be de minimis if
it is less than 1/4 of 1% multiplied by the product of the stated
redemption price at maturity and the number of full years of weighted
average life remaining after the purchase date until the final maturity of
the Receivable. It is not clear whether the maturity date which would be
used for determining whether OID on a stripped Receivable is de minimis
should be calculated taking into account expected prepayments and, absent
further guidance to the contrary, the Servicer does not intend to apply a
prepayment assumption, for purposes of either applying the de minimis rule
or calculating OID generally. However, as a result of recently enacted
legislation, a Class A Certificate Owner which has a taxable year
commencing after August 5, 1997, likely would be required to make the
calculation using reasonable prepayment assumptions. If the amount of OID
on any stripped Receivable is de minimis under this rule, the actual amount
of discount on such Receivable would be includible in income
proportionately as principal payments are received on the Receivable in the
proportion that the amount that each principal payment bears to the total
principal amount of the stripped Receivable.
If OID on a stripped Receivable is not treated as de minimis, a Class
A Certificate Owner will be required to include OID in income as it accrues
on a daily basis, regardless of when cash payments are received, using a
method reflecting a constant yield-to-maturity on such stripped Receivable.
The OID that accrues from time to time would increase a Class A Certificate
Owner's tax basis in the Class A Certificate. Distributions of principal
and other items attributable to accrued OID (other than payments of
interest at the sum of the Pass-Through Rate and Servicing Rate) would
reduce a Class A Certificate Owner's tax basis. The accrual of income by a
Class A Certificate Owner under the OID rules could be accelerated as
compared with reporting income at the sum of the Pass-Through Rate and the
Servicing Rate, and for taxable years beginning after August 5, 1997, would
be required to take into account reasonable prepayment assumptions.
Application of the OID rules, particularly if a prepayment assumption is
required and the Receivables are not aggregated, would be complex and could
significantly affect the timing of inclusion of income on a Class A
Certificate.
For the reasons discussed above, the Receivables other than the High
Yield Receivables will not be treated as stripped bonds. However, to the
extent that the portion of the purchase price allocated to a Certificate
Owner's undivided interest in a Receivable other than a High Yield
Receivable is less than the "stated redemption price at maturity," such
Receivable could have market discount. The market discount on such a
Receivable will be considered to be zero if it is less than a statutorily
defined de minimis amount. The allocation of a portion of the purchase
price of a Class A Certificate to the rights to payments under the
Shortfall Amount Agreement, accrued interest and/or amounts collected and
undistributed as of the date such Class A Certificate was purchased may
cause or increase the amount of market discount.
In general, under the market discount provisions of the Code,
principal payments received by the Trust and all or a portion of the gain
recognized upon a sale or other disposition of a Receivable other than a
High Yield Receivable or upon the sale or other disposition of a Class A
Certificate by a Class A Certificate Owner, will be treated as ordinary
income to the extent of accrued market discount. Any payments received by a
Class A Certificate Owner upon a sale or other disposition of a Certificate
in an amount in excess of accrued market discount will be treated as
capital gain. In addition, a portion of the interest deductions of the
Class A Certificate Owner attributable to any indebtedness treated as
incurred or continued to purchase or carry a Receivable may have to be
deferred, unless a Class A Certificate Owner makes an election to include
market discount in income currently as it accrues, which election would
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.
Taxpayers may, in general, elect to accrue market discount either (i) under
a constant yield-to-maturity method or (ii) in the proportion that the
stated interest paid on the obligation for the current period bears to the
total remaining interest on the obligation.
SERVICING FEES
An amount equal to each Class A Certificate Owner's allocable share
of the Servicing Fee and other compensation to the Servicer will be treated
as having been received by and will be includible in the income of such
Class A Certificate Owner. A corporate Class A Certificate Owner or a Class
A Certificate Owner who holds a Class A Certificate in connection with a
trade or business will be entitled to deduct, consistent with its method of
accounting, its pro rata share of amounts paid as fees and other expenses
under Section 162 of the Code to the extent that such fees and expenses
represent reasonable compensation for services rendered. Other Class A
Certificate Owners will be entitled to deduct, under Section 212 of the
Code, their pro rata share of amounts paid as reasonable fees and expenses
only if such amounts, when added to certain other "miscellaneous itemized
deductions," exceed 2% of adjusted gross income for the taxable year in
which the deductions may be claimed. In addition, in the case of Class A
Certificate Owners who are individuals, certain otherwise allowable
itemized deductions will be reduced, but not by more than 80%, by an amount
equal to 3% of the Class A Certificate Owner's adjusted gross income in
excess of a statutorily defined amount adjusted annually for inflation
($117,950 for married couples filing jointly for the taxable year beginning
in 1996).
The Servicer believes that the Servicing Fees will be considered
reasonable compensation for services rendered. Although the IRS has issued
guidance as to what constitutes reasonable compensation for servicing
residential mortgages, there are no guidelines as to either the maximum
amount of compensation that may be considered reasonable for servicing debt
instruments similar to the Receivables or whether the reasonableness of
such compensation would be determined on a weighted average or a
Receivable-by-Receivable basis.
If amounts paid to the Servicer exceed reasonable compensation for
services provided, the Servicer may be viewed as having, for federal income
tax purposes, an ownership interest in a portion of each interest payment
with respect to each Receivable under the "stripped bond" rules. In such
case, the portion of each interest payment treated as a strip owned by the
Servicer will not be included in the Class A Certificate Owner's income,
and the Class A Certificate Owner's deduction for Servicing Fees will be
reduced accordingly.
Any prepayment penalties, late payment fees, extension and
administrative fees or similar charges (collectively, "Late Fees") paid by
the Obligors under the Receivables and any interest on amounts collected by
the Servicer are to be retained by the Servicer. Thus, such Late Fees and
interest should not constitute taxable income to the Class A Certificate
Owners as additional compensation. Accordingly, the Trustee will not report
to the Class A Certificate Owners such Late Fees and interest received.
However, it is possible that such Late Fees and interest might be viewed as
constructively received by the Trust and then paid to the Servicer as
additional servicing fees, in which case such Late Fees and interest may be
includible in income by the Class A Certificate Owners and become
deductible by Class A Certificate Owners subject to the rules discussed
above.
SALE OF A CERTIFICATE
If a Certificate is sold, gain or loss will be recognized equal to
the difference between the amount realized on the sale and the Class A
Certificate Owner's adjusted basis in the Certificate. A Class A
Certificate Owner's adjusted basis generally will equal the purchase price
the Certificate Owner is deemed to have paid for the Certificate, increased
by any OID or market discount previously included in income, and decreased
by any deduction previously allowed for amortized premium and by the amount
of payments previously received on the Receivables which are allocable to
principal or previously included OID or market discount for tax purposes.
Gain realized will be treated as ordinary income to the extent that market
discount accrued in respect of a Receivable had not previously been taken
into account. Any remaining gain would be treated as capital gain and any
loss realized would be treated as capital loss.
FOREIGN CLASS A CERTIFICATE OWNERS
To the extent that amounts paid to a Class A Certificate Owner that
is not a United States person (a "Foreign Class A Certificate Owner") are
treated as interest or OID for federal income tax purposes, such amounts
generally will be exempt from the normal 30% United States withholding tax,
provided that such Foreign Class A Certificate Owner is not engaged in a
trade or business in the United States and that such Certificate Owner
fulfills certain certification requirements. Under such requirements, a
Foreign Class A Certificate Owner must certify, under penalties of perjury,
that it is not a "United States person," among other things. However, since
Shortfall Amounts will not qualify as "portfolio interest" within the
meaning of Section 871(h)(2) or 881(c)(2) of the Code, such payments may be
subject to United States withholding tax at a 30% or lower treaty reduced
rate. To the extent that an Excess Amount is treated as constructively
received by the Trust, it is not clear whether all or a portion of such
Excess Amount may qualify as "portfolio interest" (within the meaning of
Section 871(b)(2) or 881(c)(2) of the Code) which would be exempt from
United States withholding tax. See "-- Payments Under the Shortfall Amount
Agreement -- Excess Amounts." The term "United States person" means a
citizen or resident of the United States, a corporation, partnership or
other entity created or organized in or under the laws of the United States
or any political subdivision thereof, and an estate or trust whose income
is includible in gross income for United States federal income tax purposes
regardless of its source. Potential investors who are not United States
persons should consult their own tax advisors regarding the specific tax
consequences to them of owning a Class A Certificate.
BACKUP WITHHOLDING
Payments made to a Class A Certificate Owner and proceeds from the
sale of the Certificates will not be subject to a 31% "backup" withholding
tax unless, in general, such Class A Certificate Owner fails to comply with
certain reporting procedures and is not an exempt recipient under
applicable provisions of the Code.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code impose certain requirements on employee benefit
plans and certain other retirement plans and arrangements, including
individual retirement accounts and annuities, Keogh plans and collective
investment funds and separate accounts in which such plans, accounts or
arrangements are invested that are subject to ERISA and the Code (all of
which are hereinafter referred to as a "Plan") and on persons who are
fiduciaries with respect to such Plans. 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) ("John Hancock"), an insurance
company's general account may be deemed to include assets of the Plans
investing in the general account (e.g., through the purchase of an annuity
contract), and the insurance company might be treated as a fiduciary with
respect to such plans by virtue of such investment. In accordance with
ERISA's general fiduciary standards, before investing in a Class A
Certificate, a Plan fiduciary should determine whether such an investment
is permitted under the governing Plan instruments and is appropriate for
the Plan in view of its overall investment policy and the composition and
diversification of its portfolio. Other provisions of ERISA and the Code
prohibit certain transactions involving the assets of a Plan and persons
who have certain specified relationships to the Plan ("parties in interest"
within the meaning of ERISA or "disqualified persons" within the meaning of
the Code). Thus, a Plan fiduciary considering an investment in Class A
Certificates should also consider whether such an investment might
constitute or give rise to a prohibited transaction under ERISA or the
Code.
An investment in Class A Certificates by a Plan might result in the
assets of the Trust being deemed to constitute Plan assets, which in turn
might mean that certain aspects of such investment, including the operation
of the Trust, might be prohibited transactions under ERISA and the Code.
There may also be an improper delegation of the responsibility to manage
Plan assets if Plans that purchase the Class A Certificates are deemed to
own an interest in the underlying assets of the Trust. Neither ERISA nor
the Code defines the term "plan assets". Under Section 510.3-101 of the
United States Department of Labor ("DOL") regulations (the "Regulation"), a
Plan's assets may include an interest in the underlying assets of an entity
(such as a trust) for certain purposes, including the prohibited
transaction provisions of ERISA and the Code, if the Plan acquires an
"equity interest" in such entity. The Seller believes that the Class A
Certificates will give Class A Certificateholders an equity interest in the
Trust for purposes of the Regulation. Under the Regulation, when a Plan
acquires an equity interest that is neither a "publicly offered security"
nor a security issued by an investment company registered under the
Investment Company Act of 1940, as amended, the underlying assets of the
entity will be considered "plan assets" unless the entity is an "operating
company" or equity participation in the entity by benefit plan investors is
not "significant". A publicly offered security is a security which is (1)
held by 100 or more investors independent of the issuer and of each other,
(2) freely transferable, and (3) sold as part of an offering pursuant to an
effective registration statement under the Securities Act, and then
registered under Section 12(b) or 12(g) of the Exchange Act. The Regulation
provides that participation is significant if immediately after the most
recent acquisition of any equity interest in the entity, whether or not
from an issuer or an underwriter, twenty-five percent (25%) or more of the
value of any class of equity interest is held by "benefit plan investors",
which are defined as Plans and employee benefit plans not subject to ERISA
(for example, governmental plans).
The Trust will not be an "operating company" as defined in the
Regulation, and it will not be an investment company registered under the
Investment Company Act of 1940, as amended. It is expected that the Class A
Certificates will meet the criteria of publicly offered securities as set
forth above. The Underwriters expect (although no assurances can be given)
that the Class A Certificates will be held by at least 100 independent
investors at the conclusion of the offering made by this Prospectus; there
are no restrictions imposed on the transfer of the Class A Certificates;
and the Seller intends to cause the registration requirements to be
satisfied. If, however, none of the exceptions set forth in the Regulation
applies, the persons providing services with respect to the assets of the
Trust may be subject to the fiduciary responsibility provisions of Title I
of ERISA and be subject to the prohibited transaction provisions of ERISA
and the Code unless exemptions from such provisions apply. For example,
based on the reasoning of the United States Supreme Court in John Hancock,
an insurance company's general account may be deemed to include assets of
the Plans investing in the general account (e.g., through the purchase of
an annuity contract), and the insurance company might be treated as a
fiduciary with respect to such plans by virtue of such investment. Certain
exemptions issued by the DOL from the prohibited transaction rules could be
applicable, depending in part upon the type and circumstances of the Plan
fiduciary making the decision to acquire a Class A Certificate. Included
among these exemptions are DOL Prohibited Transaction Exemptions 84-14
(Class Exemption for Plan Asset Transactions Determined by Independent
Qualified Professional Asset Managers), 91-38 (Class Exemption for Certain
Transactions Involving Bank Collective Investment Funds), 90-1 (Class
Exemption for Certain Transactions Involving Insurance Company Pooled
Separate Accounts) and 95-60 (Class Exemption for Certain Transactions
Involving Insurance Company General Accounts).
Any Plan fiduciary considering whether to purchase Class A
Certificates on behalf of a Plan should consult with its counsel regarding
the applicability of the fiduciary responsibility and prohibited
transaction provisions of ERISA and the Code to such investment.
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 (the "Underwriters"), and each of the
Underwriters, for whom J.P. Morgan Securities Inc. is acting as
representative (the "Representative"), has severally agreed to purchase
from the Seller, the principal amount of Class A Certificates set forth
opposite its name below:
AGGREGATE
PRINCIPAL AMOUNT
OF CLASS A
CERTIFICATES TO BE
UNDERWRITERS PURCHASED
J.P. Morgan Securities Inc........................ $
Total.......................................... $ ===============
In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all the
Class A Certificates offered hereby if any of the Class A Certificates are
purchased. In the event of a default by any Underwriter, the Underwriting
Agreement provides that, in certain circumstances, purchase commitments of
the nondefaulting Underwriters may be increased or the Underwriting
Agreement may be terminated.
The Seller has been advised by the Representative that the several
Underwriters propose initially to offer the Class A Certificates to the
public at the price set forth on the cover page hereof, and to certain
dealers at such price less a concession not in excess of ______% of the
Class A Certificate denominations. The Underwriters may allow and such
dealers may reallow a concession not in excess of ______% of the Class A
Certificate denominations to certain other dealers. After the initial
public offering, the public offering price and such concessions may be
changed.
The Seller does not intend to apply for listing of the Class A
Certificates on a national securities exchange, but has been advised by the
Underwriters that they intend to make a market in the Class A Certificates.
The Underwriters are not obligated, however, to make a market in the Class
A Certificates and may discontinue market making at any time without
notice. No assurance can be given as to the liquidity of, or the trading
market for the Class A Certificates.
The Underwriting Agreement provides that the Seller will indemnify
the Underwriters against certain liabilities, including liabilities under
the Securities Act. The Underwriters have agreed to reimburse the Seller
for certain expenses incurred in connection with the issuance and
distribution of the Class A Certificates.
In the ordinary course of their respective businesses, certain of the
Underwriters and their affiliates have engaged, and may in the future
engage, in commercial banking and investment banking transactions with
DBNA, MBCC and their affiliates.
VALIDITY OF THE CERTIFICATES
Certain legal matters relating to the validity of the Certificates
will be passed upon for the Seller by Morgan, Lewis & Bockius LLP, New
York, New York. The validity of the Certificates will be passed upon for
the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New
York. Skadden, Arps, Slate, Meagher & Flom LLP has from time to time
represented MBCC, DBNA and their affiliates in connection with certain
matters.
INDEX OF PRINCIPAL TERMS
Page
Accounts ......................................................30
Advance .......................................................9
Agreement .......................................................4
Amount Financed...................................................22
APR ...................................................4, 19
Available Interest................................................34
Available Principal...............................................34
Bankruptcy Code...................................................11
Certificate Account...............................................29
Certificate Owners..............................................2, 6
Certificateholders.................................................7
Certificates.......................................................1
Class A Agent......................................................9
Class A Certificate Owners.........................................6
Class A Certificateholders.........................................5
Class A Certificates...............................................4
Class A Distributable Amount......................................35
Class A Interest..................................................35
Class A Interest Carryover Shortfall..............................35
Class A Percentage.............................................4, 26
Class A Pool Factor...............................................24
Class A Principal..............................................6, 35
Class A Principal Balance......................................5, 36
Class A Principal Carryover Shortfall.............................36
Class A Reserve Fund...............................................7
Class A Reserve Initial Deposit....................................8
Class B Agent......................................................9
Class B Certificateholders.........................................7
Class B Certificates...............................................4
Class B Distributable Amount......................................36
Class B Interest..................................................36
Class B Interest Carryover Shortfall..............................36
Class B Percentage.............................................4, 26
Class B Principal.................................................36
Class B Principal Balance.........................................36
Class B Principal Carryover Shortfall.............................36
Class B Reserve Fund...............................................7
Closing Date...................................................5, 24
Code ......................................................48
Collection Account................................................29
Collection Period..............................................6, 26
Commission .......................................................2
Cutoff Date ....................................................2, 4
DBNA .......................................................4
Dealer Agreement..................................................15
Dealers ......................................................15
Defaulted Receivable...........................................6, 34
Definitive Certificates...........................................27
Determination Date................................................33
Direct Participants...............................................27
Distribution Date...............................................2, 5
DOL ......................................................53
DTC ....................................................1, 6
Due Date ......................................................16
Eligible Bank.....................................................30
Eligible Deposit Account..........................................30
Eligible Investments..............................................30
Eligible Servicer.................................................31
ERISA ...................................................2, 53
Events of Servicing Termination...................................40
Excess Amount.....................................................22
Exchange Act.......................................................2
FDIC ......................................................30
Final Scheduled Distribution Date..................................2
Final Scheduled Maturity Date.....................................32
Financed Vehicles..................................................4
FTC ......................................................47
FTC Rule ......................................................47
Holders ......................................................28
Indirect Participants.............................................27
Insolvency Laws...................................................11
IRS ......................................................48
John Hancock......................................................54
Liquidation Proceeds..............................................34
MBCC .......................................................4
Monthly Remittance Condition......................................31
Moody's ......................................................10
Motor Vehicle.....................................................15
Motor Vehicle Contracts...........................................15
Obligors .......................................................5
Original Class A Principal Balance.................................5
Original Class B Principal Balance................................36
Pass-Through Rate..................................................5
Payahead Account..................................................30
Payahead Agent.....................................................9
Payahead Balance..................................................35
Payaheads ......................................................30
Plan ..................................................10, 53
Pool Balance...................................................7, 22
Prepaid Receivable.................................................6
Principal Balance.................................................22
Purchase Agreement.................................................5
Purchase Amount...................................................29
Purchased Receivable..............................................34
Rating Agency.....................................................10
Receivable File...................................................29
Receivables ....................................................2, 4
Record Date .......................................................5
Recoveries ......................................................34
Regulation ......................................................53
Representative....................................................54
Reserve Funds......................................................7
Retained Yield.....................................................4
Rules ......................................................27
S&P ......................................................10
Securities Act.....................................................2
Seller .......................................................1
Servicer .......................................................1
Servicing Fee......................................................6
Servicing Guaranty Agreement......................................31
Servicing Rate.....................................................6
Shortfall Amount...............................................8, 22
Specified Class A Reserve Balance..................................8
Specified Class B Reserve Balance..................................8
Total Available Amount............................................34
Trust ....................................................1, 4
Trust Property.....................................................4
Trustee .......................................................9
UCC .......................................................5
Underwriters......................................................54
Underwriting Agreement............................................54
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 provided by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of Delaware provides as
follows:
145 Indemnification of Officers, Directors, Employees and Agents;
Insurance
(a) A corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of
this section, or in defense of any claim, issue or matter therein, he shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification
of the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made
(1) by a majority vote of the directors who are not parties to such action,
suit or proceeding, even though less than a quorum, or (2) if there are no
such directors, or if such directors so direct, by independent legal
counsel in a written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by other employees and agents may be
so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding
such office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability
under this section.
(h) For purposes of this section, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include
any excise taxes assessed on a person with respect to any employee benefit
plan; and references to "serving at the request of the corporation" shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(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 VI of the By-Laws of Daimler-Benz Vehicle Receivables
Corporation provides as follows:
To the full extent permitted by law, the corporation may indemnify
any person, or his heirs, distributees, next of kin, successors,
appointees, executors, administrators, legal representatives and assigns,
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 by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise, domestic or foreign, against expenses, attorneys'
fees, court costs, judgments, fines, amounts paid in settlement and other
losses actually and reasonably incurred by him in connection with such
action, suit or proceeding.
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 -- Restated Certificate of Incorporation of the Seller; incor-
porated by reference to Exhibit 3.1 to Registrant's
Registration Statement on Form S-1 (No. 33-79574)
3.2 -- Bylaws of the Seller; incorporated by reference to Exhibit
3.2 to Registrant's Registration Statement on Form S-1 (No.
33-79574)
4.1 -- Form of Pooling and Servicing Agreement among the Seller, the
Servicer, MBCC, the Trustee, the Class A Agent, the Class B
Agent and the Payahead Agent*
5.1 -- Opinion of Morgan, Lewis & Bockius LLP re Legality*
8.1 -- Opinion of Morgan, Lewis & Bockius LLP re Tax Matters*
10.1 -- Form of Purchase Agreement between Mercedes-Benz Credit
Corporation and the Seller*
10.2 -- Form of Servicing Guaranty Agreement between Daimler-Benz North
America Corporation and the Trustee (contained in Exhibit 4.1)*
24.1 -- Consent of Morgan, Lewis & Bockius LLP (contained in Exhibit 5.1)*
24.2 -- Consent of Morgan, Lewis & Bockius LLP (contained in Exhibit 8.1)*
25 -- Powers of Attorney
- ---------------------
* 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 State of New
York, City of New York, on September , 1997.
DAIMLER-BENZ VEHICLE RECEIVABLES
CORPORATION
By /s/ HARVEY S. TRAISON
------------------------------
Harvey S. Traison
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ HARVEY S. TRAISON
----------------------
Harvey S. Traison Director and President
(principal executive officer) September 11, 1997
/s/ DAVID A. KLANICA
----------------------
David A. Klanica Director and Secretary and
Treasurer (principal
financial officer and
principal accounting officer) September 11, 1997
*
----------------------
Klaus Jacobs Director September 11, 1997
*
----------------------
Charles B. McKenna Director September 11, 1997
*By /s/ HARVEY S. TRAISON
-----------------------
Harvey S. Traison,
Attorney-in-Fact
</TABLE>
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
1.1 Form of Underwriting Agreement*
3.1 Restated Certificate of Incorporation of
the Seller; incorporated by reference to
Exhibit 3.1 to Registrant's Registration
Statement on Form S-1 (No. 33-79574)
3.2 Bylaws of the Seller; incorporated by
reference to Exhibit 3.2 to Registrant's
Registration Statement on Form S-1 (No.
33-79574)
4.1 Form of Pooling and Servicing Agreement
among the Seller, the Servicer, MBCC, the
Trustee, the Class A Agent, the Class B
Agent and the Payahead Agent*
5.1 Opinion of Morgan, Lewis & Bockius LLP re
Legality*
8.1 Opinion of Morgan, Lewis & Bockius LLP re
Tax Matters*
10.1 Form of Purchase Agreement between
Mercedes-Benz Credit Corporation and the
Seller*
10.2 Form of Servicing Guaranty Agreement
between Daimler-Benz North America
Corporation and the Trustee (contained in
Exhibit 4.1)*
24.1 Consent of Morgan, Lewis & Bockius LLP
(contained in Exhibit 5.1)*
24.2 Consent of Morgan, Lewis & Bockius LLP
(contained in Exhibit 8.1)*
25 Powers of Attorney
- --------------------
* To be filed by amendment.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the individual whose
signature appears below constitutes and appoints Harvey S.
Traison and Timotheus Pohl, 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 the Registration Statement, Form S-1, with respect to
Daimler-Benz Auto Grantor Trust 1997-A (the "Registration
Statement") and any and all amendments, including post-effective
amendments to such 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.
/s/ KLAUS JACOBS September 11, 1997
Klaus Jacobs, Director
Daimler-Benz Vehicle Receivables Corporation
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the individual whose
signature appears below constitutes and appoints Harvey S.
Traison and Timotheus Pohl, 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 the Registration Statement, Form S-1, with respect to
Daimler-Benz Auto Grantor Trust 1997-A (the "Registration
Statement") and any and all amendments, including post-effective
amendments to such 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.
/s/ CHARLES B. MCKENNA September 11, 1997
Charles B. McKenna, Director
Daimler-Benz Vehicle Receivables Corporation
