<PAGE> 1
Pursuant to Rule 424(b)(4)
Registration No. 333-64671
Prospectus
$1,549,800,000
DIAMLER BENZ LOGO
DAIMLER-BENZ VEHICLE OWNER TRUST 1998-A
$360,000,000 5.27125% ASSET BACKED NOTES, CLASS A-1
$508,000,000 5.23% ASSET BACKED NOTES, CLASS A-2
$440,000,000 5.16% ASSET BACKED NOTES, CLASS A-3
$241,800,000 5.22% ASSET BACKED NOTES, CLASS A-4
DAIMLER-BENZ VEHICLE RECEIVABLES CORPORATION
Seller
MERCEDES-BENZ CREDIT CORPORATION
Servicer
Daimler-Benz Vehicle Owner Trust 1998-A (the "Trust") was formed pursuant to a
Trust Agreement dated as of November 1, 1998, between Daimler-Benz Vehicle
Receivables Corporation (the "Seller") and Chase Manhattan Bank Delaware, as
Owner Trustee. The Trust will issue $1,549,800,000 aggregate principal amount of
Asset Backed Notes consisting of $360,000,000 aggregate principal amount of
5.27125% Class A-1 Asset Backed Notes (the "Class A-1 Notes"), $508,000,000
aggregate principal amount of 5.23% Class A-2 Asset Backed Notes (the "Class A-2
Notes"), $440,000,000 aggregate principal amount of 5.16% Class A-3 Asset Backed
Notes (the "Class A-3 Notes") and $241,800,000 aggregate principal amount of
5.22% Class A-4 Asset Backed Notes (the "Class A-4 Notes," and together with the
Class A-1 Notes, the Class A-2 Notes and the Class A-3 Notes, the "Notes" or the
"Class A Notes"), pursuant to an Indenture to be dated as of November 1, 1998,
between the Trust and Citibank, N.A., as Indenture Trustee. The Trust will also
issue $81,654,551.40 aggregate principal amount of Class B Asset Backed
Certificates (the "Certificates" or the "Class B Certificates"). The
Certificates are not being offered hereby.
(continued on next page)
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PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK FACTORS"
BEGINNING ON PAGE 13 HEREIN.
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THE NOTES REPRESENT OBLIGATIONS OF THE TRUST ONLY AND DO NOT REPRESENT
OBLIGATIONS OF OR INTERESTS IN THE SELLER, THE SERVICER OR ANY OF THEIR
RESPECTIVE AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
AGGREGATE INITIAL UNDERWRITING
PRINCIPAL INTEREST FINAL PRICE TO DISCOUNT AND
AMOUNT RATE PAYMENT DATE PUBLIC(1) COMMISSION
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A-1 Notes.... $360,000,000 5.27125% January 3, 2000 100.0000000% 0.1000%
- -------------------------------------------------------------------------------------------------------------------
Class A-2 Notes.... $508,000,000 5.23% December 20, 2001 99.9910190% 0.1700%
- -------------------------------------------------------------------------------------------------------------------
Class A-3 Notes.... $440,000,000 5.16% January 20, 2003 99.9886984% 0.2000%
- -------------------------------------------------------------------------------------------------------------------
Class A-4 Notes.... $241,800,000 5.22% December 22, 2003 99.9897320% 0.2500%
- -------------------------------------------------------------------------------------------------------------------
Total.............. $1,549,800,000 $1,549,679,821.46 $2,708,100.00
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------- --------------------
PROCEEDS TO
SELLERS(2)
- --------------------- --------------------
<S> <C>
Class A-1 Notes.... 99.9000000%
- -------------------------------------------
Class A-2 Notes.... 99.8210190%
- -------------------------------------------
Class A-3 Notes.... 99.7886984%
- -------------------------------------------
Class A-4 Notes.... 99.7397320%
- -------------------------------------------
Total.............. $1,546,971,721.46
- -------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from December 10, 1998.
(2) Before deduction of expenses estimated to be $1,196,000.00.
----------------------------------------------------------------------------
The Notes are offered subject to prior sale when, as and if issued by the Trust
and accepted by the Underwriters and subject to their right to reject orders in
whole or in part. It is expected that delivery of the Notes in book-entry form
will be made through the facilities of The Depository Trust Company, Cedel Bank,
societe anonyme, and the Euroclear System on or about December 10, 1998.
CHASE SECURITIES INC. SALOMON SMITH BARNEY
DEUTSCHE BANK SECURITIES
J.P. MORGAN & CO.
MERRILL LYNCH & CO.
The date of this Prospectus is December 3, 1998.
<PAGE> 2
(continued from previous page)
The assets of the Trust will include a pool of vehicle retail installment sale
contracts and certain rights and obligations thereunder (collectively, the
"Receivables"), all monies due or received thereunder on or after November 1,
1998 (the "Cutoff Date"), the Seller's security interests in new and used
Mercedes-Benz automobiles and new and used medium- and heavy-duty trucks and
tractors manufactured by Freightliner Corporation and its subsidiaries
(collectively, "Freightliner") and used trucks and tractors and new and used
trailers manufactured by companies other than Freightliner securing the
Receivables and certain other property, as more fully described herein. The
Notes will be secured by the Collateral pursuant to the Indenture. Interest on
the Notes will accrue at the rates per annum set forth herein. Interest accrued
on the Notes for each Interest Period will be payable on the 20th day of each
month (or, if the 20th day of the month is not a Business Day, the next
following Business Day) beginning December 21, 1998 (each, a "Payment Date").
Principal of the Notes will be payable on each Payment Date and, with respect to
the Class A-1 Notes if they are still outstanding after the December 1999
Payment Date, on January 3, 2000, to the extent described herein. The rights of
Certificateholders will be subordinated to the rights of the Noteholders to the
extent described herein.
The Final Payment Date for the Class A-1 Notes will be January 3, 2000, the
Final Payment Date for the Class A-2 Notes will be the December 2001 Payment
Date, the Final Payment Date for the Class A-3 Notes will be the January 2003
Payment Date and the Final Payment Date for the Class A-4 Notes will be the
December 2003 Payment Date.
The Notes will be subject to redemption in whole, but not in part, on any
Payment Date on which the Servicer exercises its option to purchase the
Receivables, which can occur on any Payment Date with respect to which the Pool
Balance as of the end of the related Collection Period is 10% or less of the
Initial Pool Balance, at a purchase price equal to the outstanding principal
amount of the Notes and of the Certificates, in each case plus accrued and
unpaid interest thereon.
Certain persons participating in this offering may engage in transactions that
stabilize, maintain or otherwise affect the price of the Notes offered hereby,
including over-allotment transactions, stabilizing transactions, syndicate
covering transactions and penalty bids. For a description of these activities,
see "Underwriting."
AVAILABLE INFORMATION
The Seller has filed with the Securities and Exchange Commission (the
"Commission"), on behalf of the Trust, a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Notes offered pursuant to this Prospectus. For further information, reference is
made to such Registration Statement, and the exhibits thereto, which are
available for inspection without charge at the public reference facilities of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, as well as the
Regional Offices of the Commission at 500 West Madison, Chicago, Illinois 60661,
and 7 World Trade Center, New York, New York 10048. Copies of such information
can be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Such material may
also be obtained from the World Wide Web site maintained by the Commission
(http://www.sec.gov). The Servicer, on behalf of the Trust, will also file or
cause to be filed with the Commission such periodic reports as may be required
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the rules and regulations of the Commission thereunder.
REPORTS TO NOTEHOLDERS
Unless and until Definitive Notes are issued under the limited
circumstances described herein, monthly and annual reports concerning the
Receivables and the Trust will be prepared by the Servicer and sent on behalf of
the Trust only to Cede & Co., as nominee of The Depository Trust Company ("DTC")
and registered holder of the Notes. Such reports will not contain audited
financial statements with respect to the Trust. The Seller does not intend to
send any of its financial reports to Noteholders. See "Description of the
Notes -- Book Entry Registration" and "-- Statements to Noteholders."
Certain of the matters discussed under the caption "The
Receivables -- Maturity and Prepayment Considerations" in this Prospectus may
constitute forward-looking statements within the meaning of Section 27A of the
Securities Act, and as such may involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of the Receivables to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements.
<PAGE> 3
PROSPECTUS SUMMARY
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus. Certain capitalized terms
used in this summary are defined elsewhere in this Prospectus. See the Index of
Principal Terms for the location herein of the definitions of capitalized terms.
Issuer........................ Daimler-Benz Vehicle Owner Trust 1998-A (the
"Trust" or the "Issuer"), a Delaware business
trust established pursuant to a Trust Agreement
dated as of November 1, 1998 (as amended and
supplemented from time to time, the "Trust
Agreement") between the Seller and the Owner
Trustee.
Seller........................ Daimler-Benz Vehicle Receivables Corporation, a
wholly-owned subsidiary of Mercedes-Benz Credit
Corporation ("MBCC").
Servicer...................... MBCC (in its capacity as servicer under the
Sale and Servicing Agreement, the "Servicer"),
a wholly-owned subsidiary of Daimler-Benz North
America Corporation ("DBNA").
Indenture Trustee............. Citibank, N.A., as trustee under the Indenture
(the "Indenture Trustee").
Owner Trustee................. Chase Manhattan Bank Delaware, as trustee under
the Trust Agreement (the "Owner Trustee").
The Notes..................... The Trust will issue the Notes in an aggregate
initial principal amount of $1,549,800,000
pursuant to an Indenture to be dated as of
November 1, 1998 (as amended and supplemented
from time to time, the "Indenture"), between
the Trust and the Indenture Trustee. The Notes
will be issued in four classes consisting of:
(1) 5.27125% Class A-1 Asset Backed Notes in
the aggregate initial principal amount of
$360,000,000 (the "Class A-1 Notes"), (2) 5.23%
Class A-2 Asset Backed Notes in the aggregate
initial principal amount of $508,000,000 (the
"Class A-2 Notes"), (3) 5.16% Class A-3 Asset
Backed Notes in the aggregate initial principal
amount of $440,000,000 (the "Class A-3 Notes")
and (4) 5.22% Class A-4 Asset Backed Notes in
the aggregate initial principal amount of
$241,800,000 (the "Class A-4 Notes," and
together with the Class A-1 Notes, the Class
A-2 Notes and the Class A-3 Notes, the "Notes"
or the "Class A Notes"; and each class of
Notes, which may be the Class A-1 Notes, the
Class A-2 Notes, the Class A-3 Notes or the
Class A-4 Notes, a "Class"). The Notes will be
secured by certain assets of the Trust pursuant
to the Indenture. The Notes will be offered for
purchase in minimum denominations of $1,000 and
integral multiples thereof. See "Description of
the Notes -- General."
The Certificates.............. Concurrently with the issuance of the Notes,
pursuant to the Trust Agreement, the Trust will
issue the 5.62% Class B Asset Backed
Certificates (the "Certificates" or the "Class
B Certificates"). The Certificates will be
certificates of beneficial interest evidencing
an undivided ownership interest in the Trust
Property. The Certificates will be subor-
3
<PAGE> 4
dinated to the Notes to the extent described
herein. The Certificates are not being offered
hereby and initially will be retained by the
Seller or an affiliate. Any information
contained herein relating to the Certificates
is presented solely to provide a better
understanding of the Notes.
The Certificates evidence beneficial ownership
of the Trust and will entitle
Certificateholders to receive distributions of
amounts not required to be used to make
payments on the Notes or to pay expenses of the
Trust. The initial aggregate principal amount
of the Certificates will equal $81,654,551.40.
Thereafter, the principal amount of the
Certificates will be reduced by principal
payments made on the Certificates.
Trust Assets and Collateral... The property of the Trust (the "Trust
Property") will include (i) the Receivables,
(ii) all monies due or received thereunder on
or after November 1, 1998 (the "Cutoff Date"),
(iii) the Seller's security interests in the
Financed Vehicles, (iv) the Collection Account,
the Note Distribution Account, the Certificate
Distribution Account, the Payahead Account and
the Reserve Accounts, and all money, financial
assets or other property from time to time held
in or credited to, or purchased with funds
from, any of the foregoing accounts, (v) 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 under the
Receivables (the "Obligors"), (vi) all of the
Seller's rights to all documents contained in
the Receivables Files, (vii) all of the
Seller's rights under the Purchase Agreement
and the Sale and Servicing Agreement, (viii)
all of the Seller's rights, if any, of recourse
against Dealers arising out of breaches by
Dealers in connection with the Receivables,
(ix) 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
Indenture Trustee, (x) the Servicing Guaranty
Agreement, and (xi) all proceeds (within the
meaning of Section 9-306 of the Uniform
Commercial Code (the "UCC")) of the foregoing.
Pursuant to the Indenture, the Trust will grant
to the Indenture Trustee for the benefit of the
Noteholders a security interest in and lien on
all of the Trust's right, title and interest
in, to and under all of the Trust Property
other than the Certificate Distribution Account
and the Class B Reserve Account and all money,
financial assets or other property from time to
time held in or credited to, or purchased with
funds from, such accounts (such Trust Property
subject to the security interest and lien under
the Indenture, collectively, the "Collateral").
See "The Trust Property."
The Receivables............... The Receivables will consist of a pool of
retail installment sale contracts secured by
new and used Mercedes-Benz automobiles and new
and used medium- and heavy-duty
4
<PAGE> 5
trucks and tractors manufactured by
Freightliner and used trucks and tractors and
new and used trailers manufactured by companies
other than Freightliner, together with all
accessions thereto (the "Financed Vehicles"),
including rights to receive all payments made
with respect to such Receivables, security
interests in the Financed Vehicles, and the
proceeds thereof. As of the Cutoff Date, the
Receivables had an aggregate outstanding
principal balance of $1,631,454,551.40 (the
"Initial Pool Balance").
The Receivables will be purchased by the Trust
from the Seller pursuant to a Sale and
Servicing Agreement, to be dated as of November
1, 1998 (as amended or supplemented from time
to time, the "Sale and Servicing Agreement"),
among the Trust, the Seller and the Servicer
providing for such purchase on or before the
date of issuance of the Notes (the "Closing
Date"). The Receivables will be purchased by
the Seller from MBCC pursuant to a Purchase
Agreement, to be dated as of November 1, 1998
(as amended or supplemented from time to time,
the "Purchase Agreement"), between the Seller
and MBCC providing for such purchase on or
before the Closing Date. The Receivables will
be selected from the Contracts owned by MBCC
based on the criteria specified in the Sale and
Servicing Agreement and described herein. No
Receivable will have a scheduled maturity later
than November 21, 2005 (the "Final Scheduled
Maturity Date"). See "The Receivables."
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. A
"Collection Period" with respect to a Payment
Date will be the calendar month preceding the
month in which such Payment Date occurs (or, in
the case of the initial Collection Period, the
period from the Cutoff Date to and including
the last day of the month in which the Cutoff
Date occurred).
Registration of Notes......... The Notes will be represented initially by one
or more physical notes registered in the name
of Cede & Co. ("Cede"), as nominee of DTC.
Beneficial owners of Notes may elect to hold
their Notes through DTC (in the United States)
or Cedel or Euroclear (in Europe). Transfers
within DTC, Cedel or Euroclear, as the case may
be, will be made in accordance with the usual
rules and operating procedures of the relevant
system. Cross-market transfers between persons
holding directly or indirectly through DTC in
the United States, on the one hand, and
counterparties holding directly or indirectly
through Cedel or Euroclear, on the other, will
be effected in DTC through the relevant
Depositaries of Cedel or Euroclear.
No person acquiring a beneficial ownership
interest in the Notes (a "Note Owner") will be
entitled to receive a Definitive Note, except
in certain limited circumstances. Under the
5
<PAGE> 6
terms of the Indenture, Note Owners will not be
recognized as Noteholders and will be permitted
to exercise the rights of the Noteholders only
indirectly through DTC and its participants.
See "Description of the Notes -- Definitive
Notes."
Payment Dates................. Payments of interest on and principal of the
Notes and the Certificates will be made on the
20th day of each month or, if the 20th day of
such month is not a Business Day, the next
following Business Day (each, a "Payment
Date"), commencing December 21, 1998.
Additionally, if the Class A-1 Notes are still
outstanding after the December 1999 Payment
Date, the Class A-1 Notes will be payable in
full on January 3, 2000. Payments will be made
to (a) holders of record of the Class A Notes
(the "Class A Noteholders", "Noteholders" or
"Holders") as of the Record Date for
Noteholders and (b) holders of record of the
Certificates (the "Class B Certificateholders"
or the "Certificateholders") as of the Record
Date for Certificateholders. A "Business Day"
is a day other than a Saturday, a Sunday or a
day on which banking institutions or trust
companies in New York, New York or Wilmington,
Delaware are authorized or obligated by law,
regulation or executive order to be closed. A
"Record Date" is, in the case of the Notes, the
day immediately preceding each Payment Date,
or, in the case of the Certificates or if
Definitive Notes are issued, the last Business
Day of the calendar month preceding a Payment
Date.
Interest Rates................ The Class A-1 Notes will bear interest at the
rate of 5.27125% per annum (the "Class A-1
Rate"), the Class A-2 Notes will bear interest
at the rate of 5.23% per annum (the "Class A-2
Rate"), the Class A-3 Notes will bear interest
at the rate of 5.16% per annum (the "Class A-3
Rate") and the Class A-4 Notes will bear
interest at the rate of 5.22% per annum (the
"Class A-4 Rate"). The Class B Certificates
will bear interest at the rate of 5.62% per
annum (the "Class B Rate"). The interest rates
on the various classes of Notes and on the
Certificates are referred to herein
collectively as the "Interest Rates."
Interest...................... Interest on the outstanding principal amount of
each Class of the Notes and on the Certificates
will accrue at the applicable Interest Rate (a)
with respect to the Class A-1 Notes, from and
including the Closing Date (in the case of the
first Payment Date) or from and including the
most recent Payment Date on which interest has
been paid, to but excluding the following
Payment Date and (b) with respect to the Class
A-2 Notes, the Class A-3 Notes, the Class A-4
Notes and the Class B Certificates, from and
including the Closing Date (in the case of the
first Payment Date) or from and including the
20th day of the calendar month preceding each
Payment Date to but excluding the 20th day of
the following calendar month. Interest on the
Class A-1 Notes will be calculated on the basis
of the actual number of days elapsed and a
360-day year. Interest on the Class A-2 Notes,
the
6
<PAGE> 7
Class A-3 Notes, the Class A-4 Notes and the
Class B Certificates will be calculated on the
basis of a 360-day year consisting of twelve
30-day months. No payments of interest will be
made on the Class B Certificates on any Payment
Date until all interest then due on the Class A
Notes has been paid. See "Description of the
Notes -- Interest."
Principal..................... Principal of the Notes will be payable on each
Payment Date in an amount equal to the
Principal Distribution Amount (as defined
below) for such Payment Date (to the extent
that funds are available therefor, as described
herein) and will be paid to the Holders of the
various Classes of Notes sequentially to the
earliest maturing Class then outstanding until
the principal amount of each successive Class
of Notes is paid in full. Accordingly, on each
Payment Date, an amount equal to the Principal
Distribution Amount will be paid to the Holders
of the Class A-1 Notes (the "Class A-1
Noteholders") until the Class A-1 Notes are
paid in full; then, to the Holders of the Class
A-2 Notes (the "Class A-2 Noteholders") until
the Class A-2 Notes are paid in full; then, to
the Holders of the Class A-3 Notes (the "Class
A-3 Noteholders") until the Class A-3 Notes are
paid in full; then, to the Holders of the Class
A-4 Notes (the "Class A-4 Noteholders") until
the Class A-4 Notes are paid in full; and
finally, to the Class B Certificateholders
until the Class B Certificates are paid in
full.
Principal of the Notes and of the Certificates
will be payable on each Payment Date in an
aggregate amount equal to the Principal
Distribution Amount for such Payment Date to
the extent described in "Description of the
Notes -- The Indenture Cash Flows." The
"Principal Distribution Amount" for a Payment
Date will be the sum of (i) the Scheduled
Principal for such Payment Date plus (ii) any
outstanding Principal Carryover Shortfall as of
the close of business on the preceding Payment
Date; provided, however, that the Principal
Distribution Amount for a Payment Date shall
not exceed the outstanding aggregate principal
balance of the Notes and the Certificate
Balance on such Payment Date; and provided,
further, that, on the Final Payment Date for
each Class of Notes or for the Certificates,
the amount required to be deposited in the Note
Distribution Account to pay principal of the
Notes and the amount required to be deposited
in the Certificate Distribution Account to pay
the Certificate Balance, as applicable, will
include the amount necessary (after giving
effect to the other amounts to be deposited in
the Note Distribution Account and the
Certificate Distribution Account, as
applicable, on such Payment Date and allocable
to principal) to reduce the outstanding
principal amount of such Class of Notes or the
Certificate Balance, as applicable, to zero.
Notwithstanding the foregoing, on each Payment
Date occurring on or after the date on which
the maturity dates of the
7
<PAGE> 8
Notes have been accelerated following the
occurrence of an Event of Default, any payments
of principal of the Notes will be paid (A) to
the Class A-1 Noteholders, the Class A-2
Noteholders, the Class A-3 Noteholders and the
Class A-4 Noteholders pro rata in proportion to
the respective outstanding principal balances
of the Class A-1 Notes, the Class A-2 Notes,
the Class A-3 Notes and the Class A-4 Notes
until all of such Classes have been paid in
full and (B) following payment in full of the
Class A Notes, to the Class B
Certificateholders until the Class B
Certificates have been paid in full. See
"Description of the Notes -- The Indenture Cash
Flows -- Monthly Withdrawals from the
Collection Account."
To the extent not previously paid or
accelerated, the outstanding principal amount
of (i) the Class A-1 Notes will be payable on
January 3, 2000 (the "Class A-1 Final Payment
Date"), (ii) the Class A-2 Notes will be
payable on the December 2001 Payment Date (the
"Class A-2 Final Payment Date"), (iii) the
Class A-3 Notes will be payable on the January
2003 Payment Date (the "Class A-3 Final Payment
Date"), (iv) the Class A-4 Notes will be
payable on the December 2003 Payment Date (the
"Class A-4 Final Payment Date") and (v) the
Class B Certificates will be payable on the May
2006 Payment Date (the "Class B Final Payment
Date" and, collectively with the foregoing, the
"Final Payment Dates").
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.
Optional Redemption........... The Notes and the Certificates will be redeemed
in whole, but not in part, on any Payment Date
on which the Servicer exercises its option to
purchase the Receivables, which can occur on
any Payment Date with respect to which the Pool
Balance as of the end of the related Collection
Period is 10% or less of the Initial Pool
Balance, at a purchase price equal to the
unpaid outstanding principal amount of the
Notes and the Certificates, in each case plus
accrued and unpaid interest thereon. See
"Description of the Notes -- Optional
Redemption."
Reserve Accounts.............. Separate reserve accounts will be established
for the Class A Notes and for the Class B
Certificates (the "Class A Reserve Account" and
the "Class B Reserve Account," respectively,
and collectively, the "Reserve Accounts").
Amounts on deposit in the Class A Reserve
Account will be available on any Payment Date
to cover (i) the Total Servicing Fee and (ii)
shortfalls in distributions of interest on and
principal of the Class A Notes. Amounts on
deposit in the Class B Reserve Account will be
available on any Payment Date to cover (i) the
Total Servicing Fee and (ii) shortfalls in
distributions of interest on and principal of
the Class B Certificates. Amounts on deposit
from time to time in the
8
<PAGE> 9
Reserve Accounts will be invested in Permitted
Investments maturing on or prior to the next
succeeding Payment Date; provided, however,
that to the extent permitted by the Rating
Agencies, amounts on deposit in the Reserve
Accounts may be invested in Permitted
Investments that mature later than the next
succeeding Payment Date.
Class A Reserve Initial Deposit. The Class A
Reserve Account will be funded by the Seller
with cash or Permitted Investments maturing on
or prior to the initial Payment Date and
having, on the Closing Date, a value of
$40,786,363.79 (the "Class A Reserve Initial
Deposit"). The Class A Reserve Initial Deposit
will be augmented on each Payment Date by the
deposit in the Class A Reserve Account of
Available Funds to the extent necessary to
maintain the amount in the Class A Reserve
Account at an amount equal to the Specified
Class A Reserve Balance (as defined below).
Amounts in the Class A Reserve Account on any
Payment Date (reduced by the amount of all
distributions made on such Payment Date) in
excess of the Specified Class A Reserve Balance
for such Payment Date will be released for
deposit into the Class B Reserve Account or, to
the extent the amount on deposit therein is
equal to the Specified Class B Reserve Balance
(as defined below), payment to the Seller.
Specified Class A Reserve Balance. The
"Specified Class A Reserve Balance", with
respect to the Closing Date, will equal
$40,786,363.79, and with respect to any Payment
Date, will equal $57,100,909.30, except where
on any Payment 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
charged-off 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 2.25% or (ii)
the average for the preceding three Collection
Periods of the ratios of (a) the sum of (1) the
balance of Receivables that are delinquent 61
days or more plus (2) the balance of
Receivables for any Contracts relating to
repossessed Vehicles which, in both cases, have
not been charged-off to (b) such outstanding
Pool Balance exceeds 4.25%, then the Specified
Class A Reserve Balance for such Payment Date
will equal $65,258,182.06. See "Description of
the Notes -- Subordination of the Class B
Certificates; Reserve Accounts."
The Seller may reduce the Specified Class A
Reserve Balance provided that (a) both Rating
Agencies confirm in writing to the Indenture
Trustee and to the Seller prior to such
reduction that such reduction will not result
in a lowering of or a withdrawal of the
then-current ratings of any Class of the Notes
and (b) an Opinion of Counsel is delivered to
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<PAGE> 10
the Indenture Trustee to the effect that the
proposed change will not adversely affect the
status of the Notes as debt.
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.
Collection Account;
Priority of Payments........ If MBCC is the Servicer, collections received
may be paid into an account in the name of the
Indenture Trustee (the "Collection Account") on
the Payment Date so long as (i) the obligation
of the Servicer to make required remittances
under the Sale and Servicing Agreement on each
Payment Date is unconditionally guaranteed by
DBNA pursuant to the Servicing Guaranty
Agreement (as defined herein) 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 (ii) no Event of
Servicing Termination (as defined herein) shall
have occurred. Alternatively, even if all of
the foregoing conditions are not satisfied,
such collections may be paid into the
Collection Account on the Payment Date if the
Rating Agencies confirm in writing that such
failure to satisfy the foregoing conditions
will not affect the rating of any Class of
Notes. If neither of the above occurs, the
Servicer will be required to remit collections
received with respect to the Receivables within
two Business Days of receipt thereof to the
Collection Account.
On each Payment Date, upon receipt of
instructions from the Servicer, the Indenture
Trustee will withdraw funds on deposit in the
Collection Account for the related Collection
Period (including funds, if any, deposited
therein from the Reserve Accounts and the
Payahead Account) following the withdrawal
therefrom of the amount necessary to reimburse
the Servicer for Advances previously made by
the Servicer to the extent due and payable to
the Servicer on such Payment Date and will
apply such funds on each Payment Date as
follows (in the priority indicated): (i) the
Total Servicing Fee to the Servicer, (ii) the
Accrued Interest on each Class of Notes into
the Note Distribution Account, (iii) the
Accrued Interest on the Certificates into the
Certificate Distribution Account, (iv) the
Principal Distribution Amount with respect to
the Notes into the Note Distribution Account,
(v) the Principal Distribution Amount with
respect to the Certificates into the
Certificate Distribution Account, (vi) the
amount necessary to bring the amounts on
deposit in the Class A Reserve Account up to
the Specified Class A Reserve Balance, (vii)
the amount necessary to bring the amounts on
deposit in the Class B Reserve Account up to
the Specified
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<PAGE> 11
Class B Reserve Balance and (viii) any
remaining funds to the Seller.
Servicing Fee................. A monthly fee for servicing the Receivables
(the "Servicing Fee") will be payable to the
Servicer on each Payment Date in an amount
equal to the product of one-twelfth of the
Servicing Rate and the Pool Balance as of the
first day of the related Collection Period and
will be payable generally out of collections on
the Receivables prior to distributions to
Noteholders and the Certificateholders. The
"Servicing Rate" will equal 1.0% per annum. As
additional servicing compensation, the Servicer
will also be entitled to any administrative
fees and charges and all late payment fees and
charges paid with respect to the Receivables
other than fees paid in connection with the
extension or deferral of payments on a
Receivable (the "Supplemental Servicing Fee,"
and together with the Servicing Fee payable on
any particular Payment Date, the "Total
Servicing Fee"). So long as it does not cause
to occur a reduction in the rating of any Class
of the Class A Notes, the Servicing Fee for a
Collection Period (together with any portion of
any Servicing Fee or any Supplemental 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 "Description of the
Transfer and Servicing Agreements -- Servicing
Compensation."
Advances...................... As of the close of business on the last day of
each Collection Period, if the payments during
such Collection Period by or on behalf of the
Obligor on or in respect of a Receivable (other
than a Purchased Receivable) are less than the
Scheduled Payment in respect of such
Receivable, the Payahead Balance for such
Receivable will be applied by the Indenture
Trustee to the extent of the shortfall, and
such Payahead Balance will be reduced
accordingly. On the related Payment Date, the
Servicer will make an advance to the extent of
any remaining shortfall in respect of such
Receivable (such advance, an "Advance");
provided that no successor Servicer shall be
required to make Advances. Subsequent
collections on Receivables will be used to
reimburse the Servicer for Advances to the
extent described herein. The Servicer will not
be required to make any Advance to the extent
that it does not expect to recoup the Advances
from subsequent collections or recoveries. See
"Description of the Notes -- The Indenture Cash
Flows" and "-- Advances."
Repurchases and Purchases
of Certain Receivables...... The Seller will be obligated to repurchase any
Receivable if the interest of the Trust therein
is materially and adversely affected by a
breach of any representation or warranty made
by the Seller with respect to the Receivable
and 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
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<PAGE> 12
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
"Description of the Transfer and Servicing
Agreements -- 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 Maturity Date, (ii) changes
the amount or the number of the scheduled
payments of such Receivable (except for certain
credit-related reasons) or (iii) fails to
maintain a perfected security interest in the
related Financed Vehicle in accordance with the
Servicer's customary servicing procedures. See
"Description of the Transfer and Servicing
Agreements -- Servicing Procedures."
Tax Status.................... In the opinion of Morgan, Lewis & Bockius LLP,
for U.S. Federal income tax purposes, the Notes
will be characterized as debt, and the Trust
will not be characterized as an association (or
a publicly traded partnership) taxable as a
corporation. Each Noteholder, by the acceptance
of a Note, will agree to treat the Notes as
indebtedness. See "Certain Federal Income Tax
Consequences."
Legal Investment.............. The Class A-1 Notes are structured to be
eligible for purchase by money market funds
under Rule 2a-7 under the Investment Company
Act of 1940, as amended. A money market fund
should consult its legal advisors regarding the
eligibility of the Class A-1 Notes under Rule
2a-7 and whether an investment by the money
market fund in the Class A-1 Notes satisfies
the money market fund's investment policies and
objectives.
Rating of the Notes........... It is a condition to the issuance of the Notes
that the Class A-1 Notes be rated in the
highest short-term rating category, and that
the Class A-2 Notes, the Class A-3 Notes and
the Class A-4 Notes each be rated in the
highest long-term rating category, in each case
by each of Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's, a division
of The McGraw-Hill Companies ("S&P," and
together with Moody's, each, a "Rating
Agency"). There can be no assurance that a
rating will not be lowered or withdrawn by a
Rating Agency if circumstances so warrant.
ERISA Considerations.......... Subject to the considerations discussed under
"ERISA Considerations," the Notes may, in
general, be purchased by or on behalf of
employee benefit plans subject to ERISA. Any
employee benefit plan fiduciary considering a
purchase of Notes should, among other things,
consult with legal counsel regarding the
availability of a statutory or administrative
exemption from the prohibited transaction rules
of ERISA and the Code.
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<PAGE> 13
RECENT DEVELOPMENTS
On May 7, 1998, Daimler-Benz, DaimlerChrysler AG, Chrysler Corporation, a
Delaware corporation ("Chrysler"), and Chrysler Merger Corporation, a newly
formed Delaware corporation ("Chrysler Merger Sub"), entered into a business
combination agreement (as amended and restated, the "Combination Agreement").
Pursuant to the Combination Agreement: (i) on November 6, 1998, the offer (the
"Daimler-Benz Exchange Offer") to holders of no par value Ordinary Shares of
Daimler-Benz (the "Daimler-Benz Ordinary Shares") and the holders of American
Depositary Shares of Daimler-Benz, each representing one Daimler-Benz Ordinary
Share (the "Daimler-Benz ADSs"), to exchange such shares for Ordinary Shares, no
par value, of DaimlerChrysler AG (the "DaimlerChrysler Ordinary Shares") was
completed, and DaimlerChrysler AG accepted for exchange approximately 98.2% of
the Daimler-Benz Ordinary Shares (including Daimler-Benz Ordinary Shares
represented by Daimler-Benz ADSs); and (ii) on November 12, 1998, Chrysler
Merger Sub was merged with and into Chrysler (the "Chrysler Merger"). As a
result of the Chrysler Merger, Chrysler became a wholly owned subsidiary of
DaimlerChrysler AG. The final step in the "merger-of-equals" transaction between
Daimler-Benz and Chrysler will be the merger of Daimler-Benz with and into
DaimlerChrysler AG (the "Daimler-Benz Merger"). As a result of the Daimler-Benz
Merger, the stockholders of Daimler-Benz (other than DaimlerChrysler AG) will
automatically become stockholders of DaimlerChrysler AG. Consummation of the
Daimler-Benz Merger is pending the resolution of three actions by purported
stockholders of Daimler-Benz filed with the regional court in Stuttgart,
Germany. The Daimler-Benz Exchange Offer, the Chrysler Merger and the
Daimler-Benz Merger, collectively the "Transactions," will have the effect of
combining the respective businesses, stockholder groups, managements and other
constituencies of Chrysler and Daimler-Benz. As a result of the Transactions,
the former stockholders of Chrysler and Daimler-Benz AG will own all the issued
and outstanding DaimlerChrysler Ordinary Shares.
RISK FACTORS
LIMITED LIQUIDITY
There currently is no secondary market for the Notes, and there is no
assurance that one will develop. The Underwriters expect, but will not be
obligated, to make a market in each Class of Notes. There is no assurance that
any such market will develop or, if one does develop, that it will provide
liquidity of investment or will continue for the life of the related Notes.
CERTAIN LEGAL ASPECTS -- THE RECEIVABLES
The Seller will cause financing statements to be filed with the appropriate
governmental authorities to perfect the interest of the Trust in the
Receivables, and the Servicer will hold the Receivables, either directly or
through subservicers, as custodian for the Indenture Trustee and the Trust
following the sale and assignment of the Receivables to the Trust. The
Receivables will not be segregated, stamped or otherwise marked to indicate that
they have been sold to the Trust. If, through inadvertence or otherwise, another
party purchases (or takes a security interest in) one or more Receivables for
new value in the ordinary course of business and takes possession of the
Receivables without actual knowledge of the Trust's interest, the purchaser (or
secured party) will acquire an interest in such Receivables superior to the
interest of the Trust and as a result reductions in the amounts of distributions
to Noteholders could result. See "Certain Legal Aspects of the
Receivables -- Rights in the Receivables."
The Seller will assign its security interests in the Financed Vehicles to
the Trust in connection with the sale and assignment of the Receivables to the
Trust. Following the sale and assignment of the Receivables to the Trust, the
Servicer will hold the certificates of title or ownership relating to the
Financed Vehicles, either directly or through subservicers, as custodian for the
Indenture Trustee
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<PAGE> 14
and the Trust. The certificates of title or ownership will not be endorsed or
otherwise amended to identify the Trust as the new secured party. Because the
Trust will not be identified as the secured party on any certificates of title
or ownership, the security interest of the Trust in a Financed Vehicle (i) might
be defeated through fraud, forgery, negligence or error and (ii) may not be
perfected in every state. See "Certain Legal Aspects of the
Receivables -- Security Interests in the Financed Vehicles."
CERTAIN LEGAL ASPECTS -- BANKRUPTCY CONSIDERATIONS
The Seller has taken steps in structuring the transactions contemplated
hereby that are intended to ensure that the voluntary or involuntary application
for relief by MBCC under title 11 of the United States Code (the "Bankruptcy
Code") or similar state laws ("Insolvency Laws") will not result in
consolidation of the assets and liabilities of the Seller with those of MBCC.
These steps include the creation and maintenance of the Seller as a separate,
limited-purpose subsidiary pursuant to a certificate of incorporation containing
certain limitations (including restrictions on the nature of the Seller's
business and a restriction on the Seller's ability to commence a voluntary case
or proceeding under any Insolvency Law without the prior unanimous affirmative
vote of all of its directors). However, there can be no assurance that the
activities of the Seller would not result in a court concluding that the assets
and liabilities of the Seller should be consolidated with those of 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 Notes could occur or reductions in the amounts of such
distributions could result. See "The Seller."
MBCC and the Seller intend that the transfer of the Receivables by MBCC to
the Seller constitute a "true sale" of the Receivables to the Seller. If the
transfer constitutes such a "true sale," the Receivables and the proceeds
thereof would not be part of MBCC's bankruptcy estate under Section 541 of the
Bankruptcy Code should it become the subject of a bankruptcy case subsequent to
the transfer of the Receivables to the Seller.
In Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir. 1993),
cert. denied, 114 S. Ct. 554 (1993), the United States Court of Appeals for the
Tenth 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, Noteholders might experience
delays in payment or possibly losses on their investment in the Notes. Counsel
to the Seller has advised the Seller that the reasoning of the Octagon case
appears to be inconsistent with other precedent. In addition, the Permanent
Editorial Board of the UCC has issued an official commentary (PEB Commentary No.
14) which characterizes the Octagon court's interpretation of Article 9 of the
UCC as erroneous. Such commentary states that nothing in Article 9 is intended
to prevent the transfer of ownership of accounts or chattel paper. See "The
Seller."
MATURITY AND PREPAYMENT CONSIDERATIONS
The weighted average life of each Class of Notes may be reduced by
prepayments on Receivables because the rate of payment of principal of each
Class of Notes depends on the rate of payment (including prepayments) of the
principal balance of the Receivables. The Receivables are prepayable by the
Obligors at any time without penalty. Prepayments may also result from
liquidations due to default, the receipt of proceeds from physical damage or
other insurance, repurchases by the Seller as a result of certain uncured
breaches of the representations and warranties made by it in the Sale and
Servicing Agreement with respect to the Receivables, purchases by the Servicer
as a result of certain uncured breaches of the covenants made by it in the Sale
and Servicing Agreement with respect to the Receivables, or the Servicer
exercising its optional purchase right. See "The Receivables -- Maturity and
Prepayment Considerations."
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<PAGE> 15
The rate of prepayments on the Receivables may be influenced by a variety
of economic, social and other factors in addition to those described in the
preceding paragraph.
MBCC does not generally maintain records of the historical prepayment
experience of its portfolio of Contracts (as defined herein). No assurance can
be given that prepayments on the Receivables will conform to any historical
experience, and no prediction can be made as to the actual prepayment rates
which will be experienced on the Receivables. Noteholders will bear all
reinvestment risk resulting from the rate of prepayment of the Receivables and
corresponding payments on the Notes. There can be no assurance that the
Noteholders will be able to reinvest funds in an instrument with a comparable
rating and interest rate in the event the Notes are prepaid.
It is expected that the final payment of each Class of Notes will occur on
or prior to its respective Final Payment Date because of the considerations set
forth above. However, if sufficient funds are not available to pay any Class of
Notes in full on or prior to its respective Final Payment Date, an Event of
Default will occur and final payment of such Class of Notes could occur later
than such date.
LIMITED ASSETS; DEFICIENCIES FROM SALE UPON INSOLVENCY OF SELLER
Limited Assets. The Trust does not have, nor is it permitted or expected
to have, any significant assets or sources of funds other than the Receivables
and other Trust Property, including the right to receive payments under certain
circumstances from the Reserve Accounts. The Notes represent obligations solely
of the Trust. The Notes will not be insured or guaranteed by the Seller, the
Servicer, the Indenture Trustee, the Owner Trustee or any other person or
entity. Consequently, Noteholders must rely for payment of the Notes upon
payments on the Receivables (to the extent described herein) and, if and to the
extent available, amounts on deposit in the Class A Reserve Account.
To the extent of any shortfalls in the Trust's receipt of payments on the
Receivables, amounts on deposit in the Class A Reserve Account will be available
on any Payment Date to cover the payment of the Total Servicing Fee, the Accrued
Interest on the Notes and the Principal Distribution Amount with respect to the
Notes. See "Description of the Notes -- The Indenture Cash Flows" and
"-- Subordination of the Class B Certificates; Reserve Accounts." If the amounts
on deposit in the Class A Reserve Account were exhausted, the Trust would depend
solely on current payments on the Receivables (to the extent available to make
payments to the Noteholders), Advances by the Servicer, Liquidation Proceeds of
Defaulted Receivables and Recoveries to make the Total Required Payment. See
"Description of the Notes -- The Indenture Cash Flows." Although the Class B
Certificates will be subordinate to the Class A Notes 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 Noteholders
(absent an Event of Default). Moreover, the Class A Noteholders will not be
entitled pursuant to the Indenture to distributions from amounts on deposit in
the Class B Reserve Account.
Although the Indenture authorizes the Indenture Trustee to sell the
Receivables in accordance with the Indenture following an acceleration of the
Notes upon an Event of Default, there is no assurance that the market value of
the Receivables will at any time be equal to or greater than the aggregate
outstanding principal amount of the Notes. Therefore, upon an Event of Default,
there can be no assurance that sufficient funds will be available to repay
Noteholders in full. In addition, the amount of principal required to be
distributed to Noteholders, in the aggregate under the Indenture on any Payment
Date, other than a Final Payment Date with respect to any Class of Notes, will
generally be limited to amounts available to be deposited in the Note
Distribution Account. Therefore, the failure to pay principal of a Class of
Notes may not result in the occurrence of an Event of Default until the Final
Payment Date for that Class of Notes.
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<PAGE> 16
GEOGRAPHIC CONCENTRATION
Economic conditions in the states where the Obligors under the Contracts
reside may affect the delinquency, credit loss and repossession experience of
the Trust with respect to the Contracts. Based on the Pool Balance as of the
Cutoff Date, 15.88% of the Receivables will have been originated in Texas,
10.04% in California and 8.63% in Florida. Accordingly, adverse economic
conditions or other factors affecting Texas, California or Florida in particular
could adversely affect the delinquency, credit loss or repossession experience
of the Trust. No other state, by billing addresses of Obligors, constituted more
than 6% of the aggregate principal balance of the Receivables as of the Cutoff
Date.
EVENT OF DEFAULT CONSIDERATIONS
If the maturity dates of the Notes have been accelerated following the
occurrence of an Event of Default, the Notes may be prepaid in advance of their
respective maturity dates. The acceleration of the maturity dates following the
occurrence of an Event of Default will also change the order of priority for the
payment of principal on the different Classes of Notes. If the maturity dates of
the Notes have been accelerated following the occurrence of an Event of Default,
any payments of principal will be paid (i) to the Class A-1 Noteholders, the
Class A-2 Noteholders, the Class A-3 Noteholders and the Class A-4 Noteholders
pro rata in proportion to the respective principal balances of the Class A-1
Notes, the Class A-2 Notes, the Class A-3 Notes and the Class A-4 Notes until
all of such Classes have been paid in full and (ii) then to the Class B
Certificateholders until the Class B Certificates are paid in full.
BOOK ENTRY REGISTRATION
The Notes of each Class will be represented initially by one or more
physical notes registered in the name of Cede as nominee of DTC. No Note Owner
will be entitled to receive a Definitive Note except in certain limited
circumstances. Under the terms of the Indenture, Note Owners will not be
recognized as Noteholders, and will be permitted to exercise the rights of the
Noteholders only indirectly through DTC and its participants. See "Description
of the Notes -- Book Entry Registration" and "-- Definitive Notes."
RISK OF YEAR 2000
MBCC has conducted an evaluation of the actions necessary in order to
ensure that its computer systems will be able to function without disruption
with respect to the application of dating systems in the year 2000. As a result
of these evaluations, MBCC is engaged in the process of upgrading and replacing
certain of its information and other computer systems so as to be able to
operate without disruption due to year 2000 issues. MBCC's remedial actions are
scheduled to be completed during the second quarter of 1999. However, there can
be no assurance that the remedial actions being implemented by MBCC will be able
to be completed by the time necessary to avoid dating systems problems. In
addition, disruptions with respect to the computer systems of vendors or
customers, which systems are outside the control of MBCC, could impair the
ability of MBCC to obtain necessary materials or products or to sell to or
service their customers. Disruptions of MBCC's computer systems, or the computer
systems of MBCC's vendors or customers, could have a material adverse effect
upon MBCC's ability to service the Receivables.
THE TRUST
GENERAL
The Issuer, Daimler-Benz Vehicle Owner Trust 1998-A, is a business trust
formed under the laws of the State of Delaware pursuant to the Trust Agreement
for the transactions described in this Prospectus. The Trust will hold title to
the Receivables, issue the Notes and the Certificates and
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<PAGE> 17
distribute payments on the Notes and the Certificates. The Trust's principal
offices are in the State of Delaware in care of Chase Manhattan Bank Delaware,
as Owner Trustee, at the address listed below. See "-- The Owner Trustee."
The Trust will initially be capitalized through the issuance of the Notes
and the Certificates. The Trust will purchase the Receivables from the Seller
pursuant to the Sale and Servicing Agreement in exchange for the proceeds of the
Notes and the issuance to the Seller or an affiliate thereof of the
Certificates. The Seller or an affiliate initially will retain the Certificates.
The Seller may not transfer or assign the Certificates unless it receives an
Opinion of Counsel as to certain tax matters.
The Servicer will service the Receivables, either directly or through
subservicers, and will be paid the Total Servicing Fee out of collections on the
Receivables, prior to distributions to Noteholders and Certificateholders.
Certain other expenses of the Trust will be paid by the Servicer or by the
Seller as provided in the Sale and Servicing Agreement. See "Description of the
Transfer and Servicing Agreements -- Servicing Procedures," "-- Servicing
Compensation" and "Description of the Notes -- The Indenture Cash Flows."
The Servicer will hold the Receivables and the certificates of title or
ownership relating to the Financed Vehicles as custodian for the Indenture
Trustee and the Trust. However, the Receivables will not be marked or stamped to
indicate that they have been sold to the Trust, and the certificates of title or
ownership for the Financed Vehicles will not be endorsed or otherwise amended to
identify the Trust as the new secured party. Under such circumstances and in
certain jurisdictions, the Trust's security interest in the Receivables and the
Financed Vehicles may be defeated or may not be perfected. See "Certain Legal
Aspects of the Receivables."
The Trust will not acquire any assets other than the Trust Property and it
is not anticipated that the Trust will have any need for additional capital
resources. Because the Trust will have no operating history upon its
establishment and will not engage in any business other than acquiring and
holding the Trust Property and issuing and distributing payments on the Notes
and 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.
If the protection provided to the Noteholders by the subordination of the
Certificates and by amounts on deposit in the Class A Reserve Account from time
to time is insufficient, the Noteholders would have to look principally to the
Receivables that are not Defaulted Receivables, the proceeds from the
repossession and sale of Financed Vehicles which secure Defaulted Receivables
and the proceeds from recourse, if any, against Dealers with respect to the
Receivables for payment of the Notes. In such event, certain factors, such as
the Trust's not having perfected security interests in the Financed Vehicles in
all states, may affect the Trust's ability to repossess and sell the collateral
securing the Receivables, and thus may reduce the proceeds to be distributed to
Noteholders. See "Description of the Notes -- The Indenture Cash Flows" and
"Certain Legal Aspects of the Receivables."
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the Trust as of the
Closing Date:
<TABLE>
<S> <C>
Class A-1 Notes............................................. $ 360,000,000.00
Class A-2 Notes............................................. 508,000,000.00
Class A-3 Notes............................................. 440,000,000.00
Class A-4 Notes............................................. 241,800,000.00
Class B Certificates........................................ 81,654,551.40
-----------------
Total............................................. $1,631,454,551.40
=================
</TABLE>
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<PAGE> 18
THE OWNER TRUSTEE
Chase Manhattan Bank Delaware is the Owner Trustee under the Trust
Agreement. The Owner Trustee's Corporate Trust Office is located at 1201 North
Market Street, Wilmington, Delaware 19801. The Seller, the Servicer and their
respective affiliates may have other banking relationships with the Owner
Trustee and its affiliates in the ordinary course of their businesses.
THE TRUST PROPERTY
The Notes will be secured by certain of the Trust Property. The Trust
Property will include (i) the Receivables, (ii) all monies due or received
thereunder on or after the Cutoff Date, (iii) all of the Seller's security
interests in the Financed Vehicles, (iv) the Collection Account, the Note
Distribution Account, the Certificate Distribution Account, the Reserve Accounts
and the Payahead Account, and all money, financial assets or other property from
time to time held in or credited to, or purchased with funds from, any of the
foregoing accounts, (v) 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, (vi) all of the Seller's
right to all documents contained in the Receivable Files, (vii) all of the
Seller's 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, and under the Sale and Servicing
Agreement, (viii) all of the Seller's rights, if any, of recourse against
Dealers arising out of breaches by Dealers in connection with the Receivables,
(ix) 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 Indenture Trustee, (x) the Servicing Guaranty Agreement, and
(xi) all proceeds (within the meaning of Section 9-306 of the UCC) of the
foregoing. Pursuant to the Indenture, the Trust will grant to the Indenture
Trustee for the benefit of the Noteholders a security interest in and lien on
all of the Trust's right, title and interest in, to and under all of the Trust
Property other than the Certificate Distribution Account and the Class B Reserve
Account and all money, financial assets or other property from time to time held
in or credited to, or purchased with funds from, such accounts (such Trust
Property subject to the security interest and lien under the Indenture,
collectively, the "Collateral").
MBCC'S VEHICLE CONTRACT PORTFOLIO
GENERAL
MBCC currently purchases motor vehicle retail installment contracts (the
"Motor Vehicle Contracts") directly from authorized Mercedes-Benz motor vehicle
dealers ("Mercedes-Benz Dealers") throughout the United States. MBCC currently
purchases commercial vehicle retail installment contracts for, and retail loans
evidenced by notes secured by, medium- and heavy-duty trucks, tractors and
trailers (the "Commercial Vehicle Contracts," and together with the Motor
Vehicle Contracts, the "Contracts") directly from authorized Freightliner
commercial vehicle dealers ("Commercial Vehicle Dealers" and, together with
Mercedes-Benz Dealers, "Dealers") throughout the United States. The Contracts
are originated by the Dealers who regularly sell such contracts to MBCC as well
as to other finance sources. MBCC purchases Contracts in accordance with its
established underwriting procedures, subject to the terms of an agreement with
each Dealer (each, a "Dealer Agreement").
Motor Vehicle Contracts. Each Dealer Agreement with respect to Motor
Vehicle Contracts, 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 with
respect to Motor Vehicle Contracts that (i) all Motor Vehicle Contracts are
genuine and the only instruments executed for the related motor vehicles (each,
a "Motor Vehicle") described therein, and are and will continue free from
defenses and off-sets; (ii) all statements
18
<PAGE> 19
contained therein will be true, and unpaid balances shown therein are 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 Motor Vehicles 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 recorded, 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, pursuant to
the Dealer Agreements, 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
Sale and Servicing 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.
Mercedes-Benz of North America, Inc. ("MBNA") imports, distributes, markets
and supports a select line of Mercedes-Benz Motor Vehicles to all 50 states in
the United States. In 1997, MBNA sold 122,265 vehicles. MBNA currently has 320
Mercedes-Benz Dealers in the United States, 10 authorized service-only dealers
and one company-owned dealership, Mercedes-Benz of Manhattan.
Commercial Vehicle Contracts. Each Dealer Agreement with respect to
Commercial Vehicle Contracts, among other things, obligates the Dealer to
repurchase any Commercial Vehicle Contract for the outstanding principal balance
if the Dealer breaches certain representations and warranties. The
representations and warranties typically relate to the origination of the
Commercial Vehicle Contract and the security interest in the related medium- or
heavy-duty truck, tractor or trailer (each, a "Commercial Vehicle," and the
Commercial Vehicles, together with Motor Vehicles, the "Vehicles") and not to
the creditworthiness of the Obligors under the Commercial Vehicle Contract or
the collectability of the Contract.
MBCC purchases Commercial Vehicle Contracts relating to new and used
medium- and heavy-duty trucks and tractors manufactured by Freightliner and
Commercial Vehicle Contracts relating to used trucks and tractors and new and
used trailers manufactured by companies other than Freightliner. See
"-- Underwriting" below.
Freightliner Corporation (together with its subsidiaries, "Freightliner"),
headquartered in Portland, Oregon, is a subsidiary of DBNA and the leading
manufacturer of Class 8 trucks (33,000 pounds gross vehicle weight and above) in
North America. Freightliner entered the Business Class 6/7 (26,000 to 33,000
pounds gross vehicle weight) market in 1991 and has experienced growing success
in this market. Freightliner trucks are distributed in North America through a
network of 250 independent dealers. Freightliner acquired the heavy-truck
business of Ford Motor Company in 1997, renamed Sterling Truck Corporation
("Sterling"), and the first Sterling trucks began to be produced in April 1998.
Sterling produces a range of trucks in Classes 6 to 8. There are
19
<PAGE> 20
219 Sterling dealers in North America, and they all provide parts, service and a
customer support network for Sterling and Freightliner.
UNDERWRITING
Motor Vehicle Contracts. 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. Certain 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.
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 Motor 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.
Commercial Vehicle Contracts. MBCC's National Truck Office ("NTO") is
headquartered in Lisle, Illinois, near Chicago. This operation provides staff
and resources dedicated exclusively to support Freightliner and, beginning in
May 1998, Sterling customers and dealers throughout the United States.
NTO provides a wide range of financial services to Freightliner and
Sterling dealers in the United States. New business consists primarily of the
purchase of retail installment and lease contracts resulting from the sale of
new and used Freightliner and Sterling medium- and heavy-duty trucks and to a
lesser extent, used truck equipment of other manufacturers sold through
Freightliner and Sterling and working capital loans to authorized Freightliner
and Sterling dealerships. All the underwriting, collections, remarketing and
customer service functions are performed centrally at NTO.
Beginning in May 1998, NTO began providing financial services for Sterling
trucks, a new line of medium- and heavy-duty trucks, resulting from the recent
purchase by Freightliner of the Ford Motor Company's heavy-duty truck division,
which is now named Sterling Truck Corporation. The Sterling line offers a wide
variety of models for both vocational and on-highway use. The operations for
NTO's Sterling segment are structured similarly to the operations for the
Freightliner segment.
20
<PAGE> 21
MBCC's underwriting standards emphasize each prospective Obligor's ability
to pay and creditworthiness as well as the asset value of each Commercial
Vehicle that secures the Commercial Vehicle Contract. Prior to its purchase of
Commercial Vehicle Contracts, MBCC reviews credit applications from the
Obligors. All loan applications are forwarded by the Dealers to NTO. Once the
application is received, credit bureau reports are obtained. Dun and Bradstreet
reports are obtained for applicants that are corporations. Employment
verifications are completed according to specified procedures. Direct credit
verification is made for references not included in the credit bureau or Dun and
Bradstreet reports. Applicant information, including financial statements and
any direct credit references, are distributed to a credit analyst for review and
analysis. After reviewing the information along with other information such as
advances and credit history, the analyst will reach a credit decision. For
certain large fleet transactions, a more comprehensive review of the transaction
is performed. This review includes, but is not limited to, a review of: the
customer and Dealer; traffic lanes and products hauled; market segment data;
guarantor information; and existing fleet characteristics. The NTO has
established a number of credit authority levels within the organization.
SERVICING AND COLLECTION
MBCC measures delinquency by the number of days elapsed from the date a
payment is due under the Contracts (the "Due Date"). MBCC considers an account
to be past due or delinquent when the Obligor has an overdue balance in excess
of a predetermined minimum amount. MBCC generally begins collection activities
with respect to delinquent Contracts on the 11th day after the Due Date of the
scheduled payment. 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 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
Vehicle after the full charge-off of the related 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
Motor Vehicle Contracts. Each Motor Vehicle Contract requires the Obligor
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.
Commercial Vehicle Contracts. Each Commercial Vehicle Contract requires
the Obligor to obtain physical damage insurance covering loss or damage to the
Commercial Vehicle, except in the case of certain fleet customers which are
permitted to be self-insured in accordance with MBCC's customary standards.
Except for Contracts for such fleet customers, the Dealer Agreements include a
requirement that the Dealers provide MBCC with written confirmation that there
is physical damage insurance acceptable to MBCC covering each Commercial Vehicle
at the time that MBCC
21
<PAGE> 22
purchases the Commercial Vehicle Contracts from the Dealers. If an Obligor
required to maintain physical damage insurance fails to maintain the required
insurance, MBCC will, upon receipt of notice of the Obligor's failure, contact
the Obligor in an attempt to correct the Obligor's failure.
DELINQUENCY AND LOSS EXPERIENCE
Set forth below is certain information concerning MBCC's portfolio of
Contracts, including Contracts previously sold which MBCC continues to service.
The information shown below for 1998 and 1997 does not include receivables
generated under a program directed at first time buyers of used Commercial
Vehicles. This program was initiated by MBCC in 1996 and the receivables
generated thereunder are reflected in the information shown for 1996, but are
not material in amount for such year. There will be no receivables in the Trust
generated under this program. There is no assurance that the delinquency,
repossession or loss experience of the Receivables will be comparable to MBCC's
experience shown in the following tables.
DELINQUENCY EXPERIENCE OF THE MOTOR VEHICLE PORTFOLIO(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
----------------------- -----------------------------------------------
MOTOR VEHICLES 1998 1997 1997 1996 1995 1994
- -------------- ---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Gross Balance Outstanding
at End of Period........ $2,243,847 $1,703,597 $1,792,325 $1,402,642 $1,086,082 $961,463
Gross Balance Past Due as
a Percentage of Gross
Balance
31-60 Days.............. 1.82% 2.22% 2.28% 2.20% 2.05% 1.62%
61-90 Days.............. 0.29 0.64 0.75 0.27 0.22 0.34
91 Days or More......... 0.56 0.57 0.77 0.28 0.25 0.23
---------- ---------- ---------- ---------- ---------- --------
Total............ 2.67% 3.43% 3.80% 2.75% 2.52% 2.19%
========== ========== ========== ========== ========== ========
</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.
22
<PAGE> 23
NET CREDIT LOSS AND REPOSSESSION EXPERIENCE OF MOTOR VEHICLE PORTFOLIO(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------------- ------------------------------------------------------
MOTOR VEHICLES 1998 1997 1997 1996 1995 1994
- -------------- ---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Principal Amount
Outstanding............ $1,814,124 $1,367,213 $1,458,556 $1,148,024 $906,045 $820,045
Average Principal Amount
Outstanding............ $1,622,533 $1,249,185 $1,291,186 $1,004,975 $849,791 $794,985
Number of Contracts
Outstanding............ 78,275 62,385 65,548 53,714 44,867 40,962
Average Number of
Contracts
Outstanding............ 71,545 57,602 59,215 48,275 43,092 38,618
Net Losses(2)............ $ 10,449 $ 6,593 $ 9,117 $ 6,815 $ 5,920 $ 4,599
Number of Repossessions
as a Percentage of the
Average Number of
Contracts
Outstanding(3)......... 1.96%(4) 1.91%(4) 2.01% 1.43% 1.17% 1.15%
Net Losses as a
Percentage of Principal
Amount Outstanding..... 0.77%(4) 0.64%(4) 0.63% 0.59% 0.65% 0.56%
Net Losses as a
Percentage of Average
Principal Amount
Outstanding............ 0.86%(4) 0.70%(4) 0.71% 0.68% 0.70% 0.58%
</TABLE>
- ---------------
(1) 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 (including
accrued interest up to the time of repossession) determined to be
uncollectible in the period plus all costs of repossession and disposal less
recoveries received.
(3) Number of Repossessions means the number of repossessed Motor Vehicles in a
given period.
(4) Annualized rate. The nine months ended September 30, 1998 are not
necessarily indicative of a full year's actual results.
MBCC's loss experience for its Motor Vehicle contract portfolio is
dependent upon general economic conditions, receivables levels, the number of
repossessions, the amount outstanding at the time of repossession and the resale
value of the repossessed vehicles.
Higher losses in the Motor Vehicle contract portfolio in 1998 are due in
part to an increase in the frequency of defaults due to general economic
conditions affecting consumer debt.
23
<PAGE> 24
DELINQUENCY EXPERIENCE OF THE COMMERCIAL VEHICLE PORTFOLIO(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
----------------------- -------------------------------------------------
COMMERCIAL VEHICLES 1998 1997 1997 1996 1995 1994
- ------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gross Balance
Outstanding at End of
Period................ $2,361,322 $1,816,829 $1,922,437 $1,968,912 $1,528,290 $1,232,260
Gross Balance Past Due
as a Percentage of
Gross Balance
31-60 Days............ 4.59% 3.92% 4.28% 4.86% 3.36% 1.49%
61-90 Days............ 1.47 1.15 1.59 1.55 0.89 0.19
91 Days or More....... 2.15 2.03 1.85 2.17 2.62 1.61
---------- ---------- ---------- ---------- ---------- ----------
Total.......... 8.21% 7.10% 7.72% 8.58% 6.87% 3.29%
========== ========== ========== ========== ========== ==========
</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.
NET CREDIT LOSS AND REPOSSESSION EXPERIENCE OF COMMERCIAL VEHICLE PORTFOLIO(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------------- -----------------------------------------------
COMMERCIAL VEHICLES 1998 1997 1997 1996 1995 1994
- ------------------- ---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Principal Amount Outstanding......... $1,718,659 $1,376,114 $1,429,856 $1,520,517 $1,198,800 $976,000
Average Principal Amount
Outstanding........................ $1,562,811 $1,321,908 $1,343,896 $1,348,810 $1,072,077 $850,808
Number of Contracts
Outstanding........................ 41,864 33,200 34,463 39,271 31,231 24,429
Average Number of Contracts
Outstanding........................ 37,122 33,589 33,720 35,196 27,271 21,202
Net Losses(2)........................ $ 38,984 $ 25,693 $ 38,038 $ 15,204 $ 5,297 $ 6,340
Number of Repossessions as a
Percentage of the Average Number of
Contracts Outstanding(3)........... 5.41%(4) 5.52%(4) 5.69% 4.46% 2.91% 1.82%
Net Losses as a Percentage of
Principal Amount Outstanding....... 3.02%(4) 2.49%(4) 2.66% 1.00% 0.44% 0.65%
Net Losses as a Percentage of Average
Principal Amount Outstanding....... 3.33%(4) 2.59%(4) 2.83% 1.13% 0.49% 0.75%
</TABLE>
- ---------------
(1) All amounts and percentages except as indicated are based on the principal
balances of the Commercial 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 (including
accrued interest up to the time of repossession) determined to be
uncollectible in the period plus all costs of repossession and disposal less
recoveries received.
(3) Number of Repossessions means the number of repossessed Commercial Vehicles
in a given period.
(4) Annualized rate. The nine months ended September 30, 1998 are not
necessarily indicative of a full year's actual results.
MBCC's loss experience for its Commercial Vehicle contract portfolio is
dependent upon general economic conditions, receivables levels, the number of
repossessions, the amount outstanding at the time of repossession, and the
resale value of repossessed vehicles. MBCC believes that fluctuations in
delinquencies, repossessions and losses on its Commercial Vehicle contract
portfolio generally follow cycles in the overall business environment.
Delinquencies, repossessions and losses are particularly sensitive to adverse
factors affecting the U.S. industrial sector, because that sector generates a
significant portion of the freight tonnage hauls.
24
<PAGE> 25
Higher losses in the Commercial Vehicle contract portfolio in 1997 and 1998
are due in part to adverse conditions affecting the U.S. heavy-duty truck
industry, including increased freight rate competition and a relative
overcapacity in the number of freight carriers versus the tonnage hauled,
combined with a decline in MBCC's Commercial Vehicle resale values. The
performance of the Commercial Vehicle contract portfolio for 1997 and 1998 was
also negatively impacted by the burden put on MBCC's Commercial Vehicle
collection and remarketing functions resulting from the significant growth and
diversification achieved in the Commercial Vehicle contract portfolio over the
periods presented. In 1998, MBCC has enhanced the collection and remarketing
functions to better service the existing portfolio. MBCC's underwriting
standards have remained constant over all years presented.
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 Motor
Vehicle or one or more new or used Commercial Vehicles; (ii) each Receivable had
an annual percentage rate ("APR") of at least 8.25% and not more than 13.00%;
(iii) each Receivable had a remaining maturity as of the Cutoff Date of not more
than 84 months, and an original maturity of not more than 85 months; (iv) each
Receivable had a remaining balance (net of unearned precomputed finance charges,
as of the Cutoff Date) of not more than $5,617,494.16 and not less than $217.25
as of the Cutoff Date; (v) as of the Cutoff Date, no Motor Vehicle Receivable
was more than 30 days delinquent and no Commercial Vehicle Receivable was more
than 60 days delinquent; (vi) no Financed Vehicle had been repossessed as of the
Cutoff Date; (vii) each Receivable is a Fully Amortizing Receivable or a Balloon
Receivable; (viii) each Receivable was originated prior to November 1, 1998;
(ix) no Obligor was, as of the Cutoff Date, to the knowledge of MBCC, the
subject of a proceeding under the Bankruptcy Code; (x) each Receivable was
originated in the United States by a Dealer in connection with the retail sale
of one or more Financed Vehicles in the ordinary course of such Dealer's
business; and (xi) the Obligor under each Receivable had a current billing
address in the United States as of the Cutoff Date. "Fully Amortizing
Receivables" are Receivables that provide for monthly payments that fully
amortize the amount financed over its original term to maturity. "Balloon
Receivables" are Receivables that provide for monthly payments except that a
larger payment becomes due on the final maturity date for such Receivables.
CERTAIN CHARACTERISTICS
The composition of the Receivables, geographical distribution, distribution
by APR, distribution by outstanding balance and distribution by remaining
maturity of the Receivables, as of Cutoff Date, are set forth in the following
tables.
COMPOSITION OF THE RECEIVABLES
<TABLE>
<CAPTION>
MOTOR COMMERCIAL
VEHICLES VEHICLES TOTAL
------------------------ -------------------------- --------------------------
<S> <C> <C> <C>
Aggregate Principal Balance........ $911,330,437.70 $720,124,113.70 $1,631,454,551.40
Percentage of Total Aggregate
Principal Balance.............. 55.86% 44.14% 100.00%
Number of Receivables.............. 29,670 9,479 39,149
Percentage of Total Number of
Receivables.................... 75.79% 24.21% 100.00%
Average Remaining Principal
Balance.......................... $30,715.55 $75,970.47 $41,672.96
</TABLE>
25
<PAGE> 26
<TABLE>
<CAPTION>
MOTOR COMMERCIAL
VEHICLES VEHICLES TOTAL
------------------------ -------------------------- --------------------------
<S> <C> <C> <C>
Average Original Amount Financed... $34,403.39 $87,096.57 $47,161.79
(Range).......................... $2,500.00 to $185,000.02 $6,600.00 to $6,476,493.00 $2,500.00 to $6,476,493.00
Weighted Average APR............... 9.76% 10.92% 10.27%
(Range).......................... 8.25% to 13.00% 8.25% to 13.00% 8.25% to 13.00%
Weighted Average Original Term to
Maturity......................... 56.43 months 56.44 months 56.43 months
(Range).......................... 8 months to 85 months 3 months to 84 months 3 months to 85 months
Weighted Average Remaining Term to
Maturity......................... 46.74 months 47.32 months 47.00 months
(Range).......................... 1 month to 84 months 1 month to 84 months 1 month to 84 months
</TABLE>
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES(1)
<TABLE>
<CAPTION>
PERCENTAGE
OF AGGREGATE
PRINCIPAL BALANCE
-----------------
<S> <C>
Alabama..................................................... 1.59%
Arkansas.................................................... 1.40
California.................................................. 10.04
Connecticut................................................. 1.26
Florida..................................................... 8.63
Georgia..................................................... 5.04
Illinois.................................................... 5.17
Indiana..................................................... 1.31
Kentucky.................................................... 1.04
Louisiana................................................... 3.13
Maryland.................................................... 5.02
Massachusetts............................................... 1.40
Michigan.................................................... 1.40
Mississippi................................................. 1.35
Missouri.................................................... 2.15
New Jersey.................................................. 2.14
New York.................................................... 3.41
North Carolina.............................................. 3.55
Ohio........................................................ 2.01
Oklahoma.................................................... 2.12
Pennsylvania................................................ 2.66
Tennessee................................................... 3.75
Texas....................................................... 15.88
Virginia.................................................... 2.99
Other(2).................................................... 11.56
------
Total....................................................... 100.00%
======
</TABLE>
- ---------------
(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.
26
<PAGE> 27
DISTRIBUTION BY APR OF THE RECEIVABLES
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF AGGREGATE OF AGGREGATE
APR RANGE (%) RECEIVABLES PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------- ----------- ----------------- -----------------
<S> <C> <C> <C>
8.250% to 8.999%.......................... 9,094 $ 341,213,481.59 20.91%
9.000% to 9.999%.......................... 13,044 460,698,447.96 28.24
10.000 to 10.999%......................... 7,246 351,642,307.25 21.55
11.000% to 11.999%........................ 5,225 274,458,054.44 16.82
12.000% to 12.999%........................ 4,106 184,293,408.73 11.30
13.00%.................................... 434 19,148,851.43 1.17
------ ----------------- ------
Total(1)........................ 39,149 $1,631,454,551.40 100.00%
====== ================= ======
</TABLE>
- ---------------
(1) Percentages may not add to 100.00% due to rounding.
DISTRIBUTION BY OUTSTANDING
BALANCE OF THE RECEIVABLES
<TABLE>
<CAPTION>
PERCENTAGE
OUTSTANDING NUMBER OF AGGREGATE OF AGGREGATE
BALANCES RECEIVABLES PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----------- ----------- ----------------- -----------------
<S> <C> <C> <C>
$19,999.99 and Less....................... 7,962 $ 110,584,156.67 6.78%
$20,000.00 to $39,999.99.................. 16,722 495,750,385.15 30.39
$40,000.00 to $59,999.99.................. 7,076 337,720,046.01 20.70
$60,000.00 to $79,999.99.................. 3,346 234,613,098.84 14.38
$80,000.00 to $99,999.99.................. 2,919 260,461,666.06 15.96
$100,000.00 to $149,999.99................ 867 95,074,426.79 5.83
$150,000.00 to $249,999.99................ 126 23,241,167.41 1.42
$250,000.00 to $499,999.99................ 82 29,022,087.33 1.78
$500,000.00 to $999,999.99................ 38 25,789,481.05 1.58
$1,000,000.00 and Greater................. 11 19,198,036.09 1.18
------ ----------------- ------
Total........................... 39,149 $1,631,454,551.40 100.00%
====== ================= ======
</TABLE>
27
<PAGE> 28
DISTRIBUTION BY REMAINING MATURITY
OF THE RECEIVABLES
<TABLE>
<CAPTION>
RANGE OF
REMAINING TERM PERCENTAGE OF
TO MATURITY NUMBER OF AGGREGATE AGGREGATE
(IN MONTHS) RECEIVABLES PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------- ----------- ----------------- -----------------
<S> <C> <C> <C>
1 to 12 718 $ 22,483,607.77 1.38%
13 to 24 2,131 63,079,591.89 3.87
25 to 36 6,064 195,500,431.66 11.98
37 to 48 10,810 475,261,516.45 29.13
49 to 60 18,971 843,326,239.21 51.69
61 to 72 354 27,539,701.72 1.69
73 to 84 101 4,263,462.70 0.26
------ ----------------- ------
Total 39,149 $1,631,454,551.40 100.00%
====== ================= ======
</TABLE>
Based on the Initial Pool Balance, approximately 57.53% of the total number
of Receivables, and approximately 70.13% of the Pool Balance, relate to new
Vehicles. Approximately 42.47% of the total number of Receivables, and
approximately 29.87% of the Pool Balance as of the Cutoff Date, relate to used
Vehicles. Additionally, approximately 39.76% of the total number of Receivables
included in the Trust, and approximately 48.54% by principal balance of the
Receivables included in the Trust, relate to Balloon Receivables.
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.
However, Balloon Receivables provide for monthly payments consisting of monthly
installments except that a larger payment becomes due on the final maturity date
for such Receivables. 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 in accordance
with 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" or "Rule of
78's" 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.
28
<PAGE> 29
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 generally would be limited to circumstances in which
the Obligor generally 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; provided, however, that the Principal Balance of a Defaulted
Receivable shall be zero as of the beginning of the Collection Period following
the Collection Period in which it becomes a Defaulted Receivable.
"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. "Scheduled Payment" means,
for any Collection Period for any Receivable, the amount indicated in such
Receivable as required to be paid by the Obligor in such Collection Period
(without giving effect to deferrals of payments by the Servicer in accordance
with the Sale and Servicing Agreement or any rescheduling in any insolvency or
similar proceeding).
The Receivables are prepayable by the Obligors at any time without penalty.
Prepayments may also result from liquidations due to default, the receipt of
proceeds from physical damage or other insurance, repurchases by the Seller as a
result of certain uncured breaches of the representations or warranties made by
it in the Sale and Servicing Agreement with respect to the Receivables,
purchases by the Servicer as a result of certain uncured breaches of the
covenants made by it in the Sale and Servicing Agreement with respect to the
Receivables, or the Servicer exercising its option to purchase all of the
remaining Receivables. The rate of prepayments on the Receivables may be
influenced by a variety of economic, social, and other factors, including the
fact that if an Obligor sells or otherwise transfers a Financed Vehicle, the
related Receivable must be repaid in full.
MATURITY AND PREPAYMENT CONSIDERATIONS
Prepayments in full on Receivables will have the effect of reducing the
weighted average life of the Notes, 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 Notes 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 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. Noteholders will
bear all reinvestment risk resulting from the rate of prepayment of the
Receivables.
29
<PAGE> 30
It is generally recognized by the consumer automobile and commercial
vehicle finance industry that the average actual maturity of a vehicle loan
portfolio tends to be less than the average stated contractual maturity. The
rate of prepayments on the Receivables may be influenced by a variety of
economic, social and other factors. Any reinvestment risk resulting from the
rate of prepayments of the Receivables and the distribution of such prepayments
to Noteholders will be borne entirely by the Noteholders. In addition, early
retirement of the Notes 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 as of the end of the related
Collection Period is 10% or less of the Initial Pool Balance. See "Description
of the Notes -- Optional Redemption."
Prepayments on motor vehicle receivables can be measured relative to a
prepayment standard or model. The model used in this Prospectus, the Absolute
Prepayment Model ("ABS"), represents an assumed rate of prepayment each month
relative to the original number of receivables in a pool of receivables. ABS
further assumes that all the receivables are the same size and amortize at the
same rate and that each receivable in each month of its life will either be paid
as scheduled or be prepaid in full. For example, in a pool of receivables
originally containing 10,000 receivables, a 1% ABS rate means that 100
receivables prepay each month. ABS does not purport to be an historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of receivables, including the Receivables.
The tables captioned "Percent of Initial Note Principal Balance at Various
ABS Percentages" (each, an "ABS Table") have been prepared based on the
following assumptions: (a) the Receivables prepay in full at the specified
constant percentage of ABS monthly, with no defaults, losses or repurchases, (b)
each scheduled monthly payment on the Receivables is made on the last day of
each month and each month has 30 days, (c) payments on the Notes are made on
each Payment Date (and each such date is assumed to be the 20th day of each
applicable month), (d) the balance in the Class A Reserve Account on each
Payment Date is equal to the Specified Class A Reserve Balance, and (e) the
Servicer does not exercise its option to purchase the Receivables. The pool of
Receivables has an assumed cutoff date of the Cutoff Date. The ABS Tables
indicate the projected weighted average life of each Class of Notes and set
forth the percent of the initial principal amount of each Class of Notes that is
projected to be outstanding after each of the Payment Dates shown at various
constant ABS percentages.
The ABS Tables also assume that (i) the Fully Amortizing Receivables have
been aggregated into hypothetical pools with all of the Fully Amortizing
Receivables within each such pool having the following characteristics and (ii)
the level scheduled monthly payment for each such pool (which is based on its
principal balance, weighted average Interest Rate, weighted average original
term to maturity and weighted average remaining term to maturity as of the
Cutoff Date) will be such that each pool will be fully amortized by the end of
its remaining term to maturity.
<TABLE>
<CAPTION>
RANGE OF WEIGHTED WEIGHTED
REMAINING WEIGHTED AVERAGE AVERAGE
LEVEL TERM TO AGGREGATE AVERAGE ORIGINAL TERM REMAINING TERM
PAYMENT MATURITY PRINCIPAL INTEREST TO MATURITY TO MATURITY
POOL (IN MONTHS) BALANCE RATE (IN MONTHS) (IN MONTHS)
- ------- --------------- --------------- -------- ------------- --------------
<S> <C> <C> <C> <C> <C>
1 0 to 12 $ 3,522,539.71 9.72% 19 9
2 13 to 24 28,118,210.77 9.65% 31 20
3 25 to 36 90,890,894.15 9.94% 40 31
4 37 to 48 230,942,747.50 10.41% 53 44
5 49 to 60 470,006,409.48 10.13% 60 55
6 Greater than 60 16,085,153.39 10.77% 75 71
---------------
$839,565,955.00
===============
</TABLE>
30
<PAGE> 31
The ABS Tables also assume that the principal amounts of the Balloon
Receivables have been aggregated into hypothetical balloon pools with all of the
Balloon Receivables within each pool having the following characteristics and
that the principal amount is due at the maturity of the pool.
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
RANGE OF AVERAGE AVERAGE AVERAGE
REMAINING ORIGINAL REMAINING ORIGINAL
TERM TO AGGREGATE WEIGHTED TERM TERM TO AMORTIZATION
BALLOON MATURITY PRINCIPAL AVERAGE TO MATURITY MATURITY TERM
POOL (IN MONTHS) BALANCE APR (IN MONTHS) (IN MONTHS) (IN MONTHS)(1)
- ------- --------------- --------------- -------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
1 0 to 12 $ 18,961,068.06 9.22% 33 7 80
2 13 to 24 34,961,381.12 9.72% 46 19 86
3 25 to 36 104,609,537.51 9.72% 51 31 87
4 37 to 48 244,318,768.95 10.41% 58 43 84
5 49 to 60 373,319,829.73 10.62% 61 55 84
6 Greater than 60 15,718,011.03 10.83% 75 65 92
---------------
$791,888,596.40
===============
</TABLE>
- ---------------
(1) Weighted average original amortization term is the amortization term of the
receivable used to determine monthly payment amount (excluding balloon
payment).
The information included in the following tables represents forward-looking
statements and involves risks and uncertainties that could cause actual results
to differ materially from those in the forward-looking statements. The actual
characteristics and performance of the Receivables will differ from the
assumptions used in constructing each ABS Table. The assumptions used are
hypothetical and have been provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the Receivables will prepay at a constant
level of ABS until maturity or that all of the Receivables will prepay at the
same level of ABS. Moreover, the diverse terms of Receivables within each of the
hypothetical pools could produce slower or faster principal distributions than
indicated in each ABS Table at the various constant percentages of ABS
specified, even if the original and remaining terms to maturity of the
Receivables are as assumed. Any difference between such assumptions and the
actual characteristics and performance of the Receivables, or actual prepayment
experience, will affect the percentages of initial balances outstanding over
time and the weighted average lives of each Class of the Notes.
31
<PAGE> 32
PERCENT OF INITIAL NOTE PRINCIPAL BALANCE AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
CLASS A-1 NOTES CLASS A-2 NOTES
------------------------------------ ------------------------------------
ASSUMED ABS PERCENTAGE ASSUMED ABS PERCENTAGE
------------------------------------ ------------------------------------
PAYMENT DATES 0.50% 1.00% 1.60% 2.00% 0.50% 1.00% 1.60% 2.00%
- ------------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date....................... 100 100 100 100 100 100 100 100
December 20, 1998.................. 91 89 85 82 100 100 100 100
January 20, 1999................... 82 77 70 65 100 100 100 100
February 20, 1999.................. 73 66 55 47 100 100 100 100
March 20, 1999..................... 65 55 41 31 100 100 100 100
April 20, 1999..................... 56 44 27 14 100 100 100 100
May 20, 1999....................... 47 33 13 0 100 100 100 98
June 20, 1999...................... 34 17 0 0 100 100 97 84
July 20, 1999...................... 25 7 0 0 100 100 87 73
August 20, 1999.................... 16 0 0 0 100 97 78 63
September 20, 1999................. 8 0 0 0 100 90 68 52
October 20, 1999................... 0 0 0 0 100 83 59 42
November 20, 1999.................. 0 0 0 0 93 75 51 32
December 20, 1999.................. 0 0 0 0 87 68 42 22
January 20, 2000................... 0 0 0 0 81 61 33 12
February 20, 2000.................. 0 0 0 0 76 54 25 3
March 20, 2000..................... 0 0 0 0 70 47 17 0
April 20, 2000..................... 0 0 0 0 64 40 9 0
May 20, 2000....................... 0 0 0 0 58 34 1 0
June 20, 2000...................... 0 0 0 0 47 23 0 0
July 20, 2000...................... 0 0 0 0 41 17 0 0
August 20, 2000.................... 0 0 0 0 36 11 0 0
September 20, 2000................. 0 0 0 0 30 5 0 0
October 20, 2000................... 0 0 0 0 25 0 0 0
November 20, 2000.................. 0 0 0 0 20 0 0 0
December 20, 2000.................. 0 0 0 0 14 0 0 0
January 20, 2001................... 0 0 0 0 9 0 0 0
February 20, 2001.................. 0 0 0 0 3 0 0 0
March 20, 2001..................... 0 0 0 0 0 0 0 0
April 20, 2001..................... 0 0 0 0 0 0 0 0
May 20, 2001....................... 0 0 0 0 0 0 0 0
June 20, 2001...................... 0 0 0 0 0 0 0 0
July 20, 2001...................... 0 0 0 0 0 0 0 0
August 20, 2001.................... 0 0 0 0 0 0 0 0
September 20, 2001................. 0 0 0 0 0 0 0 0
October 20, 2001................... 0 0 0 0 0 0 0 0
November 20, 2001.................. 0 0 0 0 0 0 0 0
December 20, 2001.................. 0 0 0 0 0 0 0 0
January 20, 2002................... 0 0 0 0 0 0 0 0
February 20, 2002.................. 0 0 0 0 0 0 0 0
March 20, 2002..................... 0 0 0 0 0 0 0 0
April 20, 2002..................... 0 0 0 0 0 0 0 0
May 20, 2002....................... 0 0 0 0 0 0 0 0
June 20, 2002...................... 0 0 0 0 0 0 0 0
July 20, 2002...................... 0 0 0 0 0 0 0 0
August 20, 2002.................... 0 0 0 0 0 0 0 0
September 20, 2002................. 0 0 0 0 0 0 0 0
October 20, 2002................... 0 0 0 0 0 0 0 0
November 20, 2002.................. 0 0 0 0 0 0 0 0
December 20, 2002.................. 0 0 0 0 0 0 0 0
January 20, 2003................... 0 0 0 0 0 0 0 0
February 20, 2003.................. 0 0 0 0 0 0 0 0
March 20, 2003..................... 0 0 0 0 0 0 0 0
April 20, 2003..................... 0 0 0 0 0 0 0 0
May 20, 2003....................... 0 0 0 0 0 0 0 0
June 20, 2003...................... 0 0 0 0 0 0 0 0
July 20, 2003...................... 0 0 0 0 0 0 0 0
Weighted Average Life (years)(1)... 0.44 0.35 0.27 0.23 1.57 1.28 1.00 0.85
</TABLE>
- ---------------
(1) The weighted average life of a Note is determined by (i) multiplying the
amount of each principal payment of such Note by the number of years from
the date of the issuance of such Note to the Payment Date on which such
principal payment is made, (ii) adding the results and (iii) dividing the
sum by the initial principal balance of such Note.
THE ABS TABLES HAVE BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED ABOVE
(INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND PERFORMANCE OF THE
RECEIVABLES WHICH WILL DIFFER FROM THE ACTUAL CHARACTERISTICS AND PERFORMANCE
THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
32
<PAGE> 33
PERCENT OF INITIAL NOTE PRINCIPAL BALANCE AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
CLASS A-3 NOTES CLASS A-4 NOTES
------------------------------------ ------------------------------------
ASSUMED ABS PERCENTAGE ASSUMED ABS PERCENTAGE
------------------------------------ ------------------------------------
PAYMENT DATES 0.50% 1.00% 1.60% 2.00% 0.50% 1.00% 1.60% 2.00%
- ------------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date....................... 100 100 100 100 100 100 100 100
December 20, 1998.................. 100 100 100 100 100 100 100 100
January 20, 1999................... 100 100 100 100 100 100 100 100
February 20, 1999.................. 100 100 100 100 100 100 100 100
March 20, 1999..................... 100 100 100 100 100 100 100 100
April 20, 1999..................... 100 100 100 100 100 100 100 100
May 20, 1999....................... 100 100 100 100 100 100 100 100
June 20, 1999...................... 100 100 100 100 100 100 100 100
July 20, 1999...................... 100 100 100 100 100 100 100 100
August 20, 1999.................... 100 100 100 100 100 100 100 100
September 20, 1999................. 100 100 100 100 100 100 100 100
October 20, 1999................... 100 100 100 100 100 100 100 100
November 20, 1999.................. 100 100 100 100 100 100 100 100
December 20, 1999.................. 100 100 100 100 100 100 100 100
January 20, 2000................... 100 100 100 100 100 100 100 100
February 20, 2000.................. 100 100 100 100 100 100 100 100
March 20, 2000..................... 100 100 100 93 100 100 100 100
April 20, 2000..................... 100 100 100 82 100 100 100 100
May 20, 2000....................... 100 100 100 72 100 100 100 100
June 20, 2000...................... 100 100 89 61 100 100 100 100
July 20, 2000...................... 100 100 81 52 100 100 100 100
August 20, 2000.................... 100 100 73 43 100 100 100 100
September 20, 2000................. 100 100 65 34 100 100 100 100
October 20, 2000................... 100 98 57 26 100 100 100 100
November 20, 2000.................. 100 92 50 18 100 100 100 100
December 20, 2000.................. 100 85 42 10 100 100 100 100
January 20, 2001................... 100 78 35 3 100 100 100 100
February 20, 2001.................. 100 72 28 0 100 100 100 92
March 20, 2001..................... 98 65 21 0 100 100 100 79
April 20, 2001..................... 91 59 15 0 100 100 100 67
May 20, 2001....................... 85 53 9 0 100 100 100 55
June 20, 2001...................... 67 38 0 0 100 100 97 45
July 20, 2001...................... 62 32 0 0 100 100 88 35
August 20, 2001.................... 57 27 0 0 100 100 79 26
September 20, 2001................. 52 22 0 0 100 100 70 17
October 20, 2001................... 47 17 0 0 100 100 61 9
November 20, 2001.................. 42 13 0 0 100 100 53 3
December 20, 2001.................. 36 8 0 0 100 100 45 0
January 20, 2002................... 31 3 0 0 100 100 38 0
February 20, 2002.................. 26 0 0 0 100 97 30 0
March 20, 2002..................... 21 0 0 0 100 89 23 0
April 20, 2002..................... 16 0 0 0 100 81 17 0
May 20, 2002....................... 11 0 0 0 100 74 11 0
June 20, 2002...................... 0 0 0 0 77 44 1 0
July 20, 2002...................... 0 0 0 0 69 37 0 0
August 20, 2002.................... 0 0 0 0 64 33 0 0
September 20, 2002................. 0 0 0 0 58 28 0 0
October 20, 2002................... 0 0 0 0 53 24 0 0
November 20, 2002.................. 0 0 0 0 48 19 0 0
December 20, 2002.................. 0 0 0 0 42 15 0 0
January 20, 2003................... 0 0 0 0 37 11 0 0
February 20, 2003.................. 0 0 0 0 31 7 0 0
March 20, 2003..................... 0 0 0 0 26 3 0 0
April 20, 2003..................... 0 0 0 0 21 0 0 0
May 20, 2003....................... 0 0 0 0 16 0 0 0
June 20, 2003...................... 0 0 0 0 0 0 0 0
July 20, 2003...................... 0 0 0 0 0 0 0 0
Weighted Average
Life (years)(1).................... 2.90 2.50 2.00 1.69 3.98 3.66 3.04 2.55
</TABLE>
- ---------------
(1) The weighted average life of a Note is determined by (i) multiplying the
amount of each principal payment of such Note by the number of years from
the date of the issuance of such Note to the Payment Date on which such
principal payment is made, (ii) adding the results and (iii) dividing the
sum by the initial principal balance of such Note.
THE ABS TABLES HAVE BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED ABOVE
(INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND PERFORMANCE OF THE
RECEIVABLES WHICH WILL DIFFER FROM THE ACTUAL CHARACTERISTICS AND PERFORMANCE
THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
33
<PAGE> 34
POOL FACTORS AND OTHER INFORMATION
The "Note Pool Factor" for each Class of Notes will be a seven-digit
decimal which the Servicer will compute each month indicating the remaining
outstanding principal amount of the Notes of each Class as of the close of
business on the Payment Date in that month, as a fraction of the initial
outstanding principal amount of the Notes of such Class. The Note Pool Factor
for each Class of Notes will be 1.0000000 as of the Closing Date, and thereafter
will decline to reflect reductions in the outstanding principal amount of the
Notes. A Noteholder's portion of the aggregate outstanding principal amount of
the Notes of a Class will be the product of (i) the original denomination of the
Noteholder's Note and (ii) the Note Pool Factor for such Class.
Pursuant to the Sale and Servicing Agreement, the Noteholders will receive
monthly reports concerning the payments received on the Receivables, the Pool
Balance, the Note Pool Factor and various other items of information.
Noteholders of record during any calendar year will be furnished information for
tax reporting purposes not later than the latest date permitted by law. See
"Description of the Notes -- Statements to Noteholders."
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of the Notes
will be applied to the purchase of the Receivables from 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 and maintenance of the Seller as
a separate, limited-purpose subsidiary pursuant to a certificate of
incorporation containing certain limitations (including restrictions on the
nature of the Seller's business and a restriction on the Seller's ability to
commence a voluntary case or proceeding under any Insolvency Law without the
prior unanimous affirmative vote of all of its directors). However, there can be
no assurance that the activities of the Seller would not result in a court
concluding that the assets and liabilities of the Seller should be consolidated
with those of 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, in the event that the Seller did not
follow these procedures there can be no assurance that a court would not
conclude that the assets and liabilities of the Seller should be consolidated
with those of MBCC. If a
34
<PAGE> 35
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 Notes 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 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
Tenth 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, Noteholders might experience
delays in payment or possibly losses on their investment in the Notes. 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
other 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 Daimler-Benz North America Corporation ("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. MBCC 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 of MBCC provides financing for both Daimler-Benz and other
manufacturers' 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 the financial clearing entity for its subsidiaries and provides
capital funding through outside finance sources and resources generated within
the group of companies. DBNA has more than 30 subsidiaries, including
Mercedes-Benz U.S. International, Freightliner, and MBCC. DBNA's key goals are
to provide secure long-term liquidity, which serves as a basis for the expansion
of the Daimler-Benz group's North American activities, and to increase the
efficiency of the financial operations of the DBNA group.
Daimler-Benz AG, headquartered in Stuttgart, Germany, and its consolidated
subsidiaries (collectively, "Daimler-Benz") is the largest industrial group in
Germany and a leading provider of
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technologically advanced transportation products, systems and services
worldwide. Daimler-Benz focuses on the development and manufacture of
Mercedes-Benz passenger cars and commercial vehicles, Freightliner and Sterling
trucks, rail systems (Adtranz), diesel engines (MTU), and automotive electronics
(TEMIC). Daimler-Benz Aerospace builds aircraft and space systems and
Daimler-Benz InterServices (debis) provides services in areas such as leasing
and sales financing, mobile communications and information technology. For the
nine months ended September 30, 1998, Daimler-Benz reported consolidated
revenues of DM 102,897 million, net income of DM 3,282 million and stockholders'
equity of DM 34,064 million. In U.S. dollars, Daimler-Benz would have reported
consolidated revenues of $61,608 million, net income of $1,965 million and
stockholders' equity of $20,395 million.
On May 7, 1998, Daimler-Benz, DaimlerChrysler AG, a stock corporation
(Aktiengesellschaft) organized and existing under the laws of the Federal
Republic of Germany ("DaimlerChrysler AG") Chrysler Corporation, a Delaware
corporation ("Chrysler"), and Chrysler Merger Corporation, a newly formed
Delaware corporation ("Chrysler Merger Sub"), entered into a business
combination agreement (as amended and restated, the "Combination Agreement").
Pursuant to the Combination Agreement: (i) on November 6, 1998, the offer (the
"Daimler-Benz Exchange Offer") to holders of no par value Ordinary Shares of
Daimler-Benz (the "Daimler-Benz Ordinary Shares") and the holders of American
Depositary Shares of Daimler-Benz, each representing one Daimler-Benz Ordinary
Share (the "Daimler-Benz ADSs"), to exchange such shares for Ordinary Shares, no
par value, of DaimlerChrysler AG (the "DaimlerChrysler Ordinary Shares") was
completed, and DaimlerChrysler AG accepted for exchange approximately 98.2% of
the Daimler-Benz Ordinary Shares (including Daimler-Benz Ordinary Shares
represented by Daimler-Benz ADSs); and (ii) on November 12, 1998, Chrysler
Merger Sub was merged with and into Chrysler (the "Chrysler Merger"). As a
result of the Chrysler Merger, Chrysler became a wholly owned subsidiary of
DaimlerChrysler AG. The final step in the "merger-of-equals" transaction between
Daimler-Benz and Chrysler will be the merger of Daimler-Benz with and into
DaimlerChrysler AG (the "Daimler-Benz Merger"). As a result of the Daimler-Benz
Merger, the stockholders of Daimler-Benz (other than DaimlerChrysler AG) will
automatically become stockholders of DaimlerChrysler AG. Consummation of the
Daimler-Benz Merger is pending the resolution of three actions by purported
stockholders of Daimler-Benz filed with the regional court in Stuttgart,
Germany. The Daimler-Benz Exchange Offer, the Chrysler Merger and the
Daimler-Benz Merger, collectively the "Transactions," will have the effect of
combining the respective businesses, stockholder groups, managements and other
constituencies of Chrysler and Daimler-Benz. As a result of the Transactions,
the former stockholders of Chrysler and Daimler-Benz AG will own all the issued
and outstanding DaimlerChrysler Ordinary Shares.
DESCRIPTION OF THE NOTES
The Notes will be issued pursuant to the Indenture. The Certificates will
be issued pursuant to the Trust Agreement. Forms of each of the Indenture and
the Trust Agreement have been filed as exhibits to the Registration Statement of
which this Prospectus forms a part. The following summary does not purport to be
complete and is subject to, and qualified in its entirety by reference to, the
Notes, the Indenture, the Trust Agreement and the Sale and Servicing Agreement.
GENERAL
The Notes of each Class will be offered for purchase in minimum
denominations of $1,000 and integral multiples thereof and will be represented
initially by physical notes registered in the name of Cede as nominee of DTC. No
Note Owner will be entitled to receive a Definitive Note representing such
person's beneficial ownership interest in the applicable Class of Notes except
in the event that Definitive Notes are issued under the limited circumstances
described herein. Unless and until Definitive Notes are issued, all references
to actions by Noteholders shall refer to actions taken by DTC upon instructions
from its Direct Participants (as defined below) and all references to
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distributions, notices, reports and statements to Noteholders shall refer to
distributions, notices, reports and statements to DTC or Cede, as the registered
holder of the Notes, for payment or distribution to Note Owners in accordance
with DTC procedures with respect thereto. See "-- Book Entry Registration" and
"-- Definitive Notes."
BOOK ENTRY REGISTRATION
Beneficial owners of Notes may hold their Notes through DTC (in the United
States) or Cedel or Euroclear (in Europe) if they are participants of such
systems, or indirectly through organizations that are participants in such
systems.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to Section 17A of the Exchange Act. DTC
was created to hold securities for its participating organizations ("Direct
Participants") and to facilitate the clearance and settlement of securities
transactions between Direct Participants through electronic book-entries,
thereby eliminating the need for physical movement of certificates. Direct
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations, and may include certain other organizations. Indirect
access to the DTC system is also available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly ("Indirect
Participants" and, together with Direct Participants, "DTC Participants").
To facilitate subsequent transfers, all Notes deposited with DTC will be
registered in the name of DTC's nominee, Cede. The deposit of Notes with DTC and
their registration in the name of Cede will effect no change in beneficial
ownership. DTC has no knowledge of the actual Note Owners of the Notes; DTC's
records reflect only the identity of the Direct Participants to whose accounts
such Notes are credited, which may or may not be the Note Owners. The DTC
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
No Noteholder will be entitled to receive a certificate representing such
person's interest in a Class of Notes. Unless and until Definitive Notes are
issued under the limited circumstances described below, all references herein to
actions by Noteholders shall refer to actions taken by DTC upon instructions
from DTC Participants, and all references herein to distributions, notices,
reports and statements to Noteholders shall refer to distributions, notices,
reports and statements to Cede, as the registered holder of the Notes, for
distribution to Noteholders in accordance with DTC procedures.
Note Owners will receive all payments of principal of and interest on the
Notes through Direct Participants or Indirect Participants. DTC will forward
such payments to its Direct Participants which thereafter will forward them to
Indirect Participants or Note Owners. Under a book-entry format, Note Owners may
experience some delay in their receipt of payments, since such payments will be
forwarded to Cede as nominee of DTC. Note Owners will not be recognized by the
Indenture Trustee as Noteholders, as such term is used in the Indenture. Note
Owners will be permitted to exercise the rights of Noteholders only indirectly
through DTC and its Direct Participants and Indirect Participants. Because DTC
can act only on behalf of Direct Participants, who in turn act on behalf of
Indirect Participants, and on behalf of certain banks, trust companies and other
persons approved by it, the ability of a Note Owner to pledge the Notes to
persons or entities that do not participate in the DTC system, or to otherwise
act with respect to such Notes, may be limited due to the absence of physical
notes for such Notes.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
Participants and Indirect Participants to Note Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time. Payments by DTC Participants to Note Owners
will be governed by standing instructions and customary practices, as is the
case with securities
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held for the accounts of customers in bearer form or registered in "street name"
and will be the responsibility of such DTC Participant and not of DTC, the
Indenture Trustee, the Owner Trustee, the Seller or the Servicer, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal and interest to DTC is the responsibility of the Indenture
Trustee, disbursement of such payments to Direct Participants shall be the
responsibility of DTC and disbursement of such payments to Note Owners shall be
the responsibility of Direct Participants and Indirect Participants.
Purchases of Notes under the DTC system must be made by or through Direct
Participants, which will receive a credit for the Notes on DTC's records. The
ownership interest of each actual Note Owner is in turn to be recorded on the
Direct Participants' and Indirect Participants' records. Note Owners will not
receive written confirmation from DTC of their purchase, but Note Owners are
expected to receive written confirmations providing details of the transaction,
as well as periodic statements of their holdings, from the Direct Participant or
Indirect Participant through which the Note Owner entered into the transaction.
Transfers of ownership interests in the Notes are to be accomplished by entries
made on the books of DTC Participants acting on behalf of Note Owners. Note
Owners will not receive physical notes representing their ownership interest in
Notes, except in the event that use of the book-entry system for the Notes is
discontinued.
Neither DTC nor Cede will comment or vote with respect to the Notes. DTC
has advised the Seller that it will take any action permitted to be taken by a
Noteholder under the Indenture only at the direction of one or more Direct
Participants to whose accounts with DTC the Notes are credited. Additionally,
DTC has advised the Seller that to the extent that the Indenture requires that
any action may be taken only by Holders of Notes representing a specified
percentage of the aggregate outstanding principal amount thereof, DTC will take
such action only at the direction of and on behalf of Direct Participants whose
holdings include undivided interests that satisfy such specified percentage.
Under its usual procedures, DTC will mail a written proxy (an "Omnibus Proxy")
to the Indenture Trustee as soon as possible after any applicable record date
with respect to a consent or vote. The Omnibus Proxy will assign Cede's
consenting or voting rights to those Direct Participants to whose accounts the
Notes will be credited on that record date (identified on a listing attached to
the Omnibus Proxy).
DTC may discontinue providing its services as securities depository with
respect to the Notes at any time by giving reasonable notice to the Indenture
Trustee. Under such circumstances, in the event that a successor securities
depository is not obtained, Definitive Notes are required to be printed and
delivered. The Administrator may decide to discontinue use of the system of
book-entry transfers through DTC (or a successor securities depository). In that
event, Definitive Notes will be delivered to Noteholders. See "-- Definitive
Notes."
Cedel and Euroclear will hold omnibus positions on behalf of the Cedel
Participants and the Euroclear Participants, respectively, through customers'
securities accounts in Cedel's and Euroclear's names on the books of their
respective depositaries (each, a "Depositary" and collectively, the
"Depositaries") which in turn will hold such positions in customers' securities
accounts in the Depositaries' names on the books of DTC.
Transfers between Direct Participants will occur in accordance with DTC
rules. Transfers between Cedel Participants and Euroclear Participants will
occur in the ordinary way in accordance with their applicable rules and
operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transac-
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tion meets its settlement requirements, deliver instructions to its Depositary
to take action to effect final settlement on its behalf by delivering or
receiving securities in DTC, and making or receiving payment in accordance with
normal procedures for same-day funds settlement applicable to DTC. Cedel
Participants and Euroclear Participants may not deliver instructions directly to
the Depositaries.
Because of time-zone differences, credits of securities in Cedel or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing day, dated the Business
Day following the DTC settlement date, and such credits or any transactions in
such securities settled during such processing day will be reported to the
relevant Cedel Participant or Euroclear Participant on such Business Day. Cash
received in Cedel or Euroclear as a result of sales of securities by or through
a Cedel Participant or a Euroclear Participant to a DTC Participant will be
received with value on the DTC settlement date but will be available in the
relevant Cedel or Euroclear cash account only as of the Business Day following
settlement in DTC.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Seller believes to be reliable, but the
Seller takes no responsibility for the accuracy thereof.
Cedel Bank, societe anonyme ("Cedel") is incorporated under the laws of
Luxembourg as a professional depository. Cedel holds securities for its
participating organizations ("Cedel Participants") and facilitates the clearance
and settlement of securities transactions between Cedel Participants through
electronic book-entry changes in accounts of Cedel Participants, thereby
eliminating the need for physical movement of certificates. Transactions may be
settled in Cedel in any of 36 currencies, including United States dollars. Cedel
provides to its Cedel Participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Cedel interfaces with domestic
markets in several countries. As a professional depository, Cedel is subject to
regulation by the Luxembourg Monetary Institute. Cedel Participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations and may include the Underwriters of the Notes.
Indirect access to Cedel is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Cedel Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ("Euroclear Participants") and to clear and
settle transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating the need for
physical movement of certificates and any risk from lack of simultaneous
transfers of securities and cash. Transactions may now be settled in any of 34
currencies, including United States dollars. The Euroclear System includes
various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. The Euroclear
System is operated by Morgan Guaranty Trust Company of New York, Brussels,
Belgium office (the "Euroclear Operator" or "Euroclear"), under contract with
Euroclear Clearance System, S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for the Euroclear System on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
Underwriters of the Notes. Indirect access to the Euroclear System is also
available to other firms that clear through or maintain a custodial relationship
with a Euroclear Participant, either directly or indirectly.
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The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific securities
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of or relationship with persons holding through Euroclear Participants.
Payments on Notes held through Cedel or Euroclear will be credited to the
cash accounts of Cedel Participants or Euroclear Participants in accordance with
the relevant system's rules and procedures, to the extent received by its
Depositary. Such payments will be subject to tax reporting in accordance with
relevant United States tax laws and regulations. See "Certain Federal Income Tax
Consequences" and Annex A. Cedel or the Euroclear Operator, as the case may be,
will take any other action permitted to be taken by a Noteholder under the
related agreement on behalf of a Cedel Participant or Euroclear Participant only
in accordance with its relevant rules and procedures and subject to its
Depositary's ability to effect such actions on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Notes among participants of DTC, Cedel and
Euroclear, they are under no obligation to perform or continue to perform such
procedures and such procedures may be discontinued at any time.
DEFINITIVE NOTES
The Notes of each Class will be issued in fully registered, certificated
form ("Definitive Notes") to Noteholders or their nominees, rather than to DTC
or its nominee, only if (i) the Trust, the Administrator or the Servicer advises
the Indenture Trustee in writing that DTC or a successor clearing agency is no
longer willing or able to discharge properly its responsibilities as depository
with respect to the Notes and the Indenture Trustee or the Administrator is
unable to locate a qualified successor, (ii) the Administrator, at its option,
elects to terminate the book-entry system through DTC, or (iii) after the
occurrence of an Event of Default or an Event of Servicing Termination, Note
Owners representing in the aggregate not less than a majority of the aggregate
outstanding principal amount of the Notes advise the Indenture Trustee and DTC
in writing that the continuation of a book-entry system through DTC (or a
successor thereto) is no longer in the best interest of Note Owners.
Upon the occurrence of any event described in the immediately preceding
paragraph, DTC is required to notify all Direct Participants and the Indenture
Trustee of the availability through DTC of Definitive Notes. Upon surrender by
DTC of the definitive notes representing the Notes and receipt by the Indenture
Trustee of instructions for re-registration, the Issuer will execute and the
Indenture Trustee will authorize the Notes as Definitive Notes, and thereafter
the Indenture Trustee will recognize the holders of such Definitive Notes as
Noteholders.
Payments of principal of and interest on the Definitive Notes will be made
by the Indenture Trustee directly to Noteholders in accordance with the
procedures set forth herein and in the Indenture. Payments of principal of and
interest on each Payment Date will be made to Noteholders in whose names the
Definitive Notes were registered at the close of business on the preceding
Record Date. Such payments will be made by check mailed to the address of such
Noteholder as it appears on the register maintained by the Indenture Trustee.
The final payment on any Definitive
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Note, however, will be made only upon presentation and surrender of such
Definitive Note at the office or agency specified in the notice of final payment
mailed to Noteholders.
Definitive Notes will be transferable and exchangeable at the offices of
the Indenture Trustee. No service charge will be imposed for any registration of
transfer or exchange, but the Indenture Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith.
INTEREST
Interest on the outstanding principal amount of each Class of the Notes and
on the Certificates will accrue at the applicable Interest Rate and will be
payable to the applicable Noteholders and Certificateholders monthly on each
Payment Date, commencing December 21, 1998. Interest will accrue (i) with
respect to the Class A-1 Notes, from and including the Closing Date (in the case
of the first Payment Date) or from and including the most recent Payment Date on
which interest has been paid, to but excluding the following Payment Date and
(ii) with respect to the Class A-2 Notes, the Class A-3 Notes, the Class A-4
Notes and the Class B Certificates, from and including the Closing Date (in the
case of the first Payment Date) or from and including the 20th day of the
calendar month preceding each Payment Date to but excluding the 20th day of the
following calendar month (each such period, an "Interest Period"). Interest will
be calculated in the case of the Class A-1 Notes on the basis of the actual
number of days elapsed and a 360-day year, and in the case of the Class A-2
Notes, the Class A-3 Notes, the Class A-4 Notes and the Class B Certificates on
the basis of a 360-day year consisting of twelve 30-day months. Interest payable
on a Payment Date will be calculated on the basis of the outstanding principal
amount of the Notes of each Class and of the Certificates as of the preceding
Payment Date, after giving effect to any payments of principal of the Notes and
of the Certificates on such preceding Payment Date (or, in the case of the first
Payment Date, on the basis of the initial outstanding principal amount of the
Notes of such Class and of the Certificates). Interest accrued as of any Payment
Date but not paid on such Payment Date will be due on the next Payment Date,
together with interest on such amount at the applicable Interest Rate (to the
extent permitted by law). Interest payments on the Notes and on the Certificates
will generally be derived from the Available Funds (as defined herein) remaining
after the reimbursement of Advances and the payment of the Total Servicing Fee
for the related Collection Period and, to the extent the Available Funds
remaining are insufficient, from amounts on deposit in the Reserve Accounts. See
"-- The Indenture Cash Flows" and "-- Subordination of the Class B Certificates;
Reserve Accounts."
Interest payments on all Classes of the Notes will have the same priority
of payment, and interest payments to the Class B Certificates will be
subordinated to interest payments on the Class A Notes. Under certain
circumstances, the amount available for interest payments could be less than the
amount of interest payable on the Notes on any Payment Date, in which case Class
A Noteholders will be paid interest in full prior to payments of interest on the
Class B Certificates and, if the amount available for interest payments is less
than the amount of interest payable on the Class A Notes, each Class of Class A
Noteholders will receive their ratable share (based upon the aggregate amount of
interest due to such Class of Noteholders on such Payment Date) of the aggregate
amount available to be distributed in respect of interest on the Notes. An Event
of Default will occur if the full amount of interest due to all Classes of
Noteholders is not paid within five days.
PRINCIPAL
Principal payments will be made to the Noteholders on each Payment Date in
an aggregate amount equal to the Principal Distribution Amount in respect of
such Payment Date, subject to certain limitations. Principal of the Class A-1
Notes is also payable, to the extent not previously paid, on January 3, 2000.
Certificateholders will not be entitled to receive payments of principal until
the principal of all Classes of Notes have been paid in full. Principal of the
Notes will be payable on each Payment Date in an amount equal to the Principal
Distribution Amount for such Payment Date (to
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the extent of funds available therefor, as described herein) and will be paid to
the Holders of the various Classes of Notes sequentially to the earliest
maturing Class of Notes then outstanding until the principal amount of each
successive Class of Notes is paid in full.
Accordingly, on each Payment Date, an amount equal to the Principal
Distribution Amount will be paid to the Class A-1 Noteholders until the Class
A-1 Notes are paid in full; then, to the Class A-2 Noteholders until the Class
A-2 Notes are paid in full; then, to the Class A-3 Noteholders until the Class
A-3 Notes are paid in full; then, to the Class A-4 Noteholders until the Class
A-4 Notes are paid in full; and finally, to the Class B Certificateholders until
the Class B Certificates are paid in full; provided, however, that following the
occurrence and during the continuation of an Event of Default resulting in an
acceleration of the Notes, payments of principal of the Notes will be paid to
the Holders of all Classes of the Notes on a pro rata basis, until the principal
of all of the Notes is paid in full, before any distributions of principal may
be made on the Certificates. If the Class A-1 Notes are still outstanding after
the December 1999 Payment Date, the Class A-1 Noteholders will be entitled to be
paid in full on January 3, 2000. See "-- The Indenture Cash Flows" and
"-- Subordination of the Class B Certificates; Reserve Accounts."
The actual date on which the aggregate outstanding principal amount of any
Class of Notes is paid may be earlier or later than the respective Final Payment
Dates based on a variety of factors, including those described under "Risk
Factors -- Maturity and Prepayment Considerations" and "The
Receivables -- Maturity and Prepayment Considerations."
OPTIONAL REDEMPTION
The Notes and the Certificates will be redeemed in whole, but not in part,
on any Payment Date on which the Servicer exercises its option to purchase the
Receivables. The Servicer may purchase the Receivables on any Payment Date with
respect to which the Pool Balance as of the end of the related Collection Period
is 10% or less of the Initial Pool Balance. The redemption price will be equal
to the outstanding principal amount of the Notes and of the Certificates, in
each case plus accrued and unpaid interest thereon.
THE INDENTURE TRUSTEE
Citibank, N.A., a national banking association, will be the Indenture
Trustee. The Indenture Trustee's Corporate Trust Office is located at 111 Wall
Street, 5th Floor, Zone 2, New York, NY 10005. The Seller, the Servicer, and
their respective affiliates may have other banking relationships with the
Indenture Trustee and its affiliates in the ordinary course of their businesses.
THE ACCOUNTS
The Servicer will establish and maintain a Collection Account, in the name
of the Indenture Trustee on behalf of the Noteholders and the
Certificateholders, into which payments made on or with respect to the
Receivables and Advances made by the Servicer will be deposited and into which
amounts on deposit in the Reserve Accounts may be transferred from time to time,
other than certain amounts payable to the Servicer under the Sale and Servicing
Agreement that are not required to be so deposited or transferred. The Servicer
will also establish and maintain (i) an account, in the name of the Indenture
Trustee on behalf of the Noteholders, in which amounts released from the
Collection Account for distribution to Noteholders will be deposited and from
which all payments to Noteholders will be made (the "Note Distribution
Account"), and (ii) an account, which will be held in trust in the name of the
Owner Trustee for the benefit of the Certificateholders, in which amounts
released from the Collection Account for distribution to Certificateholders will
be deposited and from which all payments to Certificateholders will be made (the
"Certificate Distribution Account").
The Servicer will also establish and maintain an account (the "Payahead
Account"), in the name of the Indenture Trustee on behalf of the Noteholders and
the Certificateholders, in which
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early payments with respect to Receivables by or on behalf of the Obligors which
constitute neither current scheduled payments nor full prepayments ("Payaheads")
will be deposited until such time as the payment falls due or until such funds
are applied to shortfalls in the scheduled payments with respect to Receivables.
Amounts in the Payahead Account will be permitted to be held by the Servicer if
either (a) each Monthly Remittance Condition is satisfied or (b) a Monthly
Remittance Condition is not satisfied but such failure will not affect the
rating of any Class of the Notes by the Rating Agencies. Until such time as
payments are transferred from the Payahead Account to the Collection Account,
they will not constitute collected interest or collected principal, and will not
be available for distribution to the Noteholders or the Certificateholders.
Investment earnings (net of losses and investment expenses) on amounts on
deposit in the Payahead Account will be payable to the Collection Account.
The Servicer will also establish the Class A Reserve Account, in the name
of the Indenture Trustee on behalf of the Class A Noteholders, and the Class B
Reserve Account, which will be held in trust in the name of the Owner Trustee
for the benefit of the Class B Certificateholders. The Collection Account, the
Note Distribution Account, the Certificate Distribution Account, the Reserve
Accounts and the Payahead Account are collectively referred to as the
"Accounts."
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 (a) the corporate trust department of the Owner
Trustee, the Indenture Trustee or The Chase Manhattan Bank so long as it may be
the Paying Agent under the Trust Agreement or (b) any depository institution
with trust powers, 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), 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 (except with respect to any domestic branch of a
foreign bank), 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 A from S&P with respect to long-term unsecured debt
obligations.
Funds in the Accounts will be invested in Permitted Investments as provided
in the Sale and Servicing Agreement. "Permitted Investments" generally will be
limited to investments acceptable to each Rating Agency as being consistent with
the ratings of the Notes. Permitted Investments generally will be limited to
obligations or securities that mature not later than the Business Day
immediately preceding the next Payment Date (or the payment Due Date, in the
case of a Payahead). Any earnings (net of losses and investment expenses) on
amounts on deposit in the Collection Account will remain on deposit therein
pending distribution of all funds on deposit therein in accordance with the
Indenture and the Sale and Servicing Agreement; any earnings (net of losses and
investment expenses) on amounts on deposit in the Payahead Account will be paid
to the Collection Account for distribution with all funds on deposit in the
Collection Account in accordance with the Indenture and the Sale and Servicing
Agreement; and any earnings (net of losses and investment expenses) on, and any
amounts released from, the Class A Reserve Account and the Class B Reserve
Account will be distributed to the Seller; provided that earnings on amounts on
deposit in the Class A Reserve Account and in the Class B Reserve Account will
be distributed to the Seller only to the extent that (i) the amounts on deposit
in the Class A Reserve Account exceed the
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Specified Class A Reserve Balance and (ii) the amounts on deposit in the Class B
Reserve Account exceed the Specified Class B Reserve Balance.
THE INDENTURE CASH FLOWS
Deposits to the Collection Account. On or before the earlier of (a) the
16th calendar day of each month and (b) the third Business Day preceding the
Payment Date in each month (the "Determination Date"), of the month in which a
Payment Date occurs, the Servicer will calculate the Available Funds, the Total
Servicing Fee, the Accrued Interest on each Class of Notes and on the
Certificates and the Principal Distribution Amount with respect to each Class of
Notes and the Certificates, if any, in each case with respect to such Payment
Date.
On or before each Payment Date, the Servicer will cause the Available Funds
for such Payment Date to be deposited into the Collection Account. Additionally,
if the Class A-1 Notes are still outstanding after the December 1999 Payment
Date, an additional Determination Date will be established on January 2, 2000
with respect to the Class A-1 Final Payment Date and the foregoing calculations
and deposits will be made for the Class A-1 Final Payment Date, and the deposits
and payments to be made on each Payment Date as described below will occur with
respect to the Class A-1 Notes on January 3, 2000.
The "Available Funds" for a Payment Date to be deposited into the
Collection Account shall equal the sum of the following amounts with respect to
the immediately preceding Collection Period: (i) all collections on the
Receivables including Payaheads withdrawn from the Payahead Account but
excluding Payaheads deposited into the Payahead Account; (ii) all proceeds of
the liquidation of Receivables which became Defaulted Receivables during the
related Collection Period, net of expenses incurred by the Servicer in
connection with such liquidation and any amounts required by law to be remitted
to the Obligor on such Defaulted Receivable ("Liquidation Proceeds"); (iii) 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"); (iv) all Advances made by
the Servicer of principal or interest due on the Receivables; (v) all proceeds
from claims on physical damage, credit life and disability insurance policies
covering the Financed Vehicles or the Obligors and (vi) the Purchase Amount of
each Receivable that was repurchased by the Seller or purchased by the Servicer
under an obligation which arose during or prior to the related Collection Period
(net of applicable expenses) (each such Receivable, a "Purchased Receivable").
The Available Funds on any Payment 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 on prior Payment Dates;
(ii) Liquidation Proceeds and Recoveries with respect to a particular
Receivable to the extent of any unreimbursed Advances for prior Collection
Periods;
(iii) administrative fees and charges and late payment fees and
charges collected on the Receivables (other than fees paid in connection
with the extension or deferral of payments on a Receivable); and
(iv) investment earnings and interest earned on the Reserve Accounts.
A "Defaulted Receivable" is a Receivable which by its terms is in default
and as to which (a) a Scheduled Payment is 240 or more days past due, (b) the
Servicer has determined, in accordance with its customary servicing procedures,
that eventual payment in full is unlikely and the outstanding balance of the
Receivable has been charged-off or (c) the Servicer has repossessed and disposed
of the related Financed Vehicle.
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Monthly Withdrawals from Collection Account. On each Payment Date, upon
receipt of instructions from the Servicer, the Indenture Trustee will (i)
withdraw from the Collection Account and pay to the Servicer any amounts
required to reimburse the Servicer for any outstanding Advances for any prior
Collection Periods, and thereafter, (ii) withdraw (A) all Available Funds on
deposit in the Collection Account for the related Collection Period and (B) the
additional amounts from the sources specified below and make the following
payments and deposits from the sources specified below for such Payment Date in
the following order of priority:
(i) to the Servicer, the Total Servicing Fee, such amount to be paid,
first, from Available Funds in the Collection Account, second, from the
Class B Reserve Account, and third, from the Class A Reserve Account;
(ii) to the Note Distribution Account, the Accrued Interest on each
Class of Notes, such amount to be paid, first, from Available Funds in the
Collection Account, and second, from the Class A Reserve Account;
(iii) to the Certificate Distribution Account, the Accrued Interest on
the Certificates, such amount to be paid first, from Available Funds in the
Collection Account, and second, from the Class B Reserve Account;
(iv) to the Note Distribution Account, the Principal Distribution
Amount with respect to each Class of Notes, such amount to be paid, first,
from Available Funds in the Collection Account, and second, from the Class
A Reserve Account;
(v) to the Certificate Distribution Account, the Principal
Distribution Amount with respect to the Certificates, such amount to be
paid first, from Available Funds in the Collection Account, and second,
from the Class B Reserve Account;
(vi) to the Class A Reserve Account, from Available Funds in the
Collection Account, the amount required to bring the amount in the Class A
Reserve Account up to the Specified Class A Reserve Balance;
(vii) to the Class B Reserve Account, from Available Funds in the
Collection Account, the amount required to bring the amount in the Class B
Reserve Account up to the Specified Class B Reserve Balance; and
(viii) to the Seller, any remaining Available Funds in the Collection
Account.
Notwithstanding the foregoing, following the occurrence and during the
continuation of an Event of Default which has resulted in an acceleration of the
Notes, the Available Funds remaining after the application of clauses (i) and
(ii) above and the payment of certain amounts to the Indenture Trustee will be
deposited in the Note Distribution Account to the extent necessary to reduce the
principal amount of the Notes to zero.
For purposes hereof, the following terms have the following meanings:
"Accrued Interest" means, with respect to any Payment Date and each Class
of Notes and the Class B Certificates, as applicable, the sum of the Monthly
Accrued Interest and the Interest Carryover Shortfall for such Class of Notes or
for the Certificates for such Payment Date.
"Certificate Balance" means, $81,654,551.40 and, thereafter, equals the
initial Certificate Balance minus all amounts paid as principal on the Class B
Certificates.
"Interest Carryover Shortfall" means, with respect to any Payment Date and
any Class of Notes or the Certificates, as applicable, the excess of (i) the sum
of the Monthly Accrued Interest for the preceding Payment Date and any
outstanding Interest Carryover Shortfall from the close of business on such
preceding Payment Date, over (ii) the amount in respect of interest that is
actually deposited in the Note Distribution Account and the Certificate
Distribution Account, as applicable, on such preceding Payment Date with respect
to such Class of Notes or the Certificates, as applicable,
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plus interest on such excess, to the extent permitted by law, at the applicable
Interest Rate for the related Interest Period.
"Interest Rates" means in the case of (i) the Class A-1 Notes, 5.27125% per
annum, (ii) the Class A-2 Notes, 5.23% per annum, (iii) the Class A-3 Notes,
5.16% per annum, (iv) the Class A-4 Notes, 5.22% per annum and (v) the Class B
Certificates, 5.62% per annum. Interest on the Class A-1 Notes will be
calculated on the basis of the actual number of days elapsed and a 360-day year,
and interest on the Class A-2 Notes, the Class A-3 Notes, the Class A-4 Notes
and the Class B Certificates will be calculated on the basis of a 360-day year
consisting of twelve 30-day months.
"Monthly Accrued Interest" means, with respect to any Payment Date and (i)
any Class of Notes or the Certificates, as applicable, interest accrued for the
related Interest Period at the applicable Interest Rate on the aggregate
principal balance of the Notes of such Class or of the Certificate Balance, as
applicable, as of the immediately preceding Payment Date, after giving effect to
all payments of principal to Noteholders or to Certificateholders, as
applicable, on or prior to such preceding Payment Date (or, in the case of the
first Payment Date, the initial principal amount of the Notes and the initial
Certificate Balance of the Certificates); and (ii) with respect to the Notes
collectively, the sum of Monthly Accrued Interest for each Class.
"Principal Carryover Shortfall" means, as of the close of business on any
Payment Date, with respect to any Class of Notes or the Certificates, as
applicable, the excess of the Principal Distribution Amount and any outstanding
Principal Carryover Shortfall from the preceding Payment Date over the amount in
respect of principal that is actually deposited in the Note Distribution Account
and the Certificate Distribution Account, as applicable, on such Payment Date.
"Principal Distribution Amount" means, with respect to any Payment Date,
and with respect to any Class of Notes or the Certificates, as applicable, the
sum of (i) the Scheduled Principal for such Payment Date plus (ii) any
outstanding Principal Carryover Shortfall as of the close of business on the
preceding Payment Date; provided, however, that the Principal Distribution
Amount shall not exceed the outstanding aggregate principal balance of the Notes
and the Certificate Balance, as applicable; and provided, further, that, on the
Final Payment Date for each Class of Notes or for the Certificates, as
applicable, the amount required to be deposited in the Note Distribution Account
to pay principal of the Notes and the amount required to be deposited in the
Certificate Distribution Account to pay the Certificate Balance, as applicable,
will include the amount necessary (after giving effect to the other amounts to
be deposited in the Note Distribution Account and the Certificate Distribution
Account, as applicable, on such Payment Date and allocable to principal or the
Certificate Balance) to reduce the outstanding principal amount of such Class of
Notes or of the Certificates to zero.
"Scheduled Principal" shall mean, with respect to any Payment Date, the sum
of (a) the principal portion of each Scheduled Payment due on any Receivable
during the related Collection Period, (b) (without duplication of amounts taken
into account under (a)) the outstanding principal balance of (i) Receivables
prepaid in full during the related Collection Period, and (ii) Receivables which
became Defaulted Receivables during the related Collection Period, (c) the
Purchase Amount of each Receivable that was purchased or repurchased by the
Seller or the Servicer during such Collection Period, to the extent attributable
to principal, and (d) (without duplication of amounts taken into account under
(b)) the proceeds of any other sale of a Receivable to the extent allocable to
principal; provided, however, that in calculating the Scheduled Principal, all
payments and proceeds (including Liquidation Proceeds) of any Purchased
Receivables the Purchase Amount of which has been included in Scheduled
Principal in a prior Collection Period (which shall be paid to the Seller or
Servicer, as applicable) will be excluded.
"Total Required Payment" means, on any Payment Date, the Total Servicing
Fee, the Accrued Interest with respect to the Notes and the Principal
Distribution Amount with respect to the Notes.
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On each Payment Date, unless the maturity dates of the Notes have been
accelerated following the occurrence of an Event of Default, all amounts on
deposit in the Note Distribution Account will be paid in the following order of
priority:
(a) to the Class A Noteholders, Monthly Accrued Interest (and, if
amounts on deposit in the Note Distribution Account are insufficient for
such purpose, payments shall be made to the Class A Noteholders pro rata in
proportion to the Accrued Interest for each Class of Class A Notes);
(b) to the Class A-1 Noteholders, 100% of the Principal Distribution
Amount in reduction of principal until the principal amount of the Class
A-1 Notes has been paid in full;
(c) following payment in full of the Class A-1 Notes, to the Class A-2
Noteholders, 100% of the remaining Principal Distribution Amount in
reduction of principal until the principal amount of the Class A-2 Notes
has been paid in full;
(d) following payment in full of the Class A-2 Notes, to the Class A-3
Noteholders, 100% of the remaining Principal Distribution Amount in
reduction of principal until the principal amount of the Class A-3 Notes
has been paid in full; and
(e) following payment in full of the Class A-3 Notes, to the Class A-4
Noteholders, 100% of the remaining Principal Distribution Amount in
reduction of principal until the principal amount of the Class A-4 Notes
has been paid in full.
On each Payment Date occurring on or after the acceleration of the maturity
dates of the Notes following the occurrence of an Event of Default, all amounts
on deposit in the Note Distribution Account will be paid: (a) to the Indenture
Trustee, certain expenses and other amounts payable to the Indenture Trustee;
(b) to the Servicer for any unreimbursed Advances for prior Collection Periods;
(c) to the Servicer, the amounts due and unpaid in respect of Total Servicing
Fees; (d) to the Class A Noteholders, Monthly Accrued Interest ratably in
proportion to Accrued Interest for each Class of Notes, without preference or
priority of any kind, according to the amounts due and payable on the Notes for
interest; (e) to the Class A Noteholders, pro rata in proportion to the
respective principal balances of the Class A-1 Notes, the Class A-2 Notes, the
Class A-3 Notes and the Class A-4 Notes in reduction of principal until each
such Class has been paid in full; and (f) to the Certificate Distribution
Account for distribution to Certificateholders in reduction of the Certificate
Balance.
SUBORDINATION OF THE CLASS B CERTIFICATES; RESERVE ACCOUNTS
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 Indenture, to the rights of the Class A Noteholders in the event of
defaults and delinquencies on the Receivables. Thus, the Class B
Certificateholders generally will not receive distributions of interest on a
Payment Date (other than from the Class B Reserve Account) unless the Class A
Noteholders receive the full amount of interest due to them on such Payment Date
(including from amounts on deposit in the Class A Reserve Account), and the
Class B Certificateholders will not receive distributions of principal on a
Payment Date (other than from the Class B Reserve Account) unless the Class A
Noteholders shall have received payment of the full amount of principal of the
Notes (including from amounts on deposit in the Class A Reserve Account).
In addition, the Seller will not receive distributions on any Payment Date
unless all interest and principal due to the Class A Noteholders and interest
and Certificate Balance due to the Class B Certificateholders have been paid and
amounts have been deposited in each Reserve Account at least equal the Specified
Class A Reserve Balance or the Specified Class B Reserve Balance, as the case
may be.
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In the event of losses and delinquencies on the Receivables, the protection
afforded to the Class A Noteholders will be effected by the application of
Available Funds for each Payment Date in the priority specified under "-- The
Indenture Cash Flows." In addition, the Class A Noteholders will have the
benefit of the Class A Reserve Account.
The Class A Reserve Account will be an Eligible Deposit Account initially
held by the Indenture Trustee. On each Payment Date, if the amounts on deposit
in the Class A Reserve Account are less than the Specified Class A Reserve
Balance, the Indenture Trustee will, after payment of amounts required to be
distributed to the Class A Noteholders and Class B Certificateholders, the
reimbursement of any unpaid Advances and the payment of the Total Servicing Fee
due with respect to the related Collection Period (including any unpaid Total
Servicing Fees with respect to prior Collection Periods) withdraw from the
Collection Account and deposit in the Class A Reserve Account the amount
remaining in the Collection Account that would otherwise be distributed to the
Seller, or such lesser portion thereof as is sufficient to restore the amount in
the Class A Reserve Account to such Specified Class A Reserve Balance. If the
amount on deposit in the Class A Reserve Account on such Payment Date (after
giving effect to all deposits or withdrawals therefrom on such Payment Date) is
greater than the Specified Class A Reserve Balance for such Payment Date, the
Indenture Trustee will release such excess amount from the Class A Reserve
Account and (i) deposit such excess amount in the Class B Reserve Account 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 such amounts in the Class B Reserve Account or distribution to
the Seller, the Class A Noteholders will not be entitled to any payment from
such amounts pursuant to the Indenture.
The Class A Reserve Account will be established for the benefit of the
Noteholders to cover shortfalls in amounts due to the Class A Noteholders and
the Class B Reserve Accounts will be established for the benefit of the
Certificateholders to cover shortfalls in amounts due to the Class A
Certificateholders. Amounts on deposit from time to time in the Class A Reserve
Account and Class B Reserve Account will be invested in Permitted Investments
maturing on or prior to the next succeeding Payment Date; provided, however,
that to the extent permitted by the Rating Agencies, amounts on deposit in the
Class A Reserve Account and the Class B Reserve Account may be invested in
Permitted Investments that mature later than the next succeeding Payment Date.
To the extent the amounts on deposit in either Reserve Account exceed the
Specified Class A Reserve Balance or the Specified Class B Reserve Balance,
respectively, the Seller will be entitled to receive all investment earnings on
amounts in the Reserve Accounts, and investment earnings on amounts in the
Reserve Accounts will not be available for distribution to the Noteholders or
Certificateholders or otherwise subject to any claims or rights of the Class A
Noteholders or the Class B Certificateholders.
The ability of the Class A Reserve Account 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 Account are intended to enhance the likelihood of receipt by Class A
Noteholders of the full amount of principal of and interest on the Notes due to
them and to decrease the likelihood that the Class A Noteholders will experience
losses. However, in certain circumstances, the Class A Reserve Account could be
depleted and shortfalls could result.
The Class A Reserve Account will be funded by the Seller with cash or
Permitted Investments maturing on or prior to the initial Payment Date and
having, on the Closing Date, a value of approximately $40,786,363.79 (the "Class
A Reserve Initial Deposit"). The Class A Reserve Initial Deposit will be
augmented on each Payment Date by the deposit in the Class A Reserve Account of
Available Funds to the extent necessary to maintain the amount in the Class A
Reserve Account at an amount equal to the Specified Class A Reserve Balance.
Amounts in the Class A Reserve
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Account on any Payment Date (reduced by the amount of all distributions made on
such Payment Date) in excess of the Specified Class A Reserve Balance for such
Payment Date will be released for (i) deposit into the Class B Reserve Account
or (ii) to the extent the amount on deposit therein is equal to the Specified
Class B Reserve Balance, payment to the Seller.
The "Specified Class A Reserve Balance", with respect to the Closing Date,
will equal $40,786,363.79, and with respect to any Payment Date, will equal
$57,100,909.30, except where on any Payment 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 charged-off 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 2.25% or (ii) the average for the preceding three
Collection Periods of the ratios of (a) the sum of (1) the balance of
Receivables that are delinquent 61 days or more plus (2) the balance of
Receivables for any Contracts relating to repossessed Vehicles which, in both
cases, have not been charged-off to (b) such outstanding Pool Balance exceeds
4.25%, then the Specified Class A Reserve Balance for such Payment Date will
equal $65,258,182.06.
The Seller may reduce the Specified Class A Reserve Balance provided that
(a) both Rating Agencies confirm in writing to the Indenture Trustee 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 any Class of Notes and (b) an
Opinion of Counsel is delivered to the Indenture Trustee to the effect that the
proposed change will not adversely affect the status of the Notes as debt.
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.
ADVANCES
As of the close of business on the last day of each Collection Period, if
the payments during such Collection Period by or on behalf of the Obligor on or
in respect of a Receivable (other than a Purchased Receivable) are less than the
Scheduled Payment in respect of such Receivable, the Payahead Balance for such
Receivable will be applied by the Indenture Trustee to the extent of the
shortfall, and such Payahead Balance will be reduced accordingly. On the related
Payment Date, the Servicer will make an advance to the extent of any remaining
shortfall in respect of such Receivable (such advance, an "Advance"); provided
that no successor Servicer will be required to make Advances.
"Payahead Balance" means, with respect to a Receivable, the sum, as of the
close of business 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 in accordance with the Sale and Servicing Agreement.
The Servicer will recoup Advances from subsequent payments by or on behalf
of the respective Obligor or from insurance, Liquidation Proceeds or Recoveries
with respect to such 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
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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.
If MBCC is replaced in its capacity as Servicer, the successor Servicer
will not be required to make Advances. In the absence of Advances by the
Servicer, Noteholders must rely for payment of the Notes upon payments on the
Receivables (including sales proceeds of Financed Vehicles returned to the
Servicer for sale) and, to the extent available, amounts on deposit in the Class
A Reserve Account. See "-- The Indenture Cash Flows" and "-- Subordination of
the Class B Certificates; Reserve Accounts."
COLLECTIONS ON THE RECEIVABLES
The Servicer will deposit all payments on Receivables, including
Liquidation Proceeds, but excluding certain amounts payable to the Servicer
under the Sale and Servicing 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 Sale and Servicing Agreement on each
Payment Date is unconditionally guaranteed by DBNA pursuant to a guaranty
agreement in favor of the Owner 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 any Class of Notes as confirmed in writing by the
Rating Agencies,
in which case such amounts will be paid into the Collection Account on the
Payment Date.
The Seller or the Servicer will also deposit into the Collection Account on
the Payment 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, the Servicer will cause the subservicer to remit to the
Collection Account the amounts collected by such subservicer on or with respect
to the Receivables being serviced by it, within the period after receipt, and
subject to the limitations, described above. See "Description of the Transfer
and Servicing Agreements -- Servicing Procedures."
As an administrative convenience, unless the Servicer is required to remit
collections within two Business Days of receipt thereof, the Servicer will be
permitted to make the deposit of collections and Purchase Amounts for or with
respect to the Collection Period net of distributions to be made to the Servicer
with respect to the Collection Period. The Servicer, however, will account to
the Indenture Trustee and the Noteholders as if all deposits, distributions and
transfers were made individually.
STATEMENTS TO NOTEHOLDERS
On or prior to each Payment Date, the Servicer will prepare and provide to
the Indenture Trustee a statement to be delivered to the Noteholders. Each such
statement to be delivered to
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Noteholders will include the following information as to the Notes with respect
to such Payment Date and the related Collection Period:
(i) the amount of the payment allocable to principal of each Class of
Notes;
(ii) the amount of the payment allocable to interest on or with
respect to each Class of Notes;
(iii) the amount of the Total Servicing Fee with respect to such
Collection Period;
(iv) the aggregate outstanding principal amount of each Class of the
Notes and the applicable Note Pool Factor (calculated as of the close of
business on the last day of the preceding Collection Period), after giving
effect to payments allocated to principal reported under clause (i) above;
(v) the Pool Balance (calculated as of the close of business on the
last day of the preceding Collection Period);
(vi) the amounts of the Interest Carryover Shortfall and the Principal
Carryover Shortfall, if any, for such Payment Date and the portion thereof
attributable to each Class of Notes;
(vii) the balance of Class A Reserve Account on such Payment Date,
after giving effect to changes therein on such Payment Date; and
(viii) the aggregate Purchase Amount of Receivables repurchased by the
Seller or purchased by the Servicer, if any, with respect to the related
Collection Period.
Each amount set forth pursuant to clauses (i), (ii), (iv) and (vi) above
will be expressed in the aggregate and as a dollar amount per $1,000 of original
denomination of the Notes or Class of Notes, as applicable. Copies of such
statements may be obtained by Note Owners by a request in writing addressed to
the Indenture Trustee.
Within a reasonable period of time after the end of each calendar year, but
not later than the latest date permitted by law, the Indenture Trustee will
furnish to each person who at any time during such calendar year was a
Noteholder a statement containing the sum of the amounts described in clauses
(i), (ii), (iii) and (vii) above for the purposes of such Noteholder's
preparation of Federal income tax returns. See "-- Book Entry Registration" and
"Certain Federal Income Tax Consequences."
INDENTURE
Events of Default. The "Events of Default" in the Indenture consist of (i)
a default for five days or more in the payment of interest on any Note when the
same becomes due and payable if such default continues for a period of five days
or more; (ii) a default in the payment of principal of, or any installment of
principal of, any Note when the same becomes due and payable; (iii) a default in
the observance or performance of any material covenant or agreement of the Trust
made in the Indenture, or any representation or warranty of the Trust made in
the Indenture or in any certificate or writing delivered pursuant thereto proves
to have been incorrect in any material respect as of the time when made, and the
continuation of such default for a period of 60 days or in the case of a
materially incorrect representation or warranty, 30 days, after notice thereof
is given to the Trust by the Indenture Trustee or the Trust and the Indenture
Trustee by the Holders of not less than 25% of the aggregate principal amount of
the outstanding Notes of all Classes; or (iv) certain events of bankruptcy,
insolvency, receivership or liquidation of the Trust. (Indenture, Section 5.1).
Noteholders holding not less than a majority of the aggregate principal
amount of the Notes outstanding, voting as a group, may waive any past default
or Event of Default prior to the declaration of the acceleration of the maturity
of the Notes, except a default (i) in payment of principal of or interest on any
of the Notes or (ii) in respect of any covenant or provision in the Indenture
which cannot be modified or amended without unanimous consent of the
Noteholders.
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(Indenture, Section 5.12). Any such waiver could be treated, for Federal income
tax purposes, as a constructive exchange of the Notes by the Noteholders for
deemed new Notes upon which gain or loss would be recognized.
Remedies. If an Event of Default should occur and be continuing, the
Indenture Trustee or the Holders of a majority of the aggregate outstanding
principal amount of the outstanding Notes of all Classes, voting as a group, may
declare the principal of the Notes of all Classes to be immediately due and
payable. Such declaration may be rescinded by the Holders of a majority of the
aggregate principal amount of the outstanding Notes before a judgment or decree
for payment of the amount due has been obtained by the Indenture Trustee if (i)
the Trust has deposited with the Indenture Trustee an amount sufficient to pay
(x) all amounts advanced by the Indenture Trustee and its costs and expenses and
(y) all interest on and principal of the Notes and all other amounts that would
be due under the Indenture if the Event of Default giving rise to such
declaration had not occurred and (ii) all Events of Default (other than the
nonpayment of principal of the Notes that has become due solely by such
acceleration) have been cured or waived. (Indenture, Section 5.2). Any such
rescission could be treated, for Federal income tax purposes, as a constructive
exchange of the Notes by the Noteholders for deemed new Notes upon which gain or
loss would be recognized.
If the Notes have been declared due and payable following an Event of
Default, the Indenture Trustee may institute proceedings to collect amounts due,
exercise remedies as a secured party, including foreclosure or sale of the
Collateral, or elect to maintain the Collateral and continue to apply proceeds
from the Collateral as if there had been no declaration of acceleration. The
Indenture Trustee may not, however, sell the Collateral following an Event of
Default, other than a default in the payment of any principal, or a default for
five days or more in the payment of any interest on the Notes, unless (i) 100%
of the Noteholders consent thereto, (ii) the proceeds of such sale are
sufficient to pay in full the principal of and the accrued interest on the then
outstanding Notes or (iii) the Indenture Trustee determines that the Collateral
would not be sufficient on an ongoing basis to make all payments on the Notes as
such payments would have become due if such obligations had not been declared
due and payable, and the Indenture Trustee obtains the consent of Holders of
66 2/3% of the aggregate principal amount of the outstanding Notes, voting as a
group, to such sale. The Indenture Trustee may, but need not, obtain and
conclusively rely upon an opinion of an independent accountant or investment
banking firm as to feasibility of such action and the sufficiency of the
Collateral to pay interest on and principal of the Notes on an ongoing basis.
(Indenture, Sections 5.4 and 5.5).
In the event of a sale of the Collateral following the occurrence of an
Event of Default under the circumstances described in the preceding paragraph
pursuant to the direction of the Indenture Trustee or the Noteholders, the
proceeds of such sale will be distributed, first, to the Indenture Trustee for
amounts due as compensation or indemnity payments pursuant to the terms of the
Indenture; second, to the Servicer for amounts due in respect of any
unreimbursed Advances; third, to the Servicer for due and unpaid Total Servicing
Fees; fourth, to the Noteholders for interest which is due and unpaid; fifth, to
the Noteholders for principal which is due and unpaid. Any remaining amounts
will be distributed to the Certificateholders for amounts due and unpaid in
accordance with the terms of the Indenture, the Trust Agreement and the Sale and
Servicing Agreement. (Indenture, Section 5.4).
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, in case an Event of Default occurs and is continuing with
respect to the Notes, the Indenture Trustee will be under no obligation to
exercise any of the rights or powers under the Indenture at the request or
direction of any of the Noteholders, if the Indenture Trustee reasonably
believes it will not be adequately indemnified against the costs, expenses and
liabilities which might be incurred by it in complying with such request.
Subject to such provisions for indemnification and certain limitations contained
in the Indenture, the Holders of not less than a majority of the aggregate
principal amount of the outstanding Notes, voting as a group, will have the
right to direct the time, method and place of conducting any proceeding or any
remedy available to the Indenture Trustee with respect to the
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Notes or exercising any trust power conferred on the Indenture Trustee, subject
to certain limitations, and prior to the acceleration of the maturity of the
Notes, the Holders of not less than a majority of the aggregate principal amount
of the outstanding Notes, voting as a group, may, in certain cases, waive any
default with respect thereto, except a default in the payment of principal or
interest or a default in respect of a covenant or provision of the Indenture
that cannot be modified without the waiver or consent of all of the Holders of
the outstanding Notes. (Indenture, Sections 5.11 and 5.12). Until such time, if
any, as Definitive Notes have been issued, the Indenture Trustee will act only
in accordance with the instructions of Cede, as nominee for DTC. However, under
the rules, DTC will act only in accordance with the instructions of the DTC
Participants to whom Notes are credited, which will in turn act in accordance
with the instructions of persons holding beneficial interests in such Notes
through such DTC Participants. Accordingly, although only Cede will be entitled
to vote under the Indenture, Note Owners will be entitled to instruct DTC as to
the manner in which to vote.
No Noteholder will have the right to institute any proceeding with respect
to the Indenture, unless (i) such Noteholder previously has given to the
Indenture Trustee written notice of a continuing Event of Default, (ii) the
Holders of not less than 25% of the aggregate principal amount of the Notes
outstanding have made written request of the Indenture Trustee to institute such
proceeding in its own name as Indenture Trustee, (iii) such Noteholder or
Noteholders have offered the Indenture Trustee reasonable indemnity satisfactory
to the Indenture Trustee, (iv) the Indenture Trustee has for 60 days failed to
institute such proceeding after its receipt of written notice and its request
and the offer of the required indemnity and (v) no direction inconsistent with
such written request has been given to the Indenture Trustee during such 60-day
period by the holders of a majority of the aggregate principal amount of the
Notes outstanding. (Indenture, Section 5.6).
Neither the Indenture Trustee nor the Owner Trustee in their respective
individual capacities, nor any Holder of a Certificate, nor any of their
respective owners, beneficiaries, agents, officers, directors, employees,
successors or assigns will, in the absence of an express agreement to the
contrary, be personally liable for the payment of interest on or principal of
the Notes or for the agreements of the Trust and the Owner Trustee, in its
capacity as trustee, contained in the Indenture.
Certain Covenants. The Trust will not, among other things, (i) except as
expressly permitted by the Indenture, the Transfer and Servicing Agreements or
certain related documents (collectively, the "Basic Documents") sell, transfer,
exchange or otherwise dispose of any of the assets of the Trust, (ii) claim any
credit on or make any deduction from the principal or interest payable in
respect of the Notes (other than amounts withheld under the Code or applicable
state law) or assert any claim against any present or former Holder of Notes
because of the payment of taxes levied or assessed upon the Trust, (iii)
dissolve or liquidate in whole or in part or (iv) permit (w) the validity or
effectiveness of the Indenture to be impaired, (x) any person to be released
from any covenants or obligations with respect to the Notes under the Indenture
except as may be expressly permitted thereby, (y) any lien, charge, excise,
claim, security interest, mortgage or other encumbrance to be created on or
extend to or otherwise arise upon or burden the assets of the Trust or any part
thereof, or any interest therein or the proceeds therefrom or (z) the lien of
the Indenture not to constitute a valid, first priority (other than with respect
to any such tax, mechanics or other lien) security interest in the Collateral.
(Indenture, Section 3.8).
The Trust may not engage in any activities other than financing, acquiring,
owning, pledging and managing the Receivables and activities incidental thereto.
(Indenture, Section 3.12).
The Trust will not incur, assume or guarantee any indebtedness other than
indebtedness incurred pursuant to the Notes, or otherwise in accordance with the
Basic Documents. (Indenture, Section 3.13).
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The Trust will not make any payments to Certificateholders in respect of
their Certificates for any Collection Period unless the Accrued Interest on the
Notes and the Total Servicing Fee have been provided for.
The Trust will or will cause the Servicer to deliver to the Indenture
Trustee on or prior to each Payment Date the disbursement and payment
instructions as required pursuant to the Indenture. (Sale and Servicing
Agreement, Section 4.9).
Replacement of Indenture Trustee. Noteholders holding not less than a
majority of the aggregate principal amount of the outstanding Notes, voting as a
group, may remove the Indenture Trustee without cause by so notifying the
Indenture Trustee and the Trust, and following such removal may appoint a
successor Indenture Trustee. Any successor Indenture Trustee must at all times
satisfy the requirements of Section 310(a) of the Trust Indenture Act of 1939,
as amended, and must have a combined capital and surplus of at least $50,000,000
and a long-term debt rating of investment grade by each Rating Agency or
otherwise acceptable to each Rating Agency. (Indenture, Sections 6.8 and 6.11).
The Indenture Trustee may resign at any time by so notifying the Trust and
the Noteholders. The Trust will be required to remove the Indenture Trustee if
the Indenture Trustee (i) ceases to be eligible to continue as the Indenture
Trustee, (ii) is adjudged a bankrupt or insolvent, (iii) comes under the charge
of a receiver or other public officer, or (iv) otherwise becomes incapable of
acting. Upon the resignation or required removal of the Indenture Trustee, or
the failure of the Noteholders to appoint a successor Indenture Trustee
following the removal without cause of the Indenture Trustee, the Trust will be
required promptly to appoint a successor Indenture Trustee. (Indenture, Section
6.8). No resignation or removal of the Indenture Trustee, or appointment of a
successor Indenture Trustee, will be effective until the acceptance of
appointment by the successor Indenture Trustee pursuant to the Indenture.
Duties of Indenture Trustee. Except during the continuance of an Event of
Default, the Indenture Trustee (i) will perform such duties and only such duties
as are specifically set forth in the Indenture, (ii) may in the absence of bad
faith, conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, on certificates or opinions furnished to the
Indenture Trustee which conform to the requirements of the Indenture, and (iii)
will examine any such certificates and opinions which are specifically required
to be furnished to the Indenture Trustee by the Indenture to determine whether
or not they conform to the requirements of the Indenture. Upon the continuance
of an Event of Default of which a responsible officer of the Indenture Trustee
has actual knowledge, the Indenture Trustee will be required to exercise the
rights and powers vested in it by the Indenture and use the same degree of care
and skill in the exercise thereof as a prudent person would exercise or use
under the circumstances in the conduct of such person's own affairs. (Indenture,
Section 6.1).
Compensation and Indemnity. The Trust will, or will cause the
Administrator to, (i) pay to the Indenture Trustee from time to time reasonable
compensation for its services in accordance with the prevailing fee
arrangements, (ii) reimburse the Indenture Trustee for all reasonable expenses,
advances and disbursements reasonably incurred and (iii) indemnify the Indenture
Trustee for, and hold it harmless against, any and all losses, liability or
expense (including attorneys' fees) incurred by it in connection with the
performance of its duties under the Indenture and under the Basic Documents. The
Indenture Trustee will not be indemnified against any loss, liability or expense
incurred by it through its own willful misconduct, negligence or bad faith,
except that the Indenture Trustee will not be liable (a) for any error of
judgment made by it in good faith unless it is proved that the Indenture Trustee
was negligent in ascertaining the pertinent facts, (b) with respect to any
action it takes or omits to take in good faith in accordance with a direction
received by it from Noteholders in accordance with the terms of the Indenture,
and (c) for interest on any money received by it except as the Indenture Trustee
and the Trust may agree in writing. The Indenture Trustee will not be deemed to
have knowledge of any Event of Default unless an officer of the
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Indenture Trustee has actual knowledge thereof or has received written notice
thereof in accordance with the provisions of the Indenture. (Indenture, Sections
6.1 and 6.7).
Access to Noteholder Lists. If Definitive Notes are issued in the limited
circumstances described herein and the Indenture Trustee is not the registrar
for the Notes, the Trust will furnish or cause to be furnished to the Indenture
Trustee a list of the names and addresses of the Noteholders (i) as of each
Record Date, within five days thereafter and (ii) as of not more than 10 days
prior to the time such list is furnished, within 30 days after receipt by the
Trust of a written request therefor. (Indenture, Section 7.1).
Annual Compliance Statement. The Trust will be required to file annually
with the Indenture Trustee a written statement as to the fulfillment of its
obligations under the Indenture. (Indenture, Section 3.9).
Satisfaction and Discharge of Indenture. The Indenture will be discharged
with respect to the Collateral securing the Notes upon the delivery to the
Indenture Trustee for cancellation of all the Notes or, with certain
limitations, including receipt of certain opinions with respect to tax matters,
upon deposit with the Indenture Trustee of funds sufficient for the payment in
full of all of the Notes (including interest and any fees due and payable to the
Owner Trustee or the Indenture Trustee). (Indenture, Section 4.1).
Modification of Indenture. Without the consent of any Noteholders but with
prior notice to the Rating Agencies, the Owner Trustee, on behalf of the Trust,
and the Indenture Trustee, upon request by the Trust, may execute a supplemental
indenture for the purpose of, among other things, adding to the covenants of the
Trust, curing any ambiguity, correcting or supplementing any provision which may
be inconsistent with any other provision or making any other provision with
respect to matters or questions arising under the Indenture which will not be
inconsistent with other provisions of the Indenture; provided that (x) such
action will not, (i) as evidenced by an opinion of counsel (which may be
internal counsel to the Seller or the Servicer (an "Opinion of Counsel")),
materially adversely affect the interests of any Noteholder and (ii) as
confirmed by each Rating Agency rating any Class of Notes, cause the
then-current rating assigned to any Class of Notes to be withdrawn, reduced or
qualified and (y) an Opinion of Counsel as to certain tax matters is delivered.
(Indenture, Section 9.1).
The Owner Trustee, on behalf of the Trust, and the Indenture Trustee, upon
request by the Trust, may also enter into supplemental indentures, with the
consent of not less than a majority of the Holders of the aggregate principal
amount of the outstanding Notes, voting as a group, and with prior written
notice to each Rating Agency, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the Indenture or
of modifying in any manner the rights of Noteholders; provided, that (x) such
action will not, (i) as evidenced by an Opinion of Counsel, materially adversely
affect the interests of any Noteholder and (ii) as confirmed by each Rating
Agency rating any Class of Notes, cause the then-current rating assigned to any
such Class of Notes to be withdrawn, reduced or qualified and (y) an Opinion of
Counsel as to certain tax matters is delivered. (Indenture, Section 9.2).
Without the consent of the Holder of each outstanding Note affected
thereby, however, no supplemental indenture may (i) change the Final Payment
Date for any Class of Notes or the due date of any installment of principal of
or interest on any Note or reduce the principal amount thereof, the interest
rate specified thereon or the redemption price with respect thereto, change the
provisions of the Indenture relating to the application of collections on, or
the proceeds of the sale of, the Collateral to payment of principal of or
interest on the Notes, or change any place of payment where, or the coin or
currency in which, any Note or any interest thereon is payable, (ii) impair the
right to institute suit for the enforcement of certain provisions of the
Indenture regarding payment, (iii) reduce the percentage of the aggregate
outstanding principal amount of the Notes the consent of the Holders of which is
required for any such supplemental indenture or for any waiver of compliance
with certain provisions of the Indenture or of certain defaults thereunder and
their
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consequences as provided for in the Indenture, (iv) modify or alter the
provisions of the Indenture regarding the voting of Notes held by the Trust, the
Seller, the Servicer, an affiliate of any of them or any obligor on the Notes,
(v) reduce the percentage of the aggregate outstanding principal amount of the
Notes the consent of the Holders of which is required to direct the Indenture
Trustee to sell or liquidate the Collateral if the proceeds of such sale would
be insufficient to pay the principal amount of and accrued but unpaid interest
on the Notes, (vi) modify any provision of the Indenture specifying a percentage
of the aggregate principal amount of the Notes necessary to amend the Indenture
or the other Basic Documents except to increase any percentage specified in the
Indenture or to provide that certain additional provisions of the Indenture or
the Basic Documents cannot be modified or waived without the consent of the
Holder of each outstanding Note affected thereby, (vii) modify any provisions of
the Indenture in such manner as to affect the calculation of the amount of any
payment of interest or principal due on any Note on any Payment Date or to
affect the rights of the Holders of Notes to the benefit of any provisions for
the mandatory redemption of the Notes contained in the Indenture or (viii)
permit the creation of any lien ranking prior to or on a parity with the lien of
the Indenture with respect to any of the Collateral or, except as otherwise
permitted or contemplated in the Indenture, terminate the lien of the Indenture
on any such Collateral or deprive the Holder of any Note of the security
afforded by the lien of the Indenture. (Indenture, Section 9.1).
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The Trust will purchase the Receivables, and the Servicer will undertake to
service the Receivables pursuant to the Sale and Servicing Agreement. The Trust
will be created and the Certificates will be issued pursuant to the Trust
Agreement. MBCC will undertake certain administrative duties with respect to the
Trust pursuant to the Administration Agreement (together with the Sale and
Servicing Agreement and the Trust Agreement, the "Transfer and Servicing
Agreements"). Forms of the Transfer and Servicing Agreements have been filed as
exhibits to the Registration Statement of which this Prospectus forms a part.
The following summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the provisions of the Transfer and
Servicing Agreements.
SALE AND ASSIGNMENT OF THE RECEIVABLES
Prior to the time of issuance of the Notes, pursuant to the Purchase
Agreement, MBCC will sell and assign to the Seller, without recourse, its entire
right, title and interest in, to and under the Receivables, including its
security interests in the Financed Vehicles. At the time of issuance of the
Notes, the Seller will sell and assign to the Trustee, without recourse, the
Seller's entire interest in the Receivables, including its security interests in
the Financed Vehicles. Each Receivable conveyed by the Seller to the Trust will
be identified in a schedule attached to the Sale and Servicing Agreement. The
Owner Trustee will, concurrently with such sale and assignment, execute,
authenticate and deliver the Certificates. The net proceeds received from the
sale of the Notes will be applied to the purchase of the Receivables.
In the Purchase Agreement, MBCC will represent and warrant to the Seller,
and in the Sale and Servicing Agreement the Seller will represent and warrant to
the Owner Trustee, among other things, that (i) the information provided in the
schedule of Receivables is correct in all material respects; (ii) MBCC shall
have determined whether or not the Obligor on each Receivable has obtained
physical damage insurance (which shall not be force-placed insurance) covering
the Financed Vehicle in accordance with its normal requirements; (iii) at the
Closing Date, the Receivables are free and clear of all security interests,
liens, charges, and encumbrances and no setoffs, defenses, or counterclaims
against it have been asserted or threatened; (iv) at the Closing Date, each of
the Receivables is or will be secured by a perfected first priority security
interest in the Financed Vehicle in favor of MBCC; and (v) each Receivable, at
the time it was originated, complied, and at the date of issuance of the Notes,
complies in all material respects with applicable
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Federal and state laws, including consumer credit, truth in lending, equal
credit opportunity and disclosure laws.
The only recourse the Noteholders, the Trust, the Indenture Trustee, the
Certificateholders or the Owner Trustee will have against MBCC and the Seller
for breach of any of the foregoing representations and warranties with respect
to a Receivable will be to require MBCC and the Seller to repurchase the
Receivable. See "-- Mandatory Repurchase of Receivables." The Owner Trustee, the
Indenture Trustee, the Trust and the Servicer will covenant in the Sale and
Servicing Agreement not to institute or join in the institution of any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding,
or other similar proceeding against the Seller for a period of one year and a
day after the payment in full of the principal of, and any accrued and unpaid
interest on, any securities issued by the Seller or by a trust for which the
Seller was the depositor.
To assure uniform quality in servicing the Receivables and to reduce
administrative costs, the Trust will appoint the Servicer as initial custodian
of the Receivables. The Servicer, in its capacity as custodian, will hold the
Receivables and all documents and instruments relating thereto (each, a
"Receivable File"), either directly or through subservicers, on behalf of the
Trust and the Indenture Trustee. 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
Trust will be filed, and the Servicer's accounting records and computer systems
will be marked to reflect such sale and assignment. See "The Trust" and "Certain
Legal Aspects of the Receivables."
MANDATORY REPURCHASE OF RECEIVABLES
In the event of a breach or failure to be true of any representation or
warranty with respect to the Receivables described in "-- Sale and Assignment of
the Receivables," which breach or failure materially and adversely affects the
interest of the Trust in a Receivable, the Seller, unless such breach or failure
has been cured by the last day of the Collection Period which includes the 60th
day after the date on which the Seller becomes aware of, or receives written
notice from the Owner Trustee or the Servicer of, such breach or failure, will
be required to repurchase the Receivable from the Trust, and MBCC will be
required to repurchase such Receivable from the Seller, for the Purchase Amount.
The Purchase Amount will be payable on the Payment Date immediately following
such Collection Period. The obligation of the Seller to repurchase a Receivable
will not be conditioned on performance by MBCC of its obligation to repurchase a
Receivable. The repurchase obligation will constitute the sole remedy available
to the Noteholders, the Trust, the Indenture Trustee, the Certificateholders or
the Owner Trustee against the Seller and MBCC for any such uncured breach or
failure.
The "Purchase Amount" means, with respect to a Payment Date and a
Receivable to be purchased or repurchased on such Payment Date by the Seller or
the Servicer, an amount equal to the sum of (a) the outstanding Principal
Balance of such Receivable as of the first day of the Collection Period
preceding the Collection Period in which such Payment Date occurred and (b) an
amount equal to the amount of accrued and unpaid interest on such Principal
Balance at the related APR from the date a payment was last made by or on behalf
of the Obligor through the Due Date for such Receivable in the Collection Period
preceding the Collection Period in which such Payment Date occurred and in the
case of clauses (a) and (b), after giving effect to the receipt of monies
collected on such Receivable in such preceding Collection Period.
SERVICING PROCEDURES
The Servicer will make reasonable efforts to collect all payments due with
respect to the Receivables in a manner consistent with the Sale and Servicing
Agreement and will exercise the
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degree of skill and care that the Servicer exercises with respect to comparable
motor vehicle and commercial vehicle receivables owned and/or serviced by the
Servicer for itself or others.
Although it has no current plans to do so, the Servicer may enter into
subservicing agreements with Eligible Servicers for the subservicing of
Receivables. Any such subservicing agreements will contain provisions
substantially identical to those contained in the Sale and Servicing Agreement
and may contain such other provisions as are not inconsistent with the terms of
the Sale and Servicing Agreement. The Servicer may terminate a subservicing
agreement and either service the related Receivables directly or enter into a
new subservicing agreement for such Receivables with another subservicer,
provided, that any such subservicer is an Eligible Servicer. Notwithstanding any
subservicing agreement, the Servicer will remain obligated and liable to the
Trust and the Owner Trustee for servicing and administering the Receivables in
accordance with the Sale and Servicing Agreement as if the Servicer alone were
servicing the Receivables. References herein to actions required or permitted to
be taken, or restrictions on actions to be taken, by the Servicer include such
actions by a subservicer. References herein to amounts received by the Servicer
include amounts received by a subservicer.
"Eligible Servicer" means a person which, at the time of its appointment as
Servicer or as a subservicer, (i) has a net worth of not less than $50,000,000,
(ii) is servicing a portfolio of motor vehicle and commercial vehicle retail
installment sale contracts and/or motor vehicle and commercial 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 and
commercial vehicle retail installment sale contracts and/or motor vehicle and
commercial vehicle loans similar to the Receivables professionally and
competently in accordance with standards of skill and care that are consistent
with prudent industry standards, and (v) is qualified and entitled to use
pursuant to a license or other written agreement, and agrees to maintain the
confidentiality of, the software which the Servicer or any subservicer uses in
connection with performing its duties and responsibilities under the Sale and
Servicing Agreement or the related subservicing agreement or obtains rights to
use, or develops at its own expense, software which is adequate to perform its
duties and responsibilities under the Sale and Servicing Agreement or the
related subservicing agreement.
The Servicer will covenant in the Sale and Servicing Agreement that: (i)
the Financed Vehicle securing each Receivable will not be released from the
security interest granted by the Receivable in whole or in part, except as
contemplated by the Sale and Servicing Agreement; (ii) the Servicer will not
(nor will it permit any subservicer to) impair in any material respect the
rights of the Trust, the Indenture Trustee, the Noteholders, the Owner Trustee
or the Certificateholders in the Receivables, or, subject to clause (iii) below,
otherwise amend or alter the terms thereof if, as a result of such amendment or
alteration, the interests of the Trust, the Noteholders, the Indenture Trustee,
the Owner Trustee, or the Certificateholders under the Sale and Servicing
Agreement would be materially adversely affected; and (iii) the Servicer will
not increase or decrease the number or amount of Scheduled Payments or the
Amount Financed under, or the APR of, a Receivable, or extend, rewrite or
otherwise modify the payment terms of a Receivable; provided, however, that the
Servicer may extend the Due Date for one or more payments on any Receivable for
credit-related reasons that would be acceptable to the Servicer with respect to
comparable motor vehicle or commercial vehicle receivables that it services for
itself or others in accordance with its customary standards if the cumulative
extensions with respect to any Receivable will not cause the term of any such
Receivable to extend beyond the Final Scheduled Maturity Date.
In the event of a breach by the Servicer of any covenant described above
that materially and adversely affects the interests of the Trust in a
Receivable, the Servicer, unless such breach has been cured by the last day of
the Collection Period which includes the 60th day after the date on which the
Servicer becomes aware of, or receives written notice of, such breach, will be
required to purchase the Receivable from the Trust for the Purchase Amount on
the Payment Date immediately following such Collection Period; provided,
however, that with respect to a breach of the covenant described in clause (iii)
of the preceding paragraph, the Servicer will be required to purchase the
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related Receivable from the Trust at the end of the Collection Period in which
such breach occurs. The purchase obligation will constitute the sole remedy
available to the Noteholders, the Trust, the Indenture Trustee, the Owner
Trustee, or the Certificateholders against the Servicer for any such uncured
breach, except with respect to certain indemnities of the Servicer under the
Sale and Servicing Agreement related thereto.
The Sale and Servicing Agreement will also generally require the Servicer
to charge-off a Receivable in conformity with its normal practice and to follow
such of its normal collection practices and procedures as it deems necessary or
advisable, and that are consistent with the standard of care required by the
Sale and Servicing Agreement, to realize upon any Receivable. Currently, MBCC
charges off a Contract at the time that the related Financed Vehicle has been
repossessed and sold, and the proceeds of sale of the Financed Vehicle are
applied against the amount owing on the Contract, or at such time as MBCC
determines that it will not recover the Financed Vehicle. The Servicer may sell
the Financed Vehicle securing such Receivable at judicial sale or take any other
action permitted by applicable law. See "Certain Legal Aspects of the
Receivables." The net proceeds of such sale will be deposited in the Collection
Account at the time and in the manner described above.
The Sale and Servicing Agreement will also require the Servicer to make
Advances for which the Servicer will be reimbursed in the manner described under
"Description of the Notes -- Advances."
The Sale and Servicing Agreement will provide that the Servicer will defend
and indemnify the Trust, the Indenture Trustee, the Owner Trustee, the
Noteholders, the Certificateholders and the Seller against any and all costs,
expenses, losses, damages, claims, and liabilities, including reasonable fees
and expenses of counsel and expenses of litigation, arising out of or resulting
from the use, ownership or operation by the Servicer or any affiliate thereof of
any Financed Vehicle, or in respect of any negligence, willful misfeasance or
bad faith of the Servicer in the performance of its duties (other than errors in
judgment) or by reason of reckless disregard of its obligations and duties,
under any Basic Document to which it is a party. The Servicer's obligations to
indemnify the Trust, the Indenture Trustee, the Owner Trustee, the Noteholders,
the Seller and the Certificateholders for the Servicer's actions or omissions
will survive the removal of the Servicer, but will not apply to any action or
omission of a successor Servicer.
SERVICING COMPENSATION
The Servicer will be entitled to receive the Servicing Fee for each
Collection Period, in an amount equal to the product of one-twelfth of the
Servicing Rate and the Pool Balance as of the first day of such Collection
Period. The "Servicing Rate" will equal 1.0% per annum. The Servicer will also
be entitled to receive, as additional servicing compensation, any administrative
fees and charges and all late payment fees and charges paid with respect to the
Receivables other than fees paid in connection with the extension or deferral of
payments on a Receivable (the "Supplemental Servicing Fee"), which will be
deposited in the Collection Account. The Servicing Fee and the Supplemental
Servicing Fee, together with any portion of the Servicing Fee or of the
Supplemental Servicing Fee that remains unpaid from prior Payment Dates (the
"Total Servicing Fee"), will be paid out of Available Funds prior to
distributions to Noteholders and Certificateholders.
The Servicing Fee and the Supplemental Servicing Fee will compensate the
Servicer for performing the functions of a third party servicer of Contracts and
for administering the Receivables on behalf of the Noteholders and the
Certificateholders, including collecting payments, accounting for collections,
furnishing monthly and annual statements to the Indenture Trustee and the Owner
Trustee with respect to distributions, responding to inquiries of Obligors,
investigating delinquencies, and providing collection and repossession services
in cases of Obligor default. In addition, the Servicing Fee and the Supplemental
Servicing Fee will further compensate the Servicer for certain taxes, accounting
fees, outside auditor fees, data processing costs, and other costs incurred by
the
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Servicer under the Sale and Servicing Agreement in connection with administering
and servicing the Receivables.
EVIDENCE AS TO COMPLIANCE
The Sale and Servicing Agreement will provide that a firm of independent
certified public accountants, who may provide audit and other services to the
Servicer, the Seller or MBCC, will furnish to the Indenture Trustee and the
Owner Trustee, on or before March 31 of each year, beginning March 31, 2000, a
report of examination as to compliance by the Servicer during the 12 months (or
longer period in the case of the first such report) ended the preceding December
31 with certain standards relating to the servicing of the Receivables.
The Sale and Servicing Agreement will also provide for delivery to the
Indenture Trustee and the Owner Trustee, on or before March 31 of each year,
beginning March 31, 2000, of a certificate signed by an officer of the Servicer
stating that to the best of such officer's knowledge the Servicer has fulfilled
its obligations under the Sale and Servicing Agreement throughout the 12 months
(or shorter period in the case of the first such certificate) ended the
preceding December 31 or, if there has been a default in the fulfillment of any
such obligation, describing each such default.
Note Owners may obtain copies of such statements and certificates by
written request addressed to the Indenture Trustee.
CERTAIN MATTERS REGARDING THE SERVICER
The Sale and Servicing Agreement will provide that the Servicer may not
resign from its obligations and duties as Servicer thereunder, except upon a
determination that the Servicer's performance of such duties is no longer
permissible under applicable law. No such resignation will become effective
until the Indenture Trustee or a successor servicer has assumed the Servicer's
servicing obligations and duties under the Sale and Servicing Agreement and
becomes the Administrator under the Administration Agreement.
Any corporation or other entity into which the Servicer may be merged or
consolidated, or that may result from any merger, conversion or consolidation to
which the Servicer is a party, or any entity that may succeed by purchase and
assumption to all or substantially all of the business of the Servicer, where
the Servicer is not the surviving entity and where such corporation or other
entity is an Eligible Servicer and assumes the obligations of the Servicer under
the Sale and Servicing Agreement, will be the successor to the Servicer under
the Sale and Servicing Agreement.
INDEMNIFICATION AND LIMITS ON LIABILITY
The Sale and Servicing Agreement will provide that the Servicer will be
liable only to the extent of the obligations specifically undertaken by it under
the Sale and Servicing Agreement and will have no other obligations or
liabilities thereunder.
The Sale and Servicing Agreement will also provide that the Servicer will
be under no obligation to appear in, prosecute or defend any legal action that
is not incidental to the Servicer's servicing responsibilities under the Sale
and Servicing Agreement and that, in its opinion, may cause it to incur any
expense or liability. The Servicer may, however, at its expense undertake any
reasonable action that it may deem necessary or desirable in respect of the Sale
and Servicing Agreement and the rights and duties of the parties thereto and the
interests of the Noteholders and the Certificateholders thereunder.
EVENTS OF SERVICING TERMINATION
The following events will constitute "Events of Servicing Termination"
under the Sale and Servicing Agreement: (i) any failure by the Servicer to
deliver to the Owner Trustee or the Indenture Trustee the monthly certificate
pursuant to the Sale and Servicing Agreement detailing the collec-
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tions and distributions for any Collection Period (which failure continues
beyond the earlier of three business days from the date such Servicer's
certificate was due to be delivered and the related Payment Date), (ii) any
failure by the Servicer to deliver to the Collection Account or any other
account, any required payment or deposit under the Sale and Servicing Agreement,
which failure continues unremedied for five Business Days following the Due
Date, (iii) any failure by the Servicer duly to observe or perform in any
material respect any other covenant or agreement in the Notes, the Certificates
or the Sale and Servicing Agreement, which failure materially and adversely
affects the rights of Noteholders or Certificateholders and which continues
unremedied for 90 days after written notice of such failure is given to the
Servicer by the Indenture Trustee or the Owner Trustee, as applicable, or to the
Seller, the Servicer, the Owner Trustee and the Indenture Trustee by the Holders
of Notes evidencing not less than 25% in aggregate principal amount of the
outstanding Notes (voting as a group) or, if the Notes have been paid in full
and the Indenture has been discharged in accordance with its terms, by the
holders of Certificates evidencing not less than 25% of the Certificate Balance,
(iv) certain events of bankruptcy, receivership, insolvency, readjustment of
debt, marshalling of assets and liabilities, or similar proceedings with respect
to the Seller or the Servicer and certain actions by the Seller or the Servicer
indicating its insolvency or reorganization pursuant to bankruptcy,
receivership, conservatorship, insolvency, or similar proceedings, and (v)
failure of the Servicer to be an Eligible Servicer. The Holders of Notes
evidencing not less than a majority of the aggregate principal amount of the
outstanding Notes (voting as a group) (or, if all of the Notes have been paid in
full and the Indenture has been discharged in accordance with its terms, the
Owner Trustee or the holders of Certificates evidencing not less than a majority
of the Certificate Balance) may, on behalf of all Noteholders and
Certificateholders, waive any Event of Servicing Termination except an event
resulting from the failure to make any required deposit to or payment from any
Account. No such waiver will impair the rights of the Noteholders or the
Certificateholders with respect to subsequent defaults. For purposes of the
foregoing, Notes or Certificates owned by the Seller, the Servicer, or any
affiliate of either will not be considered to be "outstanding."
The Indenture Trustee will have no obligation to notify Noteholders of any
event which, with lapse of time to cure, would become an Event of Servicing
Termination, until after the expiration of any applicable cure period.
RIGHTS UPON AN EVENT OF SERVICING TERMINATION
As long as an Event of Servicing Termination remains unremedied, the
Indenture Trustee or the holders of Notes evidencing not less than a majority of
the aggregate principal amount of the outstanding Notes (or, if the Notes have
been paid in full and the Indenture has been discharged in accordance with its
terms, the Owner Trustee or the holders of Certificates evidencing not less than
a majority of the Certificate Balance) may terminate the Servicer's rights and
obligations under the Sale and Servicing Agreement, whereupon the Indenture
Trustee or a servicer appointed by the Indenture Trustee will succeed to all the
responsibilities, duties, and liabilities of the Servicer under the Sale and
Servicing Agreement. Thereafter, the successor Servicer will be entitled to the
compensation otherwise payable to the Servicer and will be entitled to similar
compensation arrangements. In the event that the Indenture Trustee is unwilling
or legally unable so to act, the Indenture Trustee may appoint, or petition a
court of competent jurisdiction for the appointment of, an Eligible Servicer to
act as successor to the outgoing Servicer under the Sale and Servicing
Agreement. In no event may the servicing compensation to be paid to such
successor be greater than the servicing compensation payable to the Servicer
under the Sale and Servicing Agreement. In the event of the bankruptcy of the
Servicer, the bankruptcy trustee or the Servicer, as debtor in possession, may
have the power to prevent a termination of the Servicer's rights and obligations
under the Sale and Servicing Agreement.
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AMENDMENT
The Transfer and Servicing Agreements may be amended by the parties thereto
without the consent of the Noteholders or the Certificateholders, to cure any
ambiguity, to correct or supplement any provision therein which may be
inconsistent with any other provision therein, and to add, change or eliminate
any other provision of the applicable Transfer and Servicing Agreement which is
not inconsistent with the provisions of such Transfer and Servicing Agreement;
provided, that such action will not, as evidenced by an Opinion of Counsel to
the Indenture Trustee and the Owner Trustee, materially and adversely affect the
interest of any Noteholder or Certificateholder or, with respect to the Trust
Agreement, have certain adverse tax consequences.
The Transfer and Servicing Agreements may also be amended by the parties
thereto (with, in the case of the Sale and Servicing Agreement, consent of the
Indenture Trustee and with, in the case of the Administration Agreement, consent
of the Seller) with the consent of the Holders of Notes evidencing not less than
a majority of the aggregate principal amount of the then outstanding Notes,
voting as a group, for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of the Transfer and Servicing
Agreements or of modifying the rights of Noteholders. However, no such amendment
may (i) increase or reduce in any manner the amount of, or accelerate or delay
the timing of, or change the allocation or priority of, collections of payments
on Receivables or distributions that are required to be made on any Note, or
change any Interest Rate on any Class of Notes or the Specified Class A Reserve
Balance, without the consent of all adversely affected Noteholders, (ii) reduce
the aforesaid percentage of the Notes which is required to consent to any such
amendment, without the consent of all Noteholders affected thereby, or (iii)
adversely affect the ratings of any Class of Notes by the Rating Agencies
without the consent, respectively, of holders of Notes evidencing not less than
66 2/3% of the aggregate principal amount of the then outstanding Notes of such
Class. Additionally, with respect to an amendment of the Trust Agreement, an
Opinion of Counsel to the effect that such amendment will not have certain
adverse tax consequences shall be furnished to the Indenture Trustee and the
Owner Trustee. See "Description of the Notes -- Book Entry Registration."
TERMINATION
The obligations of the Seller, the Servicer, the Owner Trustee and the
Indenture Trustee pursuant to the Indenture and the Transfer and Servicing
Agreements will, except with respect to certain reporting requirements,
terminate upon the earliest of (i) the Payment Date next succeeding the
Servicer's purchase of the Receivables, as described below, (ii) payment to
Noteholders and Certificateholders of all amounts required to be paid to them
pursuant to the Transfer and Servicing Agreements and (iii) the Payment Date
next succeeding the month which is one year after the maturity or other
liquidation of the last Receivable and the disposition of any amounts received
upon liquidation of any property remaining in the Trust in accordance with the
terms and priorities set forth in the Transfer and Servicing Agreements.
In order to avoid excessive administrative expense, the Servicer will be
permitted, at its option, in the event that the Pool Balance as of the close of
business on the last day of a Collection Period has declined to 10% or less of
the Initial Pool Balance, to purchase from the Trust, on any Payment Date
occurring in a subsequent Collection Period, all remaining Receivables in the
Trust at a purchase price equal to the outstanding principal amount of the Notes
and the Certificates, in each case plus accrued and unpaid interest thereon. The
exercise of this right will effect early retirement of the Notes and the
Certificates.
The Indenture Trustee will give written notice of termination of the Trust
to each Noteholder of record. The final distribution to any Noteholder will be
made only upon surrender and cancellation of such Holder's Note (whether a
Definitive Note or the one or more physical notes representing the Notes) at the
office or agency of the Indenture Trustee specified in the notice of
termination. Any
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funds remaining in the Trust, after the Indenture Trustee has taken certain
measures to locate a Noteholder and such measures have failed, will be
distributed to the Seller or as otherwise provided in the Transfer and Servicing
Agreements.
ADMINISTRATION AGREEMENT
MBCC, in its capacity as administrator (the "Administrator"), will enter
into an Administration Agreement (as amended and supplemented from time to time,
the "Administration Agreement") with the Trust and the Indenture Trustee
pursuant to which the Administrator will agree, to the extent provided in the
Administration Agreement, to provide the notices and to perform other
administrative obligations required by the Indenture and the Trust Agreement. As
compensation for the performance of the Administrator's obligations under the
Administration Agreement and as reimbursement for its expenses relating thereto,
the Administrator will be entitled to a monthly administration fee, which fee
will be paid by the Servicer.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
RIGHTS IN THE RECEIVABLES
The Receivables are "chattel paper" as defined in the UCC. Pursuant to the
UCC, for most purposes, a sale of chattel paper is treated in a manner similar
to a transaction creating a security interest in chattel paper. 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 Sale and Servicing Agreement, the Servicer will hold the
Receivables, either directly or through subservicers, as custodian for the
Indenture Trustee and the Trust following the sale and assignment of the
Receivables to the Trust. The Seller will take such action as is required to
perfect the rights of the Indenture Trustee and the Trust in the Receivables.
The Receivables will not be 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 Sale and Servicing Agreement, the Servicer will be obligated from
time to time to take such actions as are necessary to protect and perfect the
Trust's interest in the Receivables and their proceeds.
SECURITY INTERESTS IN THE FINANCED VEHICLES
Generally, retail installment sale contracts and retail loans such as the
Receivables evidence the credit sale of automobiles or financing of commercial
vehicles 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 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 Vehicle under the laws of the jurisdiction in which
the 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 is
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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 will warrant in the Purchase Agreement and the Sale and Servicing
Agreement, respectively, that, to the best of their knowledge, an enforceable
first priority perfected security interest exists for the benefit of the Seller
and the Trust, respectively, with respect to each Financed Vehicle and will be
required to repurchase the related Receivable in the event of an uncured breach
or failure to be true of such representation or warranty if the interest of the
Seller and 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 Indenture Trustee and the Noteholders 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 Sale and Servicing Agreement, the Seller will
assign its security interests in the Financed Vehicles, along with the sale and
assignment of the Receivables, to the Trust. The Servicer will hold the
certificates of title or ownership relating to the Financed Vehicles, either
directly or through subservicers, as custodian for the Indenture Trustee and the
Trust following such sale and assignment. The certificates of title or ownership
will not be endorsed or otherwise amended to identify the Trust as the new
secured party, however, because of the administrative burden and expense
involved. The Seller will assign its rights under the Purchase Agreement to the
Trust. See "Risk Factors -- Certain Legal Aspects -- The Receivables."
In most states, an assignment of a security interest in a Financed Vehicle
along with the applicable Receivable is an effective conveyance of a security
interest without amendment of any lien noted on such vehicle's certificate of
title or ownership, and the assignee succeeds thereby to the assignor's rights
as secured party. However, because the Trust will not be identified as the
secured party on any such certificate, the security interest of the Trust in any
Financed Vehicle could be defeated through fraud, forgery, negligence or error
and may not be perfected in every state. In most states, in the absence of fraud
or forgery by the 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 Sale and Servicing 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 on the Closing Date, such
Receivables were secured by a valid, subsisting, and enforceable first priority
perfected security interest in the related Financed Vehicle in favor of MBCC
(subject to any statutory or other lien arising by operation of law after the
Closing Date which is prior to such security interest) and, at such time as
enforcement of such security interest is sought, there shall exist a valid,
subsisting, and enforceable first priority perfected security interest in the
Financed Vehicle for the benefit of the Seller and the Trust, respectively
(subject to any statutory or other lien arising by operation of law after the
Closing Date 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 warranty, MBCC and the
Seller, pursuant to the terms of the Purchase Agreement and the Sale and
Servicing Agreement, respectively, will be required to repurchase such
Receivable for its Purchase Amount if the interests of the Seller or the Trust,
respectively, therein
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are materially and adversely affected by such breach or failure. This repurchase
obligation will constitute the sole remedy available to the Trust, the
Noteholders and the Certificateholders for such breach or failure. MBCC's and
the Seller's representations and 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 Vehicle
continues for four months after the Vehicle is moved to a new state from the one
in which it was initially registered and thereafter until the Vehicle owner
re-registers the Vehicle in the new state, but in any event not beyond the
surrender of the certificate. A majority of states require surrender of a
certificate of title to re-register a Vehicle and require that notice of such
surrender be given to each secured party noted on the certificate of title. In
those states, such as California, that require a secured party to take
possession of a certificate of title to perfect a security interest, the secured
party would learn of the re-registration through the request from the obligor to
surrender possession of the certificate of title. In those states that require a
secured party to note its lien on a certificate of title to perfect a security
interest but do not require possession of the certificate of title, such as
Texas and Florida, the secured party would learn of the re-registration through
the notice from the state department of motor vehicles that the certificate of
title had been surrendered. The requirements that a certificate of title be
surrendered and that notices of such surrender be given to each secured party
also apply to re-registrations effected following a sale of a 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 Vehicle, re-registration could defeat
perfection. In the ordinary course of servicing retail installment sale
contracts and retail loans, MBCC takes steps to effect reperfection upon receipt
of notice of re-registration or information from the obligor as to relocation.
Under the laws of many states, liens for repairs performed on a Vehicle and
liens for unpaid taxes take priority over a perfected security interest in the
Vehicle. The Code also grants priority to certain Federal tax liens over the
liens of a secured party. The laws of certain states and Federal law permit the
confiscation of Vehicles under certain circumstances if used in unlawful
activities, which may result in the loss of the secured party's perfected
security interest in the confiscated Vehicle. MBCC and the Seller will represent
and warrant in the Purchase Agreement and the Sale and Servicing Agreement,
respectively, that, as of the Closing Date, to the best of its knowledge, no
such liens 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 interest of the Trust in a Receivable, MBCC and the
Seller, pursuant to the terms of the Purchase Agreement and the Sale and
Servicing Agreement, respectively, will be required to repurchase the Receivable
secured by the Financed Vehicle involved. This repurchase obligation will
constitute the sole remedy available to the Trust, the Noteholders and the
Certificateholders for such breach. Any liens for repairs or taxes 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 sale
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
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cases, and is accomplished simply by taking possession of the Financed 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 Financed
Vehicle must then be repossessed in accordance with that order. In the event of
a default by an Obligor, many jurisdictions require that the Obligor be notified
of the default and be given a time period within which he may cure the default
prior to or after repossession.
NOTICE OF SALE; REDEMPTION RIGHTS
The UCC and other state laws require the secured party to provide an
obligor with reasonable notice of the date, time, and place of any public sale
and/or the date after which any private sale of the collateral may be held. The
obligor generally has the right to redeem the collateral prior to actual sale by
paying the secured party the unpaid principal amount of the obligation, accrued
and unpaid interest, plus, in most cases, reasonable expenses for repossessing,
holding, and preparing the collateral for disposition and arranging for its sale
plus, in some jurisdictions, reasonable attorneys' fees. In some states, the
obligor has the right, prior to actual sale, to reinstatement of the original
loan terms and to return of the collateral by payment of delinquent installments
of the unpaid amount and cure any other defaults. 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 proceeds of resale of Financed Vehicles generally will be applied first
to the expenses of repossession and resale and then to the satisfaction of the
indebtedness on the related Receivable. While some states impose prohibitions or
limitations on deficiency judgments if the net proceeds from resale do not cover
the full amount of the indebtedness, a deficiency judgment can be sought in
those states that do not prohibit or limit such judgments. Any such deficiency
judgment would be a personal judgment against the obligor for the shortfall,
however, and a defaulting obligor may have very little capital or few sources of
income available following repossession. Therefore, in many cases, it may not be
useful to seek a deficiency judgment or, if one is obtained, it may be settled
at a significant discount or not paid at all. MBCC generally seeks to recover
any deficiency existing after repossession and sale of a Vehicle.
Occasionally, after resale of a repossessed 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 Vehicle or, if no such lienholder exists or funds remain
after paying such other lienholder, to the former owner of the 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 AA, B, M and
Z, and other similar acts, state adaptations of the National Consumer Act and of
the Uniform Consumer Credit Code and state motor vehicle retail installment sale
acts, retail installment sales acts and other similar laws. Also, state laws
impose finance charge ceilings and other restrictions on consumer transactions
and require contract disclosures in addition to those required under Federal
law. These requirements impose specific statutory liabilities upon creditors who
fail to comply with their provisions. In some cases, this liability could affect
the ability of an assignee, such as the Trust, to enforce consumer and
commercial finance contracts such as the Receivables 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.
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The FTC's holder-in-due-course rule (the "FTC Rule") has the effect of
subjecting a holder of an obligation created in a consumer credit transaction to
all claims and defenses which the purchaser could assert against the seller of
the goods. Liability under the FTC Rule is limited to the amounts paid by the
purchaser under the contract, and the holder of the contract may also be unable
to collect any balance remaining due thereunder from the purchaser. The FTC Rule
is generally duplicated by state statutes or the common law in certain states.
Accordingly, the Indenture Trustee and the Trust, as holders of the Receivables,
may be subject to claims or defenses, if any, that the purchaser of a Financed
Vehicle may assert against the seller of such vehicle.
Under the vehicle dealer licensing laws of most states, sellers of vehicles
are required to be licensed to sell such vehicles at retail sale and to
originate certain installment sale contracts or loans in connection with such
sales. In addition, with respect to used vehicles, the FTC's Rule on Sale of
Used Vehicles requires that all sellers of used 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 vehicles furnish a
written statement signed by the seller certifying the accuracy of the odometer
reading. If a seller is not properly licensed, or if either a Buyer's Guide or
Odometer Disclosure Statement was not properly provided to the purchaser of a
Financed Vehicle, such purchaser may be able to assert a defense as to a retail
installment sale contract against the seller of such Vehicle or of a subsequent
holder of the retail installment sale contract or loan.
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 warrant in the Purchase Agreement and the Sale and
Servicing Agreement, respectively, as to each Receivable that such Receivable
complied at the time it was originated and as of the Closing Date in all
material respects with all requirements of applicable law. If, as of the Cutoff
Date, an Obligor had a claim against the Trust for violation of any law, and
such claim materially and adversely affected the Trust's interest in a
Receivable, such violation would create an obligation of MBCC and the Seller
under the Purchase Agreement and the Sale and Servicing Agreement, respectively,
to repurchase the Receivable unless the breach were cured. This repurchase
obligation will constitute the sole remedy of the Trust, the Noteholders, and
the Certificateholders, against the Seller in respect of any such uncured
breach. See "Description of the Transfer and Servicing Agreements -- Sale and
Assignment of the Receivables."
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including Insolvency Laws, may interfere
with or affect the ability of a lender to realize upon collateral or enforce a
deficiency judgment. For example, in a proceeding under the Bankruptcy Code, a
court may prevent a lender from repossessing a 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 summary of certain United States Federal income tax
considerations that apply to the acquisition, ownership and disposition of Notes
by a Note Owner that is an individual citizen or resident of the United States,
a corporation created or organized in or under the laws of the United States or
any political subdivision thereof or an estate or trust the income of which is
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subject to United States Federal income taxation regardless of its source (a
"United States Holder") or by a Note Owner that is, for United States Federal
income tax purposes, a nonresident alien individual, a foreign corporation or a
nonresident alien fiduciary of a foreign estate or trust (a "United States Alien
Holder"). Although the following summary does not purport to describe all of the
tax considerations that may be relevant to a prospective purchaser of Notes, in
the opinion of Morgan, Lewis & Bockius LLP ("Special Tax Counsel"), such summary
describes the material United States Federal income tax consequences to a United
States Holder or, as the case may be, a United States Alien Holder. Opinions of
tax counsel have no binding effect or official status of any kind; no assurance
can be given that the conclusions set out below would be sustained by a court if
challenged by the Internal Revenue Service ("IRS"). This summary deals only with
Notes that are held as capital assets by United States Holders, or, as the case
may be, United States Alien Holders, and does not address tax considerations
applicable to (i) United States Holders that may be subject to special tax
rules, such as dealers or traders in securities or currencies, financial
institutions, life insurance companies, tax-exempt entities, United States
Holders that hold Notes as a hedge or that are hedged against currency risks or
that hold Notes as a part of a straddle, conversion transaction or other
arrangement involving more than one position or United States Holders whose
functional currency is not the United States dollar and (ii) United States Alien
Holders that may be subject to special tax rules, such as nonresident alien
individuals who have lost United States citizenship or who have ceased to be
treated as resident aliens, corporations that are treated as foreign or domestic
personal holding companies, controlled foreign corporations or passive foreign
investment companies or certain other United States Alien Holders that are owned
or controlled by persons subject to United States Federal income tax.
The discussion below is based upon the provisions of the United States
Internal Revenue Code of 1986, as amended (the "Code"), and regulations, rulings
and judicial decisions thereunder as of the date hereof; any such authority may
be repealed, revoked or modified, perhaps with retroactive effect, so as to
result in Federal income tax consequences different from those discussed below.
THE DISCUSSION SET OUT BELOW IS INTENDED ONLY AS A SUMMARY OF CERTAIN
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN THE NOTES.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX
CONSEQUENCES OF AN INVESTMENT IN THE NOTES, INCLUDING THE APPLICATION TO THEIR
PARTICULAR SITUATION OF THE TAX CONSIDERATIONS DISCUSSED BELOW, AS WELL AS THE
APPLICATION OF STATE, LOCAL OR FOREIGN TAX LAWS. THE STATEMENTS OF UNITED STATES
TAX LAW SET OUT BELOW ARE BASED ON THE LAWS IN FORCE AND INTERPRETATIONS THEREOF
AS OF THE DATE OF THIS PROSPECTUS, AND ARE SUBJECT TO ANY CHANGES OCCURRING
AFTER THAT DATE.
GENERAL
Tax Status of the Notes and the Trust. No definitive judicial or
administrative authority relating to the characterization of an instrument as
debt addresses instruments such as the Notes, and courts at times have held that
obligations purporting to be debt constituted equity of the issuer for tax
purposes. However, on the Closing Date, Special Tax Counsel will deliver its
opinion that for Federal income tax purposes under existing law, and subject to
customary assumptions and qualifications set forth therein: (i) the Notes will
be treated as debt, and (ii) the Trust will not be classified as an association
(or publicly traded partnership) taxable as a corporation. The Seller, the Owner
Trustee and the Indenture Trustee have agreed, and the Note Owners will agree by
their purchase of Notes, to treat the Notes for Federal, state and local income
and franchise tax purposes as indebtedness of the Trust. If, contrary to the
opinion of Special Tax Counsel, the Trust were treated as a partnership and the
Note Owners were treated as owning equity interests therein, Note Owners would
generally be taxed on their pro rata share of the Trust's income as partners in
a partnership. If the Trust were treated as an association taxable as a
corporation, (i) the Trust would be subject to tax on its income at corporate
tax rates and (ii) if the Note Owners were treated as owning equity interests,
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the Note Owners would be taxed on distributions from the trust as dividends to
the extent of their share of the Trust's earnings and profits and the Trust
would not be entitled to an interest deduction in determining its taxable
income. Any corporate income tax would reduce cash available to pay the Notes.
The balance of the discussion herein assumes that the Notes will properly be
treated as debt for U.S. Federal income tax purposes.
Stated Interest. Stated interest on the Notes will be taxable as ordinary
income for Federal income tax purposes when received or accrued in accordance
with a Note Owner's method of tax accounting.
Original Issue Discount. A Note will be treated as issued with original
issue discount ("OID") if the excess of the Note's "stated redemption price at
maturity" over the issue price equals or exceeds a de minimis amount equal to
1/4 of 1 percent of the Note's stated redemption price at maturity multiplied by
the number of complete years (based on the anticipated weighted average life of
a Note) to its maturity.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Note and its issue price. A holder of a Note
must include such OID in gross income as ordinary interest income as it accrues
under a method taking into account an economic accrual of the discount. In
general, OID must be included in income in advance of the receipt of the cash
representing that income. The amount of OID on a Note will be considered to be
zero if it is less than a de minimis amount determined as described above.
The issue price of a Note will generally be the initial offering price at
which a substantial amount of the Notes are sold. The Trust intends to treat the
issue price as including, in addition, the amount paid by the Note Owner for
accrued interest that relates to a period prior to the Closing Date. Under
applicable Treasury regulations governing the accrual of OID (the "OID
Regulations"), the stated redemption price at maturity is the sum of all
payments on the Note other than any "qualified stated interest" payments.
Qualified stated interest is defined as any one of a series of payments equal to
the product of the outstanding principal balance of the Note and a single fixed
rate, or certain variable rates of interest, that is unconditionally payable at
least annually.
The holder of a Note issued with OID must include in gross income, for all
days during its taxable year on which it holds such Note, the sum of the "daily
portions" of such OID. Such daily portions are computed by allocating to each
day during a taxable year a pro rata portion of the OID that accrued during the
relevant accrual period. In the case of an obligation the principal on which is
subject to prepayment as a result of prepayments on the underlying collateral (a
"Prepayable Obligation"), such as the Notes, OID is computed by taking into
account the anticipated rate of prepayments assumed in pricing the debt
instrument (the "Prepayment Assumption"). The Prepayment Assumption that will be
used in determining the rate of accrual of OID, premium and market discount, if
any, is 1.60% ABS. The amount of OID that will accrue during an accrual period
(generally the period between interest payments or compounding dates) is the
excess (if any) of the sum of (a) the present value of all payments remaining to
be made on the Note as of the close of the accrual period and (b) the payments
during the accrual period of amounts included in the stated redemption price of
the Note, over the "adjusted issue price" of the Note at the beginning of the
accrual period. An "accrual period" is the period over which OID accrues, and
may be of any length, provided, that each accrual period is no longer than one
year and each scheduled payment of interest or principal occurs on either the
last day or the first day of an accrual period. The Issuer intends to report OID
on the basis of an accrual period that corresponds to the interval between
payment dates. The adjusted issue price of a Note is the sum of its issue price
plus prior accruals of OID, reduced by the total payments made with respect to
such Note in all prior periods, other than qualified stated interest payments.
The present value of the remaining payments is determined on the basis of three
factors: (i) the original yield to maturity of the Note (determined on the basis
of compounding at the end of each accrual period and properly adjusted for the
length of the accrual period), (ii) events which have occurred before the end of
the accrual period and (iii) the
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assumption that the remaining payments will be made in accordance with the
original Prepayment Assumption.
The effect of this method is to increase the portions of OID required to be
included in income by a Note Owner to take into account prepayments on the
Receivables at a rate that exceeds the Prepayment Assumption, and to decrease
(but not below zero for any period) the portions of OID required to be included
in income by a Note Owner to take into account prepayments with respect to the
Receivables at a rate that is slower than the Prepayment Assumption. Although
OID will be reported to Note Owners based on the Prepayment Assumption, no
representation is made to Note Owners that Receivables will be prepaid at that
rate or at any other rate.
A holder of a Note that acquires the Note for an amount that exceeds its
stated redemption price will not include any OID in gross income. A subsequent
holder of a Note which acquires the Notes for an amount that is less than its
stated redemption price will be required to include OID in gross income, but
such a holder who purchases such Note for an amount that exceeds its adjusted
issue price will be entitled (as will an initial holder who pays more than a
Note's issue price) to reduce the amount of OID included in income in each
period by the amount of OID multiplied by a fraction, the numerator of which is
the excess of (w) the purchaser's adjusted basis in the Note immediately after
purchase thereof over (x) the adjusted issue price of the Note, and the
denominator of which is the excess of (y) all amounts remaining to be paid on
the Note after the purchase date, other than qualified stated interest, over (z)
the adjusted issue price of the Note.
Total Accrual Election. As an alternative to separately accruing stated
interest, OID, de minimis OID, market discount, de minimis market discount,
unstated interest, premium, and acquisition premium, a holder of a Note may
elect to include all income that accrues on the Note using the constant yield
method. If a Note Owner makes this election, income on a Note will be calculated
as though (i) the issue price of the Note were equal to the Note Owner's
adjusted basis in the Note immediately after its acquisition by the Note Owner;
(ii) the Note were issued on the Note Owner's acquisition date; and (iii) none
of the interest payments on the Note were "qualified stated interest." A Note
Owner may make such an election for a Note that has premium or market discount,
respectively, only if the Note Owner makes, or has previously made, an election
to amortize bond premium or to include market discount in income currently. See
"-- Market Discount" and "-- Amortizable Bond Premium."
Market Discount. The Notes, whether or not issued with OID, will be
subject to the "market discount rules" of section 1276 of the Code. In general,
these rules provide that if the Note Owner purchases a Note at a market discount
(that is, a discount from its stated redemption price at maturity or, if the
Notes were issued with OID, its original issue price plus any accrued OID that
exceeds a de minimis amount specified in the Code) and thereafter (a) recognizes
gain upon a disposition, or (b) receives payments of principal, the lesser of
(i) such gain or principal payment or (ii) the accrued market discount will be
taxed as ordinary interest income. Generally, the accrued market discount will
be the total market discount on the Note multiplied by a fraction, the numerator
of which is the number of days the Note Owner held the Note and the denominator
of which is the number of days from the date the Note Owner acquired the Note
until its maturity date. The Note Owner may elect, however, to determine accrued
market discount under the constant yield method.
Limitations imposed by the Code which are intended to match deductions with
the taxation of income may defer deductions for interest on indebtedness
incurred or continued, or short-sale expenses incurred, to purchase or carry a
Note with accrued market discount. A Note Owner may elect to include market
discount in gross income as it accrues and, if the Note Owner makes such an
election, is exempt from this rule. Any such election will apply to all debt
instruments acquired by the taxpayer on or after the first day of the first
taxable year to which such election applies. The adjusted basis of a Note
subject to such election will be increased to reflect market discount included
in gross income, thereby reducing any gain or increasing any loss on a sale or
other taxable disposition.
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Amortizable Bond Premium. In general, if a Note Owner purchases a Note at
a premium (that is, an amount in excess of the amount payable upon the maturity
thereof), such Note Owner will be considered to have purchased such Note with
"amortizable bond premium" equal to the amount of such excess. Such Note Owner
may elect to amortize such bond premium as an offset to interest income and not
as a separate deduction item as it accrues under a constant yield method over
the remaining term of the Note. Such Note Owner's tax basis in the Note will be
reduced by the amount of the amortized bond premium. Any such election shall
apply to all debt instruments (other than instruments the interest on which is
excludible from gross income) held by the Note Owner at the beginning of the
first taxable year for which the election applies or thereafter acquired and is
irrevocable without the consent of the IRS. Bond premium on a Note held by a
Note Owner who does not elect to amortize the premium will decrease the gain or
increase the loss otherwise recognized on the disposition of the Note.
Disposition of Notes. A Note Owner's adjusted tax basis in a Note will be
its cost, increased by the amount of any OID, market discount and gain
previously included in income with respect to the Note, and reduced by the
amount of any payment on the Note that is not qualified stated interest and the
amount of bond premium previously amortized with respect to the Note. A Note
Owner will generally recognize gain or loss on the sale or retirement of a Note
equal to the difference between the amount realized on the sale or retirement
and the tax basis of the Note. Such gain or loss will be capital gain or loss
(except to the extent attributable to OID not previously accrued, accrued but
unpaid interest, or as described above under "-- Market Discount") and will be
long-term capital gain or loss if the Note was held for more than one year. In
addition, if the Prepayable Obligation rules apply, any OID that has not accrued
at the time of the payment in full of a Note will be treated as ordinary income.
WAIVERS AND AMENDMENTS
The Indenture permits the Note Owners to waive an Event of Default or
rescind an acceleration of the Notes in some circumstances upon a vote of the
requisite percentage of Note Owners. Any such waiver or rescission, or any
amendment of the terms of the Notes, could be treated for Federal income tax
purposes as a constructive exchange by a Note Owner of the Notes for new Notes,
upon which gain or loss would be recognized.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Indenture Trustee will be required to report annually to the IRS, and
to each Note Owner, the amount of interest paid on the Notes (and the amount
withheld for Federal income taxes, if any) for each calendar year, except as to
exempt recipients (generally, corporations, tax-exempt organizations, qualified
pension and profit-sharing trusts, individual retirement accounts, or
nonresident aliens who provide certification as to their status). Each Note
Owner (other than Note Owners who are not subject to the reporting requirements)
will be required to provide, under penalties of perjury, a certificate
containing the Note Owner's name, address, correct Federal taxpayer
identification number (which includes a social security number) and a statement
that the Note Owner is not subject to backup withholding. Should a non-exempt
Note Owner fail to provide the required certification or should the IRS notify
the Indenture Trustee or the Issuer that the Note Owner has provided an
incorrect Federal taxpayer identification number or is otherwise subject to
backup withholding, the Indenture Trustee will be required to withhold (or cause
to be withheld) 31% of the interest otherwise payable to the Note Owner, and
remit the withheld amounts to the IRS as a credit against the Note Owner's
Federal income tax liability.
TAX CONSEQUENCES TO FOREIGN INVESTORS
The following discussion assumes that income or gain with respect to the
Notes is not effectively connected with the conduct by the United States Alien
Holder of a trade or business in the United States.
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WITHHOLDING TAX
Under present United States Federal income tax law and subject to the
discussion of backup withholding tax below:
(i) payments of principal, premium (if any) and interest (including
OID) by the Trust or any of its paying agents (in its capacity as such) to
a United States Alien Holder will be exempt from withholding of United
States Federal income tax (such exemption, the "Portfolio Interest
Exemption"), provided, that (i) such United States Alien Holder does not
own, actually or constructively, a "10 percent shareholder" of the Trust or
the Seller, is not a controlled foreign corporation related to the Trust or
the Seller through stock ownership and is not a bank receiving interest
described in Section 881(c)(3)(A) of the Code and (ii) the statement
described below has been provided by or with respect to the beneficial
owner; and
(ii) a United States Alien Holder of a Note will not be subject to
withholding of United States Federal income tax on any gain realized on the
sale or exchange of a Note.
Sections 871(h) and 881(c) of the Code require that, in order to obtain the
Portfolio Interest Exemption with respect to a Note, either the beneficial owner
of the Note, or a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business ( a "financial institution") and that holds the Note on behalf of
such beneficial owner, file a statement with the withholding agent to the effect
that the beneficial owner of the Note is not a United States person (within the
meaning of Section 7701(a)(30) of the Code). Under current United States
Treasury regulations, which generally apply to payments on a Note on or before
December 31, 1999, the statement requirement of Sections 871(h) and 881(c) will
be satisfied if (i) the beneficial owner of a Note certifies on IRS Form W-8,
under penalties of perjury, that it is not a United States person and provides
its name and address and (ii) any financial institution holding the Note on
behalf of the beneficial owner files a statement with the withholding agent to
the effect that it has received such a statement from the beneficial owner (and
furnishes the withholding agent with a copy thereof). The Final Regulations,
which generally apply to payments on a Note after December 31, 1998, provide
alternative methods for satisfying the certification requirement described
above.
ESTATE TAX
Under Section 2105(b) of the Code, a Note held by an individual who is not
a citizen or resident of the United States at the time of his death will not be
subject to United States Federal estate tax as a result of such individual's
death, provided, that (i) the individual is not a "10 percent shareholder" of
the Trust or the Seller and (ii) at the time of such individual's death, income
with respect to such Note would not have been effectively connected to the
conduct by such individual of a trade or business in the United States.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
Backup withholding tax will not apply to payments made by the Trust or a
paying agent (in its capacity as such) on a Note if the certifications required
by Sections 871(h) and 881(c) of the Code are received, provided in each case
that the Trust or such paying agent, as the case may be, does not have actual
knowledge (and, with respect to payments made after December 31, 1999, does not
have reason to know) that the payee is a United States person.
Payments of proceeds from the sale or exchange of a Note generally will not
be subject to information reporting or backup withholding tax if they are made
to or through a foreign office of a broker. However, if such broker is a United
States person, a controlled foreign corporation for United States tax purposes,
a foreign person 50 percent or more of whose gross income is effectively
connected with a United States trade or business for a specified three-year
period or, in the case of payments made after December 31, 1999, a foreign
partnership at least 50 percent of the
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capital or profits interests in which are owned by United States persons or that
is engaged in the conduct of a United States trade or business, information
reporting will be required unless the broker has in its records documentary
evidence that the beneficial owner is not a United States person and certain
other conditions are met or the beneficial owner otherwise establishes an
exemption. Payments to or through the United States office of a broker will be
subject to backup withholding tax and information reporting unless the holder
certifies, under penalties of perjury, that it is not a United States person or
otherwise establishes an exemption.
United States Alien Holders of Notes should consult their tax advisors
regarding the application of information reporting and backup withholding tax in
their particular situations, the availability of an exemption therefrom, and the
procedure for obtaining such an exemption, if available. Any amounts withheld
from a payment to a United States Alien Holder under the backup withholding tax
rules will be allowed as a credit against such United States Alien Holder's
United States Federal income tax liability and may entitle such United States
Alien Holder to a refund, provided, that the required information is furnished
to the IRS.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain restrictions on (a) employee benefit plans (as
defined in Section 3(3) of ERISA), (b) plans described in Section 4975(e)(1) of
the Code, including individual retirement accounts or Keogh Plans, (c) any
entities whose underlying assets include plan assets by reason of a plan's
investment in such entities (each of (a), (b) and (c), a "Plan") and (d) persons
who have certain specified relationships to a Plan ("Parties-in-Interest" under
ERISA and "Disqualified Persons" under the Code). Moreover, based on the
reasoning of the United States Supreme Court in John Hancock Life Ins. Co. v.
Harris Trust and Sav. Bank, 114 S. Ct. 517 (1993), the general account of an
insurance company may be deemed to include assets of Plans investing in its
general account (e.g., through the purchase of an annuity contract), and the
insurance company might be treated as a Party-in-Interest with respect to a Plan
by virtue of such an investment. ERISA also imposes certain duties on persons
who are fiduciaries of Plans subject to ERISA, and ERISA and Section 4975 of the
Code prohibit certain transactions between a Plan and Parties-in-Interest or
Disqualified Persons with respect to such Plans. A violation of the prohibited
transaction rules may result in the imposition of an excise tax and other
liabilities under ERISA and the Code, unless one or more statutory or
administrative exemptions is available.
Subject to the considerations discussed below, the Notes may, in general,
be purchased by or on behalf of a Plan.
PLAN ASSET CONSIDERATIONS
Under a regulation issued by the United States Department of Labor (the
"Plan Asset Regulation"), if a Plan makes an "equity" investment in a
corporation, partnership, trust or certain other entities, the underlying assets
and properties of such entity will be deemed for purposes of ERISA and Section
4975 of the Code to be assets of the investing Plan unless certain exceptions
set forth in the Plan Asset Regulation apply. The Plan Asset Regulation defines
an "equity interest" as any interest in an entity other than an instrument that
is treated as indebtedness under applicable local law and which has no
substantial equity features. Although there is little statutory or regulatory
guidance on this subject, and there can be no assurances in this regard, the
Seller believes that the Notes, which are denominated as debt, should be treated
as indebtedness without substantial equity features for purposes of the Plan
Asset Regulation.
POTENTIAL PROHIBITED TRANSACTIONS
However, without regard to whether the assets of the Trust were deemed to
be assets of any Plan, the acquisition or holding of Notes could be viewed as an
indirect extension of credit to holders
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of the Certificates, or their affiliates, possibly giving rise to a prohibited
transaction. In such case, certain exemptions from the prohibited transaction
rules could be applicable depending on the type and circumstances of the Plan
fiduciary making the decision to acquire a Note. Included among these exemptions
are: Prohibited Transaction Class Exemption ("PTCE") 90-1, regarding investments
by insurance company pooled separate accounts; PTCE 91-38, regarding investments
by bank collective investment funds; PTCE 84-14, regarding transactions effected
by "qualified professional asset managers"; PTCE 95-60, regarding investments by
insurance company general accounts; and PTCE 96-23, regarding investments
effected by in-house asset managers.
SPECIAL CONSIDERATIONS APPLICABLE TO INSURANCE COMPANY GENERAL ACCOUNTS
It should be noted that the Small Business Job Protection Act of 1996 added
new Section 401(c) of ERISA relating to the status of the assets of insurance
company general accounts under ERISA and Section 4975 of the Code. Pursuant to
Section 401(c), the Department of Labor is required to issue final regulations
(the "General Account Regulations") with respect to insurance policies issued on
or before December 31, 1998 that are supported by an insurer's general account.
The General Account Regulations are to provide guidance on which assets held by
the insurer constitute "plan assets" for purposes of the fiduciary
responsibility provisions of ERISA and Section 4975 of the Code. Section 401(c)
also provides that, except in the case of avoidance of the General Account
Regulations and actions brought by the Secretary of Labor relating to certain
breaches of fiduciary duties that also constitute breaches of state or Federal
criminal law, until the date that is 18 months after the General Account
Regulations become final, no person shall be subject to liability under the
fiduciary responsibility and prohibited transaction provisions of ERISA and
Section 4975 of the Code on the basis of a claim that the assets of the general
account of an insurance company constitute the assets of any plan. The plan
asset status of insurance company separate accounts is unaffected by new Section
401(c) of ERISA, and separate account assets continue to be treated as the
assets of any plan invested in the separate account. Insurance companies should
consult with their counsel regarding the potential impact of Section 401(c) on
their purchase of Notes.
As of the date hereof, the Department of Labor has issued proposed
regulations under Section 401(c). It should be noted that if the General Account
Regulations are adopted substantially in the form in which proposed, the General
Account Regulations may not exempt the assets of insurance company general
accounts from treatment as "plan assets" of plans holding policies issued after
December 31, 1998. The proposed regulations should not, however, adversely
affect the applicability of PTCE 95-60 to purchases of Notes.
GENERAL INVESTMENT CONSIDERATIONS
Prior to making an investment in the Notes, prospective Plan investors
should consult with their legal advisors concerning the impact of ERISA and the
Code and the potential consequences of such investment with respect to their
specific circumstances. Moreover, each Plan fiduciary should take into account,
among other considerations, whether the fiduciary has the authority to make the
investment; the composition of the Plan's portfolio with respect to
diversification by type of asset; the Plan's funding objectives; the tax effects
of the investment; and whether under the general fiduciary standards of
investment prudence and diversification an investment in the Notes is
appropriate for the Plan, taking into account the overall investment policy of
the Plan and the composition of the Plan's investment portfolio.
Certain employee benefit plans, such as governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to the provisions of Title I of ERISA and Section 4975 of
the Code. Accordingly, assets of such plans may, subject to the provisions of
any other applicable Federal and state law (including, without limitation,
Federal or state law which is, to a material extent, similar to the provisions
of Section 406 of ERISA or Section 4975 of the Code), be invested in any Class
of Notes without regard to the ERISA
74
<PAGE> 75
considerations described herein. It should be noted, however, that any such plan
that is qualified and exempt from taxation under Sections 401(a) and 501(a) of
the Code is subject to the prohibited transaction rules set forth in Section 503
of the Code.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Seller has agreed to sell to each of the
Underwriters named below (collectively, the "Underwriters"), and each of the
Underwriters has severally agreed to purchase from the Seller, the principal
amount of the Notes set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRINCIPAL AMOUNT PRINCIPAL AMOUNT PRINCIPAL AMOUNT
OF CLASS A-1 OF CLASS A-2 OF CLASS A-3 OF CLASS A-4
UNDERWRITERS NOTES NOTES NOTES NOTES
- ------------ ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Chase Securities Inc............... $144,000,000 $203,176,000 $176,001,000 $ 96,720,000
Salomon Smith Barney Inc. ......... 144,000,000 203,175,000 176,000,000 96,720,000
Deutsche Bank Securities Inc. ..... 24,000,000 33,883,000 29,333,000 16,120,000
J.P. Morgan Securities Inc. ....... 24,000,000 33,883,000 29,333,000 16,120,000
Merrill Lync
h, Pierce, Fenner & Smith
Incorporated........... 24,000,000 33,883,000 29,333,000 16,120,000
------------ ------------ ------------ ------------
Total..................... $360,000,000 $508,000,000 $440,000,000 $241,800,000
============ ============ ============ ============
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all the Notes offered hereby
if any of the Notes are purchased. In the event of a default by any Underwriter,
the Underwriting Agreement provides that, in certain circumstances, purchase
commitments of the non-defaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
The Seller has been advised that the Underwriters propose initially to
offer the Notes to the public at the public offering prices set forth on the
cover page hereof, and to certain dealers at such prices less a concession not
in excess of .060% of the principal amount of the Class A-1 Notes, .100% of the
principal amount of the Class A-2 Notes, .120% of the principal amount of the
Class A-3 Notes and .150% of the principal amount of the Class A-4 Notes. The
Underwriters may allow and such dealers may reallow a discount not in excess of
.025% of the principal amount of the Class A-1 Notes, .050% of the principal
amount of the Class A-2 Notes, .075% of the principal amount of the Class A-3
Notes and .100% of the principal amount of the Class A-4 Notes on sales to
certain other dealers. After the initial public offering, the respective public
offering prices, concessions and discounts may be changed.
The Underwriters may engage in over-allotment transactions, stabilizing
transactions, syndicate covering transactions and penalty bids with respect to
the Notes in accordance with Regulation M under the Exchange Act. Over-allotment
transactions involve syndicate sales in excess of the offering size creating a
syndicate short position. Stabilizing transactions permit bids to purchase the
Notes so long as the stabilizing bids do not exceed a specified maximum.
Syndicate covering transactions involve purchases of the Notes in the open
market after the distribution has been completed in order to cover syndicate
short positions. Penalty bids permit the Underwriters to reclaim a selling
concession from a syndicate member when the Notes originally sold by such
syndicate member are purchased in a syndicate covering transaction. Such
over-allotment transactions, stabilizing transactions, syndicate covering
transactions and penalty bids may cause prices of the Notes to be higher than
they would otherwise be in the absence of such transactions. Neither the Trust
nor any of the Underwriters represent that the Underwriters will engage in any
such transactions nor that such transactions, once commenced, will not be
discontinued without notice.
The closing of the sale of the Notes is conditioned on the issuance of the
Certificates.
75
<PAGE> 76
The Indenture Trustee may, from time to time, invest the funds in the
Collection Account, the Payahead Account, the Note Distribution Account and the
Reserve Accounts, and the Owner Trustee may, from time to time, invest the funds
in the Certificate Distribution Account in Permitted Investments acquired from
the Underwriters.
In the ordinary course of business, the Underwriters and their affiliates
have engaged and may engage in investment banking and commercial banking
transactions with the Servicer and its affiliates.
MBCC and the Seller have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act or to
contribute to payments the Underwriters may be required to make in respect
thereof. The Underwriters have agreed to reimburse the Seller for certain
expenses incurred in connection with the issuance and distribution of the Notes.
Upon receipt of a request by an investor who has received an electronic
Prospectus from an Underwriter, or a request by such investor's representative,
within the period during which there is an obligation to deliver a Prospectus,
the Seller or the Underwriters will promptly deliver, or cause to be delivered,
without charge, a paper copy of the Prospectus.
LEGAL OPINIONS
The validity of the Notes and certain Federal income tax matters will be
passed upon for the Seller by Morgan, Lewis & Bockius LLP, New York, New York.
The validity of the Notes 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.
76
<PAGE> 77
INDEX OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ABS......................................................... 30
ABS Table................................................... 30
Accounts.................................................... 43
Accrued Interest............................................ 45
Administration Agreement.................................... 63
Administrator............................................... 63
Advance..................................................... 11, 49
Amount Financed............................................. 29
APR......................................................... 25
Available Funds............................................. 44
Balloon Receivables......................................... 25
Bankruptcy Code............................................. 14
Basic Documents............................................. 53
Business Day................................................ 6
Cede........................................................ 5
Cedel....................................................... 39
Cedel Participants.......................................... 39
Certificate Balance......................................... 45
Certificate Distribution Account............................ 42
Certificateholders.......................................... 6
Certificates................................................ 1, 3
Chrysler.................................................... 13, 36
Chrysler Merger............................................. 13, 36
Chrysler Merger Sub......................................... 13, 36
Class....................................................... 3
Class A Noteholders......................................... 6
Class A Notes............................................... 1, 3
Class A Reserve Account..................................... 8
Class A Reserve Initial Deposit............................. 9, 48
Class A-1 Final Payment Date................................ 8
Class A-1 Noteholders....................................... 7
Class A-1 Notes............................................. 1, 3
Class A-1 Rate.............................................. 6
Class A-2 Final Payment Date................................ 8
Class A-2 Noteholders....................................... 7
Class A-2 Notes............................................. 1, 3
Class A-2 Rate.............................................. 6
Class A-3 Final Payment Date................................ 8
Class A-3 Noteholders....................................... 7
Class A-3 Notes............................................. 1, 3
Class A-3 Rate.............................................. 6
Class A-4 Final Payment Date................................ 8
Class A-4 Noteholders....................................... 7
Class A-4 Notes............................................. 1, 3
Class A-4 Rate.............................................. 6
Class B Certificateholders.................................. 6
Class B Certificates........................................ 1, 3
Class B Final Payment Date.................................. 8
Class B Rate................................................ 6
Class B Reserve Account..................................... 8
</TABLE>
77
<PAGE> 78
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Closing Date................................................ 5
Code........................................................ 68
Collateral.................................................. 4, 18
Collection Account.......................................... 10
Collection Period........................................... 5
Combination Agreement....................................... 13, 36
Commercial Vehicle Contracts................................ 18
Commercial Vehicle Dealers.................................. 18
Commercial Vehicle.......................................... 19
Commission.................................................. 2
Contracts................................................... 18
Cooperative................................................. 39
Cutoff Date................................................. 2, 4
Daimler-Benz................................................ 35
Daimler-Benz ADSs........................................... 13, 36
Daimler-Benz Exchange Offer................................. 13, 36
Daimler-Benz Merger......................................... 13, 36
Daimler-Benz Ordinary Shares................................ 13, 36
DaimlerChrysler AG.......................................... 36
DaimlerChrysler Ordinary Shares............................. 13, 36
DBNA........................................................ 3, 35
Dealer Agreement............................................ 18
Dealers..................................................... 18
Defaulted Receivable........................................ 44
Definitive Notes............................................ 40
Depositaries................................................ 38
Depositary.................................................. 38
Determination Date.......................................... 44
Direct Participants......................................... 37
Disqualified Persons........................................ 73
DTC......................................................... 2
DTC Participants............................................ 37
Due Date.................................................... 21
Eligible Bank............................................... 43
Eligible Deposit Account.................................... 43
Eligible Servicer........................................... 58
ERISA....................................................... 73
Euroclear................................................... 39
Euroclear Operator.......................................... 39
Euroclear Participants...................................... 39
Events of Default........................................... 51
Events of Servicing Termination............................. 60
Exchange Act................................................ 2
Final Payment Dates......................................... 8
Final Scheduled Maturity Date............................... 5
Financed Vehicles........................................... 5
Freightliner................................................ 2, 19
FTC......................................................... 66
FTC Rule.................................................... 67
Fully Amortizing Receivables................................ 25
</TABLE>
78
<PAGE> 79
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Account Regulations................................. 74
Holders..................................................... 6
Indenture................................................... 3
Indenture Trustee........................................... 3
Indirect Participants....................................... 37
Initial Pool Balance........................................ 5
Insolvency Laws............................................. 14
Interest Carryover Shortfall................................ 45
Interest Period............................................. 41
Interest Rates.............................................. 6, 46
IRS......................................................... 68
Issuer...................................................... 3
Liquidation Proceeds........................................ 44
MBCC........................................................ 3
MBNA........................................................ 19
Mercedes-Benz Dealers....................................... 18
Monthly Accrued Interest.................................... 46
Monthly Remittance Condition................................ 50
Moody's..................................................... 12
Motor Vehicle Contracts..................................... 18
Motor Vehicle............................................... 18
NCO......................................................... 20
Note Distribution Account................................... 42
Note Owner.................................................. 5
Note Pool Factor............................................ 34
Noteholders................................................. 6
Notes....................................................... 1, 3
NTO......................................................... 20
Obligors.................................................... 4
OID......................................................... 69
OID Regulations............................................. 69
Omnibus Proxy............................................... 38
Opinion of Counsel.......................................... 55
Owner Trustee............................................... 3
Parties-in-Interest......................................... 73
Payahead Account............................................ 42
Payahead Balance............................................ 49
Payaheads................................................... 43
Payment Date................................................ 2, 6
Permitted Investments....................................... 43
Plan........................................................ 73
Plan Asset Regulation....................................... 73
Pool Balance................................................ 5, 29
Portfolio Interest Exemption................................ 72
Prepaid Receivable.......................................... 8
Prepayable Obligation....................................... 69
Prepayment Assumption....................................... 69
Principal Balance........................................... 29
Principal Carryover Shortfall............................... 46
Principal Distribution Amount............................... 7, 46
PTCE........................................................ 74
</TABLE>
79
<PAGE> 80
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Purchase Agreement.......................................... 5
Purchase Amount............................................. 57
Purchased Receivable........................................ 44
Rating Agency............................................... 12
Receivable File............................................. 57
Receivables................................................. 2
Record Date................................................. 6
Recoveries.................................................. 44
Reserve Accounts............................................ 8
S&P......................................................... 12
Sale and Servicing Agreement................................ 5
Scheduled Payment........................................... 29
Scheduled Principal......................................... 46
Securities Act.............................................. 2
Seller...................................................... 1
Servicer.................................................... 3
Servicing Fee............................................... 11
Servicing Guaranty Agreement................................ 50
Servicing Rate.............................................. 11, 59
Special Counsel............................................. 34
Special Tax Counsel......................................... 68
Specified Class A Reserve Balance........................... 9, 49
Specified Class B Reserve Balance........................... 10, 49
Sterling.................................................... 19
Supplemental Servicing Fee.................................. 11, 59
Terms and Conditions........................................ 40
Total Required Payment...................................... 46
Total Servicing Fee......................................... 11, 59
Transactions................................................ 13, 36
Transfer and Servicing Agreements........................... 56
Trust....................................................... 1, 3
Trust Agreement............................................. 3
Trust Property.............................................. 4
U.S. Person................................................. A-3
UCC......................................................... 4
Underwriters................................................ 75
Underwriting Agreement...................................... 75
United States Alien Holder.................................. 68
United States Holder........................................ 68
Vehicles.................................................... 19
</TABLE>
80
<PAGE> 81
ANNEX A
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Daimler-Benz
Vehicle Owner Trust 1998-A Asset Backed Notes will be available only in
book-entry form. Investors in the Notes may hold such Notes through any of DTC,
Cedel, or Euroclear. The Notes will be tradeable as home market instruments in
both the European and U.S. domestic markets. Initial settlement and all
secondary trades will settle in same-day funds.
Secondary market trading between investors holding Notes through Cedel and
Euroclear will be conducted in the ordinary way in accordance with their normal
rules and operating procedures and in accordance with conventional eurobond
practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Notes directly through
DTC will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Notes will be effected on a delivery-against-payment basis
through the respective Depositaries of Cedel and Euroclear (in such capacity)
and as DTC Participants.
Non-U.S. holders (as described below) of Notes will be subject to U.S.
withholding taxes unless such holders meet certain requirements and deliver
appropriate U.S. tax documents to the securities clearing organizations or their
participants.
INITIAL SETTLEMENT
All Notes will be held in book-entry form by DTC in the name of Cede & Co.
as nominee of DTC. Investors' interests in the Notes will be represented through
financial institutions acting on their behalf as direct and indirect
participants in DTC. As a result, Cedel and Euroclear will hold positions on
behalf of their participants through their respective Depositaries, which in
turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Notes through DTC will follow the
settlement practices applicable to U.S. corporate debt obligations. Investor
securities custody accounts will be credited with their holdings against payment
in same-day funds on the settlement date.
Investors electing to hold their Notes through Cedel or Euroclear accounts
will follow the settlement procedures applicable to conventional eurobonds,
except that there will be no temporary global security and no "lock-up" or
restricted period. Notes will be credited to the securities custody accounts on
the settlement date against payment in the same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When Notes
are to be transferred from the account of a DTC Participant to the accounts of a
Cedel Participant or a Euroclear
A-1
<PAGE> 82
Participant, the purchaser will send instructions to Cedel or Euroclear through
a Cedel Participant or Euroclear Participant at least one business day prior to
settlement. Cedel or Euroclear, as the case may be, will instruct the respective
Depositary to receive the Notes against payment. Payment will include interest
accrued on the Notes from and including the last coupon payment date to and
excluding the settlement date, on the basis of a 360-day year consisting of
twelve 30-day months. Payment will then be made by the Depositary to the DTC
Participant's account against delivery of the Notes. After settlement has been
completed, the Notes will be credited to the respective clearing system and by
the clearing system, in accordance with its usual procedures, to the Cedel
Participant's or Euroclear Participant's account. The Notes credit will appear
the next day (European time) and the cash debit will be back-valued to, and the
interest on the Notes will accrue from, the value date (which would be the
preceding day when settlement occurred in New York). If settlement is not
completed on the intended value date (i.e., the trade fails), the Cedel or
Euroclear cash debit will be valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Notes are
credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to pre-position
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, Cedel Participants or Euroclear Participants purchasing Notes
would incur overdraft charges for one day, assuming they cleared the overdraft
when the Notes were credited to their accounts. However, interest on the Notes
would accrue from the value date. Therefore, in many cases the investment income
on the Notes earned during that one-day period may substantially reduce or
offset the amount of such overdraft charges, although this result will depend on
each Cedel Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Notes to the
respective Depositary for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participants a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between Cedel or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Notes are to be
transferred by the respective clearing system, through the respective
Depositary, to a DTC Participant. The seller will send instructions to Cedel or
Euroclear through a Cedel Participant or Euroclear Participant at least one
business day prior to settlement. In these cases, Cedel or Euroclear will
instruct the respective Depositary, as appropriate, to deliver the bonds to the
DTC Participant's account against payment. Payment will include interest accrued
on the Notes from and including the last coupon payment date to and excluding
the settlement date on the basis of a 360-day year consisting of twelve 30-day
months. The payment will then be reflected in the account of the Cedel
Participant or Euroclear Participant the following day, and receipt of the cash
proceeds in the Cedel Participant's or Euroclear Participant's account would be
back-valued to the value date (which would be the preceding day, when settlement
occurred in New York). Should the Cedel Participant or Euroclear Participant
have a line of credit with its respective clearing system and elect to be in
debt in anticipation of receipt of the sale proceeds in its account, the back-
valuation will extinguish any overdraft charges incurred over that one-day
period. If settlement is not completed on the intended value date (i.e., the
trade fails), receipt of the cash proceeds in the Cedel Participant's or
Euroclear Participant's account would instead be valued as of the actual
settlement date.
A-2
<PAGE> 83
Finally, day traders that use Cedel or Euroclear and that purchase Notes
from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Notes in the U.S. from a DTC Participant no later
than one day prior to settlement, which would give the Notes sufficient
time to be reflected in their Cedel or Euroclear account in order to settle
the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Cedel Participant
or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Notes holding securities through Cedel or Euroclear
(or through DTC if the holder has an address outside the U.S.) will be subject
to the 30% U.S. withholding tax that generally applies to payments of interest
(including original issue discount) on registered debt issued by U.S. Persons,
unless (i) each clearing system, bank, or other financial institution that holds
customers' securities in the ordinary course of its trade or business in the
chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Notes that
are non-U.S. Persons can obtain a complete exemption from the withholding tax by
filing a signed Form W-8 (Certificate of Foreign Status). If the information
shown on Form W-8 changes, a new Form W-8 must be filed within 30 days of such
change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form 1001). Non-U.S. Persons that are Note Owners residing in a country that
has a tax treaty with the United States can obtain an exemption or reduced tax
rate (depending on the treaty terms) by filing Form 1001 (Ownership, Exemption
or Reduced Rate Certificate). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8. Form 1001 may be filed by the Note Owner or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Note Owner or, in the
case of a Form 1001 or a Form 4224 filer, his agent, files by submitting the
appropriate form to the person through whom it holds (the clearing agency, in
the case of persons holding directly on the books of the clearing agency). Form
W-8 and Form 1001 are effective for three calendar years and Form 4224 is
effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership (including an entity treated as a
corporation or partnership) organized in or under the
A-3
<PAGE> 84
laws of the United States or any state thereof or the District of Columbia
(unless, in the case of a partnership, Treasury regulations provide otherwise),
(iii) an estate the income of which is includible in gross income for United
States tax purposes, regardless of its source, or (iv) a trust if a U.S. court
is able to exercise primary supervision over the administration of such trust
and one or more U.S. persons has the authority to control all substantial
decisions of the trust. This summary does not deal with all aspects of U.S.
Federal income tax withholding that may be relevant to foreign holders of the
Notes. Investors are advised to consult their own tax advisors for specific tax
advice concerning their holding and disposing of the Notes.
Recent Treasury regulations could affect the procedures to be followed by a
non-U.S. Person in complying with the United States Federal withholding, backup
withholding, and information reporting rules. The regulations are not currently
effective but, if finalized in their current form, would be effective for
payments made after December 31, 1998. Prospective investors are advised to
consult their own tax advisors regarding the effect, if any, of the regulations
on the purchase, ownership and disposition of the Notes.
A-4
<PAGE> 85
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE SELLER, THE SERVICER OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION BY ANYONE IN ANY STATE
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS, NOR ANY SALE MADE HEREUNDER, SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE SELLER OR
THE SERVICER SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................... 2
Reports to Noteholders.................... 2
Prospectus Summary........................ 3
Recent Developments....................... 13
Risk Factors.............................. 13
The Trust................................. 16
The Trust Property........................ 18
MBCC's Vehicle Contract Portfolio......... 18
The Receivables........................... 25
Pool Factors and Other Information........ 34
Use of Proceeds........................... 34
The Seller................................ 34
The Servicer.............................. 35
Description of the Notes.................. 36
Description of the Transfer and Servicing
Agreements.............................. 56
Certain Legal Aspects of the
Receivables............................. 63
Certain Federal Income Tax Consequences... 67
ERISA Considerations...................... 73
Underwriting.............................. 75
Legal Opinions............................ 76
Index of Principal Terms.................. 77
Annex A................................... A-1
</TABLE>
------------------------
UNTIL MARCH 3, 1999 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. UPON RECEIPT OF A
REQUEST BY AN INVESTOR, OR SUCH INVESTOR'S REPRESENTATIVE, WITHIN THE PERIOD
DURING WHICH THERE IS A PROSPECTUS DELIVERY OBLIGATION, THE SELLER OR THE
UNDERWRITERS WILL TRANSMIT OR CAUSE TO BE TRANSMITTED PROMPTLY, WITHOUT CHARGE
AND IN ADDITION TO ANY SUCH DELIVERY REQUIREMENTS, A PAPER COPY OF THE
PROSPECTUS OR A PROSPECTUS ENCODED IN AN ELECTRONIC FORMAT.
$1,549,800,000
DAIMLER-BENZ
VEHICLE OWNER TRUST
1998-A
$360,000,000
CLASS A-1
5.27125% ASSET BACKED NOTES
$508,000,000
CLASS A-2
5.23% ASSET BACKED NOTES
$440,000,000
CLASS A-3
5.16% ASSET BACKED NOTES
$241,800,000
CLASS A-4
5.22% ASSET BACKED NOTES
DAIMLER-BENZ
VEHICLE RECEIVABLES
CORPORATION
SELLER
MERCEDES-BENZ
CREDIT CORPORATION
SERVICER
- ----------------------
PROSPECTUS
- ----------------------
CHASE SECURITIES INC.
SALOMON SMITH BARNEY
DEUTSCHE BANK SECURITIES
J.P. MORGAN & CO.
MERRILL LYNCH & CO.
DATED DECEMBER 3, 1998
