<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 6, 1996
REGISTRATION NO. 333-4220
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ONYX ACCEPTANCE GRANTOR TRUST 1996-2
(ISSUER WITH RESPECT TO CERTIFICATES)
------------------------
ONYX ACCEPTANCE FINANCIAL CORPORATION
(ORIGINATOR OF THE TRUST DESCRIBED HEREIN)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 9999 33-0639768
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
8001 IRVINE CENTER DRIVE, 5TH FLOOR
IRVINE, CA 92718
(714) 753-1191
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
REGAN E. KELLY, ESQ.
EXECUTIVE VICE PRESIDENT
8001 IRVINE CENTER DRIVE, 5TH FLOOR
IRVINE, CA 92718
(714) 753-1191
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
ROGER M. COHEN, ESQ. SUSAN M. CURTIS, ESQ.
BROBECK, PHLEGER & HARRISON LLP SKADDEN, ARPS, SLATE, MEAGHER & FLOM
4675 MACARTHUR COURT 919 THIRD AVENUE
NEWPORT BEACH, CA 92660-1846 NEW YORK, NEW YORK 10022
(714) 752-7535 (212) 735-3000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this
Amendment No. 1 to the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
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PROPOSED PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT OFFERING PRICE FEE(1)
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% Auto Loan Pass-Through
Certificates, Series
1996-2...................... $85,013,318 100% $85,013,318 $29,312.59
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</TABLE>
(1) 344.80 of which was previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
CROSS REFERENCE SHEET
FURNISHED PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEMS AND CAPTION IN FORM S-1 CAPTION IN PROSPECTUS
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<C> <S> <C>
1. Forepart of Registration Statement and
Outside Front Cover....................... Forepart of Registration Statement;
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus Inside Front and Outside
Back...................................... Cover Pages of Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges........ Summary; Risk Factors
4. Use of Proceeds........................... Use of Proceeds
5. Determination of Offering Price........... *
6. Dilution.................................. *
7. Selling Security Holders.................. *
8. Plan of Distribution...................... Underwriting
9. Description of Securities to be
Registered................................ Summary; The Certificates and the
Agreement; Certain Legal Aspects -- the
Contracts
10. Interests of Named Experts and Counsel.... Legal Matters; Experts
11. Information with Respect to the
Registrant................................ The Seller
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... See Part II
</TABLE>
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* Answer negative or Item inapplicable.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 7, 1996
PROSPECTUS
$85,013,318
[LOGO] ONYX ACCEPTANCE GRANTOR TRUST 1996-2
% AUTO LOAN PASS-THROUGH CERTIFICATES, SERIES 1996-2
ONYX ACCEPTANCE FINANCIAL CORPORATION,
Seller
ONYX ACCEPTANCE CORPORATION,
Servicer
------------------------
The % Auto Loan Pass-Through Certificates (the "Certificates") will
represent undivided fractional interests in the Onyx Acceptance Grantor Trust
1996-2 (the "Trust") to be formed by Onyx Acceptance Financial Corporation (the
"Seller"), a wholly-owned, limited purpose finance subsidiary of Onyx Acceptance
Corporation ("Onyx"). The Trust property will include a pool of fixed rate Rule
of 78's motor vehicle retail installment sales contracts (the "Contracts")
secured by new and used automobiles and light-duty trucks (the "Financed
Vehicles"), certain monies due thereunder on or after May 1, 1996 (the "Cut-Off
Date"), security interests in the Financed Vehicles, the benefits of an
irrevocable principal/interest surety bond (the "Surety Bond") issued by Capital
Markets Assurance Corporation (the "Insurer"), and certain other property, all
as more fully described herein. The initial Aggregate Scheduled Balance (as
defined herein) of the Contracts will be approximately $85,013,318. Onyx will
act as servicer of the Contracts (the "Servicer").
Interest on the Certificates at the Pass-Through Rate of % per annum
(each, an "Interest Distribution"), will be distributed to the
Certificateholders on the 15th day of each month (or, if the 15th day is not a
Business Day, the following Business Day) (each, a "Distribution Date")
commencing June 15, 1996 and ending on October 15, 2001 (the "Final Distribution
Date"). Payments of scheduled principal, as well as the principal balance of
liquidated contracts and contracts repurchased by the Seller and purchased by
the Servicer (the "Principal Distribution"), will be distributed to
Certificateholders on each Distribution Date as described herein.
In general, it is intended that the Certificateholders receive on each
Distribution Date (a) an Interest Distribution equal to interest at the Pass-
Through Rate, determined on the Aggregate Scheduled Balance of the Contracts as
of the close of the preceding Collection Period (as defined herein) (or as of
the Cut-Off Date in the case of the first Distribution Date) and (b) a Principal
Distribution equal to the decline in the Aggregate Scheduled Balance of the
Contracts in respect of such Distribution Date (including liquidations and full
prepayments). The Principal Distribution on the Final Distribution Date will
include an amount equal to the Aggregate Scheduled Balance of the remaining
Contracts.
It is a condition of issuance that the Certificates be rated in the highest
category by two nationally recognized rating agencies based primarily on the
issuance of the Surety Bond by the Insurer. Under the Surety Bond, the Insurer
has unconditionally and irrevocably guaranteed payment of the Interest
Distribution and the Principal Distribution on each Distribution Date, including
the Final Distribution Date. See "The Certificates and the Agreement -- The
Surety Bond."
The Certificates will initially be represented by certificates registered in
the name of Cede & Co. as the nominee of The Depository Trust Company ("DTC").
The interests of beneficial owners of the Certificates will be represented by
book entries on the records of DTC and participating members thereof. Definitive
Certificates will be available only under the limited circumstances described
herein.
There is currently no secondary market for the Certificates. The Underwriter
expects, but is not obligated, to make a market in the Certificates. There is no
assurance that any such market will develop or continue.
------------------------
SEE "RISK FACTORS" AT PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED
BY PROSPECTIVE PURCHASERS OF THE CERTIFICATES OFFERED HEREBY.
------------------------
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST AND ARE NOT INSURED OR
GUARANTEED BY THE SELLER, ONYX 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>
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PRICE TO UNDERWRITING PROCEEDS TO THE
PUBLIC(1) DISCOUNT SELLER(1)(2)
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<S> <C> <C> <C>
Per Certificate.......................... % % %
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Total.................................... $ $ $
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</TABLE>
(1) Plus accrued interest, if any, calculated from , 1996.
(2) Before deducting expenses payable by the Seller estimated to be $282,812.50.
------------------------
The Certificates are offered by the Underwriter, subject to prior sale,
when, as and if delivered to and accepted by the Underwriter, and subject to
various prior conditions, including its right to reject orders in whole or in
part. It is expected that the Certificates will be delivered in book-entry form,
on or about May 15, 1996 through the facilities of DTC.
------------------------
MERRILL LYNCH & CO.
------------------------
The date of this Prospectus is May , 1996.
<PAGE> 4
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES
OFFERED HEREBY AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Seller, as originator of the Trust, has filed a Registration Statement
under the Securities Act of 1933, as amended, with the Securities and Exchange
Commission (the "Commission") with respect to the Certificates offered pursuant
to this Prospectus. This Prospectus, which forms a part of the Registration
Statement, does not contain all of the information included in the Registration
Statement and the exhibits thereto. For further information, reference is made
to the Registration Statement and amendments thereof and to the exhibits
thereto, which are available for inspection without charge at the office of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission at 7 World Trade Center, New York, New York
10048 and at the Northwestern Atrium Building, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511, and copies of which may be obtained from the
Commission at prescribed rates. The Servicer, on behalf of the Trust, will also
file or cause to be filed with the Commission such periodic reports as are
required under the Securities Exchange Act of 1934 and the rules and regulations
of the Commission thereunder.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued (which will occur under
the limited circumstances described herein), unaudited monthly and annual
reports, containing information concerning the Trust and prepared by the
Servicer, will be sent by the Trustee only to Cede & Co. as the nominee of DTC
and the registered holder of the Certificates. Such reports will not constitute
financial statements prepared in accordance with generally accepted accounting
principles. These reports may be obtained by Certificate Owners by a request in
writing to the Trustee. See "The Certificates and the Agreement -- Book-Entry
Registration." The Seller does not intend to send any of its financial reports
to the Certificateholders.
2
<PAGE> 5
SUMMARY
The following 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 for the location herein of the definitions of capitalized terms.
Issuer..................... Onyx Acceptance Grantor Trust 1996-2 (the "Trust"),
to be formed by Onyx Acceptance Financial
Corporation (the "Seller") pursuant to the Pooling
and Servicing Agreement, to be dated as of May 1,
1996 (the "Agreement"), among the Seller, Onyx
Acceptance Corporation (the "Servicer") and Bankers
Trust Company (the "Trustee" and "Back-up
Servicer").
Securities Offered......... % Auto Loan Pass-Through Certificates (the
"Certificates") representing fractional undivided
interests in the Trust. The Certificates will be
offered for purchase in denominations of $1,000 and
integral multiples thereof. See "The Certificates
and the Agreement -- General."
Initial Certificate
Balance.................... $85,013,318. The initial principal balance of the
Certificates is equal to the aggregate principal
balance of the Contracts as of the Cut-Off Date as
calculated based on the Rule of 78's (the "Cut-Off
Date Scheduled Balance"). See "The Contracts."
Seller..................... Onyx Acceptance Financial Corporation, a wholly
owned subsidiary of Onyx Acceptance Corporation.
The Seller's principal executive offices are
located at 8001 Irvine Center Drive, 5th Floor,
Irvine, California 92718 and its telephone number
is (714) 753-1191. See "The Seller."
Servicer................... Onyx Acceptance Corporation ("Onyx"). The
Servicer's principal executive offices are located
at 8001 Irvine Center Drive, 5th Floor, Irvine
California, 92718 and its telephone number is (714)
450-5500. See "The Servicer."
Back-up Servicer........... Bankers Trust Company. Onyx may be terminated as
Servicer under certain circumstances, at which time
the Back-up Servicer will automatically become the
Servicer. See "Additional Provisions of the
Agreement -- Rights Upon Event of Default."
Trustee.................... Bankers Trust Company.
Trust Property............. The Trust's assets (the "Trust Property") will
include: (i) a pool of fixed rate Rule of 78's
motor vehicle retail installment sales contracts
(the "Contracts") purchased from the Seller and
secured by new and used automobiles and light-duty
trucks (the "Financed Vehicles"), (ii) certain
documents relating to the Contracts, (iii) certain
monies due under the Contracts on or after May 1,
1996 (the "Cut-Off Date"), (iv) security interests
in the Financed Vehicles and the rights to receive
proceeds from claims on certain insurance policies
covering the Financed
3
<PAGE> 6
Vehicles or the individual obligors under each
related Contract and the right to proceeds under
the Blanket Insurance Policy, (v) all amounts on
deposit in the Collection Account, including all
Eligible Investments credited thereto (but
excluding any investment income from Eligible
Investments), (vi) the benefits of an irrevocable
principal/interest surety bond (the "Surety Bond")
issued by Capital Markets Assurance Corporation
(the "Insurer"), (vii) the right of the Seller to
cause Onyx to repurchase certain Contracts under
certain circumstances, and (viii) all proceeds of
the foregoing.
Pass-Through Rate.......... % per annum, payable monthly at one-twelfth
the annual rate and calculated on the basis of a
360-day year of twelve 30-day months.
Distribution Date.......... The 15th day of each month (or, if such day is not
a Business Day, the next succeeding Business Day)
commencing June 15, 1996 (each a "Distribution
Date"). A "Business Day" is a day other than a
Saturday, Sunday or other day on which commercial
banks located in California or New York are
authorized or obligated to be closed.
Final Distribution Date.... October 15, 2001.
Interest Distribution...... On each Distribution Date, monthly interest (the
"Interest Distribution") in an amount equal to the
product of one-twelfth of the Pass-Through Rate and
the Pool Balance as of the end of the immediately
preceding Collection Period will be distributed to
the Certificateholders of record on a pro rata
basis as of the Business Day immediately preceding
such Distribution Date. The "Pool Balance" as of
any date is the Aggregate Scheduled Balance of the
Contracts as of such date, excluding those
Contracts which, as of such date, have become
Liquidated Contracts or have been repurchased by
the Seller or purchased by the Servicer. A
"Collection Period" with respect to a Distribution
Date will be the calendar month preceding the month
in which such Distribution Date occurs; provided,
that with respect to Liquidated Contracts (as
defined below) the Collection Period will be the
period from but excluding the sixth Business Day
preceding the immediately preceding Distribution
Date to and including the sixth Business Day
preceding such Distribution Date. With respect to
the first Distribution Date the "Collection Period"
for Liquidated Contracts will be the period from
and including the Cut-Off Date to and including the
sixth Business Day preceding such first
Distribution Date. See "The Certificates and the
Agreement -- Distribution of Principal and
Interest."
Principal Distribution..... On each Distribution Date, Principal Distributions
for the related Collection Period will be passed
through to the Certificateholders. The "Principal
Distribution" on any Distribution Date is the
Aggregate Scheduled Balance Decline (as defined
below) during the related Collection Period. The
Principal Distribution on the Final Distribution
Date will include the Aggregate Scheduled Balance
of all Contracts that are outstanding at the end of
the Collection Period immediately prior to the
Final Distribution Date. The "Aggregate Scheduled
Balance De-
4
<PAGE> 7
cline" for any Distribution Date is the amount by which the Aggregate Scheduled
Balance of the Contracts as of the beginning of the related Collection Period
exceeds the Aggregate Scheduled Balance of such Contracts as of the end of the
related Collection Period. The "Aggregate Scheduled Balance" of the Contracts is
the sum of the Scheduled Balances of each Contract. The "Scheduled Balance" of a
Contract at any date is equal to the Cut-Off Date Scheduled Balance of such
Contract reduced by the portion of each scheduled payment of principal and
interest due on such Contract (the "Monthly P&I") on or prior to the date of
calculation that is allocable to principal under the Recomputed Actuarial
Method. The Scheduled Balance of any Contract that is a Liquidated Contract or
that has been purchased by the Servicer or repurchased by the Seller will equal
zero. A "Liquidated Contract" is a Contract that (a) is the subject of a Full
Prepayment, (b) is a Defaulted Contract and with respect to which Liquidation
Proceeds constituting the final amounts recoverable have been received, (c) is
paid in full on or after its Maturity Date or (d) has been a Defaulted Contract
for four or more Collection Periods and as to which Liquidation Proceeds
constituting the final amount recoverable have not been received. A "Defaulted
Contract" with respect to any Collection Period is a Contract (a) which is, at
the end of such Collection Period, delinquent in the amount of two monthly
payments or (b) with respect to which the related Financed Vehicle has been
repossessed or repossession efforts have been commenced. See "The Contracts" and
"The Certificates and the Agreement -- Distributions of Principal and Interest."
Servicing Fee.............. The Servicer will be responsible for managing,
administering, servicing, and making collections on
the Contracts. Compensation to the Servicer will
consist of a monthly fee (the "Servicing Fee"),
payable from the Trust to the Servicer on each
Distribution Date, in an amount equal to the
product of one-twelfth of 1.00% per annum (the
"Servicing Fee Rate") multiplied by the Pool
Balance as of the close of the preceding Collection
Period. The "Pool Balance" as of any date is the
Aggregate Scheduled Balance of the Contracts as of
such date, excluding those Contracts which, as of
such date, have become Liquidated Contracts or have
been repurchased by the Seller or purchased by the
Servicer. As additional compensation, the Servicer
will be entitled to any late fees and other
administrative fees and expenses or similar charges
collected with respect to the Contracts. The
Servicer or its designee will also receive as
servicing compensation investment earnings on
Eligible Investments and the amount, if any, by
which the outstanding principal balance based on
the Rule of 78's of a Contract that is subject to a
Full Prepayment exceeds the Scheduled Balance of
such Contract. See "The Certificates and the
Agreement -- Servicing Fee."
Surety Bond................ On the Closing Date, the Insurer will issue a
principal/interest surety bond (the "Surety Bond")
to the Trustee pursuant to an Insurance and
Reimbursement Agreement (the "Insurance
Agreement"), dated as of May 15, 1996, among the
Insurer, Onyx, the Seller and the Trustee. Pursuant
to the Surety Bond, the Insurer will
unconditionally and irrevocably guarantee payment
of the Interest Distribution and Principal
Distribution on each Distribution Date to the
Trustee for the benefit of
5
<PAGE> 8
the Certificateholders. If on any Servicer Report
Date the amount on deposit and available in the
Collection Account, after giving effect to all
amounts deposited or payable from the Payahead
Account with respect to such Distribution Date, is
less than the sum of the Servicing Fee, the
Principal Distribution and Interest Distribution
for the related Distribution Date the Trustee, by
delivering a notice to the Insurer, shall demand
payment under the Surety Bond in an amount equal to
such deficiency. The Insurer shall pay or cause to
be paid such amount to the Trustee for credit to
the Collection Account and the Trustee shall
withdraw from the Collection Account and shall pay
such amount to the Certificateholders on the
related Distribution Date. On the Final
Distribution Date, to the extent the amount on
deposit and available in the Collection Account is
less than all remaining unpaid interest and
principal on the Certificates, the Insurer shall
pay or cause to be paid an amount equal to such
shortfall. See "The Certificates and the
Agreement -- The Surety Bond."
Contracts.................. All the Contracts allocate interest and principal
in accordance with the Rule of 78's and were
originated by automobile dealerships ("Dealers")
and assigned to Onyx. All the Contracts will have
been purchased by the Seller from Onyx and by the
Trust from the Seller. The Seller is required to
repurchase certain of the Contracts under certain
circumstances if certain representations and
warranties made by the Seller are incorrect in a
manner that materially and adversely affects the
Certificateholders or the Insurer. The Contracts
have been selected by Onyx from its portfolio of
motor vehicle installment sales contracts based
upon the criteria specified in the Agreement. The
Aggregate Scheduled Balance of the Contracts as of
the Cut-Off Date will be approximately $85,013,318
with a weighted average annual percentage rate of
14.84% and a weighted average remaining maturity of
54.2 months.
All collections of Monthly P&I, all prepayments on
the Contracts collected by the Servicer and all
amounts paid under the Surety Bond will be
deposited in or credited to the Collection Account.
Partial prepayments of Monthly P&I ("Payaheads") on
the Contracts will be transferred on the Servicer
Report Date to the Payahead Account, to be applied
against future scheduled payments of Monthly P&I.
All payments to the Certificateholders will be made
from the Collection Account and certain funds
remaining in the Collection Account following
distributions to Certificateholders and others will
be paid to the Insurer to be promptly distributed
in accordance with the terms of the Insurance
Agreement. See "The Contracts" and "The
Certificates and the Agreement -- Payahead
Account."
Optional Termination....... The Servicer may purchase all of the Contracts on
any Distribution Date following a Record Date in
which the Pool Balance has declined to 10% or less
of the initial Pool Balance, subject to certain
provisions in the Agreement. See "The Certificates
and the Agreement -- Repurchase of Contracts."
Tax Status................. In the opinion of counsel to the Seller, the Trust
will be classified for Federal income tax purposes
as a grantor trust and not as an association
6
<PAGE> 9
taxable as a corporation. Certificateholders must report their respective
allocable shares of income earned on Trust assets and, subject to certain
limitations applicable to individuals, estates and trusts, may deduct their
respective allocable shares of reasonable servicing and other fees. See "Certain
Tax Consequences."
ERISA Considerations....... The Certificates may be purchased by employee
benefit plans that are subject to the Employee
Retirement Income Security Act of 1974, as amended
("ERISA") upon satisfaction of certain conditions
described herein. See "ERISA Considerations."
Rating..................... It is a condition of issuance of the Certificates
that they be rated in the highest rating category
by two nationally recognized rating agencies. See
"Risk Factors -- Rating."
Registration of the
Certificates............... The Certificates will initially be represented by
certificates registered in the name of Cede & Co.
("Cede"), as the nominee of The Depository Trust
Company ("DTC"). No person acquiring an interest in
a Certificate through the facilities of DTC (a
"Certificate Owner") will be entitled to receive a
Definitive Certificate representing such person's
interest in the Trust, except in the event that
Definitive Certificates are issued in certain
limited circumstances. See "The Certificates and
the Agreement."
7
<PAGE> 10
RISK FACTORS
LIMITED LIQUIDITY
There is currently no secondary market for the Certificates. The
Underwriter currently intends, but is not obligated, to make a market in the
Certificates. However, there can be no assurance that the Underwriter will make
such a market, that a secondary market will develop or, if it does develop, that
it will provide Certificateholders with liquidity of investment or will continue
for the life of the Certificates.
LIMITED OPERATING HISTORY OF ONYX
All of the Contracts were originally purchased by Onyx from Dealers in
accordance with credit underwriting criteria established by Onyx. In February
1994, Onyx commenced its operations as a purchaser and servicer of motor vehicle
retail installment sales contracts. Thus, Onyx has historical performance data
for only a 26 month period with respect to the motor vehicle retail installment
sales contracts it purchases and originates. Delinquencies and loan losses may
increase in the portfolio with the passage of time.
Onyx is still at an early stage of operations and is subject to all of the
risks inherent in the establishment of a new business enterprise and must, among
other things, continue to attract, retain and motivate qualified personnel,
support and grow its auto lending and contract servicing business, maintain its
existing relationships with automobile dealers and develop new relationships
with dealers in and beyond Onyx's present market region. Onyx experienced
operating losses from inception through December 31, 1995.
CERTAIN LEGAL ASPECTS -- THE CONTRACTS
The transfer of the Contracts to the Trust is subject to the perfection
requirements of the Uniform Commercial Code, as in effect in California ("UCC").
The Seller will take or cause to be taken such action as is required to perfect
the Trust's rights in the Contracts and will warrant that the Trust has good
title free and clear of liens and encumbrances to each Contract on the date the
Certificates are issued (the "Closing Date"). The Contracts initially will be
held by the Trustee. The Agreement permits the Servicer with the consent of the
Insurer (such consent not to be unreasonably withheld) to hold the Contracts on
behalf of the Trust and the Insurer after the filing of the UCC-1 financing
statements relating to the perfection of the Trust's security interest in the
Contracts. Accordingly, if Onyx or the Seller sell and deliver a Contract to
another purchaser, there is a risk that the purchaser could acquire an interest
in the Contract superior to the interest of the Trust and the
Certificateholders. Onyx will agree in the Agreement to take all necessary
action to preserve and protect the Trust's ownership interest in the Contracts.
The Seller will represent that each Contract is secured by a Financed Vehicle.
Due to the administrative burden and expense, the certificates of title to the
Financed Vehicles securing the Contracts will not be endorsed to identify the
Trustee as secured party or delivered to the Trustee. There exists a risk in not
identifying the Trust as the new secured party on the certificate of title that,
through fraud or negligence, the security interest of the Trust could be
released. Moreover, statutory liens for repairs or unpaid taxes may have
priority even over perfected security interests in the Financed Vehicles.
Notwithstanding the failure of the Trust to have obtained a valid, first
priority security interest in a Contract, the Insurer will remain
unconditionally and irrevocably obligated on its guarantee of the Interest
Distribution and the Principal Distribution on each Distribution Date. See
"Certain Legal Aspects of the Contracts."
CERTAIN LEGAL ASPECTS -- BANKRUPTCY CONSIDERATIONS
It is intended by Onyx and the Seller that the transfer of the Contracts by
Onyx to the Seller constitute a "true sale" of the Contracts to the Seller. If
the transfer constitutes such a "true sale," the Contracts and the proceeds
thereof would not be part of Onyx's bankruptcy estate should it become the
subject of a bankruptcy case subsequent to the transfer of the Contracts to the
Seller.
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 Onyx under the United States Bankruptcy Code or similar state laws
("Insolvency Laws") will not result in consolidation of the assets and
liabilities of the Seller with those of Onyx. These steps include the creation
of the Seller as a separate, limited-purpose subsidiary
8
<PAGE> 11
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 Onyx in a proceeding under any
Insolvency Law. If a court were to reach such a conclusion, then delays in
distributions on the Certificates could occur or reductions in the amounts of
such distributions could result. Notwithstanding the holding by a court that the
assets and liabilities of the Seller should be consolidated with those of Onyx
in a proceeding under any Insolvency Law, the Insurer will remain
unconditionally and irrevocably obligated on the Surety Bond guarantying payment
of the Interest Distribution and Principal Distribution on each Distribution
Date. See "The Seller."
In Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948, (10th Cir. 1993)
cert. denied, 114 S. Ct. 554 (1993), the United States Court of Appeals for the
10th Circuit suggested that even where a transfer of accounts from a seller to a
buyer constitutes a "true sale," the accounts would nevertheless constitute
property of the seller's estate in a bankruptcy of the seller. If Onyx or the
Seller were to become subject to a bankruptcy proceeding and a court were to
follow the Octagon Gas court's reasoning, Certificateholders might experience
delays in payment or possibly losses on their investment in the Certificates.
Counsel to the Seller has advised the Seller that the reasoning of the Octagon
Gas case appears to be inconsistent with precedent and the Uniform Commercial
Code. See "The Seller."
PREPAYMENT CONSIDERATIONS
The rate of distribution of principal on the Certificates will depend on
the rate of payment (including prepayments, liquidations and repurchases by the
Seller or purchases by Onyx under certain conditions) on the Contracts, which is
not possible to predict. Any full prepayments and repurchases of the Contracts
can reduce the average life of the Contracts and the aggregate interest received
by the Certificateholders over the life of the Certificates. Partial prepayments
will be treated as Payaheads and accordingly will not affect the average life of
the Contracts because such payments will be held in the name of Bankers Trust
Company, acting on behalf of the Obligors and the Certificateholders, as their
interests may appear, until passed through in accordance with the original
schedule of payments for such Contract. See "The Certificates and
Agreement -- Payahead Account."
Onyx began purchasing Motor Vehicle Contracts in February 1994, and thus
has records of the historical prepayment experience of its Motor Vehicle
Contract portfolio only for the past 26 months. No assurance can be given that
prepayments on the Contracts will conform to any historical experience, and no
prediction can be made as to the actual prepayment rates which will be
experienced on the Contracts. Certificate Owners will bear all reinvestment risk
resulting from the rate of prepayment of the Contracts. See "-- Limited
Operating History of Onyx" and "Maturity and Prepayment Assumptions."
GEOGRAPHIC CONCENTRATION
Economic conditions in the state where the obligors under the Contracts
(each, an "Obligor") reside may affect the delinquency, loan loss and
repossession experience of the Trust with respect to the Contracts. All of the
Contracts were originated in California. Accordingly, adverse economic
conditions or other factors particularly affecting California could adversely
affect the delinquency, loan loss or repossession experience of the Trust with
respect to the Contracts.
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 Contracts and the right to
receive payments under the Surety Bond. The Certificates represent interests
solely in the Trust and will not be insured or guaranteed by the Seller, the
Servicer, the Trustee or any other person or entity except the Insurer.
Consequently, holders of the Certificates will only be able to look to payments
on the Contracts and the Surety Bond for payment.
9
<PAGE> 12
RATING
It is a condition of issuance of the Certificates that they be rated in the
highest rating category by two nationally recognized rating agencies. A security
rating is not a recommendation to buy, sell or hold securities and may be
revised or withdrawn at any time by the assigning rating agency. There can be no
assurance that a rating will not be lowered or withdrawn if, in the sole
judgment of a rating agency, circumstances in the future so warrant, including a
downgrading of the Insurer. The Seller cannot predict with certainty what effect
any revision or withdrawal of a rating may have on the liquidity or market value
of the Certificates. Such ratings of the Certificates address the likelihood of
the timely payment of each scheduled Interest Distribution and Principal
Distribution, which are guaranteed by the Insurer pursuant to the Surety Bond.
Therefore, the ratings are primarily dependent on the rating of the Insurer, and
a change in the Insurer's rating may affect the ratings of the Certificates. See
"Description of the Insurer" for a description of the Insurer's rating.
BOOK-ENTRY REGISTRATION
The Certificates initially will be registered in the name of Cede, the
nominee for DTC, and will not be registered in the names of the Certificate
Owners or their nominees. Because of this, unless and until Definitive
Certificates are issued, Certificate Owners will not be recognized by the
Trustee as Certificateholders, as that term is used in the Agreement. Hence,
until such time, Certificate Owners will only be able to receive payments from,
and exercise the rights of Certificateholders indirectly through, DTC and its
participating organizations, and, unless a Certificate Owner requests a copy of
any such report from the Trustee, will receive reports and other information
provided for only if, when and to the extent provided to Certificate Owners by
DTC and its participating organizations. In addition, the ability of Certificate
Owners to pledge Certificates to persons or entities that do not participate in
the DTC system, or otherwise take actions in respect of such Certificates, may
be limited due to the lack of physical certificates for such Certificates. See
"Description of the Certificates and the Agreement -- Book Entry Registration"
and "-- Definitive Certificates."
THE TRUST
Pursuant to the Agreement, the Seller will establish the Onyx Acceptance
Grantor Trust 1996-2 (the "Trust") by selling and assigning the following
property to Bankers Trust Company in its capacity as trustee of the Trust (the
"Trustee") in exchange for the Certificates executed and authenticated by the
Trustee: (i) the Contracts purchased from the Seller and secured by Financed
Vehicles, (ii) certain documents relating to the Contracts, (iii) certain monies
due under the Contracts on or after the Cut-Off Date, (iv) security interests in
the Financed Vehicles and the rights to receive proceeds from claims on certain
insurance policies covering the Financed Vehicles or the Obligors and the right
to proceeds under the Blanket Insurance Policy, (v) all amounts on deposit in
the Collection Account, including all Eligible Investments credited thereto,
(vi) the right of the Seller under the Purchase Agreement to cause Onyx to
repurchase certain Contracts under certain circumstances, and (vii) all proceeds
of the foregoing (other than income on Eligible Investments, which shall be paid
to the Servicer). The Trust Property will also include the benefits of the
Surety Bond of the Insurer, proceeds of which will be available to the Trustee
in the event collections from Obligors are insufficient to pay the Interest
Distributions and Principal Distributions to Certificateholders. Each
Certificate will represent a fractional undivided interest in the Trust.
The Trust will be formed for this transaction pursuant to the Agreement
and, prior to formation, will have had no assets or obligations. After
formation, the Trust will not engage in any activity other than acquiring and
holding the Contracts, issuing the Certificates, distributing payments thereon
and as otherwise described herein and as provided in the Agreement. The Trust
will not acquire any Motor Vehicle Contracts or assets other than the Trust
Property and will not have any need for additional capital resources. As the
Trust does not have any operating history and will not engage in any significant
activity other than issuing the Certificates and making distributions thereon,
no historical or pro forma financial statements or ratio of earnings to fixed
charges with respect to the Trust have been included.
10
<PAGE> 13
THE ONYX PORTFOLIO OF MOTOR VEHICLE CONTRACTS
PURCHASE AND ORIGINATION OF MOTOR VEHICLE CONTRACTS
Onyx's portfolio of retail installment sales contracts and installment loan
agreements are secured by new and used automobile and light-duty trucks ("Motor
Vehicle Contracts"). The Motor Vehicle Contracts were originated by Dealers in
California and were purchased by Onyx and were subsequently sold to the Seller.
No Motor Vehicle Contract was originated outside of California. See "Risk
Factors -- Geographic Concentration." The payment obligations of the Obligor
under each Motor Vehicle Contract are secured by the vehicle purchased with the
loan proceeds provided under that Motor Vehicle Contract (the "Financed
Vehicle").
Onyx services all of the Motor Vehicle Contracts and will continue to serve
as the primary servicer after the Motor Vehicle Contracts are sold by the Seller
to the Trust. The servicing functions performed by Onyx include customer
service, document filekeeping, computerized account recordkeeping, vehicle title
processing and collections.
UNDERWRITING OF MOTOR VEHICLE CONTRACTS
Onyx underwrites the Motor Vehicle Contracts through its six California
regional contract purchasing offices ("Auto Finance Centers"). Each Motor
Vehicle Contract is fully amortizing and provides for level payments over its
term with the portion of principal and interest of each level payment determined
on the basis of the "Rule of 78's." See "The Contracts."
To evaluate the potential purchase of a Motor Vehicle Contract, Onyx
reviews the application package received from the dealer originating the Motor
Vehicle Contract that sets forth the Obligor's income, liabilities, credit and
employment history, and other personal information, as well as a description of
the Financed Vehicle that secures the Motor Vehicle Contract. Each application
is reviewed for completeness and for compliance with Onyx's guidelines and
applicable consumer regulations. To evaluate credit applications, Onyx reviews
information in the application and from credit bureau reports obtained by Onyx.
Each proposed Motor Vehicle Contract is evaluated using uniform
underwriting standards developed by Onyx. These underwriting standards are
intended to assess the Obligor's ability to repay all amounts due under the
Motor Vehicle Contract and the adequacy of the Financed Vehicle as collateral,
based upon a review of the information contained in the motor vehicle contract
application. Among the criteria considered by an Onyx credit manager in
evaluating the individual applications are (i) stability of the Obligor with
specific regard to the Obligor's occupation, length of employment and length of
residency, (ii) the Obligor's payment history based on information known
directly by Onyx or as provided by various credit reporting agencies with
respect to present and past debt, (iii) a debt service-to-gross monthly income
ratio test, and (iv) the principal amount of the Motor Vehicle Contract taking
into account the age, type and market value of the Financed Vehicle. The general
policy of Onyx has been not to allow an Obligor's debt service-to-gross monthly
income ratio to exceed 45%.
After review of an application, an Onyx credit manager, via an electronic
system utilized by Onyx, communicates an appropriate decision to the Dealer,
specifying approval (subject to the receipt of the required documentation),
denial or a counter-offer on the proposed Motor Vehicle Contract. If the
response to the Dealer requires stipulations to the approval, (including an
additional downpayment, reduction in the term of the financing, or the addition
of a co-signer to the Motor Vehicle Contract), these are communicated
concurrently to the Dealer, and become a condition of the approval. Subsequent
to approval, the Dealer will (if Onyx is the chosen source of financing) forward
the necessary documentation to Onyx, which consists of the following: (i) a
signed application; (ii) the only original and a copy of the executed contract;
(iii) an agreement by the Obligor to provide insurance; (iv) a report of sale or
guarantee of title; (v) an application for registration; (vi) a co-signer
notification (if applicable); (vii) a copy of any supplemental warranty
purchased with respect to the Financed Vehicle; (viii) vehicle valuation
documentation acceptable to Onyx; and (ix) any other required documentation.
11
<PAGE> 14
Once the appropriate documentation is in hand for funding, the file
relating to the Motor Vehicle Contract is ready to forward to an Onyx contract
processor for a pre-funding audit. The contract processor then audits such
documents for completeness and consistency with the application, providing final
approval for purchase of the Motor Vehicle Contract once these requirements have
been satisfied (subject to the receipt of the required documentation).
The amount advanced by Onyx under any Motor Vehicle Contract does not
exceed (i) for a new Financed Vehicle, the manufacturer's suggested retail price
plus taxes, title and license fees, extended warranty (if any) and credit
insurance, or (ii) for a used Financed Vehicle, the value assigned by a
nationally recognized used car value guide, plus taxes, title and license fees
and extended warranty (if any). However, the actual amount advanced for a Motor
Vehicle Contract is often less than the maximum permissible amount depending on
a number of factors, including the length of the Motor Vehicle Contract term and
the model and year of the Financed Vehicle. These adjustments are made to assure
that the Financed Vehicle constitutes adequate collateral to secure the Motor
Vehicle Contract. Under no circumstances is the amount advanced for a Motor
Vehicle Contract greater than the amount payable by the Obligor to the Dealer
with respect to the purchase of the Financed Vehicle.
Periodically, Onyx makes a detailed analysis of its portfolio of Motor
Vehicle Contracts to evaluate the effectiveness of Onyx's credit guidelines. If
external economic factors, credit delinquencies or credit losses change, Onyx
adjusts its credit guidelines to maintain the asset quality deemed acceptable by
Onyx's management. Onyx reviews, on a daily basis, the quality of its Motor
Vehicle Contracts by conducting audits of certain randomly selected Motor
Vehicle Contracts to ensure compliance with established policies and procedures.
INSURANCE
Each related Motor Vehicle Contract requires the Obligor to obtain
comprehensive and collision insurance with respect to the related Financed
Vehicle with Onyx as a loss payee. Onyx's experience has been that most Obligors
obtain the required comprehensive and collision insurance in accordance with the
requirements of their Motor Vehicle Contracts.
In the event that the Obligor fails to maintain the required insurance,
however, Onyx has purchased limited comprehensive and collision insurance,
referred to as the "Blanket Insurance Policy" coverage. The Blanket Insurance
Policy provides Onyx with protection on each uninsured or underinsured Financed
Vehicle against total loss, damage or theft. Onyx has obtained its Blanket
Insurance Policy from United Financial Casualty Company, which is rated "A" by
A.M. Best & Co. For the Blanket Insurance Policy, Onyx is assessed a premium
based on each Motor Vehicle Contract acquired. The insurer under the Blanket
Insurance Policy is required to settle any claim complying with the policy
conditions within 60 days from the date reported. Onyx has paid the premium for
the Blanket Insurance Policy allocable to each Contract sold to the Trust prior
to such Contract's sale to the Trust. The proceeds under the Blanket Insurance
Policy, to the extent they relate to any Contract, will constitute part of the
Trust Property.
COLLECTION PROCEDURES
Collection activities with respect to delinquent Motor Vehicle Contracts
are performed by Onyx at its seven Auto Finance Centers. Collection activities
include prompt investigation and evaluation of the causes of any delinquency. An
Obligor is considered delinquent when he or she has failed to make a scheduled
payment under the Motor Vehicle Contract within 30 days of the related due date
(each a "Due Date").
To automate its collection procedures, Onyx uses features of the computer
system of its third party service bureau, Online Computer Systems, Inc. ("OCS")
to provide tracking and notification of delinquencies. The collection system
provides relevant Obligor information (for example, current addresses, phone
numbers and loan information) and records of all Motor Vehicle Contracts. The
system also records an Obligor's promise to pay and affords supervisors the
ability to review collection personnel activity and to modify collection
priorities with respect to Motor Vehicle Contracts. Onyx utilizes a predictive
dialing system centrally located within its Irvine headquarters to make phone
calls to Obligors whose payments are past due
12
<PAGE> 15
by more than five days but less than 30 days. The predictive dialer is a
computer-controlled telephone dialing system which dials phone numbers of
Obligors from a file of records extracted from the Onyx's database. By
eliminating time wasted on attempting to reach Obligors, the system gives a
single collector, on average, the ability to speak with and work 300 to 350
accounts per day. Once a live voice responds to the automated dialer's call, the
system automatically transfers the call to a collector and the relevant account
information to the collector's computer screen. The system also tracks and
notifies collections management of phone numbers that the system has been unable
to reach within a specified number of days, thereby promptly identifying for
management all Obligors who cannot be reached by telephone.
Once an Obligor is 30 days or more delinquent, these accounts are assigned
to specific collectors at the local Auto Finance Centers who have primary
responsibility for such delinquent account until it is resolved. To expedite
collections from late paying Obligors, Onyx uses Western Union "Quick Collect",
which allows an Obligor to pay at numerous locations any late payments and Onyx
to print at its Irvine headquarters a check evidencing the payment.
Generally, after a scheduled payment under a Motor Vehicle Contract
continues to be past due for 45 days, Onyx will initiate repossession of the
Financed Vehicle. However, if a Motor Vehicle Contract is deemed uncollectible,
if the Financed Vehicle is deemed by collection personnel to be in danger of
being damaged, destroyed or made unavailable for repossession, or if the Obligor
voluntarily surrenders the Financed Vehicle, Onyx may repossess it without
regard to the length or existence of payment delinquency. Repossessions are
conducted by third parties who are engaged in the business of repossessing
vehicles for secured parties. Under California law, after repossession, the
Obligor generally has an additional 15 days to redeem the Financed Vehicle
before the Financed Vehicle may be resold by Onyx in an effort to recover the
balance due under the Motor Vehicle Contract.
Losses may occur in connection with delinquent Motor Vehicle Contracts and
can arise in several ways, including inability to locate the Financed Vehicle or
the Obligor, or because of a discharge of the Obligor in a bankruptcy
proceeding. The current policy of Onyx is to recognize losses at the time a
Motor Vehicle Contract is deemed uncollectible or during the month a scheduled
payment under a Motor Vehicle Contract becomes 120 days or more past due,
whichever occurs first.
Upon repossession and sale of the Financed Vehicle, any deficiency
remaining is pursued against the Obligor to the extent deemed practical by Onyx
and to the extent permitted by law. The loss recognition and collection policies
and practices of Onyx may change over time in accordance with Onyx's business
judgment. However, the Agreement requires that Onyx service the Contracts and
collect all amounts due using reasonable care and in at least the same manner as
it services and collects amounts due with respect to Motor Vehicle Contracts
serviced by it for its own account.
MODIFICATIONS AND EXTENSIONS
Onyx offers certain credit-related extensions to Obligors. Generally, these
extensions are offered only when (i) Onyx believes that the Obligor's financial
difficulty has been resolved or will no longer impair the Obligor's ability to
make future payments, (ii) the extension will result in the Obligor's payments
being brought current, (iii) the total number of credit-related extensions
granted on the Motor Vehicle Contract will not exceed three and the total
credit-related extensions granted on the Motor Vehicle Contract will not exceed
three months in the aggregate, (iv) there have been no credit-related extensions
granted on the Motor Vehicle Contract in the immediately preceding twelve
months, and (v) Onyx (or its assignee) had held the Motor Vehicle Contract for
at least six months. Any deviation from this policy requires the concurrence of
Onyx's collection manager and an Auto Finance Center manager.
DELINQUENCY AND LOAN LOSS INFORMATION
The following tables set forth information with respect to the experience
of Onyx relating to delinquencies, loan losses and recoveries for the portfolio
of Motor Vehicle Contracts owned and serviced by Onyx on a quarterly basis
commencing June 30, 1994. The tables include delinquency information relating to
those Motor Vehicle Contracts that were purchased, originated, sold and serviced
by Onyx. All of the Motor Vehicle
13
<PAGE> 16
Contracts were originally purchased by Onyx from Dealers in accordance with
credit underwriting criteria established by Onyx. In February 1994, Onyx
commenced its operations as a purchaser and servicer of motor vehicle retail
installment sales contracts. Thus, Onyx has historical performance for only a
limited time period with respect to the Motor Vehicle Contracts it purchases and
originates and thus delinquencies and loan losses may increase in the portfolio
with the passage of time.
DELINQUENCY EXPERIENCE OF ONYX CONTRACT PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT JUNE 30, AT SEPTEMBER 30, AT DECEMBER 31, AT MARCH 31,
1994 1994 1994 1995
---------------- ---------------- ---------------- -----------------
AMOUNT NO. AMOUNT NO. AMOUNT NO. AMOUNT NO.
------- ----- ------- ----- ------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Servicing portfolio............... $24,510 2,256 $46,898 4,353 $74,581 6,893 $104,895 9,772
Delinquencies
30-59 days(1)(2)................ $ 0 0 $ 0 0 $ 15 2 $ 165 18
60-89 days(1)(2)................ 0 0 0 0 27 4 171 15
90+ days(1)(2).................. 0 0 0 0 12 1 72 7
Total delinquencies as a percent
of servicing portfolio.......... 0% 0% 0% 0% 0.07% 0.10% 0.39% 0.40%
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, AT SEPTEMBER 30, AT DECEMBER 31, AT MARCH 31,
1995 1995 1995 1996
----------------- ----------------- ------------------ -----------------
AMOUNT NO. AMOUNT NO. AMOUNT NO. AMOUNT NO.
-------- ------ -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Servicing portfolio.............. $140,198 13,006 $177,532 16,433 $218,207 20,156 $266,251 24,648
Delinquencies
30-59 days(1)(2)............... $ 772 65 $ 1,420 121 $ 1,773 166 $ 1,262 122
60-89 days(1)(2)............... 155 15 633 51 603 44 566 55
90+ days(1)(2)................. 131 10 439 35 756 56 1,116 88
Total delinquencies as a percent
of servicing portfolio......... 0.75% 0.69% 1.40% 1.21% 1.44% 1.32% 1.11% 1.08%
</TABLE>
- ---------------
(1) Delinquencies include principal amounts only.
(2) The period of delinquency is based on the number of days payments are
contractually past due.
LOAN LOSS EXPERIENCE FOR THE QUARTERS ENDED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1994 1994 1994 1995 1995 1995 1995 1996
-------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Number of Contracts outstanding..... 2,256 4,353 6,893 9,772 13,006 16,433 20,156 24,648
Period end outstanding.............. $24,510 $46,898 $ 74,581 $104,895 $140,198 $177,532 $218,207 $266,251
Average outstanding................. 15,797 34,847 60,211 88,776 121,892 156,122 197,320 239,601
Number of gross charge-offs......... 0 0 0 1 29 60 135 141
Gross charge-offs................... 0 0 0 $ 12 $ 58 $ 134 $ 345 $ 385
Net charge-offs(1).................. 0 0 0 $ 12 $ 56 $ 121 $ 340 $ 371
Net charge-offs as a percent of
period end outstanding............ 0 % 0% 0% 0.01 % .04% .07 % 0.16% 0.14 %
Net charge-offs as a percent of
average outstanding............... 0 % 0% 0% 0.01 % .05% .08 % 0.17% 0.15 %
</TABLE>
- ---------------
(1) Net charge-offs are gross charge-offs minus recoveries of Contracts
previously charged off.
Delinquency and loan loss experience may be influenced by a variety of
economic, social and other factors. Delinquencies and loan losses have increased
and may continue to increase in the portfolio as the Motor Vehicle Contracts
become more seasoned. No assurance can be given that the delinquency and loan
loss experience of the Trust with respect to the Contracts in the future will be
similar to that set forth above.
14
<PAGE> 17
THE CONTRACTS
All the Contracts in the Trust are fixed rate contracts where the
allocation of each payment between interest and principal is calculated using
the Rule of 78's. Such Contracts provide for the payment by the Obligor of a
specified total amount of payments, payable in equal monthly installments, which
total represents the principal amount financed plus add-on interest in an amount
calculated as if such Contract were a self-amortizing, level-yield Contract
bearing interest at a per annum rate equal to the stated annual percentage rate
as set forth in the Contract ("APR"). Under the Rule of 78's, the amount of each
payment allocable to interest on a Contract is determined by multiplying the
total amount of add-on interest payable over the term of the Contract by a
fraction derived as described below. The fraction used in the calculation of
add-on interest earned each month under a contract governed by the Rule of 78's
has as its denominator a number equal to the sum of a series of numbers
representing the total number of monthly payments due under the Contract. For
example, with a Contract providing for 12 payments, the denominator of each
month's fraction will be 78, the sum of a series of numbers from 1 to 12. The
numerator of the fraction for a given month is the number of payments remaining
before giving effect to the payment to which the fraction is being applied.
Accordingly, in the example of a twelve-payment Contract, the fraction for the
first payment is 12/78, for the second payment 11/78, for the third payment
10/78, and so on through the final payment, for which the fraction is 1/78. The
applicable fraction is then multiplied by the total add-on interest payment over
the entire term of the Contract, and the resulting amount is the amount of
add-on interest earned that month. The difference between the amount of the
monthly payment by the Obligor and the amount of earned add-on interest
calculated for the month is applied to principal reduction.
Onyx accounts for each Contract under the Rule of 78's, and the purchase
price paid by the Certificateholders for each Contract will reflect the
principal balance of such Contract as of the Cut-Off Date calculated under the
Rule of 78's (the "Cut-Off Date Scheduled Balance"). Because the Rule of 78's
allocates a greater portion of the early payments under a Contract to interest
than the actuarial method, the Cut-Off Date Scheduled Balance of each Contract
exceeds the amount that would have been its principal balance as of the Cut-Off
Date if each Contract had been amortized from origination under the actuarial
method. The Trustee and the Servicer intend to account for interest and
principal on the Contracts using the actuarial method, but based on the Cut-Off
Date Scheduled Balance. The remaining payments due on a Contract are not
sufficient to amortize the Cut-Off Date Scheduled Balance of such Contract at a
yield equal to its APR. Accordingly, in order to amortize the Cut-Off Date
Scheduled Balance over the remaining term of the Contract using an actuarial
method of accounting, the Servicer will recompute the effective yield of such
Contract based on the remaining payments due and the Cut-Off Date Scheduled
Balance (such yield, stated as a per annum rate, the "Recomputed Yield") and
will allocate each payment of Monthly P&I between principal and interest on each
Contract based on the Cut-Off Date Scheduled Balance and the Recomputed Yield
for such Contract (such method, the "Recomputed Actuarial Method").
The Contracts were selected from the Motor Vehicle Contracts in the
portfolio of Onyx that satisfied the following criteria (the "Eligibility
Requirements"). No selection procedures were used which were adverse to the
Certificateholder or the Insurer. Approximately 18.27% of the Aggregate
Scheduled Balance of the Contracts, as of the Cut-Off Date, were secured by new
Financed Vehicles and approximately 81.73% of the Aggregate Scheduled Balance of
the Contracts, as of the Cut-Off Date, were secured by used Financed Vehicles.
The Seller may not substitute other Motor Vehicle Contracts for the Contracts at
any time during the term of the Agreement.
The Seller has represented that all of the Contracts included in the Trust
satisfy the following Eligibility Requirements:
(a) such Contracts are secured by a new or used automobile or light-duty
truck;
(b) such Contracts have a remaining maturity, as of the Cut-Off Date, of
not more than 60 months;
(c) such Contracts had an original maturity of not more than 60 months;
15
<PAGE> 18
(d) such Contracts are (i) fully-amortizing fixed rate contracts which
provide for level scheduled monthly payments determined on the basis of
the Rule of 78's (except for the last payment, which may be minimally
different from the level payments) and (ii) have a Recomputed Yield
that equals or exceeds %;
(e) such Contracts are secured by Financed Vehicles that as of the Cut-Off
Date, had not been repossessed without reinstatement;
(f) such Contracts have no payment more than 30 days past due as of the
Cut-Off Date; and
(g) such Contracts have remaining principal balances, as of the Cut-Off
Date, of at least $500.
(h) such Contracts were made to Obligors located in the State of
California.
The composition of the Contracts and distribution by APR of the Contracts
as of the Cut-Off Date are as set forth in the following tables.
COMPOSITION OF THE CONTRACTS
<TABLE>
<S> <C>
Aggregate principal balance............................ $85,013,318
Number of Contracts.................................... 6,970
Average principal balance outstanding.................. 12,197.03
Average original amount financed....................... 12,375.36
Original amount financed (range)....................... 1,239.72-78,834.26
Weighted average APR................................... 14.84%
APR (range)............................................ 9.00-21.46
Weighted average original term......................... 56 months
Original term (range).................................. 6-60 months
Weighted average remaining term........................ 54.2 months
Remaining term (range)................................. 6-60 months
</TABLE>
DISTRIBUTION BY APRS OF THE CONTRACTS
<TABLE>
<CAPTION>
%
OF AGGREGATE
NUMBER OF % OF PRINCIPAL POOL
APR RANGE (1) CONTRACTS CONTRACTS BALANCE BALANCE
------------------------------------------ --------- --------- -------------- ------------
<S> <C> <C> <C> <C>
9.01% to 10.00%.......................... 481 6.90 $ 7,214,301 8.49
10.01% to 11.00%.......................... 577 8.28 7,996,793 9.41
11.01% to 12.00%.......................... 558 8.01 7,247,119 8.52
12.01% to 13.00%.......................... 684 9.81 9,087,145 10.69
13.01% to 14.00%.......................... 635 9.11 8,364,050 9.84
14.01% to 15.00%.......................... 699 10.03 8,675,791 10.21
15.01% to 16.00%.......................... 594 8.52 7,242,461 8.52
16.01% to 17.00%.......................... 473 6.79 5,716,021 6.72
17.01% to 18.00%.......................... 488 7.00 5,826,194 6.85
18.01% to 19.00%.......................... 333 4.78 3,828,357 4.50
19.01% to 20.00%.......................... 354 5.08 4,000,330 4.71
20.01% to 21.00%.......................... 868 12.45 8,554,197 10.06
21.01% and over........................... 226 3.24 1,260,559 1.48
----- ----- ----------- -----
% Totals......................... 6,970 100.0 $85,013,318 100.0
===== ===== =========== =====
</TABLE>
- ---------------
(1) The APRs set forth herein are the APRs of the Contracts. Because the
principal balance of each Contract sold to the Trust is the Cut-Off Date
Scheduled Balance, which is higher than what the principal balance of the
Contract would have been had principal and interest been allocated from the
date of origination in accordance with the actuarial method, the Recomputed
Yield for each Contract is less than the APR of such Contract specified
herein. On a weighted average basis, the Recomputed Yield for the Contracts,
in the aggregate, is 14.53%. See "The Contracts."
16
<PAGE> 19
MATURITY AND PREPAYMENT ASSUMPTIONS
The Contracts are prepayable in full by the Obligors at any time without
penalty. Partial prepayments will be treated as Payaheads and will not be passed
through until the Collection Period in which such payments are due or until the
amount of such partial prepayment equals the amount the Obligor would be
required to pay in order to prepay the Contract in full. See "The Certificates
and the Agreement -- Payahead Account." To the extent that any Contract is
prepaid in full ("Full Prepayments") whether by the Obligor, or as the result of
a purchase by the Servicer or a repurchase by the Seller, the actual weighted
average life of the Contracts will be shorter than a weighted average life
calculation based on the assumptions that payments will be made on schedule and
that no prepayments will be made. Weighted average life means the average amount
of time in which each dollar of principal on a Contract is repaid. Full
Prepayments may also result from liquidations due to default, receipt of
proceeds from theft, physical damage, credit life and credit disability
insurance policies, repurchases by the Seller as a result of the failure of a
Contract to meet certain criteria set forth in the Agreement, purchases by the
Servicer as a result of a breach of certain of its covenants with respect to the
Contracts made by it in the Agreement or as a result of an exercise by the
Servicer of its option to purchase the Trust Property. See "The Certificates and
the Agreement -- Repurchases of Contracts."
The rate of Full Prepayments by Obligors on the Contracts may be influenced
by a variety of economic, social and other factors, including the fact that an
Obligor may not sell or transfer the Financed Vehicle securing a Contract
without the consent of the Servicer. These factors may also include
unemployment, servicing decisions, seasoning of loans, destruction of vehicles
by accident, sales of vehicles and market interest rates.
California law requires that retail installment sales contracts such as the
Contracts permit full prepayment without penalty. Any Full Prepayments reduce
the average life of the Contracts. The Servicer will permit the sale or other
transfer of a Financed Vehicle without accelerating the maturity of the related
Contract if such Contract is assumed by a person satisfying Onyx's then current
underwriting standards. See "The Onyx Portfolio of Motor Vehicle
Contracts -- Underwriting of Motor Vehicle Contracts."
Onyx has only 26 months of operating history and began purchasing and
originating Motor Vehicle Contracts only in February 1994. Thus, the records of
the historical prepayment experience of Onyx's Motor Vehicle Contract portfolio
are only available for such period. No assurance can be given that prepayments
on the Contracts will conform to any historical experience, and no prediction
can be made as to the actual prepayment rates which will be experienced on the
Contracts. Certificate Owners will bear all reinvestment risk resulting from the
rate of prepayment of the Contracts. See "Maturity and Prepayment Assumptions."
YIELD CONSIDERATIONS
Interest due will be passed through on each Distribution Date in an amount
equal to the product of one-twelfth of the Pass-Through Rate and the Pool
Balance as of the close of the preceding Collection Period (or as of the Cut-Off
Date in the case of the first Distribution Date). In the event of a principal
prepayment on a Contract during a Collection Period, Certificateholders will
receive interest for the full month on the related Distribution Date. See "The
Certificates and the Agreement -- Distributions of Principal and Interest."
Although the Contracts have different APRs, the Recomputed Yield on each
individual Contract equals or exceeds %. Therefore, disproportionate rates
of prepayments between Contracts with higher and lower APRs will not affect the
yield to Certificateholders.
POOL FACTOR
The "Pool Factor" will be a six-digit decimal which the Servicer will
compute each month indicating the Pool Balance at the end of the month as a
fraction of the original Pool Balance as of the Cut-Off Date. The Pool Factor
will be 1.000000 as of the Cut-Off Date; thereafter, the Pool Factor will
decline to reflect reductions in the Pool Balance. The amount of a
Certificateholder's pro rata share of the Pool Balance for a given month can be
determined by multiplying the original denomination of such holder's Certificate
by the Pool Factor for that month.
17
<PAGE> 20
Pursuant to the Agreement, Certificateholders will receive monthly reports
from the Trustee concerning payments received on the Contracts, the Pool
Balance, the Pool Factor, and various other items of information.
Certificateholders of record during any calendar year will be furnished
information for tax reporting purposes not later than the latest date permitted
by law. See "The Certificates and the Agreement."
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of Certificates
will be used to repay loans incurred pursuant to its short-term funding program.
THE SELLER
The Seller is a wholly-owned, limited-purpose finance subsidiary of Onyx
which was incorporated under the laws of the State of Delaware on July 28, 1994
and has a limited operating history. The principal office of the Seller is
located at 8001 Irvine Center Drive, 5th Floor, Irvine, CA 92718. The telephone
of such office is (714) 753-1191.
The Seller was organized principally for the purpose of purchasing retail
installment sales contracts from Onyx in connection with its activities as a
finance subsidiary of Onyx. The Seller was organized for limited purposes, and
its certificate of incorporation limits its activities to purchasing Contracts
from Onyx and transferring such Contracts to third parties and any activities
incidental to and necessary or convenient for the accomplishment of such
purposes.
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 Onyx under any Insolvency Law will not result in consolidation of
the assets and liabilities of the Seller with those of Onyx. These steps include
the creation of the Seller as a separate, limited-purpose subsidiary pursuant to
a certificate of incorporation containing certain limitations (including
restrictions on the nature of the Seller's business and a restriction on the
Seller's ability to commence a voluntary case or proceeding under any Insolvency
Law without the unanimous affirmative vote of all of its directors). However,
there can be no assurance that the activities of the Seller would not result in
a court concluding that the assets and liabilities of the Seller should be
consolidated with those of Onyx in a proceeding under any Insolvency Law.
The Seller has received the advice of counsel to the effect that, subject
to certain facts, assumptions and qualifications, it would not be a proper
exercise by a court of its equitable discretion to disregard the separate
corporate existence of the Seller and to require the consolidation of the assets
and liabilities of the Seller with the assets and liabilities of Onyx in the
event of the application of the federal bankruptcy laws to Onyx. Among other
things, it is assumed by counsel that the Seller will follow certain procedures
in the conduct of its affairs, including maintaining records and books of
account separate from those of Onyx, refraining from commingling its assets with
those of Onyx and refraining from holding itself out as having agreed to pay, or
being liable for, the debts of Onyx. The Seller intends to follow and has
represented to such counsel that it will follow these and other procedures
related to maintaining its separate corporate identity. However, there can be no
assurance that a court would not conclude that the assets and liabilities of the
Seller should be consolidated with those of Onyx. If a court were to reach such
a conclusion, or a filing were made under any Insolvency Law by or against the
Seller, or if an attempt were made to litigate any of the foregoing issues,
delays in distributions on the Certificates could occur or reductions in the
amounts of such distributions could result.
The Contracts were sold by Onyx to the Seller pursuant to a Sale and
Servicing Agreement dated as of September 8, 1994 (the "Purchase Agreement") and
were previously financed by the Seller through a short term funding program.
Onyx and the Seller intend that the transfer of the Contracts by Onyx to the
Seller under the Purchase Agreement constitute a "true sale" of the Contracts to
the Seller. If the transfer constitutes such a "true sale," the Contracts and
the proceeds thereof would not be part of the bankruptcy estate of Onyx under
Section 541 of the Bankruptcy Code should Onyx become the subject of a
bankruptcy case subsequent to the transfer of the Contracts to the Seller.
18
<PAGE> 21
The Seller has received the advice of counsel to the effect that, subject
to certain facts, assumptions and qualifications, in the event Onyx were to
become the subject of a voluntary or involuntary case under the Bankruptcy Code
subsequent to the transfer of the Contracts to the Seller, the transfer of the
Contracts by Onyx to the Seller pursuant to the Purchase Agreement would be
characterized as a "true sale" of the Contracts from Onyx to the Seller and the
Contracts and the proceeds thereof would not form part of Onyx's bankruptcy
estate pursuant to Section 541 of the Bankruptcy Code.
In Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir. 1993) cert.
denied, 114 S. Ct. 554 (1993), the United States Court of Appeals for the 10th
Circuit suggested that even where a transfer of accounts from a seller to a
buyer constitutes a "true sale," the accounts would nevertheless constitute
property of the seller's bankruptcy estate in a bankruptcy of the seller. If
Onyx or the Seller were to become subject to a bankruptcy proceeding and a court
were to follow the Octagon Gas court's reasoning, Certificateholders might
experience delays in payment or possibly losses on their investment in the
Certificates. As part of the advice of counsel described above, counsel has
advised the Seller that the reasoning of the Octagon Gas case appears to be
inconsistent with precedent and the Uniform Commercial Code. As the Octagon case
indicates, however, a court may reach a different conclusion with respect to
these or similar matters.
THE SERVICER
The Contracts will be serviced by Onyx Acceptance Corporation ("Onyx").
Onyx was incorporated in California in 1993 and reincorporated in Delaware in
1996 in connection with its initial public offering of Common Stock in March
1996. Onyx is engaged principally in the business of providing indirect
automobile financing to new car dealerships and selected used car dealerships
within California. Onyx has been in existence for nearly three years and is
headed by a management team with extensive experience in the origination and
servicing of indirect and direct automobile loans (average tenure of 16 years),
and who, from 1985 to present, have actively participated in a number of public
securitizations of motor vehicle installment contracts.
Onyx is headquartered in Irvine, California and operates six auto finance
centers in California: (i) Orange and Metropolitan Los Angeles Counties, (ii)
North Los Angeles and Ventura Counties, (iii) the San Francisco Bay Area, (iv)
Riverside and San Bernardino Counties, (v) San Diego County, and (vi) Sacramento
County. Through these offices, Onyx is able to service the most populous
California counties including Los Angeles, Riverside, San Bernardino, Ventura,
Orange, San Diego, San Francisco, Santa Clara, Alameda, San Mateo, Santa Cruz,
Marin, Contra Costa, and Sacramento counties. Onyx currently has dealer
agreements with over 952 Dealers in California.
Onyx acquires individual motor vehicle installment contracts from Dealers
after reviewing and approving the customer's credit application in accordance
with its underwriting policies and procedures. See "The Contracts." Onyx
acquired motor vehicle installment contracts totaling approximately $358.5
million from commencement of operations through March 31, 1996. As of March 31,
1996, Onyx has amassed a servicing portfolio of approximately $266.3 million. As
of March 31, 1996, approximately 84.03% of Onyx's servicing portfolio consisted
of motor vehicle installment contracts secured by used motor vehicles, and
15.97% secured by new motor vehicles. As of March 31, 1996, Onyx had total
assets of approximately $111.1 million and shareholders equity of $30.8 million.
Onyx finances its acquisition of motor vehicle installment contracts on a
short term basis through a commercial paper conduit program and has previously
financed its acquisition of motor vehicle installment contracts on a long term
basis through sales of Contracts to grantor trusts.
THE CERTIFICATES AND THE AGREEMENT
The Certificates will be issued pursuant to the Agreement, a form of which
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The following summaries of certain provisions of the
Agreement do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the provisions of the Agreement. Where
particular provisions of or terms used in the Agreement are referred to, the
actual provisions (including definitions of terms) are incorporated by reference
as part of such summaries.
19
<PAGE> 22
GENERAL
The Certificates will be offered for purchase in minimum denominations of
$1,000 and integral multiples thereof, except that one Certificate may be issued
in a denomination that includes any residual portion of the Pool Balance as of
the Cut-Off Date. Each Certificate will rank pari passu with each other
Certificate. The Certificates will initially be represented by one or more
Certificates registered in the name of the nominee of DTC except as set forth
below. The interests of holders of beneficial interests in the Certificates
(each a "Certificate Owner") will be available for purchase in denominations of
$1,000 and integral multiples thereof in book-entry form only. The Seller has
been informed by DTC that DTC's nominee will be Cede. Accordingly, Cede is
expected to be the holder of record of the Certificates. Unless and until
Definitive Certificates are issued under the limited circumstances described
herein, no Certificate Owner will be entitled to receive a certificate
representing such person's interest in the Certificates. All references herein
to actions by Certificateholders shall refer to actions taken by DTC upon
instructions from its participating organizations (the "Participants") and all
references herein to distributions, notices, reports and statements to
Certificateholders shall refer to distributions, notices, reports and statements
to DTC or Cede, as the registered holder of the Certificates, as the case may
be, for distribution to Certificate Owners in accordance with DTC procedures.
See "The Certificates and the Agreement -- Book-Entry Registration" and
"-- Definitive Certificates."
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
On each Distribution Date, monthly interest due on the Contracts (the
"Interest Distribution") at a rate equal to the product of one-twelfth of the
Pass-Through Rate and the Pool Balance as of the close of the preceding
Collection Period will be distributed to the Certificateholders of record on a
pro rata basis as of the immediately preceding Record Date (defined below). The
"Pool Balance" as of any date is the Aggregate Scheduled Balance of the
Contracts as of such date, excluding those Contracts which, as of such date,
have become Liquidated Contracts or have been purchased by the Servicer or
repurchased by the Seller. A "Collection Period" with respect to a Distribution
Date will be the calendar month preceding the month in which such Distribution
Date occurs; provided, that with respect to Liquidated Contracts, the Collection
Period will be the period from but excluding the sixth Business Day preceding
the immediately preceding Distribution Date to and including the sixth Business
Day preceding such Distribution Date. With respect to the first Distribution
Date the "Collection Period" for Liquidated Contracts will be the period from
and including the Cut-off Date to and including the sixth Business Day preceding
such first Distribution Date. Each Interest Distribution will be calculated on
the basis of a 360-day year consisting of twelve 30-day months. Unless
Definitive Certificates have been issued, distributions on each Distribution
Date will be made through the facilities of DTC and will be payable to
Certificateholders registered as such on the Business Day prior to such
Distribution Date (or, if Definitive Certificates are issued, the last day of
the calendar month preceding such Distribution Date) (the "Record Date"), except
that the final distribution of principal of and interest on each Certificate
will be made only upon presentation and surrender of such Certificate on or
after the Final Distribution Date (or such earlier termination date as is
provided by the Agreement) at the office or agency of the Trustee maintained for
that purpose.
On each Distribution Date, Principal Distributions for the related
Collection Period will be passed through to the Certificateholders. The
"Principal Distribution" on any Distribution Date is the Aggregate Scheduled
Balance Decline during the related Collection Period. The Principal Distribution
on the Final Distribution Date will include the Aggregate Scheduled Balance of
all Contracts that are outstanding at the end of the Collection Period
immediately prior to the Final Distribution Date. The "Aggregate Scheduled
Balance Decline" for any Distribution Date is the amount by which the Aggregate
Scheduled Balance of the Contracts as of the beginning of the related Collection
Period exceeds the Aggregate Scheduled Balance of such Contracts as of the end
of the related Collection Period. The "Aggregate Scheduled Balance" of the
Contracts is the sum of the Scheduled Balances of each Contract. The "Scheduled
Balance" of a Contract at any date is equal to the Cut-Off Date Scheduled
Balance of such Contract reduced by the portion of each scheduled payment of
principal and interest due on such Contract (the "Monthly P&I") on or prior to
the date of calculation that is allocable to principal under the Recomputed
Actuarial Method. The Scheduled Balance of any Contract that is a Liquidated
Contract or that has been purchased by the Servicer or
20
<PAGE> 23
repurchased by the Seller will equal zero. A "Liquidated Contract" is a Contract
that (a) is the subject of a Full Prepayment, (b) is a Defaulted Contract and
with respect to which Liquidation Proceeds constituting the final amounts
recoverable have been received, (c) is paid in full on or after its Maturity
Date or (d) has been a Defaulted Contract for four or more Collection Periods
and as to which Liquidation Proceeds constituting the final amount recoverable
have not been received. A "Defaulted Contract" with respect to any Collection
Period is a Contract (a) which is, at the end of such Collection Period,
delinquent in the amount of two monthly payments or (b) with respect to which
the related Financed Vehicle has been repossessed or repossession efforts have
been commenced.
The Monthly P&I for a Contract due on each Due Date is substantially equal
for the term of the Contract. The Scheduled Balance of each Contract as of the
Cut-Off Date, which will be treated as being equal to the Cut-Off Date Scheduled
Balance, will be set forth in a schedule to the Agreement. The Recomputed Yield
of each Contract will at least equal %.
At the issuance of the Certificates, the initial aggregate principal amount
of the Certificates will equal the Aggregate Scheduled Balance of all the
Contracts as of the Cut-Off Date.
THE SURETY BOND
If on any Servicer Report Date the amount on deposit in the Collection
Account, after giving effect to all amounts deposited or payable from the
Payahead Account with respect to such Distribution Date, is less than the sum of
the Servicing Fee, the Principal Distribution and Interest Distribution for the
related Distribution Date, the Trustee by delivering a notice to the Insurer
shall demand payment under the Surety Bond in an amount equal to such
deficiency. The Insurer shall pay or cause to be paid such amount to the Trustee
for credit to the Collection Account and the Trustee shall withdraw from the
Collection Account and shall pay such amount to the Certificateholders on the
related Distribution Date.
If on the Business Day preceding the Final Distribution Date, any principal
amount of Certificates is still outstanding, then the Trustee shall demand
payment on the Surety Bond in an amount equal to the amount by which outstanding
principal amount of the Certificates, plus interest thereon at the Pass-Through
Rate, exceeds the amount on deposit in the Collection Account which is available
for distribution on the Final Distribution Date. The Insurer shall pay or cause
to be paid such amount to the Trustee for credit to the Collection Account, and
on the Final Distribution Date, the Trustee shall withdraw from the Collection
Account and shall pay such amount to the Certificateholders.
BOOK-ENTRY REGISTRATION
Certificateholders may hold their Certificates through DTC if they are
participants of such system, or indirectly through organizations which are
participants ("Participants") in such system.
Cede, as nominee for DTC, will hold one or more global Certificates.
Transfers between Participants will occur in the ordinary way in accordance with
DTC rules.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its Participants and facilitate the clearance
and settlement of securities transactions between Participants through
electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and may include certain other organizations (including the Underwriters).
Indirect access to the DTC system also is available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (the "Indirect
Participants").
Certificate Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Certificates may do so only through Participants and Indirect Participants.
In addition, Certificateholders will receive all distributions of principal of
and interest on the Certificates from the Trustee, as paying agent, or its
successor in such capacity (the "Paying Agent"),
21
<PAGE> 24
through the Participants who in turn will receive them from DTC. Under a
book-entry format, Certificate Owners may experience some delay in their receipt
of payments, since such payments will be forwarded by the Paying Agent to Cede,
as nominee for DTC. DTC will forward such payments to its Participants which
thereafter will forward them to Indirect Participants or Certificate Owners. It
is anticipated that the only "Certificateholder" will be Cede, as nominee of
DTC. Certificate Owners will not be recognized by the Trustee as
Certificateholders, as such term is used in the Agreement, and Certificate
Owners will only be permitted to exercise the rights of Certificateholders
indirectly through the Participants who in turn will exercise the rights of
Certificateholders through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the Certificates and is required to
receive and transmit distributions of principal of and interest on the
Certificates. Participants and Indirect Participants with which Certificate
Owners have accounts with respect to the Certificates similarly are required to
make book-entry transfers and receive and transmit such payments on behalf of
their respective Certificate Owners. Accordingly, although Certificate Owners
will not possess Certificates, Certificate Owners will receive payments and will
be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Certificate
Owner to pledge Certificates to persons or entities that do not participate in
the DTC system, or otherwise take actions in respect of such Certificates, may
be limited due to the lack of a physical certificate for such Certificates.
DTC has advised the Seller that it will take any action permitted to be
taken by a Certificateholder under the Agreement only at the direction of one or
more Participants to whose account with DTC the Certificates are credited.
Additionally, DTC has advised the Seller that it will take such actions with
respect to the particular portion of the Certificates represented by the
undivided interests held by Participants which have directed DTC, on their
behalf, to take such action. DTC may take conflicting actions with respect to
other undivided interests to the extent that such actions are taken on behalf of
Participants whose holdings include such undivided interests.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of Certificates among participants of DTC, they are under no
obligation to perform or continue to perform such procedures and such procedures
may be discontinued at any time.
DEFINITIVE CERTIFICATES
The Certificates will be issued in fully registered, certificated form in
denominations of $1,000 and integral multiples thereof to Certificate Owners or
their nominees (the "Definitive Certificates"), rather than to DTC or its
nominee, only if (i) the Seller advises the Trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as depositary
with respect to the Certificates, and the Trustee or the Seller are unable to
locate a qualified successor, or (ii) after the occurrence of an Event of
Default, Certificate Owners representing in the aggregate more than 50% of the
Pool Balance advise the Trustee and DTC through Participants in writing that the
continuation of a book-entry system with respect to the Certificates through any
depositary is no longer in the best interest of the Certificate Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the Definitive Certificates representing the Certificates and instructions for
reregistration, the Trustee will issue the Certificates as Definitive
Certificates, and thereafter the Trustee will recognize the holders of such
Definitive Certificates as holders under the Agreement (collectively,
"Holders").
Distribution of principal of and interest on the Certificates will be made
by the Paying Agent directly to Holders of Definitive Certificates in accordance
with the procedures set forth herein and in the Agreement. Interest
Distributions and Principal Distributions on each Distribution Date and on the
Final Distribution Date will be made to Holders in whose names the Definitive
Certificates were registered at the close of business on the related Record
Date. Distributions will be made by check mailed to the address of such
22
<PAGE> 25
Holder as its appears on the certificate register. The final payment of any
Certificate (whether Definitive Certificates or the Certificate registered in
the name of DTC's nominee), however, will be made only upon presentation and
surrender of such Certificate at the office or agency specified in the notice of
final distribution to Certificateholders. The Trustee will provide such notice
to registered Certificateholders not later than the fifteenth day of the month
of such final distribution.
Definitive Certificates will be transferable and exchangeable at the
offices of the Transfer Agent and Registrar, which shall initially be the
Trustee. No service charge will be imposed for any registration of transfer or
exchange, but the Transfer Agent and Registrar may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith.
SALE AND ASSIGNMENT OF THE CONTRACTS
At the time of issuance of the Certificates, the Seller will sell and
assign to the Trustee, without recourse, the Seller's entire interest in the
Contracts and the proceeds thereof, including its security interests in the
Financed Vehicles. Each Contract will be identified in a schedule appearing as
an exhibit to the Agreement. The Trustee will, concurrently with such sale and
assignment, execute, authenticate and deliver the definitive certificates
representing the Certificates to the Underwriter against payment to the Seller
of the net purchase price of the sale of the Certificates. Pursuant to the
Purchase Agreement, prior to sale of the Contracts to the Trustee and the
issuance of the Certificates, Onyx sold and assigned to the Seller Onyx's entire
interest in the Contracts.
Pursuant to the Agreement, the Seller will represent to the Trustee and the
Trust for the benefit of holders of the Certificates and the Insurer that: (i)
each Contract contains customary and enforceable provisions such that the rights
and remedies of the holder thereof shall be adequate for realization against the
collateral of the benefits of the security; (ii) each Contract and the sale of
the related Financed Vehicle complied, at the time it was made, in all material
respects with all requirements of applicable federal, state, and local laws, and
regulations thereunder, including usury laws, the Federal Truth-in-Lending Act,
the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Federal
Trade Commission Act, state adaptations of the National Consumer Act and of the
Uniform Consumer Credit Code, and any other consumer credit, equal opportunity
and disclosure laws applicable to such Contract and sale; (iii) each Contract
constitutes the legal, valid, and binding payment obligation in writing of the
Obligor, enforceable by the holder thereof in all respects in accordance with
its terms, subject, as to enforcement, to applicable bankruptcy, insolvency,
reorganization, liquidation and other similar laws and equitable principles
relating to or affecting the enforcement of creditors' rights; (iv) as of the
Closing Date, each Contract was secured by a validly perfected first priority
security interest in the Financed Vehicle in favor of the Seller as secured
party or all necessary action with respect to such Contract has been taken to
perfect a first priority security interest in the related Financed Vehicle in
favor of the Seller as secured party, which security interest is assignable and
has been so assigned by the Seller to the Trust; (v) as of the Closing Date the
Seller had good and marketable title to and was the sole owner of each Contract,
free of liens, claims, encumbrances and rights of others; (vi) as of the Closing
Date, there are no rights of rescission, offset, counterclaim, or defense, and
the Seller has no knowledge of the same being asserted or threatened, with
respect to any Contract; (vii) as of the Closing Date, the Seller had no
knowledge of any liens or claims that have been filed, including liens for work,
labor, materials or unpaid taxes relating to a Financed Vehicle, that would be
liens prior to, or equal with, the lien granted by the Contract; (viii) except
for payment defaults continuing for a period of not more than 30 days as of the
Cut-Off Date, the Seller has no knowledge that a default, breach, violation, or
event permitting acceleration under the terms of any Contract exists, and the
Seller has no knowledge that a continuing condition that with notice or lapse of
time would constitute a default, breach, violation or event permitting
acceleration under the terms of any Contract exists, and the Seller has not
waived any of the foregoing; (ix) each Contract requires that the Obligor
thereunder obtain comprehensive and collision insurance covering the Financed
Vehicle; (x) each Contract was acquired from a Dealer that Onyx ordinarily does
business with; (xi) no adverse selection procedures were utilized in selecting
the Contracts; (xii) scheduled payments under each Contract have been applied in
accordance with the Rule of 78's and (xiii) there is only one original of each
Contract and such original is being held by the Trustee as custodian on behalf
of the Trust
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and Insurer. As of the last day of the Collection Period following the
Collection Period (or, if the Seller elects, the last day of such Collection
Period) during which the Seller becomes aware or receives written notice from
the Trustee or the Servicer that a Contract does not meet any of the criteria in
the Agreement and such failure materially and adversely affects the interests of
the Certificateholders or the Insurer in a Contract, the Seller, unless it cures
the failed criterion, will repurchase the Contract from the Trustee at a price
equal to the Scheduled Balance thereof plus accrued interest (the "Repurchase
Amount"). The repurchase obligation will constitute the sole remedy available to
the Certificateholders or the Trustee for the failure of a Contract to meet any
of the criteria set forth in the Agreement.
THE COLLECTION ACCOUNT AND ELIGIBLE INVESTMENTS
The Servicer will cause all collections made on the Contracts during a
Collection Period to be deposited in or credited to an account (the "Collection
Account") established by the Servicer under the Agreement. Funds in the
Collection Account will be invested in Eligible Investments by the Trustee
acting at the direction of the Insurer. "Eligible Investments" are (a) direct
obligations issued or fully guaranteed by the United States or any agency or
instrumentality of the United States whose obligations are backed by the full
faith and credit of the United States and, to the extent, at the time of the
investment, acceptable to the Insurer and each statistical rating agency rating
the Certificates for securities having a rating equivalent to the rating of the
Certificates at the Closing Date, the direct obligations of, or obligations
fully guaranteed by, the Federal Home Loan Mortgage Corporation and the Federal
National Mortgage Association; (b) deposits in or other obligations of any bank
(including the Trustee) whose long-term unsecured debt obligations are rated
"AA-" or better by Standard & Poor's Corporation ("Standard & Poor's") and "Aa2"
or better by Moody's Investors Service, Inc. ("Moody's") or any bank acceptable
to the Insurer; (c) repurchase obligations with respect to federal government or
agency securities described in clause (a) above entered into with any bank
described in clause (b) above; (d) interest-bearing or discount corporate
securities rated "AA-" or better by Standard & Poor's and "Aa2" or better by
Moody's; (e) commercial paper having the highest rating obtainable from Standard
& Poor's and Moody's; (f) investments in money market funds or money market
mutual funds having a rating from Standard & Poor's and Moody's in the highest
investment category granted thereby, including funds for which the Trustee or
any of its affiliates is investment manager or advisor; and (g) such other
securities that are acceptable to the Insurer. Eligible Investments made with
respect to the Collection Account will mature no later than the next following
Distribution Date. Income from amounts on deposit in the Collection Account
which are invested in Eligible Investments will be paid to the Servicer monthly
unless earlier directed by the Servicer.
PAYAHEAD ACCOUNT
Payments made by an Obligor in excess of the Monthly P&I for the current
Collection Period and any other amount currently due on a Contract (other than
Full Prepayments) ("Payaheads") will be initially deposited in the Collection
Account and subsequently transferred from the Collection Account, as of each
Servicer Report Date, to an account established in the name of Bankers Trust
Company for the benefit of the Obligors and the Certificateholders as their
interests may appear (the "Payahead Account") and shall be held in such account
until passed through in accordance with the original schedule of payments for
the related Contract or until the amount of such partial prepayment equals the
amount the Obligor would be required to pay in order to prepay the Contract in
full. The Payahead Account will be an Eligible Account. Amounts on deposit in
the Payahead Account will be invested in Eligible Investments with maturity
dates such that on each Distribution Date Monthly P&I for each Contract with
respect to which a partial prepayment had been made will be available to be
passed through to Certificateholders. The Payahead Account will not be part of
the Trust and the Trustee will not have a security interest in the Payahead
Account. Earnings on Eligible Investments credited to the Payahead Account will
be paid to the Servicer. Full Prepayments during any Collection Period will be
deposited directly into the Collection Account for distribution to
Certificateholders on the Distribution Date next succeeding such Collection
Period.
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PAYMENTS ON CONTRACTS
All collections on the Contracts will be deposited in or credited to the
Collection Account within two Business Days of the receipt by the Servicer of
payments from Obligors. Such collections will include: Full Prepayments and
Payaheads (pending transfer to the Payahead Account), Net Liquidation Proceeds
and Net Insurance Proceeds; any amounts deposited by Onyx or the Seller in the
Collection Account to purchase Contracts because of certain material defects in
documents related to the Contracts or certain breaches in representations or
warranties regarding the Contracts made by Onyx or the Seller in the Agreement
that materially and adversely affect the interests of the Certificateholders or
the Insurer; any amounts deposited by the Servicer in the Collection Account to
purchase Contracts as to which the Servicer has breached certain servicing
covenants; and any amounts deposited by the Servicer in the Collection Account
as a result of such entity exercising its right under certain circumstances to
purchase all or a portion of the Contracts. "Net Liquidation Proceeds" are
proceeds received by the Servicer (net of Liquidation Expenses) upon liquidation
of any Defaulted Contract. "Liquidation Expenses" are the reasonable
out-of-pocket expenses (exclusive of overhead expenses) incurred by the Servicer
in realizing upon a defaulted Contract which are not recoverable under any
insurance policy. "Net Insurance Proceeds" are proceeds paid by any insurer
under a comprehensive and collision or vendor's single interest insurance policy
related to a Contract (other than funds used for the repair of the related
Financed Vehicle or otherwise released to the related Obligor in accordance with
normal servicing procedures) and proceeds from the Blanket Insurance Policy,
after reimbursement to the Servicer of expenses recoverable under such policy.
Partial prepayments are initially deposited in the Collection Account and are
transferred to the Payahead Account on the Servicer Report Date.
DISTRIBUTIONS
Subject to the last sentence of this paragraph, distributions on the
Certificates will be made on each Distribution Date by the Trustee out of net
collections on the Contracts (exclusive of amounts representing payment due in
the Collection Period in which such Distribution Date occurs and any future
Collection Periods) for the Collection Period preceding such Distribution Date.
The amount of such net collections on each Distribution Date will be applied,
first, to the Servicer in payment of the Servicing Fee; second, payment of the
Interest Distribution and the Principal Distribution to the Certificateholders
on such Distribution Date in accordance with the Agreement, third, to the
Insurer, the Surety Bond Fee, and fourth, any balance shall be distributed to a
separate spread account trust to be applied in accordance with the spread
account trust agreement and the Insurance Agreement, which provide that to the
extent funds are not required either to reimburse the Insurer for draws on the
Surety Bond or to reserve against the possibility of future draws, amounts
remaining shall be released to the beneficiaries of the spread account trust.
Any amounts distributed pursuant to clause fourth above will not be available to
make distributions to the Certificateholders on the current or any future
Distribution Date. Under the Surety Bond, the Insurer is obligated to provide
for payment to the Trustee on each Distribution Date the amount, if any, by
which the amount available for distribution from the net collections on the
Contracts is less than the sum of the Servicing Fee, the Interest Distribution
and the Principal Distribution due to the Certificateholders for such
Distribution Date.
INSURANCE ON FINANCED VEHICLES
Each Obligor on a Contract is required to maintain insurance covering
physical damage to the Financed Vehicle of such Obligor in an amount not less
than the lesser of its maximum insurable value or the unpaid principal balance
under such Contract. Onyx is required to be named as a loss payee under the
policy of insurance obtained by the Obligor. The Financed Vehicle is required to
be insured against loss and damage due to fire, theft, transportation, collision
and other risks covered by comprehensive coverage. Onyx also maintains a
vendor's single interest insurance policy, as to which the Seller has been named
as an additional insured, providing coverage upon repossession of a Financed
Vehicle in an amount equal to the lesser of the actual cash value of such
financed vehicle, the cost of repair or replacement for such Financed Vehicle
and the unpaid balance of the related Contract. Since Obligors may choose their
own insurers to provide the required coverage, the specific terms and conditions
of their policies vary.
Onyx has obtained the Blanket Insurance Policy from United Financial
Casualty Company with a rating of "A" by A.M. Best, with respect to each
Contract. Subject to certain conditions, the Blanket Insurance Policy covers the
lesser of actual damage to a Financed Vehicle or the amount by which the
Obligor's unpaid
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remaining principal balance on the Contract exceeds the proceeds from
disposition of the Financed Vehicle. Onyx's rights with respect to the Contracts
under the Blanket Insurance Policy have been assigned to the Trust pursuant to
the Agreement.
SERVICER REPORTS TO THE TRUSTEE AND THE INSURER
The Servicer will perform certain monitoring and reporting functions for
the Trustee and the Insurer, including the preparation and delivery on the
Servicer Report Date to the Trustee and the Insurer of a statement setting forth
the amounts on deposit in the Collection Account, the sources of such amounts
and the amounts to be paid to Certificateholders (the "Distribution Date
Statement"). The Distribution Date Statement shall also include information
regarding Contracts purchased by the Servicer or repurchased by the Seller.
PURCHASE OF CONTRACTS
The Servicer will have the option to purchase the remaining Contracts, and
thereby cause early retirement of the Certificates, as of any Distribution Date
on which the Aggregate Scheduled Balance of the Contracts is less than 10% of
the initial Aggregate Scheduled Balance of the Contracts. Any such purchase must
be effected at a price equal to the Aggregate Scheduled Balance of such
Contracts plus accrued interest and all amounts due to the Insurer under the
Insurance Agreement. In addition, Onyx or the Seller is required to purchase or
repurchase, respectively, Contracts under certain circumstances if certain
representations and warranties made by Onyx or the Seller, respectively, are
incorrect in a manner that materially and adversely affects the interest of the
Certificateholders or the Insurer. Additionally, the Servicer is required to
purchase Contracts as to which the Servicer has breached certain servicing
covenants.
SERVICING FEE
The Servicer will be entitled to compensation for the performance of its
obligations under the Agreement. The Servicer shall be entitled to receive an
amount equal to the product of one-twelfth of 1.00% per annum (the "Servicing
Fee Rate") and the Pool Balance as of the close of the preceding Collection
Period. As additional compensation, the Servicer or its designee shall be
entitled to retain all late payment charges, extension fees and similar items
paid in respect of the Contracts. The Servicer or its designee will also receive
as servicing compensation reinvestment earnings on Eligible Investments and the
amount, if any, by which the outstanding principal balance based on the Rule of
78's of a Contract that is subject to a Full Prepayment exceeds the Scheduled
Balance of such Contract. The Servicer shall pay all expenses incurred by it in
connection with its servicing activities under the Agreement and shall not be
entitled to reimbursement of such expenses except to the extent they constitute
Liquidation Expenses or expenses recoverable under an applicable insurance
policy.
REALIZATION UPON DEFAULTED CONTRACTS
The Servicer will liquidate any Contract that comes into and continues in
default and as to which no satisfactory arrangements can be made for collection
of delinquent payments. Such liquidation may be through repossession or sale of
the Financed Vehicle securing such Contract or otherwise. In connection with
such repossession or other conversion, the Servicer will follow such procedures
as are normal and usual for holders of motor vehicle retail installment sales
contracts. In this regard, the Servicer may sell the Financed Vehicle at a
repossession or other sale.
DESCRIPTION OF THE INSURER
The following information with respect to the Insurer has been furnished by
the Insurer and none of Onyx, the Seller or the Underwriter have made any
independent investigation of such information.
The Insurer is a New York-domiciled monoline stock insurance company which
engages only in the business of financial guarantee and surety insurance. The
Insurer is licensed in 50 states in addition to the District of Columbia, the
Commonwealth of Puerto Rico and the territory of Guam. The Insurer insures
structured asset-backed, corporate, municipal and other financial obligations in
the domestic and foreign capital markets. The Insurer also provides financial
guarantee reinsurance for structured asset-backed, corporate, municipal and
other financial obligations written by other major insurance companies.
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The Insurer's claims-paying ability is rated "Aaa" by Moody's, "AAA" by
Standard & Poor's, "AAA" by Duff & Phelps, Inc. and "AAA" by Nippon Investors
Inc. Such ratings reflect only the views of the respective rating agencies, are
not recommendations to buy, sell or hold securities and are subject to revision
or withdrawal at any time by such rating agencies.
The Insurer is a wholly owned subsidiary of CapMAC Holdings Inc.
("Holdings"). NEITHER HOLDINGS NOR ANY OF ITS STOCKHOLDERS IS OBLIGATED TO PAY
ANY CLAIMS UNDER ANY SURETY BOND ISSUED BY THE INSURER OR ANY DEBTS OF THE
INSURER OR TO MAKE ADDITIONAL CAPITAL CONTRIBUTIONS.
The Insurer is regulated by the Superintendent of Insurance of the State of
New York. In addition, the Insurer is subject to regulation by the insurance
laws and regulations of the other jurisdictions in which it is licensed. Such
insurance laws regulate, among other things, the amount of net exposure per risk
that the Insurer may retain, capital transfers, dividends, investment of assets,
changes in control, transactions with affiliates and consolidations and
acquisitions. The Insurer is subject to periodic regulatory examinations by the
same regulatory authorities.
The Insurer's obligations under the Surety Bond may be reinsured. Such
reinsurance does not relieve the Insurer of any of its obligations under the
Surety Bond.
THE SURETY BOND IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY
FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
At December 31, 1995 and 1994, the Insurer had qualified statutory capital
(which consists of policyholders' surplus and contingency reserve) of
approximately $240 million and $170 million, respectively, and had not incurred
any debt obligations. Article 69 of the New York State Insurance Law requires
the Insurer to establish and maintain the contingency reserve, which is
available to cover claims under surety bonds issued by the Insurer.
The audited financial statements of the Insurer prepared in accordance with
generally accepted accounting principles as of December 31, 1995 and 1994 and
for each of the years in the three-year period ended December 31, 1995 are
included in this Prospectus. Copies of the Insurer's financial statements
prepared in accordance with statutory accounting standards, which differ from
generally accepted accounting principles, and filed with the Insurance
Department of the State of New York are available upon request. The Insurer is
located at 885 Third Avenue, New York, New York 10022, and its telephone number
is (212) 755-1155.
ADDITIONAL PROVISIONS OF THE AGREEMENT
STATEMENTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Trustee will include with each distribution
to each Certificateholder a statement setting forth for such Distribution Date
the following information:
(i) the amount of the distribution to Certificateholders allocable
to principal;
(ii) the amount of the distribution to Certificateholders allocable
to interest;
(iii) the certificate distribution amount for such Distribution Date;
(iv) the premiums payable to the Insurer and the amount to be
deposited in the spread account;
(v) the aggregate Servicing Fee paid to the Servicer with respect to
the Contracts for the related Collection Period; and
(vi) the number of, and aggregate amount of monthly principal and
interest payments due on, the Contracts which are delinquent as of the end
of the related Collection Period presented on a 30-day, 60-day and 90-day
basis;
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(vii) the amount available in the Collection Account for payment of
the Certificate Distribution Amount and the Servicing Fee and the amount,
if any, required from the Insurer pursuant to the Surety Bond to pay any
shortfall;
(viii) the aggregate amount of liquidation proceeds received for
Defaulted Contracts;
(ix) the net credit losses for the Collection Period;
(x) the number and net outstanding balance of Contracts for which
the Financed Vehicle has been repossessed;
(xi) the Pool Balance;
(xii) the amount in the Collection Account available for such
Distribution Date; and
(xiii) the amount of claims (if any) made on the Surety Bond.
Within a reasonable period of time after the end of each calendar year but
not later than the latest date permitted by law, commencing with the year ended
December 31, 1996, the Trustee and the Paying Agent shall furnish to each person
who on any Record Date during such calendar year shall have been a registered
Certificateholder a statement containing the sum of the amounts described in
(i), (ii) and (v) above and such other information in respect of the
Certificates as may be reasonably necessary for such Certificateholder's
preparation of federal income tax returns. See "Certain Tax Consequences."
EVIDENCE AS TO COMPLIANCE
The Agreement will provide that a firm of independent public accountants
will furnish to the Trustee and the Insurer, on or before each March 15 after
the end of each fiscal year of the Servicer, beginning with the fiscal year
ended December 31, 1996, a statement as to compliance by the Servicer during the
preceding fiscal year with certain standards relating to the servicing of the
Contracts.
The Agreement will also provide for delivery to the Trustee and the
Insurer, on or before each March 15, after the end of each fiscal year of the
Servicer, commencing with the fiscal year ended December 31, 1996, of a
certificate signed by an authorized officer of the Servicer stating that the
Servicer has fulfilled its obligations under the Agreement throughout the
preceding fiscal year or, if there has been a default in the fulfillment of any
such obligation, describing each such default.
Copies of such statements and certificates may be obtained by
Certificateholders by a request in writing addressed to the Trustee.
CERTAIN MATTERS REGARDING THE SERVICER
The Agreement will provide that the Servicer may not resign from its
obligations and duties as Servicer thereunder except upon determination that the
Servicer's performance of such duties is no longer permissible under applicable
law. No such resignation will become effective until the Back-up Servicer, or a
successor servicer has assumed the Servicer's servicing obligations and duties
under the Agreement. See "-- The Trustee and Back-Up Servicer."
The Agreement will further provide that neither the Servicer nor any of its
directors, officers, employees, and agents shall be under any liability to the
Trust or the Certificateholders for taking any action or for refraining from
taking any action pursuant to the Agreement, or for errors in judgment;
provided, however, that neither the Servicer nor any such person will be
protected against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence (except errors in judgment) in the
performance of duties or by reason of reckless disregard of obligations and
duties thereunder. In addition, the Agreement will provide that the Servicer is
under no obligation to appear in, prosecute or defend any legal action that is
not incidental to the Servicer's servicing responsibilities under the Agreement
and that, in its opinion, may cause it to incur any expense or liability. The
Servicer may, however, undertake any reasonable action that it may deem
necessary or desirable in respect of the Agreement and the rights and duties of
the parties thereto and the interests of the Certificateholders thereunder. In
such event, the legal expenses and
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costs of such action and any liability resulting therefrom will be expenses,
costs and liabilities of the Trust, and the Servicer will be entitled to be
reimbursed therefor out of the Collection Account. Any such indemnification or
reimbursement could reduce the amount otherwise available for distribution to
Certificateholders.
Any corporation into which the Servicer may be merged or consolidated, or
any corporation resulting from any merger, conversion or consolidation to which
the Servicer is a party or any corporation succeeding to the business of the
Servicer, or, with respect to the Servicer's obligation as the Servicer, will be
the successor of the Servicer under the Agreement.
EVENTS OF DEFAULT
"Events of Default" under the Agreement will consist of (i) any failure by
the Servicer to deposit in or credit to the Collection Account or the Payahead
Account any amount required to be so deposited or credited or to make the
required distribution to Certificateholders, which failure continues unremedied
for three Business Days after written notice from the Trustee or the Insurer is
received by the Servicer or discovery by the Servicer; (ii) any failure by the
Servicer to deliver to the Insurer or the Trustee certain reports required by
the Agreement by the fifth Business Day prior to the related Distribution Date
or to perform certain other covenants under the Agreement; (iii) any failure by
the Servicer or the Seller duly to observe or perform in any material respect
any other covenants or agreements of the Servicer or the Seller in the
Agreement, which failure materially and adversely affects the rights of
Certificateholders, the Insurer or the Trustee and which continues unremedied
for 30 days after the giving of written notice of such failure (A) to the
Servicer or the Seller, as the case may be, by the Trustee or the Insurer or (B)
to the Servicer or the Seller, as the case may be, and to the Trustee by Holders
of Certificates evidencing not less than 25% of the Pool Balance or by the
Insurer; (iv) certain events of insolvency, readjustment of debt, marshalling of
assets and liabilities, or similar proceedings and certain actions by the
Servicer or the Seller indicating its insolvency, reorganization pursuant to
bankruptcy or similar proceedings or inability to pay its obligations; (v) any
breach of any of the representations and warranties of the Servicer or the
Seller (except for any breaches relating to Contracts repurchased by the Seller
or the Servicer) which breach has a material adverse effect on the Trust and
which continues for 30 days after the giving of notice of such breach to the
Seller or the Servicer, as the case may be, by the Trustee or the Holders of
Certificates evidencing not less than 25% of the Pool Balance or the Insurer;
(vi) any change in control of the Servicer in violation of the covenant set
forth in Section 7.2 of the Agreement; and (vii) any determination by the
Insurer that the quality of performance of the Servicer is not in compliance
with either the terms of the Agreement or that the Servicer's performance is not
adequate, as measured in accordance with industry standards, in respect of all
contracts serviced by the Servicer.
RIGHTS UPON EVENT OF DEFAULT
As long as an Event of Default under the Agreement remains unremedied,
either the Trustee, the Insurer or Holders of Certificates evidencing not less
than 25% of the Pool Balance may terminate all the rights and obligations of the
Servicer under the Agreement, whereupon the Back-up Servicer will succeed to all
the responsibilities, duties and liabilities of the Servicer under the Agreement
and will be entitled to similar compensation arrangements; provided, however,
that the Back-up Servicer will not be obligated to purchase Contracts if certain
representations and warranties of Onyx as Servicer prove incorrect or if certain
covenants of Onyx as Servicer are breached. In the event that the Back-up
Servicer is unwilling or unable so to act, it may appoint, with the consent of
the Insurer, or petition a court of competent jurisdiction for the appointment
of, a successor with a net worth of at least $50,000,000 and whose regular
business includes the servicing of automotive retail installment sale contract
receivables.
The Holders of Certificates evidencing not less than 51% of the Pool
Balance (not including any Certificates held by the Seller, the Servicer or any
affiliate) may, on behalf of all Certificateholders, with the consent of the
Insurer, waive any default by the Servicer or the Seller in the performance of
its obligations, other than failure to make any required deposits to or payments
from the Collection Account.
The Trustee is under no obligation to exercise any of the trusts or powers
vested in it by the Agreement or to make any investigation of matters arising
thereunder or to institute, conduct, or defend any litigation
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thereunder or in relation thereto at the request, order, or direction on any of
the Certificateholders, unless such Certificateholders have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby. No Certificateholder will
have any right under the Agreement to institute any proceeding with respect to
the Agreement, unless such Holder previously has given to the Trustee written
notice of default and unless the Holders of Certificates evidencing not less
than 25% of the Pool Balance with the consent of the Insurer have made written
request upon the Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable indemnity and the Trustee
for 30 days has neglected or refused to institute any such proceedings.
Notwithstanding any provision in the Agreement to the contrary, in the
event that the Insurer is in default under the Surety Bond or is subject to any
insolvency proceeding, the Insurer shall not have the right to terminate the
Servicer, or to control or direct the actions of the Seller, the Servicer, the
Back-up Servicer or the Trustee pursuant to the terms of the Agreement, nor
shall the consent of the Insurer be required with respect to any action (or
waiver of a right to take action) to be taken by the Seller, the Servicer, the
Back-up Servicer or the Trustee; provided, that the consent of the Insurer shall
be required at all times with respect to any amendment of the Agreement.
AMENDMENT
The Agreement may be amended by the Seller, the Servicer, the Back-up
Servicer and the Trustee, without the consent of the Certificateholders but with
the consent of the Insurer, to cure any ambiguity, correct or supplement any
provision therein which may be inconsistent with any other provision therein, or
make any other provisions with respect to matters or questions arising under
such Agreement which are not inconsistent with the provisions of the Agreement;
provided that such action will not, in the opinion of counsel satisfactory to
the Trustee, materially and adversely affect the interest of any
Certificateholder. The Agreement may also be amended by the Seller, the
Servicer, the Back-up Servicer and the Trustee with the consent of the Holders
of Certificates evidencing not less than 51% of the Pool Balance and the Insurer
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Agreement or of modifying in any manner
the rights of Certificateholders; provided, however, that no such amendment may
(i) increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collection of payments on Contracts or distributions required to be
made on any Certificate or (ii) reduce the aforesaid percentage required to
consent to any such amendment, without the consent of all Certificateholders.
LIST OF CERTIFICATEHOLDERS
Upon written request of the Servicer, the Trustee will provide to the
Servicer within 15 days after receipt of such request a list of the names and
addresses of all Certificateholders of record as of the most recent Record Date.
Upon written request by three or more Certificateholders or by Holders of
Certificates evidencing not less than 25% of the Pool Balance, the Trustee will
afford such Certificateholders access during business hours to the current list
of Certificateholders for purposes of communicating with other
Certificateholders with respect to their rights under the Agreement.
The Agreement will not provide for the holding of any annual or other
meetings of Certificateholders.
TERMINATION
The obligations of the Seller, the Servicer, the Back-up Servicer and the
Trustee to the Certificateholders pursuant to the Agreement will terminate upon
the earlier of (i) the maturity or other liquidation of the last Contract and
the disposition of any amounts received upon liquidation of any remaining
Contracts that are part of the Trust Property and (ii) (a) the payment to
Certificateholders of all amounts required to be paid to them pursuant to the
Agreement and the disposition of all property held as part of the Trust, (b)
termination of the Surety Bond in accordance with its terms and surrender of the
Surety Bond to the Insurer for cancellation, (c) the payment of all amounts owed
to the Trustee under the Agreement and (d) the payment of all amounts owed to
the Insurer under the Insurance Agreement and the spread account trust
agreement. In order to avoid excessive administrative expense, the Servicer is
permitted at its option to purchase the
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remaining Contracts from the Trust as of the Distribution Date as of which the
then outstanding Aggregate Scheduled Balance of the Contracts is less than 10%
of the initial Aggregate Scheduled Balance of the Contracts at a price equal to
the Aggregate Scheduled Balance of such Contracts plus accrued interest on the
Contracts and all amounts due to the Insurer under the Insurance Agreement. The
Trustee will give written notice of termination to each Certificateholder of
record. The final distribution to any Certificateholder will be made only upon
surrender and cancellation of such Certificateholder's Certificate at an office
or agency of the Trustee specified in the notice of termination. Any funds
remaining in the Trust, after the Trustee has taken certain measures to locate a
Certificateholder and such measures have failed, will be distributed to a
charity designated by the Servicer.
DUTIES OF THE TRUSTEE
The Trustee makes no representations as to the validity or sufficiency of
the Agreement, the Certificates, or any Contracts or related documents, or the
investment of any monies by the Servicer before such monies are deposited in or
credited to the Collection Account. The Trustee has not examined the Contracts.
If no Event of Default has occurred, the Trustee is required to perform only
those duties specifically required of it under the Agreement. Generally, those
duties are limited to the receipt of the various certificates, reports or other
instruments required to be furnished to the Trustee under the Agreement, the
making of distributions to Certificateholders in the amounts specified in
certificates provided by the Servicer and drawing on the Surety Bond if required
to make distributions to the Certificateholders.
THE TRUSTEE AND BACK-UP SERVICER
Bankers Trust Company is the Trustee and the Back-up Servicer under the
Agreement. The Trustee and the Back-up Servicer, and any of its affiliates, may
hold Certificates in their own names. In addition, for the purpose of meeting
the legal requirements of certain local jurisdictions, the Servicer and the
Trustee acting jointly shall have the power to appoint co-trustees or separate
trustees of all or any part of the Trust. In the event of such appointment, all
rights, powers, duties and obligations conferred or imposed upon the Trustee by
the Agreement shall be conferred or imposed upon the Trustee and such separate
trustee or co-trustee jointly, or, in any jurisdiction in which the Trustee
shall be incompetent or unqualified to perform certain acts, singly upon such
separate trustee or co-trustee who shall exercise and perform such rights,
powers, duties and obligations solely at the direction of the Trustee.
The Back-up Servicer will: (i) review each issued monthly report of the
Servicer, (ii) inform the Insurer as to any discrepancy with regards to the
information provided by the Servicer pursuant to clause (i) above if the
Servicer has not resolved such discrepancy within 30 days after notice thereof
from the Back-up Servicer, (iii) conduct an annual site visit to the Servicer's
office and (iv) succeed in all respects to the Servicer in its capacity as
servicer as set forth in "-- Rights Upon Event of Default."
The Trustee and the Back-up Servicer may resign at any time, in which event
a successor trustee or Back-up Servicer will be appointed pursuant to the terms
of the Agreement. The Trustee and the Back-up Servicer may each be removed if it
ceases to be eligible to continue as such under the Agreement or if the Trustee
or the Back-up Servicer becomes insolvent. Any resignation or removal of the
Trustee or the Back-up Servicer and appointment of a successor does not become
effective until acceptance of the appointment by the successor trustee or
back-up servicer.
The Trustee and Back-up Servicer shall each be entitled to a fee payable on
an annual basis by Onyx. The Agreement will further provide that the Trustee and
the Back-up Servicer will be entitled to indemnification by the Servicer for,
and will be held harmless against, any loss, liability, or expense incurred by
the Trustee or the Back-up Servicer not resulting from the Trustee's or Back-up
Servicer's own willful misfeasance, bad faith, or negligence (other than errors
in judgment) or by reason of breach of any of their respective representations
or warranties set forth in the Agreement, except to the extent that such loss,
liability, or expense relates to a specific Contract or Contracts or certain
taxes that could be asserted against the Trustee, the Trust or the Contracts, in
which case the Trustee would be entitled to be indemnified by the Trust.
Onyx and the Insurer may maintain other banking relationships with the
Trustee and the Back-up Servicer in the ordinary course of business.
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CERTAIN LEGAL ASPECTS OF THE CONTRACTS
GENERAL
The Contracts are "chattel paper" as defined in the Uniform Commercial Code
as in effect in California ("UCC"). Pursuant to the UCC, an ownership interest
in chattel paper may be perfected by possession of the collateral or filing a
UCC-1 financing statement with the California Secretary of State.
Under the Agreement, the Trustee initially will have custody of the
Contracts following the sale of the Contracts to the Trust and will hold the
Contracts as bailee for the benefit of the Trust. Upon receiving the prior
consent of the Insurer, which cannot be unreasonably withheld, the Servicer may
be appointed by the Trustee to act as the custodian of the Contracts. Upon such
appointment physical possession of the Contracts would shift from the Trustee to
the Servicer. While the Contracts will not be physically marked to indicate the
ownership interest thereof by the Trust, UCC-1 financing statements will be
filed with the California Secretary of State to perfect by filing and give
notice of the Trust's ownership interest in the Contracts. If, through
inadvertence or otherwise, any of the Contracts were sold to another party who
purchased such Contracts in the ordinary course of its business and took
possession of such Contracts, the purchaser would acquire an interest in the
Contracts superior to the interests of the Trust if the purchaser acquired the
Contracts in good faith, for value and without actual knowledge of the Trust's
ownership interest in the Contracts.
SECURITY INTERESTS IN THE FINANCED VEHICLES
All Financed Vehicles were registered in the State of California at the
time of origination of the related Contract. Security interests in vehicles
registered in the State of California may be perfected by depositing with the
California Department of Motor Vehicles a properly endorsed certificate of title
showing the secured party as legal owner or an application for an original
registration together with an application for registration of the secured party
as legal owner. The Seller has warranted to the Trust in the Agreement that Onyx
has taken all steps necessary to obtain a perfected first priority security
interest with respect to all Financed Vehicles securing the Contracts and that
such security interest has been assigned to the Trust. If Onyx fails, because of
clerical errors or otherwise, to effect or maintain such notation for a Financed
Vehicle, the Trust may not have a first priority security interest in such
Financed Vehicle.
The Seller will sell the Contracts and assign the security interest in each
Financed Vehicle to the Trust. However, because of the administrative burden and
expense, the Trust will not amend the certificates of title to identify the
Trust as the new secured party. Accordingly, Onyx, will continue to be named as
the secured party on the certificates of title relating to the Financed
Vehicles. Under California law, the assignment of the contracts is an effective
conveyance of the security interests in the Financed Vehicles without amendment
of the lien noted on the related certificate of title and the new secured party
succeeds to the assignor's rights as the secured party. However, there exists a
risk in not identifying the Trust as the new secured party on the certificate of
title that, through fraud or negligence, the security interest of the Trust
could be released.
In the absence of fraud or forgery by the Financed Vehicle owner or
administrative error by state recording officials, notation of the lien of Onyx
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
Onyx has failed to perfect the security interest assigned to the Trust, such
security interest would be subordinate to, among others, subsequent purchasers
of the Financed Vehicles and holders of perfected security interests.
In the event that the owner of a Financed Vehicle relocates to a state
other than California, under the laws of most states the perfected security
interest in the Financed Vehicle would continue for four months after such
relocation and thereafter, in most instances, until the owner re-registers the
Financed Vehicle in such state. A majority of states generally require surrender
of a certificate of title to re-register a vehicle. Therefore, the Servicer on
behalf of the Trust must surrender possession, if it holds the certificate of
title to such Financed Vehicle, for the Financed Vehicle owner to effect the
reregistration. If the Financed Vehicle owner moves to a state that provides for
notation of lien on the certificate of title to perfect the security
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interests in the Financed Vehicle, Onyx, absent clerical errors or fraud, would
receive notice of surrender of the certificate of title if Onyx's lien is noted
thereon. Accordingly, Onyx will have notice and the opportunity to re-perfect
the security interest in the Financed Vehicle in the state of relocation. If the
Financed Vehicle owner moves to a state which does not require surrender of a
certificate of title for registration of a motor vehicle, reregistration could
defeat perfection. In the ordinary course of servicing its portfolio of motor
vehicle installment sales contracts, Onyx takes steps to effect such
re-perfection upon receipt of notice of registration or information from the
Obligor as to relocation. Similarly, when an Obligor under a Contract sells a
Financed Vehicle, the Servicer must surrender possession of the certificate of
title or will receive notice as a result of its lien noted thereon and
accordingly will have an opportunity to require satisfaction of the related
Contract before release of the lien. Under the Agreement, Onyx, at its cost, is
obligated to maintain the continuous perfection of its security interest in the
Financed Vehicle.
Under California law, liens for storage of and repairs performed on a motor
vehicle take priority even over a perfected security interest. The Seller will
represent in the Agreement that as of the initial issuance of the Certificates
no such liens exist with respect to any Financed Vehicle securing payment on any
Contract. However, such liens could arise at any time during the term of a
Contract. No notice will be given to the Servicer in the event such a lien
arises.
ENFORCEMENT OF SECURITY INTERESTS IN FINANCED VEHICLES
The Servicer, on behalf of the Trust, may take action itself to enforce its
security interest with respect to Defaulted Contracts by repossession and resale
of the Financed Vehicles securing such Defaulted Contracts. In addition to the
provisions of the UCC, under California law the Contracts are subject to the
provisions of the Rees-Levering Motor Vehicle Sales and Finance Act (the
"Rees-Levering Act"). The provisions of the Rees-Levering Act control in the
event of a conflict with the provisions of the UCC. Under the UCC and laws
applicable in most states, a creditor can, without prior notice to the debtor,
repossess a motor vehicle securing a motor vehicle installment contract by
voluntary surrender, by "self-help" repossession without breach of peace, and by
judicial process. The Rees-Levering Act places restrictions on repossession
sales, including notice to the debtor of the intent to sell and of the debtor's
right to redeem the vehicle. In addition, the UCC requires commercial
reasonableness in the conduct of the sale.
In the event of such repossession and resale of a Financed Vehicle, the
Servicer for the benefit of the Trust would be entitled to be paid out of the
sale proceeds before such proceeds could be applied to the payment of the claims
of unsecured creditors or the holders of subsequently perfected security
interests or, thereafter, to the debtor.
Under the UCC and laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from a debtor for any deficiency on repossession
and resale of the motor vehicle securing such debtor's motor vehicle installment
contract. However, some states impose prohibitions or limitations on deficiency
judgments. Under California law the proceeds from the resale of the motor
vehicle securing the debtor's motor vehicle installment contract are applied
first to the expenses of resale and repossession, and if the remaining proceeds
are not sufficient to repay the indebtedness, the creditor may seek a deficiency
judgment for the balance.
Certain other statutory provisions, including federal and state bankruptcy
and insolvency laws, may limit or delay the ability of the creditor to repossess
and resell collateral or enforce a deficiency judgment.
In the event that deficiency judgments are not satisfied, are satisfied at
a discount or are discharged in whole or in part, in bankruptcy proceedings,
including proceeds under Chapter 13 of Bankruptcy Reform Act of 1978, as
amended, the loss will be borne by the Trust.
OTHER MATTERS
The so-called "holder-in-due-course" rule of the Federal Trade Commission
is intended to defeat the ability of the transferor of a consumer credit
contract which is the seller of goods which gave rise to the transaction (and
certain related lenders and assignees) to transfer such contract free of notice
of claims by the debtor thereunder. The effect of this rule is to subject the
assignee of such a contract to all claims and defenses
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which the debtor could assert against the seller of goods. Liability under this
rule is limited to amounts paid under a Contract; however, the Obligor may also
assert the rule to set off remaining amounts due as a defense against a claim
brought by the Trustee against such Obligor.
The courts have imposed general equitable principles on repossession and
litigation involving deficiency balances. These equitable principles may have an
effect of relieving an Obligor from some or all of the legal consequences of a
default.
Numerous other federal and state consumer protection laws impose
requirements applicable to the origination and servicing of the Contracts,
including the Truth-in-Lending Act, the Federal Trade Commission Act, the Fair
Credit Billing Act, the Fair Credit Reporting Act, the Equal Credit Opportunity
Act, the Fair Debt Collection Practices Act, and the Rees-Levering Act. The
Seller has represented to the Trust in the Agreement that each of the Contracts,
and the sale of the Financed Vehicles sold thereunder, complied with all
material requirements of such laws.
REPURCHASE OBLIGATION
Under the Agreement, the Seller will make representations and warranties
relating to validity, subsistence, perfection and priority of the security
interest in each Financed Vehicle as of the Closing Date. See "The Certificates
and the Agreement -- Sale and Assignment of the Contracts." Accordingly, if any
defect exists in the perfection of the security interest in any Financed Vehicle
as of the Closing Date and such defect adversely affects the Trust's interest in
a Contract, such defect would constitute a breach of a warranty under the
Agreement and would create an obligation of the Seller to repurchase such
Contract unless the breach is cured. Additionally, in the Agreement the Servicer
will make certain representations, warranties and affirmative covenants
regarding, among other things, the maintenance of the security interest in each
Financed Vehicle, the breach of which would create an obligation of the Servicer
to repurchase any affected Contract unless the breach is cured.
CERTAIN TAX CONSEQUENCES
The following is a summary of the material anticipated Federal income tax
consequences of the purchase, ownership, and disposition of Certificates. This
summary is based upon laws, regulations, rulings, and decisions currently in
effect, all of which are subject to change. The discussion does not deal with
all Federal tax consequences applicable to all categories of investors, some of
which may be subject to special rules. In addition, this summary is generally
limited to investors who will hold the Certificates as "capital assets"
(generally, property held for investment) within the meaning of Section 1221 of
the Internal Revenue Code of 1986, as amended (the "Code"). Consequences to
individual investors of investment in the Certificates will vary according to
their individual circumstances. In addition, this summary generally does not
address foreign, state or local taxation issues. Accordingly, investors should
consult their own tax advisors to determine the Federal, state, local, and other
tax consequences of the purchase, ownership, and disposition of the
Certificates. Prospective investors should note that no rulings have been or
will be sought from the Internal Revenue Service (the "IRS") with respect to any
of the Federal income tax consequences discussed below, and no assurance can be
given that the IRS will not take contrary positions.
BECAUSE MANY OF THE ISSUES DISCUSSED HEREIN ARE COMPLEX AND THEIR
RESOLUTION IS UNCERTAIN, INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISERS TO
DETERMINE THE FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP, AND DISPOSITION OF THE CERTIFICATES.
TAX STATUS OF THE TRUST
In the opinion of Brobeck, Phleger and Harrison, special tax counsel to the
Seller, the Trust will be classified as a grantor trust and not as an
association taxable as a corporation for Federal income tax purposes.
Accordingly, subject to the discussion below, each Certificate Owner will be
subject to Federal income taxation as if it owned directly its interest in each
asset owned by the Trust and paid directly its share of reasonable expenses paid
by the Trust.
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TREATMENT OF CERTIFICATE OWNERS' INTEREST IN TRUST ASSETS
Each Certificate Owner could be considered to own either (i) an undivided
interest in a single debt obligation held by the Trust and having a principal
amount equal to the total stated principal amount of the Contracts and an
interest rate equal to the Pass-Through Rate, or (ii) an interest in each of the
Contracts and any other Trust Assets. The Agreement will express the intent of
the Seller to sell, and the Certificateholders to purchase, the Contracts (other
than the Retained Strip (as defined below)) and the Seller, the
Certificateholders, and each Certificate Owner, by accepting a beneficial
interest in a Certificate, will agree to treat the Certificates as ownership
interests in the Contracts.
Treatment as Debt Obligation. If a Certificate Owner were considered to
own an undivided interest in a single debt obligation, rather than reporting its
share of the interest accrued on each Contract it would, in general, be required
to include in income interest accrued or received on the principal amount of the
Certificates at the Pass-Through Rate in accordance with its usual method of
accounting.
The Certificates would be subject to the original issue discount ("OID")
rules, generally in the manner discussed below with respect to Stripped
Contracts. However, in determining whether such OID is de minimis, the weighted
average life of the Certificates would be determined using a reasonable
assumption regarding anticipated prepayments (a "Prepayment Assumption").
Original issue discount includible in income for any accrual period (generally,
the period between payment dates) would generally be calculated using a
Prepayment Assumption and an anticipated yield established as of the date of
initial sale of the Certificates, and would increase or decrease to reflect
prepayments at a faster or slower rate than anticipated. The Certificates would
also be subject to the market discount provisions of the Code to the extent that
a Certificate Owner purchased such Certificates at a discount from the initial
issue price (as adjusted to reflect prior accruals of original issue discount).
The remainder of the discussion herein assumes that a Certificate Owner will be
treated as owning an interest in each Contract (and the proceeds thereof).
RULE OF 78'S CONTRACTS
Onyx accounted for each Contract under the Rule of 78's, and the purchase
price paid by the Certificateholders for each Contract will reflect the
principal balance of such Contract as of the Cut-Off Date based on the Rule of
78's (the "Cut-Off Date Scheduled Balance"). Because the Rule of 78's allocates
a greater portion of the early payments under a Contract to interest than the
actuarial method, the Cut-Off Date Scheduled Balance of each Contract exceeds
the amount that would have been its principal balance as of the Cut-Off Date if
each Contract had been amortized from origination under the actuarial method
(such amount, the "Cut-Off Date Actuarial Balance").
The Trustee and the Servicer intend to account for interest and principal
on the Contracts using the actuarial method, but based on the Cut-Off Date
Scheduled Balance rather than the Cut-Off Date Actuarial Balance. As described
above, the remaining payments due on a Contract are not sufficient to amortize
the Cut-Off Date Scheduled Balance of such Contract at a yield equal to its APR.
Accordingly, in order to amortize the Cut-Off Date Scheduled Balance over the
remaining term of the Contract using an actuarial method of accounting, the
Servicer will recompute the effective yield of such Contract based on the
remaining payments due and the Cut-Off Date Scheduled Balance (such yield,
stated as a per annum rate, the "Recomputed Yield") and will allocate each
payment of Monthly P&I between principal and interest on each Contract beginning
with the Cut-Off Date Scheduled Balance by applying the Recomputed Yield instead
of the APR.
The proper tax method for accounting for the Rule of 78's Contracts is
uncertain. As described above, the Servicer and the Trustee intend to report
income to the Certificateholders based on the Recomputed Actuarial Method (as
defined below) and assuming for purposes of calculating OID, that the income on
the Scheduled Balance of each Contract, at a rate equal to the Recomputed Yield
minus the Retained Strip, would be treated as "qualified stated interest." See
"-- Discount and Premium -- Original Issue Discount on Stripped Contracts."
However, prospective investors should consult their tax advisors as to whether
they may be required or permitted to use the Rule of 78's method to account for
interest on the Contracts. A Certificateholder will be furnished information for
federal income tax purposes enabling him to report interest
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on the Contracts under the Rule of 78's method of accounting only upon written
request to the Trustee, and payment of the actual costs of producing the same.
Alternatively, the IRS could take the position that a Certificate Owner that
amortizes a Contract under the Recomputed Actuarial Method (rather than under
the Rule of 78's method) has actually acquired a Contract having an actual
principal balance equal to the Cut-Off Date Actuarial Balance at a premium equal
to the difference between the Cut-Off Date Actuarial Balance and the Cut-Off
Date Scheduled Balance, and that the actuarial method must be applied from the
time of a Contract's origination using its actual APR. In that event (unless the
Certificate Owner were to make a Total Accrual Election, as described below) it
appears likely that the Certificate Owner would be required to include income at
a rate equal to the full APR of the Contract (minus the Retained Strip) on a
balance equal to the Cut-Off Date Actuarial Balance amortized based on the APR
and an actuarial method, and should be entitled to amortize the difference
between the Cut-Off Date Scheduled Balance and the Cut-Off Date Actuarial
Balance to the extent it had a valid election in effect. See "-- Discount and
Premium."
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 Certificate Owner may elect to include all income
that accrues on the Certificate using the constant yield method. If a
Certificate Owner makes this election (the "Total Accrual Election"), income on
a Certificate will be calculated as though (i) the issue price of the
Certificate were equal to the Certificate Owner's adjusted basis in the
Certificate immediately after its acquisition by the Certificate Owner; (ii) the
Certificate were issued on the Certificate Owner's acquisition date; and (iii)
none of the interest payments on the Certificate are "qualified stated interest"
payments. A Certificate Owner may make such an election for a Certificate that
has premium or market discount, respectively, only if the Certificate Owner
makes, or has previously made, an election to amortize bond premium or to
include market discount in income currently.
If a Contract is prepaid in full, any amount collected from the Obligor
pursuant to the Contract in excess of the principal balance thereof and accrued
interest thereon, computed using an actuarial method and the Recomputed Yield,
as described above (such method, the "Recomputed Actuarial Method" and such
amount, the "Recomputed Principal Balance"), will be paid to the owner of
retained yield. Such amount may be treated as additional income in the nature of
a prepayment penalty to a Certificate Owner who had reported income with respect
to the Contracts on the Recomputed Actuarial Method, and would be deductible
only to the extent described below. Alternatively, such amount might be treated
as an interest in the Contract retained by the owner of retained yield, in which
event it would not be included in a Certificate Owner's income.
Income on Contracts. For federal income tax purposes, the owner of retained
yield will be treated as having retained a portion (the "Retained Strip") of the
interest due on each Contract having a Recomputed Yield in excess of %
(each, a "Stripped Contract") equal to the difference between (x) the Recomputed
Yield of the Contract and (y) %. The Retained Strip will be treated as
"stripped coupons" within the meaning of Section 1286 of the Code, and the
Stripped Contracts will be treated as "stripped bonds." If, as described above,
the IRS were to take the position that the actuarial method must be applied
consistently from the time of origination of a Contract, the Retained Strip
would consist of a different portion of the interest that accrues at the APR on
the actuarial principal balance of a Contract for each Contract Due Period.
Each Certificate Owner will be required to report on its federal income tax
return its share of the gross income of the Trust, including interest and
certain other charges accrued on the Contracts, original issue discount and
market discount (to the extent described below), investment earnings on amounts
held pending distribution, and any gain upon collection or disposition of the
Contracts. Such income (other than any original issue discount or market
discount, as described below) would be includible in income in accordance with a
Certificate Owner's usual method of accounting. Accordingly, interest would be
includible in a Certificate Owner's gross income at the time it accrues on the
Contracts, or, in the case of Certificate Owners who are cash basis taxpayers,
when received by the Servicer on behalf of Certificate Owners. Because (i)
interest accrues on the Contracts over differing monthly periods and is paid in
arrears and (ii) interest collected on a Contract is generally paid to
Certificate Owners in the following month, the amount of interest accruing to a
Certificate Owner during any month will not equal the interest distributed in
that month.
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A Certificate Owner will be entitled to deduct, consistent with its method
of accounting, its pro rata share of reasonable servicing fees and other fees
paid or incurred by the Trust as provided in Section 162 or 212 of the Code. If
a Certificate Owner is an individual, estate or trust, the deduction for such
holder's share of such fees will be allowed only to the extent that all of such
holder's miscellaneous itemized deductions, including such holder's share of
such fees, exceed 2% of such holder's adjusted gross income. In addition, in the
case of Certificate Owners who are individuals, certain otherwise allowable
itemized deductions will be reduced, but not by more than 80%, by an amount
equal to 3% of such holder's adjusted gross income in excess of a statutorily
defined threshold ($117,950 in the case of a married couple filing jointly for
the taxable year beginning in 1996 and adjusted for inflation each year
thereafter). The Servicer will not report to Certificate Owners the amount of
income or deductions attributable to interest earned on collections and certain
other amounts (which are includible in gross income, but the deductions of which
are subject to the foregoing limitations) and, accordingly, such a holder will
not have sufficient information from the report itself to accurately reflect the
holder's net taxable income.
For administrative convenience, the Servicer intends to report the total
amount of income with respect to the Certificates on an aggregate basis (as
though all of the Contracts were a single obligation), rather than on an
asset-by-asset basis. The amount and, in some instances, character, of the
income reported to a Certificate Owner may differ under this method for a
particular period from that which would be reported if income were reported on a
precise asset-by-asset basis. Accordingly, the IRS could require that a
Certificate Owner calculate its income either (i) on an asset-by-asset basis,
accounting separately for each Contract, or (ii) aggregating all Stripped
Contracts under the aggregation rule described below and accounting for the
remaining Contracts on an asset-by-asset basis. See "-- Discount and
Premium -- Original Issue Discount on Stripped Contracts." In computing its
income on an asset-by-asset basis, a Certificate Owner would allocate its tax
basis among the Contracts in proportion to their fair market values. Because the
Recomputed Yields of the Contracts vary widely, the allocation of basis and
computation of income on an asset-by-asset basis could have a more significant
effect on the income of a Certificate Owner than it would if the Contracts had
more uniform characteristics.
The remainder of the disclosure generally describes the Code provisions
governing reporting of income on the Contracts on a separate asset basis.
DISCOUNT AND PREMIUM
In determining whether a Certificate Owner has purchased its interest in
the Contracts (or any Contract) at a discount and whether such Contracts (or any
Contract) have OID, a portion of the purchase price of a Certificate should be
allocated to the Certificate Owner's undivided interest in accrued but unpaid
interest and amounts collected at the time of purchase but not distributed. As a
result, the portion of the purchase price allocable to a Certificate Owner's
undivided interest in the Contracts (or any Contract) (the "Purchase Price")
will be decreased and the potential OID on the Contracts (or any Contract) could
be increased.
Original Issue Discount on Stripped Contracts. Because the Stripped
Contracts represent stripped bonds, they will be subject to the OID rules of the
Code. Under Treasury Regulations issued under Section 1286 of the Code (the
"Section 1286 Regulations"), it appears that, in general, the portion of the
interest on each Contract payable to the Certificate Owners may be treated as
"qualified stated interest." As a result, the amount of OID on a Contract (or
Contracts) will equal the amount, if any, by which the Purchase Price is less
than the portion of the remaining principal balance of the Contract (or
Contracts) allocable to the interest acquired. However, if the IRS were to take
the position that the actuarial method must be applied consistently from the
time of origination of a Contract at a rate equal to the Contract's APR (such
method, the "Origination Actuarial Method"), then a Certificate Owner would be
deemed to receive interest at a different rate for each Collection Period and
the remainder of the interest deemed to accrue at the Contract's APR on the
actuarial principal balance would be included in the Retained Strip. As a
result, it appears that none of the interest on the Stripped Contracts would be
"qualified stated interest." In that event, the entire yield deemed to accrue to
a Certificate Owner would be includible in income as OID, based on a yield which
should generally equal a rate equal to %.
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The Trustee will calculate OID, if any, on all of the Contracts (including
Stripped Contracts) on an aggregate basis and without the use of a prepayment
assumption. Regulations issued under the OID provisions of the Code (the "OID
Regulations") suggest that all payments on the Stripped Contracts allocable to
the Certificates may be aggregated in determining whether the Stripped Contracts
will be treated as having OID. Separate accounting for the Stripped Contracts
and the Contracts that are not stripped would reduce the possibility that the
Stripped Contracts would be treated as issued with OID; however, as discussed
below, any Contracts having a Recomputed Yield equal to % would be treated
as having imputed interest, market discount, or both. In addition, it is not
clear whether use of a prepayment assumption is required in computing OID. If
the IRS were to require that OID be computed on a Contract-by-Contract basis, or
that a prepayment assumption be used, the character and timing of a Certificate
Owner's income could be adversely affected. Because under the stripped bond
rules each sale of a Certificate results in a recalculation of OID, a
Certificate Owner technically will not be subject to the market discount
provisions of the Code with respect to Stripped Contracts.
The tax treatment of a Stripped Contract (or the Stripped Contracts in the
aggregate) will depend upon whether the amount of OID on the Contract or
Contracts is less than a statutorily defined de minimis amount. In general,
under the Section 1286 Regulations the amount of OID on a Stripped Contract will
be de minimis if it is less than 1/4 of one percent for each full year of
weighted average maturity remaining after the purchase date until the maturity
of the Contract (although it is not clear whether expected prepayments are taken
into account). If the amount of OID is de minimis under this rule, a Stripped
Contract (or Stripped Contracts) would not be treated as having OID. The actual
amount of discount on a Stripped Contract would be includible in income as
principal payments are received on the Contract, in the proportion that each
principal payment bears to the total principal amount of the Contract. If the
IRS were to require the use of the Origination Actuarial Method, the OID on a
Contract would not be de minimis.
If the OID on a Contract (or Contracts) is not treated as being de minimis,
a Certificate Owner will be required to include in income any OID as it accrues
on a daily basis, regardless of when cash payments are received, using a method
reflecting a constant yield to maturity on the Contract (or Contracts). Accrued
OID would increase a Certificate Owner's tax basis in the Certificate (and the
applicable Contracts). Distributions of principal and other items attributable
to accrued OID (other than payments of interest on the Contracts at %)
would reduce a Certificate Owner's tax basis. Application of the OID rules,
particularly if a prepayment assumption is required and the Contracts are not
aggregated, would be complex and could significantly affect the timing of
inclusion of income on a Certificate.
The Trustee intends to account for OID, if any, reportable by holders of
Certificates by reference to the price paid for a Certificate by an initial
purchaser, although the amount of OID will differ for subsequent purchasers.
Such subsequent purchasers should consult their tax advisers regarding the
proper calculation of OID on the interest in Contracts represented by a
Certificate.
Premium. In the event that a Contract is treated as purchased at a premium
(i.e., its Purchase Price exceeds the portion of the remaining principal balance
of such Contract allocable to the Certificate Owner), such premium will be
amortizable by the Certificate Owner as an offset to interest income (with a
corresponding reduction in the Certificate Owner's basis) under a constant
yield-to-maturity method over the term of the Contract if an election under
Section 171 of the Code is made with respect to the interests in the Contracts
represented by the Certificates or was previously in effect. Any such election
will also apply to all debt instruments held by the Certificate Owner during the
year in which the election is made and all debt instruments acquired thereafter.
SALE OF A CERTIFICATE
If a Certificate is sold, gain or loss will be recognized equal to the
difference between the amount realized on the sale and the Certificate Owner's
adjusted basis in the Contracts and any other assets held by the Trust. A
Certificate Owner's adjusted basis will equal the Certificate Owner's cost for
the Certificate, increased by any discount previously included in income, and
decreased by any deduction previously allowed for accrued premium and by the
amount of principal payments previously received on the Contracts. Any gain or
loss not
38
<PAGE> 41
attributable to accrued interest or accrued market discount will be capital gain
or loss if the Certificate was held as a capital asset.
FOREIGN CERTIFICATE OWNER
Interest attributable to Contracts which is payable to a foreign
Certificate Owner that is not engaged in a trade or business in the United
States will generally not be subject to the 30% withholding tax generally
imposed with respect to such payments, provided that such Certificate Owner
fulfills certain certification requirements. Under such certification
requirements, the Certificate Owner must certify, under penalties of perjury,
that it is not a "United States person" and it is the beneficial owner of the
Certificates, and must provide its name and address. For this purpose, "United
States person" means a citizen or resident of the United States, a corporation,
partnership, or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, or an estate or trust the
income of which is includible in gross income for United States Federal income
tax purposes, regardless of its source.
BACKUP WITHHOLDING
Payments made on the Certificates and proceeds from the sale of
Certificates will not be subject to a "backup" withholding tax of 31% unless, in
general, the Certificate Owner fails to comply with certain reporting procedures
and is not an exempt recipient under applicable provisions of the Code.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain restrictions on employee benefit plans ("Plans") subject to
ERISA and persons who have certain specified relationship to such Plans
("Parties in Interest"). ERISA also imposes certain duties on persons who are
fiduciaries of Plans subject to ERISA and prohibits certain transactions between
a Plan and Parties in Interest with respect to such Plans. Under ERISA, any
person who exercises any authority or control respecting the management or
disposition of the assets of a Plan is considered to be a fiduciary of such Plan
(subject to certain exceptions not here relevant.)
The Department of Labor ("DOL") has issued a final regulation (29 C.F.R.
Section 2510.3-101) concerning the definition of what constitutes the assets of
a Plan (the "Plan Asset Regulation"). This regulation provides that, as a
general rule, the underlying assets and properties of corporations,
partnerships, grantor trusts and certain other entities in which a Plan (which
is subject to ERISA) makes an "equity" investment will be deemed for purposes of
ERISA to be assets of the investing Plan unless certain exceptions apply. The
Plan Asset Regulation contains certain exceptions to this general rule.
Accordingly, if a Plan purchases the Certificates, the Trust could be deemed to
hold plan assets unless one of the exceptions under the Plan Assets Regulation
is applicable to the Trust.
Under the terms of the Plan Asset Regulation, if the Trust were deemed to
hold Plan assets by reason of a Plan's investment in a Certificate, such Plan
assets would include an undivided interest in the Trust and Contracts underlying
the Trust and any other assets held by the Trust. In such an event, the persons
providing services with respect to the assets of the Trust, including the
Contracts, may be subject to the fiduciary responsibility provisions of Title I
of ERISA. In addition, those persons and certain other persons, including
Obligors on the receivables held in the Trust, may be subject to the prohibited
transaction provisions of ERISA and Section 4975 of the Code with respect to
certain transactions involving such assets or the Certificates unless such
transactions are subject to a statutory, regulatory or administrative exemption.
The DOL has granted to Merrill Lynch, Pierce, Fenner & Smith Incorporated
an administrative exemption (Prohibited Transaction Exemption 90-29 (the
"Exemption") from certain of the prohibited transaction rules of ERISA with
respect to the initial purchase, the holding and the subsequent resale by Plans
of certificates representing interests in asset backed pass-through trusts that
consist of certain receivables, loans and other obligations that meet the
conditions and requirements of the Exemption. The receivables covered by the
Exemption include motor vehicle installment loans such as the Contracts. The
Exemption will apply to the acquisition, holding and resale of the Certificates
by a Plan (purchased from the Underwriter), provided that (i) the Plan is not
sponsored by a Person providing services to the Trust or by an Obligor with
respect to 5% or more of the principal balance of the receivables underlying the
Trust and (ii) certain conditions (certain of which are described below) are
met.
39
<PAGE> 42
Among the conditions which must be satisfied for the Exemption to apply are
the following:
(1) The acquisition of the Certificates by a Plan is on terms
(including the price for the Certificates) that are at least as favorable
to the Plan as they would be in an arm's-length transaction with an
unrelated party;
(2) The rights and interests evidenced by the Certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by
other certificates of the Trust;
(3) The Certificates acquired by the Plan have received a rating at
the time of such acquisition that is in one of the three highest generic
rating categories from either Standard & Poor's, Moody's, Duff & Phelps
Inc. or Fitch Investors Service, Inc.;
(4) The sum of all payments made to the Underwriter in connection with
the distribution of the Certificates represents not more than reasonable
compensation for underwriting the Certificates; the sum of all payments
made to and retained by the Seller pursuant to the sale of the Contracts to
the Trust represents not more than the fair market value of such Contracts;
the sum of all payments made to and retained by the Servicer represents not
more than reasonable compensation for the Servicer's services under the
Agreement and reimbursement of the Servicer's reasonable expenses in
connection therewith;
(5) The Trustee must not be an affiliate of any other member of the
Restricted Group (as defined below); and
(6) The Plan investing in the Certificates is an "accredited investor"
as defined in Rule 501(a)(1) of the Regulation D of the Securities and
Exchange Commission under the Securities Act of 1933.
Moreover, the Exemption provides relief from certain self-dealing/conflict
of interest prohibited transactions that may occur when the Plan fiduciary
causes a Plan to acquire certificates in a trust in which the fiduciary (or his
affiliate) is an Obligor on the receivables held in the trust provided that,
among other requirements: (i) in the case of an acquisition in connection with
the initial issuance of Certificates, at least 50% of each class of Certificates
in which Plans have invested is acquired by persons independent of the
Restricted Group and at least 50% of the aggregate interest in the trust is
acquired by persons independent of the Restricted Group; (ii) such fiduciary (or
its affiliate) is an Obligor with respect to 5% or less of the fair market value
of the obligations contained in the trust; (iii) the Plan's investment in
Certificates does not exceed 25% of all of the Certificates outstanding at the
time of the acquisition; and (iv) immediately after the acquisition, no more
than 25% of the assets of the Plan are invested in certificates representing an
interest in one or more trusts containing assets sold or serviced by the same
entity. The Exemption does not apply to Plans sponsored by the Seller, the
Underwriter, the Trustee, the Servicer, any Obligor with respect to Contracts
included in the Trust constituting more than 5% of the aggregate unamortized
principal balance of the assets in the Trust, or any affiliate of such parties
(the "Restricted Group").
As of the date hereof, no Obligor with respect to Contracts included in the
Trust constitutes more than 5% of the aggregate unamortized principal balance of
the assets of the Trust.
Other administrative exemptions that may be available with respect to
certain transactions include Prohibited Transaction Class Exemption ("PTE")
75-1, which exempts certain transactions involving employee benefit plans and
certain broker-dealers, reporting dealers and banks; PTE 91-38 (formerly PTE
80-51) which exempts certain transactions between bank collective investment
funds and parties in interest; PTE 90-1 (formerly PTE 78-19), which exempts
certain transactions with insurance company pooled separate accounts; or PTE
84-14, which exempts certain transactions effected on behalf of a plan by a
"qualified professional asset manager."
Any Plan fiduciary considering the purchase of Certificates should consult
with its counsel with respect to the applicability of the exemptions described
above and other issues and determine on its own whether all conditions have been
satisfied and whether the Certificates are an appropriate investment for a Plan
under ERISA and the Code.
40
<PAGE> 43
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
dated , 1996 (the "Underwriting Agreement") between the Seller and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, (the "Underwriter"), the
Seller has agreed to sell to the Underwriter, and the Underwriter has agreed to
purchase, the principal amount of the Certificates.
The Seller has been advised by the Underwriter that it proposes initially
to offer the Certificates to the public at the public offering price set forth
on the cover page of this prospectus and to certain dealers at such price less a
concession not in excess of % of the principal amount thereof. The
Underwriter may allow, and such dealers may reallow, a discount not in excess of
% of the principal amount of the Certificates on sales to certain other
dealers. After the initial public offering, the public offering price of the
Certificates and such concession and discount may be changed. The Underwriter is
obligated to purchase and pay for all of the Certificates if any Certificates
are purchased. The Underwriter currently intends, but is not obligated, to make
a market in the Certificates.
The Seller and Onyx have agreed to indemnify the Underwriter against
certain liabilities, including liabilities under applicable securities laws, or
contribute to payments the Underwriter may be required to make in respect
thereof.
LEGAL MATTERS
Certain matters with respect to the legality of the Certificates and with
respect to the federal income tax matters discussed under "Certain Tax
Consequences" will be passed upon for the Seller by Brobeck, Phleger & Harrison
LLP, Newport Beach, California. As of March 31, 1996, members of Brobeck,
Phleger & Harrison beneficially owned 40,899 shares of Onyx's Common Stock.
Bruce R. Hallett, a member of Brobeck, Phleger & Harrison LLP, is Corporate
Secretary and a director of Onyx. Certain legal matters with respect to the
Certificates will be passed upon for the Underwriter by Skadden, Arps, Slate,
Meagher & Flom, New York, New York. Certain legal matters relating to the Surety
Bond will be passed upon for the Insurer by Shaw, Pittman, Potts & Trowbridge,
New York, New York.
EXPERTS
The financial statements of Capital Markets Assurance Corporation as of
December 31, 1995 and 1994 and for each of the years in the three-year period
ended December 31, 1995 are included herein and have been audited by KPMG Peat
Marwick LLP, independent certified public accountants, as set forth in their
report thereon and are included in reliance upon such report given upon
authority of such firm as experts in accounting and auditing.
The report of KPMG Peat Marwick LLP covering the financial statements
referred to above contains an explanatory paragraph with regard to Capital
Markets Assurance Corporation's adoption at December 31, 1993 of Financial
Accounting Standard Board's Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
41
<PAGE> 44
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<S> <C>
Aggregate Scheduled Balance........................................................... 5
Aggregate Scheduled Balance Decline................................................... 4
Agreement............................................................................. 3
APR................................................................................... 15
Auto Finance Centers.................................................................. 11
Back-up Servicer...................................................................... 28
Blanket Insurance Policy.............................................................. 12
Business Day.......................................................................... 4
Cede.................................................................................. 7
Certificate Owner..................................................................... 7
Certificates.......................................................................... 1
Closing Date.......................................................................... 5
Code.................................................................................. 34
Collection Period..................................................................... 4
Collection Account.................................................................... 24
Commission............................................................................ 2
Contracts............................................................................. 1
Cut-Off Date.......................................................................... 1
Cut-Off Date Actuarial Balance........................................................ 35
Cut-Off Date Scheduled Balance........................................................ 15
Dealers............................................................................... 6
Defaulted Contract.................................................................... 5
Definitive Certificates............................................................... 22
Distribution Date..................................................................... 1
Distribution Date Statement........................................................... 26
DOL................................................................................... 39
DTC................................................................................... 1
Due Date.............................................................................. 12
Eligibility Requirements.............................................................. 15
ERISA................................................................................. 7
Final Distribution Date............................................................... 1
Financed Vehicles..................................................................... 1
Full Prepayment....................................................................... 1
Holders............................................................................... 22
Holdings.............................................................................. 27
Indirect Participants................................................................. 21
Insolvency Laws....................................................................... 8
Insurance Agreement................................................................... 5
Insurer............................................................................... 1
Interest Distribution................................................................. 1
IRS................................................................................... 34
Liquidated Contract................................................................... 5
Liquidation Expenses.................................................................. 25
Liquidation Proceeds.................................................................. 25
Liquidity Facility.................................................................... F-16
Monthly P&I........................................................................... 5
Moody's............................................................................... 24
Motor Vehicle Contracts............................................................... 11
Net Insurance Proceeds................................................................ 25
Net Liquidation Proceeds.............................................................. 25
</TABLE>
42
<PAGE> 45
<TABLE>
<S> <C>
Obligor............................................................................... 9
OCS................................................................................... 12
OID................................................................................... 35
OID Regulations....................................................................... 38
Onyx.................................................................................. 1
Origination Actuarial Method.......................................................... 37
Participants.......................................................................... 20
Parties in Interest................................................................... 39
Pass-Through Rate..................................................................... 4
Payaheads............................................................................. 6
Payahead Account...................................................................... 24
Paying Agent.......................................................................... 21
Plans................................................................................. 39
Plan Asset Regulation................................................................. 39
Pool Balance.......................................................................... 4
Pool Factor........................................................................... 17
Prepayment Assumption................................................................. 35
Principal Distribution................................................................ 1
Purchase Agreement.................................................................... 18
Purchase Price........................................................................ 37
Rating................................................................................ 7
Recomputed Actuarial Method........................................................... 15
Recomputed Principal Balance.......................................................... 36
Recomputed Yield...................................................................... 15
Record Date........................................................................... 20
Rees-Levering Act..................................................................... 33
Repurchase Amount..................................................................... 13
Retained Strip........................................................................ 36
Scheduled Balance..................................................................... 5
Section 1286 Regulations.............................................................. 37
Seller................................................................................ 1
Servicer.............................................................................. 1
Servicer Report Date.................................................................. 6
Servicing Fee......................................................................... 5
Servicing Fee Rate.................................................................... 5
Standard & Poor's..................................................................... 24
Stripped Contract..................................................................... 36
Surety Bond........................................................................... 1
Total Accrual Election................................................................ 36
Trust................................................................................. 1
Trust Property........................................................................ 3
Trustee............................................................................... 3
UCC................................................................................... 8
Underwriter........................................................................... 41
Underwriting Agreement................................................................ 41
United States Person.................................................................. 39
</TABLE>
43
<PAGE> 46
(This page intentionally left blank)
<PAGE> 47
CAPITAL MARKETS ASSURANCE CORPORATION
FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-1
<PAGE> 48
KPMG PEAT MARWICK LLP
345 PARK AVENUE
NEW YORK, NY 10154
INDEPENDENT AUDITORS' REPORT
The Board of Directors
CAPITAL MARKETS ASSURANCE CORPORATION:
We have audited the accompanying balance sheets of Capital Markets
Assurance Corporation as of December 31, 1995 and 1994 and the related
statements of income, stockholder's equity and cash flows for each of the years
in the three-year period ended December 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Capital Markets Assurance
Corporation as of December 31, 1995 and 1994 and the results of its operations
and its cash flows for each of the years in the three-year period ended December
31, 1995 in conformity with generally accepted accounting principles.
As discussed in note 2, the Company changed its method of accounting for
investments to adopt the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," at December 13, 1993.
/s/ KPMG PEAT MARWICK LLP
January 25, 1996
F-2
<PAGE> 49
CAPITAL MARKETS ASSURANCE CORPORATION
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
INVESTMENTS:
Bonds at fair value (amortized cost $210,651 at December 31, 1995
and $178,882 at December 31, 1994)............................... $215,706 172,016
Short-term investments (at amortized cost which approximates fair
value)........................................................... 68,646 2,083
Mutual funds at fair value (cost $16,434 at December 31, 1994)..... -- 14,969
------------ ------------
Total investments............................................. 284,352 189,068
------------ ------------
Cash............................................................... 344 85
Accrued investment income.......................................... 3,136 2,746
Deferred acquisition costs......................................... 35,162 24,860
Premiums receivables............................................... 3,540 3,379
Prepaid reinsurance................................................ 13,171 5,551
Other assets....................................................... 3,428 3,754
------------ ------------
Total assets.................................................. $343,133 229,443
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Unearned premiums.................................................. $ 45,767 25,905
Reserve for losses and loss adjustment expenses.................... 6,548 5,191
Ceded reinsurance.................................................. 2,469 1,497
Accounts payable and other accrued expenses........................ 10,844 10,372
Current income taxes............................................... 136 --
Deferred income taxes.............................................. 11,303 3,599
------------ ------------
Total liabilities............................................. 77,067 46,564
------------ ------------
STOCKHOLDER'S EQUITY:
Common stock....................................................... 15,000 15,000
Additional paid-in capital......................................... 205,808 146,808
Unrealized appreciation (depreciation) on investments, net of
tax.............................................................. 3,286 (5,499)
Retained earnings.................................................. 41,972 26,570
------------ ------------
Total stockholder's equity.................................... 266,066 182,879
------------ ------------
Total liabilities and stockholder's equity.................... $343,133 229,443
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 50
CAPITAL MARKETS ASSURANCE CORPORATION
STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Direct premiums written............................. $ 56,541 43,598 24,491
Assumed premiums written............................ 935 1,064 403
Ceded premiums written.............................. (15,992) (11,069) (3,586)
------------ ------------ ------------
Net premiums written.............................. 41,484 33,593 21,308
Increase in unearned premiums....................... (12,242) (10,490) (3,825)
------------ ------------ ------------
Net premiums earned............................... 29,242 23,103 17,483
Net investment income............................... 11,953 10,072 10,010
Net realized capital gains.......................... 1,301 92 1,544
Other income........................................ 2,273 120 354
------------ ------------ ------------
Total revenues................................. 44,769 33,387 29,391
------------ ------------ ------------
EXPENSES:
Losses and loss adjustment expenses................. 3,141 1,429 902
Underwriting and operating expenses................. 13,808 11,833 11,470
Policy acquisition costs............................ 7,203 4,529 2,663
------------ ------------ ------------
Total expenses................................. 24,152 17,791 15,035
------------ ------------ ------------
Income before income taxes........................ 20,617 15,596 14,356
------------ ------------ ------------
INCOME TAXES:
Current income tax.................................. 2,113 865 1,002
Deferred income tax................................. 3,102 2,843 2,724
------------ ------------ ------------
Total income taxes............................. 5,215 3,708 3,726
------------ ------------ ------------
NET INCOME.......................................... $ 15,402 11,888 10,630
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 51
CAPITAL MARKETS ASSURANCE CORPORATION
STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
COMMON STOCK:
Balance at beginning of period...................... $ 15,000 15,000 15,000
------------ ------------ ------------
Balance at end of period.......................... 15,000 15,000 15,000
------------ ------------ ------------
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of period...................... 146,808 146,808 146,808
Paid-in capital..................................... 59,000 -- --
------------ ------------ ------------
Balance at end of period.......................... 205,808 146,808 146,808
------------ ------------ ------------
UNREALIZED (DEPRECIATION) APPRECIATION ON
INVESTMENTS, NET OF TAX:
Balance at beginning of period...................... (5,499) 3,600 --
Unrealized appreciation (depreciation) on
investments....................................... 8,785 (9,099) 3,600
------------ ------------ ------------
Balance at end of period.......................... 3,286 (5,499) 3,600
------------ ------------ ------------
RETAINED EARNINGS:
Balance at beginning of period...................... 26,570 14,682 4,052
Net income.......................................... 15,402 11,888 10,630
------------ ------------ ------------
Balance at end of period.......................... 41,972 26,570 14,682
------------ ------------ ------------
Total stockholder's equity..................... $266,066 182,879 180,090
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 52
CAPITAL MARKETS ASSURANCE CORPORATION
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 15,402 11,888 10.630
------------ ------------ ------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED (USED) BY OPERATING ACTIVITIES:
Reserve for losses and loss adjustment expenses... 1,357 1,429 902
Unearned premiums................................. 19,862 15,843 4,024
Deferred acquisition costs........................ (10,302) (9,611) (9,815)
Premiums receivable............................... (161) (2,103) (432)
Accrued investment income......................... (390) (848) (110)
Income taxes payable.............................. 3,621 2,611 2,872
Net realized capital gains........................ (1,301) (92) (1,544)
Accounts payable and other accrued expenses....... 472 3,726 1,079
Prepaid reinsurance............................... (7,620) (5,352) (199)
Other, net........................................ 992 689 1,201
------------ ------------ ------------
Total adjustments.............................. 6,530 6,292 (2,022)
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES......... 21,932 18,180 8,608
------------ ------------ ------------
Cash flows from investing activities:
Purchases of investments............................ (158,830) (77,980) (139,061)
Proceeds from sales of investments.................. 49,354 39,967 24,395
Proceeds from maturities of investments............. 28,803 19,665 106,042
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES............. (80,673) (18,348) (8,624)
------------ ------------ ------------
Cash flows from financing activities:
Capital contribution................................ 59,000 -- --
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES......... 59,000 -- --
------------ ------------ ------------
Net increase (decrease) in cash..................... 259 (168) (16)
Cash balance at beginning of period................. 85 253 269
------------ ------------ ------------
CASH BALANCE AT END OF PERIOD..................... $ 344 85 253
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid................................... $ 1,450 1,063 833
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 53
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1) BACKGROUND
Capital Markets Assurance Corporation ("CapMAC" or "the Company") is a New
York-domiciled monoline stock insurance company which engages only in the
business of financial guaranty and surety insurance. CapMAC is a wholly-owned
subsidiary of CapMAC Holdings Inc. ("Holdings"). CapMAC is licensed in all 50
states in addition to the District of Columbia, the Commonwealth of Puerto Rico
and the territory of Guam. CapMAC insures structured asset-backed, corporate,
municipal and other financial obligations in the U.S. and international capital
markets. CapMAC also provides financial guaranty reinsurance for structured
asset-backed, corporate, municipal and other financial obligations written by
other major insurance companies.
CapMAC's claims-paying ability is rated "Aaa" by Moody's Investors Service,
Inc. ("Moody's"), "AAA" by S&P Ratings Group ("S&P"), "AAA" by Duff & Phelps
Credit Rating Co. ("Duff & Phelps"), and "AAA" by Nippon Investors Service,
Inc., a Japanese rating agency. Such ratings reflect only the views of the
respective rating agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time by such rating
agencies.
2) SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies used in the preparation of the accompanying
financial statements are as follows:
A) BASIS OF PRESENTATION
The accompanying financial statements are prepared on the basis of
generally accepted accounting principles ("GAAP"). Such accounting
principles differ from statutory reporting practices used by insurance
companies in reporting to state regulatory authorities.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Management believes the most
significant estimates relate to deferred acquisition costs, reserve for
losses and loss adjustment expenses and disclosures of financial
guarantees outstanding. Actual results could differ from those
estimates.
B) INVESTMENTS
At December 31, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Under SFAS No. 115, the
Company can classify its debt and marketable equity securities in one of
three categories: trading, available-for-sale, or held-to-maturity.
Trading securities are bought and held principally for the purpose of
selling them in the near term. Held-to-maturity securities are those
securities in which the Company has the ability and intent to hold the
securities until maturity. All other securities not included in trading
or held-to-maturity are classified as available-for-sale. As of December
31, 1995 and 1994, all of the Company's securities have been classified
as available-for-sale.
Available-for-sale securities are recorded at fair value. Fair value is
based upon quoted market prices. Unrealized holding gains and losses,
net of the related tax effect, on available-for-sale securities are
excluded from earnings and are reported as a separate component of
stockholder's
F-7
<PAGE> 54
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
equity until realized. Transfers of securities between categories are recorded
at fair value at the date of transfer.
A decline in the fair value of any available-for-sale security below
cost that is deemed other than temporary is charged to earnings
resulting in the establishment of a new cost basis for the security.
Short-term investments are those investments having a maturity of less
than one year at purchase date. Short-term investments are carried at
amortized cost which approximates fair value.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to yield using the effective interest
method. Dividend and interest income are recognized when earned.
Realized gains and losses are included in earnings and are derived using
the FIFO (first-in, first-out) method for determining the cost of
securities sold.
C) REVENUE RECOGNITION
Premiums which are payable monthly to CapMAC are reflected in income
when due, net of amounts payable to reinsurers. Premiums which are
payable quarterly, semi-annually or annually are reflected in income,
net of amounts payable to reinsurers, on an equal monthly basis over the
corresponding policy term. Premiums that are collected as a single
premium at the inception of the policy and have a term longer than one
year are earned, net of amounts payable to reinsurers, by allocating
premium to each bond maturity based on the principal amount and earning
it straight-line over the term of each bond maturity. For the year ended
December 31, 1995, 91% of net premiums earned were attributable to
premiums payable in installments and 9% were attributable to premiums
collected on an upfront basis.
D) DEFERRED ACQUISITION COSTS
Certain costs incurred by CapMAC, which vary with and are primarily
related to the production of new business, are deferred. These costs
include direct and indirect expenses related to underwriting, marketing
and policy issuance, rating agency fees and premium taxes. The deferred
acquisition costs are amortized over the period in proportion to the
related premium earnings. The actual amount of premium earnings may
differ from projections due to various factors such as renewal or early
termination of insurance contracts or different run-off patterns of
exposure resulting in a corresponding change in the amortization pattern
of the deferred acquisition costs.
E) RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
The reserve for losses and loss adjustment expenses consists of a
Supplemental Loss Reserve ("SLR") and a case basis loss reserve. The SLR
is established based on expected levels of defaults resulting from
credit failures on currently insured issues. This SLR is based on
estimates of the portion of earned premiums required to cover those
claims.
A case basis loss reserve is established for insured obligations when,
in the judgement of management, a default in the timely payment of debt
service is imminent. For defaults considered temporary, a case basis
loss reserve is established in an amount equal to the present value of
the anticipated defaulted debt service payments over the expected period
of default. If the default is judged not to be temporary, the present
value of all remaining defaulted debt service payments is recorded as a
case basis loss reserve. Anticipated salvage recoveries are considered
in establishing case basis loss reserves when such amounts are
reasonably estimable.
Management believes that the current level of reserves is adequate to
cover the estimated liability for claims and the related adjustment
expenses with respect to financial guaranties issued by
F-8
<PAGE> 55
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CapMAC. The establishment of the appropriate level of loss reserves is an
inherently uncertain process involving numerous estimates and subjective
judgments by management, and therefore there can be no assurance that losses in
CapMAC's insured portfolio will not exceed the loss reserves.
F) DEPRECIATION
Leasehold improvements, furniture and fixtures are being depreciated
over the lease term or useful life, whichever is shorter, using the
straight-line method.
G) INCOME TAXES
Deferred income taxes are provided with respect to temporary differences
between the financial statement and tax basis of assets and liabilities
using enacted tax rates in effect for the year in which the differences
are expected to reverse.
H) RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to the
current year presentation.
3) INSURED PORTFOLIO
At December 31, 1995 and 1994, the principal amount of financial
obligations insured by CapMAC was $16.9 billion and $11.6 billion, respectively,
and net of reinsurance (net principal outstanding), was $12.6 billion and $9.4
billion, respectively, with a weighted average life of 6.0 years and 5.0 years,
respectively. CapMAC's insured portfolio was broadly diversified by geographic
distribution and type of insured obligations, with no single insured obligation
in excess of statutory single risk limits, after giving effect to any
reinsurance and collateral, which are a function of CapMAC's statutory qualified
capital (the sum of statutory capital and surplus and mandatory contingency
reserve). At December 31, 1995 and 1994, the statutory qualified capital was
approximately $240 million and $170 million, respectively.
<TABLE>
<CAPTION>
NET PRINCIPAL OUTSTANDING
--------------------------------------
DECEMBER 31,
DECEMBER 31, 1995 1994
----------------- ----------------
TYPE OF OBLIGATIONS INSURED AMOUNT % AMOUNT %
- --------------------------------------------------------- ------- ----- ------ -----
($ IN MILLIONS)
<S> <C> <C> <C> <C>
Consumer receivables..................................... $ 6,959 55.1 $4,740 50.4
Trade and other corporate obligations.................... 4,912 38.9 4,039 43.0
Municipal/government obligations......................... 757 6.0 618 6.6
------- ----- ------ -----
Total............................................... $12,628 100.0 $9,397 100.0
======= ===== ====== =====
</TABLE>
At December 31, 1995, approximately 85% of CapMAC's insured portfolio was
comprised of structured asset-backed transactions. Under these structures, a
pool of assets covering at least 100% of the principal amount guaranteed under
its insurance contract is sold or pledged to a special purpose bankruptcy remote
entity. CapMAC's primary risk from such insurance contracts is the impairment of
cash flows due to delinquency or loss on the underlying assets. CapMAC,
therefore, evaluates all the factors affecting past and future asset performance
by studying historical data on losses, delinquencies and recoveries of the
underlying assets. Each transaction is reviewed to ensure that an appropriate
legal structure is used to protect against the bankruptcy risk of the originator
of the assets. Along with the legal structure, an additional level of first loss
protection is also created to protect against losses due to credit or dilution.
This first level of loss protecting is usually available from reserve funds,
excess cash flows, overcollateralization, or recourse to a third party. The
F-9
<PAGE> 56
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
level of first loss protection depends upon the historical losses and dilution
of the underlying assets, but is typically several times the normal historical
loss experience for the underlying type of assets.
During 1995, the Company sold without recourse its interest in potential
cash flows from transactions included in its insured portfolio and recognized
$2,200,000 of income which has been included in other income in the accompanying
financial statements.
The following entities each accounted for, through referrals and otherwise,
10% or more of total revenues for each of the periods presented:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1994 YEAR ENDED DECEMBER 31, 1993
- ------------------------------- ------------------------------- -------------------------------
% OF % OF % OF
NAME REVENUES NAME REVENUES NAME REVENUES
- --------------------- -------- --------------------- -------- --------------------- --------
<S> <C> <C> <C> <C> <C>
Citicorp............. 15.2 Citicorp............. 16.3 Citicorp............. 13.7
Merrill Lynch &
Co................... 14.1
</TABLE>
4) INVESTMENTS
At December 31, 1995 and 1994, all of the Company's investments were
classified as available-for-sale securities. The amortized cost, gross
unrealized gains, gross unrealized losses and estimated fair value for
available-for-sale securities by major security type at December 31, 1995 and
1994 were as follows ($ in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
SECURITIES AVAILABLE-FOR-SALE COST GAINS LOSSES VALUE
- -------------------------------------------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury obligations......................... $ 4,153 55 -- 4,208
Mortgage-backed securities of U.S. government
instrumentalities and agencies.................. 100,628 313 79 100,862
Obligations of states, municipalities and
political subdivisions.......................... 166,010 4,809 82 170,737
Corporate and asset-backed securities............. 8,506 45 6 8,545
--------- ---------- --- ---------
Total........................................ $ 279,297 5,222 167 284,352
======== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
SECURITIES AVAILABLE-FOR-SALE COST GAINS LOSSES VALUE
- -------------------------------------------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury obligations......................... $ 4,295 -- 153 4,142
Mortgage-backed securities of U.S. government
instrumentalities and agencies.................. 40,973 -- 2,986 37,987
Obligations of states, municipalities and
political subdivisions.......................... 128,856 364 3,994 125,226
Corporate and asset-backed securities............. 6,841 15 112 6,744
Mutual funds...................................... 16,434 -- 1,465 14,969
--------- --- ---------- ---------
Total........................................ $ 197,399 379 8,710 189,068
======== ======== ======== =======
</TABLE>
F-10
<PAGE> 57
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company's investment in mutual funds in 1994 represents an investment
in an open-end management investment company which invests primarily in
investment-grade fixed-income securities denominated in foreign and United
States currencies.
The amortized cost and estimated fair value of investments in debt
securities at December 31, 1995 by contractual maturity are shown below ($ in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------
AMORTIZED ESTIMATED
SECURITIES AVAILABLE-FOR-SALE COST FAIR VALUE
- --------------------------------------------------------------------- -------- ----------
<S> <C> <C>
Less than one year to maturity....................................... $ 5,569 5,572
One to five years to maturity........................................ 37,630 38,553
Five to ten years to maturity........................................ 99,567 102,264
Greater than ten years to maturity................................... 35,903 37,101
-------- ----------
Sub-total.......................................................... 178,669 183,490
Mortgage-backed securities........................................... 100,628 100,862
-------- ----------
Total........................................................... $279,297 284,352
======== ========
</TABLE>
Actual maturities may differ from contractual maturities because borrowers
may call or prepay obligations with or without call or prepayment penalties.
Proceeds from sales of investment securities were approximately $49
million, $40 million and $24 million in 1995, 1994 and 1993, respectively. Gross
realized capital gains of $1,320,000, $714,000 and $1,621,000, and gross
realized capital losses of $19,000, $622,000 and $77,000 were realized on those
sales for the years ended December 31, 1995, 1994 and 1993, respectively.
Investments include bonds having a fair value of approximately $3,985,000
and $3,873,000 (amortized cost of $3,970,000 and $4,011,000) which are on
deposit at December 31, 1995 and 1994, respectively, with state regulators as
required by law.
Investment income is comprised of interest and dividends, net of related
expenses, and is applicable to the following sources:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
$ IN THOUSANDS
<S> <C> <C> <C>
Bonds............................................... $ 11,105 9,193 7,803
Short-term investments.............................. 1,245 484 572
Mutual funds........................................ (162) 579 1,801
Investment expenses................................. (235) (184) (166)
------------ ------------ ------------
Total.......................................... $ 11,953 10,072 10,010
========== ========== ==========
</TABLE>
F-11
<PAGE> 58
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The change in unrealized appreciation (depreciation) on available-for-sale
securities is included in a separate component of stockholder's equity as shown
below:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
$ IN THOUSANDS
Balance at beginning of period................................... $ (5,499) 3,600
Change in unrealized appreciation (depreciation)................. 13,386 (13,786)
Income tax effect................................................ (4,601) 4,687
------------ ------------
Net change....................................................... 8,785 (9.099)
------------ ------------
BALANCE AT END OF PERIOD....................................... $ 3,286 (5,499)
========== ==========
</TABLE>
No single issuer, except for investments in U.S. Treasury and U.S.
government agency securities, exceeds 10% of stockholder's equity as of December
31, 1995.
5) DEFERRED ACQUISITION COSTS
The following table reflects acquisition costs deferred by CapMAC and
amortized in proportion to the related premium earnings:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
$ IN THOUSANDS
Balance at beginning of period...................... $ 24,860 15,249 5,434
Additions........................................... 17,505 14,140 12,478
Amoritization (policy acquisition costs)............ (7,203) (4,529) (2,663)
------------ ------------ ------------
BALANCE AT END OF PERIOD.......................... $ 35,162 24,860 15,249
========== ========== ==========
</TABLE>
6) EMPLOYEE BENEFITS
On June 25, 1992, CapMAC entered into a Service Agreement with CapMAC
Financial Services, Inc. "(CFS"), which was then a newly formed wholly-owned
subsidiary of Holdings. Under the Service Agreements, CFS has agreed to provide
various services, including under writing, reinsurance, data processing and
other services to CapMAC in connection with the operation of CapMAC's insurance
business. CapMAC pays CFS an arm's length fee for providing such services, but
not in excess of CFS's cost for such services. CFS incurred, on behalf of
CapMAC, total compensation expenses, excluding bonuses, of $13,484,000,
$11,081,000 and $9,789,000 in 1995, 1994 and 1993, respectively.
CFS maintains an incentive compensation plan for its employees. The plan is
an annual discretionary bonus award based upon Holdings' and an individual's
performance. CFS also has a health and welfare plan and a 401(k) plan to cover
substantially all of its employees. CapMAC reimburses CFS for all out-of-pocket
expenses incurred by CFS in providing services to CapMAC, including awards given
under the incentive compensation plan and benefits provided under the health and
welfare plan. For the years ended December 31, 1995, 1994 and 1993, the Company
had provided approximately $7,804,000, $5,253,000 and $3,528,000, respectively,
for the annual discretionary bonus plan.
One June 25, 1992, certain officers of CapMAC were granted 182,633
restricted stock units ("RSU") at $13.33 a share in respect of certain deferred
compensation. On December 7, 1995, the RSU's were converted
F-12
<PAGE> 59
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
to cash in the amount of approximately $3.7 million, and such officers agreed to
defer receipt of such cash amount in exchange for receiving the same number of
new shares of restricted stock of Holdings as the number of RSU's such officers
previously held. The cash amount will be held by Holdings and invested in
accordance with certain guidelines. Such amount, including the investment
earnings thereon, will be paid to each officer upon the occurrence of certain
events but no later than December, 2000.
7) EMPLOYEE STOCK OWNERSHIP PLAN
On June 25, 1992, Holdings adopted an Employee Stock Ownership Plan
("ESOP") to provide its employees the opportunity to obtain beneficial interests
in the stock of Holdings through a trust (the "ESOP Trust"). The ESOP Trust
purchased 750,000 shares at $13.33 per share of Holdings' stock. The ESOP Trust
financed its purchase of common stock with a loan from Holdings in the amount of
$10 million. The ESOP loan is evidenced by a promissory note delivered to
Holdings. An amount representing unearned employee compensation, equivalent in
value to the unpaid balance of the ESOP loan, is recorded as a deduction from
stockholder's equity (unallocated ESOP shares).
CFS is required to make contributions to the ESOP Trust, which enables the
ESOP Trust to service its loan to Holdings. The ESOP expense is calculated using
the shares allocated method. Shares are released for allocation to the
participants and held in trust for the employees based upon the ratio of the
current year's principal and interest payment to the sum of principal and
interest payments estimated over the life of the loan. As of December 31, 1995
approximately 262,800 shares were allocated to the participants. Compensation
expense related to the ESOP was approximately $2,087,000, $2,086,000 and
$1,652,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
8) RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
The reserve for losses and loss adjustment expenses consists of a case
basis loss reserve and the SLR.
In 1995 CapMAC incurred its first claim on a financial guaranty policy.
Based on its current estimate, the Company expects the aggregate amount of
claims and related expenses not to exceed $2.7 million, although no assurance
can be given that such claims and related expenses will not exceed that amount.
Such loss amount was covered through a recovery under a quota share reinsurance
agreement of $0.2 million and a reduction in the SLR of $2.5 million. The
portion of such claims and expenses not covered under the quota share agreement
is being funded through payments to CapMAC from the Lureco Trust Account (see
note 12).
F-13
<PAGE> 60
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of the activity in the case basis loss reserve
account and the components of the liability for losses and loss adjustment
expenses ($ in thousands):
<TABLE>
<S> <C>
CASE BASIS LOSS RESERVE
Net balance at January 1, 1995.................................................... $ --
------
INCURRED RELATED TO:
Current year.................................................................... 2,473
Prior years..................................................................... --
------
Total incurred............................................................... 2,473
------
PAID INCURRED TO:
Current year.................................................................... 1,853
Prior years..................................................................... --
------
Total paid................................................................... 1,853
------
Balance at December 31, 1995...................................................... 620
------
Reinsurance recoverable........................................................... 69
------
Supplemental loss reserve......................................................... 5,859
------
Total........................................................................ $6,548
======
</TABLE>
9) INCOME TAXES
Pursuant to a tax sharing agreement with Holdings, the Company is included
in Holdings' consolidated U.S. Federal income tax return. The Company's annual
Federal income tax liability is determined by computing its pro rata share of
the consolidated group Federal income tax liability.
Total income tax expense differed from the amount computed by applying the
U.S. Federal income tax rate of 35% in 1995 and 34% in 1994 and 1993:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993
--------------- --------------- --------------
AMOUNT % AMOUNT % AMOUNT %
------ ----- ------ ----- ------ ----
<S> <C> <C> <C> <C> <C> <C>
$ IN THOUSANDS
Expected tax expense computed at the
statutory rate............................. $7,216 35.0 $5,303 34.0 $4,881 34.0
Increase (decrease) in tax resulting from:
Tax-exempt interest........................ (2,335) (11.3) (1,646) (10.6) (1,140) (7.9)
Other, net................................. 334 1.6 51 0.4 (15) (0.1)
------ ----- ------ ----- ------ ----
Total income tax expense................ $5,215 25.3 $3,708 23.8 $3,726 26.0
====== ===== ====== ===== ====== ====
</TABLE>
F-14
<PAGE> 61
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred Federal income tax liability are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
$ IN THOUSANDS
DEFERRED TAX ASSETS:
Unrealized capital losses on investments......................... $ -- (2,833)
Deferred compensation............................................ (1,901) (1,233)
Losses and loss adjustment expenses.............................. (1,002) (936)
Unearned premiums................................................ (852) (762)
Other, net....................................................... (98) (228)
------------ ------------
Total gross deferred tax assets............................. (3,853) (5,992)
------------ ------------
DEFERRED TAX LIABILITIES:
Deferred acquisition costs....................................... 12,307 8,453
Unrealized capital gains on investments.......................... 1,769 --
Deferred capital gains on investments............................ 654 726
Other, net....................................................... 426 412
------------ ------------
Total gross deferred tax liabilities........................ 15,156 9,591
------------ ------------
Net deferred tax liability..................................... $ 11,303 3,599
========== ==========
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax assets will not be realized. Management believes
that the deferred tax assets will be fully realized in the future.
10) INSURANCE REGULATORY RESTRICTIONS
CapMAC is subject to insurance regulatory requirements of the State of New
York and other states in which it is licensed to conduct business. Generally,
New York insurance laws require that dividends be paid from earned surplus and
restrict the amount of dividends in any year that may be paid without obtaining
approval for such dividends from the Superintendent of Insurance to the lower of
(i) net investment income as defined or (ii) 10% of statutory surplus as of
December 31 of the preceding year. No dividends were paid by CapMAC to Holdings
during the years ended December 31, 1995, 1994 and 1993. No dividends could be
paid during these periods because CapMAC had negative earned surplus. Statutory
surplus at December 31, 1995 and 1994 was approximately $195,018,000 and
$139,739,000, respectively. Statutory surplus differs from stockholder's equity
determined under GAAP principally due to the mandatory contingency reserve
required for statutory accounting purposes and differences in accounting for
investments, deferred acquisition costs, SLR and deferred taxes provided under
GAAP. Statutory net income was $9,000,000, $4,543,000 and $4,528,000 for the
years ended December 31, 1995, 1994 and 1993, respectively. Statutory net income
differs from net income determined under GAAP principally due to deferred
acquisition costs, SLR and deferred income taxes.
F-15
<PAGE> 62
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11) COMMITMENTS AND CONTINGENCIES
On January 1, 1988, the Company assumed from Citibank, N.A. the obligations
of a sublease agreement for space occupied in New York. On November 21, 1993,
the sublease was terminated and a new lease was negotiated which expires on
November 20, 2008. CapMAC has a lease agreement for its London office beginning
October 1, 1992 and expiring October 1, 2002. As of December 31, 1995, future
minimum payments under the lease agreements are as follows:
<TABLE>
<CAPTION>
PAYMENT
--------------
$ IN THOUSANDS
<S> <C>
1996............................................................................ $ 2,255
1997............................................................................ 2,948
1998............................................................................ 3,027
1999............................................................................ 3,476
2000 and thereafter............................................................. 36,172
--------------
Total...................................................................... $ 47,878
==========
</TABLE>
Rent expense, commercial rent taxes and electricity for the years ended
December 31, 1995, 1994 and 1993 amounted to $1,939,000, $2,243,000 and
$2,065,000, respectively.
CapMAC has available a $100,000,000 standby corporate liquidity facility
(the "Liquidity Facility") provided by a consortium of banks, headed by Bank of
Montreal, as agent, which is rated "A-1+" and "P-1" by S&P and Moody's,
respectively. Under the Liquidity Facility, CapMAC will be able, subject to
satisfying certain conditions, to borrow funds from time to time in order to
enable it to fund any claim payments or payments made in settlement or
mitigation of claim payments under its insurance contracts. For the years ended
December 31, 1995, 1994 and 1993, no draws had been made under the Liquidity
Facility.
12) REINSURANCE
In the ordinary course of business, CapMAC cedes exposure under various
treaty, pro rata and excess of loss reinsurance contracts primarily designed to
minimize losses from large risks and protect the capital and surplus of CapMAC.
The effect of reinsurance on premiums written and earned was as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------
1995 1994 1993
--------------------- --------------------- ---------------------
WRITTEN EARNED WRITTEN EARNED WRITTEN EARNED
-------- -------- -------- -------- -------- --------
$ IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C>
Direct................. $ 56,541 36,853 43,598 28,561 24,491 20,510
Assumed................ 935 761 1,064 258 403 364
Ceded.................. (15,992) (8,372) (11,069) (5,716) (3,586) (3,391)
-------- -------- -------- -------- -------- --------
Net Premiums...... $ 41,484 29,242 33,593 23,103 21,308 17,483
======== ======== ======== ======== ======== ========
</TABLE>
Although the reinsurance of risk does not relieve the ceding insurer of its
original liability to its policyholders, it is the industry practice of insurers
for financial statement purposes to treat reinsured risks as though they were
risks for which the ceding insurer was only contingently liable. A contingent
liability exists with respect to the aforementioned reinsurance arrangements
which may become a liability of CapMAC in the event the reinsurers are unable to
meet obligations assumed by them under the reinsurance contracts. At
F-16
<PAGE> 63
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1995 and 1994, CapMAC had ceded loss reserves of $69,000 and $0,
respectively and had ceded unearned premiums of $13,171,000 and $551,000,
respectively.
In 1994, CapMAC entered into a reinsurance agreement (the "Lureco Treaty")
with Luxembourg European Reinsurance LURECO S.A. ("Lureco"), a European-based
reinsurer. The agreement is renewable annually at the Company's option, subject
to satisfying certain conditions. The agreement reinsured and indemnified the
Company for any loss incurred by CapMAC during the agreement period up to the
limits of the agreement. The Lureco Treaty provides that the annual reinsurance
premiums payable by CapMAC to Lureco, after deduction of the reinsurer's fee
payable to Lureco, be deposited in a trust account (the "Lureco Trust Account")
to be applied by CapMAC, at its option, to offset losses and loss expenses
incurred by CapMAC in connection with incurred claims. Amounts on deposit in the
Lureco Trust Account which have not been applied against claims are
contractually due to CapMAC at the termination of the treaty.
The premium deposit amounts in the Lureco Trust Account have been reflected
as assets by CapMAC during the term of the agreement. Premiums in excess of the
deposit amounts have been recorded as ceded premiums in the statements of
income. In the 1994 policy year, the agreement provided $5 million of loss
coverage in excess of the premium deposit amounts of $2 million retained in the
Lureco Trust Account. No losses were applied against the Lureco Trust Account or
ceded to the Lureco Treaty in 1994. The agreement was renewed for the 1995
policy year and provides $5 million of loss coverage in excess of the premium
deposit amount of $4.5 million retained in the Lureco Trust Account. Additional
coverage is provided for losses incurred in excess of 200% of the net premiums
earned up to $4 million for any one agreement year. In September 1995, a claim
of approximately $2.5 million on an insurance policy was applied against the
Lureco Trust Account.
In addition to its capital (including statutory contingency reserves) and
other reinsurance available to pay claims under its insurance contracts, on June
25, 1992, CapMAC entered into a Stop Loss Reinsurance Agreement (the "Stop-loss
Agreement") with Winterthur Swiss Insurance Company ("Winterthur") which is
rated "AAA" by S&P and "Aaa" by Moody's. At the same time, CapMAC and Winterthur
also entered into a Quota Share Reinsurance Agreement (the "Winterthur Quota
Share Agreement") pursuant to which Winterthur had the right to reinsure on a
quota share basis 10% of each policy written by CapMAC.
The Winterthur Stop-loss Agreement had an original term of seven years and
was renewable for successive one-year periods. In April 1995, Winterthur
notified CapMAC that it was canceling the Winterthur Stop-loss Agreement and the
Winterthur Quota Share Agreement effective June 30, 1996.
CapMAC elected to terminate the Winterthur Stop-loss Agreement effective
November 30, 1995 and, on the same date, entered into a Stop-loss Reinsurance
Agreement with Mitsui Marine (the "Mitsui Stop-loss Agreement"). Under the
Mitsui Stop-loss Agreement, Mitsui Marine would be required to pay any losses in
excess of $100 million in the aggregate incurred by CapMAC during the term of
the Mitsui Stop-loss Agreement on the insurance policies in effect on December
1, 1995 and written during the one-year period thereafter, up to an aggregate
limit payable under the Mitsui Stop-loss Agreement of $50 million. The Mitsui
Stop-loss Agreement has a term of seven years and is subject to early
termination by CapMAC in certain circumstances.
The Winterthur Quota Share Agreement was canceled November 30, 1995. On
January 1, 1996, CapMAC will reassume the liability, principally unearned
premium, for all policies reinsured by Winterthur. As a result, CapMAC will
reassume approximately $1.4 billion of principal insured by Winterthur as of
December 31, 1995. In connection with the commutation, Winterthur will return
the unearned premiums as of December 31, 1995, net of ceding commission and
federal excise tax. Such amount is expected to total approximately $2.0 million.
F-17
<PAGE> 64
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1995 and 1994. SFAS No.
107, "Disclosures About Fair Value of Financial Instruments," defines the fair
value of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------------- -----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
$ IN THOUSANDS
FINANCIAL ASSETS:
Investments................................... $284,352 284,352 189,068 189,068
OFF-BALANCE-SHEET INSTRUMENTS:
Financial Guarantees Outstanding.............. $ -- 147,840 -- 93,494
Ceding Commission............................. $ -- 44,352 -- 28,048
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments summarized above:
INVESTMENTS
The fair value of fixed maturities and mutual funds are based upon quoted
market prices. The fair value of short-term investments approximates amortized
cost.
FINANCIAL GUARANTEES OUTSTANDING
The fair value of financial guarantees outstanding consists of (1) the
current unearned premium reserve, net of prepaid reinsurance and (2) the fair
value of installment revenue which is derived by calculating the present value
of the estimated future cash inflow to CapMAC of policies in force having
installment premiums, net of amounts payable to reinsurers, at a discount rate
of 7% at December 31, 1995 and 1994. The amount calculated is equivalent to the
consideration that would be paid under market conditions prevailing at the
reporting dates to transfer CapMAC's financial guarantee business to a third
party under reinsurance and other agreements. Ceding commission represents the
expected amount that would be paid to CapMAC to compensate CapMAC for
originating and servicing the insurance contracts. In constructing estimated
future cash inflows, management makes assumptions regarding prepayments for
amortizing asset-backed securities which are consistent with relevant historical
experience. For revolving programs, assumptions are made regarding program
utilization based on discussions with program users. The amount of installment
premium actually realized by the Company could be reduced in the future due to
factors such as early termination of insurance contracts, accelerated
prepayments of underlying obligations or lower than anticipated utilization of
insured structured programs, such as commercial paper conduits. Although
increases in future installment revenue due to renewals of existing insurance
contracts historically have been greater than reductions in future installment
revenue due to factors such as those described above, there can be no assurance
that future circumstances might not cause a net reduction in installment
revenue, resulting in lower revenues.
14) CAPITALIZATION
The Company's certificate of incorporation authorizes the issuance of
15,000,000 shares of common stock, par value $1.00 per share. Authorized, issued
and outstanding shares at December 31, 1995 and 1994 were 15,000,000 at $1.00
per share.
F-18
<PAGE> 65
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In 1995, $59.0 million of the proceeds received by Holdings from the sale
of shares in connection with an Initial Public Offering and private placements
were contributed to CapMAC.
F-19
<PAGE> 66
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SELLER OR ANY
UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF A TIME SUBSEQUENT TO THE DATE OF SUCH
INFORMATION. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION 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.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information................... 2
Reports to Certificateholders........... 2
Summary................................. 3
Risk Factors............................ 8
The Trust............................... 10
The Onyx Portfolio of Motor Vehicle
Contracts............................. 11
The Contracts........................... 15
Maturity and Prepayment Assumptions..... 17
Yield Considerations.................... 17
Pool Factor............................. 17
Use of Proceeds......................... 18
The Seller.............................. 18
The Servicer............................ 19
The Certificates and the Agreement...... 19
Description of the Insurer.............. 26
Additional Provisions of the
Agreement............................. 27
Certain Legal Aspects of the
Contracts............................. 32
Certain Tax Consequences................ 34
ERISA Considerations.................... 39
Underwriting............................ 41
Legal Matters........................... 41
Experts................................. 41
Financial Statements of Insurer......... F-1
------------------
UNTIL , 1996 (90 DAYS AFTER THE
DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE CERTIFICATES,
WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
$85,013,318
ONYX ACCEPTANCE
GRANTOR TRUST 1996-2
% AUTO LOAN
PASS-THROUGH CERTIFICATES
(ONYX LOGO)
ONYX ACCEPTANCE FINANCIAL CORPORATION,
Seller
ONYX ACCEPTANCE CORPORATION,
Servicer
---------------------------
P R O S P E C T U S
---------------------------
MERRILL LYNCH & CO.
MAY , 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 67
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Registration Fee........................................................ $ 29,312.50
Printing and Engraving.................................................. $ 40,000.00
Trustee's Fee........................................................... $ 18,500.00
Legal Fees and Expenses................................................. $100,000.00
Blue Sky Fees and Expenses.............................................. $ 15,000.00
Accountant's Fees and Expenses.......................................... $ 20,000.00
Rating Agency Fees...................................................... $ 50,000.00
Miscellaneous Fees and Expenses......................................... $ 10,000.00
-----------
Total Expenses................................................ $282,812.50
===========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law ("Delaware Law")
Onyx Acceptance Financial Corporation (the "Company") has broad powers to
indemnify its directors and officers against liabilities they may incur in such
capacities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"). The Company's Bylaws (the "Bylaws") (Exhibit 3.2 hereto)
provide that the Company shall indemnify its directors and officers to the
fullest extent permitted by law and requires the Company to advance litigation
expenses upon receipt by the Company of an undertaking by the director or
officer to repay such advances if it is ultimately determined that the director
is not entitled to indemnification. The Bylaws further provide that rights
conferred under such Bylaws shall not be deemed to be exclusive of any other
right such persons may have or acquire under any bylaw, agreement, vote of
stockholders or disinterested directors, or otherwise.
The Certificate of Incorporation (the "Certificate of Incorporation")
(Exhibit 3.1 hereto) provides that, pursuant to Delaware Law, its directors
shall not be liable for monetary damages for breach of the directors' fiduciary
duty of care to the Company and its stockholders. This provision in the
Certificate of Incorporation does not eliminate the duty of care, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware Law. In addition,
each director will continue to be subject to liability for breach of the
director's duty of loyalty to the Company for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefits to the director, and for payment
of dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware Law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. The Certificate of Incorporation further
provides that the Company shall indemnify its directors and officers to the
fullest extent permitted by law, and requires the Company to advance litigation
expenses in the case of stockholder derivative actions or other actions, against
an undertaking by the director to repay such advances if it is ultimately
determined that the director is not entitled to indemnification. The Certificate
of Incorporation also provides that rights conferred under such Certificate of
Incorporation shall not be deemed to be exclusive of any other right such
persons may have or acquire under any statute, the Certificate of Incorporation,
the Bylaws, agreement, vote of stockholders or disinterested directors, or
otherwise.
The Company plans to acquire a directors' and officers' liability insurance
policy that, subject to the terms and conditions of the policy, insures the
directors and officers of the Company against losses arising from any wrongful
act (as defined by the policy) in his or her capacity as a director or officer.
The policy reimburses the Company for amounts which the Company lawfully
indemnifies or for which it is required or permitted by law to indemnify its
directors and officers.
In addition, the Company expects to enter into agreements to indemnify its
directors and certain of its officers in addition to indemnification provided
for in the Certificate of Incorporation and Bylaws. These agreements will, among
other things, indemnify the Company's directors and certain of its officers for
certain
II-1
<PAGE> 68
expenses (including attorneys' fees), judgments, fines and settlement amounts
incurred by such person in any action or proceeding, including any action by or
in the right of the Company, on account of services as a director or officer of
the Company or as a director or officer of any subsidiary of the Company, or as
a director or officer of any other company or enterprise that the person
provides services to at the request of the Company.
The Underwriting Agreement provides for indemnification by the Company of
the Underwriters, for certain liabilities rising under the Securities Act or
otherwise. It also provides, in certain limited instances, for indemnification
by the Underwriters of the Company with respect to information furnished by or
on behalf of the Underwriter that are contained in this prospectus or included
as part of this Registration Statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ----------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Seller*
3.2 Bylaws of the Seller*
4.1 Form of Pooling and Servicing Agreement among the Seller, the Servicer and
the Trustee
5.1 Opinion of Brobeck, Phleger & Harrison LLP, re: Legality
8.1 Opinion of Brobeck, Phleger & Harrison LLP, re: Tax Matters
23.1 Consent of Brobeck, Phleger & Harrison LLP, (contained in Exhibit 5.1)
23.2 Consent of Brobeck, Phleger & Harrison LLP, (contained in Exhibit 8.1)
23.3 Consent of KPMG Peat Marwick LLP with respect to financial statements of
Capital Markets Assurance Corporation*
24 Powers of Attorney (included in signature page)*
</TABLE>
- ---------------
* Previously filed.
(b) Financial Statement Schedules
Not applicable.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes as follows:
(a) To provide to the Underwriter at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriter to permit prompt delivery to each
purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE> 69
(c) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b) (1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this Registration Statement as of the time it was declared effective.
(d) For the purpose of determining any liability under the Securities
Act of 1933, each post effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 70
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Irvine, State of California, on May 3, 1996.
Onyx Acceptance Financial Corporation
By: *
------------------------------------
John W. Hall
President and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- --------------------------------------- ------------
<C> <S> <C>
* Chairman and Chief Executive Officer, May 3, 1996
- ------------------------------------- Director (Principal Executive Officer)
Brian Mac Innis
* President, Director May 3, 1996
- -------------------------------------
John W. Hall
* Executive Vice President and Chief May 3, 1996
- ------------------------------------- Financial Officer, Director (Principal
Don P. Duffy Financial and Accounting Officer)
/s/ REGAN E. KELLY Executive Vice President, Director May 3, 1996
- -------------------------------------
Regan E. Kelly
* Director May 3, 1996
- -------------------------------------
Kurt Bicknell
Director May , 1996
- -------------------------------------
Stephen M. Bond
*By: /s/ REGAN E. KELLY
------------------------------
Regan E. Kelly,
Attorney-In-Fact
</TABLE>
II-4
<PAGE> 71
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------ ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement..........................................
3.1 Certificate of Incorporation of the Seller*.............................
3.2 Bylaws of the Seller*...................................................
4.1 Form of Pooling and Servicing Agreement among the Seller, the Servicer,
and the Trustee.........................................................
5.1 Opinion of Brobeck, Phleger & Harrison LLP, re: Legality................
8.1 Opinion of Brobeck, Phleger & Harrison LLP, re: Tax Matters.............
23.1 Consent of Brobeck, Phleger & Harrison LLP, (contained in Exhibit 5.1)..
23.2 Consent of Brobeck, Phleger & Harrison LLP, (contained in Exhibit 8.1)..
23.3 Consent of KPMG Peat Marwick LLP with respect to financial statements of
Capital Markets Assurance Corporation*..................................
24 Powers of Attorney (included in signature page)*........................
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
Exhibit 1.1
Onyx Acceptance Grantor Trust 1996-2
____% Auto Loan Pass-Through Certificates
Onyx Acceptance Financial Corporation
as Seller
Onyx Acceptance Corporation
as Servicer
UNDERWRITING AGREEMENT
_______ __, 1996
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
World Financial Center
North Tower, 15th Floor
New York, New York l0281-1315
Ladies and Gentlemen:
1. Introductory. Onyx Acceptance Financial Corporation (the
"Company") proposes to cause Onyx Acceptance Grantor Trust 1996-2 (the "Trust")
to sell to Merrill Lynch, Pierce, Fenner & Smith Incorporated (the
"Underwriter") ____% Auto Loan Pass-Through Certificates, Series 1996-2 (the
"Certificates"). The Certificates will be issued pursuant to a Pooling and
Servicing Agreement between the Company, as Seller, Onyx Acceptance Corporation
as Servicer (the "Servicer" or "Onyx"), Bankers Trust Company as Trustee and
Back-up Servicer (the "Trustee"), dated as of ________ _ 1996 (the "Pooling and
Servicing Agreement"). Pursuant to an insurance and reimbursement agreement (the
"Insurance Agreement") among the Company, Onyx Acceptance Corporation, the
Trustee and Capital Markets Assurance Corporation ("the Insurer"), the Insurer
has issued its surety bond (the "Surety Bond") to the Trustee for the benefit of
the Certificateholders guaranteeing timely payment of interest and principal on
the Certificates. The assets of the Trust will include, among other things, (i)
a pool (the "Contract Pool") of fixed rate Rule of 78's motor vehicle retail
installment sales contracts (the "Contracts") secured by new and used
automobiles and light-duty trucks (the
<PAGE> 2
"Financed Vehicles"), certain monies due or to become due thereunder on
or after the Cutoff Date (as hereinafter defined), such Contracts to be sold to
the Trust by the Seller and serviced by the Servicer, (ii) the Surety Bond,
(iii) security interests in the Financed Vehicles and the rights to receive
proceeds from claims on certain insurance policies covering the Financed
Vehicles or the individual obligors under each related Contract and the right to
proceeds under a blanket insurance policy, (iv) all amounts on deposit in the
Collection Account, (v) the right of the Company to cause Onyx to repurchase
certain Contracts under certain circumstances and (vi) all proceeds of the
foregoing. The Certificates will be issued in an aggregate principal amount of
$___________ which is equal to the sum of the Original Pool Balance of the
Contracts as of the opening of business on _______ _, 1996 (the "Cutoff
Date"). Capitalized terms used herein and not otherwise herein defined shall
have the meanings assigned to such terms in the Pooling and Servicing Agreement.
The Company hereby agrees with the Underwriter, as follows:
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with the Underwriter that:
(i) A registration statement on Form S-1 (No. 33-_____),
including a prospectus and such amendments thereto as may have been
required on the date hereof, relating to the Certificates, has been
filed with the Securities and Exchange Commission (the "Commission").
The conditions to the use of a registration statement on Form S-1 under
the Securities Act of 1933, as amended (the " Act"), as set forth in
the General Instructions to Form S-1, have been, or will prior to the
effective date of the Registration Statement be, satisfied in all
material respects with respect to the Company and the Registration
Statement.
(ii) The Company will next file with the Commission
either, (A) prior to the effectiveness of such registration statement,
a further amendment thereto (including the form of final prospectus) or
(B) after effectiveness of such registration statement, a final
prospectus in accordance with Rules 430A and 424(b) (each, as
hereinafter de-
2
<PAGE> 3
fined). In the case of clause (B), the Company has included in such
registration statement, as amended at the Effective Date (as
hereinafter defined), all information (other than Rule 430A Information
(as hereinafter defined)) required by the Act and the rules and
regulations thereunder (the "Rules and Regulations ") to be included in
the prospectus with respect to the Certificates and the offering
thereof. As filed, such amendment and form of final prospectus, or such
final prospectus, shall include all Rule 430A Information and, except
to the extent the Underwriter shall agree in writing to a modification,
shall be in all substantive respects in the form furnished to the
Underwriter prior to the Execution Time (as hereinafter defined) or, to
the extent not completed at the Execution Time, shall contain only such
specific additional information and other changes (beyond that
contained in the latest Preliminary Prospectus (as hereinafter defined)
which has previously been furnished to the Underwriter) as the Company
has advised the Underwriter, prior to the Execution Time, will be
included or made therein.
The terms which follow, when used in this Agreement,
shall have the meanings indicated. The term "Effective Date" shall mean
each date that the Registration Statement and any post-effective
amendment or amendments thereto became or become effective under the
Act. " Execution Time" shall mean the date and time that this Agreement
is executed and delivered by the parties hereto. " Preliminary
Prospectus" shall mean any preliminary prospectus referred to in the
preceding paragraph and any preliminary prospectus included in the
Registration Statement which, as of the Effective Date, omits Rule 430A
Information. "Prospectus" shall mean the prospectus relating to the
Certificates that is first filed with the Commission pursuant to Rule
424(b) and any prospectus subsequently filed pursuant to Rule 424 or,
if no filing pursuant to Rule 424(b) is required, shall mean the form
of final prospectus included in the Registration Statement at the
Effective Date. "Registration Statement " shall mean the registration
statement referred to in the preceding paragraph and any registration
statement required to be filed under the Act or the Rules and
Regulations,
3
<PAGE> 4
including incorporated documents, exhibits and financial statements, in
the form in which it has, or shall, become effective and, in the event
that any post effective amendment thereto becomes effective prior to
the Closing Date (as hereinafter defined), shall also mean such
registration statement as so amended. Such term shall include Rule 430A
Information deemed to be included therein at the Effective Date as
provided by Rule 430A. " Rule 424" and "Rule 430A" refer to such rules
and regulations under the Act. "Rule 430A Information" means
information with respect to the Certificates and the offering thereof
permitted to be omitted from the Registration Statement when it becomes
effective pursuant to Rule 430A.
(iii) On the Effective Date, the Registration Statement did,
or will, comply in all material respects with the applicable
requirements of the Act and the Rules and Regulations; on the Effective
Date and when the Prospectus is first filed (if required) in accordance
with Rule 424(b) and on the Closing Date, the Prospectus (and any
supplements thereto) will comply in all material respects with the
applicable requirements of the Act and the Rules and Regulations; on
the Effective Date, the Registration Statement did not, or will not,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to
make the statements therein not misleading; and, on the Effective Date,
the Prospectus, if not filed pursuant to Rule 424(b), did not, or will
not, and on the date of any filing pursuant to Rule 424(b) and on the
Closing Date, the Prospectus (together with any supplement thereto)
will not, include any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; provided, however, that the Company makes no
representations or warranties as to the information contained in, or
omitted from, the Registration Statement or the Prospectus (or any
supplements thereto) in reliance upon, and in conformity with,
information furnished in writing to the Company on the Underwriter's
behalf specifically for use in connection with the preparation of the
4
<PAGE> 5
Registration Statement or the Prospectus (or any supplements thereto).
(iv) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, with full power and authority (corporate
and other) to own its properties and conduct its businesses as
described in the Prospectus, and is duly qualified to transact business
as a foreign corporation in good standing under the laws of each
jurisdiction where the ownership or leasing of its properties or the
conduct of its business requires such qualification.
(v) As of the Closing Date the representations and warranties
of the Company, as Seller, in the Pooling and Servicing Agreement will
be true and correct, and each Contract will satisfy the conditions set
forth in Sections 2.2(b) and 2.2(d), respectively, thereof.
(vi) No consent, approval, authorization or order of, or
filing with, any court or governmental agency or body is required to be
obtained or made by the Company for the consummation of the
transactions contemplated by this Agreement, except such as have been
obtained and made under the Act, such as may be required under state
securities laws and the filing of any financing statements required to
perfect the Trust's interest in the Contracts.
(vii) The Company is not in violation of its Certificate of
Incorporation or By-Laws or in default in the performance or observance
of any obligation, agreement, covenant or condition contained in any
agreement or instrument to which it is a party or by which it or its
properties are bound which would have a material adverse effect on the
transactions contemplated herein or in the Pooling and Servicing
Agreement, the Purchase Agreement or the Insurance Agreement. The
execution, delivery and performance of this Agreement, the Pooling and
Servicing Agreement, the Purchase Agreement, the Insurance Agreement
and the issuance and sale of the Certificates and compliance with the
terms and pro-
5
<PAGE> 6
visions thereof will not result in a breach or violation of any of the
terms and provisions of, or constitute a default under, any statute,
rule, regulation or order of any governmental agency or body or any
court having jurisdiction over the Company or any of its properties or
any agreement or instrument to which the Company is a party or by which
the Company is bound or to which any of the properties of the Company
is subject, or By-Laws of the Company and the Company has full power
and authority to authorize, cause the Trust to issue, and sell the
Certificates as contemplated by this Agreement, to enter into this
Agreement, the Pooling and Servicing Agreement, the Purchase Agreement
and the Insurance Agreement and to consummate the transactions
contemplated herein and therein.
(viii) This Agreement has been duly authorized, executed and
delivered by the Company.
3. Purchase, Sale, Payment and Delivery of Certificates. On the basis
of the representations, warranties and agreements herein contained, but subject
to the terms and conditions herein set forth, the Company agrees to sell to the
Underwriter, and the Underwriter agrees to purchase from the Company
$___________ aggregate principal amount of the Certificates. The Certificates
are to be purchased at a purchase price of _________% of the aggregate principal
amount thereof plus accrued interest, if any, from _______ __, 1996.
The Company will deliver the Certificates to the Underwriter against
payment of the purchase price in immediately available funds drawn to the order
of the Company at the offices of Skadden, Arps, Slate, Meagher & Flom in New
York, New York 10022 at 10:00 a.m., New York City time on ________ _, 1996 or at
such other time not later than seven full business days thereafter as the
Underwriter and the Company determine, such time being herein referred to as the
"Closing Date". The Certificates so to be delivered shall be represented by
definitive certificates registered in the name of Cede & Co., as nominee for The
Depository Trust Company and definitive certificate(s) registered in the name(s)
provided by the Underwriter, each in such numbers as the Underwriter shall
request. The Company shall make such definitive certificates representing the
Certificates available for inspection by the Underwriter at the office at which
the Certificates are
6
<PAGE> 7
to be delivered no later than 10:00 a.m., New York City time, on the business
day prior to the Closing Date.
4. Offering by the Underwriter. (a) It is understood that, after the
Registration Statement becomes effective, the Underwriter propose to offer the
Certificates for sale to the public (which may include selected brokers and
dealers) as set forth in the Prospectus.
(b) The Underwriter may prepare and provide to prospective investors
certain ABS Term Sheets, Structural Term Sheets and Collateral Term Sheets in
connection with its offering of the Certificates, subject to the following
conditions:
(i) The Underwriter shall have complied with the requirements
of the no-action letter, dated February 17, 1995, issued by the Commission to
the Public Securities Association (the "No-Action Letter").
(ii) For purposes hereof, "ABS Term Sheets", "Structured Term
Sheets" and "Collateral Term Sheets" shall have the meanings given such terms in
the No-Action Letter but shall include only those ABS Term Sheets, Structured
Term Sheets or Collateral Term Sheets that have been prepared or delivered to
prospective investors by or at the direction of the Underwriter.
(iii) All ABS Term Sheets provided to prospective investors
that are required to be filed pursuant to the No-Action Letter shall bear a
legend substantially in the form attached hereto as Exhibit A. The Company shall
have the right to require specific legends or notations to appear on any ABS
Term Sheets, the right to require changes regarding the use of terminology and
the right to determine the types of information appearing therein.
Notwithstanding the foregoing, this subsection (iii) will be satisfied if all
ABS Term Sheets referred to herein bear a legend in a form previously approved
in writing by the Company.
(iv) The Underwriter shall have provided the Company with
representative forms of all ABS Term Sheets prior to their first use, to the
extent such forms have not previously been approved by the Company for use by
the Underwriter. The Underwriter shall have provided to the Company, for filing
as a post-effective amendment to the Registration Statement as provided in
Section 5(i), copies (in such format as required by the Company) of all ABS Term
Sheets that are required to be
7
<PAGE> 8
filed with the Commission pursuant to the No-Action Letter. The Underwriter may
provide copies of the foregoing in a consolidated or aggregated form including
all information required to be filed. All ABS Term Sheets described in this
subsection (iv) shall have been provided to the Company not later than 10:00
a.m. (New York City time) not less than one business day before filing thereof
is required to be made with the Commission pursuant to the No-Action Letter. The
Underwriter shall have not provided to any investor or prospective investor in
the Certificates any ABS Term Sheets on or after the day on which ABS Term
Sheets are required to be provided to the Company pursuant to this subsection
(iv) (other than copies of ABS Term Sheets previously submitted to the Company
in accordance with this subsection (iv) for filing pursuant to Section 5(i)),
unless such ABS Term Sheets are preceded or accompanied by the delivery of a
Prospectus to such investor or prospective investor.
(v) All information included in the ABS Term Sheets shall have
been generated based on substantially the same methodology and assumptions that
are used to generate the information in the Prospectus as set forth therein;
provided that the ABS Term Sheets may have included information based on
alternative methodologies or assumptions if specified therein. If any ABS Term
Sheets that are required to be filed were based on assumptions with respect to
the Contract Pool that differ from the final Contract Pool information in any
material respect or on Certificate structuring terms that were revised in any
material respect prior to the printing of the Prospectus, the Underwriter shall
have prepared revised ABS Term Sheets based on the final Contract Pool
information and structuring assumptions, shall have circulated such revised ABS
Term Sheets to all recipients of the preliminary versions thereof that indicated
orally to the Underwriter they would purchase all or any portion of the
Certificates, and shall have included such revised ABS Term Sheets (marked, "as
revised") in the materials delivered to the Company pursuant to subsection (iv)
above.
(vi) The Company shall not be obligated to file any ABS Term
Sheets that have been determined to contain any material error or omission,
provided that, at the request of the Underwriter, the Company will file ABS Term
Sheets that contain a material error or omission if clearly marked "superseded
by materials dated _______" and accompanied by corrected ABS Term Sheets that
are marked, "supersedes material previously dated _______, as corrected." If,
within the period during which the Prospectus relating to the Certificates is
required to be
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<PAGE> 9
delivered under the Act, any ABS Term Sheets are determined, in the reasonable
judgment of the Company or the Underwriter, to contain a material error or
omission, the Underwriter shall prepare a corrected version of such ABS Term
Sheets, shall circulate such corrected ABS Term Sheets to all recipients of the
prior versions thereof that either indicated orally to the Underwriter they
would purchase all or any portion of the Certificates, or actually purchased all
or any portion thereof, and shall deliver copies of such corrected ABS Term
Sheets (marked, "as corrected") to the Company for filing with the Commission in
a subsequent post-effective amendment to the Registration Statement (subject to
the Company's obtaining an accountant's comfort letter in respect of such
corrected ABS Term Sheets, which shall be at the expense of the Underwriter).
(vii) The Underwriter shall be deemed to have represented as of
the Closing Date, that, except for ABS Term Sheets provided to the Company
pursuant to subsection (iv) above, the Underwriter did not provide any
prospective investors with any information in written or electronic form in
connection with the offering of the Certificates that is required to be filed
with the Commission in accordance with the No-Action Letter.
(viii) In the event of any delay in the delivery by the
Underwriter to the Company of all ABS Term Sheets required to be delivered in
accordance with subsection (iv) above, or in the delivery of the accountant's
comfort letter in respect thereof pursuant to Section 5(x), the Company shall
have the right to delay the release of the Prospectus to investors or to the
Underwriter, to delay the Closing Date and to take other appropriate actions in
each case as necessary in order to allow the Company to comply with its
agreement set forth in Section 5(x) to file the ABS Term Sheets by the time
specified therein.
5. Certain Agreements of the Company. The Company agrees with the
Underwriter that:
(i) The Company will use its best efforts to cause the
Registration Statement, and any amendment thereto, if not effective at the
Execution Time, to become effective. If the Registration Statement has
become or becomes effective pursuant to Rule 430A, or filing of the
Prospectus is otherwise required under Rule 424(b), the Company will file
the prospectus, properly completed, pursuant to Rule 424(b) within the time
period prescribed and will
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<PAGE> 10
provide evidence satisfactory to the Underwriter of such timely filing. The
Company will advise the Underwriter promptly of any proposal to amend or
supplement the Registration Statement or the Prospectus, and will not effect
any such amendment or supplementation to which the Underwriter shall
reasonably object. The Company will also advise you promptly of the
effectiveness of any amendment or supplementation of the Registration
Statement or Prospectus, of any request by the Commission for any amendment
or supplementation of the Registration Statement or the Prospectus or for
any additional information, of the receipt by the Company of any
notification with respect to the suspension of qualification of the
Certificates for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose and of the institution by the Commission
of any stop order proceeding in respect of the Registration Statement, and
will use its best efforts to prevent the issuance of any such stop order and
to obtain as soon as possible its lifting, if issued.
(ii) If, at any time when a prospectus relating to the
Certificates is required to be delivered under the Act, any event occurs as
a result of which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary at any time to amend the Prospectus to comply with the Act, the
Company promptly will prepare and file with the Commission (subject to the
Underwriter's prior review pursuant to paragraph (i) of this Section 5) an
amendment or supplement which will correct such statement or omission or an
amendment or supplement which will effect such compliance.
(iii) As soon as practicable, the Company will cause the Trust
to make generally avail- able to the Certificateholders of the Trust an
earning statement or statements of the Trust covering a period of at least
12 months beginning after the Effective Date of the Registration Statement
which will satisfy the provisions of Section 11(a) of the Act and Rule 158
of the Commission promulgated thereunder.
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<PAGE> 11
(iv) The Company will furnish to the Underwriter copies of the
Registration Statement, each related preliminary prospectus, the Prospectus
and all amendments and supplements to such documents, in each case as soon
as available and in such quantities as the Underwriter may reasonably
request.
(v) The Company will cooperate with the Underwriter in
arranging for the qualification of the Certificates for sale and the
determination of their eligibility for investment under the laws of such
jurisdictions as the Underwriter designates and will continue such
qualifications in effect so long as required for the distribution of the
Certificates; provided, however, that the Company shall not be obligated to
qualify to do business in any jurisdiction in which it is not currently so
qualified or to take any action which would subject it to general or
unlimited service of process in any jurisdiction where it is not now so
subject.
(vi) For a period from the date of this Agreement until the
retirement of the Certificates, the Company will furnish to the Underwriter
copies of each certificate and the annual statements of compliance delivered
to the Trustee pursuant to Article III of the Pooling and Servicing
Agreement and the annual independent public accountant's reports furnished
to the Trustee pursuant to Article III of the Pooling and Servicing
Agreement, as soon as practicable after such statements and reports are
furnished to the Trustee.
(vii) So long as any of the Certificates are outstanding, the
Company will furnish to you as soon as practicable, (A) all documents
distributed, or caused to be distributed, by the Servicer to the
Certificateholders, (B) all documents filed, or caused to be filed, by the
Company with the Commission pursuant to the Securities Act of 1934, as
amended, any order of the Commission thereunder or pursuant to a "no-action"
letter from the staff of the Commission and (C) from time to time, such
other information in the possession of the Company concerning the Trust and
any other information concerning the Company filed with any governmental or
regulatory authority which is
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<PAGE> 12
otherwise publicly available as you may reasonably request.
(viii) On or before the Closing Date the Company shall cause
its computer records relating to the Contracts to be marked to show the
Trust's absolute ownership of the Contracts and shall cause the Servicer to
mark its computer records relating to the Contracts to show the sale to the
Company of the Contracts and its subsequent transfer to the Trust, and from
and after the Closing Date the Company shall not and shall instruct the
Servicer not to take any action inconsistent with the Trust's ownership of
such Contracts, other than as permitted by the Pooling and Servicing
Agreement.
(ix) To the extent, if any, that the rating provided with
respect to the Certificates by Moody's Investors Service, Inc. and Standard
& Poor's Corporation is conditional upon the furnishing of documents or the
taking of any other action by the Company agreed upon on or prior to the
Closing Date, the Company shall furnish such documents and take any such
action.
(x) The Company will file with the Commission a post-effective
amendment setting forth all ABS Terms Sheet provided to the Company by the
Underwriter and identified by it as such within the time period allotted for
such filing pursuant to the No-Action Letter; provided, however, that prior
to such filing of the ABS Term Sheets (other than any ABS Term Sheets that
are not based on the Contract Pool information) by the Company, the
Underwriter must comply with its obligations pursuant to Section 4 and the
Company must receive a letter from Coopers & Lybrand, certified public
accountants, satisfactory in form and substance to the Company, to the
effect that such accountants have performed certain specified procedures,
all of which have been agreed to by the Company, as a result of which they
have determined that the information included in the ABS Term Sheets (if
any), provided by the Underwriter to the Company for filing on a
post-effective amendment pursuant to Section 4 and, if the Company then so
specifies, this subsection (i), and that the accountants have examined in
accordance with such agreed upon procedures, is accurate except as to
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<PAGE> 13
such matters that are not deemed by the Company to be material. The
foregoing letter shall be at the expense of the Underwriter. The Company
shall file any corrected ABS Term Sheets described in Section 4(b)(vi) as
soon as practicable following receipt thereof.
6. Payment of Expenses. The Company will pay all expenses incident to
the performance of its obligations under this Agreement, including (i) the
printing and filing of the Registration Statement as originally filed and of
each amendment thereto, (ii) the Trustee's fees and the fees and disbursements
of the counsel to the Trustee, (iii) any up-front fees and premiums payable to
the Insurer and the fees and disbursements of counsel to the Insurer, (iv) the
fees and disbursements of the accountants, (v) the fees of the rating agencies
and (vi) blue sky expenses.
7. Conditions to the Obligations of the Underwriter. The obligation of
the Underwriter to purchase and pay for the Certificates will be subject to the
accuracy of the representations and warranties on the part of the Company
herein, to the accuracy of the statements of officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder and to the following additional conditions precedent:
(i) On or prior to the date of this Agreement, the Underwriter
shall have received a let- ter, dated the date of this Agreement, of Coopers
and Lybrand and substantially in the form heretofore agreed, which letter
shall be in form and substance agreed to by the Underwriter.
(ii) If the Registration Statement has not become effective
prior to the date of this Agreement, unless the Underwriter agrees in
writing to a later time, the Registration Statement shall have become
effective not later than (A) 6:00 p.m., New York City time, on the date of
determination of the public offering price, if such determination occurred
at or prior to 12:00 noon, New York City time, on such date or (B) 3:00 p.m.
on the business day following the day on which the public offering price was
determined, if such determination occurred after 12:00 noon, New York City
time, on such date; if filing of the Prospectus, or any supplement thereto,
is required
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<PAGE> 14
pursuant to Rule 424(b), the Prospectus shall be filed in the manner and
within the time period required by Rule 424(b); and no stop order suspending
the effectiveness of the Registration Statement shall have been issued and
no proceedings for that purpose shall have been instituted or threatened.
(iii) Subsequent to the execution and delivery of this
Agreement, there shall have not occurred (a) any change, or any development
involving a prospective change, in or affecting particularly the business or
properties of the Company or Onyx which, in the reasonable judgment of the
Underwriter materially impairs the investment quality of the Certificates;
(b) any suspension or material limitation of trading in securities generally
on the New York Stock Exchange, or any setting of minimum prices for trading
on such exchange, or any suspension of trading of any securities of Onyx on
any exchange or in the over-the-counter market by such exchange or
over-the-counter market or by the Commission; (c) any banking moratorium
declared by Federal, New York or California authorities; (d) any outbreak or
material escalation of major hostilities or any other substantial national
or international calamity or emergency if, in the reasonable judgment of the
Underwriter, the effect of any such outbreak, escalation, calamity or
emergency on the United States financial markets makes it impracticable or
inadvisable to proceed with completion of the sale of, and any payment for,
the Certificates.
(iv) The Underwriter shall have received an opinion, dated the
Closing Date, of Brobeck, Phleger & Harrison, counsel of the Company,
substantially to the effect that:
(a) The Company (1) has been duly organized and is validly
existing and in good standing under the laws of the State of
Delaware, (2) has the power and authority to own its properties and
conduct its business as described in the Prospectus and (3) had at
all relevant times, and now has, the power, authority and legal
right to acquire, own and sell the Contracts;
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<PAGE> 15
(b) The Company has, or at the time such agreement was
executed and delivered, had, the power and authority to execute
and deliver this Agreement, the Pooling and Servicing Agreement,
the Purchase Agreement, and the Insurance Agreement and to
consummate the transactions contemplated herein and therein;
(c) No consent, approval, authorization or order of, or
filing with, any California, Delaware or federal governmental
agency or body or any court is or was required by the Company to
perform the transactions contemplated by this Agreement, Pooling
and Servicing Agreement, the Purchase Agreement or the Insurance
Agreement except for (1) filing of a Uniform Commercial Code
financing statement in the State of California with respect to
the transfer of the Contracts to the Trust pursuant to the
Pooling and Servicing Agreement and the sale of the Contracts to
the Company pursuant to the Purchase Agreement and (2) such
consents, approvals, authorizations, orders or filings as may be
required under the federal and state securities laws;
(d) None of the execution, delivery and performance by the
Company of this Agreement, the Pooling and Servicing Agreement,
the Purchase Agreement or the Insurance Agreement, the transfer
of the Contracts to the Trust, the assignment of the security
interests of the Company in the Financed Vehicles, the issuance
and sale of the Certificates or the consummation of any other of
the transactions contemplated herein or in the Pooling and
Servicing Agreement, the Purchase Agreement, or the Insurance
Agreement has conflicted or will conflict with, has resulted or
will result in a breach, violation or acceleration of any of the
terms of, or has constituted or will constitute a default under,
the By-Laws or the Certificate of Incorporation of the Company,
as amended, or, to the best of such counsel's knowledge, any
rule, order, statute or regulation known to such counsel to be
currently applicable to the Company of any court, regulatory
body, administrative agency or govern
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<PAGE> 16
mental body having jurisdiction over the Company or the terms of
any material indenture or other material agreement or instrument
known to such counsel to which the Company is a party or by
which it or its properties are bound;
(e) To the best knowledge of such counsel, after due
inquiry, there are no actions, proceedings or investigations
pending or threatened before any court, administrative agency or
other tribunal (1) asserting the invalidity of this Agreement,
the Pooling and Servicing Agreement, the Purchase Agreement, or
the Insurance Agreement or the Certificates, (2) seeking to
prevent the issuance of the Certificates or the consummation of
any of the transactions contemplated by this Agreement, the
Pooling and Servicing Agreement, the Purchase Agreement or the
Insurance Agreement (3) seeking adversely to affect the federal
income tax attributes of the Certificates as described in the
Prospectus under the headings "Prospectus Summary -- Tax Status"
and "Certain Tax Consequences";
(f) This Agreement, the Pooling and Servicing Agreement, the
Purchase Agreement and the Insurance Agreement have each been
duly authorized, executed and delivered by the Company;
(g) The Contracts constitute "chattel paper" as defined in
Section 9-105(a)(2) of the Uniform Commercial Code of the State
of California;
(h) The statements in the Prospectus under the caption
"Certain Legal Aspects of the Contracts," and "ERISA
Considerations" to the extent they constitute matters of law or
legal conclusions, are correct in all material respects;
(i) The Certificates have been duly and validly authorized
and, when executed, authenticated and issued in accordance with
the terms of the Pooling and Servicing Agreement, and delivered
to and paid for by the Underwriter
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<PAGE> 17
pursuant to this Agreement, will be duly and validly issued and
outstanding and will be entitled to the benefits of the Pooling
and Servicing Agreement;
(j) Assuming the authorization, execution and delivery
thereof by the Trustee and the Servicer with respect to the
Pooling and Servicing Agreement, and by Onyx with respect to
Purchase Agreement and the Insurer with respect to the Insurance
Agreement, each such agreement constitutes the legal, valid and
binding agreement of the Company, enforceable against the
Company in accordance with its terms, subject, as to
enforcement, to (1) the effect of bankruptcy, insolvency,
reorganization, moratorium, conservatorship, receivership or
other similar laws of general application relating to or
affecting creditors' rights generally (2) the application of
general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at
law); and (3) the unenforceability under certain circumstances
of provisions indemnifying a party against liability where such
indemnification is contrary to public policy;
(k) The Registration Statement became effective under the
Act as of the date and time specified in such opinion; after due
inquiry, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the Act; the
Registration Statement, and each amendment thereof or supplement
thereto as of its Effective Date and the Prospectus as of its
date of issuance complied as to form in all material respects
with the requirements of the Act and the Rules and Regulations;
and such counsel has no reason to believe that either the
Registration Statement or the Prospectus or any such amendment
thereof or supplement thereto as of its Effective Date or date
of issuance, as the case may be, contained any untrue statement
of a material fact or omitted to state any material fact
required to be
17
<PAGE> 18
stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading; it being understood that such counsel need express
no opinion as to the financial statements or other financial
data contained in the Registration Statement or the Prospectus;
(l) The Certificates, the Pooling and Servicing Agreement,
the Purchase Agreement, this Agreement and the Insurance
Agreement conform in all material respects to the descriptions
thereof contained in the Registration Statement and the
Prospectus;
(m) The Pooling and Servicing Agreement is not required to
be qualified under the Trust Indenture Act of 1939, as amended;
and
(n) The Trust is not now, and immediately following the sale
of the Certificates pursuant to this Agreement will not be,
required to be registered under the Investment Company Act of
1940, as amended.
In addition, such counsel shall opine as to certain matters
relating to the acquisition by the Company of a perfected first
priority security interest in the vehicles financed by motor vehicle
installment loans made by the Company.
In rendering such opinion, such counsel may rely as to matters
of fact, to the extent deemed proper and as stated therein, on
certificates of responsible officers of the Company and public
officials. References to the Prospectus in this paragraph (iv)
include any supplements thereto.
(v) The Underwriter shall have received an opinion, dated the
Closing Date, of Brobeck, Phleger & Harrison, counsel to Onyx,
substantially to the effect that:
(a) Onyx (1) has been duly incorporated and is validly
existing and in good standing under the laws of the State of
California, (2) has the power and authority to own its
properties and conduct its business as de-
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<PAGE> 19
scribed in the Prospectus and (3) had at all relevant times, and
now has, the power, authority and legal right to acquire, own
and sell the Contracts;
(b) Onyx has the power and authority to execute and deliver
the Pooling and Servicing Agreement and the Purchase Agreement
and at the time it was executed and delivered, had the power and
authority to execute and deliver the Purchase Agreement, and to
consummate the transactions contemplated herein and therein;
(c) No consent, approval, authorization or order of, or
filing with, any California or federal governmental agency or
body or any court is required by Onyx to perform the
transactions contemplated by the Pooling and Servicing Agreement
or the Purchase Agreement except for (1) filing of a Uniform
Commercial Code financing statement in the State of California
with respect to the sale of the Contracts to the Company
pursuant to the Purchase Agreement and the transfer of the
Contracts to the Trust pursuant to the Pooling and Servicing
Agreement and (2) such consents, approvals, authorizations,
orders or filings as may be required under the federal and state
securities laws;
(d) None of the execution, delivery and performance by Onyx
of the Pooling and Servicing Agreement or the Purchase
Agreement, or the transfer of the Contracts to the Company, has
conflicted with or will conflict with, has resulted or will
result in a breach, violation or acceleration of any of the
terms of, or has constituted or will constitute a default under,
the By-Laws or the Certificate of Incorporation of Onyx, as
amended, or, to the best of such counsel's knowledge, any rule,
order, statute or regulation known to such counsel to be
currently applicable to Onyx of any court, regulatory body,
administrative agency or governmental body having jurisdiction
over Onyx or the terms of any material indenture or other
material agreement or instrument known to such counsel to which
Onyx is
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<PAGE> 20
a party or by which it or its properties are bound;
(e) The Pooling and Servicing Agreement and the Purchase
Agreement have each been duly authorized, executed and delivered
by Onyx; and
(f) The indemnification agreement dated as of the date
hereof, between Onyx and the Underwriter has been duly
authorized, executed and delivered by Onyx.
(g) Assuming the authorization, execution and delivery
thereof by the Trustee and the Company with respect to the
Pooling and Servicing Agreement, and by the Company with respect
to Purchase Agreement, each such agreement constitutes the
legal, valid and binding agreement of Onyx, enforceable against
Onyx in accordance with its terms, subject, as to enforcement,
to (1) the effect of bankruptcy, insolvency, reorganization,
moratorium, conservatorship, receivership or other similar laws
of general application relating to or affecting creditors'
rights generally (2) the application of general principles of
equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law); and (3) the
unenforceability under certain circumstances of provisions
indemnifying a party against liability where such
indemnification is contrary to public policy;
In rendering such opinion, such counsel may rely as to
matters of fact, to the extent deemed proper and as stated therein, on
certificates of responsible officers of Onyx and public officials.
(vi) The Underwriter shall have received an opinion or
opinions of Brobeck, Phleger & Harrison, counsel to the Company, dated
the Closing Date and satisfactory in form and substance to you, with
respect the characterization of the transfer of the Contracts by Onyx
to the Company as a sale and with respect to the perfection of the
Trust's interests in the Contracts and with respect to the
non-consolidation of the Company with Onyx in the event of
20
<PAGE> 21
bankruptcy filing with respect to Onyx and with respect to certain other
matters.
(vii) The Underwriter shall have received an opinion of Brobeck,
Phleger & Harrison, tax counsel to the Company, dated the Closing Date
and satisfactory in form and substance to you substantially to the
effect that:
(a) the Trust created by the Pooling and Servicing
Agreement will not be classified as an association taxable as a
corporation for federal income tax purposes and, instead, under
subpart E, part I of subchapter J of the Internal Revenue Code of
1986, as amended, the Trust will be treated as a grantor trust,
and subject to possible recharacterization of certain amounts paid
by the Trust to the Servicer, the holders of the Certificates will
be treated as owning an undivided pro-rata interest in the income
and corpus attributable to the Trust;
(b) The statements in the Registration Statement and
Prospectus under the head- ings "Prospectus Summary -- Tax Status"
and "Certain Tax Consequences" to the extent that they constitute
matters of law or legal conclusions with respect thereto, have
been prepared or reviewed by such counsel and are correct in all
material respects; and
(c) For California franchise tax purposes, the Trust
created by the Pooling and Servicing Agreement will not be subject
to California franchise or income taxes, and Certificateholders
who are not residents of or otherwise subject to the tax in
California will not be subject to California franchise or income
taxes with respect to interest received from the Certificates or
with respect to any of the Contracts.
(viii) The Underwriter shall have received an opinion, dated
the Closing Date, of Beller and Keller, counsel to the Insurer,
substantially to the effect that:
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<PAGE> 22
(a) The Insurer is a corporation validly existing, in good
standing and licensed to transact the business of surety and
financial guaranty insurance under the laws of the State of New
York;
(b) The Insurer has the corporate power to execute and
deliver, and to take all action required of it under the Surety
Bond, the Insurance Agreement and the Indemnification Agreement;
(c) Except as have already been obtained, no authorization,
consent, approval, license, formal exemption or declaration from,
nor any registration or filing with, any court or governmental
agency or body of the United States of America or the State of New
York, which if not obtained would affect or impair the validity or
enforceability of the Surety Bond, the Insurance Agreement or the
Indemnification Agreement against the Insurer, is required in
connection with the execution and delivery by the Insurer of the
Surety Bond, the Insurance Agreement or the Indemnification
Agreement or in connection with the Insurer's performance of its
obligations thereunder;
(d) The Surety Bond, the Insurance Agreement and the
Indemnification Agreement have been duly authorized, executed and
delivered by the Insurer, and the Surety Bond and, assuming due
authorization, execution and delivery of the Insurance Agreement
by the parties thereto (other than the Insurer), the Insurance
Agreement constitute the legally valid and binding obligations of
the Insurer, enforceable in accordance with their respective terms
subject, as to enforcement, to (1) bankruptcy, reorganization,
insolvency, moratorium and other similar laws relating to or
affecting the enforcement of creditors' rights generally,
including, without limitation, laws relating to fraudulent
transfers or conveyances, preferential transfers and equitable
subordination, presently or from time to time in effect and
general principles of equity (regardless of whether such
enforcement is considered in
22
<PAGE> 23
a proceeding in equity or at law), as such laws may be applied in
any such proceeding with respect to the Insurer and (2) the
qualification that the remedy of specific performance may be
subject to equitable defenses and to the discretion of the court
before which any proceedings with respect thereto may be brought;
and
(e) The Surety Bond is not required to be registered under
the Securities Act of 1933, as amended.
In rendering such opinion, such counsel may rely as to matters
of fact, to the extent deemed proper and as stated therein, on
certificates of responsible officers of the Insurer and public
officials. References to the Prospectus in this paragraph (viii) include
any supplements thereto.
(ix) The Underwriter shall have received an opinion of counsel
to the Trustee, dated the Closing Date and satisfactory in form and
substance to you, substantially to the effect that:
(a) The Trustee is a banking corporation validly existing
under the laws of the State of New York;
(b) The Trustee has the requisite power and authority to
execute, deliver and perform its obligations under the Pooling and
Servicing Agreement, and has taken all necessary action to
authorize the execution, delivery and performance by it of the
Pooling and Servicing Agreement; and
(c) The Pooling and Servicing Agreement has been duly
executed and delivered by the Trustee and constitutes a legal,
valid and binding obligation of the Trustee, enforceable against
the Trustee in accordance with its terms, except that certain of
such obligations may be enforceable solely against the Trust
Estate and except that such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium, liquidation,
or other similar laws applicable to banking corporations affecting
the enforcement
23
<PAGE> 24
of creditors' rights generally, and by general principles of
equity , including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing (regardless of whether
such enforceability is considered in a proceeding in equity or at
law).
(x) The Underwriter shall have received from Skadden, Arps,
Slate, Meagher & Flom, counsel to the Underwriter, such opinion or
opinions, dated the Closing Date and satisfactory in form and substance
to you, with respect to the validity of the Certificates, the
Registration Statement, the Prospectus and other related matters as the
Underwriter may require, and the Company shall have furnished to such
counsel such documents as they reasonably request for the purpose of
enabling them to pass upon such matters.
(xi) The Underwriter shall have received a letter, dated the
Closing Date, of Coopers and Lybrand which meets the requirements of the
subsection (i) of this Section 7, except that the specified date
referred to in such subsection will be a date not more than five days
prior to the Closing Date for the purposes of this subsection.
(xii) The Underwriter shall have received evidence satisfactory
to them that the Certifi- cates have been rated in the highest rating
category by Moody's Investors Service, Inc. and by Standard & Poor's
Corporation.
(xiii) The Underwriter shall have received a certificate, dated
the Closing Date, of a Vice President or more senior officer of the
Company in which such officer shall state that, to the best of his or
her knowledge after reasonable investigation, the representations and
warranties of the Company in this Agreement are true and correct on and
as of the Closing Date, that the Company has complied with all
agreements and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to the Closing Date, that the
representations and warranties of the Company, as Seller, in the Pooling
and Servicing Agreement and the conditions set forth in Section 2.2(b)
of the Pooling and Servicing Agreement, are
24
<PAGE> 25
true and correct as of the dates specified in the Pooling and Servicing
Agreement, that no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or are threatened by the Commission and
that, subsequent to the date of the Prospectus, there has been no
material adverse change in the financial position or results of
operation of the Company's motor vehicle installment loan business
except as set forth in or contemplated by the Prospectus or as described
in such certificate.
(xiv) The Underwriter shall have received a certificate, dated
the Closing Date, of a Vice President or more senior officer of Onyx in
which such officer shall state that, to the best of his or her knowledge
after reasonable investigation, the representations and warranties of
Onyx in the Purchase Agreement are true and correct in all material
respects on and as of the Closing Date, that Onyx has complied with all
agreements and satisfied all conditions on its part to be performed or
satisfied thereunder at or prior to the Closing Date, that the
representations and warranties of Onyx, as Servicer, in the Pooling and
Servicing Agreement are true and correct as of the dates specified in
the Pooling and Servicing Agreement, there has been no material adverse
change in the financial position or results of operation of Onyx's motor
vehicle installment loan business except as set forth in or contemplated
by the Prospectus or as described in such certificate.
(xv) The Surety Bond shall have been duly authorized, executed,
issued and delivered by the Insurer; all fees due and payable to the
Insurer as of the Closing Date shall have been paid in full; and the
Surety Bond shall conform to the description thereof in the Registration
Statement and the Prospectus.
(xvi) The Underwriter shall have received a Certificate from a
senior officer of the Insurer to the effect that such officer has no
reason to believe that the section of the Prospectus captioned
"Description of the Insurer" or any such amendment thereof or supplement
thereto as of its Effective Date or date of issuance, as the case may
be, contained any untrue statement of a material fact or
25
<PAGE> 26
omitted to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
The Company will furnish or cause to be furnished to the
Underwriter such number of conformed copies of such opinions, certificates,
letters and documents as the Underwriter reasonably requests.
8. Indemnification.
(i) The Company will indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter with
the meaning of Section 15 of the Act against any losses, claims, damages
or liabilities, joint or several, to which the Underwriter may become
subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of, or
are based upon, any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, the Prospectus,
or any amendment or supplement thereto, or arise out of, or are based
upon, the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading; and will reimburse the Underwriter for any legal
or other expenses reasonably incurred by the Underwriter in connection
with investigating or defending any such action or claim; provided,
however, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of, or
is based upon, an untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by the
Underwriter expressly for use therein.
(ii) The Underwriter severally agrees to indemnify and
hold harmless the Company, its directors, each of its officers or agents
who signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of Section 15 of the Act against
any and all loss, liability, claim,
26
<PAGE> 27
damage and expense described in the indemnity contained in subsection
(i) of this Section 8, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, (A)
made in the Registration Statement (or any amendment thereto) or any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) in reliance upon and in conformity with written information
furnished to the Company by the Underwriter through Merrill Lynch,
Pierce, Fenner & Smith Incorporated expressly for use in the
Registration Statement (or any amendment thereto) or such preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) or
(B) made in the ABS Term Sheets distributed by the Underwriter and filed
as a post-effective amendment to the Registration Statement or the
Prospectus as a result of any filing pursuant to Section 5(x); provided
however that the Underwriter will not be liable in any such case to the
extent that any such loss, claim or damage or liability arises out of,
or is based upon, an untrue statement or omission made in the ABS Term
Sheet or any supplement thereto in reliance upon and in conformity with
(x) information furnished to the Underwriter by the Company or (y)
information contained in the Registration Statement or any preliminary
prospectus or the Prospectus other than information described in clause
(A) above.
(iii) Each indemnified party shall give prompt notice to
the indemnifying party of any action commenced against the indemnified
party in respect of which indemnity may be sought hereunder, but failure
to so notify an indemnifying party shall not relieve such indemnifying
party from any liability which it may have hereunder or otherwise than
on account of this indemnity agreement. In case any such action shall be
brought against an indemnified party and it shall have notified the
indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate therein and, to the extent that it
shall wish, to assume the defense thereof, with counsel, satisfactory to
such indemnified party (who shall not, except with the consent of the
indemnified party, be counsel to the indemnifying party with respect to
such action), and it being understood that the indemnifying party shall
not, in connection with any one such action or separate but
substantially
27
<PAGE> 28
similar or related actions in the same jurisdiction arising out of the
same general allegations or circumstances, be liable for the reasonable
fees and expenses of more than one separate firm of attorneys, and,
after notice from the indemnifying party to the indemnified party of its
election so to assume the defense thereof, the indemnifying party shall
not be liable to the indemnified party under subsections (i) or (ii) of
this Section 8 for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by the indemnified party,
in connection with the defense thereof other than reasonable costs of
investigation.
9. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Section 8 is for any reason held to be unavailable other than in accordance with
its terms, then each indemnifying party shall contribute to the amount paid or
payable by such indemnifying party as a result of the losses, claims, damages or
liabilities referred to in 8(i) and 8(ii) above (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Underwriter on the other from the offering of the Certificates or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and of the Underwriter on the other in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriter on
the other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by the Underwriter.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriter and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this Section 9 shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified
28
<PAGE> 29
party in connection with investigating or defending any action or claim which is
the subject of this Section 9. Notwithstanding the provisions of this Section 9,
the Underwriter shall not be required to contribute any amount in excess of the
underwriting discount or commission applicable to the Certificates purchased by
it hereunder. The Company and the Underwriter agrees that it would not be just
and equitable if contribution pursuant to this Section 9 were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 9. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
10. Termination. The Underwriter may terminate this Agreement
immediately upon notice to the Company, if at any time, prior to the Closing
Date, there has occurred: (a) any change, or any development involving a
prospective change, in or affecting particularly the business or properties of
the Company or Onyx which, in the reasonable judgment of the Underwriter,
materially impairs the investment quality of the Certificates; (b) any
suspension or material limitation of trading in securities generally on the New
York Stock Exchange, or any setting of minimum prices for trading on such
exchange, or any suspension of trading of any securities of the Company or of
Onyx on any exchange or in the over-the-counter market by such exchange or
over-the-counter market or by the Commission; (c) any banking moratorium
declared by Federal, New York or California authorities; or (d) any outbreak or
material escalation of major hostilities or any other substantial national or
international calamity or emergency if, in the reasonable judgment of the
Underwriter, the effect of any such outbreak, escalation, calamity or emergency
on the United States financial markets makes it impracticable or inadvisable to
proceed with completion of the sale of and any payment for the Certificates.
11. Survival of Certain Representations and Obligations. The
respective indemnities, agreements, representations, warranties and other
statements of the Company or its officers and of the Underwriter set forth in or
made pursuant to this Agreement will remain in full force and effect, regardless
of any investigation, or statement as to the results thereof, made by or on
behalf of the Underwriter, the Company or any of their respective
representatives, officers or directors or any controlling person, and will
survive delivery of and payment for the Certificates. If for any reason the
purchase of the
29
<PAGE> 30
Certificates by the Underwriter is not consummated, the Company shall remain
responsible for the expenses to be paid or reimbursed by it pursuant to Section
6 and the respective obligations of the Company and the Underwriter pursuant to
Sections 6, 8 and 9 shall remain in effect. If the purchase of the Certificates
by the Underwriter is not consummated for any reason other than solely because
of the occurrence of any event specified in clauses (b), (c) or (d) of Section
7(iii), the Company will reimburse the Underwriter for all out-of-pocket
expenses (including fees and disbursements of counsel) reasonably incurred by it
in connection with the offering of the Certificates.
12. Notices. All communications hereunder will be in writing
and, if sent to the Underwriter, will be mailed, delivered or telegraphed and
confirmed to the Underwriter at c/o Merrill Lynch & Co., World Financial Center,
Attention: Managing Director, Asset-Backed Securities Department, or to such
other address as the Underwriter may designate in writing to the Company, or if
sent to the Company, will be mailed, delivered or telegraphed and confirmed to
the Company at Onyx Acceptance Financial Corporation, 8001 Irvine Center Drive,
5th Floor, Irvine CA 92718, Attention: Regan E. Kelly, Esq., Executive Vice
President.
13. Successors. This Agreement will inure to the benefit of,
and be binding upon, the parties hereto and their respective successors. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person, firm or corporation, other than the parties hereto and their
respective successors and the controlling persons and officers and directors
referred to in Sections 8 and 9 and their heirs and legal representatives, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision herein contained. This Agreement and all conditions and
provisions hereof are intended to be for the sole and exclusive benefit of the
parties hereto and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Certificates
from the Underwriter shall be deemed to be a successor by reason merely of such
purchase.
14. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
30
<PAGE> 31
15. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
16. Severability of Provisions. Any covenant, provisions,
agreement or term of this Agreement that is prohibited or is held to be void or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
17. Entire Agreement. This Agreement constitutes the entire
agreement and understanding of the parties hereto with respect to the matters
and transactions contemplated hereby and supersedes all prior agreements and
understandings whatsoever relating to such matters and transactions.
18. Amendment. Neither this Agreement nor any term hereof may
be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought.
19. Heading. The headings in this Agreement are for the
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
31
<PAGE> 32
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us the enclosed duplicate thereof,
whereupon it will become a binding agreement among the undersigned in accordance
with its terms.
Very truly yours,
ONYX ACCEPTANCE FINANCIAL
CORPORATION
By:
----------------------
Name:
Title:
The foregoing Underwriting Agreement is
hereby confirmed and accepted as of the
date first above written.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
- -----------------------------------
32
<PAGE> 33
Exhibit A
The information herein has been provided solely by Merrill
Lynch, Pierce, Fenner & Smith Incorporated A("Merrill Lynch"). Neither Merrill
Lynch, the Issuer of the securities nor any of its affiliates make any
representation as to the accuracy or completeness of he information herein. The
information herein is preliminary, and will be superseded by the applicable
prospectus supplement and by any other information subsequently filed with the
Securities and Exchange Commission.
The information contained herein will be superseded by the
description of the collateral pool contained in the prospectus supplement
relating to the securities.
33
<PAGE> 1
Exhibit 4.1
ONYX ACCEPTANCE FINANCIAL CORPORATION
Seller
ONYX ACCEPTANCE CORPORATION
Servicer
and
BANKERS TRUST COMPANY
Trustee and Back-up Servicer
POOLING AND SERVICING AGREEMENT
Dated as of May ___, 1996
ONYX ACCEPTANCE GRANTOR TRUST, 1996-2
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I - Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2. Usage of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 1.3. Section References . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 1.4. Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 1.5. Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE II - Conveyance of the Contracts; Representation and Warranties
of the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 2.1. Sale and Assignment of Contracts . . . . . . . . . . . . . . . . . . . . 15
SECTION 2.2. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.3. Repurchase of Certain Contracts . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.4. Duties and Appointment of Custodian . . . . . . . . . . . . . . . . . . . 23
SECTION 2.5. Duties of Servicer Relating to the Contracts . . . . . . . . . . . . . . 24
SECTION 2.6. Instructions; Authority to Act . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.7. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.8. Effective Period and Termination . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.9. Nonpetition Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 2.10. Collecting Title Documents Not Delivered at the Closing Date . . . . . . 27
ARTICLE III - Administration and Servicing of Contracts . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 3.1. Duties of Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 3.2. Collection of Contract Payments . . . . . . . . . . . . . . . . . . . . . 29
SECTION 3.3. Realization Upon Contracts . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 3.4. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 3.5. Maintenance of Security Interests in Financed Vehicles . . . . . . . . . 30
SECTION 3.6. Covenants, Representations and Warranties of Servicer . . . . . . . . . . 31
SECTION 3.7. Purchase of Contracts Upon Breach of Covenant . . . . . . . . . . . . . . 32
SECTION 3.8. Servicing Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 3.9. Reporting by the Servicer . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 3.10. Annual Statement as to Compliance . . . . . . . . . . . . . . . . . . . . 35
SECTION 3.11. Annual Independent Certified Public Accountant's Report . . . . . . . . . 35
SECTION 3.12 Access to Certain Documentation and Information Regarding Contracts . . . 36
SECTION 3.13. Fidelity Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 3.14. Indemnification; Third Party Claims . . . . . . . . . . . . . . . . . . . 36
SECTION 3.15. Reports to Certificateholders and the Rating Agencies . . . . . . . . . . 36
ARTICLE IV - Distributions; Statements to Certificateholders . . . . . . . . . . . . . . . . . . . 37
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 4.1. Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 4.2. Collections; Transfer to Payahead Account;
Realization Upon Surety Bond; Net Deposit . . . . . . . . . . . . . . . . 38
SECTION 4.3. Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 4.4. Remittance Of Repurchase Amount . . . . . . . . . . . . . . . . . . . . . 39
SECTION 4.5. Statements to Certificateholders . . . . . . . . . . . . . . . . . . . . 40
SECTION 4.6. OMITTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE V - The Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 5.1. The Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 5.2. Execution, Authentication and Delivery of Certificates . . . . . . . . . 41
SECTION 5.3. Registration of Transfer and Exchange of Certificates . . . . . . . . . . 41
SECTION 5.4. Mutilated, Destroyed, Lost or Stolen Certificates . . . . . . . . . . . . 42
SECTION 5.5. Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 5.6. Access to List of Certificateholders' Names and Addresses . . . . . . . . 42
SECTION 5.7. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . 42
SECTION 5.8. Book-Entry Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 5.9. Notices to Clearing Agency . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 5.10. Definitive Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 5.11. Appointment of Paying Agent . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 5.12. Authenticating Agent . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 5.13. Actions of Certificateholders . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE VI - The Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 6.1. Liability of Seller; Indemnities . . . . . . . . . . . . . . . . . . . . 46
SECTION 6.2. Merger or Consolidation of, or Assumption of the
Obligations of, Seller . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 6.3. Limitation on Liability of Seller and Others . . . . . . . . . . . . . . 47
SECTION 6.4. Seller Not to Resign . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 6.5. Seller May Own Certificates . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE VII - The Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 7.1. Liability of Servicer; Indemnities . . . . . . . . . . . . . . . . . . . 48
SECTION 7.2. Corporate Existence; Status as Servicer; Merger . . . . . . . . . . . . . 49
SECTION 7.3. Performance of Obligations . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 7.4. The Servicer Not to Resign; Assignment . . . . . . . . . . . . . . . . . 50
SECTION 7.5. Limitation on Liability of Servicer and Others . . . . . . . . . . . . . 50
ARTICLE VIII - Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 8.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 8.2. Back-up Servicer to Act; Appointment of Successor . . . . . . . . . . . . 53
SECTION 8.3. Notification to Certificateholders . . . . . . . . . . . . . . . . . . . 53
SECTION 8.4. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 8.5. Insurer Direction of Insolvency Proceedings . . . . . . . . . . . . . . . 54
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE IX - The Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 9.1. No Power to Engage in Business or to Vary Investments . . . . . . . . . . 54
SECTION 9.2. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 9.3. Trustee's Assignment of Purchased Contracts . . . . . . . . . . . . . . . 57
SECTION 9.4. Certain Matters Affecting the Trustee . . . . . . . . . . . . . . . . . . 57
SECTION 9.5. Trustee Not Liable for Certificates or Contracts . . . . . . . . . . . . 59
SECTION 9.6. Trustee May Own Certificates . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 9.7. Trustee's Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 9.8. Indemnity of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 9.9. Eligibility Requirements for Trustee . . . . . . . . . . . . . . . . . . 60
SECTION 9.10. Resignation or Removal of Trustee . . . . . . . . . . . . . . . . . . . . 60
SECTION 9.11. Successor Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 9.12. Merger or Consolidation of Trustee . . . . . . . . . . . . . . . . . . . 62
SECTION 9.13. Appointment of Co-Trustee or Separate Trustee . . . . . . . . . . . . . . 62
SECTION 9.14. Representations and Warranties of Trustee . . . . . . . . . . . . . . . . 63
SECTION 9.15. Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 9.16. Trustee May Enforce Claims Without Possession of Certificates . . . . . . 64
SECTION 9.17. Suits for Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 9.18. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . 64
ARTICLE IXA. - The Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 9.1A. Duties of Back-up Servicer . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 9.2A. Back-up Servicer May Own Certificates . . . . . . . . . . . . . . . . . . . 66
SECTION 9.3A. Indemnity of Back-up Servicer . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 9.4A. Eligibility Requirements for Back-up Servicer . . . . . . . . . . . . . . . 66
SECTION 9.5A. Resignation or Removal of Back-up Servicer . . . . . . . . . . . . . . . . 66
SECTION 9.6A. Successor Back-up Servicer . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 9.7A. Merger or Consolidation of Back-up Servicer . . . . . . . . . . . . . . . . 68
SECTION 9.8A. Representations and Warranties of Back-up Servicer . . . . . . . . . . . . 68
SECTION 9.9A. Monitoring Duties of Back-up Servicer . . . . . . . . . . . . . . . . . . . 68
ARTICLE X - Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 10.1. Termination of the Trust . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 10.2. Optional Purchase of All Contracts . . . . . . . . . . . . . . . . . . . 70
ARTICLE XI - Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 11.1. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 11.2. Protection of Title to Trust . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 11.3. Limitation on Rights of Certificateholders . . . . . . . . . . . . . . . 73
SECTION 11.4. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 11.5. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 11.6. Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 11.7. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 11.8. Certificates Nonassessable and Fully Paid . . . . . . . . . . . . . . . . 75
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 11.9. Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 11.10. Insurer Default or Insolvency . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 11.11. Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
</TABLE>
iv
<PAGE> 6
EXHIBITS
Exhibit A - Form of Appointment of Custodian
Exhibit B - Form of Certificate
Exhibit C - Form of Surety Bond
Schedule I - Schedule of Contracts
v
<PAGE> 7
This Pooling and Servicing Agreement, dated as of May ___, 1996, is
made with respect to the formation of the Onyx Acceptance Grantor Trust, 1996-2,
among Onyx Acceptance Financial Corporation, a Delaware corporation, as
originator of the Trust and Seller, Onyx Acceptance Corporation, a Delaware
corporation, as Servicer, and Bankers Trust Company, a New York banking
corporation, as Trustee and Back-up Servicer.
W I T N E S S E T H:
In consideration of the mutual agreements herein contained, and of
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.1. Definitions. Whenever used in the Agreement, the following
words and phrases, unless the context otherwise requires, shall have the
following meanings:
"Accounts" have the meaning specified in Section 4.1.
"Affiliate" of any specified Person means any other Person
controlling or controlled by or under common control with such specified Person.
For the purpose of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" or
"controlled" have meanings correlative to the foregoing.
"Aggregate Scheduled Balance" means with respect to the Cut-Off
Date or any Distribution Date with respect to the Contracts, the aggregate of
the Scheduled Balances of such Contracts as of the Cut-Off Date or the end of
the Collection Period immediately preceding such Distribution Date,
respectively.
"Aggregate Scheduled Balance Decline" means with respect to any
Distribution Date, the amount by which the Aggregate Scheduled Balances of the
Contracts as of the beginning of the related Collection Period exceeds the
Aggregate Scheduled Balances of such Contracts as of the end of the related
Collection Period.
"Agreement" means this Pooling and Servicing Agreement and all
supplements, modifications and amendments hereto.
1
<PAGE> 8
"Amount Available" means with respect to any Distribution Date,
the sum of (i) the Collection Account Amount Available for such Distribution
Date, and (ii) the Policy Claim Amount actually received by the Trustee for such
Distribution Date.
"Appointment of Custodian" means the letter agreement between
the Trustee and the Servicer substantially in the form attached hereto as
Exhibit A.
"APR" means the annual percentage rate used to determine the
total interest expected to be charged over the term of a Contract as of its
inception, as shown on such Contract.
"Authenticating Agent" shall have the meaning specified in Section
5.12.
"Back-up Servicer" means Bankers Trust Company, a New York
banking corporation, or its designee, until a successor Back-up Servicer shall
have become the Back-up Servicer pursuant to the applicable provisions of this
Agreement, and thereafter "Back-up Servicer" shall mean such successor Person.
"Bank" means the institution designated as such pursuant to the
Insurance Agreement, or a successor Person pursuant to the Insurance Agreement,
and thereafter "Bank" shall mean such successor Person.
"Blanket Insurance Policy" means the Lender's Blanket Consumer
Loan Insurance Policy covering losses with respect to the Contracts, which
policy has been issued by United Financial Casualty Company and the Servicer's
rights therein with respect to the Contracts have been validly assigned to the
Trustee acting on behalf of the Trust.
"Book-Entry Certificates" means beneficial interests in the
Certificates described in Section 5.8, the ownership and transfers of
which shall be made through book entries by a Clearing Agency as described in
Section 5.8.
"Business Day" means any day that is not a Saturday, Sunday or
other day on which commercial banking institutions or savings associations in
California or New York are authorized or required to be closed.
"Certificate" means a certificate executed and authenticated by
the Trustee substantially in the form of Exhibit B hereto.
"Certificate Distribution Amount" means, with respect to any
Distribution Date, the sum of the Interest Distribution for such Distribution
Date and the Principal Distribution for such Distribution Date, plus,
but only in the case of any Distribution Date in respect of which the Servicer
purchases the corpus of the Trust pursuant to Section 10.2, the amount
of the Pool Balance for such Distribution Date (after giving effect to the
Principal Distribution for such Distribution Date).
2
<PAGE> 9
"Certificate Owner" means, with respect to a Book-Entry
Certificate, the Person who is the owner of such Book-Entry Certificate, as
reflected on the books of the Clearing Agency, or on the books of a direct or
indirect Clearing Agency Participant.
"Certificate Register" and "Certificate Registrar" mean
the register maintained and the registrar appointed pursuant to Section
5.3.
"Certificateholder" or "Holder" means the Person in
whose name the respective Certificate shall be registered in the Certificate
Register, except that, solely for the purposes of giving any notices, consents
or waivers pursuant to this Agreement, the interest evidenced by any Certificate
registered in the name of the Seller or the Servicer, or any Person controlling,
controlled by, or under common control with the Seller or the Servicer, shall
not be taken into account in determining whether the requisite percentage
necessary to effect any such consent shall have been obtained.
"Clearing Agency" means an organization registered as a
"clearing agency" pursuant to Section 17A of the Securities Exchange Act
of 1934, as amended. The initial Clearing Agency shall be The Depository Trust
Company.
"Clearing Account" means Account No. 360502648 in the name of
the Seller maintained at First Interstate Bank of California, and any
replacement account created as a result of the merger with Wells Fargo Bank,
N.A.
"Clearing Agency Participant" means a broker, dealer, bank,
other financial institution or other Person for whom from time to time a
Clearing Agency effects book-entry transfers of securities deposited with the
Clearing Agency.
"Closing Date" means May __, 1996.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collection Account" means the account established and
maintained as the Collection Account pursuant to Section 4.1.
"Collection Account Amount Available" means, with respect to
any Distribution Date and the related Collection Period, the sum of (i) all
payments of Monthly P&I, all Full Prepayments, Net Liquidation Proceeds and Net
Insurance Proceeds collected with respect to the Contracts during such
Collection Period, less (x) partial prepayments of Rule of 78's
Contracts which are deposited in the Payahead Account pursuant to Section
4.2(a), (ii) amounts withdrawn from the Payahead Account pursuant to
Section 4.1(b) and deposited in the Collection Account in such
Collection Period, and (iii) the aggregate Repurchase Amount for Repurchased
Contracts deposited in or credited to the Collection Account pursuant to
Section 4.4 on the day preceding the Servicer Report Date next preceding
such Distribution Date.
3
<PAGE> 10
"Collection Period" means, with respect to any Distribution
Date, the calendar month preceding the month in which such Distribution Date
occurs; provided that for Liquidated Contracts the Collection Period will be the
period from but excluding the sixth Business Day preceding the immediately
preceding Distribution Date to and including the sixth Business Day preceding
such Distribution Date; provided, further, however, that with
respect to the first Distribution Date the "Collection Period" for Liquidated
Contracts shall be the period from and including the beginning of the preceding
calendar month to and including the sixth Business Day preceding such first
Distribution Date.
"Contract" means each retail installment sales contract and
security agreement or installment loan agreement and security agreement and all
proceeds thereof and payments thereunder, which agreement has been executed by
an Obligor and pursuant to which such Obligor purchased or financed the Financed
Vehicle described therein, agreed to pay the deferred purchase price (i.e., the
purchase price net of any downpayment) or amount borrowed, together with
interest, as therein provided in connection with such purchase or loan, granted
a security interest in such Financed Vehicle, and undertook to perform certain
other obligations as specified in such contract. Each Contract shall have been
(i) either originated by Onyx or shall have been originated by a Dealer and
assigned to Onyx in accordance with the assignment provisions set forth therein,
and (ii) subsequently conveyed to the Trust pursuant to this Agreement.
"Contract Documents" means, with respect to each Contract, (a)
the Contract and the original credit application fully executed by the Obligor
thereunder; (b) either the original Title Document for the related Financed
Vehicle or a duplicate copy thereof issued or certified by the Registrar of
Titles which issued the original thereof, together with evidence of perfection
of the security interest in the related Financed Vehicle granted by such
Contract, as determined by the Servicer to be permitted or required to perfect
such security interest under the laws of the applicable jurisdiction (or, in the
case of a Contract listed on Schedule I hereto, written evidence from
the Dealer selling such Financed Vehicle that the Title Document for such
Financed Vehicle showing Onyx as first lienholder has been applied for); and (c)
any agreement(s) modifying the Contract (including, without limitation, any
extension agreement(s)).
"Contract Files" means the Contract Documents and all other
papers and computerized records customarily kept by the Servicer in connection
with servicing contracts and loans comparable to the Contracts.
"Contract Number" means, with respect to any Contract included
in the Trust, the number assigned to such Contract by the Servicer, which number
is set forth in the related Schedule of Contracts.
"Contract Rate" means with respect to a Rule of 78's Contract,
the Recomputed Yield for such Contract used in accordance with the definition of
the term "Scheduled Balance" to derive the Scheduled Balances from time to time
of such Rule of 78's Contract.
4
<PAGE> 11
"Corporate Trust Office" means the principal corporate trust
office of the Trustee at which at any particular time its corporate trust
business shall be administered, which office at the time of the execution of
this Agreement is located at Four Albany Street, New York, New York 10006,
Attn.: Corporate Trust and Agency Group, Structured Finance Team, or at such
other address as the Trustee may designate from time to time by notice to the
Certificateholders, the Servicer and the Insurer.
"Custodian" means initially, the Trustee, and thereafter any custodian
that may be appointed by the Trustee pursuant to Section 2.4(b).
"Cut-Off Date" means the opening of business on May 1, 1996.
"Dealer" means the seller of a Financed Vehicle, which seller
originated and assigned the related Contract.
"Default" means any occurrence which with the giving of notice or the
lapse of time or both would become an Event of Default.
"Defaulted Contract" means, with respect to any Collection Period, a
Contract (i) which is, at the end of such Collection Period, delinquent in an
aggregate amount equal to two monthly payments of Monthly P&I or (ii) with
respect to which the related Financed Vehicle has been repossessed or
repossession efforts have been commenced.
"Deficiency Notice" means, with respect to any Distribution Date, the
notice for payment under the Surety Bond delivered by the Trustee to the Insurer
and Bank pursuant to Section 4.2(c).
"Definitive Certificates" has the meaning set forth in Section 5.8.
"Depository Agreement" shall mean the agreement among the Seller, the
Trustee and the initial Clearing Agency, in the form currently used by the
Clearing Agency.
"Distribution Account" means the segregated trust account established
by the Trustee denominated "Distribution Account--GT 1996-2, Bankers Trust
Company, Trustee."
"Distribution Date" means the 15th day of each month or if such date
shall not be a Business Day, the next succeeding Business Day.
"Distribution Date Statement" has the meaning set forth in Section 3.9.
"Due Date" means, as to any Contract, the date in each month upon which
an installment of Monthly P&I is due.
5
<PAGE> 12
"Eligible Account" means (i) a trust account that is either (a)
maintained by the Trustee, (b) maintained with a depository institution or trust
company the commercial paper or other short-term debt obligations of which have
credit ratings from Standard & Poor's at least equal to "A-1" and from Moody's
equal to "P-1," which account is fully insured up to applicable limits by the
Federal Deposit Insurance Corporation or (c) maintained with a depository
institution acceptable to the Insurer, as evidenced by a letter from the Insurer
to that effect or (ii) a general ledger account or deposit account at a
depository institution acceptable to the Insurer, as evidenced by a letter from
the Insurer to that effect.
"Eligible Investments" means any one or more of the following
obligations or securities, all of which shall be denominated in United States
dollars:
(a) direct obligations of, and obligations fully guaranteed as
to timely payment of principal and interest by, the United States of America or
any agency or instrumentality of the United States of America the obligations of
which are backed by the full faith and credit of the United States of America
and, to the extent, at the time of investment, acceptable to the Insurer and
each rating agency rating the Certificates for securities having a rating
equivalent to the rating of the Certificates at the Closing Date, the direct
obligations of, or obligations fully guaranteed by, the Federal Home Loan
Mortgage Corporation and the Federal National Mortgage Association;
(b) demand and time deposits in, certificates of deposit of,
banker's acceptances issued by, or federal funds sold by any depository
institution or trust company (including the Trustee) incorporated under the laws
of the United States of America or any State and subject to supervision and
examination by Federal and/or State banking authorities, so long as at the time
of such investment or contractual commitment providing for such investment
either (i) the long-term, unsecured debt obligations of such depository
institution or trust company have credit ratings from Standard & Poor's at least
equal to "AA-" and from Moody's at least equal to "Aa2" or (ii) such depository
institution is acceptable to the Insurer as evidenced by a letter from the
Insurer to the Trustee;
(c) repurchase obligations with respect to (i) any security
described in clause (a) above or (ii) any other security issued or guaranteed as
to timely payment of principal and interest by an agency or instrumentality of
the United States of America, in either case entered into with a depository
institution or trust company (including the Trustee), acting as principal, whose
obligations having the same maturity as that of the repurchase agreement would
be Eligible Investments under clause (b) above;
(d) securities bearing interest or sold at a discount issued by
any corporation incorporated under the laws of the United States of America or
any state thereof which at the time of such investment or contractual commitment
providing for such investment have long-term, unsecured debt obligations rated
by Standard & Poor's "AA-" or better and by Moody's "Aa2" or better; provided,
however, that securities issued by any corporation will not be Eligible
Investments to the extent that investment therein will cause the then
outstanding principal amount of securities issued by such corporation and held
as part of the Trust to exceed 10% of the
6
<PAGE> 13
aggregate Outstanding Principal Balances of the Contracts and all amounts of
Eligible Investments held as part of the Trust;
(e) commercial paper given the highest rating by Standard &
Poor's and Moody's at the time of such investment;
(f) investments in money market funds or money market mutual
funds having a rating from Standard & Poor's and Moody's in the highest
investment category granted thereby (including funds for which the Trustee or
any of its Affiliates is investment manager or advisor); and
(g) such other obligations or securities acceptable to the
Insurer, as evidenced by a letter from the Insurer to the Trustee (which
acceptability may be revoked at any time by the Insurer).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" means an event specified in Section 8.1.
"Final Distribution Date" means _____________, 2001.
"Financed Vehicle" means, as to any Contract, an automobile or
light-duty truck, together with all accessions thereto, securing an Obligor's
indebtedness under such Contract.
"Full Prepayment" means any of the following: (a) payment by
the Obligor of the total amount required by the terms of the Contract to be paid
thereunder, which amount shall be at least equal to (i) 100% of the Scheduled
Balance of a Contract (exclusive of any Contract referred to in clause (b), (c)
or (d) of the definition of the term "Liquidated Contract"), (ii) interest
accrued thereon to the date of such payment at the APR; and (iii) any overdue
amounts; or (b) payment by the Seller to the Trustee of the Repurchase Amount of
a Contract in connection with the purchase of a Contract pursuant to
Sections 2.3 or payment by the Servicer or the Insurer of the Repurchase
Amount of a Contract in connection with the purchase of all Contracts pursuant
to Section 3.7 or Section 10.2.
"Insurance Agreement" means the Insurance and Reimbursement
Agreement dated as of May __, 1996, among the Seller, the Servicer, the Trustee
and the Insurer as amended, modified or restated from time to time.
"Insurance Proceeds" means proceeds paid pursuant to the
Blanket Insurance Policy and amounts (exclusive of rebated premiums) paid by any
insurer under any other insurance policy related to a Financed Vehicle or a
Contract.
"Insurer" means Capital Markets Assurance Corporation or its successor
in interest.
7
<PAGE> 14
"Insurer Insolvency" means (i) the entry of a decree or order
for relief by a court or regulatory authority having jurisdiction in respect of
the Insurer in an involuntary case under the federal bankruptcy laws, as now or
hereafter in effect, or any other present or future federal or state bank
bankruptcy, insolvency, rehabilitation or similar law, or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Insurer or with respect to any substantial part of its property, or
ordering the winding up or liquidation of the affairs of the Insurer and the
continuance of any such decree or order unstayed and in effect for a period of
60 consecutive days; or (ii) the commencement by the Insurer of a voluntary case
under the federal bankruptcy laws, as now or hereafter in effect, or any other
present or future federal or state bankruptcy, insolvency, rehabilitation or
similar law, or the consent by the Insurer to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator
or other similar official of the Insurer or of any substantial part of its
property or the making by the Insurer of an assignment for the benefit of
creditors or the failure by the Insurer generally to pay its debts as such debts
become due or the taking of corporate action by the Insurer in furtherance of
any of the foregoing.
"Interest Distribution" means, with respect to any Distribution
Date (referred to in this definition as the "current Distribution Date"),
interest equal to the product of one-twelfth of the Pass-Through Rate and the
Pool Balance as of the close of the preceding Collection Period (or, if the
current Distribution Date is the first Distribution Date, as of the Cut-Off
Date) plus the amount of interest previously due but not paid to
Certificateholders, if any.
"Lien" means a security interest, lien, charge, pledge, equity,
or encumbrance of any kind other than tax liens, mechanics' liens, and any liens
that attach to the respective Contract by operation of law.
"Liquidated Contract" means a Contract which (i) has been the
subject of a Full Prepayment; or (ii) was a Defaulted Contract and with respect
to which Liquidation Proceeds constitute, in the Servicer's judgment, the final
amounts recoverable in respect of such Defaulted Contract, have been realized
and deposited in the Collection Account or the Payahead Account; or (iii) has
been paid in full on or after its Maturity Date; or (iv) has been a Defaulted
Contract for four or more Collection Periods and with respect to which
Liquidation Proceeds have not been deposited in the Collection Account or the
Payahead Account. The Scheduled Balance of a Liquidated Contract will equal
zero.
"Liquidation Expenses" means reasonable out-of-pocket expenses
(not to exceed Liquidation Proceeds), other than any overhead expenses, incurred
by the Servicer in connection with the realization of the full amounts due under
any Contract (including the attempted liquidation of a Contract which is brought
current and is no longer in default during such attempted liquidation) and the
sale of any property acquired in respect thereof which are not recoverable as
Insurance Proceeds.
8
<PAGE> 15
"Liquidation Proceeds" means amounts received by the Servicer
(before reimbursement for Liquidation Expenses) in connection with the
realization of the full amounts due and to become due under any Defaulted
Contract and the sale of any property acquired in respect thereof.
"Maturity Date" means with respect to any Contract, the date on
which the last scheduled payment of such Contract shall be due and payable as
such date may be extended pursuant to Section 3.2.
"Monthly P&I" means, with respect to any Contract, the amount
of each monthly installment payment of principal and interest payable to the
Obligee of such Contract in accordance with the terms thereof, exclusive of any
charges allocable to the financing of any insurance premium and charges which
represent late payment charges or extension fees.
"Moody's" means Moody's Investors Service, Inc. and its successors in
interest.
"Net Insurance Proceeds" means, with respect to any Contract,
Insurance Proceeds, net of any such amount applied to the repair of the related
Financed Vehicle, released to an Obligor in accordance with the normal servicing
procedures of the Servicer or representing expenses incurred by the Servicer and
recoverable hereunder.
"Net Liquidation Proceeds" means the amount derived by
subtracting from the Liquidation Proceeds of a Contract the related Liquidation
Expenses.
"Obligee" means the Person to whom an Obligor is indebted under a Contract.
"Obligor" means the purchaser or the co-purchasers of the
Financed Vehicle or any other Person who owes payments under the Contract.
"Officers' Certificate" means a Certificate signed by the
Chairman, the President or a Vice President, and by the Treasurer, an Assistant
Treasurer, the Controller, an Assistant Controller, the Secretary or an
Assistant Secretary of any Person delivering such Certificate and delivered to
the Person to whom such Certificate is required to be delivered. In the case of
an Officers' Certificate of the Servicer, at least one of the signing officers
must be a Servicing Officer. Unless otherwise specified, any reference herein to
an Officers' Certificate shall be to an Officers' Certificate of the Servicer.
"Onyx" means Onyx Acceptance Corporation and its successors in
interest.
"Opinion of Counsel" means a written opinion of counsel (who
may be counsel to the Seller or the Servicer) acceptable to the Trustee and the
Insurer.
"Original Pool Balance" means the Pool Balance as of the
Cut-Off Date, which is $____________.
9
<PAGE> 16
"Outstanding" means, with respect to a Contract and as of the
time of reference thereto, a Contract that has not reached its Maturity Date,
has not been fully prepaid, has not become a Liquidated Contract and has not
been repurchased pursuant to Sections 2.3, 3.7 or 10.2.
"Outstanding Principal Balance" as of the Cut-Off Date means, with
respect to any Rule of 78's Contract, the amount set forth as the Outstanding
Principal Balance of such Contract on the Schedule of Contracts, such amount
being the total of all Monthly P&I due after the Cut-Off Date minus any unearned
interest as of the related Due Date for such Contract next preceding the Cut-Off
Date computed in accordance with the Rule of 78's.
"Pass-Through Rate" means ______% per annum (computed on the basis of a
360-day year of twelve 30-day months payable monthly).
"Payahead Account" means the account established and maintained as the
Payahead Account pursuant to Section 4.1.
"Paying Agent" shall have the meaning specified in Section 5.11 and
shall initially be Bankers Trust Company.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, trust,
unincorporated organization, or government or any agency or political
subdivision thereof.
"Policy Claim Amount" means, with respect to each Distribution Date,
the amount, if any, by which the Certificate Distribution Amount plus the
Servicing Fee for such Distribution Date exceeds the Collection Account Amount
Available for such Distribution Date.
"Pool Balance" as of the date of determination means the Aggregate
Scheduled Balance of the Contracts, exclusive of all Contracts that are not
Outstanding at the end of the Collection Period ending immediately prior to such
date of determination.
"Pool Factor" means a six-digit decimal figure equal to the Pool
Balance divided by the Original Pool Balance.
"Preference Claim" has the meaning set forth in Section 8.5.
"Premium" shall have the meaning assigned thereto in the Insurance
Agreement.
"Principal Distribution" means, with respect to any
Distribution Date, the Aggregate Scheduled Balance Decline during the related
Collection Period.
"Purchase Agreement" means the Sale and Servicing Agreement
dated as of September 8, 1994 between Onyx Acceptance Corporation as seller and
Onyx Acceptance Financial Corporation as purchaser, and as such agreement may be
modified, supplemented or amended from time to time.
10
<PAGE> 17
"Rating Agencies" means Moody's Investors Service, Inc. and Standard &
Poor's Ratings Group.
"Recomputed Actuarial Method" means a method of accounting
pursuant to which each payment of Monthly P&I due on a Contract will be deemed
to consist of interest equal to the product of 1/12 of the Recomputed Yield for
such Contract and the Scheduled Balance of the Contract as of the preceding Due
Date for such Contract and of principal to the extent of the remainder of such
scheduled payment, which will cause the Outstanding Principal Balance as of the
Cut-Off Date to be amortized in full at the Recomputed Yield.
"Recomputed Yield" for any Contract means the per annum rate
determined as of the Cut-Off Date, such that the net present value of the
remaining scheduled payments due on such Contract, discounted at such rate from
the Due Date for each such scheduled payment to the Due Date for such Contract
immediately preceding the Cut-Off Date, will equal the Outstanding Principal
Balance.
"Record Date" means, with respect to any Distribution Date, the
Business Day prior to such Distribution Date, unless Definitive Certificates
have been issued, in which case Record Date shall mean the last day of the
immediately preceding calendar month.
"Registrar of Titles" means the agency, department or office
having the responsibility for maintaining records of titles to motor vehicles
and issuing documents evidencing such titles in the jurisdiction in which a
particular Financed Vehicle is registered.
"Repurchase Amount" means the amount, as of the date of
purchase or repurchase of any Contract, equal to the Scheduled Balance of such
Contract as of the Due Date in the Collection Period in which such purchase or
repurchase occurs plus interest on such Contract through the Due Date in
the Collection Period preceding the date in which such purchase or repurchase
occurs, to the extent not previously collected.
"Repurchased Contract" means a Contract (i) purchased as of the
Business Day prior to the respective Servicer Report Date by the Servicer
pursuant to Section 3.7 or (ii) repurchased by the Seller pursuant to
Section 2.3.
"Responsible Officer" means any officer of the Trustee within
the Corporate Trust Office including any vice president, assistant vice
president, assistant treasurer, assistant secretary or any other officer of the
Trustee customarily performing functions similar to those performed by any of
the above designated officers with direct responsibility for the administration
of this Agreement, respectively, or to whom any corporate trust matter is
referred because of his knowledge of and familiarity with the particular
subject.
"Rule of 78's Contract" means a Contract as to which the
portion of payments allocable to earned interest and principal thereunder is
determined according to the "Rule of 78's". Under the "Rule of 78's", the amount
of each payment allocable to interest on a Contract is determined by multiplying
the total amount of add-on interest payable over the term of the
11
<PAGE> 18
Contract by a fraction, the denominator of which is equal to the sum of a series
of numbers representing the total number of monthly payments due under the
Contract and the numerator of which is the number of payments remaining before
giving effect to the payment to which the fraction is being applied.
"Schedule of Contracts" means the list or lists of Contracts,
attached hereto as Schedule I, which are being sold to the Trust as part
of the Trust Estate. The Schedule of Contracts shall set forth the following
information with respect to each such Contract in numbered columns:
<TABLE>
<CAPTION>
Information Column Number
<S> <C>
Contract Number ("ACCT NBR") . . . . . . . . . . . . . . . . . .
Date of Origination ("ORG DT") . . . . . . . . . . . . . . . . .
Maturity Date ("MAT DT") . . . . . . . . . . . . . . . . . . .
Monthly P&I ("P&I") . . . . . . . . . . . . . . . . . . .
Original Principal Balance
("ORIG AMT") . . . . . . . . . . . . . . . . . . .
Outstanding Principal Balance
("PRIN BAL") . . . . . . . . . . . . . . . . . . .
Annual Percentage Rate ("APR") . . . . . . . . . . . . . . . . .
Recomputed Yield ("YIELD") . . . . . . . . . . . . . .
</TABLE>
In addition, the Scheduled Balance of each Rule of 78's Contract for each Due
Date after the Cut-Off Date, computed in accordance with the definition of
Scheduled Balance set forth herein, shall be contained on a computer disk or
tape (the "Disk") that shall be delivered by the Servicer to the Trustee not
later than the 5th Business Day following the Closing Date. The Disk shall be a
part of the Schedule of Contracts and shall be made available by the Servicer to
the Trustee upon reasonable request. In calculating the initial Outstanding
Principal Balance of each Rule of 78's Contract, it shall be assumed that all
payments of principal and interest due on or before the Cut-Off Date were
received and applied. The Schedule of Contracts or the Disk shall also set forth
the Original Pool Balance.
"Scheduled Balance" means, with respect to any Rule of 78's
Contract for the Due Date in each month and as of the Cut-Off Date, the amount
set forth as the "Scheduled Balance" of such Contract for the Due Date in such
month or the Cut-Off Date on the Schedule of Contracts. Each such amount shall
be the present value (determined as provided below) as of the Due Date for the
applicable month of all payments of Monthly P&I on the Contract due after such
month (due during or after the first Collection Period in the case of a
Scheduled Balance at the Cut-Off Date). Such present value as of any
Distribution Date shall be determined by discounting, on a monthly basis, each
such scheduled payment of Monthly P&I from the Due Date for such payment back to
the Due Date for such Contract in the Collection Period related to such
Distribution Date, using the applicable discount rate specified below. Such
present value as of the Cut-Off Date shall be determined by discounting, on a
monthly basis, each such scheduled payment of Monthly P&I from the Due Date for
such payment back to the Cut-Off Date, using the applicable discount rate
specified below. The applicable discount rate shall be the
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<PAGE> 19
Recomputed Yield for that Contract. The Scheduled Balance of a Rule of 78's
Contract that becomes a Liquidated Contract or a Repurchased Contract is reduced
to zero as of the close of the Due Date for such Contract in the Collection
Period in which such Contract became a Liquidated Contract. As used herein,
reference to the Scheduled Balance of a Contract for a Distribution Date shall
mean in the case of a Rule of 78's Contract, the Scheduled Balance of such
Contract on the last day of the Collection Period ending immediately prior to
such Distribution Date, and reference to the Scheduled Balance of a Contract in
a month shall mean in the case of a Rule of 78's Contract, the Scheduled Balance
of such Contract for the first day of such month.
"Seller" means Onyx Acceptance Financial Corporation in its capacity as
the seller of the Contracts under this Agreement, and each successor to Onyx
Acceptance Financial Corporation (in the same capacity) pursuant to Section 6.2.
"Servicer" means Onyx Acceptance Corporation in its capacity as the
servicer of the Contracts under Section 3.1, and, in each case upon such
succession in accordance herewith, each successor to Onyx Acceptance Corporation
in the same capacity pursuant to Section 7.2 and each successor servicer
pursuant to Section 8.2.
"Servicer Report Date" means the fifth Business Day prior to the
related Distribution Date.
"Servicing Fee" means, as to any Distribution Date, the fee payable to
the Servicer for services rendered during the Collection Period ending
immediately prior to such Distribution Date, which shall equal with respect to
each Rule of 78's Contract, the sum of (A) the product of the Servicing Fee
Percent and (B) the Scheduled Balance of such Rule of 78's Contract (as
specified in the Schedule of Contracts) as of the close of the preceding
Collection Period. As additional compensation, the Servicer will be entitled to
any late fees and other administrative fees and expenses or similar charges
collected with respect to the Contracts. The Servicer or its designee will also
receive as servicing compensation all investment earnings on funds credited to
the Collection Account and the amount, if any, by which the outstanding
principal balance of a Rule of 78's Contract (calculated in accordance with the
Rule of 78's method) that is subject to a Full Prepayment exceeds the Scheduled
Balance of such Contract.
"Servicing Fee Percent" means 1.00% per annum.
"Servicing Officer" means any officer of the Servicer involved in, or
responsible for, the administration and servicing of the Contracts whose name
appears on a list of servicing officers furnished to the Trustee by the
Servicer, as such list may be amended or supplemented from time to time.
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<PAGE> 20
"Servicing Standards" means at any time the quality of the Servicer's
performance with respect to (i) compliance with the terms of the Agreement and
(ii) adequacy, measured in accordance with industry standards and current and
historical standards of the Servicer, in respect of the servicing of all
Contracts serviced by the Servicer, regardless of whether any such Contract is
owned by the Servicer or otherwise.
"Spread Account" means the account so denominated and provided for in
the Insurance Agreement.
"Standard & Poor's" means Standard & Poor's Ratings Group, a division
of McGraw Hill, Inc. or its successor in interest.
"Successor Custodian" shall have the meaning as set forth in Section
2.4(b).
"Surety Bond" means the principal/interest surety bond issued by the
Insurer to the Trustee, the form of which is attached hereto as Exhibit C.
"Title Document" means, with respect to any Financed Vehicle, the
certificate of title for, or other evidence of ownership of, such Financed
Vehicle issued by the Registrar of Titles in the jurisdiction in which such
Financed Vehicle is registered.
"Transfer Agent" shall have the meaning specified in Section 5.3 and
initially shall be Bankers Trust Company.
"Trust" means the Onyx Acceptance Grantor Trust, 1996-2 created by the
Agreement.
"Trust Estate" has the meaning set forth in Section 2.1 hereof. The
Spread Account and the Payahead Account and amounts on deposit therein and
credited thereto shall not be part of the Trust Estate.
"Trustee" means Bankers Trust Company, a New York banking corporation,
until a successor Person shall have become the Trustee pursuant to the
applicable provisions of this Agreement, and thereafter "Trustee" shall mean
such successor Person.
"UCC" means the Uniform Commercial Code as in effect in California or
if the context requires, any other applicable state.
SECTION 1.2. Usage of Terms. With respect to all terms in the
Agreement, the singular includes the plural and the plural the singular; words
importing any gender include the other genders; references to "writing" include
printing, typing, lithography, and other means of reproducing words in a visible
form; references to agreements and other contractual instruments include all
amendments, modifications and supplements thereto or any changes therein entered
into in accordance with their respective terms and not prohibited by the
Agreement; references to Persons include their permitted successors and assigns;
and the term "including" means "including without limitation."
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<PAGE> 21
SECTION 1.3. Section References. All section references, unless
otherwise indicated, shall be to Sections in this Agreement.
SECTION 1.4. Calculations. Except as otherwise provided in this
Agreement, all interest rate and basis point calculations under this Agreement
will be made on the basis of a 360-day year and twelve thirty-day months and
will be carried out to at least three decimal places. Collections of interest on
Rule of 78's Contracts shall be calculated as if such Contracts were actuarial
contracts the scheduled principal balances of which are the Scheduled Balances
thereof.
SECTION 1.5. Accounting Terms. All accounting terms used but not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles in the United States.
ARTICLE II
Conveyance of the Contracts;
Representation and Warranties
of the Seller
SECTION 2.1. Sale and Assignment of Contracts.
(a) In consideration of the Trustee's delivery to, or upon the
order of, the Seller of authenticated certificates in an aggregate amount equal
to the Original Pool Balance, the Seller hereby sells, grants, transfers,
conveys and assigns to the Trustee on behalf of the Trust for the benefit of the
Certificateholders and the Insurer, without recourse (except as expressly
provided in Section 2.3 hereof) effective upon the Closing Date, all of
its right, title and interest in, to and under:
(i) the Contracts listed in the Schedule of Contracts
including, without limitation, all payments of Monthly P&I due on or
after the Cut-Off Date, all Net Liquidation Proceeds and Net Insurance
Proceeds with respect to any Financed Vehicle to which a Contract
relates received on or after the Cut-Off Date and all other proceeds
received in respect of such Contracts and any and all security
interests in the Financed Vehicles;
(ii) the Contract Documents relating to the Contracts
(except the Contract Documents for Contracts which have been the
subject of a Full Prepayment received on or after the Cut-Off Date but
no later than one Business Day prior to the Closing Date, in lieu of
which the Seller shall have deposited in or credited to the Collection
Account on or prior to the Closing Date an amount equal to such Full
Prepayment);
(iii) all amounts on deposit in the Collection
Account, including all Eligible Investments credited thereto (but
excluding investment earnings thereon);
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<PAGE> 22
(iv) the right of the Seller, as purchaser under the
Purchase Agreement, to cause the seller thereunder to repurchase
Contracts listed in the Schedule of Contracts under certain
circumstances;
(v) the security interest of the Seller in the
Financed Vehicles and the rights to receive proceeds from claims on
certain insurance policies covering the Financed Vehicles or the
individual Obligors under each related Contract;
(vi) the Seller's right to proceeds under the Blanket
Insurance Policy;
(vii) all proceeds in any way delivered with respect
to the foregoing, all rights to payments with respect to the foregoing
and all rights to enforce the foregoing.
The foregoing items of property listed in this paragraph, together with
the rights of the Trustee under the Surety Bond, are the Trust Estate.
It is the intention of the Seller and the Trustee that the
assignment and transfer herein contemplated constitute (and shall be construed
for all purposes as) a sale of the Trust Estate (other than the Surety Bond),
conveying good title thereto free and clear of any liens and encumbrances, from
the Seller to the Trust. However, in the event that such conveyance is deemed to
be a pledge to secure a loan (in spite of the express intent of the parties
hereto that this conveyance is to be treated as a true and complete sale), the
Seller hereby grants to the Trustee on behalf of the Trust for the benefit of
the Certificateholders a first priority perfected security interest in all of
the Seller's right, title and interest in the Trust Estate (other than the
Surety Bond), and all proceeds of the foregoing to secure the loan deemed to be
made in connection with such pledge and, in such event, this Agreement shall
constitute a security agreement under applicable law.
(b) In connection with the sale of the Contracts pursuant to
the Purchase Agreement, Onyx has filed with the office of the Secretary of State
of the State of California UCC-1 financing statements naming Onyx as seller and
including the Contracts in the description of the assets being sold thereunder.
In connection with the sale of the Contracts pursuant to this Agreement, the
Seller has filed or caused to be filed UCC-1 financing statements, executed by
the Seller as seller, naming the Trust as purchaser and describing the Contracts
as the assets being sold by it to the Trust, with the Office of the Secretary of
State of the State of California. The Seller shall have caused UCC-2 termination
statements to have been filed with the Office of Secretary of State of the State
of California terminating any outstanding security interests in the Contracts.
From time to time, the Servicer shall cause to be taken such actions as are
necessary to continue the perfection of the Trust's ownership interest in the
Contracts and to continue the first priority security interest of the Trust in
the Financed Vehicles and their proceeds (other than, as to such priority, any
statutory lien arising by operation of law after the Closing Date which is prior
to such interest), including, without limitation, the filing of financing
statements, amendments thereto or continuation statements and the making of
notations on records or documents of title.
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<PAGE> 23
(c) If any change in the name, identity or corporate structure
of Onyx, the Seller or the relocation of the chief executive office of any of
them would make any financing or continuation statement or notice of lien filed
under this Agreement misleading within the meaning of applicable provisions of
the UCC or any title statute, the Servicer, within the time period required by
applicable law, shall file such financing statements or amendments as may be
required to preserve and protect the interests of the Trustee on behalf of the
Trust and the Certificateholders in the Contracts and in the related Financed
Vehicles and proceeds thereof. Promptly thereafter, and in any event within 30
days of such change or relocation, the Servicer shall deliver to the Trustee an
Opinion of Counsel stating that, in the opinion of such counsel, all financing
statements or amendments necessary fully to preserve and protect the interests
of the Trustee and the Certificateholders in the Contracts and in the related
Financed Vehicles and proceeds thereof have been filed, and reciting the details
of such filings.
(d) During the term of this Agreement, the Seller and Onyx
shall each maintain its chief executive office in one of the states of the
United States.
(e) The Servicer shall pay all reasonable costs and
disbursements in connection with the perfection and the maintenance of
perfection, as against all Persons other than the Trustee, of the Trust's right,
title and interest in and to the Contracts and in connection with maintaining
the first priority security interest in the related Financed Vehicles and the
proceeds of such Financed Vehicles.
SECTION 2.2. Representations and Warranties. The Seller represents and
warrants to the Trustee and the Trust for the
benefit of the Certificateholders and the Insurer as follows:
(a) As to the Seller:
(i) the Seller is duly organized and validly existing
as a corporation organized and existing and in good standing under the
laws of the State of Delaware, with power and authority to own its
properties and to conduct its business and had at all relevant times,
and has, power, authority, and legal right to originate or acquire and
own the Contracts;
(ii) the Seller is duly qualified to do business as a
foreign corporation in good standing, and shall have obtained all
necessary licenses and approvals in all jurisdictions in which the
ownership or lease of property or the conduct of its business requires
such qualifications;
(iii) the Seller has the power and authority to
execute and deliver this Agreement and to carry out its terms; the
Seller has full power and authority to sell and assign the property to
be sold and assigned to and deposited with the Trustee on behalf of the
Trust as part of the Trust and has duly authorized such sale and
assignment to the Trustee on behalf of the Trust by all necessary
corporate action; and the execution, delivery, and performance of this
Agreement has been duly authorized by the Seller by all necessary
corporate action;
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<PAGE> 24
(iv) this Agreement constitutes (A) a valid sale,
transfer, and assignment of the Contracts, enforceable against
creditors of and purchasers from the Seller and (B) a legal, valid, and
binding obligation of the Seller enforceable in accordance with its
terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, or other similar laws affecting the
enforcement of creditors' rights in general and by general principles
of equity, regardless of whether such enforceability shall be
considered in a proceeding in equity or at law;
(v) the consummation of the transactions contemplated
by this Agreement and the fulfillment of the terms hereof shall not
conflict with, result in any breach of any of the terms and provisions
of, nor constitute (with or without notice or lapse of time) a default
under, the Certificate of Incorporation or Bylaws of the Seller, or any
indenture, agreement, or other instrument to which the Seller is a
party or by which it shall be bound; nor result in the creation or
imposition of any Lien upon any of the properties of the Seller
pursuant to the terms of any such indenture, agreement, or other
instrument (other than this Agreement); nor violate any law or any
order, rule, or regulation applicable to the Seller of any court or of
any federal or state regulatory body, administrative agency, or other
governmental instrumentality having jurisdiction over the Seller or its
properties; and
(vi) to the Seller's best knowledge after due inquiry,
there are no proceedings or investigations pending, or threatened,
before any court, regulatory body, administrative agency, or other
governmental instrumentality having jurisdiction over the Seller or its
properties: (A) asserting the invalidity of this Agreement or the
Certificates, (B) seeking to prevent the issuance of the Certificates
or the consummation of any of the transactions contemplated by this
Agreement, (C) seeking any determination or ruling that might
materially and adversely affect the performance by the Seller of its
obligations under, or the validity or enforceability of, this Agreement
or the Certificates, or (D) naming the Seller which might adversely
affect the federal income tax attributes of the Certificates.
(b) As to each Contract:
(i) the information pertaining to such Contract set
forth in the related Schedule of Contracts was true and correct in all
material respects at the Closing Date and the calculations of the
Scheduled Balances appearing in such Schedule of Contracts for each
such Contract at the Cut-Off Date and at each Distribution Date
thereafter prior to the related Maturity Date have been performed in
accordance with this Agreement and are accurate;
(ii) as of the Closing Date, such Contract was secured
by a valid and enforceable first priority security interest in favor of
Onyx in the related Financed Vehicle, and such security interest has
been duly perfected and is prior to all other liens upon and security
interests in such Financed Vehicle which now exist or may hereafter
arise or be created (except, as to priority, for any lien for unpaid
taxes or unpaid storage
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<PAGE> 25
or repair charges which may arise after the Closing Date); such
security interest had been assigned by Onyx to the Seller pursuant to
the Purchase Agreement and, as of the Closing Date, has been assigned
by the Seller to the Trust pursuant to Section 2.1(a)(i)
hereof;
(iii) (A) if the related Financed Vehicle was
originated in a state in which notation of a security interest on the
Title Document is required or permitted to perfect such security
interest, the Title Document for such Financed Vehicle shows, or, if a
new or replacement Title Document is being applied for with respect to
such Financed Vehicle, the Title Document will be received within 180
days of the Closing Date and will show Onyx named as the original
secured party under the related Contract as the holder of a first
priority security interest in such Financed Vehicle, and (B) if the
related Financed Vehicle was originated in a state in which the filing
of a financing statement under the UCC is required to perfect a
security interest in motor vehicles, such filings or recordings have
been duly made and show Onyx named as the original secured party under
the related Contract, and in either case, the Trustee on behalf of the
Trust has the same rights as such secured party has or would have (if
such secured party were still the owner of such Contract) against all
parties claiming an interest in such Financed Vehicle. With respect to
each Contract for which the Title Document has not yet been returned
from the Registrar of Titles, Onyx has received written evidence from
the related Dealer that such Title Documents showing Onyx as first
lienholder, have been applied for;
(iv) as of the Closing Date, the Seller had good and
marketable title to and was the sole owner of each Contract to be
transferred to the Trust pursuant to Section 2.1 free of liens, claims,
encumbrances and rights of others and, upon transfer of such Contract
to the Trustee pursuant to Section 2.1, the Trust will have good and
marketable title to, will have a first priority perfected security
interest in and will be the sole owner of such Contract free of liens,
encumbrances and rights of others;
(v) as of the Cut-Off Date, the most recent scheduled
payment on each such Contract had been made or was not delinquent more
than 30 days and, to the best of the Seller's knowledge, all payments
on the Contract were made by the related Obligor;
(vi) as of the Closing Date, there is no lien against
the related Financed Vehicle for delinquent taxes;
(vii) as of the Closing Date, there is no right of
rescission, offset, defense or counterclaim to the obligation of the
Obligors to pay the unpaid principal or interest due under such
Contract; the operation of the terms of such Contract or the exercise
of any right thereunder will not render such Contract unenforceable in
whole or in part or subject such Contract to any right of rescission,
offset, defense or counterclaim, and the Seller has no knowledge that
such right of rescission, offset, defense or counterclaim has been
asserted or threatened;
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<PAGE> 26
(viii) as of the Closing Date, to the best of the
Seller's knowledge, there are no liens or claims which have been filed,
including liens for work, labor, material or storage affecting the
related Financed Vehicle which are or may become a lien prior to or
equal with the security interest granted by such Contract;
(ix) such Contract, and the sale of the Financed
Vehicle sold thereunder, complied, at the time it was made, in all
material respects with all applicable federal, state and local laws
(and regulations thereunder), including without limitation usury, equal
credit opportunity, fair credit reporting, truth-in-lending or other
similar laws, the Federal Trade Commission Act, and applicable state
laws regulating retail installment sales contracts and loans in general
and motor vehicle retail installment contracts and loans in particular;
and the consummation of the transactions herein contemplated,
including, without limitation, the transfer of ownership of the
Contracts to the Trustee and the receipt of interest by the
Certificateholders, will not violate any applicable federal, state or
local law;
(x) such Contract is the legal, valid and binding
obligation of the Obligor thereunder and is enforceable in accordance
with its terms, except only as such enforcement may be limited by
bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights generally; each party to such Contract had full legal
capacity to execute and deliver such Contract and all other documents
related thereto and to grant the security interest purported to be
granted thereby; the terms of such Contract have not been waived,
amended or modified in any respect, except by instruments that are part
of the Contract Documents, and no such waiver, amendment or
modification has caused such Contract to fail to meet all of the
representations, warranties and conditions, set forth herein with
respect thereto;
(xi) such Contract contains customary and enforceable
provisions such as to render the rights and remedies of the holder or
assignee thereof adequate for the practical realization against the
collateral of the benefits of the security, subject, as to
enforceability, to bankruptcy, insolvency, reorganization or similar
laws affecting the enforcement of creditors' rights generally;
(xii) as of the Closing Date, there was no default,
breach, violation or event permitting acceleration existing under such
Contract (except payment delinquencies permitted by subparagraph (v)
above) and no event which, with notice and the expiration of any grace
or cure period, would constitute such a default, breach, violation or
event permitting acceleration under such Contract, and the Seller has
not waived any such default, breach, violation or event permitting
acceleration except payment delinquencies permitted by subparagraph (v)
above;
(xiii) at the Closing Date each related Financed
Vehicle will be covered by the Blanket Insurance Policy; each of Onyx
and the Seller shall at all times comply with all of the provisions of
such insurance policies applicable to it;
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<PAGE> 27
(xiv) at the Closing Date, (a) each Contract for each
Financed Vehicle will require that the related Obligor obtain and
maintain in effect for the Financed Vehicle a comprehensive and
collision insurance policy (i) in an amount at least equal to the
lesser of (x) its maximum insurable value or (y) the principal amount
due from the Obligor under the related Contract, (ii) naming Onyx as a
loss payee and (iii) insuring against loss and damage due to fire,
theft, transportation, collision and other risks generally covered by
comprehensive and collision coverage and (b) the Servicer shall have
put in place a vendor's single interest insurance policy providing
coverage upon repossession of a Financed Vehicle in an amount equal to
the lesser of the actual cash value of such Financed Vehicle, the cost
of repair or replacement for such Financed Vehicle and the unpaid
balance of the related Contract. Each of Onyx and the Seller shall at
all times comply with all of the provisions of such insurance policies
applicable to it;
(xv) such Contract was acquired by Onyx from a Dealer
with which it ordinarily does business, and no adverse selection
procedures have been utilized in selecting such Contract from all other
similar contracts purchased by the Seller;
(xvi) scheduled payments under such Contract have been
applied in accordance with the Rule of 78's method, as provided in the
applicable Contract and are due monthly in substantially equal amounts
through its Maturity Date sufficient to fully amortize the principal
balance of such Contract by its Maturity Date;
(xvii) there is only one original of such Contract and
such original, together with all other Contract Documents, is being
held by the Trustee; provided, however, that upon the execution by the
Trustee and the Servicer of a letter agreement revocably appointing the
Servicer as agent of the Trustee to act as custodian of the Contract
Documents in accordance with Section 2.4, such original Contracts
together with all other Contract Documents may be held by the Servicer.
Each original Contract has been segregated to show the Trust as owner
thereof, unless the Insurer has waived the requirement for such
segregation by notice in writing to the Trustee and the Servicer;
(xviii) as of the Closing Date, the Servicer has
clearly marked its electronic records to indicate that such Contract is
owned by the Trust;
(xix) at the Cut-Off Date, no Contract has a Maturity
Date later than May ___, 2001; and
(xx) at the date of origination of the Contract, the
original principal balance of each Contract was not greater than the
purchase price to the Obligor (including taxes, warranties, licenses
and related charges) of the related Financed Vehicle.
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<PAGE> 28
(c) As to all of the Contracts:
(i) the Obligor of each Contract was located in
California on the date of origination of such Contract;
(ii) the aggregate Outstanding Principal Balance
payable by Obligors of the Contracts as of the Cut-Off Date equals the
Original Pool Balance;
(iii) the Recomputed Yield on each Contract is at
least equal to ____%;
(iv) as of the Cut-Off Date, approximately ____% of
the Outstanding Principal Balance of all Contracts is attributable to
loans to purchase new Financed Vehicles and approximately ____% of the
Outstanding Principal Balance of all Contracts is attributable to used
Financed Vehicles;
(v) no Contract had an original maturity of more than
60 months and no Contract has a remaining maturity of more than 60
months;
(vi) the first payment under each Contract is due on
or before ______________, 1996; and
(vii) each Contract has a remaining principal balance
of at least $500.
(d) None of the foregoing representations and warranties shall
be construed as, and the Seller is specifically not making, any representations
and warranties regarding the collectibility of the Contracts or the future
performance of the Contracts.
(e) The Seller has not prepared any financial statement which
accounts for the transfer of the Trust Estate (other than the Surety Bond)
hereunder to the Trust in any manner other than a sale of the Trust Estate
(other than the Surety Bond) by it to the Trust, and the Seller has not in any
other respect (including, but not limited to, for accounting and tax reporting
purposes) accounted for or treated the transfer of the Trust Estate (other than
the Surety Bond) hereunder in any manner other than as a sale and absolute
assignment to the Trust of the Seller's full right, title and ownership interest
in the Trust Estate (other than the Surety Bond) to the Trust.
SECTION 2.3. Repurchase of Certain Contracts. The representations and
warranties of the Seller set forth in Section 2.2 with respect to each Contract
shall survive delivery of the Contract Documents to the Trustee and shall
continue until the termination of this Agreement. Upon discovery by the Seller,
the Servicer, the Insurer or a Responsible Officer of the Trustee that any of
such representations or warranties was incorrect as of the time made or that any
of the Contract Documents relating to any such Contract has not been properly
executed by the Obligor or contains a material defect or has not been received
by the Trustee (or the Servicer
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<PAGE> 29
in its capacity as custodian of the Trustee), such Person making such discovery
shall give prompt notice to the other such Persons. If any such defect,
incorrectness or omission materially and adversely affects the interest of the
Certificateholders, the Trustee or the Insurer, the Seller shall cure the defect
or eliminate or otherwise cure the circumstances or condition in respect of
which such representation or warranty was incorrect as of the time made;
provided that if the Seller is unable to do so by the last day of the Collection
Period following the Collection Period (or, if the Seller elects, the last day
of such Collection Period) during which the Seller becomes aware of or receives
written notice from the Trustee, the Insurer or the Servicer of such defect,
incorrectness or omission, it shall repurchase such Contract on the last day of
such Collection Period from the Trust at the Repurchase Amount in the manner set
forth in Section 4.4. Upon any such repurchase, the Trustee on behalf of
the Trust shall execute and deliver such instruments of transfer or assignment,
in each case without recourse, as shall be necessary to vest in the Seller any
Contract purchased hereunder. The sole remedy of the Trustee, the Trust, or the
Certificateholders with respect to a breach of the Seller's representations and
warranties pursuant to Section 2.2 shall be to require the Seller to
repurchase Contracts pursuant to this Section provided, however, that the Seller
shall indemnify the Trustee, its officers, directors, agents and employees, the
Insurer, the Trust and the Certificateholders against all costs, expenses,
losses, damages, claims and liabilities, including reasonable fees and expenses
of counsel, which may be asserted against or incurred by any of them as a result
of third-party claims arising out of the events or facts giving rise to such
breach.
SECTION 2.4. Duties and Appointment of Custodian.
(a) Duties of Custodian. The Trustee, and any Custodian
appointed pursuant to Section 2.4(b), while acting as Custodian shall:
(i) segregate and maintain continuous custody of the
Contract Documents in secure and fireproof facilities in accordance
with customary standards for such custody;
(ii) with respect to the Contract Documents, (A) act
exclusively as the Custodian for the benefit of the Certificateholders
and for the Insurer and (B) hold all Contract Documents for the
exclusive use (notwithstanding Sections 2.4(a)(iii) and
2.4(a)(iv) below) and for the benefit of the Certificateholders and
the Insurer;
(iii) to the extent the Servicer directs the Custodian
in writing, the Custodian shall deliver certain specified Contract
Documents to the Servicer to enable the Servicer to service the
Contracts pursuant to the Agreement. At such time as the Servicer
returns such Contract Documents to the Custodian, the Servicer shall
provide written notice of such return to the Custodian. The Custodian
shall acknowledge receipt of the returned materials by signing the
Servicer's notice and shall promptly send copies of such acknowledgment
or receipt to the Servicer;
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(iv) upon reasonable prior written notice, permit the
Servicer and the Insurer to examine the Contract Documents in the
possession, or under the control, of the Custodian; and
(v) at its own expense, maintain at all times while
acting as Custodian, and keep in full force and effect (A) fidelity
insurance, (B) theft of documents insurance, (C) fire insurance, and
(d) forgery insurance. All such insurance shall be in amounts, with
standard coverage and subject to deductibles, as are customary for
similar insurance typically maintained by banks that act as custodian
in similar transactions.
(b) Appointment of Custodian. As of the Closing Date, the
Trustee shall be the Custodian of the Contract Files; provided, however, that
upon the execution by the Trustee of a letter agreement with the consent of the
Insurer (such consent not to be unreasonably withheld) substantially in the form
of Exhibit A attached hereto (the "Appointment of Custodian"), revocably
appointing the Servicer or such other entity acceptable to the Insurer as agent
of the Trustee to act as Custodian (the "Successor Custodian") of the Contract
Documents, such Successor Custodian shall be so appointed and shall from the
effective date of such Appointment of Custodian retain custody of the Contract
Documents and any and all other documents relating to a Contract or the related
Obligor or Financed Vehicle. As of the effective date of such Appointment of
Custodian, the Contract Documents and any and all other documents relating to a
Contract or the related Obligor or Financed Vehicle will be delivered to the
Successor Custodian in its capacity as agent of the Trustee acting as Custodian.
If the Servicer is appointed Successor Custodian as of the date
specified in the Appointment of Custodian, the Servicer shall maintain the
Contract Documents held by it in a file area physically separate from the other
installment sales contracts owned or serviced by it or any of its Affiliates,
which area shall be clearly marked to indicate the Trust as the owner of, and
the Insurer as the holder of the security interest in, the Contract Documents;
except that if the Insurer has waived the requirement for such segregation by
notice in writing to the Trustee and the Servicer, such file area may contain
contract documents for other installment sales contracts serviced by the
Servicer.
SECTION 2.5. Duties of Servicer Relating to the Contracts.
(a) Safekeeping. The Servicer, in its capacity as
servicer, shall maintain such accurate and complete accounts, records, and
computer systems pertaining to each Contract File as shall enable the Trustee to
comply with this Agreement. In performing its duties as servicer the Servicer
shall act with reasonable care, using that degree of skill and attention that
the Servicer exercises with respect to the files relating to all comparable
automobile contracts that the Servicer services for itself or others. The
Servicer shall: (i) conduct, or cause to be conducted, periodic physical
inspections of the Contract Files (other than the Contract Documents, unless the
Servicer is acting as Custodian) held by it under this Agreement, and of the
related accounts, records, and computer systems; (ii) maintain the Contract
Files in such a manner as shall enable the Trustee and the Insurer to verify the
accuracy of the Servicer's record keeping; (iii) promptly report to the Trustee
and the Insurer any failure on its part to hold the
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Contract Files (other than the Contract Documents, unless the Servicer is acting
as Custodian) and maintain its accounting, records, and computer systems as
herein provided; and (iv) promptly take appropriate action to remedy any such
failure.
(b) Maintenance of and Access to Records. The Servicer shall
maintain each Contract File (other than the Contract Documents, unless the
Servicer is acting as Custodian) at the address of the Servicer set forth in
Section 11.5, or at such other location as shall be specified to the Trustee and
the Insurer by 30 days' prior written notice. The Servicer shall permit the
Trustee or the Insurer or their duly authorized representatives, attorneys, or
auditors to inspect the Contract Files and the related accounts, records, and
computer systems maintained by the Servicer at such times as the Trustee or the
Insurer may request.
(c) Release of Documents. If the Servicer is acting as
Custodian pursuant to Section 2.4, upon instruction from the Trustee (a copy of
which shall be furnished to the Insurer), the Servicer shall release any
document in the Contract Files to the Trustee, the Trustee's agent, or the
Trustee's designee, as the case may be, at such place or places as the Trustee
may designate, as soon as practicable.
(d) Monthly Reports. On the Servicer Report Date of each
month, commencing with the month of the Closing Date, the Servicer shall deliver
to the Trustee and Insurer, a certificate of a Servicing Officer stating (i) the
Contract Number and outstanding principal balance of each Contract that has
become a Liquidated Contract since the Business Day immediately preceding the
date of the last certificate delivered pursuant to this Section 2.5(d) (or since
the Closing Date in the case of the first such certificate); (ii) that all
proceeds received in respect of such Contract have been deposited in or credited
to the Collection Account or Payahead Account as required by Section 4.2; (iii)
that, if such Contract has been the subject of a Full Prepayment pursuant to
clause (a) of the definition of the term "Full Prepayment" or is a Liquidated
Contract pursuant to clause (iii) of the definition of the term "Liquidated
Contract," all proceeds received in respect thereof have been deposited in or
credited to the Collection Account or Payahead Account in accordance with
Section 4.2; (iv) that, if such Contract has been the subject of a Full
Prepayment pursuant to clause (b) of the definition of the term "Full
Prepayment," the correct Repurchase Amount has been deposited in or credited to
the Collection Account in accordance with Sections 2.3 or 3.7; (v) that, if such
Contract is a Liquidated Contract pursuant to clause (ii) of the definition of
the term "Liquidated Contract," there have been deposited in or credited to the
Collection Account or Payahead Account the related Net Liquidation Proceeds in
accordance with Section 4.2; and (vi) that the Trustee is authorized to release
such Contract and the related Contract Documents as provided herein.
(e) Schedule of Title Documents. The Servicer shall
deliver to the Trustee and the Insurer (i) within 60 days of the Closing Date, a
schedule of Title Documents which as of the Closing Date did not show the
Servicer as first lienholder and (ii) within 180 days of the Closing Date, a
schedule of Title Documents which as of the date prior to such delivery do not
show the Servicer as first lienholder and as to which the Seller is obligated to
repurchase pursuant to the provisions hereof.
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(f) Electronic Marking of Contracts; Possession. The Servicer
shall cause the electronic record of the Contracts maintained by it to be
clearly marked to indicate that the Contracts have been sold to the Trust and
shall not in any way assert or claim an ownership interest in the Contracts. It
is intended that by the Servicer's and the Seller's agreement pursuant to
Section 2.4, Section 2.5 hereof and the Appointment of Custodian, the Trustee on
behalf of the Trust shall be deemed to have possession of the Contract Documents
for purposes of Section 9-305 of the UCC of the State in which the Contract
Documents are located.
SECTION 2.6. Instructions; Authority to Act. The Servicer shall be
deemed to have received proper instructions (a copy of which shall be furnished
to the Insurer) with respect to the Contract Files upon its receipt of written
instructions signed by a Responsible Officer of the Trustee.
SECTION 2.7. Indemnification. The Servicer, as custodian, shall
indemnify the Trustee and its officers, directors, agents and employees, the
Insurer, the Trust and the Certificateholders for any and all liabilities,
obligations, losses, compensatory damages, payments, costs, or expenses of any
kind whatsoever (including the reasonable fees and expenses of counsel) that may
be imposed on, incurred, or asserted against the Trustee, the Insurer, the Trust
and the Certificateholders as the result of any act or omission in any way
relating to the maintenance and custody by the Servicer of the Contract Files,
or the failure of the Servicer to perform its duties and service the Contracts
in compliance with the terms of this Agreement; provided, however, that the
Servicer shall not be liable for any portion of any such amount resulting from
the willful misfeasance, bad faith, or gross negligence of the Trustee. The
Servicer shall also indemnify and hold harmless the Trust, the Trust Estate, the
Trustee and the Certificateholders against any taxes that may be asserted at any
time against any of them with respect to the Contracts, including any sales,
gross receipts, general corporation, personal property, privilege or license
taxes (but exclusive of federal or other income taxes arising out of payments on
the Contracts) and the costs and expenses in defending against such taxes. The
Servicer shall immediately notify the Trustee if a claim is made by a third
party with respect to the Contracts, shall assume, with the consent of the
Trustee, the defense of any such claim and shall pay all expenses in connection
therewith, including counsel fees, and shall promptly pay, discharge and satisfy
any judgment or decree which may be entered against it, the Trustee or the Trust
with respect to the Contracts.
SECTION 2.8. Effective Period and Termination. The Trustee's
appointment as Custodian shall become effective as of the Closing Date and shall
continue in full force and effect until the earlier of (i) the execution of the
Appointment of Custodian, (ii) the removal of the Trustee pursuant to Section
9.10 or (iii) the Final Distribution Date. Following the execution of the
Appointment of Custodian, the Successor Custodian's appointment as Custodian
shall continue in full force and effect until terminated under this Section 2.8
or until the Final Distribution Date, whichever occurs first. If Onyx shall
resign as Servicer under Section 7.4 or if all of the rights and obligations of
the Servicer shall have been terminated under Section 8.1, the appointment of
the Servicer as Custodian may be terminated by the Trustee, the Insurer, or by
the Holders of Certificates evidencing in the aggregate at least 25% of the Pool
Balance, in the same manner as the Trustee, the Insurer, or such Holders may
terminate the rights and
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obligations of the Servicer under Section 8.1 (but no occurrence of an
Event of Default shall be a precondition to termination). As soon as practicable
after any termination of such appointment, the Custodian shall, at its own
expense, deliver or cause the delivery of the Contract Files to the Trustee or
the Trustee's agent at such place or places as the Trustee may reasonably
designate and shall cooperate in good faith to effect such delivery. The
foregoing notwithstanding, if the Servicer is acting as Custodian, the Servicer
shall, at the request of the Insurer, redeliver the Contract Documents to the
Trustee in the event that such redelivery is required by any Rating Agency to
consider the Certificates investment grade without consideration of the Surety
Bond.
SECTION 2.9. Nonpetition Covenant.
(a) Neither the Seller nor the Servicer shall petition or
otherwise invoke the process of any court or government authority for the
purpose of commencing or sustaining a case against the Trust under any federal
or state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Trust or any substantial part of its property, or ordering the winding up
or liquidation of the affairs of the Trust.
(b) The Servicer shall not, nor cause the Seller to, petition
or otherwise invoke the process of any court or government authority for the
purpose of commencing or sustaining a case against the Seller under any federal
or state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Seller or any substantial part of its property, or ordering the winding
up or liquidation of the affairs of the Seller.
SECTION 2.10. Collecting Title Documents Not Delivered at the
Closing Date. In the case of any Contract in respect of which, in place of a
Title Document, the Trustee received on the Closing Date written evidence from
the Dealer selling the related Financed Vehicle that the Title Document for such
Financed Vehicle showing Onyx as first lienholder has been applied for from the
Registrar of Titles the Servicer shall use its best efforts to collect such
Title Document from the Registrar of Titles as promptly as possible. If such
Title Document showing the Servicer as first lienholder is not received by the
Servicer within 180 days after the Closing Date, then the representation and
warranty in Section 2.2(b)(iii) in respect of such Contract shall be
deemed to have been incorrect in a manner that materially and adversely affects
the Certificateholders and the Seller shall be obligated to repurchase such
Contract in accordance with Section 2.3.
ARTICLE III
Administration and Servicing of Contracts
SECTION 3.1. Duties of Servicer. The Servicer shall manage, service,
administer, and make collections on the Contracts. The Servicer agrees that its
servicing of the Contracts shall
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be carried out in accordance with reasonable care and, to the extent
more exacting, the procedures used by the Servicer in respect of such contracts
serviced by it for its own account; provided, however, that, subject to Section
3.2 as to extensions, the Servicer shall not release or waive the right to
collect the unpaid balance of any Contract. The Servicer's duties shall include
collection and posting of all payments, responding to inquiries of Obligors on
the Contracts, investigating delinquencies, sending payment coupons to Obligors,
reporting tax information to Obligors, accounting for collections, furnishing
monthly and annual statements to the Trustee and the Insurer with respect to
distributions and the preparation of U.S. Grantor Trust Tax Returns (Form 1041)
for the Trustee to sign and file on an annual basis, based on a tax year for the
Trust that is the calendar year and any other tax forms required by any federal,
state or local tax authority including with respect to original issue discount,
if any. The Servicer shall have, subject to the terms hereof, full power and
authority, acting alone, and subject only to the specific requirements and
prohibitions of this Agreement, to do any and all things in connection with such
managing, servicing, administration, and collection that it may deem necessary
or desirable; provided, however, that the Servicer shall commence repossession
efforts in respect of any Financed Vehicle any payment on the related Contract
of which is four or more months delinquent. Without limiting the generality of
the foregoing, but subject to the provisions of this Agreement, the Servicer is
authorized and empowered by the Trustee to execute and deliver, on behalf of
itself, the Trust, the Insurer, the Certificateholders, or the Trustee or any of
them, any and all instruments of satisfaction or cancellation, or partial or
full release or discharge, and all other comparable instruments, with respect to
the Contracts or to the Financed Vehicles. The Trustee shall furnish the
Servicer any documents necessary or appropriate to enable the Servicer to carry
out its servicing and administrative duties hereunder. The Servicer may engage
agents and subservicers to fulfill its duties hereunder; provided, however, that
the Servicer shall remain at all times personally liable for the acts (and
failures to act) of such agents and subservicers.
On or prior to the Closing Date, the Servicer shall deliver to the
Insurer and the Trustee a list of Servicing Officers of the Servicer involved
in, or responsible for, the administration and servicing of the Contracts, which
list shall from time to time be updated by the Servicer on request of the
Trustee or the Insurer.
On the Closing Date, the Servicer shall deposit in the Collection
Account (i) all installments of Monthly P&I due on or after the Cut-Off Date and
received by the Servicer at least two Business Days prior to the Closing Date;
(ii) the proceeds of each Full Prepayment of any such Contract received by the
Servicer after the Cut-Off Date and at least two Business Days prior to the
Closing Date; and (iii) all Net Liquidation Proceeds and Net Insurance Proceeds
realized in respect of a Financed Vehicle at least two Business Days prior to
the Closing Date.
Subject to Section 4.2(a) respecting deposits in the Payahead Account,
the Servicer shall deposit in or credit to the Collection Account within two
Business Days of receipt all collections of Monthly P&I due after the Cut-Off
Date received by it on the Contracts together with the proceeds of all Full
Prepayments and any accompanying interest. The Servicer shall likewise deposit
in the Collection Account within two Business Days of receipt all Net
Liquidation Proceeds and Net Insurance Proceeds. As of the last day of each
Collection Period, all amounts received in each Collection Period shall be
applied by the Servicer with respect to each Rule of
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78's Contract, first, to the Servicer as additional servicing
compensation any amounts due for late fees, extension fees or similar charges,
second to the scheduled payment of Monthly P&I, and third, to the Payahead
Account. The foregoing requirements for deposit in the Collection Account are
exclusive, it being understood that collections in the nature of late payment
charges or extension fees may, but need not be deposited in the Collection
Account and may be retained by the Servicer as additional servicing
compensation.
With respect to payments of Monthly P&I made by Obligors to the
Servicer's lock box, the Servicer shall direct the Person maintaining the lock
box to deposit the amount collected on the Contracts within one Business Day to
the Clearing Account. Such amounts shall be withdrawn from the Clearing Account
and deposited in the Collection Account no later than the next following
Business Day.
In order to facilitate the servicing of the Contracts by the Servicer,
the Servicer shall retain, subject to and only to the extent permitted by the
provisions of this Agreement, all collections on the Contracts prior to the time
they are remitted or credited, in accordance with such provisions, to the
Collection Account or the Payahead Account, as the case may be. The Servicer
acknowledges that the unremitted collections on the Contracts are part of the
Trust Estate and the Servicer agrees to act as custodian and bailee of the
Trustee and the Insurer in holding such monies and collections. The Servicer
agrees, for the benefit of the Trustee, the Trust, the Certificateholders and
the Insurer, to act as such custodian and bailee, and to hold and deal with such
monies and such collections, as custodian and bailee for the Trustee and the
Insurer, in accordance with the provisions of this Agreement.
The Servicer shall retain all data (including, without limitation,
computerized records) relating directly to or maintained in connection with the
servicing of the Contracts at the address of the Servicer set forth in
Section 11.05, or, upon 15 days' notice to the Insurer and the Trustee,
at such other place where the servicing offices of the Servicer are located, and
shall give the Trustee and the Insurer access to all data at all reasonable
times, and, while an Event of Default shall be continuing, the Servicer shall,
on demand of the Trustee or the Insurer deliver or cause to be delivered to the
Trustee and the Insurer all data (including, without limitation, computerized
records and, to the extent transferable, related operating software) necessary
for the servicing of the Contracts and all monies collected by it and required
to be deposited in or credited to the Collection Account or the Payahead
Account, as the case may be.
SECTION 3.2. Collection of Contract Payments. The Servicer shall use
its best efforts to collect all payments called for under the terms and
provisions of the Contracts as and when the same shall become due and shall use
its best efforts to cause each Obligor to make all payments in respect of his or
her Contract to the Servicer. Consistent with the foregoing, the Servicer may in
its discretion (i) waive any late payment charges in connection with delinquent
payments on a Contract or prepayment charges and (ii) in order to work out a
default or an impending default due to the financial condition of an Obligor,
grant up to three extensions of the Due Date of any payment for periods of 30
days or less, such that the Maturity Date of no Contract shall, under any
circumstances, extend more than 90 days past the originally scheduled date of
the last payment on such Contract but in no event beyond the Final Distribution
Date.
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The Servicer shall not extend the Maturity Date of a Contract except as provided
in clause (ii) of the preceding sentence. Except as explicitly permitted by this
paragraph, the Servicer shall not change any material term of a Contract,
including but not limited to the interest rate, the payment amounts or due
dates, or the property securing such Contract.
SECTION 3.3. Realization Upon Contracts. The Servicer shall use its
best efforts, consistent with the servicing standard specified in Section 3.1,
to repossess or otherwise convert the ownership of the Financed Vehicle securing
any Contract as to which no satisfactory arrangements can be made for collection
of delinquent payments. Such servicing procedures may include reasonable efforts
to realize upon any recourse to Dealers and selling the Financed Vehicle at
public or private sale. In connection with such repossession or other
conversion, the Servicer shall follow such practices and procedures as it shall
deem necessary or advisable and as shall be normal and usual for prudent holders
of retail installment sales contracts and as shall be in compliance with all
applicable laws, and, in connection with the repossession of any Financed
Vehicle or any contract in default, may commence and prosecute any proceedings
in respect of such Contract in its own name or, if the Servicer deems it
necessary, in the name of the Trust or on behalf of the Trust. The Servicer's
obligations under this Section are subject to the provision that, in the case of
damage to a Financed Vehicle from an uninsured cause, the Servicer shall not be
required to expend its own funds in repairing such motor vehicle unless it shall
determine (i) that such restoration will increase the proceeds of liquidation of
the related Contract, after reimbursement to itself for such expenses and (ii)
that such expenses will be recoverable by it either as Liquidation Expenses or
as expenses recoverable under an applicable insurance policy. The Servicer shall
be responsible for all other costs and expenses incurred by it in connection
with any action taken in respect of a Defaulted Contract; provided, however,
that it shall be entitled to reimbursement of such costs and expenses to the
extent they constitute Liquidation Expenses or expenses recoverable under an
applicable insurance policy. All Net Liquidation Proceeds and Net Insurance
Proceeds shall be deposited directly in or credited to the Collection Account
(without deposit in any intervening account) to the extent required by Section
4.2.
SECTION 3.4. Insurance. The Servicer shall cause to be maintained the
Blanket Insurance Policy with the Trustee as the named payee thereunder with
respect to the Contracts.
SECTION 3.5. Maintenance of Security Interests in Financed Vehicles.
The Servicer shall take such steps as are necessary to maintain continuous
perfection and priority of the security interest created by each Contract in the
related Financed Vehicle, including but not limited to, obtaining the execution
by the related Obligor and the recording, registering, filing, re-recording,
re-registering, and refiling of all security agreements, financing statements,
continuation statements or other instruments as are necessary to maintain the
security interest granted by such Obligor under each respective Contract. The
Trustee hereby authorizes the Servicer to take such steps as are necessary to
re-perfect such security interest on behalf of the Trust in the event of the
relocation of a Financed Vehicle or for any other reason. In the event that the
assignment of a Contract to the Trust is insufficient, without a notation on the
related Financed Vehicle's certificate of title, or without fulfilling any
additional administrative requirements under the laws of the state in which the
Financed Vehicle is located, to grant to the Trust
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a perfected security interest in the related Financed Vehicle, the Servicer
hereby agrees that the Servicer's listing as the secured party on the
certificate of title is deemed to be in its capacity as agent of the Trust and
further agrees to hold such certificate of title as the Trustee's agent and
custodian; provided that the Servicer shall not make, nor shall the Trustee or
Certificateholders have the right to require that the Servicer make, any such
notation on the related Financed Vehicles' certificate of title or fulfill any
such additional administrative requirement of the laws of the state in which a
Financed Vehicle is located.
SECTION 3.6. Covenants, Representations and Warranties of Servicer. The
Servicer hereby makes the following covenants, representations and warranties on
which the Trustee shall rely accepting the Contracts in trust and authenticating
the Certificates.
(a) The Servicer covenants as to the Contracts:
(i) the Financed Vehicle securing each
Contract shall not be released from the lien granted by the Contract
in whole or in part, except as contemplated herein;
(ii) the Servicer shall not impair the rights
of the Trust in the Contracts;
(iii) the Servicer shall not increase the
number of payments under a Contract, nor increase the amount financed
under a Contract, nor extend or forgive payments on a Contract, except
as provided in Section 3.2; and
(iv) the Servicer may consent to the sale or
transfer by an Obligor of any Financed Vehicle if the original Obligor
under the related Contract remains liable under such Contract and the
transferee assumes all of the Obligor's obligations thereunder.
(b) The Servicer represents and warrants as of the
Closing Date:
(i) the Servicer (1) has been duly organized,
is validly existing and in good standing as a corporation organized
and existing under the laws of the State of Delaware, (2) has
qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the character of its properties or
the nature of its activities makes such qualification necessary, and
(3) has full power, authority and legal right to own its property, to
carry on its business as presently conducted, and to enter into and
perform its obligations under this Agreement;
(ii) the execution and delivery by the
Servicer of this Agreement are within the corporate power of the
Servicer and have been duly authorized by all necessary corporate
action on the part of the Servicer. Neither the execution and
delivery of this Agreement, nor the consummation of the transactions
herein contemplated, nor compliance with the provisions hereof, will
conflict with or result in a breach
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of, or constitute a default under, any of the provisions of any law,
governmental rule, regulation, judgment, decree or order binding on the
Servicer or its properties or the Articles of Incorporation or Bylaws
of the Servicer, or any of the provisions of any indenture, mortgage,
contract or other instrument to which the Servicer is a party or by
which it is bound or result in the creation or imposition of any lien,
charge or encumbrance upon any of its property pursuant to the terms of
any such indenture, mortgage, contract or other instrument;
(iii) other than consents that have been
obtained prior to the Closing Date, the Servicer is not required to
obtain the consent of any other party or any consent, license,
approval or authorization, or registration or declaration with, any
governmental authority, bureau or agency in connection with the
execution, delivery, performance, validity or enforceability of this
Agreement;
(iv) this Agreement has been duly executed and
delivered by the Servicer and, assuming the due authorization,
execution and delivery thereof by the Trustee, constitutes a legal,
valid and binding obligation of the Servicer enforceable against the
Servicer in accordance with its terms (subject to applicable
bankruptcy and insolvency laws and other similar laws affecting the
enforcement of creditors' rights generally);
(v) there are no actions, suits or
proceedings pending or, to the knowledge of the Servicer, threatened
against or affecting the Servicer, before or by any court,
administrative agency, arbitrator or governmental body with respect to
any of the transactions contemplated by this Agreement, or which will,
if determined adversely to the Servicer, materially and adversely
affect it or its business, assets, operations or condition, financial
or otherwise, or adversely affect the Servicer's ability to perform
its obligations under this Agreement. The Servicer is not in default
with respect to any order of any court, administrative agency,
arbitrator or governmental body so as to materially and adversely
affect the transactions contemplated by the above-mentioned documents;
and
(vi) the Servicer has obtained or made all
necessary consents, approvals, waivers and notifications of creditors,
lessors and other nongovernmental persons, in each case, in connection
with the execution and delivery of this Agreement, and the consummation
of all the transactions herein contemplated.
SECTION 3.7. Purchase of Contracts Upon Breach of Covenant. The
Servicer or the Trustee shall inform the other party and the Insurer promptly,
in writing, upon the discovery of any breach of the representation and
warranties set forth in Section 3.6 and the covenants set forth in Section 3.5.
Unless the breach shall have been cured within 30 days following such discovery
or receipt of notice of such breach, the Servicer shall purchase any Contract
materially and adversely affected by such breach from the Trust. As
consideration for the Contract, the Servicer shall remit the Repurchase Amount
on the Business Day preceding the Servicer Report Date next succeeding the end
of such 30-day cure period in the manner specified in Section 4.4.
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The sole remedy of the Trustee, the Trust, or the Certificateholders with
respect to a breach pursuant to Section 3.5 (other than as specified therein)
and Section 3.6 shall be to require the Servicer to purchase Contracts pursuant
to this Section 3.7; provided, however, that the Servicer shall indemnify the
Trustee and its officers, directors, agents and employees, the Insurer, the
Trust and the Certificateholders against all costs, expenses, losses damages,
claims and labilities, including reasonable fees and expenses of counsel, which
may be asserted against or incurred by any of them as a result of third-party
claims arising out of the events or facts giving rise to such breach.
Any successor Servicer appointed pursuant to Section 8.2 shall not be
obligated to purchase Contracts pursuant to this Section 3.7 with respect to
any breaches by any prior Servicer.
SECTION 3.8. Servicing Compensation. As compensation for the
performance of its obligations under this Agreement and subject to the terms of
this Section 3.8, the Servicer shall be entitled to receive on each Distribution
Date the Servicing Fee in respect of each Contract that was Outstanding at the
beginning of the Collection Period ending immediately prior to such Distribution
Date. As servicing compensation in addition to the Servicing Fee, the Servicer
shall be entitled (i) to retain all late payment charges, extension fees and
similar items paid in respect of Contracts, (ii) to receive, in respect of each
Rule of 78's Contract that is prepaid in full prior to its Maturity Date, the
amount by which the outstanding principal balance of such Contract (determined
in accordance with the Rule of 78's method) exceeds the Scheduled Balance of
such Contract at the time of such prepayment and (iii) to receive all investment
earnings on funds credited to the Collection Account; provided, however, that
the Servicer agrees that each amount payable to it pursuant to clause (ii) of
this Section 3.8 shall be deposited in the Spread Account and applied in
accordance with the Insurance Agreement. The Servicer shall pay all expenses
incurred by it in connection with its servicing activities hereunder and shall
not be entitled to reimbursement of such expenses except to the extent provided
in Section 3.3.
SECTION 3.9. Reporting by the Servicer.
(a) No later than 3:00 p.m. New York City time on each
Servicer Report Date, the Servicer shall transmit to the Trustee and the
Insurer a statement (the "Distribution Date Statement") setting forth with
respect to the next succeeding Distribution Date:
(i) the Principal Distribution for such
Distribution Date;
(ii) the Certificate Distribution Amount for
such Distribution Date;
(iii) the Premium payable to the Insurer and the
amount to be deposited in the Spread Account;
(iv) the aggregate Servicing Fee with respect
to the Contracts for the related Collection Period;
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(v) the number of, and aggregate amount of
monthly principal and interest payments due on, the Contracts which
are delinquent as of the end of the related Collection Period
presented on a 30-day, 60-day and 90-day basis;
(vi) the Collection Account Amount Available
and the Policy Claim Amount, if any, for such Distribution Date;
(vii) the aggregate amount of Liquidation
Proceeds received for Defaulted Contracts;
(viii) the net credit losses for the Collection
Period;
(ix) the number and net outstanding balance of
Contracts for which the Financed Vehicle has been repossessed;
(x) the Pool Balance; and
(xi) the amount of claims (if any) made on the
Surety Bond.
Each such Distribution Date Statement shall be accompanied by an Officers'
Certificate of the Servicer, which Officers' Certificate shall state that the
computations reflected in such statement were made in conformity with the
requirements of this Agreement.
(b) On each Servicer Report Date, the Servicer shall
render to the Trustee and the Insurer a report, in respect of the immediately
preceding Collection Period, setting forth the following:
(i) the aggregate amount, if any, paid by or
due from it for the purchases of Contracts which the Seller or the
Servicer has become obligated to repurchase or purchase pursuant to
Sections 2.3 or 3.7;
(ii) the net amount of funds which have been
deposited in or credited to the Collection Account or the Payahead
Account in respect of such Collection Period (including amounts, if
any, collected during the next preceding Collection Period and
deposited in the Payahead Account pursuant to Section 4.1) after
giving effect to all permitted deductions therefrom pursuant to Section
4.2;
(iii) with respect to each Contract that became
a Liquidated Contract during the Collection Period ending immediately
after such Collection Period, the following information:
(A) its Contract Number;
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(B) the effective date as of which such
Contract became a Liquidated Contract;
(C) its Monthly P&I and Scheduled
Balance as of the prior Distribution Date (or as of
the Closing Date in the case of the first
Distribution Date); and
(D) the amount of the Net Liquidation
Proceeds or Net Insurance Proceeds;
(iv) with respect to each Contract which was
the subject of a Full Prepayment during such Collection Period, the
following information:
(A) its Contract Number; and
(B) the date of such Full Prepayment;
(v) the Contract Numbers, Monthly P&I,
Scheduled Balances and Maturity Dates of all Contracts which became
Defaulted Contracts during such Collection Period;
(vi) any other information relating to the
Contracts reasonably requested by the Trustee or the Insurer; and
(vii) the amount of Net Liquidation Proceeds
and Net Insurance Proceeds which have been deposited in or credited to
the Collection Account in respect of the Collection Period ending
immediately prior to such Servicer Report Date and the cumulative
amount of Net Liquidation Proceeds and Net Insurance Proceeds
deposited in or credited to the Collection Account during the
preceding Collection Periods.
SECTION 3.10. Annual Statement as to Compliance.
(a) The Servicer shall deliver to the Trustee and the
Insurer, on or before March 15, 1997 and on or before March 15 of each fiscal
year thereafter, an Officers' Certificate of the Servicer stating that (i) a
review of the activities of the Servicer during the preceding fiscal year
(since the Closing Date in the case of the first of such Officers' Certificates
required to be delivered) and of its performance under the Agreement has been
made under such officers' supervision and (ii) to the best of such officers'
knowledge, based on such review, the Servicer has fulfilled all its obligations
under this Agreement throughout such year and that no default under this
Agreement has occurred and is continuing, or, if there has been a default in
the fulfillment of any such obligation, specifying each such default known to
such officer and the nature and status thereof. A copy of such certificate and
the report referred to in Section 3.11 may be obtained by any Certificateholder
by a request in writing to the Trustee addressed to the Corporate Trust Office.
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(b) The Servicer shall deliver to the Trustee, the
Insurer and each Rating Agency promptly after having obtained knowledge
thereof, but in no event later than five Business Days thereafter, an Officer's
Certificate specifying any event which with the giving of notice or lapse of
time, or both, would become an Event of Default under Section 8.1.
SECTION 3.11. Annual Independent Certified Public Accountant's
Report. On or before March 15, 1997 and on or before March 15 of each fiscal
year thereafter, the Servicer at its expense shall cause a firm of
nationally-recognized independent certified public accountants (who may also
render other services to the Servicer) to furnish a report to the Trustee and
the Insurer to the effect that (i) they have audited the balance sheet of the
Servicer as of the last day of said fiscal year and the related statements of
operations, retained earnings and cash flows for such fiscal year and have
issued an opinion thereon, specifying the date thereof, (ii) they have also
audited the reports delivered by the Servicer pursuant to Section 3.9(b) and
certain other documents and the records relating to the servicing of the
Contracts and the distributions on the Certificates under this Agreement, (iii)
their audit as described under clauses (i) and (ii) above was made in accordance
with generally accepted auditing standards and accordingly included such tests
of the accounting records and such other auditing procedures as they considered
necessary in the circumstances, and (iv) their audits described under clauses
(i) and (ii) above disclosed no exceptions which, in their opinion, were
material, relating to the servicing of such Contracts in accordance with this
Agreement and the making of distributions on the Certificates in accordance with
this Agreement, or, if any such exceptions were disclosed thereby, setting forth
those exceptions which, in their opinion, were material.
SECTION 3.12. Access to Certain Documentation and Information
Regarding Contracts. If the Servicer is acting as Custodian, the Servicer
shall provide to the Certificateholders, the Trustee and the Insurer reasonable
access to the Contract Files. Access shall be afforded without charge, but
only upon reasonable request and during normal business hours at designated
offices of the Servicer. Nothing in this Section shall affect the obligation
of the Servicer to observe any applicable law prohibiting disclosure of
information regarding the Obligors, and the failure of the Servicer to provide
access to information as a result of such obligation shall not constitute a
breach of this Section 3.12.
SECTION 3.13. Fidelity Bond. The Servicer shall maintain a fidelity
bond in such form and amount as is customary for banks acting as custodian of
funds and documents in respect of mortgage loans or consumer contracts on
behalf of institutional investors.
SECTION 3.14. Indemnification; Third Party Claims. The Servicer
agrees to indemnify and hold the Trust, the Trustee and its officers,
directors, agents and employees, and the Certificateholders harmless against
any and all claims, losses, penalties, fines, forfeitures, reasonable legal
fees and related costs, judgments, and any reasonable other costs, fees and
expenses that the Trustee or the Certificateholders may sustain because of the
failure of the Servicer to perform its duties and service the Contracts in
compliance with the terms of this Agreement. The Servicer shall immediately
notify the Trustee if a claim is made by a third party with respect to the
Contracts, shall assume, with the consent of the Trustee, the defense of any
such claim and shall pay all expenses in connection therewith, including
counsel fees, and shall promptly
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pay, discharge and satisfy any judgment or decree which may be entered against
it or the Trustee or the Certificateholders.
SECTION 3.15. Reports to Certificateholders and the Rating Agencies.
(a) The Trustee at its own expense shall provide to each
Certificateholder a copy of each Distribution Date Statement described in
Section 3.9 concurrently with the delivery of the statement described in
Section 4.5 below.
(b) The Trustee shall provide to any Certificateholder
who so requests in writing (addressed to the Corporate Trust Office) a copy of
the annual audit statement described in Section 3.10, or the annual audit
report described in Section 3.11. The Trustee may require the
Certificateholder to pay a reasonable sum to cover the cost of the Trustee's
complying with such request.
(c) The Trustee shall forward to the Rating Agencies and
the Insurer the statement to Certificateholders described in Section 4.5 and
any other reports it may receive pursuant to this Agreement to (i) Standard &
Poor's Ratings Group, Asset-Backed Surveillance Group, 26 Broadway, Fifteenth
Floor, New York, New York 10004, (ii) Moody's Investors Service, Inc., ABS
Monitoring Dept., 99 Church Street, 4th Floor, New York, New York 10007, and
(iii) the address of the Insurer at the address set forth in the Insurance
Agreement.
ARTICLE IV
Distributions; Statements to Certificateholders
SECTION 4.1. Accounts.
(a) Prior to the Closing Date, the Servicer shall open,
at a depository institution (which may be the Trustee), an account denominated
"Collection Account--GT 1996-2, Bankers Trust Company, Trustee" (the
"Collection Account") and an account denominated "Payahead Account--GT 1996-2,
Bankers Trust Company, as agent" (the "Payahead Account") for the benefit of
the Trustee on behalf of the Obligors and the Certificateholders, as their
interests may appear, (collectively, the "Accounts"). The Accounts shall be
Eligible Accounts. The Servicer shall give the Trustee and the Insurer at
least five Business Days' written notice of any change in the location of any
Account and any related account identification information. All moneys
deposited in or credited to, from time to time, the Collection Account shall be
part of the Trust and all moneys deposited in or credited to, from time to
time, the Collection Account shall be invested by the Trustee in Eligible
Investments pursuant to Section 4.1(c).
(b) If as of the last day of a Collection Period a
payment in an amount less than the scheduled payment of Monthly P&I has been
made for a Contract with respect to which amounts have been deposited in or
credited to the Payahead Account in a preceding Collection Period in accordance
with Sections 3.1 and 4.2(a), the Servicer shall withdraw from the
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Payahead Account and deposit into the Collection Account by the fifth Business
Day preceding the Distribution Date immediately succeeding such Collection
Period the amount of such Monthly P&I, to the extent available from amounts
deposited in or credited to the Payahead Account with respect to such Contract.
Amounts on deposit in the Payahead Account shall be invested by Bankers Trust
Company upon the written direction of the Servicer in Eligible Investments which
mature not later than the fifth Business Day prior to the Distribution Date to
which such amounts relate, and any earnings on such Eligible Investments shall
be payable to the Servicer. The Payahead Account and all amounts on deposit
therein or credited thereto shall not be considered part of the Trust Estate.
(c) All funds in the Collection Account shall be invested
by the Trustee in Eligible Investments. The Insurer shall direct the Trustee
in writing to invest funds in the Collection Account in Eligible Investments;
provided that in the absence of such directions from the Insurer, the Servicer
may so direct the Trustee. All such investments shall be in the name of the
Trustee as trustee of the Trust. All income or other gain from investment of
monies deposited in or credited to the Collection Account shall be paid by the
Trustee to the Servicer monthly, unless earlier requested by the Servicer. The
maximum permissible maturities of any such investments pursuant to this Section
4.1(c) on any date shall not be later than the Servicer Report Date preceding
the Distribution Date next succeeding the date of such investment; provided,
however, that such funds may be invested by the Trustee in Eligible Investments
of the entity that is serving as Trustee that mature on the Business Day prior
to such Distribution Date. No such investment may be sold prior to its
maturity.
SECTION 4.2. Collections; Transfer to Payahead Account; Realization
Upon Surety Bond; Net Deposit.
(a) Subject to Section 4.4 below, the Servicer shall
remit or credit all payments on a daily basis, within two Business Days of
receipt, by or on behalf of the Obligors on the Contracts and all Net
Liquidation Proceeds and Net Insurance Proceeds to the Collection Account.
Prior to the Servicer Report Date, amounts with respect to Rule of 78's
Contracts which had been deposited in or credited to the Collection Account
pursuant to the next preceding sentence during the preceding Collection Period
shall be deposited in or credited to the Payahead Account (in accordance with
the Distribution Date Statement) to the extent that such amounts are
installments of Monthly P&I which are due in a Collection Period relating to a
Distribution Date subsequent to the Distribution Date immediately succeeding
such Collection Period.
(b) Based upon the report referenced in Section 3.9(b)
delivered by the Servicer to the Trustee on the Servicer Report Date, the
Servicer shall determine the Collection Account Amount Available, compare such
amount to the amounts required to be distributed pursuant to Section 4.3, and
determine the Policy Claim Amount, if any, which exists with respect to the
related Distribution Date.
(c) The Trustee shall, no later than 12:00 p.m. New York
time on the third Business Day prior to each Distribution Date, make a claim
under the Surety Bond for the Policy Claim Amount, if any, for such
Distribution Date by delivering to the Insurer and the Bank,
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with a copy to the Servicer, by hand delivery, telex or facsimile transmission,
a Deficiency Notice specifying the Policy Claim Amount. In making any such
claim, the Trustee shall comply with all the terms and conditions of the Surety
Bond. The notice of such claim shall direct the Insurer and Bank to remit such
Policy Claim Amount (no later than 11:00 a.m. on the Business Day immediately
preceding such Distribution Date) to the Trustee for deposit in the Collection
Account.
(d) So long as Onyx is the Servicer, the Servicer may
make deposits in or credits to the Collection Account net of amounts to be paid
to the Servicer under this Agreement. Notwithstanding the foregoing, the
Servicer shall maintain the records and accounts for such deposits and credits
on a gross basis.
SECTION 4.3. Distributions. On the Business Day immediately preceding
each Distribution Date, the Trustee shall transfer, or cause to be transferred,
to the Paying Agent for deposit in the Distribution Account from the Amount
Available in the Collection Account, the amounts set forth in clauses (ii) and
(iii) below, to the extent that such amounts are available after giving effect
to the amount to be distributed on the Distribution Date set forth in clause
(i).
On each Distribution Date, the following amounts shall be distributed
from the Amount Available in the following order of priority in accordance with
the Distribution Date Statement:
(i) by the Trustee, from the Collection Account to the Servicer,
the Servicing Fee to the extent of the Amount Available allocable to interest
under the Recomputed Actuarial Method from any source;
(ii) by the Paying Agent from the Distribution Account, to the
Certificateholders, the Interest Distribution to the extent of the Amount
Available allocable to interest on each Contract under the Recomputed Actuarial
Method from any source;
(iii) by the Paying Agent from the Distribution Account, to the
Certificateholders, the Principal Distribution to the extent of the Amount
Available allocable to principal on each Contract under the Recomputed
Actuarial Method from any source; and
(iv) by the Trustee from the Collection Account, to the Insurer,
the Premium.
Any amounts remaining in the Collection Account after giving effect to
the distributions set forth in items (i) through (iv) above shall be deposited
in the Spread Account and shall be held or distributed in accordance with the
provisions of the Insurance Agreement.
All distributions to Certificateholders shall be made pro rata by
check mailed to each Certificateholder of record on the Record Date next
preceding the Distribution Date for such distribution; provided, that if so
directed by the Servicer in the case of Certificates registered in the name of
a Clearing Agency, such distribution shall be made by wire transfer in
immediately available funds.
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SECTION 4.4. Remittance Of Repurchase Amount. The Servicer or the
Seller, as the case may be, shall remit or credit to the Collection Account the
aggregate Repurchase Amount with respect to Repurchased Contracts on the
Business Day preceding the Servicer Report Date next succeeding the last day of
the related cure period specified in Sections 2.3 or 3.7, as the case may be.
SECTION 4.5. Statements to Certificateholders. On each Distribution
Date, the Trustee shall include with each distribution to each Certificateholder
a statement, based on information set forth in the Distribution Date Statement
furnished pursuant to Section 3.9, setting forth for such Distribution Date the
following information:
(a) the amount of such Certificateholder's distribution
allocable to principal, separately identifying the aggregate amount of any Full
Prepayments of principal included therein;
(b) the amount of such Certificateholder's distribution
allocable to interest;
(c) the Certificateholder's pro rata portion of expenses
allocable to the Servicing Fee paid to the Servicer and the Premium paid to the
Insurer; and
(d) the Pool Balance and the Pool Factor as of the
Distribution Date (after giving effect to the distribution made on such
Distribution Date).
In the case of the information furnished pursuant to clauses (a), (b)
and (c) above, the amounts shall be expressed as a dollar amount per
Certificate evidencing a $1,000 denomination.
Within a reasonable period of time after the end of each calendar year
but not later than the latest date permitted by law, the Servicer shall prepare
and furnish to the Trustee and the Paying Agent and the Paying Agent shall
furnish, to each Person who on any Record Date during such calendar year shall
have been a Certificateholder, a statement containing the sum of the amounts
determined in clauses (a) through (c) and such other information as is
reasonably necessary for the preparation of such Person's federal income tax
return in respect of the Certificates, for such calendar year or, in the event
such Person shall have been a Certificateholder during a portion of such
calendar year, for the applicable portion of such year, for the purposes of
such Certificateholder's preparation of federal income tax returns.
SECTION 4.6. OMITTED
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ARTICLE V
The Certificates
SECTION 5.1. The Certificates. Unless otherwise specified in the
Agreement, the Certificates shall be substantially in the form set forth in
Exhibit B and shall be issued in denominations of $1,000 and integral multiples
thereof; provided, however, that one Certificate may be issued in a denomination
that includes any residual portion of the Original Pool Balance. The
Certificates shall be executed on behalf of the Trust by manual or facsimile
signature of a Responsible Officer of the Trustee. Certificates bearing the
manual or facsimile signatures of individuals who were, at the time when such
signatures shall have been affixed, authorized to sign on behalf of the Trust,
shall be valid and binding obligations of the Trust, notwithstanding that such
individuals or any of them shall have ceased to be so authorized prior to the
authentication and delivery of such Certificates or did not hold such offices at
the date of the issuance of such Certificates. No Certificate shall entitle its
holder to any benefit under the Agreement, or shall be valid for any purpose,
unless there shall appear on such Certificate a certificate of authentication
substantially in the form set forth in Exhibit B hereto executed by the Trustee
by manual signature; such authentication shall constitute conclusive evidence
that such Certificate shall have been duly authenticated and delivered
hereunder. All Certificates shall be dated the date of their authentication.
Upon issuance pursuant to the terms of the Agreement, the Certificates will be
entitled to the benefits of the Agreement.
SECTION 5.2. Execution, Authentication and Delivery of Certificates. In
exchange for the Contracts and the other assets of the Trust as of the Closing
Date, simultaneously with the sale, assignment and transfer to the Trustee of
the Contracts, the delivery to the Trustee of the Contract Documents, the
constructive delivery to the Trust of the Contract Files other than the Contract
Documents and the delivery to the Trustee of the other components of the Trust,
the Trustee shall deliver to, or upon the written order of, the Seller,
Certificates duly executed by the Trustee, on behalf of the Trust, and
authenticated by the Trustee in authorized denominations equaling in the
aggregate the Original Pool Balance, and evidencing the entire ownership of the
Trust.
SECTION 5.3. Registration of Transfer and Exchange of Certificates. The
Trustee shall cause to be kept at the office or agency to be maintained by a
transfer agent and certificate registrar (the "Transfer Agent" and "Certificate
Registrar") and maintain, pursuant to Section 5.7, a Certificate Register in
which, subject to such reasonable regulations as it may prescribe, the Trustee
shall provide for the registration of Certificates and of transfers and
exchanges of Certificates as herein provided. The Trustee shall be the initial
Transfer Agent and Certificate Registrar.
Subject to the other provisions of this Section, upon surrender for
registration or transfer of any Certificate at the Corporate Trust Office, the
Trustee shall execute on behalf of the Trust, authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Certificates
in authorized denominations of a like aggregate amount. At the option of a
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Certificateholder, Certificates may be exchanged for other Certificates of
authorized denominations of a like aggregate amount at the Corporate Trust
Office.
Every Certificate presented or surrendered for registration of
transfer or exchange shall be accompanied by a written instrument of transfer
in form satisfactory to the Trustee and the Certificate Registrar duly executed
by the Holder. Each Certificate surrendered for registration of transfer and
exchange shall be cancelled and subsequently destroyed by the Trustee.
No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Trustee may require payment of a sum
sufficient to cover any tax of governmental charge that may be imposed in
connection with any transfer or exchange of Certificates.
SECTION 5.4. Mutilated, Destroyed, Lost or Stolen Certificates. If (i)
any mutilated Certificate shall be surrendered to the Certificate Registrar, or
if the Certificate Registrar shall receive evidence to its satisfaction of the
destruction, loss, or theft of any Certificate and (ii) there shall be delivered
to the Certificate Registrar or the Trustee such security or indemnity as may be
required by them to save each of them harmless, then in the absence of notice
that such Certificate shall have been acquired by a bona fide purchaser, the
Trustee on behalf of the Trust shall execute and the Trustee shall authenticate
and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost
or stolen Certificate, a new Certificate of like tenor and denomination. In
connection with the issuance of any new Certificate under this Section 5.4, the
Trustee and the Certificate Registrar may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection therewith. Any duplicate Certificate issued pursuant to this Section
5.4 shall constitute conclusive evidence of ownership in the Trust, as if
originally issued, whether or not the lost, stolen, or destroyed Certificate
shall be found at any time.
SECTION 5.5. Persons Deemed Owners. Prior to due presentation of a
Certificate for registration or transfer, the Trustee or the Certificate
Registrar may treat the Person in whose name any Certificate shall be registered
as the owner of such Certificate for the purpose of receiving distributions
pursuant to Section 4.3 and for all other purposes whatsoever, and neither the
Trustee nor the Certificate Registrar shall be bound by any notice to the
contrary.
SECTION 5.6. Access to List of Certificateholders' Names and Addresses.
The Trustee shall furnish or cause to be furnished to the Servicer, within 15
days after receipt by the Trustee of a request therefor from the Servicer in
writing, a list of the names and addresses of the Certificateholders as of the
most recent Record Date. If three or more Certificateholders, or one or more
Holders of Certificates evidencing in the aggregate not less than 25% of the
Pool Balance (hereinafter referred to as "applicants"), apply in writing to the
Trustee, and such application states that the applicants desire to communicate
with other Certificateholders with respect to their rights under the Agreement
or under the Certificates and such application shall be accompanied by a copy of
the communication that such applicants propose to transmit, then the Trustee
shall, within five Business Days after the receipt of such application, afford
such applicants access during normal business hours to the current list of
Certificateholders. Each
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Certificateholder, by receiving and holding a Certificate, shall be deemed to
have agreed to hold neither the Servicer nor the Trustee accountable by reason
of the disclosure of its name and address, regardless of the source from which
such information was derived.
SECTION 5.7. Maintenance of Office or Agency. The Trustee shall
maintain in the Borough of Manhattan, the City of New York, an office or offices
or agency or agencies where Certificates may be surrendered for registration of
transfer or exchange and where notices and demands to or upon the Trustee in
respect of the Certificates and the Agreement may be served. The Trustee
initially designated the Corporate Trust Office as specified in the Agreement as
its office for such purposes. The Trustee shall give prompt written notice to
the Servicer and to Certificateholders of any change in the location of the
Certificate Register or any such office or agency.
SECTION 5.8. Book-Entry Certificates. The Certificates (other than a
Certificate representing any residual portion of the Pool Balance), upon
original issuance, shall be issued in the form of typewritten Certificates
representing the Book-Entry Certificates, to be delivered to The Depository
Trust Company, the initial Clearing Agency, by the Seller or on its behalf. The
Certificates shall initially be registered on the Certificate Register in the
name of Cede & Co., the nominee of the initial Clearing Agency, and no
Certificate Owner will receive a definitive certificate representing such
Certificate Owner's interest in the Certificates, except as provided in Section
5.10. Unless and until definitive, fully registered Certificates ("Definitive
Certificates") have been issued to Certificateholders pursuant to Section 5.10:
(i) the provisions of this Section 5.8 shall
be in full force and effect;
(ii) the Seller, the Servicer, the Paying
Agent, the Transfer Agent and Certificate Registrar and the Trustee
may deal exclusively with the Clearing Agency for all purposes
(including the making of distributions in respect of the Certificates
and the taking of actions by the Certificateholders) as the authorized
representative of the Clearing Agency Participants and the Certificate
Owners;
(iii) to the extent that the provisions of this
Section 5.8 conflict with any other provisions of the Agreement, the
provisions of this Section 5.8 shall control;
(iv) the rights of Certificate Owners shall be
exercised only through the Clearing Agency (or to the extent
Certificate Owners are not Clearing Agency Participants through the
Clearing Agency Participants through which such Certificate Owners own
Book-Entry Certificates) and shall be limited to those established by
law and agreements between such Certificate Owners and the Clearing
Agency and/or the Clearing Agency Participants and all references in
the Agreement to actions by Certificateholders shall refer to actions
taken by the Clearing Agency upon instructions from the Clearing Agency
Participants, and all references in the Agreement to distributions,
notices, reports and statements to Certificateholders shall refer to
distributions, notices, reports and statements to the Clearing Agency
or its nominee, as registered holder of the Certificates, as
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the case may be, for distribution to Certificate Owners in accordance
with the procedures of the Clearing Agency; and
(v) pursuant to the Depository Agreement, the
initial Clearing Agency will make book-entry transfers among the
Clearing Agency Participants and receive and transmit distributions of
principal and interest on the Certificates to the Clearing Agency
Participants, for distribution by such Clearing Agency Participants to
the Certificate Owners or their nominees.
The Clearing Agency Participants shall have no rights under this
Agreement under or with respect to any of the Certificates held on their behalf
by the Clearing Agency, and the Clearing Agency may be treated by the Trustee,
and its agents, employees, officers and directors, as the absolute owner of the
Certificates for all purposes whatsoever.
SECTION 5.9. Notices to Clearing Agency. Whenever notice or other
communication to the Certificateholders is required under the Agreement, unless
and until Definitive Certificates shall have been issued to Certificate Owners
pursuant to Section 5.10, the Trustee and the Paying Agent shall give all such
notices and communications specified herein to be given by it to
Certificateholders to the Clearing Agency.
SECTION 5.10. Definitive Certificates. If (i)(A) the Seller advises the
Trustee in writing that the Clearing Agency is no longer willing or able
properly to discharge its responsibilities under the Depository Agreement, and
(B) the Trustee or the Seller is unable to locate a qualified successor or (ii)
after the occurrence of an Event of Default, Certificate Owners representing
beneficial interests aggregating more than 50% of the Pool Balance advise the
Clearing Agency and the Trustee (and the Clearing Agency shall notify the
Trustee in writing thereof) through the Clearing Agency Participants in writing
that the continuation of a book-entry system through the Clearing Agency is no
longer in the best interests of the Certificate Owners, the Trustee shall notify
the Clearing Agency of the occurrence of any event described in clauses (i) and
(ii) above and of the availability of Definitive Certificates to Certificate
Owners requesting the same. Upon surrender to the Transfer Agent and Certificate
Registrar by the Clearing Agency of Certificates registered in the name of such
Clearing Agency or its nominee, accompanied by re-registration instructions from
the Clearing Agency for registration of the Definitive Certificates, the Trustee
shall execute on behalf of the Trust, authenticate and (if the Transfer Agent
and Certificate Registrar is different than the Trustee, then the Transfer Agent
and Certificate Registrar shall) deliver Definitive Certificates. The Servicer
shall arrange for, and will bear all costs of, the printing and issuance of such
Definitive Certificates. None of the Seller, the Servicer, the Transfer Agent
and Certificate Registrar or the Trustee shall be liable for any delay in
delivery of such instructions and may conclusively rely on, and shall be
protected in relying on such instruction. Upon the issuance of Definitive
Certificates, all references herein to obligations imposed upon or to be
performed by the Clearing Agency shall be deemed to be imposed upon and
performed by the Transfer Agent and Certificate Registrar, to the extent
applicable with respect to such Definitive Certificates and the Trustee, the
Paying Agent and the Transfer Agent and Certificate Registrar shall recognize
the Holders of the Definitive Certificates as Certificateholders hereunder.
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SECTION 5.11. Appointment of Paying Agent.
(a) The Paying Agent shall have the revocable power to
withdraw funds from the Collection Account and make distributions to the
Certificateholders. The Trustee may revoke such power and remove the Paying
Agent, if the Trustee determines in its sole discretion that the Paying Agent
shall have failed to perform its obligations under the Agreement in any
material respect or for other good cause. The Paying Agent shall initially be
Bankers Trust Company. Bankers Trust Company shall be permitted to resign as
Paying Agent upon 30 days' written notice to the Servicer and the Trustee. In
the event that Bankers Trust Company shall no longer be the Paying Agent, the
Trustee shall appoint a successor to act as Paying Agent, which shall be a bank
or trust company.
(b) The Trustee shall cause the Paying Agent (if other
than itself) to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee that such Paying Agent will hold all
sums, if any, held by it for payment to the Certificateholders, and the Trustee
in trust for the benefit of the Certificateholders or other party entitled
thereto until such sums shall be paid to such Certificateholders or other party
entitled thereto and shall agree, and if the Trustee is the Paying Agent it
hereby agrees, that it shall comply with all requirements of the Code regarding
the withholding by the Trustee of payments in respect of federal income taxes
due from Certificate Owners.
(c) Bankers Trust Company in its capacity as initial
Paying Agent hereunder agrees that it (i) will hold all sums held by it
hereunder for payment to the Certificateholders, in trust for the benefit of
the Certificateholders or other party entitled thereto until such sums shall be
paid to such Certificateholders or other party entitled thereto and (ii) shall
comply with all requirements of the Code regarding the withholding by the
Trustee of payments in respect of federal income taxes due from Certificate
Owners.
SECTION 5.12. Authenticating Agent.
(a) The Trustee may appoint one or more authenticating
agents (each an "Authenticating Agent") with respect to the Certificates which
shall be authorized to act on behalf of the Trustee in authenticating the
Certificates in connection with the issuance, delivery, registration of
transfer, exchange or repayment of the Certificates. Whenever reference is
made in this Agreement to the authentication of Certificates by the Trustee or
the Trustee's certificate of authentication, such reference shall be deemed to
include authentication on behalf of the Trustee by an authenticating agent and
a certificate of authentication executed on behalf of the Trustee by an
authenticating agent. Any authenticating agent appointed by the Trustee shall
require the consent of the Seller, which consent may not be unreasonably
withheld.
(b) Any institution succeeding to the corporate agency
business of an authenticating agent shall continue to be an authenticating
agent without the execution or filing of any paper or any further act on the
part of the Trustee or such authenticating agent.
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(c) An authenticating agent may at any time resign by
giving written notice of resignation to the Trustee and the Seller. The
Trustee may at any time terminate the agency of an authenticating agent by
giving notice of termination to such authenticating agent and to the Seller.
Upon receiving such a notice of resignation or upon such a termination, or in
case at any time an authenticating agent shall cease to be acceptable to the
Trustee or the Seller, the Trustee promptly may appoint a successor
authenticating agent with the consent of the Seller. Any successor
authenticating agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor hereunder,
with like effect as if originally named as an authenticating agent. Any
successor authenticating agent appointed by the Trustee shall require the
consent of the Seller, which consent may not be unreasonably withheld.
(d) The Servicer shall pay the Authenticating Agent from
time to time reasonable compensation for its services under this Section 5.12.
(e) Pursuant to an appointment made under this Section
5.12, the Certificates may have endorsed thereon, in lieu of the Trustee's
certificate of authentication, an alternate certificate of authentication in
substantially the following form:
This is one of the certificates referred to in the within
mentioned Agreement.
_______________________________________,
as Trustee
By:_____________________________________
Authorized Signatory
or
________________________________________
as Authenticating Agent
for the Trustee,
By:_____________________________________
Authorized Signatory
SECTION 5.13. Actions of Certificateholders. Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
the Agreement to be given or taken by Certificateholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Certificateholders in person or by an agent duly appointed in writing; and
except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee and,
when required, to the Seller or the Servicer. Proof of execution of any such
instrument or of a writing appoint-
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ing any such agent shall be sufficient for any purpose of the Agreement and
conclusive in favor of the Trustee, the Seller and the Servicer, if made in the
manner provided in this Section 5.13.
ARTICLE VI
The Seller
SECTION 6.1. Liability of Seller; Indemnities. The Seller shall be
liable in accordance herewith only to the extent of the obligations specifically
undertaken by the Seller under the Agreement.
The Seller shall indemnify, defend, and hold harmless the Trustee and
its officers, directors, agents and employees and the Trust from and against
any taxes that may at any time be asserted against the Trustee or the Trust
with respect to, and as of the date of, the sale of the Contracts to the
Trustee or the issuance and original sale of the Certificates, including any
sales, gross receipts, general corporation, tangible personal property,
privilege, or license taxes (but not, in case of the Trust, including any taxes
asserted with respect to ownership of the Contracts or federal or other income
taxes arising out of the transactions contemplated by the Agreement) and costs
and expenses in defending against the same.
The Seller shall indemnify, defend, and hold harmless the Trustee and
its officers, directors, agents and employees from and against any loss,
liability or expense incurred by reason of the Seller's willful misfeasance,
bad faith, or negligence in the performance of its duties hereunder, or by
reason of reckless disregard of its obligations and duties hereunder.
The Seller shall indemnify, defend and hold harmless the Trustee and
its officers, directors, agents and employees and the Trust from and against
all costs, expenses, losses, claims, damages, and liabilities arising out of or
incurred in connection with the acceptance or performance of the trusts and
duties herein contained, except to the extent that such cost, expense, loss,
claim, damage or liability: (i) shall be due to the willful misfeasance, bad
faith, or gross negligence of the Trustee; or (ii) shall arise from the
Trustee's breach of any of its representations or warranties set forth in
Section 9.14.
Indemnification under this Section 6.1 shall include, without
limitation, reasonable fees and expenses of counsel and expenses of litigation.
If the Seller shall have made any indemnity payments to the Trustee pursuant to
this Section and the Trustee thereafter shall collect any of such amounts from
others, the Trustee shall repay such amounts to the Seller, without interest.
SECTION 6.2. Merger or Consolidation of, or Assumption of the
Obligations of, Seller. The Seller shall not consolidate with or merge into any
other corporation or convey, transfer or lease substantially all of its assets
as an entirety to any Person unless the corporation formed by such consolidation
or into which the Seller has merged or the Person which acquires by conveyance,
transfer or lease substantially all the assets of the Seller as an entirety, can
lawfully perform the obligations of the Seller hereunder and executes and
delivers to the Insurer and the
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Trustee an agreement in form and substance reasonably satisfactory to the
Trustee and the Insurer, which contains an assumption by such successor entity
of the due and punctual performance and observance of each covenant and
condition to be performed or observed by the Seller under this Agreement.
SECTION 6.3. Limitation on Liability of Seller and Others. The Seller
and any director or officer or employee or agent of the Seller may rely in good
faith on any document of any kind, prima facie properly executed and submitted
by any Person respecting any matters arising hereunder. The Seller shall not be
under any obligation to appear in, prosecute, or defend any legal action that
shall not be incidental to its obligations under this Agreement, and that in its
opinion may involve it in any expense or liability.
SECTION 6.4. Seller Not to Resign. Subject to the provisions of Section
6.2, the Seller shall not resign from the obligations and duties hereby imposed
on it as Seller under this Agreement.
SECTION 6.5. Seller May Own Certificates. The Seller and any Person
controlling, controlled by, or under common control with the Seller may in its
individual or any other capacity become the owner or pledgee of Certificates
with the same rights as it would have if it were not the Seller or an affiliate
thereof, except as otherwise provided in the definition of "Certificateholder"
specified in Section 1.1. Certificates so owned by or pledged to the Seller or
such controlling or commonly controlled Person shall have an equal and
proportionate benefit under the provisions of the Agreement, without preference,
priority, or distinction as among all of the Certificates.
ARTICLE VII
The Servicer
SECTION 7.1. Liability of Servicer; Indemnities. The Servicer shall be
liable in accordance herewith only to the extent of the obligations specifically
undertaken by the Servicer under the Agreement.
Such obligations shall include the following:
(a) the Servicer shall defend, indemnify, and hold
harmless the Trustee and its officers, directors, agents and employees, the
Trust, the Insurer and the Certificateholders from and against any and all
costs, expenses, losses, damages, claims, and liabilities, arising out of or
resulting from the use or operation by the Servicer or any Affiliate thereof of
a Financed Vehicle;
(b) the Servicer shall indemnify, defend and hold harmless
the Trustee and its officers, directors, agents and employees, the Insurer and
the Trust from and against any taxes that may at any time be asserted against
the Trustee or the Trust with respect to the transactions
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contemplated herein, including, without limitation, any sales, gross receipts,
general corporation, tangible personal property, privilege, or license taxes
(but not including any taxes asserted with respect to, and as of the date of,
the sale of the Contracts to the Trustee or the issuance and original sale of
the Certificates, or asserted with respect to ownership of the Contracts, or
federal or other income taxes arising out of distributions on the Certificates)
and costs and expenses in defending against the same;
(c) the Servicer shall indemnify, defend and hold harmless
the Trustee and its officers, directors, agents and employees, the Trust, the
Insurer and the Certificateholders from and against any and all costs, expenses,
losses, claims, damages, and liabilities to the extent that such cost, expense,
loss, claim, damage, or liability arose out of, or was imposed upon the Trustee,
the Trust, or the Certificateholders through, the negligence, willful
misfeasance, or bad faith of the Servicer in the performance of its duties under
the Agreement; and
(d) the Servicer shall indemnify, defend, and hold
harmless the Trustee and the Insurer from and against all costs, expenses,
losses, claims, damages, and liabilities arising out of or incurred in
connection with the acceptance or performance of the trusts and duties herein
contained, except to the extent that such cost, expense, loss, claim, damage,
or liability: (i) shall be due to the willful misfeasance, bad faith, or
negligence (except for errors in judgment) of the Trustee or the Insurer; (ii)
relates to any tax other than the taxes with respect to which either the Seller
or Servicer shall be required to indemnify the Trustee; (iii) shall arise from
the Trustee's breach of any of its representations or warranties set forth in
Section 9.13; or (iv) shall be one as to which the Seller is required to
indemnify the Trustee.
Indemnification under this Section shall include reasonable fees and
expenses of counsel and expenses of litigation. If the Servicer shall have
made any indemnity payments pursuant to this Section and the recipient
thereafter collects any of such amounts from others, the recipient shall
promptly repay such amounts to the Servicer, without interest.
SECTION 7.2. Corporate Existence; Status as Servicer; Merger.
(a) The Servicer shall keep in full effect its existence,
rights and franchises as a corporation incorporated under the laws of the State
of Delaware, and will obtain and preserve its qualification to do business as a
foreign corporation in each jurisdiction in which such qualification is or shall
be necessary to protect the validity and enforceability of the Contract
Documents and this Agreement.
(b) The Servicer shall not consolidate with or merge into
any other corporation or convey, transfer or lease substantially all of its
assets as an entirety to any Person or engage in any corporate transaction
pursuant to which the surviving or successor entity is not Onyx Acceptance
Corporation or a Delaware corporation created exclusively for the purpose of a
reincorporation merger, unless (i) such entity is at least rated investment
grade by the Rating Agencies, (ii) the Insurer shall have consented thereto in
writing and (iii) such entity executes and delivers to the Trustee and the
Insurer an agreement in form and substance reasonably satisfactory to the
Trustee and the Insurer, which contains an assumption by such successor
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entity of the due and punctual performance and observance of each covenant and
condition to be performed or observed by the Servicer under this Agreement.
SECTION 7.3. Performance of Obligations.
(a) The Servicer shall punctually perform and observe all
of its obligations and agreements contained in this Agreement.
(b) The Servicer shall not take any action, or permit any
action to be taken by others, which would excuse any person from any of its
covenants or obligations under any of the Contract Documents or under any other
instrument included in the Trust Estate, or which would result in the
amendment, hypothecation, subordination, termination or discharge of, or impair
the validity or effectiveness of, any of the Contract Documents or any such
instrument, except as expressly provided herein and therein.
SECTION 7.4. The Servicer Not to Resign; Assignment.
(a) The Servicer shall not resign from the duties and
obligations hereby imposed on it except upon determination by its Board of
Directors that by reason of change in applicable legal requirements the
continued performance by the Servicer of its duties under this Agreement would
cause it to be in violation of such legal requirements in a manner which would
result in a material adverse effect on the Servicer or its financial condition,
said determination to be evidenced by a resolution of its Board of Directors to
such effect accompanied by an Opinion of Counsel, satisfactory to the Trustee,
to such effect (subject to Section 8.2 hereof). No such resignation shall
become effective unless and until (i) the Back-up Servicer assumes all of the
Servicer's obligations under this Agreement or (ii) a new servicer acceptable
to the Trustee with the consultation of the Insurer is willing to service the
Contracts, enters into a servicing agreement with the Trustee in form and
substance substantially similar to this Agreement and satisfactory to the
Trustee and the Insurer, and the rating agency or agencies that rated the
Certificates confirm that the selection of such new servicer will not result in
the reduction or withdrawal of the rating of the Certificates assigned to them
by such rating agency or, if the Certificates are rated by more than one rating
agency, each such rating agency. No such resignation by the Servicer shall
affect the obligation of the Servicer to repurchase any Contract pursuant to
Section 3.7.
(b) Except as specifically permitted hereunder, the
Servicer may not assign this Agreement or any of its rights, powers, duties or
obligations hereunder, provided that the Servicer may assign this Agreement in
connection with a consolidation, merger, conveyance, transfer or lease made in
compliance with Section 7.2(b).
(c) Except as provided in Sections 7.4(a) and (b), the
duties and obligations of the Servicer under this Agreement shall continue
until this Agreement shall have been terminated as provided in Section 10.1,
and shall survive the exercise by the Trustee or the Insurer of any right or
remedy under this Agreement, or the enforcement by the Trustee, any
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Certificateholder or the Insurer of any provision of the Certificates, the
Insurance Agreement or this Agreement.
(d) The resignation of the Servicer in accordance with
this Section 7.4 shall not affect the rights of the Seller hereunder.
SECTION 7.5. Limitation on Liability of Servicer and Others. Neither
the Servicer nor any of the directors or officers or employees or agents of the
Servicer shall be under any liability to the Trust or the Certificateholders,
except as provided under this Agreement, for any action taken or for refraining
from the taking of any action pursuant to this Agreement or for errors in
judgment; provided, however, that this provision shall not protect the Servicer
or any such person against any liability that would otherwise be imposed by
reason of willful misfeasance, bad faith or negligence (except errors in
judgment) in the performance of duties or by reason of reckless disregard of
obligations and duties under the Agreement. The Servicer and any director or
officer or employee or agent of the Servicer may rely in good faith on any
document of any kind prima facie properly executed and submitted by any Person
respecting any matters arising under this Agreement.
Except as provided in this Agreement, the Servicer shall not be under
any obligation to appear in, prosecute, or defend any legal action that shall
not be incidental to its duties to service the Contracts in accordance with this
Agreement and that in its opinion may involve it in any expense or liability;
provided, however, that the Servicer may undertake any reasonable action that it
may deem necessary or desirable in respect of this Agreement and the rights and
duties of the parties to this Agreement and the interests of the
Certificateholders under this Agreement.
ARTICLE VIII
Default
SECTION 8.1. Events of Default. If any one of the following events
("Events of Default") shall occur and be continuing:
(a) any failure by the Servicer to deposit in or credit
to the Collection Account or the Payahead Account any amount required under
this Agreement to be so deposited or credited or to make the distribution
required by Section 4.3 that shall continue unremedied for a period of three
Business Days after written notice from the Trustee or the Insurer is received
by the Servicer or discovery by an officer of the Servicer; or
(b) the Insurer or the Trustee shall not have received a
report in accordance with Section 3.9 by the fifth Business Day prior to the
Distribution Date with respect to which such report is due; or
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(c) failure on the part of the Seller or the Servicer
duly to observe or to perform in any material respect any other covenants or
agreements of the Seller or the Servicer, set forth in this Agreement, which
failure shall (x) materially and adversely affect the rights of
Certificateholders, the Insurer or the Trustee and (y) continue unremedied for
a period of 30 days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given (i) to the Seller or
the Servicer, as the case may be, by the Trustee or the Insurer, or (ii) to the
Seller or the Servicer, as the case may be, and to the Trustee by the Holders
of Certificates evidencing in the aggregate not less than 25% of the Pool
Balance or by the Insurer; or
(d) the entry of a decree or order for relief by a court
or regulatory authority having jurisdiction in respect of the Servicer or the
Seller in an involuntary case under the federal bankruptcy laws, as now or
hereafter in effect, or another present or future, federal or state, bankruptcy,
insolvency or similar law, or appointing a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official of the Servicer or
the Seller or of any substantial part of its property, or ordering the winding
up or liquidation of the affairs of the Servicer or the Seller and the
continuance of any such decree or order unstayed and in effect for a period of
60 consecutive days or the commencement of an involuntary case under the federal
bankruptcy laws, as now or hereinafter in effect, or another present or future
federal or state bankruptcy, insolvency or similar law and such case is not
dismissed within 60 days; or
(e) the commencement by the Servicer or the Seller of a
voluntary case under the federal bankruptcy laws, as now or hereafter in
effect, or any other present or future, federal or state, bankruptcy,
insolvency or similar law, or the consent by the Servicer to the appointment of
or taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Servicer or the Seller or of any
substantial part of its property or the making by the Servicer of an assignment
for the benefit of creditors or the failure by the Servicer or the Seller
generally to pay its debts as such debts become due or the taking of corporate
action by the Servicer or the Seller in furtherance of any of the foregoing;
(f) any change of control of the Servicer in violation of
the covenant set forth in Section 7.2 hereof;
(g) the Servicer shall have failed in the reasonable
opinion of the Insurer to service the Contracts in accordance with the
Servicing Standards and such failure shall have continued unremedied for 30
days after written notice of such failure shall have been delivered to the
Servicer by the Insurer; or
(h) Any representation, warranty or statement of the
Servicer or the Seller made in this Agreement or any certificate, report or
other writing delivered pursuant hereto shall prove to be incorrect in any
material respect as of the time when the same shall have been made (excluding,
however, any representation or warranty to which Sections 2.2 or 3.6 shall be
applicable so long as the Servicer or the Seller shall be in compliance with
Sections 2.3 or 3.7, as the case may be), and the incorrectness of such
representation, warranty or statement has a material adverse effect on the
Trust and, within 30 days after written notice thereof shall have
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been given to the Servicer or the Seller by the Trustee or by the Holders of
Certificates evidencing in the aggregate at least 25% of the Pool Balance or by
the Insurer, the circumstance or condition in respect of which such
representation, warranty or statement was incorrect shall not have been
eliminated or otherwise cured;
then and in each and every case, so long as an Event of Default shall not have
been remedied, either the Trustee, the Insurer or the Holders of Certificates
evidencing in the aggregate not less than 25% of the Pool Balance, by notice
then given in writing to the Servicer (and to the Trustee and the Insurer if
given by the Certificateholders) may terminate all of the rights and obligations
of the Servicer under this Agreement. Notwithstanding the foregoing, in the
event that the Insurer is in default under the Surety Bond or is subject to any
Insurer Insolvency Proceeding, the Insurer shall not have the right to terminate
or cause the termination of the Servicer. On or after the receipt by the
Servicer of such written notice, all authority and power of the Servicer under
this Agreement, whether with respect to the Certificates or the Contracts or
otherwise, shall pass to and be vested in the Back-up Servicer, pursuant to and
under this Section 8.1; and, without limitation the Back-up Servicer is hereby
authorized and empowered to execute and deliver, on behalf of the Servicer, as
attorney- in-fact or otherwise, any and all documents and other instruments, and
to do or accomplish all other acts or things necessary or appropriate to effect
the purposes of such notice of termination, whether to complete the transfer and
assignment of the Contracts and related documents, to show the Back-up Servicer
as a lienholder or secured party on Title Documents or financing statements or
otherwise. The Servicer shall cooperate with the Back-up Servicer in effecting
the termination of the responsibilities and rights of the Servicer under this
Agreement, including the transfer to the Back-up Servicer for administration by
it of all cash amounts that shall at the time be held by the Servicer for
deposit, shall have been deposited by the Servicer in the Collection Account or
Payahead Account, or shall thereafter be received with respect to a Contract.
SECTION 8.2. Back-up Servicer to Act; Appointment of Successor. Upon
the Servicer's receipt of notice of termination pursuant to Section 8.1 or
resignation pursuant to Section 7.4, the Back-up Servicer shall be the successor
in all respects to the Servicer in its capacity as servicer under this
Agreement, and shall be subject to all the responsibilities, duties and
liabilities relating thereto placed on the Servicer by the terms and provisions
of the Agreement, except that the Back-up Servicer shall not be obligated to
purchase Contracts pursuant to Section 3.7. As compensation therefor, the
Back-up Servicer shall be entitled to such compensation (whether payable out of
the Collection Account or otherwise) as the Servicer would have been entitled to
under this Agreement if no such notice of termination shall have been given.
Notwithstanding the above, the Back-up Servicer may, if it shall be unwilling to
act, or shall, if it shall be legally unable so to act, appoint, or petition a
court of competent jurisdiction to appoint, any established financial
institution acceptable to the Insurer, having a net worth of not less than
$50,000,000 and whose regular business shall include the servicing of automotive
retail installment sales contracts, as the successor to the Servicer under the
Agreement. Pending appointment of any such successor Servicer, the Back-up
Servicer shall act in such capacity as provided above. In connection with such
appointment, the Back-up Servicer may make such arrangements for the
compensation of the successor out of payments on Contracts as it and such
successor shall agree; provided, however, (i) that such amount shall equal
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the product of a fixed percentage rate and the Scheduled Balance, as of the
commencement of each Collection Period, of each Contract and (ii) that no such
compensation shall be in excess of that permitted the Servicer under this
Agreement. The Back-up Servicer and such successor shall take such action,
consistent with this Agreement, as shall be necessary to effectuate any such
succession.
SECTION 8.3. Notification to Certificateholders. Upon any termination
of, or appointment of a successor to, the Servicer pursuant to this Article
VIII, the Trustee shall give prompt written notice thereof to Certificateholders
at their respective addresses appearing in the Certificate Register.
SECTION 8.4. Waiver of Past Defaults. The Holders of Certificates
evidencing not less than 51% of the Pool Balance (not including Certificates
held by the Seller, the Servicer or any of their respective affiliates), with
the written consent of the Insurer, may, on behalf of all Certificateholders,
waive any default by the Servicer in the performance of its obligations
hereunder and its consequences, except a default in the failure to make any
required deposits to or payments from the Collection Account in accordance with
this Agreement. Upon any such waiver of a past default, such default shall cease
to exist, and any Event of Default arising therefrom shall be deemed to have
been remedied for every purpose of this Agreement. No such waiver shall extend
to any subsequent or other default or impair any right consequent thereon except
to the extent expressly so waived. The Servicer shall give prompt written notice
of any waiver to the Rating Agencies and the Trustee.
SECTION 8.5. Insurer Direction of Insolvency Proceedings. The Trustee,
upon the actual knowledge of a Responsible Officer of the Trustee, shall
promptly notify the Insurer of (i) the commencement of any of the events or
proceedings (individually, an "Insolvency Proceeding") described in Sections
8.1(d) or 8.1(e) hereof or any such event or proceeding applicable to an Obligor
under a Contract and (ii) the making of any claim in connection with any
Insolvency Proceeding seeking the avoidance as a preferential transfer (a
"Preference Claim") of any payment of principal of, or interest on, any Contract
or any Certificate. Each Certificateholder, by its purchase of Certificates, and
the Trustee hereby agree that, so long as neither a default under the Surety
Bond nor an Insurer Insolvency has occurred and is continuing, the Insurer may
at any time during the continuation of an Insolvency Proceeding direct all
matters relating to such Insolvency Proceeding, including, without limitation,
(i) all matters relating to any Preference Claim, (ii) the direction of any
appeal of any order relating to any Preference Claim and (iii) the posting of
any surety, or performance bond pending any such appeal. The Insurer shall be
subrogated to the rights of the Trustee and each Certificateholder in the
conduct of any Insolvency Proceeding, including, without limitation, all rights
of any party to an adversary proceeding action with respect to any court order
issued in connection with any such Insolvency Proceeding.
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ARTICLE IX
The Trustee
SECTION 9.1. No Power to Engage in Business or to Vary Investments.
Notwithstanding any provision or agreement to the contrary in this Agreement or
in any other agreement, the Trustee, acting on behalf of the Trust (but not
individually), shall not have any power to engage in any business, commercial or
other activity for profit, and the Trustee and the Servicer shall not have any
power to vary the Trust Estate, whether consisting of a Contract, an Eligible
Investment or any other amount (other than cash payments received with respect
to Contracts) in any account maintained for the benefit of the Trust or the
Certificateholders or Certificate Owners, by disposition of said property,
investment or amount and the reinvestment of the proceeds realized or by any
other action calculated to take advantage of any variation or change in the
market or in market conditions, for the purpose of improving the investment or
return of the Certificateholders or Certificate Owners.
SECTION 9.2. Duties of Trustee. The Trustee, both prior to and after
the occurrence of an Event of Default, of which a Responsible Officer of the
Trustee has actual knowledge shall undertake to perform such duties and only
such duties as are specifically set forth in the Agreement. If an Event of
Default shall have occurred and shall not have been cured, the Trustee shall
exercise such of the rights and powers vested in it by the Agreement, and shall
use the same degree of care and skill in its exercise, as a prudent person would
exercise or use under the circumstance in the conduct of his own affairs.
The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee that shall be specifically required to be furnished pursuant to
any provision of this Agreement, shall examine them to determine whether they
comply as to form to the requirements of this Agreement.
No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act (other than errors in judgment), or its own willful misconduct;
provided, however, that:
(a) prior to the occurrence of an Event of Default, and
after the curing of all such Events of Default that may have occurred, the
duties and obligations of the Trustee shall be terminated solely by the express
provisions of this Agreement, the Trustee shall not be liable except for the
performance of such duties and obligations as shall be specifically set forth
in this Agreement, no implied covenants or obligations shall be read into this
Agreement against the Trustee and, in the absence of bad faith on the part of
the Trustee, the Trustee may conclusively rely on the truth of the statements
and the correctness of the opinions expressed upon any certificates or opinions
furnished to the Trustee and conforming to the requirements of this Agreement;
(b) the Trustee shall not be liable for an error of
judgment made in good faith by a Responsible Officer or Responsible Officers of
the Trustee, unless it shall be proved that
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the Trustee shall have been negligent in performing its duties in accordance
with the terms of this Agreement; and
(c) the Trustee shall not be liable with respect to any
action taken, suffered, or omitted to be taken by it in good faith in
accordance with the written direction of the Insurer or Holders of Certificates
evidencing in the aggregate not less than 25% of the Pool Balance relating to
the time, method, and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred upon the
Trustee, under this Agreement.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if there shall be
reasonable ground for believing that the repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it, and
none of the provisions contained in this Agreement shall in any event require
the Trustee to perform or be responsible for the manner of performance of, any
of the obligations of the Servicer under this Agreement.
The Trustee shall not be charged with knowledge of an Event of Default
or a failure by the Servicer to comply with any of its obligations unless and
until such time as a Responsible Officer shall have actual knowledge or have
received written notice thereof from the Servicer, the Insurer or any Holder of
Certificates evidencing in the aggregate not less than 10% of the Pool Balance.
Except for actions expressly authorized by the Agreement or, based
upon an Opinion of Counsel, in the best interests of Certificateholders, the
Trustee shall take no action reasonably likely to impair the security interest
of the Trust in any Contract or to impair the value of any Contract.
The Trustee shall not be liable for the selection of Eligible
Investments or for any investment losses resulting from Eligible Investments.
The Trustee shall have no duty to monitor the performance of the
Servicer, nor shall it have any liability in connection with the malfeasance or
nonfeasance by the Servicer. The Trustee shall have no liability in connection
with compliance of the Servicer or the Seller with statutory or regulatory
requirements related to the Contracts. The Trustee shall not make or be deemed
to have made any representations or warranties with respect to the Contracts or
the validity or sufficiency of any assignment of the Contracts to the Trust or
the Trustee.
All information obtained by the Trustee regarding the Obligors and the
Contracts, whether upon the exercise of its rights under the Agreement or
otherwise, shall be maintained by the Trustee in confidence, provided, however,
that the foregoing shall not be construed to prohibit (i) disclosure of any and
all information that is or becomes publicly known, or information obtained by
the Trustee from sources other than the Seller, Insurer, any Obligor or the
Servicer, (ii) disclosure of any and all information (A) if required to do so
by any applicable
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statute, law, rule or regulation, (B) to any government agency or regulatory or
self-regulatory body having or claiming authority to regulate or oversee any
aspects of the Trustee's business or that of its Affiliates, (C) pursuant to any
subpoena, civil investigative demand or similar demand or request of any court,
regulatory authority, arbitrator or arbitration to which the Trustee or an
Affiliate or an officer, director, employer or shareholder thereof is a party,
(D) in any preliminary or final offering circular, registration statement or
contract or other document pertaining to the transactions contemplated by the
Agreement approved in advance by the Seller or (E) to any Affiliate, independent
or internal auditor, agent, employee or attorney of the Trustee having a need to
know the same, provided that the Trustee advises such recipient of the
confidential nature of the information being disclosed, (iii) any other
disclosure authorized by the Seller or the Servicer or (iv) disclosure to the
other parties to the transactions contemplated by the Agreement.
In the event that the Paying Agent or the Transfer Agent and
Certificate Registrar shall fail to perform any obligation, duty or agreement
in the manner or on the day required to be performed by the Paying Agent or the
Transfer Agent and Certificate Registrar, as the case may be, under the
Agreement, the Trustee shall be obligated promptly upon a Responsible Officer
obtaining actual knowledge thereof to perform such obligation, duty or agreement
in the manner so required to the extent the information necessary to such
performance is reasonably available to the Trustee after the Trustee has made a
reasonable effort to obtain such information. The Trustee shall not be liable
for the acts or omissions of any Paying Agent, any Authenticating Agent or the
Transfer Agent and Certificate Registrar appointed hereunder with due care by
the Trustee hereunder.
SECTION 9.3. Trustee's Assignment of Purchased Contracts. With respect
to all Contracts repurchased by the Seller pursuant to Section 2.3 or purchased
by the Servicer pursuant to Section 3.7 or 10.2, the Trustee on behalf of the
Trust shall assign, without recourse, representation, or warranty to the Seller
or the Servicer, as the case may be, all the Trust's right, title, and interest
in and to such Contract, and all security and documents relating thereto. The
preparation of documents necessary to consummate such an assignment shall be the
responsibility of the Seller, the Servicer or the Insurer, as the case may be,
and not the responsibility of the Trustee. If in any enforcement suit or legal
proceeding it shall be held that the Servicer may not enforce a Contract on the
ground that it shall not be a real party in interest or a holder entitled to
enforce the Contract, the Trustee shall, at the Servicer's expense, take such
steps as directed in writing by the Servicer to enforce the Contract, including
bringing suit in the Trustee's name or the names of the Certificateholders,
provided that nothing in this Section 9.3 shall require the Trustee to qualify
to do business in a state in which it is not so qualified on the date of this
Agreement.
SECTION 9.4. Certain Matters Affecting the Trustee. Except as otherwise
provided in Section 9.1:
(a) the Trustee may conclusively rely and shall be fully
protected in acting or refraining from acting upon any resolution, Officer's
Certificate, certificate of auditors or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order,
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appraisal, bond, note or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(b) the Trustee may consult with counsel and any Opinion
of Counsel or any advice of such Counsel shall be full and complete
authorization and protection in respect of any action taken or suffered or
omitted by it under this Agreement in good faith and in accordance with such
Opinion of Counsel or advice. A copy of any such Opinion of Counsel shall be
provided to the Seller, the Servicer and the Insurer;
(c) the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Agreement, or to institute,
conduct or defend any litigation under this Agreement or in relation to this
Agreement, at the request, order or direction of any of the Certificateholders
pursuant to the provisions of this Agreement, unless such Certificateholders
shall have offered to the Trustee reasonable security or indemnity against the
cost, expenses, and liabilities that may be incurred therein or thereby. Nothing
contained in this Agreement, however, shall relieve the Trustee of the
obligations, upon the occurrence of an Event of Default (that shall not have
been cured), to exercise such of the rights and powers vested in it by this
Agreement, and to use the same degree of care and skill in their exercise as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs; provided that the Trustee shall not be deemed to have knowledge of
the occurrence of an Event of Default unless and until such knowledge shall be
(i) actual knowledge of a Responsible Officer or (ii) received in writing by a
Responsible Officer;
(d) the Trustee shall not be personally liable for any
action taken, suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon it by
this Agreement;
(e) prior to the occurrence of an Event of Default and
after the curing of all Events of Default that may have occurred, the Trustee
shall not be bound to make any investigation into the facts of matters stated
in any resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, direction, order, approval, bond, note or other paper or
document, unless requested in writing to do so by the Insurer or Holders of
Certificates evidencing in the aggregate not less than 25% of the Pool Balance;
provided, however, that if the payment within a reasonable time to the Trustee
of the costs, expenses, or liabilities likely to be incurred by it in the
making of such investigation shall be, in the opinion of the Trustee, not
reasonably assured to the Trustee by the security afforded to it by the terms
of this Agreement, the Trustee may require reasonable indemnity against such
cost, expense, or liability as a condition to so proceeding. The reasonable
expense of any and every such examination shall be paid by the Seller or, if
paid by the Trustee, shall be reimbursed by the Seller upon demand. Nothing in
this clause (e) shall affect the obligation of the Seller to observe any
applicable law prohibiting disclosure of information regarding the Obligors;
provided the Trustee shall be entitled to make such further inquiry or
investigation into such facts or matters as it may reasonably see fit, and if
the Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books and records of the Seller, personally or
by agent or attorney, at the sole cost and expense of the Seller;
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(f) the Trustee may execute any of the trust powers
hereunder or perform any duties under this Agreement either directly or by or
through agents or attorneys or a custodian or nominee and the Trustee shall not
be responsible for any misconduct or negligence on the part of, or for the
supervision of any such agent, attorney, custodian or nominee appointed with
due care by it hereunder;
(g) the Trustee shall not be required to make any initial
or periodic examination of any documents or records related to the Contracts
for the purpose of establishing the presence or absence of defects, the
compliance by the Seller with its representations and warranties or for any
other purpose; and
(h) in the event that the Trustee is also acting as
Custodian, Paying Agent or Transfer Agent and Certificate Registrar hereunder,
the rights and protections afforded to the Trustee pursuant to this Article IX
shall also be afforded to such Custodian, Paying Agent, Transfer Agent and
Certificate Registrar.
SECTION 9.5. Trustee Not Liable for Certificates or Contracts. The
Trustee shall make no representations as to the validity or sufficiency of this
Agreement or of the Certificates (other than its execution of Certificates on
behalf of the Trust and the certificate of authentication on the Certificates)
or of any Contract or related document. The Trustee shall at no time have any
responsibility or liability for or with respect to the legality, validity, and
enforceability of any security interest in any Financed Vehicle or any Contract,
or the perfection and priority of such a security interest or the maintenance of
any such perfection and priority, or for or with respect to the efficacy of the
Trust or its ability to generate the payments to be distributed to
Certificateholders under this Agreement, including: the existence, condition,
location, and ownership of any Financed Vehicle; the existence and
enforceability of any insurance policy thereon; the existence and contents of
any Contract or any computer or other record thereof; the validity of the
assignment of any Contract to the Trust or of any intervening assignment; the
completeness of any Contract; the performance or enforcement of any Contract;
the compliance by the Seller with any warranty or representation made under this
Agreement or in any related document and the accuracy of any such warranty or
representation prior to the Trustee's receipt of written notice of any
noncompliance therewith or any breach thereof; any investment of monies by the
Servicer or any loss resulting therefrom (it being understood that the Trustee
shall remain responsible for any Trust property that it may hold); the acts or
omissions of the Seller or any Obligor; an action of the Servicer taken in the
name of the Trustee; or any action by the Trustee taken at the instruction of
the Servicer; provided, however, that the foregoing shall not relieve the
Trustee of its obligation to perform its duties under this Agreement. Except
with respect to a claim based on the failure of the Trustee to perform its
duties under this Agreement or based on the Trustee's negligence or willful
misconduct in the performance of its duties hereunder, no recourse shall be had
for any claim based on any provision of this Agreement, the Certificates, or any
Contract or assignment thereof against the Trustee in its individual capacity.
The Trustee shall not have any personal obligation, liability, or duty
whatsoever to any Certificateholder or any other Person with respect to any such
claim, and any such claim shall be asserted solely against the Trust or any
indemnitor who shall furnish indemnity as provided in this Agreement. The
Trustee shall not be accountable for the use or application by the Seller of any
of the Cer-
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tificates or of the proceeds of such Certificates, or for the use or application
of any funds paid to the Seller in respect of the Contracts.
SECTION 9.6. Trustee May Own Certificates. The Trustee in its
individual or any other capacity, and any of its Affiliates, may become the
owner or pledgee of Certificates with the same rights as it would have if it
were not Trustee, subject to the definition of the term "Certificateholder" in
Section 1.1.
SECTION 9.7. Trustee's Fees and Expenses. The Servicer shall covenant
and agree to pay to the Trustee, and the Trustee shall be entitled to,
reasonable compensation (which shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust) for all services
rendered by it in the execution of the trusts created by this Agreement and in
the exercise and performance of any of the powers and duties under this
Agreement of the Trustee. Other than as included in the Trustee's compensation,
the Servicer shall pay or reimburse the Trustee upon its request for all
reasonable expenses (including, without limitation, expenses incurred in
connection with notices or other communications to Certificateholders),
disbursements, and advances (including the reasonable compensation and the
expenses and disbursements of its counsel and of all persons not regularly in
its employ) incurred or made by the Trustee in accordance with this Agreement or
in defense of any action brought against it in connection with this Agreement
except any such expense, disbursement, or advance as may arise from its
negligence (other than errors in judgment) or bad faith or that is the
responsibility of Certificateholders under this Agreement. Additionally, the
Seller, pursuant to Section 6.1, and the Servicer, pursuant to Section 7.1,
respectively, shall have agreed to indemnify the Trustee with respect to certain
matters, and certain Certificateholders, pursuant to Section 9.4, shall have
agreed to indemnify the Trustee under certain circumstances. Notwithstanding the
failure of the Servicer to perform any of its obligations under this Section,
the Trustee shall continue to perform its obligations under this Agreement. The
Servicer's covenant to pay the expenses, disbursements and advances provided for
above shall survive the termination of this Agreement.
SECTION 9.8. Indemnity of Trustee. The Trustee and its officers,
directors, agents and employees, shall be indemnified by the Servicer and held
harmless against any loss, liability, or expense (other than any amount owing
pursuant to Section 9.7) arising out of or incurred in connection with the
acceptance or performance of the trusts and duties contained in the Agreement
including the costs and expenses of defending against any claim or liability in
connection with the exercise or performance of any of its powers and duties
hereunder to the extent that (i) the Trustee shall not have been indemnified for
such loss, liability, or expense by the Seller pursuant to Section 6.1, the
Servicer pursuant to Section 7.1, or the Certificateholders pursuant to Section
9.4; (ii) such loss, liability, or expense shall not have been incurred by
reason of the Trustee's willful misfeasance, bad faith, or negligence (except
for errors in judgment); and (iii) such loss, liability, or expense shall not
have been incurred by reason of the Trustee's breach of its representations and
warranties pursuant to Section 9.14.
SECTION 9.9. Eligibility Requirements for Trustee. The Trustee under
this Agreement shall at all times be a depository institution or trust company
organized and doing business under the laws of any state or the United States of
America; authorized under such laws to exercise
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corporate trust powers; and having a combined capital and surplus of at least
$50,000,000 and subject to supervision or examination by federal or state
authorities. If such depository institution or trust company shall publish
reports of condition at least annually, pursuant to law or to the requirements
of the aforesaid supervising or examining authority, then for the purpose of
this Section 9.9, the combined capital and surplus of such depository
institution or trust company shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. In
case at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 9.9, the Trustee shall resign immediately in the
manner and with the effect specified in Section 9.10.
SECTION 9.10. Resignation or Removal of Trustee. The Trustee may at
any time resign and be discharged from the trusts hereby created by giving
written notice thereof to the Servicer. Upon receiving such notice of
resignation, the Servicer shall promptly appoint a successor Trustee acceptable
to the Insurer by written instrument, in duplicate, one copy of which
instrument shall be delivered to the resigning Trustee and one copy to the
successor Trustee. If no successor Trustee shall have been so appointed and have
accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 9.9 and shall fail to resign after written
request therefor by the Servicer with the written consent of the Insurer, or if
at any time the Trustee shall be legally unable to act, or shall be adjudged a
bankrupt or insolvent, or a receiver of the Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation, conservation, or
liquidation, then the Servicer may, with the written consent of the Insurer,
remove the Trustee. If it shall remove the Trustee under the authority of the
immediately preceding sentence, the Servicer shall promptly appoint a successor
Trustee by written instrument, in duplicate, one copy of which instrument shall
be delivered to the Trustee so removed and one copy to the successor Trustee.
If the Trustee is acting as Custodian, any resignation or removal of
the Trustee will result in the automatic termination of the Trustee's duties as
Custodian effective concurrently with such resignation or removal. Upon such
termination or removal, the Trustee shall, upon the request of the Servicer,
deliver the Contract Documents to the facilities of the successor Trustee.
Any resignation or removal of the Trustee and appointment of a
successor Trustee pursuant to any of the provisions of this Section 9.10 shall
not become effective until acceptance of appointment by the successor Trustee
pursuant to Section 9.11.
SECTION 9.11. Successor Trustee. Any successor Trustee appointed
pursuant to Section 9.10 shall execute, acknowledge, and deliver to the
Servicer and to its predecessor Trustee an instrument accepting such
appointment under this Agreement, and thereupon the resignation or removal of
the predecessor Trustee shall become effective and such successor Trustee,
without any further act, deed or conveyance, shall become fully vested with all
the rights, powers, duties, and obligations of its predecessor under this
Agreement, with like effect
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as if originally named as Trustee. The predecessor Trustee shall deliver to the
successor Trustee all documents and statements held by it under this Agreement,
or copies thereof, at the expense of the Servicer; and the Servicer and the
predecessor Trustee shall execute and deliver such instruments and do such other
things as may reasonably be required for fully and certainly vesting and
confirming in the successor Trustee all such rights, powers, duties and
obligations.
No successor Trustee shall accept appointment as provided in this
Section 9.11 unless at the time of such acceptance such successor Trustee shall
be eligible pursuant to Section 9.9.
Upon acceptance of appointment by a successor Trustee pursuant to this
Section 9.11, the Servicer shall mail notice of the successor of such Trustee
under this Agreement to all Holders of Certificates at their addresses as shown
in the Certificate Register. If the Servicer shall fail to mail such notice
within 10 days after acceptance of appointment by the successor Trustee, the
successor Trustee shall cause such notice to be mailed at the expense of the
Servicer.
The respective obligations of the Seller and the Servicer described in
Sections 2.7, 3.14, 6.1, 7.1, 9.5, 9.7 and 9.8 shall survive the removal or
resignation of the Trustee as provided in this Agreement or the termination of
the Trust as provided in Section 10.1.
No Trustee under this Agreement shall be liable for any action or
omission of any successor Trustee.
SECTION 9.12. Merger or Consolidation of Trustee. Any corporation
into which the Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation
resulting from any merger, conversion or consolidation to which the Trustee
shall be a party, or any corporation succeeding to the business of the Trustee,
shall be the successor of the Trustee hereunder, provided such corporation
shall be eligible pursuant to Section 9.9, without the execution or filing of
any instrument or any further act on the part of any of the parties hereto,
anything herein to the contrary notwithstanding.
SECTION 9.13. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust or any Financed Vehicle may at the time be located, the Servicer
and the Trustee acting jointly shall have the power and shall execute and
deliver all instruments to appoint one or more Persons approved by the Trustee
to act as co-trustee, jointly with the Trustee, or separate trustee or separate
trustees, of all or any part of the Trust, and to vest in such Person, in such
capacity and for the benefit of the Certificateholders, such title to the
Trust, or any part thereof, and, subject to the other provisions of this
Section 9.13, such powers, duties, obligations, rights, and trusts as the
Servicer and the Trustee may consider necessary or desirable. If the Servicer
shall not have joined in such appointment within 15 days after the receipt by
it of a written request so to do, or in case an Event of Default shall have
occurred and be continuing, the Trustee alone shall have the power to make such
appointment. No co-trustee or separate trustee under this Agreement shall be
required to meet the terms of eligibility as a successor trustee pursuant to
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Section 9.9 and no notice to Certificateholders of the appointment of any
co-trustee or separate trustee shall be required pursuant to Section 9.11.
Each and every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and
obligations conferred or imposed upon the Trustee shall be conferred
or imposed upon and exercised or performed by the Trustee and such
separate trustee or co-trustee jointly (it being understood that such
separate trustee or co-trustee is not authorized to act separately
without the Trustee in joining in such act), except to the extent that
under any law of any jurisdiction in which any particular act or acts
are to be performed (whether as Trustee under this Agreement or as
successor to the Servicer under this Agreement), the Trustee shall be
incompetent or unqualified to perform such act or acts, in which event
such rights, powers, duties, and obligations (including the holding of
title to the Trust or any portion thereof in any such jurisdiction)
shall be exercised and performed singly by such separate trustee or
co-trustee, but solely at the direction of the Trustee;
(ii) no trustee under this Agreement shall be
personally liable by reason of any act or omission of any other
trustee under this Agreement; and
(iii) the Servicer and the Trustee acting
jointly, or the Trustee acting alone may at any time accept the
resignation of or remove any separate trustee or co-trustee.
Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co- trustee shall refer to this Agreement
and the conditions of this Article IX. Each separate trustee and co-trustee,
upon its acceptance of the trusts conferred, shall be vested with the estates
or property specified in its instrument of appointment, either jointly with the
Trustee or separately, as may be provided therein, subject to all the
provisions of this Agreement, specifically including every provision of this
Agreement relating to the conduct of, affecting the liability of, or affording
protection to, the Trustee. Each such instrument shall be filed with the
Trustee and a copy thereof given to the Servicer.
Any separate trustee or co-trustee may at any time, appoint the
Trustee, its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. No such appointment shall affect the
obligations of the Trustee hereunder. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor trustee.
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SECTION 9.14. Representations and Warranties of Trustee. The Trustee
hereby makes the following representations and warranties on which the Seller
and Certificateholders shall rely:
(a) the Trustee is a New York banking corporation duly
organized, validly existing, and in good standing under the laws of New York;
(b) the Trustee has full power, authority and legal right
to execute, deliver, and perform the Agreement, and has taken all necessary
action to authorize the execution, delivery, and performance by it of the
Agreement;
(c) the execution and delivery of the Agreement and the
performance by the Trustee of its obligations under the Agreement does not
violate any provision of the Articles of Association or Bylaws of the Trustee;
and
(d) the Agreement has been duly authorized, executed and
delivered by the Trustee and shall constitute the legal, valid, and binding
agreement of the Trustee, enforceable in accordance with its terms except that
(i) such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect relating to creditors'
rights generally and (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to certain equitable defenses
and to the discretion of the court before which any proceeding thereof may be
brought.
SECTION 9.15. Tax Returns. The Servicer shall prepare or shall cause
to be prepared any tax returns required to be filed by the Trust and furnish to
Certificateholders all information required by the Code or the regulations
thereunder and shall remit such returns to the Trustee for signature at least
five days before such returns are due to be filed. The Trustee, upon request,
will furnish the Servicer with all such information known to the Trustee as may
be reasonably required in connection with the preparation of all tax returns of
the Trust, and shall, upon request, execute such returns. In no event shall
the Trustee in its individual capacity be liable for any liabilities, costs or
expenses of the Trust, the Certificateholders, the Seller or the Servicer
arising under any tax law or regulation, including, without limitation, federal,
state or local income or excise taxes or any other tax imposed on or measured by
income (or any interest or penalty with respect thereto or arising from any
failure to comply therewith).
SECTION 9.16. Trustee May Enforce Claims Without Possession of
Certificates. All rights of action and claims under the Agreement or the
Certificates may be prosecuted and enforced by the Trustee without the
possession of any of the Certificates or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name or in its capacity as Trustee. Any recovery
of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the Certificateholders in respect of
which such judgment has been recovered.
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SECTION 9.17. Suits for Enforcement. In case an Event of Default or
other default by the Servicer or the Seller hereunder shall occur and be
continuing, the Trustee, in its discretion, may proceed to protect and enforce
its rights and the rights of the Certificateholders under the Agreement by a
suit, action or proceeding in equity or at law or otherwise whether for the
specific performance of any covenant or agreement contained in the Agreement or
in aid of the execution of any power granted in the Agreement or the
enforcement of any other legal, equitable or other remedy, as the Trustee,
being advised by counsel, shall deem most effectual to protect and enforce any
of the rights of the Trustee or the Certificateholders.
SECTION 9.18. Maintenance of Office or Agency. The Trustee shall
maintain at its expense in New York, New York, an office or offices or agency
or agencies where notices and demands to or upon the Trustee in respect of the
Certificates and this Agreement may be served. The Trustee initially
designates the Corporate Trust Office as its office for such purposes. The
Trustee will give prompt written notice to the Servicer, the Paying Agent, the
Transfer Agent and Certificate Registrar, the Insurer and to Certificateholders
of any change in the location of such office or agency.
ARTICLE IXA.
The Back-up Servicer
SECTION 9.1A. Duties of Back-up Servicer.
The Back-up Servicer shall not be required to expend or risk its own
funds or otherwise incur financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or powers, if there
shall be reasonable ground for believing that the repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it, and none of the provisions contained in this Agreement shall in any event
require the Back-up Servicer to perform or be responsible for the manner of
performance of, any of the obligations of the Servicer under this Agreement
except during such time, if any, as the Back-up Servicer shall be the successor
to, and be vested with the rights, duties, powers and privileges of, the
Servicer in accordance with the terms of this Agreement.
Except for actions expressly authorized by the Agreement or, based
upon an Opinion of Counsel, in the best interests of Certificateholders, the
Back-up Servicer shall take no action reasonably likely to impair the security
interest of the Trust in any Contract or to impair the value of any Contract.
Except as set forth in Section 9.9A, the Back-up Servicer shall have
no duty to monitor the performance of the Servicer, nor shall it have any
liability in connection with the malfeasance or nonfeasance by the Servicer.
The Back-up Servicer shall have no liability in connection with compliance of
the Servicer or the Seller with statutory or regulatory requirements related to
the Contracts. The Back-up Servicer shall not make or be deemed to
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have made any representations or warranties with respect to the Contracts or the
validity or sufficiency of any assignment of the Contracts to the Trust or the
Trustee.
All information obtained by the Back-up Servicer regarding the
Obligors and the Contracts, whether upon the exercise of its rights under the
Agreement or otherwise, shall be maintained by the Back-up Servicer in
confidence, provided, however, that the foregoing shall not be construed to
prohibit (i) disclosure of any and all information that is or becomes publicly
known, or information obtained by the Back-up Servicer from sources other than
the Seller, Insurer, any Obligor or the Servicer, (ii) disclosure of any and
all information (A) if required to do so by any applicable statute, law, rule
or regulation, (B) to any government agency or regulatory or self-regulatory
body having or claiming authority to regulate or oversee any aspects of the
Back- up Servicer's business or that of its Affiliates, (C) pursuant to any
subpoena, civil investigative demand or similar demand or request of any court,
regulatory authority, arbitrator or arbitration to which the Back-up Servicer
or an Affiliate or an officer, director, employer or shareholder thereof is a
party, (D) in any preliminary or final offering circular, registration
statement or contract or other document pertaining to the transactions
contemplated by the Agreement approved in advance by the Seller or (E) to any
Affiliate, independent or internal auditor, agent, employee or attorney of the
Back-up Servicer having a need to know the same, provided that the Back-up
Servicer advises such recipient of the confidential nature of the information
being disclosed, (iii) any other disclosure authorized by the Seller or the
Servicer or (iv) disclosure to the other parties to the transactions
contemplated by the Agreement.
SECTION 9.2A. Back-up Servicer May Own Certificates. The Back-up
Servicer in its individual or any other capacity, and any of its Affiliates,
may become the owner or pledgee of Certificates with the same rights as it
would have if it were not Back-up Servicer, subject to the definition of the
term "Certificateholder" in Section 1.1.
SECTION 9.3A. Indemnity of Back-up Servicer. The Back-up Servicer
and its officers, directors, agents and employees, shall be indemnified by the
Servicer and held harmless against any loss, liability, or expense arising out
of or incurred in connection with the acceptance or performance of the duties
contained in the Agreement including the costs and expenses of defending
against any claim or liability in connection with the exercise or performance
of any of its powers and duties hereunder to the extent that (i) such loss,
liability, or expense shall not have been incurred by reason of the Back-up
Servicer's willful misfeasance, bad faith, or negligence (except for errors in
judgment); and (ii) such loss, liability, or expense shall not have been
incurred by reason of the Back-up Servicer's breach of its representations and
warranties pursuant to Section 9.8A.
SECTION 9.4A. Eligibility Requirements for Back-up Servicer. The
Back-up Servicer under this Agreement shall at all times be a depository
institution or trust company organized and doing business under the laws of any
state or the United States of America; authorized under such laws to exercise
corporate trust powers; and having a combined capital and surplus of at least
$50,000,000 and subject to supervision or examination by federal or state
authorities. If such depository institution or trust company shall publish
reports of condition at least annually, pursuant to law or to the requirements
of the aforesaid supervising or examining authority, then
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for the purpose of this Section 9.4A, the combined capital and surplus of such
depository institution or trust company shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. In case at any time the Back-up Servicer shall cease to be eligible
in accordance with the provisions of this Section 9.4A, the Back-up Servicer
shall resign immediately in the manner and with the effect specified in Section
9.5A.
SECTION 9.5A. Resignation or Removal of Back-up Servicer. The
Back-up Servicer may at any time resign and be discharged from the trusts hereby
created by giving written notice thereof to the Servicer. Upon receiving such
notice of resignation, the Servicer shall promptly appoint a successor Back-up
Servicer acceptable to the Insurer by written instrument, in duplicate, one copy
of which instrument shall be delivered to the resigning Back-up Servicer and one
copy to the successor Back-up Servicer. If no successor Back-up Servicer shall
have been so appointed and have accepted appointment within 30 days after the
giving of such notice of resignation, the resigning Back-up Servicer may
petition any court of competent jurisdiction for the appointment of a successor
Back-up Servicer.
If at any time the Back-up Servicer shall cease to be eligible in
accordance with the provisions of Section 9.4A and shall fail to resign after
written request therefor by the Servicer with the written consent of the
Insurer, or if at any time the Back-up Servicer shall be legally unable to act,
or shall be adjudged a bankrupt or insolvent, or a receiver of the Back-up
Servicer or of its property shall be appointed, or any public officer shall
take charge or control of the Back-up Servicer or of its property or affairs
for the purpose of rehabilitation, conservation, or liquidation, then the
Servicer may, with the written consent of the Insurer, remove the Back-up
Servicer. If it shall remove the Back-up Servicer under the authority of the
immediately preceding sentence, the Servicer shall promptly appoint a successor
Back-up Servicer by written instrument, in duplicate, one copy of which
instrument shall be delivered to the Back-up Servicer so removed and one copy
to the successor Back-up Servicer.
Any resignation or removal of the Back-up Servicer and appointment of
a successor Back-up Servicer pursuant to any of the provisions of this Section
9.5A shall not become effective until acceptance of appointment by the
successor Back-up Servicer pursuant to Section 9.6A.
SECTION 9.6A. Successor Back-up Servicer. Any successor Back-up
Servicer appointed pursuant to Section 9.5A shall execute, acknowledge, and
deliver to the Servicer and to its predecessor Back-up Servicer an instrument
accepting such appointment under this Agreement, and thereupon the resignation
or removal of the predecessor Back-up Servicer shall become effective and such
successor Back-up Servicer, without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties, and obligations of its
predecessor under this Agreement, with like effect as if originally named as
Back-up Servicer herein. The predecessor Back-up Servicer shall deliver to the
successor Back-up Servicer all documents and statements held by it under this
Agreement, or copies thereof, at the expense of the Servicer; and the Servicer
and the predecessor Back-up Servicer shall execute and deliver such instruments
and do such other things as may reasonably be required for fully and certainly
vesting and confirming in the successor Back-up Servicer all such rights,
powers, duties and obligations.
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No successor Back-up Servicer shall accept appointment as provided in
this Section 9.7A unless at the time of such acceptance such successor Back-up
Servicer shall be eligible pursuant to Section 9.4A.
Upon acceptance of appointment by a successor Back-up Servicer pursuant
to this Section 9.6A, the Servicer shall mail notice of the successor of such
Back-up Servicer under this Agreement to all Holders of Certificates at their
addresses as shown in the Certificate Register. If the Servicer shall fail to
mail such notice within 10 days after acceptance of appointment by the successor
Back-up Servicer, the successor Back-up Servicer shall cause such notice to be
mailed at the expense of the Servicer.
No Back-up Servicer under this Agreement shall be liable for any
action or omission of any successor Back-up Servicer.
SECTION 9.7A. Merger or Consolidation of Back-up Servicer. Any
corporation into which the Back-up Servicer may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Back-up Servicer shall be a party, or
any corporation resulting from any merger, conversion or consolidation to which
the Back-up Servicer shall be a party, or any corporation succeeding to the
business of the Back-up Servicer, shall be the successor of the Back-up
Servicer hereunder, provided such corporation shall be eligible pursuant to
Section 9.4A, without the execution or filing of any instrument or any further
act on the part of any of the parties hereto, anything herein to the contrary
notwithstanding.
SECTION 9.8A. Representations and Warranties of Back-up Servicer.
The Back-up Servicer hereby makes the following representations and warranties
on which the Seller and Certificateholders shall rely:
(a) the Back-up Servicer is a New York banking
corporation duly organized, validly existing, and in good standing under the
laws of New York.
(b) the Back-up Servicer has full power, authority and
legal right to execute, deliver, and perform the Agreement, and has taken all
necessary action to authorize the execution, delivery, and performance by it of
the Agreement;
(c) the execution and delivery of the Agreement and the
performance by the Back-up Servicer of its obligations under the Agreement does
not violate any provision of the Articles of Association or Bylaws of the
Back-up Servicer; and
(d) the Agreement has been duly authorized, executed and
delivered by the Back-up Servicer and shall constitute the legal, valid, and
binding agreement of the Back-up Servicer, enforceable in accordance with its
terms except that (i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect relating
to creditors' rights generally and (ii) the remedy of specific performance and
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injunctive and other forms of equitable relief may be subject to certain
equitable defenses and to the discretion of the court before which any
proceeding thereof may be brought.
SECTION 9.9A. Monitoring Duties of Back-up Servicer. The Servicer
shall provide from time to time to the Back-up Servicer information and data
via electronic transmission as required by the Back-up Servicer. The Back-up
Servicer shall:
(i) review each report issued by the Servicer
pursuant to Section 3.9 of this Agreement;
(ii) inform the Insurer as to any discrepancy
with regards to the information provided by the Servicer pursuant to
Section 3.9 of this Agreement if the Servicer has not resolved such
discrepancy within 30 days after notice thereof from the Back-up
Servicer;
(iii) conduct an annual site visit to the
Servicer's office; and
(iv) succeed in all respects to the Servicer in
its capacity as servicer pursuant to Section 8.2.
SECTION 9.10A. Status as Servicer. Back-up Servicer shall be
entitled to the benefits and subject to the obligations of this Article IXA
only during such time as Back-up Servicer serves in such capacity and
automatically upon the succession by Back-up Servicer as Servicer under Section
8.2 above, the Back-up Servicer will be subject to all the benefits and
obligations under this Agreement in its capacity as successor Servicer.
ARTICLE X
Termination
SECTION 10.1. Termination of the Trust. The respective obligations
and responsibilities of the Seller, the Servicer and the Trustee created hereby
and the Trust created by this Agreement shall terminate upon the earlier of (i)
the maturity or other liquidation of the last Contract and the disposition of
any amounts received upon liquidation of any remaining Contracts in the Trust
(including the purchase of the Contracts by the Servicer pursuant to Section
10.2); (ii) (a) the payment to Certificateholders of all amounts required to be
paid to them pursuant to this Agreement and the disposition of all property
held as part of the Trust, (b) termination of the Surety Bond in accordance
with its terms and surrender of the Surety Bond to the Insurer for
cancellation, (c) the payment of all amounts owed to the Trustee under this
Agreement and (d) the payment of all amounts owed to the Insurer under the
Insurance Agreement, provided, however, that in no event shall the trust
created by the Agreement continue beyond the expiration of 21 years from the
death of the survivor of the descendants, living on the date of this Agreement,
of Joseph P. Kennedy, formerly United States representa-
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tive at the Court of St. James. The Servicer shall promptly notify the Trustee
and the Insurer of any respective termination pursuant to this Section 10.1.
Notice of any termination, specifying the Distribution Date upon which
the Certificateholders may surrender their Certificates to the Trustee for
payment of the final distribution and cancellation, shall be given promptly by
the Trustee by letter to Certificateholders mailed not later than the 10th day
prior to the specified Distribution Date and not earlier than the 15th day of
the month prior to the month of the specified Distribution Date stating the
amount of any such final payment, and that the Record Date otherwise applicable
to such Distribution Date is not applicable, payments being made only upon
presentation and surrender of the Certificates at the office or agency of the
Trustee therein specified. The Trustee shall give such notice to the
Certificate Registrar at the time such notice is given to Certificateholders.
Upon presentation and surrender of the Certificates, the Trustee shall cause to
be distributed to Certificateholders amounts distributable on such Distribution
Date pursuant to Section 4.3.
In the event that all of the Certificateholders shall not surrender
their Certificates for cancellation within six months after the date specified
in the above-mentioned written notice, the Servicer shall give a second written
notice to the remaining Certificateholders to surrender their Certificates for
cancellation and receive the final distribution with respect thereto. If
within one year after the second notice all the Certificates shall not have
been surrendered for cancellation, the Servicer may take appropriate steps, or
may appoint an agent to take appropriate steps, to contact the remaining
Certificateholders concerning surrender of their Certificates, and the cost
thereof shall be paid out of the funds and other assets that shall remain
subject to the Agreement. Any funds remaining in the Trust after exhaustion of
such remedies and after all payments to be made to the Trustee and the Insurer
shall be distributed by the Trustee to a charity designated by the Servicer.
SECTION 10.2. Optional Purchase of All Contracts. On each
Distribution Date as of which the Pool Factor (after giving effect to the
Principal Distribution for such Distribution Date) shall be less than .100000,
the Servicer shall have the option to purchase the corpus of the Trust at a
price equal to the Repurchase Amount plus all amounts due and owing to the
Insurer under the Insurance Agreement (the "Dissolution Amount"). To exercise
such option, the Servicer shall pay to the Trustee for the benefit of the
Certificateholders, by deposit into the Collection Account, the aggregate
Dissolution Amount of all Contracts that were Outstanding at the beginning of
the Collection Period ending immediately prior to such Distribution Date. Such
purchase shall be deemed to have occurred on the last day of such Collection
Period.
ARTICLE XI
Miscellaneous Provisions
SECTION 11.1. Amendment. This Agreement may be amended by the
Seller, the Servicer, the Back-up Servicer and the Trustee, collectively with
the prior written consent of the Insurer, but without the consent of any of the
Certificateholders, to cure any ambiguity, to
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correct or supplement any provisions in the Agreement, or to add any other
provisions with respect to matters or questions arising under this Agreement
that shall not be inconsistent with the provisions of this Agreement; provided,
however, that such action shall not, as evidenced by an Opinion of Counsel,
adversely affect in any material respect the interests of any Certificateholder
or the Insurer.
This Agreement may also be amended from time to time by the Seller,
the Servicer, the Back-up Servicer and the Trustee with the consent of the
Holders of Certificates evidencing in the aggregate not less than 51% of the
Pool Balance and the Insurer for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the Agreement,
or of modifying in any manner the rights of the Holders of Certificates;
provided, however, that no such amendment shall (i) increase or reduce in any
manner the amount of, or accelerate or delay the timing of, collections of
payments on Contracts or distributions that shall be required to be made on any
Certificate or (ii) reduce the aforesaid percentage required to consent to any
such amendment, without the consent of the Holders of all Certificates then
outstanding.
Promptly after the execution of any such amendment or consent pursuant
to the next preceding paragraph, the Trustee shall furnish written notification
of the substance of such amendment or consent to each Certificateholder.
It shall not be necessary for the consent of Certificateholders
pursuant to this Section 11.1 to approve the particular form of any proposed
amendment or consent, but it shall be sufficient if such consent shall approve
the substance thereof. The manner of obtaining such consents and of evidencing
the authorization of the execution thereof by Certificateholders shall be
subject to such reasonable requirements as the Trustee may prescribe.
The Trustee may, but shall not be obligated to, enter into any such
amendment which affects the Trustee's own rights, duties or immunities under
this Agreement or otherwise and any such amendment shall be unenforceable in
its entirety absent the execution of such amendment by the Trustee.
SECTION 11.2. Protection of Title to Trust.
(a) The Servicer shall execute and file such financing
statements and cause to be executed and filed such continuation statements, all
in such manner and in such places as may be required by law fully to preserve,
maintain, and protect the interest of the Certificateholders, the Insurer and
the Trustee under this Agreement in the Contracts and in the proceeds thereof.
The Servicer shall deliver (or cause to be delivered) to the Trustee
file-stamped copies of, or filing receipts for, any document filed as provided
above, as soon as available following such filing.
(b) Neither the Seller nor the Servicer shall change its
name, identity, or corporate structure in any manner that would, could or might
make any financing statement or continuation statement filed by the Servicer in
accordance with paragraph (a) above seriously
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misleading within the meaning of Section 9-402(7) of the UCC, unless it shall
have given the Trustee and the Insurer at least 60 days' prior written notice
thereof.
(c) The Seller and the Servicer shall give the Trustee
and the Insurer at least 60 days' prior written notice of any relocation of the
principal executive office of the Seller and the Servicer if, as a result of
such relocation, the applicable provisions of the UCC would require the filing
of any amendment of any previously filed financing or continuation statement or
of any new financing statement. The Servicer shall at all times maintain each
office from which it shall service Contracts, and its principal executive
office, within the United States of America.
(d) The Servicer shall maintain or cause to be maintained
accounts and records as to each Contract accurately and in sufficient detail to
permit (i) the reader thereof to know at any time the status of such Contract,
including payments and recoveries made and payments owing (and the nature of
each) and (ii) reconciliation between payments or recoveries on (or with respect
to) each Contract and the amounts from time to time deposited in or credited to
the Certificate Amount and Payahead Account in respect of such Contract.
(e) The Servicer shall maintain or cause to be maintained
its computer systems so that, from and after the time of sale under the
Agreement of the Contracts to the Trust, the Servicer's master computer records
(including any back-up archives) that shall refer to a Contract indicate
clearly that such Contract is owned by the Trustee as trustee of the Trust.
Indication of the Trustee's ownership of a Contract shall be deleted from or
modified on the Servicer's computer systems when, and only when, the Contract
shall have been paid in full or repurchased or shall have become a Liquidated
Contract.
(f) If at any time the Seller or the Servicer shall
propose to sell, grant a security interest in, or otherwise transfer any
interest in automotive retail installment sales contracts to any prospective
purchaser, lender, or other transferee, the Servicer shall give or cause to be
given to such prospective purchaser, lender, or other transferee computer
tapes, records or print-outs (including any restored from back-up archives)
that, if they shall refer in any manner whatsoever to any Contract, shall
indicate clearly that such Contract has been sold and is owned by the Trust.
(g) The Servicer shall permit the Trustee, the Back-up
Servicer and the Insurer and its agents at any time during normal business
hours to inspect, audit, and make copies of and abstracts from the Servicer's
records regarding any Contract.
(h) Upon request, the Servicer shall furnish to the
Trustee, the Back-up Servicer and the Insurer, within five Business Days, a
list of all Contracts then held as part of the Trust, together with a
reconciliation of such list to the Schedule of Contracts and to each of the
Servicer's Certificates furnished before such request indicating removal of
Contracts from the Trust.
(i) The Servicer shall deliver to the Trustee and the
Insurer:
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(i) promptly after the execution and delivery
of this Agreement and of each amendment hereto, an Opinion of Counsel
either (A) stating that, in the opinion of such Counsel, all financing
statements and continuation statements have been executed and filed
that are necessary fully to preserve and protect the interest of the
Trustee and the Insurer in the Contracts, and reciting the details of
such filings or referring to prior Opinions of Counsel in which such
details are given or (B) stating that, in the opinion of such Counsel,
no such action shall be necessary to preserve and protect such
interest; and
(ii) within 90 days after the beginning of
each calendar year beginning with the first calendar year beginning
more than three months after the Cutoff Date an Opinion of Counsel,
dated as of a date during such 90-day period, either (A) stating that,
in the opinion of such counsel, all financing statements and
continuation statements have been executed and filed that are
necessary fully to preserve and protect the interest of the Trustee in
the Contracts, and reciting the details of such filings or referring
to prior Opinions of Counsel in which such details are given or (B)
stating that, in the opinion of such counsel, no such action shall be
necessary to preserve and protect such interest.
(j) The Seller shall, to the extent required by
applicable law, cause the Certificates to be registered with the Securities and
Exchange Commission pursuant to Section 12(b) or Section 12(g) of the
Securities Exchange Act of 1934 within the time periods specified in such
sections.
(k) For the purpose of facilitating the execution of this
Agreement and for other purposes, this Agreement may be executed simultaneously
in any number of counterparts, each of which counterpart shall be deemed to be
an original, and all of which counterparts shall constitute but one and the
same instrument.
SECTION 11.3. Limitation on Rights of Certificateholders. The death
or incapacity of any Certificateholder shall not operate to terminate the
Agreement or the Trust, nor entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
commence any proceeding in any court for a partition or winding up of the
Trust, nor otherwise affect the rights, obligations, and liabilities of the
parties to the Agreement or any of them.
No Certificateholder shall have any right to vote (except as provided
in Section 11.1) or in any manner otherwise control the operation and
management of the Trust, or the obligations of the parties to this Agreement,
nor shall anything in this Agreement set forth, or contained in the terms of
the Certificates, be construed so as to constitute the Certificateholders from
time to time as partners or members of an association; nor shall any
Certificateholder be under any liability to any third person by reason of any
action taken pursuant to any provision of this Agreement.
No Certificateholder shall have any right by virtue or by availing
itself of any provisions of this Agreement to institute any suit, action, or
proceeding in equity or at law upon or under
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or with respect to this Agreement, unless such Holder previously shall have
given to the Trustee a written notice of default and of the continuance thereof,
as hereinbefore provided, and unless also the Holders of Certificates evidencing
in the aggregate not less than 25% of the Pool Balance with the consent of the
Insurer shall have made written request upon the Trustee to institute such
action, suit or proceeding in its own name as Trustee under this Agreement and
shall have offered to the Trustee such reasonable indemnity as it may require
against the costs, expenses, and liabilities to be incurred therein or thereby,
and the Trustee, for 30 days after its receipt of such notice, request, and
offer of indemnity, shall have neglected or refused to institute any such
action, suit or proceeding; no one or more Holders of Certificates shall have
any right in any manner whatever by virtue or by availing itself or themselves
of any provisions of this Agreement to affect, disturb, or prejudice the rights
of the Holders of any other of the Certificates, or to obtain or seek to obtain
priority over or preference to any other such Holders, or to enforce any right,
under this Agreement, except in the manner in the Agreement provided in the
Agreement and for the equal, ratable, and common benefit of all
Certificateholders. For the protection and enforcement of the provisions of this
Section 11.3, each Certificateholder and the Trustee shall be entitled to such
relief as can be given either at law or in equity.
SECTION 11.4. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA AND THE OBLIGATIONS,
RIGHTS, AND REMEDIES OF THE PARTIES UNDER THIS AGREEMENT SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS EXCEPT THAT THE DUTIES OF THE TRUSTEE SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 11.5. Notices. All demands, notices, and communications
under the Agreement shall be in writing, personally delivered or mailed by
certified mail, return receipt requested, and shall be deemed to have been duly
given upon receipt (i) in the case of the Seller, at 8001 Irvine Center Drive,
5th Floor, Irvine, CA 92718, Attention: President, facsimile 714-450-5530,
(ii) in the case of the Servicer, at 8001 Irvine Center Drive, 5th Floor,
Irvine, California 92718, Attention: Regan E. Kelly, Executive Vice President,
facsimile 714-450-5530, (iii) in the case of the Insurer, at 885 Third Avenue,
New York, New York 10022, Attention: Managing Director, Consumer Structured
Finance, facsimile (212) 755-5462, (in each case in which the notice or other
communication to the Insurer refers to an Event of Default or a claim under the
Surety Bond or is a notice or other communication as to which a failure on the
part of the Insurer to respond shall be deemed to constitute consent or
acceptance, then with a copy to the attention of the Senior Vice President -
Surveillance), and (iv) in the case of the Trustee or the Back-up Servicer, at
the Corporate Trust Office. Any notice required or permitted to be mailed to a
Certificateholder shall be given by first class mail, postage prepaid, at the
address of such Holder as shown in the Certificate Registrar. Any notice so
mailed within the time prescribed in this Agreement shall be conclusively
presumed to have been duly given, whether or not the Certificateholder shall
receive such notice.
SECTION 11.6. Severability of Provisions. If any one or more of the
covenants, agreements, provisions, or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions, or
terms shall be deemed severable from the remaining covenants, agreements,
provisions, or terms of this Agreement and shall in no
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way affect the validity or enforceability of the other provisions of this
Agreement or of the Certificates or the rights of the Holders thereof.
SECTION 11.7. Assignment. Notwithstanding anything to the contrary
contained herein, except as provided in Sections 6.2 and 7.2, neither the
Seller nor the Servicer may transfer or assign all, or a portion of, its
rights, obligations and duties under the Agreement unless such transfer or
assignment (i) (A) will not result in a reduction or withdrawal by Standard &
Poor's or Moody's of the rating then assigned to the Certificates and (B) the
Trustee and the Insurer have consented to such transfer or assignment, or (ii)
the Insurer, the Trustee and Holders of Certificates evidencing not less than
51% of the Pool Balance consent thereto. Any transfer or assignment with
respect to the Servicer of all of its rights, obligations and duties will not
become effective until a successor Servicer has assumed the Servicer's rights,
duties and obligations under the Agreement. In the event of a transfer or
assignment pursuant to clause (ii) above, the Rating Agencies shall be provided
with notice of such transfer or assignment.
SECTION 11.8. Certificates Nonassessable and Fully Paid.
Certificateholders shall not be personally liable for obligations of the Trust.
The interests represented by the Certificates shall be nonassessable for any
losses or expenses of the Trust or for any reason whatsoever, and, upon
authentication thereof by the Trustee pursuant to Section 5.2, Certificates
shall be deemed fully paid.
SECTION 11.9. Third Party Beneficiaries. Except as otherwise
specifically provided herein with respect to the Certificateholders, the
parties to this Agreement hereby manifest their intent that no third party
other than the Insurer shall be deemed a third party beneficiary of this
Agreement, and specifically that the Obligors are not third party beneficiaries
of this Agreement.
SECTION 11.10. Insurer Default or Insolvency. If a default under the
Surety Bond has occurred and is continuing or an Insurer Insolvency has
occurred, any provision giving the Insurer the right to direct, appoint or
consent to, approve of, or take any action (or waive any right to take action)
under this Agreement, shall be inoperative during the period of such default or
the period from and after such Insurer Insolvency and such consent or approval
shall be deemed to have been given for the purpose of such provisions; provided
that the consent of the Insurer shall be required at all times with respect to
any amendment of this Agreement pursuant to Section 11.1.
SECTION 11.11. Tax Matters. The parties hereto intend that the Trust
shall be a grantor trust for federal and state income tax purposes and not as
an association taxable as a corporation. All provisions of this Agreement
shall be construed so as to effectuate such intent.
This Agreement may be executed in several counterparts, each of which
shall be an original and all of which shall constitute but one and the same
instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective officers thereunto duly authorized as of
the day and year first above written.
ONYX ACCEPTANCE FINANCIAL
CORPORATION,
as Seller
By:_____________________________________
Name:
Title:
ONYX ACCEPTANCE CORPORATION,
as Servicer
By:_____________________________________
Name:
Title:
BANKERS TRUST COMPANY,
not in its individual capacity but
solely as Trustee and Back-up Servicer,
respectively
By:_____________________________________
Name:
Title:
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Exhibit A
Form of Appointment
of Custodian
[Name and address of Custodian]
Re: Onyx Acceptance 1996-2 Grantor Trust
[ %] Auto Receivable Pass-Through
Certificates, 1996-2
Dear Sirs:
Reference is hereby made to the Pooling and Servicing Agreement (the
"Agreement") dated as of [May ___, 1996] among Onyx Acceptance Corporation,
Bankers Trust Company, as Trustee and Back-up Servicer (the "Trustee"), Onyx
Acceptance Financial Corporation and you. Terms used herein which are defined
in the Agreement have the respective meanings set forth in the Agreement.
The Trustee hereby revocably appoints you as the agent of the Trustee
to act as custodian, in accordance with the terms and provisions of the
Agreement, for the Contract Documents listed in Section 2.4 of the Agreement
relating to each Contract and the related Obligor and Financed Vehicle. Please
acknowledge your acceptance of such appointment and your agreement to act as
custodian in accordance with the terms and provisions of the Agreement by
signing below in the space indicated therefor.
By accepting such appointment you acknowledge that the Trustee may
terminate such appointment at any time, with or without cause, by written
notice to you.
Very truly yours,
BANKERS TRUST COMPANY,
not in its individual capacity but
solely as Trustee
By:_____________________________________
Name:
Title:
A-1
<PAGE> 84
ACCEPTED AND AGREED:
ONYX ACCEPTANCE CORPORATION
By: __________________________
Name:
Title:
CONSENTED AND AGREED:
CAPITAL MARKETS ASSURANCE CORPORATION
By: __________________________
Name:
Title:
A-2
<PAGE> 85
EXHIBIT B: SEE FORM OF CERTIFICATE
SEE REVERSE FOR CERTAIN
DEFINITIONS
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION, TO ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT
IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE, OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
ONYX ACCEPTANCE 1996-2 GRANTOR TRUST
____% AUTO LOAN PASS-THROUGH CERTIFICATE, SERIES 1996-2
evidencing a fractional undivided interest in the Trust, as defined below, the
property of which includes a pool of fixed rate Rule of 78's motor vehicle
retail installment sale contracts secured by new and used automobiles and
light-duty trucks, sold to the Trust by Onyx Acceptance Financial Corporation.
(This Certificate does not represent an interest in or obligation of Onyx
Acceptance Financial Corporation, Onyx Acceptance Corporation, or any of their
respective affiliates.)
Certificate No. Final Distribution Date: [ ]
CUSIP: _________________
THIS CERTIFIES THAT CEDE & CO. is the registered owner of a
_________ dollar, nonassessable, fully paid, fractional undivided interest, in
the amount set forth above, in the Onyx Acceptance Grantor Trust, 1996-2 (the
"Trust") formed by Onyx Acceptance Financial Corporation (the "Seller"). The
Trust was created pursuant to a Pooling and Servicing Agreement dated as of
[___________] (the "Agreement") among the Seller, Onyx Acceptance Corporation,
as Servicer (the "Servicer"), and Bankers Trust Company, as Trustee and Back-up
Servicer (the "Trustee"), a summary of certain of the pertinent provisions of
which is set forth below. This Certificate is one of the duly authorized
"Certificates" (herein called the "Certificates"). This Certificate is issued
under and is subject to the terms, provisions, and conditions of the Agreement,
to which Agreement the Holder of this Certificate by virtue of the acceptance
hereof assents and by which such Holder is bound. The property in the
Trust includes: (i) a pool of fixed rate Rule of 78's motor vehicle retail
installment sales contracts (the
B-1
<PAGE> 86
"Contracts") purchased from the Seller and secured by new and used automobiles
and light-duty trucks (the "Financed Vehicles"), (ii) certain documents relating
to the Contracts, (iii) certain monies due thereunder on or after the Cut-Off
Date, (iv) security interests in the Financed Vehicles and the rights to receive
proceeds from claims on certain insurance policies covering the Financed
Vehicles or the individual Obligor under each related Contract and the Seller's
right to proceeds under the Blanket Insurance Policy, (v) all amounts on deposit
in the Collection Account, including all Eligible Investments credited thereto
(but excluding investment earnings thereon), (vi) the benefits under an
irrevocable principal/interest surety bond issued by Capital Markets Assurance
Corporation (the "Insurer"), (vii) certain rights of the Seller under the
Purchase Agreement, and (viii) all proceeds of the foregoing.
Under the Agreement, there will be a monthly pro rata
distribution to the Certificateholders of record on the 15th day of each month
or, if such 15th day is not a Business Day, the next succeeding Business Day
(the "Distribution Date"), commencing on [ ], of such
Certificateholder's fractional undivided interest in all amounts allocable to
principal and interest from any applicable source described in the Agreement.
The monthly interest on each given Distribution Date shall be the product of
one-twelfth the Pass-Through Rate and the Pool Balance as of the end of the
immediately preceding Collection Period (or if the current Distribution Date is
the first Distribution Date as of the Closing Date) plus the amount of interest
previously due but not paid to Certificateholders, if any. The monthly
principal on each given Distribution Date shall be the sum of the Aggregate
Scheduled Balance Decline during the related Collection Period. The
distribution is more fully described in the Agreement.
Distributions on this Certificate will be made by the Trustee
by check mailed to the Certificateholder of record in the Certificate Register
without the presentation or surrender of this Certificate or the making of any
notation hereon. Except as otherwise provided in the Agreement and
notwithstanding the above, the final distribution on this Certificate will be
made after due notice by the Trustee of the pendency of such distribution and
only upon presentation and surrender of this Certificate at the office or
agency maintained for that purpose by the Trustee and Certificate Registrar in
the Borough of Manhattan, the City of New York.
Reference is hereby made to the further provisions of this
Certificate set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
All capitalized terms used herein not otherwise defined shall
have the meaning assigned thereto in the Agreement.
Unless the authentication hereon shall have been executed by
an authorized officer of the Trustee or by an authenticating agent acting on
behalf of the Trustee, by manual signature, this certificate shall not entitle
the holder hereof to any benefit under the Agreement or be valid for any
purpose.
IN WITNESS WHEREOF, the Trustee, on behalf of the Trust, and
not in its individual capacity, has caused this Certificate to be duly
executed.
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<PAGE> 87
ONYX ACCEPTANCE 1996-2 GRANTOR TRUST
BANKERS TRUST COMPANY, not in its individual
capacity, but solely as Trustee
By _____________________________________
Authorized Signatory
This is one of the Certificates referred to in the
within-mentioned Agreement.
BANKERS TRUST COMPANY, as Trustee
By _____________________________________
Authorized Signatory
B-3
<PAGE> 88
[REVERSE OF CERTIFICATE]
The Certificates do not represent an obligation of, or an
interest in, the Seller, the Servicer, the Trustee or any affiliate of any of
them. The Certificates are limited in right of payment to certain collections
and recoveries respecting the Contracts and payments under the Surety Bond, all
as more specifically set forth herein and in the Agreement. A copy of the
Agreement may be examined by any Certificateholder upon request during normal
business hours at the corporate administrative offices of the Seller currently
located at 8001 Irvine Center Drive, 5th Floor, Irvine, California 92718 and at
such other places, if any, designated by the Seller.
The Agreement permits, with certain exceptions therein
provided, the amendment and the modification of the rights and obligations of
the Seller and the Servicer and the rights of the Certificateholders under the
Agreement at any time by the Seller, the Servicer and the Trustee with the
consent of the Holders of Certificates evidencing in the aggregate not less
than 51% of the Pool Balance and the Insurer provided, however, that no such
amendment shall (a) increase or reduce in any manner the amount of, or
accelerate or delay the timing of, collections of payments on Contracts or
distributions that shall be required to be made on any Certificate or (b)
reduce the aforesaid percentage required to consent to any such amendment,
without the consent of the Holders of all Certificates then outstanding. Any
such consent by the Holder of this Certificate shall be conclusive and binding
on such Holder and upon all future Holders of this Certificate and of any
Certificate issued upon the transfer hereof or in exchange hereof or in lieu
hereof whether or not notation of such consent is made upon this Certificate.
The Agreement also permits the amendment thereof, in certain limited
circumstances, without the consent of the Holder of any of the Certificates.
As provided in the Agreement, the transfer of this Certificate
is registrable in the Certificate Register upon surrender of this Certificate
for registration of transfer at the offices or agencies maintained by the
Trustee in its capacity as Certificate Registrar, or by any successor
Certificate Registrar, in the Borough of Manhattan, the City of New York,
accompanied by a written instrument of transfer in form satisfactory to the
Trustee and the Certificate Registrar duly executed by the Holder hereof or
such Holder's attorney duly authorized in writing, and thereupon one or more
new Certificates of authorized denominations evidencing the same aggregate
interest in the Trust will be issued to the designated transferee.
The Certificates are issuable only as registered Certificates
without coupons in denominations of $1,000 and integral multiples thereof. As
provided in the Agreement, Certificates are exchangeable for new Certificates of
authorized denominations evidencing the same aggregate denomination, as
requested by the Holder surrendering the same.
No service charge will be made for any such registration of
transfer or exchange, but the Trustee may require payment of a sum sufficient
to cover any tax or governmental charge payable in connection therewith.
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<PAGE> 89
The Trustee, the Certificate Registrar, and any agent of the
Trustee or the Certificate Registrar may treat the person in whose name this
Certificate is registered as the owner hereof for all purposes, and neither the
Trustee, the Certificate Registrar, nor any such agent shall be affected by any
notice to the contrary.
The obligations and responsibilities created by the Agreement
and the Trust created thereby shall terminate upon the earlier of (i) the
maturity or other liquidation of the last Contract (including pursuant to the
Servicer's option to purchase the Contracts) and the disposition of any amounts
received upon liquidation of any remaining Contracts in the Trust and (ii) (a)
the payment to Certificateholders of all amounts required to be paid to them
pursuant to the Agreement and the disposition of all property held as part of
the Trust, (b) termination of the Surety Bond in accordance with its terms and
the surrender of the Surety Bond to the Insurer for cancellation, (c) the
payment of all amounts owed to the Trustee under the Agreement and (d) the
payment of all amounts owed to the Insurer under the Insurance Agreement. The
Servicer's exercise of its right to purchase all the Contracts and other
property of the Trust will effect early retirement of the Certificates;
however, such right of purchase is exercisable only as of a Distribution Date
as of which the Pool Factor was less then .100000.
B-5
<PAGE> 90
Exhibit C
Form of Surety Bond
[DATE]
SURETY BOND NO. SB____
RE: ONYX ACCEPTANCE GRANTOR TRUST 1996-2
[ ]% AUTO LOAN PASS - THROUGH
CERTIFICATES, SERIES 1996-2 (THE
"CERTIFICATES")
INSURED OBLIGATION: OBLIGATION OF ONYX ACCEPTANCE GRANTOR TRUST
1996-2 (THE "TRUST") TO PAY PRINCIPAL AND
INTEREST ON THE CERTIFICATES
BENEFICIARY: BANKERS TRUST COMPANY, AS TRUSTEE OF THE
TRUST (TOGETHER WITH ANY SUCCESSOR TRUSTEE
DULY APPOINTED AND QUALIFIED UNDER THE
POOLING AND SERVICING AGREEMENT AS DEFINED
BELOW (THE "TRUSTEE")
CAPITAL MARKETS ASSURANCE CORPORATION ("CAPMAC"), for consideration
received, hereby unconditionally and irrevocably guarantees to the Trustee,
subject only to the terms of this Principal/Interest Surety Bond (the "Surety
Bond"), payment of the Insured Obligation. CapMAC agrees to pay (a) to the
Trustee, in respect of each Distribution Date, an amount equal to the amount,
if any, by which the sum of (i) the Interest Distribution for such Distribution
Date, (ii) the Principal Distribution for such Distribution Date and (iii) the
Servicing Fee for such Distribution Date exceeds the Collection Account Amount
Available for such Distribution Date and (b) on behalf of the Trustee, an
amount equal to any Avoided Payment;
provided, however, that no payment (other than any payment made in respect of
Avoided Payments) under this Surety Bond with respect to any Distribution Date
shall exceed the Surety Bond Amount for such Distribution Date.
Capitalized terms used herein and not otherwise defined herein shall have
the meanings assigned to them in the Pooling and Servicing Agreement dated as
of May [ ], 1996 among Onyx Acceptance Financial Corporation, as seller (the
"Seller"), Onyx Acceptance Corporation, as servicer (the "Servicer") and the
Trustee (the "Pooling and Servicing Agreement").
As used herein the term "Certificate Balance" means the aggregate
principal balances of the Certificates then outstanding.
C-1
<PAGE> 91
As used herein the term "Insolvency Proceeding" means the commencement,
after the date hereof, of any bankruptcy, insolvency, readjustment of debt,
reorganization, marshalling of assets and liabilities or similar proceedings by
or against the Seller or Servicer, the commencement, after the date hereof, of
any proceedings by or against the Seller or Servicer for the winding up or
liquidation of its affairs, or the consent, after the date hereof, to the
appointment of a trustee, conservator, receiver or liquidator in any
bankruptcy, insolvency, readjustment of debt, reorganization, marshalling of
assets and liabilities or similar proceedings of or relating to the Seller or
Servicer.
As used herein the term "Servicing Fee" means, as to any Distribution
Date, the fee payable to the Servicer for services rendered during the
Collection Period ending immediately prior to such Distribution Date, which
shall equal with respect to each Rule of 78's Contract, the sum of (A) the
product of the Servicing Fee Percent and (B) the Scheduled Balance of such Rule
of 78's Contract (as specified in the Schedule of Contracts) as of the close of
the preceding Collection Period.
As used herein the term "Surety Bond Amount" means, the sum of (a) in the
case of the first Distribution Date, the initial Certificate Balance, or in the
case of any Distribution Date thereafter, the Certificate Balance on the
immediately preceding Distribution Date (after giving effect to the Principal
Distribution on such preceding Distribution Date), (b) the Interest
Distribution payable on such Distribution Date and (c) the Servicing Fee
payable on such Distribution Date.
Payment of amounts hereunder shall be made in immediately available funds
on the later of (a) 11:00 a.m., New York City time, on the Business Day
immediately preceding a Distribution Date and (b) 11:00 a.m., New York City
time, on the Business Day next succeeding presentation to CapMAC (as
hereinafter provided) of a notice for payment in the form of Exhibit A hereto
("Notice for Payment"), appropriately completed and executed by the Trustee. A
Notice for Payment under this Surety Bond may be presented to CapMAC on any
Business Day following the Servicer Report Date in respect of which the Notice
for Payment is being presented, by (a) delivery of the original Notice for
Payment to CapMAC at its address set forth below, or (b) facsimile transmission
of the original Notice for Payment to CapMAC at its facsimile number set forth
below. If presentation is made by facsimile transmission, the Trustee shall (i)
simultaneously confirm transmission by telephone to CapMAC at its telephone
number set forth below, and (ii) as soon as reasonably practicable, deliver the
original Notice for Payment to CapMAC at its address set forth below. Any Notice
for Payment received by CapMAC after 1:00 p.m., New York City time, on a
Business Day, or on any day that is not a Business Day, will be deemed to be
received by CapMAC at 9:00 a.m., New York City time, on the next succeeding
Business Day.
Subject to the foregoing, if the payment of any amount with respect to the
Insured Obligation is voided (a "Preference Event") under any applicable
bankruptcy, insolvency, receivership or similar law in an Insolvency
Proceeding, and as a result of such Preference Event, any Certificateholder is
required to return such voided payment, or any portion of
C-2
<PAGE> 92
such voided payment, made in respect of any Certificate (an "Avoided Payment"),
CapMAC will pay an amount equal to such Avoided Payment, irrevocably, absolutely
and unconditionally and without the assertion of any defenses to payment,
including fraud in inducement or fact or any other circumstances that would have
the effect of discharging a surety in law or in equity, upon payment of such
Certificateholder of such Avoided Payment and receipt by CapMAC from the Trustee
on behalf of such Certificateholder of (x) a certified copy of a final order of
a court exercising jurisdiction in such Insolvency Proceeding to the effect that
the Certificateholder is required to return any such payment or portion thereof
prior to the Termination Date of this Surety Bond because such payment was
voided under applicable law, with respect to which order the appeal period has
expired without an appeal having been filed (the "Final Order"), (y) an
assignment, substantially in the form attached hereto as Exhibit B, properly
completed and executed by such Certificateholder irrevocably assigning to CapMAC
all rights and claims of such Certificateholder relating to or arising under
such Avoided Payment, and (z) a Notice for Payment in the form of Exhibit A
hereto appropriately completed and executed by the Trustee.
CapMAC shall make payments due in respect of Avoided Payments prior to
1:00 p.m. New York City time on the second Business Day following CapMAC's
receipt of the documents required under clauses (x) through (z) of the
preceding paragraph. Any such documents received by CapMAC after 3:00 p.m. New
York City time on any Business Day or on any day that is not a Business Day
shall be deemed to have been received by CapMAC prior to 3:00 p.m. on the next
succeeding Business Day. All payments made by CapMAC hereunder on account of
any Avoided Payment shall be made to the Trustee for the benefit of the
Certificateholder entitled to such payment.
CapMAC hereby waives and agrees not to assert any and all rights to
require the Trustee to make demand on or to proceed against any person, party
or security prior to the Trustee demanding payment under this Surety Bond.
No defenses, set-offs and counterclaims of any kind available to CapMAC
so as to deny payment of any amount due in respect of this Surety Bond will be
valid and CapMAC hereby waives and agrees not to assert any and all such
defenses, set-offs and counterclaims, including, without limitation, any such
rights acquired by subrogation, assignment or otherwise. Any rights of
subrogation acquired by CapMAC as a result of any payment made under this
Surety Bond shall, in all respects, be subordinate and junior in right of
payment to the prior indefeasible payment in full of all amounts due the
Trustee on account of payments due under the Certificates.
This Surety Bond is neither transferable nor assignable, in whole or in
part, except to a successor trustee duly appointed and qualified under the
Pooling and Servicing Agreement. All notices, presentations, transmissions,
deliveries and communications made by the Trustee to CapMAC with respect to
this Surety Bond shall specifically refer to the number of this Surety Bond and
shall be made to CapMAC at:
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<PAGE> 93
Capital Markets Assurance Corporation
885 Third Avenue, 14th Floor
New York, N.Y. 10022
Attention: Managing Director, Consumer Structured Finance
Telephone: (212) 891-4271
Facsimile: (212) 755-5462
or such other address, telephone number or facsimile number as CapMAC may
designate to the Trustee in writing from time to time. Each such notice,
presentation, transmission, delivery and communication shall be effective only
upon actual receipt by CapMAC.
The obligations of CapMAC under this Surety Bond are irrevocable, primary,
absolute and unconditional (except as expressly provided herein) and neither
the failure of the Trustee, the Seller, the Servicer or any other person to
perform any covenant or obligation in favor of CapMAC (or otherwise), nor the
failure or omission to make a demand permitted hereunder, nor the commencement
of any bankruptcy, debtor or other insolvency proceeding by or against the
Trustee, the Seller, the Servicer or any other person shall in any way affect
or limit CapMAC's obligations under this Surety Bond. If a successful action
or proceeding to enforce this Surety Bond is brought by the Trustee, the
Trustee shall be entitled to recover from CapMAC costs and expenses reasonably
incurred, including without limitation reasonable fees and expenses of counsel.
There shall be no acceleration payment due under this Surety Bond unless
such acceleration is at the sole option of CapMAC.
This Surety Bond and the obligations of CapMAC hereunder shall terminate
on the date (the "Termination Date") that is one year and one day following the
earlier of (a) the Final Distribution Date and (b) the date on which all
amounts required to be paid to the Certificateholders have been paid in full,
provided, that, if an Insolvency Proceeding is existing by or against the
Seller or the Servicer during such one year and one day period, then this
Surety Bond and CapMAC's obligations hereunder shall terminate on the date of
the conclusion or dismissal of such Insolvency Proceeding without continuing
jurisdiction by the court in such Insolvency Proceeding, provided, further
that, and notwithstanding anything herein to the contrary, this Surety Bond
shall not terminate prior to the date on which CapMAC has made all payments
required to be made under the terms of this Surety Bond in respect of such
Avoided Payments.
Upon any payment hereunder, in furtherance and not in limitation of
CapMAC's equitable right of subrogation and CapMAC's rights under the Insurance
Agreement, CapMAC will be subrogated to the rights of the Certificateholder in
respect of which such payment was made to receive any and all amounts due in
respect of the obligations in respect of which CapMAC has made a payment
hereunder.
All payments made hereunder by CapMAC shall be made with CapMAC's own
funds. The payment by the Trust or CapMAC to the Trustee of any amount
guaranteed by the first
C-4
<PAGE> 94
paragraph of this Surety Bond, and the payment by CapMAC of any Avoided Payment
after the occurrence of a Preference Event shall constitute "payments" for all
purposes under this Surety Bond. In no event shall any payment be made under
this Surety Bond on account of (a) the failure of the Trustee to deliver the
proceeds of any such payment to any Certificateholder or (b) the failure of any
such Certificateholder to claim any such proceeds from the Trustee.
This Surety Bond is not covered by the property/casualty insurance fund
specified in Article Seventy-Six of the New York State insurance law.
This Surety Bond sets forth in full the undertaking of CapMAC, and shall
not, except with the prior written consent of the Trustee or otherwise in
accordance with the express terms hereof, be modified, altered or affected by
any other agreement or instrument, including any modification or amendment
thereto and may not be canceled or revoked by CapMAC prior to the Termination
Date.
This Surety Bond shall be returned to CapMAC by the Trustee on the
Termination Date.
THIS SURETY BOND SHALL BE CONSTRUED, AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED, IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES OR
THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION.
IN WITNESS WHEREOF, CapMAC has caused this Surety Bond to be executed on the
date first written above.
CAPITAL MARKETS ASSURANCE CORPORATION
By___________________________
C-5
<PAGE> 95
Schedule I
[Schedule of Contracts]
<PAGE> 1
Exhibit 5.1
BROBECK, PHLEGER & HARRISON LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
May 3, 1996
Onyx Acceptance Financial Corporation
8001 Irvine Center Drive
Irvine, California 92718
Re: Registration Statement on Form S-1
Registration No. 333-4220
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on
Form S-1 (Registration No. 333-4220) filed by you on behalf of the Onyx
Acceptance Grantor Trust 1996-2 (the "Trust") with the Securities and Exchange
Commission on April 30, 1996 and Amendment No. 1 thereto transmitted for filing
on May 3, 1996 (collectively, the "Registration Statement") in connection with
the registration under the Securities Act of 1933, as amended, of Automobile
Loan Pass-Through Certificates (the "Certificates"). The Certificates are to be
issued pursuant to a Pooling and Servicing Agreement relating to the formation
of the Trust and the issuance of the Certificates (the "Pooling and Servicing
Agreement") among Onyx Acceptance Financial Corporation (the "Company"), Onyx
Acceptance Corporation ("Servicer"), and Bankers Trust Company (the "Trustee").
The Certificates are to be sold to the Underwriter as described
in the Registration Statement for resale to the public. As your counsel in
connection with this transaction, we have examined the proceedings taken and are
familiar with the proceedings proposed to be taken by you in connection with the
sale and issuance of the Certificates.
It is our opinion that, upon (i) conclusion of the proceedings
being taken or contemplated by us, as your counsel, to be taken prior to the
issuance of the Certificates, (ii) due execution and authentication of the
Certificates by the Trustee in accordance with the terms of the Pooling and
Servicing Agreement, and (iii) issuance and delivery of the Certificates against
payment therefor by the Underwriter in the manner described in the Registration
Statement, the Certificates will be legally issued, fully paid and
nonassessable.
<PAGE> 2
Onyx Acceptance Financial May 3, 1996
Corporation Page 2
We consent to the use of this opinion as an exhibit to the
Registration Statement and further consent to all references to us in the
Registration Statement, the prospectus constituting a part thereof and any
further amendments thereto. Subject to the foregoing sentence, this opinion is
given as of the date hereof solely for your benefit and may not be relied upon,
circulated, quoted or otherwise referred to for any purpose without our prior
written consent.
Respectfully,
/s/ Brobeck Phleger & Harrison LLP
BROBECK PHLEGER & HARRISON LLP
<PAGE> 1
` Exhibit 8.1
BROBECK, PHLEGER & HARRISON LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
May 3, 1996
Merrill Lynch, Pierce, Fenner & Smith Bankers Trust Company
Incorporated Four Albany Street, 10th floor
World Financial Center New York, NY 10006
North Tower, 15th Floor
New York, NY 10281-1315 Capital Markets Assurance Corporation
885 Third Avenue
Standard & Poor's Ratings Group New York, NY 10022
25 Broadway
New York, NY 1004 Moody's Investors Service, Inc.
99 Church Street
New York, NY 10007
Re: Onyx Acceptance Grantor Trust 1996-2:
Certain Federal Income Tax Issues
Ladies and Gentlemen:
We have acted as tax counsel to Onyx Acceptance Financial
Corporation (the "Company") in connection with the preparation of the Company's
Registration Statement on Form S-1 (Registration No. 333-4220) filed by the
Company on behalf of the Onyx Acceptance Grantor Trust 1996-2 (the "Trust") with
the Securities and Exchange Commission on April 30, 1996 and Amendment No. 1
thereto transmitted for filing on May 3, 1996 (collectively, the "Registration
Statement") in connection with the registration under the Securities Act of
1933, as amended, of Automobile Loan Pass-Through Certificates (the
"Certificates"). The Certificates are to be issued pursuant to a Pooling and
Servicing Agreement relating to the formation of the Trust and the issuance of
the Certificates (the "Pooling and Servicing Agreement") among the Company, Onyx
Acceptance Corporation ("Servicer"), and Bankers Trust Company (the "Trustee").
Capitalized terms used herein that are not otherwise defined have the meaning
assigned to such terms in the Registration Statement.
In rendering the opinions set forth below, we have examined
forms of the following documents presented to us and are relying (without any
independent investigation thereof) upon the truth and accuracy of the
statements, covenants, representations and warranties set forth therein:
<PAGE> 2
1. The Registration Statement;
2. The Pooling and Servicing Agreement;
3. The Purchase Agreement; and
4. Such other agreements and documents as we have
considered necessary or appropriate for the purpose of
rendering the opinions set forth below.
In rendering the opinions set forth below, we have relied upon
the following representations and assumptions:
1. The form of agreements supplied to us that we reviewed
in connection with rendering our opinions hereunder
will be validly executed in substantially the same
form in which they have been filed as exhibits to the
Registration Statement and will be binding and
enforceable in accordance with their terms.
2. All parties will perform under such agreements in
accordance with their terms.
3. There are no other or further agreements which would
alter, amend or otherwise materially affect the
relationships created by or described in the above
listed documents or described in the Registration
Statement, or which would affect the Seller's interest
in the Retained Yield.
Our opinions represent only our best judgment regarding the
application of federal income tax laws under the Internal Revenue Code of 1986,
as amended (the "Code"), existing judicial decisions, administrative regulations
and published rulings and procedures. Our opinion is not binding upon the
Internal Revenue Service or the courts, and there is no assurance that the
Internal Revenue Service will not successfully assert contrary positions.
Furthermore, no assurance can be given that future legislative, judicial
decisions or administrative changes, applicable either on a prospective or
retroactive basis, might not materially alter our opinions. Nevertheless, we
undertake no responsibility to advise you of any new developments in the
application or interpretation of the federal income tax laws.
Based on and subject to the foregoing, we are of the opinion
that:
A. The Trust will not be classified as an association taxable
as a corporation for federal income tax purposes and, instead, under Subpart E,
Part I of Subchapter J of the Code, will be treated as a grantor trust and,
subject to possible recharacterization of certain amounts paid by the Trust to
the Servicer, the holders of the Certificates will be treated as owning an
undivided pro-rata interest in the income and corpus of the Trust (other than
the Retained Yield);
<PAGE> 3
May 3, 1996
Page 3
B. The statements in the Prospectus under the headings
"Prospectus Summary -- Tax Status" and "Certain Tax Consequences," to the extent
that they constitute matters of law or legal conclusions with respect thereto,
are correct in all material respects; and
C. The Trust will not be subject to California franchise or
income taxation and individual holders of Certificates who are not residents of
or otherwise subject to tax in California will not be subject to California
income taxation on any income earned with respect to their investment in the
Certificates so long as they do not hold the Certificates as an asset of a trade
or business conducted in California.
We express no opinion as to other tax issues affecting the
purchasers of the Certificates or the other parties to any of the agreements,
nor does our opinion address state, local or foreign tax consequences that may
result from the transactions.
We consent to the use of this opinion as an exhibit to the
Registration Statement and further consent to all references to us in the
Registration Statement, the prospectus constituting a part thereof and any
further amendments thereto. Subject to the foregoing sentence, this opinion is
given as of the date hereof solely for your benefit and may not be relied upon,
circulated, quoted or otherwise referred to for any purpose without our prior
written consent.
Respectfully,
/s/ Brobeck Phleger & Harrison LLP
BROBECK PHLEGER & HARRISON LLP
