<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 10, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ONYX ACCEPTANCE GRANTOR TRUST 1997-2
(ISSUER WITH RESPECT TO CERTIFICATES)
------------------------
ONYX ACCEPTANCE FINANCIAL CORPORATION
(ORIGINATOR OF THE TRUST DESCRIBED HEREIN)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 9999 33-0639768
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NO.) IDENTIFICATION NO.)
</TABLE>
------------------------
8001 IRVINE CENTER DRIVE, 6TH FLOOR
IRVINE, CA 92618
(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 92618
(714) 450-5500
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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DAVID J. JOHNSON, JR., ESQ. SUSAN M. CURTIS, ESQ.
DANIEL F. PASSAGE, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
ANDREWS & KURTH L.L.P. 919 THIRD AVENUE
601 S. FIGUEROA, SUITE 4200 NEW YORK, NEW YORK 10022
LOS ANGELES, CALIFORNIA 90017
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to a dividend or interest reinvestment plan, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 134,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED UNIT(1) PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------
____% Auto Loan Pass-Through
Certificates, Series 1997-2........ $121,676,091 100% $121,676,091 $36,871.48
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(1) Estimated solely for the purpose of calculating the registration fee on the
basis of the proposed maximum offering price per unit.
----------------------------
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, AS AMENDED, OR UNTIL THIS 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
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 JUNE 10, 1997
PROSPECTUS
$121,676,091
ONYX ACCEPTANCE GRANTOR TRUST 1997-2
[LOGO] % AUTO LOAN PASS-THROUGH CERTIFICATES, SERIES 1997-2
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
1997-2 (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 and Simple Interest Method motor vehicle retail installment sales
contracts (the "Contracts") secured by new and used automobiles and light-duty
trucks (the "Financed Vehicles"), certain monies due under certain Contracts on
or after June 1, 1997 (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 as of the
Cut-Off Date was $121,676,091. 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 July 15, 1997 and ending on October 15, 2003 (the "Final Distribution
Date"). Payments of 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.
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."
------------------------
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.
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PRICE TO UNDERWRITING PROCEEDS TO THE
PUBLIC(1) DISCOUNT SELLER(1)(2)
- ----------------------------------------------------------------------------------------------------------
Per Certificate...................... % % %
- ----------------------------------------------------------------------------------------------------------
Total................................ $ $ $
==========================================================================================================
</TABLE>
(1) Plus accrued interest, if any, calculated from , 1997.
(2) Before deducting expenses payable by the Seller estimated to be $325,000.
------------------------
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 , 1997, through the facilities of The Depository Trust
Company.
------------------------
MERRILL LYNCH & CO.
------------------------
The date of this Prospectus is , 1997.
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CERTIFICATES,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
CERTIFICATES, AND THE IMPOSITION OF PENALTY BIDS, DURING AND AFTER THE OFFERING.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
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, Suite 1300, 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 Commission also maintains
a web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission,
including the Servicer, and the address is http://www.sec.gov. The Servicer, on
behalf of the Trust, will also file or cause to be filed with the Commission
such periodic reports as are required under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and the rules and regulations of the Commission
thereunder, and such reports can be obtained as described above. Such reports
will include Current Reports on Form 8-K filed after each Distribution Date, and
an Annual Report on Form 10-K. Such reports will contain certain financial
information regarding the Trust, including the Distribution Date Statement which
will be furnished monthly to Certificateholders as described under "Reports to
Certificateholders" below. Reports on Form 8-K and Form 10-K will not be filed
for any period which ends after December 31, 1997; however, the
Certificateholders will continue to receive the Distribution Date Statement
monthly, as described below.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued (which will occur under
the limited circumstances described herein), the unaudited monthly Distribution
Date Statements and unaudited annual reports concerning the Trust which are
described herein under "Additional Provisions of the Agreement -- Statements to
Certificateholders" and are 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.
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<PAGE> 4
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 of Principal Definitions for the location herein of the definitions of
certain capitalized terms. An investment in the Certificates involves various
risks, and potential purchasers should carefully consider the matters discussed
under "Risk Factors" herein in considering an investment in the Certificates.
Issuer..................... Onyx Acceptance Grantor Trust 1997-2 (the "Trust"),
to be formed by Onyx Acceptance Financial
Corporation (the "Seller") pursuant to the Pooling
and Servicing Agreement, to be dated as of June 1,
1997 (the "Agreement"), among the Seller, Onyx
Acceptance Corporation (the "Servicer") and Bankers
Trust Company (the "Trustee").
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.................... $121,676,091. The initial principal balance of the
Certificates is equal to the aggregate principal
balance of the Contracts as of the Cut-Off Date
calculated in accordance with the Rule of 78's or
Simple Interest Method. The term "Cut-Off Date
Scheduled Balance" means the principal balance of a
Contract as of the Cut-Off Date. See "The
Contracts."
Seller..................... Onyx Acceptance Financial Corporation, a wholly
owned limited purpose subsidiary of Onyx Acceptance
Corporation ("Onyx"). The Seller's principal
executive offices are located at 8001 Irvine Center
Drive, 6th Floor, Irvine, California 92618 and its
telephone number is (714) 753-1191. See "The
Seller." All of the Contracts will have been
purchased by the Seller from Onyx. Substantially
all of the Contracts have been purchased by Onyx
from new and used car Dealers unaffiliated with
Onyx or the Seller, and a limited number of
Contracts have been originated by Onyx itself. See
"The Onyx Portfolio of Motor Vehicle Contracts."
Servicer................... Onyx. The Servicer's principal executive offices
are located at 8001 Irvine Center Drive, 5th Floor,
Irvine California 92618 and its telephone number is
(714) 450-5500. See "The Servicer."
Trustee.................... Bankers Trust Company.
Trust Property............. The Trust's assets (the "Trust Property") will
include: (i) a pool of fixed rate motor vehicle
retail installment sales contracts (the
"Contracts") of which approximately 59.80% of the
Aggregate Scheduled Balance as of the Cut-Off Date
are Rule of 78's Contracts and approximately 40.20%
of the Aggregate Scheduled Balance as of the
Cut-Off Date are Simple Interest Contracts, and all
of which were 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 such 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 individual obligors under each
related Contract and the right to certain proceeds
under the Blanket Insurance Policy,
3
<PAGE> 5
(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. See "The Trust."
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 July 15, 1997 (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, 2003.
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 Collection
Period preceding the related Collection Period will
be distributed to the Certificateholders of record
on a pro rata basis as of the related Record 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. Interest will be paid from collections
received on the Contracts on deposit in the
Collection Account or previously collected and
available for distribution. 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 -- Distributions 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 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 Balance of each Contract. The "Scheduled
Balance" of a Rule of 78's Contract at any date is
equal to the
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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 allocated to principal under
the Recomputed Actuarial Method. The Scheduled
Balance of a Simple Interest Contract at any date
is equal to the Cut-Off Date Scheduled Balance of
such Contract reduced by the portion of Monthly P&I
on or prior to the date of calculation that is
allocated to principal under the Simple Interest
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, in the
Servicer's reasonable judgment, 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 amounts recoverable have not
been received; provided, however, that in any event
a Contract that is delinquent in the amount of five
monthly payments at the end of a Collection Period
is a Liquidated Contract. 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 end of the Collection Period
preceding the related 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 investment earnings on Eligible
Investments and the amount, if any, by which the
outstanding principal balance of a Rule of 78's
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 June , 1997, 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 the Certificateholders.
If on the Servicer Report Date with respect to any
Distribution Date the amount on deposit and
available in the Collection Account, after giving
effect to all amounts deposited or payable from the
Payahead Account, is less than the sum of the
Servicing Fee, the
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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.................. The Aggregate Scheduled Balance of the Contracts as
of the Cut-Off Date was $121,676,091. As of the
Cut-Off Date the Contracts had a weighted average
annual percentage rate of 14.86% and a weighted
average remaining term of 56 months. Approximately
59.80% of the Aggregate Scheduled Balance of the
Contracts as of the Cut-Off Date allocate interest
and principal in accordance with the Rule of 78's
(the "Rule of 78's Contracts"), and approximately
40.20% in accordance with the Simple Interest
Method (the "Simple Interest Contracts").
Approximately 75.56% of the Aggregate Scheduled
Balance of the Contracts as of the Cut-Off Date
were originated in California, 8.92% in Arizona,
7.21% in Washington and the balance in Florida,
Nevada, Oregon, Illinois and Idaho.
Substantially all of the Contracts were originated
by automobile dealerships ("Dealers") and assigned
to Onyx, and a limited number of Contracts were
originated by Onyx itself. 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. All of the
Contracts have been selected by Onyx from its
portfolio of motor vehicle installment sales
contracts based upon the criteria specified in the
Agreement.
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
Rule of 78's Contracts will be transferred on the
Servicer Report Date to the Payahead Account, to be
applied against future scheduled payments of
Monthly P&I. Partial and full prepayments on Simple
Interest Contracts will be passed through to
Certificateholders on the Distribution Date
immediately following the Collection Period in
which such prepayments are received. 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 as of which the Pool Balance
(after giving effect to the Principal
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Distribution on such Distribution Date) has
declined to 10% or less of the Cut-Off Date
Scheduled Balance for all of the Contracts (the
"Original Pool Balance"), subject to certain
provisions in the Agreement. See "The Certificates
and the Agreement -- Repurchase of Contracts."
Federal Income Tax
Status..................... In the opinion of counsel to the Seller, the Trust
will be treated for Federal income tax purposes as
a grantor trust and not as an association 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
Federal Income 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. This
rating will be based primarily on the issuance of
the Surety Bond by the Insurer. 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."
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RISK FACTORS
LIMITED LIQUIDITY
There is currently no secondary market for the Certificates, and there will
be no application to list the Certificates on an exchange. 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 or
originated by Onyx itself 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 relatively short period
with respect to the motor vehicle retail installment sales contracts it
purchases and originates. Delinquencies and loan losses may increase from
existing levels 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. Onyx's operating
losses for the years ended December 31, 1994 and December 31, 1995 were $3.5
million and $3.1 million, respectively. Onyx's net income for the year ended
December 31, 1996 was $7.7 million and for the first quarter ended March 31,
1997 was $612,444.
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 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 Trustee and the Insurer after the filing
of 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.
After a Contract is purchased or originated by Onyx and the appropriate
application is processed by the department of motor vehicles or similar state
agency responsible for vehicle records in the state in which the Contract was
originated, the certificate of title (or computerized title record in the case
of Contracts originated in California, for which there will be no paper
certificates) to the Financed Vehicle securing the Contract shows Onyx as the
secured party holding a lien in the Financed Vehicle. When Contracts are sold to
the Seller and then to the Trust, Onyx remains the secured party named on the
related certificates of title (or computerized title records in the case of
Contracts originated in California), and such certificates (or electronic
records) are not endorsed or otherwise marked to identify the Trustee as secured
party, due to the administrative burden and expense of applying to the
department of motor vehicles or similar state agency in each of the states of
Contract origination to identify the Trustee as secured party, and because
retaining Onyx's name as secured party enables Onyx to more efficiently service
the Contracts. Even though the Trust is not identified as secured party, because
the Trust has a security interest in the Contracts, it is the beneficial owner
of the security interest in the related Financed Vehicles. There exists a risk,
however, in not identifying the Trust as the new secured party on the
certificate of title (or computerized title record) that, through fraud or
negligence, the security interest of the Trust could be released. Moreover,
statutory liens for repairs or unpaid taxes may have
8
<PAGE> 10
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 Financed Vehicle, 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 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 to guarantee payment of the Interest
Distribution and Principal Distribution on each Distribution Date. 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. Prepayments on
Simple Interest Contracts will shorten the average life of such Contracts and,
therefore, of the Certificates, because they will be passed through to
Certificateholders on the Distribution Date immediately following the Collection
Period in which such prepayments are received. Partial prepayments on Rule of
78's Contracts 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 Contracts. See "The
Certificates and Agreement -- Payahead Account."
Onyx has limited historical experience with respect to prepayments, has not
as of the date hereof prepared data on prepayment rates, and is not aware of
publicly available industry statistics that set forth principal prepayment
experience for retail installment sales contracts similar to the Contracts. Onyx
can make no prediction as to the actual prepayment rates that will be
experienced on the Contracts in either stable or changing interest rate
environments. See "-- Limited Operating History of Onyx" and "Maturity and
Prepayment Assumptions." Certificateholders will bear all reinvestment risk
resulting from the rate of prepayment of the Contracts.
GEOGRAPHIC CONCENTRATION
Economic conditions in the states 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.
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<PAGE> 11
Approximately 75.56% of the Aggregate Scheduled Balance of the Contracts as of
the Cut-Off Date will have been originated in California, 8.92% in Arizona,
7.21% in Washington and 8.30% in Nevada, Florida, Oregon, Illinois and Idaho
combined. Accordingly, adverse economic conditions or other factors particularly
affecting California, Arizona or Washington could adversely affect the
delinquency, loan loss or repossession experience of the Trust.
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.
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.
CONSUMER PROTECTION LAWS
The Contracts are subject to federal and state consumer protection laws
which impose requirements with respect to the making, transfer, acquisition,
enforcement and collection of consumer loans. Such laws, as well as any new laws
or rules which may be adopted, may adversely affect the Servicer's ability to
collect on the Contracts. Any failure by the originator thereof to have
complied, or the Servicer to comply, with such requirements could adversely
affect the enforceability of the Contracts. The Seller will make representations
and warranties relating to the validity and enforceability of the Contracts and
its compliance with applicable law in connection with its performance of the
transactions contemplated by the Agreement. Pursuant to the Agreement, if the
Trust's interest in a Contract is materially and adversely affected by the
failure of such Contract to comply with the applicable requirements of any
consumer protection law, such Contract will be repurchased by the Seller. The
sole remedy if any such representation or warranty is not complied with and such
noncompliance continues beyond the applicable cure period is that the Contracts
affected thereby will be required to be repurchased by the Seller. See "The
Certificates and the Agreement -- Repurchase of Contracts" and "Certain Legal
Aspects of the Contracts -- Repurchase Obligation."
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<PAGE> 12
THE TRUST
Pursuant to the Agreement, the Seller will establish the Onyx Acceptance
Grantor Trust 1997-2 (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 certain proceeds under the Blanket Insurance Policy, (v) all amounts on
deposit in the Collection Account, including all Eligible Investments credited
thereto (but excluding any income on Eligible Investments, which will be paid to
the Servicer), (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. 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 and
unpaid principal and interest on the Certificates on the Final Distribution
Date. 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.
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 Contracts were originated by Dealers and purchased by
Onyx, except for a limited number of Contracts which were originated by Onyx
itself. All of the Contracts will have been sold to the Seller and then to the
Trust. Onyx currently has agreements with 1,717 Dealers, of which approximately
84% are franchised new car dealerships and approximately 16% are independent
used car dealerships. The Dealers are located in metropolitan areas in the
states in which the Contracts are or will be originated, which are California,
Arizona, Washington, Oregon, Florida, Nevada, Illinois and Idaho. Each Dealer
from which Onyx purchases Contracts has entered into an agreement with Onyx
whereby the Dealer represents that it will comply with federal and state laws
regarding motor vehicle financing, that the Dealer will obtain the requisite
financial information required of the Obligor in order to extend credit, and
that the Dealer will truthfully disclose to Onyx such financial information, the
identity of the Obligor and other information in connection with the loan
transaction. The Dealers with whom Onyx has agreements and Dealers with whom
Onyx would like to have agreements are regularly contacted by Onyx account
managers by telephone and in person in an effort to obtain a continued supply of
Motor Vehicle Contracts for Onyx to purchase. Before purchasing Contracts from
independent used car Dealers, Onyx completes a credit review of the Dealer's
financial condition (including a review of financial information provided by the
Dealer and a Dun & Bradstreet report on the Dealer) and a review of the
underwriting criteria used by the Dealer.
Approximately 75.56% of the Aggregate Scheduled Balance of the Contracts as
of the Cut-Off Date will have been originated in California, 8.92% in Arizona,
7.21% in Washington and the balance in Oregon, Florida, Nevada, Illinois and
Idaho. 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 Vehicles").
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<PAGE> 13
Onyx services all of the Motor Vehicle Contracts and initially will 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 eleven regional
contract purchasing offices ("Auto Finance Centers"), six of which are in
California and one in each of Arizona, Florida, Nevada, Washington and Illinois.
Contracts purchased from Oregon are currently underwritten in the Washington
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 either on the basis of the Rule of
78's or the Simple Interest Method. 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, or in the case of Contracts originated by Onyx the application
package received from the Obligor, 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. The credit applications do not consist of forms provided by Onyx.
However, at the time a Dealer underwrites a Motor Vehicle Contract, Onyx reviews
the related application for completeness and for compliance with Onyx's
underwriting guidelines and applicable federal and state consumer statutes and
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, or
by telephone or otherwise to the Obligor in the case of Motor Vehicle Contracts
originated by Onyx, 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 or Obligor 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 or Obligor, 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.
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).
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<PAGE> 14
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 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 does not presently track whether
Obligors maintain the required insurance. To protect against losses with respect
to Obligors who do not obtain or maintain any insurance, or who do not obtain or
maintain the right type or level of insurance, 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 Irvine collection center. 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 by more than eight 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 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 collection management of phone
numbers
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<PAGE> 15
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 20 days or more delinquent, those accounts are assigned
to specific collectors at the Irvine collection center 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. Onyx also
uses an automatic payment system that allows an Obligor to authorize Onyx to
present a draft on the Obligor's bank account directly to the Obligor's bank for
payment to Onyx.
Generally, after a scheduled payment under a Motor Vehicle Contract
continues to be past due for between 45 and 60 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 the laws of
California, Arizona and Washington and the other states in which the Contracts
were or will be originated, after repossession the Obligor generally has an
additional period of up to 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 more than two
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 an annual basis
commencing December 31, 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 Contracts were originally
purchased by Onyx from Dealers or originated by Onyx itself 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
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<PAGE> 16
originates and thus delinquencies and loan losses may increase from existing
levels in the portfolio with the passage of time. Delinquency and loan loss
experience may be influenced by a variety of economic, social and other factors.
See "Risk Factors."
The delinquency and loss levels of the Motor Vehicle Contracts in Onyx's
portfolio at December 31, 1996 and March 31, 1997 were higher than in prior
periods due generally to the seasoning of such contracts. In addition, the
increase in delinquency and loss levels at December 31, 1996 and March 31, 1997
were influenced by disproportionately high delinquency and loss levels of the
Motor Vehicle Contracts originated prior to the third quarter of 1996 through
Onyx's North Hollywood Auto Finance Center. The North Hollywood Auto Finance
Center had a higher concentration of used car dealerships than Onyx's other Auto
Finance Centers, and this concentration of used car dealerships was principally
responsible for the deterioration in the performance of Onyx's portfolio during
the second and third quarters of 1996.
To address the performance issues of this center, following the end of the
second quarter of 1996 management re-evaluated all used car dealerships from
which Onyx purchases Motor Vehicle Contracts to ensure that such dealerships
meet Onyx's underwriting criteria, and Onyx terminated its relationships with a
majority of the used car dealerships serviced by the North Hollywood Auto
Finance Center. Originations in the North Hollywood office, as a result, have
declined.
During the third quarter of 1996 management further enhanced the credit
review process by promoting a senior credit manager to the position of Chief
Credit Officer and by increasing staffing in the credit review department. This
department continues to audit contracts within a few days after funding. The
results of the audits are communicated back to the originating office on a daily
basis.
In addition, during the fourth quarter of 1996 and first quarter of 1997
management further enhanced the collections process by completing the
centralization of collections at Onyx's Irvine headquarters and hiring a manager
with over 25 years of collections experience to head the department. Collections
were previously handled at each of Onyx's Auto Finance Centers, each of which
was responsible for collections in certain geographic areas. Centralized
collections is intended to reduce cost and enhance effectiveness by enabling
personnel to specialize in specific stages of the collections process, rather
than focusing on specific geographic areas. For example, a collections officer
previously working at a regional Auto Finance Center might have focused on a
particular geographic region and covered all stages of collections (e.g., from
delinquencies through bankruptcies). In the centralized collections operation,
this officer might cover all geographic areas, but focus on a particular stage
of collections (e.g., 60-day delinquencies). In addition, in the first quarter
of 1997, Onyx's review of its payment deferral policy resulted in more
consistent applications of the policy and reductions in loan payment deferrals
by approximately 55% over the same period in the prior year. This review and
change contributed significantly to the increase in delinquencies experienced
during the first quarter of 1997.
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DELINQUENCY EXPERIENCE OF ONYX MOTOR VEHICLE CONTRACT PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31, AT DECEMBER 31, AT MARCH 31,
1994 1995 1996 1997
----------------- ------------------ ------------------ ------------------
AMOUNT NO. AMOUNT NO. AMOUNT NO. AMOUNT NO.
------- ------ -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Servicing portfolio... $74,581 6,893 $218,207 20,156 $400,665 38,275 $478,400 45,740
Delinquencies
30-59 days(1)(2).... $ 15 2 $ 1,608 153 $ 5,022 478 $ 9,867 904
60-89 days(1)(2).... 27 4 470 35 1,816 162 2,551 242
90+ days(1)(2)...... 12 1 547 42 1,279 111 2,542 214
Total delinquencies as
a percent of
servicing
portfolio........... .07% .10% 1.20% 1.14% 2.03% 1.96% 3.13% 2.97%
</TABLE>
- ---------------
(1) Delinquencies include principal amounts only, net of repossessed inventory.
Repossessed inventory as a percent of the servicing portfolio was .00%,
.24%, .56% and .97% at December 31, 1994, 1995, 1996 and at March 31, 1997,
respectively.
(2) The period of delinquency is based on the number of days payments are
contractually past due.
LOAN LOSS EXPERIENCE FOR THE PERIODS ENDED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
--------------------------------- ENDED
DEC. ------------
31, DEC. 31, DEC. 31, MARCH 31,
1994 1995 1996 1997
------- -------- -------- ------------
<S> <C> <C> <C> <C>
Number of Motor Vehicle Contracts
outstanding................................. 6,893 20,156 38,275 45,740
Period end outstanding........................ $74,581 $218,207 $400,665 $478,400
Average outstanding........................... 29,301 141,029 311,340 433,147
Number of gross charge-offs................... 0 197 987 367
Gross charge-offs............................. $ 0 $ 548.2 $5,789.2 $2,309.2
Net charge-offs(1)............................ $ 0 $ 528.7 $5,066.1 $1,979.7
Net charge-offs as a percent of period end
outstanding................................. 0.0% .24% 1.26% 1.66%(2)
Net charge-offs as a percent of average
outstanding................................. 0.0% .37% 1.63% 1.83%(2)
</TABLE>
- ---------------
(1) Net charge-offs are gross charge-offs minus recoveries of Motor Vehicle
Contracts previously charged off.
(2) Annualized.
16
<PAGE> 18
THE CONTRACTS
All of the Contracts have been purchased by the Seller from Onyx.
Substantially all of the Contracts have been purchased by Onyx from new and used
car Dealers unaffiliated with Onyx or the Seller, and a limited number of
Contracts have been originated by Onyx itself. See "The Onyx Portfolio of Motor
Vehicle Contracts." Each of the Contracts in the Trust will be fixed rate
contracts where the allocation of each payment between interest and principal is
calculated using the Rule of 78's or the Simple Interest Method. Approximately
59.80% of the Aggregate Scheduled Balance of the Contracts as of the Cut-Off
Date allocate interest and principal in accordance with the Rule of 78's (the
"Rule of 78's Contracts"), and approximately 40.20% in accordance with the
Simple Interest Method (the "Simple Interest Contracts"). Rule of 78's 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.
For Simple Interest Contracts, interest due is calculated on the Due Date
based on the actual principal balance of the Contract on that date (the "Simple
Interest Method"). For such Contracts, interest accrued as of the Due Date is
paid first, and then the remaining payment is applied to the unpaid principal
balance. Accordingly, if an Obligor pays the fixed monthly installment in
advance of the Due Date, the portion of the payment allocable to interest for
the period since the preceding payment will be less than it would be if the
payment were made on the Due Date, and the portion of the payment allocable to
reduce the principal balance will be correspondingly greater. Conversely, if an
Obligor pays the fixed monthly installment after its Due Date, the portion of
the payment allocable to interest for the period since the preceding payment
will be greater than it would be if the payment were made on the Due Date, and
the portion of the payment allocable to reduce the principal balance will be
correspondingly smaller. When necessary, an adjustment is made at the maturity
of the Contract to the scheduled final payment to reflect the larger or smaller,
as the case may be, allocations of payments to the amount financed under the
Contract as a result of early or late payments, as the case may be.
The purchase price paid by the Trust for each Contract will reflect the
principal balance of such Contract as of the Cut-Off Date, calculated either
under the Rule of 78's or the Simple Interest Method. For each of the Contracts
the term "Cut-Off Date Scheduled Balance" means the principal balance of such
Contract as of the Cut-Off Date. For Rule of 78's Contracts a greater portion of
the early payments under a Contract is allocated to interest than would be the
case using the actuarial method. Therefore, the Cut-Off Date Scheduled Balance
of each Rule of 78's 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 Rule of 78's Contracts using the
actuarial method, but based on the Cut-Off Date Scheduled Balance. The remaining
payments due on a Rule of 78's 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 Rule of 78's Contract using the actuarial method of
accounting, the
17
<PAGE> 19
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 Rule of 78's
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 using the following criteria (the "Eligibility Requirements").
No selection procedures used with respect to the Contracts were adverse to the
Certificateholders or the Insurer. Approximately 19.77% of the Aggregate
Scheduled Balance of the Contracts are secured by new Financed Vehicles and
approximately 80.23% of the Aggregate Scheduled Balance of the Contracts are
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 remaining maturity as of the Cut-Off Date of
not more than 72 months;
(c) Such Contracts have an original maturity of not more than 72
months;
(d) Such Contracts (i) are fully-amortizing fixed rate contracts which
provide for level scheduled monthly payments determined on the basis of the
Rule of 78's or the Simple Interest Method (except for the last payment,
which may be minimally different from the level payments) and (ii) have a
yield (using the Recomputed Yield for the Rule of 78's Contracts) that
equals or exceeds %;
(e) Such Contracts are secured by Financed Vehicles that, as of the
Cut-Off Date, have not been repossessed without reinstatement;
(f) Such Contracts have no payment more than 30 days past due as of
the Cut-Off Date;
(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, Arizona, Nevada, Washington, Oregon, Florida, Illinois or
Idaho; and
(i) As of the Cut-Off Date, the Seller has not received notice that
any Obligor has filed for bankruptcy.
18
<PAGE> 20
Set forth below is data concerning Contracts originated prior to the
Cut-Off Date which, as of such date, had an Aggregate Scheduled Balance of
$121,676,091.
COMPOSITION OF THE CONTRACTS
<TABLE>
<S> <C>
Aggregate principal balance............................. $121,676,091
Number of Contracts..................................... 10,294
Average principal balance outstanding................... $11,820.10
Average original amount financed........................ $11,912.83
Original amount financed (range)........................ $1,083.91 to $63,152.04
Weighted average APR.................................... 14.86%
APR (range)............................................. 8.00 to 34.95%
Weighted average original term.......................... 57.1 months
Original term (range)................................... 12 to 72 months
Weighted average remaining term......................... 56 months
Remaining term (range).................................. 9 to 72 months
</TABLE>
DISTRIBUTION BY APRS OF THE CONTRACTS
<TABLE>
<CAPTION>
% OF
AGGREGATE
NUMBER OF % OF PRINCIPAL SCHEDULED
APR RANGE(1) CONTRACTS CONTRACTS BALANCE BALANCE
-------------------------------------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C>
8.001- 9.000......................... 567 5.51% $ 8,751,993 7.19%
9.001-10.000......................... 740 7.19 10,894,053 8.95
10.001-11.000......................... 587 5.70 8,008,426 6.58
11.001-12.000......................... 551 5.35 7,160,543 5.88
12.001-13.000......................... 719 6.98 9,186,441 7.55
13.001-14.000......................... 791 7.68 9,901,897 8.14
14.001-15.000......................... 986 9.58 12,165,643 10.00
15.001-16.000......................... 865 8.40 10,660,145 8.76
16.001-17.000......................... 780 7.58 9,060,345 7.45
17.001-18.000......................... 807 7.84 8,879,169 7.30
18.001-19.000......................... 553 5.37 5,827,603 4.79
19.001-20.000......................... 594 5.77 8,671,991 4.99
20.001-21.000......................... 1,195 11.61 11,797,129 9.70
21.001 and over....................... 559 5.43 3,310,713 2.72
------ ------ ------------ ------
Totals...................... 10,294 100.00% $121,676,091 100.00%
====== ====== ============ ======
</TABLE>
GEOGRAPHIC CONCENTRATION OF THE CONTRACTS
<TABLE>
<CAPTION>
% OF
AGGREGATE
NUMBER OF % OF PRINCIPAL SCHEDULED
CONTRACTS CONTRACTS BALANCE BALANCE
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
California............................ 7,652 74.33% $ 91,943,104 75.56%
Arizona............................... 900 8.74 10,856,660 8.92
Washington............................ 823 7.99 8,778,104 7.21
Nevada................................ 489 4.75 5,621,257 4.62
Oregon................................ 259 2.52 2,373,291 1.96
Florida............................... 154 1.50 1,921,689 1.58
Illinois and Idaho.................... 17 0.17 181,986 0.15
------ ------ ------------ ------
Total....................... 10,294 100.00% $121,676,091 100.00%
====== ====== ============ ======
</TABLE>
- ---------------
(1) Because the principal balance of each such Contract sold to the Trust is the
Cut-Off Date Scheduled Balance, which in the case of Rule of 78's Contracts
is higher than what the principal balance of the Rule of 78's Contracts
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 Rule of 78's Contract is less than the APR of such Contract
specified herein. On a weighted average basis, the yield for all the
Contracts, using the Recomputed Yield for the Rule of 78's Contracts, in the
aggregate, is %. See "The Contracts."
19
<PAGE> 21
MATURITY AND PREPAYMENT ASSUMPTIONS
The Contracts are prepayable in full by the Obligors at any time without
penalty. Prepayments on Simple Interest Contracts will be passed through to
Certificateholders on the Distribution Date following the Collection Period in
which they are received. Partial prepayments on Rule of 78's Contracts however
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 Prepayment")
whether by the Obligor, or as the result of a purchase by the Servicer or a
repurchase by the Seller or otherwise, 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, Washington and Arizona law require 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 limited historical experience with respect to prepayments, has not
as of the date hereof prepared data on prepayment rates, and is not aware of
publicly available industry statistics that set forth principal prepayment
experience for retail installment sales contracts similar to the Contracts. Onyx
can make no prediction as to the actual prepayment rates that will be
experienced on the Contracts in either stable or changing interest rate
environments. Certificate Owners will bear all reinvestment risk resulting from
the rate of prepayment of the Contracts.
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 end of the Collection Period preceding the related Collection
Period (or the Original Pool Balance, 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 yield on each individual
Contract, using the Recomputed Yield for Rule of 78's Contracts, will equal or
exceed %. Therefore, disproportionate rates of prepayments between
Contracts with higher and lower APRs will not affect the yield to
Certificateholders.
20
<PAGE> 22
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. The Pool Factor will be 1.000000 as of
the Closing 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.
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 certain indebtedness incurred in connection with its
acquisition of the Contracts and to pay certain other expenses in connection
with the pooling of the Contracts and the issuance of the Certificates.
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, 6th Floor, Irvine, CA 92618. The telephone
number 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 any Insolvency Law to Onyx. 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 have been sold by Onyx to the Seller from time to time
pursuant to a Sale and Servicing Agreement dated as of September 8, 1994 (the
"Purchase Agreement"). The Contracts will be sold by the Seller to the Trust
pursuant to the Agreement. Onyx and the Seller intend that the transfer of the
Contracts by
21
<PAGE> 23
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.
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.
THE SERVICER
The Contracts initially 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
which was successfully completed in March 1996 and all stock offered in
connection with such public offering was sold. Onyx is engaged principally in
the business of providing indirect automobile financing to new car dealerships
and selected used car dealerships within California, and to an increasing degree
in other Western states and Illinois and Florida. Onyx has been in existence for
over 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 eleven Auto
Finance Centers, six in California and one in each of Arizona, Florida, Nevada,
Washington and Illinois. The California centers are located in: (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. In addition, Onyx services Oregon through its Washington center. The
Arizona center is located in Phoenix, and is able to service the Phoenix
metropolitan and suburban areas. The Washington center is located in Seattle and
is able to service the Seattle metropolitan and suburban areas and Idaho. The
Nevada center is located in Las Vegas and is able to service the Las Vegas
metropolitan and suburban areas. The Florida center is located in Deerfield
Beach and is able to service southern Florida. The Illinois office is located in
Rosemont and services the Chicago metropolitan area. Onyx currently has
agreements with 1,717 Dealers.
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 has
acquired motor vehicle installment contracts totaling approximately $730.6
million from commencement of operations through March 31, 1997. As of March 31,
1997, Onyx has amassed a servicing portfolio of approximately $478.4 million. As
of March 31, 1997, approximately 77.4% of Onyx's servicing portfolio consisted
of motor vehicle installment contracts secured by used motor vehicles, and 22.6%
secured by new motor vehicles. As of March 31, 1997, Onyx had total assets of
approximately $95.0 million and stockholders' equity of $38.5 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,
22
<PAGE> 24
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.
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 Original Pool
Balance. 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 Cede & Co. ("Cede"), as 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 end of the Collection Period
preceding the related Collection Period will be distributed on a pro rata basis
to the Certificateholders of record as of the related Record 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. Interest will be paid from collections received on the Contracts on
deposit in the Collection Account or previously collected and available for
distribution. 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 and until
Definitive Certificates have been issued, distributions on each Distribution
Date will be made through the facilities of DTC and the related "Record Date"
will be the Business Day prior to such Distribution Date. If Definitive
Certificates are issued, the related "Record Date" will be the last day of the
calendar month preceding such Distribution Date. 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
23
<PAGE> 25
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 Rule of 78's 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 a
Simple Interest Contract at any date is equal to the Cut-Off Date Scheduled
Balance of such Contract reduced by the portion of Monthly P&I on or prior to
the date of calculation that is allocated to principal under the Simple Interest
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 with respect to which Liquidation
Proceeds constituting, in the Servicer's reasonable judgment, 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 amounts recoverable
have not been received; provided, however, that in any event a Contract that is
delinquent in the amount of five monthly payments at the end of a Collection
Period is a Liquidated Contract. 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 yield of each
Contract (using the Recomputed Yield for Rule of 78's Contracts) 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 to or payable from the
Payahead Account with respect to the related 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. 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 the
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 pursuant to the Trustee's
instructions 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
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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 Underwriter). 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"), 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.
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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 Holder
as it 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, the Fair Debt Collection Practices Act, the Fair Credit
Billing Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board's
Regulations B and Z, the Soldiers' and Sailors' Civil Relief Act of 1940, 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,
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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 or coordinate 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 with whom Onyx ordinarily does business (except for
Contracts originated by Onyx); (xi) no adverse selection procedures were
utilized in selecting the Contracts; (xii) scheduled payments under each
Contract have been applied in accordance with the method for allocating
principal and interest set forth in the Contract (either the Rule of 78's or
Simple Interest Method) 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 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 Ratings Services ("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
For Simple Interest Contracts, payments made by an Obligor in excess of the
Monthly P&I due on the current Due Date and any other amount currently due on a
Contract (including Full Prepayments) will be passed through to the
Certificateholders on the Distribution Date immediately following the Collection
Period in which such payment was collected.
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For Rule of 78's Contracts, however, payments made by an Obligor in excess
of the Monthly P&I due on the current Due Date 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 Rule of 78's 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.
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
partial prepayments (pending transfer of Payaheads on Rule of 78's Contracts 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
of Rule of 78's Contracts 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
plus amounts payable from the Payahead Account. The amount of such net
collections, and amounts payable from the Payahead Account will be applied,
first, to the Servicer in payment of the Servicing Fee; second, to 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 premium for the Surety Bond, 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 to reimburse the Insurer
for draws on the Surety Bond, to satisfy obligations owing to the Insurer or to
reserve against the possibility of future draws, amounts remaining shall be
released to the beneficiaries of the spread account
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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 of the amount, if
any, by which the amount available for distribution from the net collections on
Contracts and amounts payable from the Payahead Account, is less than the sum of
the Servicing Fee, the Interest Distribution and the Principal Distribution due
to the Certificateholders for such Distribution Date. See "-- Distributions of
Principal and Interest."
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, which provides 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 remaining principal balance on the related Contract exceeds the
proceeds from disposition of the Financed Vehicle. Onyx's rights under the
Blanket Insurance Policy 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 the Distribution Date
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.
REPURCHASE 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, after giving effect to the Principal Distribution on such Distribution
Date, the Aggregate Scheduled Balance of the Contracts is 10% or less of the
Original Pool Balance. Any such purchase must be effected at a price equal to
the Aggregate Scheduled Balance of the Contracts in the Trust on the date of
repurchase, plus accrued interest thereon 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 any 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 end of the Collection Period preceding
the related
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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 U.S. and international 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.
The Insurer's claims-paying ability is rated "Aaa" by Moody's, "AAA" by
Standard & Poor's, "AAA" by Duff & Phelps Credit Rating Co. and "AAA" by Nippon
Investors Service 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 TO THE INSURER.
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.
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THE SURETY BOND IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY
FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
As of December 31, 1996 and 1995, the Insurer had qualified statutory
capital (which consists of policyholders' surplus and contingency reserve) of
approximately $260 million and $240 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, 1996 and 1995 and
for each of the years in the three-year period ended December 31, 1996 are
included in this Prospectus beginning at F-1. The unaudited financial statements
of the Insurer for the three month period ended March 31, 1997 are made a part
of this Prospectus beginning at F-21. Copies of the Insurer's financial
statements prepared in accordance with statutory accounting standards, which
differ from generally accepted accounting principles, are filed with the
Insurance Department of the State of New York and 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 the Distribution Date 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;
(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;
(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.
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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, 1997, 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 (viii) 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 Federal Income 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, 1997, 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 each March 15 after the end of each fiscal year of the Servicer,
commencing with the fiscal year ended December 31, 1997, 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 Trustee or a successor
servicer has assumed the Servicer's servicing obligations and duties under the
Agreement. See "-- The Trustee."
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 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
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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 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, 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 Trustee 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 Trustee 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 Trustee 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 automobile 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 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 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 or the Trustee; provided, that
the consent of the Insurer shall be required at all times with respect to any
amendment of the Agreement.
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AMENDMENT
The Agreement may be amended by the Seller, the 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 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 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 remaining Contracts from the Trust as of the Distribution Date
as of which the then outstanding Aggregate Scheduled Balance of the Contracts is
10% or less of the Original Pool Balance 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.
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
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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.
Bankers Trust Company is the Trustee under the Agreement. The Trustee, 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 Trustee may resign at any time, in which event a successor trustee will
be appointed pursuant to the terms of the Agreement. The Trustee may be removed
if it ceases to be eligible to continue as such under the Agreement or if the
Trustee becomes insolvent. Any resignation or removal of the Trustee and
appointment of a successor does not become effective until acceptance of the
appointment by the successor trustee.
The Trustee shall be entitled to a fee payable on an annual basis by Onyx.
The Agreement will further provide that the Trustee will be entitled to
indemnification by the Servicer for, and will be held harmless against, any
loss, liability, or expense incurred by the Trustee not resulting from the
Trustee'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 in the ordinary course of business.
CERTAIN LEGAL ASPECTS OF THE CONTRACTS
GENERAL
The Contracts are "chattel paper" as defined in the Uniform Commercial Code
("UCC") as in effect in California. 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 either registered in the State of California,
Arizona, Washington, or one of the other states listed above under "THE
CONTRACTS" at the time of origination of the related Contract. Perfection of
security interests in motor vehicles is generally governed by state certificate
of title statutes or by the motor vehicle registration laws of the state in
which each vehicle is located. Security interests in vehicles
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registered in the State of California (the state in which approximately 74.33%
of the Financed Vehicles as of the Cut-Off Date will be located) 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. Security interests in vehicles
registered in the State of Arizona (the state in which approximately 8.74% of
the Financed Vehicles as of the Cut-Off Date will be located) are perfected by
delivering to the assessor of the county in which the Obligor resides a properly
completed application for a certificate of title signed by the Obligor upon a
form supplied by the Motor Vehicle Division of the Arizona Department of
Transportation, noting the name of the lienholder, the amount and date of the
lien and the lienholder's mailing address. Security interests in vehicles
registered in the State of Washington (the state in which approximately 7.99% of
the Financed Vehicles as of the Cut-Off Date will be located) are perfected upon
the Washington Department of Licensing's receipt of the existing certificate of
ownership, if any, and an application for a certificate of ownership containing
the name and address of the secured party, and tender of the required fee.
Security interests in vehicles registered in the other states in which Contracts
were originated are perfected, generally, in the same manner. 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 the notation of its security interest on the
certificate of title relating to 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 the law of California, Arizona, Washington and most other states
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 the state in which the Financed Vehicle was registered at the
inception of the Contract, 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 will
provide the department or motor vehicles or other appropriate state or county
agency of the state of relocation with the certificate of title so that the
owner can effect the re-registration. If the Financed Vehicle owner moves to a
state that provides for notation of lien on the certificate of title to perfect
the security 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 provide the owner with the
certificate of title, or the Servicer will receive notice as a result of its
lien
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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 the law of California and most other states, liens for unpaid taxes,
storage of and repairs performed on a motor vehicle take priority even over a
perfected security interest. Under the laws of Arizona and Washington, however,
certain liens for storage of and repairs performed on a motor vehicle do not
take priority over a perfected security interest. The Internal Revenue Code of
1986, as amended, also grants priority to certain federal tax liens over the
lien of a secured party. The Seller will represent in the Agreement that as of
the initial issuance of the Certificates no such state or federal 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 originated in
California are subject to the provisions of the Rees-Levering Motor Vehicle
Sales and Finance Act (the "Rees-Levering Act"). In California the provisions of
the Rees-Levering Act control in the event of a conflict with the provisions of
the UCC. Contracts originated in Arizona are subject to the Motor Vehicle Time
Sales Disclosure Act of Arizona. Contracts originated in Washington are subject
to the Credit Disclosure Act of Washington. Contracts originated in states other
than California, Arizona and Washington may be subject to retail installment
sales laws and similar laws of those states. 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 in California and similar laws in Arizona,
Washington and other states place 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, including the State of Washington. Under California and Arizona 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. The
priority of application of proceeds from the sale of repossessed vehicles under
the Contracts originated in most other states is similar.
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 proceedings under Chapters 7 or 13 of the United States Bankruptcy
Code, the loss will be borne by the Trust.
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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 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 and related
regulations impose requirements applicable to the origination, sale and
servicing of the Contracts, including the Federal 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, the Rees-Levering Act, the Magnuson-Moss Warranty Act, the
Federal Reserve Board's Regulations B and Z, the Soldiers' and Sailors' Civil
Relief Act of 1940, state adoptions of the National Consumers Act and of the
Uniform Commercial Code and other state motor vehicle retail sales acts and
similar laws. The Seller has represented to the Trust in the Agreement that each
of the Contracts, and the sale of the related Financed Vehicles sold thereunder,
complied with all material requirements of such laws and the regulations issued
pursuant thereto.
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
the related 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 purchase any affected Contract from the Trust unless the breach is cured.
CERTAIN FEDERAL INCOME 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 (which change may be retroactive).
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.
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BECAUSE MANY OF THE ISSUES DISCUSSED HEREIN ARE COMPLEX AND THEIR
RESOLUTION IS UNCERTAIN, INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS TO
DETERMINE THE FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP, AND DISPOSITION OF THE CERTIFICATES.
FEDERAL INCOME TAX STATUS OF THE TRUST
In the opinion of Andrews & Kurth L.L.P., 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.
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 Property. 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 and any other Trust Property.
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"). OID
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) and any other Trust Property, although the Servicer will report
information on an aggregate basis.
SPECIFIC TAX ISSUES CONCERNING RULE OF 78'S CONTRACTS
For the Rule of 78's Contracts, 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 an actuarial method (such amount, the "Cut-Off
Date Actuarial Balance").
The Trustee and the Servicer intend to account for interest and principal
on the Rule of 78's 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 Rule of 78's Contract are
not sufficient to amortize the Cut-Off Date Scheduled Balance of such Contract
at a yield equal to its APR.
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Accordingly, in order to amortize the Cut-Off Date Scheduled Balance over the
remaining term of the Rule of 78's Contract using the 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 Rule of 78's Contracts. A Certificateholder will be furnished
information for federal income tax purposes enabling him to report interest on
such 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 Rule of 78's 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 immediately 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 Rule of 78's 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 the 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 ALL 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 yield in excess of % calculated using the
actuarial method (each, a "Stripped Contract") equal to the difference between
(x) the Recomputed
40
<PAGE> 42
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 monthly period over which
interest accrues on such Contract ("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 and 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) will be includible in income in accordance with a
Certificate Owner's usual method of accounting. Accordingly, interest will 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.
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 ($121,200 in the case of a married couple filing jointly for
the taxable year beginning in 1997 and will be 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. If reporting on an aggregate
basis results in under-reporting of income, or if the IRS were to take a
position different from that adopted by the Trust with respect to any issue, a
Certificate Owner could be required to pay interest on underpayments of tax and
could be subject to penalties for under-reporting of income. 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.
41
<PAGE> 43
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 or market discount, 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 and/or market discount
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 %.
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 that are
allocable to the Certificates may be aggregated in determining whether the
Stripped Contracts will be treated as having OID, although the regulation does
not include the Contracts that are not "stripped bonds." 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 yield equal to % (using
a Recomputed Yield for Rule of 78's Contracts) may 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 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
42
<PAGE> 44
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 advisors regarding the
proper calculation of OID on the interest in Contracts represented by a
Certificate.
Market Discount. Contracts, other than the Stripped Contracts, will not be
treated as stripped bonds. However, to the extent that the portion of the
purchase price allocated to a Certificate Owner's undivided interest in a
Contract other than a Stripped Contract is less than the "stated redemption
price at maturity", such Contract could have market discount. The market
discount on such a Contract will be considered to be zero if it is less than a
statutorily defined de minimis amount.
In general, under the market discount provisions of the Code, principal
payments received by the Trust and all or a portion of the gain recognized upon
a sale or other disposition of a Contract or upon the sale or other disposition
of a Certificate in an amount in excess of accrued market discount will be
treated as capital gain, assuming such Certificate Owner held such Certificate
as a capital asset. In addition, a portion of the interest deductions of the
Certificate Owner attributable to any indebtedness treated as incurred or
continued to purchase or carry a Contract may have to be deferred, unless a
Certificate Owner makes an election to include market discount in income
currently as it accrues, which election would apply to all debt instruments
acquired by the taxpayer on or after the first day of the first taxable year to
which such election applies. Taxpayers may, in general, elect to accrue market
discount either under a constant yield-to-maturity method or in the proportion
that the stated redemption paid on the obligation for the current period bears
to the total remaining interest on the obligation.
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 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
43
<PAGE> 45
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 (except, with respect to the tax year of
any trust that begins after December 31, 1996, a United States person shall mean
a trust whose administration is subject to the primary supervision of a United
States court and which has one or more United States fiduciaries who have the
authority to control all substantial decisions of the trust).
Proposed Treasury Regulations (the "Proposed Regulations") could affect the
procedures to be followed by a nonresident investor in complying with United
States Federal withholding, backup withholding and information reporting rules.
The Proposed Regulations are not currently effective, but if finalized in their
current form, could be effective for payments made after December 31, 1997.
Prospective investors are urged to consult their tax advisors regarding the
effect, if any, of the Proposed Regulations on the purchase, ownership and
disposition of the Certificates.
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 (i) employee benefit plans subject to ERISA,
(ii) "plans" (as defined in Section 4975(e)(1) of the Code) and (iii) entities
whose underlying assets include plan assets by reason of a plan's investment in
such entities (each, a "Plan"), and certain restrictions on persons who have
certain specified relationships to such Plans ("Parties in Interest" under ERISA
and "Disqualified Persons" under the Code). ERISA also imposes certain duties on
persons who are fiduciaries of Plans subject to ERISA, and ERISA and the Code
prohibit certain transactions between a Plan and Parties in Interest or
Disqualified Persons 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 Title I of ERISA and/or Section 4975 of the Code) makes an
"equity" investment will be deemed 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 a
statutory or administrative exemption from the prohibited transaction rules
applies.
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
44
<PAGE> 46
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 purchased by a Plan from the Underwriter, provided that certain
conditions (certain of which are described below) are met.
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, as amended.
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, the Insurer, 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. Because the Certificates are the only class of
certificates to be issued by the Trust, the second general condition described
above is satisfied. It is a condition of the issuance of the Certificates that
they be rated in the highest rating category by at least two Rating Agencies. A
fiduciary of a Plan contemplating the purchase of a Certificate (other than
pursuant to the original issuance of the Certificates) must make its own
determination that at the time of such acquisition, the Certificates continue to
satisfy the third general condition described above. The Seller and the Servicer
expect that the fifth general condition set forth above will be satisfied with
respect to the Certificates. A fiduciary of a Plan contemplating purchasing a
Certificate must make its own determination that the first, fourth and sixth
general conditions set forth above will be satisfied with respect to its
purchase of Certificates.
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<PAGE> 47
Any Plan fiduciary considering the purchase of Certificates should consult
with its counsel with respect to the applicability of the Exemption and other
issues and determine on its own whether all conditions for exemptive relief have
been satisfied and whether the Certificates are otherwise an appropriate
investment for a Plan under ERISA and the Code.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
dated June , 1997 (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 entire 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.
During and after the offering, the Underwriter may purchase and sell the
Certificates in the open market in transactions in the United States. These
transactions may include overallotment and stabilizing transactions and
purchases to cover short positions created in connection with the offering. The
Underwriter also may impose a penalty bid, whereby selling concessions allowed
to broker-dealers in respect of the Certificates sold in the offering for their
account may be reclaimed by the Underwriter if such Certificates are repurchased
by the Underwriter in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Certificates,
which may be higher than the price that might otherwise prevail in the open
market. These transactions may be effected in the over-the-counter market or
otherwise, and these activities, if commenced, may be discontinued at any time.
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 Federal
Income Tax Consequences" will be passed upon for the Seller by Andrews & Kurth
L.L.P., Los Angeles, California. Certain legal matters with respect to the
Certificates will be passed upon for the Underwriter by Skadden, Arps, Slate,
Meagher & Flom LLP, 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, 1996 and 1995 and for each of the years in the three-year period
ended December 31, 1996 are included herein beginning on page F-1 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 the
authority of such firm as experts in accounting and auditing.
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INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<S> <C>
Aggregate Scheduled Balance..................................................... 4, 24
Aggregate Scheduled Balance Decline............................................. 4, 23
Agreement....................................................................... 3
APR............................................................................. 17
Auto Finance Centers............................................................ 12
Blanket Insurance Policy........................................................ 13
Business Day.................................................................... 4
Cede............................................................................ 7, 23
Certificate Owner............................................................... 7, 23
Certificates.................................................................... 1, 3
Closing Date.................................................................... 8
Code............................................................................ 38
Collection Account.............................................................. 27
Collection Period............................................................... 4, 23
Commission...................................................................... 2
Contract Due Period............................................................. 41
Contracts....................................................................... 1, 3
Cut-Off Date.................................................................... 1, 3
Cut-Off Date Actuarial Balance.................................................. 39
Cut-Off Date Scheduled Balance.................................................. 3, 17, 39
Dealers......................................................................... 6
Defaulted Contract.............................................................. 5, 24
Definitive Certificates......................................................... 25
Distribution Date............................................................... 1, 4
Distribution Date Statement..................................................... 29
Disqualified Persons............................................................ 44
DOL............................................................................. 44
Due Date........................................................................ 13
DTC............................................................................. 7
Eligibility Requirements........................................................ 18
Eligible Investments............................................................ 27
ERISA........................................................................... 7, 44
Exemption....................................................................... 44
Events of Default............................................................... 32
Final Distribution Date......................................................... 1, 4
Financed Vehicles............................................................... 1, 3, 11
Full Prepayment................................................................. 20
Holders......................................................................... 26
Holdings........................................................................ 30
Indirect Participants........................................................... 25
Insolvency Laws................................................................. 9
Insurance Agreement............................................................. 5
Insurer......................................................................... 1, 4
Interest Distribution........................................................... 1, 4, 23
IRS............................................................................. 38
Liquidated Contract............................................................. 5, 24
Liquidation Expenses............................................................ 28
Monthly P&I..................................................................... 5, 24
Moody's......................................................................... 27
Motor Vehicle Contracts......................................................... 11
Net Insurance Proceeds.......................................................... 28
</TABLE>
47
<PAGE> 49
<TABLE>
<S> <C>
Net Liquidation Proceeds........................................................ 28
Obligor......................................................................... 9
OCS............................................................................. 13
OID............................................................................. 39
OID Regulations................................................................. 42
Onyx............................................................................ 1, 3, 22
Origination Actuarial Method.................................................... 42
Original Pool Balance........................................................... 7
Participants.................................................................... 23, 24
Parties in Interest............................................................. 45
Pass-Through Rate............................................................... 4
Payaheads....................................................................... 6, 28
Payahead Account................................................................ 28
Paying Agent.................................................................... 25
Plan............................................................................ 44
Plan Asset Regulation........................................................... 44
Pool Balance.................................................................... 4, 23
Pool Factor..................................................................... 21
Prepayment Assumption........................................................... 39
Principal Distribution.......................................................... 1, 4, 23
Proposed Regulations............................................................ 44
Purchase Agreement.............................................................. 21
Purchase Price.................................................................. 42
Recomputed Actuarial Method..................................................... 18, 40
Recomputed Principal Balance.................................................... 40
Recomputed Yield................................................................ 18, 40
Record Date..................................................................... 23
Rees-Levering Act............................................................... 37
Repurchase Amount............................................................... 27
Retained Strip.................................................................. 40
Rule of 78's Contracts.......................................................... 6, 17
Scheduled Balance............................................................... 4, 24
Section 1286 Regulations........................................................ 42
Seller.......................................................................... 1, 3
Servicer........................................................................ 1, 3
Servicer Report Date............................................................ 5
Servicing Fee................................................................... 5
Servicing Fee Rate.............................................................. 5, 29
Simple Interest Contracts....................................................... 6, 17
Simple Interest Method.......................................................... 17
Standard & Poor's............................................................... 27
Stripped Contract............................................................... 40
Surety Bond..................................................................... 1, 4, 5
Total Accrual Election.......................................................... 40
Trust........................................................................... 1, 3, 11
Trust Property.................................................................. 3
Trustee......................................................................... 3, 11
UCC............................................................................. 8, 35
Underwriter..................................................................... 46
Underwriting Agreement.......................................................... 46
</TABLE>
48
<PAGE> 50
CAPITAL MARKETS ASSURANCE CORPORATION
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-1
<PAGE> 51
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, 1996 and 1995 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, 1996. 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, 1996 and 1995 and the results of its operations
and its cash flows for each of the years in the three-year period ended December
31, 1996 in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
-----------------------------
KPMG PEAT MARWICK LLP
January 29, 1997
F-2
<PAGE> 52
CAPITAL MARKETS ASSURANCE CORPORATION
BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
December 31 December 31
1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENTS:
Bonds at fair value (amortized cost $294,861 at December 31,
1996 and $210,651 at December 31, 1995) $297,893 215,706
Short-term investments (at amortized cost which approximates
fair value) 16,810 68,646
- ---------------------------------------------------------------------------------------
Total investments 314,703 284,352
- ---------------------------------------------------------------------------------------
Cash 371 344
Accrued investment income 3,807 3,136
Deferred acquisition costs 45,380 35,162
Premiums receivable 5,141 3,540
Prepaid reinsurance 18,489 13,171
Other assets 6,424 3,428
- ---------------------------------------------------------------------------------------
TOTAL ASSETS $394,315 343,133
=======================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Unearned premiums $ 68,262 45,767
Reserve for losses and loss adjustment expenses 10,985 6,548
Ceded reinsurance 1,738 2,469
Accounts payable and other accrued expenses 8,019 10,844
Current income taxes 679 136
Deferred income taxes 15,139 11,303
- --------------------------------------------------------------------------------------
Total liabilities 104,822 77,067
- --------------------------------------------------------------------------------------
STOCKHOLDER'S EQUITY:
Common stock - $1.00 par value per share; 15,000,000
shares are authorized, issued and outstanding at
December 31, 1996 and 1995 15,000 15,000
Additional paid-in capital 208,475 205,808
Unrealized appreciation on investments, net of tax 1,970 3,286
Retained earnings 64,048 41,972
- --------------------------------------------------------------------------------------
Total stockholder's equity 289,493 266,066
- --------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $394,315 343,133
======================================================================================
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 53
CAPITAL MARKETS ASSURANCE CORPORATION
STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Direct premiums written $ 71,752 56,541 43,598
Assumed premiums written 1,086 935 1,064
Ceded premiums written (15,104) (15,992) (11,069)
- ---------------------------------------------------------------------------------------------
Net premiums written 57,734 41,484 33,593
Increase in unearned premiums (17,177) (12,242) (10,490)
- ---------------------------------------------------------------------------------------------
Net premiums earned 40,557 29,242 23,103
Net investment income 16,992 11,953 10,072
Net realized capital gains 236 1,301 92
Other income 146 2,273 120
- ---------------------------------------------------------------------------------------------
Total revenues 57,931 44,769 33,387
- ---------------------------------------------------------------------------------------------
EXPENSES:
Losses and loss adjustment expenses 4,815 3,141 1,429
Underwriting and operating expenses 14,613 13,808 11,833
Policy acquisition costs 7,824 7,203 4,529
- ---------------------------------------------------------------------------------------------
Total expenses 27,252 24,152 17,791
- ---------------------------------------------------------------------------------------------
Income before income taxes 30,679 20,617 15,596
- ---------------------------------------------------------------------------------------------
INCOME TAXES:
Current income tax 5,235 2,113 865
Deferred income tax 3,368 3,102 2,843
- ---------------------------------------------------------------------------------------------
Total income taxes 8,603 5,215 3,708
- ---------------------------------------------------------------------------------------------
NET INCOME $ 22,076 15,402 11,888
=============================================================================================
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 54
CAPITAL MARKETS ASSURANCE CORPORATION
STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK:
Balance at beginning of year $ 15,000 15,000 15,000
- ---------------------------------------------------------------------------------------------------------
Balance at end of year 15,000 15,000 15,000
- ---------------------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of year 205,808 146,808 146,808
Capital contribution 2,667 59,000 --
- ---------------------------------------------------------------------------------------------------------
Balance at end of year 208,475 205,808 146,808
- ---------------------------------------------------------------------------------------------------------
UNREALIZED APPRECIATION (DEPRECIATION)
ON INVESTMENTS, NET OF TAX:
Balance at beginning of year 3,286 (5,499) 3,600
Unrealized appreciation (depreciation)
on investments (1,316) 8,785 (9,099)
- ---------------------------------------------------------------------------------------------------------
Balance at end of year 1,970 3,286 (5,499)
- ---------------------------------------------------------------------------------------------------------
RETAINED EARNINGS:
Balance at beginning of year 41,972 26,570 14,682
Net income 22,076 15,402 11,888
- ---------------------------------------------------------------------------------------------------------
Balance at end of year 64,048 41,972 26,570
- ---------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDER'S EQUITY $ 289,493 266,066 182,879
=========================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 55
CAPITAL MARKETS ASSURANCE CORPORATION
STATEMENTS OF CASH FLOWS
(DOLLAR IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 22,076 15,402 11,888
- --------------------------------------------------------------------------------------------------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Reserve for losses and loss adjustment
expenses 4,437 1,357 1,429
Unearned premiums, net 22,496 19,862 15,843
Deferred acquisition costs (10,218) (10,302) (9,611)
Premiums receivable (1,601) (161) (2,103)
Accrued investment income (671) (390) (848)
Income taxes payable 3,911 3,621 2,611
Net realized capital gains (236) (1,301) (92)
Accounts payable and other accrued
expenses 1,020 472 3,726
Prepaid reinsurance (5,318) (7,620) (5,352)
Other, net (3,396) 992 689
- --------------------------------------------------------------------------------------------------------
Total adjustments 10,424 6,530 6,292
- --------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 32,500 21,932 18,180
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments (199,989) (158,830) (77,980)
Proceeds from sales of investments 57,210 49,354 39,967
Proceeds from maturities of investments 110,306 28,803 19,665
- --------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (32,473) (80,673) (18,348)
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution -- 59,000 --
- --------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES -- 59,000 --
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 27 259 (168)
Cash balance at beginning of year 344 85 253
- --------------------------------------------------------------------------------------------------------
CASH BALANCE AT END OF YEAR $ 371 344 85
========================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ 4,525 1,450 1,063
=========================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 56
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(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 guarantee 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 guarantee 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 Standard & Poor's 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
As of December 31, 1996 and 1995, 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 generally 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 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.
F-7
<PAGE> 57
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
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) PREMIUM 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 years ended December 31, 1996 and
1995, 91% of net premiums earned were attributable to premiums
payable in installments and 9% were attributable to premiums
collected on an up-front 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, net of reinsurance ceding
commissions. 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 for expected levels of losses
resulting from credit failures on currently insured issues and
reflects the estimated portion of earned premiums required to
cover those losses.
A case basis loss reserve is established for insured
obligations when, in the judgment 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. Case
basis loss reserves may be allocated from any SLR outstanding
at the time the case basis reserves are established.
F-8
<PAGE> 58
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Management believes that the current level of reserves is
adequate to cover the ultimate net cost of claims and the
related expenses with respect to financial guarantees issued
by CapMAC. The establishment of the appropriate level of loss
reserves is an inherently uncertain process involving
estimates and subjective judgments by management, and
therefore there can be no assurance that ultimate losses in
CapMAC's insured portfolio will not exceed the current
estimate of loss reserves.
(F) DEPRECIATION
Leasehold improvements, furniture, fixtures and electronic
data processing equipment are being amortized or 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. The
effect on deferred tax assets and liabilities of a change in
tax rates is recognized in the period that includes the
enactment date.
F-9
<PAGE> 59
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(3) INSURED PORTFOLIO
At December 31, 1996 and 1995, the principal amount of financial
obligations insured by CapMAC was $24.5 billion and $16.9 billion,
respectively, and net of reinsurance (net principal outstanding), was
$19.7 billion and $12.6 billion, respectively, with a weighted average
life of 6.4 years and 6.0 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, 1996 and 1995, the statutory
qualified capital was approximately $260 million and $240 million,
respectively.
<TABLE>
<CAPTION>
Net Principal Outstanding
----------------------------------------
December 31, 1996 December 31, 1995
------------------- -----------------
Type of Obligations Insured ($ in millions) Amount % Amount %
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer receivables $10,362 52.8 $ 6,959 55.1
Trade and other corporate obligations 8,479 43.1 4,912 38.9
Municipal/government obligations 814 4.1 757 6.0
-----------------------------------------------------------------------------------------------
TOTAL $19,655 100.0 $12,628 100.0
===============================================================================================
</TABLE>
At December 31, 1996 and 1995, the principal and interest amount of
financial obligations insured by CapMAC was $29.8 billion and $20.3
billion, respectively, and net of reinsurance (net principal and
interest outstanding) was $23.3 billion and $15.1 billion,
respectively. At December 31, 1996, approximately 93% 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 protection is usually available from
reserve funds, excess cash flows, overcollateralization, or recourse to
a third party. The 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 $2,200,000 of income which has been included
in other income in the accompanying financial statements.
The following entities each accounted for, through referrals and
otherwise, 10% or more of total revenues for each of the periods
presented:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1994
----------------- ----------------- -----------------
% of % of % of
Revenues Revenues Revenues
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Citicorp 14.5 15.2 16.3
=============================================================================================
</TABLE>
F-10
<PAGE> 60
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(4) INVESTMENTS
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair value for available-for-sale securities by major
security type at December 31, 1996 and 1995 were as follows ($ in
thousands):
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities Available-for-sale Cost Gains Losses Value
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury obligations $ 4,059 10 -- 4,069
Mortgage-backed securities of
U.S. government instrumentalities
and agencies 109,436 265 1,160 108,541
Obligations of states, municipalities
and political subdivisions 177,811 4,602 555 181,858
Corporate and asset-backed securities 20,365 23 153 20,235
-------------------------------------------------------------------------------------------------
TOTAL $311,671 4,900 1,868 314,703
=================================================================================================
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 $279,297 5,222 167 284,352
=================================================================================================
</TABLE>
F-11
<PAGE> 61
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
The amortized cost and estimated fair value of investments in debt
securities at December 31, 1996 by contractual maturity are shown below
($ in thousands):
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------------------------------
Amortized Estimated
Securities Available-for-sale Cost Fair Value
--------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 11,627 11,644
Due after one year through five years 31,821 32,815
Due after five years through ten years 76,450 78,200
Due after ten years 82,337 83,503
--------------------------------------------------------------------
Sub-total 202,235 206,162
Mortgage-backed securities 109,436 108,541
--------------------------------------------------------------------
TOTAL $311,671 314,703
====================================================================
</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 $57.2
million, $49.3 million and $39.9 million in 1996, 1995 and 1994,
respectively. Gross realized capital gains of $772,000, $1,320,000 and
$714,000, and gross realized capital losses of $536,000, $19,000 and
$622,000 were realized on those sales for the years ended December 31,
1996, 1995 and 1994, respectively.
Investments include bonds having a fair value of approximately
$3,884,000 and $3,985,000 which are on deposit at December 31, 1996 and
1995, 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
$ in thousands December 31, 1996 December 31, 1995 December 31, 1994
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Bonds $ 15,726 11,105 9,193
Short-term investments 1,534 1,245 484
Mutual funds -- (162) 579
Investment expenses (268) (235) (184)
--------------------------------------------------------------------------------
TOTAL $ 16,992 11,953 10,072
================================================================================
</TABLE>
F-12
<PAGE> 62
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
The change in unrealized appreciation (depreciation) on
available-for-sale securities is included as a separate component of
stockholder's equity as shown below:
<TABLE>
<CAPTION>
Year Ended Year Ended
$ in thousands December 31, 1996 December 31, 1995
-------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $ 3,286 (5,499)
Change in unrealized (depreciation) appreciation (2,024) 13,386
Income tax effect 708 (4,601)
Net change (1,316) 8,785
-------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR $ 1,970 3,286
===========================================================================================
</TABLE>
No single issuer, except for investments in U.S. Treasury and U.S.
government agency securities, exceeds 2% of stockholder's equity as of
December 31, 1996 and 1995, respectively.
(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
$ in thousands December 31, 1996 December 31, 1995 December 31, 1994
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 35,162 24,860 15,249
Additions 18,042 17,505 14,140
Amortization (policy
acquisition costs) (7,824) (7,203) (4,529)
---------------------------------------------------------------------------------------
BALANCE AT END OF YEAR $ 45,380 35,162 24,860
=======================================================================================
</TABLE>
(6) EMPLOYEE BENEFITS
CapMAC has a service agreement with CapMAC Financial Services, Inc.
("CFS"). Under the service agreement, CFS has agreed to provide various
services, including underwriting, reinsurance, marketing, data
processing and other services to CapMAC in connection with the
operation of CapMAC's insurance business. CapMAC pays CFS a 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 $13,374,000, $13,484,000 and
$11,081,000 in 1996, 1995 and 1994, respectively.
The Company, through CFS, maintains an incentive compensation plan for
its employees. The plan is an annual discretionary bonus award. For the
years ended December 31, 1996, 1995 and 1994, the Company had provided
approximately $8,810,000, $7,804,000 and $5,253,000, respectively, for
the plan. CFS also provides health and welfare benefits to
substantially all of its employees. The Company incurred $551,943,
$598,530, and $562,508 of expense for the years ended December 31,
1996, 1995 and 1994, respectively, for such plan. The Company also has
a defined contribution retirement plan which allows participants to
make voluntary contributions by salary reduction pursuant to section
401 (k) of the Internal Revenue Code. The Company provides for the
administrative cost for the 401 (k) plan.
F-13
<PAGE> 63
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
On 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 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. During 1995 and 1994,
the expense was $1.3 million and $0.1 million, respectively. During
1996, Holdings assumed the liability of $3.7 million less the related
deferred tax asset of $1.1 million as capital contribution. The cash
amount is 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
Holdings maintains 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"). Compensation
expense related to the ESOP and allocated to CapMAC was approximately
$2,764,000, $2,087,000 and $2,086,000 for the years ended December 31,
1996, 1995 and 1994, respectively.
F-14
<PAGE> 64
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(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 guarantee
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 $2.5 million. The portion of
such claims and expenses not covered under the quota share agreement is
being funded through payments to CapMAC from the Lureco Trust Account
(see note 12).
The following is a summary of the activity in the case basis loss
reserve account and the components of the reserve for losses and loss
adjustment expenses ($ in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASE BASIS LOSS RESERVE:
Net balance at January 1 $ 620 -- --
-------------------------------------------------------------------------------------------------------
INCURRED RELATED TO:
Current year -- 2,473 --
Prior years -- -- --
-------------------------------------------------------------------------------------------------------
Total incurred -- 2,473 --
-------------------------------------------------------------------------------------------------------
PAID RELATED TO:
Current year -- 1,853 --
Prior years 309 -- --
-------------------------------------------------------------------------------------------------------
Total paid 309 1,853 --
Net balance at December 31 311 620 --
Reinsurance recoverable -- 69 --
-------------------------------------------------------------------------------------------------------
GROSS BALANCE AT DECEMBER 31 311 689 --
-------------------------------------------------------------------------------------------------------
SUPPLEMENTAL LOSS RESERVE
Balance at January 1 5,859 5,191 3,762
-------------------------------------------------------------------------------------------------------
Additions to supplemental loss reserve 4,815 3,141 1,429
Allocated to case basis reserve -- (2,473) --
-------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31 10,674 5,859 5,191
-------------------------------------------------------------------------------------------------------
TOTAL RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES $10,985 6,548 5,191
=======================================================================================================
</TABLE>
F-15
<PAGE> 65
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(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 1996 and 1995 and 34% in
1994:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1994
--------------------------------------------------------------------------------------------------------------
$ in thousands Amount % Amount % Amount %
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Expected tax expense computed
at the statutory rate $10,738 35.0 $ 7,216 35.0 $ 5,303 34.0
Increase (decrease) in tax
resulting from:
Tax-exempt interest (2,916) (9.5) (2,335) (11.3) (1,646) (10.6)
Other, net 781 2.5 334 1.6 51 0.4
--------------------------------------------------------------------------------------------------------------
TOTAL INCOME TAX EXPENSE $ 8,603 28.0 $ 5,215 25.3 $ 3,708 23.8
==============================================================================================================
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred Federal income tax liability are as follows:
<TABLE>
<CAPTION>
$ in thousands December 31, 1996 December 31, 1995
-----------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Deferred compensation $ 200 1,901
Losses and loss adjustment expenses 1,527 1,002
Unearned premiums 866 852
Other, net 96 98
----------------------------------------------------------------------------
Total gross deferred tax assets 2,689 3,853
----------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Deferred acquisition costs 15,883 12,307
Unrealized capital gains on investments 1,061 1,769
Other, net 884 1,080
----------------------------------------------------------------------------
Total gross deferred tax liabilities 17,828 15,156
----------------------------------------------------------------------------
NET DEFERRED TAX LIABILITY $15,139 11,303
============================================================================
</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.
F-16
<PAGE> 66
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(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, 1996, 1995 and 1994. No dividends could be
paid during these periods because CapMAC had negative earned surplus.
Statutory surplus at December 31, 1996 and 1995 was approximately
$193,726,000 and $195,018,000, 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 $18,737,000, $9,000,000 and $4,543,000 for the
years ended December 31, 1996, 1995 and 1994, respectively. Statutory
net income differs from net income determined under GAAP principally
due to deferred acquisition costs, SLR and deferred income taxes.
(11) COMMITMENTS AND CONTINGENCIES
The Company's lease agreement for the space occupied in New York
expires on November 20, 2008. CapMAC has a lease agreement for its
London office, which expires on October 1, 2002. As of December 31,
1996, future minimum payments under the lease agreements are as
follows:
<TABLE>
<CAPTION>
$ in thousands Payment
-------------------------------------------------------------
<S> <C>
1997 $ 2,647
1998 2,715
1999 3,077
2000 3,152
2001 and thereafter 28,660
-------------------------------------------------------------
TOTAL $40,251
=============================================================
</TABLE>
Rent expense, commercial rent taxes and electricity for the years ended
December 31, 1996, 1995 and 1994 amounted to $1,618,000, $1,939,000 and
$2,243,000, respectively.
CapMAC has available a $150,000,000 standby corporate liquidity
facility (the "Liquidity Facility") scheduled to terminate in September
1999. The Liquidity Facility is 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. There have been no draws under the Liquidity
Facility.
CapMAC has agreed to make an investment of 50 million French Francs
(approximately $10 million U.S. dollars) in CapMAC Assurance, S.A., an
insurance subsidiary to be established in Paris, France. This
investment is anticipated to be made in 1997.
F-17
<PAGE> 67
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(12) REINSURANCE
In the ordinary course of business, CapMAC cedes exposure under various
treaty and facultative reinsurance contracts, both on a pro rata and
excess of loss basis, 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
---------------------------------------------------------------------
1996 1995 1994
------------------- -------------------- ---------------------
$ in thousands Written Earned Written Earned Written Earned
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Direct $ 71,752 48,835 56,541 36,853 43,598 28,561
Assumed 1,086 1,508 935 761 1,064 258
Ceded (15,104) (9,786) (15,992) (8,372) (11,069) (5,716)
--------------------------------------------------------------------------------------------
NET PREMIUMS $ 57,734 40,557 41,484 29,242 33,593 23,103
============================================================================================
</TABLE>
The reinsurance of risk does not relieve the ceding insurer of its
original liability to its policyholders. 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
December 31, 1996 and 1995, CapMAC had ceded loss reserves of $0 and
$69,000, respectively, and had ceded unearned premiums of $18,489,000
and $13,171,000, 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
premium 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. For the 1996 policy year, the
agreement provides $7 million of loss coverage in excess of the premium
deposit amount of $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.
F-18
<PAGE> 68
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
In addition to its capital (including statutory contingency reserves),
CapMAC has other reinsurance available to pay claims under its
insurance contracts. Effective November 30, 1995, CapMAC entered into a
Stop-loss Reinsurance Agreement with Mitsui Marine and Fire Insurance
Co. (the "Mitsui Stop-loss Agreement"). Under the Mitsui Stop-loss
Agreement, Mitsui Marine and Fire Insurance Co. ("Mitsui") will 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. Effective January 1, 1997 the
stop-loss reinsurance coverage increased to $75 million in excess of
incurred losses of $150 million increasing annually based on increases
in CapMAC's statutory qualified capital. The new stop-loss reinsurance
is provided by Mitsui, AXA Re Finance S.A. ("AXA Re") and Munchener
Ruckversicherungs-Gesellschaft ("Munich Re").
On November 30, 1995, CapMAC canceled the quota share reinsurance
agreement with Winterthur Swiss Insurance Company ("Winterthur")
pursuant to which Winterthur had the right to reinsure on a quota share
basis 10% of each policy written by CapMAC. As a result, CapMAC
reassumed approximately $1.4 billion of principal insured by Winterthur
on January 1, 1996. In connection with the commutation, Winterthur
returned $2.0 million of unearned premiums, net of ceding commission
and Federal excise tax.
(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, 1996 and
1995. The fair value amounts were determined by the Company using
independent market information when available, and appropriate
valuation methodologies when market information was not available. Such
valuation methodologies require significant judgment and are not
necessarily indicative of the amount the Company could recognize in a
current market exchange.
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
--------------------- --------------------
Carrying Estimated Carrying Estimated
$ in thousands Amount Fair Value Amount Fair Value
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Available-for-sale securities $314,703 314,703 284,352 284,352
--------------------------------------------------------------------------------------------
OFF-BALANCE-SHEET INSTRUMENTS:
Financial guarantees outstanding $ -- 219,989 -- 147,840
Less: ceding commission -- 65,997 -- 44,352
--------------------------------------------------------------------------------------------
Net financial guarantees outstanding $ -- 153,992 103,488
============================================================================================
</TABLE>
F-19
<PAGE> 69
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments summarized above:
AVAILABLE-FOR-SALE SECURITIES
The fair values of fixed maturities 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, 1996 and 1995.
The amount calculated is assumed to be equivalent to the consideration
that would be paid by CapMAC 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
future installment revenue 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 earnings 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
material net reduction in the future installment revenue.
(14) CAPITALIZATION
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-20
<PAGE> 70
CAPITAL MARKETS ASSURANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
F-21
<PAGE> 71
CAPITAL MARKETS ASSURANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
March 31, 1997
(Unaudited) December 31, 1996
- --------------------------------------------------------------------------------------------------------------------
INVESTMENTS:
<S> <C> <C>
Bonds at fair value (amortized cost $276,563 at March 31, 1997 and
$294,861 at December 31, 1996) $273,096 297,893
Short-term investments (at amortized cost which approximates fair value) 37,903 16,810
- --------------------------------------------------------------------------------------------------------------------
Total investments 310,999 314,703
- --------------------------------------------------------------------------------------------------------------------
Cash 9,399 371
Accrued investment income 3,070 3,807
Deferred acquisition costs 48,442 45,380
Premiums receivable 4,788 5,141
Prepaid reinsurance 18,703 18,489
Other assets 6,901 6,424
- --------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $402,302 394,315
====================================================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Unearned premiums $ 68,838 68,262
Reserve for losses and loss adjustment expenses 12,528 10,985
Ceded reinsurance 2,163 1,738
Accounts payable and other accrued expenses 11,214 8,019
Current income taxes 1,301 679
Deferred income taxes 13,784 15,139
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 109,828 104,822
- --------------------------------------------------------------------------------------------------------------------
STOCKHOLDER'S EQUITY:
Common stock - $1.00 par value per share; 15,000,000 shares are authorized,
issued and outstanding at March 31, 1997 and December 31, 1996 15,000 15,000
Additional paid-in capital 208,475 208,475
Unrealized (depreciation) appreciation on investments, net of tax (2,253) 1,970
Retained earnings 71,252 64,048
- --------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 292,474 289,493
- --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $402,302 394,315
====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE> 72
CAPITAL MARKETS ASSURANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Direct premiums written $ 16,454 14,155
Assumed premiums written 261 874
Ceded premiums written (4,349) (1,910)
- --------------------------------------------------------------------------------------------------------------
Net premiums written 12,366 13,119
Increase in unearned premiums (363) (4,291)
- --------------------------------------------------------------------------------------------------------------
Net premiums earned 12,003 8,828
Net investment income 4,702 3,877
Net realized capital gains 2,043 149
Other income 43 54
- --------------------------------------------------------------------------------------------------------------
Total revenues 18,791 12,908
- --------------------------------------------------------------------------------------------------------------
EXPENSES:
Losses and loss adjustment expenses 1,543 1,075
Underwriting and operating expenses 4,671 3,978
Policy acquisition costs 2,581 2,064
- --------------------------------------------------------------------------------------------------------------
Total expenses 8,795 7,117
- --------------------------------------------------------------------------------------------------------------
Income before income taxes 9,996 5,791
- --------------------------------------------------------------------------------------------------------------
INCOME TAXES:
Current income tax 1,873 664
Deferred income tax 919 823
- --------------------------------------------------------------------------------------------------------------
Total income taxes 2,792 1,487
- --------------------------------------------------------------------------------------------------------------
NET INCOME $ 7,204 4,304
==============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE> 73
CAPITAL MARKETS ASSURANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1997
- -------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCK:
Balance at beginning of period $ 15,000
- -------------------------------------------------------------------------------------------------
Balance at end of period 15,000
- -------------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of period 208,475
- -------------------------------------------------------------------------------------------------
Balance at end of period 208,475
- -------------------------------------------------------------------------------------------------
UNREALIZED (DEPRECIATION) APPRECIATION ON INVESTMENTS, NET OF TAX:
Balance at beginning of period 1,970
Unrealized depreciation on investments (4,223)
- -------------------------------------------------------------------------------------------------
Balance at end of period (2,253)
- -------------------------------------------------------------------------------------------------
RETAINED EARNINGS:
Balance at beginning of period 64,048
Net income 7,204
- -------------------------------------------------------------------------------------------------
Balance at end of period 71,252
- -------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDER'S EQUITY $292,474
=================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE> 74
CAPITAL MARKETS ASSURANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,204 4,304
- -------------------------------------------------------------------------------------------------------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED (USED) BY OPERATING ACTIVITIES:
Reserve for losses and loss adjustment expenses 1,543 713
Unearned premiums, net 576 4,499
Deferred acquisition costs (3,062) (2,397)
Premiums receivable 353 77
Accrued investment income 737 (220)
Income taxes payable 1,541 947
Net realized capital gains (2,043) (149)
Accounts payable and other accrued expenses 3,195 287
Prepaid reinsurance (214) (208)
Other, net 78 89
- -------------------------------------------------------------------------------------------------------------
Total adjustments 2,704 3,638
- -------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,908 7,942
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments (74,308) (87,335)
Proceeds from sales of investments 58,658 6,158
Proceeds from maturities of investments 14,770 73,280
- -------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (880) (7,897)
- -------------------------------------------------------------------------------------------------------------
Net increase in cash 9,028 45
Cash balance at beginning of period 371 344
- -------------------------------------------------------------------------------------------------------------
CASH BALANCE AT END OF PERIOD $ 9,399 389
=============================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Income taxes paid $ 1,250 525
=============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE> 75
CAPITAL MARKETS ASSURANCE CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
1. BACKGROUND
Capital Markets Assurance Corporation ("CapMAC") 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"). In early 1997, CapMAC made an
investment of 50 million French francs (approximately 10 million U.S.
dollars) in CapMAC Assurance, S.A., an insurance subsidiary to be
established in Paris, France. CapMAC Assurance, S.A., is licensed to write
financial guarantee insurance in the European Union member states.
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 triple-A by Moody's Investors
Service, Inc., Standard & Poor's Ratings Services, Duff & Phelps Credit
Rating Co., and 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. BASIS OF PRESENTATION
CapMAC's consolidated unaudited interim financial statements have been
prepared on the basis of generally accepted accounting principles and, in
the opinion of management, reflect all adjustments necessary for a fair
presentation of the CapMAC's financial condition, results of operations and
cash flows for the periods presented. The results of operations for the
three months ended March 31, 1997 may not be indicative of the results that
may be expected for the full year ending December 31, 1997. These
consolidated financial statements and notes should be read in conjunction
with the financial statements and notes included in the audited financial
statements of CapMAC as of December 31, 1996 and 1995, and for each of the
years in the three-year period ended December 31, 1996.
F-26
<PAGE> 76
======================================================
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 THE
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............................... 11
The Onyx Portfolio of Motor Vehicle
Contracts............................. 11
The Contracts........................... 17
Maturity and Prepayment Assumptions..... 20
Yield Considerations.................... 20
Pool Factor............................. 21
Use of Proceeds......................... 21
The Seller.............................. 21
The Servicer............................ 22
The Certificates and the Agreement...... 22
Description of the Insurer.............. 30
Additional Provisions of the
Agreement............................. 31
Certain Legal Aspects of the
Contracts............................. 35
Certain Federal Income Tax
Consequences.......................... 38
ERISA Considerations.................... 44
Underwriting............................ 46
Legal Matters........................... 46
Experts................................. 46
Financial Statements of Insurer......... F-1
------------------
UNTIL , 1997 (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>
======================================================
$121,676,091
ONYX ACCEPTANCE
GRANTOR TRUST 1997-2
% AUTO LOAN
PASS-THROUGH CERTIFICATES
LOGO
ONYX ACCEPTANCE FINANCIAL CORPORATION,
Seller
ONYX ACCEPTANCE CORPORATION,
Servicer
---------------------------
P R O S P E C T U S
---------------------------
MERRILL LYNCH & CO.
, 1997
======================================================
<PAGE> 77
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Registration Fee........................................................ $ 36,871.48
Printing and Engraving.................................................. 50,000.00
Trustee's Fee........................................................... 7,500.00
Legal Fees and Expenses................................................. 132,500.00
Blue Sky Fees and Expenses.............................................. 20,000.00
Accountant's Fees and Expenses.......................................... 20,000.00
Rating Agency Fees...................................................... 50,000.00
Miscellaneous Fees and Expenses......................................... 8,128.52
-----------
Total Expenses..................................................... $325,000.00
===========
</TABLE>
- ---------------
* To be completed by amendment.
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 has acquired 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.
II-1
<PAGE> 78
In addition, the Company has entered 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 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 Underwriter, for certain liabilities rising under the Securities Act or
otherwise. It also provides, in certain limited instances, for indemnification
by the Underwriter 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 incorporated herein by reference
to the Registrant's Registration Statement on Form S-1 No. 333-4220
3.2 Bylaws of the Seller incorporated herein by reference to the Registrant's
Registration Statement on Form S-1 No. 333-4220
4.1 Form of Pooling and Servicing Agreement among the Seller, the Servicer and
the Trustee
5.1 Opinion of Andrews & Kurth L.L.P., with respect to legality
8.1 Opinion of Andrews & Kurth L.L.P., with respect to federal income tax
matters
23.1 Consent of Andrews & Kurth L.L.P., (contained in Exhibit 5.1)
23.2 Consent of Andrews & Kurth L.L.P., (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 (Page II-4)
</TABLE>
(b) FINANCIAL STATEMENT SCHEDULES
Not applicable.
II-2
<PAGE> 79
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.
(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> 80
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Irvine, State of
California, on June 9, 1997.
Onyx Acceptance Financial Corporation
By: /s/ JOHN W. HALL
------------------------------------
John W. Hall
Director, President and Chief
Executive Officer
Each person whose signature appears below hereby constitutes and appoints
Regan E. Kelly and Don P. Duffy his true and lawful attorney-in-fact and agent,
with full powers of substitution, for him and in his name, place and stead, in
any and all capacities, to sign and to file any and all amendments including
post-effective amendments, to this Registration Statement with the Securities
and Exchange Commission granting to said attorney in fact power and authority to
perform any other act on behalf of the undersigned required to be done in
connection therewith.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------- ---------------
<S> <C> <C>
/s/ JOHN W. HALL President and Chief June 9, 1997
- --------------------------------------------- Executive Officer, Director
John W. Hall (Principal Executive Officer)
/s/ DON P. DUFFY Executive Vice President June 9, 1997
- --------------------------------------------- and Chief Financial Officer,
Don P. Duffy Director (Principal Financial
and Accounting Officer)
/s/ REGAN E. KELLY Executive Vice President, June 9, 1997
- --------------------------------------------- Director
Regan E. Kelly
/s/ KURT C. BICKNELL Director June 9, 1997
- ---------------------------------------------
Kurt C. Bicknell
/s/ STEVE M. BOND Director June 9, 1997
- ---------------------------------------------
Steve M. Bond
</TABLE>
II-4
<PAGE> 81
EXHIBIT INDEX
<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 incorporated herein by
reference to the Registrant's Registration Statement on Form S-1 No.
333-4220................................................................
3.2 Bylaws of the Seller incorporated herein by reference to the
Registrant's Registration Statement on Form S-1 No. 333-4220............
4.1 Form of Pooling and Servicing Agreement among the Seller, the Servicer
and the Trustee (includes Yield Supplement Agreement)...................
5.1 Opinion of Andrews & Kurth L.L.P., with respect to legality.............
8.1 Opinion of Andrews & Kurth L.L.P., with respect to federal income tax
matters.................................................................
23.1 Consent of Andrews & Kurth L.L.P., (contained in Exhibit 5.1)...........
23.2 Consent of Andrews & Kurth L.L.P., (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*.....................................................
</TABLE>
- ---------------
* Previously filed
<PAGE> 1
EXHIBIT 1.1
Onyx Acceptance Grantor Trust 1997-2
____% Auto Loan Pass-Through Certificates
Onyx Acceptance Financial Corporation
as Seller
Onyx Acceptance Corporation
as Servicer
UNDERWRITING AGREEMENT
June __, 1997
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 1997-2 (the "Trust") to sell to
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter") ____%
Auto Loan Pass-Through Certificates, Series 1997-2 (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 (the "Trustee"), dated
as of June 1, 1997 (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. In addition, Onyx
will enter into a yield supplement agreement dated as of June __, 1997 with the
Company (the "Yield Supplement Agreement") which will assign it to the Trust.
The assets of the Trust will include, among other things, (i) a pool (the
"Contract Pool") of fixed
<PAGE> 2
rate Rule of 78's and Simple Interest Method motor vehicle retail installment
sales contracts (the "Contracts") secured by new and used automobiles and
light-duty trucks (the "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, (vi) all right, title and
interest of the Company under the Yield Supplement Agreement dated as of June__,
1997 between the Company and Onyx (the "Yield Supplement Agreement") and (vii)
all proceeds of the foregoing. The Certificates will be issued in an aggregate
principal amount of $__________ which is equal to the sum of $__________
outstanding principal balance of Contracts as of June __, 1997 (the "Cut-Off
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. 333-_____),
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.
2
<PAGE> 3
(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 defined).
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
3
<PAGE> 4
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, 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
4
<PAGE> 5
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 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 in the case of the Contracts in the
case of the related Subsequent Contracts 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) 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
5
<PAGE> 6
the transactions contemplated herein or in the Pooling and Servicing
Agreement, the Purchase Agreement, the Insurance Agreement or the Yield
Supplement Agreement. The execution, delivery and performance of this
Agreement, the Pooling and Servicing Agreement, the Purchase Agreement,
the Insurance Agreement or the Yield Supplement Agreement and the
issuance and sale of the Certificates and compliance with the terms and
provisions 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 corporate 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, the Insurance Agreement and the
Yield Supplement 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 June __, 1997.
The Company will deliver the Certificates to the Underwriter against
payment of the purchase price in immediately available funds by wire transfer to
the order of the Company at the offices of the Company at 8001, Irvine Center
Drive, Suite 500, Irvine, California 92718 at 10:00 a.m., New York City time on
June __, 1997 or at such other time not later than seven full business days
thereafter as the Underwriter
6
<PAGE> 7
and the Company determine, such time being herein referred to as the "Closing
Date". The Certificates so to be delivered shall be represented by one or more
global 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
reasonably request not later than 48 hours prior to the Closing Date. The
Company shall make such definitive certificates representing the Certificates
available for inspection by the Underwriter at the office at which the
Certificates are 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 proposes 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
7
<PAGE> 8
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 in writing
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 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
8
<PAGE> 9
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
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.
9
<PAGE> 10
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 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
10
<PAGE> 11
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 available to the Certificateholders of the Trust an
earnings 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.
(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.
11
<PAGE> 12
(vii) So long as any of the Certifi- cates 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 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) 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
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<PAGE> 13
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 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. Except as provided in Sections 4(b) and 5(ix)
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 written 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 letter, dated the date of this Agreement, of
Coopers & 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
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<PAGE> 14
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 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 Andrews & Kurth L.L. P., counsel of the Company,
substantially to the effect that:
(a) The Company (1) is duly organized and is validly existing
and in good standing under the laws of the State of Delaware, (2)
has the corporate power and corporate authority to own its
properties and conduct its business as described in the Prospectus
and (3) had
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<PAGE> 15
at all relevant times, and now has, the power, authority and
legal right to acquire, own and sell the Contracts;
(b) The Company has, or at the time such agreement was
executed and delivered, had, the corporate power and corporate
authority to execute and deliver this Agreement, the Pooling and
Servicing Agreement, the Yield Supplement 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, the Yield
Supplement 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, the Yield Supplement 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, the Yield Supplement Agreement, or the Insurance
Agreement conflicts 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
15
<PAGE> 16
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 governmental 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, the Yield
Supplement 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, the Yield Supplement 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 the Yield Supplement 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 Pro- spectus under the caption
"Certain Legal Aspects of the Contracts," and "ERISA
Considerations" to the extent they constitute matters of
California
16
<PAGE> 17
or federal 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 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 Yield Supplement 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
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<PAGE> 18
issuance appeared on its face to be appropriately responsive in
all material respects to the applicable requirements of the
Securities Act and the Rules and Regulations, and such counsel
need not opine as to the financial statements and related notes,
schedules and other financial and statistical date included
therein;
(l) The Certificates, the Pooling and Servicing Agreement,
the Purchase Agreement, the Yield Supplement 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 Andrews & Kurth L.L.P., counsel to Onyx, substantially
to the effect that:
(a) Onyx (1) is duly incorporated and is validly existing and
in good standing under the laws of the State of California, (2)
has the corporate power and corporate authority to own its
properties and conduct its business as
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<PAGE> 19
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;
(b) Onyx has the corporate power and corporate authority to
execute and deliver the Pooling and Servicing Agreement the Yield
Supplement 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, the Yield Supplement
Agreement, and the Pooling and Servicing 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, the Yield
Supplement 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; the opinion set forth in this sentence is limited
to such authorizations, approvals, consents and orders which, in
such counsel's experience, are normally applicable to transactions
of the type contemplated by the Pooling and Servicing Agreement,
the Yield Supplement Agreement, and the Purchase Agreement;
(d) None of the execution, delivery and performance by Onyx
of the Pooling and Servicing Agreement, the Yield Supplement
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
19
<PAGE> 20
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 a party or by which it or its properties are bound;
(e) The Pooling and Servicing Agreement, the Yield Supplement
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 the Yield Supplement 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.
20
<PAGE> 21
In addition, such counsel shall state that they have participated in
conferences with the officers and other representatives of the Company and Onyx,
representatives of the independent public accountants of the Company and Onyx
and representatives of the Underwriter and the Insurer at which the contents of
the Registration Statement and the Prospectus and related matters were discussed
and, although such counsel has not independently verified and are not passing
upon and do not assume any responsibility for, the accuracy, completeness or
fairness of the statements contained in the Registration Statement and the
Prospectus, on the basis of the foregoing, no facts have come to such counsel's
attention that lead them to believe that the Registration Statement, as of the
Effective Date, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus as of its date or as
of the Closing Date contained or contains an untrue statement of a material fact
or omitted or omits 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 (it being understood that such counsel need make no comment
and express no belief with respect to the financial statements and related
notes, schedules and the other financial and statistical data included in the
Registration Statements or the Prospectus).
(vi) The Underwriter shall have received an opinion or opinions
of Andrews & Kurth L.L. P., 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 bankruptcy filing with respect
to Onyx and with respect to certain other matters.
(vii) The Underwriter shall have received an opinion of Andrews
& Kurth L.L.P., 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
21
<PAGE> 22
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 headings "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 Shaw, Pittman, Potts & Trowbridge, counsel to the
Insurer, substantially to the effect that:
(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;
22
<PAGE> 23
(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 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.
23
<PAGE> 24
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 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
24
<PAGE> 25
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 Certificates have been rated in the highest rating
category by Moody's Investors Service, Inc. and by Standard & Poor's
Ratings Service.
(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 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 operations 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.
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<PAGE> 26
(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
operations 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
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.
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<PAGE> 27
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, 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
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<PAGE> 28
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 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
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<PAGE> 29
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 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
29
<PAGE> 30
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
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) or Section 10, 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.
30
<PAGE> 31
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 92618, 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.
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
31
<PAGE> 32
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.
32
<PAGE> 33
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
- -----------------------------------
33
<PAGE> 1
EXHIBIT 4.1
ONYX ACCEPTANCE FINANCIAL CORPORATION
Seller
ONYX ACCEPTANCE CORPORATION
Servicer
and
BANKERS TRUST COMPANY
Trustee
POOLING AND SERVICING AGREEMENT
Dated as of June 1, 1997
ONYX ACCEPTANCE GRANTOR TRUST, 1997-2
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I Definitions................................................................................. 1
SECTION 1.1. Definitions..................................................................... 1
SECTION 1.2. Usage of Terms.................................................................. 16
SECTION 1.3. Section References.............................................................. 16
SECTION 1.4. Calculations.................................................................... 16
SECTION 1.5. Accounting Terms................................................................ 16
ARTICLE II Conveyance of the Contracts; Representation
and Warranties of the Seller................................................................ 16
SECTION 2.1. Sale and Assignment of Contracts................................................ 16
SECTION 2.2. Representations and Warranties.................................................. 18
SECTION 2.3. Repurchase of Certain Contracts................................................. 24
SECTION 2.4. Duties and Appointment of Custodian............................................. 25
SECTION 2.5. Duties of Servicer Relating to the Contracts.................................... 26
SECTION 2.6. Instructions; Authority to Act.................................................. 27
SECTION 2.7. Indemnification................................................................. 27
SECTION 2.8. Effective Period and Termination................................................ 28
SECTION 2.9. Nonpetition Covenant............................................................ 28
SECTION 2.10. Collecting Title Documents Not Delivered at
the Closing Date................................................................ 29
ARTICLE III Administration and Servicing of Contracts................................................... 29
SECTION 3.1. Duties of Servicer.............................................................. 29
SECTION 3.2. Collection of Contract Payments................................................. 31
SECTION 3.3. Realization Upon Contracts...................................................... 31
SECTION 3.4. Insurance....................................................................... 32
SECTION 3.5. Maintenance of Security Interests in Financed Vehicles.......................... 32
SECTION 3.6. Covenants, Representations and Warranties of Servicer........................... 32
SECTION 3.7. Purchase of Contracts Upon Breach of Covenant................................... 34
SECTION 3.8. Servicing Compensation.......................................................... 34
SECTION 3.9. Reporting by the Servicer....................................................... 35
SECTION 3.10. Annual Statement as to Compliance............................................... 37
SECTION 3.11. Annual Independent Certified Public Accountant's Report......................... 37
SECTION 3.12. Access to Certain Documentation and Information
Regarding Contracts............................................................. 38
SECTION 3.13. Fidelity Bond................................................................... 38
SECTION 3.14. Indemnification; Third Party Claims............................................. 38
SECTION 3.15. Reports to Certificateholders and the Rating Agencies........................... 38
ARTICLE IV Distributions; Statements to Certificateholders............................................. 39
SECTION 4.1. Accounts........................................................................ 39
</TABLE>
i
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<TABLE>
<S> <C>
SECTION 4.2. Collections; Transfer to Payahead Account;
Realization Upon Surety Bond; Net Deposit....................................... 40
SECTION 4.3. Distributions................................................................... 41
SECTION 4.4. Remittance Of Repurchase Amount................................................. 42
SECTION 4.5. Statements to Certificateholders................................................ 42
ARTICLE V The Certificates............................................................................ 44
SECTION 5.1. The Certificates................................................................ 44
SECTION 5.2. Execution, Authentication and Delivery of Certificates.......................... 44
SECTION 5.3. Registration of Transfer and Exchange of Certificates........................... 44
SECTION 5.4. Mutilated, Destroyed, Lost or Stolen Certificates............................... 45
SECTION 5.5. Persons Deemed Owners........................................................... 45
SECTION 5.6. Access to List of Certificateholders' Names and Addresses....................... 45
SECTION 5.7. Maintenance of Office or Agency................................................. 46
SECTION 5.8. Book-Entry Certificates......................................................... 46
SECTION 5.9. Notices to Clearing Agency...................................................... 47
SECTION 5.10. Definitive Certificates......................................................... 47
SECTION 5.11. Appointment of Paying Agent..................................................... 48
SECTION 5.12. Authenticating Agent............................................................ 48
SECTION 5.13. Actions of Certificateholders................................................... 49
ARTICLE VI The Seller.................................................................................. 50
SECTION 6.1. Liability of Seller; Indemnities................................................ 50
SECTION 6.2. Merger or Consolidation of, or Assumption of
the Obligations of, Seller...................................................... 50
SECTION 6.3. Limitation on Liability of Seller and Others.................................... 51
SECTION 6.4. Seller Not to Resign............................................................ 51
SECTION 6.5. Seller May Own Certificates..................................................... 51
ARTICLE VII The Servicer................................................................................ 51
SECTION 7.1. Liability of Servicer; Indemnities.............................................. 51
SECTION 7.2. Corporate Existence; Status as Servicer; Merger................................. 52
SECTION 7.3. Performance of Obligations...................................................... 53
SECTION 7.4. The Servicer Not to Resign; Assignment.......................................... 53
SECTION 7.5. Limitation on Liability of Servicer and Others.................................. 54
ARTICLE VIII Default..................................................................................... 54
SECTION 8.1. Events of Default............................................................... 54
SECTION 8.2. Trustee to Act; Appointment of Successor........................................ 56
SECTION 8.3. Notification to Certificateholders.............................................. 57
SECTION 8.4. Waiver of Past Defaults......................................................... 57
SECTION 8.5. Insurer Direction of Insolvency Proceedings..................................... 57
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE IX The Trustee................................................................................. 57
SECTION 9.1. No Power to Engage in Business or to Vary Investments........................... 57
SECTION 9.2. Duties of Trustee............................................................... 58
SECTION 9.3. Trustee's Assignment of Purchased Contracts..................................... 60
SECTION 9.4. Certain Matters Affecting the Trustee........................................... 60
SECTION 9.5. Trustee Not Liable for Certificates or Contracts................................ 62
SECTION 9.6. Trustee May Own Certificates.................................................... 63
SECTION 9.7. Trustee's Fees and Expenses..................................................... 63
SECTION 9.8. Indemnity of Trustee............................................................ 63
SECTION 9.9. Eligibility Requirements for Trustee............................................ 63
SECTION 9.10. Resignation or Removal of Trustee............................................... 64
SECTION 9.11. Successor Trustee............................................................... 64
SECTION 9.12. Merger or Consolidation of Trustee.............................................. 65
SECTION 9.13. Appointment of Co-Trustee or Separate Trustee................................... 65
SECTION 9.14. Representations and Warranties of Trustee....................................... 66
SECTION 9.15. Tax Returns..................................................................... 67
SECTION 9.16. Trustee May Enforce Claims Without Possession
of Certificates................................................................. 67
SECTION 9.17. Suits for Enforcement........................................................... 67
SECTION 9.18. Maintenance of Office or Agency................................................. 68
ARTICLE X Termination................................................................................. 68
SECTION 10.1. Termination of the Trust........................................................ 68
SECTION 10.2. Optional Purchase of All Contracts.............................................. 69
ARTICLE XI Miscellaneous Provisions.................................................................... 69
SECTION 11.1. Amendment....................................................................... 69
SECTION 11.2. Protection of Title to Trust.................................................... 70
SECTION 11.3. Limitation on Rights of Certificateholders...................................... 72
SECTION 11.4. Governing Law................................................................... 73
SECTION 11.5. Notices......................................................................... 73
SECTION 11.6. Severability of Provisions...................................................... 73
SECTION 11.7. Assignment...................................................................... 73
SECTION 11.8. Certificates Nonassessable and Fully Paid....................................... 74
SECTION 11.9. Third Party Beneficiaries....................................................... 74
SECTION 11.10. Insurer Default or Insolvency................................................... 74
SECTION 11.11. Tax Matters..................................................................... 74
</TABLE>
iii
<PAGE> 5
EXHIBITS
Exhibit A - Form of Appointment of Custodian
Exhibit B - Form of Certificate
Exhibit C - Form of Surety Bond
Schedule I - Schedule of Contracts
Schedule II- Schedule of Accounts
iv
<PAGE> 6
This Pooling and Servicing Agreement, dated as of June 1, 1997, is made
with respect to the formation of the Onyx Acceptance Grantor Trust, 1997-2,
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.
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 this 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. The location and
account numbers of the Accounts as of the Closing Date are set forth on Schedule
II.
"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.
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<PAGE> 7
"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.
"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 other than a Saturday, a Sunday or other
day on which commercial banking institutions or savings associations in Los
Angeles, California or New York, New York are authorized or obligated by law,
regulation, executive order or governmental decree 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).
"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.
2
<PAGE> 8
"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 certain notices, consents, requests 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 Account" means Account No. o in the name of the Seller
maintained at Wells Fargo Bank, N.A.
"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 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 June 17, 1997.
"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 (except as provided in
clause (iv) below), the sum of (i) all payments of Monthly P&I, all partial
prepayments, all Full Prepayments, Net Liquidation Proceeds and Net Insurance
Proceeds, collected with respect to the Contracts during such Collection Period,
less 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.
"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
3
<PAGE> 9
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 (i) 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 (or, with respect to Financed Vehicles
registered in the State of California, evidence of the electronic Title
Document), 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 (ii) written evidence 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 (i) 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, and (ii) with respect to a Simple Interest Contract,
the APR.
"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
4
<PAGE> 10
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 June 1, 1997.
"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 1997-2, 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.
"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
5
<PAGE> 11
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 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;
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(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 December 15, 2003.
"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 or on
behalf of 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
(ii), (iii) or (iv) 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 of the Repurchase Amount of a Contract
in connection with the purchase of a Contract pursuant to Section 3.7 or the
purchase of all Contracts pursuant to Section 10.2.
"Insurance Agreement" means the Insurance and Reimbursement Agreement
dated as of June 1, 1997, 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.
"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,
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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 Collection Period immediately preceding the
related 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 reasonable judgment, the
final amounts recoverable in respect of such Defaulted Contract, have been
realized and deposited in the Collection 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; provided, however, that in any event a
Contract that is delinquent in the amount of five monthly payments at the end of
a Collection Period is a Liquidated Contract. 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.
"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
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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.
"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, (i) 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 unpaid Monthly P&I due as of the Cut-Off Date, minus any
unearned (or earned but unpaid) interest as of the Cut-Off Date computed in
accordance with the Rule of 78's, and (ii) with respect to any Simple Interest
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
principal payments due after the Cut-Off Date.
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"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, as of any date of determination, 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;
provided that 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.
"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 have
been or may be modified, supplemented or amended from time to time.
"Rating Agencies" means Moody's Investors Service, Inc. and Standard &
Poor's Ratings Services.
"Recomputed Actuarial Method" means a method of accounting pursuant to
which each payment of Monthly P&I due on a Rule of 78's Contract will be deemed
to consist of interest equal
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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 Rule of 78's 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 such Due Date, 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.
"Required Rating" means a rating of Prime-1 by Moody's and A-1+ by
Standard & Poor's.
"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 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.
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"Schedule of Contracts" means the list of Contracts, attached hereto as
Schedule I, which are being sold to the Trust as part of the Trust Estate,
together with supplemental data regarding the Contracts calculated by Merrill
Lynch & Co. and verified by the Servicer. The Schedule of Contracts attached
hereto as Schedule I sets forth the Original Pool Balance, as well as the
following information with respect to each Contract in columns:
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")
In addition, the information contained in Schedule I shall also 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
Recomputed Yield and 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, as calculated by Merrill Lynch & Co. and
verified by the Servicer, shall supplement Schedule I and shall be a part of the
Schedule of Contracts and made available by the Servicer to the Trustee upon
reasonable request.
"Scheduled Balance" means, with respect to any Simple Interest Contract
as of the Cut-Off Date, the amount set forth as the "Original Principal Balance"
of such Contract on the Schedule of Contracts. "Scheduled Balance" means, with
respect to any Simple Interest Contract for the Due Date or any other date in
each month, the Original Principal Balance of such Contract reduced by the
portion of Monthly P&I paid on or prior to the date of calculation that is
allocated to principal under the Simple Interest Method. "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, as applicable,
on the Schedule of Contracts. For a Rule of 78's Contract, 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 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 business on the Due Date for such Contract in the Collection Period in which
such Contract became a Liquidated Contract or a Repurchased Contract. The
principal
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balance of a Simple Interest Contract that becomes a Liquidated Contract or a
Repurchased Contract is reduced to zero as of the close of business on the date
the Contract becomes a Liquidated Contract or is repurchased, as the case may
be. As used herein, reference to the Scheduled Balance of a Contract for a
Distribution Date shall mean the Scheduled Balance of such Contract as of close
of business 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 the Scheduled Balance of such Contract as of the opening of
business on 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 Contract, the product of (A) the Servicing Fee Percent and (B) the
Scheduled Balance of such Contract as of the opening of business on the first
day of such Collection Period; provided, however, that with respect to the first
Distribution Date the Servicing Fee shall be the product of (A) the Servicing
Fee Percent and (B) the Original Pool Balance. 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; provided,
however, that the Servicer agrees that each amount payable to it in respect of a
Full Prepayment on a Rule on 78's Contract that exceeds such Contract's
Scheduled Balance shall be deposited in the Spread Account and applied in
accordance with the Insurance Agreement.
"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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"Servicing Standards" means at any time the quality of the Servicer's
performance with respect to (i) compliance with the terms of this 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.
"Simple Interest Contract" means a Contract as to which the portion of
payments allocable to earned interest and principal thereunder is determined
according to the Simple Interest Method. For such Contracts, interest accrued as
of the Due Date is paid first, and then the remaining payment is applied to the
unpaid principal balance. Accordingly, if an Obligor pays the fixed monthly
installment in advance of the Due Date, the portion of the payment allocable to
interest for the period since the preceding payment will be less than it would
be if the payment were made on the Due Date, and the portion of the payment
allocable to reduce the principal balance will be correspondingly greater.
Conversely, if an Obligor pays the fixed monthly installment after its Due Date,
the portion of the payment allocable to interest for the period since the
preceding payment will be greater than it would be if the payment were made on
the Due Date, and the portion of the payment allocable to reduce the principal
balance will be correspondingly smaller. When necessary, an adjustment will be
made at the maturity of the Contract to the scheduled final payment to reflect
the larger or smaller, as the case may be, allocations of payments to the amount
financed under the Contract as a result of early or late payments, as the case
may be.
"Simple Interest Method" means the method for calculating interest on a
Contract whereby interest due is calculated each day based on the actual
principal balance of the Contract on that day.
"Spread Account" means the account so denominated and provided for in
the Insurance Agreement.
"Standard & Poor's" means Standard & Poor's Services, a division of The
McGraw Hill Companies, 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. For Financed Vehicles registered in the State of
California, Title Document may consist of electronic evidence of ownership on
the Electronic Lien and Title system of the California Department of Motor
Vehicles.
"Transfer Agent" shall have the meaning specified in Section 5.3 and
initially shall be Bankers Trust Company.
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"Trust" means the Onyx Acceptance Grantor Trust, 1997-2 created by this
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, as applicable, in
California, Arizona, Florida, Nevada, Oregon or Washington, or if the context
requires, any other applicable state.
SECTION 1.2 Usage of Terms. With respect to all terms in this
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 this
Agreement; references to Persons include their permitted successors and assigns;
and the term "including" means "including without limitation."
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.
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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);
(iv) the right of the Seller, as purchaser under the Purchase
Agreement, to cause Onyx as 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; and
(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 Section 2.1, 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
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right, title and interest in the Trust Estate whether now existing or hereafter
created (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.
(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.
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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;
(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
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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 (except as noted below as being applicable only
to either Rule of 78's Contracts or Simple Interest Contracts):
(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 in the case of Rule of 78's Contracts 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 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
(or in the electronic title records, in the case of the State of
California) is required or permitted to perfect such security interest,
the Title Document or the electronic title records 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 (or
evidenced in the electronic title records, in the case of the State of
California), Onyx has written evidence that such Title Documents
showing Onyx as first lienholder have been applied for;
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(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;
(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
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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;
(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 either originated by Onyx or 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 or originated by
Onyx;
(xvi) payments under such Contract have been applied in
accordance with the Rule of 78's or the Simple Interest 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;
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(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 ;
(xx) at the date of origination of the Contract, the original
principal balance of such Contract was not greater than the purchase
price to the Obligor (including taxes, warranties, licenses and related
charges) of the related Financed Vehicle;
(xxi) as of the Cut-Off Date, the Seller has not received
notice that any Obligor under such Contract has filed for bankruptcy;
(xxii) the Obligor of such Contract was located in either
California, Arizona, Florida, Nevada, Oregon or Washington on the date
of origination of such Contract;
(xxiii) the yield (using the Recomputed Yield for Rule of 78's
Contracts) on such Contract is at least equal to %;
(xxiv) as of the Cut-Off Date, such Contract had an original
maturity of not more than 72 months and such Contract has a remaining
maturity of 72 months or less;
(xxv) the first payment under such Contract is due on or
before June , 1997;
(xxvi) as of the Cut-Off Date, such Contract has a remaining
principal balance of at least $500; and
(xxvii) as of the Cut-Off Date, such Contract is secured by a
Financed Vehicle that has not been repossessed without reinstatement.
(c) As to all of the Contracts:
(i) the aggregate Outstanding Principal Balance payable by
Obligors of the Contracts as of the Cut-Off Date equals the Original
Pool Balance; and
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(ii) 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.
(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 or that any of such conditions
was unsatisfied 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 in its capacity as custodian of the Trustee pursuant to Section 2.4),
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 condition, 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.
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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 this 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;
(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.
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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 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 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
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deposited in or credited to the Collection 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 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 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 as to the Contracts, 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.
(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 or the
Insurer. The Servicer shall also indemnify and hold harmless the Trust, the
Trust Estate, the Trustee, the Insurer 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
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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 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.
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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, or Onyx 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 (or,
in the case of the State of California, to obtain evidence in the electronic
title records of) 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 (or, in the case of the State of California, verified in the
electronic title records) by the Servicer within 180 days after the Closing Date
with respect to the Contracts, then the representation and warranty in Section
2.2(b)(iii) as to such Contracts 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 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
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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 Contract and all partial
prepayments on Simple Interest Contracts 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 on all Contracts and all partial prepayments on Simple Interest
Contracts, 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 Contract, first, to the Servicer as additional
servicing compensation any amounts due for late fees, extension fees or similar
charges, second to the payment of Monthly P&I, and third, in the case of partial
prepayments on Rule of 78's Contracts, 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,
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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 title and other 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
(including, without limitation, computerized title and other records) 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 on behalf of the Trust and to the Insurer all data
(including, without limitation, computerized title and other 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. 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
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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, in the case of the State of
California, the electronic title record), 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 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 (or, in the case of the State
of California, the electronic title record) is deemed to be in its capacity as
agent of the Trust and further agrees to hold such certificate of title (or, in
the case of the State of California, the electronic title record) 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, in the case of the State of California, the electronic title
record) 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;
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(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
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 Certificate 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);
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(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. 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 opening of
business on the first day of the Collection Period ending immediately prior to
such Distribution Date; provided, however, that with respect to the first
Distribution Date the Servicer will be entitled to receive the Servicing Fee in
respect of each Contract Outstanding as of the Cut-Off 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
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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 Interest Distribution for such Distribution Date;
(ii) the Principal Distribution for such Distribution Date;
(iii) the Certificate Distribution Amount for such
Distribution Date;
(iv) the Premium payable to the Insurer and the amount to be
deposited in the Spread Account;
(v) the aggregate Servicing Fee with respect to the Contracts
for the related Collection Period;
(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;
(vii) the Collection Account Amount Available and the Policy
Claim Amount, if any, for such Distribution Date;
(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; and
(xii) the amount of claims, if any, made on the Surety Bond.
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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, the following information:
(A) its Contract Number;
(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
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(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.
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(a) The Servicer shall deliver to the Trustee and the Insurer, on or
before March 15, 1998 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 this 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.
(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 31, 1998 and on or before March 31 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.
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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 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.
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(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 Services, 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.
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ARTICLE IV
Accounts; Distributions; Statements to Certificateholders
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SECTION 4.1 Accounts.
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(a) Prior to the Closing Date, the Servicer shall open, at a depository
institution (which may be the Trustee), the following accounts for the benefit
of the Certificateholders: (i) an account denominated "Collection Account--GT
1997-2, Bankers Trust Company, Trustee" (the "Collection Account") and (ii) an
account denominated "Payahead Account--GT 1997-2, Bankers Trust Company, as
agent" (the "Payahead Account") and, collectively, with the Collection Account,
the "Accounts"). The Accounts shall be Eligible Accounts. The location and
account numbers of the Accounts as of the Closing Date are set forth on Schedule
II. 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, or on behalf of the Trustee by the depository
institution maintaining each such account, 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 Rule of 78's
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 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, or on behalf of the Trustee by the depository institution maintaining
such account, in Eligible Investments. The Insurer shall direct the Trustee in
writing to invest funds, or cause the depository institution maintaining the
Collection Account in the Trustee's name 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
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by the Trustee in Eligible Investments of the entity that is serving as Trustee
(or an entity which meets the criteria in clauses (b) or (c) of the definition
of Eligible Account) 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, 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.
--------------
(a) 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).
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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 from any source under the Recomputed Actuarial
Method in the case of Rule of 78's Contracts and under the Simple
Interest Method in the case of Simple Interest Contracts;
(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 from any source on each Contract
under the Recomputed Actuarial Method in the case of Rule of 78's
Contracts and under the Simple Interest Method in the case of Simple
Interest Contracts;
(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 from any source on each
Contract under the Recomputed Actuarial Method in the case of Rule of
78's Contracts and under the Simple Interest Method in the case of
Simple Interest Contracts; 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.
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 included therein of any
(i) Full Prepayments of principal on Rule
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of 78's Contracts, and (ii) Full Prepayments and partial prepayments of
principal on Simple Interest Contracts;
(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.
ARTICLE V
The Certificates
----------------
SECTION 5.1 The Certificates. Unless otherwise specified in this
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 this 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.
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Upon issuance pursuant to the terms of this Agreement, the Certificates will be
entitled to the benefits of this 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
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
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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 this 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 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 this Agreement may be served. The Trustee
initially designated the Corporate Trust Office as specified in this 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:
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(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 this 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 this
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 this 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 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 this 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
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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.
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 this 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
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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.
(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:
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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
this 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 on
behalf of the Trust and, when required, to the Seller or the Servicer. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this 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 this 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 this Agreement) and costs and expenses in
defending against the same.
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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 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
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commonly controlled Person shall have an equal and proportionate benefit under
the provisions of this 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 this 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 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 this
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 9.14; or (iv) shall be one as
to which the Seller is required to indemnify the Trustee.
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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, 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 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
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become effective unless and until (i) the Trustee assumes all of the Servicer's
obligations under this Agreement or (ii) a new servicer acceptable to the
Trustee and 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 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 this 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.
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ARTICLE VIII
Default
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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
(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
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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 or the Insurer and,
within 30 days after written notice thereof shall have 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, 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 Trustee or, if a successor servicer has been
appointed pursuant to Section 8.2, such successor servicer; and, without
limitation the Trustee 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 Trustee as a lienholder or secured party on
Title Documents or financing statements or otherwise. The Servicer shall
cooperate with the Trustee in effecting the termination of the responsibilities
and rights of the Servicer under this Agreement, including the transfer to the
Trustee 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.
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SECTION 8.2 Trustee 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 Trustee 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 Trustee shall not be obligated to purchase Contracts pursuant to
Section 3.7. As compensation therefor, the Trustee 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 Trustee 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
or 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 Trustee shall act in such capacity as provided above. In
connection with such appointment, the Trustee 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 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 previously permitted the Servicer under
this Agreement. The Trustee 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
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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.
ARTICLE IX
The Trustee
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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 this 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 this 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:
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(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 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 unless the Trustee is
then acting as Servicer.
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 this 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,
nor shall the Trustee be liable for the actions or omissions of any depository
institution maintaining the Accounts.
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
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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 this 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 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 this 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 this 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 this
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 Sections 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,
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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, 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
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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;
(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;
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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 Certificates
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.
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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 this 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 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.
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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 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
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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 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
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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.
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 this Agreement, and has taken all necessary action to
authorize the execution, delivery, and performance by it of this Agreement;
(c) the execution and delivery of this Agreement and the performance by
the Trustee of its obligations under this Agreement does not violate any
provision of the Articles of Association or Bylaws of the Trustee; and
(d) this 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,
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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 this 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.
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 this 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 this Agreement or
in aid of the execution of any power granted in this 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 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
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shall the trust created by this 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 representative 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 this 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.
Notwithstanding any provision to the contrary, the Trustee shall retain
all of its rights and powers and obligations and duties under Section 8.5 in the
event of any Insolvency Proceeding and the Trustee shall be entitled to all the
protections, rights and immunities provided in Article IX in connection with any
such Insolvency Proceeding.
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. To exercise such option, the Servicer shall pay
to the Trustee by deposit into the Collection Account: (1) for the benefit of
the Certificateholders, the Repurchase Amount of all Contracts that were
Outstanding at the beginning of the Collection Period ending immediately prior
to such Distribution Date, and (2) for the benefit of the Insurer, all amounts
due and owing to the Insurer pursuant to the Insurance Agreement. Such purchase
shall be deemed to have occurred on the last day of such Collection Period.
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ARTICLE XI
Miscellaneous Provisions
------------------------
SECTION 11.1 Amendment. This Agreement may be amended by the Seller,
the 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 correct or supplement any provisions in this 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. Any amendment that would cause the Trust to be
classified as an association taxable as a corporation would be considered an
action which materially, adversely affects the interests of the
Certificateholders.
This Agreement may also be amended from time to 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 for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this 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
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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 misleading within the meaning of
ss. 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 this 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 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.
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(h) Upon request, the Servicer shall furnish to the Trustee 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:
(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 Cut-Off 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 this
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
this Agreement or any of them.
Except as expressly provided herein, no Certificateholder shall have
any right to vote 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
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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 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 provided in this 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
this 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, 6th Floor,
Irvine, CA 92618, Attention: President, facsimile 714-450-5530, (ii) in the case
of the Servicer, at 8001 Irvine Center Drive, 5th Floor, Irvine, California
92618, 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, Credit Enhancement, facsimile
(212) 755-5462, and (iv) in the case of the Trustee, 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 way affect the validity
70
<PAGE> 76
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 this 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 this 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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<PAGE> 77
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
By: ________________________________
Name:
Title:
72
<PAGE> 78
Exhibit A
Form of Appointment
of Custodian
-------------------
[Name and address of Custodian]
Re: Onyx Acceptance 1997-2 Grantor Trust
% Auto Receivable Pass-Through
Certificates, 1997-2
------------------------------------
Dear Sirs:
Reference is hereby made to the Pooling and Servicing Agreement (the
"Agreement") dated as of June 1, 1997 among Onyx Acceptance Corporation, Bankers
Trust Company, as Trustee (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> 79
ACCEPTED AND AGREED:
ONYX ACCEPTANCE CORPORATION
By: ______________________________
Name:
Title:
CONSENTED AND AGREED:
CAPITAL MARKETS ASSURANCE
CORPORATION
By: ______________________________
Name:
Title:
A-2
<PAGE> 80
EXHIBIT B 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 1997-2 GRANTOR TRUST
% AUTO LOAN PASS-THROUGH CERTIFICATE, SERIES 1997-2
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 and Simple Interest
Method motor vehicle retail installment sale contracts secured by new and used
automobiles and light-duty trucks, sold to Onyx Acceptance 1997-2 Grantor 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 ($ )
nonassessable, fully paid, fractional undivided interest, in the amount set
forth above, in the Onyx Acceptance Grantor Trust, 1997-2 (the "Trust") formed
by Onyx Acceptance Financial Corporation (the "Seller"). The Trust was created
pursuant to a Pooling and Servicing Agreement dated as of June 1, 1997 (the
"Agreement") among the Seller, Onyx Acceptance Corporation, as Servicer (the
"Servicer"), and Bankers Trust Company, as Trustee (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 and Simple Interest Method motor vehicle retail installment sales
contracts (the " Contracts") purchased from the Seller and secured by
B-1
<PAGE> 81
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 July 15, 1997, 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
Collection Period immediately preceding the related 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.
B-2
<PAGE> 82
ONYX ACCEPTANCE 1997-2 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> 83
[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, 6th Floor, Irvine, California 92618 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.
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
B-4
<PAGE> 84
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> 85
Exhibit C
Form of Surety Bond
-------------------
JUNE , 1997
SURETY BOND NO. SB_____
<TABLE>
<S> <C>
RE: ONYX ACCEPTANCE GRANTOR TRUST 1997-2 _____% AUTO
LOAN PASS-THROUGH CERTIFICATES, SERIES 1997-2 (THE
"CERTIFICATES")
INSURED OBLIGATION: OBLIGATION OF ONYX ACCEPTANCE GRANTOR TRUST 1997-2 (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")
</TABLE>
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
June 1, 1997 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> 86
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 Contract, the product of (A) the Servicing Fee
Percent and (B) the Scheduled Balance of such Contract 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 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
C-2
<PAGE> 87
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:
Capital Markets Assurance Corporation
885 Third Avenue, 14th Floor
New York, N.Y. 10022
Attention: Managing Director, Credit Enhancement
Telephone: (212) 891-4271
Facsimile: (212) 755-5462
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<PAGE> 88
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 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.
C-4
<PAGE> 89
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> 90
Schedule I
Schedule of Contracts
(Attached)
<PAGE> 91
Schedule II
Schedule of Accounts
(Attached)
<PAGE> 1
EXHIBIT 5.1
June 10, 1997
Onyx Acceptance Financial Corporation
on behalf of
Onyx Acceptance Grantor Trust 1997-2
c/o Onyx Acceptance Financial Corporation
8001 Irvine Center Drive
Irvine, California 92618
Re: Onyx Acceptance Grantor Trust 1997-2
Registration Statement on Form S-1
Ladies and Gentlemen:
We have acted as counsel for Onyx Acceptance Grantor Trust 1997-2 (the
"Trust"), in connection with the proposed issuance by the Trust of its
Pass-Through Certificates (the "Pass-Through Certificates") to be issued
pursuant to a Pooling and Servicing Agreement, among Onyx Acceptance Financial
Corporation, as seller (the "Seller"), Onyx Acceptance Corporation, as servicer
(the "Servicer") and Bankers Trust Company, in its capacity as the trustee of
the Trust (the "Trustee"). The Pooling and Servicing Agreement, in the form
filed with the Securities and Exchange Commission on June 10, 1997 as an exhibit
to the above-referenced registration statement (as so amended, the "Registration
Statement") on Form S-1 under the Securities Act of 1933, as amended (the "1933
Act"), is herein referred to as the "Agreement."
We have examined originals or copies, certified or otherwise identified
to our satisfaction, the form of Agreement and the form of Pass-Through
Certificates included therein, and such other documents, records, certificates
of the Trust and public officials and other instruments as we have deemed
necessary for the purposes of rendering this opinion. In addition, we have
assumed that the Agreement as completed for the Pass-Through Certificates will
be duly executed and delivered by each of the parties thereto; that the
Pass-Through Certificates as completed will be duly executed and delivered
substantially in the forms contemplated by the Agreement; and that the
Pass-Through Certificates will be sold as described in the Registration
Statement.
<PAGE> 2
Onyx Acceptance Grantor Trust 1997-2
June 10, 1997
Page 2
Based upon the foregoing and subject to the limitations and
qualifications set forth below, we are of the opinion that the Pass-Through
Certificates are in due and proper form and, assuming the due authorization,
execution and delivery of the Agreement by the Seller, the Servicer and the
Trustee and the due authorization of the Pass-Through Certificates by all
necessary action on the part of the Trustee, when the Pass-Through Certificates
have been validly executed, authenticated and issued in accordance with the
Agreement and delivered against payment therefor, the Pass-Through Certificates
will be validly issued and outstanding, fully paid and non-assessable, and
entitled to the benefits of the Agreement in accordance with their terms, except
that the enforceability thereof may be subject to (a) bankruptcy, insolvency,
reorganization, arrangement, moratorium, fraudulent or preferential conveyance
or other similar laws now or hereinafter in effect relating to creditors' rights
generally, and (b) general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law) and to the
discretion of the court before which any proceeding therefor may be brought.
The opinion expressed above is subject to the qualification that we do
not purport to be experts as to the laws of any jurisdiction other than the
federal laws of the United States of America and the laws of the States of
California and New York, and we express no opinion herein as to the effect that
the laws and decisions of courts of any such other jurisdiction may have upon
such opinions.
We consent to the use and filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus contained therein. In giving such consent we do not
imply or admit that we are within the category of persons whose consent is
required under Section 7 of the 1933 Act or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Andrews & Kurth L.L.P.
<PAGE> 1
EXHIBIT 8.1
June 10, 1997
Onyx Acceptance Financial Corporation
on behalf of
Onyx Acceptance Grantor Trust 1997-2
c/o Onyx Acceptance Financial Corporation
8001 Irvine Center Drive
Irvine, California 92618
Re: Onyx Acceptance Grantor Trust 1997-2
Registration Statement on Form S-1
Ladies and Gentlemen:
We have acted as counsel for Onyx Acceptance Grantor Trust 1997-2 (the
"Trust"), in connection with the proposed issuance by the Trust of its
Pass-Through Certificates (the "Pass-Through Certificates") to be issued
pursuant to a Pooling and Servicing Agreement, by and among the Onyx Acceptance
Financial Corporation, as seller (the "Seller"), Onyx Acceptance Corporation, as
servicer (the "Servicer") and Bankers Trust Company, in its capacity as trustee
of the Trust (the "Trustee"). The Pooling and Servicing Agreement, in the form
filed with the Securities and Exchange Commission on June 10, 1997 as an exhibit
to the above-referenced registration statement (as so amended, the "Registration
Statement") on Form S-1 under the Securities Act of 1933, as amended (the "1933
Act"), is herein referred to as the "Agreement."
We have examined originals or copies, certified or otherwise identified
to our satisfaction, the form of Agreement and the form of Pass-Through
Certificates included therein, and such other documents, records, certificates
of the Trust and public officials and other instruments as we have deemed
necessary for the purposes of rendering this opinion. In addition, we have
assumed that the Agreement as completed for the Pass-Through Certificates will
be duly executed and delivered by each of the parties thereto; that the
Pass-Through Certificates as completed will be duly executed and delivered
substantially in the forms contemplated by the Agreement; and that the
Pass-Through Certificates will be sold as described in the Registration
Statement.
On the basis of the foregoing and subject to the limitations and
qualifications set forth below, we are of the opinion that the description of
federal income tax consequences appearing under the heading "Certain Federal
Income Tax Consequences" in the prospectus contained in the Registration
<PAGE> 2
Onyx Acceptance Grantor Trust 1997-2
June 10, 1997
Page 2
Statement accurately describes the material federal income tax consequences to
holders of Pass-Through Certificates, under existing law and subject to the
qualifications and assumptions stated therein.
The opinion herein is based upon our interpretations of current law,
including court authority and existing Final and Temporary Regulations, which
are subject to change both prospectively and retroactively, and upon the facts
and assumptions discussed herein. This opinion letter is limited to the matters
set forth herein, and no opinions are intended to be implied or may be inferred
beyond those expressly stated herein. Our opinion is rendered as of the date
hereof and we assume no obligation to update or supplement this opinion or any
matter related to this opinion to reflect any change of fact, circumstances, or
law after the date hereof. In addition, our opinion is based on the assumption
that the matter will be properly presented to the applicable court. Furthermore,
our opinion is not binding on the Internal Revenue Service or a court. In
addition, we must note that our opinion represents merely our best legal
judgment on the matters presented and that others may disagree with our
conclusion. There can be no assurance that the Internal Revenue Service will not
take a contrary position or that a court would agree with our opinion if
litigated.
We consent to the use and filing of this opinion as Exhibit 8.1 to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus contained therein. In giving such consent we do not
imply or admit that we are within the category of persons whose consent is
required under Section 7 of the 1933 Act or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Andrews & Kurth L.L.P.
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Capital Markets Assurance Corporation:
We consent to the use of our report included in the Onyx Acceptance Grantor
Trust 1997-2 Form S-1 and to the reference to our firm under the heading
"Experts" in the prospectus filed in connection with the registration of Auto
Loan Pass-Through Certificates, Series 1997-2.
/s/ KPMG Peat Marwick LLP
New York, New York
June 9, 1997
