<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 12, 1997
REGISTRATION NO. 333-22301
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ONYX ACCEPTANCE GRANTOR TRUST 1997-1
(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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ROGER M. COHEN, ESQ. SUSAN M. CURTIS, ESQ.
BROBECK, PHLEGER & HARRISON LLP SKADDEN, ARPS, SLATE, MEAGHER & FLOM
4675 MACARTHUR COURT, SUITE 1000 919 THIRD AVENUE
NEWPORT BEACH, CA 92660-1846 NEW YORK, NEW YORK 10022
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this
Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE
- ----------------------------------------------------------------------------------------------------
% Auto Loan Pass-Through
Certificates, Series 1997-1..... $90,000,000 100% $90,000,000 $27,272.70(1)
====================================================================================================
</TABLE>
(1) $303.03 of which was previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
THE 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 MARCH 17, 1997
PROSPECTUS
$90,000,000
ONYX ACCEPTANCE GRANTOR TRUST 1997-1
% AUTO LOAN PASS-THROUGH CERTIFICATES, SERIES 1997-1
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
1997-1 (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 the Contracts on or
after March , 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, will be approximately $90,000,000. 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 April 15, 1997 and ending on September 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."
The Certificates will initially be represented by certificates registered in
the name of Cede & Co. as the nominee of The Depository Trust Company ("DTC").
The interests of beneficial owners of the Certificates will be represented by
book entries on the records of DTC and participating members thereof. Definitive
Certificates will be available only under the limited circumstances described
herein.
There is currently no secondary market for the Certificates, and there will
not be any application to list the Certificates on an exchange. The Underwriter
expects, but is not obligated, to make a market in the Certificates. There is no
assurance that any such market will develop or if it does develop, that it will
provide Certificateholders with liquidity of investment or will continue for the
life of the Certificates.
------------------------
SEE "RISK FACTORS" AT PAGE 9 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 March , 1997.
(2) Before deducting expenses payable by the Seller estimated to be $290,000.
------------------------
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 March , 1997, through the facilities of DTC.
------------------------
MERRILL LYNCH & CO.
------------------------
The date of this Prospectus is March , 1997.
LOGO
<PAGE> 3
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES
OFFERED HEREBY AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Seller, as originator of the Trust, has filed a Registration Statement
under the Securities Act of 1933, as amended, with the Securities and Exchange
Commission (the "Commission") with respect to the Certificates offered pursuant
to this Prospectus. This Prospectus, which forms a part of the Registration
Statement, does not contain all of the information included in the Registration
Statement and the exhibits thereto. For further information, reference is made
to the Registration Statement and amendments thereof and to the exhibits
thereto, which are available for inspection without charge at the office of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission at 7 World Trade Center, New York, New York
10048 and at the Northwestern Atrium Building, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511, and copies of which may be obtained from the
Commission at prescribed rates. The 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.
2
<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 1997-1 (the "Trust"),
to be formed by Onyx Acceptance Financial
Corporation (the "Seller") pursuant to the Pooling
and Servicing Agreement, to be dated as of March
, 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.................... $90,000,000.00. 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 "Cut-Off
Date Scheduled Balance"). See "The Contracts."
Seller..................... Onyx Acceptance Financial Corporation, a wholly
owned 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 60.36% of the
Aggregate Scheduled Balance as of the Cut-Off Date
are Rule of 78's Contracts and approximately 39.64%
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 the Contracts on or after March , 1997 (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, (v) all amounts on deposit in the
3
<PAGE> 5
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, (viii) all right, title and interest
of the Seller under the Yield Supplement Agreement,
dated as of March , 1997 between the Seller and
Onyx (the "Yield Supplement Agreement") and (ix)
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 April 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.... September 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 immediately
preceding Collection Period will be distributed to
the Certificateholders of record on a pro rata
basis as of the Business Day immediately preceding
such Distribution Date. The "Pool Balance" as of
any date is the Aggregate Scheduled Balance of the
Contracts as of such date, excluding those
Contracts which as of such date have become
Liquidated Contracts or have been repurchased by
the Seller or purchased by the Servicer. Interest
will be paid from collections received on the
Contracts on deposit in the Collection Account or
previously collected and available for
distribution, and from payments under the Yield
Supplement Agreement. A "Collection Period" with
respect to a Distribution Date will be the calendar
month preceding the month in which such
Distribution Date occurs; provided, that with
respect to Liquidated Contracts (as defined below)
the Collection Period will be the period from but
excluding the sixth Business Day preceding the
immediately preceding Distribution Date to and
including the sixth Business Day preceding such
Distribution Date. With respect to the first
Distribution Date the "Collection Period" for
Liquidated Contracts will be the period from and
including the Cut-Off Date to and including the
sixth Business Day preceding such first
Distribution Date. See "The Certificates and the
Agreement -- Distribution of Principal and
Interest."
Principal Distribution..... On each Distribution Date, Principal Distributions
for the related Collection Period will be passed
through to the Certificateholders. The "Principal
Distribution" on any Distribution Date is the
Aggregate Scheduled Balance Decline (as defined
below) during the related Collection Period. The
Principal Distribution on the Final Distribution
Date will include the Aggregate Scheduled Balance
of all Contracts that are outstanding at the end of
the Collection Period immediately prior to the
Final Distribution Date. The "Aggregate Scheduled
Balance 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
4
<PAGE> 6
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 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."
Yield Supplement........... Onyx will enter into the Yield Supplement Agreement
with the Seller, and the Seller will assign its
interest therein to the Trust. The purpose of the
Yield Supplement Agreement is to cover the
shortfall, if any, between (a) interest on each
Contract at a rate equal to % and (b) interest
on each Contract at its own particular yield (using
the Recomputed Yield, as defined herein, for Rule
of 78's Contracts). The Yield Supplement Agreement
will be in effect from the Closing Date until the
Final Distribution Date, and will provide for
payment by Onyx of the Yield Supplement Amount into
the Collection Account on or before five business
days prior to each Distribution Date, ending with
the Final Distribution Date. The "Yield Supplement
Amount," with respect to any Distribution Date for
any Collection Period, is the aggregate of the
following as calculated for each Contract: the
amount (if positive), calculated by the Servicer,
equal to one-twelfth of (a) interest on such
Contract's Scheduled Balance as of the first day of
the related Collection Period at a rate equal to
% minus (b) interest on such Contract at its
own particular yield (using the Recomputed Yield
for Rule of 78's Contracts) on such Contract's
Scheduled Balance as of the first day of the
related Collection Period.
The obligation of Onyx to pay the Yield Supplement
Amount will be secured by funds on deposit in a
segregated trust account to be maintained for the
benefit of the Certificateholders and the Insurer
(the
5
<PAGE> 7
"Yield Supplement Reserve Account"). The amount
required to be deposited in the Yield Supplement
Reserve Account will initially be equal to the
maximum Yield Supplement Amount that may become
owing under the Yield Supplement Agreement assuming
that payments on the Contracts are made on their
scheduled Due Dates and that no prepayments are
made. See "The Certificates and the Agreement --
Yield Supplement Agreement and Yield Supplement
Reserve Account."
Servicing Fee.............. The Servicer will be responsible for managing,
administering, servicing, and making collections on
the Contracts. Compensation to the Servicer will
consist of a monthly fee (the "Servicing Fee"),
payable from the Trust to the Servicer on each
Distribution Date, in an amount equal to the
product of one-twelfth of 1.00% per annum (the
"Servicing Fee Rate") multiplied by the Pool
Balance as of the close of the preceding Collection
Period. 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 March , 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 fifth Business Day prior to any
Distribution Date (a "Servicer Report Date") the
amount on deposit and available in the Collection
Account, after giving effect to all amounts
deposited or payable from the Payahead Account, the
Yield Supplement Account and/or pursuant to the
Yield Supplement Agreement with respect to such
Distribution Date, is less than the sum of the
Servicing Fee, the Principal Distribution and
Interest Distribution for the related Distribution
Date, the Trustee, by delivering a notice to the
Insurer, shall demand payment under the Surety Bond
in an amount equal to such deficiency. The Insurer
shall pay or cause to be paid such amount to the
Trustee for credit to the Collection Account and
the Trustee shall withdraw from the Collection
Account and shall pay such amount to the
Certificateholders on the related Distribution
Date. On the Final Distribution Date, to the extent
the amount on deposit and available in the
Collection Account is less than all remaining
unpaid interest and principal on the Certificates,
the Insurer shall pay or cause to be paid an amount
equal to such shortfall. See "The Certificates and
the Agreement -- The Surety Bond."
Contracts.................. The Aggregate Scheduled Balance of the Contracts as
of the Cut-Off Date will be approximately
$90,000,000, with an expected weighted average
annual percentage rate of 13.85% and an expected
weighted average remaining term of 56.4 months.
Based on the anticipated Scheduled Balances of the
Contracts as of the Cut-Off Date, approximately
60.36% of the Aggregate Scheduled Balance of the
Contracts as of the Cut-Off Date will allocate
interest and principal in accordance
6
<PAGE> 8
with the Rule of 78's (the "Rule of 78's
Contracts"), and approximately 39.64% in accordance
with the Simple Interest Method (the "Simple
Interest Contracts"). Based on the anticipated
Scheduled Balances of the Contracts as of the
Cut-Off Date, approximately 82.17% of the Aggregate
Scheduled Balance of the Contracts as of the
Cut-Off Date will have been originated in
California, 7.95% in Arizona, 7.80% in Washington
and the balance in Hawaii, Nevada and Oregon.
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.
The financial and other data in this Prospectus
regarding the Contracts is for Contracts originated
through February 28, 1997, which as of such date
had an Aggregate Scheduled Balance of approximately
$77,338,961. Contracts originated from March 1,
1997 through the Cut-Off Date will also be included
in the Trust such that the Aggregate Scheduled
Balance of all Contracts in the Trust as of the
Cut-Off Date will be approximately $90,000,000.
While the financial and other data for all of the
Contracts originated through the Cut-Off Date may
differ somewhat from the data in this Prospectus
for Contracts originated through February 28, 1997,
data for all of the Contracts originated through
the Cut-Off Date will not vary materially from the
data concerning the Contracts presented in this
Prospectus.
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 Distribution
on such Distribution Date) has declined to 10% or
less of the initial Pool Balance, subject to
certain provisions in the Agreement. See "The
Certificates and the Agreement -- Repurchase of
Contracts."
Tax Status................. In the opinion of counsel to the Seller, the Trust
will be classified for Federal income tax purposes
as a grantor trust and not as an association
7
<PAGE> 9
taxable as a corporation. Certificateholders must
report their respective allocable shares of income
earned on Trust assets and, subject to certain
limitations applicable to individuals, estates and
trusts, may deduct their respective allocable
shares of reasonable servicing and other fees. See
"Certain Tax Consequences."
ERISA Considerations....... The Certificates may be purchased by employee
benefit plans that are subject to the Employee
Retirement Income Security Act of 1974, as amended
("ERISA") upon satisfaction of certain conditions
described herein. See "ERISA Considerations."
Rating..................... It is a condition of issuance of the Certificates
that they be rated in the highest rating category
by two nationally recognized rating agencies. 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 35 month 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 year 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.
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 priority even over
perfected security interests in the Financed Vehicles. Notwithstanding the
failure of the
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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."
In Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948, (10th Cir. 1993)
cert. denied, 114 S. Ct. 554 (1993), the United States Court of Appeals for the
10th Circuit suggested that even where a transfer of accounts from a seller to a
buyer constitutes a "true sale," the accounts would nevertheless constitute
property of the seller's estate in a bankruptcy of the seller. If Onyx or the
Seller were to become subject to a bankruptcy proceeding and a court were to
follow the Octagon Gas court's reasoning, Certificateholders might experience
delays in payment or possibly losses on their investment in the Certificates.
Counsel to the Seller has advised the Seller that the reasoning of the Octagon
Gas case appears to be inconsistent with precedent and the Uniform Commercial
Code. See "The Seller."
PREPAYMENT CONSIDERATIONS
The rate of distribution of principal on the Certificates will depend on
the rate of payment (including prepayments, liquidations and repurchases by the
Seller or purchases by Onyx under certain conditions) on the Contracts which is
not possible to predict. Any full prepayments and repurchases of the Contracts
can reduce the average life of the Contracts and the aggregate interest received
by the Certificateholders over the life of the Certificates. 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 began purchasing Motor Vehicle Contracts in February 1994, and thus
has records of the historical prepayment experience of its Motor Vehicle
Contract portfolio only for the past 35 months. No assurance can be given that
prepayments on the Contracts will conform to any historical experience, and no
prediction can be made as to the actual prepayment rates which will be
experienced on the Contracts. See "-- Limited
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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. Based on the
anticipated Scheduled Balances of the Contracts as of the Cut-Off Date,
approximately 82.17% of the Aggregate Scheduled Balance of the Contracts as of
the Cut-Off Date will have been originated in California, 7.95% in Arizona,
7.80% in Washington and 2.08% in Hawaii, Nevada and Oregon 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 with respect to the Contracts.
LIMITED ASSETS
The Trust does not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Contracts and the right to
receive payments under the Surety Bond. The Certificates represent interests
solely in the Trust and will not be insured or guaranteed by the Seller, the
Servicer, the Trustee or any other person or entity except the Insurer.
Consequently, holders of the Certificates will only be able to look to payments
on the Contracts and the Surety Bond for payment.
RATING
It is a condition of issuance of the Certificates that they be rated in the
highest rating category by two nationally recognized rating agencies. A security
rating is not a recommendation to buy, sell or hold securities and may be
revised or withdrawn at any time by the assigning rating agency. There can be no
assurance that a rating will not be lowered or withdrawn if, in the sole
judgment of a rating agency, circumstances in the future so warrant, including a
downgrading of the Insurer. The Seller cannot predict with certainty what effect
any revision or withdrawal of a rating may have on the liquidity or market value
of the Certificates. Such ratings of the Certificates address the likelihood of
the timely payment of each scheduled Interest Distribution and Principal
Distribution, which are guaranteed by the Insurer pursuant to the Surety Bond.
Therefore, the ratings are primarily dependent on the rating of the Insurer, and
a change in the Insurer's rating may affect the ratings of the Certificates. See
"Description of the Insurer" for a description of the Insurer's rating.
BOOK-ENTRY REGISTRATION
The Certificates initially will be registered in the name of Cede, the
nominee for DTC, and will not be registered in the names of the Certificate
Owners or their nominees. Because of this, unless and until Definitive
Certificates are issued, Certificate Owners will not be recognized by the
Trustee as Certificateholders, as that term is used in the Agreement. Hence,
until such time, Certificate Owners will only be able to receive payments from,
and exercise the rights of Certificateholders indirectly through, DTC and its
participating organizations, and, unless a Certificate Owner requests a copy of
any such report from the Trustee, will receive reports and other information
provided for only if, when and to the extent provided to Certificate Owners by
DTC and its participating organizations. In addition, the ability of Certificate
Owners to pledge Certificates to persons or entities that do not participate in
the DTC system, or otherwise take actions in respect of such Certificates, may
be limited due to the lack of physical certificates for such Certificates. See
"Description of the Certificates and the Agreement -- Book Entry Registration"
and "-- Definitive Certificates."
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THE TRUST
Pursuant to the Agreement, the Seller will establish the Onyx Acceptance
Grantor Trust 1997-1 (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, (vii)
all right, title and interest of the Seller under the Yield Supplement
Agreement, and (viii) 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 Scheduled 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. As the
Trust does not have any operating history and will not engage in any significant
activity other than issuing the Certificates and making distributions thereon,
no historical or pro forma financial statements or ratio of earnings to fixed
charges with respect to the Trust have been included.
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 1,645 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, Hawaii and Nevada. 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.
Based on the anticipated Scheduled Balances of the Contracts as of the
Cut-Off Date, approximately 82.17% of the Aggregate Scheduled Balance of the
Contracts as of the Cut-Off Date will have been originated in California, 7.95%
in Arizona, 7.80% in Washington and the balance in Oregon, Hawaii and Nevada.
See "Risk Factors -- Geographic Concentration." The payment obligations of the
Obligor under each Motor
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Vehicle Contract are secured by the vehicle purchased with the loan proceeds
provided under that Motor Vehicle Contract (the "Financed Vehicle").
Onyx services all of the Motor Vehicle Contracts and will continue to serve
as the primary servicer after the Motor Vehicle Contracts are sold by the Seller
to the Trust. The servicing functions performed by Onyx include customer
service, document filekeeping, computerized account recordkeeping, vehicle title
processing and collections.
UNDERWRITING OF MOTOR VEHICLE CONTRACTS
Onyx underwrites the Motor Vehicle Contracts through its nine regional
contract purchasing offices ("Auto Finance Centers"), six of which are in
California and one in each of Arizona, Nevada and Washington. Contracts
purchased from Hawaii and Oregon are currently underwritten in the California
and Washington Auto Finance Centers, respectively. 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
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purchase of the Motor Vehicle Contract once these requirements have been
satisfied (subject to the receipt of the required documentation).
The amount advanced by Onyx under any Motor Vehicle Contract does not
exceed (i) for a new Financed Vehicle, the manufacturer's suggested retail price
plus taxes, title and license fees, extended warranty (if any) and credit
insurance, or (ii) for a used Financed Vehicle, the value assigned by a
nationally recognized used car value guide, plus taxes, title and license fees
and extended warranty (if any). However, the actual amount advanced for a Motor
Vehicle Contract is often less than the maximum permissible amount depending on
a number of factors, including the length of the Motor Vehicle Contract term and
the model and year of the Financed Vehicle. These adjustments are made to assure
that the Financed Vehicle constitutes adequate collateral to secure the Motor
Vehicle Contract. Under no circumstances is the amount advanced for a Motor
Vehicle Contract greater than the amount payable by the Obligor 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 Obligors who do not
obtain any insurance, or who do not obtain 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
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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 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
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credit underwriting criteria established by Onyx. In February 1994, Onyx
commenced its operations as a purchaser and servicer of motor vehicle retail
installment sales contracts. Thus, Onyx has historical performance for only a
limited time period with respect to the Motor Vehicle Contracts it purchases and
originates and thus delinquencies and loan losses may increase 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 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 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 reevaluated 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 management further enhanced
the collections process by centralizing 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 Onyx's eight 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).
DELINQUENCY EXPERIENCE OF ONYX CONTRACT PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31, AT DECEMBER 31,
1994 1995 1996
----------------- ------------------ ------------------
AMOUNT NO. AMOUNT NO. AMOUNT NO.
------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Servicing portfolio........................ $74,581 6,893 $218,207 20,156 $400,665 38,275
Delinquencies
30-59 days(1)(2)......................... $ 15 2 $ 1,608 153 $ 5,022 478
60-89 days(1)(2)......................... 27 4 470 35 1,816 162
90+ days(1)(2)........................... 12 1 547 42 1,279 111
Total delinquencies as a percent of
servicing portfolio...................... .07% .10% 1.20% 1.14% 2.03% 1.96%
</TABLE>
- ---------------
(1) Delinquencies include principal amounts only, net of repossessed inventory.
Repossessed inventory as a percent of the servicing portfolio was .00%, .24%
and .56% at December 31, 1994, 1995 and 1996, respectively.
(2) The period of delinquency is based on the number of days payments are
contractually past due.
16
<PAGE> 18
LOAN LOSS EXPERIENCE FOR THE YEARS ENDED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DEC.
31, DEC. 31, DEC. 31,
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Number of Contracts outstanding............................... 6,893 20,156 38,275
Period end outstanding........................................ $74,581 $218,207 $400,665
Average outstanding........................................... 29,301 141,029 311,340
Number of gross charge-offs................................... 0 197 987
Gross charge-offs............................................. $ 0 $ 548.2 $5,789.2
Net charge-offs(1)............................................ $ 0 $ 528.7 $5,066.1
Net charge-offs as a percent of period end outstanding........ 0.0% .24% 1.26%
Net charge-offs as a percent of average outstanding........... 0.0% .37% 1.63%
</TABLE>
- ---------------
(1) Net charge-offs are gross charge-offs minus recoveries of Contracts
previously charged off.
17
<PAGE> 19
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. Based on the
anticipated Scheduled Balances of the Contracts as of the Cut-Off Date,
approximately 60.36% 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 39.64% 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 (the "Cut-Off Date
Scheduled Balance"). 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
18
<PAGE> 20
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. Based on the anticipated Scheduled Balances
of the Contracts as of the Cut-Off Date, approximately 23.66% of the Aggregate
Scheduled Balance of the Contracts as of the Cut-Off Date are secured by new
Financed Vehicles and approximately 76.34% of the Aggregate Scheduled Balance of
the Contracts as of the Cut-Off Date 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 % (in certain instances, only after including
amounts due under the Yield Supplement Agreement);
(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 or of at least $500;
(h) Such Contracts were made to Obligors located in the State of
California, Arizona, Hawaii, Nevada, Washington or Oregon; and
(i) As of the Cut-Off Date, the Seller has not received notice that
any of the Obligors under such Contracts has filed for bankruptcy.
19
<PAGE> 21
Set forth below is data concerning Contracts originated through February
28, 1997, which as of such date had an Aggregate Scheduled Balance of
approximately $77,338,961. Contracts originated from March 1, 1997 through the
Cut-Off Date will also be included in the Trust such that the Aggregate
Scheduled Balance of all Contracts in the Trust as of the Cut-Off Date will be
approximately $90,000,000. While data for all of the Contracts originated
through the Cut-Off Date may differ somewhat from the data below for Contracts
originated through February 28, 1997, data for all of the Contracts originated
through the Cut-Off Date will not vary materially from the data concerning the
Contracts presented below.
The composition of the Contracts originated through February 28, 1997 and
the distribution by APR of such Contracts are as set forth in the following
tables.
COMPOSITION OF THE CONTRACTS(1)
<TABLE>
<S> <C>
Aggregate principal balance................................ $77,338,961
Number of Contracts........................................ 6,291
Average principal balance outstanding...................... $12,293.59
Average original amount financed........................... $12,335.94
Original amount financed (range)........................... $1,147.75-$69,958.59
Weighted average APR....................................... 13.845%
APR (range)................................................ 7.751%-29.990%
Weighted average original term............................. 57.0
Original term (range)...................................... 10-72
Weighted average remaining term............................ 56.4
Remaining term (range)..................................... 8-72
</TABLE>
DISTRIBUTION BY APRS OF THE CONTRACTS(1)
<TABLE>
<CAPTION>
% OF
AGGREGATE
NUMBER OF % OF PRINCIPAL SCHEDULED
APR RANGE(2) CONTRACTS CONTRACTS BALANCE BALANCE
--------------------------------------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C>
7.001- 8.000.......................... 191 3.04% $ 3,108,926 4.02%
8.001- 9.000.......................... 496 7.88 7,969,233 10.30%
9.001-10.000.......................... 512 8.14 7,488,775 9.68%
10.001-11.000.......................... 491 7.80 6,808,458 8.80%
11.001-12.000.......................... 400 6.36 5,427,406 7.02%
12.001-13.000.......................... 447 7.11 5,551,496 7.18%
13.001-14.000.......................... 480 7.63 6,174,624 7.98%
14.001-15.000.......................... 539 8.57 6,545,960 8.46%
15.001-16.000.......................... 479 7.61 5,837,364 7.55%
16.001-17.000.......................... 418 6.64 4,684,056 6.06%
17.001-18.000.......................... 444 7.06 4,856,744 6.28%
18.001-19.000.......................... 272 4.32 2,724,344 3.52%
19.001-20.000.......................... 278 4.42 2,820,180 3.65%
20.001-21.000.......................... 571 9.08 5,659,308 7.32%
21.001 and over........................ 273 4.34 1,682,087 2.17%
----- ------ ----------- ------
Totals....................... 6,291 100.00% $77,338,961 100.00%
===== ====== =========== ======
</TABLE>
- ---------------
(1) Information is for Contracts originated through February 28, 1997. The
Cut-Off Date Aggregate Scheduled Balance of the Contracts which will be
included in the Trust will be approximately $90,000,000.
(2) The APRs set forth herein are the APRs of the Contracts. Because the
principal balance of each Contract sold to the Trust is the Cut-Off Date
Scheduled Balance, which in the case of Rule of 78's
20
<PAGE> 22
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."
GEOGRAPHIC CONCENTRATION OF THE CONTRACTS(1)
<TABLE>
<CAPTION>
% OF
AGGREGATE
NUMBER OF % OF PRINCIPAL SCHEDULED
CONTRACTS CONTRACTS BALANCE BALANCE
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
California....................... 5,093 80.96% 63,551,687 82.17%
Arizona.......................... 499 7.93 6,150,986 7.95
Washington....................... 547 8.69 6,030,868 7.80
Hawaii, Nevada and Oregon........ 152 2.42 1,605,420 2.08
-------
----
----- ------
Total.................. 6,291 100.00% $77,338,961 100.00%
===== =========== ======
</TABLE>
- ---------------
(1) Information is for Contracts originated through February 28, 1997. The
Cut-Off Date Aggregate Scheduled Balance of the Contracts which will be
included in the Trust will be approximately $90,000,000.
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 requires that retail installment
sales contracts such as the Contracts permit full prepayment without penalty.
Any Full Prepayments reduce the average life of the Contracts. The Servicer will
permit the sale or other transfer of a Financed Vehicle without accelerating the
maturity of the related Contract if such Contract is assumed by a person
satisfying Onyx's then current underwriting standards. See "The Onyx Portfolio
of Motor Vehicle Contracts -- Underwriting of Motor Vehicle Contracts."
21
<PAGE> 23
Onyx has only 35 months of operating history and began purchasing and
originating Motor Vehicle Contracts only in February 1994. Thus, the records of
the historical prepayment experience of Onyx's Motor Vehicle Contract portfolio
are only available for such period. No assurance can be given that prepayments
on the Contracts will conform to any historical experience, and no prediction
can be made as to the actual prepayment rates which will be experienced on the
Contracts. Certificate Owners will bear all reinvestment risk resulting from the
rate of prepayment of the Contracts.
YIELD CONSIDERATIONS
Interest due will be passed through on each Distribution Date in an amount
equal to the product of one-twelfth of the Pass-Through Rate and the Pool
Balance as of the close of the preceding Collection Period (or as of the Cut-Off
Date in the case of the first Distribution Date). In the event of a principal
prepayment on a Contract during a Collection Period, Certificateholders will
receive interest for the full month on the related Distribution Date. See "The
Certificates and the Agreement -- Distributions of Principal and Interest."
Although the Contracts have different APRs, the yield on each individual
Contract, using the Recomputed Yield for Rule of 78's Contracts, will equal or
exceed % (in certain instances only after including amounts due under the
Yield Supplement Agreement). Therefore, disproportionate rates of prepayments
between Contracts with higher and lower APRs will not affect the yield to
Certificateholders.
POOL FACTOR
The "Pool Factor" will be a six-digit decimal which the Servicer will
compute each month indicating the Pool Balance at the end of the month as a
fraction of the original Pool Balance as of the Cut-Off Date. The Pool Factor
will be 1.000000 as of the Cut-Off Date; thereafter, the Pool Factor will
decline to reflect reductions in the Pool Balance. The amount of a
Certificateholder's pro rata share of the Pool Balance for a given month can be
determined by multiplying the original denomination of such holder's Certificate
by the Pool Factor for that month.
Pursuant to the Agreement, Certificateholders will receive monthly reports
from the Trustee concerning payments received on the Contracts, the Pool
Balance, the Pool Factor, and various other items of information.
Certificateholders of record during any calendar year will be furnished
information for tax reporting purposes not later than the latest date permitted
by law. See "The Certificates and the Agreement."
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of Certificates
will be used to repay loans incurred pursuant to its short-term funding program.
THE SELLER
The Seller is a wholly-owned, limited-purpose finance subsidiary of Onyx
which was incorporated under the laws of the State of Delaware on July 28, 1994
and has a limited operating history. The principal office of the Seller is
located at 8001 Irvine Center Drive, 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
22
<PAGE> 24
the Seller as a separate, limited-purpose subsidiary pursuant to a certificate
of incorporation containing certain limitations (including restrictions on the
nature of the Seller's business and a restriction on the Seller's ability to
commence a voluntary case or proceeding under any Insolvency Law without the
unanimous affirmative vote of all of its directors). However, there can be no
assurance that the activities of the Seller would not result in a court
concluding that the assets and liabilities of the Seller should be consolidated
with those of Onyx in a proceeding under any Insolvency Law.
The Seller has received the advice of counsel to the effect that, subject
to certain facts, assumptions and qualifications, it would not be a proper
exercise by a court of its equitable discretion to disregard the separate
corporate existence of the Seller and to require the consolidation of the assets
and liabilities of the Seller with the assets and liabilities of Onyx in the
event of the application of the federal bankruptcy laws to Onyx. Among other
things, it is assumed by counsel that the Seller will follow certain procedures
in the conduct of its affairs, including maintaining records and books of
account separate from those of Onyx, refraining from commingling its assets with
those of Onyx and refraining from holding itself out as having agreed to pay, or
being liable for, the debts of Onyx. The Seller intends to follow and has
represented to such counsel that it will follow these and other procedures
related to maintaining its separate corporate identity. However, there can be no
assurance that a court would not conclude that the assets and liabilities of the
Seller should be consolidated with those of Onyx. If a court were to reach such
a conclusion, or a filing were made under any Insolvency Law by or against the
Seller, or if an attempt were made to litigate any of the foregoing issues,
delays in distributions on the Certificates could occur or reductions in the
amounts of such distributions could result.
The Contracts 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 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.
In Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir. 1993) cert.
denied, 114 S. Ct. 554 (1993), the United States Court of Appeals for the 10th
Circuit suggested that even where a transfer of accounts from a seller to a
buyer constitutes a "true sale," the accounts would nevertheless constitute
property of the seller's bankruptcy estate in a bankruptcy of the seller. If
Onyx or the Seller were to become subject to a bankruptcy proceeding and a court
were to follow the Octagon Gas court's reasoning, Certificateholders might
experience delays in payment or possibly losses on their investment in the
Certificates. As part of the advice of counsel described above, counsel has
advised the Seller that the reasoning of the Octagon Gas case appears to be
inconsistent with precedent and the Uniform Commercial Code. As the Octagon case
indicates, however, a court may reach a different conclusion with respect to
these or similar matters.
THE SERVICER
The Contracts will be serviced by Onyx Acceptance Corporation ("Onyx").
Onyx was incorporated in California in 1993 and reincorporated in Delaware in
1996 in connection with its initial public offering of Common Stock 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. Onyx has been in existence for nearly three years and is headed by a
management team with extensive experience in the origination and servicing of
indirect and direct automobile
23
<PAGE> 25
loans (average tenure of 15 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 nine Auto Finance
Centers, six in California and one in each of Arizona, Nevada and Washington.
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 Hawaii and Oregon through its California and Washington centers,
respectively. 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. The
Nevada center is located in Las Vegas and is able to service the Las Vegas
metropolitan and suburban areas. Onyx currently has agreements with 1,645
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
acquired motor vehicle installment contracts totaling approximately $604.9
million from commencement of operations through December 31, 1996. As of
December 31, 1996, Onyx has amassed a servicing portfolio of approximately $401
million. As of December 31, 1996, 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 December 31, 1996, Onyx
had total assets of approximately $56.7 million and shareholders equity of $37.9
million.
Onyx finances its acquisition of motor vehicle installment contracts on a
short term basis through a commercial paper conduit program and has previously
financed its acquisition of motor vehicle installment contracts on a long term
basis through sales of Contracts to grantor trusts.
THE CERTIFICATES AND THE AGREEMENT
The Certificates will be issued pursuant to the Agreement, a form of which
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The following summaries of certain provisions of the
Agreement do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the provisions of the Agreement. Where
particular provisions of or terms used in the Agreement are referred to, the
actual provisions (including definitions of terms) are incorporated by reference
as part of such summaries.
GENERAL
The Certificates will be offered for purchase in minimum denominations of
$1,000 and integral multiples thereof, except that one Certificate may be issued
in a denomination that includes any residual portion of the Pool Balance as of
the Cut-Off Date. Each Certificate will rank pari passu with each other
Certificate. The Certificates will initially be represented by one or more
Certificates registered in the name of the nominee of DTC except as set forth
below. The interests of holders of beneficial interests in the Certificates
(each a "Certificate Owner") will be available for purchase in denominations of
$1,000 and integral multiples thereof in book-entry form only. The Seller has
been informed by DTC that DTC's nominee will be Cede. Accordingly, Cede is
expected to be the holder of record of the Certificates. Unless and until
Definitive Certificates are issued under the limited circumstances described
herein, no Certificate Owner will be entitled to receive a certificate
representing such person's interest in the Certificates. All references herein
to actions by Certificateholders shall refer to actions taken by DTC upon
instructions from its participating organizations (the "Participants") and all
references herein to distributions, notices, reports and statements to
Certificateholders shall refer to distributions, notices, reports and statements
to DTC or Cede, as the registered holder of the Certificates, as the case may
be, for distribution to Certificate Owners in accordance with DTC
24
<PAGE> 26
procedures. See "The Certificates and the Agreement -- Book-Entry Registration"
and
"-- Definitive Certificates."
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
On each Distribution Date, monthly interest due on the Contracts (the
"Interest Distribution") at a rate equal to the product of one-twelfth of the
Pass-Through Rate and the Pool Balance as of the close of the related Collection
Period will be distributed to the Certificateholders of record on a pro rata
basis as of the immediately preceding Record Date (defined below). The "Pool
Balance" as of any date is the Aggregate Scheduled Balance of the Contracts as
of such date, excluding those Contracts which as of such date have become
Liquidated Contracts or have been 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 and from payments under the Yield Supplement Agreement. 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. Each Interest Distribution will be calculated on
the basis of a 360-day year consisting of twelve 30-day months. Unless
Definitive Certificates have been issued, distributions on each Distribution
Date will be made through the facilities of DTC and will be payable to
Certificateholders registered as such on the Business Day prior to such
Distribution Date (or, if Definitive Certificates are issued, the last day of
the calendar month preceding such Distribution Date) (the "Record Date"), except
that the final distribution of principal of and interest on each Certificate
will be made only upon presentation and surrender of such Certificate on or
after the Final Distribution Date (or such earlier termination date as is
provided by the Agreement) at the office or agency of the Trustee maintained for
that purpose.
On each Distribution Date, Principal Distributions for the related
Collection Period will be passed through to the Certificateholders. The
"Principal Distribution" on any Distribution Date is the Aggregate Scheduled
Balance Decline during the related Collection Period. The Principal Distribution
on the Final Distribution Date will include the Aggregate Scheduled Balance of
all Contracts that are outstanding at the end of the Collection Period
immediately prior to the Final Distribution Date. The "Aggregate Scheduled
Balance Decline" for any Distribution Date is the amount by which the Aggregate
Scheduled Balance of the Contracts as of the beginning of the related Collection
Period exceeds the Aggregate Scheduled Balance of such Contracts as of the end
of the related Collection Period. The "Aggregate Scheduled Balance" of the
Contracts is the sum of the Scheduled Balances of each Contract. The "Scheduled
Balance" of a 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.
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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 % (in certain instances only after including amounts due under the
Yield Supplement Agreement).
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.
YIELD SUPPLEMENT AGREEMENT AND YIELD SUPPLEMENT RESERVE ACCOUNT
Simultaneously with the sale and assignment of the Contracts by the Seller
to the Trust, Onyx and the Seller will enter into the Yield Supplement
Agreement, and the Seller will assign its rights under the Yield Supplement
Agreement to the Trust. The purpose of the Yield Supplement Agreement is to
cover the shortfall, if any, between (a) interest on each Contract at a rate
equal to % and (b) interest on each Contract at its own particular yield
(using the Recomputed Yield, as defined herein, for Rule of 78's Contracts). The
Yield Supplement Agreement will be in effect from the Closing Date until the
Final Distribution Date.
The Yield Supplement Agreement will provide for payment of the Yield
Supplement Amount by Onyx into the Collection Account on or before five business
days prior to each Distribution Date, ending with the Final Distribution Date.
The "Yield Supplement Amount," with respect to any Distribution Date for any
Collection Period, is the aggregate of the following as calculated for each
Contract: the amount (if positive), calculated by the Servicer, equal to
one-twelfth of (a) interest on such Contract's Scheduled Balance as of the first
day of the related Collection Period a rate equal to % minus (b) interest
on such Contract at its own particular yield (using the Recomputed Yield for
Rule of 78's Contracts) on such Contract's Scheduled Balance as of the first day
of the related Collection Period.
Payments of the Yield Supplement Amounts due from Onyx under the Yield
Supplement Agreement will be secured by funds on deposit in a segregated trust
deposit account (the "Yield Supplement Reserve Account") established in the name
of Bankers Trust Company, acting as agent for the benefit of the
Certificateholders and the Insurer (in such capacity, the "Yield Supplement
Agent"). The Yield Supplement Reserve Account will be an Eligible Account. The
amount required to be deposited in such Yield Supplement Reserve Account on the
Closing Date will be the maximum aggregate Yield Supplement Amounts that may
become owing under the Yield Supplement Agreement, assuming that payments on the
Contracts are made on their Scheduled Due Dates and that no prepayments are
made.
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, the Yield Supplement Reserve Account and/or pursuant to the
Yield Supplement Agreement, 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 Scheduled
Distribution Date, the Trustee shall withdraw from the Collection Account and
shall pay such amount to the Certificateholders.
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BOOK-ENTRY REGISTRATION
Certificateholders may hold their Certificates through DTC if they are
participants of such system, or indirectly through organizations which are
participants ("Participants") in such system.
Cede, as nominee for DTC, will hold one or more global Certificates.
Transfers between Participants will occur in the ordinary way in accordance with
DTC rules.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its Participants and facilitate the clearance
and settlement of securities transactions between Participants through
electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and may include certain other organizations (including the Underwriters).
Indirect access to the DTC system also is available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (the "Indirect
Participants").
Certificate Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Certificates may do so only through Participants and Indirect Participants.
In addition, Certificateholders will receive all distributions of principal of
and interest on the Certificates from the Trustee, as paying agent, or its
successor in such capacity (the "Paying Agent"), 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.
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DEFINITIVE CERTIFICATES
The Certificates will be issued in fully registered, certificated form in
denominations of $1,000 and integral multiples thereof to Certificate Owners or
their nominees (the "Definitive Certificates"), rather than to DTC or its
nominee, only if (i) the Seller advises the Trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as depositary
with respect to the Certificates, and the Trustee or the Seller are unable to
locate a qualified successor, or (ii) after the occurrence of an Event of
Default, Certificate Owners representing in the aggregate more than 50% of the
Pool Balance advise the Trustee and DTC through Participants in writing that the
continuation of a book-entry system with respect to the Certificates through any
depositary is no longer in the best interest of the Certificate Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the Definitive Certificates representing the Certificates and instructions for
reregistration, the Trustee will issue the Certificates as Definitive
Certificates, and thereafter the Trustee will recognize the holders of such
Definitive Certificates as holders under the Agreement (collectively,
"Holders").
Distribution of principal of and interest on the Certificates will be made
by the Paying Agent directly to Holders of Definitive Certificates in accordance
with the procedures set forth herein and in the Agreement. Interest
Distributions and Principal Distributions on each Distribution Date and on the
Final Distribution Date will be made to Holders in whose names the Definitive
Certificates were registered at the close of business on the related Record
Date. Distributions will be made by check mailed to the address of such 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, 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
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enforcement of creditors' rights; (iv) as of the Closing Date, each Contract was
secured by a validly perfected first priority security interest in the Financed
Vehicle in favor of the Seller as secured party or all necessary action with
respect to such Contract has been taken to perfect a first priority security
interest in the related Financed Vehicle in favor of the Seller as secured
party, which security interest is assignable and has been so assigned by the
Seller to the Trust; (v) as of the Closing Date, the Seller had good and
marketable title to and was the sole owner of each Contract, free of liens,
claims, encumbrances and rights of others; (vi) as of the Closing Date, there
are no rights of rescission, offset, counterclaim, or defense, and the Seller
has no knowledge of the same being asserted or threatened, with respect to any
Contract; (vii) as of the Closing Date, the Seller had no knowledge of any liens
or claims that have been filed, including liens for work, labor, materials or
unpaid taxes relating to a Financed Vehicle, that would be liens prior to, or
equal 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
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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.
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
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Periods) for the Collection Period preceding such Distribution Date plus amounts
payable from the Payahead Account and any Yield Supplement Amounts. The amount
of such net collections, amounts payable from the Payahead Account and Yield
Supplement Amounts on each Distribution Date will be applied, first, to the
Servicer in payment of the Servicing Fee; second, payment of the Interest
Distribution and the Principal Distribution to the Certificateholders on such
Distribution Date in accordance with the Agreement, third, to the Insurer, the
Surety Bond Fee, and fourth, any balance shall be distributed to a separate
spread account trust to be applied in accordance with the spread account trust
agreement and the Insurance Agreement, which provide that to the extent funds
are not required 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 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, amounts payable from the Payahead Account and the
Yield Supplement Amount 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 a statement setting forth
the amounts on deposit in the Collection Account, the sources of such amounts
and the amounts to be paid to Certificateholders (the "Distribution Date
Statement"). The Distribution Date Statement shall also include information
regarding Contracts purchased by the Servicer or repurchased by the Seller.
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
initial 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 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
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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 close of the preceding Collection
Period. As additional compensation, the Servicer or its designee shall be
entitled to retain all late payment charges, extension fees and similar items
paid in respect of the Contracts. The Servicer or its designee will also receive
as servicing compensation reinvestment earnings on Eligible Investments and the
amount, if any, by which the outstanding principal balance based on the Rule of
78's of a Contract that is subject to a Full Prepayment exceeds the Scheduled
Balance of such Contract. The Servicer shall pay all expenses incurred by it in
connection with its servicing activities under the Agreement and shall not be
entitled to reimbursement of such expenses except to the extent they constitute
Liquidation Expenses or expenses recoverable under an applicable insurance
policy.
REALIZATION UPON DEFAULTED CONTRACTS
The Servicer will liquidate any Contract that comes into and continues in
default and as to which no satisfactory arrangements can be made for collection
of delinquent payments. Such liquidation may be through repossession or sale of
the Financed Vehicle securing such Contract or otherwise. In connection with
such repossession or other conversion, the Servicer will follow such procedures
as are normal and usual for holders of motor vehicle retail installment sales
contracts. In this regard, the Servicer may sell the Financed Vehicle at a
repossession or other sale.
DESCRIPTION OF THE INSURER
The following information with respect to the Insurer has been furnished by
the Insurer and none of Onyx, the Seller or the Underwriter have made any
independent investigation of such information.
The Insurer is a New York-domiciled monoline stock insurance company which
engages only in the business of financial guarantee and surety insurance. The
Insurer is licensed in 50 states in addition to the District of Columbia, the
Commonwealth of Puerto Rico and the territory of Guam. The Insurer insures
structured asset-backed, corporate, municipal and other financial obligations in
the 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, 1995 and 1994 and
for each of the years in the three-year period ended December 31, 1995 are
included in this Prospectus beginning at F-1. The unaudited financial statements
of the Insurer for the three and nine month periods ended September 30, 1996 and
1995 are made a part of this Prospectus beginning at F-19. 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 a statement (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 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, the Payahead
Account or the Yield Supplement Reserve 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
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Insurer is received by the Servicer or discovery by the Servicer; (ii) any
failure by the Servicer to deliver to the Insurer or the Trustee certain reports
required by the Agreement by the fifth Business Day prior to the related
Distribution Date or to perform certain other covenants under the Agreement;
(iii) any failure by the Servicer or the Seller duly to observe or perform in
any material respect any other covenants or agreements of the Servicer or the
Seller in the Agreement, which failure materially and adversely affects the
rights of Certificateholders, the Insurer or the Trustee and which continues
unremedied for 30 days after the giving of written notice of such failure (A) to
the Servicer or the Seller as the case may be, by the Trustee or the Insurer or
(B) to the Servicer or the Seller, as the case may be, and to the Trustee by
Holders of Certificates evidencing not less than 25% of the Pool Balance or by
the Insurer; (iv) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities, or similar proceedings and certain
actions by the Servicer or 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
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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.
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 initial 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
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Event of Default has occurred, the Trustee is required to perform only those
duties specifically required of it under the Agreement. Generally, those duties
are limited to the receipt of the various certificates, reports or other
instruments required to be furnished to the Trustee under the Agreement, the
making of distributions to Certificateholders in the amounts specified in
certificates provided by the Servicer and drawing on the Surety Bond if required
to make distributions to the Certificateholders.
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
as in effect in California ("UCC"). Pursuant to the UCC, an ownership interest
in chattel paper may be perfected by possession of the collateral or filing a
UCC-1 financing statement with the California Secretary of State.
Under the Agreement, the Trustee initially will have custody of the
Contracts following the sale of the Contracts to the Trust and will hold the
Contracts as bailee for the benefit of the Trust. Upon receiving the prior
consent of the Insurer, which cannot be unreasonably withheld, the Servicer may
be appointed by the Trustee to act as the custodian of the Contracts. Upon such
appointment physical possession of the Contracts would shift from the Trustee to
the Servicer. While the Contracts will not be physically marked to indicate the
ownership interest thereof by the Trust, UCC-1 financing statements will be
filed with the California Secretary of State to perfect by filing and give
notice of the Trust's ownership interest in the Contracts. If, through
inadvertence or otherwise, any of the Contracts were sold to another party who
purchased such Contracts in the ordinary course of its business and took
possession of such Contracts, the purchaser would acquire an interest in the
Contracts superior to the interests of the Trust if the purchaser acquired the
Contracts in good faith, for value and without actual knowledge of the Trust's
ownership interest in the Contracts.
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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 registered in the
State of California (the state in which approximately 81.98% of the Financed
Vehicles 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 8.04% of the Financed Vehicles 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
7.88% of the Financed Vehicles 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 Hawaii, Nevada and Oregon, 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
including Hawaii, Nevada and Oregon, 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
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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 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, including Hawaii, Nevada and
Oregon, 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 proceeds under Chapter 13 of Bankruptcy Reform Act of 1978, as
amended, 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 impose
requirements applicable to the origination and servicing of the Contracts,
including the Truth-in-Lending Act, the Federal Trade Commission Act, the Fair
Credit Billing Act, the Fair Credit Reporting Act, the Equal Credit Opportunity
Act, the Fair Debt Collection Practices Act, and the Rees-Levering Act. The
Seller has represented to the Trust in the Agreement that each of the Contracts,
and the sale of the 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 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.
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.
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TAX STATUS OF THE TRUST
In the opinion of Brobeck, Phleger and Harrison, special tax counsel to the
Seller, the Trust will be classified as a grantor trust and not as an
association taxable as a corporation for Federal income tax purposes.
Accordingly, subject to the discussion below, each Certificate Owner will be
subject to Federal income taxation as if it owned directly its interest in each
asset owned by the Trust and paid directly its share of reasonable expenses paid
by the Trust.
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, in the Yield Supplement Agreement 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, the Yield Supplement
Agreement 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), in the Yield Supplement Agreement 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. 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
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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 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 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
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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").
Those Contracts that bear interest at, or have a yield of (using the
Recomputed Yield for Rule of 78's Contracts), a rate which is less than or equal
to % (the "Supplemented Contracts") will not be treated as Stripped
Contracts. Instead, Yield Supplement Amounts will be payable to eliminate the
difference between the yield on each Supplemented Contract and %.
Accordingly, each Certificate Owner will be treated as owning its pro rata
percentage interest in (i) payments received under the Yield Supplement
Agreement and (ii) the principal of, and interest payable on, each Contract
(minus the Retained Strip on the Stripped Contracts). See "-- Yield Supplement
Amounts."
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), payments received under the
Yield Supplement Agreement (to the extent treated as income), 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 and the Yield Supplement Agreement 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 and for payments
made under the Yield Supplement Agreement, or (ii) aggregating all Stripped
Contracts under the aggregation rule described below and accounting for the
remaining Contracts and the Yield Supplement Agreement 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 and its interest in the
Yield Supplement Agreement 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
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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 and the Yield Supplement
Agreement on a separate asset basis.
DISCOUNT AND PREMIUM
In determining whether a Certificate Owner has purchased its interest in
the Contracts (or any Contract) at a discount and whether such Contracts (or any
Contract) have OID, or, in the case of Supplemented Contracts, 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, amounts
collected at the time of purchase but not distributed and rights to receive
Yield Supplement Amounts. 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
both Stripped Contracts and Supplemented 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 Supplemented Contracts, since they
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, the
Supplemented Contracts (and 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
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payments are received on the Contract, in the proportion that each principal
payment bears to the total principal amount of the Contract. If the IRS were to
require the use of the Origination Actuarial Method, the OID on a Contract would
not be de minimis.
If the OID on a Contract (or Contracts) is not treated as being de minimis,
a Certificate Owner will be required to include in income any OID as it accrues
on a daily basis, regardless of when cash payments are received, using a method
reflecting a constant yield to maturity on the Contract (or Contracts). Accrued
OID would increase a Certificate Owner's tax basis in the Certificate (and the
applicable Contracts). Distributions of principal and other items attributable
to accrued OID (other than payments of interest on the Contracts at %)
would reduce a Certificate Owner's tax basis. Application of the OID rules,
particularly if a prepayment assumption is required and the Contracts are not
aggregated, would be complex and could significantly affect the timing of
inclusion of income on a Certificate.
The Trustee intends to account for OID, if any, reportable by holders of
Certificates by reference to the price paid for a Certificate by an initial
purchaser, although the amount of OID will differ for subsequent purchasers.
Such subsequent purchasers should consult their tax advisors regarding the
proper calculation of OID on the interest in Contracts represented by a
Certificate.
Supplemented Contracts. The Supplemented Contracts (and any Contracts
having a yield equal to % (using the Recomputed Yield for Rule of 78's
Contracts)) will not be treated as stripped bonds. A portion of the Certificate
Owner's purchase price for a Certificate would be allocated to each Supplemented
Contract, based on its fair market value relative to the other assets of the
Trust.
Some or all of the Supplemented Contracts may have imputed interest and/or
market discount. If a Supplemented Contract did not have "adequate stated
interest" (as defined in the Code) when originated, then such Contract has
"imputed interest." Under the imputed interest rules of the Code, the "total
unstated interest" on any Contract as of its origination would equal the excess
of (a) the sum of all principal payments due more than six months after such
Contract's date of origination over (b) the sum of the discounted present values
of such principal payments and all interest payments due under such Contract.
The discount rate to be used in computing the present values is the "applicable
federal rate" for the period during which the Contract was originated. A portion
of the Contract's stated principal amount equal to such total unstated interest
would be recharacterized as interest, and the Contract's principal amount would
be correspondingly reduced, thus increasing the total amount of income to be
realized with respect to the Contract. The total unstated interest would be
included in gross income over the term of the Contract using a constant
yield-to-maturity method. It is not clear whether imputed interest may be
reduced to the extent that a Contract having imputed interest is subsequently
sold for a price in excess of the imputed principal amount. It would appear
reasonable to reduce the amount of imputed interest to the extent that such a
purchase price reflects a movement of market interest rates since the
origination of the Contract.
To the extent that the portion of the purchase price allocated to a
Certificate Owner's undivided interest in a Supplemented Contract is less than
the "stated redemption price at maturity" (or possibly the imputed principal
amount, in the case of a Contract with imputed interest) such Contract will have
market discount. The allocation of a portion of the purchase price of a
Certificate to the rights to payments under the Yield Supplement Agreement,
accrued interest and/or amounts collected and undistributed as of the date such
Certificate was purchased may reduce the portion of the purchase price allocated
to a Certificate Owner's interest in the Supplemented Contract and thereby cause
or increase the amount of market discount.
In general, under the market discount provisions of the Code, principal
payments received by the Trust and all or a portion of the gain recognized upon
a sale or other disposition of a Contract or upon the sale or other disposition
of a Certificate by a Certificate Owner, will be treated as ordinary income to
the extent of accrued market discount. Any payment received by a Certificate
Owner upon a sale or other disposition of a Certificate in an amount in excess
of accrued market discount will be treated as capital gain, assuming the
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
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or after the first day of the first taxable year to which such election applies.
Taxpayers may, in general, elect to accrue market discount either (i) under a
constant yield-to-maturity method or (ii) in the proportion that the stated
interest paid on the obligation for the current period bears to the total
remaining interest on the obligation.
The manner in which the imputed interest rules interact with the market
discount rules is unclear. The effect of a discount sale of a debt instrument
that did not have adequate stated interest when originated may be to create
overlapping amounts of imputed interest and market discount. It is unclear
whether a purchaser of a debt instrument, such as a Supplemented Contract, which
has imputed interest and market discount should continue to report the imputed
interest using the rules of Section 483 and the regulations thereunder (with a
corresponding reduction in the amount of market discount) or whether all or a
portion of such imputed interest is instead converted into market discount.
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.
YIELD SUPPLEMENT AMOUNTS
The proper federal income tax characterization of the Yield Supplement
Amounts is not clear. Moreover, the sum of the income and deductions properly
reportable by a Certificate Owner in any year may not equal the amount that
would be reportable if a Certificate Owner held instead of an interest in the
Contracts and the Yield Supplement Agreement, either (a) a debt instrument
bearing interest at the Pass-Through Rate or (b) an interest in a trust holding
Contracts which each bear interest at a rate of %. The right to receive
Yield Supplement Amounts may be treated as a separate asset purchased by each
Certificate Owner, in which event a portion of the purchase price paid by each
Certificate Owner for a Certificate should be allocated to such right (such
portion, the "Allocated Amount"). The Allocated Amount itself may be treated as
a loan made by the Certificate Owner to the Seller, in which case a portion of
the Yield Supplement Amounts should be treated as interest includible in income
as accrued or received and the remainder should be treated as a return of the
principal amount of the deemed loan. If the entire amount of each Yield
Supplement Amount should be included in income as accrued or received, the
Certificate Owner should be entitled to amortize the Allocated Amount. No
assurance can be given, however, that either of these two characterizations will
be accepted by the IRS.
It is not clear whether, and to what extent, the amounts includible in
income or amortizable under any of these methods would be adjusted to take
account of prepayments on the Contracts. Moreover, it is possible that the IRS
might contend that none of the above methods is appropriate, and that income
with respect to the Yield Supplement Agreement should be reported by a
Certificate Owner in some other manner.
It is expected that the annual statement furnished to Certificateholders
will report the net income derived from the Yield Supplement Agreement using a
method that causes the total income attributable to a Certificate to equal
income at the Pass-Through Rate on the Scheduled Balance. Certificate Owners are
advised to consult their tax advisors regarding the appropriate method of
accounting for income attributable to the Yield Supplement Agreement.
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
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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
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 also
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 employee benefit plans ("Plans") subject to
ERISA and persons who have certain specified relationship to such Plans
("Parties in Interest"). ERISA also imposes certain duties on persons who are
fiduciaries of Plans subject to ERISA and prohibits certain transactions between
a Plan and Parties in Interest with respect to such Plans. Under ERISA, any
person who exercises any authority or control respecting the management or
disposition of the assets of a Plan is considered to be a fiduciary of such Plan
(subject to certain exceptions not here relevant.)
The Department of Labor ("DOL") has issued a final regulation (29 C.F.R.
Section 2510.3-101) concerning the definition of what constitutes the assets of
a Plan (the "Plan Asset Regulation"). This regulation provides that, as a
general rule, the underlying assets and properties of corporations,
partnerships, grantor trusts and certain other entities in which a Plan (which
is subject to ERISA) makes an "equity" investment will be deemed for purposes of
ERISA to be assets of the investing Plan unless certain exceptions apply. The
Plan Asset Regulation contains certain exceptions to this general rule.
Accordingly if a Plan purchases the Certificates, the Trust could be deemed to
hold plan assets unless one of the exceptions under the Plan Assets Regulation
is applicable to the Trust.
Under the terms of the Plan Asset Regulation, if the Trust were deemed to
hold Plan assets by reason of a Plan's investment in a Certificate, such Plan
assets would include an undivided interest in the Trust and Contracts underlying
the Trust and any other assets held by the Trust. In such an event, the persons
providing services with respect to the assets of the Trust, including the
Contracts, may be subject to the fiduciary
47
<PAGE> 49
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.
The DOL has granted to Merrill Lynch, Pierce, Fenner & Smith Incorporated
an administrative exemption (Prohibited Transaction Exemption 90-29 (the
"Exemption") from certain of the prohibited transaction rules of ERISA with
respect to the initial purchase, the holding and the subsequent resale by Plans
of certificates representing interests in asset backed pass-through trusts that
consist of certain receivables, loans and other obligations that meet the
conditions and requirements of the Exemption. The receivables covered by the
Exemption include motor vehicle installment loans such as the Contracts. The
Exemption will apply to the acquisition, holding and resale of the Certificates
by a Plan (purchased from the Underwriter), provided that (i) the Plan is not
sponsored by a Person providing services to the Trust or by an Obligor with
respect to 5% or more of the principal balance of the receivables underlying the
Trust and (ii) certain conditions (certain of which are described below) are
met.
Among the conditions which must be satisfied for the Exemption to apply are
the following:
(1) The acquisition of the Certificates by a Plan is on terms
(including the price for the Certificates) that are at least as favorable
to the Plan as they would be in an arm's-length transaction with an
unrelated party;
(2) The rights and interests evidenced by the Certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by
other certificates of the Trust;
(3) The Certificates acquired by the Plan have received a rating at
the time of such acquisition that is in one of the three highest generic
rating categories from either Standard & Poor's, Moody's, Duff & Phelps
Inc. or Fitch Investors Service, Inc.;
(4) The sum of all payments made to the Underwriter in connection with
the distribution of the Certificates represents not more than reasonable
compensation for underwriting the Certificates; the sum of all payments
made to and retained by the Seller pursuant to the sale of the Contracts to
the Trust represents not more than the fair market value of such Contracts;
the sum of all payments made to and retained by the Servicer represents not
more than reasonable compensation for the Servicer's services under the
Agreement and reimbursement of the Servicer's reasonable expenses in
connection therewith;
(5) The Trustee must not be an affiliate of any other member of the
Restricted Group (as defined below); and
(6) The Plan investing in the Certificates is an "accredited investor"
as defined in Rule 501(a)(1) of the Regulation D of the Securities and
Exchange Commission under the Securities Act of 1933.
Moreover, the Exemption provides relief from certain self-dealing/conflict
of interest prohibited transactions that may occur when the Plan fiduciary
causes a Plan to acquire certificates in a trust in which the fiduciary (or his
affiliate) is an Obligor on the receivables held in the trust provided that,
among other requirements: (i) in the case of an acquisition in connection with
the initial issuance of Certificates, at least 50% of each class of Certificates
in which Plans have invested is acquired by persons independent of the
Restricted Group and at least 50% of the aggregate interest in the trust is
acquired by persons independent of the Restricted Group; (ii) such fiduciary (or
its affiliate) is an Obligor with respect to 5% or less of the fair market value
of the obligations contained in the trust; (iii) the Plan's investment in
Certificates does not exceed 25% of all of the Certificates outstanding at the
time of the acquisition; and (iv) immediately after the acquisition, no more
than 25% of the assets of the Plan are invested in certificates representing an
interest in one or more trusts containing assets sold or serviced by the same
entity. The Exemption does not apply to Plans sponsored by the Seller, the
Underwriter, the Trustee, the Servicer, any Obligor with respect to Contracts
included in the Trust constituting more than 5% of the aggregate unamortized
principal balance of the assets in the Trust, or any affiliate of such parties
(the "Restricted Group").
48
<PAGE> 50
As of the date hereof, no Obligor with respect to Contracts included in the
Trust constitutes more than 5% of the aggregate unamortized principal balance of
the assets of the Trust.
Other administrative exemptions that may be available with respect to
certain transactions include Prohibited Transaction Class Exemption ("PTE")
75-1, which exempts certain transactions involving employee benefit plans and
certain broker-dealers, reporting dealers and banks; PTE 91-38 (formerly PTE
80-51) which exempts certain transactions between bank collective investment
funds and parties in interest; PTE 90-1 (formerly PTE 78-19), which exempts
certain transactions with insurance company pooled separate accounts; or PTE
84-14, which exempts certain transactions effected on behalf of a plan by a
"qualified professional asset manager."
Any Plan fiduciary considering the purchase of Certificates should consult
with its counsel with respect to the applicability of the exemptions described
above and other issues and determine on its own whether all conditions have been
satisfied and whether the Certificates are an appropriate investment for a Plan
under ERISA and the Code.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
dated March , 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.
The Seller and Onyx have agreed to indemnify the Underwriter against
certain liabilities, including liabilities under applicable securities laws, or
contribute to payments the Underwriter may be required to make in respect
thereof.
LEGAL MATTERS
Certain matters with respect to the legality of the Certificates and with
respect to the federal income tax matters discussed under "Certain Tax
Consequences" will be passed upon for the Seller by Brobeck, Phleger & Harrison
LLP, Newport Beach, California. As of January 31, 1997, members of Brobeck,
Phleger & Harrison beneficially owned 22,899 shares of Onyx's Common Stock.
Bruce R. Hallett, a member of Brobeck, Phleger & Harrison LLP is Corporate
Secretary and a director of Onyx, and Roger M. Cohen, a member of Brobeck,
Phleger & Harrison LLP is Assistant Secretary of the Seller. 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.
49
<PAGE> 51
EXPERTS
The financial statements of Capital Markets Assurance Corporation as of
December 31, 1995 and 1994 and for each of the years in the three-year period
ended December 31, 1995 are included herein 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.
The report of KPMG Peat Marwick LLP covering the financial statements
referred to above contains an explanatory paragraph with regard to Capital
Markets Assurance Corporation's adoption at December 31, 1993 of Financial
Accounting Standard Board's Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
50
<PAGE> 52
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<S> <C>
Aggregate Scheduled Balance..................................................... 5, 25
Aggregate Scheduled Balance Decline............................................. 4, 25
Agreement....................................................................... 3
APR............................................................................. 18
Auto Finance Centers............................................................ 13
Blanket Insurance Policy........................................................ 14
Business Day.................................................................... 4
Cede............................................................................ 8
Certificate Owner............................................................... 8, 24
Certificates.................................................................... 1, 3
Closing Date.................................................................... 9
Code............................................................................ 40
Collection Period............................................................... 4, 25
Collection Account.............................................................. 29
Commission...................................................................... 2
Contract Due Period............................................................. 43
Contracts....................................................................... 1, 3
Cut-Off Date.................................................................... 1, 3
Cut-Off Date Actuarial Balance.................................................. 41
Cut-Off Date Scheduled Balance.................................................. 3, 17, 41
Dealers......................................................................... 7
Defaulted Contract.............................................................. 5, 25
Definitive Certificates......................................................... 28
Distribution Date............................................................... 1, 4
Distribution Date Statement..................................................... 2, 33
DOL............................................................................. 47
Due Date........................................................................ 14
DTC............................................................................. 8
Eligibility Requirements........................................................ 19
Eligible Investments............................................................ 29
ERISA........................................................................... 8, 47
Events of Default............................................................... 34
Final Distribution Date......................................................... 1
Financed Vehicles............................................................... 1, 3
Full Prepayment................................................................. 21
Holders......................................................................... 28
Holdings........................................................................ 32
Indirect Participants........................................................... 27
Insolvency Laws................................................................. 10
Insurance Agreement............................................................. 6
Insurer......................................................................... 1, 4
Interest Distribution........................................................... 1, 4, 25
IRS............................................................................. 40
Liquidated Contract............................................................. 5, 25
</TABLE>
51
<PAGE> 53
<TABLE>
<S> <C>
Liquidation Expenses............................................................ 30
Monthly P&I..................................................................... 5, 25
Moody's......................................................................... 29
Motor Vehicle Contracts......................................................... 12
Net Insurance Proceeds.......................................................... 30
Net Liquidation Proceeds........................................................ 30
Obligor......................................................................... 11
OCS............................................................................. 14
OID............................................................................. 41
OID Regulations................................................................. 43
Onyx............................................................................ 1, 3, 23
Origination Actuarial Method.................................................... 43
Participants.................................................................... 24, 27
Parties in Interest............................................................. 47
Pass-Through Rate............................................................... 4
Payaheads....................................................................... 7, 30
Payahead Account................................................................ 30
Paying Agent.................................................................... 27
Plans........................................................................... 47
Plan Asset Regulation........................................................... 47
Pool Balance.................................................................... 4
Pool Factor..................................................................... 22
Prepayment Assumption........................................................... 41
Principal Distribution.......................................................... 1, 4, 25
Purchase Agreement.............................................................. 23
Purchase Price.................................................................. 44
Recomputed Actuarial Method..................................................... 18, 42
Recomputed Principal Balance.................................................... 42
Recomputed Yield................................................................ 19, 41
Record Date..................................................................... 25
Rees-Levering Act............................................................... 39
Repurchase Amount............................................................... 29
Retained Strip.................................................................. 42
Rule of 78's Contracts.......................................................... 18
Scheduled Balance............................................................... 5, 25
Section 1286 Regulations........................................................ 44
Seller.......................................................................... 1, 3
Servicer........................................................................ 1, 3
Servicer Report Date............................................................ 6
Servicing Fee................................................................... 6
Servicing Fee Rate.............................................................. 6, 32
Simple Interest Contracts....................................................... 7, 18
Simple Interest Method.......................................................... 18
Standard & Poor's............................................................... 29
Stripped Contracts.............................................................. 42
</TABLE>
52
<PAGE> 54
<TABLE>
<S> <C>
Supplemented Contracts.......................................................... 43
Surety Bond..................................................................... 1, 4, 6
Total Accrual Election.......................................................... 42
Trust........................................................................... 1, 3, 12
Trust Property.................................................................. 3
Trustee......................................................................... 3, 12
UCC............................................................................. 9, 37
Underwriter..................................................................... 49
Underwriting Agreement.......................................................... 49
Yield Supplement Agent.......................................................... 26
Yield Supplement Agreement...................................................... 4
Yield Supplement Amount......................................................... 5, 26
Yield Supplement Reserve Account................................................ 5, 26
</TABLE>
53
<PAGE> 55
CAPITAL MARKETS ASSURANCE CORPORATION
FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-1
<PAGE> 56
INDEPENDENT AUDITORS' REPORT
The Board of Directors
CAPITAL MARKETS ASSURANCE CORPORATION:
We have audited the accompanying balance sheets of Capital Markets
Assurance Corporation as of December 31, 1995 and 1994 and the related
statements of income, stockholder's equity and cash flows for each of the years
in the three-year period ended December 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Capital Markets Assurance
Corporation as of December 31, 1995 and 1994 and the results of its operations
and its cash flows for each of the years in the three-year period ended December
31, 1995 in conformity with generally accepted accounting principles.
As discussed in note 2, the Company changed its method of accounting for
investments to adopt the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," at December 31, 1993.
/s/ KPMG Peat Marwick LLP
New York, New York
January 25, 1996
F-2
<PAGE> 57
CAPITAL MARKETS ASSURANCE CORPORATION
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
INVESTMENTS:
Bonds at fair value (amortized cost $210,651 at December 31, 1995
and $178,882 at December 31, 1994)............................... $215,706 172,016
Short-term investments (at amortized cost which approximates fair
value)........................................................... 68,646 2,083
Mutual funds at fair value (cost $16,434 at December 31, 1994)..... -- 14,969
-------- -------
Total investments............................................. 284,352 189,068
-------- -------
Cash............................................................... 344 85
Accrued investment income.......................................... 3,136 2,746
Deferred acquisition costs......................................... 35,162 24,860
Premiums receivable................................................ 3,540 3,379
Prepaid reinsurance................................................ 13,171 5,551
Other assets....................................................... 3,428 3,754
-------- -------
Total assets.................................................. $343,133 229,443
======== =======
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Unearned premiums.................................................. $ 45,767 25,905
Reserve for losses and loss adjustment expenses.................... 6,548 5,191
Ceded reinsurance.................................................. 2,469 1,497
Accounts payable and other accrued expenses........................ 10,844 10,372
Current income taxes............................................... 136 --
Deferred income taxes.............................................. 11,303 3,599
-------- -------
Total liabilities............................................. 77,067 46,564
-------- -------
STOCKHOLDER'S EQUITY:
Common stock....................................................... 15,000 15,000
Additional paid-in capital......................................... 205,808 146,808
Unrealized appreciation (depreciation) on investments, net of
tax.............................................................. 3,286 (5,499)
Retained earnings.................................................. 41,972 26,570
-------- -------
Total stockholder's equity.................................... 266,066 182,879
-------- -------
Total liabilities and stockholder's equity.................... $343,133 229,443
======== =======
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 58
CAPITAL MARKETS ASSURANCE CORPORATION
STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Direct premiums written............................. $ 56,541 43,598 24,491
Assumed premiums written............................ 935 1,064 403
Ceded premiums written.............................. (15,992) (11,069) (3,586)
-------- ------- ------
Net premiums written.............................. 41,484 33,593 21,308
Increase in unearned premiums....................... (12,242) (10,490) (3,825)
-------- ------- ------
Net premiums earned............................... 29,242 23,103 17,483
Net investment income............................... 11,953 10,072 10,010
Net realized capital gains.......................... 1,301 92 1,544
Other income........................................ 2,273 120 354
-------- ------- ------
Total revenues................................. 44,769 33,387 29,391
-------- ------- ------
EXPENSES:
Losses and loss adjustment expenses................. 3,141 1,429 902
Underwriting and operating expenses................. 13,808 11,833 11,470
Policy acquisition costs............................ 7,203 4,529 2,663
-------- ------- ------
Total expenses................................. 24,152 17,791 15,035
-------- ------- ------
Income before income taxes........................ 20,617 15,596 14,356
-------- ------- ------
INCOME TAXES:
Current income tax.................................. 2,113 865 1,002
Deferred income tax................................. 3,102 2,843 2,724
-------- ------- ------
Total income taxes............................. 5,215 3,708 3,726
-------- ------- ------
NET INCOME.......................................... $ 15,402 11,888 10,630
======== ======= ======
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 59
CAPITAL MARKETS ASSURANCE CORPORATION
STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
COMMON STOCK:
Balance at beginning of period...................... $ 15,000 15,000 15,000
-------- ------- -------
Balance at end of period.......................... 15,000 15,000 15,000
-------- ------- -------
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of period...................... 146,808 146,808 146,808
Paid-in capital..................................... 59,000 -- --
-------- ------- -------
Balance at end of period.......................... 205,808 146,808 146,808
-------- ------- -------
UNREALIZED (DEPRECIATION) APPRECIATION ON
INVESTMENTS, NET OF TAX:
Balance at beginning of period...................... (5,499) 3,600 --
Unrealized appreciation (depreciation) on
investments....................................... 8,785 (9,099) 3,600
-------- ------- -------
Balance at end of period.......................... 3,286 (5,499) 3,600
-------- ------- -------
RETAINED EARNINGS:
Balance at beginning of period...................... 26,570 14,682 4,052
Net income.......................................... 15,402 11,888 10,630
-------- ------- -------
Balance at end of period.......................... 41,972 26,570 14,682
-------- ------- -------
Total stockholder's equity..................... $266,066 182,879 180,090
======== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 60
CAPITAL MARKETS ASSURANCE CORPORATION
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 15,402 11,888 10,630
--------- ------- --------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED (USED) BY OPERATING ACTIVITIES:
Reserve for losses and loss adjustment expenses... 1,357 1,429 902
Unearned premiums................................. 19,862 15,843 4,024
Deferred acquisition costs........................ (10,302) (9,611) (9,815)
Premiums receivable............................... (161) (2,103) (432)
Accrued investment income......................... (390) (848) (110)
Income taxes payable.............................. 3,621 2,611 2,872
Net realized capital gains........................ (1,301) (92) (1,544)
Accounts payable and other accrued expenses....... 472 3,726 1,079
Prepaid reinsurance............................... (7,620) (5,352) (199)
Other, net........................................ 992 689 1,201
--------- ------- --------
Total adjustments.............................. 6,530 6,292 (2,022)
--------- ------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES......... 21,932 18,180 8,608
--------- ------- --------
Cash flows from investing activities:
Purchases of investments............................ (158,830) (77,980) (139,061)
Proceeds from sales of investments.................. 49,354 39,967 24,395
Proceeds from maturities of investments............. 28,803 19,665 106,042
--------- ------- --------
NET CASH USED IN INVESTING ACTIVITIES............. (80,673) (18,348) (8,624)
--------- ------- --------
Cash flows from financing activities:
Capital contribution................................ 59,000 -- --
--------- ------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES......... 59,000 -- --
--------- ------- --------
Net increase (decrease) in cash..................... 259 (168) (16)
Cash balance at beginning of period................. 85 253 269
--------- ------- --------
CASH BALANCE AT END OF PERIOD..................... $ 344 85 253
========= ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid................................... $ 1,450 1,063 833
========= ======= ========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 61
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1) BACKGROUND
Capital Markets Assurance Corporation ("CapMAC" or "the Company") is a New
York-domiciled monoline stock insurance company which engages only in the
business of financial guaranty and surety insurance. CapMAC is a wholly-owned
subsidiary of CapMAC Holdings Inc. ("Holdings"). CapMAC is licensed in all 50
states in addition to the District of Columbia, the Commonwealth of Puerto Rico
and the territory of Guam. CapMAC insures structured asset-backed, corporate,
municipal and other financial obligations in the U.S. and international capital
markets. CapMAC also provides financial guaranty reinsurance for structured
asset-backed, corporate, municipal and other financial obligations written by
other major insurance companies.
CapMAC's claims-paying ability is rated "Aaa" by Moody's Investors Service,
Inc. ("Moody's"), "AAA" by S&P Ratings Group ("S&P"), "AAA" by Duff & Phelps
Credit Rating Co. ("Duff & Phelps"), and "AAA" by Nippon Investors Service,
Inc., a Japanese rating agency. Such ratings reflect only the views of the
respective rating agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time by such rating
agencies.
2) SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies used in the preparation of the accompanying
financial statements are as follows:
A) BASIS OF PRESENTATION
The accompanying financial statements are prepared on the basis of
generally accepted accounting principles ("GAAP"). Such accounting
principles differ from statutory reporting practices used by insurance
companies in reporting to state regulatory authorities.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Management believes the most
significant estimates relate to deferred acquisition costs, reserve for
losses and loss adjustment expenses and disclosures of financial
guarantees outstanding. Actual results could differ from those
estimates.
B) INVESTMENTS
At December 31, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Under SFAS No. 115, the
Company can classify its debt and marketable equity securities in one of
three categories: trading, available-for-sale, or held-to-maturity.
Trading securities are bought and held principally for the purpose of
selling them in the near term. Held-to-maturity securities are those
securities in which the Company has the ability and intent to hold the
securities until maturity. All other securities not included in trading
or held-to-maturity are classified as available-for-sale. As of December
31, 1995 and 1994, all of the Company's securities have been classified
as available-for-sale.
Available-for-sale securities are recorded at fair value. Fair value is
based upon quoted market prices. Unrealized holding gains and losses,
net of the related tax effect, on available-for-sale securities are
excluded from earnings and are reported as a separate component of
stockholder's
F-7
<PAGE> 62
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
equity until realized. Transfers of securities between categories are
recorded at fair value at the date of transfer.
A decline in the fair value of any available-for-sale security below
cost that is deemed other than temporary is charged to earnings
resulting in the establishment of a new cost basis for the security.
Short-term investments are those investments having a maturity of less
than one year at purchase date. Short-term investments are carried at
amortized cost which approximates fair value.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to yield using the effective interest
method. Dividend and interest income are recognized when earned.
Realized gains and losses are included in earnings and are derived using
the FIFO (first-in, first-out) method for determining the cost of
securities sold.
C) REVENUE RECOGNITION
Premiums which are payable monthly to CapMAC are reflected in income
when due, net of amounts payable to reinsurers. Premiums which are
payable quarterly, semi-annually or annually are reflected in income,
net of amounts payable to reinsurers, on an equal monthly basis over the
corresponding policy term. Premiums that are collected as a single
premium at the inception of the policy and have a term longer than one
year are earned, net of amounts payable to reinsurers, by allocating
premium to each bond maturity based on the principal amount and earning
it straight-line over the term of each bond maturity. For the year ended
December 31, 1995, 91% of net premiums earned were attributable to
premiums payable in installments and 9% were attributable to premiums
collected on an upfront basis.
D) DEFERRED ACQUISITION COSTS
Certain costs incurred by CapMAC, which vary with and are primarily
related to the production of new business, are deferred. These costs
include direct and indirect expenses related to underwriting, marketing
and policy issuance, rating agency fees and premium taxes. The deferred
acquisition costs are amortized over the period in proportion to the
related premium earnings. The actual amount of premium earnings may
differ from projections due to various factors such as renewal or early
termination of insurance contracts or different run-off patterns of
exposure resulting in a corresponding change in the amortization pattern
of the deferred acquisition costs.
E) RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
The reserve for losses and loss adjustment expenses consists of a
Supplemental Loss Reserve ("SLR") and a case basis loss reserve. The SLR
is established based on expected levels of defaults resulting from
credit failures on currently insured issues. This SLR is based on
estimates of the portion of earned premiums required to cover those
claims.
A case basis loss reserve is established for insured obligations when,
in the judgement of management, a default in the timely payment of debt
service is imminent. For defaults considered temporary, a case basis
loss reserve is established in an amount equal to the present value of
the anticipated defaulted debt service payments over the expected period
of default. If the default is judged not to be temporary, the present
value of all remaining defaulted debt service payments is recorded as a
case basis loss reserve. Anticipated salvage recoveries are considered
in establishing case basis loss reserves when such amounts are
reasonably estimable.
Management believes that the current level of reserves is adequate to
cover the estimated liability for claims and the related adjustment
expenses with respect to financial guaranties issued by
F-8
<PAGE> 63
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CapMAC. The establishment of the appropriate level of loss reserves is
an inherently uncertain process involving numerous estimates and
subjective judgments by management, and therefore there can be no
assurance that losses in CapMAC's insured portfolio will not exceed the
loss reserves.
F) DEPRECIATION
Leasehold improvements, furniture and fixtures are being depreciated
over the lease term or useful life, whichever is shorter, using the
straight-line method.
G) INCOME TAXES
Deferred income taxes are provided with respect to temporary differences
between the financial statement and tax basis of assets and liabilities
using enacted tax rates in effect for the year in which the differences
are expected to reverse.
H) RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to the
current year presentation.
3) INSURED PORTFOLIO
At December 31, 1995 and 1994, the principal amount of financial
obligations insured by CapMAC was $16.9 billion and $11.6 billion, respectively,
and net of reinsurance (net principal outstanding), was $12.6 billion and $9.4
billion, respectively, with a weighted average life of 6.0 years and 5.0 years,
respectively. CapMAC's insured portfolio was broadly diversified by geographic
distribution and type of insured obligations, with no single insured obligation
in excess of statutory single risk limits, after giving effect to any
reinsurance and collateral, which are a function of CapMAC's statutory qualified
capital (the sum of statutory capital and surplus and mandatory contingency
reserve). At December 31, 1995 and 1994, the statutory qualified capital was
approximately $240 million and $170 million, respectively.
<TABLE>
<CAPTION>
NET PRINCIPAL OUTSTANDING
--------------------------------------
DECEMBER 31,
DECEMBER 31, 1995 1994
----------------- ----------------
TYPE OF OBLIGATIONS INSURED AMOUNT % AMOUNT %
- --------------------------------------------------------- ------- ----- ------ -----
$ IN MILLIONS
<S> <C> <C> <C> <C>
Consumer receivables..................................... $ 6,959 55.1 $4,740 50.4
Trade and other corporate obligations.................... 4,912 38.9 4,039 43.0
Municipal/government obligations......................... 757 6.0 618 6.6
------- ----- ------ -----
Total............................................... $12,628 100.0 $9,397 100.0
======= ===== ====== =====
</TABLE>
At December 31, 1995, approximately 85% of CapMAC's insured portfolio was
comprised of structured asset-backed transactions. Under these structures, a
pool of assets covering at least 100% of the principal amount guaranteed under
its insurance contract is sold or pledged to a special purpose bankruptcy remote
entity. CapMAC's primary risk from such insurance contracts is the impairment of
cash flows due to delinquency or loss on the underlying assets. CapMAC,
therefore, evaluates all the factors affecting past and future asset performance
by studying historical data on losses, delinquencies and recoveries of the
underlying assets. Each transaction is reviewed to ensure that an appropriate
legal structure is used to protect against the bankruptcy risk of the originator
of the assets. Along with the legal structure, an additional level of first loss
protection is also created to protect against losses due to credit or dilution.
This first level of loss protection is usually available from reserve funds,
excess cash flows, overcollateralization, or recourse to a third party. The
F-9
<PAGE> 64
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
level of first loss protection depends upon the historical losses and dilution
of the underlying assets, but is typically several times the normal historical
loss experience for the underlying type of assets.
During 1995, the Company sold without recourse its interest in potential
cash flows from transactions included in its insured portfolio and recognized
$2,200,000 of income which has been included in other income in the accompanying
financial statements.
The following entities each accounted for, through referrals and otherwise,
10% or more of total revenues for each of the periods presented:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1994 YEAR ENDED DECEMBER 31, 1993
- ------------------------------- ------------------------------- -------------------------------
% OF % OF % OF
NAME REVENUES NAME REVENUES NAME REVENUES
- --------------------- -------- --------------------- -------- --------------------- --------
<S> <C> <C> <C> <C> <C>
Citicorp............. 15.2 Citicorp............. 16.3 Citicorp............. 13.7
Merrill Lynch &
Co................... 14.1
</TABLE>
4) INVESTMENTS
At December 31, 1995 and 1994, all of the Company's investments were
classified as available-for-sale securities. The amortized cost, gross
unrealized gains, gross unrealized losses and estimated fair value for
available-for-sale securities by major security type at December 31, 1995 and
1994 were as follows ($ in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
SECURITIES AVAILABLE-FOR-SALE COST GAINS LOSSES VALUE
- -------------------------------------------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury obligations......................... $ 4,153 55 -- 4,208
Mortgage-backed securities of U.S. government
instrumentalities and agencies.................. 100,628 313 79 100,862
Obligations of states, municipalities and
political subdivisions.......................... 166,010 4,809 82 170,737
Corporate and asset-backed securities............. 8,506 45 6 8,545
-------- ----- --- -------
Total........................................ $ 279,297 5,222 167 284,352
======== ===== === =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
SECURITIES AVAILABLE-FOR-SALE COST GAINS LOSSES VALUE
- -------------------------------------------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury obligations......................... $ 4,295 -- 153 4,142
Mortgage-backed securities of U.S. government
instrumentalities and agencies.................. 40,973 -- 2,986 37,987
Obligations of states, municipalities and
political subdivisions.......................... 128,856 364 3,994 125,226
Corporate and asset-backed securities............. 6,841 15 112 6,744
Mutual funds...................................... 16,434 -- 1,465 14,969
-------- --- ----- -------
Total........................................ $ 197,399 379 8,710 189,068
======== === ===== =======
</TABLE>
F-10
<PAGE> 65
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company's investment in mutual funds in 1994 represents an investment
in an open-end management investment company which invests primarily in
investment-grade fixed-income securities denominated in foreign and United
States currencies.
The amortized cost and estimated fair value of investments in debt
securities at December 31, 1995 by contractual maturity are shown below ($ in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------
AMORTIZED ESTIMATED
SECURITIES AVAILABLE-FOR-SALE COST FAIR VALUE
- --------------------------------------------------------------------- -------- ----------
<S> <C> <C>
Less than one year to maturity....................................... $ 5,569 5,572
One to five years to maturity........................................ 37,630 38,553
Five to ten years to maturity........................................ 99,567 102,264
Greater than ten years to maturity................................... 35,903 37,101
-------- ----------
Sub-total.......................................................... 178,669 183,490
Mortgage-backed securities........................................... 100,628 100,862
-------- ----------
Total........................................................... $279,297 284,352
======== ========
</TABLE>
Actual maturities may differ from contractual maturities because borrowers
may call or prepay obligations with or without call or prepayment penalties.
Proceeds from sales of investment securities were approximately $49
million, $40 million and $24 million in 1995, 1994 and 1993, respectively. Gross
realized capital gains of $1,320,000, $714,000 and $1,621,000, and gross
realized capital losses of $19,000, $622,000 and $77,000 were realized on those
sales for the years ended December 31, 1995, 1994 and 1993, respectively.
Investments include bonds having a fair value of approximately $3,985,000
and $3,873,000 (amortized cost of $3,970,000 and $4,011,000) which are on
deposit at December 31, 1995 and 1994, respectively, with state regulators as
required by law.
Investment income is comprised of interest and dividends, net of related
expenses, and is applicable to the following sources:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
$ IN THOUSANDS
<S> <C> <C> <C>
Bonds............................................... $ 11,105 9,193 7,803
Short-term investments.............................. 1,245 484 572
Mutual funds........................................ (162) 579 1,801
Investment expenses................................. (235) (184) (166)
------- ------ ------
Total.......................................... $ 11,953 10,072 10,010
======= ====== ======
</TABLE>
F-11
<PAGE> 66
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The change in unrealized appreciation (depreciation) on available-for-sale
securities is included in a separate component of stockholder's equity as shown
below:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
$ IN THOUSANDS
<S> <C> <C>
Balance at beginning of period................................... $ (5,499) 3,600
Change in unrealized appreciation (depreciation)................. 13,386 (13,786)
Income tax effect................................................ (4,601) 4,687
------- -------
Net change....................................................... 8,785 (9,099)
------- -------
BALANCE AT END OF PERIOD....................................... $ 3,286 (5,499)
======= =======
</TABLE>
No single issuer, except for investments in U.S. Treasury and U.S.
government agency securities, exceeds 10% of stockholder's equity as of December
31, 1995.
5) DEFERRED ACQUISITION COSTS
The following table reflects acquisition costs deferred by CapMAC and
amortized in proportion to the related premium earnings:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
$ IN THOUSANDS
<S> <C> <C> <C>
Balance at beginning of period...................... $ 24,860 15,249 5,434
Additions........................................... 17,505 14,140 12,478
Amortization (policy acquisition costs)............. (7,203) (4,529) (2,663)
------- ------ ------
BALANCE AT END OF PERIOD.......................... $ 35,162 24,860 15,249
======= ====== ======
</TABLE>
6) EMPLOYEE BENEFITS
On June 25, 1992, CapMAC entered into a Service Agreement with CapMAC
Financial Services, Inc. ("CFS"), which was then a newly formed wholly-owned
subsidiary of Holdings. Under the Service Agreement, CFS has agreed to provide
various services, including underwriting, reinsurance, data processing and other
services to CapMAC in connection with the operation of CapMAC's insurance
business. CapMAC pays CFS an arm's length fee for providing such services, but
not in excess of CFS's cost for such services. CFS incurred, on behalf of
CapMAC, total compensation expenses, excluding bonuses, of $13,484,000,
$11,081,000 and $9,789,000 in 1995, 1994 and 1993, respectively.
CFS maintains an incentive compensation plan for its employees. The plan is
an annual discretionary bonus award based upon Holdings' and an individual's
performance. CFS also has a health and welfare plan and a 401(k) plan to cover
substantially all of its employees. CapMAC reimburses CFS for all out-of-pocket
expenses incurred by CFS in providing services to CapMAC, including awards given
under the incentive compensation plan and benefits provided under the health and
welfare plan. For the years ended December 31, 1995, 1994 and 1993, the Company
had provided approximately $7,804,000, $5,253,000 and $3,528,000, respectively,
for the annual discretionary bonus plan.
F-12
<PAGE> 67
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
One June 25, 1992, certain officers of CapMAC were granted 182,633
restricted stock units ("RSU") at $13.33 a share in respect of certain deferred
compensation. On December 7, 1995, the RSU's were converted to cash in the
amount of approximately $3.7 million, and such officers agreed to defer receipt
of such cash amount in exchange for receiving the same number of new shares of
restricted stock of Holdings as the number of RSU's such officers previously
held. The cash amount will be held by Holdings and invested in accordance with
certain guidelines. Such amount, including the investment earnings thereon, will
be paid to each officer upon the occurrence of certain events but no later than
December, 2000.
7) EMPLOYEE STOCK OWNERSHIP PLAN
On June 25, 1992, Holdings adopted an Employee Stock Ownership Plan
("ESOP") to provide its employees the opportunity to obtain beneficial interests
in the stock of Holdings through a trust (the "ESOP Trust"). The ESOP Trust
purchased 750,000 shares at $13.33 per share of Holdings' stock. The ESOP Trust
financed its purchase of common stock with a loan from Holdings in the amount of
$10 million. The ESOP loan is evidenced by a promissory note delivered to
Holdings. An amount representing unearned employee compensation, equivalent in
value to the unpaid balance of the ESOP loan, is recorded as a deduction from
stockholder's equity (unallocated ESOP shares).
CFS is required to make contributions to the ESOP Trust, which enables the
ESOP Trust to service its loan to Holdings. The ESOP expense is calculated using
the shares allocated method. Shares are released for allocation to the
participants and held in trust for the employees based upon the ratio of the
current year's principal and interest payment to the sum of principal and
interest payments estimated over the life of the loan. As of December 31, 1995
approximately 262,800 shares were allocated to the participants. Compensation
expense related to the ESOP was approximately $2,087,000, $2,086,000 and
$1,652,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
8) RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
The reserve for losses and loss adjustment expenses consists of a case
basis loss reserve and the SLR.
In 1995 CapMAC incurred its first claim on a financial guaranty policy.
Based on its current estimate, the Company expects the aggregate amount of
claims and related expenses not to exceed $2.7 million, although no assurance
can be given that such claims and related expenses will not exceed that amount.
Such loss amount was covered through a recovery under a quota share reinsurance
agreement of $0.2 million and a reduction in the SLR of $2.5 million. The
portion of such claims and expenses not covered under the quota share agreement
is being funded through payments to CapMAC from the Lureco Trust Account (see
note 12).
F-13
<PAGE> 68
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of the activity in the case basis loss reserve
account and the components of the liability for losses and loss adjustment
expenses ($ in thousands):
<TABLE>
<S> <C>
CASE BASIS LOSS RESERVE
Net balance at January 1, 1995.................................................... $ --
------
INCURRED RELATED TO:
Current year.................................................................... 2,473
Prior years..................................................................... --
------
Total incurred............................................................... 2,473
------
PAID INCURRED TO:
Current year.................................................................... 1,853
Prior years..................................................................... --
------
Total paid................................................................... 1,853
------
Balance at December 31, 1995...................................................... 620
------
Reinsurance recoverable........................................................... 69
------
Supplemental loss reserve......................................................... 5,859
------
Total........................................................................ $6,548
======
</TABLE>
9) INCOME TAXES
Pursuant to a tax sharing agreement with Holdings, the Company is included
in Holdings' consolidated U.S. Federal income tax return. The Company's annual
Federal income tax liability is determined by computing its pro rata share of
the consolidated group Federal income tax liability.
Total income tax expense differed from the amount computed by applying the
U.S. Federal income tax rate of 35% in 1995 and 34% in 1994 and 1993:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993
--------------- --------------- --------------
AMOUNT % AMOUNT % AMOUNT %
------ ----- ------ ----- ------ ----
$ IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C>
Expected tax expense computed at the
statutory rate............................. $7,216 35.0 $5,303 34.0 $4,881 34.0
Increase (decrease) in tax resulting from:
Tax-exempt interest........................ (2,335) (11.3) (1,646) (10.6) (1,140) (7.9)
Other, net................................. 334 1.6 51 0.4 (15) (0.1)
------ ----- ------ ----- ------ ----
Total income tax expense................ $5,215 25.3 $3,708 23.8 $3,726 26.0
====== ===== ====== ===== ====== ====
</TABLE>
F-14
<PAGE> 69
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred Federal income tax liability are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
$ IN THOUSANDS
<S> <C> <C>
DEFERRED TAX ASSETS:
Unrealized capital losses on investments......................... $ -- (2,833)
Deferred compensation............................................ (1,901) (1,233)
Losses and loss adjustment expenses.............................. (1,002) (936)
Unearned premiums................................................ (852) (762)
Other, net....................................................... (98) (228)
------- ------
Total gross deferred tax assets............................. (3,853) (5,992)
------- ------
DEFERRED TAX LIABILITIES:
Deferred acquisition costs....................................... 12,307 8,453
Unrealized capital gains on investments.......................... 1,769 --
Deferred capital gains on investments............................ 654 726
Other, net....................................................... 426 412
------- ------
Total gross deferred tax liabilities........................ 15,156 9,591
------- ------
Net deferred tax liability..................................... $ 11,303 3,599
======= ======
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax assets will not be realized. Management believes
that the deferred tax assets will be fully realized in the future.
10) INSURANCE REGULATORY RESTRICTIONS
CapMAC is subject to insurance regulatory requirements of the State of New
York and other states in which it is licensed to conduct business. Generally,
New York insurance laws require that dividends be paid from earned surplus and
restrict the amount of dividends in any year that may be paid without obtaining
approval for such dividends from the Superintendent of Insurance to the lower of
(i) net investment income as defined or (ii) 10% of statutory surplus as of
December 31 of the preceding year. No dividends were paid by CapMAC to Holdings
during the years ended December 31, 1995, 1994 and 1993. No dividends could be
paid during these periods because CapMAC had negative earned surplus. Statutory
surplus at December 31, 1995 and 1994 was approximately $195,018,000 and
$139,739,000, respectively. Statutory surplus differs from stockholder's equity
determined under GAAP principally due to the mandatory contingency reserve
required for statutory accounting purposes and differences in accounting for
investments, deferred acquisition costs, SLR and deferred taxes provided under
GAAP. Statutory net income was $9,000,000, $4,543,000 and $4,528,000 for the
years ended December 31, 1995, 1994 and 1993, respectively. Statutory net income
differs from net income determined under GAAP principally due to deferred
acquisition costs, SLR and deferred income taxes.
F-15
<PAGE> 70
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11) COMMITMENTS AND CONTINGENCIES
On January 1, 1988, the Company assumed from Citibank, N.A. the obligations
of a sublease agreement for space occupied in New York. On November 21, 1993,
the sublease was terminated and a new lease was negotiated which expires on
November 20, 2008. CapMAC has a lease agreement for its London office beginning
October 1, 1992 and expiring October 1, 2002. As of December 31, 1995, future
minimum payments under the lease agreements are as follows:
<TABLE>
<CAPTION>
PAYMENT
--------------
$ IN THOUSANDS
<S> <C>
1996............................................................................ $ 2,255
1997............................................................................ 2,948
1998............................................................................ 3,027
1999............................................................................ 3,476
2000 and thereafter............................................................. 36,172
-------
Total...................................................................... $ 47,878
=======
</TABLE>
Rent expense, commercial rent taxes and electricity for the years ended
December 31, 1995, 1994 and 1993 amounted to $1,939,000, $2,243,000 and
$2,065,000, respectively.
CapMAC has available a $100,000,000 standby corporate liquidity facility
(the "Liquidity Facility") provided by a consortium of banks, headed by Bank of
Montreal, as agent, which is rated "A-1+" and "P-1" by S&P and Moody's,
respectively. Under the Liquidity Facility, CapMAC will be able, subject to
satisfying certain conditions, to borrow funds from time to time in order to
enable it to fund any claim payments or payments made in settlement or
mitigation of claim payments under its insurance contracts. For the years ended
December 31, 1995, 1994 and 1993, no draws had been made under the Liquidity
Facility.
12) REINSURANCE
In the ordinary course of business, CapMAC cedes exposure under various
treaty, pro rata and excess of loss reinsurance contracts primarily designed to
minimize losses from large risks and protect the capital and surplus of CapMAC.
The effect of reinsurance on premiums written and earned was as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------
1995 1994 1993
--------------------- --------------------- ---------------------
WRITTEN EARNED WRITTEN EARNED WRITTEN EARNED
-------- -------- -------- -------- -------- --------
$ IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C>
Direct................. $ 56,541 36,853 43,598 28,561 24,491 20,510
Assumed................ 935 761 1,064 258 403 364
Ceded.................. (15,992) (8,372) (11,069) (5,716) (3,586) (3,391)
-------- -------- -------- -------- -------- --------
Net Premiums...... $ 41,484 29,242 33,593 23,103 21,308 17,483
======== ======== ======== ======== ======== ========
</TABLE>
Although the reinsurance of risk does not relieve the ceding insurer of its
original liability to its policyholders, it is the industry practice of insurers
for financial statement purposes to treat reinsured risks as though they were
risks for which the ceding insurer was only contingently liable. A contingent
liability exists with respect to the aforementioned reinsurance arrangements
which may become a liability of CapMAC in the event the reinsurers are unable to
meet obligations assumed by them under the reinsurance contracts. At
F-16
<PAGE> 71
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1995 and 1994, CapMAC had ceded loss reserves of $69,000 and $0,
respectively, and had ceded unearned premiums of $13,171,000 and $5,551,000,
respectively.
In 1994, CapMAC entered into a reinsurance agreement (the "Lureco Treaty")
with Luxembourg European Reinsurance LURECO S.A. ("Lureco"), a European-based
reinsurer. The agreement is renewable annually at the Company's option, subject
to satisfying certain conditions. The agreement reinsured and indemnified the
Company for any loss incurred by CapMAC during the agreement period up to the
limits of the agreement. The Lureco Treaty provides that the annual reinsurance
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. In the 1994 policy year, the agreement provided $5 million of loss
coverage in excess of the premium deposit amounts of $2 million retained in the
Lureco Trust Account. No losses were applied against the Lureco Trust Account or
ceded to the Lureco Treaty in 1994. The agreement was renewed for the 1995
policy year and provides $5 million of loss coverage in excess of the premium
deposit amount of $4.5 million retained in the Lureco Trust Account. Additional
coverage is provided for losses incurred in excess of 200% of the net premiums
earned up to $4 million for any one agreement year. In September 1995, a claim
of approximately $2.5 million on an insurance policy was applied against the
Lureco Trust Account.
In addition to its capital (including statutory contingency reserves) and
other reinsurance available to pay claims under its insurance contracts, on June
25, 1992, CapMAC entered into a Stop Loss Reinsurance Agreement (the "Stop-loss
Agreement") with Winterthur Swiss Insurance Company ("Winterthur") which is
rated "AAA" by S&P and "Aaa" by Moody's. At the same time, CapMAC and Winterthur
also entered into a Quota Share Reinsurance Agreement (the "Winterthur Quota
Share Agreement") pursuant to which Winterthur had the right to reinsure on a
quota share basis 10% of each policy written by CapMAC.
The Winterthur Stop-loss Agreement had an original term of seven years and
was renewable for successive one-year periods. In April 1995, Winterthur
notified CapMAC that it was canceling the Winterthur Stop-loss Agreement and the
Winterthur Quota Share Agreement effective June 30, 1996.
CapMAC elected to terminate the Winterthur Stop-loss Agreement effective
November 30, 1995 and, on the same date, entered into a Stop-loss Reinsurance
Agreement with Mitsui Marine (the "Mitsui Stop-loss Agreement"). Under the
Mitsui Stop-loss Agreement, Mitsui Marine would be required to pay any losses in
excess of $100 million in the aggregate incurred by CapMAC during the term of
the Mitsui Stop-loss Agreement on the insurance policies in effect on December
1, 1995 and written during the one-year period thereafter, up to an aggregate
limit payable under the Mitsui Stop-loss Agreement of $50 million. The Mitsui
Stop-loss Agreement has a term of seven years and is subject to early
termination by CapMAC in certain circumstances.
The Winterthur Quota Share Agreement was canceled November 30, 1995. On
January 1, 1996, CapMAC will reassume the liability, principally unearned
premium, for all policies reinsured by Winterthur. As a result, CapMAC will
reassume approximately $1.4 billion of principal insured by Winterthur as of
December 31, 1995. In connection with the commutation, Winterthur will return
the unearned premiums as of December 31, 1995, net of ceding commission and
federal excise tax. Such amount is expected to total approximately $2.0 million.
F-17
<PAGE> 72
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1995 and 1994. SFAS No.
107, "Disclosures About Fair Value of Financial Instruments," defines the fair
value of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------------- -----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
$ IN THOUSANDS
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Investments................................... $284,352 284,352 189,068 189,068
OFF-BALANCE-SHEET INSTRUMENTS:
Financial Guarantees Outstanding.............. $ -- 147,840 -- 93,494
Ceding Commission............................. $ -- 44,352 -- 28,048
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments summarized above:
INVESTMENTS
The fair values of fixed maturities and mutual funds are based upon quoted
market prices. The fair value of short-term investments approximates amortized
cost.
FINANCIAL GUARANTEES OUTSTANDING
The fair value of financial guarantees outstanding consists of (1) the
current unearned premium reserve, net of prepaid reinsurance and (2) the fair
value of installment revenue which is derived by calculating the present value
of the estimated future cash inflow to CapMAC of policies in force having
installment premiums, net of amounts payable to reinsurers, at a discount rate
of 7% at December 31, 1995 and 1994. The amount calculated is equivalent to the
consideration that would be paid under market conditions prevailing at the
reporting dates to transfer CapMAC's financial guarantee business to a third
party under reinsurance and other agreements. Ceding commission represents the
expected amount that would be paid to CapMAC to compensate CapMAC for
originating and servicing the insurance contracts. In constructing estimated
future cash inflows, management makes assumptions regarding prepayments for
amortizing asset-backed securities which are consistent with relevant historical
experience. For revolving programs, assumptions are made regarding program
utilization based on discussions with program users. The amount of installment
premium actually realized by the Company could be reduced in the future due to
factors such as early termination of insurance contracts, accelerated
prepayments of underlying obligations or lower than anticipated utilization of
insured structured programs, such as commercial paper conduits. Although
increases in future installment revenue due to renewals of existing insurance
contracts historically have been greater than reductions in future installment
revenue due to factors such as those described above, there can be no assurance
that future circumstances might not cause a net reduction in installment
revenue, resulting in lower revenues.
14) CAPITALIZATION
The Company's certificate of incorporation authorizes the issuance of
15,000,000 shares of common stock, par value $1.00 per share. Authorized, issued
and outstanding shares at December 31, 1995 and 1994 were 15,000,000 at $1.00
per share.
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-18
<PAGE> 73
CAPITAL MARKETS ASSURANCE CORPORATION
FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
F-19
<PAGE> 74
CAPITAL MARKETS ASSURANCE CORPORATION
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
------
<TABLE>
<CAPTION>
September 30,1996 December 31,1995
(Unaudited)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENTS:
Bonds at fair value (amortized cost $283,996 at September
30, 1996 and $210,651 at December 31, 1995) $ 284,595 215,706
Short-term investments (at amortized cost which
approximates fair value) 23,081 68,646
- -------------------------------------------------------------------------------------------------------
Total investments 307,676 284,352
- -------------------------------------------------------------------------------------------------------
Cash 514 344
Accrued investment income 3,604 3,136
Deferred acquisition costs 42,350 35,162
Premiums receivable 4,068 3,540
Prepaid reinsurance 17,801 13,171
Other assets 4,194 3,428
- -------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 380,207 343,133
=======================================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
LIABILITIES:
Unearned premiums $ 61,410 45,767
Reserve for losses and loss adjustment expenses 9,602 6,548
Ceded reinsurance 2,455 2,469
Accounts payable and other accrued expenses 12,446 10,844
Current income taxes - 136
Deferred income taxes 13,608 11,303
- -------------------------------------------------------------------------------------------------------
Total liabilities 99,521 77,067
- -------------------------------------------------------------------------------------------------------
STOCKHOLDER'S EQUITY:
Common stock 15,000 15,000
Additional paid-in capital 208,475 205,808
Unrealized appreciation on investments, net of tax 389 3,286
Retained earnings 56,822 41,972
- -------------------------------------------------------------------------------------------------------
Total stockholder's equity 280,686 266,066
- -------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 380,207 343,133
=======================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE> 75
CAPITAL MARKETS ASSURANCE CORPORATION
STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Direct premiums written $ 17,206 12,204 49,983 45,042
Assumed premiums written 8 102 1,032 925
Ceded premiums written (4,129) (6,188) (11,142) (11,834)
- ----------------------------------------------------------------------------------------------------
Net premiums written 13,085 6,118 39,873 34,133
(Increase) decrease in unearned premiums (3,042) 1,193 (11,014) (12,418)
- ----------------------------------------------------------------------------------------------------
Net premiums earned 10,043 7,311 28,859 21,715
Net investment income 4,307 3,013 12,296 8,606
Net realized capital gains (loss) (57) 364 111 449
Other income 25 14 104 38
- ----------------------------------------------------------------------------------------------------
Total revenues 14,318 10,702 41,370 30,808
- ----------------------------------------------------------------------------------------------------
EXPENSES:
Losses and loss adjustment expenses 1,248 821 3,432 2,279
Underwriting and operating expenses 3,780 2,563 11,142 9,939
Policy acquisition costs 2,126 2,022 6,249 5,481
- ----------------------------------------------------------------------------------------------------
Total expenses 7,154 5,406 20,823 17,699
- ----------------------------------------------------------------------------------------------------
Income before income taxes 7,164 5,296 20,547 13,109
- ----------------------------------------------------------------------------------------------------
INCOME TAXES:
Current federal income tax 1,027 231 3,008 895
Deferred federal income tax 718 1,280 2,689 2,256
- ----------------------------------------------------------------------------------------------------
Total income taxes 1,745 1,511 5,697 3,151
- ----------------------------------------------------------------------------------------------------
NET INCOME $ 5,419 3,785 14,850 9,958
====================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE> 76
CAPITAL MARKETS ASSURANCE CORPORATION
STATEMENT OF STOCKHOLDER'S EQUITY
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1996
- ------------------------------------------------------------------------
<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 205,808
Capital contribution 2,667
- ------------------------------------------------------------------------
Balance at end of period 208,475
- ------------------------------------------------------------------------
UNREALIZED (DEPRECIATION) APPRECIATION
ON INVESTMENTS, NET OF TAX:
Balance at beginning of period 3,286
Unrealized depreciation on investments (2,897)
- ------------------------------------------------------------------------
Balance at end of period 389
- ------------------------------------------------------------------------
RETAINED EARNINGS:
Balance at beginning of period 41,972
Net income 14,850
- ------------------------------------------------------------------------
Balance at end of period 56,822
- ------------------------------------------------------------------------
TOTAL STOCKHOLDER'S EQUITY $ 280,686
========================================================================
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE> 77
CAPITAL MARKETS ASSURANCE CORPORATION
STATEMENT OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14,850 9,958
- -----------------------------------------------------------------------------------------------------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED (USED) BY OPERATING ACTIVITIES:
Reserve for losses and loss adjustment expenses 3,054 1,474
Unearned premiums 15,643 17,982
Deferred acquisition costs (7,188) (6,981)
Premiums receivable (528) 81
Accrued investment income (468) 63
Income taxes payable 2,341 2,447
Net realized capital gains (111) (449)
Accounts payable and other accrued expenses 5,445 3,456
Prepaid reinsurance (4,630) (5,564)
Other, net (381) 2,253
- -----------------------------------------------------------------------------------------------------------
Total adjustments 13,177 14,762
- -----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 28,027 24,720
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments (154,308) (109,235)
Proceeds from sale of investments 35,388 38,577
Proceeds from maturities of investments 91,063 37,361
- -----------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (27,857) (33,297)
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Paid-in capital - 9,000
- -----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES - 9,000
- -----------------------------------------------------------------------------------------------------------
Net increase in cash 170 423
Cash balance at beginning of period 344 85
- -----------------------------------------------------------------------------------------------------------
CASH BALANCE AT END OF PERIOD $ 514 508
===========================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Income taxes paid $ 3,225 650
Tax and loss bonds purchased $ 131 54
===========================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE> 78
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
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"). 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 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 nine months ended September 30, 1996 may not be indicative of the
results that may be expected for the full year ending December 31,
1996. These 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, 1995 and
1994, and for each of the years in the three-year period ended December
31, 1995.
3. RECLASSIFICATIONS
Certain prior period balances have been reclassified to conform to the
current period presentation.
F-24
<PAGE> 79
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SELLER OR ANY
UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF A TIME SUBSEQUENT TO THE DATE OF SUCH
INFORMATION. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information................... 2
Reports to Certificateholders........... 2
Summary................................. 3
Risk Factors............................ 9
The Trust............................... 12
The Onyx Portfolio of Motor Vehicle
Contracts............................. 12
The Contracts........................... 18
Maturity and Prepayment Assumptions..... 21
Yield Considerations.................... 22
Pool Factor............................. 22
Use of Proceeds......................... 22
The Seller.............................. 22
The Servicer............................ 23
The Certificates and the Agreement...... 24
Description of the Insurer.............. 32
Additional Provisions of the
Agreement............................. 33
Certain Legal Aspects of the
Contracts............................. 37
Certain Tax Consequences................ 40
ERISA Considerations.................... 47
Underwriting............................ 49
Legal Matters........................... 49
Experts................................. 50
Financial Statements of Insurer......... F-1
------------------
UNTIL JUNE , 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>
======================================================
$90,000,000
ONYX ACCEPTANCE
GRANTOR TRUST 1997-1
% AUTO LOAN
PASS-THROUGH CERTIFICATES
[LOGO OF ONYX ACCEPTANCE CORPORATION]
ONYX ACCEPTANCE FINANCIAL CORPORATION,
Seller
ONYX ACCEPTANCE CORPORATION,
Servicer
---------------------------
P R O S P E C T U S
---------------------------
MERRILL LYNCH & CO.
MARCH , 1997
======================================================
<PAGE> 80
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Registration Fee.......................................................... $ 27,272
Printing and Engraving.................................................... $ 50,000
Trustee's Fee............................................................. $ 15,000
Legal Fees and Expenses................................................... $102,500
Blue Sky Fees and Expenses................................................ $ 15,000
Accountant's Fees and Expenses............................................ $ 12,500
Rating Agency Fees........................................................ $ 50,000
Miscellaneous Fees and Expenses........................................... $ 17,728
--------
Total Expenses....................................................... $290,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law ("Delaware Law")
Onyx Acceptance Financial Corporation (the "Company") has broad powers to
indemnify its directors and officers against liabilities they may incur in such
capacities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"). The Company's Bylaws (the "Bylaws") (Exhibit 3.2 hereto)
provide that the Company shall indemnify its directors and officers to the
fullest extent permitted by law and requires the Company to advance litigation
expenses upon receipt by the Company of an undertaking by the director or
officer to repay such advances if it is ultimately determined that the director
is not entitled to indemnification. The Bylaws further provide that rights
conferred under such Bylaws shall not be deemed to be exclusive of any other
right such persons may have or acquire under any bylaw, agreement, vote of
stockholders or disinterested directors, or otherwise.
The Certificate of Incorporation (the "Certificate of Incorporation")
(Exhibit 3.1 hereto) provides that, pursuant to Delaware Law, its directors
shall not be liable for monetary damages for breach of the directors' fiduciary
duty of care to the Company and its stockholders. This provision in the
Certificate of Incorporation does not eliminate the duty of care, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware Law. In addition,
each director will continue to be subject to liability for breach of the
director's duty of loyalty to the Company for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefits to the director, and for payment
of dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware Law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. The Certificate of Incorporation further
provides that the Company shall indemnify its directors and officers to the
fullest extent permitted by law, and requires the Company to advance litigation
expenses in the case of stockholder derivative actions or other actions, against
an undertaking by the director to repay such advances if it is ultimately
determined that the director is not entitled to indemnification. The Certificate
of Incorporation also provides that rights conferred under such Certificate of
Incorporation shall not be deemed to be exclusive of any other right such
persons may have or acquire under any statute, the Certificate of Incorporation,
the Bylaws, agreement, vote of stockholders or disinterested directors, or
otherwise.
The Company plans to acquire a directors' and officers' liability insurance
policy that, subject to the terms and conditions of the policy, insures the
directors and officers of the Company against losses arising from any wrongful
act (as defined by the policy) in his or her capacity as a director or officer.
The policy reimburses the Company for amounts which the Company lawfully
indemnifies or for which it is required or permitted by law to indemnify its
directors and officers.
In addition, the Company expects to enter into agreements to indemnify its
directors and certain of its officers in addition to indemnification provided
for in the Certificate of Incorporation and Bylaws. These
II-1
<PAGE> 81
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 Underwriters, for certain liabilities rising under the Securities Act or
otherwise. It also provides, in certain limited instances, for indemnification
by the Underwriters of the Company with respect to information furnished by or
on behalf of the Underwriter that are contained in this prospectus or included
as part of this Registration Statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ---------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of the Seller 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 Brobeck, Phleger & Harrison LLP, re: Legality*
6.1 Opinion of Brobeck, Phleger & Harrison LLP, re: Tax Matters*
23.1 Consent of Brobeck, Phlegar & Harrison LLP, (contained in Exhibit 5.2)*
23.2 Consent of Brobeck, Phlegar & Harrison LLP, (contained in Exhibit 8.1)*
23.3 Consent of KPMG Peat Marwick LLP with respect to financial statements of
Capital Markets Assurance Corporation**
24 Powers of Attorney (included in signature page)**
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
Not applicable.
II-2
<PAGE> 82
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> 83
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Irvine,
State of California, on March 11, 1997.
Onyx Acceptance Financial Corporation
By: *
------------------------------------
John W. Hall
Director, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to 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>
* President and Chief March 11, 1997
- --------------------------------------------- Executive Officer, Director
John W. Hall (Principal Executive Officer)
* Executive Vice President March 11, 1997
- --------------------------------------------- and Chief Financial Officer,
Don P. Duffy Director (Principal Financial
and Accounting Officer)
/s/ REGAN E. KELLY Executive Vice President, March 11, 1997
- --------------------------------------------- Director
Regan E. Kelly
* Director March 11, 1997
- ---------------------------------------------
Kurt C. Bicknell
* Director March 11, 1997
- ---------------------------------------------
Steve M. Bond
</TABLE>
*By: /s/ REGAN E. KELLY
-------------------------------
Regan E. Kelly
Attorney-In-Fact
II-4
<PAGE> 84
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 Brobeck, Phleger & Harrison LLP, re: Legality*...............
6.1 Opinion of Brobeck, Phleger & Harrison LLP, re: Tax Matters*............
23.1 Consent of Brobeck, Phlegar & Harrison LLP, (contained in Exhibit
5.2)*...................................................................
23.2 Consent of Brobeck, Phlegar & Harrison LLP, (contained in Exhibit
8.1)*...................................................................
23.3 Consent of KPMG Peat Marwick LLP with respect to financial statements of
Capital Markets Assurance Corporation**.................................
24 Powers of Attorney (included in signature page)**.......................
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
<PAGE> 1
EXHIBIT 1.1
FORM OF UNDERWRITING
AGREEMENT
Onyx Acceptance Grantor Trust 1997-1
____% Auto Loan Pass-Through Certificates
Onyx Acceptance Financial Corporation
as Seller
Onyx Acceptance Corporation
as Servicer
UNDERWRITING AGREEMENT
March ___, 1997
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
World Financial Center
North Tower, 15th Floor
New York, New York 10281-1315
Ladies and Gentlemen:
1. Introductory. Onyx Acceptance Financial Corporation (the
"Company") proposes to cause Onyx Acceptance Grantor Trust 1997-1 (the "Trust")
to sell to Merrill Lynch, Pierce, Fenner & Smith Incorporated (the
"Underwriter") ____% Auto Loan Pass-Through Certificates, Series 1996-4 (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 March __, 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 March ___, 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
<PAGE> 2
"Contract 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 "Initial Financed Vehicles"),
certain monies due or to become due thereunder on or after the Cutoff Date (as
hereinafter defined), such Contracts to be sold to the Trust by the Seller and
serviced by the Servicer, (ii) the Surety Bond, (iii) security interests in the
Financed Vehicles and the rights to receive proceeds from claims on certain
insurance policies covering the Financed Vehicles or the individual obligors
under each related Contract and the right to proceeds under a blanket insurance
policy, (iv) all amounts on deposit in the Collection Account, (v) the right of
the Company to cause Onyx to repurchase certain Contracts under certain
circumstances and (vi) all proceeds of the foregoing. The Certificates will be
issued in an aggregate principal amount of $___________ which is equal to the
sum of the Original Pool Balance of the Contracts and the amount on deposit in
the Pre-Funding Account as of the opening of business on March __, 1997 (the
"Cutoff Date"). Capitalized terms used herein and not otherwise herein defined
shall have the meanings assigned to such terms in the Pooling and Servicing
Agreement.
The Company hereby agrees with the Underwriter, as follows:
2
<PAGE> 3
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. 333-22301), including a prospectus and such amendments thereto
as may have been required on the date hereof, relating to the
Certificates, has been filed with the Securities and Exchange
Commission (the "Commission"). The conditions to the use of a
registration statement on Form S-1 under the Securities Act of 1933, as
amended (the "Act"), as set forth in the General Instructions to Form
S-1, have been, or will prior to the effective date of the Registration
Statement be, satisfied in all material respects with respect to the
Company and the Registration Statement.
(ii) The Company will next file with
the Commission either, (A) prior to the effectiveness of such
registration statement, a further amendment thereto (including the form
of final prospectus) or (B) after effectiveness of such registration
statement, a final prospectus in accordance with Rules 430A and 424(b)
(each, as hereinafter 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 Under-
3
<PAGE> 4
writer, prior to the Execution Time, will be included or made therein.
The terms which follow, when used in this Agreement,
shall have the meanings indicated. The term "Effective Date" shall mean
each date that the Registration Statement and any post-effective
amendment or amendments thereto became or become effective under the
Act. "Execution Time" shall mean the date and time that this Agreement
is executed and delivered by the parties hereto. "Preliminary
Prospectus" shall mean any preliminary prospectus referred to in the
preceding paragraph and any preliminary prospectus included in the
Registration Statement which, as of the Effective Date, omits Rule 430A
Information. "Prospectus" shall mean the prospectus relating to the
Certificates that is first filed with the Commission pursuant to Rule
424(b) and any prospectus subsequently filed pursuant to Rule 424 or,
if no filing pursuant to Rule 424(b) is required, shall mean the form
of final prospectus included in the Registration Statement at the
Effective Date. "Registration Statement" shall mean the registration
statement referred to in the preceding paragraph and any registration
statement required to be filed under the Act or the Rules and
Regulations, 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
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<PAGE> 5
(if required) in accordance with Rule 424(b) and on the Closing Date,
the Prospectus (and any supplements thereto) will comply in all
material respects with the applicable requirements of the Act and the
Rules and Regulations; on the Effective Date, the Registration
Statement did not, or will not, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading; and, on the Effective Date, the Prospectus, if not filed
pursuant to Rule 424(b), did not, or will not, and on the date of any
filing pursuant to Rule 424(b) and on the Closing Date, the Prospectus
(together with any supplement thereto) will not, include any untrue
statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the Company makes no representations or warranties as to
the information contained in, or omitted from, the Registration
Statement or the Prospectus (or any supplements thereto) in reliance
upon, and in conformity with, information furnished in writing to the
Company on the Underwriter's behalf specifically for use in connection
with the preparation of the Registration Statement or the Prospectus
(or any supplements thereto).
(iv) The Company has been duly in-
corporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation, with full power
and authority (corporate and other) to own its properties and conduct
its businesses as described in the Prospectus, and is duly qualified to
transact business as a foreign corporation in good standing under the
laws of each jurisdiction where the ownership or leasing of its
properties or the conduct of its business requires such qualification.
(v) As of the Closing Date the
representations and warranties of the Company, as Seller, in the
Pooling and Servicing Agreement will be true and correct, and each
5
<PAGE> 6
Contract will satisfy the conditions set forth in Section 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 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 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.
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<PAGE> 7
(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
$85,000,000 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 March __, 1997.
The Company will deliver the Certificates to the Underwriter
against payment of the purchase price in immediately available funds drawn to
the order of the Company at the offices of Brobeck, Phleger & Harrison LLP in
Newport Beach, California 92660-1846 at 10:00 a.m., New York City time on
March __, 1997 or at such other time not later than seven full business days
thereafter as the Underwriter and the Company determine, such time being herein
referred to as the "Closing Date". The Certificates so to be delivered shall be
represented by definitive certificates registered in the name of Cede & Co., as
nominee for The Depository Trust Company and definitive certificate(s)
registered in the name(s) provided by the Underwriter, each in such numbers as
the Underwriter shall request. The Company shall make such definitive
certificates representing the Certificates available for inspection by the
Underwriter at the office at which the Certificates are 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,
7
<PAGE> 8
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 prospec-
tive investors that are required to be filed pursuant to the No-Action Letter
shall bear a legend substantially in the form attached hereto as Exhibit A. The
Company shall have the right to require specific legends or notations to appear
on any ABS Term Sheets, the right to require changes regarding the use of
terminology and the right to determine the types of information appearing
therein. Notwithstanding the foregoing, this subsection (iii) will be satisfied
if all ABS Term Sheets referred to herein bear a legend in a form previously
approved in writing by the Company.
(iv) The Underwriter shall have provided the Company with
representative forms of all ABS Term Sheets prior to their first use, to the
extent such forms have not previously been approved 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.
8
<PAGE> 9
(v) All information included in the ABS Term Sheets shall have
been generated based on substantially the same methodology and assumptions that
are used to generate the information in the Prospectus as set forth therein;
provided that the ABS Term Sheets may have included information based on
alternative methodologies or assumptions if specified therein. If any ABS Term
Sheets that are required to be filed were based on assumptions with respect to
the Contract Pool that differ from the final Contract Pool information in any
material respect or on Certificate structuring terms that were revised in any
material respect prior to the printing of the Prospectus, the Underwriter shall
have prepared revised ABS Term Sheets based on the final Contract Pool
information and structuring assumptions, shall have circulated such revised ABS
Term Sheets to all recipients of the preliminary versions thereof that indicated
orally to the Underwriter they would purchase all or any portion of the
Certificates, and shall have included such revised ABS Term Sheets (marked, "as
revised") in the materials delivered to the Company pursuant to subsection (iv)
above.
(vi) The Company shall not be obligated to file any ABS Term
Sheets that have been determined to contain any material error or omission,
provided that, at the request of the Underwriter, the Company will file ABS Term
Sheets that contain a material error or omission if clearly marked "superseded
by materials dated _______" and accompanied by corrected ABS Term Sheets that
are marked, "supersedes material previously dated _______, as corrected." If,
within the period during which the Prospectus relating to the Certificates is
required to be 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)
9
<PAGE> 10
above, the Underwriter did not provide any prospective investors with any
information in written or electronic form in connection with the offering of the
Certificates that is required to be filed with the Commission in accordance with
the No-Action Letter.
(viii) In the event of any delay in the delivery by the
Underwriter to the Company of all ABS Term Sheets required to be delivered in
accordance with subsection (iv) above, or in the delivery of the accountant's
comfort letter in respect thereof pursuant to Section 5(x), the Company shall
have the right to delay the release of the Prospectus to investors or to the
Underwriter, to delay the Closing Date and to take other appropriate actions in
each case as necessary in order to allow the Company to comply with its
agreement set forth in Section 5(x) to file the ABS Term Sheets by the time
specified therein.
5. Certain Agreements of the Company. The Company
agrees with the Underwriter that:
(i) The Company will use its best ef-
forts 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
10
<PAGE> 11
Statement, and will use its best efforts to prevent the issuance of any
such stop order and to obtain as soon as possible its lifting, if
issued.
(ii) If, at any time when a prospectus
relating to the Certificates is required to be delivered under the Act,
any event occurs as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, or if it is necessary at any time to amend the
Prospectus to comply with the Act, the Company promptly will prepare
and file with the Commission (subject to the Underwriter's prior review
pursuant to paragraph (i) of this Section 5) an amendment or supplement
which will correct such statement or omission or an amendment or
supplement which will effect such compliance.
(iii) As soon as practicable, the
Company will cause the Trust to make generally available to the
Certificateholders of the Trust an earning statement or statements of
the Trust covering a period of at least 12 months beginning after the
Effective Date of the Registration Statement which will satisfy the
provisions of Section 11(a) of the Act and Rule 158 of the Commission
promulgated thereunder.
(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
11
<PAGE> 12
unlimited service of process in any jurisdiction where
it is not now so subject.
(vi) For a period from the date of
this Agreement until the retirement of the Certificates, the Company
will furnish to the Underwriter copies of each certificate and the
annual statements of compliance delivered to the Trustee pursuant to
Article III of the Pooling and Servicing Agreement and the annual
independent public accountant's reports furnished to the Trustee
pursuant to Article III of the Pooling and Servicing Agreement, as soon
as practicable after such statements and reports are furnished to the
Trustee.
(vii) So long as any of the Certificates
are outstanding, the Company will furnish to you as soon as
practicable, (A) all documents distributed, or caused to be
distributed, by the Servicer to the Certificateholders, (B) all
documents filed, or caused to be filed, by the Company with the
Commission pursuant to the Securities Act of 1934, as amended, any
order of the Commission thereunder or pursuant to a "no-action" letter
from the staff of the Commission and (C) from time to time, such other
information in the possession of the Company concerning the Trust and
any other information concerning the Company filed with any
governmental or regulatory authority which is otherwise publicly
available as you may reasonably request.
(viii) On or before the Closing Date with
respect to the Initial Contracts, and on or before each Subsequent
Transfer Date with respect to the Subsequent Contracts to be
transferred to the Trust on such 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 or such Subsequent
Transfer Date, as the case may be 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.
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<PAGE> 13
(ix) To the extent, if any, that the rating provided
with respect to the Certificates by Moody's Investors Service, Inc. and
Standard & Poor's Corporation is conditional upon the furnishing of
documents or the taking of any other action by the Company agreed upon
on or prior to the Closing Date, the Company shall furnish such
documents and take any such action.
(x) The Company shall provide the Underwriter with
copies of all agreements, certificates, opinions and other documents
executed or delivered in connection with any Subsequent Closing Date,
and such other documents relating to any Subsequent Contracts as it may
reasonably request from the Company.
(xi) The Company will file with the Commission a
post-effective amendment setting forth all ABS Terms Sheet provided to
the Company by the Underwriter and identified by it as such within the
time period allotted for such filing pursuant to the No-Action Letter;
provided, however, that prior to such filing of the ABS Term Sheets
(other than any ABS Term Sheets that are not based on the Contract Pool
information) by the Company, the Underwriter must comply with its
obligations pursuant to Section 4 and the Company must receive a letter
from Coopers & Lybrand, certified public accountants, satisfactory in
form and substance to the Company, to the effect that such accountants
have performed certain specified procedures, all of which have been
agreed to by the Company, as a result of which they have determined
that the information included in the ABS Term Sheets (if any), provided
by the Underwriter to the Company for filing on a post-effective
amendment pursuant to Section 4 and, if the Company then so specifies,
this subsection (i), and that the accountants have examined in
accordance with such agreed upon procedures, is accurate except as to
such matters that are not deemed by the Company to be material. The
foregoing letter shall be at the expense of the Underwriter. The
Company shall file any corrected ABS Term Sheets described in Section
4(b)(vi) as soon as practicable following receipt thereof.
6. Payment of Expenses. The Company will pay all expenses
incident to the performance of its obligations under this Agreement, including
(i) the printing and filing of the Registration Statement as originally filed
and of each amendment thereto, (ii) the Trustee's fees and the fees and
disbursements
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<PAGE> 14
of the counsel to the Trustee, (iii) any up-front fees and premiums payable to
the Insurer and the fees and disbursements of counsel to the Insurer, (iv) the
fees and disbursements of the accountants, (v) the fees of the rating agencies
and (vi) blue sky expenses.
7. Conditions to the Obligations of the Underwriter. The
obligation of the Underwriter to purchase and pay for the Certificates will be
subject to the accuracy of the representations and warranties on the part of the
Company herein, to the accuracy of the statements of officers of the Company
made pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder and to the following additional conditions precedent:
(i) On or prior to the date of this
Agreement, the Underwriter shall have received a letter, dated the date
of this Agreement, of Coopers and Lybrand and substantially in the form
heretofore agreed, which letter shall be in form and substance agreed
to by the Underwriter.
(ii) If the Registration Statement has
not become effective prior to the date of this Agreement, unless the
Underwriter agrees in writing to a later time, the Registration
Statement shall have become effective not later than (A) 6:00 p.m., New
York City time, on the date of determination of the public offering
price, if such determination occurred at or prior to 12:00 noon, New
York City time, on such date or (B) 3:00 p.m. on the business day
following the day on which the public offering price was determined, if
such determination occurred after 12:00 noon, New York City time, on
such date; if filing of the Prospectus, or any supplement thereto, is
required 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,
14
<PAGE> 15
in the reasonable judgment of the Underwriter materially impairs the
investment quality of the Certificates; (b) any suspension or material
limitation of trading in securities generally on the New York Stock
Exchange, or any setting of minimum prices for trading on such
exchange, or any suspension of trading of any securities of Onyx on any
exchange or in the over-the-counter market by such exchange or
over-the-counter market or by the Commission; (c) any banking
moratorium declared by Federal, New York or California authorities; (d)
any outbreak or material escalation of major hostilities or any other
substantial national or international calamity or emergency if, in the
reasonable judgment of the Underwriter, the effect of any such
outbreak, escalation, calamity or emergency on the United States
financial markets makes it impracticable or inadvisable to proceed with
completion of the sale of, and any payment for, the Certificates.
(iv) The Underwriter shall have received an opinion,
dated the Closing Date, of Brobeck, Phleger & Harrison, counsel of the
Company, substantially to the effect that:
(a) The Company (1) has been duly
organized and is validly existing and in good standing under
the laws of the State of Delaware, (2) has the power and
authority to own its properties and conduct its business as
described in the Prospectus and (3) had at all relevant times,
and now has, the power, authority and legal right to acquire,
own and sell the Contracts;
(b) The Company has, or at the time
such agreement was executed and delivered, had, the power and
authority to execute and deliver this Agreement, the Pooling
and Servicing Agreement, the Yield Supplement Agreement, the
Purchase Agreement, and the Insurance Agreement and to
consummate the transactions contemplated herein and therein;
(c) No consent, approval, au
thorization or order of, or filing with, any California,
Delaware or federal governmental agency or body or any court
is or was required by
15
<PAGE> 16
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 has
conflicted or will conflict with, has resulted or will result
in a breach, violation or acceleration of any of the terms of,
or has constituted or will constitute a default under, the
By-Laws or the Certificate of Incorporation of the Company, as
amended, or, to the best of such counsel's knowledge, any
rule, order, statute or regulation known to such counsel to be
currently applicable to the Company of any court, regulatory
body, administrative agency or 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
16
<PAGE> 17
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 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
17
<PAGE> 18
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
issuance complied as to form in all material respects with the
requirements of the Act and the Rules and Regulations; and
such counsel has no reason to believe that either the
Registration Statement or the Prospectus or any such amendment
thereof or supplement thereto as of its Effective Date or date
of issuance, as the case may be, contained any untrue
statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading; it being understood that such
counsel need express no opinion as to the financial statements
or other financial data contained in the Registration
Statement or the Prospectus;
18
<PAGE> 19
(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 Brobeck, Phleger & Harrison, counsel to
Onyx, substantially to the effect that:
(a) Onyx (1) has been duly
incorporated and is validly existing and in good standing
under the laws of the State of California, (2) has the power
and authority to own its properties and conduct its business
as 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 power and au-
thority to execute and deliver the Pooling and Servicing
Agreement the Yield Supplement Agree-
19
<PAGE> 20
ment 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, au-
thorization 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;
(d) None of the execution, de-
livery 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 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
20
<PAGE> 21
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.
(vi) The Underwriter shall have received
an opinion or opinions of Brobeck, Phleger & Harrison, counsel to the
Company, dated the Closing Date and satisfactory in form and substance
to you, with respect the characterization of the transfer of the
Contracts by Onyx to the Company as a sale and with respect to the
perfection of the Trust's interests in the Contracts and with respect
to the non-consolidation of the Company with Onyx in the event of
bankruptcy filing with respect to Onyx and with respect to certain
other matters.
21
<PAGE> 22
(vii) The Underwriter shall have received
an opinion of Brobeck, Phleger & Harrison, tax counsel to the Company,
dated the Closing Date and satisfactory in form and substance to you
substantially to the effect that:
(a) the Trust created by the Pooling
and Servicing Agreement will not be classified as an
association taxable as a corporation for federal income tax
purposes and, instead, under subpart E, part I of subchapter J
of the Internal Revenue Code of 1986, as amended, the Trust
will be treated as a grantor trust, and subject to possible
recharacterization of certain amounts paid by the Trust to the
Servicer, the holders of the Certificates will be treated as
owning an undivided pro-rata interest in the income and corpus
attributable to the Trust;
(b) The statements in the Reg-
istration 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
22
<PAGE> 23
guaranty insurance under the laws of the State of
New York;
(b) The Insurer has the corporate
power to execute and deliver, and to take all action required
of it under the Surety Bond, the Insurance Agreement and the
Indemnification Agreement;
(c) Except as have already been
obtained, no authorization, consent, approval, license, formal
exemption or declaration from, nor any registration or filing
with, any court or governmental agency or body of the United
States of America or the State of New York, which if not
obtained would affect or impair the validity or enforceability
of the Surety Bond, the Insurance Agreement or the
Indemnification Agreement against the Insurer, is required in
connection with the execution and delivery by the Insurer of
the Surety Bond, the Insurance Agreement or the
Indemnification Agreement or in connection with the Insurer's
performance of its obligations thereunder;
(d) The Surety Bond, the Insurance
Agreement and the Indemnification Agreement have been duly
authorized, executed and delivered by the Insurer, and the
Surety Bond and, assuming due authorization, execution and
delivery of the Insurance Agreement by the parties thereto
(other than the Insurer), the Insurance Agreement constitute
the legally valid and binding obligations of the Insurer,
enforceable in accordance with their respective terms subject,
as to enforcement, to (1) bankruptcy, reorganization,
insolvency, moratorium and other similar laws relating to or
affecting the enforcement of creditors' rights generally,
including, without limitation, laws relating to fraudulent
transfers or conveyances, preferential transfers and equitable
subordination, presently or from time to time in effect and
general principles of equity (regardless of whether such
enforcement is considered in 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
23
<PAGE> 24
qualification that the remedy of specific performance may be
subject to equitable defenses and to the discretion of the
court before which any proceedings with respect thereto may be
brought; and
(e) The Surety Bond is not required
to be registered under the Securities Act of 1933, as amended.
In rendering such opinion, such counsel may rely as
to matters of fact, to the extent deemed proper and as stated therein,
on certificates of responsible officers of the Insurer and public
officials. References to the Prospectus in this paragraph (viii)
include any supplements thereto.
(ix) The Underwriter shall have received an
opinion of counsel to the Trustee, dated the Closing Date and
satisfactory in form and substance to you, substantially to the effect
that:
(a) The Trustee is a banking cor-
poration 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,
24
<PAGE> 25
good faith and fair dealing (regardless of whether such
enforceability is considered in a proceeding in equity or at
law).
(x) The Underwriter shall have received
from Skadden, Arps, Slate, Meagher & Flom, counsel to the Underwriter,
such opinion or opinions, dated the Closing Date and satisfactory in
form and substance to you, with respect to the validity of the
Certificates, the Registration Statement, the Prospectus and other
related matters as the Underwriter may require, and the Company shall
have furnished to such counsel such documents as they reasonably
request for the purpose of enabling them to pass upon such matters.
(xi) The Underwriter shall have received a letter,
dated the Closing Date, of Coopers and Lybrand which meets the
requirements of the subsection (i) of this Section 7, except that the
specified date referred to in such subsection will be a date not more
than five days prior to the Closing Date for the purposes of this
subsection.
(xii) The Underwriter shall have received
evidence satisfactory to them that the Certificates have been rated in
the highest rating category by Moody's Investors Service, Inc. and by
Standard & Poor's Corporation.
(xiii) The Underwriter shall have received
a certificate, dated the Closing Date, of a Vice President or more
senior officer of the Company in which such officer shall state that,
to the best of his or her knowledge after reasonable investigation, the
representations and warranties of the Company in this Agreement are
true and correct on and as of the Closing Date, that the Company has
complied with all agreements and satisfied all conditions on its part
to be performed or satisfied hereunder at or prior to the Closing Date,
that the representations and warranties of the Company, as Seller, in
the Pooling and Servicing Agreement and the conditions set forth in
Section 2.2(b) of the Pooling and Servicing Agreement, are true and
correct as of the dates specified in the Pooling and Servicing
Agreement, that no stop order suspending the effectiveness of the
Registration
25
<PAGE> 26
Statement has been issued and no proceedings for that purpose have been
instituted or are threatened by the Commission and that, subsequent to
the date of the Prospectus, there has been no material adverse change
in the financial position or results of operation of the Company's
motor vehicle installment loan business except as set forth in or
contemplated by the Prospectus or as described in such certificate.
(xiv) The Underwriter shall have received
a certificate, dated the Closing Date, of a Vice President or more
senior officer of Onyx in which such officer shall state that, to the
best of his or her knowledge after reasonable investigation, the
representations and warranties of Onyx in the Purchase Agreement are
true and correct in all material respects on and as of the Closing
Date, that Onyx has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied thereunder at or
prior to the Closing Date, that the representations and warranties of
Onyx, as Servicer, in the Pooling and Servicing Agreement are true and
correct as of the dates specified in the Pooling and Servicing
Agreement, there has been no material adverse change in the financial
position or results of operation of Onyx's motor vehicle installment
loan business except as set forth in or contemplated by the Prospectus
or as described in such certificate.
(xv) The Surety Bond shall have been duly
authorized, executed, issued and delivered by the Insurer; all fees due
and payable to the Insurer as of the Closing Date shall have been paid
in full; and the Surety Bond shall conform to the description thereof
in the Registration Statement and the Prospectus.
(xvi) The Underwriter shall have received a
Certificate from a senior officer of the Insurer to the effect that
such officer has no reason to believe that the section of the
Prospectus captioned "Description of the Insurer" or any such amendment
thereof or supplement thereto as of its Effective Date or date of
issuance, as the case may be, contained any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements
26
<PAGE> 27
therein, in light of the circumstances under which
they were made, not misleading.
The Company will furnish or cause to be furnished to the
Underwriter such number of conformed copies of such opinions, certificates,
letters and documents as the Underwriter reasonably requests.
8. Indemnification.
(i) The Company will indemnify and hold
harmless the Underwriter and each person, if any, who controls the
Underwriter with the meaning of Section 15 of the Act against any
losses, claims, damages or liabilities, joint or several, to which the
Underwriter may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of, or are based upon, any untrue statement or
alleged untrue statement of any material fact contained in the
Registration Statement, the Prospectus, or any amendment or supplement
thereto, or arise out of, or are based upon, the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; and will
reimburse the Underwriter for any legal or other expenses reasonably
incurred by the Underwriter in connection with investigating or
defending any such action or claim; provided, however, that the Company
shall not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of, or is based upon, an untrue
statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by the Underwriter expressly for
use therein.
(ii) The Underwriter severally agrees to
indemnify and hold harmless the Company, its directors, each of its
officers or agents who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section
15 of the Act against any and all loss, liability, claim, damage and
expense described in the indemnity contained in subsection (i) of this
Section 8, as in-
27
<PAGE> 28
curred, but only with respect to untrue statements or omissions, or
alleged untrue statements or omissions, (A) made in the Registration
Statement (or any amendment thereto) or any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto) in reliance
upon and in conformity with written information furnished to the
Company by the Underwriter through Merrill Lynch, Pierce, Fenner &
Smith Incorporated expressly for use in the Registration Statement (or
any amendment thereto) or such preliminary prospectus or the Prospectus
(or any amendment or supplement thereto) or (B) made in the ABS Term
Sheets distributed by the Underwriter and filed as a post-effective
amendment to the Registration Statement or the Prospectus as a result
of any filing pursuant to Section 5(x); provided however that the
Underwriter will not be liable in any such case to the extent that any
such loss, claim or damage or liability arises out of, or is based
upon, an untrue statement or omission made in the ABS Term Sheet or any
supplement thereto in reliance upon and in conformity with (x)
information furnished to the Underwriter by the Company or (y)
information contained in the Registration Statement or any preliminary
prospectus or the Prospectus other than information described in clause
(A) above.
(iii) Each indemnified party shall give
prompt notice to the indemnifying party of any action commenced against
the indemnified party in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability which it may have
hereunder or otherwise than on account of this indemnity agreement. In
case any such action shall be brought against an indemnified party and
it shall have notified the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, to assume the defense
thereof, with counsel, satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel
to the indemnifying party with respect to such action), and it being
understood that the indemnifying party shall not, in connection with
any one such action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general
allegations or circum-
28
<PAGE> 29
stances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys, and, after notice from the indemnifying
party to the indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to the indemnified
party under subsections (i) or (ii) of this Section 8 for any legal
expenses of other counsel or any other expenses, in each case
subsequently incurred by the indemnified party, in connection with the
defense thereof other than reasonable costs of investigation.
9. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Section 8 is for any reason held to be unavailable other than in accordance with
its terms, then each indemnifying party shall contribute to the amount paid or
payable by such indemnifying party as a result of the losses, claims, damages or
liabilities referred to in 8(i) and 8(ii) above (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Underwriter on the other from the offering of the Certificates or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and of the Underwriter on the other in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriter on
the other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by the Underwriter.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriter and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this Section 9 shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim which is the subject of this
Section 9. Notwith-
29
<PAGE> 30
standing the provisions of this Section 9, the Underwriter shall not be required
to contribute any amount in excess of the underwriting discount or commission
applicable to the Certificates purchased by it hereunder. The Company and the
Underwriter agrees that it would not be just and equitable if contribution
pursuant to this Section 9 were determined by pro rata allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to above in this Section 9. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
10. Termination. The Underwriter may terminate this Agreement
immediately upon notice to the Company, if at any time, prior to the Closing
Date, there has occurred: (a) any change, or any development involving a
prospective change, in or affecting particularly the business or properties of
the Company or Onyx which, in the reasonable judgment of the Underwriter,
materially impairs the investment quality of the Certificates; (b) any
suspension or material limitation of trading in securities generally on the New
York Stock Exchange, or any setting of minimum prices for trading on such
exchange, or any suspension of trading of any securities of the Company or of
Onyx on any exchange or in the over-the-counter market by such exchange or
over-the-counter market or by the Commission; (c) any banking moratorium
declared by Federal, New York or California authorities; or (d) any outbreak or
material escalation of major hostilities or any other substantial national or
international calamity or emergency if, in the reasonable judgment of the
Underwriter, the effect of any such outbreak, escalation, calamity or emergency
on the United States financial markets makes it impracticable or inadvisable to
proceed with completion of the sale of and any payment for the Certificates.
11. Survival of Certain Representations and Obligations. The
respective indemnities, agreements, representations, warranties and other
statements of the Company or its officers and of the Underwriter set forth in or
made pursuant to this Agreement will remain in full force and effect, regardless
of any investigation, or statement as to the results thereof, made by or on
behalf of the Underwriter, the Company or any of their respective
representatives, officers or directors or any controlling person, and will
survive delivery of and payment for the Certificates. If for any reason the
purchase of the Certificates by the Underwriter is not consummated, the Company
shall remain responsible for the expenses to be paid or reim-
30
<PAGE> 31
bursed by it pursuant to Section 6 and the respective obligations of the Company
and the Underwriter pursuant to Sections 6, 8 and 9 shall remain in effect. If
the purchase of the Certificates by the Underwriter is not consummated for any
reason other than solely because of the occurrence of any event specified in
clauses (b), (c) or (d) of Section 7(iii), the Company will reimburse the
Underwriter for all out-of-pocket expenses (including fees and disbursements of
counsel) reasonably incurred by it in connection with the offering of the
Certificates.
12. Notices. All communications hereunder will be in writing
and, if sent to the Underwriter, will be mailed, delivered or telegraphed and
confirmed to the Underwriter at c/o Merrill Lynch & Co., World Financial Center,
Attention: Managing Director, Asset-Backed Securities Department, or to such
other address as the Underwriter may designate in writing to the Company, or if
sent to the Company, will be mailed, delivered or telegraphed and confirmed to
the Company at Onyx Acceptance Financial Corporation, 8001 Irvine Center Drive,
5th Floor, Irvine CA 92718, Attention: Regan E. Kelly, Esq., Executive Vice
President.
13. Successors. This Agreement will inure to the benefit of,
and be binding upon, the parties hereto and their respective successors. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person, firm or corporation, other than the parties hereto and their
respective successors and the controlling persons and officers and directors
referred to in Sections 8 and 9 and their heirs and legal representatives, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision herein contained. This Agreement and all conditions and
provisions hereof are intended to be for the sole and exclusive benefit of the
parties hereto and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Certificates
from the Underwriter shall be deemed to be a successor by reason merely of such
purchase.
14. Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed to be
an original, but all such counterparts shall together constitute
one and the same Agreement.
31
<PAGE> 32
15. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
16. Severability of Provisions. Any covenant, provisions,
agreement or term of this Agreement that is prohibited or is held to be void or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
17. Entire Agreement. This Agreement constitutes the entire
agreement and understanding of the parties hereto with respect to the matters
and transactions contemplated hereby and supersedes all prior agreements and
understandings whatsoever relating to such matters and transactions.
18. Amendment. Neither this Agreement nor any term hereof may
be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought.
19. Heading. The headings in this Agreement are for the
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
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> 34
Exhibit A
The information herein has been provided solely by Merrill
Lynch, Pierce, Fenner & Smith Incorporated A("Merrill Lynch"). Neither Merrill
Lynch, the Issuer of the securities nor any of its affiliates make any
representation as to the accuracy or completeness of the information herein. The
information herein is preliminary, and will be superseded by the final
prospectus and by any other information subsequently filed with the Securities
and Exchange Commission.
The information contained herein will be superseded by the
description of the collateral pool contained in the final prospectus relating to
the securities.
34
<PAGE> 1
EXHIBIT 4.1
FORM OF POOLING AND SERVICING AGREEMENT
ONYX ACCEPTANCE FINANCIAL CORPORATION
Seller
ONYX ACCEPTANCE CORPORATION
Servicer
and
BANKERS TRUST COMPANY
Trustee
POOLING AND SERVICING AGREEMENT
Dated as of March ___, 1997
ONYX ACCEPTANCE GRANTOR TRUST, 1997-1
<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..... 33
SECTION 3.7. Purchase of Contracts Upon Breach of Covenant............. 34
SECTION 3.8. Servicing Compensation.................................... 35
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
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE IV - Distributions; Statements to Certificateholders..................... 39
SECTION 4.1. Accounts................................................... 39
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
SECTION 4.6. Yield Supplement Reserve Account........................... 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
</TABLE>
ii
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<TABLE>
<S> <C>
SECTION 8.5. Insurer Direction of Insolvency Proceedings................ 57
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.................. 73
SECTION 11.9. Third Party Beneficiaries.................................. 74
SECTION 11.10. Insurer Default or Insolvency.............................. 74
SECTION 11.11. Tax Matters................................................ 74
</TABLE>
EXHIBITS
Exhibit A - Form of Appointment of Custodian
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Exhibit B - Form of Certificate
Exhibit C - Form of Surety Bond
Exhibit D - Form of Yield Supplement Agreement
Schedule I - Schedule of Contracts
Schedule II- Schedule of Accounts
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This Pooling and Servicing Agreement, dated as of March ___, 1997, is made
with respect to the formation of the Onyx Acceptance Grantor Trust, 1997-1,
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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"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 that is not a Saturday, Sunday or other day
on which commercial banking institutions or savings associations in California
or New York are authorized or required to be closed.
"Certificate" means a certificate executed and authenticated by the
Trustee substantially in the form of Exhibit B hereto.
"Certificate Distribution Amount" means, with respect to any Distribution
Date, the sum of the Interest Distribution for such Distribution Date and the
Principal Distribution for such Distribution Date, plus, but only in the case of
any Distribution Date in respect of which the Servicer purchases the corpus of
the Trust pursuant to Section 10.2, the amount of the Pool Balance for such
Distribution Date (after giving effect to the Principal Distribution for such
Distribution Date).
"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.
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"Certificate Register" and "Certificate Registrar" mean the register
maintained and the registrar appointed pursuant to Section 5.3.
"Certificateholder" or "Holder" means the Person in whose name the
respective Certificate shall be registered in the Certificate Register, except
that, solely for the purposes of giving any notices, consents or waivers
pursuant to this Agreement, the interest evidenced by any Certificate registered
in the name of the Seller or the Servicer, or any Person controlling, controlled
by, or under common control with the Seller or the Servicer, shall not be taken
into account in determining whether the requisite percentage necessary to effect
any such consent shall have been obtained.
"Clearing Account" means Account No. 4159359173 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 March __, 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, 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, (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, and (iv) the
Yield Supplement Amount with respect to such Collection Period.
"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
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preceding the immediately preceding Distribution Date to and including the sixth
Business Day preceding such Distribution Date; provided, further, however, that
with respect to the first Distribution Date the "Collection Period" for
Liquidated Contracts shall be the period from and including the beginning of the
preceding calendar month to and including the sixth Business Day preceding such
first Distribution Date.
"Contract" means each retail installment sales contract and security
agreement or installment loan agreement and security agreement and all proceeds
thereof and payments thereunder, which agreement has been executed by an Obligor
and pursuant to which such Obligor purchased or financed the Financed Vehicle
described therein, agreed to pay the deferred purchase price (i.e., the purchase
price net of any downpayment) or amount borrowed, together with interest, as
therein provided in connection with such purchase or loan, granted a security
interest in such Financed Vehicle, and undertook to perform certain other
obligations as specified in such contract. Each Contract shall have been (i)
either originated by Onyx or shall have been originated by a Dealer and assigned
to Onyx in accordance with the assignment provisions set forth therein, and (ii)
subsequently conveyed to the Trust pursuant to this Agreement.
"Contract Documents" means, with respect to each Contract, (a) the
Contract and the original credit application fully executed by the Obligor
thereunder; (b) either (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,
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Attn.: Corporate Trust and Agency Group, Structured Finance Team, or at such
other address as the Trustee may designate from time to time by notice to the
Certificateholders, the Servicer and the Insurer.
"Custodian" means initially, the Trustee, and thereafter any custodian
that may be appointed by the Trustee pursuant to Section 2.4(b).
"Cut-Off Date" means the opening of business on March , 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 1997-1, 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
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to the Insurer, as evidenced by a letter from the Insurer to that effect or (ii)
a general ledger account or deposit account at a depository institution
acceptable to the Insurer, as evidenced by a letter from the Insurer to that
effect.
"Eligible Investments" means any one or more of the following obligations
or securities, all of which shall be denominated in United States dollars:
(a) direct obligations of, and obligations fully guaranteed as to timely
payment of principal and interest by, the United States of America or any agency
or instrumentality of the United States of America the obligations of which are
backed by the full faith and credit of the United States of America and, to the
extent, at the time of investment, acceptable to the Insurer and each rating
agency rating the Certificates for securities having a rating equivalent to the
rating of the Certificates at the Closing Date, the direct obligations of, or
obligations fully guaranteed by, the Federal Home Loan Mortgage Corporation and
the Federal National Mortgage Association;
(b) demand and time deposits in, certificates of deposit of, banker's
acceptances issued by, or federal funds sold by any depository institution or
trust company (including the Trustee) incorporated under the laws of the United
States of America or any State and subject to supervision and examination by
Federal and/or State banking authorities, so long as at the time of such
investment or contractual commitment providing for such investment either (i)
the long-term, unsecured debt obligations of such depository institution or
trust company have credit ratings from Standard & Poor's at least equal to "AA-"
and from Moody's at least equal to "Aa2" or (ii) such depository institution is
acceptable to the Insurer as evidenced by a letter from the Insurer to the
Trustee;
(c) repurchase obligations with respect to (i) any security described in
clause (a) above or (ii) any other security issued or guaranteed as to timely
payment of principal and interest by an agency or instrumentality of the United
States of America, in either case entered into with a depository institution or
trust company (including the Trustee), acting as principal, whose obligations
having the same maturity as that of the repurchase agreement would be Eligible
Investments under clause (b) above;
(d) securities bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States of America or any
state thereof which at the time of such investment or contractual commitment
providing for such investment have long-term, unsecured debt obligations rated
by Standard & Poor's "AA-" or better and by Moody's "Aa2" or better; provided,
however, that securities issued by any corporation will not be Eligible
Investments to the extent that investment therein will cause the then
outstanding principal amount of securities issued by such corporation and held
as part of the Trust to exceed 10% of the aggregate Outstanding Principal
Balances of the Contracts and all amounts of Eligible Investments held as part
of the Trust;
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(e) commercial paper given the highest rating by Standard & Poor's and
Moody's at the time of such investment;
(f) investments in money market funds or money market mutual funds having
a rating from Standard & Poor's and Moody's in the highest investment category
granted thereby (including funds for which the Trustee or any of its Affiliates
is investment manager or advisor); and
(g) such other obligations or securities acceptable to the Insurer, as
evidenced by a letter from the Insurer to the Trustee (which acceptability may
be revoked at any time by the Insurer).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" means an event specified in Section 8.1.
"Final Distribution Date" means September 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.
"Initial Yield Supplement Reserve Account Balance" means the amount of
funds deposited into the Yield Supplement Reserve Account by Onyx on the Closing
Date equal to the Maximum Yield Supplement Amount.
"Insurance Agreement" means the Insurance and Reimbursement Agreement
dated as of March __, 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.
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"Insurer Insolvency" means (i) the entry of a decree or order for relief
by a court or regulatory authority having jurisdiction in respect of the Insurer
in an involuntary case under the federal bankruptcy laws, as now or hereafter in
effect, or any other present or future federal or state bank bankruptcy,
insolvency, rehabilitation or similar law, or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Insurer or with respect to any substantial part of its property, or ordering the
winding up or liquidation of the affairs of the Insurer and the continuance of
any such decree or order unstayed and in effect for a period of 60 consecutive
days; or (ii) the commencement by the Insurer of a voluntary case under the
federal bankruptcy laws, as now or hereafter in effect, or any other present or
future federal or state bankruptcy, insolvency, rehabilitation or similar law,
or the consent by the Insurer to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Insurer or of any substantial part of its property or
the making by the Insurer of an assignment for the benefit of creditors or the
failure by the Insurer generally to pay its debts as such debts become due or
the taking of corporate action by the Insurer in furtherance of any of the
foregoing.
"Interest Distribution" means, with respect to any Distribution Date
(referred to in this definition as the "current Distribution Date"), interest
equal to the product of one-twelfth of the Pass-Through Rate and the Pool
Balance as of the close of the preceding Collection Period (or, if the current
Distribution Date is the first Distribution Date, as of the Cut-Off Date) plus
the amount of interest previously due but not paid to Certificateholders, if
any.
"Lien" means a security interest, lien, charge, pledge, equity, or
encumbrance of any kind other than tax liens, mechanics' liens, and any liens
that attach to the respective Contract by operation of law.
"Liquidated Contract" means a Contract which (i) has been the subject of a
Full Prepayment; or (ii) was a Defaulted Contract and with respect to which
Liquidation Proceeds constitute, in the Servicer's 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 or the Payahead 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.
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"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.
"Maximum Yield Supplement Amount" means the aggregate for all Contracts of
the maximum Yield Supplement Amount that may become owing with respect to each
Contract assuming that payments on such Contract are made as scheduled and no
prepayments are made.
"Monthly P&I" means, with respect to any Contract, the amount of each
monthly installment payment of principal and interest payable to the Obligee of
such Contract in accordance with the terms thereof, exclusive of any charges
allocable to the financing of any insurance premium and charges which represent
late payment charges or extension fees.
"Moody's" means Moody's Investors Service, Inc. and its successors in
interest.
"Net Insurance Proceeds" means, with respect to any Contract, Insurance
Proceeds, net of any such amount applied to the repair of the related Financed
Vehicle, released to an Obligor in accordance with the normal servicing
procedures of the Servicer or representing expenses incurred by the Servicer and
recoverable hereunder.
"Net Liquidation Proceeds" means the amount derived by subtracting from
the Liquidation Proceeds of a Contract the related Liquidation Expenses.
"Obligee" means the Person to whom an Obligor is indebted under a
Contract.
"Obligor" means the purchaser or the co-purchasers of the Financed Vehicle
or any other Person who owes payments under the Contract.
"Officers' Certificate" means a Certificate signed by the Chairman, the
President or a Vice President, and by the Treasurer, an Assistant Treasurer, the
Controller, an Assistant Controller, the Secretary or an Assistant Secretary of
any Person delivering such Certificate and delivered to the Person to whom such
Certificate is required to be delivered. In the case of an Officers' Certificate
of the Servicer, at least one of the signing officers must be a Servicing
Officer. Unless otherwise specified, any reference herein to an Officers'
Certificate shall be to an Officers' Certificate of the Servicer.
"Onyx" means Onyx Acceptance Corporation and its successors in interest.
"Opinion of Counsel" means a written opinion of counsel (who may be
counsel to the Seller or the Servicer) acceptable to the Trustee and the
Insurer.
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"Original Pool Balance" means the Pool Balance as of the Cut-Off Date,
which is $85,000,000.
"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 CutOff Date.
"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.
"Pre-Funding Account" means the account designated as such and established
and maintained pursuant to Section 4.1(a).
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"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 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 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.
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"Repurchased Contract" means a Contract (i) purchased as of the Business
Day prior to the respective Servicer Report Date by the Servicer pursuant to
Section 3.7 or (ii) repurchased by the Seller pursuant to Section 2.3.
"Responsible Officer" means any officer of the Trustee within the
Corporate Trust Office including any vice president, assistant vice president,
assistant treasurer, assistant secretary or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers with direct responsibility for the administration of this
Agreement, respectively, or to whom any corporate trust matter is referred
because of his knowledge of and familiarity with the particular subject.
"Rule of 78's Contract" means a Contract as to which the portion of
payments allocable to earned interest and principal thereunder is determined
according to the "Rule of 78's." Under the "Rule of 78's," the amount of each
payment allocable to interest on a Contract is determined by multiplying the
total amount of add-on interest payable over the term of the Contract by a
fraction, the denominator of which is equal to the sum of a series of numbers
representing the total number of monthly payments due under the Contract and the
numerator of which is the number of payments remaining before giving effect to
the payment to which the fraction is being applied.
"Schedule of Contracts" means the list 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 CutOff 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
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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, the Cut-Off
Date 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 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 close of the preceding Collection Period. As
additional compensation, the Servicer will be entitled to any late fees and
other administrative
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fees and expenses or similar charges collected with respect to the Contracts.
The Servicer or its designee will also receive as servicing compensation all
investment earnings on funds credited to the Collection Account and the amount,
if any, by which the outstanding principal balance of a Rule of 78's Contract
(calculated in accordance with the Rule of 78's method) that is subject to a
Full Prepayment exceeds the Scheduled Balance of such Contract.
"Servicing Fee Percent" means 1.00% per annum.
"Servicing Officer" means any officer of the Servicer involved in, or
responsible for, the administration and servicing of the Contracts whose name
appears on a list of servicing officers furnished to the Trustee by the
Servicer, as such list may be amended or supplemented from time to time.
"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.
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"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.
"Trust" means the Onyx Acceptance Grantor Trust, 1997-1 created by this
Agreement.
"Trust Estate" has the meaning set forth in Section 2.1 hereof. The Yield
Supplement Reserve Account, 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, Hawaii, Nevada, Oregon or Washington, or if the context
requires, any other applicable state.
"Yield Supplement Agent" means Bankers Trust Company, in its capacity as
agent for the Certificateholders and the Insurer with respect to the Yield
Supplement Reserve Account as set forth in Section 4.6.
"Yield Supplement Agreement" means the Yield Supplement Agreement dated as
of the date hereof between Onyx Acceptance Financial Corporation and Onyx
Acceptance Corporation, as such agreement may be modified, supplemented or
amended from time to time. The form of the Yield Supplement Agreement is
attached hereto as Exhibit D.
"Yield Supplement Amount" means, with respect to any Contract and the
related Distribution Date (other than a Liquidated Contract or a Repurchased
Contact for Collection Periods after the Collection Period in which the contact
became a Liquidated Contract or a Repurchased Contract), for any Collection
Period the amount (if positive) calculated by the Servicer equal to one twelfth
of (i) the product of such Contract's Scheduled Balance as of the first day of
the related Collection Period and a rate equal to ___% minus (ii) 30 days of
interest on
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such Contract at its yield on such Contract's Scheduled Balance as of the first
day of the related Collection Period (using the Recomputed Yield for Rule of
78's Contracts).
"Yield Supplement Reserve Account" means the account established as the
Yield Supplement Reserve Account by Onyx in the name of the Yield Supplement
Agent pursuant to Section 4.6(a).
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.
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:
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(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;
(vii) all right, title and interest of the Seller under the Yield
Supplement Agreement; and
(viii) 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 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
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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.
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:
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(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 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
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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
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have not been waived, amended or modified in any respect, except by
instruments that are part of the Contract Documents, and no such waiver,
amendment or modification has caused such Contract to fail to meet all of
the representations, warranties and conditions, set forth herein with
respect thereto;
(xi) such Contract contains customary and enforceable provisions
such as to render the rights and remedies of the holder or assignee
thereof adequate for the practical realization against the collateral of
the benefits of the security, subject, as to enforceability, to
bankruptcy, insolvency, reorganization or similar laws affecting the
enforcement of creditors' rights generally;
(xii) as of the Closing Date, there was no default, breach,
violation or event permitting acceleration existing under such Contract
(except payment delinquencies permitted by subparagraph (v) above) and no
event which, with notice and the expiration of any grace or cure period,
would constitute such a default, breach, violation or event permitting
acceleration under such Contract, and the Seller has not waived any such
default, breach, violation or event permitting acceleration except payment
delinquencies permitted by subparagraph (v) above;
(xiii) at the Closing Date each related Financed Vehicle will be
covered by the Blanket Insurance Policy; each of Onyx and the Seller shall
at all times comply with all of the provisions of such insurance policies
applicable to it;
(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
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are due monthly in substantially equal amounts through its Maturity Date
sufficient to fully amortize the principal balance of such Contract by its
Maturity Date;
(xvii) there is only one original of such Contract and such
original, together with all other Contract Documents, is being held by the
Trustee; provided, however, that upon the execution by the Trustee and the
Servicer of a letter agreement revocably appointing the Servicer as agent
of the Trustee to act as custodian of the Contract Documents in accordance
with Section 2.4, such original Contracts together with all other Contract
Documents may be held by the Servicer. Each original Contract has been
segregated to show the Trust as owner thereof, unless the Insurer has
waived the requirement for such segregation by notice in writing to the
Trustee and the Servicer;
(xviii) as of the Closing Date, the Servicer has clearly marked its
electronic records to indicate that such Contract is owned by the Trust;
(xix) at the Cut-Off Date, no Contract has a Maturity Date later
than September 15, 2003;
(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, Hawaii, 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 ____% (after inclusion of
any applicable Yield Supplement Amount);
(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
April 15, 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:
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(i) the aggregate Outstanding Principal Balance payable by Obligors
of the Contracts as of the Cut-Off Date equals the Original Pool Balance;
and
(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 or
non-compliance with Section 2.1(c) or Section 2.1(h) shall be to require the
Seller to repurchase Contracts pursuant to this Section provided, however, that
the Seller shall indemnify the Trustee, its
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officers, directors, agents and employees, the Insurer, the Trust and the
Certificateholders against all costs, expenses, losses, damages, claims and
liabilities, including reasonable fees and expenses of counsel, which may be
asserted against or incurred by any of them as a result of third-party claims
arising out of the events or facts giving rise to such breach.
SECTION 2.4. Duties and Appointment of Custodian.
(a) Duties of Custodian. The Trustee, and any Custodian appointed pursuant
to Section 2.4(b), while acting as Custodian shall:
(i) segregate and maintain continuous custody of the Contract
Documents in secure and fireproof facilities in accordance with customary
standards for such custody;
(ii) with respect to the Contract Documents, (A) act exclusively as
the Custodian for the benefit of the Certificateholders and for the
Insurer and (B) hold all Contract Documents for the exclusive use
(notwithstanding Sections 2.4(a)(iii) and 2.4(a)(iv) below) and for the
benefit of the Certificateholders and the Insurer;
(iii) to the extent the Servicer directs the Custodian in writing,
the Custodian shall deliver certain specified Contract Documents to the
Servicer to enable the Servicer to service the Contracts pursuant to 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
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to a Contract or the related Obligor or Financed Vehicle. As of the effective
date of such Appointment of Custodian, the Contract Documents and any and all
other documents relating to a Contract or the related Obligor or Financed
Vehicle will be delivered to the Successor Custodian in its capacity as agent of
the Trustee acting as Custodian.
If the Servicer is appointed Successor Custodian as of the date specified
in the Appointment of Custodian, the Servicer shall maintain the Contract
Documents held by it in a file area physically separate from the other
installment sales contracts owned or serviced by it or any of its Affiliates,
which area shall be clearly marked to indicate the Trust as the owner of, and
the 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.
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(d) Monthly Reports. On the Servicer Report Date of each month, commencing
with the month of the Closing Date, the Servicer shall deliver to the Trustee
and Insurer, a certificate of a Servicing Officer stating (i) the Contract
Number and outstanding principal balance of each Contract that has become a
Liquidated Contract since the Business Day immediately preceding the date of the
last certificate delivered pursuant to this Section 2.5(d) (or since the Closing
Date in the case of the first such certificate); (ii) that all proceeds received
in respect of such Contract have been deposited in or credited to the Collection
Account 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
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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 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.
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(b) The Servicer shall not, nor cause the Seller to, petition or
otherwise invoke the process of any court or government authority for the
purpose of commencing or sustaining a case against the Seller under any federal
or state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Seller or any substantial part of its property, or ordering the winding
up or liquidation of the affairs of the Seller.
SECTION 2.10. Collecting Title Documents Not Delivered at the Closing
Date. In the case of any Contract in respect of which, in place of a Title
Document, the Trustee received on the Closing Date written evidence from the
Dealer selling the related Financed Vehicle, 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
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any payment on the related Contract of which is four or more months delinquent.
Without limiting the generality of the foregoing, but subject to the provisions
of this Agreement, the Servicer is authorized and empowered by the Trustee to
execute and deliver, on behalf of itself, the Trust, the Insurer, the
Certificateholders, or the Trustee or any of them, any and all instruments of
satisfaction or cancellation, or partial or full release or discharge, and all
other comparable instruments, with respect to the Contracts or to the Financed
Vehicles. The Trustee shall furnish the Servicer any documents necessary or
appropriate to enable the Servicer to carry out its servicing and administrative
duties hereunder. The Servicer may engage agents and subservicers to fulfill its
duties hereunder; provided, however, that the Servicer shall remain at all times
personally liable for the acts (and failures to act) of such agents and
subservicers.
On or prior to the Closing Date, the Servicer shall deliver to the
Insurer and the Trustee a list of Servicing Officers of the Servicer involved
in, or responsible for, the administration and servicing of the Contracts, which
list shall from time to time be updated by the Servicer on request of the
Trustee or the Insurer.
On the Closing Date, the Servicer shall deposit in the Collection
Account (i) all installments of Monthly P&I due on or after the Cut-Off Date and
received by the Servicer at least two Business Days prior to the Closing Date;
(ii) the proceeds of each Full Prepayment of any 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.
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In order to facilitate the servicing of the Contracts by the Servicer,
the Servicer shall retain, subject to and only to the extent permitted by the
provisions of this Agreement, all collections on the Contracts prior to the time
they are remitted or credited, in accordance with such provisions, to the
Collection Account or the Payahead Account, as the case may be. The Servicer
acknowledges that the unremitted collections on the Contracts are part of the
Trust Estate and the Servicer agrees to act as custodian and bailee of the
Trustee and the Insurer in holding such monies and collections. The Servicer
agrees, for the benefit of the Trustee, the Trust, the Certificateholders and
the Insurer, to act as such custodian and bailee, and to hold and deal with such
monies and such collections, as custodian and bailee for the Trustee and the
Insurer, in accordance with the provisions of this Agreement.
The Servicer shall retain all data (including, without limitation,
computerized 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
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at public or private sale. In connection with such repossession or other
conversion, the Servicer shall follow such practices and procedures as it shall
deem necessary or advisable and as shall be normal and usual for prudent holders
of retail installment sales contracts and as shall be in compliance with all
applicable laws, and, in connection with the repossession of any Financed
Vehicle or any contract in default, may commence and prosecute any proceedings
in respect of such Contract in its own name or, if the Servicer deems it
necessary, in the name of the Trust or on behalf of the Trust. The Servicer's
obligations under this Section are subject to the provision that, in the case of
damage to a Financed Vehicle from an uninsured cause, the Servicer shall not be
required to expend its own funds in repairing such motor vehicle unless it shall
determine (i) that such restoration will increase the proceeds of liquidation of
the related Contract, after reimbursement to itself for such expenses and (ii)
that such expenses will be recoverable by it either as Liquidation Expenses or
as expenses recoverable under an applicable insurance policy. The Servicer shall
be responsible for all other costs and expenses incurred by it in connection
with any action taken in respect of a Defaulted Contract; provided, however,
that it shall be entitled to reimbursement of such costs and expenses to the
extent they constitute Liquidation Expenses or expenses recoverable under an
applicable insurance policy. All Net Liquidation Proceeds and Net Insurance
Proceeds shall be deposited directly in or credited to the Collection Account
(without deposit in any intervening account) to the extent required by Section
4.2.
SECTION 3.4. Insurance. The Servicer shall cause to be maintained the
Blanket Insurance Policy with the Trustee as the named payee thereunder with
respect to the Contracts.
SECTION 3.5. Maintenance of Security Interests in Financed Vehicles.
The Servicer shall take such steps as are necessary to maintain continuous
perfection and priority of the security interest created by each Contract in the
related Financed Vehicle, including but not limited to, obtaining the execution
by the related Obligor and the recording, registering, filing, re-recording,
re-registering, and refiling of all security agreements, financing statements,
continuation statements or other instruments as are necessary to maintain the
security interest granted by such Obligor under each respective Contract. The
Trustee hereby authorizes the Servicer to take such steps as are necessary to
re-perfect such security interest on behalf of the Trust in the event of the
relocation of a Financed Vehicle or for any other reason. In the event that the
assignment of a Contract to the Trust is insufficient, without a notation on the
related Financed Vehicle's certificate of title (or, 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.
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SECTION 3.6. Covenants, Representations and Warranties of Servicer. The
Servicer hereby makes the following covenants, representations and warranties on
which the Trustee shall rely accepting the Contracts in trust and authenticating
the Certificates.
(a) The Servicer covenants as to the Contracts:
(i) the Financed Vehicle securing each Contract shall not be
released from the lien granted by the Contract in whole or in part,
except as contemplated herein;
(ii) the Servicer shall not impair the rights of the Trust in
the Contracts;
(iii) the Servicer shall not increase the number of payments
under a Contract, nor increase the amount financed under a Contract,
nor extend or forgive payments on a Contract, except as provided in
Section 3.2; and
(iv) the Servicer may consent to the sale or transfer by an
Obligor of any Financed Vehicle if the original Obligor under the
related Contract remains liable under such Contract and the transferee
assumes all of the Obligor's obligations thereunder.
(b) The Servicer represents and warrants as of the Closing Date:
(i) the Servicer (1) has been duly organized, is validly
existing and in good standing as a corporation organized and existing
under the laws of the State of Delaware, (2) has qualified to do
business as a foreign corporation and is in good standing in each
jurisdiction where the character of its properties or the nature of its
activities makes such qualification necessary, and (3) has full power,
authority and legal right to own its property, to carry on its business
as presently conducted, and to enter into and perform its obligations
under this Agreement;
(ii) the execution and delivery by the Servicer of this
Agreement are within the corporate power of the Servicer and have been
duly authorized by all necessary corporate action on the part of the
Servicer. Neither the execution and delivery of this Agreement, nor the
consummation of the transactions herein contemplated, nor compliance
with the provisions hereof, will conflict with or result in a breach
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,
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bureau or agency in connection with the execution, delivery,
performance, validity or enforceability of this Agreement;
(iv) this Agreement has been duly executed and delivered by
the Servicer and, assuming the due authorization, execution and
delivery thereof by the Trustee, constitutes a legal, valid and binding
obligation of the Servicer enforceable against the Servicer in
accordance with its terms (subject to applicable bankruptcy and
insolvency laws and other similar laws affecting the enforcement of
creditors' rights generally);
(v) there are no actions, suits or proceedings pending or, to
the knowledge of the Servicer, threatened against or affecting the
Servicer, before or by any court, administrative agency, arbitrator or
governmental body with respect to any of the transactions contemplated
by this Agreement, or which will, if determined adversely to the
Servicer, materially and adversely affect it or its business, assets,
operations or condition, financial or otherwise, or adversely affect
the Servicer's ability to perform its obligations under this Agreement.
The Servicer is not in default with respect to any order of any court,
administrative agency, arbitrator or governmental body so as to
materially and adversely affect the transactions contemplated by the
above-mentioned documents; and
(vi) the Servicer has obtained or made all necessary consents,
approvals, waivers and notifications of creditors, lessors and other
nongovernmental persons, in each case, in connection with the execution
and delivery of this Agreement, and the consummation of all the
transactions herein contemplated.
SECTION 3.7. Purchase of Contracts Upon Breach of Covenant. The
Servicer or the Trustee shall inform the other party and the Insurer promptly,
in writing, upon the discovery of any breach of the representation and
warranties set forth in Section 3.6 and the covenants set forth in Section 3.5.
Unless the breach shall have been cured within 30 days following such discovery
or receipt of notice of such breach, the Servicer shall purchase any Contract
materially and adversely affected by such breach from the Trust. As
consideration for the Contract, the Servicer shall remit the Repurchase Amount
on the Business Day preceding the Servicer Report Date next succeeding the end
of such 30-day cure period in the manner specified in Section 4.4. 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.
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SECTION 3.8. Servicing Compensation. As compensation for the
performance of its obligations under this Agreement and subject to the terms of
this Section 3.8, the Servicer shall be entitled to receive on each Distribution
Date the Servicing Fee in respect of each Contract that was Outstanding at the
beginning of the Collection Period ending immediately prior to such Distribution
Date. As servicing compensation in addition to the Servicing Fee, the Servicer
shall be entitled (i) to retain all late payment charges, extension fees and
similar items paid in respect of Contracts, (ii) to receive, in respect of each
Rule of 78's Contract that is prepaid in full prior to its Maturity Date, the
amount by which the outstanding principal balance of such Contract (determined
in accordance with the Rule of 78's method) exceeds the Scheduled Balance of
such Contract at the time of such prepayment and (iii) to receive all investment
earnings on funds credited to the Collection Account; provided, however, that
the Servicer agrees that each amount payable to it pursuant to clause (ii) of
this Section 3.8 shall be deposited in the Spread Account and applied in
accordance with the Insurance Agreement. The Servicer shall pay all expenses
incurred by it in connection with its servicing activities hereunder and shall
not be entitled to reimbursement of such expenses except to the extent provided
in Section 3.3.
SECTION 3.9. Reporting by the Servicer.
(a) No later than 3:00 p.m. New York City time on each Servicer Report
Date, the Servicer shall transmit to the Trustee and the Insurer a statement
(the "Distribution Date Statement") setting forth with respect to the next
succeeding Distribution Date:
(i) the 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;
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(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.
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:
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(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) the Yield Supplement Amount with respect to such
Collection Period and the amount, if any, withdrawn from the Yield
Supplement Reserve Account in payment thereof;
(vii) any other information relating to the Contracts
reasonably requested by the Trustee or the Insurer; and
(viii) the amount of Net Liquidation Proceeds and Net
Insurance Proceeds which have been deposited in or credited to the
Collection Account in respect of the Collection Period ending
immediately prior to such Servicer Report Date and the cumulative
amount of Net Liquidation Proceeds and Net Insurance Proceeds deposited
in or credited to the Collection Account during the preceding
Collection Periods.
SECTION 3.10. Annual Statement as to Compliance.
(a) The Servicer shall deliver to the Trustee and the Insurer, on or
before March 15, 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 15, 1998 and on or before March 15 of each fiscal year
thereafter, the Servicer at its expense shall cause a firm of
nationally-recognized independent certified public accountants (who may also
render other services to the Servicer) to furnish a report to the Trustee and
the Insurer
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to the effect that (i) they have audited the balance sheet of the Servicer as of
the last day of said fiscal year and the related statements of operations,
retained earnings and cash flows for such fiscal year and have issued an opinion
thereon, specifying the date thereof, (ii) they have also audited the reports
delivered by the Servicer pursuant to Section 3.9(b) and certain other documents
and the records relating to the servicing of the Contracts and the distributions
on the Certificates under this Agreement, (iii) their audit as described under
clauses (i) and (ii) above was made in accordance with generally accepted
auditing standards and accordingly included such tests of the accounting records
and such other auditing procedures as they considered necessary in the
circumstances, and (iv) their audits described under clauses (i) and (ii) above
disclosed no exceptions which, in their opinion, were material, relating to the
servicing of such Contracts in accordance with this Agreement and the making of
distributions on the Certificates in accordance with this Agreement, or, if any
such exceptions were disclosed thereby, setting forth those exceptions which, in
their opinion, were material.
SECTION 3.12. Access to Certain Documentation and Information Regarding
Contracts. If the Servicer is acting as Custodian, the Servicer shall provide to
the Certificateholders, the Trustee and the Insurer reasonable access to the
Contract Files. Access shall be afforded without charge, but only upon
reasonable request and during normal business hours at designated offices of the
Servicer. Nothing in this Section shall affect the obligation of the Servicer to
observe any applicable law prohibiting disclosure of information regarding the
Obligors, and the failure of the Servicer to provide access to information as a
result of such obligation shall not constitute a breach of this Section 3.12.
SECTION 3.13. Fidelity Bond. The Servicer shall maintain a fidelity
bond in such form and amount as is customary for banks acting as custodian of
funds and documents in respect of mortgage loans or consumer contracts on behalf
of institutional investors.
SECTION 3.14. Indemnification; Third Party Claims. The Servicer agrees
to indemnify and hold the Trust, the Trustee and its officers, directors, agents
and employees, and the Certificateholders harmless against any and all claims,
losses, penalties, fines, forfeitures, reasonable legal fees and related costs,
judgments, and any reasonable other costs, fees and expenses that the Trustee or
the Certificateholders may sustain because of the failure of the Servicer to
perform its duties and service the Contracts in compliance with the terms of
this Agreement. The Servicer shall immediately notify the Trustee if a claim is
made by a third party with respect to the Contracts, shall assume, with the
consent of the Trustee, the defense of any such claim and shall pay all expenses
in connection therewith, including counsel fees, and shall promptly pay,
discharge and satisfy any judgment or decree which may be entered against it or
the Trustee or the Certificateholders.
SECTION 3.15. Reports to Certificateholders and the Rating Agencies.
(a) The Trustee at its own expense shall provide to each
Certificateholder a copy of each Distribution Date Statement described in
Section 3.9 concurrently with the delivery of the statement described in Section
4.5 below.
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(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.
ARTICLE IV
Distributions; Statements to Certificateholders
SECTION 4.1. Accounts.
(a) Prior to the Closing Date, the Servicer shall open, at a depository
institution (which may be the Trustee), the following accounts for the benefit
of the Certificateholders: (i) an account denominated "Collection Account--GT
1997-1, Bankers Trust Company, Trustee" (the "Collection Account") and (ii) an
account denominated "Payahead Account--GT 1997-1, 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
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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 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. The Servicer shall deposit the
Yield Supplement Amount with respect to each Collection Period to the Collection
Account no later than the immediately following Servicer Report Date provided,
that if the Servicer fails to make such deposit, the Yield Supplement Agent,
pursuant to Section 4.6(a)(ii), shall withdraw the Yield Supplement Amount from
the Yield Supplement Reserve Account on the Servicer Report Date and deposit
such amount into 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.
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(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).
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.
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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 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
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during a portion of such calendar year, for the applicable portion of such year,
for the purposes of such Certificateholder's preparation of federal income tax
returns.
SECTION 4.6. Yield Supplement Reserve Account.
(a) On or before the Closing Date, pursuant to the terms of the Yield
Supplement Agreement, Onyx shall establish and maintain a separate trust account
in the name of the Yield Supplement Agent, as agent for the Certificateholders
and the Insurer (the "Yield Supplement Reserve Account") to secure the payment
of any Yield Supplement Amounts required to be paid on any Servicer Report Date
pursuant to the Yield Supplement Agreement which Onyx has not paid as of the
Business Day prior to such Servicer Report Date. The Yield Supplement Reserve
Account shall be established at a depository institution (which may be the
Trustee) and shall be an Eligible Account. The location and account number of
the Yield Supplement Reserve Account as of the Closing Date are set forth on
Schedule II. On the date of issuance of the Certificates, pursuant to the Yield
Supplement Agreement, Onyx shall deposit the Initial Yield Supplement Reserve
Account Balance into the Yield Supplement Reserve Account. The Yield Supplement
Reserve Account shall not be part of the Trust. Each of the Certificateholders
on behalf of itself and its successors and assigns (including, but not limited
to any future Certificateholder), and the Insurer hereby appoints the Yield
Supplement Agent, acting in its capacity as agent for the purposes of this
Section 4.6 and not as Trustee with respect to the Yield Supplement Reserve
Account, as its agent and the Yield Supplement Agent hereby accepts such
appointment subject to the terms and conditions hereof. In order to secure the
obligations of Onyx and the Seller under the Yield Supplement Agreement, Onyx
and the Seller hereby pledge and grant a security interest in and to the Yield
Supplement Reserve Account, all funds and investments on deposit therein or
credited thereto and all proceeds thereof to the Yield Supplement Agent and its
successors and assigns, subject, however, to the limitations set forth below:
(i) All or a portion of the Yield Supplement Reserve Account
may be invested and reinvested in Eligible Investments in accordance
with written instructions from Onyx. All such investments shall be made
in the name of the Yield Supplement Agent and all income and gain
realized thereon shall be solely for the benefit of Onyx and shall be
paid by the Yield Supplement Agent, or on behalf of the Yield
Supplement Agent by the depository institution maintaining the Yield
Supplement Reserve Account, to Onyx on each Servicer Report Date from
time to time upon Onyx's written request to the Yield Supplement Agent;
and
(ii) If with respect to any Collection Period the Seller or
Onyx shall have failed to make or cause to be made in full the
remittance of the Yield Supplement Amount on the date required by the
Yield Supplement Agreement, the Yield Supplement Agent on the Servicer
Report Date, shall, upon the written direction of the Servicer or the
Insurer, at the opening of business on the Servicer Report Date,
withdraw from the Yield Supplement Reserve Account and deposit into the
Collection Account, the amount of the shortfall between the amount of
funds that are required to be remitted by the Seller or Onyx with
re-
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spect to the Yield Supplement Agreement as set forth in the report
delivered by the Servicer pursuant to Section 3.9(b) and the amount of
funds actually so remitted.
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.
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.
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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 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
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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:
(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
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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 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
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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 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
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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:
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
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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.
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.
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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 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
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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.
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.
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(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 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
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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.
ARTICLE VIII
Default
SECTION 8.1. Events of Default. If any one of the following events
("Events of Default") shall occur and be continuing:
(a) any failure by the Servicer to deposit in or credit to the
Collection Account, the Payahead Account or the Yield Supplement Reserve 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
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(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 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,
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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.
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
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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 of principal of, or interest on, any Contract
or any Certificate. Each Certificateholder, by its purchase of Certificates, and
the Trustee hereby agree that, so long as neither a default under the Surety
Bond nor an Insurer Insolvency has occurred and is continuing, the Insurer may
at any time during the continuation of an Insolvency Proceeding direct all
matters relating to such Insolvency Proceeding, including, without limitation,
(i) all matters relating to any Preference Claim, (ii) the direction of any
appeal of any order relating to any Preference Claim and (iii) the posting of
any surety, or performance bond pending any such appeal. The Insurer shall be
subrogated to the rights of the Trustee and each Certificateholder in the
conduct of any Insolvency Proceeding, including, without limitation, all rights
of any party to an adversary proceeding action with respect to any court order
issued in connection with any such Insolvency Proceeding.
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ARTICLE IX
The Trustee
SECTION 9.1. No Power to Engage in Business or to Vary Investments.
Notwithstanding any provision or agreement to the contrary in this Agreement or
in any other agreement, the Trustee, acting on behalf of the Trust (but not
individually), shall not have any power to engage in any business, commercial or
other activity for profit, and the Trustee and the Servicer shall not have any
power to vary the Trust Estate, whether consisting of a Contract, an Eligible
Investment or any other amount (other than cash payments received with respect
to Contracts) in any account maintained for the benefit of the Trust or the
Certificateholders or Certificate Owners, by disposition of said property,
investment or amount and the reinvestment of the proceeds realized or by any
other action calculated to take advantage of any variation or change in the
market or in market conditions, for the purpose of improving the investment or
return of the Certificateholders or Certificate Owners.
SECTION 9.2. Duties of Trustee. The Trustee, both prior to and after
the occurrence of an Event of Default, of which a Responsible Officer of the
Trustee has actual knowledge shall undertake to perform such duties and only
such duties as are specifically set forth in 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:
(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;
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(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.
In the event the entity acting as Trustee hereunder is also acting as
Yield Supplement Agent or successor Servicer, the rights and protections
afforded to the Trustee pursuant to this Article IX shall also be afforded to
such Yield Supplement Agent and successor Servicer.
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 Yield Supplement Reserve Account or 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 regulatory
requirements related to the Contracts. The Trustee shall not make or be deemed
to
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have made any representations or warranties with respect to the Contracts or the
validity or sufficiency of any assignment of the Contracts to the Trust or the
Trustee.
All information obtained by the 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,
provided that nothing in this Section 9.3 shall require the
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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
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by the security afforded to it by the terms of this Agreement, the Trustee may
require reasonable indemnity against such cost, expense, or liability as a
condition to so proceeding. The reasonable expense of any and every such
examination shall be paid by the Seller or, if paid by the Trustee, shall be
reimbursed by the Seller upon demand. Nothing in this clause (e) shall affect
the obligation of the Seller to observe any applicable law prohibiting
disclosure of information regarding the Obligors; provided the Trustee shall be
entitled to make such further inquiry or investigation into such facts or
matters as it may reasonably see fit, and if the Trustee shall determine to make
such further inquiry or investigation, it shall be entitled to examine the books
and records of the Seller, personally or by agent or attorney, at the sole cost
and expense of the Seller;
(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
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responsible for any Trust property that it may hold); the acts or omissions of
the Seller or any Obligor; an action of the Servicer taken in the name of the
Trustee; or any action by the Trustee taken at the instruction of the Servicer;
provided, however, that the foregoing shall not relieve the Trustee of its
obligation to perform its duties under this Agreement. Except with respect to a
claim based on the failure of the Trustee to perform its duties under this
Agreement or based on the Trustee's negligence or willful misconduct in the
performance of its duties hereunder, no recourse shall be had for any claim
based on any provision of this Agreement, the Certificates, or any Contract or
assignment thereof against the Trustee in its individual capacity. The Trustee
shall not have any personal obligation, liability, or duty whatsoever to any
Certificateholder or any other Person with respect to any such claim, and any
such claim shall be asserted solely against the Trust or any indemnitor who
shall furnish indemnity as provided in this Agreement. The Trustee shall not be
accountable for the use or application by the Seller of any of the 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
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written instrument, in duplicate, one copy of which instrument shall be
delivered to the Trustee so removed and one copy to the successor Trustee.
If the Trustee is acting as Custodian, any resignation or removal of the
Trustee will result in the automatic termination of the Trustee's duties as
Custodian effective concurrently with such resignation or removal. Upon such
termination or removal, the Trustee shall, upon the request of the Servicer,
deliver the Contract Documents to the facilities of the successor Trustee.
Any resignation or removal of the Trustee and appointment of a successor
Trustee pursuant to any of the provisions of this Section 9.10 shall not become
effective until acceptance of appointment by the successor Trustee pursuant to
Section 9.11.
SECTION 9.11. Successor Trustee. Any successor Trustee appointed pursuant
to Section 9.10 shall execute, acknowledge, and deliver to the Servicer and to
its predecessor Trustee an instrument accepting such appointment under this
Agreement, and thereupon the resignation or removal of the predecessor Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become fully vested with all the rights, powers, duties,
and obligations of its predecessor under this Agreement, with like effect 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
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be a party, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to the business of the Trustee, shall be the successor of the Trustee
hereunder, provided such corporation shall be eligible pursuant to Section 9.9,
without the execution or filing of any instrument or any further act on the part
of any of the parties hereto, anything herein to the contrary notwithstanding.
SECTION 9.13. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust or any Financed Vehicle may at the time be located, the Servicer
and the Trustee acting jointly shall have the power and shall execute and
deliver all instruments to appoint one or more Persons approved by the Trustee
to act as co-trustee, jointly with the Trustee, or separate trustee or separate
trustees, of all or any part of the Trust, and to vest in such Person, in such
capacity and for the benefit of the Certificateholders, such title to the Trust,
or any part thereof, and, subject to the other provisions of this Section 9.13,
such powers, duties, obligations, rights, and trusts as the Servicer and the
Trustee may consider necessary or desirable. If the Servicer shall not have
joined in such appointment within 15 days after the receipt by it of a written
request so to do, or in case an Event of Default shall have occurred and be
continuing, the Trustee alone shall have the power to make such appointment. No
co-trustee or separate trustee under this Agreement shall be required to meet
the terms of eligibility as a successor trustee pursuant to 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.
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Any notice, request or other writing given to the Trustee shall be deemed
to have been given to each of the then separate trustees and co-trustees, as
effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article IX. Each separate trustee and co-trustee, upon its acceptance of
the trusts conferred, shall be vested with the estates or property specified in
its instrument of appointment, either jointly with the Trustee or separately, as
may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Each
such instrument shall be filed with the Trustee and a copy thereof given to the
Servicer.
Any separate trustee or co-trustee may at any time, appoint the Trustee,
its agent or attorney-in-fact with full power and authority, to the extent not
prohibited by law, to do any lawful act under or in respect of this Agreement on
its behalf and in its name. No such appointment shall affect the obligations of
the Trustee hereunder. If any separate trustee or co-trustee shall die, become
incapable of acting, resign or be removed, all of its estates, properties,
rights, remedies and trusts shall vest in and be exercised by the Trustee, to
the extent permitted by law, without the appointment of a new or successor
trustee.
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
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furnish the Servicer with all such information known to the Trustee as may
be reasonably required in connection with the preparation of all tax returns of
the Trust, and shall, upon request, execute such returns. In no event shall the
Trustee in its individual capacity be liable for any liabilities, costs or
expenses of the Trust, the Certificateholders, the Seller or the Servicer
arising under any tax law or regulation, including, without limitation, federal,
state or local income or excise taxes or any other tax imposed on or measured by
income (or any interest or penalty with respect thereto or arising from any
failure to comply therewith).
SECTION 9.16. Trustee May Enforce Claims Without Possession of
Certificates. All rights of action and claims under 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
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payment to Certificateholders of all amounts required to be paid to them
pursuant to this Agreement and the disposition of all property held as part of
the Trust, (b) termination of the Surety Bond in accordance with its terms and
surrender of the Surety Bond to the Insurer for cancellation, (c) the payment of
all amounts owed to the Trustee under this Agreement and (d) the payment of all
amounts owed to the Insurer under the Insurance Agreement, provided, however,
that in no event shall the trust created by 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
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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.
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.
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.
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SECTION 11.2. Protection of Title to Trust.
(a) The Servicer shall execute and file such financing statements and
cause to be executed and filed such continuation statements, all in such manner
and in such places as may be required by law fully to preserve, maintain, and
protect the interest of the Certificateholders, the Insurer and the Trustee
under this Agreement in the Contracts and in the proceeds thereof. The Servicer
shall deliver (or cause to be delivered) to the Trustee file-stamped copies of,
or filing receipts for, any document filed as provided above, as soon as
available following such filing.
(b) Neither the Seller nor the Servicer shall change its name, identity,
or corporate structure in any manner that would, could or might make any
financing statement or continuation statement filed by the Servicer in
accordance with paragraph (a) above seriously misleading within the meaning of
Section9-402(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 printouts
(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.
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(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.
(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.
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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 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
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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
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.
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This Agreement may be executed in several counterparts, each of which
shall be an original and all of which shall constitute but one and the same
instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of the
day and year first above written.
ONYX ACCEPTANCE FINANCIAL
CORPORATION,
as Seller
By:
------------------------------------
Name:
Title:
ONYX ACCEPTANCE CORPORATION,
as Servicer
By:
------------------------------------
Name:
Title:
BANKERS TRUST COMPANY,
not in its individual capacity but solely as
Trustee
By:
------------------------------------
Name:
Title:
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Exhibit A
Form of Appointment
of Custodian
[Name and address of Custodian]
Re: Onyx Acceptance 1997-1 Grantor Trust
___% Auto Receivable Pass-Through
Certificates, 1997-1
Dear Sirs:
Reference is hereby made to the Pooling and Servicing Agreement (the
"Agreement") dated as of March ___, 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> 83
ACCEPTED AND AGREED:
ONYX ACCEPTANCE CORPORATION
By:
----------------------------------
Name:
Title:
CONSENTED AND AGREED:
CAPITAL MARKETS ASSURANCE CORPORATION
By:
----------------------------------
Name:
Title:
A-2
<PAGE> 84
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 1997-1 GRANTOR TRUST
_____% AUTO LOAN PASS-THROUGH CERTIFICATE, SERIES 1997-1
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 the Trust by Onyx Acceptance
Financial Corporation.
(This Certificate does not represent an interest in or obligation of Onyx
Acceptance Financial Corporation, Onyx Acceptance Corporation, or any of their
respective affiliates.)
Certificate No. Final Distribution Date: September 15, 2003
CUSIP: _____________________
THIS CERTIFIES THAT CEDE & CO. is the registered owner of a
_________ dollar, nonassessable, fully paid, fractional undivided interest, in
the amount set forth above, in the Onyx Acceptance Grantor Trust, 1997-1 (the
"Trust") formed by Onyx Acceptance Financial Corporation (the "Seller"). The
Trust was created pursuant to a Pooling and Servicing Agreement dated as of
March ___, 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
B-1
<PAGE> 85
the Seller and secured by new and used automobiles and light-duty trucks (the "
Financed Vehicles"), (ii) certain documents relating to the Contracts, (iii)
certain monies due thereunder on or after the Cut-Off Date, (iv) security
interests in the Financed Vehicles and the rights to receive proceeds from
claims on certain insurance policies covering the Financed Vehicles or the
individual Obligor under each related Contract and the Seller's right to
proceeds under the Blanket Insurance Policy, (v) all amounts on deposit in the
Collection Account, including all Eligible Investments credited thereto (but
excluding investment earnings thereon), (vi) the benefits under an irrevocable
principal/interest surety bond issued by Capital Markets Assurance Corporation
(the "Insurer"), (vii) certain rights of the Seller under the Purchase
Agreement, (viii) all right, title and interest of the Seller under the Yield
Supplement Agreement, dated as of March ___, 1997 between the Seller and Onyx
and (ix) 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 April 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 immediately
preceding Collection Period (or if the current Distribution Date is the first
Distribution Date as of the Closing Date) plus the amount of interest previously
due but not paid to Certificateholders, if any. The monthly principal on each
given Distribution Date shall be the sum of the Aggregate Scheduled Balance
Decline during the related Collection Period. The distribution is more fully
described in the Agreement.
Distributions on this Certificate will be made by the Trustee by
check mailed to the Certificateholder of record in the Certificate Register
without the presentation or surrender of this Certificate or the making of any
notation hereon. Except as otherwise provided in the Agreement and
notwithstanding the above, the final distribution on this Certificate will be
made after due notice by the Trustee of the pendency of such distribution and
only upon presentation and surrender of this Certificate at the office or agency
maintained for that purpose by the Trustee and Certificate Registrar in the
Borough of Manhattan, the City of New York.
Reference is hereby made to the further provisions of this
Certificate set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
All capitalized terms used herein not otherwise defined shall have
the meaning assigned thereto in the Agreement.
Unless the authentication hereon shall have been executed by an
authorized officer of the Trustee or by an authenticating agent acting on behalf
of the Trustee, by manual signature, this certificate shall not entitle the
holder hereof to any benefit under the Agreement or be valid for any purpose.
B-2
<PAGE> 86
IN WITNESS WHEREOF, the Trustee, on behalf of the Trust, and not in
its individual capacity, has caused this Certificate to be duly executed.
ONYX ACCEPTANCE 1997-1 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> 87
[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.
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<PAGE> 88
The Trustee, the Certificate Registrar, and any agent of the Trustee
or the Certificate Registrar may treat the person in whose name this Certificate
is registered as the owner hereof for all purposes, and neither the Trustee, the
Certificate Registrar, nor any such agent shall be affected by any notice to the
contrary.
The obligations and responsibilities created by the Agreement and
the Trust created thereby shall terminate upon the earlier of (i) the maturity
or other liquidation of the last Contract (including pursuant to the Servicer's
option to purchase the Contracts) and the disposition of any amounts received
upon liquidation of any remaining Contracts in the Trust and (ii) (a) the
payment to Certificateholders of all amounts required to be paid to them
pursuant to the Agreement and the disposition of all property held as part of
the Trust, (b) termination of the Surety Bond in accordance with its terms and
the surrender of the Surety Bond to the Insurer for cancellation, (c) the
payment of all amounts owed to the Trustee under the Agreement and (d) the
payment of all amounts owed to the Insurer under the Insurance Agreement. The
Servicer's exercise of its right to purchase all the Contracts and other
property of the Trust will effect early retirement of the Certificates; however,
such right of purchase is exercisable only as of a Distribution Date as of which
the Pool Factor was less then .100000.
B-5
<PAGE> 89
Exhibit C
Form of Surety Bond
MARCH __, 1997
SURETY BOND NO. SB_____
RE: ONYX ACCEPTANCE GRANTOR TRUST 1997-1 _____%
AUTO LOAN PASS - THROUGH CERTIFICATES, SERIES 1997-1
(THE "CERTIFICATES")
INSURED OBLIGATION: OBLIGATION OF ONYX ACCEPTANCE GRANTOR TRUST 1997-1 (THE
"TRUST") TO PAY PRINCIPAL AND INTEREST ON THE CERTIFICATES
BENEFICIARY: BANKERS TRUST COMPANY, AS TRUSTEE OF THE TRUST (TOGETHER
WITH ANY SUCCESSOR TRUSTEE DULY APPOINTED AND QUALIFIED
UNDER THE POOLING AND SERVICING AGREEMENT AS DEFINED BELOW
(THE "TRUSTEE")
CAPITAL MARKETS ASSURANCE CORPORATION ("CAPMAC"), for consideration
received, hereby unconditionally and irrevocably guarantees to the Trustee,
subject only to the terms of this Principal/Interest Surety Bond (the "Surety
Bond"), payment of the Insured Obligation. CapMAC agrees to pay (a) to the
Trustee, in respect of each Distribution Date, an amount equal to the amount, if
any, by which the sum of (i) the Interest Distribution for such Distribution
Date, (ii) the Principal Distribution for such Distribution Date and (iii) the
Servicing Fee for such Distribution Date exceeds the Collection Account Amount
Available for such Distribution Date and (b) on behalf of the Trustee, an amount
equal to any Avoided Payment;
provided, however, that no payment (other than any payment made in respect of
Avoided Payments) under this Surety Bond with respect to any Distribution Date
shall exceed the Surety Bond Amount for such Distribution Date.
Capitalized terms used herein and not otherwise defined herein shall have
the meanings assigned to them in the Pooling and Servicing Agreement dated as of
March ___, 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> 90
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
C-2
<PAGE> 91
voided payment, made in respect of any Certificate (an "Avoided Payment"),
CapMAC will pay an amount equal to such Avoided Payment, irrevocably, absolutely
and unconditionally and without the assertion of any defenses to payment,
including fraud in inducement or fact or any other circumstances that would have
the effect of discharging a surety in law or in equity, upon payment of such
Certificateholder of such Avoided Payment and receipt by CapMAC from the Trustee
on behalf of such Certificateholder of (x) a certified copy of a final order of
a court exercising jurisdiction in such Insolvency Proceeding to the effect that
the Certificateholder is required to return any such payment or portion thereof
prior to the Termination Date of this Surety Bond because such payment was
voided under applicable law, with respect to which order the appeal period has
expired without an appeal having been filed (the "Final Order"), (y) an
assignment, substantially in the form attached hereto as Exhibit B, properly
completed and executed by such Certificateholder irrevocably assigning to CapMAC
all rights and claims of such Certificateholder relating to or arising under
such Avoided Payment, and (z) a Notice for Payment in the form of Exhibit A
hereto appropriately completed and executed by the Trustee.
CapMAC shall make payments due in respect of Avoided Payments prior to 1:00
p.m. New York City time on the second Business Day following CapMAC's receipt of
the documents required under clauses (x) through (z) of the preceding paragraph.
Any such documents received by CapMAC after 3:00 p.m. New York City time on any
Business Day or on any day that is not a Business Day shall be deemed to have
been received by CapMAC prior to 3:00 p.m. on the next succeeding Business Day.
All payments made by CapMAC hereunder on account of any Avoided Payment shall be
made to the Trustee for the benefit of the Certificateholder entitled to such
payment.
CapMAC hereby waives and agrees not to assert any and all rights to require
the Trustee to make demand on or to proceed against any person, party or
security prior to the Trustee demanding payment under this Surety Bond.
No defenses, set-offs and counterclaims of any kind available to CapMAC so
as to deny payment of any amount due in respect of this Surety Bond will be
valid and CapMAC hereby waives and agrees not to assert any and all such
defenses, set-offs and counterclaims, including, without limitation, any such
rights acquired by subrogation, assignment or otherwise. Any rights of
subrogation acquired by CapMAC as a result of any payment made under this Surety
Bond shall, in all respects, be subordinate and junior in right of payment to
the prior indefeasible payment in full of all amounts due the Trustee on account
of payments due under the Certificates.
This Surety Bond is neither transferable nor assignable, in whole or in
part, except to a successor trustee duly appointed and qualified under the
Pooling and Servicing Agreement. All notices, presentations, transmissions,
deliveries and communications made by the Trustee to CapMAC with respect to this
Surety Bond shall specifically refer to the number of this Surety Bond and shall
be made to CapMAC at:
C-3
<PAGE> 92
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
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.
C-4
<PAGE> 93
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.
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> 94
Exhibit D
Form of Yield
Supplement Agreement
Dated as of
March ___, 1997
Onyx Acceptance Financial Corporation
8001 Irvine Center Drive, 6th Floor
Irvine, CA 92618
Gentlemen:
We hereby confirm arrangements made as of the date hereof with you
to be effective upon (i) receipt by us of the enclosed copy of this letter
agreement (the "Yield Supplement Agreement"), executed by you, and (ii)
execution of the Pooling and Servicing Agreement referred to below and payment
of the purchase price specified thereunder. Capitalized terms used and not
otherwise defined herein shall have the meanings assigned to such terms in the
Pooling and Servicing Agreement dated as of March ___, 1997 (the "Pooling and
Servicing Agreement"), among Onyx Acceptance Corporation, as Servicer (the
"Servicer"), Onyx Acceptance Financial Corporation, as Seller (the "Seller") and
Bankers Trust Company, as Trustee.
(a) On the Business Day preceding each Servicer Report Date we shall
notify the Seller of the Yield Supplement Amount for such Servicer Report Date.
(b) In consideration for the Seller entering into the Pooling and
Servicing Agreement, we agree to make a payment of the Yield Supplement Amount
(as determined in accordance with the terms of the Pooling and Servicing
Agreement) to the Seller, or to the assignee of the Seller referred to in
Paragraph (g) hereof, on the Business Day prior to each Servicer Report Date.
(c) All payments pursuant hereto shall be made by federal wire
transfer (same day) funds or in immediately available funds, to such account as
the Seller, or the assignee of the Seller referred to in Paragraph (g) hereof,
may designate in writing to Onyx, prior to the relevant Servicer Report Date.
D-1
<PAGE> 95
(d) In order to secure our obligations to pay the Yield Supplement
Amount on each Servicer Report Date, we hereby agree on the Closing Date, to
deposit the Initial Yield Supplement Reserve Account Balance into the Yield
Supplement Reserve Account.
(e) On termination of the Pooling and Servicing Agreement pursuant
to Sections 10.1 and 10.2 thereof, we shall be entitled to withdraw from the
Yield Supplement Reserve Account all amounts on deposit therein.
(f) Our agreements set forth in this Yield Supplement Agreement are
our primary obligations and such obligations are irrevocable, absolute and
unconditional, shall not be subject to any counterclaim, setoff or defense and
shall remain in full force and effect without regard to, and shall not be
released, discharged or in any way affected by, any circumstances or condition
whatsoever.
(g) Pursuant to the Pooling and Servicing Agreement, the Seller will
sell, transfer, assign and convey its interest in this Yield Supplement
Agreement to the Onyx Acceptance Grantor Trust, 1997-1 (the "Trust"), and we
hereby acknowledge and consent to such sale, transfer, assignment and
conveyance. In addition, the Seller hereby agrees, for the benefit of the Trust,
that following such sale, transfer, assignment and conveyance, this Yield
Supplement Agreement shall not be amended, modified or terminated without the
consent of Bankers Trust Company, as trustee for the Trust, and Capital Markets
Assurance Corporation.
(h) This Yield Supplement Agreement will be governed by and
construed in accordance with the internal laws of the State of California.
(i) Except as otherwise provided herein, all notices pursuant to
this Yield Supplement Agreement shall be in writing and shall be effective upon
receipt thereof. All notices shall be directed as set forth below, or to such
other address or to the attention of such other person as the relevant party
shall have designated for such purpose in a written notice.
D-2
<PAGE> 96
The Seller:
Onyx Acceptance Financial Corporation
8001 Irvine Center Drive - 6th Floor
Irvine, CA 92618
Attention: Regan E. Kelly
The Servicer:
Onyx Acceptance Corporation
8001 Irvine Center Drive, 5th Floor
Irvine, CA 92618
Attention: Don P. Duffy
(j) The Yield Supplement Agreement may be executed in one or more
counterparts and by the different parties hereto on separate counterparts, all
of which shall be deemed to be one and the same document.
If the foregoing satisfactorily sets forth the terms and conditions
of our agreement, please indicate your acceptance thereof by signing in the
space provided below and returning to us the enclosed duplicate original of this
letter.
Very truly yours,
ONYX ACCEPTANCE CORPORATION
By:
------------------------------
Name:
Title:
Agreed and accepted as of March ___, 1997.
ONYX ACCEPTANCE FINANCIAL CORPORATION
By:
----------------------------------
Name:
D-3
<PAGE> 97
Title:
D-4
<PAGE> 98
Schedule I
Schedule of Contracts
(attached)
<PAGE> 99
Schedule II
Schedule of Accounts
(attached)
<PAGE> 1
Exhibit 5.1
BROBECK, PHLEGER & HARRISON LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
March 11, 1997
Onyx Acceptance Financial Corporation
8001 Irvine Center Drive
Irvine, California 92618
Re: Registration Statement on Form S-1
Registration No. 333-22301
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on
Form S-1 (Registration No. 333-22301) filed by you on behalf of the Onyx
Acceptance Grantor Trust 1997-1 (the "Trust") with the Securities and Exchange
Commission on February 25, 1997 and Amendment No. 1 thereto transmitted for
filing on March 11, 1997 (collectively, the "Registration Statement") in
connection with the registration under the Securities Act of 1933, as amended,
of Automobile Loan Pass-Through Certificates (the "Certificates"). The
Certificates are to be issued pursuant to a Pooling and Servicing Agreement
relating to the formation of the Trust and the issuance of the Certificates (the
"Pooling and Servicing Agreement") among Onyx Acceptance Financial Corporation
(the "Company"), Onyx Acceptance Corporation ("Servicer"), and Bankers Trust
Company (the "Trustee").
The Certificates are to be sold to the Underwriter as described
in the Registration Statement for resale to the public. As your counsel in
connection with this transaction, we have examined the proceedings taken and are
familiar with the proceedings proposed to be taken by you in connection with the
sale and issuance of the Certificates.
It is our opinion that, upon (i) conclusion of the proceedings
being taken or contemplated by us, as your counsel, to be taken prior to the
issuance of the Certificates, (ii) due execution and authentication of the
Certificates by the Trustee in accordance with the terms of the Pooling and
Servicing Agreement, and (iii) issuance and delivery of the Certificates against
payment therefor by the Underwriter in the manner described in the Registration
Statement, the Certificates will be legally issued, fully paid and
nonassessable.
<PAGE> 2
Onyx Acceptance Financial March 11, 1997
Corporation Page 2
We consent to the use of this opinion as an exhibit to the
Registration Statement and further consent to all references to us in the
Registration Statement, the prospectus constituting a part thereof and any
further amendments thereto. Subject to the foregoing sentence, this opinion is
given as of the date hereof solely for your benefit and may not be relied upon,
circulated, quoted or otherwise referred to for any purpose without our prior
written consent.
Respectfully,
/s/ Brobeck Phleger & Harrison LLP
<PAGE> 1
Exhibit 8.1
BROBECK, PHLEGER & HARRISON LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
March 11, 1997
Merrill Lynch, Pierce, Fenner & Smith Bankers Trust Company
Incorporated Four Albany Street, 10th floor
World Financial Center New York, NY 10006
North Tower, 15th Floor
New York, NY 10281-1315 Capital Markets Assurance Corporation
885 Third Avenue
Standard & Poor's Services New York, NY 10022
25 Broadway
New York, NY 10004 Moody's Investors Service, Inc.
99 Church Street
New York, NY 10007
Re: Onyx Acceptance Grantor Trust 1997-1:
Certain Federal Income Tax Issues
Ladies and Gentlemen:
We have acted as tax counsel to Onyx Acceptance Financial
Corporation (the "Company") in connection with the preparation of the Company's
Registration Statement on Form S-1 (Registration No. 333-22301) filed by the
Company on behalf of the Onyx Acceptance Grantor Trust 1997-1 (the "Trust") with
the Securities and Exchange Commission on February 25, 1997 and Amendment No. 1
thereto transmitted for filing on March 11, 1997 (the "Registration
Statement") in connection with the registration under the Securities Act of
1933, as amended, of Automobile Loan Pass-Through Certificates (the
"Certificates"). The Certificates are to be issued pursuant to a Pooling and
Servicing Agreement relating to the formation of the Trust and the issuance of
the Certificates (the "Pooling and Servicing Agreement") among the Company, Onyx
Acceptance Corporation ("Servicer"), and Bankers Trust Company (the "Trustee").
Capitalized terms used herein that are not otherwise defined have the meaning
assigned to such terms in the Registration Statement.
<PAGE> 2
March 11, 1997
Page 2
In rendering the opinions set forth below, we have examined
forms of the following documents presented to us and are relying (without any
independent investigation thereof) upon the truth and accuracy of the
statements, covenants, representations and warranties set forth therein:
1. The Registration Statement;
2. The Pooling and Servicing Agreement;
3. The Purchase Agreement;
4. The Yield Supplement Agreement; and
5. Such other agreements and documents as we have
considered necessary or appropriate for the purpose
of rendering the opinions set forth below.
In rendering the opinions set forth below, we have relied upon
the following representations and assumptions:
1. The form of agreements supplied to us that we
reviewed in connection with rendering our opinions
hereunder will be validly executed in substantially
the same form in which they have been filed as
exhibits to the Registration Statement and will be
binding and enforceable in accordance with their
terms.
2. All parties will perform under such agreements in
accordance with their terms.
3. There are no other or further agreements which would
alter, amend or otherwise materially affect the
relationships created by or described in the above
listed documents, or which would affect the Seller's
interest in the Retained Yield.
Our opinions represent only our best judgment regarding the
application of federal income tax laws under the Internal Revenue Code of 1986,
as amended (the "Code"), existing judicial decisions, administrative regulations
and published rulings and procedures. Our opinion is not binding upon the
Internal Revenue Service or the courts, and there is no assurance that the
Internal Revenue Service will not successfully assert contrary positions.
Furthermore, no assurance can be given that future legislative, judicial
decisions or administrative changes, applicable either on a prospective or
retroactive basis, might not materially
<PAGE> 3
March 11, 1997
Page 3
alter our opinions. Nevertheless, we undertake no responsibility to advise you
of any new developments in the application or interpretation of the federal
income tax laws.
Based on and subject to the foregoing, we are of the opinion
that:
A. The Trust will not be classified as an association taxable
as a corporation for federal income tax purposes and, instead, under Subpart E,
Part I of Subchapter J of the Code, will be treated as a grantor trust and,
subject to possible recharacterization of certain amounts paid by the Trust to
the Servicer, the holders of the Certificates will be treated as owning an
undivided pro-rata interest in the income and corpus of the Trust (other than
the Retained Yield);
B. The statements in the Prospectus under the headings
"Prospectus Summary -- Tax Status" and "Certain Tax Consequences," to the extent
that they constitute matters of law or legal conclusions with respect thereto,
are correct in all material respects; and
C. The Trust will not be subject to California franchise or
income taxation and individual holders of Certificates who are not residents of
or otherwise subject to tax in California will not be subject to California
income taxation on any income earned with respect to their investment in the
Certificates so long as they do not hold the Certificates as an asset of a trade
or business conducted in California.
We express no opinion as to other tax issues affecting the
purchasers of the Certificates or the other parties to any of the agreements,
nor does our opinion address state, local or foreign tax consequences that may
result from the transactions.
We consent to the use of this opinion as an exhibit to the
Registration Statement and further consent to all references to us in the
Registration Statement, the prospectus constituting a part thereof and any
further amendments thereto. Subject to the foregoing sentence, this opinion is
given as of the date hereof solely for your benefit and may not be relied upon,
circulated, quoted or otherwise referred to for any purpose without our prior
written consent.
Respectfully,
/s/ Brobeck Phleger & Harrison LLP
