<PAGE> 1
This filing is made pursuant
to Rule 424(b)(2) under
the Securities Act of
1933 in connection with
Registration No. 333-51239
This prospectus supplement relates to an effective registration statement under
the Securities Act of 1933, and is subject to completion or amendment. This
prospectus supplement and the accompanying prospectus shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall there be any sale
of these securities in any State in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED JUNE 8, 1998
PROSPECTUS SUPPLEMENT
(To Prospectus dated June 8, 1998)
[ONYX ACCEPTANCE CORP LOGO]
$208,759,315
ONYX ACCEPTANCE OWNER TRUST 1998-A
$43,600,000 % AUTO LOAN BACKED NOTES, CLASS A-1
$49,600,000 % AUTO LOAN BACKED NOTES, CLASS A-2
$69,500,000 % AUTO LOAN BACKED NOTES, CLASS A-3
$35,600,000 % AUTO LOAN BACKED NOTES, CLASS A-4
$10,459,315 % AUTO LOAN BACKED CERTIFICATES
ONYX ACCEPTANCE FINANCIAL CORPORATION,
Seller
ONYX ACCEPTANCE CORPORATION,
Servicer
------------------------
The Onyx Acceptance Owner Trust 1998-A (the "TRUST") will be formed
pursuant to a Trust Agreement to be entered into between Onyx Acceptance
Financial Corporation, as seller (the "SELLER"), Bankers Trust (Delaware), as
owner trustee (the "OWNER TRUSTEE") and The Chase Manhattan Bank, as co-owner
trustee (the "CO-OWNER TRUSTEE").
(continued on next page)
The Notes and the Certificates will be unconditionally and irrevocably
guaranteed to the extent described herein pursuant to the terms of a financial
guarantee insurance policy (the "POLICY") issued by MBIA Insurance Corporation
(the "INSURER").
(MBIA LOGO)
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" COMMENCING ON PAGE S-13 HEREOF AND PAGE 6 OF THE ACCOMPANYING
PROSPECTUS.
------------------------
THE NOTES REPRESENT NON-RECOURSE OBLIGATIONS OF, AND THE CERTIFICATES REPRESENT
BENEFICIAL INTERESTS IN, THE TRUST ONLY AND DO NOT REPRESENT OBLIGATIONS OF OR
INTERESTS IN THE SELLER, ONYX OR ANY OF THEIR RESPECTIVE AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
======================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO THE
PUBLIC(1) DISCOUNT SELLER(1)(2)
- ----------------------------------------------------------------------------------------------------------------------
Per Class A-1 Note................... % % %
- ----------------------------------------------------------------------------------------------------------------------
Per Class A-2 Note................... % % %
- ----------------------------------------------------------------------------------------------------------------------
Per Class A-3 Note................... % % %
- ----------------------------------------------------------------------------------------------------------------------
Per Class A-4 Note................... % % %
- ----------------------------------------------------------------------------------------------------------------------
Per Certificate...................... % % %
- ----------------------------------------------------------------------------------------------------------------------
Total................................ $ $ $
======================================================================================================================
</TABLE>
(1) Plus accrued interest, if any, calculated from June , 1998.
(2) Before deducting expenses payable by the Seller estimated to be $ .
------------------------
The Notes and the Certificates are offered by the Underwriters when, as and
if delivered to and accepted by the Underwriters, and subject to their right to
reject orders in whole or in part. It is expected that delivery of the Notes and
the Certificates in book-entry form will be made through the facilities of The
Depository Trust Company ("DTC") against payment in immediately available funds
on or about June , 1998.
------------------------
MERRILL LYNCH & CO. SALOMON SMITH BARNEY
------------------------
The date of this Prospectus is June , 1998.
<PAGE> 2
(continued from previous page)
The Notes will be issued pursuant to an Indenture to be dated as of June 1,
1998, between the Trust and The Chase Manhattan Bank, as Indenture Trustee (the
"INDENTURE TRUSTEE"). The Trust will issue $43,600,000 aggregate principal
amount of Class A-1 Auto Loan Backed Notes (the "CLASS A-1 NOTES"), $49,600,000
aggregate principal amount of Class A-2 Auto Loan Backed Notes (the "CLASS A-2
NOTES"), $69,500,000 aggregate principal amount of Class A-3 Auto Loan Backed
Notes (the "CLASS A-3 NOTES") and $35,600,000 aggregate principal amount of
Class A-4 Auto Loan Backed Notes (the "CLASS A-4 NOTES" and, together with the
Class A-1 Notes, the Class A-2 Notes and the Class A-3 Notes, the "NOTES"). The
Trust will also issue $10,459,315 aggregate principal amount of Auto Loan Backed
Certificates (the "CERTIFICATES" and, together with the Notes, the
"SECURITIES"). 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 and certain monies
received with respect to the Contracts on or after June 1, 1998 (the "CUT-OFF
DATE"), security interests in the Financed Vehicles and certain other property,
all as more fully described herein. The aggregate of the Principal Balances (as
defined herein) of the Contracts as of the Cut-Off Date (the "ORIGINAL POOL
BALANCE") was $208,759,315. Onyx Acceptance Corporation ("ONYX") will act as
servicer of the Contracts (the "SERVICER").
Interest on each class of Notes will accrue at the respective fixed per
annum interest rate specified above. Interest on the Notes will be payable to
the Noteholders on the 15th day of each month (or, if the 15th day is not a
Business Day, the following Business Day) (each, a "DISTRIBUTION DATE")
commencing July 15, 1998. Principal on the Notes will be payable on each
Distribution Date to the extent described herein, except that no principal will
be paid on a class of Notes until each class of Notes having a lower numerical
class designation has been paid in full. See "Description of the Transfer and
Servicing Agreements -- Distributions" herein.
The Certificates will represent undivided ownership interests in the
Trust. Interest, at the fixed per annum interest rate specified above, will be
distributed to the Certificateholders on each Distribution Date. Principal will
not be distributed to the Certificateholders until all of the Notes have been
paid in full. Distributions of principal and interest on the Certificates will
be subordinated in priority to payments due on the Notes as described herein.
See "Description of the Transfer and Servicing Agreements -- Distributions"
herein.
Each class of the Notes and the Certificates will be payable in full on
the Final Scheduled Distribution Date for such class of Notes or the
Certificates as set forth herein. However, payment in full of a class of Notes
or of the Certificates could occur earlier than such dates as described herein.
In addition, each class of Notes will be subject to redemption in whole, but not
in part, and the Certificates will be subject to prepayment in whole, but not in
part, on any Distribution Date on which the Servicer exercises its option to
purchase the Contracts. The Servicer, or any successor to the Servicer, may
purchase the Contracts (an "OPTIONAL PURCHASE") when the aggregate of the
Principal Balances of the Contracts (the "POOL BALANCE") shall have declined to
10% or less of the Original Pool Balance.
It is a condition of issuance of the Notes and the Certificates that
each class of Notes, and the Certificates, be rated in the highest rating
category for such Securities by Standard & Poor's Ratings Services, a division
of McGraw Hill, Inc. ("STANDARD & POOR'S") and Moody's Investors Service, Inc.
("MOODY'S" and, together with Standard & Poor's, the "RATING AGENCIES"). The
ratings of the Notes and the Certificates will be based substantially on the
issuance of the Policy by the Insurer. Timely payment of the Noteholders'
Interest Distributable Amount and the Certificateholders' Interest Distributable
Amount on each Distribution Date, and ultimate payment of principal of each
class of Notes and the Certificates on the related Final Scheduled Distribution
Date, is unconditionally and irrevocably guaranteed under the Policy. See "The
Policy" herein.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT
THE OFFERING OF THE NOTES AND THE CERTIFICATES. ADDITIONAL INFORMATION IS
CONTAINED IN THE PROSPECTUS AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE NOTES AND
THE CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. TO THE EXTENT ANY STATEMENTS IN
THIS PROSPECTUS
S-2
<PAGE> 3
SUPPLEMENT CONFLICT WITH STATEMENTS IN THE PROSPECTUS, THE STATEMENTS IN THIS
PROSPECTUS SUPPLEMENT SHALL CONTROL.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
NOTES, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN
SUCH NOTES, AND THE IMPOSITION OF PENALTY BIDS, DURING AND AFTER THE OFFERING.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
AVAILABLE INFORMATION
The Seller, on behalf 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 Securities offered pursuant to
this Prospectus. This Prospectus, which forms a part of the Registration
Statement, does not contain all of the information included in the Registration
Statement and the exhibits thereto. For further information, reference is made
to the Registration Statement and amendments thereof and to the exhibits
thereto, which are available for inspection without charge at the office of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission at 7 World Trade Center, Suite 1300, New
York, New York 10048 and at 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 Trust, 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 Securityholders as described under "Reports to
Securityholders" below. Reports on Form 8-K and Form 10-K will not be filed for
any period which ends after December 31, 1998; however, the Securityholders will
continue to receive the Distribution Date Statement monthly, as described below.
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Securities are issued (which will occur
under the limited circumstances described herein and in the Prospectus), the
unaudited monthly and annual reports concerning the Trust which are described in
the Prospectus under "Certain Information Regarding the Securities -- Statements
to Securityholders" and are prepared by the Servicer will be sent by the
Indenture Trustee only to Cede & Co. as the nominee of DTC and the registered
holder of the Securities. Such reports will not constitute financial statements
prepared in accordance with generally accepted accounting principles. DTC will
supply such reports to Security Owners (as defined in the Prospectus) in
accordance with its procedures. See "Description of the Securities -- Book-Entry
Registration" in the Prospectus. None of the Seller, the Servicer or the Insurer
intends to send any of its financial reports to the Securityholders.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
In addition to the documents described in the Prospectus under
"Incorporation of Certain Documents by Reference," the consolidated financial
statements of the Insurer included in, or as exhibits to, the following
documents which have been filed with the Commission by the Insurer, are hereby
incorporated by reference in this Prospectus Supplement:
(a) Annual Report on Form 10-K for the year ended December 31, 1997 and
(b) Quarterly Report on Form 10-Q for the period ended March 31, 1998.
S-3
<PAGE> 4
All financial statements of the Insurer included in documents filed by
the Insurer pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus Supplement and prior to the
termination of the offering of the Securities shall be deemed to be incorporated
by reference into this Prospectus Supplement and to be a part hereof from the
respective dates of filing of such documents.
S-4
<PAGE> 5
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus. Certain
capitalized terms used in this Summary are defined elsewhere in this Prospectus
Supplement or in the Prospectus. See the Index of Terms herein and in the
Prospectus for the location herein of the definitions of certain capitalized
terms. An investment in the Securities involves various risks, and potential
purchasers should carefully consider the matters discussed under "Risk Factors"
herein and in the Prospectus in considering an investment in the Securities.
ISSUER............................... Onyx Acceptance Owner Trust 1998-A (the
"TRUST" or the "ISSUER"), a Delaware
business trust to be established
pursuant to a Trust Agreement (as
amended and supplemented from time to
time, the "TRUST AGREEMENT"), between
the Seller, the Owner Trustee and the
Co-Owner Trustee.
SELLER............................... Onyx Acceptance Financial Corporation
(the "SELLER"), a wholly- owned, limited
purpose subsidiary of Onyx Acceptance
Corporation ("ONYX").
SERVICER............................. Onyx. See "The Servicer" in the
Prospectus.
INDENTURE TRUSTEE.................... The Chase Manhattan Bank, as trustee
under the Indenture (the "INDENTURE
TRUSTEE").
OWNER TRUSTEE........................ Bankers Trust (Delaware), as trustee
under the Trust Agreement (the "OWNER
TRUSTEE").
CO-OWNER TRUSTEE..................... The Chase Manhattan Bank, as co-owner
trustee under the Trust Agreement (the
"CO-OWNER TRUSTEE").
CLOSING DATE......................... The date of initial issuance of the
Notes and the Certificates (the "CLOSING
DATE") is expected to be on or about
June ___, 1998.
THE NOTES............................ The Trust will issue Auto Loan Backed
Notes (the "NOTES") pursuant to an
Indenture to be dated as of June 1, 1998
(as amended and supplemented from time
to time, the "INDENTURE"), between the
Issuer and the Indenture Trustee, as
follows: (1) Class A-1 Auto Loan Backed
Notes (the "CLASS A-1 NOTES") in the
aggregate principal amount of
$43,600,000; (2) Class A-2 Auto Loan
Backed Notes (the "CLASS A-2 NOTES") in
the aggregate principal amount of
$49,600,000; (3) Class A-3 Auto Loan
Backed Notes (the "CLASS A-3 NOTES") in
the aggregate principal amount of
$69,500,000; and (4) Class A-4 Auto Loan
Backed Notes (the "CLASS A-4 NOTES") in
the aggregate principal amount of
$35,600,000. The Notes will be non-
recourse obligations of the Trust and
will be secured by certain assets of the
Trust pursuant to the Indenture.
THE CERTIFICATES
AND THE RESIDUAL INTERESTS........... The Trust will issue ___% Auto Loan
Backed Certificates (the "CERTIFICATES"
and, together with the Notes, the
"SECURITIES") in the aggregate principal
amount of $10,459,315. The Certificates
will represent undivided ownership
interests in the Trust and will be
issued pursuant to the Trust Agreement.
The Trust will also issue
S-5
<PAGE> 6
certificates representing the residual
interests in the Trust (the "RESIDUAL
INTERESTS"), which are not offered
hereby.
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"), all of which were
purchased from the Seller and secured by
new and used automobiles and light-duty
trucks (the "FINANCED VEHICLES"), (ii)
certain documents relating to the
Contracts, (iii) certain monies due
under such Contracts and certain monies
received with respect to such Contracts
on or after the Cut- Off Date, (iv)
security interests in the Financed
Vehicles and the rights to receive
proceeds from claims on certain
insurance policies covering the Financed
Vehicles or the individual obligors
under each related Contract, (v) all
amounts on deposit in the Collection
Account, the Note Distribution Account,
the Certificate Distribution Account,
and the Spread Account, including all
Eligible Investments credited thereto
(but excluding any investment income
from Eligible Investments, which will be
paid to the Servicer), (vi) the right of
the Seller to cause Onyx to repurchase
certain Contracts under certain
circumstances, and (vii) all proceeds of
the foregoing. See "The Trust" herein
and "The Trusts" in the Prospectus.
Pursuant to the Indenture, the Trust
will grant a security interest in the
Trust Property (excluding the
Certificate Distribution Account) in
favor of the Indenture Trustee on behalf
of the Noteholders and for the benefit
of the Insurer in support of the
obligations owing to it under the
Insurance Agreement.
CONTRACTS............................ The Contracts have been purchased by the
Trust from the Seller pursuant to a Sale
and Servicing Agreement dated as of June
1, 1998 (as amended and supplemented
from time to time, the "SALE AND
SERVICING AGREEMENT"). The aggregate of
the Principal Balances of the Contracts
as of the Cut-Off Date (the "ORIGINAL
POOL BALANCE") was $208,759,315. As of
the Cut-Off Date the Contracts had a
weighted average annual percentage rate
of 14.730% and a weighted average
remaining term of 55.5 months. Contracts
representing approximately 30.23% of the
Original Pool Balance allocate interest
and principal in accordance with the
Rule of 78's (the "RULE OF 78'S
CONTRACTS"), and Contracts representing
approximately 69.77% of the Original
Pool Balance allocate interest and
principal in accordance with the Simple
Interest Method (the "SIMPLE INTEREST
CONTRACTS"). Contracts representing
approximately 16.84% of the Original
Pool Balance are secured by new Financed
Vehicles, and Contracts representing
approximately 83.16% of the Original
Pool Balance are secured by used
Financed Vehicles. Contracts
representing approximately 50.57% of the
Original Pool Balance were originated in
California. No other single state in
which Contracts were originated
represents more than 9.81% of the
Original Pool Balance. See "The
Contracts" herein and in the Prospectus.
All collections of Monthly P&I and all
prepayments on the Contracts collected
by the Servicer 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
S-6
<PAGE> 7
future scheduled payments of Monthly
P&I. See "Description of the Transfer
and Servicing Agreements -- Payahead
Account" in the Prospectus. Full
prepayments on Rule of 78's Contracts
and partial and full prepayments on
Simple Interest Contracts will be paid
to Securityholders, as described herein,
on the Distribution Date immediately
following the Collection Period in which
such prepayments are received. On each
Distribution Date, the Indenture Trustee
will distribute the amounts on deposit
in the Collection Account with respect
to such Distribution Date as described
under "Description of the Transfer and
Servicing Agreements -- Distributions"
herein.
DISTRIBUTION DATE.................... The 15th day of each month (or, if such
day is not a Business Day, the next
succeeding Business Day) commencing July
15, 1998 (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.
COLLECTION PERIOD.................... 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.
TERMS OF THE NOTES................... The principal terms of the Notes will be
as described below:
A. Interest......................... The Notes will bear interest as follows:
(i) with respect to Class A-1 Notes, at
the rate of ___% per annum (the "CLASS
A-1 RATE"), (ii) with respect to the
Class A-2 Notes, at the rate of ___% per
annum (the "CLASS A-2 RATE"), (iii) with
respect to the Class A-3 Notes, at the
rate of ____% per annum (the "CLASS A-3
RATE") and (iv) with respect to the
Class A-4 Notes, at the rate of ___% per
annum (the "CLASS A-4 RATE" and,
together with the Class A-1 Rate, the
Class A-2 Rate and the Class A-3 Rate,
the "INTEREST RATES").
With respect to each Distribution Date,
interest on the principal balances of
the classes of the Notes will accrue at
the respective per annum Interest Rates
during the period from and including the
prior Distribution Date (or in the case
of the first Distribution Date from and
including the Closing Date) to but
excluding the applicable Distribution
Date (each, an "INTEREST ACCRUAL
PERIOD") and will be payable to the
Noteholders monthly on each related
Distribution Date commencing July 15,
1998. Interest on the Class A-1 Notes
will be calculated on the basis of the
actual number of days elapsed in an
Interest Accrual Period and a 360-day
year. Interest on the Class A- 2, Class
A-3 and Class A-4 Notes will be
calculated on the basis of a 360-day
year of twelve 30-day months. See
"Description of the Notes -- Payments of
Interest" herein.
S-7
<PAGE> 8
B. Principal........................ Principal of the Notes will be payable
on each Distribution Date in an amount
generally equal to the Note Principal
Distributable Amount for such
Distribution Date calculated as
described under "Description of the
Transfer and Servicing Agreements -
Distributions" herein. On each
Distribution Date, the Note Principal
Distributable Amount for the related
Collection Period will be applied first,
to make payments of principal on the
Class A-1 Notes until the aggregate
principal balance thereof is reduced to
zero; second, to make payments of
principal on the Class A-2 Notes until
the aggregate principal balance thereof
is reduced to zero; third, to make
payments of principal on the Class A-3
Notes until the aggregate principal
amount thereof is reduced to zero; and
fourth, to make payments of principal on
the Class A-4 Notes until the aggregate
principal balance thereof is reduced to
zero. See "Description of the Notes--
Payments of Principal" herein.
The outstanding principal amount of the
Class A-1 Notes, to the extent not
previously paid, will be payable on June
15, 1999 (the "CLASS A-1 FINAL SCHEDULED
DISTRIBUTION DATE"), the outstanding
principal amount of the Class A-2 Notes,
to the extent not previously paid, will
be payable on January 15, 2001 (the
"CLASS A-2 FINAL SCHEDULED DISTRIBUTION
DATE"), the outstanding principal amount
of the Class A-3 Notes, to the extent
not previously paid, will be payable on
August 15, 2002 (the "CLASS A-3 FINAL
SCHEDULED DISTRIBUTION DATE") and the
outstanding principal amount of the
Class A-4 Notes, to the extent not
previously paid, will be payable on June
15, 2003 (the "CLASS A-4 FINAL SCHEDULED
DISTRIBUTION DATE" and , together with
the Class A-1 Final Scheduled
Distribution Date, the Class A-2 Final
Scheduled Distribution Date, and the
Class A-3 Final Scheduled Distribution
Date, the "NOTE FINAL SCHEDULED
DISTRIBUTION DATES"). The actual date on
which the aggregate outstanding
principal balance of any class of Notes
is paid is expected to occur earlier,
and could occur significantly earlier,
than the Note Final Scheduled
Distribution Date for such class,
depending on a variety of factors.
C. Optional Redemption.............. In the event of an Optional Purchase,
each class of Notes, to the extent still
outstanding, will be redeemed in whole,
but not in part, at a redemption price
equal to the unpaid principal amount of
such class of Notes plus accrued and
unpaid interest thereon. See
"Description of the Notes - Optional
Redemption" herein.
TERMS OF THE CERTIFICATES............ The principal terms of the Certificates
will be as described below:
A. Interest......................... With respect to each Distribution Date,
interest on the Certificate Balance of
the Certificates will accrue at the rate
of ____% (the "CERTIFICATE RATE") during
the Interest Accrual Period and will be
payable to Certificateholders monthly on
each related Distribution Date
commencing July 15, 1998. Interest on
the Certificates will be calculated on
the basis of a 360-day year of twelve
30-day months. See "Description of the
Certificates - Distributions of
Interest" herein.
S-8
<PAGE> 9
The "CERTIFICATE BALANCE" will equal
$10,459,315 (the "ORIGINAL CERTIFICATE
BALANCE") on the Closing Date and on any
date thereafter will equal the Original
Certificate Balance reduced by all
distributions of principal previously
made in respect of the Certificates.
Distributions of interest on the
Certificates will be subordinated to
payments of interest on the Notes, and
on a Note Final Scheduled Distribution
Date for a class of Notes, to principal
then due on such class of Notes.
Distributions of principal on the
Certificates will be subordinated to
distributions of interest and principal
on the Notes. See "Description of the
Certificates" herein.
B. Principal........................ No principal will be paid on the
Certificates until all of the Notes have
been paid in full. On such Distribution
Date and each Distribution Date
thereafter, principal of the
Certificates will be payable in an
amount equal to the Certificate
Principal Distributable Amount for such
Distribution Date, calculated as
described under "Description of the
Transfer and Servicing Agreements -
Distributions" herein. See "Description
of the Certificates - Distributions of
Principal" herein.
The outstanding principal amount of the
Certificates, to the extent not
previously paid, will be payable on
January 15, 2005 (the "CERTIFICATE FINAL
SCHEDULED DISTRIBUTION DATE" and,
together with the Note Final Scheduled
Distribution Dates, the "FINAL SCHEDULED
DISTRIBUTION DATES"). The actual date on
which the outstanding Certificate
Balance is paid is expected to occur
earlier, and could occur significantly
earlier, than the Certificate Final
Scheduled Distribution Date, depending
on a variety of factors.
C. Optional Prepayment.............. In the event of an Optional Purchase,
the Certificates will be prepaid in
whole, but not in part, at a prepayment
price equal to the Certificate Balance
plus accrued and unpaid interest thereon
at the Certificate Rate. See
"Description of the Certificates -
Optional Prepayment" herein.
THE SPREAD ACCOUNT................... To the extent described herein, the
Securityholders will be afforded certain
limited protection against losses in
respect of the Contracts by the
establishment of a segregated trust
account in the name of the Indenture
Trustee for the benefit of the
Securityholders and the Insurer (the
"SPREAD ACCOUNT"). The Spread Account
will be a part of the Trust.
On each Distribution Date, funds will be
deposited in the Spread Account as
described under "Description of the
Transfer and Servicing Agreements --
Distributions" herein, up to the Spread
Account Maximum (as defined herein). On
each Distribution Date, funds will be
withdrawn from the Spread Account to
cover any shortfalls in amounts
available to pay the Servicing Fee,
certain fees of the Indenture Trustee,
Owner Trustee and Co-Owner Trustee, and
interest and principal required to be
paid on the Securities, prior to giving
effect to any claim under the Policy.
See "Description of the Transfer and
Servicing Agreements -- Payment
Priorities of the Notes and the
Certificates; The Spread Account"
herein.
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<PAGE> 10
THE POLICY........................... On the Closing Date, the Insurer will
issue the Policy in favor of the
Indenture Trustee for the benefit of the
Securityholders pursuant to an Insurance
and Reimbursement Agreement (the
"INSURANCE AGREEMENT"), dated as of June
__, 1998, by and among the Insurer, the
Trust, Onyx, the Seller and the
Indenture Trustee. The Policy is a
"Security Insurance Policy" as referred
to in the Prospectus.
Pursuant to the Policy, the Insurer will
irrevocably and unconditionally
guarantee payment to the Indenture
Trustee, for the benefit of the
Noteholders and the Certificateholders,
of (i) on each Distribution Date, the
Note Interest Distributable Amount and
the Certificate Interest Distributable
Amount, respectively, and (ii) on each
Final Scheduled Distribution Date with
respect to a class of Notes or the
Certificates, the outstanding principal
amount of such class of Notes or the
Certificates on such Final Scheduled
Distribution Date. The Insurer's
obligations under the Policy will be
discharged to the extent that Policy
Claim Amounts (as defined herein) are
received by the Indenture Trustee,
whether or not such Policy Claim Amounts
are properly applied by the Indenture
Trustee.
The Policy will not guarantee payments
of principal on any class of Notes or on
the Certificates at any time other than
the payment of the outstanding principal
amount of a class of Notes or of the
Certificates on the Final Scheduled
Distribution Date for such class of
Notes or the Certificates, and will not
guarantee payment of any Accelerated
Principal Distributable Amount or any
amounts which become due on an
accelerated basis as a result of (a) a
default by the Trust, (b) the occurrence
of an Indenture Event of Default under
the Indenture or (c) any other cause.
The Insurer may elect, in its sole
discretion, to pay in whole or in part
such principal due upon acceleration. In
addition, the Insurer may elect, in its
sole discretion, to pay all or a portion
of certain shortfalls of funds available
to make certain distributions of
principal on the Notes or the
Certificates on a Distribution Date. See
"The Policy" herein.
For a description of the Insurer, see
"Description of the Insurer" herein.
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 by the Trust to the
Servicer on each Distribution Date, in
an amount equal to the product of
one-twelfth of 1% per annum (the
"SERVICING FEE RATE") multiplied by the
Pool Balance as of the end of the
Collection Period preceding the related
Collection Period. As additional
compensation, the Servicer will be
entitled to any late fees and other
administrative fees and expenses or
similar charges collected with respect
to the Contracts. The Servicer or its
designee will also receive as servicing
compensation investment earnings on
Eligible Investments of funds in the
Collection Account. See "Description of
the Transfer and Servicing Agreements--
Servicing Fee" herein.
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<PAGE> 11
OPTIONAL PURCHASE.................... The Servicer, or any successor to the
Servicer, may, but will not be obligated
to, purchase all of the Contracts in the
Trust, and thereby cause early
retirement of all outstanding
Securities, on any Distribution Date as
of which the Pool Balance is 10% or less
of the Original Pool Balance (an
"OPTIONAL PURCHASE"). See "Description
of the Transfer and Servicing Agreements
- Termination" herein.
FEDERAL INCOME TAX STATUS............ In the opinion of Andrews & Kurth L.L.P.
("TAX COUNSEL") for federal income tax
purposes, the Notes will be
characterized as debt, and the Trust
will not be characterized as an
association (or a publicly traded
partnership) taxable as a corporation.
Each Noteholder, by the acceptance of a
Note, will agree to treat the Notes as
indebtedness and each Certificateholder,
by the acceptance of a Certificate, will
agree to treat the Trust as a
partnership in which the
Certificateholders are partners for
federal income tax purposes. See
"Certain Federal Income Tax
Consequences" and "Certain State Tax
Consequences with respect to Trusts for
which a Partnership Election is Made" in
the Prospectus for additional
information concerning the application
of federal income and California tax
laws to the Trust and the Securities.
ERISA CONSIDERATIONS................. Subject to the considerations discussed
under "ERISA Considerations" herein and
in the Prospectus, the Notes will be
eligible for purchase by employee
benefit plans that are subject to the
Employee Retirement Income Security Act
of 1974, as amended ("ERISA"). See
"ERISA Considerations" herein and in the
Prospectus. Any benefit plan fiduciary
considering purchase of the Notes
should, among other things, consult with
its counsel in determining whether all
required conditions have been satisfied.
The Certificates may not be acquired by
any employee benefit plan subject to
ERISA or Section 4975 of the Internal
Revenue Code of 1986, as amended (the
"Code") or by an individual retirement
account. See "ERISA Considerations"
herein and in the Prospectus. Any
benefit plan fiduciary considering
purchase of the Certificates should,
among other things, consult with its
counsel in determining whether all
required conditions have been satisfied.
LEGAL INVESTMENT..................... The Class A-1 Notes will be eligible
securities for purchase by money market
funds under Rule 2a-7 under the
Investment Company Act of 1940, as
amended.
RATING............................... It is a condition of issuance of the
Notes and the Certificates that each
class of the Notes, and the
Certificates, be rated in the highest
rating category for such Securities by
Standard & Poor's and Moody's. The
ratings of the Notes and the
Certificates will be based substantially
on the issuance of the Policy by the
Insurer. See "Risk Factors-- Rating"
herein.
REGISTRATION OF THE SECURITIES....... The Securities will initially be
represented by one or more 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
Security through the facilities of DTC
(a "SECURITY OWNER") will be entitled to
receive a Definitive Security, except in
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<PAGE> 12
the event that Definitive Securities are
issued in certain limited circumstances.
See "Description of the Securities --
Book-Entry Registration" and
"--Definitive Securities" in the
Prospectus.
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<PAGE> 13
RISK FACTORS
Prospective investors in the Securities should consider the following
risk factors (as well as the factors set forth under "Risk Factors" in the
Prospectus) in connection with the purchase of Securities. Any statistical
information presented below is based upon the characteristics of the Contracts
proposed to be included in the Trust as of the date of this Prospectus
Supplement. Such information may vary as a result of the possibility that
certain Contracts may be removed from the Trust prior to the Closing Date.
LIMITED OPERATING HISTORY OF ONYX
All of the Contracts have been originally purchased by Onyx from Dealers
or originated by Onyx or a subsidiary of Onyx in accordance with credit
underwriting criteria established by Onyx. In February 1994, Onyx commenced its
operations as a purchaser and servicer of motor vehicle retail installment sales
contracts. Thus, Onyx has historical performance data for only a relatively
short period with respect to the motor vehicle retail installment sales
contracts it purchases and originates. Delinquencies and loan losses may
increase from existing levels in the portfolio with the passage of time.
Onyx is expanding its operations in the United States and is subject to
all of the risks inherent in a relatively 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. Onyx experienced operating losses from inception
through December 31, 1995. Onyx's operating losses for the years ended December
31, 1994 and December 31, 1995 were $3.5 million and $3.2 million, respectively.
Onyx's net income for the years ended December 31, 1996 and December 31, 1997,
and for the quarter ended March 31, 1998, was $7.7 million, $2.6 million and
$0.8 million, respectively.
LIMITED LIQUIDITY
There is currently no secondary market for the Securities. Each
Underwriter currently intends, but is not obligated, to make a market in the
Securities. However, there can be no assurance that the Underwriters will make
such a market, that a secondary market will develop or, if it does develop, that
it will provide Securityholders with liquidity of investment or will continue
for the life of the Securities.
MATURITY AND PREPAYMENT CONSIDERATIONS
Any full prepayments and repurchases of the Contracts can reduce the
weighted average life of the Contracts and the aggregate interest received by
the Securityholders over the life of the Securities. Full and partial
prepayments on Simple Interest Contracts and full prepayments on Rule of 78's
Contracts will shorten the average life of such Contracts and, therefore, of the
Securities, because they will be paid to Securityholders 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. The
Contracts are prepayable in full by the Obligors at any time without penalty.
See "Maturity and Prepayment Considerations" herein and in the Prospectus
regarding the effects of prepayments on the weighted average life of the
Contracts. As the rate of payment of principal of each class of Notes and the
Certificates depends primarily on the rate of payment (including prepayments) of
the principal balance of the Contracts, final payment of any class of Notes or
of the Certificates could occur significantly earlier than the respective Final
Scheduled Distribution Date for such Securities. Onyx can make no prediction as
to the actual prepayment rates that will be experienced on the Contracts in
either stable or changing interest rate environments. See "--Limited Operating
History of Onyx" herein. In addition, the amount and timing of payments of
principal of each class of Securities will be affected by the incidence of
delinquencies, defaults and losses, by the application of the Accelerated
Principal Distributable Amount to pay the principal of the Notes, and by any
accelerated payments made on the Securities following an Indenture Event of
Default. Securityholders will bear all reinvestment risk resulting from
prepayment of the Contracts. Such reinvestment risks may include the risk that
Securityholders may not be able to reinvest such prepayments in alternative
comparable investments having similar yields. See "Maturity and Prepayment
Considerations" herein and in the Prospectus.
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<PAGE> 14
ADEQUACY OF CREDIT ENHANCEMENT
Credit enhancement with respect to the Notes and the Certificates will
be provided by the Policy. Additional credit enhancement with respect to the
Securities which will be utilized prior to the Policy will be provided by (i) in
the case of the Notes, the subordination of the Certificates to the Notes, (ii)
the excess, if any, of (a) the amount of interest collected on the Contracts in
each Collection Period over (b) the amount of interest accruing and payable in
respect of the Notes and the Certificates on the related Distribution Date plus
the Servicing Fee and certain fees of the Indenture Trustee, Owner Trustee and
Co-Owner Trustee payable on such Distribution Date, (iii) the
overcollateralization feature which results from the limited acceleration of the
principal amortization of the Notes by the payment of Accelerated Principal
Distributable Amounts, and (iv) amounts available in the Spread Account, as
described herein. If the Contracts experience higher rates of delinquencies,
defaults and losses than initially anticipated in connection with the rating of
the Securities, there can be no assurance that the amounts available from the
additional credit enhancement will be adequate to cover the delays or shortfalls
in distributions to the Securityholders that result from such higher
delinquencies, defaults and losses. If the amounts available from the additional
credit enhancement are inadequate, the Securityholders will bear the risk of any
delays and losses resulting from the delinquencies, defaults and losses on the
Contracts, unless such delays or losses with respect to the Securities are
covered by the Policy and paid by the Insurer as described herein. The Policy
guarantees payment of principal of each class of Notes and the Certificates only
on the applicable Final Scheduled Distribution Date.
In addition, the calculation of the Spread Account Maximum (as defined
herein) is subject to change as described under "Description of the Transfer and
Servicing Agreements -- Payment Priorities of the Notes and Certificates; The
Spread Account" herein.
PRIORITY OF PAYMENTS; SUBORDINATION
No principal will be distributed to the holders of Class A-2 Notes until
the principal amount of the Class A-1 Notes has been reduced to zero, no
principal will be distributed to the holders of Class A-3 Notes until the
principal amount of the Class A-1 and Class A-2 Notes has been reduced to zero,
and no principal will be distributed to the holders of Class A-4 Notes until the
principal amount of the Class A-1, Class A-2 and Class A-3 Notes has been
reduced to zero, except as set forth herein. Because payments of principal will
be applied to classes of Notes in the order of their respective numerical
designations, in the event an Insurer Default arises after a class of Notes has
been fully or partially repaid, delinquencies, defaults and losses experienced
on the Contracts will have a disproportionately greater effect on the classes of
Notes having higher numerical designations.
Distributions of interest on the Certificates will be subordinated in
priority of payment to interest due on the Notes and, on the Note Final
Scheduled Distribution Date for a class of Notes, to principal then due on such
class of Notes. Distributions of principal on the Certificates will be
subordinated in priority of payment to interest and principal due on the Notes.
Consequently, the Certificateholders will not receive (i) any distributions with
respect to interest on a Distribution Date until the full amount of interest on
the Notes on such Distribution Date has been paid and, if such Distribution Date
is on or after the Note Final Scheduled Distribution Date for a class of Notes,
until all principal of such class of Notes has been paid in full, or (ii) any
distributions with respect to principal until all of the Notes have been paid in
full. In the event of an Insurer Default, the Certificates will be more
sensitive to delinquencies, defaults and losses experienced on the Contracts
than the Notes. See "Description of the Notes - Payments of Principal" herein.
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. Contracts
representing approximately 50.57% of the Original Pool Balance of the Contracts
will have been originated in California. No other single state in which
Contracts were originated represents more than 9.81% of the Original Pool
Balance. Adverse economic conditions or other factors particularly affecting
California or other states in which the Contracts are geographically
concentrated could adversely affect the delinquency, loan loss or repossession
experience of the Trust. See "The Contracts -- Geographic Concentration of the
Contracts" herein.
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<PAGE> 15
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. Holders of the
Securities must rely for repayment upon payments on the Contracts, amounts, if
any, on deposit in the Spread Account, and payments of claims made under the
Policy. Although the Policy will guarantee shortfalls in the payment of accrued
interest on each Distribution Date and the ultimate repayment of principal on
the Final Scheduled Distribution Date with respect to each Security, if the
Insurer defaults in its obligations under the Policy, the Trust will depend
solely on collections on the Contracts and amounts, if any, on deposit in the
Spread Account to make payments on the Notes or the Certificates, as applicable.
See "Description of the Insurer" and "The Policy" herein.
RATING
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 the ratings of the Securities 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
of the Securities may have on the liquidity or market value of the Securities.
Such ratings of the Securities address the likelihood of the timely payment of
each scheduled payment or distribution of principal and accrued interest, with
timely payment of accrued interest and ultimate payment of principal being
guaranteed by the Insurer pursuant to the Policy. Therefore, the ratings of the
Notes and the Certificates are substantially based on the issuance of the Policy
by the Insurer, and are dependent on the rating of the Insurer. See "Description
of the Insurer" herein for a description of the Insurer's rating.
INDENTURE EVENTS OF DEFAULT; CONTROL BY INSURER AND NOTEHOLDERS
So long as no Insurer Default shall have occurred and be continuing,
neither the Indenture Trustee nor the Noteholders may declare an Indenture Event
of Default under the Indenture. So long as an Insurer Default shall not have
occurred and be continuing, an Indenture Event of Default will occur only upon
delivery by the Insurer to the Indenture Trustee of notice of the occurrence of
an Indenture Event of Default. Upon the occurrence of an Indenture Event of
Default (so long as an Insurer Default shall not have occurred and be
continuing), the Insurer will have the right, but not the obligation, to cause
the liquidation, in whole or in part, of the Trust Property, which will result
in redemption, in whole or in part, of the Securities. Following the occurrence
of an Indenture Event of Default, the Indenture Trustee and the Owner Trustee
will continue to submit claims under the Policy for any shortfalls in amounts
available to make payments or distributions of guaranteed amounts on the Notes
and the Certificates. However, following the occurrence of an Indenture Event of
Default (so long as an Insurer Default shall not have occurred and be
continuing), the Insurer, at its sole option, may elect to pay all or any
portion of the outstanding amount of the Securities, plus accrued interest
thereon.
If an Insurer Default has occurred and is continuing, upon the
occurrence of an Indenture Event of Default the holders of 662/3% of the
principal amount of the Notes then outstanding may declare the principal of the
Notes to be immediately due and payable. If the Notes have been so declared to
be due and payable and the Indenture Event of Default has occurred because of
(i) a default in the payment of any principal on the Final Scheduled
Distribution Date for a class of Notes or a default for five days or more in the
payment of any interest on any Notes (a "PAYMENT DEFAULT") or (ii) certain
events of bankruptcy, insolvency, receivership or liquidation of the Trust (a
"TRUST BANKRUPTCY EVENT"), and in either case the Insurer shall have failed to
make a payment required under the Policy in accordance with its terms, the
holders of 662/3% of the principal amount of the Notes then outstanding may
direct the Indenture Trustee, to the extent permitted by applicable law, to
either sell the Contracts or to have the Indenture Trustee maintain possession
of the Contracts and continue to apply distributions on such Contracts as if
there had been no declaration of acceleration. If an Indenture Event of Default
has occurred other than as described in the preceding sentence (provided that
the Insurer shall not have failed to make a payment required under the Policy in
accordance with its terms), the holders of 662/3% of the aggregate principal
amount of the Notes then outstanding, voting together as a single class, may so
direct the Indenture Trustee to either sell the Contracts or to have the
Indenture Trustee maintain possession of the Contracts and continue to apply
distributions on such Contracts; provided, however, that no such sale of the
Contracts may be made unless (i) the proceeds of such sale will be sufficient to
pay all principal of the Notes and the Certificates,
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<PAGE> 16
together with accrued interest thereon, and all amounts owing to the Insurer
under the Insurance Agreement or (ii) holders of Certificates evidencing 100% of
the outstanding principal amount of the Certificates consent to such sale and
all amounts owing to the Insurer under the Insurance Agreement will be paid in
connection with such sale. In the event of a sale of the Contracts as described
in the preceding sentence, the Policy will be terminated and the Insurer will
have no further obligation to make any payment thereunder.
If an Insurer Default has occurred and is continuing and an Indenture
Event of Default has occurred because of a Payment Default or a Trust Bankruptcy
Event, and in either case the Insurer shall have failed to make a payment
required under the Policy in accordance with its terms, the Noteholders may
cause a sale of the Contracts without the consent of any of the holders of
Certificates and without regard to whether the proceeds of such sale will be
sufficient to pay any portion of the principal and interest payable with respect
to the Certificates. Upon a sale of the Contracts by the Indenture Trustee as
described in the preceding sentence, if the proceeds from such sale and any
amounts on deposit in the Spread Account and the Collection Account are not
sufficient to pay all the Notes in full, the amount of principal paid to
Noteholders will be reduced, no such proceeds or amounts will be distributed to
the Certificateholders, and the Noteholders and the Certificateholders will
incur a loss on their investment. If such proceeds and amounts are sufficient to
pay all the Notes in full but are not sufficient to pay both the Notes and the
Certificates in full, the amount of principal distributed to Certificateholders
will be reduced, and the Certificateholders will incur a loss on their
investment. See "Description of the Notes -- Indenture Events of Default"
herein.
SERVICER DEFAULT
Notwithstanding anything to the contrary set forth in the Prospectus
under "Description of the Transfer and Servicing Agreements -- Rights Upon
Servicer Default", upon the occurrence of a Servicer Default, unless an Insurer
Default shall have occurred and be continuing, only the Insurer may terminate
the Servicer under the Sale and Servicing Agreement. Upon the occurrence of a
Servicer Default, if an Insurer Default has occurred and is continuing, the
holders of 25% or more of the outstanding principal amount of the Notes, or the
Indenture Trustee acting on behalf of the Noteholders, and not the Seller or the
Certificateholders, would have the right to terminate the Servicer without
consideration of the effect such termination would have on the
Certificateholders. In such circumstances, the Certificateholders will not have
the ability to remove the Servicer if a Servicer Default occurs until the Notes
have been paid in full. In addition, if an Insurer Default has occurred and is
continuing, the holders of Notes evidencing not less than 51% of the outstanding
principal amount of the Notes would have the right to waive certain Servicer
Defaults without consideration of the effect such waiver would have on the
Certificateholders. See "-- Certain Matters Regarding the Insurer" and
"Description of the Transfer and Servicing Agreements -- Servicer Default;
Rights Upon Servicer Default" herein.
CERTAIN MATTERS REGARDING THE INSURER
So long as an Insurer Default shall not have occurred and be continuing,
the Insurer will have the right to exercise all rights, including voting rights,
which the Securityholders are entitled to exercise pursuant to the Indenture and
the Trust Agreement, without any consent of such Securityholders; provided,
however, that without the consent of each holder of a class of Notes or
Certificates affected thereby, the Insurer shall not exercise such rights to
amend the Indenture in any manner that would (i) reduce the amount of, or delay
the timing of, collections of payments of Monthly P&I on the Contracts or
distributions which are required to be made on any Security, (ii) adversely
affect in any material respect the interests of the holders of any class of
Notes or the Certificates, or (iii) alter the rights of any such Securityholder
to consent to such amendment.
Notwithstanding any provision in the Prospectus to the contrary, in the
event an Insurer Default shall have occurred and be continuing, the Insurer
shall not have the right to take any action under the Sale and Servicing
Agreement or the Indenture, to terminate the Servicer, or to control or direct
the actions of the Seller, the Servicer, the Indenture Trustee, the Owner
Trustee or the Co-Owner Trustee pursuant to the terms of the Sale and Servicing
Agreement, the Indenture or the Trust Agreement, nor shall the consent of the
Insurer be required with respect to any action (or waiver of a right to take
action) to be taken by the Seller, the Servicer, the Indenture Trustee, the
Owner Trustee, the Co-Owner Trustee or the Securityholders; provided, that the
consent of the Insurer shall be required at all times with respect to any
amendment of the Sale and Servicing Agreement or the Indenture.
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<PAGE> 17
THE TRUST
GENERAL
The Issuer, Onyx Acceptance Owner Trust 1998-A, is a business trust
formed under the laws of the State of Delaware pursuant to the Trust Agreement
for the transactions described in this Prospectus Supplement. The Trust will not
engage in any activity other than (i) acquiring, holding and managing the
Contracts and the other assets of the Trust and proceeds therefrom, (ii) issuing
the Notes and the Certificates, (iii) making payments and distributions on the
Notes and the Certificates and (iv) engaging in other activities that are
necessary, suitable or convenient to accomplish the foregoing or are incidental
thereto or connected therewith.
The Trust's principal offices are in Wilmington, Delaware, in care of
Bankers Trust (Delaware), as Owner Trustee, at the address listed below under
"--The Owner Trustee."
THE OWNER TRUSTEE AND CO-OWNER TRUSTEE
Bankers Trust (Delaware) is the Owner Trustee under the Trust Agreement,
is a Delaware banking corporation and its principal offices are located at 1011
Centre Road, Suite 200, Wilmington, Delaware 19805-1266, Attention:
Corporate Trust Administration Department.
Certain functions of the Owner Trustee under the Trust Agreement and the
Sale and Servicing Agreement will be performed by The Chase Manhattan Bank, a
New York corporation, in its capacity as Co-Owner Trustee under the Trust
Agreement and the Sale and Servicing Agreement, including maintaining the
Certificate Distribution Account and making distributions therefrom. However,
upon the occurrence and continuation of an Insurer Default, the Co-Owner Trustee
will resign and the Owner Trustee will assume the duties of the Co-Owner Trustee
under the Trust Agreement and the Sale and Servicing Agreement.
The liability of the Owner Trustee and the Co-Owner Trustee in
connection with the issuance and sale of the Notes and the Certificates is
limited solely to the express obligations of the Owner Trustee and the Co-Owner
Trustee set forth in the Trust Agreement and the Sale and Servicing Agreement.
TRUST PROPERTY
The Trust Property will include, among other things, the following: (i)
the Contracts, all of which have been purchased from the Seller and are secured
by the Financed Vehicles, (ii) certain documents relating to the Contracts,
(iii) certain monies due under such Contracts on or after the Cut-Off Date, (iv)
security interests in the Financed Vehicles and the rights to receive proceeds
from claims on certain insurance policies covering the Financed Vehicles or the
Obligors, (v) all amounts on deposit in the Collection Account, the Note
Distribution Account, the Certificate Distribution Account and the Spread
Account, including all Eligible Investments credited thereto (but excluding any
investment income from Eligible Investments of funds in the Collection Account
to be paid to the Servicer), (vi) the right of the Seller to cause Onyx to
repurchase certain Contracts under certain circumstances, and (vii) all proceeds
of the foregoing.
Pursuant to the Indenture, the Trust will grant a security interest in
the Trust Property (excluding the Certificate Distribution Account) in favor of
the Indenture Trustee on behalf of the Noteholders and for the benefit of the
Insurer in support of the obligations owing to it under the Insurance Agreement.
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 automobiles and light-duty trucks
("MOTOR VEHICLE CONTRACTS"). Motor Vehicle Contracts in Onyx's portfolio
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<PAGE> 18
are purchased by Onyx from Dealers that originate such contracts, purchased by a
subsidiary of Onyx from credit unions that originate such contracts, or
originated by Onyx or a subsidiary of Onyx. Substantially all of the Contracts
have been purchased by Onyx from new and used car Dealers unaffiliated with Onyx
and the Seller, and a limited number of the Contracts have been purchased or
originated by subsidiaries of Onyx. All of the Contracts will have been sold to
the Seller and then to the Trust. See "The Onyx Portfolio of Motor Vehicle
Contracts -- Purchase and Origination of Motor Vehicle Contracts" in the
Prospectus.
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, 1995. 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 or a subsidiary of Onyx,
in accordance with credit underwriting criteria established by Onyx. In February
1994, Onyx commenced its operations as a purchaser and servicer of motor vehicle
retail installment sales contracts. Thus, Onyx has historical performance for
only a limited time period with respect to the Motor Vehicle Contracts it
purchases and originates and thus delinquencies and loan losses may increase
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" herein and in the Prospectus.
With the continued expansion of Onyx in the eastern United States and
the significant growth in Onyx's existing branches, Onyx undertook a project to
centralize and improve its servicing and collection process. Onyx believes that
a centralized group is efficient, effective and assures that collection
practices and policies are applied consistently throughout the company.
Management continues to rely on the use of current technology such as predictive
dialers utilizing an automated processing system for contacting delinquent
borrowers, including a payment system that allows electronic payment on
delinquent accounts to be applied the same day as payment is sent or initiated
by the borrower. Over the past few quarters, management has focused on the
hiring, training and retention of a centralized collection staff. During the
first quarter of 1998 Onyx realized some of the benefits of the centralization
and training of its collection department. At March 31, 1998, delinquencies for
the servicing portfolio represented 1.77% of the amount of Motor Vehicle
Contracts in Onyx' servicing portfolio or $15.63 million as compared to 3.13% at
March 31, 1997 or $14.96 million. Loan losses for the servicing portfolio as a
percentage of average serviced loans outstanding increased to 1.84% during the
quarter compared to 1.83% for the first quarter of 1997.
DELINQUENCY EXPERIENCE OF ONYX MOTOR VEHICLE CONTRACT PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31, AT DECEMBER 31, AT MARCH 31, AT MARCH 31,
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
AMOUNT NO AMOUNT NO AMOUNT NO AMOUNT NO AMOUNT NO
------ -- ------ -- ------ -- ------ -- ------ --
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Servicing portfolio . $218,207 20,156 $400,665 38,275 $757,277 73,502 $478,440 45,740 $884,692 86,327
Delinquencies
30-59 days(1)(2) .. $ 1,608 153 $ 5,022 478 $ 11,902 1,211 $ 9,867 904 $ 9,194 937
60-89 days(1)(2) .. 470 35 1,816 162 3,370 346 2,551 242 2,863 277
90+ days(1)(2) .... 547 42 1,279 111 3,742 316 2,542 214 3,572 320
Total delinquencies
as a percent of
servicing portfolio 1.20% 1.14% 2.03% 1.96% 2.51% 2.55% 3.13% 2.97% 1.77% 1.78%
</TABLE>
- ----------
(1) Delinquencies include principal amounts only, net of repossessed
inventory. Repossessed inventory as a percent of the servicing portfolio
was .00%, .43%, .48% And 1.17% At December 31, 1995, 1996 and 1997,
respectively, and .97% And .98% At March 31, 1997 and 1998 respectively.
(2) The period of delinquency is based on the number of days payments are
contractually past due.
S-18
<PAGE> 19
LOAN LOSS EXPERIENCE OF ONYX MOTOR VEHICLE CONTRACT PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, QUARTER ENDED MARCH 31,
----------------------- -----------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Number of Motor Vehicle Contracts
outstanding ................... 20,156 38,275 73,502 45,740 86,327
Period end outstanding .......... $218,207 $400,665 $757,277 $478,440 $884,692
Average outstanding ............. $141,029 $311,340 $563,343 $433,147 $815,922
Number of gross charge-offs ..... 197 987 2,161 367 818
Gross charge-offs ............... $ 548.2 $ 5,789.2 $ 13,076.1 $ 2,309.2 $ 4,457.6
Net charge-offs(1) .............. $ 528.7 $ 5,066.1 $ 11,433.9 $ 1,979.7 $ 3,761.8
Net charge-offs as a percent of
average outstanding ........... .37% 1.63% 2.03% 1.83% 1.84%
</TABLE>
- -----------
(1) NET CHARGE-OFFS ARE GROSS CHARGE-OFFS MINUS RECOVERIES OF MOTOR VEHICLE
CONTRACTS PREVIOUSLY CHARGED OFF.
THE CONTRACTS
All of the Contracts will have been purchased by the Seller from Onyx or
from a subsidiary of Onyx (each such subsidiary, a "SELLING SUBSIDIARY").
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 purchased or originated by subsidiaries of Onyx. See "The
Onyx Portfolio of Motor Vehicle Contracts" herein and in the Prospectus. Each of
the Contracts in the Trust will be a fixed rate contract where the allocation of
each payment between interest and principal is calculated using the Rule of 78's
or the Simple Interest Method. Contracts representing approximately 30.23% of
the Original Pool Balance allocate interest and principal in accordance with the
Rule of 78's (the "RULE OF 78'S CONTRACTS"), and Contracts representing
approximately 69.77% of the Original Pool Balance allocate interest in
accordance with the Simple Interest Method (the "SIMPLE INTEREST CONTRACTS").
See "The Contracts" in the Prospectus.
The Contracts were selected from the Motor Vehicle Contracts in the
portfolio of Onyx using the following criteria (the "ELIGIBILITY REQUIREMENTS").
No selection procedures were used with respect to the Contracts that are
believed by Onyx or the Seller to be adverse to the Securityholders or the
Insurer. Contracts representing approximately 16.84% of the Original Pool
Balance are secured by new Financed Vehicles, and Contracts representing
approximately 83.16% of the Original Pool Balance 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 Sale and Servicing Agreement.
The Seller will represent that all of the Contracts included in the
Trust satisfy the following Eligibility Requirements:
(a) Such Contracts are or will be secured by a new or used automobile or
light-duty truck;
(b) Such Contracts have remaining maturities as of the Cut-Off Date of
not more than 72 months;
(c) Such Contracts have or will have original maturities of not more
than 72 months;
(d) Such Contracts are or will be secured by Financed Vehicles that as
of the Cut-Off Date have not been repossessed without reinstatement;
(e) Such Contracts have or will have no payment more than 30 days past
due as of the Cut-Off Date;
(f) Such Contracts have or will have remaining principal balances as of
the Cut-Off Date of at least $500; and
(g) As of the Cut-Off Date the Seller has not received notice that any
related Obligor has filed for bankruptcy.
S-19
<PAGE> 20
Set forth below is data concerning the Contracts as of the Cut-Off Date
which had an Original Pool Balance of $208,759,315.
COMPOSITION OF THE CONTRACTS
Aggregate principal balance................... $208,759,315
NUMBER OF CONTRACTS........................... 18,381
AVERAGE PRINCIPAL BALANCE OUTSTANDING......... $11,357.34
AVERAGE ORIGINAL AMOUNT FINANCED.............. $11,898.27
ORIGINAL AMOUNT FINANCED (RANGE).............. $976.10 TO $62,314.10
WEIGHTED AVERAGE APR.......................... 14.730%
APR (RANGE)................................... 1.90% TO 35.00%
WEIGHTED AVERAGE ORIGINAL TERM................ 57.3 MONTHS
ORIGINAL TERM (RANGE)......................... 8 TO 72 MONTHS
WEIGHTED AVERAGE REMAINING TERM............... 55.5 MONTHS
REMAINING TERM (RANGE)........................ 5 TO 72 MONTHS
DISTRIBUTION BY APRS OF THE CONTRACTS
<TABLE>
<CAPTION>
% OF
ORIGINAL
NUMBER OF % OF PRINCIPAL POOL
APR RANGE CONTRACTS CONTRACTS BALANCE BALANCE
--------- --------- --------- -------
<S> <C> <C> <C> <C>
0.000% to 7.000%.......... 42 0.23% 322,698 0.15%
7.001% TO 8.000%.......... 257 1.40 3,645,377 1.75
8.001% TO 9.000%.......... 905 4.92 12,332,115 5.91
9.001% TO 10.000%......... 1,072 5.83 14,155,622 6.78
10.001% TO 11.000%........ 1,019 5.54 13,299,974 6.37
11.001% TO 12.000%........ 1,147 6.24 14,121,316 6.76
12.001% TO 13.000%........ 1,263 6.87 15,316,812 7.34
13.001% TO 14.000%........ 1,612 8.77 19,721,715 9.45
14.001% TO 15.000%........ 1,853 10.08 22,211,845 10.64
15.001% TO 16.000%........ 1,681 9.15 19,658,786 9.42
16.001% TO 17.000%........ 1,649 8.97 18,653,860 8.94
17.001% TO 18.000%........ 1,522 8.28 16,030,594 7.68
18.001% TO 19.000%........ 1,050 5.71 10,415,531 4.99
19.001% TO 20.000%........ 1,027 5.59 9,777,397 4.68
20.001% TO 21.000%........ 1,450 7.89 13,871,147 6.64
21.001% AND OVER.......... 832 4.53 5,224,526 2.50
-------- ---- ----------- --------
TOTALS.......... 18,381 100.00% 208,759,315 100.00%
</TABLE>
S-20
<PAGE> 21
GEOGRAPHIC CONCENTRATION OF THE CONTRACTS
<TABLE>
<CAPTION>
% OF
ORIGINAL
NUMBER OF % OF PRINCIPAL POOL
CONTRACTS CONTRACTS BALANCE BALANCE
--------- --------- ------- -------
<S> <C> <C> <C> <C>
Arizona............. 1,308 5.65 12,392,053 5.94%
CALIFORNIA.......... 9,328 50.75 105,570,660 50.57
COLORADO............ 320 1.74 3,763,250 1.80
CONNECTICUT......... 1 0.01 14,045 0.01
FLORIDA............. 1,784 9.71 20,485,718 9.81
GEORGIA............. 846 4.60 10,763,495 5.16
IOWA................ 1 0.01 4,005 0.00
IDAHO............... 24 0.13 250,419 0.12
ILLINOIS............ 1,133 6.15 13,775,333 6.60
INDIANA............. 317 1.72 3,472,410 1.66
MICHIGAN............ 282 1.53 3,616,027 1.73
MISSOURI............ 7 0.04 81,710 0.04
MONTANA............. 1 0.01 7,912 0.00
NORTH CAROLINA...... 1 0.01 17,562 0.01
NEVADA.............. 742 4.04 8,566,278 4.10
OREGON.............. 656 3.57 6,396,027 3.06
TENNESSEE........... 5 0.03 64,894 0.03
TEXAS............... 416 2.26 5,672,552 2.72
UTAH................ 11 0.06 98,598 0.05
WASHINGTON.......... 1,468 7.99 13,746,364 6.58
------- -------- ----------- ------
TOTALS.... 18,381 100.00% 208,759,315 100.00%
</TABLE>
MATURITY AND PREPAYMENT CONSIDERATIONS
The Contracts are prepayable in full by the Obligors at any time without
penalty. See "Maturity and Prepayment Considerations" in the Prospectus
regarding the effects of prepayments on the weighted average life of the
Contracts. As the rate of payment of principal of each class of Notes and the
Certificates depends primarily on the rate of payment (including prepayments) of
the principal of the Contracts, final payment of any class of Notes or of the
Certificates is expected to occur earlier, and could occur significantly
earlier, than the respective Final Scheduled Distribution Date for such
Securities. See "Risk Factors -- Maturity and Prepayment Considerations" herein.
Onyx can make no prediction as to the actual prepayment rates that will
be experienced on the Contracts in either stable or changing interest rate
environments. In addition, the rate of payment of principal of each class of
Securities will be affected by the incidence of delinquencies, defaults and
losses and by the application of the Accelerated Principal Distributable Amount
to pay the principal of the Notes.
USE OF PROCEEDS
The net proceeds of the initial sale of the Securities will be used by
the Trust to purchase the Contracts from the Seller pursuant to the Sale and
Servicing Agreement and to fund the deposits in certain collateral accounts
maintained for the benefit of the Insurer. The net proceeds to be received by
the Seller from the sale of the Contracts to the Trust will be used by the
Seller to repay certain indebtedness incurred, or to pay other amounts owed, in
connection with its acquisition of the Contracts and to pay certain other
expenses in connection with the pooling of the Contracts and the issuance of the
Securities.
S-21
<PAGE> 22
DESCRIPTION OF THE NOTES
The Notes will be issued pursuant to the terms of the Indenture, a form
of which will be filed with the Commission following the issuance of the Notes.
The following summaries of certain terms of the Notes and the Indenture do not
purport to be complete and are subject to, and qualified in their entirety by
reference to, the provisions of the Notes and the Indenture. Where particular
provisions of or terms used in the Indenture are referred to, the actual
provisions (including definitions of terms) are incorporated by reference as
part of such summaries.
GENERAL
The Notes of each class will be offered for purchase in minimum
denominations of $1,000 and integral multiples thereof, except that one Note of
each class may be issued in a different denomination. The Notes will initially
be represented by one or more certificates registered in the name of Cede, as
nominee of DTC, except as set forth below. The interests of holders of
beneficial interests in the Notes (each a "NOTE OWNER") will be available for
purchase 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 Notes. Unless and until Definitive Notes are issued under the limited
circumstances described herein, no Note Owner will be entitled to receive a
certificate representing such person's interest in the Notes. All references
herein to actions by Noteholders shall refer to actions taken by DTC upon
instructions from its participating organizations and all references herein to
payments, distributions, notices, reports and statements to Noteholders shall
refer to distributions, notices, reports and statements to DTC or Cede, as the
registered holder of the Notes, as the case may be, for distribution to Note
Owners in accordance with DTC procedures. See "Description of the Securities --
Book-Entry Registration" and "--Definitive Securities" in the Prospectus.
Unless and until Definitive Notes have been issued, payments on each
Distribution Date will be made through the facilities of DTC and the related
"RECORD DATE" will be the Business Day prior to such Distribution Date. If
Definitive Notes are issued, the related "RECORD DATE" will be the last day of
the calendar month preceding such Distribution Date. The final payment of
principal of and interest on each Note will be made only upon presentation and
surrender of such Note at the office or agency of the Indenture Trustee
maintained for that purpose.
PAYMENTS OF INTEREST
Interest on the outstanding principal amount of each class of the Notes
will accrue during each Interest Accrual Period at the respective per annum
Interest Rates and will be payable to the Noteholders monthly on each related
Distribution Date commencing July 15, 1998. Interest accrued but not paid on any
Distribution Date will be due on the immediately succeeding Distribution Date,
together with, to the extent permitted by applicable law, interest on such
shortfall at the related Interest Rate. Interest on the Class A-1 Notes will be
calculated on the basis of the actual number of days elapsed in an Interest
Accrual Period and a 360-day year. Interest on the Class A-2, Class A-3 and
Class A-4 Notes will be calculated on the basis of a 360-day year of twelve
30-day months. Interest payments on the Notes will be made as described below
under "Description of the Transfer and Servicing Agreements -- Distributions"
herein.
PAYMENTS OF PRINCIPAL
Principal payments will be made to the Noteholders, to the extent
described below, on each Distribution Date in an amount equal to the Note
Principal Distributable Amount, in each case calculated as described under
"Description of the Transfer and Servicing Agreements - Distributions" herein.
Principal payments on the Notes will be made as described below under
"Description of the Transfer and Servicing Agreements - Distributions" herein.
Principal payments on the Notes will be applied on each Distribution
Date from the Note Distribution Account as follows: first to the holders of the
Class A-1 Notes until the principal amount of the Class A-1 Notes has been
reduced to zero, second to the holders of the Class A-2 Notes until the
principal amount of the Class A-2 Notes has been reduced to zero, third to the
holders of the Class A-3 Notes until the principal amount of the Class A-3 Notes
has been reduced to zero, and fourth to the holders of the Class A-4 Notes until
the principal amount of the Class A-4 Notes has been reduced to zero. The Note
Principal Distributable Amount for each Distribution Date will include an amount
equal to the Accelerated Principal Distributable Amount for such Distribution
Date, if any. See "Description of the Transfer and Servicing Agreements -
Distributions" herein.
S-22
<PAGE> 23
After the principal amount of the Class A-4 Notes has been reduced to
zero, the Regular Principal Distributable Amount will be allocated to the
Certificates.
The principal amount of each class of Notes, to the extent not
previously paid, will be due on the related Note Final Scheduled Distribution
Date for that class of Notes. The actual date on which the outstanding principal
amount of any class of Notes is paid is expected to be earlier, and could be
significantly earlier, than the Note Final Scheduled Distribution Date for such
class based on a variety of factors, including the factors described under
"Maturity and Prepayment Considerations" herein and in the Prospectus.
OPTIONAL REDEMPTION
Each class of outstanding Notes will be subject to redemption in whole,
but not in part, on any Distribution Date relating to an Optional Purchase. The
redemption price will equal the unpaid principal amount of such class of Notes
plus accrued and unpaid interest thereon at the applicable Interest Rate. See
"Description of the Transfer and Servicing Agreements -- Termination" herein.
THE INDENTURE TRUSTEE
The Chase Manhattan Bank will be the Indenture Trustee. The Indenture
Trustee is a New York corporation and its Corporate Trust Office is located at
450 West 33rd Street, 15th Floor, New York, New York 10001-2697.
The Indenture Trustee will have the rights and duties set forth under
"Description of the Transfer and Servicing Agreements - The Trustee and the
Indenture Trustee" in the Prospectus.
INDENTURE EVENTS OF DEFAULT
"INDENTURE EVENTS OF DEFAULT" under the Indenture will consist of (i) a
draw on the Policy; (ii) a default for five days or more in the payment of any
interest on any Note; (iii) a default in the payment of any principal on the
Note Final Scheduled Distribution Date for a class of Notes; (vi) a default in
the observance or performance of any covenant or agreement of the Trust made in
the Indenture and the continuation of any such default for a period of 90 days
after notice thereof is given to the Trust by the Indenture Trustee or the
Insurer, or to the Trust and the Indenture Trustee by the holders of at least
25% in principal amount of the Notes then outstanding acting together as a
single class; (v) any representation or warranty made by the Trust in the
Indenture or in any certificate delivered pursuant thereto or in connection
therewith having been incorrect in a material respect as of the time made, and
such breach not having been cured within 30 days after notice thereof is given
to such Trust by the Indenture Trustee or the related Insurer, or to such Trust
and such Indenture Trustee by the holders of at least 25% in principal amount of
such Notes then outstanding acting together as a single class; or (vi) certain
events of bankruptcy, insolvency, receivership or liquidation with respect to
the Trust; provided, however that so long as no Insurer Default shall have
occurred and be continuing, neither the Indenture Trustee nor the Noteholders
may declare an Indenture Event of Default under the Indenture. So long as an
Insurer Default shall not have occurred and be continuing, an Indenture Event of
Default will occur only upon delivery by the Insurer to the Indenture Trustee of
notice of the occurrence of an Indenture Event of Default. The failure to pay
principal on a class of Notes will not result in the occurrence of an Indenture
Event of Default until the Final Scheduled Distribution Date for such class of
Notes.
Upon the occurrence of an Indenture Event of Default, so long as an
Insurer Default shall not have occurred and be continuing, the Insurer will have
the right, but not the obligation, to cause the Indenture Trustee to liquidate
the Trust Property in whole or in part, on any date or dates following the
acceleration of the Notes due to such Indenture Event of Default as the Insurer,
in its sole discretion, shall elect. The Insurer may not, however, cause the
Indenture Trustee to liquidate the Trust Property in whole or in part if the
proceeds of such liquidation would not be sufficient to pay all outstanding
principal of and accrued interest on the Notes, unless such Indenture Event of
Default arose from a claim being made on the Policy or from certain events of
bankruptcy, insolvency, receivership or liquidation of the Trust. Following the
occurrence of any Indenture Event of Default, the Indenture Trustee and the
Owner Trustee will continue to submit claims under the Policy for any shortfalls
in amounts available to make payments or distributions of guaranteed amounts on
the Notes and the Certificates. Following any Indenture Event of Default, the
Insurer may
S-23
<PAGE> 24
elect to pay all or any portion of the outstanding amount of the Notes, plus
accrued interest thereon to the date of payment. See "The Policy" herein.
If an Insurer Default has occurred and is continuing, upon the
occurrence of an Indenture Event of Default, the holders of 662/3% of the
principal amount of the Notes then outstanding may declare the principal of the
Notes to be immediately due and payable. If the Notes have been so declared to
be due and payable and the Indenture Event of Default has occurred because of a
Payment Default or a Trust Bankruptcy Event, and in either case the Insurer
shall have failed to make a payment required under the Policy in accordance with
its terms, the holders of 662/3% of the principal amount of the Notes then
outstanding may direct the Indenture Trustee, to the extent permitted by
applicable law, to either sell the Contracts or to have the Indenture Trustee
maintain possession of the Contracts and continue to apply distributions on such
Contracts as if there had been no declaration of acceleration. If an Indenture
Event of Default has occurred other than as described in the preceding sentence
(provided that the Insurer shall not have failed to make a payment required
under the Policy in accordance with its terms), the holders of 662/3% of the
aggregate principal amount of the Notes then outstanding, voting together as a
single class, may so direct the Indenture Trustee to either sell the Contracts
or to have the Indenture Trustee maintain possession of the Contracts and
continue to apply distributions on such Contracts; provided, however, that no
such sale of the Contracts may be made unless (i) the proceeds of such sale will
be sufficient to pay all principal of the Notes and the Certificates, together
with accrued interest thereon, and all amounts owing to the Insurer under the
Insurance Agreement or (ii) holders of Certificates evidencing 100% of the
outstanding principal amount of the Certificates consent to such sale and all
amounts owing to the Insurer under the Insurance Agreement will be paid in
connection with such sale. In the event of a sale of the Contracts as described
in the preceding sentence, the Policy will be terminated and the Insurer will
have no further obligation to make any payment thereunder. See "Risk Factors --
Indenture Events of Default; Control by Insurer and Noteholders" herein.
"INSURER DEFAULT" shall mean the occurrence and continuance of any of
the following events:
(a) the Insurer shall have failed to make a payment required under the
Policy in accordance with its terms;
(b) the Insurer shall have (i) filed a petition or commenced any case or
proceeding under any provision or chapter of the United States Bankruptcy Code
or any other similar federal or state law relating to insolvency, bankruptcy,
rehabilitation, liquidation or reorganization, (ii) made a general assignment
for the benefit of its creditors, or (iii) had an order for relief entered
against it under the United States Bankruptcy Code or any other similar federal
or state law relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization which is final and nonappealable; or
(c) a court of competent jurisdiction, the New York Department of
Insurance or other competent regulatory authority shall have entered a final and
nonappealable order, judgment or decree (i) appointing a custodian, trustee,
agent or receiver for the Insurer or for all or any material portion of its
property or (ii) authorizing the taking of possession by a custodian, trustee,
agent or receiver of the Insurer (or the taking of possession of all or any
material portion of the property of the Insurer).
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Trust Agreement, a form
of which will be filed with the Commission following the issuance of the
Certificates. The following summaries of certain terms of the Certificates and
the Trust Agreement do not purport to be complete and are subject to, and
qualified in their entirety by reference to the provisions of the Certificates
and the Trust Agreement. Where particular provisions of or terms used in the
Trust 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 different denomination. The Certificates will initially be
represented by one or more certificates registered in the name of Cede, as
nominee of DTC, except as set forth below.
S-24
<PAGE> 25
The interests of holders of beneficial interests in the Certificates (each, a
"CERTIFICATE OWNER") will be available for purchase 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 and all references herein to
payments, distributions, notices, reports and statements to Certificateholders
shall refer to distributions, notices, reports and statements to DTC or Cede, as
the registered holder of the Certificates, as the case may be, for distribution
to Certificate Owners in accordance with DTC procedures. See "Description of the
Securities - Book-Entry Registration" and "Definitive Securities" in the
Prospectus.
Unless and until Definitive Certificates have been issued, distributions
on each Distribution Date will be made through the facilities of DTC and the
related "RECORD DATE" will be the Business Day prior to such Distribution Date.
If Definitive Certificates are issued, the related "RECORD DATE" will be the
last day of the calendar month preceding such Distribution Date. The final
distribution of principal of and interest on each Certificate will be made only
upon presentation and surrender of such Certificate at the office or agency of
the Owner Trustee maintained for that purpose.
DISTRIBUTIONS OF INTEREST
Interest on the Certificate Balance will accrue during each Interest
Accrual Period at the Certificate Rate and will be payable to Certificateholders
monthly on each related Distribution Date commencing July 15, 1998. Interest
accrued but not paid on any Distribution Date will be due on the immediately
succeeding Distribution Date, together with, to the extent permitted by
applicable law, interest on such amount at the Certificate Rate. Interest on the
Certificates will be calculated on the basis of a 360-day year of twelve 30-day
months. Interest distributions with respect to the Certificates will be made as
described below under "Description of the Transfer and Servicing Agreements
Distributions" herein.
DISTRIBUTIONS OF PRINCIPAL
No principal will be paid on the Certificates until the principal amount
of all of the Notes have been paid in full. On each Distribution Date on and
after the Notes have been paid in full, the Certificateholders will be entitled
to distributions in an amount equal to the Certificate Percentage of the Regular
Principal Distributable Amount, in each case calculated as described under
"Description of the Transfer and Servicing Agreements - Distributions" herein.
Distributions with respect to principal payments on the Certificates will be
made as described below under "Description of the Transfer and Servicing
Agreements -- Distributions" herein. The Accelerated Principal Distributable
Amount will not be included in the Certificate Principal Distributable Amount.
The remaining Certificate Balance, to the extent not previously paid,
will be payable on the Certificate Final Scheduled Distribution Date. The actual
date on which the Certificate Balance is reduced to zero is expected to be
earlier, and could be significantly earlier, than the Certificate Final
Scheduled Distribution Date based on a variety of factors, including the factors
described under "Maturity and Prepayment Considerations" herein and in the
Prospectus.
OPTIONAL PREPAYMENT
The Certificates will be subject to prepayment in whole, but not in
part, on any Distribution Date relating to an Optional Purchase.
Certificateholders will receive an amount in respect of the Certificates equal
to the Certificate Balance, together with accrued interest at the Certificate
Rate. Any such distribution will effect early retirement of the Certificates.
See "Description of the Transfer and Servicing Agreements - Termination" herein.
PAYING AGENT
Distributions of principal of and interest on the Certificates will be
made by the Co-Owner Trustee or any paying agent or paying agents (each, a
"PAYING AGENT") as the Co-Owner Trustee may designate from time to time. The
Chase Manhattan Bank will be designated as the initial Paying Agent with respect
to the Certificates.
S-25
<PAGE> 26
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of the Sale and Servicing
Agreement and the Trust Agreement (collectively, the "TRANSFER AND SERVICING
AGREEMENTS"). Forms of the Transfer and Servicing Agreements will be filed with
the Commission following the issuance of the Securities. The summary does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, all the provisions of the Transfer and Servicing Agreements. The
following summary supplements, and to the extent inconsistent therewith
replaces, the description of the general terms and provisions of the Transfer
and Servicing Agreements set forth under the headings "Description of the
Transfer and Servicing Agreements" in the Prospectus, to which description
reference is hereby made.
SALE AND ASSIGNMENT OF THE CONTRACTS
At the time of issuance of the Securities, the Seller will sell and
assign to the Trust, 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 Sale and Servicing Agreement. Concurrently with such sale and
assignment, the Trust will pledge the assets acquired by it to the Indenture
Trustee pursuant to the Indenture, and the Indenture Trustee and Owner Trustee
will execute, authenticate and deliver the definitive certificates representing
the Notes and the Certificates, respectively, to the Underwriters against
payment to the Seller of the net purchase price of the sale of the Securities.
Pursuant to the applicable respective Purchase Agreements (as defined in the
Prospectus), prior to sale of the Contracts to the Trust and the issuance of the
Securities, Onyx and each Selling Subsidiary will sell and assign to the Seller
Onyx's and such Selling Subsidiaries' entire interest in the Contracts. The
Trustee will pledge its rights under the Sale and Servicing Agreement to the
Indenture Trustee as collateral for the Notes, and such rights may be enforced
directly by the Indenture Trustee. See "Description of the Transfer and
Servicing Agreements - Sale and Assignment of the Contracts" in the Prospectus.
THE ACCOUNTS
The Collection and Payahead Accounts. The Collection Account and the
Payahead Account referred to in the Prospectus under "Description of the
Transfer and Servicing Agreements - The Collection Account and Eligible
Investments" and "- Payahead Account" will be established by the Servicer and
maintained by the Indenture Trustee in the name of the Indenture Trustee.
The Distribution Accounts. The Servicer will also establish and maintain
with the Indenture Trustee (i) an account, in the name of the Indenture Trustee
on behalf of the Noteholders, in which amounts released from the Collection
Account for distribution to Noteholders will be deposited and from which all
distributions to Noteholders will be made (the "NOTE DISTRIBUTION ACCOUNT") and
(ii) an account, in the name of the Co-Owner Trustee on behalf of the
Certificateholders, in which amounts released from the Collection Account for
distribution to Certificateholders will be deposited and from which all
distributions to Certificateholders will be made (the "CERTIFICATE DISTRIBUTION
ACCOUNT" and, together with the Note Distribution Account, the "DISTRIBUTION
ACCOUNTS").
The Spread Account. The Spread Account will be established and
maintained as described under "Description of the Transfer and Servicing
Agreements -- Payment Priorities of the Notes and Certificates; The Spread
Account" and "-- Withdrawals from the Spread Account" herein.
PAYMENTS ON CONTRACTS
Net 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. "NET COLLECTIONS" with respect to a Collection Period
will include: amounts received with respect to the Contracts in the related
Collection Period representing Monthly P&I, Full Prepayments and partial
prepayments (pending transfer of Payaheads on Rule of 78's Contracts to any
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 of representations or warranties regarding the
Contracts made by the Seller in the Sale and Servicing Agreement that materially
and adversely affect the interests of the Securityholders 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
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covenants, and any amounts deposited by the Servicer in the Collection Account
pursuant to an Optional Purchase. "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 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), 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, if any, on the Servicer Report Date.
DISTRIBUTIONS
On each Distribution Date, the Indenture Trustee will apply the Net
Collections available with respect to the related Collection Period together
with amounts, if any, withdrawn from the Spread Account or representing payment
of the Policy Claim Amount as described herein, to make the following deposits
and distributions in the following amounts and order of priority:
(i) to the Servicer, from Net Collections, the Servicing Fee, including
any unpaid Servicing Fees with respect to one or more prior Collection Periods;
(ii) to the Indenture Trustee, the Owner Trustee and the Co-Owner
Trustee, from Net Collections (after giving effect to the reduction in Net
Collections described in clause (i) above), any accrued and unpaid fees of the
Indenture Trustee, the Owner Trustee and the Co-Owner Trustee, in each case to
the extent such fees have not been previously paid by the Servicer;
(iii) to the Note Distribution Account, from Net Collections (after
giving effect to the reduction in Net Collections described in clauses (i) and
(ii) above), the Note Interest Distributable Amount to be paid to the holders of
the Notes at their respective Interest Rates;
(iv) to the Note Distribution Account, if such Distribution Date is a
Note Final Scheduled Distribution Date for any class of Notes, the Note
Principal Distributable Amount to the extent of the remaining principal amount
of such class of Notes, from Net Collections (after giving effect to the
reduction in Net Collections described in clauses (i) through (iii) above), to
be paid to the holders of such class of Notes;
(v) to the Certificate Distribution Account, from Net Collections (after
giving effect to the reduction in Net Collections described in clauses (i)
through (iv) above), the Certificate Interest Distributable Amount, to be
distributed to the holders of the Certificates;
(vi) to the Note Distribution Account, from Net Collections (after
giving effect to the reduction in Net Collections described in clauses (i)
through (v) above), the remaining Note Principal Distributable Amount (after
giving effect to the payment, if any, described in clause (iv) above), to be
paid first to the holders of the Class A-1 Notes until the principal amount of
the Class A-1 Notes has been reduced to zero, second to the holders of the Class
A-2 Notes until the principal amount of the Class A-2 Notes has been reduced to
zero, third to the holders of the Class A-3 Notes until the principal amount of
the Class A-3 Notes has been reduced to zero, and fourth to the holders of the
Class A-4 Notes until the principal amount of the Class A-4 Notes has been
reduced to zero;
(vii) to the Certificate Distribution Account, if such Distribution Date
is the Certificate Final Scheduled Distribution Date, from Net Collections
(after giving effect to the reduction in Net Collections described in clauses
(i) through (vi) above), the Certificate Principal Distributable Amount to the
extent of the Certificate Balance, to be distributed to the holders of the
Certificates;
(viii) to the Certificate Distribution Account, from Net Collections
(after giving effect to the reduction in Net Collections described in clauses
(i) through (vii) above), the remaining Certificate Principal Distributable
Amount (after giving effect to the distribution, if any, described in clause
(vii) above) to the extent of the Certificate Balance, to be distributed to the
holders of the Certificates;
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(ix) to the Insurer, from Net Collections (after giving effect to the
reduction in Net Collections described in clauses (i) through (viii) above), any
amounts owing to the Insurer under the Insurance Agreement;
(x) to the Spread Account, from Net Collections (after giving effect to
the reduction in Net Collections described in clauses (i) through (ix) above),
the amount, if any, required to increase the amount therein to the Spread
Account Maximum; and
(xi) in the event that the distributions described in clauses (i)
through (x) above have been funded exclusively from Net Collections, any Net
Collections remaining after distribution of the Accelerated Principal
Distributable Amount as part of the Note Principal Distributable Amount ("EXCESS
AMOUNTS") will be deposited into the Spread Account and will be applied as
described in the second paragraph under "Description of the Transfer and
Servicing Agreements - Withdrawals from the Spread Account" herein.
If the Notes are accelerated following an Indenture Event of Default, amounts
collected will be applied first, to pay any unpaid Servicing Fee; second, to pay
any accrued and unpaid fees of the Indenture Trustee, Owner Trustee and Co-Owner
Trustee; third, to pay accrued interest on each class of Notes on a pro rata
basis based on the interest accrued (including interest accrued on past-due
interest) on each class of Notes; fourth, to pay principal on each class of
Notes, on a pro rata basis based on the aggregate principal balance of each
class of Notes, until the aggregate principal balance of each class of Notes is
reduced to zero; fifth, to pay accrued interest on the Certificates; sixth, to
pay principal on the Certificates until the Certificate Balance is reduced to
zero; seventh, to pay amounts owing the Insurer under the Insurance Agreement;
and eighth, to the Spread Account, to be applied in accordance with the
Insurance Agreement.
Amounts on deposit in the Spread Account on a Distribution Date will be
available to make payments and distributions on such Distribution Date as
described under "-- Withdrawals from the Spread Account" herein. Under the
Policy, the Insurer is obligated to provide for payment to the Indenture Trustee
on each Distribution Date of any Policy Claim Amount. In addition, on any
Distribution Date, the Insurer may elect, in its sole discretion, to pay all or
a portion of any shortfalls in the amount of Net Collections available to
distribute the amounts described in clauses (vi) and (viii) of the preceding
paragraph. See "The Policy" herein.
For the purposes hereof, the following terms will have the following
meanings:
The "ACCELERATED PRINCIPAL COMMENCEMENT DATE" will mean the first
Distribution Date on which the amount on deposit in the Spread Account is equal
to or greater than the Spread Account Maximum (after giving effect to the
distribution pursuant to clause (x) above on such Distribution Date).
The "ACCELERATED PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect to
any Distribution Date occurring on or after the Accelerated Principal
Commencement Date, an amount equal to the lesser of (i) one-twelfth of 3% of the
Pool Balance as of such Distribution Date, (ii) the amount, if any, by which (a)
the Accelerated Principal Target Level as of such Distribution Date (after
giving effect to the distribution of the Regular Principal Amount on such
Distribution Date) exceeds (b) the Pool Balance as of such Distribution Date,
and (iii) amounts remaining on deposit in the Collection Account for such
Distribution Date after giving effect to distributions pursuant to clauses (i)
through (x) above without regard to the inclusion of such amount as part of the
Note Principal Distributable Amount. The Accelerated Principal Distributable
Amount The Accelerated Principal Distributable Amount shall only be included in
the Note Principal Distributable Amount until all of the Notes have been paid in
full, and shall not be included in the Certificate Principal Distributable
Amount at any time.
The "ACCELERATED PRINCIPAL TARGET LEVEL" means, with respect to any
Distribution Date, an amount equal to the product of (i) 102% multiplied by (ii)
the outstanding aggregate principal amount of the Notes and the Certificates as
of such Distribution Date (after giving effect to the distribution of the
Regular Principal Amount on such Distribution Date).
The "AMOUNT FINANCED" means, with respect to a Contract, the aggregate
amount advanced under such Contract toward the purchase price of the related
Financed Vehicle and related costs, including amounts advanced in
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respect of accessories, insurance premiums, service, warranty contracts, other
items customarily financed as part of retail automobile installment sales
contracts, and related costs.
The "CERTIFICATE DISTRIBUTABLE AMOUNT" means, with respect to any
Distribution Date, the sum of the Certificate Principal Distributable Amount and
the Certificate Interest Distributable Amount for such Distribution Date.
The "CERTIFICATE INTEREST CARRYOVER SHORTFALL" means, with respect to
any Distribution Date, the excess of the sum of the Certificate Interest
Distributable Amount for the immediately preceding Distribution Date and any
outstanding Certificate Interest Carryover Shortfall on such preceding
Distribution Date, over the amount in respect of interest on the Certificates
that is actually deposited in the Certificate Distribution Account on such
preceding Distribution Date, plus interest on such excess, to the extent
permitted by law, at the Certificate Rate for the Interest Accrual Period with
respect to the Distribution Date for which such Certificate Interest Carryover
Shortfall is being calculated.
The "CERTIFICATE INTEREST DISTRIBUTABLE AMOUNT" means, with respect to
any Distribution Date, the sum of (i) an amount equal to the interest accrued
during the related Interest Accrual Period at the Certificate Rate on the
Certificate Balance on the immediately preceding Distribution Date, after giving
effect to all distributions of principal on or prior to such Distribution Date
(or, in the case of the first Distribution Date, the original Certificate
Balance) and (ii) the Certificate Interest Carryover Shortfall for such
Distribution Date.
The "CERTIFICATE PERCENTAGE" means (i) for each Distribution Date prior
to the Distribution Date on which the principal amount of the Class A-4 Notes is
reduced to zero, 0%, (ii) on the Distribution Date on which the principal amount
of the Class A-4 Notes is reduced to zero, (a) 0% until the principal amount of
the Class A-4 Notes has been reduced to zero and (b) with respect to any
remaining portion of the Regular Principal Distributable Amount, 100%; and (iii)
for each Distribution Date after the Distribution Date on which the principal
amount of the Class A-4 Notes is reduced to zero, 100%.
The "CERTIFICATE PRINCIPAL CARRYOVER SHORTFALL" means, as of the close
of any Distribution Date, the excess of the sum of the Certificate Principal
Distributable Amount and any outstanding Certificate Principal Carryover
Shortfall for the immediately preceding Distribution Date, over the amount in
respect of principal that is actually deposited in the Certificate Distribution
Account on such Distribution Date.
The "CERTIFICATE PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect to
any Distribution Date, the sum of (i) the Certificate Percentage of the Regular
Principal Distributable Amount for such Distribution Date and (ii) any
outstanding Certificate Principal Carryover Shortfall for the immediately
preceding Distribution Date; provided, however, that the Certificate Principal
Distributable Amount shall not exceed the Certificate Balance. Notwithstanding
the foregoing, the Certificate Principal Distributable Amount on the Certificate
Final Scheduled Distribution Date shall not be less than the amount that is
necessary (after giving effect to other amounts to be deposited in the
Certificate Distribution Account on such Distribution Date and allocable to
principal) to reduce the outstanding principal amount of the Certificates to
zero.
A "COLLECTION PERIOD" with respect to a Distribution Date will be the
calendar month preceding the month in which such Distribution Date occurs;
provided, that with respect to Liquidated Contracts, the Collection Period will
be the period from but excluding the sixth Business Day preceding the
immediately preceding Distribution Date to and including the sixth Business Day
preceding such Distribution Date. With respect to the first Distribution Date,
the "Collection Period" for Liquidated Contracts will be the period from and
including the Cut-Off Date to and including the sixth Business Day preceding
such first Distribution Date.
A "CRAM DOWN LOSS" means, with respect to a Contract if a court of
appropriate jurisdiction in an insolvency proceeding shall have issued an order
reducing the amount owed on such Contract or otherwise modifying or
restructuring the scheduled payments to be made on such Contract, an amount
equal to (i) the excess of the Principal Balance of such Contract immediately
prior to such order over the Principal Balance of such Contract as so reduced
and/or (ii) if such court shall have issued an order reducing the effective rate
of interest on such Contract, the excess of the Principal Balance of such
Contract immediately prior to such order over the net present value (using as
the discount rate the higher of the annual percentage rate on such Contract or
the rate of interest, if any, specified by the
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court in such order) of the scheduled payments as so modified or restructured. A
Cram Down Loss shall be deemed to have occurred on the date of issuance of such
order.
A "DEFAULTED CONTRACT" with respect to any Collection Period is a
Contract (i) which is, at the end of such Collection Period, delinquent in the
amount of at least two monthly installments of Monthly P&I or (ii) with respect
to which the related Financed Vehicle has been repossessed or repossession
efforts with respect to the related Financed Vehicle have been commenced.
A "LIQUIDATED CONTRACT" is a Contract that (i) is the subject of a Full
Prepayment; (ii) is a Defaulted Contract with respect to which Liquidation
Proceeds constituting, in the Servicer's reasonable judgment, the final amounts
recoverable have been received and deposited in the Collection Account; (iii) is
paid in full on or after its Maturity Date; or (iv) has been a Defaulted
Contract for four or more collection Periods and as to which Liquidation
Proceeds have not been deposited in the Collection Account; provided, however,
that in any event a Contract that is delinquent in the amount of five monthly
installments of Monthly P&I at the end of a Collection Period is a Liquidated
Contract.
The "NOTE DISTRIBUTABLE AMOUNT" will mean, with respect to any
Distribution Date, the sum of the Note Principal Distributable Amount and the
Note Interest Distributable Amount for such Distribution Date.
The "NOTE INTEREST CARRYOVER SHORTFALL" will mean, with respect to any
Distribution Date and a class of Notes, the excess, if any, of the sum of the
Note Interest Distributable Amount for such class for the immediately preceding
Distribution Date and any outstanding Note Interest Carryover Shortfall for such
class on such preceding Distribution Date, over the amount in respect of
interest that is actually deposited in the Note Distribution Account with
respect to such class on such preceding Distribution Date, plus, to the extent
permitted by applicable law, interest on the amount of interest due but not paid
to Noteholders of such class on such preceding Distribution Date at the related
Interest Rate for the related Interest Accrual Period.
The "NOTE INTEREST DISTRIBUTABLE AMOUNT" will mean, with respect to any
Distribution Date and a class of Notes, the sum of (i) an amount equal to the
interest accrued during the related Interest Accrual Period at the related
Interest Rate for such class of Notes on the outstanding principal amount of
such class of Notes on the immediately preceding Distribution Date, after giving
effect to all payments of principal to Noteholders of such class on or prior to
such Distribution Date (or, in the case of the first Distribution Date, on the
original principal amount of such class of Notes) and (ii) the Note Interest
Carryover Shortfall for such class of Notes for such Distribution Date.
The "NOTE PERCENTAGE" means (i) for each Distribution Date prior to the
Distribution Date on which the principal amount of all of the Notes is reduced
to zero, 100%; (ii) on the Distribution Date on which the principal amount of
all of the Notes is reduced to zero, (a) 100% until the principal amount of all
of the Notes has been reduced to zero and (b) with respect to any remaining
portion of the Regular Principal Distributable Amount, 0%; and (iii) for each
Distribution Date after the principal amount of all of the Notes has been
reduced to zero, 0%.
The "NOTE PRINCIPAL CARRYOVER SHORTFALL" means, as of the close of any
Distribution Date, the excess of the sum of the Note Principal Distributable
Amount for such Distribution Date and any outstanding Note Principal Carryover
Shortfall for the immediately preceding Distribution Date over the amount in
respect of principal that is actually deposited in the Note Distribution Account
on such Distribution Date.
The "NOTE PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect to any
Distribution Date, the sum of (i) the Note Percentage of the Regular Principal
Distributable Amount for such Distribution Date, (ii) the Accelerated Principal
Distributable Amount, if any, for such Distribution Date and (iii) any
outstanding Note Principal Carryover Shortfall for the immediately preceding
Distribution Date; provided, however, that the Note Principal Distributable
Amount shall not exceed the aggregate outstanding principal amount of the Notes.
Notwithstanding the foregoing, the Note Principal Distributable Amount on each
Note Final Scheduled Distribution Date shall not be less than the amount that is
necessary (after giving effect to other amounts to be deposited in the Note
Distribution Account on such Distribution Date and allocable to principal) to
reduce the outstanding principal amount of the related class of Notes to zero.
The "PRINCIPAL BALANCE" means, with respect to a Contract, as of any
date, the Amount Financed under the terms of such Contract minus (i) that
portion of Monthly P&I in respect of such Contract received on or prior to such
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date and allocable to principal as determined by the Servicer and (ii) any Cram
Down Loss in respect of such Contract. For purposes of this definition,
allocations of Monthly P&I on each Contract by the Servicer shall be made in
accordance with the terms of such Contract, in the case of a Simple Interest
Contract, or in accordance with the Recomputed Actuarial Method, in the case of
a Rule of 78's Contract.
The "PURCHASE AMOUNT" means, with respect to a Purchased Contract, the
Principal Balance of such Contract as of the date of purchase of such Contract.
A "PURCHASED CONTRACT" means a Contract that (i) has been purchased by
Onyx or the Seller because of certain material defects in documents related to
such Contract or certain breaches of representations and warranties regarding
such Contract made by the Seller in the Sale and Servicing Agreement that
materially and adversely affect the interests of the Securityholders or the
Insurer, (ii) has been purchased by the Servicer because of certain breaches of
servicing covenants or (iii) has been purchased by the Servicer in the event of
an Optional Purchase.
The "REGULAR PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect to any
Distribution Date, the amount equal to the sum of the following amounts with
respect to the related Collection Period: (i) collections received on Contracts
(other than Liquidated Contracts and Purchased Contracts) allocable to principal
as determined by the Servicer, including full and partial principal prepayments,
(ii) the Principal Balance of all Contracts (other than Purchased Contracts)
that became Liquidated Contracts during the related Collection Period, (iii) the
portion of the Purchase Amount allocable to principal of all Contracts that
became Purchased Contracts as of the immediately preceding Record Date and (iv)
the aggregate amount of Cram Down Losses incurred during the related Collection
Period.
PAYMENT PRIORITIES OF THE NOTES AND THE CERTIFICATES; THE SPREAD ACCOUNT
The rights of the Securityholders to receive distributions with respect
to the Contracts will be subordinated to the rights of the Servicer (to the
extent that the Servicer has not been paid all Servicing Fees), the Indenture
Trustee, the Owner Trustee and the Co-Owner Trustee (to the extent the Indenture
Trustee, the Owner Trustee and the Co-Owner Trustee have not received all fees
due and payable to them from the Servicer). In addition, the rights of the
Noteholders to receive distributions with respect to the Contracts will be
subject to the priorities set forth under "Description of the Transfer and
Servicing Agreements - Distributions" herein and the rights of the
Certificateholders to receive distributions with respect to the Contracts will
be subordinated to the rights of the Noteholders, in each case to the extent
described above. Such priorities and subordination are intended to enhance the
likelihood of timely receipt by the Noteholders of the full amount of interest
and principal required to be paid to them, and to afford the Noteholders limited
protection against losses in respect of the Contracts.
The foregoing protection will be effected both by the preferential right
of the Noteholders to receive, to the extent described herein, current
distributions with respect to the Contracts, and by the establishment of the
Spread Account. The Spread Account will be a part of the Trust and will be a
segregated trust account in the name of the Indenture Trustee and the Indenture
Trustee will have a perfected security interest therein and in all amounts
deposited in or credited to the Spread Account as well as all Eligible
Investments made with such deposits and earnings. The Spread Account will be
funded by the deposit therein of amounts pursuant to clauses (x) and (xi) under
"-- Distributions" above.
Amounts held from time to time in the Spread Account will continue to be
held for the benefit of holders of the Securities and the Insurer and may be
invested in Eligible Investments. Investment income on monies on deposit in the
Spread Account will be credited to the Spread Account. Any loss on such
investment will be charged to the Spread Account.
The "SPREAD ACCOUNT MAXIMUM" means, on any day, an amount equal to 2% of
the outstanding principal amount of the Securities as of the Cut-Off Date;
provided, however, that if certain trigger events set forth in the Insurance
Agreement have occurred and are continuing, or if the Net Yield is less than
2.5%, the Spread Account Maximum shall be the greater of (a) 5% of the current
aggregate outstanding amount of the Securities and (b) 2% of the outstanding
principal amount of the Securities as of the Cut-Off Date; and provided further,
however, that if certain trigger events set forth in the Insurance Agreement
have occurred and are continuing, including, among others, Servicer
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Defaults, breaches of covenants by the Seller under the Sale and Servicing
Agreement, and the failure of certain security interests to remain first
priority security interests, or if the Net Yield is less than 2%, the Spread
Account Maximum shall equal the Policy Amount with respect to such Distribution
Date. The foregoing notwithstanding, the Spread Account Maximum may be
calculated pursuant to any other formula as the parties to the Insurance
Agreement and the Rating Agencies may agree, and may include any other
provisions or contain any additional requirements as the parties to the
Insurance Agreement may agree, which the Rating Agencies may require to maintain
the ratings of the Securities, and to maintain the rating of the transactions
contemplated in the Insurance Agreement and the Sale and Servicing Agreement,
without consideration of the Policy, at not less than investment grade, as
defined by the Rating Agencies.
The "NET YIELD" means, on any day, the percentage equivalent of (a) four
multiplied by (b) a fraction the numerator of which is equal to (i) the
aggregate of all interest collected on Contracts during the three immediately
preceding Collection Periods minus (ii) the sum of (A) the aggregate outstanding
principal balances of Contracts which became Liquidated Contracts other than by
virtue of a Full Prepayment during such three Collection Periods (less any Net
Liquidation Proceeds received with respect to such Liquidated Contracts during
such three Collection Periods) and (B) interest paid to the Securityholders and
the Servicing Fees paid to the Servicer during such three Collection Periods,
and the denominator of which is equal to the average of the Pool Balances as of
the last day of each of such three immediately preceding Collection Periods.
The "POLICY AMOUNT" means, with respect to any Distribution Date, the
sum of (a) in the case of the first Distribution Date, the initial aggregate
principal amount of the Notes and the Certificates, or in the case of any
Distribution Date thereafter, the aggregate principal amount of the Notes and
the Certificates outstanding on the immediately preceding Distribution Date
(after giving effect to the payments and distributions of principal on the Notes
and the Certificates on such preceding Distribution Date), (b) the amount of
interest payable in respect of the Notes and the Certificates on such
Distribution Date and (c) the Servicing Fee payable on such Distribution Date.
WITHDRAWALS FROM THE SPREAD ACCOUNT
Amounts held from time to time in the Spread Account will continue to be
held for the benefit of the Noteholders, the Certificateholders and the Insurer.
On each Distribution Date funds will be withdrawn from the Spread Account to the
extent that the sum of the amounts set forth in clauses (i) though (v) and (vii)
under " -- Distributions" above with respect to such Distribution Date exceeds
the amount of Net Collections available with respect to such Distribution Date.
Funds will also be withdrawn from the Spread Account to reimburse the Insurer
for any draws under the Policy with respect to any Preference Amount.
If the amount on deposit in the Spread Account on any Distribution Date
(after giving effect to all deposits thereto or withdrawals therefrom on such
Distribution Date) is greater than the Spread Account Maximum, the Indenture
Trustee will distribute any excess first, to the Insurer, to the extent of any
amounts owing to the Insurer pursuant to the Insurance Agreement, then to the
holders of the Residual Interests in the Trust. Upon any such distributions to
the Insurer or the holders of the Residual Interests, the Securityholders will
have no further rights in, or claims to, such amounts.
None of the Securityholders, the Indenture Trustee, the Owner Trustee,
the Co-Owner Trustee, the Seller, the Insurer or the holders of the Residual
Interests will be required to refund any amounts properly distributed to them,
whether or not there are sufficient funds on any subsequent Distribution Date to
make full distributions to the Securityholders. The obligations of the Insurer
under the Policy will not be diminished or otherwise affected by any amounts
distributed to the Insurer as described in the preceding paragraph.
SERVICING FEE
The Servicer will be entitled to compensation for the performance of its
obligations under the Sale and Servicing Agreement. The Servicer shall be
entitled to receive on each Distribution Date an amount (the "SERVICING FEE")
equal to the product of one-twelfth of 1% per annum (the "SERVICING FEE RATE")
multiplied by the Pool Balance as of the end of the Collection Period preceding
the related Collection Period. As additional compensation, the Servicer 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
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Investments of funds in the Collection Account. The Servicer shall pay all
expenses incurred by it in connection with its servicing activities under the
Sale and Servicing 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.
The Sale and Servicing Agreement requires the Servicer to use its best
efforts to collect all payments called for under the terms and provisions of the
Contracts. The Servicer, consistent with the foregoing, will be permitted, in
its discretion, to waive certain charges and grant extensions as described under
"Description of the Transfer and Servicing Agreements - Waivers and Extensions"
in the Prospectus. The maturity date of a Contract, however, may not be extended
more than 120 days past the originally scheduled maturity date, and in no event
beyond the latest Final Scheduled Distribution Date.
SERVICER DEFAULT; RIGHTS UPON SERVICER DEFAULT
The events which constitute a "SERVICER DEFAULT" under the Sale and
Servicing Agreement will be those events described in the accompanying
Prospectus under "Description of the Transfer and Servicing Agreements --
Servicer Default".
Notwithstanding anything to the contrary set forth in the Prospectus
under "Description of the Transfer and Servicing Agreements -- Rights Upon
Servicer Default", upon the occurrence of a Servicer Default, unless an Insurer
Default shall have occurred and be continuing, only the Insurer (and not the
Indenture Trustee or the Noteholders) may terminate the Servicer under the Sale
and Servicing Agreement, whereupon a successor servicer appointed by the Insurer
will succeed to all the responsibilities, duties and liabilities of the Servicer
under the Sale and Servicing Agreement and will be entitled to similar
compensation arrangements.
If an Insurer Default has occurred and is continuing, upon the
occurrence of a Servicer Default, (i) if the Notes have not been paid in full,
the holders of Notes evidencing not less than 25% of the outstanding principal
amount of the Notes, acting together as a single class, or the Indenture
Trustee, may terminate the Servicer under the Sale and Servicing Agreement
without consideration of the effect such termination would have on the
Certificateholders and (ii) if the Notes have been paid in full, the holders of
Certificates evidencing not less than 25% of the outstanding principal amount of
the Certificates may terminate the Servicer under the Sale and Servicing
Agreement. The Certificateholders will not have the ability to remove the
Servicer in the event both a Servicer Default and an Insurer Default have
occurred and are continuing unless the Notes have been paid in full. Upon the
termination of the Servicer by the Indenture Trustee, the Noteholders or the
Certificateholders, as the case may be, the Indenture Trustee (or, if the Notes
have been paid in full, a successor servicer appointed by the Owner Trustee
acting at the direction of holders of Certificates evidencing not less than 51%
of the outstanding principal amount of the Certificates) or a successor servicer
appointed by Indenture Trustee will succeed to all the responsibilities, duties
and liabilities of the Servicer under the Sale and Servicing Agreement and will
be entitled to similar compensation arrangements; provided, however, that the
Indenture Trustee or Owner Trustee, as the case may be, will not be obligated to
assume Onyx's obligations 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 Indenture Trustee is unwilling
or unable to so act, it may appoint, 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
and/or light duty truck receivables.
Notwithstanding anything to the contrary set forth under "Description of
the Transfer and Servicing Agreements -- Rights Upon Servicer Default" in the
Prospectus, unless an Insurer Default shall have occurred and be continuing, the
Insurer may, on behalf of the Securityholders, waive any default by the Servicer
in the performance of its obligations under the Sale and Servicing Agreement and
its consequences. The rights of the Noteholders and the Certificateholders, as
the case may be, to waive Servicer Defaults are as described under "Description
of the Transfer and Servicing Agreements -- Rights Upon Servicer Default" in the
Prospectus.
S-33
<PAGE> 34
TERMINATION
The obligations of the Servicer, the Seller, the Owner Trustee and
Indenture Trustee with respect to the related Securityholders pursuant to the
Trust Agreement, Sale and Servicing Agreement or Indenture will terminate as
described under "Description of the Transfer and Servicing Agreements -
Termination" in the Prospectus, and as set forth below.
In order to avoid excessive administrative expenses, the Servicer will
be permitted at its option to purchase (an "OPTIONAL PURCHASE") the remaining
Contracts from the Trust on any Distribution Date as of which the Pool Balance
has declined to 10% or less of the Original Pool Balance at a price equal to the
greater of (i) the sum of (x) the Pool Balance on the date of repurchase plus
(y) accrued and unpaid interest on the Contracts and (ii) the sum of (x) the
aggregate unpaid principal amount of the Securities, plus (y) accrued and unpaid
interest thereon, plus (z) all amounts due to the Insurer under the Insurance
Agreement.
The Owner Trustee and Indenture Trustee will give written notice of
termination to each Securityholder of record. The final distribution to each
Securityholder will be made only upon surrender and cancellation of such
holder's Securities at the office or agency of the related Trustee specified in
the notice of termination. Any funds remaining in the Trust, after such Trustee
has taken certain measures to locate a Securityholder and such measures have
failed, will be distributed to a charity designated by the Servicer.
Any outstanding Notes will be redeemed concurrently with any Optional
Purchase described above, and the subsequent distribution to the related
Certificateholders of all amounts required to be distributed to them pursuant to
the Trust Agreement will effect early retirement of the Certificates.
PAYMENT IN FULL OF NOTES
Upon the payment in full of all outstanding Notes and the satisfaction and
discharge of the Indenture, the Owner Trustee will succeed to all the rights of
the Indenture Trustee, and the Certificateholders will succeed to all the rights
of the Noteholders, under the Sale and Servicing Agreement, except as otherwise
provided therein.
THE POLICY
The Insurer, in consideration of the payment of the premium and subject
to the terms of the Policy, thereby unconditionally and irrevocably guarantees
to any Owner (as defined below) that an amount equal to each Policy Claim Amount
will be received by the Indenture Trustee, or its successors, as trustee for the
Owners, on behalf of the Owners from the Insurer, for distribution by the
Indenture Trustee, to each Owner of each Owner's proportionate share of the
Securities Policy Claim Amount. The Insurer's obligations under the Policy with
respect to a particular Policy Claim Amount will be discharged to the extent
funds equal to the applicable Policy Claim Amount are received by the Indenture
Trustee, whether or not such funds are properly applied by the Indenture
Trustee. Payments of Policy Claim Amounts will be made only at the time set
forth in the Policy. The Policy will not guarantee payments of principal on any
class of Notes or on the Certificates other than the payment of the outstanding
principal amount of a class of Notes or of the Certificates on the Final
Scheduled Distribution Date for such class of Notes or the Certificates, and
will not guarantee payment of any Accelerated Principal Distributable Amount or
any amounts which become due on an accelerated basis as a result of (a) a
default by the Trust, (b) the occurrence of an Indenture Event of Default under
the Indenture, or (c) any other cause. The Insurer may elect, in its sole
discretion, to pay in whole or in part such principal due upon acceleration. The
Insurer may elect, in its sole discretion, to pay all or a portion of certain
shortfalls of funds available to make distributions of principal on the Notes or
the Certificates, as described under "Description of the Transfer and Servicing
Agreements" herein.
The Insurer will pay any Policy Claim Amount that is a Preference Amount
(as defined below) on the Business Day following receipt by the fiscal agent of
the Insurer (the "FISCAL AGENT") of (i) a certified copy of the order requiring
the return of a preference payment, (ii) an opinion of counsel satisfactory to
the Insurer that such order is final and not subject to appeal, (iii) an
assignment in such form as is reasonably required by the Insurer, irrevocably
assigning to the Insurer all rights and claims of each Owner relating to or
arising under the Securities against the debtor which made such preference
payment or otherwise with respect to such preference payment and (iv)
appropriate instruments to effect the
S-34
<PAGE> 35
appointment of the Insurer as agent for such Owner in any legal proceeding
related to such preference payment, such instruments being in a form
satisfactory to the Insurer, provided that if such documents are received after
12:00 noon New York City time on such Business Day, they will be deemed to be
received on the following Business Day. Such payments will be disbursed to the
receiver or the trustee in bankruptcy named in the final order of the court
exercising jurisdiction on behalf of the Owner and not to any Owner directly
unless such Owner has returned principal or interest paid on such Securities to
such receiver or trustee in bankruptcy, in which case such payment will be
disbursed to such Owner.
The Insurer will pay any other amount payable under the Policy no later
than 12:00 noon New York City time on the later of the Distribution Date on
which the related Note Interest Distributable Amount, Certificate Interest
Distributable Amount, or outstanding principal amount in respect of a class of
Notes or of the Certificates for which such Distribution Date is the Final
Scheduled Distribution date is due or the second Business Day following receipt
in New York, New York on a Business Day by the Fiscal Agent, of a notice
specifying the Policy Claim Amount which will be due and owing on such
Distribution Date; provided, that if such notice is received after 12:00 noon
New York City time on such Business Day, it will be deemed to be received on the
following Business Day. If any such notice received by the Fiscal Agent is not
in proper form or is otherwise insufficient for the purpose of making a claim
under the Policy it will be deemed not to have been received by the Fiscal
Agent, and the Insurer or the Fiscal Agent, as the case may be, will promptly so
advise the Indenture Trustee and the Indenture Trustee may submit an amended
notice.
Policy Claim Amounts due under the Policy, unless otherwise stated
therein, will be disbursed by the Fiscal Agent to the Indenture Trustee on
behalf of the Owners by wire transfer of immediately available funds in the
amount of the Policy Claim Amount less, in respect of Policy Claim Amounts
including Preference Amounts, any amount held by the Indenture Trustee for the
payment of such Policy Claim Amount and legally available therefor.
The Fiscal Agent is the agent of the Insurer only and the Fiscal Agent
will in no event be liable to Owners for any acts of the Fiscal Agent or any
failure of the Insurer to deposit or cause to be deposited sufficient funds to
make payments due under the Policy.
Subject to the terms of the Indenture, the Insurer shall be subrogated
to the rights of each Owner to receive payments under the Securities to the
extent of any payment by the Insurer under the Policy.
As used herein, the following terms have the following meanings:
"DEFICIENCY AMOUNT" means as of any Distribution Date, the amount by
which (i) the sum of the amounts set forth in clauses (i) though (v) and (vii)
under "Description of the Transfer and Servicing Agreements -- Distributions"
with respect to such Distribution Date exceeds (ii) the amount of Net
Collections available with respect to such Distribution Date and the amount on
deposit in the Spread Account as of such Distribution Date.
"OWNER" means (i) each Noteholder who, on the applicable Distribution
Date, is entitled under the terms of the related Note to distribution thereunder
and (ii) each Certificateholder who, on the applicable Distribution Date, is
entitled under the terms of the related Certificate to distribution thereunder.
"POLICY CLAIM AMOUNT" means, with respect to each Distribution Date, the
sum of (i) the Deficiency Amount for such Distribution Date and (ii) the
Preference Amount for such Distribution Date.
"PREFERENCE AMOUNT" means any amount previously distributed to an Owner
in respect of the Securities that is recoverable and sought to be recovered as a
voidable preference by a trustee in bankruptcy pursuant to the United Stated
Bankruptcy Code (11 U.S.C.), as amended from time to time, in accordance with a
final nonappealable order of a court having competent jurisdiction.
The Policy is being issued under and pursuant to, and shall be construed
under, the laws of the State of New York, without giving effect to the conflict
of law principles thereof. THE POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY
INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
S-35
<PAGE> 36
The Policy is not cancelable for any reason. The premium on the Policy
is not refundable for any reason including payment, or provision being made for
payment, prior to the latest Final Scheduled Distribution Date of the
Securities.
DESCRIPTION OF THE INSURER
The Insurer is the principal operating subsidiary of MBIA, Inc., a New
York Stock Exchange listed company. MBIA Inc. is not obligated to pay the debts
of or claims against the Insurer. The Insurer is domiciled in the State of New
York and is licensed to do business in and is subject to regulation under the
laws of all 50 states, the District of Columbia, the Commonwealth of Puerto
Rico, the Commonwealth of Northern Marina Islands, the Virgin Islands of the
United States and the Territory of Guam. The Insurer has two European branches,
one in the Republic of France and the other in the Kingdom of Spain. New York
has laws prescribing minimum capital requirements, limiting classes and
concentrations of investments and requiring the approval of policy rates and
forms. State laws also regulate the amount of both the aggregate and individual
risks that may be insured, the payment of dividends by the Insurer, changes in
control and transactions among affiliates. Additionally, the Insurer is required
to maintain contingency reserves on its liabilities in certain amounts and for
certain periods of time.
Effective February 17, 1998, MBIA Inc. acquired all of the outstanding
stock of Capital Markets Assurance Corporation ("CMAC") through a merger with
its parent CapMAC Holdings Inc. Pursuant to a reinsurance agreement, CMAC has
ceded all of its net insured risks (including any amounts due but unpaid from
third party reinsurers), as well as its unearned premiums and contingency
reserves, to the Insurer. MBIA Inc. is not obligated to pay the debts of or
claims against CMAC.
The consolidated financial statements of the Insurer, a wholly owned
subsidiary of MBIA Inc., and its subsidiaries as of December 31, 1997 and
December 31, 1996 and for each of the three years in the period ended December
31, 1997, prepared in accordance with generally accepted accounting principles,
included in the Annual Report on Form 10-K of MBIA Inc. for the year ended
December 31, 1997 and the consolidated financial statements of the Insurer and
its subsidiaries as of March 31, 1998 and for the three-month periods ending
March 31, 1998 and March 31, 1997, included in the Quarterly Report on Form 10-Q
of MBIA Inc. for the period ending March 31, 1998, are hereby incorporated by
reference into this Prospectus Supplement and shall be deemed to be a part
hereof. Any statement contained in a document incorporated by reference herein
shall be modified or superseded for purposes of this Prospectus Supplement to
the extent that a statement contained herein or in any other subsequently filed
document which also is incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus
Supplement.
All financial statements of the Insurer and its subsidiaries included in
documents filed by MBIA Inc. pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended, subsequent to the date of this
Prospectus Supplement and prior to the termination of the offering of the Notes
and Certificates shall be deemed to be incorporated by reference into this
Prospectus Supplement and to be a part hereof from the respective dates of
filing such documents.
S-36
<PAGE> 37
The tables below present selected financial information of the Insurer
determined in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities ("SAP") and generally accepted
accounting principles ("GAAP"):
<TABLE>
<CAPTION>
SAP GAAP
------------------------- --------------------------
December 31, March 31, December 31, March 31,
1997 1998 1997 1998
---- ---- ---- ----
(Audited) (Unaudited) (Audited) (Unaudited)
(In Millions) (In Millions)
<S> <C> <C> <C> <C> <C>
Admitted Assets... $5,256 $5,475 Assets........... $5,988 $6,196
Liabilities....... 3,496 3,658 Liabilities...... 2,624 2,725
Capital Shareholder's
and Surplus...... 1,760 1,817 Equity........... 3,364 3,471
</TABLE>
Copies of the financial statements of the Insurer incorporated by
reference herein and copies of the Insurer's 1997 year-end audited financial
statements prepared in accordance with statutory accounting practices are
available, without charge, from the Insurer. The address of the Insurer is 113
King Street, Armonk, New York 10504. The telephone number of the Insurer is
(914) 273-4545.
THE POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY
FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
The Insurer does not accept any responsibility for the accuracy or
completeness of this Prospectus Supplement or any information or disclosure
contained herein, or omitted herefrom, other than with respect to the accuracy
of the information regarding the Policy and the Insurer set forth under the
heading "The Policy". Additionally, the Insurer makes no representation
regarding the Securities or the advisability of investing in the Securities.
Moody's rates the claims paying ability of the Insurer "Aaa".
Standard & Poor's rates the claims paying ability of the Insurer "AAA".
Fitch IBCA, Inc. (formerly known as Fitch Investors Service, L.P.) rates
the claims paying ability of the Insurer "AAA".
Each rating of the Insurer should be evaluated independently. The
ratings reflect the respective rating agency's current assessment of the
creditworthiness of the Insurer and its ability to pay claims on its policies of
insurance. Any further explanation of the significance of the above ratings may
be obtained only from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold any class
of the Notes or the Certificates, and such ratings may be subject to revision or
withdrawal at any time by the rating agencies. Any downward revision or
withdrawal of any of the above ratings may have an adverse effect on the market
price of any Notes or Certificates. The Insurer does not guarantee the market
price of any Notes or Certificates nor does it guarantee that the ratings on any
Notes or Certificates will not be revised or withdrawn.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Andrews & Kurth L.L.P. ("TAX COUNSEL"), for federal
income tax purposes the Notes will be characterized as debt, and the Trust will
not be characterized as an association (or a publicly traded partnership)
taxable as a corporation. Each Noteholder, by the acceptance of a Note, will
agree to treat the Notes as indebtedness, and each Certificateholder, by the
acceptance of a Certificate, will agree to treat the Trust as a partnership in
which the Certificateholders are partners for federal income tax purposes.
Alternative characterizations of the Trust and the
S-37
<PAGE> 38
Certificates are possible, but would not result in materially adverse tax
consequences to Certificateholders. See "Certain Federal Income Tax
Consequences" in the Prospectus for additional information concerning the
application of federal income tax laws to the Trust and the Securities.
Certificateholders who are tax-exempt entities or non-U.S. persons will
have tax consequences that may be considered adverse by such holders. See
"Certain Federal Income Tax Consequences - Trusts for Which a Partnership
Election is Made - Tax Consequences to Holders of the Certificates - Partnership
Taxation" and "- Tax Consequences to Foreign Certificateholders" in the
Prospectus.
ERISA CONSIDERATIONS
THE NOTES
Subject to the considerations set forth below and under "ERISA
Considerations" in the Prospectus, the Notes may be purchased by an employee
benefit plan or an individual retirement account (a "BENEFIT PLAN") subject to
ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended (the
"CODE"). A fiduciary of a Benefit Plan must determine that the purchase of a
Note is consistent with its fiduciary duties under ERISA and does not result in
a nonexempt prohibited transaction as defined in Section 406 of ERISA or Section
4975 of the Code. Section 406 of ERISA prohibits parties in interest or
disqualified persons ("PARTIES IN INTEREST") with respect to a Benefit Plan from
engaging in certain transactions (including loans) involving a Benefit Plan and
its assets unless a statutory or administrative exemption applies to the
transaction. Section 4975 of the Code imposes certain excise taxes (or, in some
cases, a civil penalty may be assessed pursuant to section 502(i) of ERISA) on
Parties in Interest which engage in non-exempt prohibited transactions.
The United States Department of Labor has issued a regulation (29 CFR
ss. 2510.3-101) concerning the definition of what constitutes the assets of a
Benefit Plan (the "PLAN ASSET REGULATION"). This regulation provides that, as a
general rule, the underlying assets and properties of corporations,
partnerships, trusts and certain other entities in which a Benefit Plan
purchases an "equity interest" will be deemed for purposes of ERISA to be assets
of the investing Benefit Plan unless certain exceptions apply. The Plan Asset
Regulation defines an "equity interest" as any interest in an entity other than
an instrument that is treated as indebtedness under applicable local law and
which has no substantial equity features. Although the issue is not free from
doubt, the Seller believes that the Notes offered hereby should not be treated
as "equity interests" for purposes of the Plan Asset Regulation. Accordingly,
the acquisition of the Notes by benefit plan investors should not cause the
assets of the Trust to be treated as Plan Assets for purposes of Title I of
ERISA. However, the Notes may not be purchased with the assets of a Benefit Plan
if the Seller, the Servicer, the Indenture Trustee, the Owner Trustee or any of
their affiliates (a) has investment or administrative discretion with respect to
such Benefit Plan assets; (b) has authority or responsibility to give, or
regularly gives, investment advice with respect to such Benefit Plan assets, for
a fee and pursuant to an agreement or understanding that such advice (i) will
serve as a primary basis for investment decisions with respect to such Benefit
Plan assets and (ii) will be based on the particular investment needs for such
Benefit Plan; or (c) is an employer maintaining or contributing to such Benefit
Plan.
Certain affiliates of the Issuer or the Servicer might be considered or
might become Parties in Interest with respect to a Benefit Plan. In either case,
the acquisition or holding of Notes by or on behalf of such a Benefit Plan could
be considered to give rise to an indirect prohibited transaction within the
meaning of ERISA and the Code, unless it is subject to one or more exemptions
such as Prohibited Transaction Class Exemption ("PTCE") 84-14, which exempts
certain transactions effected on behalf of a Benefit Plan by a "qualified
professional asset manager", PTCE 90-1, which exempts certain transactions
involving insurance company pooled separate accounts, PTCE-91-38, which exempts
certain transactions involving bank collective investment funds, PTCE 95-60,
which exempts certain transactions involving insurance company general accounts,
or PTCE 96-23, which exempts certain transactions effected on behalf of a
Benefit Plan by certain "in-house asset managers". Each purchaser or transferee
of a Note that is a Benefit Plan shall be deemed to have represented that the
relevant conditions for exemptive relief under at least one of the foregoing
exemptions have been satisfied.
S-38
<PAGE> 39
THE CERTIFICATES
The Seller believes that the Certificates offered hereby should be
treated as "equity interests" for purposes of the Plan Asset Regulation,
Accordingly, the Certificates may not be acquired by (a) a Benefit Plan subject
to ERISA or Section 4975 of the Code or (b) any entity whose underlying assets
include plan assets by reason of a Benefit Plan's investment in the entity or
which uses plan assets to acquire Certificates. By its acceptance of a
Certificate, each Certificateholder will be deemed to have represented and
warranted that it is not subject to the foregoing limitation. In this regard,
purchasers that are insurance companies should consult with their counsel with
respect to the United States Supreme Court case interpreting the fiduciary
responsibility rules of ERISA, John Hancock Mutual Life Insurance Co. v. Harris
Bank and Trust (decided December 12, 1993). In John Hancock, the Supreme Court
ruled that assets held in an insurance company's general account may be deemed
to be "plan assets" for ERISA purposes under certain circumstances. Prospective
purchasers should determine whether the decision affects their ability to make
purchases of the Certificates. For additional information regarding treatment of
the Certificates under ERISA, see "ERISA Considerations" in the Prospectus.
LEGAL INVESTMENT
The Class A-1 Notes will be eligible securities for purchase by money
market funds under Rule 2a-7 under the Investment Company Act of 1940, as
amended.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement dated June __, 1998 (the "UNDERWRITING AGREEMENT") between the Seller
and the Underwriters named below (the "UNDERWRITERS"), the Seller has agreed to
cause the Trust to sell to each of the Underwriters, and each of the
Underwriters has severally agreed to purchase, the principal amount of the Notes
and Certificates set forth opposite its name in the table below:
CLASS A-1 NOTES
<TABLE>
<CAPTION>
Principal Amount
----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................... $
---------------
Salomon Brothers Inc.............................. $
---------------
Total...................................... $
===============
</TABLE>
CLASS A-2 NOTES
<TABLE>
<CAPTION>
Principal Amount
----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................... $
---------------
Salomon Brothers Inc.............................. $
---------------
Total...................................... $
===============
</TABLE>
CLASS A-3 NOTES
<TABLE>
<CAPTION>
Principal Amount
----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................... $
---------------
Salomon Brothers Inc.............................. $
---------------
Total...................................... $
===============
</TABLE>
S-39
<PAGE> 40
CLASS A-4 NOTES
<TABLE>
<CAPTION>
Principal Amount
----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................... $
---------------
Salomon Brothers Inc.............................. $
---------------
Total...................................... $
===============
</TABLE>
CERTIFICATES
<TABLE>
<CAPTION>
Principal Amount
----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................... $
---------------
Salomon Brothers Inc.............................. $
---------------
Total...................................... $
===============
</TABLE>
The Seller has been advised by the Underwriters that they propose
initially to offer the Notes to the public at the prices set forth herein, and
to certain dealers at such price less the initial concession not in excess of
___% of the denominations of the Notes per Class A-1 Note, ___% per Class A-2
Note, ____% per Class A-3 Note and ___% per Class A-4 Note. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of ___% per
Class A-1 Note, ___% per Class A-2 Note, ____% per Class A-3 Note and ___% per
Class A-4 Note to certain other dealers. After the initial public offering of
the Notes, the public offering price and such concessions may be changed. The
Underwriters are obligated to purchase and pay for all of the Notes if any Notes
are purchased. The Underwriters currently intend, but are not obligated, to make
a market in the Notes.
The Seller has been advised by the Underwriters that they propose
initially to offer the Certificates to the public at the prices set forth
herein, and to certain dealers at such price less the initial concession not in
excess of ____% of the principal amount thereof. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of ____% per Certificate.
After the initial public offering of the Certificates, the public offering price
and such concessions may be changed. The Underwriters are obligated to purchase
and pay for all of the Certificates if any Certificates are purchased. The
Underwriters currently intend, but are not obligated, to make a market in the
Certificates.
The Seller and Onyx have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under applicable securities laws, or
contribute to payments the Underwriters may be required to make in respect
thereof.
LEGAL MATTERS
Certain legal matters with respect to the Securities and with respect to
the federal income tax matters discussed under "Certain Federal Income Tax
Consequences" in the Prospectus will be passed upon for the Seller by Andrews &
Kurth L.L.P., Dallas, Texas. Certain legal matters with respect to the
Securities will be passed upon for the Underwriters by Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York. Certain legal matters relating to the
Policy will be passed upon for the Insurer by Shaw Pittman Potts & Trowbridge,
New York, New York.
EXPERTS
The MBIA Insurance Corporation and Subsidiaries' consolidated balance
sheets as of December 31, 1997 and 1996 and the consolidated statements of
income, changes in shareholder's equity and cash flows for each of the three
years in the period ended December 31, 1997, incorporated by reference in this
prospectus supplement, have been incorporated herein in reliance on the report
of Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
S-40
<PAGE> 41
INDEX OF TERMS
<TABLE>
<S> <C>
"Accelerated Principal Commencement Date"....................................................S-28
"Accelerated Principal Distributable Amount".................................................S-28
"Amount Financed"............................................................................S-28
"Benefit Plan" ..............................................................................S-38
"Business Day" ...............................................................................S-7
"Cede" ......................................................................................S-11
"Certificate Balance".........................................................................S-9
"Certificate Distributable Amount"...........................................................S-29
"Certificate Distribution Account"...........................................................S-26
"Certificate Final Scheduled Distribution Date"...............................................S-9
"Certificate Interest Carryover Shortfall"...................................................S-29
"Certificate Interest Distributable Amount"..................................................S-29
"Certificate Owner"..........................................................................S-25
"Certificate Percentage".....................................................................S-29
"Certificate Principal Carryover Shortfall"..................................................S-29
"Certificate Principal Distributable Amount".................................................S-29
"Certificate Rate"............................................................................S-8
"Certificates" ..........................................................................S-2, S-5
"Class A-1 Notes".............................................................................S-2
"Class A-2 Notes".............................................................................S-2
"Class A-3 Final Scheduled Distribution Date".................................................S-8
"Class A-3 Notes"........................................................................S-2, S-5
"Class A-3 Rate"..............................................................................S-7
"Class A-4 Notes".............................................................................S-2
"Closing Date" ...............................................................................S-5
"CMAC" ......................................................................................S-36
"Code" ................................................................................S-11, S-38
"Collection Period".....................................................................S-7, S-29
"Commission" .................................................................................S-3
"Contracts" .............................................................................S-2, S-6
"Co-Owner Trustee".......................................................................S-1, S-5
"Cut-Off Date" ...............................................................................S-2
"Defaulted Contract".........................................................................S-30
"Deficiency Amount"..........................................................................S-35
"Distribution Accounts"......................................................................S-26
"Distribution Date"......................................................................S-2, S-7
"DTC" ..................................................................................S-1, S-11
"Eligibility Requirements"...................................................................S-19
"ERISA"......................................................................................S-11
"Excess Amounts".............................................................................S-28
"Exchange Act"................................................................................S-3
"Final Scheduled Distribution Dates"..........................................................S-9
"Financed Vehicles"......................................................................S-2, S-6
"GAAP".......................................................................................S-37
"Indenture Events of Default"................................................................S-23
"Indenture Trustee"......................................................................S-2, S-5
"Indenture"...................................................................................S-5
"Insurance Agreement"........................................................................S-10
"Insurer Default"............................................................................S-24
"Insurer".....................................................................................S-1
"Interest Accrual Period".....................................................................S-7
"Interest Rates"..............................................................................S-7
"Issuer"......................................................................................S-5
"Liquidated Contract"........................................................................S-30
"Liquidation Expenses".......................................................................S-27
"Moody's".....................................................................................S-2
</TABLE>
S-41
<PAGE> 42
<TABLE>
<S> <C>
"Motor Vehicle Contracts"....................................................................S-17
"Net Collections"............................................................................S-26
"Net Insurance Proceeds".....................................................................S-27
"Net Liquidation Proceeds"...................................................................S-27
"Net Yield"..................................................................................S-32
"Note Distributable Amount"..................................................................S-30
"Note Distribution Account"..................................................................S-26
"Note Interest Carryover Shortfall"..........................................................S-30
"Note Interest Distributable Amount".........................................................S-30
"Note Owner".................................................................................S-22
"Note Percentage"............................................................................S-30
"Note Principal Carryover Shortfall".........................................................S-30
"Note Principal Distributable Amount"........................................................S-30
"Notes"..................................................................................S-2, S-5
"Obligor"....................................................................................S-14
"Onyx"...................................................................................S-2, S-5
"Optional Purchase"...............................................................S-2, S-11, S-34
"Original Certificate Balance"................................................................S-9
"Original Pool Balance"..................................................................S-2, S-6
"Owner Trustee"..........................................................................S-1, S-5
"Owner"......................................................................................S-35
"Parties in Interest"........................................................................S-38
"Payaheads"...................................................................................S-6
"Paying Agent" ..............................................................................S-25
"Payment Default"............................................................................S-15
"Plan Asset Regulation"......................................................................S-38
"Policy Amount"..............................................................................S-32
"Policy Claim Amount"........................................................................S-35
"Policy"......................................................................................S-1
"Pool Balance"................................................................................S-2
"Preference Amount"..........................................................................S-35
"Principal Balance"..........................................................................S-30
"PTCE".......................................................................................S-38
"Purchase Amount"............................................................................S-31
"Purchased Contract".........................................................................S-31
"Rating Agencies".............................................................................S-2
"Record Date"..........................................................................S-22, S-25
"Regular Principal Distributable Amount".....................................................S-31
"Residual Interests"..........................................................................S-6
"Rule of 78's Contracts"................................................................S-6, S-19
"Sale and Servicing Agreement"................................................................S-6
"SAP"........................................................................................S-37
"Securities".............................................................................S-2, S-5
"Seller".................................................................................S-1, S-5
"Selling Subsidiary".........................................................................S-19
"Servicer"....................................................................................S-2
"Servicing Fee Rate"...................................................................S-10, S-32
"Servicing Fee"........................................................................S-10, S-32
"Simple Interest Contracts".............................................................S-6, S-19
"Spread Account Maximum".....................................................................S-31
"Spread Account"..............................................................................S-9
"Standard & Poor's"...........................................................................S-2
"Tax Counsel"..........................................................................S-11, S-37
"Transfer and Servicing Agreements"..........................................................S-26
"Trust Agreement".............................................................................S-5
"Trust Bankruptcy Event".....................................................................S-15
"Trust Property"..............................................................................S-6
"Trust"..................................................................................S-1, S-5
</TABLE>
S-42
<PAGE> 43
<TABLE>
<S> <C>
"Underwriters"...............................................................................S-39
"Underwriting Agreement".....................................................................S-39
</TABLE>
S-43
<PAGE> 44
PROSPECTUS
ONYX ACCEPTANCE AUTO LOAN TRUSTS
AUTO LOAN BACKED NOTES
AUTO LOAN BACKED CERTIFICATES
ONYX ACCEPTANCE FINANCIAL CORPORATION,
SELLER
ONYX ACCEPTANCE CORPORATION,
SERVICER
The Auto Loan Backed Notes (the "NOTES") and the Auto Loan
Backed Certificates (the "CERTIFICATES" and, together with the Notes, the
"SECURITIES") described herein may be sold from time to time in one or more
series, in amounts, at prices and on terms to be determined at the time of sale
and to be set forth in a supplement to this Prospectus (a "PROSPECTUS
SUPPLEMENT"). Each series of Securities, which may include one or more classes
of Notes and/or one or more classes of Certificates, will be issued by a trust
to be formed with respect to such series (each, a "TRUST"). Each Trust will be
formed pursuant to either a Trust Agreement to be entered into among Onyx
Acceptance Financial Corporation, as Seller (the "SELLER") and the Trustee
specified in the related Prospectus Supplement (the "TRUSTEE") or a Pooling and
Servicing Agreement to be entered into among the Trustee, the Seller and Onyx
Acceptance Corporation ("ONYX"), as Servicer (the "SERVICER"). If a series of
Securities includes Notes, such Notes will be issued and secured pursuant to an
Indenture between the applicable Trust and the Indenture Trustee specified in
the related Prospectus Supplement (the "INDENTURE TRUSTEE") and will represent
indebtedness of the related Trust. If a series of Securities includes
Certificates, such Certificates will represent undivided ownership interests in
the related Trust. The related Prospectus Supplement will specify which class or
classes of Notes, if any, and which class or classes of Certificates, if any, of
the related series are being offered thereby. The property of each Trust will
include a pool of motor vehicle retail installment sales contracts (the
"CONTRACTS") secured by new and/or used automobiles and/or light-duty trucks
(the "FINANCED VEHICLES"), certain monies due under the related Contracts on or
after the applicable Cut-Off Date specified in the related Prospectus
Supplement, security interests in the related Financed Vehicles and certain
other property, all as described herein and in the related Prospectus
Supplement.
(Continued on next page)
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER
"RISK FACTORS" COMMENCING ON PAGE 6 HEREIN AND IN THE RELATED PROSPECTUS
SUPPLEMENT.
EXCEPT AS OTHERWISE SPECIFIED IN THE RELATED PROSPECTUS SUPPLEMENT, ANY NOTES OF
A SERIES WILL REPRESENT NON-RECOURSE OBLIGATIONS OF, AND THE CERTIFICATES OF A
SERIES WILL REPRESENT BENEFICIAL INTERESTS IN, THE RELATED TRUST ONLY AND WILL
NOT REPRESENT OBLIGATIONS OF OR INTERESTS IN, AND WILL NOT BE GUARANTEED OR
INSURED BY, THE SELLER, ONYX ACCEPTANCE CORPORATION 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.
Retain this Prospectus for future reference. This Prospectus may not
be used to consummate sales of Securities offered hereby unless accompanied by a
Prospectus Supplement.
The date of this Prospectus is June 8, 1998
<PAGE> 45
(Continued from prior page)
Except as otherwise provided in the related Prospectus Supplement,
each class of Securities of any series will represent the right to receive
specified payments or distributions in respect of collections of principal and
interest on the related Contracts, at the rates, on the dates (each, a
"DISTRIBUTION DATE") and in the manner described herein and in the related
Prospectus Supplement. To the extent specified in the related Prospectus
Supplement (i) distributions of interest and principal on one or more classes of
Certificates of a series may be subordinated in priority of payment to interest
and principal due on one or more classes of the Notes, if any, of such series or
on one or more other classes of Certificates of such series and (ii) payments of
interest and principal on one or more classes of Notes of a series may be
subordinated in priority of payment to interest and principal due on one or more
of the other classes of Notes of such Series. A series may include one or more
classes of Notes and/or Certificates which differ as to the timing and priority
of payment, interest rate or amount of payments or distributions in respect of
principal or interest or both. A series may include one or more classes of Notes
or Certificates entitled to payments or distributions in respect of principal
with disproportionate, nominal or no interest payments or distributions, or to
interest payments or distributions with disproportionate, nominal or no payments
or distributions in respect of principal. The rate of payments in respect of
principal of any class of Notes and the rate of distributions in respect of
principal of any class of Certificates will depend on the priority of payment of
such class and the rate and timing of payments (including prepayments, defaults,
liquidations and repurchases of Contracts) on the related Contracts. A rate of
payment lower or higher than that anticipated may affect the weighted average
life of each class of Securities in the manner described herein and in the
related Prospectus Supplement.
-ii-
<PAGE> 46
AVAILABLE INFORMATION
The Seller, as originator of each Trust, has filed with the
Securities and Exchange Commission (the "COMMISSION") a Registration Statement
(together with all amendments and exhibits thereto, referred to herein as the
"REGISTRATION STATEMENT") under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), with respect to the Notes and 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 which may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of the
Registration Statement may also be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. 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 each Trust, and
the address is http://www.sec.gov. The Servicer, on behalf of each 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
such Trust, including the Distribution Date Statement which will be furnished
monthly to Securityholders as described under "Reports to Securityholders"
below. Reports on Form 8-K and Form 10-K with respect to a Trust and the
Securities issued by such Trust will not be filed for any period which ends
after December 31 of the year in which the Securities are issued; however, the
related Securityholders will continue to receive the Distribution Date Statement
monthly, as described below.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Seller, as originator of any Trust,
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended, subsequent to the date of this Prospectus and prior to the
termination of the offering of the Securities, shall be deemed to be
incorporated by reference in this Prospectus. Any statement contained herein or
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Seller will provide without charge to each person, including any
beneficial owner of Securities, to whom a copy of this Prospectus is delivered,
on the written or oral request of any such person, a copy of any or all of the
documents incorporated herein or in any related Prospectus Supplement by
reference, except the exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Requests for such
copies should be directed to the Seller at 8001 Irvine Center Drive, 6th Floor,
Irvine, California 92618 (Telephone: (949) 450-5500).
-iii-
<PAGE> 47
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to
the detailed information appearing elsewhere in this Prospectus and by reference
to the information with respect to the Securities of any series contained in the
related Prospectus Supplement to be prepared and delivered in connection with
the offering of such Securities. See the Index of Terms for the location herein
of the definitions of certain capitalized terms. An investment in the Securities
of any series involves various risks, and potential purchasers should carefully
consider the matters discussed under "Risk Factors" herein and in the related
Prospectus Supplement in considering an investment in the Securities of any
series.
ISSUER..................... With respect to each series of Securities, the
Trust to be formed (the "TRUST" or the "ISSUER")
pursuant to either a Trust Agreement (as amended
and supplemented from time to time, a "TRUST
AGREEMENT") among the Seller and the Trustee for
such Trust or a Pooling and Servicing Agreement
(as amended and supplemented from time to time,
the "POOLING AND SERVICING AGREEMENT") among the
Seller, the Servicer and the Trustee for such
Trust.
SELLER..................... Onyx Acceptance Financial Corporation (the
"SELLER"), a wholly-owned, limited purpose
subsidiary of Onyx Acceptance Corporation
("ONYX"). The Seller's principal executive
offices are located at 8001 Irvine Center Drive,
6th Floor, Irvine, California 92618 and its
telephone number is (949) 450-5500. See "The
Seller".
SERVICER................... Onyx. Onyx's principal executive offices are
located at 8001 Irvine Center Drive, 5th Floor,
Irvine, California 92618 and its telephone number
is (949) 790-5400. See "The Servicer".
TRUSTEE.................... With respect to each series of Securities, the
Trustee specified in the related Prospectus
Supplement.
INDENTURE TRUSTEE ......... With respect to any series of Securities that
includes one or more classes of Notes, the
Indenture Trustee specified in the related
Prospectus Supplement.
THE NOTES ................. A series of Securities may include one or more
classes of Notes which will be issued pursuant to
an Indenture between the applicable Trust and the
related Indenture Trustee (as amended and
supplemented from time to time, an "INDENTURE"),
and may not include any Certificates. The related
Prospectus Supplement will specify which class or
classes, if any, of Notes of a series are being
offered thereby.
Unless otherwise specified in the related
Prospectus Supplement, Notes will be available
for purchase in denominations of $1,000 and
integral multiples thereof and will be available
in book-entry form only. Except as otherwise
specified in the related Prospectus Supplement,
Noteholders will be able to receive Definitive
Securities only in the limited circumstances
described herein. See "Description of the
Securities--Definitive Securities".
<PAGE> 48
Unless otherwise specified in the related
Prospectus Supplement, each class of Notes will
have a stated Note Principal Balance specified in
the related Prospectus Supplement ("NOTE
PRINCIPAL BALANCE") and will accrue interest on
such Note Principal Balance at a specified rate
(with respect to each class of Notes, the
"INTEREST RATE"). Each class of Notes may have a
different Interest Rate, which may be a fixed,
variable or adjustable Interest Rate, or any
combination of the foregoing. The related
Prospectus Supplement will specify the Interest
Rate for each class of Notes, or the method for
determining such Interest Rate.
With respect to a series that includes two or
more classes of Notes, as specified in the
related Prospectus Supplement, each class may
differ as to the timing and priority of payments,
seniority, allocations of losses, Interest Rate
or amount of payments of principal or interest,
and payments of principal or interest in respect
of any such class or classes may or may not be
made upon the occurrence of specified events or
on the basis of collections from certain
designated Contracts. In addition, a series may
include one or more classes of Notes ("STRIP
NOTES") entitled to (i) principal payments with
disproportionate, nominal or no interest payments
or (ii) interest payments with disproportionate,
nominal or no principal payments.
If the Seller, the Servicer or a successor
thereto exercises its option to purchase the
Contracts of a Trust in the manner and on the
respective terms and conditions described under
"Description of the Transfer and Servicing
Agreements--Termination", the outstanding Notes
will be redeemed as set forth in the related
Prospectus Supplement.
THE CERTIFICATES .......... A series may include one or more classes of
Certificates and may not include any Notes. The
related Prospectus Supplement will specify which
class or classes, if any, of Certificates of a
series are being offered thereby.
Unless otherwise specified in the related
Prospectus Supplement, Certificates will be
available for purchase in a minimum denomination
of $1,000 and in integral multiples thereof and
will be available in book-entry form only. Except
as otherwise specified in the related Prospectus
Supplement, Certificateholders will be able to
receive Definitive Securities only in the limited
circumstances described herein. See "Description
of the Securities--Definitive Securities".
Unless otherwise specified in the related
Prospectus Supplement, each class of Certificates
will have a stated Certificate Principal Balance
specified in the related Prospectus Supplement
(the "CERTIFICATE PRINCIPAL BALANCE") and will
accrue interest on such Certificate Principal
Balance at a specified rate (with respect to each
class of Certificates, the "CERTIFICATE RATE").
Each class of Certificates may have a different
Certificate Rate, which may be a fixed, variable
or adjustable Certificate Rate, or any
combination of the foregoing. The related
Prospectus Supplement will specify the
-2-
<PAGE> 49
Certificate Rate for each class of Certificates
or the method for determining such Certificate
Rate.
With respect to a series that includes two or
more classes of Certificates, as specified in the
related Prospectus Supplement, each class may
differ as to timing and priority of
distributions, seniority, allocations of losses,
Certificate Rate or amount of distributions in
respect of principal or interest, and
distributions in respect of principal or interest
in respect of any such class or classes may or
may not be made upon the occurrence of specified
events or on the basis of collections from
certain designated Contracts. In addition, a
series may include one or more classes of
Certificates ("STRIP CERTIFICATES") entitled to
(i) distributions in respect of principal with
disproportionate, nominal or no interest
distributions or (ii) interest distributions with
disproportionate, nominal or no distributions in
respect of principal.
If a series of securities includes classes of
Notes, distributions in respect of the
Certificates may be subordinated in priority of
payment to payments on the Notes to the extent
specified in the related Prospectus Supplement.
If the Seller, the Servicer or a successor
thereto exercises its option to purchase the
Contracts of a Trust in the manner and on the
respective terms and conditions described under
"Description of the Transfer and Servicing
Agreements--Termination", the outstanding
Certificates will be redeemed as set forth in the
related Prospectus Supplement.
THE TRUST PROPERTY......... Unless otherwise specified in the related
Prospectus Supplement, the property of each Trust
(the "TRUST PROPERTY") will include: (i) a pool
of motor vehicle retail installment sales
contracts (the "CONTRACTS"), all of which are
secured by new and/or used automobiles and/or
light-duty trucks (the "FINANCED VEHICLES"), (ii)
certain documents relating to the Contracts,
(iii) certain monies due under the Contracts on
or after the Cut-Off Date specified in the
related Prospectus Supplement, (iv) security
interests in the related Financed Vehicles, and
the rights to receive proceeds from claims or
certain related insurance policies covering the
Financed Vehicles or the obligors, (v) all
amounts on deposit in certain trust accounts,
including the related Collection Account and any
other account identified in the applicable
Prospectus Supplement, including all Eligible
Investments credited thereto (but excluding any
investment income from Eligible Investments to be
paid to the Servicer), (vi) the benefits of any
form of credit enhancement identified in the
applicable Prospectus Supplement, (vii) the right
of the Seller to cause Onyx to repurchase certain
Contracts under certain circumstances, and (viii)
all proceeds of the foregoing. See "The Trusts".
On or before the date of initial issuance of a
series of Securities (the related "CLOSING DATE")
as specified in the related Prospectus
Supplement, the Seller will sell or transfer
Contracts having an aggregate principal balance
specified in the related Prospectus
Supplement as of the date specified therein (the
"CUT-OFF DATE") to
-3-
<PAGE> 50
the applicable Trust pursuant to, if such Trust
is to be treated as an owner trust for federal
income tax purposes, the related Sale and
Servicing Agreement among the Seller, the
Servicer and the Trust (as amended and
supplemented from time to time, the "SALE AND
SERVICING AGREEMENT") or, if the Trust is to be
treated as a grantor trust for federal income tax
purposes, the related Pooling and Servicing
Agreement.
CONTRACTS.................. Unless otherwise specified in the related
Prospectus Supplement, all of the Contracts
included in the Trust Property of each Trust will
have been (i) originated by automobile
dealerships ("DEALERS") assigned to Onyx or
purchased or originated by subsidiaries of Onyx,
(ii) purchased by the Seller from Onyx or from a
subsidiary of Onyx (each such subsidiary, a
"SELLING SUBSIDIARY") and (iii) purchased by the
Trust from the Seller. See "The Onyx Portfolio of
Motor Vehicle Contracts". All of the Contracts
included in the Trust Property of each Trust will
have been selected based upon the criteria
specified in the Sale and Servicing Agreement or
Pooling and Servicing Agreement, as applicable,
as described herein and in the related Prospectus
Supplement.
PREFUNDING ARRANGEMENTS.... If and to the extent provided in the related
Prospectus Supplement with respect to a series of
Securities, the related Sale and Servicing
Agreement or Pooling and Servicing Agreement may
provide for a commitment by the related Trust to
subsequently purchase additional Contracts
("SUBSEQUENT CONTRACTS") from the Seller
following the date on which the Trust is
established and the related Securities are issued
(a "PREFUNDING ARRANGEMENT"). See "Prefunding
Arrangements".
CREDIT AND CASH FLOW
ENHANCEMENT .............. If and to the extent specified in the related
Prospectus Supplement, credit enhancement with
respect to a Trust or any class or classes of
Securities may include any one or more of the
following: a surety bond or financial guarantee
insurance policy (a "SECURITY INSURANCE POLICY")
provided by a third-party insurer (a "SECURITY
INSURER"), subordination of one or more classes
of Securities to one or more other classes of
securities, a reserve fund, a yield maintenance
account, over-collateralization, letters of
credit, credit or liquidity facilities,
guaranteed investment contracts, swaps or other
interest rate protection agreements, repurchase
obligations, cash deposits, other agreements or
arrangements with respect to third party
payments, or other support. Unless otherwise
specified in the related Prospectus Supplement,
any form of credit enhancement will have certain
limitations and exclusions from coverage
thereunder, which will be described in the
related Prospectus Supplement. See "Description
of the Transfer and Security Agreements--Credit
and Cash Flow Enhancement".
TAX STATUS ................ Unless the Prospectus Supplement specifies that
the related Trust will be treated as a grantor
trust and except as otherwise provided in such
Prospectus Supplement, upon the issuance of the
related series of Securities, Tax Counsel to such
Trust will deliver an opinion to the effect that
for federal income tax purposes (a) any Notes of
such
-4-
<PAGE> 51
series will be characterized as debt and (b)
such Trust will not be characterized as an
association (or a publicly traded partnership)
taxable as a corporation. In respect of any such
series, each Noteholder, if any, by the
acceptance of a Note of such series, will agree
to treat such Note as indebtedness, and each
Certificateholder, by the acceptance of a
Certificate of such series, will agree to treat
such Trust as a partnership in which such
Certificateholder is a partner for federal income
tax purposes. Alternative characterizations of
such Trust and such Certificates are possible,
but would not result in materially adverse tax
consequences to Certificateholders.
If the Prospectus Supplement specifies that the
related Trust will be treated as a grantor trust
and except as otherwise provided in such
Prospectus Supplement, upon the issuance of the
related series of Certificates, Tax Counsel to
such Trust will deliver an opinion to the effect
that such Trust will be treated as a grantor
trust for federal income tax purposes and will
not be subject to federal income tax.
See "Certain Federal Income Tax Consequences" and
"Certain State Tax Consequences With Respect To
Trusts For Which A Partnership Election Is Made"
for additional information concerning the
application of federal and California tax laws.
ERISA CONSIDERATIONS ...... Subject to the considerations discussed under
"ERISA Considerations" herein and in the related
Prospectus Supplement, and unless otherwise
specified therein, any Notes of a series and any
Certificates that are issued by a Trust that is a
grantor trust and are not subordinated to any
other class of Certificates are eligible for
purchase by employee benefit plans. Unless
otherwise specified in the related Prospectus
Supplement, the Certificates of any series that
are subordinated to any other Security of that
series may not be acquired by any employee
benefit plan subject to the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), or by any individual retirement
account. See "ERISA Considerations" herein and in
the related Prospectus Supplement.
RATING..................... It will be a condition to the issuance of each
class of Securities specified as being offered by
the related Prospectus Supplement that such class
of Securities be rated in one of the four highest
generic rating categories established for such
Securities by at least one nationally recognized
statistical rating agency (each such rating
agency that rates a class of Securities being
referred to herein as a "RATING AGENCY").
-5-
<PAGE> 52
RISK FACTORS
CERTAIN LEGAL ASPECTS -- THE CONTRACTS; SECURITY INTERESTS IN FINANCED VEHICLES
Each transfer of Contracts to a Trust will be subject to the
perfection requirements of the Uniform Commercial Code ("UCC"), as in effect in
California. The Seller will take or cause to be taken such action as is required
to perfect such Trust's rights in the applicable Contracts and will warrant that
the Trust has good title, free and clear of liens and encumbrances, to each
Contract on the date such Contract is transferred to the Trust. Except as
otherwise specified in the related Prospectus Supplement, the related Sale and
Servicing Agreement or Pooling and Servicing Agreement, as applicable, will,
subject to the satisfaction of any conditions specified in the applicable
agreement, permit the Servicer to hold the Contracts on behalf of the Trustee
after the filing of UCC-1 financing statements relating to the perfection of
such 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 such Trust and the Securityholders. Onyx will agree in the Sale and Servicing
Agreement or Pooling and Servicing Agreement, as applicable, to take all
necessary action to preserve and protect such 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 by Onyx, or purchased or originated by a
subsidiary of 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 certain of the Contracts
originated in California, for which there will be no paper certificates of
title) to the Financed Vehicle securing the Contract will show Onyx or such
subsidiary as the secured party holding a lien in the Financed Vehicle. When the
Contracts are sold to the Seller and then to a Trust, Onyx or such subsidiary
will remain the secured party named on the related certificates of title (or
computerized title records in the case of certain Contracts originated in
California), and such certificates (or electronic records) will not be endorsed
or otherwise marked to identify the related Trustee (or, if applicable, the
related Indenture 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
(or, if applicable, the related Indenture Trustee) as secured party, and because
retaining Onyx's or such subsidiary's name as secured party enables Onyx to more
efficiently service the Contracts. Even though a Trust will not be identified as
secured party with respect to the Financed Vehicles relating to the Contracts
transferred to it, because such Trust will have a security interest in such
Contracts, it will be the beneficial owner of the security interests in the
related Financed Vehicles (which security interests, in the case of a series of
Securities including one or more classes of Notes, will be pledged to the
related Indenture Trustee). There exists a risk, however, in not identifying
such Trust (or, if applicable, the related Indenture Trustee) as the new secured
party on the certificate of title (or computerized title record) that, through
fraud or negligence, the security interest of such Trust could be released.
Moreover, statutory liens for repairs or unpaid taxes may have priority even
over perfected security interests in the Financed Vehicles. See "Certain Legal
Aspects of the Contracts".
CERTAIN LEGAL ASPECTS -- BANKRUPTCY CONSIDERATIONS
It is intended by Onyx, each Selling Subsidiary and the Seller that
each transfer of Contracts by Onyx or a Selling Subsidiary to the Seller
constitute a "true sale" of the applicable Contracts to the Seller. If such a
transfer constitutes a "true sale," the applicable Contracts and the proceeds
thereof would not be part of Onyx's or such Selling Subsidiary's bankruptcy
estate should it become the subject of a bankruptcy case subsequent to the
transfer of such Contracts to the Seller.
Onyx and the Seller have taken and will take 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
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those of Onyx in a proceeding under any Insolvency Law. If a court were to
reach such a conclusion, then delays in payments or distributions in respect of
the Securities could occur or reductions in the amounts of such payments or
distributions could result. See "The Seller". Unless otherwise provided in the
related Prospectus Supplement, 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, any related Security Insurer will
remain unconditionally and irrevocably obligated under the applicable Security
Insurance Policy to guarantee principal and interest payments and distributions
on each Distribution Date.
PREPAYMENT CONSIDERATIONS
The weighted average life of the Securities of any series will
generally be influenced by the rate at which the principal balances of the
related Contracts are paid, which payment may be in the form of scheduled
amortization or prepayments. Prepayments on Simple Interest Contracts will
shorten the average life of such Contract and, therefore, of the series of
Securities related to such Contracts, because they will be paid or distributed
to the related Securityholders 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 such Contracts because such
payments will be held in the name of the related Trustee (or, if applicable, the
related Indenture Trustee), acting on behalf of the related obligors and
Securityholders, as their interest may appear, until paid or distributed in
accordance with the original schedule of payments for such Contracts.
Onyx has limited historical experience with respect to prepayments,
and is not aware of publicly available industry statistics that set forth
principal prepayment experience for retail installment sales contracts similar
to the Contracts. Onyx can make no prediction as to the actual prepayment rates
that will be experienced on the Contracts in either stable or changing interest
rate environments. See "Maturity and Prepayment Considerations".
SUBORDINATION; LIMITED ASSETS
To the extent specified in the related Prospectus Supplement (i)
distributions of interest and principal on one or more classes of Certificates
of a series may be subordinated in priority of payment to interest and principal
due on one or more classes of the Notes, if any, of such series or on one or
more other classes of Certificates of such series and (ii) payments of interest
and principal on one or more classes of Notes of a series may be subordinated in
priority of payment to interest and principal due on one or more of the other
classes of Notes of such Series. Moreover, each Trust will not have, nor is it
permitted or expected to have, any significant assets or sources of funds other
than the related Contracts and the other assets described in the related
Prospectus Supplement. The Notes of any series will represent obligations solely
of, and the Certificates of any series will represent interests solely in, the
related Trust and neither the Notes nor the Certificates of any series will be
insured or guaranteed by the Seller or the Servicer or any of their respective
affiliates, the applicable Trustee, any Indenture Trustee or, except as
specified in the related Prospectus Supplement, any other person or entity.
Consequently, holders of the Securities of any series must rely for repayment
upon payments on the related Contracts and, if and to the extent available,
amounts available from the other assets specified in the related Prospectus
Supplement.
CONSUMER PROTECTION LAWS
The Contracts will be subject to federal and state consumer
protection laws which impose requirements with respect to the making, transfer,
acquisition, enforcement and collection of consumer loans. Such laws, as well as
any new laws or rules which may be adopted, may adversely affect the Servicer's
ability to collect on the Contracts. Any failure by the originator thereof to
have complied, or the Servicer to comply, with such requirements could adversely
affect the enforceability of the Contracts. With respect to each series of
Securities, the Seller will make representations and warranties relating to the
validity and enforceability of the related Contracts and its compliance with
applicable law in connection with its performance of the transactions
contemplated by the related Sale and Servicing Agreement or Pooling and
Servicing Agreement, as applicable. Pursuant thereto, if the applicable Trust's
interest in a Contract is materially and adversely affected by the failure of
such Contract to comply with the applicable requirements of any consumer
protection law, the Seller will be obligated to repurchase such Contract. The
sole remedy if any such representation or warranty is not complied with and such
noncompliance continues beyond the applicable cure period will be that the
Contracts affected thereby will be required to be repurchased by the Seller. See
"Description of the
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Transfer and Servicing Agreements -- Repurchase of Contracts" and "Certain
Legal Aspects of the Contracts -- Repurchase Obligation".
BOOK-ENTRY REGISTRATION
Unless otherwise specified in the related Prospectus Supplement,
Security Owners will hold their Certificates or Notes, as applicable, through
the Depository Trust Company ("DTC"). Transfers within DTC will be in accordance
with DTC's usual rules and operating procedures So long as the Securities are
book-entry Securities ("BOOK-ENTRY SECURITIES"), such Securities will be
evidenced by one or more certificates registered in the name of a Participant of
DTC as the nominee of DTC. No Security Owner will be entitled to receive a
definitive certificate representing such person's interest, except in the event
that Definitive Securities are issued under the limited circumstances described
herein. Unless and until Definitive Securities for such series are issued,
holders of such Securities will not be recognized by the related Trustee (or, if
applicable, the related Indenture Trustee) as "CERTIFICATEHOLDERS",
"NOTEHOLDERS" or "SECURITYHOLDERS", as the case may be (as such terms are used
herein or in the related Pooling and Servicing Agreement or related Indenture
and Trust Agreement, as applicable). Hence, until Definitive Securities are
issued, holders of such Securities will only be able to exercise the rights of
Securityholders indirectly through DTC and its Participants. See "Description of
the Securities--Book-Entry Registration".
Since transactions in the Securities can be effected only through
DTC, Participants, Indirect Participants and certain banks, the ability of the
beneficial owner thereof to pledge such Securities to persons or entities that
do not participate in DTC, or otherwise to take actions in respect of such
Securities, may be limited due to lack of a physical certificate representing
such Securities.
Beneficial owners of Securities may experience some delay in their
receipt of payments or distributions of interest and principal since such
payments or distributions will be provided by the related Trustee (or, if
applicable, the related Indenture Trustee) to DTC and DTC will credit such
payments or distributions to the accounts of its Participants, which will
thereafter credit them to the accounts of the beneficial owners thereof either
directly or indirectly through Indirect Participants.
THE TRUSTS
With respect to each series of Securities, the Seller will establish
a separate Trust pursuant to the respective Trust Agreement or Pooling and
Servicing Agreement, as applicable, for the transactions described herein and in
the related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, the property of each Trust (the "TRUST PROPERTY") will
include: (i) the related Contracts, (ii) certain documents relating to such
Contracts, (iii) certain monies due under such Contracts on or after the related
Cut-Off Date, (iv) security interests in the related Financed Vehicles and the
rights to receive certain proceeds from claims on certain related insurance
policies covering such Financed Vehicles or the related obligors, (v) all
amounts on deposit in certain trust accounts, including the related Collection
Account and any other account identified in the related Prospectus Supplement,
including all Eligible Investments credited thereto (but excluding any
investment income from Eligible Investments to be paid to the Servicer or as
otherwise specified in the related Prospectus Supplement), (vi) the right of the
Seller to cause Onyx to repurchase certain Contracts under certain
circumstances, and (vii) all proceeds of the foregoing. To the extent specified
in the related Prospectus Supplement, a Security Insurance Policy, reserve fund
or other form of credit enhancement may be a part of the property of any given
Trust or may be held by the Trustee or an Indenture Trustee for the benefit of
holders of the related Securities.
Prior to formation, each Trust will have had no assets or
obligations. After formation, each Trust will not engage in any activity other
than acquiring and holding the related Contracts, issuing the related
Securities, distributing payments in respect thereof and as otherwise described
herein, in the related Prospectus Supplement and in the Trust Agreement or
Pooling and Servicing Agreement, as applicable. Each Trust will not acquire any
Motor Vehicle Contracts or assets other than the Trust Property.
The principal offices of each Trust that is not a grantor trust and
the related Trustee will be specified in the applicable Prospectus Supplement.
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THE TRUSTEE
The Trustee for each Trust and, if applicable, the Indenture Trustee,
will be specified in the related Prospectus Supplement. The Trustee's and, if
applicable, the Indenture Trustee's liability in connection with the issuance
and sale of the related Securities will be limited solely to the express
obligations of such Trustee or Indenture Trustee set forth in the related Trust
Agreement, Sale and Servicing Agreement, and Indenture or the related Pooling
and Servicing Agreement, as applicable. A Trustee or Indenture Trustee with
respect to a series of Securities may resign or be removed under the
circumstances specified in the related Prospectus Supplement. Any resignation or
removal of a Trustee or Indenture Trustee and appointment of a successor trustee
will not become effective until acceptance of the appointment by such successor.
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 automobiles and
light-duty trucks ("MOTOR VEHICLE CONTRACTS"). Onyx targets the prime auto
lending market because it believes that prime lending produces greater
origination and operating efficiency than does sub-prime lending. Onyx focuses
on late model used, rather than new, vehicles, as management believes the risk
of loss on used vehicles is lower due to lower depreciation rates, while
interest rates are typically higher. In addition, Onyx believes that the late
model used motor vehicle finance market is growing at a faster rate than is the
finance market for new motor vehicles. Onyx has three prime auto lending
programs: the "Premier", the "Preferred" and the "Standard" Programs. The
Premier Program allows Onyx to market lower interest rates in order to capture
customers of superior credit quality. The Preferred Program allows Onyx to
offer Motor Vehicle Contracts at higher interest rates to borrowers with proven
credit quality. The Standard Program allows Onyx to assist qualified borrowers,
who may have experienced previous credit problems or have not yet established a
significant credit history, at interest rates higher than the Premier and
Preferred Programs.
Motor Vehicle Contracts in Onyx's portfolio are purchased by Onyx
from Dealers that originate such contracts, purchased by a subsidiary of Onyx
from credit unions that originate such contracts, or originated by Onyx or a
subsidiary of Onyx. Unless otherwise specified in the related Prospectus
Supplement (i) substantially all of the Contracts included in the Trust Property
of a Trust will have been purchased by Onyx from new and used car Dealers
unaffiliated with Onyx and the Seller, and a limited number of Contracts will
have been purchased or originated by subsidiaries of Onyx and (ii) all of such
Contracts will have been sold to the Seller and then to such Trust. Onyx
currently has agreements with over 3,738 Dealers, of which approximately 90.08%
are franchised new car dealerships and approximately 9.92% are independent used
car dealerships. The Dealers are located in metropolitan areas in over 18 states
in which the Motor Vehicle Contracts are or will be originated. Each Dealer or
credit union from which Onyx or a subsidiary of Onyx purchases Motor Vehicle
Contracts has entered into an agreement with Onyx or such subsidiary whereby the
applicable seller represents that it will comply with federal and state laws
regarding motor vehicle financing, that such seller will obtain the requisite
financial information required of the obligor in order to extend credit, and
that such seller will truthfully disclose to Onyx or such subsidiary 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 Motor Vehicle 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. The payment obligations of the obligor under each Motor Vehicle Contract
are secured by the vehicle purchased with the loan proceeds provided under that
Motor Vehicle Contract.
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Onyx services all of the Motor Vehicle Contracts and initially will
serve as the primary servicer of the Contracts included in the Trust Property of
a Trust after such Contracts are sold by the Seller to such Trust. The servicing
functions performed by Onyx include customer service, document filekeeping,
computerized account record keeping, vehicle title processing and collections.
UNDERWRITING OF MOTOR VEHICLE CONTRACTS
Onyx underwrites Motor Vehicle Contracts purchased from Dealers
through its twelve regional contract purchasing offices ("AUTO FINANCE
CENTERS"), five of which are in California and one in each of Arizona, Florida,
Georgia, Illinois, Michigan, Nevada and Washington. Motor Vehicle Contracts
purchased from Dealers in other states are generally purchased by the Auto
Finance Center that is geographically most proximate to the state of
origination. In the case of Motor Vehicle Contracts originated by a subsidiary
of Onyx, such Motor Vehicle Contracts are underwritten at the Irvine, California
Auto Finance Center location. 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 in most cases 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
originated by a Dealer, Onyx reviews the application package received from such
Dealer, or in the case of Motor Vehicle Contracts purchased or originated by a
subsidiary of Onyx, such subsidiary reviews the application package received
from the originating credit union or the obligor, that in any case 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. Most credit applications are not made on
forms provided by Onyx or a subsidiary of Onyx. However, Onyx or a subsidiary of
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 or a subsidiary
of Onyx reviews information in the application and from credit bureau reports
obtained by Onyx or such subsidiary.
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 related financed vehicle as
collateral, based upon a review of the information contained in the Motor
Vehicle Contract application. Among the criteria considered by credit managers
of Onyx and its subsidiaries 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 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 related
financed vehicle. The general policy of Onyx and its subsidiaries has been not
to allow an obligor's debt service-to-gross monthly income ratio to exceed 45%.
After review of an application, a credit manager, via an electronic
system, communicates an appropriate decision to the applicable Dealer or credit
union, or by telephone or otherwise to the obligor in the case of Motor Vehicle
Contracts originated by a subsidiary of 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, credit union 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, credit union or obligor, and become a condition of the approval.
Subsequent to approval, if Onyx or a subsidiary of Onyx is the chosen source of
financing, Onyx or such subsidiary will obtain the necessary documentation for
processing, which consists of the following: (i) a signed application; (ii) the
only original and a copy of the executed Motor Vehicle 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) acceptable vehicle
valuation documentation; 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 a contract
processor for a pre-funding audit. The contract processor (who is employed by
Onyx or one of its subsidiaries) then audits such documents for completeness and
consistency with the application, providing
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final approval for purchase of the Motor Vehicle Contract once these
requirements have been satisfied (subject to the receipt of the required
documentation).
The amount advanced by Onyx or a subsidiary of 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 related
financed vehicle. These adjustments are made to assure that the related 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 related financed vehicle.
Periodically, Onyx makes a detailed analysis of its portfolio of
Motor Vehicle Contracts (including Motor Vehicle Contracts purchased or
originated by its subsidiaries) 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 or a subsidiary of Onyx as a loss payee. Onyx tracks whether
obligors maintain the required insurance.
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 at least 90% of 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 Contracts. Onyx utilizes a predictive dialing system
located at the Irvine Collection Center to make phone calls to obligors whose
payments are past due by more than eight days but less than 30 days. The
predictive dialer is a computer-controlled telephone dialing system which dials
phone numbers of obligors from a file of records extracted from Onyx's database.
By eliminating time wasted on attempting to reach obligors, the system gives a
single collector, on average, the ability to speak with and work 200 to 250
accounts per day. Once a live voice responds to the automated dialer's call, the
system automatically transfers the call to a collector and the relevant account
information to the collector's computer screen. The system also tracks and
notifies collections management of phone numbers that the system has been unable
to reach within a specified number of days, thereby promptly identifying for
management all obligors who cannot be reached by telephone.
Once an Obligor is 20 days or more delinquent, the account is
assigned to a specific collector at the Irvine Collection Center who will 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
which are in turn wired daily to Onyx's lockbox account by Western Union. 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.
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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 the applicable Motor Vehicle
Contract is deemed uncollectible, if the related financed vehicle is deemed by
collection personnel to be in danger of being damaged, destroyed or made
unavailable for repossession, or if the related obligor voluntarily surrenders
the related financed vehicle, Onyx may repossess the related Financed Vehicle
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 and most other states
in which Motor Vehicle Contracts are originated, after repossession, the obligor
generally has an additional period of 10 to 15 days to redeem a financed vehicle
before it 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
related 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 a 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 Sale and Servicing Agreement or Pooling and Servicing
Agreement, as applicable, will require 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 has been no more than one
credit-related extension 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 a collection supervisor and Onyx's collection
manager and the Executive Vice President, Collections.
DELINQUENCY AND LOAN LOSS INFORMATION
Certain information concerning the experience of Onyx pertaining to
delinquencies, loan losses and recoveries with respect to its portfolio of Motor
Vehicle Contracts (including receivables previously sold which Onyx continues to
service) will be set forth in each Prospectus Supplement. There can be no
assurance that the delinquency, loan loss and recovery experience on any
Contracts related to a series of Securities will be comparable to prior
experience or to such information.
THE CONTRACTS
Unless otherwise specified in the related Prospectus Supplement (i)
all of the Contracts will have been purchased by the Seller from Onyx or a
Selling Subsidiary and (ii) substantially all of the Contracts will have been
purchased by Onyx from new and used car Dealers unaffiliated with Onyx or the
Seller, and a limited number of Contracts will have been purchased or originated
by subsidiaries of Onyx. See "The Onyx Portfolio of Motor Vehicle Contracts".
Unless otherwise specified in the related Prospectus Supplement, each of the
Contracts included in the Trust Property of a Trust will be a fixed rate
contract where the allocation of each payment between interest and principal is
calculated using the Rule of 78's (the "RULE OF 78'S CONTRACTS") or 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
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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 Rule of 78's Contract
has as its denominator a number equal to the sum of a series of numbers
representing the total number of monthly payments due under such Contract. For
example, with a Rule of 78's Contract providing for 12 payments, the denominator
of each month's fraction will be 78, the sum of the 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 Rule of 78's 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 such 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.
Unless otherwise specified in the related Prospectus Supplement, the
purchase price paid by each Trust for each Contract included in the Trust
Property of such Trust will reflect the principal balance of such Contract as of
the Cut-Off Date, calculated either under the Rule of 78's or the Simple
Interest Method. For each of the Contracts the term "CUT-OFF DATE SCHEDULED
BALANCE" means the principal balance of such Contract as of the Cut-Off Date.
For Rule of 78's Contracts a greater portion of the early payments under a
Contract is allocated to interest than would be the case using the actuarial
method. Therefore, the Cut-Off Date Scheduled Balance of each Rule of 78's
Contract will exceed the amount that would have been its principal balance as of
the Cut-Off Date if each such Rule of 78's Contract had been amortized from
origination under the actuarial method. The related Trustee (or, if applicable,
Indenture Trustee) and the Servicer will 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
will not be 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 scheduled payment of principal and
interest ("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").
Additional information with respect to the Contracts relates to any
series of Securities will be set forth in the related Prospectus Supplement,
including, to the extent appropriate, the composition, the distribution by APR
and by the states of origination, the portion of such Contracts consisting of
Simple Interest Contracts and Rule of 78's Contracts, and the portion of such
Contracts secured by new vehicles and by used vehicles.
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PREFUNDING ARRANGEMENTS
To the extent provided in the related Prospectus Supplement for a
series of Securities, the related Trust Agreement, Sale and Servicing Agreement
and Indenture or the related Pooling and Servicing Agreement, as applicable, may
provide for a commitment by the related Trust to subsequently purchase
additional Contracts ("SUBSEQUENT CONTRACTS") from the Seller following the date
on which the Trust is established and the related Securities are issued (a
"PREFUNDING ARRANGEMENT"). With respect to a series of Securities, the
Prefunding Arrangement will require that any Subsequent Contracts transferred to
the Trust conform to the requirements and conditions provided in the related
Sale and Servicing Agreement or Pooling and Servicing Agreement, as applicable.
If a Prefunding Arrangement is utilized in connection with the issuance of a
series of Securities, the Servicer will establish an account in the name of the
related Trustee or Indenture Trustee, as applicable, for the benefit of the
Securityholders into which all or a portion of the net proceeds received from
the sale of the Securities (the "PREFUNDED AMOUNT") will be deposited and from
which monies will be released during a specified period to purchase subsequent
Contracts from the Seller (the "PREFUNDING ACCOUNT"). Upon each conveyance of
Subsequent Contracts to the applicable Trust, an amount equal to the purchase
price paid by the Seller to Onyx, or a Selling Subsidiary, for such Subsequent
Contracts will be released from the Prefunding Account and paid to the Seller.
The utilization of a Prefunding Arrangement for a series of
Securities is intended to improve the efficiency of the issuance of such
Securities and the sale of the Contracts to the related Trust through the
incremental delivery of the applicable Contracts on the Closing Date and during
a specified period following the Closing Date for such series of Securities,
which allows for a more even accumulation of the Contracts by the Seller and by
Onyx and the Selling Subsidiary and the issuance of a larger principal amount of
Securities than would be the case without a Prefunding Arrangement.
MATURITY AND PREPAYMENT CONSIDERATIONS
The Contracts will be prepayable in full by the obligors at any time
without penalty. Prepayments on Simple Interest Contracts included in the Trust
Property of a Trust will be paid or distributed to the related Securityholders
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 paid or distributed 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 "Description of the Transfer and Servicing Agreements --
Payahead Account". To the extent that any Contract included in the Trust
Property of a Trust 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 included
in the Trust Property of such Trust 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 related Sale and Servicing
Agreement or Pooling and Servicing Agreement, as applicable, or 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 related Sale and Servicing Agreement or Pooling and
Servicing Agreement, as applicable. In addition, early retirement of the
Securities may be effected by the option of the Servicer to purchase the
remaining Contracts included in the Trust Property of the Trust on any
Distribution Date as of which the related Pool Balance (after giving effect to
the principal payments and distributions otherwise to be made on such
Distribution Date) has declined to the percentage of the Original Pool Balance
specified in the related Prospectus Supplement. See "Description of the Transfer
and Servicing Agreements -- Repurchase 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.
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California law, and the law of some other states, require that retail
installment sales contracts such as the Contracts permit full prepayment without
penalty. Any Full Prepayments reduce the average life of the Contracts. The
Servicer will permit the sale or other transfer of a Financed Vehicle without
accelerating the maturity of the related Contract if such Contract is assumed by
a person satisfying Onyx's then current underwriting standards. See "The Onyx
Portfolio of Motor Vehicle Contracts -- Underwriting of Motor Vehicle
Contracts".
Onyx has limited historical experience with respect to prepayments
and is not aware of publicly available industry statistics that set forth
principal prepayment experience for retail installment sales contracts similar
to the Contracts. Onyx can make no prediction as to the actual prepayment rates
that will be experienced on the Contracts included in the Trust Property of any
Trust in either stable or changing interest rate environments. Securityholders
of each series will bear all reinvestment risk resulting from the rate of
prepayment of the Contracts included in the Trust Property of the related Trust.
POOL FACTOR AND POOL INFORMATION
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 aggregate principal balance of the Contracts as of the Cut-Off
Date (the "ORIGINAL POOL BALANCE"). The Pool Factor will be 1.000000 as of the
Closing Date; thereafter, the Pool Factor will decline to reflect reductions in
the aggregate principal balance of the related Contracts (the "POOL BALANCE").
The amount of a Noteholder's or 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 Security by the Pool Factor for that month.
With respect to each Trust, unless otherwise provided in the related
Prospectus Supplement, the related Securityholders 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.
Securityholders of record during any calendar year will be furnished information
for tax reporting purposes not later than the latest date permitted by law. See
"Description of the Securities--Statements to Securityholders".
USE OF PROCEEDS
Unless otherwise provided in the related Prospectus Supplement, the
net proceeds to be received by the Seller from the sale of Securities of a given
series will be used to repay certain indebtedness incurred in connection with
its acquisition of the Contracts and to pay certain other expenses in connection
with the pooling of the Contracts and the issuance of such Securities.
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 (949) 450-5500.
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 Motor
Vehicle Contracts from Onyx and transferring such Motor Vehicle Contracts to
third parties and any activities incidental to and necessary or convenient for
the accomplishment of such purposes.
Onyx and the Seller have taken and will take steps in structuring the
transactions contemplated hereby that are intended to ensure that the voluntary
or involuntary application for relief by Onyx under any Insolvency Law will not
result in consolidation of the assets and liabilities of the Seller with those
of Onyx. These steps include the creation of the Seller as a separate, limited
purpose subsidiary pursuant to a certificate of incorporation containing certain
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limitations (including restrictions on the nature of the Seller's business and a
restriction on the Seller's ability to commence a voluntary case or proceeding
under any Insolvency Law without the unanimous affirmative vote of all of its
directors). However, there can be no assurance that the activities of the Seller
would not result in a court concluding that the assets and liabilities of the
Seller should be consolidated with those of Onyx in a proceeding under any
Insolvency Law.
The Seller has received the advice of counsel to the effect that,
subject to certain facts, assumptions and qualifications, it would not be a
proper exercise by a court of its equitable discretion to disregard the separate
corporate existence of the Seller and to require the consolidation of the assets
and liabilities of the Seller with the assets and liabilities of Onyx in the
event of the application of any Insolvency Law to Onyx. However, there can be no
assurance that a court would not conclude that the assets and liabilities of the
Seller should be consolidated with those of Onyx. If a court were to reach such
a conclusion, or a filing were made under any Insolvency Law by or against the
Seller, or if an attempt were made to litigate any of the foregoing issues,
delays in payments or distributions on any outstanding series of Securities
could occur or reductions in the amounts of such payments or distributions could
result.
Unless otherwise specified in the related Prospectus Supplement, the
Contracts included in the Trust Property of each Trust will have been sold by
Onyx and/or a Selling Subsidiary to the Seller pursuant to a purchase agreement
between Onyx or such Selling Subsidiary and the Seller (each, a "PURCHASE
AGREEMENT"). The Contracts included in the Trust Property of each Trust will be
sold by the Seller to such Trust pursuant to a Sale and Servicing Agreement or
Pooling and Servicing Agreement, as applicable. Onyx, each Selling Subsidiary
and the Seller intend that each transfer of Contracts by Onyx or such Selling
Subsidiary to the Seller under the applicable Purchase Agreement or otherwise
will constitute a "true sale" of the Contracts to the Seller. If a transfer of
Contracts constitutes such a "true sale," such Contracts and the proceeds
thereof would not be part of the bankruptcy estate of Onyx or such Selling
Subsidiary under Section 541 of the United States Bankruptcy Code (the
"BANKRUPTCY CODE") should Onyx or such Selling Subsidiary become the subject of
a bankruptcy case subsequent to the transfer of such 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 Contracts to the Seller, the transfer of such
Contracts by Onyx to the Seller would be characterized as a "true sale" of the
Contracts from Onyx to the Seller and the Contracts and the proceeds thereof
would not form part of Onyx's bankruptcy estate pursuant to Section 541 of the
Bankruptcy Code.
THE SERVICER
The Contracts included in the Trust Property of each Trust initially
will be serviced by 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. Onyx
is engaged principally in the business of providing indirect automobile
financing to new car dealerships and selected used car dealerships in California
and in other states across the country. Onyx is headed by a management team with
extensive experience in the origination and servicing of indirect and direct
automobile loans, and who, from 1985 to present, have actively participated in a
number of public securitizations of Motor Vehicle Contracts. The Common Stock of
Onyx is listed on the NASDAQ. Onyx's principal executive offices are located at
8001 Irvine Center Drive, 5th Floor, Irvine, California 92618.
Onyx acquires individual Motor Vehicle Contracts from Dealers, and to
a lesser extent subsidiaries of Onyx purchase such contracts from credit unions
or directly originate such contracts, after reviewing and approving the
customer's credit application in accordance with its underwriting policies and
procedures. See "The Contracts". Onyx, together with its subsidiaries, had
acquired or originated Motor Vehicle Contracts totaling approximately $1.4
billion from commencement of operations through March 31, 1998. As of March 31,
1998, Onyx had amassed a servicing portfolio of approximately $885 million. As
of March 31, 1998, approximately 79% of Onyx's servicing portfolio consisted of
motor vehicle installment contracts secured by used motor vehicles, and 21%
secured by new motor vehicles. As of March 31, 1998, Onyx had total assets of
approximately $182.1 million and stockholders' equity of $41.4 million.
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Onyx finances acquisitions and originations of Motor Vehicle
Contracts on a short term basis through two separate warehouse facilities and
has previously financed acquisitions and originations of motor vehicle
installment contracts on a long term basis through sales of Motor Vehicle
Contracts to grantor trusts and periodically through whole loan sales.
DESCRIPTION OF THE SECURITIES
GENERAL
With respect to each Trust that issues Notes, one or more classes of
Notes of the related series will be issued pursuant to the terms of an
Indenture, a form of which has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. With respect to each Trust that
issues Certificates, one or more classes of Certificates of the related series
will be issued pursuant to the terms of a Trust Agreement or a Pooling and
Servicing Agreement, a form of each of which has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. The following
summary does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Notes, Certificates,
Indenture, Trust Agreement and Pooling and Servicing Agreement, as applicable,
and the related Prospectus Supplement.
The Securities of each series will be issued in the denominations
specified in the related Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, the Securities of each series will be issued
in book-entry form. See "--Book-Entry Registration" and "--Definitive
Securities". All Securities offered pursuant to this Prospectus and the related
Prospectus Supplement will be rated in one of the four highest rating categories
by one or more nationally recognized statistical rating agencies.
PRINCIPAL AND INTEREST ON THE SECURITIES
The timing and priority of payment, seniority, allocations of losses,
Interest Rate or Certificate Rate, as applicable, and amount of or method of
determining payments or distributions of principal and interest on each class of
Securities of a given series will be described in the related Prospectus
Supplement. The right of holders of any class of Securities to receive payments
or distributions of principal and interest may be senior or subordinate to the
rights of holders of any other class or classes of Securities of such series, as
described in the related Prospectus Supplement. Unless otherwise provided in the
related Prospectus Supplement, payments of interest on the Securities of such
series will be made prior to payments of principal thereon. To the extent
provided in the related Prospectus Supplement, a series may include one or more
classes of Strip Notes or Strip Certificates entitled to (i) principal payments
or distributions with disproportionate, nominal or no interest payments or
distributions or (ii) interest payments or distributions with disproportionate,
nominal or no principal payments or distributions. Each class of Securities may
have a different Interest Rate or Certificate Rate, as applicable, which may be
a fixed, variable or adjustable Interest Rate or Certificate Rate, as applicable
(and which may be zero for certain classes of Strip Notes or Strip
Certificates), or any combination of the foregoing. The related Prospectus
Supplement will specify the Interest Rate or Certificate Rate, as applicable,
for each class of Securities of a given series or the method for determining
such Interest Rate or Certificate Rate, as applicable. One or more classes of
Securities of a series may be redeemable in whole or in part under the
circumstances specified in the related Prospectus Supplement, including as a
result of the Servicer's exercising its option to purchase the remaining related
Contracts.
In the case of a series of Securities which includes two or more
classes of Securities, the sequential order and priority of payments or
distributions in respect of principal and interest, and any schedule or formula
or other provisions applicable to the determination thereof, of each such class
will be set forth in the related Prospectus Supplement. Payments or
distributions in respect of principal and interest of any class of Securities
will be made on a pro rata basis among all the Securityholders of such class.
BOOK-ENTRY REGISTRATION
Unless otherwise specified in the related Prospectus Supplement, each
class of Securities offered hereby will be represented by one or more
certificates registered in the name of Cede, as nominee of DTC. Unless otherwise
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specified in the related Prospectus Supplement, Securityholders may hold
beneficial interests in Securities through DTC directly if they are participants
in DTC ("PARTICIPANTS") or indirectly through Participants.
Cede, as nominee for DTC, will hold the global Securities of each
series. 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 "banking organization" within the meaning of the New
York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered pursuant to Section 17A of the Exchange Act. DTC
was created to hold securities for its Participants and to 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 notes or certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations which may include underwriters, agents or dealers with
respect to the Securities of any class or series. 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").
Unless otherwise specified in the related Prospectus Supplement,
owners of beneficial interests in Securities that are in book-entry form
("SECURITY OWNERS") that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Securities may do so only through Participants and Indirect Participants. In
addition, Securityholders of a given series will receive all distributions of
principal and interest in respect of the Securities from the Indenture Trustee
or Trustee through the Participants who in turn will receive them from DTC.
Under a book-entry format, Security Owners of a given series may experience some
delay in their receipt of payments, since such payments will be forwarded by the
Indenture Trustee or Trustee, as applicable, to Cede, as nominee of DTC. DTC
will forward such payments to its Participants which thereafter will forward
them to Indirect Participants or such Security Owners, it is anticipated that
the only "Securityholder" in respect of any series will be Cede, as nominee of
DTC. Security Owners of a given series will not be recognized as Securityholders
of such Series, and such Security Owners will be permitted to exercise the
rights of Securityholders only indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting
DTC and its operations (the "DTC RULES"), DTC is required to make book-entry
transfers of Securities of a given series among Participants on whose behalf it
acts with respect to such Securities and is required to receive and transmit
distributions of principal of, and interest on, such Securities. Participants
and Indirect Participants with which Security Owners of a given series have
accounts with respect to the Securities of such series similarly are required to
make book-entry transfers and receive and transmit such payments on behalf of
their respective Security Owners of such series. Accordingly, although Security
Owners will not possess Securities, Security 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 Security
Owner of a given series to pledge Securities of such series to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of such Securities, may be limited due to the lack of a physical
certificate for such Securities.
DTC will advise the Trustee in respect of each Series that it will
take any action permitted to be taken by a Securityholder of such series only at
the direction of one or more Participants to whose account with DTC the
Securities of such series are credited. Additionally, DTC has advised the Seller
that it will take such actions with respect to specified percentages of the
Securityholder's interest only at the direction of and on behalf of Participants
whose holdings include undivided interests that satisfy such percentages. 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 Securities 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 SECURITIES
Unless otherwise specified in the related Prospectus Supplement, the
Securities of a given series will be issued in fully registered, certificated
form ("DEFINITIVE SECURITIES") to Security Owners or their nominees rather than
to DTC or its nominee, only if (i) the Seller, the related Trustee or the
Administrator, as applicable, 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 Seller, the related Trustee or the
Administrator are unable to locate a qualified successor, or (ii) after the
occurrence of an Indenture Event of Default under the related Indenture, if
applicable, or an Event of Default under the related Sale and Servicing
Agreement or Pooling and Servicing Agreement, as applicable, Security Owners
representing in the aggregate more than 50% of the outstanding principal balance
of such Securities advise the applicable Trustee through Participants in writing
that the continuation of a book-entry system with respect to the Securities
through depositary is no longer in the best interest of the Security Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the applicable Trustee and/or the related Indenture Trustee
will be required to notify all Security Owners, through Participants, of the
availability through DTC of Definitive Securities. Upon surrender by DTC of the
definitive Securities representing the Securities and instructions for
re-registration, the applicable Trustee and, if applicable, the related
Indenture Trustee will reissue the Securities as Definitive Securities, and
thereafter the applicable Trustee will recognize the holders of such Definitive
Securities as Securityholders (collectively, "HOLDERS").
Payments or distributions of principal of and interest on the
Securities will be made by the Paying Agent directly to Holders of Definitive
Securities in accordance with the procedures set forth herein and in the related
Indenture or the related Trust Agreement or Pooling and Servicing Agreement, as
applicable. Such payments or distributions on each Distribution Date and on the
final Distribution Date (as specified in the related Prospectus Supplement) will
be made to Holders in whose names the Definitive Securities were registered at
the close of business on the related Record Date. Payments or distributions will
be made by check mailed to the address of such Holder as it appears on the
register maintained by the applicable Trustee or Indenture Trustee. The final
payment or distribution on any Security (whether Definitive Securities or the
Security registered in the name of DTC's nominee), however, will be made only
upon presentation and surrender of such Security at the office or agency
specified in the notice of final payment or distribution to Securityholders.
Definitive Securities will be transferable and exchangeable at the
offices of the applicable Trustee or Indenture Trustee, or at the offices of a
transfer agent or registrar named in a notice delivered to holders of such
Definitive Securities, which shall initially be the applicable Trustee or
Indenture Trustee. No service charge will be imposed for any registration of
transfer or exchange, but the applicable Trustee, Indenture Trustee, transfer
agent or registrar may require payment of a sum sufficient to cover any tax or
other governmental charge imposed in connection therewith.
LIST OF SECURITYHOLDERS
Unless otherwise specified in the related Prospectus Supplement with
respect to the Notes of any series, upon written request of the Servicer, the
related Indenture Trustee will provide to the Servicer within 15 days after
receipt of such request a list of the names and addresses of all Noteholders of
record as of the most recent Record Date. Upon written request by three or more
holders of the Notes of such series or by Holders of such Notes evidencing not
less than 25% of the aggregate outstanding principal balance of such Notes, the
Indenture Trustee will afford such Noteholders access during business hours to
the current list of Noteholders for purposes of communicating with other
Noteholders with respect to their rights under the Indenture or under such
Notes.
Unless otherwise specified in the related Prospectus Supplement with
respect to the Certificates of any series upon written request of the Servicer,
the related 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
holders of the Certificates of such series or by Holders of such Certificates
evidencing not less than 25% of the aggregate outstanding principal balance of
such Certificates, the related 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 related Trust Agreement or Pooling and Servicing Agreement or
under such Certificates.
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The Pooling and Servicing Agreement, Trust Agreement and Indenture
will not provide for the holding of annual or other meetings of Securityholders.
STATEMENTS TO SECURITYHOLDERS
Unless otherwise specified in the related Prospectus Supplement, with
respect to each series of Securities, on each Distribution Date, the applicable
Trustee or Indenture Trustee will include with each payment or distribution to
each Securityholder a Distribution Date Statement setting forth for such
Distribution Date the following information (and any other information so
specified in the related Prospectus Supplement):
(i) the amount of the distribution on or with respect to
each class of such Securities allocable to principal;
(ii) the amount of the distribution on or with respect to
each class of such Securities allocable to interest;
(iii) the aggregate distribution amount for such Distribution
Date;
(iv) the premiums payable to the related Security Insurer, if
any, the balance of any fund or account with respect to
any credit or liquidity enhancement on such date, after
giving effect to changes thereto on such date and the
amount to be deposited in the spread account, if any;
(v) the aggregate Servicing Fee paid to the Servicer with
respect to the related Contracts for the related
Collection Period;
(vi) the number of, and aggregate amount of monthly principal
and interest payments due on, the related Contracts
which are delinquent as of the end of the related
collection period (as defined in the related Prospectus
Supplement, the "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 aggregate amount payable or distributable
on such Securities, the amount of the Servicing Fee, the
amount of any principal or interest shortfall with
respect to each class of Securities and the amount
required from any applicable Security Insurer pursuant
to the related Security Insurance Policy to pay any
shortfall;
(viii) the aggregate amount of proceeds received by the
Servicer, net of recoverable out-of-pocket expenses,
received for a Contract which is a "DEFAULTED CONTRACT"
(as such term is defined in the related Prospectus
Supplement).
(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 in the Collection Account available for such
Distribution Date.
Within a reasonable period of time after the end of each calendar
year during the term of each Trust, but not later than the latest date permitted
by law, the applicable Trustee or Indenture Trustee and the Paying Agent shall
furnish to each person who on any Record Date during such calendar year shall
have been a registered Securityholder a statement containing certain information
for the purposes of such Securityholder's preparation of federal income tax
returns. See "Certain Federal Income Tax Consequences".
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DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of each Sale and
Servicing Agreement or Pooling and Servicing Agreement pursuant to which a Trust
will purchase Contracts from the Seller and the Servicer will agree to service
such Contracts, each Trust Agreement (in the case of a grantor trust, the
Pooling and Servicing Agreement) pursuant to which a Trust will be created and
Certificates will be issued and each Administration Agreement pursuant to which
Onyx will undertake certain administrative duties with respect to a Trust that
issues Notes (collectively, the "TRANSFER AND SERVICING AGREEMENTS"). Forms of
the Transfer and Servicing Agreements have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part. This summary does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, all the provisions of each applicable Transfer and Servicing
Agreement and the related Prospectus Supplement.
SALE AND ASSIGNMENT OF THE CONTRACTS
At the time of issuance of a series of Securities, the Seller will
sell and assign to the applicable Trustee, without recourse, pursuant to a Sale
and Servicing Agreement or a Pooling and Servicing Agreement, as applicable, the
Seller's entire interest in the Contracts and the proceeds thereof, including
its security interests in the related Financed Vehicles. Each Contract will be
identified in a schedule appearing as an exhibit to such Sale and Servicing
Agreement or Pooling and Servicing Agreement. The applicable Trustee will,
concurrently with such sale and assignment, execute, authenticate and deliver
the definitive certificates representing the related Securities. Unless
otherwise provided in the related Prospectus Supplement, the net proceeds
received from the sale of the Securities of a given series will be applied to
the purchase of the related Contracts from the Seller and, to the extent
specified in the related Prospectus Supplement, to make the required initial
deposit into any reserve fund, spread account or with respect to any other
credit or liquidity enhancement. Unless otherwise specified in the related
Prospectus Supplement, pursuant to the applicable Purchase Agreement, prior to
sale of the Contracts to the Trustee and the issuance of the Securities, Onyx
and each Selling Subsidiary will sell and assign to the Seller Onyx's and such
Selling Subsidiaries' entire interest in the Contracts.
Pursuant to each Sale and Servicing Agreement or Pooling and
Servicing Agreement, the Seller will represent to the applicable Trustee and the
Trust for the benefit of holders of the Securities and any applicable Security
Insurer that: (i) each Contract to be included in the Trust Property of such
Trust 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 such Contract and the sale
of the related Financed Vehicle complied at the time it was made in all material
respects with all requirements of applicable federal, state, and local laws, and
regulations thereunder, including usury laws, the Federal Truth-in-Lending Act,
the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Federal
Trade Commission Act, the Fair Debt Collection Practices Act, the Fair Credit
Billing Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board's
Regulations B and Z, the Soldiers' and Sailors' Civil Relief Act of 1940, state
adaptations of the National Consumer Act and of the Uniform Consumer Credit
Code, and any other consumer credit, equal opportunity and disclosure laws
applicable to such Contract and sale; (iii) each such Contract constitutes the
legal, valid, and binding payment obligation in writing of the obligor,
enforceable by the holder thereof in all respects in accordance with its terms,
subject, as to enforcement, to applicable bankruptcy, insolvency,
reorganization, liquidation and other similar laws and equitable principles
relating to or affecting the enforcement of creditors' rights; (iv) as of the
Closing Date, each such 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 such 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 such 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 such 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 such 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 such Contract exists, and the Seller has not waived any of the foregoing;
(ix) each such Contract
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requires that the obligor thereunder obtain comprehensive and collision
insurance covering the Financed Vehicle; (x) each such Contract was acquired
from a dealer with whom Onyx ordinarily does business (except for Contracts
purchased or originated by a subsidiary of Onyx); (xi) no adverse selection
procedures were utilized in selecting such Contracts; (xii) scheduled payments
under each such Contract have been applied in accordance with the method for
allocating principal and interest set forth in such Contract (either the Rule of
78's or the Simple Interest Method); and (xiii) there is only one original of
each such Contract and such original is being held by the applicable Trustee as
custodian on behalf of the Trust and any applicable Security 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 applicable Trustee or the
Servicer that a Contract does not meet any of the criteria in the Sale and
Servicing Agreement or Pooling and Servicing Agreement, as applicable, and such
failure materially and adversely affects the interests of the Securityholders or
any applicable Security Insurer in a Contract, the Seller, unless it cures the
failed criterion, will repurchase the Contract from the applicable Trustee at
the price specified in the related Prospectus Supplement and, if applicable, all
amounts due to any applicable Security Insurer (the "REPURCHASE AMOUNT"). The
repurchase obligation will constitute the sole remedy available to the
Securityholders or the applicable Trustee for the failure of a Contract to meet
any of the criteria set forth in the Sale and Servicing Agreement or Pooling and
Servicing Agreement, as applicable.
THE COLLECTION ACCOUNT AND ELIGIBLE INVESTMENTS
Unless otherwise specified in the related Prospectus Supplement, with
respect to each Trust, the Servicer will establish and maintain an account (the
"COLLECTION ACCOUNT") in the name of the related Trustee (or, in the case of a
series of Securities that includes Notes, with the related Indenture Trustee),
into which all collections made on the related Contracts will be deposited.
Funds in the Collection Account will be invested in Eligible Investments by the
applicable Trustee or Indenture Trustee, acting at the direction of any
applicable Security Insurer. "ELIGIBLE INVESTMENTS" are generally limited to
investments acceptable to each Rating Agency rating the applicable Securities as
being consistent with the rating of such Securities. Except as otherwise
described in the related Prospectus Supplement, Eligible Investments made with
respect to the Collection Account will mature no later than the next following
Distribution Date and income from amounts on deposit in the Collection Account
which are invested in Eligible Investments will be paid to the Servicer monthly
unless earlier directed by the Servicer.
PAYAHEAD ACCOUNT
Unless otherwise provided in the related Prospectus Supplement,
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 Rule of 78's Contract (other than
Full Prepayments) ("PAYAHEADS") will be initially deposited in the Collection
Account and subsequently transferred from the Collection Account, as of a
specified periodic date set forth in the related Prospectus Supplement (the
"SERVICER REPORT DATE") (as defined with respect to each series of Securities in
the related Prospectus Supplement), to an account established in the name of the
related Trustee or Indenture Trustee for the benefit of the obligors and the
Securityholders as their interests may appear (the "PAYAHEAD ACCOUNT") and shall
be held in such account until distributed 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. Unless otherwise provided in the related
Prospectus Supplement, 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 paid or
distributed to Securityholders. Unless otherwise specified in the related
Prospectus Supplement, the Payahead Account will not be part of the applicable
Trust and the related Trustee and, if applicable, the related Indenture Trustee
will not have a security interest in the Payahead Account. Unless otherwise
provided in the related Prospectus Supplement, earnings on Eligible Investments
credited to the Payahead Account will be paid to the Servicer.
OTHER ACCOUNTS
Any other accounts to be established with respect to a Trust,
including any reserve fund, will be described in the related Prospectus
Supplement (together with the Collection Account and the Payahead Account, the
"TRUST ACCOUNTS"). For any series of Securities, funds in any related reserve
fund and such other Trust Account as may be
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identified in the related Prospectus Supplement will be invested as provided in
the related Sale and Servicing Agreement, Pooling and Servicing Agreement or
Indenture in Eligible Investments.
PAYMENTS ON CONTRACTS
With respect to each Trust, unless otherwise specified in the related
Prospectus Supplement, 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. Unless otherwise specified in the
related Prospectus Supplement, such collections will include: Full Prepayments
and partial prepayments (pending transfer of Payaheads on Rule of 78's Contracts
to any 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 Securityholders or any applicable Security
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), 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, if any, on the Servicer Report Date.
PAYMENTS AND DISTRIBUTIONS
With respect to each series of Securities, beginning on the
Distribution Date specified in the related Prospectus Supplement, payments and
distributions of principal and interest (or, where applicable, of principal or
interest only) on each class of such Securities entitled thereto will be made by
the applicable Indenture Trustee to the Noteholders and by the applicable
Trustee to the Certificateholders of such series. The timing, calculation,
allocation, order, source, priorities of and requirements for all payments and
distributions to each class of Securities of such series will be set forth in
the related Prospectus Supplement.
With respect to each Trust, on each Distribution Date collections on
the related Contracts will be withdrawn from the related Collection Account and
will be paid and distributed to the Noteholders and/or Certificateholders as
provided in the related Prospectus Supplement. Credit enhancement will be
available to cover any shortfalls in the amount available for payment or
distribution to the Securityholders on such date to the extent specified in the
related Prospectus Supplement. If specified in the related Prospectus
Supplement, payments or distributions in respect of one or more classes of
Securities of the applicable series may be subordinate to payments or
distributions in respect of one or more other classes of Securities of such
series.
CREDIT AND CASH FLOW ENHANCEMENT
The amounts and types of credit and cash flow enhancement
arrangements and the provider thereof, if applicable, with respect to each class
of Securities of a given series, if any, will be set forth in the related
Prospectus Supplement. If and to the extent provided in the related Prospectus
Supplement, credit and cash flow enhancement may be in the form of subordination
of one or more classes of Securities, one or more Security Insurance Policies,
reserve funds, over-collateralization, letters of credit, credit or liquidity
facilities, guaranteed investment contracts, swaps or other interest rate
protection agreements, repurchase obligations, yield supplement agreements,
other agreements with respect to third party payments or other support, cash
deposits or such other arrangements as may be described in the related
Prospectus Supplement or any combination of two or more of the foregoing. If
specified in the applicable Prospectus Supplement, credit or cash flow
enhancement for a class of Securities may cover one or more other classes of
Securities of the same series, and credit or cash flow enhancement for a series
of Securities may cover one or more other series of Securities.
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The presence of credit enhancement for the benefit of any class or
series of Securities is intended to enhance the likelihood of receipt by the
Securityholders of such class or series of the full amount of principal and
interest due thereon and to decrease the likelihood that such Securityholders
will experience losses. Unless otherwise specified in the related Prospectus
Supplement, the credit enhancement for a class or series of Securities will not
provide protection against all risks of loss and will not guarantee repayment of
the entire principal balance and interest thereon. If losses occur which exceed
the amount covered by any credit enhancement or which are not covered by any
credit enhancement, Securityholders of any class or series will bear their
allocable share of deficiencies, as described in the related Prospectus
Supplement. In addition, if a form of credit enhancement covers more than one
class or series of Securities, Securityholders of any such series will be
subject to the risk that such credit enhancement will be exhausted by the claims
of Securityholders of other classes or series.
INSURANCE ON FINANCED VEHICLES
Each obligor on a Contract will be 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 or the applicable Onyx subsidiary will be
required to be named as a loss payee under the policy of insurance obtained by
the obligor. Each Financed Vehicle will be required to be insured against loss
and damage due to fire, theft, transportation, collision and other risks covered
by comprehensive coverage. Since obligors may choose their own insurers to
provide the required coverage, the specific terms and conditions of their
policies vary.
SERVICER REPORTS TO THE TRUSTEES AND SECURITY INSURER
The Servicer will perform certain monitoring and reporting functions
for the applicable Indenture Trustee, if any, the applicable Trustee, and any
applicable Security Insurer, including the preparation and delivery on the
Servicer Report Date of a statement (the "DISTRIBUTION DATE STATEMENT") setting
forth the amounts on deposit in the Collection Account, the sources of such
amounts and the amounts to be paid to Securityholders. The Distribution Date
Statement shall also include information regarding Contracts purchased by the
Servicer or repurchased by the Seller.
REPURCHASE OF CONTRACTS
Each Sale and Servicing Agreement and Pooling and Servicing Agreement
will provide that the Servicer will have the option to purchase the remaining
Contracts included in the Trust Property of a Trust on any Distribution Date as
of which the related Pool Balance (after giving effect to the principal payments
and distributions otherwise to be made on such Distribution Date) has declined
to the percentage of the Original Pool Balance specified in the related
Prospectus Supplement. Any such purchase must be effected at the price specified
in the related Prospectus Supplement, if applicable, plus all amounts due to any
applicable Security Insurer. In addition, Onyx or the Seller will be required to
purchase or repurchase, respectively, Contracts under certain circumstances if
certain representations and warranties made by Onyx or the Seller respectively
are incorrect in any manner that materially and adversely affects the interest
of the Securityholders. Additionally, the Servicer will be 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 each Sale and Servicing Agreement and Pooling and
Servicing Agreement. Unless otherwise specified in the related Prospectus
Supplement, the Servicer shall be entitled to receive on each Distribution Date
an amount (the "SERVICING FEE") equal to the product of a specified percentage
per annum (as set forth in the related Prospectus Supplement, the "SERVICING FEE
RATE") multiplied by the Pool Balance as of the end of the Collection Period
preceding the related Collection Period. Unless otherwise specified in the
related Prospectus Supplement, the Servicer or its designee shall be entitled to
retain, as additional compensation, all late payment charges, extension fees and
similar items paid in respect of the Contracts. The Servicer or its designee may
also be entitled to 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. Unless otherwise
specified in the related Prospectus Supplement, the Servicer shall pay all
expenses incurred by it in connection with its servicing
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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.
WAIVERS AND EXTENSIONS
Each Sale and Servicing Agreement and Pooling and Servicing Agreement
will require the Servicer to use its best efforts to collect all payments called
for under the terms and provisions of the related Contracts. Unless otherwise
specified in the related Prospectus Supplement, and subject to any limitations
set forth therein, the Servicer, consistent with the foregoing, will be
permitted, in its discretion, to (i) waive any late payment charges in
connection with delinquent payments on a Contract, (ii) waive prepayment charges
and (iii) grant up to three extensions of thirty (30) days or less in order to
work out a default or an impending default.
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.
EVIDENCE AS TO COMPLIANCE
Each Sale and Servicing Agreement and Pooling and Servicing Agreement
will provide that a firm of independent public accountants will furnish to the
related Trustee or Indenture Trustee, as applicable, and, if applicable, the
related Security Insurer, on or before each March 15 after the end of each
fiscal year of the Servicer, a statement as to compliance by the Servicer during
the preceding fiscal year with certain standards relating to the servicing of
the applicable Contracts.
Each Sale and Servicing Agreement and Pooling and Servicing Agreement
will also provide for delivery to the related Trustee or Indenture Trustee, as
applicable, and, if applicable, the related Security Insurer, on each March 15
after the end of each fiscal year of the Servicer, of a certificate signed by an
authorized officer of the Servicer stating that the Servicer has fulfilled its
obligations under the Sale and Servicing Agreement or Pooling and Servicing
Agreement, as applicable, 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
Securityholders by a request in writing addressed to the applicable Trustee or
Indenture Trustee.
CERTAIN MATTERS REGARDING THE SERVICER
Each Sale and Servicing Agreement and Pooling and Servicing 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 related Trustee or Indenture Trustee, as
applicable, or a successor servicer, has assumed the Servicer's servicing
obligations and duties under the Sale and Servicing Agreement or Pooling and
Servicing Agreement, as applicable. See "-- The Trustee and Indenture Trustee".
Each Sale and Servicing Agreement and Pooling and Servicing
Agreement will further provide that neither the Servicer nor any of its
directors, officers, employees, and agents shall be under any liability to the
related Trust or the related Securityholders for taking any action or for
refraining from taking any action pursuant to the Sale and Servicing Agreement
or Pooling and Servicing Agreement, as applicable, 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 Sale and Servicing Agreement or Pooling and
Servicing Agreement, as applicable, will provide that the Servicer is under no
obligation to appear in,
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prosecute or defend any legal action that is not incidental to the Servicer's
servicing responsibilities under the Sale and Servicing Agreement or Pooling and
Servicing Agreement, as applicable, 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 Sale
and Servicing Agreement or Pooling and Servicing Agreement, as applicable, and
the rights and duties of the parties thereto and the interests of the
Securityholders 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 related 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
Securityholders.
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 Sale and Servicing
Agreement or Pooling and Servicing Agreement, as applicable.
SERVICER DEFAULT
Except as otherwise provided in the related Prospectus Supplement,
"SERVICER DEFAULT" under the Sale and Servicing Agreement or Pooling and
Servicing Agreement, as applicable, will consist of: (i) any failure by the
Servicer to deposit in or credit to the Collection Account or the Payahead
Account, if any, any amount required to be so deposited or credited, which
failure continues unremedied for three Business Days after written notice from
the applicable Trustee or Indenture Trustee, or, if applicable, the related
Security Insurer, is received by the Servicer or discovery by the Servicer; (ii)
any failure by the Servicer to deliver to such Trustee or Indenture Trustee, or,
if applicable, the related Security Insurer, certain reports required by such
Sale and Servicing Agreement or Pooling and Servicing Agreement, as applicable,
by the Servicer Report Date or to perform certain other covenants under such
Sale and Servicing Agreement or Pooling and Servicing Agreement, as applicable;
(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 such Sale and Servicing Agreement or Pooling and Servicing Agreement,
which failure materially and adversely affects the rights of Securityholders or
the applicable Trustee or Indenture Trustee, or, if applicable, the related
Security Insurer, 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 applicable Trustee or Indenture Trustee, or, if applicable, the
related Security Insurer, or (B) to the Servicer or the Seller, as the case may
be, and to the applicable Trustee or Indenture Trustee by Holders of Securities
evidencing not less than 25% in principal amount of such Securities, acting
together as a single class, or, if applicable, the related Security 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 related 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 applicable Trustee or Indenture Trustee
or the Holders of Securities evidencing not less than 25% in principal amount of
such Securities, acting together as a single class, or, if applicable, the
related Security Insurer; (vi) any change in control of the Servicer in
violation of the covenants set forth in such Sale and Servicing Agreement or
Pooling and Servicing Agreement; and (vii) if applicable, the determination by
the Security Insurer that the quality of performance of the Servicer is not in
compliance with either the terms of the Sale and Servicing Agreement or Pooling
and Servicing Agreement, as applicable, or that the Servicer's performance is
not adequate, as measured in accordance with industry standards, in respect of
all Motor Vehicle Contracts serviced by the Servicer.
RIGHTS UPON SERVICER DEFAULT
In the case of any Trust that has issued Notes, unless otherwise provided in the
related Prospectus Supplement, as long as a Servicer Default under a Sale and
Servicing Agreement remains unremedied, the related Indenture Trustee, the
related Security Insurer, if any, or holders of Notes of the related series
evidencing not less than 25% of principal amount of such Notes then outstanding,
acting together as a single class, may terminate all the rights and obligations
of the Servicer under such Sale and Servicing Agreement, whereupon such
Indenture Trustee or a successor servicer appointed by such Indenture Trustee
will succeed to all the responsibilities, duties and liabilities of the Servicer
under such Sale and Servicing Agreement and will be entitled to similar
compensation arrangements; provided, however, that
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such Indenture 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 case of any Trust that has
not issued Notes, unless otherwise provided in the related Prospectus
Supplement, as long as a Servicer Default under the related Sale and Servicing
Agreement or Pooling and Servicing Agreement remains unremedied, the related
Trustee, the related Security Insurer, if any, or holders of Certificates of the
related series evidencing not less than 25% of the principal amount of such
Certificates then outstanding, acting together as a single class, may terminate
all the rights and obligations of the Servicer under such Sale and Servicing
Agreement or Pooling and Servicing Agreement, whereupon such Trustee or a
successor servicer appointed by such Trustee will succeed to all the
responsibilities, duties and liabilities of the Servicer under such Sale and
Servicing Agreement or Pooling and Servicing Agreement and will be entitled to
similar compensation arrangements; provided, however, that such 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 such Indenture Trustee or Trustee is unwilling or
unable to so act, it may appoint, 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 and/or light duty
truck receivables.
With respect to each Trust that has issued Notes, unless otherwise
provided in the related Prospectus Supplement, the holders of Notes of the
related series evidencing not less than 51% of the principal amount of such
Notes then outstanding, acting together as a single class, with the consent of
the related Security Insurer, if any, may, on behalf of all Securityholders of
the related series, waive any default by the Servicer in the performance of its
obligations under the related Sale and Servicing Agreement and its consequences,
except a Servicer Default in making any required deposits to or payments from
any of the Trust Accounts in accordance with such Sale and Servicing Agreement.
With respect to each Trust that has not issued Notes, holders of Certificates of
the related series evidencing not less than 51% of the principal amount of such
Certificates then outstanding, acting together as a single class, with the
consent of the related Security Insurer, if any, may, on behalf of all such
Certificateholders, waive any default by the Servicer in the performance of its
obligations under the related Sale and Servicing Agreement or Pooling and
Servicing Agreement, except a Servicer Default in making any required deposits
to or payments from the related Trust Accounts in accordance with such Sale and
Servicing Agreement or Pooling and Servicing Agreement. No such waiver will
impair such Noteholders' or Certificateholders' rights with respect to
subsequent defaults.
With respect to each Trust, unless otherwise provided in the related
Prospectus Supplement, the applicable Trustee or Indenture Trustee will be under
no obligation to exercise any of the trusts or powers vested in it by the Sale
and Servicing Agreement or Pooling and Servicing Agreement, as applicable, 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 of any of the Securityholders, unless such Securityholders
have offered to such Trustee or Indenture Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby. Unless otherwise specified in the related Prospectus
Supplement, no Securityholder will have any right under the Sale and Servicing
Agreement or the Pooling and Servicing Agreement to institute any proceeding
with respect thereto, unless such Holder previously has given to such Trustee or
Indenture Trustee, as applicable, written notice of default and unless (i) in
the case of a Trust that has issued Notes, holders of Notes of the related
Series evidencing not less than 25% of the principal amount of such Notes then
outstanding, or (ii) in the case of a Trust that has not issued Notes, holders
of Certificates of the related series evidencing not less than 25% of the
principal amount of such Certificates then outstanding, in either case with the
consent of the related Security Insurer, if any, have made written request upon
such Trustee or Indenture Trustee to institute such proceeding in its own name
as Trustee or Indenture Trustee thereunder and have offered to such Trustee or
Indenture Trustee reasonable indemnity and such Trustee or Indenture Trustee for
30 days has neglected or refused to institute any such proceedings.
AMENDMENT
Unless otherwise provided in the related Prospectus Supplement, each
of the Transfer and Servicing Agreements may be amended by the parties thereto,
without the consent of the related Securityholders, but with the consent of the
related Security Insurer, if any, to cure any ambiguity, correct or supplement
an provision therein which may be inconsistent with any other provision therein,
or make any other provisions with respect to matters or questions arising
thereunder which are not inconsistent with the provisions of such Transfer and
Servicing Agreement; provided that such action will not materially and adversely
affect the interest of any such Securityholder. Any amendment shall not be
deemed to materially and adversely affect the interest of any Securityholder if
the person requesting the
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amendment obtains a letter from each Rating Agency to the effect that the
amendment would not result in a downgrading or withdrawal of the ratings then
assigned to the applicable Securities by such Rating Agency. Unless otherwise
specified in the related Prospectus Supplement, the Transfer and Servicing
Agreements may also be amended by the Seller, the Servicer, the related Trustee
and any related Indenture Trustee with the consent of (i) in the case of a Trust
that has issued Notes, the holders of Notes of the related series evidencing not
less than 51% of the principal amount of such Notes then outstanding, acting
together as a single class, or (ii) in the case of a Trust that has not issued
Notes, the holders of Certificates of the related series evidencing not less
than 51% of the principal amount of such Certificates then outstanding, acting
together as a single class, and in either case with the consent of the related
Security Insurer, if any, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of such Transfer and
Servicing Agreements or of modifying in any manner the rights of such
Noteholders or 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, collections of payments on the related Contracts or distributions
that are required to be made for the benefit of such Noteholders or
Certificateholders or (ii) reduce the aforesaid percentage of the Notes or
Certificates of such series which are required to consent to any such amendment,
without the consent of the holders of all the outstanding Notes or Certificates,
as the case may be, of such series.
TERMINATION
With respect to each Trust, except as otherwise set forth in the
related Prospectus Supplement, the obligations of the Seller, the Servicer, the
related Trustee and the related Indenture Trustee, if any, pursuant to the
Transfer and Servicing Agreements will terminate upon the earlier of (i) the
maturity or other liquidation of the last related Contract and the disposition
of any amounts received upon liquidation of any remaining Contracts that are
part of the related Trust Property and (ii) (a) the payment to Noteholders, if
any, and Certificateholders of the related series of all amounts required to be
paid to them pursuant to the Transfer and Servicing Agreements and the
disposition of all property held as part of the related Trust, (b) if
applicable, the termination of the related Security Insurance Policy in
accordance with its terms and the surrender of such policy to the related
Security Insurer for cancellation, (c) the payment of all amounts owed to such
Trustee or Indenture Trustee under the Transfer and Servicing Agreements and (d)
if applicable, the payment of all amounts owed to the related Security Insurer
in connection with the related Security Insurance Policy. Unless otherwise
specified in the related Prospectus Supplement, in order to avoid excessive
administrative expense, the Servicer will be permitted at its option to purchase
the remaining Contracts included in the Trust Property of a Trust on any
Distribution Date as of which the related Pool Balance (after giving effect to
the principal payments and distributions otherwise to be made on such
Distribution Date) has declined to the percentage of the Original Pool Balance
specified in the related Prospectus Supplement at the price specified in the
related Prospectus Supplement and, if applicable, all amounts due to the related
Security Insurer in connection with the related Security Insurance Policy. The
applicable Trustee or Indenture Trustee will give written notice of termination
to each Securityholder of record. The final payment or distribution to any
Securityholder will be made only upon surrender and cancellation of such
Securityholder's Security at an office or agency of the applicable Trustee or
Indenture Trustee specified in the notice of termination. Any funds remaining in
the applicable Trust, after the applicable Trustee or Indenture Trustee has
taken certain measures to locate a Securityholder and such measures have failed,
will be distributed to a charity designated by the Servicer.
THE TRUSTEE AND INDENTURE TRUSTEE
With respect to each Trust, the applicable Trustee or Indenture
Trustee will not make any representations as to the validity or sufficiency of
the related Transfer and Servicing Agreements, the related Indenture, if any,
the Securities, or any related Contracts or related documents, or the investment
of any monies by the Servicer before such monies are deposited in or credited to
the related Collection Account. At the applicable Closing Date, such Trustee or
Indenture Trustee will not have examined the Contracts. If no Event of Default
has occurred, such Trustee or Indenture Trustee will be required to perform only
those duties specifically required of it under the related Transfer and
Servicing Agreements or the related Indenture, if applicable. Generally, those
duties are limited to the receipt of the various certificates, reports or other
instruments required to be furnished to such Trustee or Indenture Trustee under
the related Transfer and Servicing Agreements or the related Indenture, if
applicable, the making of payments or distributions to Securityholders in the
amounts specified in certificates provided by the Servicer and, if applicable,
drawing on the related Security Insurance Policy if required to make payments or
distributions to Securityholders.
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Each Trustee and Indenture Trustee, and any of its affiliates, may
hold Securities in their own names. In addition, for the purpose of meeting the
legal requirements of certain local jurisdictions, each Trustee and Indenture
Trustee (in certain circumstances, acting jointly with the Servicer) shall have
the power to appoint co-trustees or separate trustees of all or any part of the
related Trust Property. In the event of such appointment, all rights, powers,
duties and obligations conferred or imposed upon such Trustee or Indenture
Trustee by the related Transfer and Servicing Agreement or Indenture, as
applicable, shall be conferred or imposed upon such Trustee or Indenture Trustee
and such separate trustee or co-trustee jointly, or, in any jurisdiction in
which such Trustee or Indenture 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 such Trustee or Indenture Trustee.
Unless otherwise specified in the related Prospectus Supplement, each
applicable Trustee and Indenture Trustee may resign at any time, in which event
a successor trustee will be appointed pursuant to the terms of the related
Transfer and Servicing Agreement or Indenture, as applicable. Each applicable
Trustee and Indenture Trustee may be removed if it ceases to be eligible to
continue as such under the related Transfer and Servicing Agreement or
Indenture, as applicable, or if such Trustee or Indenture Trustee becomes
insolvent. Any resignation or removal of such Trustee or Indenture Trustee and
appointment of a successor does not become effective until acceptance of the
appointment by the successor trustee.
Each applicable Trustee or Indenture Trustee shall be entitled to a
fee which, unless otherwise specified in the related Prospectus Supplement, will
be payable on an annual basis by the Servicer. Unless otherwise specified in the
related Prospectus Supplement, the related Transfer and Servicing Agreement or
Indenture, as applicable, will further provide that such Trustee or Indenture
Trustee will be entitled to indemnification by the Servicer for, and will be
held harmless against, any loss, liability, or expense incurred by such Trustee
or Indenture Trustee not resulting from such Trustee's or Indenture 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 related Transfer and Servicing Agreement or
Indenture, as applicable, 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 such Trustee or Indenture Trustee, the related Trust or the
related Contracts, in which case such Trustee or Indenture Trustee would be
entitled to be indemnified by the applicable Trust.
Onyx may maintain other banking relationships with each applicable
Trustee or Indenture Trustee in the ordinary course of business.
ADMINISTRATION AGREEMENT
With respect to a Trust that issues Notes, Onyx or another party
specified in the related Prospectus Supplement, in its capacity as administrator
(the "ADMINISTRATOR"), may enter into an agreement (as amended and supplemented
from time to time, an "ADMINISTRATION AGREEMENT") with such Trust and the
related Indenture Trustee pursuant to which the Administrator will agree, to the
extent provided in such Administration Agreement, to provide the notices and to
perform other administrative obligations required by the related Indenture.
Unless otherwise specified in the related Prospectus Supplement with respect to
any such Trust, as compensation for the performance of the Administrator's
obligations under the applicable Administration Agreement and as reimbursement
for its expenses related thereto, the Administrator will be entitled to a
monthly administration fee of such amount as may be set forth in the related
Prospectus Supplement (the "ADMINISTRATION FEE"), which fee will be paid by the
Servicer.
THE INDENTURE
The following summary describes certain terms of each Indenture
pursuant to which the Notes, if any, of a series will be issued. A form of
Indenture has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. This summary does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all the provisions of
each applicable Indenture and the related Prospectus Supplement.
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MODIFICATION OF INDENTURE
With respect to each Trust that has issued Notes pursuant to an
Indenture, unless otherwise provided in the related Prospectus Supplement, the
Trust and the Indenture Trustee may, with the consent of the holders of Notes of
the related series evidencing not less than 51% of the principal amount of such
Notes then outstanding, acting as a single class, and with the consent of the
related Security Insurer, if any, execute a supplemental indenture to add
provisions to, change in any manner or eliminate any provisions of, the related
Indenture, or modify (except as provided below) in any manner the rights of the
related Noteholders.
Unless otherwise specified in the related Prospectus Supplement with
respect to a series that includes Notes, without the consent of the holder of
each such outstanding Note affected thereby no supplemental indenture will: (i)
change the due date of any installment of principal of or interest on any such
Note or reduce the principal amount thereof, the interest rate specified thereon
or the redemption price with respect thereto or change any place of payment
where or the coin or currency in which any such Note or any interest thereon is
payable; (ii) impair the right to institute suit for the enforcement of certain
provisions of the related Indenture regarding payment; (iii) reduce the
percentage of the aggregate amount of the outstanding Notes of such series, the
consent of the holders of which is required for any such supplemental indenture
or the consent of the holders of which is required for any waiver of compliance
with certain provisions of the related Indenture or of certain defaults
thereunder and their consequences as provided for in such Indenture; (iv) modify
or alter the provisions of the related Indenture regarding the voting of Notes
held by the applicable Trust, any other obligor on such Notes, the Seller or an
affiliate of any of them; (v) reduce the percentage of the aggregate outstanding
amount of such Notes, the consent of the holders of which is required to direct
the related Indenture Trustee to sell or liquidate the Contracts if the proceeds
of such sale would be insufficient to pay the principal amount and accrued but
unpaid interest on the outstanding Notes of such series; (vi) decrease the
percentage of the aggregate principal amount of such Notes required to amend the
sections of the related Indenture which specify the applicable percentage of
aggregate principal amount of the Notes of such series necessary to amend such
Indenture or certain other related agreements; or (vii) permit the creation of
any lien ranking prior to or on a parity with the lien of the related Indenture
with respect to any of the collateral for such Notes or, except as otherwise
permitted or contemplated in such Indenture, terminate the lien of such
Indenture on any such collateral or deprive the holder of any such Note of the
security afforded by the lien of such Indenture.
Unless otherwise provided in the applicable Prospectus Supplement
with respect to a series that includes Notes, the related Trust and the
applicable Indenture Trustee may also enter into supplemental indentures,
without obtaining the consent of the Noteholders of the related series, but with
the consent of the related Security Insurer, if any, for the purpose of, among
other things, adding any provisions to or changing in any manner or eliminating
any of the provisions of the related Indenture or of modifying in any manner the
rights of such Noteholders; provided that such action will not materially and
adversely affect the interest of any such Noteholder.
INDENTURE EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
With respect to the Notes of a given series, unless otherwise
specified in the related Prospectus Supplement, "INDENTURE EVENTS OF DEFAULT"
under the related Indenture will consist of: (i) a default for five days or more
in the payment of any interest on any such Note; (ii) a default in the payment
of the principal of or any installment of the principal of any such Note when
the same becomes due and payable; (iii) a default in the observance or
performance of any covenant or agreement of the applicable Trust made in the
related Indenture and the continuation of any such default for a period of 90
days after notice thereof is given to such Trust by the applicable Indenture
Trustee or if applicable, the related Security Insurer, or to such Trust and
such Indenture Trustee by the holders of at least 25% in principal amount of
such Notes then outstanding acting together as a single class; (iv) any
representation or warranty made by such Trust in the related Indenture or in any
certificate delivered pursuant thereto or in connection therewith having been
incorrect in a material respect as of the time made, and such breach not having
been cured within 30 days after notice thereof is given to such Trust by the
applicable Indenture Trustee or, if applicable, the related Security Insurer, or
to such Trust and such Indenture Trustee by the holders of at least 25% in
principal amount of such Notes then outstanding acting together as a single
class; or (v) certain events of bankruptcy, insolvency, receivership or
liquidation of the applicable Trust. Unless otherwise specified in the related
Prospectus Supplement, the failure to pay principal on a class of Notes
generally will not result in the occurrence of an Indenture Event of Default
until the final scheduled Distribution Date for such class of Notes.
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With respect to each series that includes Notes, the rights and
remedies of the related Indenture Trustee, the related holders of such Notes,
and the related Security Insurer, if any, will be described in the related
Prospectus Supplement.
CERTAIN COVENANTS
Unless otherwise specified in a Prospectus Supplement with respect to
a series that includes Notes, each Indenture will provide that the related Trust
may not consolidate with or merge into any other entity, unless (i) the entity
formed by or surviving such consolidation or merger is organized under the laws
of the United States, any state or the District of Columbia, (ii) such entity
expressly assumes such Trust's obligation to make due and punctual payments upon
the Notes of the related series and the performance or observance of every
agreement and covenant of such Trust under the Indenture, (iii) no Indenture
Event of Default shall have occurred and be continuing immediately after such
merger or consolidation, (iv) such Trust has been advised that the rating of the
Securities of such series then in effect would not be reduced or withdrawn by
any Rating Agency as a result of such merger or consolidation and (v) such Trust
has received an opinion of counsel to the effect that such consolidation or
merger would have no material adverse tax consequence to the Trust or to any
holder of the Securities of such series.
Each Trust that has issued Notes will not, among other things, (i)
except as expressly permitted by the applicable Indenture, the applicable
Transfer and Servicing Agreements or certain related documents with respect to
such Trust (collectively, the "RELATED DOCUMENTS"), sell, transfer, exchange or
otherwise dispose of any of the assets of such Trust, (ii) claim any credit on
or make any deduction from the principal and interest payable in respect of the
Notes of the related series (other than amounts withheld under the Code or
applicable state law) or assert any claim against any present or former holder
of such Notes because of the payment of taxes levied or assessed upon such
Trust, (iii) dissolve or liquidate in whole or in part, (iv) permit the validity
or effectiveness of the related Indenture to be impaired or permit any person to
be released from any covenants or obligations with respect to such Notes under
such Indenture except as may be expressly permitted thereby or (v) permit any
lien, charge, excise, claim, security interest, mortgage or other encumbrance to
be created on or extend to or otherwise arise upon or burden the assets of such
Trust or any part thereof, or any interest therein or the proceeds thereof.
No Trust that has issued Notes will incur, assume or guarantee any
indebtedness other than indebtedness incurred pursuant to the related Notes and
the related Indenture, or otherwise in accordance with the Related Documents.
ANNUAL COMPLIANCE STATEMENT
Each Trust that has issued Notes will be required to file annually
with the related Indenture Trustee a written statement as to the fulfillment of
its obligations under the Indenture.
INDENTURE TRUSTEE'S ANNUAL REPORT
The Indenture Trustee for each Trust that has issued Notes will be
required to mail each year to all related Noteholders a brief report relating to
its eligibility and qualification to continue as Indenture Trustee under the
related Indenture, any amounts advanced by it under the Indenture, the amount,
interest rate and maturity date of certain indebtedness owing by such Trust to
the applicable Indenture Trustee in its individual capacity, the property and
funds physically held by such Indenture Trustee as such and any action taken by
it that materially affects the related Notes and that has not been previously
reported.
SATISFACTION AND DISCHARGE OF INDENTURE
An Indenture will be discharged with respect to the collateral
securing the related Notes upon the delivery to the related Indenture Trustee
for cancellation of all such Notes or, with certain limitations, upon deposit
with such Indenture Trustee of funds sufficient for the payment in full of all
such Notes.
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THE INDENTURE TRUSTEE
Certain matters relating to the Indenture Trustee for each series
that includes Notes are described under "Description of the Transfer and
Servicing Agreements--The Trustee and Indenture Trustee".
CERTAIN LEGAL ASPECTS OF THE CONTRACTS
GENERAL
The transfer of Contracts by Onyx and any Selling Subsidiary to the
Seller, and by the Seller to the applicable Trust, and, if applicable, the
pledge thereof to an Indenture Trustee, the perfection of the security interests
in the Contracts and the enforcement of rights to realize on the related
Financed Vehicles as collateral for the Contracts are subject to a number of
federal and state laws, including the Uniform Commercial Code (the "UCC") as in
effect in various states. The Servicer and the Seller will take the action
described below to perfect the rights of the applicable Trustee and, if
applicable, the Indenture Trustee in the Contracts. If, through inadvertence or
otherwise, another party purchases (including the taking of a security interest
in) a Contract for new value in the ordinary course of its business, without
actual knowledge of the Trust's interest therein and, if applicable, the
Indenture Trustee's interest therein, and takes possession of such Contract,
such purchaser would acquire an interest in the Contracts superior to the
interest of the Trust and, if applicable, the interest of such Indenture
Trustee.
Unless otherwise specified in the related Prospectus Supplement,
under each Sale and Servicing Agreement, Pooling and Servicing Agreement or
Indenture, as applicable, the applicable Trustee or Indenture Trustee initially
will have custody of the Contracts included in the Trust Property of a Trust
following the sale of the Contracts to the related Trust and, if applicable, the
pledge thereof to the related Indenture Trustee, and will hold the Contracts as
bailee for the benefit of such Trust or as secured party. The Servicer may be
appointed by the applicable Trustee or Indenture Trustee to act as the custodian
of the Contracts. Upon such appointment physical possession of the Contracts
would shift from such Trustee or Indenture Trustee to the Servicer. While the
Contracts will not be physically marked to indicate the ownership interest
thereof by the Trust, appropriate UCC-1 financing statements will be filed to
perfect by filing and give notice of the Trust's ownership interest in, and, if
applicable, the Indenture Trustee's security interest in, the Contracts. If,
through inadvertence or otherwise, any of the Contracts were sold to another
party who purchased such Contracts in the ordinary course of its business and
took possession of such Contracts, the purchaser would acquire an interest in
the Contracts superior to the interests of the Trust if the purchaser acquired
the Contracts in good faith, for value and without actual knowledge of the
Trust's ownership interest in the Contracts.
SECURITY INTERESTS IN THE FINANCED VEHICLES
General. Retail installment sale contracts such as the Contracts
evidence the credit sale of automobiles and/or light duty trucks by dealers to
consumers. The contracts also constitute personal property security agreements
and include grants of security interests in the vehicles under the applicable
UCC. In most states, a security interest in automobiles and/or light duty trucks
is perfected by obtaining the certificate of title to the Financed Vehicle or
notation of the secured party's lien on the vehicles' certificate of title. The
Seller will warrant to the related Trust in the Sale and Servicing Agreement or
Pooling and Servicing Agreement, as applicable, that Onyx or a subsidiary of
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 such Trust. If Onyx fails, because
of clerical errors or otherwise, to effect or maintain the notation of such
security interest on the certificate of title relating to a Financed Vehicle,
such Trust may not have a first priority security interest in such Financed
Vehicle.
Perfection. The Seller will sell the Contracts and assign the
security interest in each Financed Vehicle to the related Trust. However,
because of the administrative burden and expense, such Trust will not amend the
certificates of title to identify such Trust as the new secured party.
Accordingly, Onyx or a subsidiary of 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 and most other states, the assignment of the
Contracts is an effective conveyance of the security interests in the Financed
Vehicles without amendment of the lien noted on the related certificate of title
and the new secured party succeeds to the assignor's rights as the secured
party. However, there exists a risk in not identifying the related Trust as the
new
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secured party on the certificate of title that, through fraud or negligence,
the security interest of such 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
or a subsidiary of Onyx will be sufficient to protect the related 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 or a subsidiary of Onyx has failed to perfect the
security interest assigned to the related 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 of 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 or a subsidiary of Onyx,
absent clerical errors or fraud, would receive notice of surrender of the
certificate of title if its lien is noted thereon. Each subsidiary of Onyx named
as the secured party on a certificate of title will agree to promptly forward to
Onyx any such notice received by such subsidiary. 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, re-registration could defeat perfection. In the
ordinary course of servicing its portfolio of motor vehicle installment sales
contracts, Onyx takes steps to effect such re-perfection upon receipt of notice
of registration or information from the obligor as to relocation. Similarly,
when an obligor under a Contract sells a Financed Vehicle, the Servicer must
provide the owner with the certificate of title, or the Servicer will receive
notice as a result of its lien or its subsidiary's lien noted thereon and
accordingly will have an opportunity to require satisfaction of the related
Contract before release of the lien. Under the Sale and Servicing Agreement or
Pooling and Servicing Agreement, as applicable, Onyx, at its cost, will be
obligated to maintain the continuous perfection of the security interest of Onyx
or its subsidiary in the Financed Vehicle.
Under the laws of most states (including California), certain
statutory liens such as liens for unpaid taxes, liens for towing and storage of
and repairs performed on a motor vehicle, motor vehicle accident liens, and
liens arising under various state and federal criminal statutes take priority
even 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 laws of most states and federal law permit the confiscation
of motor vehicles by governmental authorities under certain circumstances if
used in or acquired with the proceeds of unlawful activities, which may result
in the loss of a secured party's perfected security interest in a confiscated
vehicle. The Seller will represent in each Sale and Servicing Agreement or
Pooling and Servicing Agreement, as applicable, that, as of the initial issuance
of the Securities of the related series, no such state or federal liens exist
with respect to any Financed Vehicle securing payment on any related Contract.
However, such liens could arise, or such a confiscation could occur, at any time
during the term of a Contract. No notice will be given to the Servicer in the
event such a lien arises or such a confiscation occurs, and any such lien
arising or confiscation occurring after the related Closing Date would not give
rise to the Seller's repurchase obligations under the related Sale and Servicing
Agreement or Pooling and Servicing Agreement, as applicable.
REPOSSESSION
In the event of default by an obligor, the holder of the related
retail installment sale contract has all the remedies of a secured party under
the UCC, except where specifically limited by other state laws. Among the UCC
remedies, the secured party has the right to perform repossession by self-help
means, unless such means would constitute a breach of the peace or is otherwise
limited by applicable state law. Unless a financed vehicle is voluntarily
surrendered, self-help repossession is accomplished simply by retaking
possession of the financed vehicle. In cases where the obligor objects or raises
a defense to repossession, or if otherwise required by applicable state law, a
court order must be obtained from the appropriate state court, and the financed
vehicle must then be recovered in accordance with that order. In some
jurisdictions, the secured party is required to notify the obligor of the
default and the intent to repossess the
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collateral and to give the obligor a time period within which to cure the
default prior to repossession. Generally, this right of cure may only be
exercised on a limited number of occasions during the term of the related
contract. Other jurisdictions permit repossession without prior notice if it can
be accomplished without a breach of the peace (although in some states, a course
of conduct in which the creditor has accepted late payments has been held to
create a right by the obligor to receive prior notice). In most states, under
certain circumstances after the financed vehicle has been repossessed, the
obligor may reinstate the related contract by paying the delinquent installments
and other amounts due.
NOTICE OF SALE; REDEMPTION RIGHTS
The UCC and other state laws require the secured party to provide the
obligor with reasonable notice of the date, time and place of any public sale
and/or the date after which any private sale of the collateral may be held. In
addition, some states also impose substantive timing requirements on the sale of
repossessed vehicles in certain circumstances and/or various substantive timing
and content requirements on such notices. In some states, under certain
circumstances after a financed vehicle has been repossessed, the obligor may
redeem the collateral by paying the delinquent installments and other amounts
due. The obligor has the right to redeem the collateral prior to actual sale or
entry by the secured party into a contract for sale of the collateral by paying
the secured party the unpaid principal balance of the obligation, accrued
interest thereon, reasonable expenses for repossessing, holding, and preparing
the collateral for disposition and arranging for its sale, plus, in some
jurisdictions, reasonable attorneys' fees and legal expenses or in some other
states, by payment of delinquent installments on the unpaid principal balance of
the related obligation.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of the vehicles generally will be applied
first to the expenses of resale and repossession and then to the satisfaction of
the indebtedness. While some states impose prohibitions or limitations on
deficiency judgments if the net proceeds from resale do not cover the full
amount of the indebtedness, a deficiency judgment can be sought in those states
that do not prohibit or limit such judgments. In addition to the notice
requirement, the UCC requires that every aspect of the sale or other
disposition, including the method, manner, time, place and terms, be
"commercially reasonable". Generally, courts have held that when a sale is not
"commercially reasonable", the secured party loses its right to a deficiency
judgment.
In addition, the UCC permits the debtor or other interested party to
recover for any loss caused by noncompliance with the provisions of the UCC.
Also, prior to a sale, the UCC permits the debtor or other interested person to
prohibit the secured party from disposing of the collateral if it is established
that the secured party is not proceeding in accordance with the "default"
provisions under the UCC. Any deficiency judgment would be a personal judgment
against the obligor for the shortfall, and a defaulting obligor can be expected
to have very little capital or sources of income available following
repossession. Therefore, in many cases, it may not be useful to seek a
deficiency judgment or, if one is obtained, it may be settled at a significant
discount or be uncollectible.
Occasionally, after resale of a repossessed vehicle and payment of
all expenses and indebtedness, there is a surplus of funds. In that case, the
UCC requires the creditor to remit the surplus to any holder of a subordinate
lien with respect to such vehicle or if no such lienholder exists, the UCC
requires the creditor to remit the surplus to the obligor.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related
regulations impose substantial requirements upon lenders and servicers involved
in consumer finance. These laws include the Truth-in-Lending Act, the Equal
Credit Opportunity Act, the Federal Trade Commission Act, the Fair Credit
Billing Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices
Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B
and Z, the Soldiers' and Sailors' Civil Relief Act of 1940, state adoptions of
the National Consumer Act and of the Uniform Consumer Credit Code, state motor
vehicle retail installment sales acts, state "lemon" laws and other similar
laws. Also, state laws impose finance charge ceilings and other restrictions on
consumer transactions and require contract disclosures in addition to those
required under federal law. These requirements impose specific statutory
liabilities upon creditors who fail to comply with their provisions. In some
cases, this liability could affect an assignee's ability to enforce consumer
finance contracts such as the Contracts.
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The so-called "Holder-in-Due-Course" Rule of the Federal Trade
Commission (the "FTC RULE"), the provisions of which are generally duplicated by
the Uniform Consumer Credit Code, other statutes or the common law, has the
effect of subjecting any assignee of the seller in a consumer credit transaction
(and certain related creditors and their assignees) to all claims and defenses
which the obligor in the transaction could assert against the seller. Liability
under the FTC Rule is limited to the amounts paid by the obligor under the
contract, and the holder of the contract may also be unable to collect any
balance remaining due thereunder from the obligor. The FTC Rule is generally
duplicated by the Uniform Consumer Credit Code, other state statutes or the
common law in certain states.
Most of the Contracts will be subject to the requirements of the FTC
Rule. Accordingly, each Trust, as holder of the related Contracts, will be
subject to any claims or defenses that the purchaser of the applicable Financed
Vehicle may assert against the seller of the Financed Vehicle. As to each
obligor, such claims are limited to a maximum liability equal to the amounts
paid by the obligor on the related Contract. The Seller will represent in each
Sale and Servicing Agreement or Pooling and Servicing Agreement, as applicable,
that each of the Contracts, and the sale of the related Financed Vehicle
thereunder, complied with all material requirements of such laws and the
regulations issued pursuant thereto.
Any shortfalls or losses arising in connection with the matters
described in the two preceding paragraphs, to the extent not covered by amounts
payable to the Securityholders from amounts available under a credit enhancement
mechanism, could result in losses to the Securityholders.
Courts have applied general equitable principles to secured parties
pursuing repossession and litigation involving deficiency balances. These
equitable principles may have the effect of relieving an obligor from some or
all of the legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies
of secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. Courts have generally upheld the notice provisions of the UCC and
related laws as reasonable or have found that the repossession and resale by the
creditor do not involve sufficient state action to afford constitutional
protection to borrowers.
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a secured party
to realize upon collateral or to enforce a deficiency judgment. For example, in
a Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
creditor from repossessing a vehicle, and, as part of the rehabilitation plan,
reduce the amount of the secured indebtedness to the market value of the vehicle
at the time of bankruptcy (as determined by the court), leaving the creditor as
a general unsecured creditor for the remainder of the indebtedness. A bankruptcy
court may also reduce the monthly payments due under a contract or change the
rate of interest and time of repayment of the indebtedness.
Under the terms of the Soldiers' and Sailors' Relief Act of 1940, an
obligor who enters the military service after the origination of such obligor's
Contract (including an obligor who is a member of the National Guard or is in
reserve status at the time of the origination of the obligor's Contract and is
later called to active duty) may not be charged interest above an annual rate of
6% during the period of such obligor's active duty status, unless a court orders
otherwise upon application of the lender. In addition, pursuant to the Military
Reservist Relief Act, under certain circumstances, California residents called
into active duty with the reserves can delay payments on retail installment
sales contracts, including the Contracts, for a period, not to exceed 180 days,
beginning with the order to active duty and ending 30 days after release. It is
possible that the foregoing could have an effect on the ability of the Servicer
to collect the full amount of interest owing on certain of the Contracts. In
addition, the Relief Acts impose limitations that would impair the ability of
the Servicer to repossess an affected Contract during the obligor's period of
active duty status. Thus, in the event that such a Contract goes into default,
there may be delays and losses occasioned by the inability to exercise the
Trust's rights with respect to the related Financed Vehicle in a timely fashion.
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Any shortfalls or losses arising in connection with the matters
described in the two preceding paragraphs, to the extent not covered by amounts
payable to the Securityholders from amounts available under a credit enhancement
mechanism, could result in losses to the Securityholders.
REPURCHASE OBLIGATION
Under each Sale and Servicing Agreement or Pooling and Servicing
Agreement, the Seller will make representations and warranties relating to
validity, subsistence, perfection and priority of the security interest in each
related Financed Vehicle as of the related Closing Date. See "Description of the
Transfer and Servicing Agreements-- 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 related Trust's interest in the related Contract, such defect would
constitute a breach of a warranty under the Sale and Servicing Agreement or
Pooling and Servicing Agreement, as applicable, and would create an obligation
of the Seller to repurchase such Contract unless the breach is cured.
Additionally, in Sale and Servicing Agreement or Pooling and Servicing
Agreement, as applicable, 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 related Trust unless the breach is cured.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of the Notes
and the Certificates of any series, to the extent it relates to matters of law
or legal conclusions with respect thereto, represents the opinion of tax counsel
to each Trust with respect to the related series on the material matters
associated with such consequences, subject to the qualifications set forth
herein. "Tax Counsel" with respect to each Trust will be Andrews & Kurth L.L.P.
The summary does not purport to deal with federal income tax consequences
applicable to all categories of investors, some of which may be subject to
special rules. For example, it does not discuss the tax treatment of Noteholders
or Certificateholders that are insurance companies, regulated investment
companies or dealers in securities. Moreover, there are no cases or Internal
Revenue Service ("IRS") rulings on similar transactions involving both debt and
equity interests issued by a trust with terms similar to those of the Notes and
the Certificates. As a result, the IRS may disagree with all or a part of the
discussion below. Prospective investors are urged to consult their own tax
advisors in determining the federal, state, local, foreign and any other tax
consequences to them of the purchase, ownership and disposition of the Notes and
the Certificates.
The following summary is based upon current provisions of the
Internal Revenue Code of 1986, as amended (the "CODE"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. Each Trust will be provided
with an opinion of Tax Counsel regarding certain federal income tax matters
discussed below. An opinion of Tax Counsel, however, is not binding on the IRS
or the courts. No ruling on any of the issues discussed below will be sought
from the IRS. For purposes of the following summary, references to the Trust,
the Notes, the Certificates and related terms, parties and documents shall be
deemed to refer, unless otherwise specified herein, to each Trust and the Notes,
Certificates and related terms, parties and documents applicable to such Trust.
The federal income tax consequences to Certificateholders will vary depending on
whether an election is made to treat the Trust as a partnership under the Code
or whether the Trust will be treated as a grantor trust. The Prospectus
Supplement for each series of Certificates will specify whether a partnership
election will be made or the Trust will be treated as a grantor trust.
TRUSTS FOR WHICH A PARTNERSHIP ELECTION IS MADE
TAX CHARACTERIZATION OF THE TRUST AS A PARTNERSHIP
The following general discussion of the anticipated federal income
tax consequences of the purchase, ownership and disposition of the Notes and the
Certificates of a Trust for which a partnership election will be made, to the
extent it relates to matters of law or legal conclusions with respect thereto,
represents the opinion of Tax Counsel to each Trust with respect to the related
series on the material matters associated with such consequences, subject to the
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qualifications set forth herein. In addition, Tax Counsel has prepared or
reviewed the statements in the Prospectus under the heading "Certain Federal
Income Tax Consequences--Trusts for Which a Partnership Election is Made", and
is of the opinion that such statements are correct in all material respects.
Such statements are intended as an explanatory discussion of the related tax
matters affecting investors generally, but do not purport to furnish information
in the level of detail or with the attention to an investor's specific tax
circumstances that would be provided by an investor's own tax advisor.
Accordingly, each investor is advised to consult its own tax advisors with
regard to the tax consequences to it of investing in Notes or Certificates.
Tax Counsel will deliver its opinion that a Trust for which a
partnership election is made will not be an association (or publicly traded
partnership) taxable as a corporation for federal income tax purposes. This
opinion will be based on the assumption that the terms of the Trust Agreement
and related documents will be complied with, and on counsel's conclusions that
the nature of the income of the Trust will exempt it from the rule that certain
publicly traded partnerships are taxable as corporations.
If the Trust were taxable as a corporation for federal income tax
purposes, the Trust would be subject to corporate income tax on its taxable
income. The Trust's taxable income would include all its income on the
Contracts, possibly reduced by its interest expense on the Notes. Any such
corporate income tax could materially reduce cash available to make payments on
the Notes and distributions on the Certificates, and Certificateholders could be
liable for any such tax that is unpaid by the Trust.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
Treatment of the Notes as Indebtedness. The Seller will agree, and
the Noteholders will agree by their purchase of Notes, to treat the Notes as
debt for federal income tax purposes. Tax Counsel will, except as otherwise
provided in the related Prospectus Supplement, advise the Trust that the Notes
will be classified as debt for federal income tax purposes. The discussion below
assumes this characterization of the Notes is correct.
OID, Indexed Securities, etc. The discussion below assumes that all
payments on the Notes are denominated in U.S. dollars, and that the Notes are
not Strip Notes. Moreover, the discussion assumes that the interest formula for
the Notes meets the requirements for "qualified stated interest" under Treasury
regulations (the "OID REGULATIONS") relating to original issue discount ("OID"),
and that any OID on the Notes (i.e., any excess of the principal amount of the
Notes over their issue price) does not exceed a de minimis amount (i.e., 1/4% of
their principal amount multiplied by the number of full years included in their
term), all within the meaning of the OID regulations. If these conditions are
not satisfied with respect to any given series of Notes, additional tax
considerations with respect to such Notes will be disclosed in the applicable
Prospectus Supplement.
Interest Income on the Notes. Based on the above assumptions, except
as discussed in the following paragraph, the Notes will not be considered issued
with OID. The stated interest thereon will be taxable to a Noteholder as
ordinary interest income when received or accrued in accordance with such
Noteholder's method of tax accounting. Under the OID regulations, a holder of a
Note issued with a de minimis amount of OID must include such OID in income, on
a pro rata basis, as principal payments are made on the Note. A purchaser who
buys a Note for more or less than its principal amount will generally be
subject, respectively, to the premium amortization or market discount rules of
the Code.
A holder of a Note that has a fixed maturity date of not more than
one year from the issue date of such Note (a "SHORT-TERM NOTE") may be subject
to special rules. An accrual basis holder of a Short-Term Note (and certain cash
method holders, including regulated investment companies, as set forth in
Section 1281 of the Code) generally would be required to report interest income
as interest accrues on a straight-line basis over the term of each interest
period. Other cash basis holders of a Short-Term Note would, in general, be
required to report interest income as interest is paid (or, if earlier, upon the
taxable disposition of the Short-Term Note). However, a cash basis holder of a
Short-Term Note reporting interest income as it is paid may be required to defer
a portion of any interest expense otherwise deductible on indebtedness incurred
to purchase or carry the Short-Term Note until the taxable disposition of the
Short-Term Note. A cash basis taxpayer may elect under Section 1281 of the Code
to accrue interest income on all nongovernment debt obligations with a term of
one year or less, in which case the taxpayer would include interest on the
Short-Term Note
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in income as it accrues, but would not be subject to the interest expense
deferral rule referred to in the preceding sentence. Certain special rules apply
if a Short-Term Note is purchased for more or less than its principal amount.
Sale or Other Disposition. If a Noteholder sells a Note, the holder
will recognize gain or loss in an amount equal to the difference between the
amount realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the holder's
cost for the Note, increased by any market discount, acquisition discount, OID
and gain previously included by such Noteholder in income with respect to the
Note and decreased by the amount of bond premium, if any, previously amortized
and by the amount of principal payments previously received by such Noteholder
with respect to such Note. Any such gain or loss will be capital gain or loss if
the Note was held as a capital asset, except for gain representing accrued
interest and accrued market discount not previously included in income. Capital
losses generally may be used only to offset capital gains.
Foreign Holders. Interest payments made (or accrued) to a Noteholder
who is a nonresident alien, foreign corporation or other non-United States
person (a "FOREIGN PERSON") generally will be considered "portfolio interest",
and generally will not be subject to United States federal income tax and
withholding tax, if the interest is not effectively connected with the conduct
of a trade or business within the United States by the foreign person and the
foreign person (i) is not actually or constructively a "10 percent shareholder"
of the Trust or the Seller (including a holder of 10% of the outstanding
Certificates) or a "controlled foreign corporation" with respect to which the
Trust or the Seller is a "related person" within the meaning of the Code and
(ii) provides the Owner Trustee or other person who is otherwise required to
withhold U.S. tax with respect to the Notes with an appropriate statement (on
Form W-8 or a similar form), signed under penalties of perjury, certifying that
the beneficial owner of the Note is a foreign person and providing the foreign
person's name and address. If a Note is held through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide the relevant signed statement to the withholding agent;
in that case, however, the signed statement must be accompanied by a Form W-8 or
substitute form provided by the foreign person that owns the Note. If such
interest is not portfolio interest, then it will be subject to United States
federal income and withholding tax at a rate of 30 percent, unless reduced or
eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or
other taxable disposition of a Note by a foreign person will be exempt from
United States federal income and withholding tax, provided that (i) such gain is
not effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
Final regulations dealing with withholding tax on income paid to
foreign persons and related matters (the "NEW WITHHOLDING REGULATIONS") were
issued by the Treasury Department on October 6, 1997. The New Withholding
Regulations will generally be effective for payments made after December 31,
1999, subject to certain transition rules. Prospective investors who are foreign
persons are strongly urged to consult their own tax advisors with respect to the
New Withholding Regulations.
Backup Withholding. Each holder of a Note (other than an exempt
holder such as a corporation, tax-exempt organization, qualified pension and
profit-sharing trust, individual retirement account or nonresident alien who
provides certification as to status as a nonresident) will be required to
provide, under penalties of perjury, a certificate containing the holder's name,
address, correct federal taxpayer identification number and a statement that the
holder is not subject to backup withholding. Should a nonexempt Noteholder fail
to provide the required certification, the Trust will be required to withhold 31
percent of the amount otherwise payable to the holder, and remit the withheld
amount to the IRS as a credit against the holder's federal income tax liability.
Possible Alternative Treatments of the Notes. If, contrary to the
opinion of Tax Counsel, the IRS successfully asserted that one or more of the
Notes did not represent debt for federal income tax purposes, the Notes might be
treated as equity interests in the Trust. If so treated, the Trust might be
taxable as a corporation with the adverse consequences described above (and the
taxable corporation would not be able to reduce its taxable income by deductions
for interest expense on Notes recharacterized as equity). Alternatively, and
more likely in the view of Tax Counsel, the Trust might be treated as a publicly
traded partnership that would not be taxable as a corporation because it would
meet certain qualifying income tests. Nonetheless, treatment of the Notes as
equity interests in such a publicly traded partnership could have adverse tax
consequences to certain holders. For example, income to certain tax-exempt
entities (including
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pension funds) would be "unrelated business taxable income", income to foreign
holders generally would be subject to U.S. tax and U.S. tax return filing and
withholding requirements, and individual holders might be subject to certain
limitations on their ability to deduct their share of Trust expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
Treatment of the Trust as a Partnership. The Seller and the Servicer
will agree, and the Certificateholders will agree by their purchase of
Certificates, to treat the Trust as a partnership for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income, with the assets of the partnership being the assets held by the
Trust, the partners of the partnership being the Certificateholders (including
the Seller in its capacity as recipient of distributions from the reserve fund,
if any), and the Notes being debt of the partnership. However, the proper
characterization of the arrangement involving the Trust, the Certificates, the
Notes, the Seller and the Servicer is not clear because there is no authority on
transactions closely comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Seller or the Trust. Any such
characterization would not result in materially adverse tax consequences to
Certificateholders as compared to the consequences from treatment of the
Certificates as equity in a partnership, described below. The following
discussion assumes that the Certificates represent equity interests in a
partnership.
Partnership Taxation. As a partnership, the Trust will not be subject
to federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. The Trust's income will consist
primarily of interest and finance charges earned on the Contracts (including
appropriate adjustments for market discount, OID and bond premium) and any gain
upon collection or disposition of Contracts. The Trust's deductions will consist
primarily of interest accruing with respect to the Notes, servicing and other
fees, and losses or deductions upon collection or disposition of Contracts.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the Trust Agreement and related documents). The Trust Agreement will
provide, in general, that the Certificateholders will be allocated taxable
income of the Trust for each month equal to the sum of (i) the interest that
accrues on the Certificates in accordance with their terms for such month,
including interest accruing at the Certificate Rate for such month and interest
on amounts previously due on the Certificates but not yet distributed; (ii) any
Trust income attributable to discount on the Contracts that corresponds to any
excess of the principal amount of the Certificates over their initial issue
price; (iii) prepayment premium payable to the Certificateholders for such
month; and (iv) any other amounts of income payable to the Certificateholders
for such month. Such allocation will be reduced by any amortization by the Trust
of premium on Contracts that corresponds to any excess of the issue price of
Certificates over their principal amount. All remaining taxable income of the
Trust will be allocated to the Seller. Based on the economic arrangement of the
parties, this approach for allocating Trust income should be permissible under
applicable Treasury regulations, although no assurance can be given that the IRS
would not require a greater amount of income to be allocated to
Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be allocated income equal to the entire Certificate Rate
plus the other items described above even though the Trust might not have
sufficient cash to make current cash distributions of such amount. Thus, cash
basis holders will in effect be required to report income from the Certificates
on the accrual basis and Certificateholders may become liable for taxes on Trust
income even if they have not received cash from the Trust to pay such taxes. In
addition, because tax allocations and tax reporting will be done on a uniform
basis for all Certificateholders but Certificateholders may be purchasing
Certificates at different times and at different prices, Certificateholders may
be required to report on their tax returns taxable income that is greater or
less than the amount reported to them by the Trust.
All of the taxable income allocated to a Certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will constitute "unrelated business
taxable income" generally taxable to such a holder under the Code.
An individual taxpayer's share of expenses of the Trust (including
fees to the Servicer but not interest expense) would be miscellaneous itemized
deductions and thus allowable as a deduction only to the extent that in the
aggregate
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all such expenses exceed two percent of such individual tax payer's adjusted
gross income. Furthermore, certain otherwise allowable itemized deductions will
be reduced, but not by more than 80%, by an amount equal to 3% of the
individual's adjusted gross income in excess of a statutorily defined threshold.
Therefore, such deductions might be disallowed to the individual in whole or in
part and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life of
the Trust.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Contact, the Trust
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on Certificateholders.
Discount and Premium. It is believed that the Contracts were not
issued with OID, and, therefore, the Trust should not have OID income. However,
the purchase price paid by the Trust for the Contracts may be greater or less
than the remaining principal balance of the Contracts at the time of purchase.
If so, the Contracts will have been acquired at a premium or discount, as the
case may be. (As indicated above, the Trust will make this calculation on an
aggregate basis, but might be required to recompute it on a Contract-by-Contract
basis.)
If the Trust acquires the Contracts at a market discount or premium,
the Trust will elect to include any such discount in income currently as it
accrues over the life of the Contracts or to offset any such premium against
interest income on the Contracts. As indicated above, a portion of such market
discount income or premium deduction may be allocated to Certificateholders.
Section 708 Termination. Under Section 708 of the Code, the Trust
will be deemed to terminate for federal income tax purposes if 50% or more of
the capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the Trust will be considered to
contribute its assets to a new partnership and, immediately thereafter, the
terminated partnership distributes interests in the new partnership to the
partners in liquidation of the terminated partnership. The Trust will not comply
with certain technical requirements that might apply when such a constructive
termination occurs. As a result, the Trust may be subject to certain tax
penalties and may incur additional expenses if it is required to comply with
those requirements. Furthermore, the Trust might not be able to comply due to
lack of data.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust income (includible in
income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
realized on a sale of a Certificate would include the holder's share of the
Notes and other liabilities of the Trust. A holder acquiring Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's
share of unrecognized accrued market discount on the Contracts would generally
be treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Trust does not expect to have any other assets that
would give rise to such special reporting requirements. Thus, to avoid those
special reporting requirements, the Trust will elect to include market discount
in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount
of income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the
Trust's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the Certificateholders
in proportion to the principal amount of Certificates owned by them as of the
close of the last day of such month. As
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a result, a holder purchasing Certificates may be allocated tax items (which
will affect its tax liability and tax basis) attributable to periods before the
actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificateholders. The Seller is
authorized to revise the Trust's method of allocation between transferors and
transferees to conform to a method permitted by future regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder had.
The tax basis of the Trust's assets will not be adjusted to reflect that higher
(or lower) basis unless the Trust were to file an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As a
result, Certificateholders might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
Administrative Matters. The Owner Trustee is required to keep or have
kept complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust will be set forth in the related Prospectus Supplement. The Trustee
will file a partnership information return (IRS Form 1065) with the IRS for each
taxable year of the Trust and will report each Certificateholder's allocable
share of items of Trust income and expense to holders and the IRS on Schedule
K-1. The Trust will provide the Schedule K-1 information to nominees that fail
to provide the Trust with the information statement described below and such
nominees will be required to forward such information to the beneficial owners
of the Certificates. Generally, holders must file tax returns that are
consistent with the information return filed by the Trust or be subject to
penalties unless the holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as
a nominee at any time during a calendar year is required to furnish the Trust
with a statement containing certain information on the nominee, the beneficial
owners and the Certificates so held. Such information includes (i) the name,
address and taxpayer identification number of the nominee and (ii) as to each
beneficial owner (x) the name, address and identification number of such person,
(y) whether such person is a United States person, a tax-exempt entity or a
foreign government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust information as
to themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the Trust. The information referred to above for any
calendar year must be furnished to the Trust on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the Trust
with the information described above may be subject to penalties.
The Seller will be designated as the tax matters partner in the
related Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Trust by the appropriate taxing authorities could
result in an adjustment of the returns of the Certificateholders, and, under
certain circumstances, a Certificateholder may be precluded from separately
litigating a proposed adjustment to the items of the Trust. An adjustment could
also result in an audit of a Certificateholder's returns and adjustments of
items not related to the income and losses of the Trust.
Tax Consequences to Foreign Certificateholders. It is not clear
whether the Trust would be considered to be engaged in a trade or business in
the United States for purposes of federal withholding taxes with respect to
non-U.S. persons because there is no clear authority dealing with that issue
under facts substantially similar to those described herein. Although it is not
expected that the Trust would be engaged in a trade or business in the United
States for such purposes, the Trust will withhold as if it were so engaged in
order to protect the Trust from possible adverse consequences of a failure to
withhold. The Trust expects to withhold on the portion of its taxable income
that is
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allocable to foreign Certificateholders pursuant to Section 1446 of the
Code, as if such income were effectively connected to a U.S. trade or business,
at a rate of 35% for foreign holders that are taxable as corporations and 39.6%
for all other foreign holders. The New Withholding Regulations or subsequent
adoption of Treasury regulations or the issuance of other administrative
pronouncements may require the Trust to change its withholding procedures. In
determining a holder's withholding status, the Trust may rely on IRS Form W-8,
IRS Form W-9 or the holder's certification of nonforeign status signed under
penalties of perjury.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the branch
profits tax) on its share of the Trust's income. Each foreign holder must obtain
a taxpayer identification number from the IRS and submit that number to the
Trust on Form W-8 in order to assure appropriate crediting of the taxes
withheld. A foreign holder generally would be entitled to file with the IRS a
claim for refund with respect to taxes withheld by the Trust, taking the
position that no taxes were due because the Trust was not engaged in a U.S.
trade or business. However, interest payments made (or accrued) to a
Certificateholder who is a foreign person generally will be considered
guaranteed payments to the extent such payments are determined without regard to
the income of the Trust. If these interest payments are properly characterized
as guaranteed payments, then the interest will not be considered "portfolio
interest." As a result, Certificateholders will be subject to United States
federal income tax and withholding tax at a rate of 30 percent, unless reduced
or eliminated pursuant to an applicable treaty. In such case, a foreign holder
would only be entitled to claim a refund for that portion of the taxes in excess
of the taxes that should be withheld with respect to the guaranteed payments.
Backup Withholding. Distributions made on the Certificates and
proceeds from the sale of the Certificates will be subject to a "backup"
withholding tax of 31% if, in general, the Certificateholder fails to comply
with certain identification procedures, unless the holder is an exempt recipient
under applicable provisions of the Code.
TRUSTS TREATED AS GRANTOR TRUSTS
TAX CHARACTERIZATION OF THE TRUST AS A GRANTOR TRUST
The following general discussion of the anticipated federal income
tax consequences of the purchase, ownership and disposition of the Notes and the
Certificates of a Trust for which a partnership election will not be made, to
the extent it relates to matters of law or legal conclusions with respect
thereto, represents the opinion of Tax Counsel to each Trust with respect to the
related series on the material matters associated with such consequences,
subject to the qualifications set forth herein. In addition, Tax Counsel has
prepared or reviewed the statements in the Prospectus under the heading "Certain
Federal Income Tax Consequences--Trusts Treated as Grantor Trusts", and is of
the opinion that such statements are correct in all material respects. Such
statements are intended as an explanatory discussion of the possible effects of
the classification of any Trust as a grantor trust for federal income tax
purposes on investors generally and of related tax matters affecting investors
generally, but do not purport to furnish information in the level of detail or
with the attention to an investor's specific tax circumstances that would be
provided by an investor's own tax advisor. Accordingly, each investor is advised
to consult its own tax advisors with regard to the tax consequences to it of
investing in Notes or Certificates.
If a partnership election is not made, Tax Counsel will deliver its
opinion that the Trust will not be classified as an association taxable as a
corporation and that such Trust will be classified as a grantor trust under
subpart E, Part I of subchapter J of Chapter 1 of Subtitle A of the Code. In
this case, owners of Certificates (referred to herein as "GRANTOR TRUST
CERTIFICATEHOLDERS") will be treated for federal income tax purposes as owners
of a portion of the Trust's assets as described below. The Certificates issued
by a Trust that is treated as a grantor trust are referred to herein as "GRANTOR
TRUST CERTIFICATES".
Characterization. Each Grantor Trust Certificateholder will be
treated as the owner of a pro rata undivided interest in the interest and
principal portions of the Trust represented by the Grantor Trust Certificates
and will be considered the equitable owner of a pro rata undivided interest in
each of the Contracts in the Trust. Any amounts received by a Grantor Trust
Certificateholder in lieu of amounts due with respect to any Contract because of
a default or delinquency in payment will be treated for federal income tax
purposes as having the same character as the payments they replace.
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Each Grantor Trust Certificateholder will be required to report on
its federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire income
from the Contracts in the Trust represented by Grantor Trust Certificates,
including interest, OID, if any, prepayment fees, assumption fees, any gain
recognized upon an assumption and late payment charges received by the Servicer.
Under Sections 162 or 212 each Grantor Trust Certificateholder will be entitled
to deduct its pro rata share of servicing fees, prepayment fees, assumption
fees, any loss recognized upon an assumption and late payment charges retained
by the Servicer, provided that such amounts are reasonable compensation for
services rendered to the Trust. Grantor Trust Certificateholders that are
individuals, estates or trusts will be entitled to deduct their share of
expenses only to the extent such expenses plus all other Section 212 expenses
exceed two percent of its adjusted gross income. A Grantor Trust
Certificateholder using the cash method of accounting must take into account its
pro rata share of income and deductions as and when collected by or paid to the
Servicer. A Grantor Trust Certificateholder using an accrual method of
accounting must take into account its pro rata share of income and deductions as
they become due or are paid to the Servicer, whichever is earlier. If the
servicing fees paid to the Servicer are deemed to exceed reasonable servicing
compensation, the amount of such excess could be considered as an ownership
interest retained by the Servicer (or any person to whom the Servicer assigned
for value all or a portion of the servicing fees) in a portion of the interest
payments on the Contracts. The Contracts would then be subject to the "coupon
stripping" rules of the Code discussed below.
Premium. The price paid for a Grantor Trust Certificate by a holder
will be allocated to such holder's undivided interest in each Contract based on
each Contract's relative fair market value, so that such holder's undivided
interest in each Contract will have its own tax basis. A Grantor Trust
Certificateholder that acquires an interest in Contracts at a premium may elect
to amortize such premium under a constant interest method. Amortizable bond
premium will be treated as an offset to interest income on such Grantor Trust
Certificate. The basis for such Grantor Trust Certificate will be reduced to the
extent that amortizable premium is applied to offset interest payments. It is
not clear whether a reasonable prepayment assumption should be used in computing
amortization of premium allowable under Section 171. A Grantor Trust
Certificateholder that makes this election for a Grantor Trust Certificate that
is acquired at a premium will be deemed to have made an election to amortize
bond premium with respect to all debt instruments having amortizable bond
premium that such Grantor Trust Certificateholder acquires during the year of
the election or thereafter.
If a premium is not subject to amortization using a reasonable
prepayment assumption, the holder of a Grantor Trust Certificate acquired at a
premium should recognize a loss if a Contract prepays in full, equal to the
difference between the portion of the prepaid principal amount of such Contract
that is allocable to the Grantor Trust Certificate and the portion of the
adjusted basis of the Grantor Trust Certificate that is allocable to such
Contract. If a reasonable prepayment assumption is used to amortize such
premium, it appears that such a loss would be available, if at all, only if
prepayments have occurred at a rate faster than the reasonable assumed
prepayment rate. It is not clear whether any other adjustments would be required
to reflect differences between an assumed prepayment rate and the actual rate of
prepayments.
STRIPPED BONDS AND STRIPPED COUPONS
Although the tax treatment of stripped bonds is not entirely clear,
based on guidance issued by the IRS, each purchaser of a Grantor Trust
Certificate will be treated as the purchaser of a stripped bond which generally
should be treated as a single debt instrument issued on the day it is purchased
for purposes of calculating any original issue discount. Generally, under
applicable Treasury regulations (the "SECTION 1286 TREASURY REGULATIONS"), if
the discount on a stripped bond is larger than a de minimis amount (as
calculated for purposes of the OID rules of the Code) such stripped bond will be
considered to have been issued with OID. See "Original Issue Discount". Based on
the preamble to the Section 1286 Treasury Regulations, Tax Counsel is of the
opinion that, although the matter is not entirely clear, the interest income on
the Certificates at the sum of the Certificate Rate and the portion of the
Servicing Fee Rate that does not constitute excess servicing will be treated as
"qualified stated interest" within the meaning of the Section 1286 Treasury
Regulations and such income will be so treated in the Trustee's tax information
reporting.
Original Issue Discount. The IRS has stated in published rulings
that, in circumstances similar to those described herein, the special rules of
the Code relating to "original issue discount" (currently Sections 1271 through
1273 and 1275) will be applicable to a Grantor Trust Certificateholder's
interest in those Contracts meeting the
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conditions necessary for these sections to apply. Generally, a Grantor Trust
Certificateholder that acquires an undivided interest in a Contract issued or
acquired with OID must include in gross income the sum of the "daily portions,"
as defined below, of the OID on such Contract for each day on which it owns a
Certificate, including the date of purchase but excluding the date of
disposition. In the case of an original Grantor Trust Certificateholder, the
daily portions of OID with respect to a Contract generally would be determined
as follows. A calculation will be made of the portion of OID that accrues on the
Contract during each successive monthly accrual period (or shorter period in
respect of the date of original issue or the final Distribution Date). This will
be done, in the case of each full monthly accrual period, by adding (i) the
present value of all remaining payments to be received on the Contract under the
prepayment assumption used in respect of the Contracts and (ii) any payments
received during such accrual period, and subtracting from that total the
"adjusted issue price" of the Contract at the beginning of such accrual period.
No representation is made that the Contracts will prepay at any prepayment
assumption. The "adjusted issue price" of a Contract at the beginning of the
first accrual period is its issue price (as determined for purposes of the OID
rules of the Code) and the "adjusted issue price" of a Contract at the beginning
of a subsequent accrual period is the "adjusted issue price" at the beginning of
the immediately preceding accrual period plus the amount of OID allocable to
that accrual period and reduced by the amount of any payment (other than
"qualified stated interest") made at the end of or during that accrual period.
The OID accruing during such accrual period will then be divided by the number
of days in the period to determine the daily portion of OID for each day in the
period. With respect to an initial accrual period shorter than a full monthly
accrual period, the daily portions of OID must be determined according to a
reasonable method, provided that such method is consistent with the method used
to determine the yield to maturity of the Contracts.
With respect to the Contracts, the method of calculating OID as
described above will cause the accrual of OID to either increase or decrease
(but never below zero) in any given accrual period to reflect the fact that
prepayments are occurring at a faster or slower rate than the prepayment
assumption used in respect of the Contracts. Subsequent purchasers that purchase
Contracts at more than a de minimis discount should consult their tax advisors
with respect to the proper method to accrue such OID.
The Taxpayer Relief Act of 1997 requires the use of a prepayment
assumption to accrue OID with respect to "any pool of debt instruments the yield
on which may be affected by reason of prepayments (or to the extent provided in
regulation, by reason of other events)." Unless otherwise provided in the
related Prospectus Supplement, the Trustee will deem the prepayment assumption
to be that the Contracts will not prepay. If the IRS were to require that OID be
computed using a different prepayment assumption, the character and timing of a
Certificateholder's income could be adversely affected.
Market Discount. A Grantor Trust Certificateholder that acquires an
undivided interest in Contracts may be subject to the market discount rules of
Sections 1276 through 1278 to the extent an undivided interest in a Contract is
considered to have been purchased at a "market discount." Generally, the amount
of market discount is equal to the excess of the portion of the principal amount
of such Contract allocable to such holder's undivided interest over such
holder's tax basis in such interest. Market discount with respect to a Grantor
Trust Certificate will be considered to be zero if the amount allocable to the
Grantor Trust Certificate is less than 0.25% of the Grantor Trust Certificate's
stated redemption price at maturity multiplied by the weighted average maturity
remaining after the date of purchase. Treasury regulations implementing the
market discount rules have not yet been issued; therefore, investors should
consult their own tax advisors regarding the application of these rules and the
advisability of making any of the elections allowed under Code Sections 1276
through 1278.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount bond
shall be treated as ordinary income to the extent that it does not exceed the
accrued market discount at the time of such payment. The amount of accrued
market discount for purposes of determining the tax treatment of subsequent
principal payments or dispositions of the market discount bond is to be reduced
by the amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
While the Treasury Department has not yet issued regulations, rules described in
the relevant legislative history will apply. Under those rules, the holder of a
market discount bond may elect to accrue market discount either on the basis of
a constant interest rate or according to one of the following methods. If a
Grantor Trust Certificate is issued with OID, the amount
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of market discount that accrues during any accrual period would be equal to the
product of (i) the total remaining market discount and (ii) a fraction, the
numerator of which is the OID accruing during the period and the denominator of
which is the total remaining OID at the beginning of the accrual period. For
Grantor Trust Certificates issued without OID, the amount of market discount
that accrues during a period is equal to the product of (i) the total remaining
market discount and (ii) a fraction, the numerator of which is the amount of
stated interest paid during the accrual period and the denominator of which is
the total amount of stated interest remaining to be paid at the beginning of the
accrual period. For purposes of calculating market discount under any of the
above methods in the case of instruments (such as the Grantor Trust
Certificates) that provide for payments that may be accelerated by reason of
prepayments of other obligations securing such instruments, the same prepayment
assumption applicable to calculating the accrual of OID will apply. Because the
regulations described above have not been issued, it is impossible to predict
what effect those regulations might have on the tax treatment of a Grantor Trust
Certificate purchased at a discount or premium in the secondary market.
A holder who acquired a Grantor Trust Certificate at a market
discount also may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry such Grantor Trust Certificate purchased with market discount.
For these purposes, the de minimis rule referred above applies. Any such
deferred interest expense would not exceed the market discount that accrues
during such taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includible in income.
If such holder elects to include market discount in income currently as it
accrues on all market discount instruments acquired by such holder in that
taxable year or thereafter, the interest deferral rule described above will not
apply.
Premium. To the extent a Grantor Trust Certificateholder is
considered to have purchased an undivided interest in a Contract for an amount
that is greater than its stated redemption price at maturity of such Contract,
such Grantor Trust Certificateholder will be considered to have purchased the
Contract with "amortizable bond premium" equal in amount to such excess. A
Grantor Trust Certificateholder (who does not hold the Certificate for sale to
customers or in inventory) may elect under Section 171 of the Code to amortize
such premium. Under the Code, premium is allocated among the interest payments
on the Contracts to which it relates and is considered as an offset against (and
thus a reduction of) such interest payments. With certain exceptions, such an
election would apply to all debt instruments held or subsequently acquired by
the electing holder. Absent such an election, the premium will be deductible as
an ordinary loss only upon disposition of the Certificate or pro rata as
principal is paid on the Contracts.
Election to Treat All Interest as OID. The OID regulations permit a
Grantor Trust Certificateholder to elect to accrue all interest, discount
(including de minimis market or original issue discount) and premium in income
as interest, based on a constant yield method. If such an election were to be
made with respect to a Grantor Trust Certificate with market discount, the
Certificateholder would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that such Grantor Trust Certificateholder acquires during the
year of the election or thereafter. Similarly, a Grantor Trust Certificateholder
that makes this election for a Grantor Trust Certificate that is acquired at a
premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
Grantor Trust Certificateholder owns or acquires. See "--Premium" herein. The
election to accrue interest, discount and premium on a constant yield method
with respect to a Grantor Trust Certificate is irrevocable.
Sale or Exchange of a Grantor Trust Certificate. Sale or exchange of
a Grantor Trust Certificate prior to its maturity will result in gain or loss
equal to the difference, if any, between the amount received and the owner's
adjusted basis in the Grantor Trust Certificate. Such adjusted basis generally
will equal the seller's purchase price for the Grantor Trust Certificate,
increased by the OID included in the seller's gross income with respect to the
Grantor Trust Certificate, and reduced by principal payments on the Grantor
Trust Certificate previously received by the seller. Such gain or loss will be
capital gain or loss to an owner for which a Grantor Trust Certificate is a
"capital asset" within the meaning of Section 1221, and will be long-term or
short-term depending on whether the Grantor Trust Certificate has been owned for
the long-term capital gain holding period (currently more than one year).
Grantor Trust Certificates will be "evidences of indebtedness" within
the meaning of Section 582(c)(1), so that gain or loss recognized from the sale
of a Grantor Trust Certificate by a bank or a thrift institution to which such
section applies will be treated as ordinary income or loss.
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Non-U.S. Persons. Generally, interest or OID paid by the person
required to withhold tax under Section 1441 or 1442 to (i) an owner that is not
a U.S. Person (as defined below) or (ii) a Grantor Trust Certificateholder
holding on behalf of an owner that is not a U.S. Person and accrued OID
recognized by the owner on the sale or exchange of such a Grantor Trust
Certificate will not be subject to withholding to the extent that a Grantor
Trust Certificate evidences ownership in Contracts issued after July 18, 1984 by
natural persons if such Grantor Trust Certificateholder complies with certain
identification requirements (including delivery of a statement, signed by the
Grantor Trust Certificateholder under penalties of perjury, certifying that such
Grantor Trust Certificateholder is not a U.S. Person and providing the name and
address of such Grantor Trust Certificateholder). Additional restrictions apply
to Contracts where the obligor is not a natural person in order to qualify for
the exemption from withholding.
As used herein, a "U.S. PERSON" means a citizen or resident of the
United States, a corporation, a partnership, or other entity created or
organized in or under the laws of the United States or any political subdivision
thereof (except, in the case of a partnership as otherwise provided by
regulations), an estate, the income of which is includible in gross income for
United States federal income tax purposes regardless of its source or a trust
whose administration is subject to the primary supervision of a United States
court and which has one or more United States persons who have authority to
control all substantial decisions of the trust.
Information Reporting and Backup Withholding. The Servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each person who was a Grantor Trust Certificateholder at any
time during such year, such information as may be deemed necessary or desirable
to assist Grantor Trust Certificateholders in preparing their federal income tax
returns, or to enable holders to make such information available to beneficial
owners or financial intermediaries that hold Grantor Trust Certificates as
nominees on behalf of beneficial owners. If a holder, beneficial owner,
financial intermediary or other recipient of a payment on behalf of a beneficial
owner fails to supply a certified taxpayer identification number or if the
Secretary of the Treasury determines that such person has not reported all
interest and dividend income required to be shown on its federal income tax
return, 31% backup withholding may be required with respect to any payments. Any
amounts deducted and withheld from a distribution to a recipient would be
allowed as a credit against such recipient's federal income tax liability.
THE FEDERAL TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A NOTEHOLDER'S OR
CERTIFICATEHOLDER'S PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES AND CERTIFICATES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan, as well as individual retirement
accounts and certain types of Keogh Plans (each a "BENEFIT PLAN"), from engaging
in certain transactions involving "plan assets" with persons that are "parties
in interest" under ERISA or "disqualified persons" under the Code with respect
to such Benefit Plan. ERISA also imposes certain duties on persons who are
fiduciaries of Benefit Plans subject to ERISA and prohibits certain transactions
between a Benefit Plan and parties in interest with respect to such Benefit
Plans. Under ERISA, any person who exercises any authority or control with
respect to the management or disposition of the assets of a Benefit Plan is
considered to be a fiduciary of such Benefit Plan (subject to certain exceptions
not here relevant). A violation of these "prohibited transaction" rules may
result in an excise tax or other penalties and liabilities under ERISA and the
Code for such persons.
Certain transactions involving a Trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Benefit Plan
that purchased Notes or Certificates if assets of the Trust were deemed to be
assets of the Benefit Plan. Under a regulation issued by the United States
Department of Labor (the "PLAN ASSETS REGULATION"), the assets of a Trust would
be treated as plan assets of a Benefit Plan for the purposes of ERISA and the
Code only if the Benefit Plan acquired an "equity interest" in the Trust and
none of the exceptions contained in the Plan Assets Regulation was applicable.
An equity interest is defined under the Plan Assets Regulation as an interest
other
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than an instrument which is treated as indebtedness under applicable local
law and which has no substantial equity features. The likely treatment in this
context of Notes and Certificates of a given series will be discussed in the
related Prospectus Supplement.
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements. Due to the complexities of the
"prohibited transaction" rules and the penalties imposed upon persons involved
in prohibited transactions, it is important that the fiduciary of any Benefit
Plan considering the purchase of Securities consult with its tax and/or legal
advisors regarding whether the assets of the related Trust would be considered
plan assets, the possibility of exemptive relief from the prohibited transaction
rules and other issues and their potential consequences.
PLAN OF DISTRIBUTION
Unless otherwise specified in the related Prospectus Supplement, on
the terms and conditions set forth in one or more underwriting agreements with
respect to the Securities of a series (collectively, the "UNDERWRITING
AGREEMENT"), the Seller will agree to cause the related Trust to sell to the
underwriter(s) named therein and in the related Prospectus Supplement, and each
of such underwriters will severally agree to purchase, the principal amount of
each class of Securities, as the case may be, of the related series set forth
therein and in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, in
the Underwriting Agreement with respect to any given series of Securities, the
applicable underwriter(s) will agree, subject to the terms and conditions set
forth therein, to purchase all the Securities described therein which are
offered hereby and by the related Prospectus Supplement if any of such
Securities are purchased.
Each Prospectus Supplement will either (i) set forth the price at
which each class of Securities being offered thereby will be offered to the
public and any concessions that may be offered to certain dealers participating
in the offering of such Securities or (ii) specify that the related Securities
are to be resold by the underwriter(s) in negotiated transactions at varying
prices to be determined at the time of such sale. After the initial public
offering of any such Securities, such public offering prices and such
concessions may be changed.
Unless otherwise specified in the related Prospectus Supplement, each
Underwriting Agreement will provide that Onyx and the Seller will indemnify the
underwriters against certain civil liabilities, including liabilities under the
Securities Act, or contribute to payments the several underwriters may be
required to make in respect thereof.
Unless otherwise specified in the related Prospectus Supplement,
pursuant to each Underwriting Agreement with respect to a given series of
Securities, the closing of the sale of any class of Securities subject to such
Underwriting Agreement will be conditioned on the closing of the sale of all
other such classes of Securities of that series.
The place and time of delivery for the Securities in respect of which
this Prospectus is delivered will be set forth in the related Prospectus
Supplement.
LEGAL OPINIONS
Certain legal matters relating to the Securities of any series will
be passed upon for the related Trust, the Seller and the Servicer by Andrews &
Kurth L.L.P. In addition, certain United States federal tax and other matters
will be passed upon for the related Trust by Andrews & Kurth L.L.P.
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INDEX OF TERMS
<TABLE>
<S> <C>
"Administration Agreement"................................................................................29
"Administration Fee" .....................................................................................29
"Administrator"...........................................................................................29
"APR" ....................................................................................................13
"Auto Finance Centers"....................................................................................10
"Bankruptcy Code" ........................................................................................16
"Benefit Plan" ...........................................................................................46
"Certificate Principal Balance"............................................................................2
"Certificate Rate".........................................................................................2
"Certificateholders" ......................................................................................8
"Certificates" ............................................................................................i
"Closing Date" ............................................................................................3
"Code" ...................................................................................................36
"Collection Account" .....................................................................................22
"Collection Period" ......................................................................................20
"Commission" ............................................................................................iii
"Contracts" .............................................................................................i,3
"Cut-Off Date" ............................................................................................3
"Dealers" .................................................................................................4
"Defaulted Contract" .....................................................................................20
"Definitive Securities"...................................................................................19
"Distribution Date Statement".............................................................................24
"Distribution Date" ......................................................................................ii
"DTC Rules" ..............................................................................................18
"DTC" .....................................................................................................8
"Due Date" ...............................................................................................11
"Eligible Investments"....................................................................................22
"ERISA" ...................................................................................................5
"Exchange Act" ..........................................................................................iii
"Financed Vehicles" .....................................................................................i,3
"foreign person" .........................................................................................38
"FTC Rule" ...............................................................................................35
"Full Prepayment" ........................................................................................14
"Grantor Trust Certificateholders"........................................................................42
"Grantor Trust Certificates"..............................................................................42
"Holders" ................................................................................................19
"Indenture Events of Default".............................................................................30
"Indenture Trustee" .......................................................................................i
"Indenture" ...............................................................................................1
"Indirect Participants"...................................................................................18
"Insolvency Laws" .........................................................................................6
"Interest Rate" ...........................................................................................2
"IRS" ....................................................................................................36
"Issuer" ..................................................................................................1
"Liquidation Expenses"....................................................................................23
"Monthly P&I" ............................................................................................13
"Motor Vehicle Contracts"..................................................................................9
"Net Insurance Proceeds"..................................................................................23
"Net Liquidation Proceeds"................................................................................23
"New Withholding Regulations".............................................................................38
"Note Principal Balance"...................................................................................2
"Noteholders" .............................................................................................8
"Notes" ...................................................................................................i
</TABLE>
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<TABLE>
<S> <C>
"OCS".....................................................................................................11
"OID regulations".........................................................................................37
"OID" ....................................................................................................37
"Onyx" ..................................................................................................i,1
"Original Pool Balance"...................................................................................15
"Participants" ...........................................................................................18
"Payahead Account" .......................................................................................22
"Payaheads" ..............................................................................................22
"Plan Assets Regulation"..................................................................................46
"Pool Balance" ...........................................................................................15
"Pooling and Servicing Agreement"..........................................................................1
"Prefunded Amount" .......................................................................................14
"Prefunding Account" .....................................................................................14
"Prefunding Arrangement"................................................................................4,14
"Prospectus Supplement"....................................................................................i
"Purchase Agreement" .....................................................................................16
"Rating Agency" ...........................................................................................5
"Recomputed Actuarial Method".............................................................................13
"Recomputed Yield" .......................................................................................13
"Registration Statement".................................................................................iii
"Related Documents" ......................................................................................31
"Repurchase Amount" ......................................................................................22
"Rule of 78's Contracts"..................................................................................12
"Sale and Servicing Agreement".............................................................................4
"Section 1286 Treasury Regulations".......................................................................43
"Securities Act" ........................................................................................iii
"Securities" ..............................................................................................i
"Security Insurance Policy"................................................................................4
"Security Insurer" ........................................................................................4
"Security Owners" ........................................................................................18
"Securityholders" .........................................................................................8
"Seller" ................................................................................................i,1
"Selling Subsidiary" ......................................................................................4
"Servicer Default" .......................................................................................26
"Servicer Report Date"....................................................................................22
"Servicer" ................................................................................................i
"Servicing Fee Rate" .....................................................................................24
"Servicing Fee" ..........................................................................................24
"Simple Interest Contracts"...............................................................................12
"Simple Interest Method"..................................................................................13
"Strip Certificates" ......................................................................................3
"Strip Notes" .............................................................................................2
"Subsequent Contracts"..................................................................................4,14
"Transfer and Servicing Agreements".......................................................................21
"Trust Accounts" .........................................................................................22
"Trust Agreement" .........................................................................................1
"Trust Property" ........................................................................................3,8
"Trustee" .................................................................................................i
"Trust" ................................................................................................i, 1
"UCC" ..................................................................................................6,32
"Underwriting Agreement"..................................................................................47
</TABLE>
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================================================================================
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 SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE SELLER OR THE UNDERWRITER. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE 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. NEITHER THIS PROSPECTUS SUPPLEMENT NOR THE PROSPECTUS
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>
PROSPECTUS SUPPLEMENT
Available Information..................................... S-3
Reports to Securityholders................................ S-3
Incorporation of Certain Documents by Reference........... S-3
Summary of Terms.......................................... S-5
Risk Factors.............................................. S-13
The Trust................................................. S-17
The Onyx Portfolio of Motor Vehicle Contracts............. S-17
The Contracts............................................. S-19
Maturity and Prepayment Considerations.................... S-21
Use of Proceeds........................................... S-21
Description of the Notes.................................. S-22
Description of the Certificates........................... S-24
Description of the Transfer and Servicing Agreements...... S-26
The Policy................................................ S-34
Description of the Insurer................................ S-36
Certain Federal Income Tax Consequences................... S-37
ERISA Considerations...................................... S-38
Legal Investment.......................................... S-39
Underwriting.............................................. S-39
Legal Matters............................................. S-40
Experts................................................... S-40
Index of Terms............................................ S-41
PROSPECTUS
Available Information..................................... iii
Incorporation of Certain Documents by Reference........... iii
Summary of Terms.......................................... 1
Risk Factors.............................................. 6
The Trusts................................................ 8
The Trustee............................................... 9
The Onyx Portfolio of Motor Vehicle Contracts............. 9
The Contracts............................................. 12
Prefunding Arrangements................................... 14
Maturity and Prepayment Considerations.................... 14
Pool Factor and Pool Information.......................... 15
Use of Proceeds........................................... 15
The Seller................................................ 15
The Servicer.............................................. 16
Description of the Securities............................. 17
Description of the Transfer and Servicing Agreements...... 21
The Indenture............................................. 29
Certain Legal Aspects of the Contracts.................... 32
Certain Federal Income Tax Consequences................... 36
Trusts for Which a Partnership Election is Made........... 36
Trusts Treated as Grantor Trusts.......................... 42
ERISA Considerations...................................... 46
Plan of Distribution...................................... 47
Legal Opinions............................................ 47
Index of Terms............................................ 48
</TABLE>
------------------
UNTIL SEPTEMBER , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS
SUPPLEMENT) ALL DEALERS EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS AN UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
================================================================================
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$208,759,315
ONYX ACCEPTANCE
OWNER TRUST 1998-A
$43,600,000 %
AUTO LOAN BACKED NOTES,
CLASS A-1
$49,600,000 %
AUTO LOAN BACKED NOTES,
CLASS A-2
$69,500,000 %
AUTO LOAN BACKED NOTES,
CLASS A-3
$35,600,000 %
AUTO LOAN BACKED NOTES,
CLASS A-4
$10,459,315 %
AUTO LOAN BACKED CERTIFICATES
[ONYX ACCEPTANCE LOGO]
ONYX ACCEPTANCE FINANCIAL CORPORATION,
Seller
ONYX ACCEPTANCE CORPORATION,
Servicer
----------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
----------------------------------------------------
MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
JUNE , 1998
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