<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 5, 1998
REGISTRATION NO. 333-46359
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
AMENDMENT NO. 1
TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ONYX ACCEPTANCE GRANTOR TRUST 1998-1
(ISSUER WITH RESPECT TO CERTIFICATES)
------------------------
ONYX ACCEPTANCE FINANCIAL CORPORATION
(ORIGINATOR OF THE TRUST DESCRIBED HEREIN)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 9999 33-0639768
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NO.) IDENTIFICATION NO.)
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------------------------
8001 IRVINE CENTER DRIVE, 6TH FLOOR
IRVINE, CA 92618
(714) 790-5400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
REGAN E. KELLY, ESQ.
EXECUTIVE VICE PRESIDENT
8001 IRVINE CENTER DRIVE, 5TH FLOOR
IRVINE, CA 92618
(714) 450-5509
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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DAVID A. ALLEN, ESQ. SUSAN M. CURTIS, ESQ.
ANDREWS & KURTH L.L.P. SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
1717 MAIN STREET 919 THIRD AVENUE
SUITE 3700 NEW YORK, NEW YORK 10022
DALLAS, TEXAS 75201
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------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 134,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED UNIT(1) PRICE REGISTRATION FEE(1)
- ------------------------------------------------------------------------------------------------------------------------
____% Auto Loan Pass-Through
Certificates, Series 1998-1...... $173,000,000.00 100% $173,000,000.00 $51,035.00
========================================================================================================================
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(1) $303.03 of which was previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH 5, 1998
PROSPECTUS
[ONYX ACCEPTANCE CORP LOGO]
$173,000,000
ONYX ACCEPTANCE GRANTOR TRUST 1998-1
% AUTO LOAN PASS-THROUGH CERTIFICATES, SERIES 1998-1
ONYX ACCEPTANCE FINANCIAL CORPORATION,
Seller
ONYX ACCEPTANCE CORPORATION,
Servicer
------------------------
The % Auto Loan Pass-Through Certificates (the "Certificates") will
represent undivided fractional interests in the Onyx Acceptance Grantor Trust
1998-1 (the "Trust") to be formed by Onyx Acceptance Financial Corporation (the
"Seller"), a wholly-owned, limited purpose finance subsidiary of Onyx Acceptance
Corporation ("Onyx"). The Trust property will include a pool of fixed rate Rule
of 78's and Simple Interest Method motor vehicle retail installment sales
contracts (the "Contracts") secured by new and used automobiles and light-duty
trucks (the "Financed Vehicles"), certain monies due under certain Contracts on
or after March 1, 1998 (the "Cut-Off Date"), security interests in the Financed
Vehicles, the benefits of a financial guarantee insurance policy (the "Financial
Guarantee Insurance Policy") issued by MBIA Insurance Corporation (the
"Insurer") and certain other property, all as more fully described herein. The
initial Aggregate Scheduled Balance (as defined herein) of the Contracts as of
the Cut-Off Date was $173,000,000. Onyx will act as servicer of the Contracts
(the "Servicer").
Interest on the Certificates at the Pass-Through Rate of % per annum
(each, an "Interest Distribution"), will be distributed to the
Certificateholders on the 15th day of each month (or, if the 15th day is not a
Business Day, the following Business Day) (each, a "Distribution Date")
commencing April 15, 1998 and ending on July 15, 2004 (the "Final Distribution
Date"). Payments of principal, as well as the principal balance of liquidated
contracts and contracts repurchased by the Seller and purchased by the Servicer
(the "Principal Distribution"), will be distributed to Certificateholders on
each Distribution Date as described herein.
It is a condition of issuance that the Certificates be rated in the highest
category by Moody's Investors Service, Inc. and Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies, Inc. Such ratings will be
based primarily on the issuance of the Financial Guarantee Insurance Policy by
the Insurer. Under the Financial Guarantee Insurance Policy, the Insurer has
unconditionally and irrevocably guaranteed payment of the Interest Distribution
and the Principal Distribution on each Distribution Date, including the Final
Distribution Date. See "The Certificates and the Agreement -- The Financial
Guarantee Insurance Policy."
------------------------
SEE "RISK FACTORS" AT PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CERTIFICATES OFFERED HEREBY.
------------------------
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST AND ARE NOT
INSURED OR GUARANTEED BY THE SELLER, ONYX OR ANY
OF THEIR RESPECTIVE AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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======================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO THE
PUBLIC(1) DISCOUNT SELLER(1)(2)
- ----------------------------------------------------------------------------------------------------------------------
Per Certificate...................... % % %
- ----------------------------------------------------------------------------------------------------------------------
Total................................ $ $ $
======================================================================================================================
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(1) Plus accrued interest, if any, calculated from , 1998.
(2) Before deducting expenses payable by the Seller estimated to be $350,000.
------------------------
The Certificates are offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters, and subject to
various prior conditions, including their right to reject orders in whole or in
part. It is expected that the Certificates will be delivered in book-entry form,
on or about March , 1998, through the facilities of The Depository Trust
Company ("DTC").
------------------------
MERRILL LYNCH & CO. SALOMON SMITH BARNEY
------------------------
The date of this Prospectus is , 1998.
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CERTIFICATES,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
CERTIFICATES, AND THE IMPOSITION OF PENALTY BIDS, DURING AND AFTER THE OFFERING.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
AVAILABLE INFORMATION
The Seller, as originator of the Trust, has filed a Registration Statement
under the Securities Act of 1933, as amended, with the Securities and Exchange
Commission (the "Commission") with respect to the Certificates offered pursuant
to this Prospectus. This Prospectus, which forms a part of the Registration
Statement, does not contain all of the information included in the Registration
Statement and the exhibits thereto. For further information, reference is made
to the Registration Statement and amendments thereof and to the exhibits
thereto, which are available for inspection without charge at the office of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission at 7 World Trade Center, Suite 1300, New
York, New York 10048 and at the Northwestern Atrium Building, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511, and copies of which may be
obtained from the Commission at prescribed rates. The Commission also maintains
a web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission,
including the Servicer and the 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 Certificateholders as
described under "Reports to Certificateholders" below. Reports on Form 8-K and
Form 10-K will not be filed for any period which ends after December 31, 1998;
however, the Certificateholders will continue to receive the Distribution Date
Statement monthly, as described below.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued (which will occur under
the limited circumstances described herein), the unaudited monthly Distribution
Date Statements and unaudited annual reports concerning the Trust which are
described herein under "Additional Provisions of the Agreement -- Statements to
Certificateholders" and are prepared by the Servicer, will be sent by the
Trustee only to Cede & Co. as the nominee of DTC and the registered holder of
the Certificates. Such reports will not constitute financial statements prepared
in accordance with generally accepted accounting principles. These reports may
be obtained by Certificate Owners by a request in writing to the Trustee. See
"The Certificates and the Agreement -- Book-Entry Registration." The Seller does
not intend to send any of its financial reports to the Certificateholders.
2
<PAGE> 4
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Certain capitalized
terms used in this Summary are defined elsewhere in this Prospectus. See the
Index of Principal Definitions for the location herein of the definitions of
certain capitalized terms. An investment in the Certificates involves various
risks, and potential purchasers should carefully consider the matters discussed
under "Risk Factors" herein in considering an investment in the Certificates.
Issuer..................... Onyx Acceptance Grantor Trust 1998-1 (the "Trust"),
to be formed by Onyx Acceptance Financial
Corporation (the "Seller") pursuant to the Pooling
and Servicing Agreement, to be dated as of March 1,
1998 (the "Agreement"), among the Seller, Onyx
Acceptance Corporation (the "Servicer") and Bankers
Trust Company (the "Trustee").
Securities Offered......... % Auto Loan Pass-Through Certificates, Series
1998-1 (the "Certificates") representing fractional
undivided interests in the Trust. The Certificates
will be offered for purchase in denominations of
$1,000 and integral multiples thereof. See "The
Certificates and the Agreement -- General."
Initial Certificate
Balance.................... The initial principal balance of the Certificates
is equal to the aggregate principal balance of the
Contracts as of the Cut-Off Date calculated in
accordance with the Rule of 78's or Simple Interest
Method, as applicable. The term "Cut-Off Date
Scheduled Balance" means the principal balance of a
Contract as of the Cut-Off Date. See "The
Contracts."
Seller..................... Onyx Acceptance Financial Corporation, a
wholly-owned, limited purpose subsidiary of Onyx
Acceptance Corporation ("Onyx"). The Seller's
principal executive offices are located at 8001
Irvine Center Drive, 6th Floor, Irvine, California
92618 and its telephone number is (714) 790-5400.
See "The Seller." All of the Contracts will have
been purchased by the Seller from Onyx.
Substantially all of the Contracts have been
purchased by Onyx from new and used car Dealers
unaffiliated with Onyx or the Seller, and a limited
number of Contracts have been purchased or
originated by subsidiaries of Onyx. See "The Onyx
Portfolio of Motor Vehicle Contracts."
Servicer................... Onyx. The Servicer's principal executive offices
are located at 8001 Irvine Center Drive, 5th Floor,
Irvine California 92618 and its telephone number is
(714) 450-5509. See "The Servicer."
Trustee.................... Bankers Trust Company.
Trust Property............. The Trust's assets (the "Trust Property") will
include: (i) a pool of fixed rate motor vehicle
retail installment sales contracts (the
"Contracts") of which approximately 33.78% of the
Aggregate Scheduled Balance as of the Cut-Off Date
are Rule of 78's Contracts and approximately 66.22%
of the Aggregate Scheduled Balance as of the
Cut-Off Date are Simple Interest Contracts, and all
of which were purchased from the Seller and secured
by new and used automobiles and light-duty trucks
(the "Financed Vehicles"), (ii) certain documents
relating to the Contracts, (iii) certain monies due
under such Contracts on or after the Cut-Off Date,
(iv) security interests in the Financed Vehicles
and the rights to receive proceeds from claims on
certain insurance policies covering the Financed
Vehicles or the individual obligors under each
related Contract and the right to certain proceeds
under the Blanket Insurance Policy,
3
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(v) all amounts on deposit in the Collection
Account, including all Eligible Investments
credited thereto (but excluding any investment
income from Eligible Investments, which will be
paid to the Servicer), (vi) the benefits of a
financial guarantee insurance policy (the
"Financial Guarantee Insurance Policy") issued by
MBIA Insurance Corporation (the "Insurer"), (vii)
the right of the Seller to cause Onyx to repurchase
certain Contracts under certain circumstances, and
(viii) all proceeds of the foregoing. See "The
Trust."
Pass-Through Rate.......... % per annum, payable monthly at one-twelfth
the annual rate and calculated on the basis of a
360-day year of twelve 30-day months.
Distribution Date.......... The 15th day of each month (or, if such day is not
a Business Day, the next succeeding Business Day)
commencing April 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.
Final Distribution Date.... July 15, 2004.
Interest Distribution...... On each Distribution Date, monthly interest (the
"Interest Distribution") in an amount equal to the
product of one-twelfth of the Pass-Through Rate and
the Pool Balance as of the end of the Collection
Period preceding the related Collection Period will
be distributed on a pro rata basis to the
Certificateholders of record as of the related
Record Date; provided that the Interest
Distribution with respect to the first Distribution
Date will include an additional $ per $1,000
of initial principal balance of the Certificates.
The "Pool Balance" as of any date is the Aggregate
Scheduled Balance of the Contracts as of such date,
excluding those Contracts which as of such date
have become Liquidated Contracts or have been
repurchased by the Seller or purchased by the
Servicer. Interest will be paid from collections
received on the Contracts on deposit in the
Collection Account or previously collected and
available for distribution. A "Collection Period"
with respect to a Distribution Date will be the
calendar month preceding the month in which such
Distribution Date occurs; provided, that with
respect to Liquidated Contracts (as defined below)
the Collection Period will be the period from but
excluding the sixth Business Day preceding the
immediately preceding Distribution Date to and
including the sixth Business Day preceding such
Distribution Date. With respect to the first
Distribution Date the "Collection Period" for
Liquidated Contracts will be the period from and
including the Cut-Off Date to and including the
sixth Business Day preceding such first
Distribution Date. See "The Certificates and the
Agreement -- Distributions of Principal and
Interest."
Principal Distribution..... On each Distribution Date, the Principal
Distribution for the related Collection Period will
be passed through to the Certificateholders. The
"Principal Distribution" on any Distribution Date
is the Aggregate Scheduled Balance Decline (as
defined below) for such Distribution Date. The
Principal Distribution on the Final Distribution
Date will include the Aggregate Scheduled Balance
of all Contracts that are outstanding at the end of
the Collection Period immediately prior to the
Final Distribution Date. The "Aggregate Scheduled
Balance Decline" for any Distribution Date is the
amount by which the Aggregate Scheduled Balance of
the Contracts as of the beginning of the related
Collection Period exceeds the
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Aggregate Scheduled Balance of such Contracts as of
the end of the related Collection Period. The
"Aggregate Scheduled Balance" of the Contracts is
the sum of the Scheduled Balance of each Contract.
The "Scheduled Balance" of a Rule of 78's Contract
at any date is equal to the Cut-Off Date Scheduled
Balance of such Contract reduced by the portion of
each scheduled payment of principal and interest
due on such Contract (the "Monthly P&I") on or
prior to the date of calculation that is allocated
to principal under the Recomputed Actuarial Method.
The Scheduled Balance of a Simple Interest Contract
at any date is equal to the Cut-Off Date Scheduled
Balance of such Contract reduced by the portion of
Monthly P&I paid on or prior to the date of
calculation that is allocated to principal under
the Simple Interest Method. The Scheduled Balance
of any Contract that is a Liquidated Contract or
that has been purchased by the Servicer or
repurchased by the Seller will equal zero. A
"Liquidated Contract" is a Contract that (a) is the
subject of a Full Prepayment, (b) is a Defaulted
Contract and with respect to which Liquidation
Proceeds constituting, in the Servicer's reasonable
judgment, the final amounts recoverable have been
received and deposited in the Collection Account,
(c) is paid in full on or after its Maturity Date
or (d) has been a Defaulted Contract for four or
more Collection Periods and as to which Liquidation
Proceeds 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. A
"Defaulted Contract" with respect to any Collection
Period is a Contract (a) which is, at the end of
such Collection Period, delinquent in the amount of
two monthly installments of Monthly P&I or (b) with
respect to which the related Financed Vehicle has
been repossessed or repossession efforts with
respect to the related Financed Vehicle have been
commenced. See "The Contracts" and "The
Certificates and the Agreement -- Distributions of
Principal and Interest."
Servicing Fee.............. The Servicer will be responsible for managing,
administering, servicing, and making collections on
the Contracts. Compensation to the Servicer will
consist of a monthly fee (the "Servicing Fee"),
payable from the Trust to the Servicer on each
Distribution Date, in an amount equal to the
product of one-twelfth of 1.00% per annum (the
"Servicing Fee Rate") multiplied by the Pool
Balance as of the end of the Collection Period
preceding the related Collection Period. As
additional compensation, the Servicer will be
entitled to any late fees and other administrative
fees and expenses or similar charges collected with
respect to the Contracts. The Servicer or its
designee will also receive as servicing
compensation investment earnings on Eligible
Investments and the amount, if any, by which the
outstanding principal balance of a Rule of 78's
Contract that is subject to a Full Prepayment
exceeds the Scheduled Balance of such Contract. See
"The Certificates and the Agreement -- Servicing
Fee."
Financial Guarantee
Insurance Policy........... On the Closing Date, the Insurer will issue the
Financial Guarantee Insurance Policy to the Trustee
pursuant to an Insurance and Reimbursement
Agreement (the "Insurance Agreement"), dated as of
March , 1998, by and among the Insurer, Onyx, the
Seller and the Trustee. Pursuant to the Financial
Guarantee Insurance Policy, the
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Insurer will unconditionally and irrevocably
guarantee payment of the Interest Distribution and
Principal Distribution on each Distribution Date to
the Trustee for the benefit of the
Certificateholders. If on the fifth Business Day
prior to any Distribution Date (the "Servicer
Report Date") the amount on deposit and available
in the Collection Account, after giving effect to
all amounts deposited or payable from the Payahead
Account with respect to such Distribution Date, is
less than the sum of the Servicing Fee, the
Principal Distribution and Interest Distribution
for such Distribution Date, the Trustee, by
delivering a notice in accordance with the
Financial Guarantee Insurance Policy, shall demand
payment under the Financial Guarantee Insurance
Policy in an amount equal to such deficiency. The
Insurer shall pay or cause to be paid such amount
to the Trustee for credit to the Collection Account
and the Trustee shall withdraw from the Collection
Account and shall pay such amount to the
Certificateholders on the related Distribution
Date. On the Final Distribution Date, to the extent
the amount on deposit and available in the
Collection Account is less than all remaining
unpaid interest and principal on the Certificates,
the Insurer shall pay or cause to be paid an amount
equal to such shortfall. See "The Certificates and
the Agreement -- The Financial Guarantee Insurance
Policy."
Contracts.................. The Aggregate Scheduled Balance of the Contracts as
of the Cut-Off Date was $173,000,000. As of the
Cut-Off Date the Contracts had a weighted average
annual percentage rate of 14.92% and a weighted
average remaining term of 56.4 months.
Approximately 33.78% of the Aggregate Scheduled
Balance of the Contracts as of the Cut-Off Date
allocate interest and principal in accordance with
the Rule of 78's (the "Rule of 78's Contracts"),
and approximately 66.22% in accordance with the
Simple Interest Method (the "Simple Interest
Contracts"). Approximately 51.92% of the Aggregate
Scheduled Balance of the Contracts as of the
Cut-Off Date were originated in California, 9.41%
in Florida, 8.36% in Washington, 8.14% in Arizona,
7.85% in Illinois, and 5.22% in Nevada. No more
than 5.0% of the Contracts were originated in any
other single state.
Substantially all of the Contracts were originated
by automobile dealerships ("Dealers") and assigned
to Onyx, and a limited number of Contracts were
purchased or originated by subsidiaries of Onyx.
All the Contracts will have been purchased by the
Seller from Onyx and by the Trust from the Seller.
The Seller is required to repurchase certain of the
Contracts under certain circumstances if certain
representations and warranties made by the Seller
are incorrect in a manner that materially and
adversely affects the Certificateholders or the
Insurer. All of the Contracts have been selected by
Onyx from its portfolio of motor vehicle
installment sales contracts based upon the criteria
specified in the Agreement.
All collections of Monthly P&I, all prepayments on
the Contracts collected by the Servicer and all
amounts paid under the Financial Guarantee
Insurance Policy will be deposited in or credited
to the Collection Account. Partial prepayments of
Monthly P&I ("Payaheads") on Rule of 78's Contracts
will be transferred on the Servicer Report Date to
the Payahead Account, to be applied against future
scheduled payments of Monthly P&I. Partial and full
prepayments on Simple Interest Contracts will be
passed through to Certifi
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cateholders on the Distribution Date immediately
following the Collection Period in which such
prepayments are received. All payments to the
Certificateholders will be made from the Collection
Account and certain funds remaining in the
Collection Account following distributions to
Certificateholders and others will be paid to the
Insurer to be promptly distributed in accordance
with the terms of the Insurance Agreement. See "The
Contracts" and "The Certificates and the Agreement
-- Payahead Account."
Optional Termination....... The Servicer may purchase all of the Contracts on
any Distribution Date as of which the Pool Balance
(after giving effect to the Principal Distribution
otherwise to be made on such Distribution Date) has
declined to 10% or less of the Cut-Off Date
Scheduled Balance for all of the Contracts (the
"Original Pool Balance"), subject to certain
provisions in the Agreement. See "The Certificates
and the Agreement -- Repurchase of Contracts."
Federal Income Tax
Status..................... In the opinion of counsel to the Seller, the Trust
will be treated for Federal income tax purposes as
a grantor trust and not as an association taxable
as a corporation. Certificateholders must report
their respective allocable shares of income earned
on Trust assets and, subject to certain limitations
applicable to individuals, estates and trusts, may
deduct their respective allocable shares of
reasonable servicing and other fees. See "Certain
Federal Income Tax Consequences."
ERISA Considerations....... The Certificates may be purchased by employee
benefit plans that are subject to the Employee
Retirement Income Security Act of 1974, as amended
("ERISA") upon satisfaction of certain conditions
described herein. See "ERISA Considerations."
Rating..................... It is a condition of issuance of the Certificates
that they be rated in the highest rating category
by Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc. ("Standard &
Poor's"). Such ratings will be based primarily on
the issuance of the Financial Guarantee Insurance
Policy by the Insurer. See "Risk
Factors -- Rating."
Registration of the
Certificates............... The Certificates 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 Certificate through the
facilities of DTC (a "Certificate Owner") will be
entitled to receive a Definitive Certificate
representing such person's interest in the Trust,
except in the event that Definitive Certificates
are issued in certain limited circumstances. See
"The Certificates and the Agreement."
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RISK FACTORS
LIMITED LIQUIDITY
There is currently no secondary market for the Certificates, and there will
be no application to list the Certificates on an exchange. The Underwriters
currently intend, but are not obligated, to make a market in the Certificates.
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 Certificateholders with liquidity of investment or will continue
for the life of the Certificates.
LIMITED OPERATING HISTORY OF ONYX
All of the Contracts were originally purchased by Onyx from Dealers or
originated by Onyx 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 still at an early stage of operations and is subject to all of the
risks inherent in the establishment of a new business enterprise and must, among
other things, continue to attract, retain and motivate qualified personnel,
support and grow its auto lending and contract servicing business, maintain its
existing relationships with automobile dealers and develop new relationships
with dealers in and beyond Onyx's present market region. Onyx experienced
operating losses from inception through December 31, 1995. Onyx's operating
losses for the years ended December 31, 1994 and December 31, 1995 were $3.5
million and $3.1 million, respectively. Onyx's net income for the year ended
December 31, 1996 was $7.7 million and for the year ended 1997 was $2.6 million.
CERTAIN LEGAL ASPECTS -- THE CONTRACTS
The transfer of the Contracts to the Trust is subject to the perfection
requirements of the Uniform Commercial Code ("UCC"), as in effect in California.
The Seller will take or cause to be taken such action as is required to perfect
the Trust's rights in the Contracts and will warrant that the Trust has good
title free and clear of liens and encumbrances to each Contract on the date the
Certificates are issued (the "Closing Date"). The Agreement permits the Servicer
with the consent of the Insurer (such consent not to be unreasonably withheld)
to hold the Contracts on behalf of the Trustee and the Insurer after the filing
of UCC-1 financing statements relating to the perfection of the Trust's security
interest in the Contracts. Accordingly, if Onyx or the Seller sell and deliver a
Contract to another purchaser, there is a risk that the purchaser could acquire
an interest in the Contract superior to the interest of the Trust and the
Certificateholders. Onyx will agree in the Agreement to take all necessary
action to preserve and protect the Trust's ownership interest in the Contracts.
The Seller will represent that each Contract is secured by a Financed Vehicle.
After a Contract is purchased 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 shows 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 the Trust, Onyx or such subsidiary
remains 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) are not endorsed or
otherwise marked to identify the Trustee as secured party, due to the
administrative burden and expense of applying to the department of motor
vehicles or similar state agency in each of the states of Contract origination
to identify the Trustee as secured party, and because retaining Onyx's or such
subsidiary's name as secured party enables Onyx to more efficiently service the
Contracts. Even though the Trust is not identified as secured party, because the
Trust has a security interest in the Contracts, it is the beneficial owner of
the security interest in the related Financed Vehicles. There exists a risk,
however, in not identifying the Trust as the new secured party on the
certificate of title (or computerized title record) that, through fraud or
8
<PAGE> 10
negligence, the security interest of the Trust could be released. Moreover,
statutory liens for repairs or unpaid taxes may have priority even over
perfected security interests in the Financed Vehicles. Notwithstanding the
failure of the Trust to have obtained a valid, first priority security interest
in a Financed Vehicle, the Insurer will remain unconditionally and irrevocably
obligated on its guarantee of the Interest Distribution and the Principal
Distribution on each Distribution Date. See "Certain Legal Aspects of the
Contracts."
CERTAIN LEGAL ASPECTS -- BANKRUPTCY CONSIDERATIONS
It is intended by Onyx and the Seller that the transfer of the Contracts by
Onyx to the Seller constitute a "true sale" of the Contracts to the Seller. If
the transfer constitutes such a "true sale," the Contracts and the proceeds
thereof would not be part of Onyx's bankruptcy estate should it become the
subject of a bankruptcy case subsequent to the transfer of the Contracts to the
Seller.
The Seller has taken steps in structuring the transactions contemplated
hereby that are intended to ensure that the voluntary or involuntary application
for relief by Onyx under the United States Bankruptcy Code or similar state laws
("Insolvency Laws") will not result in consolidation of the assets and
liabilities of the Seller with those of Onyx. These steps include the creation
of the Seller as a separate, limited purpose subsidiary pursuant to a
certificate of incorporation containing certain limitations (including
restrictions on the nature of the Seller's business and a restriction on the
Seller's ability to commence a voluntary case or proceeding under any Insolvency
Law without the prior unanimous affirmative vote of all of its directors).
However, there can be no assurance that the activities of the Seller would not
result in a court concluding that the assets and liabilities of the Seller
should be consolidated with those of Onyx in a proceeding under any Insolvency
Law. If a court were to reach such a conclusion, then delays in distributions on
the Certificates could occur or reductions in the amounts of such distributions
could result. Notwithstanding the holding by a court that the assets and
liabilities of the Seller should be consolidated with those of Onyx in a
proceeding under any Insolvency Law, the Insurer will remain unconditionally and
irrevocably obligated under the Financial Guarantee Insurance Policy to
guarantee payment of the Interest Distribution and Principal Distribution on
each Distribution Date. See "The Seller."
PREPAYMENT CONSIDERATIONS
The rate of distribution of principal on the Certificates will depend on
the rate of payment (including prepayments, liquidations and repurchases by the
Seller or purchases by Onyx under certain conditions) on the Contracts, which is
not possible to predict. Any full prepayments and repurchases of the Contracts
can reduce the average life of the Contracts and the aggregate interest received
by the Certificateholders over the life of the Certificates. Prepayments on
Simple Interest Contracts will shorten the average life of such Contracts and,
therefore, of the Certificates, because they will be passed through to
Certificateholders on the Distribution Date immediately following the Collection
Period in which such prepayments are received. Partial prepayments on Rule of
78's Contracts will be treated as Payaheads and accordingly will not affect the
average life of the Contracts because such payments will be held in the name of
Bankers Trust Company, acting on behalf of the Obligors and the
Certificateholders, as their interests may appear, until passed through in
accordance with the original schedule of payments for such Contracts. See "The
Certificates and Agreement -- Payahead Account."
Onyx has limited historical experience with respect to prepayments, and is
not aware of publicly available industry statistics that set forth principal
prepayment experience for retail installment sales contracts similar to the
Contracts. Onyx can make no prediction as to the actual prepayment rates that
will be experienced on the Contracts in either stable or changing interest rate
environments. See "-- Limited Operating History of Onyx" and "Maturity and
Prepayment Assumptions." Certificateholders will bear all reinvestment risk
resulting from the rate of prepayment of the Contracts.
GEOGRAPHIC CONCENTRATION
Economic conditions in the states where the obligors under the Contracts
(each, an "Obligor") reside may affect the delinquency, loan loss and
repossession experience of the Trust with respect to the Contracts.
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<PAGE> 11
Approximately 51.92% of the Aggregate Scheduled Balance of the Contracts as of
the Cut-Off Date will have been originated in California, 9.41% in Florida,
8.36% in Washington, 8.14% in Arizona, 7.85% in Illinois and 5.22% in Nevada. No
more than 5.0% of the Contracts were originated in any other single state.
Accordingly, adverse economic conditions or other factors particularly affecting
California, Arizona, Washington, Illinois, Florida or Nevada could adversely
affect the delinquency, loan loss or repossession experience of the Trust.
LIMITED ASSETS
The Trust does not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Contracts and the right to
receive payments under the Financial Guarantee Insurance Policy. The
Certificates represent interests solely in the Trust and will not be insured or
guaranteed by the Seller, the Servicer, the Trustee or any other person or
entity except the Insurer. Consequently, holders of the Certificates will only
be able to look to payments on the Contracts and the Financial Guarantee
Insurance Policy for payment.
RATING
It is a condition of issuance of the Certificates that they be rated in the
highest rating category by two nationally recognized rating agencies. A security
rating is not a recommendation to buy, sell or hold securities and may be
revised or withdrawn at any time by the assigning rating agency. There can be no
assurance that a rating will not be lowered or withdrawn if, in the sole
judgment of a rating agency, circumstances in the future so warrant, including a
downgrading of the Insurer. The Seller cannot predict with certainty what effect
any revision or withdrawal of a rating may have on the liquidity or market value
of the Certificates. Such ratings of the Certificates address the likelihood of
the timely payment of each scheduled Interest Distribution and Principal
Distribution, which are guaranteed by the Insurer pursuant to the Financial
Guarantee Insurance Policy. Therefore, the ratings are primarily dependent on
the rating of the Insurer, and a change in the Insurer's rating may affect the
ratings of the Certificates. See "Description of the Insurer" for a description
of the Insurer's rating.
CONSUMER PROTECTION LAWS
The Contracts are subject to federal and state consumer protection laws
which impose requirements with respect to the making, transfer, acquisition,
enforcement and collection of consumer loans. Such laws, as well as any new laws
or rules which may be adopted, may adversely affect the Servicer's ability to
collect on the Contracts. Any failure by the originator thereof to have
complied, or the Servicer to comply, with such requirements could adversely
affect the enforceability of the Contracts. The Seller will make representations
and warranties relating to the validity and enforceability of the Contracts and
its compliance with applicable law in connection with its performance of the
transactions contemplated by the Agreement. Pursuant to the Agreement, if the
Trust's interest in a Contract is materially and adversely affected by the
failure of such Contract to comply with the applicable requirements of any
consumer protection law, the Seller is 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 is that the
Contracts affected thereby will be required to be repurchased by the Seller. See
"The Certificates and the Agreement -- Repurchase of Contracts" and "Certain
Legal Aspects of the Contracts -- Repurchase Obligation."
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<PAGE> 12
THE TRUST
Pursuant to the Agreement, the Seller will establish the Onyx Acceptance
Grantor Trust 1998-1 (the "Trust") by selling and assigning the following
property to Bankers Trust Company in its capacity as trustee of the Trust (the
"Trustee") in exchange for the Certificates executed and authenticated by the
Trustee: (i) the Contracts, (ii) certain documents relating to the Contracts,
(iii) certain monies due under the Contracts on or after the Cut-Off Date, (iv)
security interests in the Financed Vehicles and the rights to receive proceeds
from claims on certain insurance policies covering the Financed Vehicles or the
Obligors and the right to certain proceeds under the Blanket Insurance Policy,
(v) all amounts on deposit in the Collection Account, including all Eligible
Investments credited thereto (but excluding any investment income from Eligible
Investments, which will be paid to the Servicer), (vi) the right of the Seller
under the Purchase Agreement (as defined under "the Seller") to cause Onyx to
repurchase certain Contracts under certain circumstances, and (vii) all proceeds
of the foregoing. The Trust Property will also include the benefits of the
Financial Guarantee Insurance Policy of the Insurer, proceeds of which will be
available to the Trustee in the event collections from Obligors are insufficient
to pay the Interest Distributions and Principal Distributions to
Certificateholders and unpaid principal and interest on the Certificates on the
Final Distribution Date. Each Certificate will represent a fractional undivided
interest in the Trust.
The Trust will be formed for this transaction pursuant to the Agreement
and, prior to formation, will have had no assets or obligations. After
formation, the Trust will not engage in any activity other than acquiring and
holding the Contracts, issuing the Certificates, distributing payments thereon
and as otherwise described herein and as provided in the Agreement. The Trust
will not acquire any Motor Vehicle Contracts or assets other than the Trust
Property and will not have any need for additional capital resources.
THE ONYX PORTFOLIO OF MOTOR VEHICLE CONTRACTS
PURCHASE AND ORIGINATION OF MOTOR VEHICLE CONTRACTS
Onyx's portfolio of retail installment sales contracts and installment loan
agreements are secured by new and used automobiles and light-duty trucks ("Motor
Vehicle Contracts"). 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. 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 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. Onyx currently has agreements with over 3,200 Dealers, of which
approximately 88.4% are franchised new car dealerships and approximately 11.6%
are independent used car dealerships. The Dealers are located in metropolitan
areas in the states in which the Motor Vehicle Contracts are or will be
originated, which are Arizona, California, Colorado, Florida, Georgia, Idaho,
Illinois, Indiana, New York, Nevada, New Jersey, Oregon, Texas, Utah, Virginia
and Washington. 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.
Approximately 51.92% of the Aggregate Scheduled Balance of the Contracts as
of the Cut-Off Date will have been originated in California, 9.41% in Florida,
8.36% in Washington, 8.14% in Arizona, 7.85% in Illinois and 5.22% in Nevada. No
more than 5.0% of the Contracts were originated in any other single state.
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<PAGE> 13
See "Risk Factors -- Geographic Concentration." The payment obligations of the
Obligor under each Motor Vehicle Contract are secured by the vehicle purchased
with the loan proceeds provided under that Motor Vehicle Contract.
Onyx services all of the Contracts and initially will serve as the primary
servicer after the Contracts are sold by the Seller to the Trust. The servicing
functions performed by Onyx include customer service, document filekeeping,
computerized account recordkeeping, vehicle title processing and collections.
UNDERWRITING OF MOTOR VEHICLE CONTRACTS
Onyx underwrites the Motor Vehicle Contracts purchased from Dealers through
its eleven regional contract purchasing offices ("Auto Finance Centers"), five
of which are in California and one in each of Arizona, Florida, Georgia, Nevada,
Washington and Illinois. Motor Vehicle Contracts purchased from Dealers located
in Oregon are currently underwritten in the Washington Auto Finance Center, and
contracts purchased from Dealers located in Indiana are underwritten in the
Illinois Auto Finance Center. Motor Vehicle Contracts purchased from Dealers
located in Colorado and Utah are underwritten in the Nevada Auto Finance Center
and Motor Vehicle Contracts purchased from Dealers located in New York and
Virginia are underwritten in the Irvine Auto Finance Center. Each Motor Vehicle
Contract is fully amortizing and provides for level payments over its term with
the portion of principal and interest of each level payment determined either on
the basis of the Rule of 78's or the Simple Interest Method. See "The
Contracts."
To evaluate the potential purchase of a Motor Vehicle Contract 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
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<PAGE> 14
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 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 does not
presently track whether Obligors maintain the required insurance. To protect
against losses with respect to Obligors who do not obtain or maintain any
insurance, or who do not obtain or maintain the right type or level of
insurance, Onyx has purchased limited comprehensive and collision insurance,
referred to as the "Blanket Insurance Policy" coverage. The Blanket Insurance
Policy provides Onyx with protection on each uninsured or underinsured Financed
Vehicle against total loss, damage or theft. Onyx has obtained its Blanket
Insurance Policy from United Financial Casualty Company, which is rated "A" by
A.M. Best & Co. For the Blanket Insurance Policy, Onyx is assessed a one-time
premium based on each Motor Vehicle Contract acquired. The insurer under the
Blanket Insurance Policy is required to settle any claim complying with the
policy conditions within 60 days from the date reported. Onyx has or will have
paid the premium for the Blanket Insurance Policy allocable to each Contract
sold to the Trust prior to such Contract's sale to the Trust. The proceeds under
the Blanket Insurance Policy, to the extent they relate to any Contract, will
constitute part of the Trust Property.
COLLECTION PROCEDURES
Collection activities with respect to delinquent Motor Vehicle Contracts
are performed by Onyx at its Irvine collection center. Collection activities
include prompt investigation and evaluation of the causes of any delinquency. An
Obligor is considered delinquent when he or she has failed to make a scheduled
payment under the Motor Vehicle Contract within 30 days of the related due date
(each, a "Due Date").
To automate its collection procedures, Onyx uses features of the computer
system of its third party service bureau, Online Computer Systems, Inc. ("OCS"),
to provide tracking and notification of delinquencies. The collection system
provides relevant Obligor information (for example, current addresses, phone
numbers and loan information) and records of all Motor Vehicle Contracts. The
system also records an Obligor's promise to pay and affords supervisors the
ability to review collection personnel activity and to
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<PAGE> 15
modify collection priorities with respect to Motor Vehicle Contracts. Onyx
utilizes a predictive dialing system centrally located within its Irvine
headquarters to make phone calls to Obligors whose payments are past due by more
than eight days but less than 30 days. The predictive dialer is a
computer-controlled telephone dialing system which dials phone numbers of
Obligors from a file of records extracted from Onyx's database. By eliminating
time wasted on attempting to reach Obligors, the system gives a single
collector, on average, the ability to speak with and work 250 to 300 accounts
per day. Once a live voice responds to the automated dialer's call, the system
automatically transfers the call to a collector and the relevant account
information to the collector's computer screen. The system also tracks and
notifies collection management of phone numbers that the system has been unable
to reach within a specified number of days, thereby promptly identifying for
management all Obligors who cannot be reached by telephone.
Once an Obligor is 20 days or more delinquent, those accounts are assigned
to specific collectors at the Irvine collection center who have primary
responsibility for such delinquent account until it is resolved. To expedite
collections from late paying Obligors, Onyx uses Western Union "Quick Collect,"
which allows an Obligor to pay at numerous locations any late payments and Onyx
to print at its Irvine headquarters a check evidencing the payment. Onyx also
uses an automatic payment system that allows an Obligor to authorize Onyx to
present a draft on the Obligor's bank account directly to the Obligor's bank for
payment to Onyx.
Generally, after a scheduled payment under a Motor Vehicle Contract
continues to be past due for between 45 and 60 days, Onyx will initiate
repossession of the related 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, Arizona
and Washington and the other states in which Motor Vehicle Contracts were or
will be originated, after repossession the Obligor generally has an additional
period of up 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 Agreement requires that Onyx service the Contracts and
collect all amounts due using reasonable care and in at least the same manner as
it services and collects amounts due with respect to Motor Vehicle Contracts
serviced by it for its own account.
MODIFICATIONS AND EXTENSIONS
Onyx offers certain credit-related extensions to Obligors. Generally, these
extensions are offered only when (i) Onyx believes that the Obligor's financial
difficulty has been resolved or will no longer impair the Obligor's ability to
make future payments, (ii) the extension will result in the Obligor's payments
being brought current, (iii) the total number of credit-related extensions
granted on the Motor Vehicle Contract will not exceed three and the total
credit-related extensions granted on the Motor Vehicle Contract will not exceed
three months in the aggregate, (iv) there have been no more than two
credit-related extensions granted on the Motor Vehicle Contract in the
immediately preceding twelve months, and (v) Onyx (or its assignee) had held the
Motor Vehicle Contract for at least six months. Any deviation from this policy
requires the concurrence of Onyx's collection manager and an Auto Finance Center
manager.
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DELINQUENCY AND LOAN LOSS INFORMATION
The following tables set forth information with respect to the experience
of Onyx relating to delinquencies, loan losses and recoveries for the portfolio
of Motor Vehicle Contracts owned and serviced by Onyx on an annual basis
commencing December 31, 1994. The tables include delinquency information
relating to those Motor Vehicle Contracts that were purchased, originated, sold
and serviced by Onyx. All of the Motor Vehicle Contracts were originally
purchased by Onyx from Dealers, or originated by Onyx 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."
The delinquency and loss tables set forth below show increases in the
delinquency and loss rates experienced by Onyx over the period shown. Management
of Onyx believes that this is attributable, in part, to an increase on a
national basis in the level of bankruptcies and consumer defaults generally and
the tendency of delinquencies and losses, with respect to a pool of automobile
loans, to increase after a period of seasoning. Management believes that as the
average age of the Motor Vehicle Contracts included in Onyx's portfolio
increases, delinquencies and losses may continue to rise somewhat.
During the fourth quarter of 1996 and first quarter of 1997 management of
Onyx enhanced the collections process by completing the centralization of
collections at Onyx's Irvine headquarters and hiring a manager with over 25
years of collections experience to head the department. Collections were
previously handled at each of Onyx's Auto Finance Centers, each of which was
responsible for collections in certain geographic areas. Centralizing
collections is intended to reduce cost and enhance effectiveness by enabling
personnel to specialize in specific stages of the collections process, rather
than focusing on specific geographic areas. For example, a collections officer
previously working at a regional Auto Finance Center might have focused on a
particular geographic region and covered all stages of collections (e.g., from
delinquencies through bankruptcies). In the centralized collections operation,
this officer might cover all geographic areas, but focus on a particular stage
of collections (e.g., 60-day delinquencies).
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<PAGE> 17
DELINQUENCY EXPERIENCE OF ONYX MOTOR VEHICLE CONTRACT PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31, AT DECEMBER 31, AT DECEMBER 31,
1994 1995 1996 1997
---------------- ----------------- ----------------- -----------------
AMOUNT NO. AMOUNT NO. AMOUNT NO. AMOUNT NO.
------- ------ -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Servicing portfolio... $74,581 6,893 $218,207 20,156 $400,665 38,275 $757,277 73,502
Delinquencies
30-59 days(1)(2).... $ 15 2 $ 1,608 153 $ 5,022 478 $ 11,902 1,211
60-89 days(1)(2).... 27 4 470 35 1,816 162 3,370 346
90+ days(1)(2)...... 12 1 547 42 1,279 111 3,742 316
Total delinquencies as
a percent of
servicing
portfolio........... .07% .10% 1.20% 1.14% 2.03% 1.96% 2.51% 2.55%
</TABLE>
- ---------------
(1) Delinquencies include principal amounts only, net of repossessed inventory.
Repossessed inventory as a percent of the servicing portfolio was .00%,
.24%, .56% and 1.05% at December 31, 1994, 1995, 1996 and 1997,
respectively.
(2) The period of delinquency is based on the number of days payments are
contractually past due.
LOAN LOSS EXPERIENCE OF ONYX MOTOR VEHICLE CONTRACT PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------
DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1994 1995 1996 1997
-------- -------- --------- ----------
<S> <C> <C> <C> <C>
Number of Motor Vehicle Contracts outstanding... 6,893 20,156 38,275 73,502
Period end outstanding.......................... $74,581 $218,207 $ 400,665 $ 757,277
Average outstanding............................. $29,301 $141,029 $ 311,340 $ 563,343
Number of gross charge-offs..................... 0 197 987 2,161
Gross charge-offs............................... $ 0 $ 548.2 $ 5,789.2 $13,076.1
Net charge-offs(1).............................. $ 0 $ 528.7 $ 5,066.1 $11,433.9
Net charge-offs as a percent of period end
outstanding................................... 0.0% .24% 1.26% 1.51%
Net charge-offs as a percent of average
outstanding................................... 0.0% .37% 1.63% 2.03%
</TABLE>
- ---------------
(1) Net charge-offs are gross charge-offs minus recoveries of Motor Vehicle
Contracts previously charged off.
16
<PAGE> 18
THE CONTRACTS
All of the Contracts will have been purchased by the Seller from Onyx.
Substantially all of the Contracts have been purchased by Onyx from new and used
car Dealers unaffiliated with Onyx or the Seller, and a limited number of
Contracts have been purchased or originated by subsidiaries of Onyx. See "The
Onyx Portfolio of Motor Vehicle Contracts." 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. Approximately 33.78% of the Aggregate Scheduled Balance of the
Contracts as of the Cut-Off Date allocate interest and principal in accordance
with the Rule of 78's (the "Rule of 78's Contracts"), and approximately 66.22%
in accordance with the Simple Interest Method (the "Simple Interest Contracts").
Rule of 78's Contracts provide for the payment by the Obligor of a specified
total amount of payments, payable in equal monthly installments, which total
represents the principal amount financed plus add-on interest in an amount
calculated as if such Contract were a self-amortizing, level-yield Contract
bearing interest at a per annum rate equal to the stated annual percentage rate
as set forth in the Contract ("APR"). Under the Rule of 78's, the amount of each
payment allocable to interest on a Contract is determined by multiplying the
total amount of add-on interest payable over the term of the Contract by a
fraction derived as described below. The fraction used in the calculation of
add-on interest earned each month under a contract governed by the Rule of 78's
has as its denominator a number equal to the sum of a series of numbers
representing the total number of monthly payments due under the Contract. For
example, with a Contract providing for 12 payments, the denominator of each
month's fraction will be 78, the sum of a series of numbers from 1 to 12. The
numerator of the fraction for a given month is the number of payments remaining
before giving effect to the payment to which the fraction is being applied.
Accordingly, in the example of a twelve-payment Contract, the fraction for the
first payment is 12/78, for the second payment 11/78, for the third payment
10/78, and so on through the final payment, for which the fraction is 1/78. The
applicable fraction is then multiplied by the total add-on interest payment over
the entire term of the Contract, and the resulting amount is the amount of
add-on interest earned that month. The difference between the amount of the
monthly payment by the Obligor and the amount of earned add-on interest
calculated for the month is applied to principal reduction.
For Simple Interest Contracts, interest due is calculated on the Due Date
based on the actual principal balance of the Contract on that date (the "Simple
Interest Method"). For such Contracts, interest accrued as of the Due Date is
paid first, and then the remaining payment is applied to the unpaid principal
balance. Accordingly, if an Obligor pays the fixed monthly installment in
advance of the Due Date, the portion of the payment allocable to interest for
the period since the preceding payment will be less than it would be if the
payment were made on the Due Date, and the portion of the payment allocable to
reduce the principal balance will be correspondingly greater. Conversely, if an
Obligor pays the fixed monthly installment after its Due Date, the portion of
the payment allocable to interest for the period since the preceding payment
will be greater than it would be if the payment were made on the Due Date, and
the portion of the payment allocable to reduce the principal balance will be
correspondingly smaller. When necessary, an adjustment is made at the maturity
of the Contract to the scheduled final payment to reflect the larger or smaller,
as the case may be, allocations of payments to the amount financed under the
Contract as a result of early or late payments, as the case may be.
The purchase price paid by the Trust for each Contract will reflect the
principal balance of such Contract as of the Cut-Off Date, calculated either
under the Rule of 78's or the Simple Interest Method. For each of the Contracts
the term "Cut-Off Date Scheduled Balance" means the principal balance of such
Contract as of the Cut-Off Date. For Rule of 78's Contracts a greater portion of
the early payments under a Contract is allocated to interest than would be the
case using the actuarial method. Therefore, the Cut-Off Date Scheduled Balance
of each Rule of 78's Contract exceeds the amount that would have been its
principal balance as of the Cut-Off Date if each Contract had been amortized
from origination under the actuarial method. The Trustee and the Servicer intend
to account for interest and principal on the Rule of 78's Contracts using the
actuarial method, but based on the Cut-Off Date Scheduled Balance. The remaining
payments due on a Rule of 78's Contract are not sufficient to amortize the
Cut-Off Date Scheduled Balance of such Contract at a yield equal to its APR.
Accordingly, in order to amortize the Cut-Off Date Scheduled
17
<PAGE> 19
Balance over the remaining term of the Rule of 78's Contract using the actuarial
method of accounting, the Servicer will recompute the effective yield of such
Contract based on the remaining payments due and the Cut-Off Date Scheduled
Balance (such yield, stated as a per annum rate, the "Recomputed Yield") and
will allocate each payment of Monthly P&I between principal and interest on each
Rule of 78's Contract based on the Cut-Off Date Scheduled Balance and the
Recomputed Yield for such Contract (such method, the "Recomputed Actuarial
Method").
The Contracts were selected from the Motor Vehicle Contracts in the
portfolio of Onyx using the following criteria (the "Eligibility Requirements").
No selection procedures used with respect to the Contracts were believed by Onyx
or the Seller to be adverse to the Certificateholders or the Insurer.
Approximately 18.92% of the Aggregate Scheduled Balance of the Contracts are
secured by new Financed Vehicles and approximately 81.08% of the Aggregate
Scheduled Balance of the Contracts are secured by used Financed Vehicles. The
Seller may not substitute other Motor Vehicle Contracts for the Contracts at any
time during the term of the Agreement.
The Seller will represent that all of the Contracts included in the Trust
satisfy the following Eligibility Requirements:
(a) Such Contracts are secured by a new or used automobile or
light-duty truck;
(b) Such Contracts have a remaining maturity as of the Cut-Off Date of
not more than 72 months;
(c) Such Contracts have an original maturity of not more than 72
months;
(d) Such Contracts (i) are fully-amortizing fixed rate contracts which
provide for level scheduled monthly payments determined on the basis of the
Rule of 78's or the Simple Interest Method (except for the last payment,
which may be minimally different from the level payments) and (ii) have a
yield (using the Recomputed Yield for the Rule of 78's Contracts) that
equals or exceeds %;
(e) Such Contracts are secured by Financed Vehicles that, as of the
Cut-Off Date, have not been repossessed without reinstatement;
(f) Such Contracts have no payment more than 30 days past due as of
the Cut-Off Date;
(g) Such Contracts have remaining principal balances as of the Cut-Off
Date of at least $500;
(h) Such Contracts were made to Obligors located in the States of
Arizona, California, Colorado, Florida, Georgia, Idaho, Illinois, Indiana,
Missouri, Montana, New Jersey, New York, Nevada, Oregon, Texas, Utah,
Virginia and Washington; and
(i) As of the Cut-Off Date, the Seller has not received notice that
any Obligor has filed for bankruptcy.
18
<PAGE> 20
Set forth below is data concerning the Contracts which, as of the Cut-Off
Date, had an Aggregate Scheduled Balance of $173,000,000.
COMPOSITION OF THE CONTRACTS
<TABLE>
<S> <C>
Aggregate principal balance............................. $173,000,000
Number of Contracts..................................... 14,451
Average principal balance outstanding................... $11,971.49
Average original amount financed........................ $12,068.18
Original amount financed (range)........................ $1,022.75 to 75,750.00
Weighted average APR.................................... 14.92%
APR (range)............................................. 7.80% to 39.99%
Weighted average original term.......................... 57.3 months
Original term (range)................................... 10 to 72 months
Weighted average remaining term......................... 56.4 months
Remaining term (range).................................. 5 to 72 months
</TABLE>
19
<PAGE> 21
DISTRIBUTION BY APRS OF THE CONTRACTS
<TABLE>
<CAPTION>
% OF
AGGREGATE
NUMBER OF % OF PRINCIPAL SCHEDULED
APR RANGE(1) CONTRACTS CONTRACTS BALANCE BALANCE
------------ --------- --------- ------------ ---------
<S> <C> <C> <C> <C>
7.001% to 8.000%...................... 105 0.73% $ 1,909,159 1.10%
8.001% to 9.000%...................... 600 4.15 9,217,361 5.33
9.001% to 10.000%..................... 841 5.82 12,739,957 7.36
10.001% to 11.000%.................... 753 5.21 10,829,862 6.26
11.001% to 12.000%.................... 895 6.19 11,856,322 6.85
12.001% to 13.000%.................... 1,027 7.11 13,397,630 7.74
13.001% to 14.000%.................... 1,262 8.73 16,311,765 9.43
14.001% to 15.000%.................... 1,372 9.49 17,135,754 9.91
15.001% to 16.000%.................... 1,261 8.73 15,221,650 8.80
16.001% to 17.000%.................... 1,283 8.88 15,323,546 8.86
17.001% to 18.000%.................... 1,264 8.75 13,756,809 7.95
18.001% to 19.000%.................... 835 5.78 8,894,615 5.14
19.001% to 20.000%.................... 701 4.85 7,221,791 4.17
20.001% to 21.000%.................... 1,301 9.00 13,008,819 7.52
21.001% and over...................... 951 6.58 6,174,959 3.57
------ ------ ------------ ------
Totals...................... 14,451 100.00% $173,000,000 100.00%
====== ====== ============ ======
</TABLE>
- ---------------
(1) Because the principal balance of each Contract sold to the Trust is the
Cut-Off Date Scheduled Balance, which in the case of Rule of 78's Contracts
is higher than what the principal balance of the Rule of 78's Contracts
would have been had principal and interest been allocated from the date of
origination in accordance with the actuarial method, the Recomputed Yield
for each Rule of 78's Contract is less than the APR of such Contract
specified herein. On a weighted average basis, the yield for all the
Contracts, using the Recomputed Yield for the Rule of 78's Contracts, in the
aggregate, is 14.83%. See "The Contracts."
GEOGRAPHIC CONCENTRATION OF THE CONTRACTS
<TABLE>
<CAPTION>
% OF
AGGREGATE
NUMBER OF % OF PRINCIPAL SCHEDULED
CONTRACTS CONTRACTS BALANCE BALANCE
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Arizona............................... 1,177 8.14 $ 14,085,778 8.14
California............................ 7,213 49.91 89,826,822 51.92
Colorado.............................. 166 1.15 1,979,028 1.14
Florida............................... 1,380 9.55 16,287,553 9.41
Georgia............................... 328 2.27 3,957,621 2.29
Idaho................................. 6 0.04 70,691 0.04
Illinois.............................. 1,149 7.95 13,572,816 7.85
Indiana............................... 285 1.97 3,077,386 1.78
Missouri.............................. 15 0.10 173,805 0.10
Montana............................... 6 0.04 84,900 0.05
New Jersey............................ 1 0.01 29,214 0.02
Nevada................................ 752 5.20 9,022,454 5.22
New York.............................. 1 0.01 5,158 0.00
Oregon................................ 423 2.93 4,193,251 2.42
Texas................................. 140 0.97 2,036,907 1.18
Utah.................................. 6 0.04 60,295 0.03
Virginia.............................. 7 0.05 72,340 0.04
Washington............................ 1,396 9.66 14,463,982 8.36
------ ------ ------------ ------
Total....................... 14,451 100.00% $173,000,000 100.00%
====== ====== ============ ======
</TABLE>
20
<PAGE> 22
MATURITY AND PREPAYMENT ASSUMPTIONS
The Contracts are prepayable in full by the Obligors at any time without
penalty. Prepayments on Simple Interest Contracts will be passed through to
Certificateholders on the Distribution Date following the Collection Period in
which they are received. Partial prepayments on Rule of 78's Contracts however
will be treated as Payaheads and will not be passed through until the Collection
Period in which such payments are due or until the amount of such partial
prepayment equals the amount the Obligor would be required to pay in order to
prepay the Contract in full. See "The Certificates and the Agreement -- Payahead
Account." To the extent that any Contract is prepaid in full ("Full
Prepayment"), whether by the Obligor, or as the result of a purchase by the
Servicer or a repurchase by the Seller or otherwise, the actual weighted average
life of the Contracts will be shorter than a weighted average life calculation
based on the assumptions that payments will be made on schedule and that no
prepayments will be made. Weighted average life means the average amount of time
in which each dollar of principal on a Contract is repaid. Full Prepayments may
also result from liquidations due to default, receipt of proceeds from theft,
physical damage, credit life and credit disability insurance policies,
repurchases by the Seller as a result of the failure of a Contract to meet
certain criteria set forth in the Agreement, purchases by the Servicer as a
result of a breach of certain of its covenants with respect to the Contracts
made by it in the Agreement or as a result of an exercise by the Servicer of its
option to purchase the Trust Property. See "The Certificates and the
Agreement -- Repurchases of Contracts."
The rate of Full Prepayments by Obligors on the Contracts may be influenced
by a variety of economic, social and other factors, including the fact that an
Obligor may not sell or transfer the Financed Vehicle securing a Contract
without the consent of the Servicer. These factors may also include
unemployment, servicing decisions, seasoning of loans, destruction of vehicles
by accident, sales of vehicles and market interest rates.
California 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 in either stable or changing interest rate
environments. Certificate Owners will bear all reinvestment risk resulting from
the rate of prepayment of the Contracts.
YIELD CONSIDERATIONS
Interest due will be passed through on each Distribution Date in an amount
equal to the product of one-twelfth of the Pass-Through Rate and the Pool
Balance as of the end of the Collection Period preceding the related Collection
Period (or the Original Pool Balance, in the case of the first Distribution
Date). In the event of a principal prepayment on a Contract during a Collection
Period, Certificateholders will receive interest for the full month on the
related Distribution Date. See "The Certificates and the Agreement --
Distributions of Principal and Interest."
Although the Contracts have different APRs, the yield on each individual
Contract, using the Recomputed Yield for Rule of 78's Contracts, will equal or
exceed %. Therefore, disproportionate rates of prepayments between Contracts
with higher and lower APRs will not affect the yield to Certificateholders.
POOL FACTOR
The "Pool Factor" will be a six-digit decimal which the Servicer will
compute each month indicating the Pool Balance at the end of the month as a
fraction of the Original Pool Balance. The Pool Factor will be
21
<PAGE> 23
1.000000 as of the Closing Date; thereafter, the Pool Factor will decline to
reflect reductions in the Pool Balance. The amount of a Certificateholder's pro
rata share of the Pool Balance for a given month can be determined by
multiplying the original denomination of such holder's Certificate by the Pool
Factor for that month.
Pursuant to the Agreement, Certificateholders will receive monthly reports
from the Trustee concerning payments received on the Contracts, the Pool
Balance, the Pool Factor, and various other items of information.
Certificateholders of record during any calendar year will be furnished
information for tax reporting purposes not later than the latest date permitted
by law. See "The Certificates and the Agreement."
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of Certificates
will be used to repay certain indebtedness incurred in connection with its
acquisition of the Contracts and to pay certain other expenses in connection
with the pooling of the Contracts and the issuance of the Certificates.
THE SELLER
The Seller is a wholly-owned, limited purpose finance subsidiary of Onyx
which was incorporated under the laws of the State of Delaware on July 28, 1994
and has a limited operating history. The principal office of the Seller is
located at 8001 Irvine Center Drive, 6th Floor, Irvine, CA 92618. The telephone
number of such office is (714) 790-5400.
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.
The Seller has taken steps in structuring the transactions contemplated
hereby that are intended to ensure that the voluntary or involuntary application
for relief by Onyx under any Insolvency Law will not result in consolidation of
the assets and liabilities of the Seller with those of Onyx. These steps include
the creation of the Seller as a separate, limited purpose subsidiary pursuant to
a certificate of incorporation containing certain limitations (including
restrictions on the nature of the Seller's business and a restriction on the
Seller's ability to commence a voluntary case or proceeding under any Insolvency
Law without the unanimous affirmative vote of all of its directors). However,
there can be no assurance that the activities of the Seller would not result in
a court concluding that the assets and liabilities of the Seller should be
consolidated with those of Onyx in a proceeding under any Insolvency Law.
The Seller has received the advice of counsel to the effect that, subject
to certain facts, assumptions and qualifications, it would not be a proper
exercise by a court of its equitable discretion to disregard the separate
corporate existence of the Seller and to require the consolidation of the assets
and liabilities of the Seller with the assets and liabilities of Onyx in the
event of the application of any Insolvency Law to Onyx. However, there can be no
assurance that a court would not conclude that the assets and liabilities of the
Seller should be consolidated with those of Onyx. If a court were to reach such
a conclusion, or a filing were made under any Insolvency Law by or against the
Seller, or if an attempt were made to litigate any of the foregoing issues,
delays in distributions on the Certificates could occur or reductions in the
amounts of such distributions could result.
The Contracts will have been sold by Onyx to the Seller pursuant to a Sale
and Servicing Agreement dated as of September 8, 1994, as amended (the "Purchase
Agreement"). The Contracts will be sold by the Seller to the Trust pursuant to
the Agreement. Onyx and the Seller intend that the transfer of the Contracts by
Onyx to the Seller under the Purchase Agreement constitute a "true sale" of the
Contracts to the Seller. If the transfer constitutes such a "true sale," the
Contracts and the proceeds thereof would not be part of the bankruptcy estate of
Onyx under Section 541 of the United States Bankruptcy Code (the "Bankruptcy
22
<PAGE> 24
Code") should Onyx become the subject of a bankruptcy case subsequent to the
transfer of the Contracts to the Seller.
The Seller has received the advice of counsel to the effect that, subject
to certain facts, assumptions and qualifications, in the event Onyx were to
become the subject of a voluntary or involuntary case under the Bankruptcy Code
subsequent to the transfer of the Contracts to the Seller, the transfer of the
Contracts by Onyx to the Seller pursuant to the Purchase Agreement would be
characterized as a "true sale" of the Contracts from Onyx to the Seller and the
Contracts and the proceeds thereof would not form part of Onyx's bankruptcy
estate pursuant to Section 541 of the Bankruptcy Code.
THE SERVICER
The Contracts initially will be serviced by Onyx Acceptance Corporation
("Onyx"). Onyx was incorporated in California in 1993 and reincorporated in
Delaware in 1996 in connection with its initial public offering of Common Stock,
which was successfully completed in March 1996. All stock offered in connection
with such public offering was sold. Onyx is engaged principally in the business
of providing indirect automobile financing to new car dealerships and selected
used car dealerships within California, and to an increasing degree in other
states across the country. Onyx has been in existence for over four years and 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.
Onyx is headquartered in Irvine, California and operates eleven Auto
Finance Centers, five in California and one in each of Arizona, Florida,
Georgia, Nevada, Washington and Illinois. The California centers are located in:
(i) Orange and Metropolitan Los Angeles Counties, (ii) North Los Angeles and
Ventura Counties, (iii) the San Francisco Bay Area, (iv) Riverside and San
Bernardino Counties, (v) San Diego County, and (vi) Sacramento County. Through
these offices, Onyx is able to service the most populous California counties
including Los Angeles, Riverside, San Bernardino, Ventura, Orange, San Diego,
San Francisco, Santa Clara, Alameda, San Mateo, Santa Cruz, Marin, Contra Costa,
and Sacramento counties. In addition, Onyx services Oregon and Idaho through its
Washington center. The Arizona center is located in Phoenix, and services the
Phoenix metropolitan and suburban areas as well as Texas. The Washington center
is located in Seattle and services the Seattle metropolitan and suburban areas
and Idaho. The Nevada center is located in Las Vegas and services the Las Vegas
metropolitan and suburban areas as well as Colorado and Utah. The Florida center
is located in Deerfield Beach and services Florida. The Georgia office is
located in Alpharetta and services Georgia. The Illinois office is located in
Rosemont and services the Chicago metropolitan and suburban areas and Michigan
and Indiana. Onyx currently has agreements with over 3,200 Dealers.
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 $1.2 billion from
commencement of operations through December 31, 1997. As of December 31, 1997,
Onyx had amassed a servicing portfolio of approximately $757.3 million. As of
December 31, 1997, approximately 77% of Onyx's servicing portfolio consisted of
motor vehicle installment contracts secured by used motor vehicles, and 23%
secured by new motor vehicles. As of December 31, 1997, Onyx had total assets of
approximately $146.6 million and stockholders' equity of $40.5 million.
Onyx finances acquisitions and originations of Motor Vehicle Contracts on a
short term basis through a commercial paper conduit program 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.
THE CERTIFICATES AND THE AGREEMENT
The Certificates will be issued pursuant to the Agreement, a form of which
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The following summaries of certain provisions of the
Agreement do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the provisions of the Agreement. Where
particular provisions of or terms used in the Agreement are referred
23
<PAGE> 25
to, the actual provisions (including definitions of terms) are incorporated by
reference as part of such summaries.
GENERAL
The Certificates will be offered for purchase in minimum denominations of
$1,000 and integral multiples thereof, except that one Certificate may be issued
in a denomination that includes any residual portion of the Original Pool
Balance. Each Certificate will rank pari passu with each other Certificate. The
Certificates will initially be represented by one or more Certificates
registered in the name of Cede, as nominee of DTC, except as set forth below.
The interests of holders of beneficial interests in the Certificates (each a
"Certificate Owner") will be available for purchase in denominations of $1,000
and integral multiples thereof in book-entry form only. The Seller has been
informed by DTC that DTC's nominee will be Cede. Accordingly, Cede is expected
to be the holder of record of the Certificates. Unless and until Definitive
Certificates are issued under the limited circumstances described herein, no
Certificate Owner will be entitled to receive a certificate representing such
person's interest in the Certificates. All references herein to actions by
Certificateholders shall refer to actions taken by DTC upon instructions from
its participating organizations (the "Participants") and all references herein
to distributions, notices, reports and statements to Certificateholders shall
refer to distributions, notices, reports and statements to DTC or Cede, as the
registered holder of the Certificates, as the case may be, for distribution to
Certificate Owners in accordance with DTC procedures. See "-- Book-Entry
Registration" and "-- Definitive Certificates."
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
On each Distribution Date, monthly interest (the "Interest Distribution")
in an amount equal to the product of one-twelfth of the Pass-Through Rate and
the Pool Balance as of the end of the Collection Period preceding the related
Collection Period will be distributed on a pro rata basis to the
Certificateholders of record as of the related Record Date; provided that the
Interest Distribution with respect to the first Distribution Date will include
an additional $ per $1,000 of initial principal balance of the Certificates.
The "Pool Balance" as of any date is the Aggregate Scheduled Balance of the
Contracts as of such date, excluding those Contracts which as of such date have
become Liquidated Contracts or have been repurchased by the Seller or purchased
by the Servicer. Interest will be paid from collections received on the
Contracts on deposit in the Collection Account or previously collected and
available for distribution. A "Collection Period" with respect to a Distribution
Date will be the calendar month preceding the month in which such Distribution
Date occurs; provided, that with respect to Liquidated Contracts the Collection
Period will be the period from but excluding the sixth Business Day preceding
the immediately preceding Distribution Date to and including the sixth Business
Day preceding such Distribution Date. With respect to the first Distribution
Date the "Collection Period" for Liquidated Contracts will be the period from
and including the Cut-Off Date to and including the sixth Business Day preceding
such first Distribution Date. Each Interest Distribution will be calculated on
the basis of a 360-day year consisting of twelve 30-day months. Unless and until
Definitive Certificates have been issued, distributions on each Distribution
Date will be made through the facilities of DTC and the related "Record Date"
will be the Business Day prior to such Distribution Date. If Definitive
Certificates are issued, the related "Record Date" will be the last day of the
calendar month preceding such Distribution Date. The final distribution of
principal of and interest on each Certificate will be made only upon
presentation and surrender of such Certificate on or after the Final
Distribution Date (or such earlier termination date as is provided by the
Agreement) at the office or agency of the Trustee maintained for that purpose.
On each Distribution Date, the Principal Distribution for the related
Collection Period will be passed through to the Certificateholders. The
"Principal Distribution" on any Distribution Date is the Aggregate Scheduled
Balance Decline during the related Collection Period. The Principal Distribution
on the Final Distribution Date will include the Aggregate Scheduled Balance of
all Contracts that are outstanding at the end of the Collection Period
immediately prior to the Final Distribution Date. The "Aggregate Scheduled
Balance Decline" for any Distribution Date is the amount by which the Aggregate
Scheduled Balance of the Contracts as of the beginning of the related Collection
Period exceeds the Aggregate Scheduled Balance of such Contracts as of the end
of the related Collection Period. The "Aggregate Scheduled Balance" of the
Contracts is the sum of the Scheduled Balances of each Contract. The "Scheduled
Balance" of a Rule of 78's
24
<PAGE> 26
Contract at any date is equal to the Cut-Off Date Scheduled Balance of such
Contract reduced by the portion of each scheduled payment of principal and
interest due on such Contract (the "Monthly P&I") on or prior to the date of
calculation that is allocable to principal under the Recomputed Actuarial
Method. The Scheduled Balance of a Simple Interest Contract at any date is equal
to the Cut-Off Date Scheduled Balance of such Contract reduced by the portion of
Monthly P&I paid on or prior to the date of calculation that is allocated to
principal under the Simple Interest Method. The Scheduled Balance of any
Contract that is a Liquidated Contract or that has been purchased by the
Servicer or repurchased by the Seller will equal zero. A "Liquidated Contract"
is a Contract that (a) is the subject of a Full Prepayment, (b) is a Defaulted
Contract with respect to which Liquidation Proceeds constituting, in the
Servicer's reasonable judgment, the final amounts recoverable have been received
and deposited in the Collection Account, (c) is paid in full on or after its
Maturity Date or (d) has been a Defaulted Contract for four or more Collection
Periods and as to which Liquidation Proceeds 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. A "Defaulted Contract" with
respect to any Collection Period is a Contract (a) which is, at the end of such
Collection Period, delinquent in the amount of two monthly installments of
Monthly P&I or (b) with respect to which the related Financed Vehicle has been
repossessed or repossession efforts with respect to the related Financed Vehicle
have been commenced.
The Monthly P&I for a Contract due on each Due Date is substantially equal
for the term of the Contract. The Scheduled Balance of each Contract as of the
Cut-Off Date, which will be treated as being equal to the Cut-Off Date Scheduled
Balance, will be set forth in a schedule to the Agreement. The yield of each
Contract (using the Recomputed Yield for Rule of 78's Contracts) will at least
equal %.
At the issuance of the Certificates, the initial aggregate principal amount
of the Certificates will equal the Aggregate Scheduled Balance of all the
Contracts as of the Cut-Off Date.
THE FINANCIAL GUARANTEE INSURANCE POLICY
If on any Servicer Report Date with respect to any Distribution Date the
amount on deposit in the Collection Account after giving effect to all amounts
deposited to or payable from the Payahead Account with respect to such
Distribution Date, is less than the sum of the Servicing Fee, the Principal
Distribution and Interest Distribution for such Distribution Date, the Trustee,
by delivering a notice in accordance with the Financial Guarantee Insurance
Policy shall demand payment under the Financial Guarantee Insurance Policy in an
amount equal to such deficiency. The Insurer shall pay or cause to be paid such
amount to the Trustee for credit to the Collection Account. The Trustee shall
withdraw from the Collection Account and shall pay such amount to the
Certificateholders on the related Distribution Date.
If on the Business Day preceding the Final Distribution Date, any principal
amount of Certificates is still outstanding, then the Trustee shall demand
payment on the Financial Guarantee Insurance Policy in an amount equal to the
amount by which the outstanding principal amount of the Certificates, plus
interest thereon at the Pass-Through Rate, exceeds the amount on deposit in the
Collection Account which is available for distribution on the Final Distribution
Date. The Insurer shall pay or cause to be paid such amount to the Trustee
pursuant to the Trustee's instructions for credit to the Collection Account and
on the Final Distribution Date, the Trustee shall withdraw from the Collection
Account and shall pay such amount to the Certificateholders.
BOOK-ENTRY REGISTRATION
Certificateholders may hold their Certificates through DTC if they are
Participants, or indirectly through Participants.
Cede, as nominee for DTC, will hold one or more global Certificates.
Transfers between Participants will occur in the ordinary way in accordance with
DTC rules.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities for its Participants and
facilitate the clearance and settlement of securities transactions between
Participants through electronic book-entry changes in accounts
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of its Participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and may include certain other organizations
(including the Underwriters). Indirect access to the DTC system also is
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly (the "Indirect Participants").
Certificate Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Certificates may do so only through Participants and Indirect Participants.
In addition, Certificateholders will receive all distributions of principal of
and interest on the Certificates from the Trustee, as paying agent, or its
successor in such capacity (the "Paying Agent"), through the Participants who in
turn will receive them from DTC. Under a book-entry format, Certificate Owners
may experience some delay in their receipt of payments, since such payments will
be forwarded by the Paying Agent to Cede, as nominee for DTC. DTC will forward
such payments to its Participants which thereafter will forward them to Indirect
Participants or Certificate Owners. It is anticipated that the only
"Certificateholder" will be Cede, as nominee of DTC. Certificate Owners will not
be recognized by the Trustee as Certificateholders, as such term is used in the
Agreement, and Certificate Owners will only be permitted to exercise the rights
of Certificateholders indirectly through the Participants who in turn will
exercise the rights of Certificateholders through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the Certificates and is required to
receive and transmit distributions of principal of and interest on the
Certificates. Participants and Indirect Participants with which Certificate
Owners have accounts with respect to the Certificates similarly are required to
make book-entry transfers and receive and transmit such payments on behalf of
their respective Certificate Owners. Accordingly, although Certificate Owners
will not possess Certificates, Certificate Owners will receive payments and will
be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Certificate
Owner to pledge Certificates to persons or entities that do not participate in
the DTC system, or otherwise take actions in respect of such Certificates, may
be limited due to the lack of a physical certificate for such Certificates.
DTC has advised the Seller that it will take any action permitted to be
taken by a Certificateholder under the Agreement only at the direction of one or
more Participants to whose account with DTC the Certificates are credited.
Additionally, DTC has advised the Seller that it will take such actions with
respect to the particular portion of the Certificates represented by the
undivided interests held by Participants which have directed DTC, on their
behalf, to take such action. DTC may take conflicting actions with respect to
other undivided interests to the extent that such actions are taken on behalf of
Participants whose holdings include such undivided interests.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of Certificates among participants of DTC, they are under no
obligation to perform or continue to perform such procedures and such procedures
may be discontinued at any time.
DEFINITIVE CERTIFICATES
The Certificates will be issued in fully registered, certificated form in
denominations of $1,000 and integral multiples thereof to Certificate Owners or
their nominees (the "Definitive Certificates"), rather than to DTC or its
nominee, only if (i) the Seller advises the Trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as depositary
with respect to the Certificates, and the Trustee and the Seller are unable to
locate a qualified successor, or (ii) after the occurrence of an Event of
Default, Certificate Owners representing in the aggregate more than 50% of the
Pool Balance advise the Trustee and DTC through Participants in writing that the
continuation of a book-entry system with respect to the Certificates through any
depositary is no longer in the best interest of the Certificate Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates. Upon surrender by
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DTC of the Definitive Certificates representing the Certificates and
instructions for reregistration, the Trustee will issue the Certificates as
Definitive Certificates, and thereafter the Trustee will recognize the holders
of such Definitive Certificates as holders under the Agreement (collectively,
"Holders").
Distribution of principal of and interest on the Certificates will be made
by the Paying Agent directly to Holders of Definitive Certificates in accordance
with the procedures set forth herein and in the Agreement. Interest
Distributions and Principal Distributions on each Distribution Date and on the
Final Distribution Date will be made to Holders in whose names the Definitive
Certificates were registered at the close of business on the related Record
Date. Distributions will be made by check mailed to the address of such Holder
as it appears on the certificate register. The final payment of any Certificate
(whether Definitive Certificates or the Certificate registered in the name of
DTC's nominee), however, will be made only upon presentation and surrender of
such Certificate at the office or agency specified in the notice of final
distribution to Certificateholders. The Trustee will provide such notice to
registered Certificateholders not later than the fifteenth day of the month of
such final distribution.
Definitive Certificates will be transferable and exchangeable at the
offices of the Transfer Agent and Registrar, which shall initially be the
Trustee. No service charge will be imposed for any registration of transfer or
exchange, but the Transfer Agent and Registrar may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith.
SALE AND ASSIGNMENT OF THE CONTRACTS
At the time of issuance of the Certificates, the Seller will sell and
assign to the Trustee, without recourse, the Seller's entire interest in the
Contracts and the proceeds thereof, including its security interests in the
Financed Vehicles. Each Contract will be identified in a schedule appearing as
an exhibit to the Agreement. The Trustee will, concurrently with such sale and
assignment, execute, authenticate and deliver the definitive certificates
representing the Certificates to the Underwriters against payment to the Seller
of the net purchase price of the sale of the Certificates. Pursuant to the
Purchase Agreement, prior to sale of the Contracts to the Trustee and the
issuance of the Certificates, Onyx will sell and assign to the Seller Onyx's
entire interest in the Contracts.
Pursuant to the Agreement, the Seller will represent to the Trustee and the
Trust for the benefit of holders of the Certificates and the Insurer that: (i)
each Contract contains customary and enforceable provisions such that the rights
and remedies of the holder thereof shall be adequate for realization against the
collateral of the benefits of the security; (ii) each Contract and the sale of
the related Financed Vehicle complied at the time it was made in all material
respects with all requirements of applicable federal, state, and local laws, and
regulations thereunder, including usury laws, the Federal Truth-in-Lending Act,
the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Federal
Trade Commission Act, the Fair Debt Collection Practices Act, the Fair Credit
Billing Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board's
Regulations B and Z, the Soldiers' and Sailors' Civil Relief Act of 1940, state
adaptations of the National Consumer Act and of the Uniform Consumer Credit
Code, and any other consumer credit, equal opportunity and disclosure laws
applicable to such Contract and sale; (iii) each Contract constitutes the legal,
valid, and binding payment obligation in writing of the Obligor, enforceable by
the holder thereof in all respects in accordance with its terms, subject, as to
enforcement, to applicable bankruptcy, insolvency, reorganization, liquidation
and other similar laws and equitable principles relating to or affecting the
enforcement of creditors' rights; (iv) as of the Closing Date, each Contract was
secured by a validly perfected first priority security interest in the Financed
Vehicle in favor of the Seller as secured party or all necessary action with
respect to such Contract has been taken to perfect a first priority security
interest in the related Financed Vehicle in favor of the Seller as secured
party, which security interest is assignable and has been so assigned by the
Seller to the Trust; (v) as of the Closing Date, the Seller had good and
marketable title to and was the sole owner of each Contract, free of liens,
claims, encumbrances and rights of others; (vi) as of the Closing Date, there
are no rights of rescission, offset, counterclaim, or defense, and the Seller
has no knowledge of the same being asserted or threatened, with respect to any
Contract; (vii) as of the Closing Date, the Seller had no knowledge of any liens
or claims that have been filed, including liens for work, labor, materials or
unpaid taxes relating to a Financed Vehicle, that would be liens prior to, or
equal or coordinate with, the lien granted by the Contract; (viii) except for
payment defaults continuing for a period of not more
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than 30 days as of the Cut-Off Date, the Seller has no knowledge that a default,
breach, violation, or event permitting acceleration under the terms of any
Contract exists, and the Seller has no knowledge that a continuing condition
that with notice or lapse of time would constitute a default, breach, violation
or event permitting acceleration under the terms of any Contract exists, and the
Seller has not waived any of the foregoing; (ix) each Contract requires that the
Obligor thereunder obtain comprehensive and collision insurance covering the
Financed Vehicle; (x) each Contract was acquired from a dealer with whom Onyx
ordinarily does business (except for Contracts purchased or originated by a
subsidiary of Onyx); (xi) no adverse selection procedures were utilized in
selecting the Contracts; (xii) scheduled payments under each Contract have been
applied in accordance with the method for allocating principal and interest set
forth in the Contract (either the Rule of 78's or the Simple Interest Method);
and (xiii) there is only one original of each Contract and such original is
being held by the Trustee as custodian on behalf of the Trust and Insurer. As of
the last day of the Collection Period following the Collection Period (or, if
the Seller elects, the last day of such Collection Period) during which the
Seller becomes aware or receives written notice from the Trustee or the Servicer
that a Contract does not meet any of the criteria in the Agreement and such
failure materially and adversely affects the interests of the Certificateholders
or the Insurer in a Contract, the Seller, unless it cures the failed criterion,
will repurchase the Contract from the Trustee at a price equal to the Scheduled
Balance thereof plus accrued interest (the "Repurchase Amount"). The repurchase
obligation will constitute the sole remedy available to the Certificateholders
or the Trustee for the failure of a Contract to meet any of the criteria set
forth in the Agreement.
THE COLLECTION ACCOUNT AND ELIGIBLE INVESTMENTS
The Servicer will cause all collections made on the Contracts during a
Collection Period to be deposited in or credited to an account (the "Collection
Account") established by the Servicer under the Agreement. Funds in the
Collection Account will be invested in Eligible Investments by the Trustee
acting at the direction of the Insurer. "Eligible Investments" are: (a) direct
obligations issued or fully guaranteed by the United States or any agency or
instrumentality of the United States whose obligations are backed by the full
faith and credit of the United States and, to the extent, at the time of the
investment, acceptable to the Insurer and each Rating Agency for securities
having a rating equivalent to the rating of the Certificates at the Closing
Date, the direct obligations of, or obligations fully guaranteed by, the Federal
Home Loan Mortgage Corporation and the Federal National Mortgage Association;
(b) deposits in or other obligations of any bank (including the Trustee) whose
long-term unsecured debt obligations are rated "AA-" or better by Standard &
Poor's and "Aa2" or better by Moody's or any bank acceptable to the Insurer; (c)
repurchase obligations with respect to federal government or agency securities
described in clause (a) above entered into with any bank described in clause (b)
above; (d) interest-bearing or discount corporate securities rated "AA-" or
better by Standard & Poor's and "Aa2" or better by Moody's; (e) commercial paper
having the highest rating obtainable from Standard & Poor's and Moody's; (f)
investments in money market funds or money market mutual funds having a rating
from Standard & Poor's and Moody's in the highest investment category granted
thereby, including funds for which the Trustee or any of its affiliates is
investment manager or advisor; and (g) such other securities that are acceptable
to the Insurer. Eligible Investments made with respect to the Collection Account
will mature no later than the next following Distribution Date. Income from
amounts on deposit in the Collection Account which are invested in Eligible
Investments will be paid to the Servicer monthly unless earlier directed by the
Servicer.
PAYAHEAD ACCOUNT
For Simple Interest Contracts, payments made by an Obligor in excess of the
Monthly P&I due on the current Due Date and any other amount currently due on a
Contract (including Full Prepayments) will be passed through to the
Certificateholders as part of the Principal Distribution on the Distribution
Date immediately following the Collection Period in which such payment was
collected.
For Rule of 78's Contracts, however, payments made by an Obligor in excess
of the Monthly P&I due on the current Due Date and any other amount currently
due on a Contract (other than Full Prepayments) ("Payaheads") will be initially
deposited in the Collection Account and subsequently transferred from the
Collection Account, as of each Servicer Report Date, to an account established
in the name of Bankers Trust
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Company for the benefit of the Obligors and the Certificateholders as their
interests may appear (the "Payahead Account") and shall be held in such account
until passed through in accordance with the original schedule of payments for
the related Contract or until the amount of such partial prepayment equals the
amount the Obligor would be required to pay in order to prepay the Contract in
full. The Payahead Account will be an Eligible Account. Amounts on deposit in
the Payahead Account will be invested in Eligible Investments with maturity
dates such that on each Distribution Date Monthly P&I for each Rule of 78's
Contract with respect to which a partial prepayment had been made will be
available to be passed through to Certificateholders. The Payahead Account will
not be part of the Trust and the Trustee will not have a security interest in
the Payahead Account. Earnings on Eligible Investments credited to the Payahead
Account will be paid to the Servicer. Full Prepayments during any Collection
Period will be deposited directly into the Collection Account for distribution
to Certificateholders on the Distribution Date next succeeding such Collection
Period.
PAYMENTS ON CONTRACTS
All collections on the Contracts will be deposited in or credited to the
Collection Account within two Business Days of the receipt by the Servicer of
payments from Obligors. Such collections will include: Full Prepayments and
partial prepayments (pending transfer of Payaheads on Rule of 78's Contracts to
the Payahead Account), Net Liquidation Proceeds and Net Insurance Proceeds, any
amounts deposited by Onyx or the Seller in the Collection Account to purchase
Contracts because of certain material defects in documents related to the
Contracts or certain breaches in representations or warranties regarding the
Contracts made by Onyx or the Seller in the Agreement that materially and
adversely affect the interests of the Certificateholders or the Insurer, any
amounts deposited by the Servicer in the Collection Account to purchase
Contracts as to which the Servicer has breached certain servicing covenants, and
any amounts deposited by the Servicer in the Collection Account as a result of
such entity exercising its right under certain circumstances to purchase all or
a portion of the Contracts. "Net Liquidation Proceeds" are proceeds received by
the Servicer (net of Liquidation Expenses) upon liquidation of any Defaulted
Contract. "Liquidation Expenses" are the reasonable out-of-pocket expenses
(exclusive of overhead expenses) incurred by the Servicer in realizing upon a
Defaulted Contract which are not recoverable under any insurance policy. "Net
Insurance Proceeds" are proceeds paid by any insurer under a comprehensive and
collision or vendor's single interest insurance policy related to a Contract
(other than funds used for the repair of the related Financed Vehicle or
otherwise released to the related Obligor in accordance with normal servicing
procedures) and proceeds from the Blanket Insurance Policy, after reimbursement
to the Servicer of expenses recoverable under such policy. Partial prepayments
of Rule of 78's Contracts are initially deposited in the Collection Account and
are transferred to the Payahead Account on the Servicer Report Date.
DISTRIBUTIONS
Subject to the last sentence of this paragraph, distributions on the
Certificates will be made on each Distribution Date by the Paying Agent out of
net collections on the Contracts (exclusive of amounts representing payments due
in the Collection Period in which such Distribution Date occurs and any future
Collection Periods) for the Collection Period preceding such Distribution Date
plus amounts payable from the Payahead Account. The amount of such net
collections, and amounts payable from the Payahead Account will be applied,
first, to the Servicer in payment of the Servicing Fee, second, to payment of
the Interest Distribution and the Principal Distribution to the
Certificateholders on such Distribution Date in accordance with the Agreement,
third, to the Insurer, the premium for the Financial Guarantee Insurance Policy,
and fourth, any balance shall be distributed to a separate spread account trust
to be applied in accordance with the spread account trust agreement and the
Insurance Agreement, which provide that to the extent funds are not required to
reimburse the Insurer for draws on the Financial Guarantee Insurance Policy, to
satisfy obligations owing to the Insurer or to reserve against the possibility
of future draws, amounts remaining shall be released to the beneficiaries of the
spread account trust. Any amounts distributed pursuant to clause fourth above
will not be available to make distributions to the Certificateholders on the
current or any future Distribution Date. Under the Financial Guarantee Insurance
Policy, the Insurer is obligated to provide for payment to the Trustee on each
Distribution Date of the amount, if any, by which the amount available for
distribution from
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the net collections on Contracts and amounts payable from the Payahead Account,
is less than the sum of the Servicing Fee, the Interest Distribution and the
Principal Distribution due to the Certificateholders for such Distribution Date.
In addition, on the Final Distribution Date, to the extent the amount on deposit
and available in the Collection Account, including amounts payable from the
Payahead Account, is less than all remaining unpaid interest and principal on
the Certificates, the Insurer is obligated to pay under the Financial Guarantee
Insurance Policy or cause to be paid the amount of such shortfall. See
"-- Distributions of Principal and Interest."
INSURANCE ON FINANCED VEHICLES
Each Obligor on a Contract is required to maintain insurance covering
physical damage to the Financed Vehicle of such Obligor in an amount not less
than the lesser of its maximum insurable value or the unpaid principal balance
under such Contract. Onyx or the applicable Onyx subsidiary is required to be
named as a loss payee under the policy of insurance obtained by the Obligor. The
Financed Vehicle is required to be insured against loss and damage due to fire,
theft, transportation, collision and other risks covered by comprehensive
coverage. Onyx also maintains a vendor's single interest insurance policy, as to
which the Seller has been named as an additional insured, which provides
coverage upon repossession of a Financed Vehicle in an amount equal to the
lesser of the actual cash value of such Financed Vehicle, the cost of repair or
replacement for such Financed Vehicle and the unpaid balance of the related
Contract. Since Obligors may choose their own insurers to provide the required
coverage, the specific terms and conditions of their policies vary.
Onyx has obtained the Blanket Insurance Policy from United Financial
Casualty Company with a rating of "A" by A.M. Best, with respect to each
Contract. Subject to certain conditions, the Blanket Insurance Policy covers the
lesser of actual damage to a Financed Vehicle or the amount by which the
Obligor's unpaid remaining principal balance on the related Contract exceeds the
proceeds from disposition of the Financed Vehicle. Onyx's rights under the
Blanket Insurance Policy with respect to the Contracts under the Blanket
Insurance Policy will be assigned to the Trust pursuant to the Agreement.
SERVICER REPORTS TO THE TRUSTEE AND THE INSURER
The Servicer will perform certain monitoring and reporting functions for
the Trustee and the Insurer, including the preparation and delivery on the
Servicer Report Date to the Trustee and the Insurer of a statement (the
"Distribution Date Statement") setting forth the amounts on deposit in the
Collection Account, the sources of such amounts and the amounts to be paid to
Certificateholders. The Distribution Date Statement shall also include
information regarding Contracts purchased by the Servicer or repurchased by the
Seller.
REPURCHASE OF CONTRACTS
The Servicer will have the option to purchase the remaining Contracts, and
thereby cause early retirement of the Certificates, on any Distribution Date as
of which the Pool Balance (after giving effect to the Principal Distribution
otherwise to be made on such Distribution Date) has declined to 10% or less of
the Original Pool Balance. Any such purchase must be effected at a price equal
to the Aggregate Scheduled Balance of the Contracts in the Trust on the date of
repurchase, plus accrued interest thereon and all amounts due to the Insurer
under the Insurance Agreement. In addition, Onyx or the Seller is required to
purchase or repurchase, respectively, Contracts under certain circumstances if
certain representations and warranties made by Onyx or the Seller respectively
are incorrect in any manner that materially and adversely affects the interest
of the Certificateholders or the Insurer. Additionally, the Servicer is required
to purchase Contracts as to which the Servicer has breached certain servicing
covenants.
SERVICING FEE
The Servicer will be entitled to compensation for the performance of its
obligations under the Agreement. The Servicer shall be entitled to receive on
each Distribution Date an amount equal to the product of one-
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twelfth of 1.00% per annum (the "Servicing Fee Rate") multiplied by the Pool
Balance as of the end of the Collection Period preceding the related Collection
Period. As additional compensation, the Servicer or its designee shall be
entitled to retain all late payment charges, extension fees and similar items
paid in respect of the Contracts. The Servicer or its designee will also receive
as servicing compensation reinvestment earnings on Eligible Investments and the
amount, if any, by which the outstanding principal balance based on the Rule of
78's of a Contract that is subject to a Full Prepayment exceeds the Scheduled
Balance of such Contract. The Servicer shall pay all expenses incurred by it in
connection with its servicing activities under the Agreement and shall not be
entitled to reimbursement of such expenses except to the extent they constitute
Liquidation Expenses or expenses recoverable under an applicable insurance
policy.
WAIVERS AND EXTENSIONS
The 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, may in its discretion (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. The
maturity date of a Contract, however, may not be extended more than ninety (90)
days past the originally scheduled maturity date, and in no event beyond the
Final Distribution Date.
REALIZATION UPON DEFAULTED CONTRACTS
The Servicer will liquidate any Contract that comes into and continues in
default and as to which no satisfactory arrangements can be made for collection
of delinquent payments. Such liquidation may be through repossession or sale of
the Financed Vehicle securing such Contract or otherwise. In connection with
such repossession or other conversion, the Servicer will follow such procedures
as are normal and usual for holders of motor vehicle retail installment sales
contracts. In this regard, the Servicer may sell the Financed Vehicle at a
repossession or other sale.
DESCRIPTION OF THE INSURER
The following information with respect to the Insurer has been furnished by
the Insurer and none of Onyx, the Seller or the Underwriters have made any
independent investigation of such information.
The Insurer is the principal operating subsidiary of MBIA Inc., a New York
Stock Exchange listed company (the "Company"). The Company is not obligated to
pay the debts of or claims against the Insurer. The Insurer is domiciled in the
State of New York and licensed to do business in and subject to regulation under
the laws of all 50 states, the District of Columbia, the Commonwealth of Puerto
Rico, the Commonwealth of the Northern Mariana 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, the Company 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, as well as its unearned premiums and
contingency reserves, to the Insurer and the Insurer has reinsured CMAC's net
outstanding exposure. The Company is not obligated to pay the debts of or claims
against CMAC.
As of December 31, 1996 the Insurer had admitted assets of $4.4 billion
(audited), total liabilities of $3.0 billion (audited), and total capital and
surplus of $1.4 billion (audited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. As of Septem-
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ber 30, 1997, the Insurer had admitted assets of $5.1 billion (unaudited), total
liabilities of $3.4 billion (unaudited), and total capital and surplus of $1.7
billion (unaudited) determined in accordance with statutory accounting practices
prescribed or permitted by insurance regulatory authorities.
Furthermore, copies of the Insurer's year end financial statements prepared
in accordance with statutory accounting practices are available without charge
from the Insurer. A copy of the Annual Report on Form 10-K of the Company is
available from the Insurer or the Securities and Exchange Commission. The
address of the Insurer is 113 King Street, Armonk, New York 10504. The telephone
number of the Insurer is (914) 273-4545.
The Financial Guarantee Insurance Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.
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 such 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 as to 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 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 the
Certificates. The Insurer does not guaranty the market price of the Certificates
nor does it guaranty that the ratings on the Certificates will not be revised or
withdrawn.
Audited financial statements of the Insurer as of December 31, 1996 and
1995 and for each of the three years in the period ended December 31, 1996 are
included in this Prospectus beginning at F-1. Unaudited financial statements of
the Insurer for the nine-month periods ended September 30, 1996 and September
30, 1997 are included in this Prospectus beginning at F-27. Such financial
statements have been prepared on the basis of generally accepted accounting
principles. Copies of the Insurer's 1996 year-end audited financial statements
prepared in accordance with statutory accounting practices are available from
the Insurer. The address of the Insurer is 113 King Street, Armonk, New York
10504.
ADDITIONAL PROVISIONS OF THE AGREEMENT
STATEMENTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Trustee will include with each distribution
to each Certificateholder the Distribution Date Statement setting forth for such
Distribution Date the following information:
(i) the amount of the distribution to Certificateholders allocable to
principal;
(ii) the amount of the distribution to Certificateholders allocable to
interest;
(iii) the certificate distribution amount for such Distribution Date;
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(iv) the premiums payable to the Insurer and the amount to be
deposited in the spread account;
(v) the aggregate Servicing Fee paid to the Servicer with respect to
the Contracts for the related Collection Period;
(vi) the number of, and aggregate amount of monthly principal and
interest payments due on, the Contracts which are delinquent as
of the end of the related Collection Period presented on a
30-day, 60-day and 90-day basis;
(vii) the amount available in the Collection Account for payment of
the Certificate distribution amount and the Servicing Fee and
the amount, if any, required from the Insurer pursuant to the
Financial Guarantee Insurance Policy to pay any shortfall;
(viii) the aggregate amount of Liquidation Proceeds received for
Defaulted Contracts;
(ix) the net credit losses for the Collection Period;
(x) the number and net outstanding balance of Contracts for which
the Financed Vehicle has been repossessed;
(xi) the Pool Balance; 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, but
not later than the latest date permitted by law, commencing with the year ended
December 31, 1998, the Trustee and the Paying Agent shall furnish to each person
who on any Record Date during such calendar year shall have been a registered
Certificateholder a statement containing the sum of the amounts described in
(i), (ii) and (viii) above and such other information in respect of the
Certificates as may be reasonably necessary for such Certificateholder's
preparation of federal income tax returns. See "Certain Federal Income Tax
Consequences."
EVIDENCE AS TO COMPLIANCE
The Agreement will provide that a firm of independent public accountants
will furnish to the Trustee and the Insurer, on or before each March 15 after
the end of each fiscal year of the Servicer, beginning with the fiscal year
ended December 31, 1998, a statement as to compliance by the Servicer during the
preceding fiscal year with certain standards relating to the servicing of the
Contracts.
The Agreement will also provide for delivery to the Trustee and the
Insurer, on each March 15 after the end of each fiscal year of the Servicer,
commencing with the fiscal year ended December 31, 1998, of a certificate signed
by an authorized officer of the Servicer stating that the Servicer has fulfilled
its obligations under the Agreement throughout the preceding fiscal year or, if
there has been a default in the fulfillment of any such obligation, describing
each such default.
Copies of such statements and certificates may be obtained by
Certificateholders by a request in writing addressed to the Trustee.
CERTAIN MATTERS REGARDING THE SERVICER
The Agreement will provide that the Servicer may not resign from its
obligations and duties as Servicer thereunder except upon determination that the
Servicer's performance of such duties is no longer permissible under applicable
law. No such resignation will become effective until the Trustee or a successor
servicer has assumed the Servicer's servicing obligations and duties under the
Agreement. See "-- The Trustee."
The Agreement will further provide that neither the Servicer nor any of its
directors, officers, employees, and agents shall be under any liability to the
Trust or the Certificateholders for taking any action or for refraining from
taking any action pursuant to the Agreement, or for errors in judgment;
provided, however, that neither the Servicer nor any such person will be
protected against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence (except errors in judgment) in the
performance of duties or by reason of reckless disregard of obligations and
duties thereunder. In addition, the Agreement will provide that the Servicer is
under no obligation to appear in, prosecute or defend any legal action that is
not incidental to the Servicer's servicing responsibilities under the Agreement
and that, in its
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opinion, may cause it to incur any expense or liability. The Servicer may,
however, undertake any reasonable action that it may deem necessary or desirable
in respect of the Agreement and the rights and duties of the parties thereto and
the interests of the Certificateholders thereunder. In such event, the legal
expenses and costs of such action and any liability resulting therefrom will be
expenses, costs and liabilities of the Trust, and the Servicer will be entitled
to be reimbursed therefor out of the Collection Account. Any such
indemnification or reimbursement could reduce the amount otherwise available for
distribution to Certificateholders.
Any corporation into which the Servicer may be merged or consolidated, or
any corporation resulting from any merger, conversion or consolidation to which
the Servicer is a party or any corporation succeeding to the business of the
Servicer, or, with respect to the Servicer's obligation as the Servicer, will be
the successor of the Servicer under the Agreement.
EVENTS OF DEFAULT
"Events of Default" under the Agreement will consist of: (i) any failure by
the Servicer to deposit in or credit to the Collection Account or the Payahead
Account any amount required to be so deposited or credited, which failure
continues unremedied for three Business Days after written notice from the
Trustee or the Insurer is received by the Servicer or discovery by the Servicer;
(ii) any failure by the Servicer to deliver to the Insurer or the Trustee
certain reports required by the Agreement by the Servicer Report Date or to
perform certain other covenants under the Agreement; (iii) any failure by the
Servicer or the Seller duly to observe or perform in any material respect any
other covenants or agreements of the Servicer or the Seller in the Agreement,
which failure materially and adversely affects the rights of Certificateholders,
the Insurer or the Trustee and which continues unremedied for 30 days after the
giving of written notice of such failure (A) to the Servicer or the Seller as
the case may be, by the Trustee or the Insurer or (B) to the Servicer or the
Seller, as the case may be, and to the Trustee by Holders of Certificates
evidencing not less than 25% of the Pool Balance or by the Insurer; (iv) certain
events of insolvency, readjustment of debt, marshalling of assets and
liabilities, or similar proceedings and certain actions by the Servicer or
Seller indicating its insolvency, reorganization pursuant to bankruptcy or
similar proceedings or inability to pay its obligations; (v) any breach of any
of the representations and warranties of the Servicer or the Seller (except for
any breaches relating to Contracts repurchased by the Seller or the Servicer)
which breach has a material adverse effect on the Trust and which continues for
30 days after the giving of notice of such breach to the Seller or the Servicer,
as the case may be, by the Trustee or the Holders of Certificates evidencing not
less than 25% of the Pool Balance or the Insurer; (vi) any change in control of
the Servicer in violation of the covenant set forth in Section 7.2 of the
Agreement; and (vii) any determination by the Insurer that the quality of
performance of the Servicer is not in compliance with either the terms of the
Agreement or that the Servicer's performance is not adequate, as measured in
accordance with industry standards, in respect of all contracts serviced by the
Servicer.
RIGHTS UPON EVENT OF DEFAULT
As long as an Event of Default under the Agreement remains unremedied, the
Trustee, the Insurer or Holders of Certificates evidencing not less than 25% of
the Pool Balance may terminate all the rights and obligations of the Servicer
under the Agreement, whereupon the Trustee will succeed to all the
responsibilities, duties and liabilities of the Servicer under the Agreement and
will be entitled to similar compensation arrangements; provided, however, that
the Trustee will not be obligated to purchase Contracts if certain
representations and warranties of Onyx as Servicer prove incorrect or if certain
covenants of Onyx as Servicer are breached. In the event that the Trustee is
unwilling or unable so to act, it may appoint, with the consent of the Insurer,
or petition a court of competent jurisdiction for the appointment of a successor
with a net worth of at least $50,000,000 and whose regular business includes the
servicing of automobile retail installment sale contract receivables.
The Holders of Certificates evidencing not less than 51% of the Pool
Balance (not including any Certificates held by the Seller, the Servicer or any
affiliate) may, on behalf of all Certificateholders, with the consent of the
Insurer, waive any default by the Servicer or the Seller in the performance of
its obligations, other than failure to make any required deposits to or payments
from the Collection Account.
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The Trustee is under no obligation to exercise any of the trusts or powers
vested in it by the Agreement or to make any investigation of matters arising
thereunder or to institute, conduct, or defend any litigation thereunder or in
relation thereto at the request, order, or direction of any of the
Certificateholders, unless such Certificateholders have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby. No Certificateholder will have any
right under the Agreement to institute any proceeding with respect to the
Agreement, unless such Holder previously has given to the Trustee written notice
of default and unless the Holders of Certificates evidencing not less than 25%
of the Pool Balance with the consent of the Insurer have made written request
upon the Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable indemnity and the Trustee
for 30 days has neglected or refused to institute any such proceedings.
Notwithstanding any provision in the Agreement to the contrary, in the
event that the Insurer is in default under the Financial Guarantee Insurance
Policy or is subject to any insolvency proceeding, the Insurer shall not have
the right to terminate the Servicer, or to control or direct the actions of the
Seller, the Servicer or the Trustee pursuant to the terms of the Agreement, nor
shall the consent of the Insurer be required with respect to any action (or
waiver of a right to take action) to be taken by the Seller, the Servicer or the
Trustee; provided, that the consent of the Insurer shall be required at all
times with respect to any amendment of the Agreement.
AMENDMENT
The Agreement may be amended by the Seller, the Servicer and the Trustee,
without the consent of the Certificateholders but with the consent of the
Insurer, to cure any ambiguity, correct or supplement any provision therein
which may be inconsistent with any other provision therein, or make any other
provisions with respect to matters or questions arising under such Agreement
which are not inconsistent with the provisions of the Agreement; provided that
such action will not materially and adversely affect the interest of any
Certificateholder. Any such amendment shall not be deemed to materially and
adversely affect the interests of any Certificateholder if the person requesting
the 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 Certificates by such Rating Agency, without regard to the
Financial Guarantee Insurance Policy.
The Agreement may also be amended by the Seller, the Servicer and the
Trustee with the consent of the Holders of Certificates evidencing not less than
51% of the Pool Balance and the Insurer for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of the
Agreement or of modifying in any manner the rights of Certificateholders;
provided, however, that no such amendment may (i) increase or reduce in any
manner the amount of, or accelerate or delay the timing of, collection of
payments on Contracts or distributions required to be made on any Certificate or
(ii) reduce the aforesaid percentage required to consent to any such amendment,
without the consent of all Certificateholders.
LIST OF CERTIFICATEHOLDERS
Upon written request of the Servicer, the Trustee will provide to the
Servicer within 15 days after receipt of such request a list of the names and
addresses of all Certificateholders of record as of the most recent Record Date.
Upon written request by three or more Certificateholders or by Holders of
Certificates evidencing not less than 25% of the Pool Balance, the Trustee will
afford such Certificateholders access during business hours to the current list
of Certificateholders for purposes of communicating with other
Certificateholders with respect to their rights under the Agreement.
The Agreement will not provide for the holding of any annual or other
meetings of Certificateholders.
TERMINATION
The obligations of the Seller, the Servicer and the Trustee to the
Certificateholders pursuant to the Agreement will terminate upon the earlier of
(i) the maturity or other liquidation of the last Contract and the disposition
of any amounts received upon liquidation of any remaining Contracts that are
part of the Trust
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Property and (ii) (a) the payment to Certificateholders of all amounts required
to be paid to them pursuant to the Agreement and the disposition of all property
held as part of the Trust, (b) the termination of the Financial Guarantee
Insurance Policy in accordance with its terms and the surrender of the Financial
Guarantee Insurance Policy to the Insurer for cancellation, (c) the payment of
all amounts owed to the Trustee under the Agreement and (d) the payment of all
amounts owed to the Insurer under the Insurance Agreement and the spread account
trust agreement. In order to avoid excessive administrative expense, the
Servicer is permitted at its option to purchase the remaining Contracts from the
Trust on any Distribution Date as of which the Pool Balance (after giving effect
to the Principal Distribution otherwise to be made on such Distribution Date)
has declined to 10% or less of the Original Pool Balance at a price equal to the
Aggregate Scheduled Balance of such Contracts on the date of repurchase plus
accrued interest on the Contracts and all amounts due to the Insurer under the
Insurance Agreement. The Trustee will give written notice of termination to each
Certificateholder of record. The final distribution to any Certificateholder
will be made only upon surrender and cancellation of such Certificateholder's
Certificate at an office or agency of the Trustee specified in the notice of
termination. Any funds remaining in the Trust, after the Trustee has taken
certain measures to locate a Certificateholder and such measures have failed,
will be distributed to a charity designated by the Servicer.
THE TRUSTEE
The Trustee will not make any representations as to the validity or
sufficiency of the Agreement, the Certificates, or any Contracts or related
documents, or the investment of any monies by the Servicer before such monies
are deposited in or credited to the Collection Account. The Trustee has not
examined the Contracts. If no Event of Default has occurred, the Trustee will be
required to perform only those duties specifically required of it under the
Agreement. Generally, those duties are limited to the receipt of the various
certificates, reports or other instruments required to be furnished to the
Trustee under the Agreement, the making of distributions to Certificateholders
in the amounts specified in certificates provided by the Servicer and drawing on
the Financial Guarantee Insurance Policy if required to make distributions to
the Certificateholders.
Bankers Trust Company will be the Trustee under the Agreement. The Trustee,
and any of its affiliates, may hold Certificates in their own names. In
addition, for the purpose of meeting the legal requirements of certain local
jurisdictions, the Servicer and the Trustee acting jointly shall have the power
to appoint co-trustees or separate trustees of all or any part of the Trust. In
the event of such appointment, all rights, powers, duties and obligations
conferred or imposed upon the Trustee by the Agreement shall be conferred or
imposed upon the Trustee and such separate trustee or co-trustee jointly, or, in
any jurisdiction in which the Trustee shall be incompetent or unqualified to
perform certain acts, singly upon such separate trustee or co-trustee who shall
exercise and perform such rights, powers, duties and obligations solely at the
direction of the Trustee.
The Trustee may resign at any time, in which event a successor trustee will
be appointed pursuant to the terms of the Agreement. The Trustee may be removed
if it ceases to be eligible to continue as such under the Agreement or if the
Trustee becomes insolvent. Any resignation or removal of the Trustee and
appointment of a successor does not become effective until acceptance of the
appointment by the successor trustee.
The Trustee shall be entitled to a fee payable on an annual basis by the
Servicer. The Agreement will further provide that the Trustee will be entitled
to indemnification by the Servicer for, and will be held harmless against, any
loss, liability, or expense incurred by the Trustee not resulting from the
Trustee's own willful misfeasance, bad faith, or negligence (other than errors
in judgment) or by reason of breach of any of their respective representations
or warranties set forth in the Agreement, except to the extent that such loss,
liability, or expense relates to a specific Contract or Contracts or certain
taxes that could be asserted against the Trustee, the Trust or the Contracts, in
which case the Trustee would be entitled to be indemnified by the Trust.
Onyx and the Insurer may maintain other banking relationships with the
Trustee in the ordinary course of business.
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CERTAIN LEGAL ASPECTS OF THE CONTRACTS
GENERAL
The Contracts are "chattel paper" as defined in the Uniform Commercial Code
("UCC") as in effect in California. Pursuant to the UCC, an ownership interest
in chattel paper may be perfected by possession of the collateral or filing a
UCC-1 financing statement with the California Secretary of State.
Under the Agreement, the Trustee initially will have custody of the
Contracts following the sale of the Contracts to the Trust and will hold the
Contracts as bailee for the benefit of the Trust. Upon receiving the prior
consent of the Insurer, which cannot be unreasonably withheld, the Servicer may
be appointed by the Trustee to act as the custodian of the Contracts. Upon such
appointment physical possession of the Contracts would shift from the Trustee to
the Servicer. While the Contracts will not be physically marked to indicate the
ownership interest thereof by the Trust, UCC-1 financing statements will be
filed with the California Secretary of State to perfect by filing and give
notice of the Trust's ownership interest in the Contracts. If, through
inadvertence or otherwise, any of the Contracts were sold to another party who
purchased such Contracts in the ordinary course of its business and took
possession of such Contracts, the purchaser would acquire an interest in the
Contracts superior to the interests of the Trust if the purchaser acquired the
Contracts in good faith, for value and without actual knowledge of the Trust's
ownership interest in the Contracts.
SECURITY INTERESTS IN THE FINANCED VEHICLES
All Financed Vehicles were either registered in the State of California or
one of the other states listed above under "The Contracts" at the time of
origination of the related Contract. Perfection of security interests in motor
vehicles is generally governed by state certificate of title statutes or by the
motor vehicle registration laws of the state in which each vehicle is located.
Security interests in vehicles registered in the State of California (the state
in which approximately 51.92% of the Financed Vehicles as of the Cut-Off Date
will be located) may be perfected by depositing with the California Department
of Motor Vehicles a properly endorsed certificate of title showing the secured
party as legal owner or an application for an original registration together
with an application for registration of the secured party as legal owner. The
Seller will warrant to the Trust in the Agreement 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 the 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,
the Trust may not have a first priority security interest in such Financed
Vehicle.
The Seller will sell the Contracts and assign the security interest in each
Financed Vehicle to the Trust. However, because of the administrative burden and
expense, the Trust will not amend the certificates of title to identify the
Trust as the new secured party. Accordingly, Onyx 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 Trust
as the new secured party on the certificate of title that, through fraud or
negligence, the security interest of the Trust could be released.
In the absence of fraud or forgery by the Financed Vehicle owner or
administrative error by state recording officials, notation of the lien of Onyx
or a subsidiary of Onyx will be sufficient to protect the Trust against the
rights of subsequent purchasers of a Financed Vehicle or subsequent lenders who
take a security interest in a Financed Vehicle. If there are any Financed
Vehicles as to which Onyx or a subsidiary of Onyx has failed to perfect the
security interest assigned to the Trust, such security interest would be
subordinate to, among others, subsequent purchasers of the Financed Vehicles and
holders of perfected security interests.
In the event that the owner of a Financed Vehicle relocates to a state
other than the state in which the Financed Vehicle was registered at the
inception of the Contract, under the laws of most states the perfected security
interest in the Financed Vehicle would continue for four months after such
relocation and thereafter, in most instances, until the owner re-registers the
Financed Vehicle in such state. A majority of states
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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, reregistration could
defeat perfection. In the ordinary course of servicing its portfolio of motor
vehicle installment sales contracts, Onyx takes steps to effect such
re-perfection upon receipt of notice of registration or information from the
Obligor as to relocation. Similarly, when an Obligor under a Contract sells a
Financed Vehicle, the Servicer must provide the owner with the certificate of
title, or the Servicer will receive notice as a result of its lien 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 Agreement, Onyx, at its cost, is obligated to maintain the continuous
perfection of the security interest of Onyx or its subsidiary in the Financed
Vehicle.
Under the law of California and most other states, liens for unpaid taxes,
storage of and repairs performed on a motor vehicle take priority even over a
perfected security interest. Under the laws of certain states, however, certain
liens for storage of and repairs performed on a motor vehicle do not take
priority over a perfected security interest. The Internal Revenue Code of 1986,
as amended, also grants priority to certain federal tax liens over the lien of a
secured party. The Seller will represent in the Agreement that as of the initial
issuance of the Certificates no such state or federal liens exist with respect
to any Financed Vehicle securing payment on any Contract. However, such liens
could arise at any time during the term of a Contract. No notice will be given
to the Servicer in the event such a lien arises.
ENFORCEMENT OF SECURITY INTERESTS IN FINANCED VEHICLES
The Servicer, on behalf of the Trust, may take action itself to enforce the
security interest in Financed Vehicles with respect to Defaulted Contracts by
repossession and resale of such Financed Vehicles. In addition to the provisions
of the UCC, under California law the Contracts originated in California are
subject to the provisions of the Rees-Levering Motor Vehicle Sales and Finance
Act (the "Rees-Levering Act"). In California the provisions of the Rees-Levering
Act control in the event of a conflict with the provisions of the UCC. Contracts
originated in states other than California may be subject to retail installment
sales laws and similar laws of those states. Under the UCC and laws applicable
in most states, a creditor can, without prior notice to the debtor, repossess a
motor vehicle securing a motor vehicle installment contract by voluntary
surrender, by "self-help" repossession without breach of peace, and by judicial
process. The Rees-Levering Act in California and similar laws in other states
place restrictions on repossession sales, including notice to the debtor of the
intent to sell and of the debtor's right to redeem the vehicle. In addition, the
UCC requires commercial reasonableness in the conduct of the sale.
In the event of such repossession and resale of a Financed Vehicle, the
Servicer for the benefit of the Trust would be entitled to be paid out of the
sale proceeds before such proceeds could be applied to the payment of the claims
of unsecured creditors or the holders of subsequently perfected security
interests or, thereafter, to the debtor.
Under the UCC and laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from a debtor for any deficiency on repossession
and resale of the motor vehicle securing such debtor's motor vehicle installment
contract. Under California law and the law of most other states the proceeds
from the resale of the motor vehicle securing the debtor's motor vehicle
installment contract are applied first to the expenses of resale and
repossession, and if the remaining proceeds are not sufficient to repay the
indebtedness, the creditor may seek a deficiency judgment for the balance. The
priority of application of proceeds from the sale of repossessed vehicles under
the Contracts originated in most other states is similar.
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Certain other statutory provisions, including federal and state bankruptcy
and insolvency laws, may limit or delay the ability of the creditor to repossess
and resell collateral or enforce a deficiency judgment.
In the event that deficiency judgments are not satisfied, are satisfied at
a discount or are discharged, in whole or in part, in bankruptcy proceedings,
including proceedings under Chapters 7 or 13 of the United States Bankruptcy
Code, the loss will be borne by the Trust.
OTHER MATTERS
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 a seller (and certain related creditors and their assigns) in a
consumer credit transaction to all claims and defenses which the Obligor could
assert against the seller of goods. Liability under the FTC Rule is limited to
amounts paid under a Contract; however, the Obligor may also assert the FTC Rule
to set off remaining amounts due as a defense against a claim brought by the
Trustee against such Obligor.
The courts have imposed general equitable principles on repossession and
litigation involving deficiency balances. These equitable principles may have an
effect of relieving an Obligor from some or all of the legal consequences of a
default.
Numerous other federal and state consumer protection laws and related
regulations impose requirements applicable to the origination, sale and
servicing of the Contracts, including the Federal Truth-in-Lending Act, the
Federal Trade Commission Act, the Fair Credit Billing Act, the Fair Credit
Reporting Act, the Equal Credit Opportunity Act, the Fair Debt Collection
Practices Act, the Rees-Levering Act, the Magnuson-Moss Warranty Act, the
Federal Reserve Board's Regulations B and Z, the Soldiers' and Sailors' Civil
Relief Act of 1940, state adoptions of the National Consumers Act and of the
Uniform Consumer Credit Code and other state motor vehicle retail installment
sales acts and similar laws. The Seller has represented to the Trust in the
Agreement that each of the Contracts, and the sale of the related Financed
Vehicles sold thereunder, complied with all material requirements of such laws
and the regulations issued pursuant thereto.
REPURCHASE OBLIGATION
Under the Agreement, the Seller will make representations and warranties
relating to validity, subsistence, perfection and priority of the security
interest in each Financed Vehicle as of the Closing Date. See "The Certificates
and the Agreement -- Sale and Assignment of the Contracts." Accordingly, if any
defect exists in the perfection of the security interest in any Financed Vehicle
as of the Closing Date and such defect adversely affects the Trust's interest in
the related Contract, such defect would constitute a breach of a warranty under
the Agreement and would create an obligation of the Seller to repurchase such
Contract unless the breach is cured. Additionally, in the Agreement the Servicer
will make certain representations, warranties and affirmative covenants
regarding, among other things, the maintenance of the security interest in each
Financed Vehicle, the breach of which would create an obligation of the Servicer
to purchase any affected Contract from the Trust unless the breach is cured.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material anticipated Federal income tax
consequences of the purchase, ownership, and disposition of Certificates. This
summary is based upon laws, regulations, rulings, and decisions currently in
effect, all of which are subject to change (which change may be retroactive).
The discussion does not deal with all Federal tax consequences applicable to all
categories of investors, some of which may be subject to special rules. In
addition, this summary is generally limited to investors who will hold the
Certificates as "capital assets" (generally, property held for investment)
within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code"). Consequences to individual investors of investment in the
Certificates will vary according to their individual circumstances. In addition,
this summary generally does not address foreign, state or local taxation issues.
Accordingly, investors should consult their
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own tax advisors to determine the Federal, state, local, and other tax
consequences of the purchase, ownership, and disposition of the Certificates.
Prospective investors should note that no rulings have been or will be sought
from the Internal Revenue Service (the "IRS") with respect to any of the Federal
income tax consequences discussed below, and no assurance can be given that the
IRS will not take contrary positions.
BECAUSE MANY OF THE ISSUES DISCUSSED HEREIN ARE COMPLEX AND THEIR
RESOLUTION IS UNCERTAIN, INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS TO
DETERMINE THE FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP, AND DISPOSITION OF THE CERTIFICATES.
FEDERAL INCOME TAX STATUS OF THE TRUST
In the opinion of Andrews & Kurth L.L.P., special tax counsel to the
Seller, the Trust will be classified as a grantor trust and not as an
association taxable as a corporation for Federal income tax purposes.
Accordingly, subject to the discussion below, each Certificate Owner will be
subject to Federal income taxation as if it owned directly its interest in each
asset owned by the Trust and paid directly its share of reasonable expenses paid
by the Trust.
TREATMENT OF CERTIFICATE OWNERS' INTEREST IN TRUST ASSETS
Each Certificate Owner could be considered to own either (i) an undivided
interest in a single debt obligation held by the Trust and having a principal
amount equal to the total stated principal amount of the Contracts and an
interest rate equal to the Pass-Through Rate or (ii) an interest in each of the
Contracts and any other Trust Property. The Agreement will express the intent of
the Seller to sell, and the Certificateholders to purchase, the Contracts (other
than the Retained Strip (as defined below)) and the Seller, the
Certificateholders, and each Certificate Owner, by accepting a beneficial
interest in a Certificate, will agree to treat the Certificates as ownership
interests in the Contracts and any other Trust Property.
Treatment as Debt Obligation. If a Certificate Owner were considered to
own an undivided interest in a single debt obligation, rather than reporting its
share of the interest accrued on each Contract it would, in general, be required
to include in income interest accrued or received on the principal amount of the
Certificates at the Pass-Through Rate in accordance with its usual method of
accounting.
The Certificates would be subject to the original issue discount ("OID")
rules, generally in the manner discussed below with respect to Stripped
Contracts. However, in determining whether such OID is de minimis, the weighted
average life of the Certificates would be determined using a reasonable
assumption regarding anticipated prepayments (a "Prepayment Assumption"). OID
includible in income for any accrual period (generally, the period between
payment dates) would generally be calculated using a Prepayment Assumption and
an anticipated yield established as of the date of initial sale of the
Certificates, and would increase or decrease to reflect prepayments at a faster
or slower rate than anticipated. The Certificates would also be subject to the
market discount provisions of the Code to the extent that a Certificate Owner
purchased such Certificates at a discount from the initial issue price (as
adjusted to reflect prior accruals of original issue discount).
The remainder of the discussion herein assumes that a Certificate Owner
will be treated as owning an interest in each Contract (and the proceeds
thereof) and any other Trust Property, although the Servicer will report
information on an aggregate basis.
SPECIFIC TAX ISSUES CONCERNING RULE OF 78'S CONTRACTS
For the Rule of 78's Contracts, the purchase price deemed paid by the
Certificate Owners for each Contract will reflect the principal balance of such
Contract as of the Cut-Off Date based on the Rule of 78's (the "Cut-Off Date
Scheduled Balance"). Because the Rule of 78's allocates a greater portion of the
early payments under a Contract to interest than the actuarial method, the
Cut-Off Date Scheduled Balance of each Contract exceeds the amount that would
have been its principal balance as of the Cut-Off Date if such Contract had been
amortized from origination under an actuarial method (such amount, the "Cut-Off
Date Actuarial Balance").
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<PAGE> 42
The Trustee and the Servicer intend to account for interest and principal
on the Rule of 78's Contracts using the actuarial method, but based on the
Cut-Off Date Scheduled Balance rather than the Cut-Off Date Actuarial Balance.
As described above, the remaining payments due on a Rule of 78's Contract are
not sufficient to amortize the Cut-Off Date Scheduled Balance of such Contract
at a yield equal to its APR. Accordingly, in order to amortize the Cut-Off Date
Scheduled Balance over the remaining term of the Rule of 78's Contract using the
actuarial method of accounting, the Servicer will recompute the effective yield
of such Contract based on the remaining payments due and the Cut-Off Date
Scheduled Balance (such yield, stated as a per annum rate, the "Recomputed
Yield") and will allocate each payment of Monthly P&I between principal and
interest on each Contract beginning with the Cut-Off Date Scheduled Balance by
applying the Recomputed Yield instead of the APR.
The proper tax method for accounting for the Rule of 78's Contracts is
uncertain. As described above, the Servicer and the Trustee intend to report
income to the Certificate Owners based on the Recomputed Actuarial Method (as
defined below) and assuming for purposes of calculating OID, that the income on
the Scheduled Balance of each Contract, at a rate equal to the Recomputed Yield
minus the Retained Strip, would be treated as "qualified stated interest." See
"-- Discount and Premium -- Original Issue Discount on Stripped Contracts."
Alternatively, the IRS could take the position that a Certificate Owner that
amortizes a Rule of 78's Contract under the Recomputed Actuarial Method (rather
than under the Rule of 78's method) has actually acquired a Contract having an
actual principal balance equal to the Cut-Off Date Actuarial Balance at a
premium equal to the difference between the Cut-Off Date Actuarial Balance and
the Cut-Off Date Scheduled Balance, and that the actuarial method must be
applied from the time of a Contract's origination using its actual APR (such
method, the "Origination Actuarial Method"). In that event (unless the
Certificate Owner were to make a Total Accrual Election, as described
immediately below) it appears likely that the Certificate Owner would be
required to include income at a rate equal to the full APR of the Contract
(minus the Retained Strip) on a balance equal to the Cut-Off Date Actuarial
Balance amortized based on the APR and an actuarial method, and should be
entitled to amortize the difference between the Cut-Off Date Scheduled Balance
and the Cut-Off Date Actuarial Balance to the extent it had a valid election in
effect. See "-- Discount and Premium."
As an alternative to separately accruing stated interest, OID, de minimis
OID, market discount, de minimis market discount, unstated interest, premium,
and acquisition premium, a Certificate Owner may elect to include all income
that accrues on the Certificate using the constant yield method. If a
Certificate Owner makes this election (the "Total Accrual Election"), income on
a Certificate will be calculated as though (i) the issue price of the
Certificate were equal to the Certificate Owner's adjusted basis in the
Certificate immediately after its acquisition by the Certificate Owner; (ii) the
Certificate were issued on the Certificate Owner's acquisition date; and (iii)
none of the interest payments on the Certificate are "qualified stated interest"
payments. A Certificate Owner may make such an election for a Certificate that
has premium or market discount, respectively, only if the Certificate Owner
makes, or has previously made, an election to amortize bond premium or to
include market discount in income currently.
If a Rule of 78's Contract is prepaid in full, any amount collected from
the Obligor pursuant to the Contract in excess of the principal balance thereof
and accrued interest thereon, computed using the actuarial method and the
Recomputed Yield, as described above (such method, the "Recomputed Actuarial
Method" and such amount, the "Recomputed Principal Balance"), will be paid to
the owner of retained yield. Such amount may be treated as additional income in
the nature of a prepayment penalty to a Certificate Owner who had reported
income with respect to the Contracts on the Recomputed Actuarial Method, and
would be deductible only to the extent described below. Alternatively, such
amount might be treated as an interest in the Contract retained by the owner of
retained yield, in which event it would not be included in a Certificate Owner's
income.
INCOME ON ALL CONTRACTS
For federal income tax purposes, the owner of retained yield will be
treated as having retained a portion (the "Retained Strip") of the interest due
on each Contract having a yield in excess of % calculated using the
actuarial method (each, a "Stripped Contract") equal to the difference between
(x) the Recomputed
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<PAGE> 43
Yield of the Contract and (y) %. The Retained Strip will be treated as
"stripped coupons" within the meaning of Section 1286 of the Code, and the
Stripped Contracts will be treated as "stripped bonds." If, as described above,
the IRS were to take the position that the Origination Actuarial Method must be
applied, the Retained Strip would consist of a different portion of the interest
that accrues at the APR on the actuarial principal balance of a Contract for
each monthly period over which interest accrues on such Contract ("Contract Due
Period").
Each Certificate Owner will be required to report on its federal income tax
return its share of the gross income of the Trust, including interest and
certain other charges accrued on the Contracts and original issue discount and
market discount (to the extent described below), investment earnings on amounts
held pending distribution, and any gain upon collection or disposition of the
Contracts. Such income (other than any original issue discount or market
discount, as described below) will be includible in income in accordance with a
Certificate Owner's usual method of accounting. Accordingly, interest will be
includible in a Certificate Owner's gross income at the time it accrues on the
Contracts, or, in the case of Certificate Owners who are cash basis taxpayers,
when received by the Servicer on behalf of Certificate Owners. Because (i)
interest accrues on the Contracts over differing monthly periods and is paid in
arrears and (ii) interest collected on a Contract is generally paid to
Certificate Owners in the following month, the amount of interest accruing to a
Certificate Owner during any month will not equal the interest distributed in
that month.
A Certificate Owner will be entitled to deduct, consistent with its method
of accounting, its pro rata share of reasonable servicing fees and other fees
paid or incurred by the Trust as provided in Section 162 or 212 of the Code. If
a Certificate Owner is an individual, estate or trust, the deduction for such
holder's share of such fees will be allowed only to the extent that all of such
holder's miscellaneous itemized deductions, including such holder's share of
such fees, exceed 2% of such holder's adjusted gross income. In addition, in the
case of Certificate Owners who are individuals, certain otherwise allowable
itemized deductions will be reduced, but not by more than 80%, by an amount
equal to 3% of such holder's adjusted gross income in excess of a statutorily
defined threshold ($124,500 in the case of a married couple filing jointly for
the taxable year beginning in 1998 and will be adjusted for inflation each year
thereafter). The Servicer will not report to Certificate Owners the amount of
income or deductions attributable to interest earned on collections and certain
other amounts (which are includible in gross income, but the deductions of which
are subject to the foregoing limitations) and, accordingly, such a holder will
not have sufficient information from the report itself to accurately reflect the
holder's net taxable income.
For administrative convenience, the Servicer intends to report the total
amount of income with respect to the Certificates on an aggregate basis (as
though all of the Contracts were a single obligation), rather than on an
asset-by-asset basis. The amount and, in some instances, character, of the
income reported to a Certificate Owner may differ under this method for a
particular period from that which would be reported if income were reported on a
precise asset-by-asset basis. Accordingly, the IRS could require that a
Certificate Owner calculate its income either (i) on an asset-by-asset basis,
accounting separately for each Contract, or (ii) aggregating all Stripped
Contracts under the aggregation rule described below and accounting for the
remaining Contracts on an asset-by-asset basis. If reporting on an aggregate
basis results in under-reporting of income, or if the IRS were to take a
position different from that adopted by the Trust with respect to any issue, a
Certificate Owner could be required to pay interest on underpayments of tax and
could be subject to penalties for under-reporting of income. See "-- Discount
and Premium -- Original Issue Discount on Stripped Contracts." In computing its
income on an asset-by-asset basis, a Certificate Owner would allocate its tax
basis among the Contracts in proportion to their fair market values. Because the
Recomputed Yields of the Contracts vary widely, the allocation of basis and
computation of income on an asset-by-asset basis could have a more significant
effect on the income of a Certificate Owner than it would if the Contracts had
more uniform characteristics.
The remainder of the disclosure generally describes the Code provisions
governing reporting of income on the Contracts on a separate asset basis.
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<PAGE> 44
DISCOUNT AND PREMIUM
In determining whether a Certificate Owner has purchased its interest in
the Contracts (or any Contract) at a discount and whether such Contracts (or any
Contract) have OID or market discount, a portion of the purchase price of a
Certificate should be allocated to the Certificate Owner's undivided interest in
accrued but unpaid interest and amounts collected at the time of purchase but
not distributed. As a result, the portion of the purchase price allocable to a
Certificate Owner's undivided interest in the Contracts (or any Contract) (the
"Purchase Price") will be decreased and the potential OID and/or market discount
on the Contracts (or any Contract) could be increased.
Original Issue Discount on Stripped Contracts. Because the Stripped
Contracts represent stripped bonds, they will be subject to the OID rules of the
Code. Under Treasury Regulations issued under Section 1286 of the Code (the
"Section 1286 Regulations"), it appears that, in general, the portion of the
interest on each Contract payable to the Certificate Owners may be treated as
"qualified stated interest." As a result, the amount of OID on a Contract (or
Contracts) will equal the amount, if any, by which the Purchase Price is less
than the portion of the remaining principal balance of the Contract (or
Contracts) allocable to the interest acquired. However, if the IRS were to take
the position that the Origination Actuarial Method must be applied, then a
Certificate Owner would be deemed to receive interest at a different rate for
each Collection Period and the remainder of the interest deemed to accrue at the
Contract's APR on the actuarial principal balance would be included in the
Retained Strip. As a result, it appears that none of the interest on the
Stripped Contracts would be "qualified stated interest." In that event, the
entire yield deemed to accrue to a Certificate Owner would be includible in
income as OID, based on a yield which should generally equal a rate equal to
%.
The Trustee will calculate OID, if any, on all of the Contracts (including
Stripped Contracts) on an aggregate basis and without the use of a Prepayment
Assumption. Regulations issued under the OID provisions of the Code (the "OID
Regulations") suggest that all payments on the Stripped Contracts that are
allocable to the Certificates may be aggregated in determining whether the
Stripped Contracts will be treated as having OID, although the regulation does
not include the Contracts that are not "stripped bonds." Separate accounting for
the Stripped Contracts and the Contracts that are not stripped would reduce the
possibility that the Stripped Contracts would be treated as issued with OID;
however, as discussed below, any Contracts having a yield equal to % (using
a Recomputed Yield for Rule of 78's Contracts) may be treated as having imputed
interest, market discount, or both. In addition, it is not clear whether use of
a Prepayment Assumption is required in computing OID. However, the Taxpayer
Relief Act of 1997 contains a provision that 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)." This provision may require use of a
Prepayment Assumption with respect to computation of OID, if any, on the
Contracts. If the IRS were to require that OID be computed on a
Contract-by-Contract basis, or that a Prepayment Assumption be used, the
character and timing of a Certificate Owner's income could be adversely
affected. Because under the stripped bond rules each sale of a Certificate
results in a recalculation of OID, a Certificate Owner technically will not be
subject to the market discount provisions of the Code with respect to Stripped
Contracts.
The tax treatment of a Stripped Contract (or the Stripped Contracts in the
aggregate) will depend upon whether the amount of OID on the Contract or
Contracts is less than a statutorily defined de minimis amount. In general,
under the Section 1286 Regulations the amount of OID on a Stripped Contract will
be de minimis if it is less than 1/4 of one percent for each full year of
weighted average maturity remaining after the purchase date until the maturity
of the Contract (although as described above it is not clear whether expected
prepayments are taken into account). If the amount of OID is de minimis under
this rule, a Stripped Contract would not be treated as having OID. In such case,
the actual amount of discount on a Stripped Contract would be includible in
income as principal payments are received on the Contract, in the proportion
that each principal payment bears to the total principal amount of the Contract.
If the IRS were to require the use of the Origination Actuarial Method, the OID
on a Contract would not be de minimis.
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<PAGE> 45
If the OID on a Contract (or Contracts) is not treated as being de minimis,
a Certificate Owner will be required to include in income any OID as it accrues
on a daily basis, regardless of when cash payments are received, using a method
reflecting a constant yield to maturity on the Contract (or Contracts). Accrued
OID would increase a Certificate Owner's tax basis in the Certificate (and the
applicable Contracts). Distributions of principal and other items attributable
to accrued OID (other than payments of interest on the Contracts at %)
would reduce a Certificate Owner's tax basis. Application of the OID rules,
particularly if a prepayment assumption is required and the Contracts are not
aggregated, would be complex and could significantly affect the timing of
inclusion of income on a Certificate.
The Trustee intends to account for OID, if any, reportable by holders of
Certificates by reference to the price paid for a Certificate by an initial
purchaser, although the amount of OID will differ for subsequent purchasers.
Such subsequent purchasers should consult their tax advisors regarding the
proper calculation of OID on the interest in Contracts represented by a
Certificate.
Market Discount. Contracts, other than the Stripped Contracts, will not be
treated as stripped bonds. However, to the extent that the portion of the
purchase price allocated to a Certificate Owner's undivided interest in a
Contract other than a Stripped Contract is less than the "stated redemption
price at maturity", such Contract could have market discount. The market
discount on such a Contract will be considered to be zero if it is less than a
statutorily defined de minimis amount.
In general, under the market discount provisions of the Code, principal
payments received by the Trust and all or a portion of the gain recognized upon
a sale or other disposition of a Contract or upon the sale or other disposition
of a Certificate in an amount in excess of accrued market discount will be
treated as capital gain, assuming such Certificate Owner held such Certificate
as a capital asset. In addition, a portion of the interest deductions of the
Certificate Owner attributable to any indebtedness treated as incurred or
continued to purchase or carry a Contract may have to be deferred, unless a
Certificate Owner makes an election to include market discount in income
currently as it accrues, which election would apply to all debt instruments
acquired by the taxpayer on or after the first day of the first taxable year to
which such election applies. Taxpayers may, in general, elect to accrue market
discount either under a constant yield-to-maturity method or in the proportion
that the period the taxpayer held the obligation bears to the period from the
date the taxpayer acquired the obligation until the maturity of such obligation.
Premium. In the event that a Contract is treated as purchased at a premium
(i.e., its Purchase Price exceeds the portion of the remaining principal balance
of such Contract allocable to the Certificate Owner), such premium will be
amortizable by the Certificate Owner as an offset to interest income (with a
corresponding reduction in the Certificate Owner's basis) under a constant
yield-to-maturity method over the term of the Contract if an election under
Section 171 of the Code is made with respect to the interests in the Contracts
represented by the Certificates or was previously in effect. Any such election
will also apply to all debt instruments held by the Certificate Owner during the
year in which the election is made and all debt instruments acquired thereafter.
If a Contract with unamortized premium is prepaid, any loss will constitute an
ordinary loss if the Contract was issued by a natural person before June 4,
1997, and otherwise will constitute a capital loss.
SALE OF A CERTIFICATE
If a Certificate is sold, gain or loss will be recognized equal to the
difference between the amount realized on the sale and the Certificate Owner's
adjusted basis in the Contracts and any other assets held by the Trust. A
Certificate Owner's adjusted basis will equal the Certificate Owner's cost for
the Certificate, increased by any discount previously included in income, and
decreased by any deduction previously allowed for accrued premium and by the
amount of principal payments previously received on the Contracts. Any gain or
loss not attributable to accrued interest or accrued market discount will be
capital gain or loss if the Certificate was held as a capital asset.
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<PAGE> 46
FOREIGN CERTIFICATE OWNER
Interest attributable to Contracts which is payable to a foreign
Certificate Owner that is not engaged in a trade or business in the United
States will generally not be subject to the 30% withholding tax generally
imposed with respect to such payments, provided that such Certificate Owner
fulfills certain certification requirements. Under such certification
requirements, the Certificate Owner must certify, under penalties of perjury,
that it is not a "United States person" and it is the beneficial owner of the
Certificates, and must provide its name and address. For this purpose, "United
States person" means a citizen or resident of the United States, a corporation,
partnership, or other entity created or organized in or under the laws of the
United States or any political subdivision thereof (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.
Final Treasury Regulations (the "Final Regulations") could affect the
procedures to be followed by a nonresident investor in complying with United
States Federal withholding, backup withholding and information reporting rules
for payments made after December 31, 1998. Prospective investors are urged to
consult their tax advisors regarding the effect, if any, of the Final
Regulations on the purchase, ownership and disposition of the Certificates.
BACKUP WITHHOLDING
Payments made on the Certificates and proceeds from the sale of
Certificates will not be subject to a "backup" withholding tax of 31% unless, in
general, the Certificate Owner fails to comply with certain reporting procedures
and is not an exempt recipient under applicable provisions of the Code.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and Section 4975 of the Code impose certain restrictions on (i) employee benefit
plans subject to ERISA, (ii) "plans" (as defined in Section 4975(e)(1) of the
Code) and (iii) entities whose underlying assets include plan assets by reason
of a plan's investment in such entities (each, a "Plan"), and on persons who
have certain specified relationships to such Plans ("Parties in Interest" under
ERISA and "Disqualified Persons" under the Code). ERISA also imposes certain
duties on persons who are fiduciaries of Plans subject to ERISA, and ERISA and
the Code prohibit certain transactions between a Plan and Parties in Interest or
Disqualified Persons with respect to such Plans. Under ERISA, any person who
exercises any discretionary authority or control respecting the management or
disposition of the assets of a Plan is considered to be a fiduciary of such Plan
(subject to certain exceptions not here relevant.)
The Department of Labor ("DOL") has issued a final regulation (29 C.F.R.
Section 2510.3-101) concerning the definition of what constitutes the assets of
a Plan (the "Plan Asset Regulation"). This regulation provides that, as a
general rule, the underlying assets and properties of corporations,
partnerships, grantor trusts and certain other entities in which a Plan (which
is subject to Title I of ERISA and/or Section 4975 of the Code) makes an
"equity" investment will be deemed to be assets of the investing Plan unless
certain exceptions apply. The Plan Asset Regulation contains certain exceptions
to this general rule. Accordingly if a Plan purchases the Certificates, the
Trust could be deemed to hold plan assets unless one of the exceptions under the
Plan Assets Regulation is applicable to the Trust.
Under the terms of the Plan Asset Regulation, if the Trust were deemed to
hold plan assets by reason of a Plan's investment in Certificates, such plan
assets would include an undivided interest in the Trust and Contracts underlying
the Trust and any other assets held by the Trust. In such an event, the persons
providing services with respect to the assets of the Trust, including the
Contracts, may be subject to the fiduciary responsibility provisions of Title I
of ERISA. In addition, those persons and certain other persons, including
Obligors on the receivables held in the Trust, may be subject to the prohibited
transaction provisions of
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<PAGE> 47
ERISA and Section 4975 of the Code with respect to certain transactions
involving such assets or the Certificates, unless a statutory or administrative
exemption from the prohibited transaction rules applies.
The DOL has granted administrative exemptions to Merrill Lynch, Pierce,
Fenner & Smith Incorporated (Prohibited Transaction Exemption 90-29, as
amended), and to Salomon Brothers Inc (Prohibited Transaction Exemption 89-89)
(collectively, the "Exemptions"), from certain of the prohibited transaction
rules of ERISA with respect to the initial purchase, the holding and the
subsequent resale by Plans of certificates representing interests in asset
backed pass-through trusts that consist of certain receivables, loans and other
obligations that meet the conditions and requirements of the Exemptions. The
receivables covered by the Exemptions include motor vehicle installment loans
such as the Contracts. The Exemptions will apply to the acquisition, holding and
resale of the Certificates purchased by a Plan from the Underwriters, provided
that all conditions of the Exemptions (certain of which are described below) are
met.
Among the conditions that must be satisfied for the Exemptions to apply are
the following:
(1) The acquisition of the Certificates by or on behalf of a Plan is
on terms (including the price for the Certificates) that are at least as
favorable to the Plan as they would be in an arm's-length transaction with
an unrelated party;
(2) The rights and interests evidenced by the Certificates acquired
by or on behalf of the Plan are not subordinated to the rights and
interests evidenced by other certificates of the Trust;
(3) The Certificates acquired by or on behalf of the Plan have
received a rating at the time of such acquisition that is in one of the
three highest generic rating categories from either Standard & Poor's,
Moody's, Duff & Phelps Inc. or Fitch Investors Service, Inc.;
(4) The Trustee must not be an affiliate of any other member of the
Restricted Group (as defined below);
(5) The sum of all payments made to the Underwriters in connection
with the distribution of the Certificates represents not more than
reasonable compensation for underwriting the Certificates; the sum of all
payments made to and retained by the Seller pursuant to the sale of the
Contracts to the Trust represents not more than the fair market value of
such Contracts; the sum of all payments made to and retained by the
Servicer represents not more than reasonable compensation for the
Servicer's services under the Agreement and reimbursement of the Servicer's
reasonable expenses in connection therewith; and
(6) The Plan investing in the Certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Securities
and Exchange Commission under the Securities Act of 1933, as amended.
The Exemptions provide relief from certain self-dealing/conflict of
interest prohibited transactions that may occur when the Plan fiduciary causes a
Plan to acquire certificates in a trust in which the fiduciary (or his
affiliate) is an Obligor on the receivables held in the trust provided that,
among other requirements: (i) in the case of an acquisition in connection with
the initial issuance of Certificates, at least 50% of each class of Certificates
in which Plans have invested is acquired by persons independent of the
Restricted Group and at least 50% of the aggregate interest in the trust is
acquired by persons independent of the Restricted Group; (ii) such fiduciary (or
its affiliate) is an Obligor with respect to 5% or less of the fair market value
of the obligations contained in the trust; (iii) the Plan's investment in
Certificates does not exceed 25% of all of the Certificates outstanding at the
time of the acquisition; and (iv) immediately after the acquisition, no more
than 25% of the assets of the Plan are invested in certificates representing an
interest in one or more trusts containing assets sold or serviced by the same
entity. The Exemptions do not apply to Plans sponsored by the Seller, the
Underwriters, the Trustee, the Servicer, the Insurer, any Obligor with respect
to Contracts included in the Trust constituting more than 5% of the aggregate
unamortized principal balance of the assets in the Trust, or any affiliate of
such parties (the "Restricted Group").
As of the date hereof, no Obligor with respect to Contracts included in the
Trust constitutes more than 5% of the aggregate unamortized principal balance of
the assets of the Trust. Because the Certificates are the
46
<PAGE> 48
only class of certificates to be issued by the Trust, the second general
condition described above is satisfied. It is a condition of the issuance of the
Certificates that they be rated in the highest rating category by at least two
Rating Agencies. A fiduciary of a Plan contemplating the purchase of a
Certificate (other than pursuant to the original issuance of the Certificates)
must make its own determination that at the time of such acquisition, the
Certificates continue to satisfy the third general condition described above.
The Seller and the Servicer expect that the fourth general condition set forth
above will be satisfied with respect to the Certificates. A fiduciary of a Plan
contemplating purchasing a Certificate must make its own determination that the
first, fifth and sixth general conditions set forth above will be satisfied with
respect to its purchase of Certificates.
Any Plan fiduciary considering the purchase of Certificates should consult
with its counsel with respect to the applicability of the Exemption and other
issues and determine on its own whether all conditions for exemptive relief have
been satisfied and whether, under the general fiduciary standards of prudent
investment and diversification, the Certificates are otherwise an appropriate
investment for a Plan under ERISA and the Code.
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<PAGE> 49
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
dated March , 1998 (the "Underwriting Agreement") between the Seller and the
Underwriters named below (the "Underwriters"), the Seller has agreed to sell to
each of the Underwriters, and each of the Underwriters has severally agreed to
purchase, the principal amount of the Certificates set forth opposite its name
in the table below:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITER CERTIFICATES
----------- ------------
<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 Certificates to the public at the public offering price set forth
on the cover page of this prospectus and to certain dealers at such price less a
concession not in excess of % of the principal amount thereof. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of % of the principal amount of the Certificates on sales to certain other
dealers. After the initial public offering, the public offering price of the
Certificates and such concession and discount may be changed. The 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.
During and after the offering, the Underwriters may purchase and sell the
Certificates in the open market in transactions in the United States. These
transactions may include overallotment and stabilizing transactions and
purchases to cover short positions created in connection with the offering. The
Underwriters also may impose a penalty bid, whereby selling concessions allowed
to broker-dealers in respect of the Certificates sold in the offering for their
account may by reclaimed by the Underwriters if such Certificates are
repurchased by the Underwriters in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Certificates, which may be higher than the price that might otherwise prevail in
the open market. These transactions may be effected in the over-the-counter
market or otherwise, and these activities, if commenced, may be discontinued at
any time.
The Seller and Onyx have agreed to indemnify the 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 matters with respect to the legality of the Certificates and with
respect to the federal income tax matters discussed under "Certain Federal
Income Tax Consequences" will be passed upon for the Seller by Andrews & Kurth
L.L.P., Dallas, Texas. Certain legal matters with respect to the Certificates
will be passed upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom
LLP, New York, New York. Certain legal matters relating to the Financial
Guarantee Insurance Policy will be passed upon for the Insurer by Shaw Pittman
Potts & Trowbridge, New York, New York.
EXPERTS
The consolidated financial statements of MBIA Insurance Corporation and
subsidiaries as of December 31, 1996 and 1995 and for each of the years in the
three-year period ended December 31, 1996 are included herein beginning on page
F-1 and have been audited by Coopers & Lybrand, independent certified public
accountants, as set forth in their report thereon and are included in reliance
upon the authority of such firm as experts in accounting and auditing.
48
<PAGE> 50
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<S> <C>
Aggregate Scheduled Balance................................. 4, 24
Aggregate Scheduled Balance Decline......................... 4, 24
Agreement................................................... 3
APR......................................................... 17
Auto Finance Centers........................................ 12
Bankruptcy Code............................................. 22
Blanket Insurance Policy.................................... 13
Business Day................................................ 4
Cede........................................................ 7
Certificate Owner........................................... 7, 24
Certificateholder........................................... 26
Certificates................................................ 1, 3
Closing Date................................................ 8
CMAC........................................................ 31
Code........................................................ 39
Collection Account.......................................... 28
Collection Period........................................... 4, 24
Commission.................................................. 2
Company..................................................... 31
Contract Due Period......................................... 42
Contracts................................................... 1, 3
Cut-Off Date................................................ 1
Cut-Off Date Actuarial Balance.............................. 40
Cut-Off Date Scheduled Balance.............................. 3, 17, 40
Dealers..................................................... 6
Defaulted Contract.......................................... 5, 25
Definitive Certificates..................................... 26
Distribution Date........................................... 1, 4
Distribution Date Statement................................. 30
Disqualified Persons........................................ 45
DOL......................................................... 45
Due Date.................................................... 13
DTC......................................................... 1, 7
Eligibility Requirements.................................... 18
Eligible Investments........................................ 28
ERISA....................................................... 7, 45
Exchange Act................................................ 2
Exemptions.................................................. 46
Events of Default........................................... 34
Final Distribution Date..................................... 1, 4
Final Regulations........................................... 45
Financed Vehicles........................................... 1, 3
Financial Guarantee Insurance Policy........................ 1, 4, 5
FTC Rule.................................................... 39
Full Prepayment............................................. 21
Holders..................................................... 27
Indirect Participants....................................... 26
Insolvency Laws............................................. 9
Insurance Agreement......................................... 5
Insurer..................................................... 1, 4
Interest Distribution....................................... 1, 4, 24
IRS......................................................... 40
</TABLE>
49
<PAGE> 51
<TABLE>
<S> <C>
Liquidated Contract......................................... 5, 25
Liquidation Expenses........................................ 29
Monthly P&I................................................. 5, 25
Moody's..................................................... 7
Motor Vehicle Contracts..................................... 11
Net Insurance Proceeds...................................... 29
Net Liquidation Proceeds.................................... 29
Obligor..................................................... 9
OCS......................................................... 13
OID......................................................... 40
OID Regulations............................................. 43
Onyx........................................................ 1, 3, 23
Origination Actuarial Method................................ 41
Original Pool Balance....................................... 7
Participants................................................ 24
Parties in Interest......................................... 45
Pass-Through Rate........................................... 4
Payaheads................................................... 6, 28
Payahead Account............................................ 29
Paying Agent................................................ 26
Plan........................................................ 45
Plan Asset Regulation....................................... 45
Pool Balance................................................ 4, 24
Pool Factor................................................. 21
Prepayment Assumption....................................... 40
Principal Distribution...................................... 1, 4, 24
Purchase Agreement.......................................... 22
Purchase Price.............................................. 43
Recomputed Actuarial Method................................. 18, 41
Recomputed Principal Balance................................ 41
Recomputed Yield............................................ 18, 41
Record Date................................................. 24
Rees-Levering Act........................................... 38
Repurchase Amount........................................... 28
Restricted Group............................................ 46
Retained Strip.............................................. 41
Rule of 78's Contracts...................................... 6, 17
Scheduled Balance........................................... 5, 24
Section 1286 Regulations.................................... 43
Seller...................................................... 1, 3
Servicer.................................................... 1, 3
Servicer Report Date........................................ 6
Servicing Fee............................................... 5
Servicing Fee Rate.......................................... 5, 30
Simple Interest Contracts................................... 6, 17
Simple Interest Method...................................... 17
Standard & Poor's........................................... 7
Stripped Contract........................................... 41
</TABLE>
50
<PAGE> 52
<TABLE>
Total Accrual Election. 41
<S> <C>
Trust....................................................... 1, 3, 11
Trust Property.............................................. 3
Trustee..................................................... 3, 11
UCC......................................................... 8, 37
Underwriters................................................ 48
Underwriting Agreement...................................... 48
</TABLE>
51
<PAGE> 53
MBIA INSURANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1996 and 1995
and for the years ended
December 31, 1996, 1995 and 1994
F-1
<PAGE> 54
[LETTERHEAD OF COOPERS & LYBRAND L.L.P.]
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
MBIA INSURANCE CORPORATION:
We have audited the accompanying consolidated balance sheets of MBIA Insurance
Corporation and Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in shareholder's equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of MBIA Insurance
Corporation and Subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
/s/ COOPERS & LYBRAND
New York, New York
February 3, 1997.
F-2
<PAGE> 55
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
ASSETS
Investments:
Fixed-maturity securities held as available-for-sale
at fair value (amortized cost $4,001,562 and $3,428,986) $4,149,700 $3,652,621
Short-term investments, at amortized cost
(which approximates fair value) 169,889 198,035
Other investments 14,851 14,064
---------- ----------
TOTAL INVESTMENTS 4,334,440 3,864,720
Cash and cash equivalents 3,288 2,135
Securities purchased under agreements to resell 108,900 ---
Accrued investment income 65,194 60,247
Deferred acquisition costs 147,750 140,348
Prepaid reinsurance premiums 216,846 200,887
Goodwill (less accumulated amortization of
$42,262 and $37,366) 100,718 105,614
Property and equipment, at cost (less accumulated
depreciation of $14,782 and $12,137) 47,176 41,169
Receivable for investments sold 975 5,729
Other assets 40,871 42,145
---------- ----------
TOTAL ASSETS $5,066,158 $4,462,994
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Deferred premium revenue $1,785,875 $1,616,315
Loss and loss adjustment expense reserves 59,314 42,505
Securities sold under agreements to repurchase 108,900 ---
Deferred income taxes 195,704 212,925
Payable for investments purchased 48,811 10,695
Other liabilities 63,683 54,682
---------- ----------
TOTAL LIABILITIES 2,262,287 1,937,122
---------- ----------
Shareholder's Equity:
Common stock, par value $150 per share; authorized,
issued and outstanding - 100,000 shares 15,000 15,000
Additional paid-in capital 1,041,876 1,021,584
Retained earnings 1,651,315 1,341,855
Cumulative translation adjustment (1,188) 2,704
Unrealized appreciation of investments,
net of deferred income tax provision
of $52,175 and $78,372 96,868 144,729
---------- ----------
TOTAL SHAREHOLDER'S EQUITY 2,803,871 2,525,872
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $5,066,158 $4,462,994
========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
<PAGE> 56
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
Years ended December 31
---------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Gross premiums written $ 462,444 $ 349,812 $ 361,523
Ceded premiums (54,852) (45,050) (49,281)
--------- --------- ---------
Net premiums written 407,592 304,762 312,242
Increase in deferred premium revenue (154,111) (88,365) (93,226)
--------- --------- ---------
Premiums earned (net of ceded
premiums of $38,893,
$30,655 and $33,340) 253,481 216,397 219,016
Net investment income 247,286 219,834 193,966
Net realized gains 11,740 7,777 10,335
Other 3,163 2,168 1,539
--------- --------- ---------
Total revenues 515,670 446,176 424,856
--------- --------- ---------
Expenses:
Losses and loss adjustment 15,334 10,639 8,093
Policy acquisition costs, net 24,660 21,283 21,845
Operating 46,654 41,812 41,044
--------- --------- ---------
Total expenses 86,648 73,734 70,982
--------- --------- ---------
Income before income taxes 429,022 372,442 353,874
Provision for income taxes 90,562 81,748 77,125
--------- --------- ---------
Net income $ 338,460 $ 290,694 $ 276,749
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
<PAGE> 57
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
For the years ended December 31, 1996, 1995 and 1994 (In
thousands except per share amounts)
<TABLE>
<CAPTION>
Unrealized
Common Stock Additional Cumulative Appreciation
------------------- Paid-in Retained Translation (Depreciation)
Shares Amount Capital Earnings Adjustment of Investments
-------- ------- ---------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 100,000 $15,000 $ 943,794 $ 895,312 $(1,203) $ 4,840
Net income --- --- --- 276,749 --- ---
Change in foreign currency translation --- --- --- --- 1,630 ---
Change in unrealized depreciation
of investments net of change in
deferred income taxes of $27,940 --- --- --- --- --- (52,480)
Dividends declared (per
common share $380.00) --- --- --- (38,000) --- ---
Tax reduction related to tax sharing
agreement with MBIA Inc. --- --- 9,861 --- --- ---
------- ------- ---------- ---------- ----------- --------------
Balance, December 31, 1994 100,000 15,000 953,655 1,134,061 427 (47,640)
------- ------- ---------- ---------- ----------- --------------
Net income --- --- --- 290,694 --- ---
Change in foreign currency translation --- --- --- --- 2,277 ---
Change in unrealized appreciation
of investments net of change in
deferred income taxes of $(103,707) --- --- --- --- --- 192,369
Dividends declared (per
common share $829.00) --- --- --- (82,900) --- ---
Capital contribution from MBIA Inc. --- --- 52,800 --- --- ---
Tax reduction related to tax sharing
agreement with MBIA Inc. --- --- 15,129 --- --- ---
------- ------- ---------- ---------- ----------- --------------
Balance, December 31, 1995 100,000 15,000 1,021,584 1,341,855 2,704 144,729
------- ------- ---------- ---------- ----------- --------------
Net income --- --- --- 338,460 --- ---
Change in foreign currency translation --- --- --- --- (3,892) ---
Change in unrealized appreciation
of investments net of change in
deferred income taxes of $26,197 --- --- --- --- --- (47,861)
Dividends declared (per
common share $290.00) --- --- --- (29,000) --- ---
Tax reduction related to tax sharing
agreement with MBIA Inc. --- --- 20,292 --- --- ---
======= ======= ========== ========== =========== ==============
Balance, December 31, 1996 100,000 $15,000 $1,041,876 $1,651,315 $(1,188) $96,868
======= ======= ========== ========== =========== ==============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
<PAGE> 58
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Years ended December 31
--------------------------------------
1996 1995 1994
---------- -------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 338,460 $290,694 $ 276,749
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in accrued investment income (4,947) (4,900) (3,833)
Increase in deferred acquisition costs (7,402) (7,300) (12,564)
Increase in prepaid reinsurance premiums (15,959) (14,395) (15,941)
Increase in deferred premium revenue 170,070 104,104 109,167
Increase in loss and loss adjustment
expense reserves 16,809 2,357 6,413
Depreciation 2,952 2,676 1,607
Amortization of goodwill 4,896 4,929 4,961
Amortization of bond (discount) premium, net (7,526) (2,426) 621
Net realized gains on sale of investments (11,740) (7,778) (10,335)
Deferred income taxes 8,982 11,391 19,082
Other, net 26,687 29,080 (8,469)
---------- --------- ----------
Total adjustments to net income 182,822 117,738 90,709
---------- --------- ----------
Net cash provided by operating activities 521,282 408,432 367,458
---------- --------- ----------
Cash flows from investing activities:
Purchase of fixed-maturity securities, net
of payable for investments purchased (1,519,213) (897,128) (1,060,033)
Sale of fixed-maturity securities, net of
receivable for investments sold 873,823 473,352 515,548
Redemption of fixed-maturity securities,
net of receivable for investments redeemed 158,087 83,448 128,274
Sale (purchase) of short-term investments, net 4,676 (32,281) 3,547
Sale (purchase) of other investments, net 468 (692) 87,456
Capital expenditures, net of disposals (8,970) (4,228) (3,665)
---------- -------- ----------
Net cash used by investing activities (491,129) (377,529) (328,873)
---------- -------- ----------
Cash flows from financing activities:
Capital contribution from MBIA Inc. --- 52,800 ---
Dividends paid (29,000) (82,900) (38,000)
---------- -------- ----------
Net cash used by financing activities (29,000) 30,100) (38,000)
---------- -------- ----------
Net increase in cash and cash equivalents 1,153 803 585
Cash and cash equivalents - beginning of year 2,135 1,332 747
---------- -------- ----------
Cash and cash equivalents - end of year $ 3,288 $ 2,135 $ 1,332
========== ========== ==========
Supplemental cash flow disclosures:
Income taxes paid $ 63,018 $ 50,790 $ 53,569
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-6
<PAGE> 59
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
MBIA Insurance Corporation (MBIA Corp.), formerly known as Municipal Bond
Investors Assurance Corporation, is a wholly owned subsidiary of MBIA Inc. MBIA
Inc. was incorporated in Connecticut on November 12, 1986 as a licensed insurer
and, through a series of transactions during December 1986, became the successor
to the business of the Municipal Bond Insurance Association (the Association), a
voluntary unincorporated association of insurers writing municipal bond and note
insurance as agent for the member insurance companies.
Effective December 31, 1989, MBIA Inc. acquired for $288 million all of the
outstanding stock of Bond Investors Group, Inc. (BIG), the parent company of
Bond Investors Guaranty Insurance Company (BIG Ins.), which was subsequently
renamed MBIA Insurance Corp. of Illinois (MBIA Illinois).
In January 1990, MBIA Illinois ceded its portfolio of net insured
obligations to MBIA Corp. in exchange for cash and investments equal to its
unearned premium reserve of $153 million. Subsequent to this cession, MBIA Inc.
contributed the common stock of BIG to MBIA Corp. resulting in additional
paid-in capital of $200 million. The insured portfolio acquired from BIG Ins.
consists of municipal obligations with risk characteristics similar to those
insured by MBIA Corp. On December 31, 1990, BIG was merged into MBIA Illinois.
Also in 1990, MBIA Inc. formed MBIA Assurance S.A. (MBIA Assurance), a
wholly owned French subsidiary, to write financial guarantee insurance in the
international community. MBIA Assurance provides insurance for public
infrastructure financings, structured finance transactions and certain
obligations of financial institutions. The stock of MBIA Assurance was
contributed to MBIA Corp. in 1991 resulting in additional paid-in capital of $6
million. Pursuant to a reinsurance agreement with MBIA Corp., a substantial
amount of the risks insured by MBIA Assurance is reinsured by MBIA Corp.
In 1993, MBIA Inc. formed a wholly owned subsidiary, MBIA Investment
Management Corp. (IMC). IMC, which commenced operations in August 1993, provides
guaranteed investment agreements to states, municipalities and municipal
authorities that are guaranteed as to principal and interest. MBIA Corp. insures
IMC's outstanding investment agreement liabilities.
F-7
<PAGE> 60
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In 1994, MBIA Inc. formed a wholly owned subsidiary, MBIA Securities Corp.
which was subsequently renamed MBIA Capital Management Corp. (CMC). CMC provides
fixed-income investment management services for MBIA Inc., its municipal cash
management service businesses and public pension funds. In 1995, portfolio
management for a portion of MBIA Corp.'s insurance related investment portfolio
was transferred to CMC; the management of the balance of this portfolio was
transferred in January 1996.
2. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared on the basis of
generally accepted accounting principles (GAAP). The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant
accounting policies are as follows:
CONSOLIDATION
The consolidated financial statements include the accounts of MBIA Corp. and its
wholly owned subsidiaries. All significant intercompany balances have been
eliminated. Certain amounts have been reclassified in prior years' financial
statements to conform to the current presentation.
INVESTMENTS
MBIA Corp.'s entire investment portfolio is considered available-for-sale and is
reported in the financial statements at fair value, with unrealized gains and
losses, net of deferred taxes, reflected as a separate component of
shareholder's equity.
Bond discounts and premiums are amortized using the effective-yield method
over the remaining term of the securities. For pre-refunded bonds the remaining
term is determined based on the contractual refunding date. Short-term
investments are carried at amortized cost, which approximates fair value, and
include all fixed-maturity securities with a remaining term to maturity of less
than one year. Investment income is recorded as earned. Realized gains or losses
on the sale of investments are determined by specific identification and are
included as a separate component of revenues.
F-8
<PAGE> 61
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other investments include MBIA Corp.'s interest in a limited partnership
and a mutual fund which invests principally in marketable equity securities.
MBIA Corp. records dividends from these investments as a component of investment
income. In addition, MBIA Corp. records its share of the unrealized gains and
losses on these investments, net of applicable deferred income taxes, as a
separate component of shareholder's equity.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and demand deposits with banks.
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL AND SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE
Securities purchased under agreements to resell and securities sold under
agreements to repurchase are accounted for as collateralized transactions and
are recorded at principal or contract value. It is MBIA Corp.'s policy to take
possession of securities purchased under agreements to resell.
MBIA Corp. minimizes the credit risk that counterparties to transactions
might be unable to fulfill their contractual obligations by monitoring customer
credit exposure and collateral value and requiring additional collateral to be
deposited with MBIA Corp. when deemed necessary.
POLICY ACQUISITION COSTS
Policy acquisition costs include only those expenses that relate primarily to,
and vary with, premium production. For business produced directly by MBIA Corp.,
such costs include compensation of employees involved in underwriting and policy
issuance functions, certain rating agency fees, state premium taxes and certain
other underwriting expenses, reduced by ceding commission income on premiums
ceded to reinsurers. Policy acquisition costs are deferred and amortized over
the period in which the related premiums are earned.
PREMIUM REVENUE RECOGNITION
Premiums are earned pro rata over the period of risk. Premiums are allocated to
each bond maturity based on par amount and are earned on a straight-line basis
over the term of each maturity. When an insured issue is retired early, is
called by the issuer, or is in substance paid in advance through a refunding or
defeasance accomplished by placing U.S. Government securities in escrow, the
remaining deferred premium revenue, net of the
F-9
<PAGE> 62
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
portion which is credited to a new policy in those cases where MBIA Corp.
insures the refunding issue, is earned at that time, since there is no longer
risk to MBIA Corp. Accordingly, deferred premium revenue represents the portion
of premiums written that is applicable to the unexpired risk of insured bonds
and notes.
GOODWILL
Goodwill represents the excess of the cost of acquisitions over the tangible net
assets acquired. Goodwill attributed to the acquisition of MBIA Corp. is
amortized by the straight-line method over 25 years. Goodwill attributed to the
acquisition of MBIA Illinois is amortized according to the recognition of future
profits from its deferred premium revenue and installment premiums, except for a
minor portion attributed to state licenses, which is amortized by the
straight-line method over 25 years.
PROPERTY AND EQUIPMENT
Property and equipment consists of MBIA Corp.'s headquarters, furniture,
fixtures and equipment, which are recorded at cost and are depreciated on the
straight-line method over their estimated service lives ranging from 2 to 31
years. Maintenance and repairs are charged to expenses as incurred.
LOSSES AND LOSS ADJUSTMENT EXPENSES
Reserves for losses and loss adjustment expenses (LAE) are established in an
amount equal to MBIA Corp.'s estimate of the identified and unidentified losses,
including costs of settlement, on the obligations it has insured.
To the extent that specific insured issues are identified as currently or
likely to be in default, the present value of expected payments, including loss
and LAE associated with these issues, net of expected recoveries, is allocated
within the total loss reserve as case-specific reserves. Management of MBIA
Corp. periodically evaluates its estimates for losses and LAE and any resulting
adjustments are reflected in current earnings. Management believes that the
reserves are adequate to cover the ultimate net cost of claims, but the reserves
are necessarily based on estimates, and there can be no assurance that the
ultimate liability will not exceed such estimates.
INCOME TAXES
MBIA Corp. is included in the consolidated tax return of MBIA Inc. The tax
provision for MBIA Corp. for financial reporting purposes is determined on a
stand alone basis. Any benefit derived by MBIA Corp. as a result of the tax
F-10
<PAGE> 63
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
sharing agreement with MBIA Inc. and its subsidiaries is reflected directly in
shareholder's equity for financial reporting purposes.
Deferred income taxes are provided with respect to the temporary
differences between the tax bases of assets and liabilities and the reported
amounts in the financial statements that will result in deductibles or taxable
amounts in future years when the reported amount of the asset or liability is
recovered or settled. Such temporary differences relate principally to premium
revenue recognition, deferred acquisition costs and the contingency reserve.
The Internal Revenue Code permits companies writing financial guarantee
insurance to deduct from taxable income amounts added to the statutory
contingency reserve, subject to certain limitations. The tax benefits obtained
from such deductions must be invested in non-interest bearing U.S. Government
tax and loss bonds. MBIA Corp. records purchases of tax and loss bonds as
payments of federal income taxes. The amounts deducted must be restored to
taxable income when the contingency reserve is released, at which time MBIA
Corp. may present the tax and loss bonds for redemption to satisfy the
additional tax liability.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies are translated at
year-end exchange rates. Operating results are translated at average rates of
exchange prevailing during the year. Unrealized gains or losses resulting from
translation are included as a separate component of shareholder's equity.
3. STATUTORY ACCOUNTING PRACTICES
The financial statements have been prepared on the basis of GAAP, which differs
in certain respects from the statutory accounting practices prescribed or
permitted by the insurance regulatory authorities. Statutory accounting
practices differ from GAAP in the following respects:
o premiums are earned only when the related risk has expired rather than over
the period of the risk;
o acquisition costs are charged to operations as incurred rather than
deferred and amortized as the related premiums are earned;
F-11
<PAGE> 64
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
o a contingency reserve is computed on the basis of statutory requirements,
and reserves for losses and LAE are established, at present value, for
specific insured issues which are identified as currently or likely to be
in default. Under GAAP, reserves are established based on MBIA Corp.'s
reasonable estimate of the identified and unidentified losses and LAE on
the insured obligations it has written;
o federal income taxes are only provided on taxable income for which income
taxes are currently payable, while under GAAP, deferred income taxes are
provided with respect to temporary differences;
o fixed-maturity securities are reported at amortized cost rather than fair
value;
o tax and loss bonds purchased are reflected as admitted assets as well as
payments of income taxes; and
o certain assets designated as "non-admitted assets" are charged directly
against surplus but are reflected as assets under GAAP.
The following is a reconciliation of consolidated shareholder's equity
presented on a GAAP basis to statutory capital and surplus for MBIA Corp. and
its subsidiaries:
<TABLE>
<CAPTION>
As of December 31
- ---------------------------------------------------------------------------
In thousands 1996 1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
GAAP shareholder's equity $2,803,871 $2,525,872 $2,055,503
Premium revenue recognition (368,762) (328,450) (296,524)
Deferral of acquisition costs (147,750) (140,348) (133,048)
Unrealized (gains) losses (148,138) (223,635) 71,932
Contingency reserve (892,793) (743,510) (620,988)
Loss and loss adjustment
expense reserves 39,065 28,024 18,181
Deferred income taxes 195,704 205,425 90,328
Tax and loss bonds 103,008 70,771 50,471
Goodwill (100,718) (105,614) (110,543)
Other (16,465) (14,397) (15,274)
- ---------------------------------------------------------------------------
Statutory capital and surplus $1,467,022 $1,274,138 $1,110,038
- ---------------------------------------------------------------------------
</TABLE>
Consolidated net income of MBIA Corp. determined in accordance with
statutory accounting practices for the years ended December 31, 1996, 1995 and
1994 was $316.6 million, $278.3 million and $224.9 million, respectively.
F-12
<PAGE> 65
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. PREMIUMS EARNED FROM REFUNDED AND CALLED BONDS
Premiums earned include $44.4 million, $34.0 million and $53.0 million for 1996,
1995 and 1994, respectively, related to refunded and called bonds.
5. INVESTMENTS
MBIA Corp.'s investment objective is to optimize long-term, after-tax returns
while emphasizing the preservation of capital through maintenance of
high-quality investments with adequate liquidity. MBIA Corp.'s investment
policies limit the amount of credit exposure to any one issuer. The
fixed-maturity portfolio is comprised of high-quality (average rating Double-A)
taxable and tax-exempt investments of diversified maturities.
The following tables set forth the amortized cost and fair value of the
fixed-maturities and short-term investments included in the consolidated
investment portfolio of MBIA Corp. as of December 31, 1996 and 1995.
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
In thousands Cost Gains Losses Value
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1996
Taxable bonds
United States
Treasury and
Government Agency $ 6,585 $ 171 $ (10) $ 6,746
Corporate and other
obligations 767,472 13,978 (7,272) 774,178
Mortgage-backed 472,295 12,185 (4,003) 480,477
Tax-exempt bonds
State and municipal
obligations 2,925,099 137,389 (4,300) 3,058,188
- -----------------------------------------------------------------------------
Total $4,171,451 $163,723 $(15,585) $4,319,589
- -----------------------------------------------------------------------------
</TABLE>
F-13
<PAGE> 66
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
In thousands Cost Gains Losses Value
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1995
Taxable bonds
United States
Treasury and
Government Agency $ 6,742 $ 354 $ --- $ 7,096
Corporate and
other obligations 592,604 30,536 (212) 622,928
Mortgage-backed 389,943 21,403 (932) 410,414
Tax-exempt bonds
State and
municipal
obligations 2,637,732 175,081 (2,595) 2,810,218
- --------------------------------------------------------------------------
Total $3,627,021 $227,374 $(3,739) $3,850,656
- --------------------------------------------------------------------------
</TABLE>
Fixed-maturity investments carried at fair value of $7.8 million and $8.2
million as of December 31, 1996 and 1995, respectively, were on deposit with
various regulatory authorities to comply with insurance laws.
The table below sets forth the distribution by expected maturity of the
fixed-maturities and short-term investments at amortized cost and fair value at
December 31, 1996. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations.
<TABLE>
<CAPTION>
Amortized Fair
In thousands Cost Value
- --------------------------------------------------------------------
<S> <C> <C>
Maturity
Within 1 year $ 158,786 $ 158,768
Beyond 1 year but within 5 years 535,176 561,478
Beyond 5 years but within 10 years 1,218,877 1,263,126
Beyond 10 years but within 15 years 828,646 867,813
Beyond 15 years but within 20 years 807,952 836,153
Beyond 20 years 149,719 151,774
- --------------------------------------------------------------------
3,699,156 3,839,112
Mortgage-backed 472,295 480,477
- --------------------------------------------------------------------
Total fixed-maturities and
short-term investments $4,171,451 $4,319,589
- --------------------------------------------------------------------
</TABLE>
F-14
<PAGE> 67
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. INVESTMENT INCOME AND GAINS AND LOSSES
Investment income consists of:
<TABLE>
<CAPTION>
Years ended December 31
------------------------------------
In thousands 1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Fixed-maturities $245,109 $216,653 $193,729
Short-term investments 4,961 6,008 3,003
Other investments 61 17 12
- ----------------------------------------------------------------------
Gross investment income 250,131 222,678 196,744
Investment expenses 2,845 2,844 2,778
- ----------------------------------------------------------------------
Net investment income 247,286 219,834 193,966
Net realized gains (losses):
Fixed-maturities:
Gains 16,760 9,941 9,635
Losses (5,353) (2,537) (8,851)
- ----------------------------------------------------------------------
Net 11,407 7,404 784
- ----------------------------------------------------------------------
Other investments:
Gains 333 382 9,551
Losses --- (9) ---
- ----------------------------------------------------------------------
Net 333 373 9,551
- ----------------------------------------------------------------------
Total realized gains 11,740 7,777 10,335
- ----------------------------------------------------------------------
Total investment income $259,026 $227,611 $204,301
- ----------------------------------------------------------------------
</TABLE>
Net unrealized gains consist of:
As of December 31
---------------------------------------------------
In thousands 1996 1995
---------------------------------------------------
Fixed-maturities:
Gains $163,723 $227,374
Losses (15,585) (3,739)
---------------------------------------------------
Net 148,138 223,635
Other investments:
Gains 934 287
Losses (29) (821)
---------------------------------------------------
Net 905 (534)
---------------------------------------------------
Total 149,043 223,101
Deferred income taxes 52,175 78,372
---------------------------------------------------
Unrealized gains, net $ 96,868 $144,729
---------------------------------------------------
The deferred taxes relate primarily to unrealized gains and losses on MBIA
Corp.'s fixed-maturity investments, which are reflected in shareholder's equity.
F-15
<PAGE> 68
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The change in net unrealized gains (losses) consists of:
<TABLE>
<CAPTION>
Years ended December 31
------------------------------------
In thousands 1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Fixed-maturities $(75,497) $295,567 $(289,327)
Other investments 1,439 508 (8,488)
- ----------------------------------------------------------------------
Total (74,058) 296,075 (297,815)
Deferred income taxes (26,197) 103,706 (27,940)
- ----------------------------------------------------------------------
Unrealized gains (losses), net $(47,861) $192,369 $(269,875)
- ----------------------------------------------------------------------
</TABLE>
7. INCOME TAXES
The provision for income taxes is composed of:
<TABLE>
<CAPTION>
Years ended December 31
-----------------------------------
In thousands 1996 1995 1994
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Current $81,580 $70,357 $58,043
Deferred 8,982 11,391 19,082
- ---------------------------------------------------------------------
Total $90,562 $81,748 $77,125
- ---------------------------------------------------------------------
</TABLE>
The provision for income taxes gives effect to permanent differences
between financial and taxable income. Accordingly, MBIA Corp.'s effective income
tax rate differs from the statutory rate on ordinary income. The reasons for
MBIA Corp.'s lower effective tax rates are as follows:
<TABLE>
<CAPTION>
Years ended December 31
----------------------------------
In thousands 1996 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes computed on pre-tax
financial income at statutory rates 35.0 % 35.0 % 35.0 %
Increase (reduction) in taxes
resulting from:
Tax-exempt interest (12.1) (12.5) (12.0)
Amortization of goodwill 0.4 0.5 0.5
Other (2.2) (1.1) (1.7)
- --------------------------------------------------------------------------
Provision for income taxes 21.1 % 21.9 % 21.8 %
- --------------------------------------------------------------------------
</TABLE>
MBIA Corp. recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. The effect on tax assets and
F-16
<PAGE> 69
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities at December 31, 1996 and 1995 are presented below:
In thousands 1996 1995
- ------------------------------------------------------------------
Deferred tax assets
Tax and loss bonds $102,222 $ 71,183
Alternative minimum tax credit carryforward 58,068 39,072
Loss and loss adjustment expense reserve 13,673 9,809
Other 3,305 954
- ------------------------------------------------------------------
Total gross deferred tax assets 177,268 121,018
- ------------------------------------------------------------------
Deferred tax liabilities
Contingency reserve 186,173 131,174
Deferred premium revenue 76,526 64,709
Deferred acquisition costs 51,713 49,122
Unrealized gains 52,175 78,372
Contingent commissions 491 7,158
Other 5,894 3,408
- ------------------------------------------------------------------
Total gross deferred tax liabilities 372,972 333,943
- ------------------------------------------------------------------
Net deferred tax liability $195,704 $212,925
- ------------------------------------------------------------------
8. DIVIDENDS AND CAPITAL REQUIREMENTS
Under New York state insurance law, MBIA Corp. may pay a dividend only from
earned surplus subject to the maintenance of a minimum capital requirement. The
dividends in any 12-month period may not exceed the lesser of 10% of its
policyholders' surplus as shown on its last filed statutory-basis financial
statements, or of adjusted net investment income, as defined, for such 12-month
period, without prior approval of the superintendent of the New York State
Insurance Department.
In accordance with such restrictions on the amount of dividends which can
be paid in any 12-month period, MBIA Corp. had $118 million available for the
payment of dividends as of December 31, 1996. In 1996, 1995 and 1994, MBIA Corp.
declared and paid dividends of $29 million, $83 million and $38 million,
respectively, to MBIA Inc.
Under Illinois Insurance Law, MBIA Illinois may pay a dividend from
unassigned surplus, and the dividends in any 12-month period may not exceed the
greater of 10% of policyholders' surplus (total capital and surplus)
F-17
<PAGE> 70
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
at the end of the preceding calendar year, or the net income of the preceding
calendar year without prior approval of the Illinois State Insurance Department.
In accordance with such restrictions on the amount of dividends which can
be paid in any 12-month period, MBIA Illinois had $10 million available for the
payment of dividends as of December 31, 1996.
The insurance departments of New York state and certain other statutory
insurance regulatory authorities and the agencies that rate the bonds insured by
MBIA Corp. and its subsidiaries have various requirements relating to the
maintenance of certain minimum ratios of statutory capital and reserves to net
insurance in force. MBIA Corp. and its subsidiaries were in compliance with
these requirements as of December 31, 1996.
9. LINES OF CREDIT
MBIA Corp. has a standby line of credit commitment in the amount of $725 million
with a group of major banks to provide loans to MBIA Corp. if it incurs
cumulative losses (net of any recoveries) from September 30, 1996 in excess of
the greater of $500 million or 6.25% of average annual debt service. The
obligation to repay loans made under this agreement is a limited recourse
obligation payable solely from, and collateralized by, a pledge of recoveries
realized on defaulted insured obligations including certain installment premiums
and other collateral. This commitment has a seven-year term expiring on
September 30, 2003 and contains an annual renewal provision subject to approval
by the bank group.
MBIA Corp. and MBIA Inc. maintain bank liquidity facilities aggregating
$300 million. At December 31, 1996, MBIA Inc. had $29.1 million outstanding
under these facilities.
10. NET INSURANCE IN FORCE
MBIA Corp. guarantees the timely payment of principal and interest on municipal,
asset-/mortgage-backed and other non-municipal securities. MBIA Corp.'s ultimate
exposure to credit loss in the event of nonperformance by the insured is
represented by the insurance in force as set forth below.
The insurance policies issued by MBIA Corp. are unconditional commitments
to guarantee timely payment on the bonds and notes to
F-18
<PAGE> 71
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
bondholders. The creditworthiness of each insured issue is evaluated prior to
the issuance of insurance and each insured issue must comply with MBIA Corp.'s
underwriting guidelines. Further, the payments to be made by the issuer on the
bonds or notes may be backed by a pledge of revenues, reserve funds, letters of
credit, investment contracts or collateral in the form of mortgages or other
assets. The right to such money or collateral would typically become MBIA
Corp.'s upon the payment of a claim by MBIA Corp.
As of December 31, 1996, insurance in force, net of cessions to reinsurers,
had a range of maturity of 1-42 years. The distribution of net insurance in
force by geographic location and type of bond, including $3.3 billion and $2.7
billion relating to IMC's municipal investment agreements guaranteed by MBIA
Corp. in 1996 and 1995, respectively, is set forth in the following tables:
<TABLE>
<CAPTION>
As of December 31
----------------------------------------------------------------
$ in billions 1996 1995
- --------------------------------------------- --------------------------------
Net Number % of Net Net Number % of Net
Geographic Insurance of Issues Insurance Insurance of Issues Insurance
Location In Force Outstanding In Force In Force Outstanding In Force
- --------------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Domestic
California $ 60.7 3,378 14.6% $ 51.2 3,122 14.8%
New York 33.7 5,057 8.1 30.1 4,846 8.7
Florida 29.6 1,632 7.1 26.9 1,684 7.7
Texas 21.9 2,052 5.3 20.4 2,031 5.9
Pennsylvania 21.2 2,216 5.1 19.7 2,143 5.7
New Jersey 18.8 1,863 4.6 16.4 1,730 4.7
Illinois 18.5 1,145 4.5 15.0 1,090 4.3
Ohio 11.1 1,032 2.7 9.1 1,017 2.6
Massachusetts 10.9 1,100 2.6 9.3 1,070 2.7
Michigan 9.5 1,021 2.3 7.9 1,012 2.3
- -------------------------------------------- ----------------------------
Subtotal 235.9 20,496 56.9 206.0 19,745 59.4
Other states 170.1 11,502 41.1 135.6 11,147 39.1
- -------------------------------------------- ----------------------------
Total domestic 406.0 31,998 98.0 341.6 30,892 98.5
International 8.4 169 2.0 5.1 53 1.5
- -------------------------------------------- ----------------------------
Total $414.4 32,167 100.0% $346.7 30,945 100.0%
- -------------------------------------------- ----------------------------
</TABLE>
F-19
<PAGE> 72
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
As of December 31
----------------------------------------------------------------
$ in billions 1996 1995
- --------------------------------------------- --------------------------------
Net Number % of Net Net Number % of Net
Insurance of Issues Insurance Insurance of Issues Insurance
Type of Bond In Force Outstanding In Force In Force Outstanding In Force
- --------------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Domestic
Municipal:
General
obligation $110.5 11,763 26.7% $ 91.6 11,445 26.4%
Utilities 67.9 4,799 16.4 60.3 4,931 17.4
Health care 54.0 2,386 13.0 51.9 2,458 15.0
Transportation 30.3 1,520 7.3 25.5 1,562 7.4
Special
revenue 28.9 1,543 7.0 24.4 1,445 7.0
Industrial
development
and
pollution
control
revenue 18.1 931 4.4 17.2 924 5.0
Higher
education 17.8 1,309 4.3 15.2 1,261 4.4
Housing 17.7 2,455 4.3 15.8 2,671 4.5
Other 3.8 169 0.9 7.3 134 2.1
- --------------------------------------------- -----------------------------
Total
municipal 349.0 26,875 84.3 309.2 26,831 89.2
- --------------------------------------------- -----------------------------
Structured
finance* 38.6 349 9.3 20.2 256 5.8
Other 18.4 4,774 4.4 12.2 3,805 3.5
- --------------------------------------------- -----------------------------
Total
domestic 406.0 31,998 98.0 341.6 30,892 98.5
- --------------------------------------------- -----------------------------
International
Infrastructure 3.6 121 0.9 1.6 34 0.5
Structured
finance* 2.1 22 0.5 1.6 8 0.5
Other 2.7 26 0.6 1.9 11 0.5
- --------------------------------------------- -----------------------------
Total
international 8.4 169 2.0 5.1 53 1.5
- --------------------------------------------- -----------------------------
Total $414.4 32,167 100.0% $346.7 30,945 100.0%
- --------------------------------------------- -----------------------------
</TABLE>
* Asset-/mortgage-backed
11. REINSURANCE
MBIA Corp. reinsures portions of its risks with other insurance companies
through various quota and surplus share reinsurance treaties and facultative
agreements. In the event that any or all of the reinsurers were unable to meet
their obligations, MBIA Corp. would be liable for such defaulted amounts.
Amounts deducted from gross insurance in force for reinsurance ceded by
MBIA Corp. and its subsidiaries were $57.6 billion and $50.1 billion, at
December 31, 1996 and 1995, respectively. The distribution of ceded
F-20
<PAGE> 73
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
insurance in force by geographic location and type of bond is set forth in the
following tables:
<TABLE>
<CAPTION>
As of December 31
-------------------------------------------------
In billions 1996 1995
- ---------------------------------------------- ----------------------
% of % of
Ceded Ceded Ceded Ceded
Insurance Insurance Insurance Insurance
Geographic Location In Force In Force In Force In Force
- ---------------------------------------------- ----------------------
<S> <C> <C> <C> <C>
Domestic
California $ 9.4 16.2% $ 8.8 17.5%
New York 6.2 10.7 5.7 11.4
New Jersey 3.3 5.7 3.1 6.1
Texas 2.9 5.1 2.8 5.6
Pennsylvania 2.9 5.1 2.7 5.4
Illinois 2.6 4.5 2.2 4.5
Florida 2.4 4.1 2.3 4.6
Washington 1.9 3.2 1.4 2.7
District of Columbia 1.5 2.7 1.5 3.0
Massachusetts 1.4 2.5 1.1 2.1
Ohio 1.3 2.3 1.0 2.0
Puerto Rico 1.2 2.1 1.3 2.6
- ---------------------------------------------- ----------------------
Subtotal 37.0 64.2 33.9 67.5
Other states 16.9 29.4 14.4 28.8
- ---------------------------------------------- ----------------------
Total domestic 53.9 93.6 48.3 96.3
International 3.7 6.4 1.8 3.7
- ---------------------------------------------- ----------------------
Total $57.6 100.0% $50.1 100.0%
- ---------------------------------------------- ----------------------
</TABLE>
F-21
<PAGE> 74
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
As of December 31
-------------------------------------------------
In billions 1996 1995
- ---------------------------------------------- ----------------------
% of % of
Ceded Ceded Ceded Ceded
Insurance Insurance Insurance Insurance
Type of Bond In Force In Force In Force In Force
- ---------------------------------------------- ----------------------
<S> <C> <C> <C> <C>
Domestic
Municipal:
General obligation $14.4 24.9% $11.7 23.3%
Utilities 10.2 17.7 9.0 18.0
Transportation 6.4 11.1 5.5 11.0
Health care 6.3 11.0 6.6 13.1
Special revenue 3.4 5.9 3.2 6.4
Industrial
development and
pollution control
revenue 3.2 5.6 3.0 6.0
Housing 1.6 2.7 1.4 2.8
Higher education 1.5 2.6 1.2 2.4
Other 1.0 1.7 2.4 4.8
- ---------------------------------------------- ------------------
Total municipal 48.0 83.2 44.0 87.8
Structured finance* 4.5 7.9 3.6 7.2
Other 1.4 2.5 0.7 1.3
- ---------------------------------------------- ------------------
Total domestic 53.9 93.6 48.3 96.3
- ---------------------------------------------- ------------------
International
Infrastructure 1.6 2.7 0.7 1.4
Structured finance* 1.1 1.9 0.2 0.5
Other 1.0 1.8 0.9 1.8
- ---------------------------------------------- ------------------
Total international 3.7 6.4 1.8 3.7
- ---------------------------------------------- ------------------
Total $57.6 100.0% $50.1 100.0%
- ---------------------------------------------- ------------------
</TABLE>
* Asset-/mortgage-backed
12. EMPLOYEE BENEFITS
MBIA Corp. participates in MBIA Inc.'s pension plan covering substantially all
employees. The pension plan is a defined contribution plan and MBIA Corp.
contributes 10% of each eligible employee's annual total compensation. Pension
expense for the years ended December 31, 1996, 1995 and 1994 was $3.4 million,
$3.2 million and $3.0 million, respectively. MBIA Corp. also has a profit
sharing/401(k) plan which allows eligible employees to contribute up to 10% of
eligible compensation. MBIA Corp. matches employee contributions up to the first
5% of total compensation. MBIA Corp. contributions to the profit sharing plan
aggregated $1.5 million, $1.4 million
F-22
<PAGE> 75
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
and $1.4 million for the years ended December 31, 1996, 1995 and 1994,
respectively. The 401(k) plan amounts are invested in common stock of MBIA Inc.
Amounts relating to the above plans that exceed limitations established by
Federal regulations are contributed to a non-qualified deferred compensation
plan. Of the above amounts for the pension and profit sharing plans, $3.0
million, $2.7 million and $2.6 million for the years ended December 31, 1996,
1995 and 1994, respectively, are included in policy acquisition costs.
MBIA Corp. also participates in MBIA Inc.'s common stock incentive plan
which enables employees of MBIA Corp. to acquire shares of MBIA Inc. or to
benefit from appreciation in the price of the common stock of MBIA Inc.
MBIA Corp. also participates in MBIA Inc.'s restricted stock program,
adopted in December 1995, whereby key executive officers of MBIA Corp. are
granted restricted shares of MBIA Inc. common stock. During 1996 and 1995, the
amounts amortized were $164,000 and $9,000, respectively, of which $102,000 and
$5,000 are included in policy acquisition costs.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) 123, "Accounting for Stock-Based
Compensation," effective for financial statements for fiscal years beginning
after December 15, 1995. SFAS 123 required MBIA Inc. to adopt, at its election,
either 1) the provisions in SFAS 123 which require the recognition of
compensation expense for employee stock-based compensation plans, or 2) the
provisions in SFAS 123 which require the pro forma disclosure of net income and
earnings per share as if the recognition provisions of SFAS 123 had been
adopted. MBIA Inc. adopted the disclosure requirements of SFAS 123 effective
January 1, 1996 and continues to account for its employee stock-based
compensation plans under Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees". Accordingly, the adoption of SFAS 123 had no
impact on MBIA Corp.'s financial position or results of operations. Had
compensation cost for the MBIA Inc. stock option program been recognized based
on the fair value at the grant date consistent with the recognition provisions
of SFAS 123, the impact on MBIA Corp.'s net income would not have been material.
However, since the options vest over five years and additional awards could be
made in future years, the effects of applying SFAS 123 in 1996 are not likely to
be representative of the effects on reported net income for future years.
F-23
<PAGE> 76
13. RELATED PARTY TRANSACTIONS
Since 1989, MBIA Corp. has executed five surety bonds to guarantee the payment
obligations of the members of the Association, one of which is a former
principal shareholder of MBIA Inc., which had their Standard & Poor's
Corporation claims-paying rating downgraded from Triple-A on their previously
issued Association policies. In the event that they do not meet their
Association policy payment obligations, MBIA Corp. will pay the required amounts
directly to the paying agent instead of to the former Association member as was
previously required. The aggregate amount payable by MBIA Corp. on these surety
bonds is limited to $340 million. These surety bonds remain outstanding as of
December 31, 1996.
MBIA Corp. had investment management and advisory agreements with an
affiliate of a former principal shareholder of MBIA Inc., which provided for
payment of fees on assets under management. Total related expenses for the years
ended December 31, 1995 and 1994 amounted to $2.5 million and $2.6 million,
respectively. These agreements were terminated on January 1, 1996 at which time
CMC assumed full management of MBIA Corp.'s consolidated investment portfolios.
Total fees paid to CMC on assets under management for the years ended December
31, 1996 and 1995 amounted to $2.8 million and $0.1 million, respectively.
MBIA Corp. has various insurance coverages provided by a former principal
shareholder of MBIA Inc., the cost of which totaled $2.1 million, $1.9 million
and $1.9 million, respectively, for the years ended December 31, 1996, 1995 and
1994.
Included in other assets at December 31, 1996 and 1995 is $2.0 million and
$1.1 million of net receivables from MBIA Inc. and other subsidiaries.
As of December 31, 1996, MBIA Corp. held securities subject to agreements
to resell of $108.9 million, and transferred securities subject to agreements to
repurchase of $108.9 million with IMC and MBIA Inc. These agreements have a term
of less than one year. The interest expense paid and income received relating to
these agreements for the year ended December 31, 1996 was $2.3 million and $2.4
million, respectively.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts of financial instruments shown in the following
table have been determined by MBIA Corp. using available market
F-24
<PAGE> 77
information and appropriate valuation methodologies. However, in certain cases
considerable judgment is necessarily required to interpret market data to
develop estimates of fair value. Accordingly, the estimates presented herein are
not necessarily indicative of the amount MBIA Corp. could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
FIXED-MATURITY SECURITIES - The fair value of fixed-maturity securities is based
upon quoted market price, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar
securities.
SHORT-TERM INVESTMENTS - Short-term investments are carried at amortized cost
which approximates fair value.
OTHER INVESTMENTS - Other investments include MBIA Corp.'s interest in a limited
partnership and a mutual fund that invests principally in marketable equity
securities. The fair value of these investments is based on quoted market
prices.
CASH AND CASH EQUIVALENTS, RECEIVABLE FOR INVESTMENTS SOLD AND PAYABLE FOR
INVESTMENTS PURCHASED - The carrying amounts of these items are a reasonable
estimate of their fair value.
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL - The fair value is estimated
based upon the quoted market prices of the transactions' underlying collateral.
PREPAID REINSURANCE PREMIUMS - The fair value of MBIA Corp.'s prepaid
reinsurance premiums is based on the estimated cost of entering into an
assumption of the entire portfolio with third party reinsurers under current
market conditions.
DEFERRED PREMIUM REVENUE - The fair value of MBIA Corp.'s deferred premium
revenue is based on the estimated cost of entering into a cession of the entire
portfolio with third party reinsurers under current market conditions.
LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES - The carrying amount is composed of
the present value of the expected cash flows for specifically identified claims
combined with an estimate for unidentified claims.
F-25
<PAGE> 78
Therefore, the carrying amount is a reasonable estimate of the fair value of
the reserve.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE - The fair value is estimated
based upon the quoted market prices of the transactions' underlying collateral.
INSTALLMENT PREMIUMS - The fair value is derived by calculating the present
value of the estimated future cash flow stream discounted at 9%.
<TABLE>
<CAPTION>
As of December 31, 1996 As of December 31, 1995
----------------------- -----------------------
Carrying Estimated Carrying Estimated
In thousands Amount Fair Value Amount Fair Value
- -------------------------------------------------- -----------------------
<S> <C> <C> <C> <C>
Assets:
Fixed-maturity securities $4,149,700 $4,149,700 $3,652,621 $3,652,621
Short-term investments 169,889 169,889 198,035 198,035
Other investments 14,851 14,851 14,064 14,064
Cash and cash equivalents 3,288 3,288 2,135 2,135
Securities purchased under
agreements to resell 108,900 124,471 --- ---
Prepaid reinsurance
premiums 216,846 189,631 200,887 174,444
Receivable for
investments sold 975 975 5,729 5,729
Liabilities:
Deferred premium
revenue 1,785,875 1,545,976 1,616,315 1,395,159
Loss and loss adjustment
expense reserves 59,314 59,314 42,505 42,505
Securities sold under
agreements to repurchase 108,900 115,838 --- ---
Payable for investments
purchased 48,811 48,811 10,695 10,695
Off-balance-sheet instruments:
Installment premiums --- 287,969 --- 235,371
</TABLE>
F-26
<PAGE> 79
MBIA INSURANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
F-27
<PAGE> 80
MBIA INSURANCE CORPORATION
AND SUBSIDIARIES
I N D E X
---------
PAGE
----
Consolidated Balance Sheets -
September 30, 1997 (Unaudited) and December 31, 1996 (Audited) F-29
Consolidated Statements of Income -
Three months and nine months ended September 30, 1997
and 1996 (Unaudited) F-30
Consolidated Statement of Changes in Shareholder's Equity -
Nine months ended September 30, 1997 (Unaudited) F-31
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1997 and 1996 (Unaudited) F-32
Notes to Consolidated Financial Statements (Unaudited) F-33
F-28
<PAGE> 81
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Investments:
Fixed-maturity securities held as available-for-sale
at fair value (amortized cost $4,513,710 and $4,001,562) $4,725,555 $4,149,700
Short-term investments, at amortized cost
(which approximates fair value) 207,356 169,889
Other investments 16,209 14,851
---------- ----------
TOTAL INVESTMENTS 4,949,120 4,334,440
Cash and cash equivalents 3,962 3,288
Securities purchased under agreements to resell 168,120 108,900
Accrued investment income 73,615 65,194
Deferred acquisition costs 153,487 147,750
Prepaid reinsurance premiums 230,559 216,846
Goodwill (less accumulated amortization
of $45,929 and $42,262) 97,051 100,718
Property and equipment, at cost (less accumulated
depreciation of $17,260 and $14,782) 51,173 47,176
Receivable for investments sold 45,948 975
Other assets 45,697 40,871
---------- ----------
TOTAL ASSETS $5,818,732 $5,066,158
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Deferred premium revenue $1,913,605 $1,785,875
Loss and loss adjustment expense reserves 73,246 59,314
Securities sold under agreements to repurchase 168,120 108,900
Deferred income taxes 232,800 195,704
Payable for investments purchased 69,705 48,811
Other liabilities 136,693 63,683
---------- ----------
TOTAL LIABILITIES 2,594,169 2,262,287
---------- ----------
Shareholder's Equity:
Common stock, par value $150 per share; authorized,
issued and outstanding - 100,000 shares 15,000 15,000
Additional paid-in capital 1,134,709 1,041,876
Retained earnings 1,943,413 1,651,315
Cumulative translation adjustment (7,866) (1,188)
Unrealized appreciation of investments,
net of deferred income tax provision
of $75,107 and $52,175 139,307 96,868
---------- ----------
TOTAL SHAREHOLDER'S EQUITY 3,224,563 2,803,871
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $5,818,732 $5,066,158
========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-29
<PAGE> 82
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Gross premiums written $124,858 $ 80,353 $ 382,602 $ 335,807
Ceded premiums (16,204) (9,036) (45,017) (35,665)
-------- -------- --------- ---------
Net premiums written 108,654 71,317 337,585 300,142
Increase in deferred premium revenue (33,959) (6,336) (117,303) (111,889)
-------- -------- --------- ---------
Premiums earned (net of ceded
premiums of $10,039, $10,285,
$31,304 and $29,187) 74,695 64,981 220,282 188,253
Net investment income 72,283 62,935 206,201 183,339
Net realized gains 6,119 3,115 12,974 9,702
Other 321 724 1,014 2,047
-------- -------- --------- ---------
Total revenues 153,418 131,755 440,471 383,341
-------- -------- --------- ---------
Expenses:
Losses and loss adjustment 4,892 2,888 13,150 10,354
Policy acquisition costs, net 7,037 6,404 20,612 18,294
Operating 12,984 12,551 36,813 34,625
-------- -------- --------- ---------
Total expenses 24,913 21,843 70,575 63,273
-------- -------- --------- ---------
Income before income taxes 128,505 109,912 369,896 320,068
Provision for income taxes 27,183 22,026 77,798 67,311
-------- -------- --------- ---------
Net income $101,322 $ 87,886 $ 292,098 $ 252,757
======== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-30
<PAGE> 83
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY (Unaudited)
For the nine months ended September 30, 1997
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Common Stock Additional Cumulative Unrealized
------------------- Paid-in Retained Translation Appreciation
Shares Amount Capital Earnings Adjustment of Investments
-------- -------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 100,000 $15,000 $1,041,876 $1,651,315 ($1,188) $ 96,868
Net income --- --- --- 292,098 --- ---
Change in foreign
currency translation --- --- --- --- (6,678) ---
Change in unrealized
appreciation of investments
net of change in deferred
income taxes of ($22,932) --- --- --- --- --- 42,439
Capital contribution from
MBIA Inc. --- --- 80,000 --- --- ---
Tax reduction related to tax
sharing agreement
with MBIA Inc. --- --- 12,833 --- --- ---
------- ------- ---------- ---------- ------- --------
Balance, September 30, 1997 100,000 $15,000 $1,134,709 $1,943,413 ($7,866) $139,307
======= ======= ========== ========== ======= ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-31
<PAGE> 84
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30
----------------------------
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 292,098 $ 252,757
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in accrued investment income (8,421) (5,839)
Increase in deferred acquisition costs (5,737) (4,589)
Increase in prepaid reinsurance premiums (13,713) (6,478)
Increase in deferred premium revenue 131,016 118,367
Increase in loss and loss adjustment expense reserves 13,932 9,136
Depreciation 2,904 2,179
Amortization of goodwill 3,667 3,672
Amortization of bond discount, net (7,391) (5,510)
Net realized gains on sale of investments (12,974) (9,702)
Deferred income taxes 14,296 10,325
Other, net 70,962 16,606
----------- -----------
Total adjustments to net income 188,541 128,167
----------- -----------
Net cash provided by operating activities 480,639 380,924
----------- -----------
Cash flows from investing activities:
Purchase of fixed-maturity securities, net
of payable for investments purchased (1,606,108) (1,047,429)
Sale of fixed-maturity securities, net of
receivable for investments sold 917,679 589,812
Redemption of fixed-maturity securities,
net of receivable for investments redeemed 126,478 106,439
Sale (purchase) of short-term investments, net 8,345 (12,693)
Sale of other investments, net 565 361
Capital expenditures, net of disposals (6,924) (3,851)
----------- -----------
Net cash used by investing activities (559,965) (367,361)
----------- -----------
Cash flows from financing activities:
Capital contributions from MBIA Inc. 80,000 ---
Dividends paid --- (13,000)
----------- -----------
Net cash provided (used) by financing activities 80,000 (13,000)
----------- -----------
Net increase in cash and cash equivalents 674 563
Cash and cash equivalents - beginning of period 3,288 2,135
----------- -----------
Cash and cash equivalents - end of period $ 3,962 $ 2,698
=========== ===========
Supplemental cash flow disclosures:
Income taxes paid $ 58,968 $ 50,678
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-32
<PAGE> 85
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
- -------------------------
The accompanying consolidated financial statements are unaudited and include the
accounts of MBIA Insurance Corporation and its Subsidiaries (the "Company"). The
statements do not include all of the information and disclosures required by
generally accepted accounting principles. These statements should be read in
conjunction with the Company's consolidated financial statements and notes
thereto for the year ended December 31, 1996. The accompanying consolidated
financial statements have not been audited by independent accountants in
accordance with generally accepted auditing standards but in the opinion of
management such financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary to summarize fairly the Company's
financial position and results of operations. The results of operations for the
nine months ended September 30, 1997 may not be indicative of the results that
may be expected for the year ending December 31, 1997. The December 31, 1996
condensed balance sheet data was derived from audited financial statements, but
does not include all disclosures required by generally accepted accounting
principles. The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany balances
have been eliminated. Certain amounts have been reclassified in prior years'
financial statements to conform to the current presentation.
2. Dividends Declared
- ----------------------
No dividends were declared by the Company during the nine months ended September
30, 1997.
F-33
<PAGE> 86
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SELLER OR THE
UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF A TIME SUBSEQUENT TO THE DATE OF SUCH
INFORMATION. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................... 2
Reports to Certificateholders........... 2
Summary................................. 3
Risk Factors............................ 8
The Trust............................... 11
The Onyx Portfolio of Motor Vehicle
Contracts............................. 11
The Contracts........................... 17
Maturity and Prepayment Assumptions..... 21
Yield Considerations.................... 21
Pool Factor............................. 21
Use of Proceeds......................... 22
The Seller.............................. 22
The Servicer............................ 23
The Certificates and the Agreement...... 23
Description of the Insurer.............. 31
Additional Provisions of the
Agreement............................. 32
Certain Legal Aspects of the
Contracts............................. 37
Certain Federal Income Tax
Consequences.......................... 39
ERISA Considerations.................... 45
Underwriting............................ 48
Legal Matters........................... 48
Experts................................. 48
Financial Statements of Insurer......... F-1
-----------------
UNTIL , 1998 (90 DAYS AFTER THE
DATE OF THIS PROSPECTUS) ALL DEALERS EFFECTING
TRANSACTIONS IN THE CERTIFICATES, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS
DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS AN UNDERWRITER AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
==============================================
</TABLE>
======================================================
$173,000,000
ONYX ACCEPTANCE
GRANTOR TRUST 1998-1
% AUTO LOAN
PASS-THROUGH CERTIFICATES,
SERIES 1998-1
[ONYX ACCEPTANCE LOGO]
ONYX ACCEPTANCE FINANCIAL CORPORATION,
Seller
ONYX ACCEPTANCE CORPORATION,
Servicer
---------------------------
P R O S P E C T U S
---------------------------
MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
MARCH , 1998
======================================================
<PAGE> 87
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Registration Fee............................................
Printing and Engraving...................................... $ 60,000
Trustee's Fee............................................... 7,500
Legal Fees and Expenses..................................... 142,500
Blue Sky Fees and Expenses.................................. 15,000
Accountant's Fees and Expenses.............................. 18,000
Rating Agency Fees.......................................... 100,000
Miscellaneous Fees and Expenses............................. 7,000
--------
Total Expenses......................................... $350,000
========
</TABLE>
- ---------------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law ("Delaware Law")
Onyx Acceptance Financial Corporation (the "Company") has broad powers to
indemnify its directors and officers against liabilities they may incur in such
capacities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"). The Company's Bylaws (the "Bylaws") (Exhibit 3.2 hereto)
provide that the Company shall indemnify its directors and officers to the
fullest extent permitted by law and requires the Company to advance litigation
expenses upon receipt by the Company of an undertaking by the director or
officer to repay such advances if it is ultimately determined that the director
is not entitled to indemnification. The Bylaws further provide that rights
conferred under such Bylaws shall not be deemed to be exclusive of any other
right such persons may have or acquire under any bylaw, agreement, vote of
stockholders or disinterested directors, or otherwise.
The Certificate of Incorporation (the "Certificate of Incorporation")
(Exhibit 3.1 hereto) provides that, pursuant to Delaware Law, its directors
shall not be liable for monetary damages for breach of the directors' fiduciary
duty of care to the Company and its stockholders. This provision in the
Certificate of Incorporation does not eliminate the duty of care, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware Law. In addition,
each director will continue to be subject to liability for breach of the
director's duty of loyalty to the Company for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefits to the director, and for payment
of dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware Law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. The Certificate of Incorporation further
provides that the Company shall indemnify its directors and officers to the
fullest extent permitted by law, and requires the Company to advance litigation
expenses in the case of stockholder derivative actions or other actions, against
an undertaking by the director to repay such advances if it is ultimately
determined that the director is not entitled to indemnification. The Certificate
of Incorporation also provides that rights conferred under such Certificate of
Incorporation shall not be deemed to be exclusive of any other right such
persons may have or acquire under any statute, the Certificate of Incorporation,
the Bylaws, agreement, vote of stockholders or disinterested directors, or
otherwise.
The Company has acquired a directors' and officers' liability insurance
policy that, subject to the terms and conditions of the policy, insures the
directors and officers of the Company against losses arising from any wrongful
act (as defined by the policy) in his or her capacity as a director or officer.
The policy reimburses the Company for amounts which the Company lawfully
indemnifies or for which it is required or permitted by law to indemnify its
directors and officers.
In addition, the Company has entered into agreements to indemnify its
directors and certain of its officers in addition to indemnification provided
for in the Certificate of Incorporation and Bylaws. These agreements
II-1
<PAGE> 88
will, among other things, indemnify the Company's directors and certain of its
officers for certain expenses (including attorneys' fees), judgments, fines and
settlement amounts incurred by such person in any action or proceeding,
including any action by or in the right of the Company, on account of services
as a director or officer of the Company or as a director or officer of any
subsidiary of the Company, or as a director or officer of any other company or
enterprise that the person provides services to at the request of the Company.
The Underwriting Agreement provides for indemnification by the Company of
the Underwriter, for certain liabilities rising under the Securities Act or
otherwise. It also provides, in certain limited instances, for indemnification
by the Underwriter of the Company with respect to information furnished by or on
behalf of the Underwriter that are contained in this prospectus or included as
part of this Registration Statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Seller incorporated
herein by reference to the Registrant's Registration
Statement on Form S-1 (No. 333-4220)
3.2 Bylaws of the Seller incorporated herein by reference to the
Registrant's Registration Statement on Form S-1 (No.
333-4220)
4.1 Form of Pooling and Servicing Agreement by and among the
Seller, the Servicer and the Trustee
5.1 Opinion of Andrews & Kurth L.L.P., with respect to legality
8.1 Opinion of Andrews & Kurth L.L.P., with respect to federal
income tax matters
23.1 Consent of Andrews & Kurth L.L.P., (contained in Exhibit
5.1)
23.2 Consent of Andrews & Kurth L.L.P., (contained in Exhibit
8.1)
23.3 Consent of Coopers & Lybrand LLP with respect to financial
statements of MBIA Insurance Corporation
24 Powers of Attorney*
</TABLE>
- ---------------
* Previously filed
(b) FINANCIAL STATEMENT SCHEDULES
Not applicable.
II-2
<PAGE> 89
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes as follows:
(a) To provide to the Underwriter at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriter to permit prompt delivery to each
purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this Registration Statement as of the time it was declared effective.
(d) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 90
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement No. 333-46359 to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Irvine, State of California, on March 5, 1998.
Onyx Acceptance Financial Corporation
By: /s/ JOHN W. HALL*
------------------------------------
John W. Hall
Director, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement No. 333-46359 has been signed below by the
following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JOHN W. HALL* President and Chief March 5, 1998
- ----------------------------------------------------- Executive Officer, Director
John W. Hall (Principal Executive Officer)
/s/ DON P. DUFFY* Executive Vice President March 5, 1998
- ----------------------------------------------------- and Chief Financial Officer,
Don P. Duffy Director (Principal Financial
and Accounting Officer)
/s/ REGAN E. KELLY Executive Vice President, March 5, 1998
- ----------------------------------------------------- Director
Regan E. Kelly
/s/ KURT C. BICKNELL* Director March 5, 1998
- -----------------------------------------------------
Kurt C. Bicknell
Director
- -----------------------------------------------------
Steve M. Bond
</TABLE>
*By: /s/ REGAN S. KELLY
-------------------------------
Regan S. Kelly
Attorney-in-fact
II-4
<PAGE> 91
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement..............................
3.1 Certificate of Incorporation of the Seller incorporated
herein by reference to the Registrant's Registration
Statement on Form S-1 (No. 333-4220)........................
3.2 Bylaws of the Seller incorporated herein by reference to the
Registrant's Registration Statement on Form S-1 (No.
333-4220)...................................................
4.1 Form of Pooling and Servicing Agreement by and among the
Seller, the Servicer and the Trustee........................
5.1 Opinion of Andrews & Kurth L.L.P., with respect to
legality....................................................
8.1 Opinion of Andrews & Kurth L.L.P., with respect to federal
income tax matters..........................................
23.1 Consent of Andrews & Kurth L.L.P., (contained in Exhibit
5.1)........................................................
23.2 Consent of Andrews & Kurth L.L.P., (contained in Exhibit
8.1)........................................................
23.3 Consent of Coopers & Lybrand LLP with respect to financial
statements of MBIA Insurance Corporation....................
24 Powers of Attorney*.........................................
</TABLE>
- ---------------
* Previously filed
<PAGE> 1
EXHIBIT 1.1
Onyx Acceptance Grantor Trust 1998-1
____% Auto Loan Pass-Through Certificates, Series 1998-1
Onyx Acceptance Financial Corporation
as Seller
Onyx Acceptance Corporation
as Servicer
UNDERWRITING AGREEMENT
March __, 1998
Merrill Lynch, Pierce, Fenner & Smith
Incorporated as representative of
the several Underwriters
World Financial Center
North Tower, 15th Floor
New York, New York l0281-1315
Ladies and Gentlemen:
1. Introductory. Onyx Acceptance Financial Corporation (the "Company")
proposes to cause Onyx Acceptance Grantor Trust 1998-1 (the "Trust") to sell to
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Representative") and
Solomon Brothers Inc. (together with the Representative the "Underwriters")
____% Auto Loan Pass-Through Certificates, Series 1998-1 (the "Certificates").
The Certificates will be issued pursuant to a Pooling and Servicing Agreement
between the Company, as Seller, Onyx Acceptance Corporation as Servicer (the
"Servicer" or "Onyx"), Bankers Trust Company as Trustee (the "Trustee"), dated
as of March 1, 1998 (the "Pooling and Servicing Agreement"). Pursuant to an
insurance and reimbursement agreement (the "Insurance Agreement") among the
Company, Onyx Acceptance Corporation, the Trustee and MBIA Insurance Corporation
(the "Insurer"), the Insurer has issued its financial guarantee insurance policy
(the "Guarantee") to the Trustee for the benefit of the Certificateholders
guaranteeing timely payment of interest and principal on the Certificates. The
assets of the Trust will include, among other things, (i) a pool (the "Contract
Pool")
<PAGE> 2
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
or to become due thereunder on or after the Cutoff Date (as hereinafter
defined), such Contracts to be sold to the Trust by the Seller and serviced by
the Servicer, (ii) the Guarantee, (iii) security interests in the Financed
Vehicles and the rights to receive proceeds from claims on certain insurance
policies covering the Financed Vehicles or the individual obligors under each
related Contract and the right to proceeds under a blanket insurance policy,
(iv) all amounts on deposit in the Collection Account, (v) the right of the
Company to cause Onyx to repurchase certain Contracts under certain
circumstances, and (vi) all proceeds of the foregoing. The Certificates will be
issued in an aggregate principal amount of $___________ which is equal to the
outstanding principal balance of Contracts as of March 1, 1998 (the "Cut-Off
Date"). Capitalized terms used herein and not otherwise herein defined shall
have the meanings assigned to such terms in the Pooling and Servicing Agreement.
The Company hereby agrees with the Underwriters, as follows:
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with the Underwriters that:
(i) A registration statement on Form S-1 (No. 333-46357),
including a prospectus and such amendments thereto as may have been
required on or prior to the date hereof, relating to the Certificates,
has been filed with the Securities and Exchange Commission (the
"Commission"). The conditions to the use of a registration statement
on Form S-1 under the Securities Act of 1933, as amended (the "Act"),
as set forth in the General Instructions to Form S-1, have been, or
will prior to the effective date of the Registration Statement be,
satisfied in all material respects with respect to the Company and the
Registration Statement.
(ii) The Company will next file with the Commission either,
(A) prior to the effectiveness of such registration statement, a
2
<PAGE> 3
further amendment thereto (including the form of final prospectus) or
(B) after effectiveness of such registration statement, a final
prospectus in accordance with Rules 430A and 424(b) (each, as
hereinafter defined). In the case of clause (B), the Company has
included in such registration statement, as amended at the Effective
Date (as hereinafter defined), all information (other than Rule 430A
Information (as hereinafter defined)) required by the Act and the rules
and regulations thereunder (the "Rules and Regulations") to be included
in the prospectus with respect to the Certificates and the offering
thereof. As filed, such amendment and form of final prospectus, or such
final prospectus, shall include all Rule 430A Information and, except
to the extent the Underwriters shall agree in writing to a
modification, shall be in all substantive respects in the form
furnished to the Underwriters prior to the Execution Time (as
hereinafter defined) or, to the extent not completed at the Execution
Time, shall contain only such specific additional information and other
changes (beyond that contained in the latest Preliminary Prospectus (as
hereinafter defined) which has previously been furnished to the
Underwriters) as the Company has advised the Underwriters, prior to the
Execution Time, will be included or made therein.
The terms which follow, when used in this Agreement, shall
have the meanings indicated. The term "Effective Date" shall mean each
date that the Registration Statement and any post-effective amendment
or amendments thereto became or become effective under the Act.
"Execution Time" shall mean the date and time that this Agreement is
executed and delivered by the parties hereto. "Preliminary Prospectus"
shall mean any preliminary prospectus referred to in the preceding
paragraph and any preliminary prospectus included in the Registration
Statement which, as of the Effective Date, omits Rule 430A
Information. "Prospectus" shall mean the prospectus relating to the
Certificates that is first filed with the Commission pursuant to Rule
424(b) and any prospectus subsequently filed pursuant to Rule 424 or,
if no filing pursuant to Rule 424(b) is required, shall
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<PAGE> 4
mean the form of final prospectus included in the Registration
Statement at the Effective Date. "Registration Statement" shall mean
the registration statement referred to in the preceding paragraph and
any registration statement required to be filed under the Act or the
Rules and Regulations, including incorporated documents, exhibits and
financial statements, in the form in which it has, or shall, become
effective and, in the event that any post-effective amendment thereto
becomes effective prior to the Closing Date (as hereinafter defined),
shall also mean such registration statement as so amended. Such term
shall include Rule 430A Information deemed to be included therein at
the Effective Date as provided by Rule 430A. "Rule 424" and "Rule 430A"
refer to such rules and regulations under the Act. "Rule 430A
Information" means information with respect to the Certificates and the
offering thereof permitted to be omitted from the Registration
Statement when it becomes effective pursuant to Rule 430A.
(iii) On the Effective Date, the Registration Statement did,
or will, comply in all material respects with the applicable
requirements of the Act and the Rules and Regulations; on the Effective
Date and when the Prospectus is first filed (if required) in accordance
with Rule 424(b) and on the Closing Date, the Prospectus (and any
supplements thereto) will comply in all material respects with the
applicable requirements of the Act and the Rules and Regulations; on
the Effective Date, the Registration Statement did not, or will not,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to
make the statements therein not misleading; and, on the Effective Date,
the Prospectus, if not filed pursuant to Rule 424(b), did not, or will
not, and on the date of any filing pursuant to Rule 424(b) and on the
Closing Date, the Prospectus (together with any supplement thereto)
will not, include any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; provided, however, that the Com-
4
<PAGE> 5
pany makes no representations or warranties as to the information
contained in, or omitted from, the Registration Statement or the
Prospectus (or any supplements thereto) in reliance upon, and in
conformity with, information furnished in writing to the Company on the
Underwriters's behalf specifically for use in connection with the
preparation of the Registration Statement or the Prospectus (or any
supplements thereto).
(iv) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, with full power and authority (corporate
and other) to own its properties and conduct its businesses as
described in the Prospectus, and is duly qualified to transact business
as a foreign corporation in good standing under the laws of each
jurisdiction where the ownership or leasing of its properties or the
conduct of its business requires such qualification.
(v) As of the Closing Date the representations and warranties
of the Company, as Seller, in the Pooling and Servicing Agreement will
be true and correct, and each Contract will satisfy the conditions set
forth in Sections 2.2(b) thereof.
(vi) No consent, approval, authorization or order of, or
filing with, any court or governmental agency or body is required to be
obtained or made by the Company for the consummation of the
transactions contemplated by this Agreement, except such as have been
obtained and made under the Act, such as may be required under state
securities laws and the filing of any financing statements required to
perfect the Trust's interest in the Contracts.
(vii) The Company is not in violation of its Certificate of
Incorporation or By-Laws or in default in the performance or observance
of any obligation, agreement, covenant or condition contained in any
agreement or instrument to which it is a party or by which it or its
prop-
5
<PAGE> 6
erties are bound which violation or default would have a material
adverse effect on the transactions contemplated herein or in the
Pooling and Servicing Agreement, the Purchase Agreement or the
Insurance Agreement. The execution, delivery and performance of this
Agreement, the Pooling and Servicing Agreement, the Purchase Agreement
or the Insurance Agreement and the issuance and sale of the
Certificates and compliance with the terms and provisions thereof will
not result in a breach or violation of any of the terms and provisions
of or constitute a default under, any statute, rule, regulation or
order of any governmental agency or body or any court having
jurisdiction over the Company or any of its properties or any agreement
or instrument to which the Company is a party or by which the Company
is bound or to which any of the properties of the Company is subject,
or the Certificate of Incorporation or By-Laws of the Company and the
Company has full corporate power and authority to authorize, cause the
Trust to issue, and sell the Certificates as contemplated by this
Agreement, to enter into this Agreement, the Pooling and Servicing
Agreement, the Purchase Agreement and the Insurance Agreement and to
consummate the transactions contemplated herein and therein.
(viii) This Agreement has been duly authorized, executed and
delivered by the Company.
3. Purchase, Sale, Payment and Delivery of Certificates. On the basis
of the representations, warranties and agreements herein contained, but subject
to the terms and conditions herein set forth, the Company agrees to sell to each
Underwriter, and each Underwriter agrees, severally and not jointly, to purchase
from the Company the aggregate principal amount of Certificates set forth
opposite such Underwriter's name on Schedule I hereto. The Certificates are to
be purchased at a purchase price of _________% of the aggregate principal amount
thereof plus accrued interest, if any, from March __, 1998.
The Company will deliver the Certificates to the Underwriters against
payment of the purchase price in immediately available funds by wire transfer
to the order of the
6
<PAGE> 7
Company at the offices of the Company at 8001, Irvine Center Drive, Suite 500,
Irvine, California 92718 at 10:00 a.m., New York City time on March __, 1998 or
at such other time not later than seven full business days thereafter as the
Underwriters and the Company determine, such time being herein referred to as
the "Closing Date". The Certificates so to be delivered shall be represented by
one or more global certificates registered in the name of Cede & Co., as nominee
for The Depository Trust Company and definitive certificate(s) registered in
the name(s) provided by the Underwriters, each in such numbers as the
Underwriters shall reasonably request not later than 48 hours prior to the
Closing Date. The Company shall make such definitive certificates representing
the Certificates available for inspection by the Underwriters at the office at
which the Certificates are to be delivered no later than 10:00 a.m., New York
City time, on the business day prior to the Closing Date.
4. Offering by the Underwriters. (a) It is understood that, after the
Registration Statement becomes effective, the Underwriters propose to offer the
Certificates for sale to the public (which may include selected brokers and
dealers) as set forth in the Prospectus.
(b) The Underwriters may prepare and provide to prospective investors
certain ABS Term Sheets, Structural Term Sheets and Collateral Term Sheets in
connection with its offering of the Certificates, subject to the following
conditions:
(i) The Underwriters shall have complied with the requirements
of the no-action letter, dated February 17, 1995, issued by the
Commission to the Public Securities Association (the "No-Action
Letter").
(ii) For purposes hereof, "ABS Term Sheets", "Structural Term
Sheets" and "Collateral Term Sheets" shall have the meanings given such
terms in the No-Action Letter but shall include only those ABS Term
Sheets, Structural Term Sheets or Collateral Term Sheets that have been
prepared or delivered to prospective investors by or at the direction
of the Underwriters.
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<PAGE> 8
(iii) All ABS Term Sheets provided to prospective investors
that are required to be filed pursuant to the No-Action Letter shall
bear a legend substantially in the form attached hereto as Exhibit A.
The Company shall have the right to require specific legends or
notations to appear on any ABS Term Sheets, the right to require
changes regarding the use of terminology and the right to determine the
types of information appearing therein. Notwithstanding the foregoing,
this subsection (iii) will be satisfied if all ABS Term Sheets referred
to herein bear a legend in a form previously approved in writing by the
Company.
(iv) The Underwriters shall have provided the Company with
representative forms of all ABS Term Sheets prior to their first use,
to the extent such forms have not previously been approved in writing
by the Company for use by the Underwriters. The Underwriters shall have
provided to the Company, for filing as a post-effective amendment to
the Registration Statement as provided in Section 5(ix), copies (in
such format as required by the Company) of all ABS Term Sheets that are
required to be filed with the Commission pursuant to the No-Action
Letter. The Underwriters may provide copies of the foregoing in a
consolidated or aggregated form including all information required to
be filed. All ABS Term Sheets described in this subsection (iv) shall
have been provided to the Company not later than 10:00 a.m. (New York
City time) not less than one business day before filing thereof is
required to be made with the Commission pursuant to the No-Action
Letter. The Underwriters shall have not provided to any investor or
prospective investor in the Certificates any ABS Term Sheets on or
after the day on which ABS Term Sheets are required to be provided to
the Company pursuant to this subsection (iv) (other than copies of ABS
Term Sheets previously submitted to the Company in accordance with this
subsection (iv) for filing pursuant to Section 5(ix)), unless such ABS
Term Sheets are preceded or accompanied by the delivery of a Prospectus
to such investor or prospective investor.
8
<PAGE> 9
(v) All information included in the ABS Term Sheets shall have
been generated based on substantially the same methodology and
assumptions that are used to generate the information in the Prospectus
as set forth therein; provided that the ABS Term Sheets may have
included information based on alternative methodologies or assumptions
if specified therein. If any ABS Term Sheets that are required to be
filed were based on assumptions with respect to the Contract Pool that
differ from the final Contract Pool information in any material respect
or on Certificate structuring terms that were revised in any material
respect prior to the printing of the Prospectus, the Underwriters shall
have prepared revised ABS Term Sheets based on the final Contract Pool
information and structuring assumptions, shall have circulated such
revised ABS Term Sheets to all recipients of the preliminary versions
thereof that indicated orally to the Underwriters they would purchase
all or any portion of the Certificates, and shall have included such
revised ABS Term Sheets (marked, "as revised") in the materials
delivered to the Company pursuant to subsection (iv) above.
(vi) The Company shall not be obligated to file any ABS Term
Sheets that have been determined to contain any material error or
omission, provided that, at the request of the Underwriters, the
Company will file ABS Term Sheets that contain a material error or
omission if clearly marked "superseded by materials dated _______" and
accompanied by corrected ABS Term Sheets that are marked, "supersedes
material previously dated _______, as corrected." If, within the period
during which the Prospectus relating to the Certificates is required to
be delivered under the Act, any ABS Term Sheets are determined, in the
reasonable judgment of the Company or the Underwriters, to contain a
material error or omission, the Underwriters shall prepare a corrected
version of such ABS Term Sheets, shall circulate such corrected ABS
Term Sheets to all recipients of the prior versions thereof that either
indicated orally to the Underwriters they would purchase all or any
portion of the Certificates, or actually purchased all or any portion
thereof, and shall deliver copies of such corrected
9
<PAGE> 10
ABS Term Sheets (marked, "as corrected") to the Company for filing with
the Commission in a subsequent post-effective amendment to the
Registration Statement (subject to the Company's obtaining an
accountant's comfort letter in respect of such corrected ABS Term
Sheets, which shall be at the expense of the Underwriters).
(vii) The Underwriters shall be deemed to have represented as
of the Closing Date, that, except for ABS Term Sheets provided to the
Company pursuant to subsection (iv) above, the Underwriters did not
provide any prospective investors with any information in written or
electronic form in connection with the offering of the Certificates
that is required to be filed with the Commission in accordance with
the No-Action Letter.
(viii) In the event of any delay in the delivery by the
Underwriters to the Company of any ABS Term Sheets required to be
delivered in accordance with subsection (iv) above, or in the delivery
of the accountant's comfort letter in respect thereof pursuant to
Section 5(ix), the Company shall have the right to delay the release of
the Prospectus to investors or to the Underwriters, to delay the
Closing Date and to take other appropriate actions in each case as
necessary in order to allow the Company to comply with its agreement
set forth in Section 5(ix) to file the ABS Term Sheets by the time
specified therein.
5. Certain Agreements of the Company. The Company agrees with the
Underwriters that:
(i) The Company will use every reasonable effort to cause the
Registration Statement, and any amendment thereto, if not effective at
the Execution Time, to become effective. If the Registration Statement
has become or becomes effective pursuant to Rule 430A, or filing of the
Prospectus is otherwise required under Rule 424(b), the Company will
file the prospectus, properly completed, pursuant to Rule 424(b) within
the time period prescribed and will provide evidence satisfactory to
the Underwriters of such timely filing. The Company will advise the
Underwriters promptly
10
<PAGE> 11
of any proposal to amend or supplement the Registration Statement or
the Prospectus, and will not effect any such amendment or
supplementation to which the Underwriters shall reasonably object. The
Company will also advise you promptly of the effectiveness of any
amendment or supplementation of the Registration Statement or
Prospectus, of any request by the Commission for any amendment or
supplementation of the Registration Statement or the Prospectus or for
any additional information, of the receipt by the Company of any
notification with respect to the suspension of qualification of the
Certificates for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose and of the institution
by the Commission of any stop order proceeding in respect of the
Registration Statement, and will use every reasonable effort to
prevent the issuance of any such stop order and to obtain as soon as
possible its lifting, if issued.
(ii) If, at any time when a prospectus relating to the
Certificates is required to be delivered under the Act, any event
occurs as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, or if it is necessary at any time to amend the
Prospectus to comply with the Act, the Company promptly will prepare
and file with the Commission (subject to the Underwriter's prior review
pursuant to paragraph (i) of this Section 5) an amendment or
supplement which will correct such statement or omission or an
amendment or supplement which will effect such compliance.
(iii) As soon as practicable, the Company will cause the
Trust to make generally available to the Certificateholders of the
Trust an earnings statement or statements of the Trust covering a
period of at least 12 months beginning after the Effective Date of the
Registration Statement which will satisfy the provisions of Section
11(a) of the Act and Rule 158 of the Commission promulgated thereunder.
11
<PAGE> 12
(iv) The Company will furnish to each Underwriter copies of
the Registration Statement, each related preliminary prospectus, the
Prospectus and all amendments and supplements to such documents, in
each case as soon as available and in such quantities as each
Underwriter may reasonably request.
(v) The Company will cooperate with the Underwriters in
arranging for the qualification of the Certificates for sale and the
determination of their eligibility for investment under the laws of
such jurisdictions as each Underwriter designates and will continue
such qualifications in effect so long as required for the distribution
of the Certificates; provided, however, that the Company shall not be
obligated to qualify to do business in any jurisdiction in which it is
not currently so qualified or to take any action which would subject it
to general or unlimited service of process in any jurisdiction where it
is not now so subject.
(vi) For a period from the date of this Agreement until the
retirement of the Certificates, the Company will furnish to the
Underwriters copies of each certificate and the annual statements of
compliance delivered to the Trustee pursuant to Article III of the
Pooling and Servicing Agreement and the annual independent public
accountant's reports furnished to the Trustee pursuant to Article III
of the Pooling and Servicing Agreement, as soon as practicable after
such statements and reports are furnished to the Trustee.
(vii) So long as any of the Certificates are outstanding, the
Company will furnish to you as soon as practicable, (A) all documents
distributed, or caused to be distributed, by the Servicer to the
Certificateholders, (B) all documents filed, or caused to be filed, by
the Company with the Commission pursuant to the Securities Act of
1934, as amended, any order of the Commission thereunder or pursuant to
a "no-action" letter from the staff of the Commission and (C) from time
to time, such other information in the possession of the Company
concerning the Trust and any other information con-
12
<PAGE> 13
cerning the Company filed with any governmental or regulatory authority
which is otherwise publicly available as you may reasonably request.
(viii) On or before the Closing Date the Company shall cause
its computer records relating to the Contracts to be marked to show
the Trust's absolute ownership of the Contracts and shall cause the
Servicer to mark its computer records relating to the Contracts to
show the sale to the Company of the Contracts and the subsequent
transfer of the Contracts to the Trust, and from and after the Closing
Date the Company shall not and shall instruct the Servicer not to, take
any action inconsistent with the Trust's ownership of such Contracts,
other than as permitted by the Pooling and Servicing Agreement.
(ix) The Company will file with the Commission a
post-effective amendment setting forth each ABS Terms Sheet provided to
the Company by the Underwriters and identified by it as such within the
time period allotted for such filing pursuant to the No-Action Letter;
provided, however, that prior to such filing of an ABS Term Sheet
(other than any ABS Term Sheets that are not based on the Contract Pool
information) by the Company, the Underwriters must comply with its
obligations pursuant to Section 4 and the Company must receive a letter
from Coopers & Lybrand, certified public accountants, satisfactory in
form and substance to the Company, to the effect that such accountants
have performed certain specified procedures, all of which have been
agreed to by the Company, as a result of which Coopers & Lybrand have
determined that the information included in such ABS Term Sheet (if
any), provided by the Underwriters to the Company for filing on a
post-effective amendment pursuant to Section 4 and, if the Company then
so specifies, this subsection (ix), and that the accountants have
examined in accordance with such agreed upon procedures, is accurate
except as to such matters that are not deemed by the Company to be
material. The foregoing letter shall be at the expense of the
Underwriters. The Company shall file any corrected ABS Term Sheets
described in Section 4(b)(vi) as soon as practicable following receipt
thereof.
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<PAGE> 14
6. Payment of Expenses. Except as provided in Sections 4(b) and 5(ix)
the Company will pay or cause to be paid all expenses incident to the
performance of its obligations under this Agreement, including (i) the printing
and filing of the Registration Statement as originally filed and of each
amendment thereto, (ii) the Trustee's fees and the fees and disbursements of the
counsel to the Trustee, (iii) any up-front fees and premiums payable to the
Insurer and the fees and disbursements of counsel to the Insurer, (iv) the fees
and disbursements of the accountants, (v) the fees of the rating agencies and
(vi) blue sky expenses.
7. Conditions to the Obligations of the Underwriters. The obligation
of the Underwriters to purchase and pay for the Certificates will be subject to
the accuracy of the representations and warranties on the part of the Company
herein, to the accuracy of the written statements of officers of the Company
made pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder and to the following additional conditions precedent:
(i) On or prior to the date of this Agreement, the
Representative shall have received a letter, dated the date of this
Agreement, of Coopers & Lybrand and substantially in the form
heretofore agreed, which letter shall be in form and substance agreed
to by the Representative.
(ii) If the Registration Statement has not become effective
prior to the date of this Agreement, unless the Representative agrees
in writing to a later time, the Registration Statement shall have
become effective not later than (A) 6:00 p.m., New York City time, on
the date of determination of the public offering price, if such
determination occurred at or prior to 12:00 noon, New York City time,
on such date or (B) 3:00 p.m. on the business day following the day on
which the public offering price was determined, if such determination
occurred after 12:00 noon, New York City time, on such date; if filing
of the Prospectus, or any supplement thereto, is required pursuant to
Rule 424(b), the Prospectus shall be filed in the manner and within the
time period required by Rule 424(b); and no stop order suspending the
effectiveness of the Registration Statement shall have been issued
14
<PAGE> 15
and no proceedings for that purpose shall have been instituted or
threatened.
(iii) Subsequent to the execution and delivery of this
Agreement, there shall have not occurred (a) any change, or any
development involving a prospective change, in or affecting
particularly the business or properties of the Company or Onyx which,
in the reasonable judgment of the Underwriters, materially impairs the
investment quality of the Certificates; (b) any suspension or material
limitation of trading in securities generally on the New York Stock
Exchange, or any setting of minimum prices for trading on such
exchange, or any suspension of trading of any securities of Onyx on any
exchange or in the over-the-counter market by such exchange or
over-the-counter market or by the Commission; (c) any banking
moratorium declared by Federal, New York or California authorities; (d)
any outbreak or material escalation of major hostilities or any other
substantial national or international calamity or emergency if, in the
reasonable judgment of the Representative, the effect of any such
outbreak, escalation, calamity or emergency on the United States
financial markets makes it impracticable or inadvisable to proceed with
completion of the sale of, and any payment for, the Certificates.
(iv) The Underwriters shall have received an opinion, dated
the Closing Date, of Andrews & Kurth L.L.P., counsel of the Company,
substantially to the effect that:
(a) The Company (1) is duly incorporated and is validly
existing and in good standing under the laws of the State of
Delaware, (2) has the corporate power and corporate
authority to own its properties and conduct its business as
described in the Prospectus and (3) had at all relevant
times, and now has, the power, authority and legal right to
acquire, own and sell the Contracts;
(b) The Company has, or at the time such agreement was
executed and delivered, had, the corporate power and corporate
author-
15
<PAGE> 16
ity to execute and deliver this Agreement, the Pooling and
Servicing Agreement, the Purchase Agreement and the Insurance
Agreement and to consummate the transactions contemplated
herein and therein;
(c) No consent, approval, authorization or order of, or
filing with, any California, Delaware or federal governmental
agency or body or any court is or was required by the Company
to perform the transactions contemplated by this Agreement,
Pooling and Servicing Agreement, the Purchase Agreement or the
Insurance Agreement except for (1) filing of a Uniform
Commercial Code financing statement in the State of
California with respect to the transfer of the Contracts to
the Trust pursuant to the Pooling and Servicing Agreement and
the sale of the Contracts to the Company pursuant to the
Purchase Agreement and (2) such consents, approvals,
authorizations, orders or filings as may be required under the
federal and state securities laws;
(d) None of the execution, delivery and performance by
the Company of this Agreement, the Pooling and Servicing
Agreement, the Purchase Agreement or the Insurance Agreement,
the transfer of the Contracts to the Trust, the assignment of
the security interests of the Company in the Financed
Vehicles, the issuance and sale of the Certificates or the
consummation of any other of the transactions contemplated
herein or in the Pooling and Servicing Agreement, the Purchase
Agreement or the Insurance Agreement conflicts or will
conflict with, has resulted or will result in a breach,
violation or acceleration of any of the terms of, or has
constituted or will constitute a default under, the By-Laws or
the Certificate of Incorporation of the Company, as amended,
or, to the best of such counsel's knowledge, any rule, order,
statute or regulation known to such counsel to be currently
applicable to the Company of any court, regulatory body,
administrative agency or governmental body having
jurisdiction over the
16
<PAGE> 17
Company or the terms of any material indenture or other
material agreement or instrument known to such counsel to
which the Company is a party or by which it or its properties
are bound;
(e) To the best knowledge of such counsel, after due
inquiry, there are no actions, proceedings or investigations
pending or threatened before any court, administrative agency
or other tribunal (1) asserting the invalidity of this
Agreement, the Pooling and Servicing Agreement, the Purchase
Agreement or the Insurance Agreement or the Certificates, (2)
seeking to prevent the issuance of the Certificates or the
consummation of any of the transactions contemplated by this
Agreement, the Pooling and Servicing Agreement, the Purchase
Agreement or the Insurance Agreement (3) seeking adversely to
affect the federal income tax attributes of the Certificates
as described in the Prospectus under the headings "Prospectus
Summary -- Tax Status" and "Certain Tax Consequences";
(f) This Agreement, the Pooling and Servicing Agreement,
the Purchase Agreement and the Insurance Agreement have each
been duly authorized, executed and delivered by the Company;
(g) The Contracts constitute "chattel paper" as defined
in Section 9-105(a)(2) of the Uniform Commercial Code of the
State of California;
(h) The statements in the Prospectus under the caption
"Certain Legal Aspects of the Contracts," and "ERISA
Considerations" to the extent they constitute matters of
California or federal law or legal conclusions, are correct
in all material respects;
(i) The Certificates have been duly and validly
authorized and, when executed, authenticated and issued in
accordance with the terms of the Pooling and Servicing Agree-
17
<PAGE> 18
ment, and delivered to and paid for by the Underwriters
pursuant to this Agreement, will be duly and validly issued
and outstanding and will be entitled to the benefits of the
Pooling and Servicing Agreement;
(j) Assuming the authorization, execution and delivery
thereof by the Trustee and the Servicer with respect to the
Pooling and Servicing Agreement, and by Onyx with respect to
Purchase Agreement and the Insurer with respect to the
Insurance Agreement, each such agreement constitutes the
legal, valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, subject, as
to enforcement, to (1) the effect of bankruptcy, insolvency,
reorganization, moratorium, conservatorship, receivership or
other similar laws of general application relating to or
affecting creditors' rights generally (2) the application of
general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at
law); and (3) the unenforceability under certain circumstances
of provisions indemnifying a party against liability where
such indemnification is contrary to public policy;
(k) The Registration Statement became effective under
the Act as of the date and time specified in such opinion;
after due inquiry, to the best of such counsel's knowledge, no
stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated under the
Act; the Registration Statement, and each amendment thereof
or supplement thereto as of its Effective Date and the
Prospectus as of its date of issuance appeared on its face to
be appropriately responsive in all material respects to the
applicable requirements of the Securities Act and the Rules
and Regulations, and such counsel need not opine as to the
financial statements and
18
<PAGE> 19
related notes, schedules and other financial and statistical
data included therein;
(l) The Certificates, the Pooling and Servicing
Agreement, the Purchase Agreement, and the Insurance
Agreement conform in all material respects to the descriptions
thereof contained in the Registration Statement and the
Prospectus;
(m) The Pooling and Servicing Agreement is not required
to be qualified under the Trust Indenture Act of 1939, as
amended; and
(n) The Trust is not now, and immediately following the
sale of the Certificates pursuant to this Agreement will not
be, required to be registered under the Investment Company
Act of 1940, as amended.
In addition, such counsel shall opine as to certain matters
relating to the acquisition by the Company of a perfected first
priority security interest in the vehicles financed by motor vehicle
installment loans made by the Company.
In rendering such opinion, such counsel may rely as to matters
of fact, to the extent deemed proper and as stated therein, on
certificates of responsible officers of the Company and public
officials. References to the Prospectus in this paragraph (iv) include
any supplements thereto.
(v) The Underwriters shall have received an opinion, dated the
Closing Date, of Andrews & Kurth L.L.P., counsel to Onyx, substantially
to the effect that:
(a) Onyx (1) is duly incorporated and is validly
existing and in good standing under the laws of the State of
California, (2) has the corporate power and corporate
authority to own its properties and conduct its business as
described in the Prospectus and (3) had at all relevant times,
and now has, the
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<PAGE> 20
power, authority and legal right to acquire, own and sell the
Contracts;
(b) Onyx has the corporate power and corporate authority
to execute and deliver the Pooling and Servicing Agreement and
the Purchase Agreement and at the time it was executed and
delivered, had the power and authority to execute and deliver
the Purchase Agreement and the Pooling and Servicing Agreement
and to consummate the transactions contemplated herein and
therein;
(c) No consent, approval, authorization or order of, or
filing with, any California or federal governmental agency or
body or any court is required by Onyx to perform the
transactions contemplated by the Pooling and Servicing
Agreement or the Purchase Agreement except for (1) filing of
a Uniform Commercial Code financing statement in the State of
California with respect to the sale of the Contracts to the
Company pursuant to the Purchase Agreement and the transfer of
the Contracts to the Trust pursuant to the Pooling and
Servicing Agreement and (2) such consents, approvals,
authorizations, orders or filings as may be required under the
federal and state securities laws; the opinion set forth in
this sentence is limited to such authorizations, approvals,
consents and orders which, in such counsel's experience, are
normally applicable to transactions of the type contemplated
by the Pooling and Servicing Agreement and the Purchase
Agreement;
(d) None of the execution, delivery and performance by
Onyx of the Pooling and Servicing Agreement or the Purchase
Agreement, or the transfer of the Contracts to the Company,
has conflicted with or will conflict with, has resulted or
will result in a breach, violation or acceleration of any of
the terms of, or has constituted or will constitute a default
under, the By-Laws or the Certificate of Incorporation of
Onyx, as amended, or, to the best of such counsel's knowledge,
20
<PAGE> 21
any rule, order, statute or regulation known to such counsel
to be currently applicable to Onyx of any court, regulatory
body, administrative agency or governmental body having
jurisdiction over Onyx or the terms of any material indenture
or other material agreement or instrument known to such
counsel to which Onyx is a party or by which it or its
properties are bound;
(e) The Pooling and Servicing Agreement and the Purchase
Agreement have each been duly authorized, executed and
delivered by Onyx; and
(f) The indemnification agreement dated as of the date
hereof, between Onyx and the Underwriters has been duly
authorized, executed and delivered by Onyx.
(g) Assuming the authorization, execution and delivery
thereof by the Trustee and the Company with respect to the
Pooling and Servicing Agreement and by the Company with
respect to Purchase Agreement, each such agreement constitutes
the legal, valid and binding agreement of Onyx, enforceable
against Onyx in accordance with its terms, subject, as to
enforcement, to (1) the effect of bankruptcy, insolvency,
reorganization, moratorium, conservatorship, receivership or
other similar laws of general application relating to or
affecting creditors' rights generally (2) the application of
general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at
law); and (3) the unenforceability under certain
circumstances of provisions indemnifying a party against
liability where such indemnification is contrary to public
policy;
In rendering such opinion, such counsel may rely as to matters
of fact, to the extent deemed proper and as stated therein, on
certificates of responsible officers of Onyx and public officials.
21
<PAGE> 22
In addition, such counsel shall state that they have participated in
conferences with the officers and other representatives of the Company and Onyx,
representatives of the independent public accountants of the Company and Onyx
and representatives of the Underwriters and the Insurer at which the contents of
the Registration Statement and the Prospectus and related matters were discussed
and, although such counsel has not independently verified and are not passing
upon and do not assume any responsibility for, the accuracy, completeness or
fairness of the statements contained in the Registration Statement and the
Prospectus, on the basis of the foregoing, no facts have come to such counsel's
attention that lead them to believe that the Registration Statement, as of the
Effective Date, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus as of its date or as
of the Closing Date contained or contains an untrue statement of a material fact
or omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading (it being understood that such counsel need make no comment
and express no belief with respect to the financial statements and related
notes, schedules and the other financial and statistical data included in the
Registration Statements or the Prospectus).
(vi) The Underwriters shall have received an opinion or
opinions of Andrews & Kurth L.L.P., counsel to the Company, dated the
Closing Date and satisfactory in form and substance to you, with
respect the characterization of the transfer of the Contracts by Onyx
to the Company as a sale and with respect to the perfection of the
Trust's interests in the Contracts and with respect to the
non-consolidation of the Company with Onyx in the event of bankruptcy
filing with respect to Onyx and with respect to certain other matters.
(vii) The Underwriters shall have received an opinion of
Andrews & Kurth L.L.P., tax counsel to the Company, dated the Closing
Date and satisfactory in form and substance to you substantially to
the effect that:
(a) the Trust created by the Pooling and Servicing
Agreement will not be clas-
22
<PAGE> 23
sified as an association taxable as a corporation for federal
income tax purposes and, instead, under subpart E, part I of
subchapter J of the Internal Revenue Code of 1986, as amended,
the Trust will be treated as a grantor trust, and subject to
possible recharacterization of certain amounts paid by the
Trust to the Servicer, the holders of the Certificates will be
treated as owning an undivided pro-rata interest in the income
and corpus attributable to the Trust;
(b) The statements in the Registration Statement and
Prospectus under the headings "Prospectus Summary -- Federal
Income Tax Status" and "Certain Federal Income Tax
Consequences" to the extent that they constitute matters of
law or legal conclusions with respect thereto, have been
prepared or reviewed by such counsel and are correct in all
material respects; and
(c) For California franchise and income tax purposes,
the Trust created by the Pooling and Servicing Agreement will
not be subject to California franchise or income taxes, and
Certificateholders who are not residents of or otherwise
subject to tax in California will not be subject to California
franchise or income taxes with respect to interest or other
amounts allocable to such Certificateholder as a result of
such Certificateholder's beneficial ownership of Certificates.
(viii) The Underwriters shall have received an opinion, dated
the Closing Date, of Shaw, Pittman, Potts & Trowbridge, counsel to the
Insurer, substantially to the effect that:
(a) The Insurer is a corporation validly existing, in
good standing and licensed to transact the business of surety
and financial guaranty insurance under the laws of the State
of New York;
23
<PAGE> 24
(b) The Insurer has the corporate power to execute and
deliver, and to take all action required of it under the
Guarantee, the Insurance Agreement and the Indemnification
Agreement;
(c) Except as have already been obtained, no
authorization, consent, approval, license, formal exemption or
declaration from, nor any registration or filing with, any
court or governmental agency or body of the United States of
America or the State of New York, which if not obtained would
affect or impair the validity or enforceability of the
Guarantee, the Insurance Agreement or the Indemnification
Agreement dated as of March , 1998 among the Underwriters and
Onyx (the "Indemnification Agreement") against the Insurer, is
required in connection with the execution and delivery by the
Insurer of the Guarantee, the Insurance Agreement or the
Indemnification Agreement or in connection with the Insurer's
performance of its obligations thereunder;
(d) The Guarantee, the Insurance Agreement and the
Indemnification Agreement have been duly authorized, executed
and delivered by the Insurer, and the Guarantee and, assuming
due authorization, execution and delivery of the Insurance
Agreement by the parties thereto (other than the Insurer),
the Insurance Agreement constitute the legally valid and
binding obligations of the Insurer, enforceable in accordance
with their respective terms subject, as to enforcement, to
(1) bankruptcy, reorganization, insolvency, moratorium and
other similar laws relating to or affecting the enforcement of
creditors' rights generally, including, without limitation,
laws relating to fraudulent transfers or conveyances,
preferential transfers and equitable subordination, presently
or from time to time in effect and general principles of
equity (regardless of whether such enforcement is considered
in a proceeding in equity or at law), as such laws may be
applied in any such proceeding with respect to the Insurer and
(2)
24
<PAGE> 25
the qualification that the remedy of specific performance may
be subject to equitable defenses and to the discretion of the
court before which any proceedings with respect thereto may be
brought; and
(e) The Guarantee is not required to be registered under
the Securities Act of 1933, as amended.
In rendering such opinion, such counsel may rely as to matters
of fact, to the extent deemed proper and as stated therein, on
certificates of responsible officers of the Insurer and public
officials. References to the Prospectus in this paragraph (viii)
include any supplements thereto.
(ix) The Underwriters shall have received an opinion of
counsel to the Trustee, dated the Closing Date and satisfactory in form
and substance to you, substantially to the effect that:
(a) The Trustee is a banking corporation validly
existing under the laws of the State of New York;
(b) The Trustee has the requisite power and authority to
execute, deliver and perform its obligations under the Pooling
and Servicing Agreement, and has taken all necessary action
to authorize the execution, delivery and performance by it of
the Pooling and Servicing Agreement; and
(c) The Pooling and Servicing Agreement has been duly
executed and delivered by the Trustee and constitutes a legal,
valid and binding obligation of the Trustee, enforceable
against the Trustee in accordance with its terms, except that
certain of such obligations may be enforceable solely against
the Trust Estate and except that such enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium,
liquidation, or other similar laws applicable to banking
corporations affecting the enforcement of
25
<PAGE> 26
creditors' rights generally, and by general principles of
equity, including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing
(regardless of whether such enforceability is considered in
a proceeding in equity or at law).
(x) The Representative shall have received from Skadden,
Arps, Slate, Meagher & Flom LLP, counsel to the Underwriters, such
opinion or opinions, dated the Closing Date and satisfactory in form
and substance to you, with respect to the validity of the Certificates,
the Registration Statement, the Prospectus and other related matters as
the Underwriters may require, and the Company shall have furnished to
such counsel such documents as they reasonably request for the purpose
of enabling them to pass upon such matters.
(xi) The Underwriters shall have received a letter, dated the
Closing Date, of Coopers & Lybrand which meets the requirements of the
subsection (i) of this Section 7, except that the specified date
referred to in such subsection will be a date not more than five days
prior to the Closing Date for the purposes of this subsection.
(xii) The Underwriters shall have received evidence
satisfactory to them that the Certificates have been rated in the
highest rating category by Moody's Investors Service, Inc. and by
Standard & Poor's Ratings Services.
(xiii) The Underwriters shall have received a certificate,
dated the Closing Date, of a Vice President or more senior officer of
the Company in which such officer shall state that, to the best of his
or her knowledge after reasonable investigation, the representations
and warranties of the Company in this Agreement are true and correct on
and as of the Closing Date, that the Company has complied with all
agreements and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to the Closing Date, that the
representations and warranties of the Company, as Seller, in the
Pooling and Servicing Agreement and the conditions set forth in Sec-
26
<PAGE> 27
tion 2.2(b) of the Pooling and Servicing Agreement, are true and
correct as of the dates specified in the Pooling and Servicing
Agreement, that no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or are threatened by the Commission and
that, subsequent to the date of the Prospectus, there has been no
material adverse change in the financial position or results of
operations of the Company's motor vehicle installment loan business
except as set forth in or contemplated by the Prospectus or as
described in such certificate.
(xiv) The Underwriters shall have received a certificate,
dated the Closing Date, of a Vice President or more senior officer of
Onyx in which such officer shall state that, to the best of his or her
knowledge after reasonable investigation, the representations and
warranties of Onyx in the Purchase Agreement are true and correct in
all material respects on and as of the Closing Date, that Onyx has
complied with all agreements and satisfied all conditions on its part
to be performed or satisfied thereunder at or prior to the Closing
Date, that the representations and warranties of Onyx, as Servicer, in
the Pooling and Servicing Agreement are true and correct as of the
dates specified in the Pooling and Servicing Agreement, there has been
no material adverse change in the financial position or results of
operations of Onyx's motor vehicle installment loan business except as
set forth in or contemplated by the Prospectus or as described in such
certificate.
(xv) The Guarantee shall have been duly authorized, executed,
issued and delivered by the Insurer; all fees due and payable to the
Insurer as of the Closing Date shall have been paid in full; and the
Guarantee shall conform to the description thereof in the Registration
Statement and the Prospectus.
(xvi) The Underwriters shall have received a Certificate from
a senior officer of the Insurer to the effect that such officer has no
reason to believe that the section of the Prospectus
27
<PAGE> 28
captioned "Description of the Insurer" or any such amendment thereof or
supplement thereto as of its Effective Date or date of issuance, as the
case may be, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
The Company will furnish or cause to be furnished to the Underwriters
such number of conformed copies of such opinions, certificates, letters and
documents as the Underwriters reasonably request.
8. Indemnification.
(i) The Company will indemnify and hold harmless the
Underwriters and each person, if any, who controls the Underwriters
with the meaning of Section 15 of the Act against any losses, claims,
damages or liabilities, joint or several, to which the Underwriters may
become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) (a)
arise out of, or are based upon, any untrue statement or alleged untrue
statement of any material fact contained in the Registration
Statement, or arise out of, or are based upon, the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading or (b) arise
out of, or are based upon, any untrue statement or alleged untrue
statement of any material fact contained in the Prospectus or arise
out of, or are based upon, the omission or alleged omission to state
therein a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
and will reimburse the Underwriters for any legal or other expenses
reasonably incurred by the Underwriters in connection with
investigating or defending any such action or claim; provided, however,
that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of, or is
based upon, an untrue statement or alleged untrue statement or omission
or alleged
28
<PAGE> 29
omission made in the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by the Underwriters
expressly for use therein, or (y) contained in any ABS Term Sheet to
the extent set forth in subsection (ii) of this Section 8; provided,
further, that the Company shall not be liable under this subsection (i)
to the extent that such losses, claims, damages or liabilities arose
out of or are based upon an untrue statement or omission made in any
preliminary prospectus that is corrected in the final Prospectus (or
any amendment or supplement thereto), and the Company has previously
furnished copies thereof in sufficient quantity to the Underwriters,
if the person asserting such loss, claim, damage or liability was not
given the final Prospectus (or any amendment or supplement thereto) on
or prior to the confirmation of the sale of the Certificates.
(ii) Each Underwriter severally and jointly agrees to
indemnify and hold harmless the Company, its directors, each of its
officers or agents who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section
15 of the Act against any and all loss, liability, claim, damage and
expense described in the indemnity contained in subsection (i) of this
Section 8, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, (A) made in the
Registration Statement (or any amendment thereto) or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto)
in reliance upon and in conformity with written information furnished
to the Company by the Underwriters through Merrill Lynch, Pierce,
Fenner & Smith Incorporated expressly for use in the Registration
Statement (or any amendment thereto) or such preliminary prospectus or
the Prospectus (or any amendment or supplement thereto) or (B) made in
the ABS Term Sheets distributed by the Underwriters and filed as a
post-effective amendment to the Registration Statement or the
Prospectus as a result of any filing pursuant to Section 5(ix);
provided however that the Underwriters will not be
29
<PAGE> 30
liable in any such case to the extent that any such loss, claim or
damage or liability arises out of, or is based upon, an untrue
statement or omission made in the ABS Term Sheet or any supplement
thereto in reliance upon and in conformity with (x) information
furnished to the Underwriters by the Company or (y) information
contained in the Registration Statement or any preliminary prospectus
or the Prospectus other than information described in clause (A) above.
(iii) Each indemnified party shall give prompt notice to the
indemnifying party of any action commenced against the indemnified
party in respect of which indemnity may be sought hereunder, but
failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability which it may have hereunder or
otherwise than on account of this indemnity agreement except and to the
extent of any prejudice to such indemnifying party arising from such
failure to provide such notice. In case any such action shall be
brought against an indemnified party and it shall have notified the
indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate therein and, to the extent that it
shall wish, to assume the defense thereof, with counsel, satisfactory
to such indemnified party (who shall not, except with the consent of
the indemnified party, be counsel to the indemnifying party with
respect to such action), and it being understood that the indemnifying
party shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable
for the reasonable fees and expenses of more than one separate firm of
attorneys, and, after notice from the indemnifying party to the
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to the indemnified party under
subsections (i) or (ii) of this Section 8 for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred
by the indemnified party, in connection with the defense thereof other
than reasonable costs of investigation.
30
<PAGE> 31
9. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Section 8 is for any reason held to be unavailable other than in accordance with
its terms, then each indemnifying party shall contribute to the amount paid or
payable by such indemnifying party as a result of the losses, claims, damages or
liabilities referred to in 8(i) and 8(ii) above (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Underwriters on the other from the offering of the Certificates or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and of the Underwriters on the other in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriters
on the other shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Company
bear to the total underwriting discounts and commissions received by the
Underwriters. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid by an indemnified
party as a result of the losses, claims, damages or liabilities referred to in
the first sentence of this Section 9 shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim which is the subject of this
Section 9. Notwithstanding the provisions of this Section 9, the Underwriters
shall not be required to contribute any amount in excess of the underwriting
discount or commission applicable to the Certificates purchased by it hereunder.
The Company and the Underwriters agree that it would not be just and equitable
if contribution pursuant to this Section 9 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 9. No person
guilty of fraudulent misrepresentation (within the meaning of Section
31
<PAGE> 32
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
10. Termination. The Underwriters may terminate this Agreement
immediately upon notice to the Company, if at any time, prior to the Closing
Date, there has occurred: (a) any change, or any development involving a
prospective change, in or affecting particularly the business or properties of
the Company or Onyx which, in the reasonable judgment of the Underwriters,
materially impairs the investment quality of the Certificates; (b) any
suspension or material limitation of trading in securities generally on the New
York Stock Exchange, or any setting of minimum prices for trading on such
exchange, or any suspension of trading of any securities of the Company or of
Onyx on any exchange or in the over-the-counter market by such exchange or
over-the-counter market or by the Commission; (c) any banking moratorium
declared by Federal, New York or California authorities; or (d) any outbreak or
material escalation of major hostilities or any other substantial national or
international calamity or emergency if, in the reasonable judgment of the
Underwriters, the effect of any such outbreak, escalation, calamity or emergency
on the United States financial markets makes it impracticable or inadvisable to
proceed with completion of the sale of and any payment for the Certificates.
11. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the Underwriters set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation, or statement as to the results thereof, made by or on behalf of
the Underwriters, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Certificates. If for any reason the purchase of the
Certificates by the Underwriters is not consummated, the Company shall remain
responsible for the expenses to be paid or reimbursed by it pursuant to Section
6 and the respective obligations of the Company and the Underwriters pursuant to
Sections 6, 8 and 9 shall remain in effect. If the purchase of the Certificates
by the Underwriters is not consummated for any reason other than solely because
of the occurrence of any event specified in clauses (b), (c) or (d) of Section
7(iii) or clauses (b), (c) or (d) of Section 10, and other than solely because
the Underwriter fails to perform its obligations hereunder, the
32
<PAGE> 33
Company will reimburse the Underwriter for all out-of-pocket expenses (including
fees and disbursements of counsel) reasonably incurred by it in connection with
the offering of the Certificates.
12. Notices. All communications hereunder will be in writing and, if
sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed
to the Underwriters at c/o Merrill Lynch & Co., World Financial Center,
Attention: Managing Director, Asset-Backed Securities Department, or to such
other address as the Underwriters may designate in writing to the Company, or
if sent to the Company, will be mailed, delivered or telegraphed and confirmed
to the Company at Onyx Acceptance Financial Corporation, 8001 Irvine Center
Drive, 6th Floor, Irvine CA 92618, Attention: Regan E. Kelly, Esq., Executive
Vice President.
13. Successors. This Agreement will inure to the benefit of, and be
binding upon, the parties hereto and their respective successors. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person, firm or corporation, other than the parties hereto and their
respective successors and the controlling persons and officers and directors
referred to in Sections 8 and 9 and their heirs and legal representatives, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision herein contained. This Agreement and all conditions and
provisions hereof are intended to be for the sole and exclusive benefit of the
parties hereto and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Certificates
from the Underwriters shall be deemed to be a successor by reason merely of such
purchase.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
15. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
16. Severability of Provisions. Any covenant, provisions, agreement or
term of this Agreement that is prohibited or is held to be void or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the
33
<PAGE> 34
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
17. Entire Agreement. This Agreement constitutes the entire agreement
and understanding of the parties hereto with respect to the matters and
transactions contemplated hereby and supersedes all prior agreements and
understandings whatsoever relating to such matters and transactions.
18. Amendment. Neither this Agreement nor any term hereof may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought.
19. Heading. The headings in this Agreement are for the purposes of
reference only and shall not limit or otherwise affect the meaning hereof.
20. The Representative will act for the several Underwriters in
connection with the transactions described in this Agreement, and any action
taken by the Representative under this Agreement will be binding upon all the
Underwriters.
34
<PAGE> 35
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed duplicate thereof,
whereupon it will become a binding agreement among the undersigned in accordance
with its terms.
Very truly yours,
ONYX ACCEPTANCE FINANCIAL
CORPORATION
By:
Name:
Title:
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Salomon Brothers Inc
By: Merrill Lynch, Pierce, Fenner & Smith
Incorporated
-----------------------------------
Name:
Title:
For themselves and the other several
underwriters named in Schedule I
attached hereto.
35
<PAGE> 36
Exhibit A
The information herein has been provided solely by Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"). Neither Merrill Lynch,
the Issuer of the securities nor any of its affiliates make any representation
as to the accuracy or completeness of the information herein. The information
herein is preliminary, and will be superseded by the final prospectus and by any
other information subsequently filed with the Securities and Exchange
Commission.
The information contained herein will be superseded by the description
of the collateral pool contained in the final prospectus relating to the
securities.
36
<PAGE> 37
Schedule I
Initial
Principal
Amount
------------
Merrill Lynch, Pierce, Fenner and Smith
Incorporated........................................ $
Salomon Brothers Inc........................................ $
37
<PAGE> 1
EXHIBIT 4.1
ONYX ACCEPTANCE FINANCIAL CORPORATION
Seller
ONYX ACCEPTANCE CORPORATION
Servicer
and
BANKERS TRUST COMPANY
Trustee
POOLING AND SERVICING AGREEMENT
Dated as of March 1, 1998
ONYX ACCEPTANCE GRANTOR TRUST, 1998-1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I Definitions.......................................................... 1
SECTION 1.1. Definitions..................................................... 1
SECTION 1.2. Usage of Terms.................................................. 15
SECTION 1.3. Section References.............................................. 15
SECTION 1.4. Calculations.................................................... 15
SECTION 1.5. Accounting Terms................................................ 15
ARTICLE II Conveyance of the Contracts; Representation
and Warranties of the Seller......................................... 16
SECTION 2.1. Sale and Assignment of Contracts................................ 16
SECTION 2.2. Representations and Warranties.................................. 18
SECTION 2.3. Repurchase of Certain Contracts................................. 23
SECTION 2.4. Duties and Appointment of Custodian............................. 24
SECTION 2.5. Duties of Servicer Relating to the Contracts.................... 25
SECTION 2.6. Instructions; Authority to Act.................................. 26
SECTION 2.7. Indemnification................................................. 26
SECTION 2.8. Effective Period and Termination................................ 27
SECTION 2.9. Nonpetition Covenant............................................ 27
SECTION 2.10. Collecting Title Documents Not Delivered at
the Closing Date................................................ 28
ARTICLE III Administration and Servicing of Contracts............................ 28
SECTION 3.1. Duties of Servicer.............................................. 28
SECTION 3.2. Collection of Contract Payments................................. 30
SECTION 3.3. Realization Upon Contracts...................................... 30
SECTION 3.4. Insurance....................................................... 31
SECTION 3.5. Maintenance of Security Interests in Financed Vehicles.......... 31
SECTION 3.6. Covenants, Representations and Warranties of Servicer........... 32
SECTION 3.7. Purchase of Contracts Upon Breach of Covenant................... 33
SECTION 3.8. Servicing Compensation.......................................... 34
SECTION 3.9. Reporting by the Servicer....................................... 34
SECTION 3.10. Annual Statement as to Compliance............................... 36
SECTION 3.11. Annual Independent Certified Public Accountant's Report......... 36
SECTION 3.12. Access to Certain Documentation and Information
Regarding Contracts............................................. 37
SECTION 3.13. Fidelity Bond................................................... 37
SECTION 3.14. Indemnification; Third Party Claims............................. 37
SECTION 3.15. Reports to Certificateholders and the Rating Agencies........... 37
ARTICLE IV Distributions; Statements to Certificateholders...................... 38
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 4.1. Accounts........................................................ 38
SECTION 4.2. Collections; Transfer to Payahead Account;
Realization Upon Financial Guarantee Insurance Policy;
Net Deposit..................................................... 39
SECTION 4.3. Distributions................................................... 40
SECTION 4.4. Remittance Of Repurchase Amount................................. 41
SECTION 4.5. Statements to Certificateholders................................ 41
ARTICLE V The Certificates..................................................... 42
SECTION 5.1. The Certificates................................................ 42
SECTION 5.2. Execution, Authentication and Delivery of Certificates.......... 42
SECTION 5.3. Registration of Transfer and Exchange of Certificates........... 42
SECTION 5.4. Mutilated, Destroyed, Lost or Stolen Certificates............... 43
SECTION 5.5. Persons Deemed Owners........................................... 43
SECTION 5.6. Access to List of Certificateholders' Names and Addresses....... 43
SECTION 5.7. Maintenance of Office or Agency................................. 44
SECTION 5.8. Book-Entry Certificates......................................... 44
SECTION 5.9. Notices to Clearing Agency...................................... 45
SECTION 5.10. Definitive Certificates......................................... 45
SECTION 5.11. Appointment of Paying Agent..................................... 45
SECTION 5.12. Authenticating Agent............................................ 46
SECTION 5.13. Actions of Certificateholders................................... 47
ARTICLE VI The Seller........................................................... 48
SECTION 6.1. Liability of Seller; Indemnities................................ 48
SECTION 6.2. Merger or Consolidation of, or Assumption of
the Obligations of, Seller...................................... 48
SECTION 6.3. Limitation on Liability of Seller and Others.................... 49
SECTION 6.4. Seller Not to Resign............................................ 49
SECTION 6.5. Seller May Own Certificates..................................... 49
ARTICLE VII The Servicer......................................................... 49
SECTION 7.1. Liability of Servicer; Indemnities.............................. 49
SECTION 7.2. Corporate Existence; Status as Servicer; Merger................. 50
SECTION 7.3. Performance of Obligations...................................... 51
SECTION 7.4. The Servicer Not to Resign; Assignment.......................... 51
SECTION 7.5. Limitation on Liability of Servicer and Others.................. 52
ARTICLE VIII Default.............................................................. 52
SECTION 8.1. Events of Default............................................... 52
SECTION 8.2. Trustee to Act; Appointment of Successor........................ 54
SECTION 8.3. Notification to Certificateholders.............................. 54
SECTION 8.4. Waiver of Past Defaults......................................... 55
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 8.5. Insurer Direction of Insolvency Proceedings..................... 55
ARTICLE IX The Trustee.......................................................... 55
SECTION 9.1. No Power to Engage in Business or to Vary Investments........... 55
SECTION 9.2. Duties of Trustee............................................... 56
SECTION 9.3. Trustee's Assignment of Purchased Contracts..................... 58
SECTION 9.4. Certain Matters Affecting the Trustee........................... 58
SECTION 9.5. Trustee Not Liable for Certificates or Contracts................ 60
SECTION 9.6. Trustee May Own Certificates.................................... 60
SECTION 9.7. Trustee's Fees and Expenses..................................... 60
SECTION 9.8. Indemnity of Trustee............................................ 61
SECTION 9.9. Eligibility Requirements for Trustee............................ 61
SECTION 9.10. Resignation or Removal of Trustee............................... 61
SECTION 9.11. Successor Trustee............................................... 62
SECTION 9.12. Merger or Consolidation of Trustee.............................. 63
SECTION 9.13. Appointment of Co-Trustee or Separate Trustee................... 63
SECTION 9.14. Representations and Warranties of Trustee....................... 64
SECTION 9.15. Tax Returns..................................................... 65
SECTION 9.16. Trustee May Enforce Claims Without Possession
of Certificates................................................. 65
SECTION 9.17. Suits for Enforcement........................................... 65
SECTION 9.18. Maintenance of Office or Agency................................. 65
ARTICLE X Termination.......................................................... 66
SECTION 10.1. Termination of the Trust........................................ 66
SECTION 10.2. Optional Purchase of All Contracts.............................. 67
ARTICLE XI Miscellaneous Provisions............................................. 67
SECTION 11.1. Amendment....................................................... 67
SECTION 11.2. Protection of Title to Trust.................................... 68
SECTION 11.3. Limitation on Rights of Certificateholders...................... 70
SECTION 11.4. Governing Law................................................... 70
SECTION 11.5. Notices......................................................... 70
SECTION 11.6. Severability of Provisions...................................... 71
SECTION 11.7. Assignment...................................................... 71
SECTION 11.8. Certificates Nonassessable and Fully Paid....................... 71
SECTION 11.9. Third Party Beneficiaries....................................... 71
SECTION 11.10. Insurer Default or Insolvency................................... 71
SECTION 11.11. Tax Matters..................................................... 72
</TABLE>
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<PAGE> 5
EXHIBITS
Exhibit A - Form of Appointment of Custodian
Exhibit B - Form of Certificate
Exhibit C - Form of Financial Guarantee Insurance Policy
Schedule I - Schedule of Contracts
Schedule II- Schedule of Accounts
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This Pooling and Servicing Agreement, dated as of March 1, 1998, is made
with respect to the formation of the Onyx Acceptance Grantor Trust, 1998-1,
among Onyx Acceptance Financial Corporation, a Delaware corporation, as
originator of the Trust and Seller, Onyx Acceptance Corporation, a Delaware
corporation, as Servicer, and Bankers Trust Company, a New York banking
corporation, as Trustee.
W I T N E S S E T H:
In consideration of the mutual agreements herein contained, and of other
good and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.1 Definitions. Whenever used in this Agreement, the following
words and phrases, unless the context otherwise requires, shall have the
following meanings:
"Accounts" have the meaning specified in Section 4.1. The location and
account numbers of the Accounts as of the Closing Date are set forth on Schedule
II.
"Affiliate" of any specified Person means any other Person controlling
or controlled by or under common control with such specified Person. For the
purpose of this definition, "control" when used with respect to any specified
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" or "controlled" have meanings
correlative to the foregoing.
"Aggregate Scheduled Balance" means, with respect to any date, the
aggregate of the Scheduled Balances of the Contracts as of such date.
"Aggregate Scheduled Balance Decline" means, with respect to any
Distribution Date, the amount by which the Aggregate Scheduled Balance of the
Contracts as of the beginning of such related Collection Period exceeds the
Aggregate Scheduled Balance of such Contracts as of the end of such related
Collection Period.
"Agreement" means this Pooling and Servicing Agreement and all
supplements, modifications and amendments hereto.
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"Amount Available" means, with respect to any Distribution Date, the sum
of (i) the Collection Account Amount Available for such Distribution Date, and
(ii) the Policy Claim Amount actually received by the Trustee for such
Distribution Date.
"Appointment of Custodian" means the letter agreement between the
Trustee and the Servicer substantially in the form attached hereto as Exhibit A.
"APR" means the annual percentage rate used to determine the total
interest expected to be charged over the term of a Contract as of its inception,
as shown on such Contract.
"Authenticating Agent" shall have the meaning specified in Section 5.12.
"Bank" means the institution designated as such pursuant to the
Insurance Agreement, or a successor Person pursuant to the Insurance Agreement,
and thereafter "Bank" shall mean such successor Person.
"Blanket Insurance Policy" means the Lender's Blanket Consumer Loan
Insurance Policy covering losses with respect to the Contracts, which policy has
been issued by United Financial Casualty Company and the Servicer's rights
therein with respect to the Contracts have been validly assigned to the Trustee
acting on behalf of the Trust.
"Book-Entry Certificates" means beneficial interests in the Certificates
referred to in Section 5.8, the ownership and transfers of which shall be made
through book entries by a Clearing Agency as described in Section 5.8.
"Business Day" means any day other than a Saturday, a Sunday or other
day on which commercial banking institutions or savings associations located in
Los Angeles, California or New York, New York are authorized or obligated by
law, regulation, executive order or governmental decree to be closed.
"Certificate" means a certificate executed and authenticated by the
Trustee substantially in the form of Exhibit B hereto.
"Certificate Distribution Amount" means, with respect to any
Distribution Date, the sum of the Interest Distribution for such Distribution
Date and the Principal Distribution for such Distribution Date, plus, but only
in the case of any Distribution Date in respect of which the Servicer purchases
the corpus of the Trust pursuant to Section 10.2, an amount equal to (a) the
Pool Balance with respect to such Distribution Date minus (b) the Principal
Distribution for such Distribution Date.
"Certificate Owner" means, with respect to a Book-Entry Certificate, the
Person who is the owner of such Book-Entry Certificate, as reflected on the
books of the Clearing Agency, or on the books of a direct or indirect Clearing
Agency Participant.
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<PAGE> 8
"Certificate Register" and "Certificate Registrar" mean, respectively,
the register maintained and the registrar appointed pursuant to Section 5.3.
"Certificateholder" or "Holder" means the Person in whose name the
respective Certificate shall be registered in the Certificate Register, except
that, solely for the purposes of giving any notices, consents or waivers
pursuant to this Agreement, the interest evidenced by any Certificate registered
in the name of the Seller or the Servicer, or any Person controlling, controlled
by, or under common control with the Seller or the Servicer, shall not be taken
into account in determining whether the requisite percentage necessary to effect
any such consent shall have been obtained.
"Clearing Account" means Account No. 4159359173 in the name of the
Seller maintained at Wells Fargo Bank, N.A.
"Clearing Agency" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as
amended. The initial Clearing Agency shall be The Depository Trust Company.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers of securities deposited with the Clearing
Agency.
"Closing Date" means March -, 1998.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collection Account" means the account established and maintained as the
"Collection Account" pursuant to Section 4.1.
"Collection Account Amount Available" means, with respect to any
Distribution Date and the related Collection Period, the sum of (i) all payments
of Monthly P&I, all partial prepayments, all Full Prepayments, Net Liquidation
Proceeds and Net Insurance Proceeds in each case, collected with respect to the
Contracts during such Collection Period, less partial prepayments of Rule of
78's Contracts collected with respect to the Contracts during such Collection
Period which are deposited in the Payahead Account pursuant to Section 4.2(a),
(ii) amounts withdrawn from the Payahead Account pursuant to Section 4.1(b) and
deposited in the Collection Account in such Collection Period, and (iii) the
aggregate Repurchase Amount for Repurchased Contracts deposited in or credited
to the Collection Account pursuant to Section 4.4 on the day preceding the
Servicer Report Date next preceding such Distribution Date.
"Collection Period" means, with respect to any Distribution Date, the
calendar month preceding the month in which such Distribution Date occurs;
provided that for Liquidated Contracts the Collection Period will be the period
from but excluding the sixth Business Day preceding the immediately preceding
Distribution Date to and including the sixth Business Day preceding such
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<PAGE> 9
Distribution Date; provided, further, however, that with respect to the first
Distribution Date the "Collection Period" for Liquidated Contracts shall be the
period from and including the Cut-Off Date to and including the sixth Business
Day preceding such first Distribution Date.
"Contract" means each retail installment sales contract and security
agreement or installment loan agreement and security agreement and all proceeds
thereof and payments thereunder, which contract or agreement has been executed
by an Obligor and pursuant to which such Obligor purchased or financed the
Financed Vehicle described therein, agreed to pay the deferred purchase price
(i.e., the purchase price net of any down payment) or amount borrowed, together
with interest, as therein provided in connection with such purchase or loan,
granted a security interest in such Financed Vehicle, and undertook to perform
certain other obligations as specified in such contract or agreement. Each
Contract shall have been (i) either originated by Onyx or a subsidiary of Onyx,
or shall have been originated by a Dealer and assigned to Onyx in accordance
with the assignment provisions set forth therein, and (ii) subsequently conveyed
to the Trust pursuant to this Agreement.
"Contract Documents" means, with respect to each Contract, (a) the
Contract and the original credit application fully executed by the Obligor
thereunder; (b) either (i) the original Title Document for the related Financed
Vehicle or a duplicate copy thereof issued or certified by the Registrar of
Titles which issued the original thereof (or, with respect to Financed Vehicles
registered in the State of California, evidence of the electronic Title
Document), together with evidence of perfection of the security interest in the
related Financed Vehicle granted by such Contract, as determined by the Servicer
to be permitted or required to perfect such security interest under the laws of
the applicable jurisdiction, or (ii) written evidence that the Title Document
for such Financed Vehicle showing Onyx or a subsidiary of Onyx as first
lienholder has been applied for; and (c) any agreement(s) modifying the Contract
(including, without limitation, any extension agreement(s)).
"Contract Files" means the Contract Documents and all other papers and
computerized records customarily kept by the Servicer in connection with
servicing contracts and loans comparable to the Contracts.
"Contract Number" means, with respect to any Contract included in the
Trust, the number assigned to such Contract by the Servicer, which number is set
forth in the Schedule of Contracts.
"Contract Rate" means (i) with respect to a Rule of 78's Contract, the
Recomputed Yield for such Contract used in accordance with the definition of the
term "Scheduled Balance" to derive the Scheduled Balance from time to time of
such Rule of 78's Contract, and (ii) with respect to a Simple Interest Contract,
the APR.
"Corporate Trust Office" means the principal corporate trust office of
the Trustee at which at any particular time its corporate trust business shall
be administered, which office at the time of the execution of this Agreement is
located at Four Albany Street, New York, New York 10006, Attn.: Corporate Trust
and Agency Group, Structured Finance Team, or at such other address as the
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<PAGE> 10
Trustee may designate from time to time by notice to the Certificateholders, the
Seller, the Servicer and the Insurer.
"Custodian" means initially, the Trustee, and thereafter any custodian
that may be appointed by the Trustee pursuant to Section 2.4(b).
"Cut-Off Date" means March 1, 1998.
"Dealer" means the seller of a Financed Vehicle, which seller originated
and assigned the related Contract.
"Default" means any occurrence which with the giving of notice or the
lapse of time or both would become an Event of Default.
"Defaulted Contract" means, with respect to any Collection Period, a
Contract (i) which is, at the end of such Collection Period, delinquent in an
aggregate amount equal to two monthly 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.
"Deficiency Notice" means, with respect to any Distribution Date, the
notice for payment under the Financial Guarantee Insurance Policy delivered by
the Trustee to the Insurer and the Bank pursuant to Section 4.2(c).
"Definitive Certificates" has the meaning set forth in Section 5.8.
"Depository Agreement" shall mean the agreement among the Seller, the
Trustee and the initial Clearing Agency, in the form currently used by the
Clearing Agency.
"Distribution Account" means the segregated trust account established by
the Trustee denominated "Distribution Account--GT 1998-1, Bankers Trust Company,
Trustee."
"Distribution Date" means the 15th day of each month or if such date
shall not be a Business Day, the following Business Day, commencing in April
1998.
"Distribution Date Statement" has the meaning set forth in Section 3.9.
"Due Date" means, as to any Contract, the date in each month upon which
an installment of Monthly P&I is due.
"Eligible Account" means (i) a trust account that is either (a)
maintained by the Trustee, (b) maintained with a depository institution or trust
company the commercial paper or other short-term debt obligations of which have
credit ratings from Standard & Poor's at least equal to "A-1" and from Moody's
equal to "P-1," which account is fully insured up to applicable limits by the
Federal Deposit
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<PAGE> 11
Insurance Corporation or (c) maintained with a depository institution acceptable
to the Insurer, as evidenced by a letter from the Insurer to that effect or (ii)
a general ledger account or deposit account at a depository institution
acceptable to the Insurer, as evidenced by a letter from the Insurer to that
effect.
"Eligible Investments" means any one or more of the following
obligations or securities, all of which shall be denominated in United States
dollars:
(a) direct obligations of, and obligations fully guaranteed as to timely
payment of principal and interest by, the United States of America or any agency
or instrumentality of the United States of America the obligations of which are
backed by the full faith and credit of the United States of America and, to the
extent, at the time of investment, acceptable to the Insurer and each Rating
Agency for securities having a rating equivalent to the rating of the
Certificates at the Closing Date, the direct obligations of, or obligations
fully guaranteed by, the Federal Home Loan Mortgage Corporation and the Federal
National Mortgage Association;
(b) demand and time deposits in, certificates of deposit of, banker's
acceptances issued by, or federal funds sold by any depository institution or
trust company (including the Trustee) incorporated under the laws of the United
States of America or any State and subject to supervision and examination by
Federal and/or State banking authorities, so long as at the time of such
investment or contractual commitment providing for such investment either (i)
the long-term, unsecured debt obligations of such depository institution or
trust company have credit ratings from Standard & Poor's at least equal to "AA-"
and from Moody's at least equal to "Aa2" or (ii) such depository institution is
acceptable to the Insurer as evidenced by a letter from the Insurer to the
Trustee;
(c) repurchase obligations with respect to (i) any security described in
clause (a) above or (ii) any other security issued or guaranteed as to timely
payment of principal and interest by an agency or instrumentality of the United
States of America, in either case entered into with any depository institution
or trust company (including the Trustee), acting as principal, described in
clause (b) above;
(d) securities bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States of America or any
state thereof which at the time of such investment or contractual commitment
providing for such investment have long-term, unsecured debt obligations rated
by Standard & Poor's "AA-" or better and by Moody's "Aa2" or better; provided,
however, that securities issued by any corporation will not be Eligible
Investments to the extent that investment therein will cause the then
outstanding principal amount of securities issued by such corporation and held
as part of the Trust to exceed 10% of the aggregate Outstanding Principal
Balances of the Contracts and all amounts of Eligible Investments held as part
of the Trust;
(e) commercial paper having the highest rating by Standard & Poor's and
Moody's at the time of such investment;
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<PAGE> 12
(f) investments in money market funds or money market mutual funds
having a rating from Standard & Poor's and Moody's in the highest investment
category granted thereby, including funds for which the Trustee or any of its
Affiliates is investment manager or advisor; and
(g) such other obligations or securities acceptable to the Insurer, as
evidenced by a letter from the Insurer to the Trustee (which acceptability may
be revoked at any time by the Insurer).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" means an event specified in Section 8.1.
"Final Distribution Date" means July 15, 2004.
"Financial Guarantee Insurance Policy" means the principal/interest
insurance policy issued by the Insurer to the Trustee, the form of which is
attached hereto as Exhibit C.
"Financed Vehicle" means, as to any Contract, the automobile or
light-duty truck, together with all accessions thereto, securing an Obligor's
indebtedness under such Contract.
"Full Prepayment" means any of the following: (a) with respect to any
Contract other than a Contract referred to in clause (ii), (iii) or (iv) of the
definition of the term "Liquidated Contract", payment by or on behalf of the
Obligor of the total amount required by the terms of such Contract to be paid
thereunder, which amount shall be at least equal to the sum of (i) 100% of the
Scheduled Balance of such Contract, (ii) interest accrued thereon to the date of
such payment at the APR; and (iii) any overdue amounts; or (b) with respect to
any Contract, payment by the Seller to the Trustee of the Repurchase Amount of
such Contract in connection with their repurchase of such Contract pursuant to
Sections 2.3, or payment by the Servicer of the Repurchase Amount of such
Contract in connection with the purchase of such Contract pursuant to Section
3.7 or the purchase of all Contracts pursuant to Section 10.2.
"Insurance Agreement" means the Insurance and Reimbursement Agreement to
be dated as of the Closing Date, among the Seller, the Servicer, the Trustee and
the Insurer as amended, modified or restated from time to time.
"Insurance Proceeds" means proceeds paid pursuant to the Blanket
Insurance Policy and amounts (exclusive of rebated premiums) paid by any insurer
under any other insurance policy related to a Financed Vehicle or a Contract.
"Insurer" means MBIA Insurance Corporation or its successor in interest.
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<PAGE> 13
"Insurer Insolvency" means (i) the entry of a decree or order for relief
by a court or regulatory authority having jurisdiction in respect of the Insurer
in an involuntary case under the federal bankruptcy laws, as now or hereafter in
effect, or any other present or future federal or state bank bankruptcy,
insolvency, rehabilitation or similar law, or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Insurer or with respect to any substantial part of its property, or ordering the
winding up or liquidation of the affairs of the Insurer and the continuance of
any such decree or order unstayed and in effect for a period of 60 consecutive
days; or (ii) the commencement by the Insurer of a voluntary case under the
federal bankruptcy laws, as now or hereafter in effect, or any other present or
future federal or state bankruptcy, insolvency, rehabilitation or similar law,
or the consent by the Insurer to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Insurer or of any substantial part of its property or
the making by the Insurer of an assignment for the benefit of creditors or the
failure by the Insurer generally to pay its debts as such debts become due or
the taking of corporate action by the Insurer in furtherance of any of the
foregoing.
"Interest Distribution" means, with respect to any Distribution Date
(referred to in this definition as the "current Distribution Date"), interest
equal to the product of one-twelfth of the Pass-Through Rate and the Pool
Balance as of the end of the Collection Period immediately preceding the related
Collection Period (or, if the current Distribution Date is the first
Distribution Date, as of the Cut-Off Date) plus the amount of interest
previously due but not paid to Certificateholders, if any.
"Lien" means a security interest, lien, charge, pledge, equity, or
encumbrance of any kind other than tax liens, mechanics' liens, and any liens
that attach to the applicable Contract by operation of law.
"Liquidated Contract" means a Contract which (i) is the subject of a
Full Prepayment; or (ii) is a Defaulted Contract with respect to which
Liquidation Proceeds constituting, in the Servicer's reasonable judgment, the
final amounts recoverable in respect of such Defaulted Contract have been
received and deposited in the Collection Account; or (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 with respect to which Liquidation Proceeds have not been
deposited in the Collection Account; provided, however, that in any event a
Contract that is delinquent in the amount of five monthly installments of
Monthly P&I at the end of a Collection Period is a Liquidated Contract. The
Scheduled Balance of a Contract that becomes a Liquidated Contract shall be
reduced to zero as provided in the definition of "Scheduled Balance."
"Liquidation Expenses" means reasonable out-of-pocket expenses (not to
exceed Liquidation Proceeds), other than any overhead expenses, incurred by the
Servicer in connection with the realization of the full amounts due under any
Defaulted Contract (including the attempted liquidation of a Contract which is
brought current and is no longer in default during such attempted liquidation)
and the sale of any property acquired in respect thereof which are not
recoverable as Insurance Proceeds.
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<PAGE> 14
"Liquidation Proceeds" means amounts received by the Servicer (before
reimbursement for Liquidation Expenses) in connection with the realization of
the full amounts due and to become due under any Defaulted Contract and the sale
of any property acquired in respect thereof.
"Maturity Date" means with respect to any Contract, the date on which
the last scheduled payment of such Contract shall be due and payable, as such
date may be extended pursuant to Section 3.2.
"Monthly P&I" means, with respect to any Contract, the amount of each
monthly installment payment of principal and interest payable to the Obligee of
such Contract in accordance with the terms thereof, exclusive of any charges
allocable to the financing of any insurance premium and charges which represent
late payment charges or extension fees.
"Moody's" means Moody's Investors Service, Inc. and its successors in
interest.
"Net Insurance Proceeds" means, with respect to any Contract, Insurance
Proceeds, net of any such amount applied to the repair of the related Financed
Vehicle, released to an Obligor in accordance with the normal servicing
procedures of the Servicer or representing expenses incurred by the Servicer and
recoverable under the applicable policy.
"Net Liquidation Proceeds" means the amount derived by subtracting from
the Liquidation Proceeds of such Contract the related Liquidation Expenses.
"Obligee" means, with respect to any Contract, the Person to whom an
Obligor is indebted under such Contract.
"Obligor" means, with respect to any Contract, the purchaser or the
co-purchasers of the Financed Vehicle or any other Person who owes payments
under such Contract.
"Officers' Certificate" means a Certificate signed by the Chairman, the
President or a Vice President, and by the Treasurer, an Assistant Treasurer, the
Controller, an Assistant Controller, the Secretary or an Assistant Secretary of
any Person delivering such Certificate and delivered to the Person to whom such
Certificate is required to be delivered. In the case of an Officers' Certificate
of the Servicer, at least one of the signing officers must be a Servicing
Officer. Unless otherwise specified, any reference herein to an Officers'
Certificate shall be to an Officers' Certificate of the Servicer.
"Onyx" means Onyx Acceptance Corporation and its successors in interest.
"Opinion of Counsel" means a written opinion of counsel (who may be
counsel to the Seller or the Servicer) acceptable to the Trustee and the
Insurer.
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<PAGE> 15
"Original Pool Balance" means the Aggregate Scheduled Balance as of the
Cut-Off Date, which is $-.
"Outstanding" means, with respect to a Contract and as of the time of
reference thereto, a Contract that has not reached its Maturity Date, has not
been fully prepaid, has not become a Liquidated Contract and has not been
repurchased or purchased pursuant to Sections 2.3, 3.7 or 10.2.
"Outstanding Principal Balance" means, as of the Cut-Off Date, (i) with
respect to any Rule of 78's Contract, the amount set forth as the Outstanding
Principal Balance of such Contract on the Schedule of Contracts, such amount
being the total of all unpaid Monthly P&I due on or after the Cut-Off Date,
minus any unearned (or earned but unpaid) interest as of the Cut-Off Date
computed in accordance with the Rule of 78's, and (ii) with respect to any
Simple Interest Contract, the amount set forth as the Outstanding Principal
Balance of such Contract on the Schedule of Contracts, such amount being the
total of all principal payments due on or after the Cut-Off Date.
"Pass-Through Rate" means -% per annum (computed on the basis of a
360-day year of twelve 30-day months payable monthly).
"Payahead Account" means the account established and maintained as the
"Payahead Account" pursuant to Section 4.1.
"Paying Agent" shall mean the Person acting as such as provided in
Section 5.11.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, trust,
unincorporated organization, or government or any agency or political
subdivision thereof.
"Policy Claim Amount" means, with respect to each Distribution Date, the
amount, if any, by which the Certificate Distribution Amount plus the Servicing
Fee for such Distribution Date exceeds the Collection Account Amount Available
for such Distribution Date.
"Pool Balance" means, with respect to a Distribution Date, the Aggregate
Scheduled Balance of the Contracts as of the end of the related Collection
Period, exclusive of all Contracts that are not Outstanding at the end of such
Collection Period.
"Pool Factor" means, as of a Distribution Date, a six-digit decimal
figure equal to the Pool Balance with respect to such Distribution Date divided
by the Original Pool Balance.
"Preference Claim" has the meaning set forth in Section 8.5.
"Premium" shall have the meaning assigned thereto in the Insurance
Agreement.
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"Principal Distribution" means, with respect to any Distribution Date,
the Aggregate Scheduled Balance Decline for such Distribution Date; provided
that the Principal Distribution on the Final Distribution Date will include the
Aggregate Scheduled Balance of all Contracts that are Outstanding at the end of
the Collection Period immediately prior to the Final Distribution Date.
"Purchase Agreement" means the Sale and Servicing Agreement dated as of
September 8, 1994 between Onyx Acceptance Corporation as seller and Onyx
Acceptance Financial Corporation as purchaser, and as such agreement may have
been or may be modified, supplemented or amended from time to time.
"Rating Agencies" means Moody's and Standard & Poor's.
"Recomputed Actuarial Method" means a method of accounting pursuant to
which each payment of Monthly P&I due on a Rule of 78's Contract will be deemed
to consist of interest equal to the product of 1/12 of the Recomputed Yield for
such Contract and the Scheduled Balance of the Contract as of the preceding Due
Date for such Contract and of principal to the extent of the remainder of such
scheduled installment of Monthly P&I, which will cause the Outstanding Principal
Balance as of the Cut-Off Date to be amortized in full at the Recomputed Yield.
"Recomputed Yield" for any Rule of 78's Contract means the per annum
rate determined as of the Cut-Off Date, such that the net present value of the
remaining scheduled payments due on such Contract, discounted at such rate from
the Due Date for each such scheduled payment to the Due Date for such Contract
immediately preceding the Cut-Off Date, will equal the Outstanding Principal
Balance.
"Record Date" means, with respect to any Distribution Date, the Business
Day prior to such Distribution Date, unless Definitive Certificates have been
issued, in which case Record Date shall mean the last day of the immediately
preceding calendar month.
"Registrar of Titles" means the agency, department or office having the
responsibility for maintaining records of titles to motor vehicles and issuing
documents evidencing such titles in the jurisdiction in which a particular
Financed Vehicle is registered.
"Repurchase Amount" means the amount, as of the date of purchase or
repurchase of any Contract, equal to the Scheduled Balance of such Contract as
of the Due Date in the Collection Period in which such purchase or repurchase
occurs plus interest on such Contract through such Due Date, to the extent not
previously collected.
"Repurchased Contract" means a Contract (i) purchased as of the Business
Day prior to the respective Servicer Report Date by the Servicer pursuant to
Section 3.7 or (ii) repurchased by the Seller pursuant to Section 2.3. The
Scheduled Balance of a Contract that becomes a Repurchased Contract shall be
reduced to zero as provided in the definition of "Scheduled Balance."
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"Responsible Officer" means any officer of the Trustee within the
Corporate Trust Office including any vice president, assistant vice president,
assistant treasurer, assistant secretary or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers with direct responsibility for the administration of this
Agreement, respectively, or to whom any corporate trust matter is referred
because of his knowledge of and familiarity with the particular subject.
"Rule of 78's Contract" means a Contract as to which the portion of
payments allocable to earned interest and principal thereunder is determined
according to the "Rule of 78's." Under the "Rule of 78's," the amount of each
payment allocable to interest on a Contract is determined by multiplying the
total amount of add-on interest payable over the term of the Contract by a
fraction, the denominator of which is equal to the sum of a series of numbers
representing the total number of monthly payments due under the Contract and the
numerator of which is the number of payments remaining before giving effect to
the payment to which the fraction is being applied.
"Schedule of Contracts" means the list of Contracts, attached hereto as
Schedule I, which are being sold to the Trust as part of the Trust Estate,
together with supplemental data regarding the Contracts calculated by Merrill
Lynch & Co. and verified by the Servicer. The Schedule of Contracts attached
hereto as Schedule I sets forth the Original Pool Balance, as well as the
following information with respect to each Contract in columns:
Contract Number ("ACCT NBR")
Date of Origination ("ORG DT")
Maturity Date ("MAT DT")
Monthly P&I ("P&I")
Original Principal Balance ("ORIG AMT")
Outstanding Principal Balance ("PRIN BAL")
Annual Percentage Rate ("APR")
In addition, the information contained in Schedule I shall also be contained on
a computer disk or tape (the "Disk") that shall be delivered by the Servicer to
the Trustee not later than the 5th Business Day following the Closing Date. The
Recomputed Yield and the Scheduled Balance of each Rule of 78's Contract for
each Due Date after the Cut-Off Date, computed in accordance with the definition
of Scheduled Balance set forth herein, as calculated by Merrill Lynch & Co. and
verified by the Servicer, shall supplement Schedule I and shall be a part of the
Schedule of Contracts and made available by the Servicer to the Trustee upon
reasonable request.
"Scheduled Balance" means, with respect to any Simple Interest Contract
as of the Cut-Off Date, the amount set forth as the "Original Principal Balance"
of such Contract on the Schedule of Contracts. "Scheduled Balance" means, with
respect to any Simple Interest Contract for the Due Date or any other date in
each month, the original principal balance of such Contract reduced by the
portion of Monthly P&I paid on or prior to the date of calculation that is
allocated to principal under the Simple Interest Method. "Scheduled Balance"
means, with respect to any Rule of 78's Contract
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for the Due Date in each month and as of the Cut-Off Date, the amount set forth
as the "Scheduled Balance" of such Contract for the Due Date or the Cut-Off
Date, as applicable, on the Schedule of Contracts. For a Rule of 78's Contract,
the "Scheduled Balance" of such Contract as of the Cut-Off Date or for any date
in each month shall be the present value as of the Cut-Off Date or other date of
calculation for the applicable month (determined as provided below), of all
payments of Monthly P&I on the Contract due after such month (or due during or
after the first Collection Period in the case of a Scheduled Balance as of the
Cut-Off Date). Such present value as of the Cut-Off Date shall be determined by
discounting, on a monthly basis, each such scheduled payment of Monthly P&I from
the Due Date for such payment back to the Cut-Off Date, using the Recomputed
Yield for such Contract as the discount rate. Such present value as of any date
in each month shall be determined by discounting, on a monthly basis, each such
scheduled payment of Monthly P&I from the Due Date for such payment back to the
Due Date for such Contract in the Collection Period in which the date of
calculation falls, using the Recomputed Yield for such Contract as the discount
rate. The Scheduled Balance of a Rule of 78's Contract that becomes a Liquidated
Contract or a Repurchased Contract shall be reduced to zero as of the close of
business on the Due Date for such Contract in the Collection Period in which
such Contract became a Liquidated Contract or a Repurchased Contract. The
Scheduled Balance of a Simple Interest Contract that becomes a Liquidated
Contract or a Repurchased Contract shall be reduced to zero as of the close of
business on the date the Contract becomes a Liquidated Contract or is
repurchased, as the case may be.
"Seller" means Onyx Acceptance Financial Corporation in its capacity as
the seller of the Contracts under this Agreement, and each successor to Onyx
Acceptance Financial Corporation (in the same capacity) pursuant to Section 6.2.
"Servicer" means Onyx Acceptance Corporation in its capacity as the
servicer of the Contracts under Section 3.1, and, in each case upon such
succession in accordance herewith, each successor to Onyx Acceptance Corporation
in the same capacity pursuant to Section 7.2 and each successor servicer
pursuant to Section 8.2.
"Servicer Report Date" means the fifth Business Day prior to the related
Distribution Date.
"Servicing Fee" means, as to any Distribution Date, the fee payable to
the Servicer for services rendered during the Collection Period ending
immediately prior to such Distribution Date, which shall equal with respect to
each Outstanding Contract, the product of (A) one-twelfth of the Servicing Fee
Percent and (B) the Scheduled Balance of such Contract as of the opening of
business on the first day of such Collection Period; provided, however, that
with respect to the first Distribution Date the aggregate of the Servicing Fees
for all of the Contracts shall be the product of (A) one-twelfth of the
Servicing Fee Percent and (B) the Original Pool Balance. As additional
compensation, the Servicer will be entitled to any late fees and other
administrative fees and expenses or similar charges collected with respect to
the Contracts. The Servicer or its designee will also receive as servicing
compensation all investment earnings on funds credited to the Collection Account
and the amount, if any, by which the outstanding principal balance of a Rule of
78's Contract (calculated in accordance with the Rule of 78's method) that is
subject to a Full Prepayment
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exceeds the Scheduled Balance of such Contract; provided, however, that the
Servicer agrees that each amount payable to it in respect of a Full Prepayment
on a Rule on 78's Contract that exceeds such Contract's Scheduled Balance shall
be deposited in the Spread Account and applied in accordance with the Insurance
Agreement.
"Servicing Fee Percent" means 1.00% per annum.
"Servicing Officer" means any officer of the Servicer involved in, or
responsible for, the administration and servicing of the Contracts whose name
appears on a list of servicing officers furnished to the Trustee by the
Servicer, as such list may be amended or supplemented from time to time.
"Servicing Standards" means at any time the quality of the Servicer's
performance with respect to (i) compliance with the terms of this Agreement and
(ii) adequacy, measured in accordance with industry standards and current and
historical standards of the Servicer, in respect of the servicing of all
Contracts serviced by the Servicer, regardless of whether any such Contract is
owned by the Servicer or otherwise.
"Simple Interest Contract" means a Contract as to which the portion of
payments allocable to earned interest and principal thereunder is determined
according to the Simple Interest Method. For such Contracts, interest accrued as
of the Due Date is paid first, and then the remaining payment is applied to the
unpaid principal balance. Accordingly, if an Obligor pays the fixed monthly
installment in advance of the Due Date, the portion of the payment allocable to
interest for the period since the preceding payment will be less than it would
be if the payment were made on the Due Date, and the portion of the payment
allocable to reduce the principal balance will be correspondingly greater.
Conversely, if an Obligor pays the fixed monthly installment after its Due Date,
the portion of the payment allocable to interest for the period since the
preceding payment will be greater than it would be if the payment were made on
the Due Date, and the portion of the payment allocable to reduce the principal
balance will be correspondingly smaller. When necessary, an adjustment will be
made at the maturity of the Contract to the scheduled final payment to reflect
the larger or smaller, as the case may be, allocations of payments to the amount
financed under the Contract as a result of early or late payments, as the case
may be.
"Simple Interest Method" means the method for calculating interest on a
Contract whereby interest due is calculated each day based on the actual
principal balance of the Contract on that day.
"Spread Account" means the account so denominated and provided for in
the Insurance Agreement.
"Standard & Poor's" means Standard & Poor's Ratings Services, a division
of The McGraw Hill Companies, Inc., or its successor in interest.
"Successor Custodian" shall have the meaning as set forth in Section
2.4(b).
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"Title Document" means, with respect to any Financed Vehicle, the
certificate of title for, or other evidence of ownership of, such Financed
Vehicle issued by the Registrar of Titles in the jurisdiction in which such
Financed Vehicle is registered. For Financed Vehicles registered in the State of
California, Title Document may consist of electronic evidence of ownership on
the Electronic Lien and Title system of the California Department of Motor
Vehicles.
"Transfer Agent" shall mean the Person acting as such as provided in
Section 5.3.
"Trust" means the Onyx Acceptance Grantor Trust, 1998-1 created by this
Agreement.
"Trust Estate" has the meaning set forth in Section 2.1 hereof. The
Spread Account and the Payahead Account and amounts on deposit therein and
credited thereto shall not be part of the Trust Estate.
"Trustee" means Bankers Trust Company, a New York banking corporation,
until a successor Person shall have become the Trustee pursuant to the
applicable provisions of this Agreement, and thereafter "Trustee" shall mean
such successor Person.
"UCC" means the Uniform Commercial Code as in effect, as applicable, in
California, Arizona, Colorado, Florida, Georgia, Idaho, Illinois, Indiana,
Missouri, Montana, New Jersey, New York, Nevada, Oregon, Texas, Utah, Virginia
or Washington, or if the context requires, any other applicable state.
SECTION 1.2 Usage of Terms. With respect to all terms in this Agreement,
the singular includes the plural and the plural the singular; words importing
any gender include the other genders; references to "writing" include printing,
typing, lithography, and other means of reproducing words in a visible form;
references to agreements and other contractual instruments include all
amendments, modifications and supplements thereto or any changes therein entered
into in accordance with their respective terms and not prohibited by this
Agreement; references to Persons include their permitted successors and assigns;
and the term "including" means "including without limitation."
SECTION 1.3 Section References. All section references, unless otherwise
indicated, shall be to Sections in this Agreement.
SECTION 1.4 Calculations. Except as otherwise provided in this
Agreement, all interest rate and basis point calculations under this Agreement
will be made on the basis of a 360-day year and twelve thirty-day months and
will be carried out to at least three decimal places. Collections of interest on
Rule of 78's Contracts shall be calculated as if such Contracts were actuarial
contracts the scheduled principal balances of which are the Scheduled Balances
thereof.
SECTION 1.5 Accounting Terms. All accounting terms used but not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles in the United States.
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ARTICLE II
Conveyance of the Contracts;
Representation and Warranties of the Seller
SECTION 2.1 Sale and Assignment of Contracts.
(a) In consideration of the Trustee's delivery to, or upon the order of,
the Seller of authenticated Certificates in an aggregate amount equal to the
Original Pool Balance, the Seller hereby sells, grants, transfers, conveys and
assigns to the Trustee on behalf of the Trust for the benefit of the
Certificateholders and the Insurer, without recourse (except as expressly
provided in Section 2.3 hereof) effective upon the Closing Date, all of its
right, title and interest in, to and under:
(i) the Contracts listed in the Schedule of Contracts including,
without limitation, all payments of Monthly P&I due on or after the
Cut-Off Date, all Net Liquidation Proceeds and Net Insurance Proceeds
with respect to any Financed Vehicle to which a Contract relates
received on or after the Cut-Off Date and all other proceeds received on
or after the Cut-Off Date in respect of such Contracts and any and all
security interests in the Financed Vehicles;
(ii) the Contract Documents relating to the Contracts (except the
Contract Documents for Contracts which have been the subject of a Full
Prepayment received on or after the Cut-Off Date but no later than two
Business Days prior to the Closing Date, in lieu of which the Seller
shall have deposited in or credited to the Collection Account on or
prior to the Closing Date an amount equal to such Full Prepayment);
(iii) all amounts on deposit in the Collection Account, including
all Eligible Investments credited thereto (but excluding investment
earnings thereon);
(iv) the right of the Seller, as purchaser under the Purchase
Agreement, to cause Onyx as seller thereunder to repurchase Contracts
listed in the Schedule of Contracts under certain circumstances;
(v) the security interest of the Seller in the Financed Vehicles
and the rights to receive proceeds from claims on certain insurance
policies covering the Financed Vehicles or the individual Obligors under
each related Contract;
(vi) the Seller's right to proceeds under the Blanket Insurance
Policy; and
(vii) all proceeds in any way delivered with respect to the
foregoing, all rights to payments with respect to the foregoing and all
rights to enforce the foregoing.
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The foregoing items of property listed in this Section 2.1, together
with the rights of the Trustee under the Financial Guarantee Insurance Policy,
are the Trust Estate.
It is the intention of the Seller and the Trustee that the assignment
and transfer herein contemplated constitute (and shall be construed and treated
for all purposes as) a true and complete sale of the Trust Estate (other than
the Financial Guarantee Insurance Policy), conveying good title thereto free and
clear of any liens and encumbrances, from the Seller to the Trust. However, in
the event that such conveyance is deemed to be a pledge to secure a loan (in
spite of the express intent of the parties hereto that this conveyance
constitutes (and shall be construed and treated for all purposes) as a true and
complete sale), the Seller hereby grants to the Trustee on behalf of the Trust
for the benefit of the Certificateholders a first priority perfected security
interest in all of the Seller's right, title and interest in the Trust Estate
whether now existing or hereafter created (other than the Financial Guarantee
Insurance Policy), and all proceeds of the foregoing to secure the loan deemed
to be made in connection with such pledge and, in such event, this Agreement
shall constitute a security agreement under applicable law.
(b) In connection with the sale of the Contracts pursuant to the
Purchase Agreement, Onyx has filed with the office of the Secretary of State of
the State of California UCC-1 financing statements naming Onyx as seller and
including the Contracts in the description of the assets being sold thereunder.
In connection with the sale of the Contracts pursuant to this Agreement, the
Seller has filed or caused to be filed UCC-1 financing statements, executed by
the Seller as seller, naming the Trust as purchaser and describing the Contracts
as the assets being sold by it to the Trust, with the office of the Secretary of
State of the State of California. The Seller shall have caused UCC-2 termination
statements to have been filed with the office of Secretary of State of the State
of California terminating any effective UCC-1 financing statements with respect
to any outstanding security interests in the Contracts. From time to time, the
Servicer shall cause to be taken such actions as are necessary to continue the
perfection of the Trust's ownership interest in the Contracts and to continue
the first priority security interest of the Trust in the Financed Vehicles and
their proceeds (other than, as to such priority, any statutory lien arising by
operation of law after the Closing Date which is prior to such interest),
including, without limitation, the filing of financing statements, amendments
thereto or continuation statements and the making of notations on records or
documents of title.
(c) If any change in the name, identity or corporate structure of Onyx,
the Seller or the relocation of the chief executive office of any of them would
make any financing or continuation statement or notice of lien filed under this
Agreement misleading within the meaning of applicable provisions of the UCC or
any title statute, the Servicer, within the time period required by applicable
law, shall file such financing statements or amendments as may be required to
preserve and protect the interests of the Trustee, on behalf of the Trust for
the benefit of the Certificateholders and the Insurer, in the Contracts and in
the related Financed Vehicles and proceeds thereof. Promptly thereafter, and in
any event within 30 days of such change or relocation, the Servicer shall
deliver to the Trustee an Opinion of Counsel stating that, in the opinion of
such counsel, all financing statements or amendments necessary fully to preserve
and protect such interests of the Trustee in the
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Contracts and in the related Financed Vehicles and proceeds thereof have been
filed, and reciting the details of such filings.
(d) During the term of this Agreement, the Seller and Onyx shall each
maintain its chief executive office in one of the states of the United States.
(e) The Servicer shall pay all reasonable costs and disbursements in
connection with the perfection and the maintenance of perfection, as against all
Persons other than the Trustee, of the Trust's right, title and interest in and
to the Contracts and in connection with maintaining the first priority security
interest in the related Financed Vehicles and the proceeds of such Financed
Vehicles.
SECTION 2.2 Representations and Warranties. The Seller represents and
warrants to the Trustee and the Trust for the benefit of the Certificateholders
and the Insurer as follows:
(a) As to the Seller:
(i) the Seller is duly organized and validly existing as a
corporation organized and existing and in good standing under the laws
of the State of Delaware, with power and authority to own its properties
and to conduct its business and had at all relevant times, and has,
power, authority, and legal right to originate or acquire and own the
Contracts;
(ii) the Seller is duly qualified to do business as a foreign
corporation in good standing, and shall have obtained all necessary
licenses and approvals in all jurisdictions in which the ownership or
lease of property or the conduct of its business requires such
qualifications;
(iii) the Seller has the power and authority to execute and
deliver this Agreement and to carry out its terms; the Seller has full
power and authority to sell and assign the property to be sold and
assigned to and deposited with the Trustee on behalf of the Trust as
part of the Trust and has duly authorized such sale and assignment to
the Trustee on behalf of the Trust by all necessary corporate action;
and the execution, delivery, and performance of this Agreement has been
duly authorized by the Seller by all necessary corporate action;
(iv) this Agreement constitutes (A) a valid sale, transfer, and
assignment of the Contracts, enforceable against creditors of and
purchasers from the Seller and (B) a legal, valid, and binding
obligation of the Seller enforceable in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, or other similar laws affecting the enforcement of
creditors' rights in general and by general principles of equity,
regardless of whether such enforceability shall be considered in a
proceeding in equity or at law;
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(v) the consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof shall not conflict
with, result in any breach of any of the terms and provisions of, nor
constitute (with or without notice or lapse of time) a default under,
the Certificate of Incorporation or Bylaws of the Seller, or any
indenture, agreement, or other instrument to which the Seller is a party
or by which it shall be bound; nor result in the creation or imposition
of any Lien upon any of the properties of the Seller pursuant to the
terms of any such indenture, agreement, or other instrument (other than
this Agreement); nor violate any law or any order, rule, or regulation
applicable to the Seller of any court or of any federal or state
regulatory body, administrative agency, or other governmental
instrumentality having jurisdiction over the Seller or its properties;
and
(vi) to the Seller's best knowledge after due inquiry, there are
no proceedings or investigations pending, or threatened, before any
court, regulatory body, administrative agency, or other governmental
instrumentality having jurisdiction over the Seller or its properties:
(A) asserting the invalidity of this Agreement or the Certificates, (B)
seeking to prevent the issuance of the Certificates or the consummation
of any of the transactions contemplated by this Agreement, (C) seeking
any determination or ruling that might materially and adversely affect
the performance by the Seller of its obligations under, or the validity
or enforceability of, this Agreement or the Certificates, or (D) naming
the Seller which might adversely affect the federal income tax
attributes of the Certificates.
(b) As to each Contract (except as noted below as being applicable only
to either Rule of 78's Contracts or Simple Interest Contracts):
(i) the information pertaining to such Contract set forth in the
related Schedule of Contracts was true and correct in all material
respects at the Closing Date and the calculations of the Scheduled
Balances appearing in such Schedule of Contracts for each such Contract
at the Cut-Off Date, and in the case of Rule of 78's Contracts at each
Distribution Date thereafter prior to the related Maturity Date, have
been performed in accordance with this Agreement and are accurate;
(ii) as of the Closing Date, such Contract was secured by a valid
and enforceable first priority security interest in favor of Onyx in the
related Financed Vehicle, and such security interest has been duly
perfected and is prior to all other liens upon and security interests in
such Financed Vehicle which now exist or may hereafter arise or be
created (except, as to priority, for any lien for unpaid taxes or unpaid
storage or repair charges which may arise after the Closing Date); such
security interest had been assigned by Onyx to the Seller pursuant to
the Purchase Agreement and, as of the Closing Date, has been assigned
by the Seller to the Trust pursuant to Section 2.1(a)(i) hereof;
(iii) (A) if the related Financed Vehicle was originated in a
state in which notation of a security interest on the Title Document (or
in the electronic title records, in the case of
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the State of California) is required or permitted to perfect such
security interest, the Title Document or the electronic title records
for such Financed Vehicle shows, or, if a new or replacement Title
Document is being applied for with respect to such Financed Vehicle, the
Title Document will be received within 180 days of the Closing Date and
will show, Onyx or a subsidiary of Onyx named as the original secured
party under the related Contract as the holder of a first priority
security interest in such Financed Vehicle, and (B) if the related
Financed Vehicle was originated in a state in which the filing of a
financing statement under the UCC is required to perfect a security
interest in motor vehicles, such filings or recordings have been duly
made and show Onyx or a subsidiary of Onyx named as the original secured
party under the related Contract, and in either case, the Trustee on
behalf of the Trust has the same rights as such secured party has or
would have (if such secured party were still the owner of such Contract)
against all parties claiming an interest in such Financed Vehicle. With
respect to each Contract for which the Title Document has not yet been
returned from the Registrar of Titles (or evidenced in the electronic
title records, in the case of the State of California), Onyx has written
evidence that such Title Documents showing Onyx or a subsidiary of Onyx
as first lienholder have been applied for;
(iv) as of the Closing Date, the Seller had good and marketable
title to and was the sole owner of each Contract to be transferred to
the Trust pursuant to Section 2.1 free of liens, claims, encumbrances
and rights of others and, upon transfer of such Contract to the Trustee
pursuant to Section 2.1, the Trust will have good and marketable title
to, will have a first priority perfected security interest in and will
be the sole owner of such Contract free of liens, encumbrances and
rights of others;
(v) as of the Cut-Off Date, the most recent scheduled payment due
on each such Contract had been made or was not delinquent more than 30
days and, to the best of the Seller's knowledge, all payments on the
Contract were made by the related Obligors;
(vi) as of the Closing Date, there is no lien against the related
Financed Vehicle for delinquent taxes;
(vii) as of the Closing Date, there is no right of rescission,
offset, defense or counterclaim to the obligation of the related
Obligor(s) to pay the unpaid principal or interest due under such
Contract; the operation of the terms of such Contract or the exercise of
any right thereunder will not render such Contract unenforceable in
whole or in part or subject such Contract to any right of rescission,
offset, defense or counterclaim, and the Seller has no knowledge that
such right of rescission, offset, defense or counterclaim has been
asserted or threatened;
(viii) as of the Closing Date, to the best of the Seller's
knowledge, there are no liens or claims which have been filed, including
liens for work, labor, material or storage affecting the related
Financed Vehicle which are or may become a lien prior to or equal with
the security interest granted by such Contract;
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(ix) such Contract, and the sale of the Financed Vehicle sold
thereunder, complied, at the time it was made, in all material respects
with all applicable federal, state and local laws (and regulations
thereunder), including without limitation usury, equal credit
opportunity, fair credit reporting, truth-in-lending or other similar
laws, the Federal Trade Commission Act, and applicable state laws
regulating retail installment sales contracts and loans in general and
motor vehicle retail installment contracts and loans in particular; and
the consummation of the transactions herein contemplated, including,
without limitation, the transfer of ownership of the Contracts to the
Trustee and the receipt of interest by the Certificateholders, will not
violate any applicable federal, state or local law;
(x) such Contract is the legal, valid and binding obligation of
the related Obligor(s) thereunder and is enforceable in accordance with
its terms, except only as such enforcement may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditors'
rights generally; each party to such Contract had full legal capacity to
execute and deliver such Contract and all other documents related
thereto and to grant the security interest purported to be granted
thereby; the terms of such Contract have not been waived, amended or
modified in any respect, except by instruments that are part of the
related Contract Documents, and no such waiver, amendment or
modification has caused such Contract to fail to meet all of the
representations, warranties and conditions, set forth herein with
respect thereto;
(xi) such Contract contains customary and enforceable provisions
such as to render the rights and remedies of the holder or assignee
thereof adequate for the practical realization against the collateral of
the benefits of the security, subject, as to enforceability, to
bankruptcy, insolvency, reorganization or similar laws affecting the
enforcement of creditors' rights generally;
(xii) as of the Closing Date, there was no default, breach,
violation or event permitting acceleration existing under such Contract
(except payment delinquencies permitted by subparagraph (v) above) and
no event which, with notice and the expiration of any grace or cure
period, would constitute such a default, breach, violation or event
permitting acceleration under such Contract, and the Seller has not
waived any such default, breach, violation or event permitting
acceleration except payment delinquencies permitted by subparagraph (v)
above;
(xiii) at the Closing Date each related Financed Vehicle will be
covered by the Blanket Insurance Policy; each of Onyx and the Seller
shall at all times comply with all of the provisions of such insurance
policy applicable to it;
(xiv) at the Closing Date, (a) such Contract will require that
the related Obligor(s) obtain and maintain in effect for the related
Financed Vehicle a comprehensive and collision insurance policy (i) in
an amount at least equal to the lesser of (x) its maximum insurable
value or (y) the principal amount due from the related Obligor(s) under
such Contract, (ii)
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naming Onyx or a subsidiary of Onyx as a loss payee and (iii) insuring
against loss and damage due to fire, theft, transportation, collision
and other risks generally covered by comprehensive and collision
coverage and (b) the Servicer shall have put in place a vendor's single
interest insurance policy providing coverage upon repossession of the
related Financed Vehicle in an amount equal to the lesser of the actual
cash value of such Financed Vehicle, the cost of repair or replacement
for such Financed Vehicle and the unpaid balance of the related
Contract. Each of Onyx and the Seller shall, and Onyx shall cause any
subsidiary of Onyx which originated a Contract to, at all times comply
with all of the provisions of such insurance policies applicable to it;
(xv) such Contract was either originated by a subsidiary of Onyx,
purchased by a subsidiary of Onyx or acquired by Onyx from a Dealer with
which it ordinarily does business, and no adverse selection procedures
have been utilized in selecting such Contract from all other similar
contracts purchased or originated by Onyx or any such subsidiary;
(xvi) payments under such Contract have been applied in
accordance with the Rule of 78's or the Simple Interest Method, as
provided in the applicable Contract, and are due monthly in
substantially equal amounts through its Maturity Date sufficient to
fully amortize the principal balance of such Contract by its Maturity
Date;
(xvii) there is only one original of such Contract and such
original, together with all other related Contract Documents, is being
held by the Trustee; provided, however, that upon the execution by the
Trustee and the Servicer of a letter agreement revocably appointing the
Servicer as agent of the Trustee to act as custodian of the Contract
Documents in accordance with Section 2.4, such original Contracts
together with all other Contract Documents may be held by the Servicer.
Each original Contract has been segregated to show the Trust as owner
thereof, unless the Insurer has waived the requirement for such
segregation by notice in writing to the Trustee and the Servicer;
(xviii)as of the Closing Date, the Servicer has clearly marked
its electronic records to indicate that such Contract is owned by the
Trust;
(xix) at the Cut-Off Date, such Contract has a Maturity Date no
later than March 1, 2004;
(xx) at the date of origination of the Contract, the original
principal balance of such Contract was not greater than the purchase
price to the related Obligor(s) (including taxes, warranties, licenses
and related charges) of the related Financed Vehicle;
(xxi) as of the Cut-Off Date, the Seller has not received notice
that any Obligor under such Contract has filed for bankruptcy;
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(xxii) the related Obligor(s) were located in either California,
Arizona, Colorado, Florida, Georgia, Idaho, Illinois, Indiana, Missouri,
Montana, New Jersey, New York, Nevada, Oregon, Texas, Utah, Virginia or
Washington on the date of origination of such Contract;
(xxiii) the yield (using the Recomputed Yield for Rule of 78's
Contracts) on such Contract is at least equal to -%;
(xxiv) as of the Cut-Off Date, such Contract had an original
maturity of not more than 72 months and such Contract has a remaining
maturity of 72 months or less;
(xxv) the first payment under such Contract is due on or before
April 15, 1998;
(xxvi) as of the Cut-Off Date, such Contract has a remaining
principal balance of at least $-; and
(xxvii)as of the Cut-Off Date, such Contract is secured by a
Financed Vehicle that has not been repossessed without reinstatement.
(c) As to all of the Contracts:
(i) the aggregate Outstanding Principal Balance payable by
Obligors of the Contracts as of the Cut-Off Date equals the Original
Pool Balance; and
(ii) as of the Cut-Off Date, approximately -% of the Outstanding
Principal Balance of all Contracts is attributable to loans to purchase
new Financed Vehicles and approximately -% of the Outstanding Principal
Balance of all Contracts is attributable to used Financed Vehicles.
(d) None of the foregoing representations and warranties shall be
construed as, and the Seller is specifically not making, any representations and
warranties regarding the collectibility of the Contracts or the future
performance of the Contracts.
(e) The Seller has not prepared any financial statement which accounts
for the transfer of the Trust Estate (other than the Financial Guarantee
Insurance Policy) hereunder to the Trust in any manner other than a sale of the
Trust Estate (other than the Financial Guarantee Insurance Policy) by it to the
Trust, and the Seller has not in any other respect (including, but not limited
to, for accounting and tax reporting purposes) accounted for or treated the
transfer of the Trust Estate (other than the Financial Guarantee Insurance
Policy) hereunder in any manner other than as a sale and absolute assignment to
the Trust of the Seller's full right, title and ownership interest in the Trust
Estate (other than the Financial Guarantee Insurance Policy) to the Trust.
SECTION 2.3 Repurchase of Certain Contracts. The representations and
warranties of the Seller set forth in Section 2.2 with respect to each Contract
shall survive delivery of the Contract
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Documents to the Trustee and shall continue until the termination of this
Agreement. Upon discovery by the Seller, the Servicer, the Insurer or a
Responsible Officer of the Trustee that any of such representations or
warranties was incorrect or that any of such conditions was unsatisfied as of
the time made or that any of the Contract Documents relating to any such
Contract has not been properly executed by the Obligor or contains a material
defect or has not been received by the Trustee (or the Servicer in its capacity
as custodian of the Trustee pursuant to Section 2.4), such Person making such
discovery shall give prompt notice to the other such Persons. If any such
defect, incorrectness or omission materially and adversely affects the interest
of the Certificateholders, the Trustee or the Insurer, the Seller shall cure the
defect or eliminate or otherwise cure the circumstances or condition in respect
of which such condition, representation or warranty was incorrect as of the time
made; provided that if the Seller is unable to do so by the last day of the
Collection Period following the Collection Period (or, if the Seller elects, the
last day of such Collection Period) during which the Seller becomes aware of or
receives written notice from the Trustee, the Insurer or the Servicer of such
defect, incorrectness or omission, it shall repurchase such Contract on the last
day of the applicable Collection Period from the Trust at the Repurchase Amount
in the manner set forth in Section 4.4. Upon any such repurchase, the Trustee on
behalf of the Trust shall execute and deliver such instruments of transfer or
assignment, in each case without recourse, as shall be necessary to vest in the
Seller any Contract purchased hereunder. The sole remedy of the Trustee, the
Trust, or the Certificateholders with respect to a breach of the Seller's
representations and warranties pursuant to Section 2.2 shall be to require the
Seller to repurchase Contracts pursuant to this Section provided, however, that
the Seller shall indemnify the Trustee, its officers, directors, agents and
employees, the Insurer, the Trust and the Certificateholders against all costs,
expenses, losses, damages, claims and liabilities, including reasonable fees and
expenses of counsel, which may be asserted against or incurred by any of them as
a result of third-party claims arising out of the events or facts giving rise to
such breach.
SECTION 2.4 Duties and Appointment of Custodian.
(a) Duties of Custodian. The Trustee, and any Custodian appointed
pursuant to Section 2.4(b), while acting as Custodian shall:
(i) segregate and maintain continuous custody of the Contract
Documents in secure and fireproof facilities in accordance with
customary standards for such custody;
(ii) with respect to the Contract Documents, (A) act exclusively
as the Custodian for the benefit of the Certificateholders and for the
Insurer and (B) hold all Contract Documents for the exclusive use
(notwithstanding Sections 2.4(a)(iii) and 2.4(a)(iv) below) and for the
benefit of the Certificateholders and the Insurer;
(iii) to the extent the Servicer directs the Custodian in
writing, deliver certain specified Contract Documents to the Servicer to
enable the Servicer to service the Contracts pursuant to this Agreement.
At such time as the Servicer returns such Contract Documents to the
Custodian, the Servicer shall provide written notice of such return to
the Custodian.
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The Custodian shall acknowledge receipt of the returned materials by
signing the Servicer's notice and shall promptly send copies of such
acknowledgment or receipt to the Servicer;
(iv) upon reasonable prior written notice, permit the Servicer
and the Insurer to examine the Contract Documents in the possession, or
under the control, of the Custodian; and
(v) at its own expense, maintain at all times while acting as
Custodian, and keep in full force and effect (A) fidelity insurance, (B)
theft of documents insurance, (C) fire insurance, and (d) forgery
insurance. All such insurance shall be in amounts, with standard
coverage and subject to deductibles, as are customary for similar
insurance typically maintained by banks that act as custodian in similar
transactions.
(b) Appointment of Custodian. As of the Closing Date, the Trustee shall
be the Custodian of the Contract Files; provided, however, that upon the
execution by the Trustee of a letter agreement with the consent of the Insurer
(such consent not to be unreasonably withheld) substantially in the form of
Exhibit A attached hereto (the "Appointment of Custodian"), revocably appointing
the Servicer or such other entity acceptable to the Insurer as agent of the
Trustee to act as Custodian (the "Successor Custodian") of the Contract
Documents, such Successor Custodian shall be so appointed and shall from the
effective date of such Appointment of Custodian retain custody of the Contract
Documents and any and all other documents relating to a Contract or the related
Obligor or Financed Vehicle. As of the effective date of such Appointment of
Custodian, the Contract Documents and any and all other documents relating to a
Contract or the related Obligor or Financed Vehicle will be delivered to the
Successor Custodian in its capacity as agent of the Trustee acting as Custodian.
If the Servicer is appointed Successor Custodian as of the date
specified in the Appointment of Custodian, the Servicer shall maintain the
Contract Documents held by it in a file area physically separate from the other
installment sales contracts owned or serviced by it or any of its Affiliates,
which area shall be clearly marked to indicate the Trust as the owner of, and
the holder of the security interest in, the Contract Documents; except that if
the Insurer has waived the requirement for such segregation by notice in writing
to the Trustee and the Servicer, such file area may contain contract documents
for other installment sales contracts serviced by the Servicer.
SECTION 2.5 Duties of Servicer Relating to the Contracts.
(a) Safekeeping. The Servicer, in its capacity as servicer, shall
maintain such accurate and complete accounts, records, and computer systems
pertaining to each Contract File as shall enable the Trustee to comply with this
Agreement. In performing its duties as servicer the Servicer shall act with
reasonable care, using that degree of skill and attention that the Servicer
exercises with respect to the files relating to all comparable automobile
contracts that the Servicer services for itself or others. The Servicer shall:
(i) conduct, or cause to be conducted, periodic physical inspections of the
Contract Files (other than the Contract Documents, unless the Servicer is acting
as Custodian)
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held by it under this Agreement, and of the related accounts, records, and
computer systems; (ii) maintain the Contract Files in such a manner as shall
enable the Trustee and the Insurer to verify the accuracy of the Servicer's
record keeping; (iii) promptly report to the Trustee and the Insurer any failure
on its part to hold the Contract Files (other than the Contract Documents,
unless the Servicer is acting as Custodian) and maintain its accounting,
records, and computer systems as herein provided; and (iv) promptly take
appropriate action to remedy any such failure.
(b) Maintenance of and Access to Records. The Servicer shall maintain
each Contract File (other than the Contract Documents, unless the Servicer is
acting as Custodian) at the address of the Servicer set forth in Section 11.5,
or at such other location as shall be specified to the Trustee and the Insurer
by 30 days' prior written notice. The Servicer shall permit the Trustee or the
Insurer or their duly authorized representatives, attorneys, or auditors to
inspect the Contract Files and the related accounts, records, and computer
systems maintained by the Servicer at such times as the Trustee or the Insurer
may request.
(c) Release of Documents. If the Servicer is acting as Custodian
pursuant to Section 2.4, upon instruction from the Trustee (a copy of which
shall be furnished to the Insurer), the Servicer shall release any document in
the Contract Files to the Trustee, the Trustee's agent, or the Trustee's
designee, as the case may be, at such place or places as the Trustee may
designate, as soon as practicable.
(d) Monthly Reports. On the Servicer Report Date of each month,
commencing with the month of the Closing Date, the Servicer shall deliver to the
Trustee and Insurer, a certificate of a Servicing Officer stating (i) the
Contract Number and outstanding principal balance of each Contract that has
become a Liquidated Contract since the Business Day immediately preceding the
date of the last certificate delivered pursuant to this Section 2.5(d) (or since
the Closing Date in the case of the first such certificate); (ii) that, if such
Contract has been the subject of a Full Prepayment pursuant to clause (a) of the
definition of the term "Full Prepayment" or is a Liquidated Contract pursuant to
clause (iii) of the definition of the term "Liquidated Contract," all proceeds
received in respect thereof have been deposited in or credited to the Collection
Account in accordance with Section 4.2; (iii) that, if such Contract has been
the subject of a Full Prepayment pursuant to clause (b) of the definition of the
term "Full Prepayment," the correct Repurchase Amount has been deposited in or
credited to the Collection Account in accordance with Section 4.4; (iv) that, if
such Contract is a Liquidated Contract pursuant to clause (ii) of the definition
of the term "Liquidated Contract," there have been deposited in or credited to
the Collection Account the related Net Liquidation Proceeds in accordance with
Section 4.2; and (v) that the Trustee is authorized to release such Contract and
the related Contract Documents as provided herein.
(e) Schedule of Title Documents. The Servicer shall deliver to the
Trustee and the Insurer (i) within 60 days of the Closing Date, a schedule of
Title Documents which as of the Closing Date did not show Onyx or a subsidiary
of Onyx as first lienholder and (ii) within 180 days of the Closing Date as to
the Contracts, a schedule of Title Documents which as of the date prior to such
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delivery do not show the Onyx or a subsidiary of Onyx as first lienholder and as
to which the Seller is obligated to repurchase pursuant to the provisions
hereof.
(f) Electronic Marking of Contracts; Possession. The Servicer shall
cause the electronic record of the Contracts maintained by it to be clearly
marked to indicate that the Contracts have been sold to the Trust and shall not
in any way assert or claim an ownership interest in the Contracts. It is
intended that pursuant to the applicable provisions of Sections 2.4 and 2.5
hereof and the Appointment of Custodian, the Trustee on behalf of the Trust
shall be deemed to have possession of the Contract Documents for purposes of
Section 9-305 of the UCC of the State in which the Contract Documents are
located.
SECTION 2.6 Instructions; Authority to Act. The Servicer shall be deemed
to have received proper instructions (a copy of which shall be furnished to the
Insurer) with respect to the Contract Files upon its receipt of written
instructions signed by a Responsible Officer of the Trustee.
SECTION 2.7 Indemnification. The Servicer, as custodian, shall indemnify
the Trustee and its officers, directors, agents and employees, the Insurer, the
Trust and the Certificateholders for any and all liabilities, obligations,
losses, compensatory damages, payments, costs, or expenses of any kind
whatsoever (including the reasonable fees and expenses of counsel) that may be
imposed on, incurred, or asserted against the Trustee, the Insurer, the Trust
and the Certificateholders as the result of any act or omission in any way
relating to the maintenance and custody by the Servicer of the Contract Files,
or the failure of the Servicer to perform its duties and service the Contracts
in compliance with the terms of this Agreement; provided, however, that the
Servicer shall not be liable for any portion of any such amount resulting from
the willful misfeasance, bad faith, or gross negligence of the Trustee or the
Insurer. The Servicer shall also indemnify and hold harmless the Trust, the
Trust Estate, the Trustee, the Insurer and the Certificateholders against any
taxes that may be asserted at any time against any of them with respect to the
Contracts, including any sales, gross receipts, general corporation, personal
property, privilege or license taxes (but exclusive of federal or other income
taxes arising out of payments on the Contracts) and the costs and expenses in
defending against such taxes. The Servicer shall immediately notify the Trustee
if a claim is made by a third party with respect to the Contracts, shall assume,
with the consent of the Trustee, the defense of any such claim and shall pay all
expenses in connection therewith, including counsel fees, and shall promptly
pay, discharge and satisfy any judgment or decree which may be entered against
it, the Trustee or the Trust with respect to the Contracts.
SECTION 2.8 Effective Period and Termination. The Trustee's appointment
as Custodian shall become effective as of the Closing Date and shall continue in
full force and effect until the earlier of (i) the execution of the Appointment
of Custodian, (ii) the removal of the Trustee pursuant to Section 9.10 or (iii)
the Final Distribution Date. Following the execution of the Appointment of
Custodian, the Successor Custodian's appointment as Custodian shall continue in
full force and effect until terminated under this Section 2.8 or until the Final
Distribution Date, whichever occurs first. If Onyx shall resign as Servicer
under Section 7.4 or if all of the rights and obligations of the Servicer shall
have been terminated under Section 8.1, the appointment of the Servicer as
Custodian
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may be terminated by the Trustee, the Insurer, or by the Holders of Certificates
evidencing in the aggregate at least 25% of the Pool Balance, in the same manner
as the Trustee, the Insurer, or such Holders may terminate the rights and
obligations of the Servicer under Section 8.1 (but no occurrence of an Event of
Default shall be a precondition to termination). As soon as practicable after
any termination of such appointment, the Custodian shall, at its own expense,
deliver or cause the delivery of the Contract Files to the Trustee or the
Trustee's agent at such place or places as the Trustee may reasonably designate
and shall cooperate in good faith to effect such delivery. The foregoing
notwithstanding, if the Servicer is acting as Custodian, the Servicer shall, at
the request of the Insurer, redeliver the Contract Documents to the Trustee in
the event that such redelivery is required by any Rating Agency to consider the
Certificates investment grade without consideration of the Financial Guarantee
Insurance Policy.
SECTION 2.9 Nonpetition Covenant.
(a) Neither the Seller nor the Servicer shall petition or otherwise
invoke the process of any court or government authority for the purpose of
commencing or sustaining a case against the Trust under any federal or state
bankruptcy, insolvency or similar law or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Trust or any substantial part of its property, or ordering the winding up or
liquidation of the affairs of the Trust.
(b) The Servicer shall not, nor cause the Seller to, petition or
otherwise invoke the process of any court or government authority for the
purpose of commencing or sustaining a case against the Seller under any federal
or state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Seller or any substantial part of its property, or ordering the winding
up or liquidation of the affairs of the Seller.
SECTION 2.10 Collecting Title Documents Not Delivered at the Closing
Date. In the case of any Contract in respect of which, in place of a Title
Document, the Trustee received on the Closing Date written evidence from the
Dealer selling the related Financed Vehicle, or from Onyx, that the Title
Document for such Financed Vehicle showing Onyx or a subsidiary of Onyx as first
lienholder has been applied for from the Registrar of Titles, the Servicer shall
use its best efforts to collect (or, in the case of the State of California, to
obtain evidence in the electronic title records of) such Title Document from the
Registrar of Titles as promptly as possible. If such Title Document showing Onyx
or a subsidiary of Onyx as first lienholder is not received by the Servicer (or,
in the case of the State of California, verified by the Servicer in the
electronic title records) within 180 days after the Closing Date with respect to
the Contracts, then the representation and warranty in Section 2.2(b)(iii) as to
such Contracts in respect of such Contract shall be deemed to have been
incorrect in a manner that materially and adversely affects the
Certificateholders and the Seller shall be obligated to repurchase such Contract
in accordance with Section 2.3.
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ARTICLE III
Administration and Servicing of Contracts
SECTION 3.1 Duties of Servicer. The Servicer shall manage, service,
administer, and make collections on the Contracts. The Servicer agrees that its
servicing of the Contracts shall be carried out in accordance with reasonable
care and, to the extent more exacting, the procedures used by the Servicer in
respect of such contracts serviced by it for its own account; provided, however,
that, subject to Section 3.2 as to extensions, the Servicer shall not release or
waive the right to collect the unpaid balance of any Contract. The Servicer's
duties shall include collection and posting of all payments, responding to
inquiries of Obligors on the Contracts, investigating delinquencies, sending
payment coupons to Obligors, reporting tax information to Obligors, accounting
for collections, furnishing monthly and annual statements to the Trustee and the
Insurer with respect to distributions and the preparation of U.S. Grantor Trust
Tax Returns (Form 1041) for the Trustee to sign and file on an annual basis,
based on a tax year for the Trust that is the calendar year and any other tax
forms required by any federal, state or local tax authority including with
respect to original issue discount, if any. The Servicer shall have, subject to
the terms hereof, full power and authority, acting alone, and subject only to
the specific requirements and prohibitions of this Agreement, to do any and all
things in connection with such managing, servicing, administration, and
collection that it may deem necessary or desirable; provided, however, that the
Servicer shall commence repossession efforts in respect of any Financed Vehicle
any payment on the related Contract of which is four or more months delinquent.
Without limiting the generality of the foregoing, but subject to the provisions
of this Agreement, the Servicer is authorized and empowered by the Trustee to
execute and deliver, on behalf of itself, the Trust, the Insurer, the
Certificateholders, or the Trustee or any of them, any and all instruments of
satisfaction or cancellation, or partial or full release or discharge, and all
other comparable instruments, with respect to the Contracts or to the Financed
Vehicles. The Trustee shall furnish the Servicer any documents necessary or
appropriate to enable the Servicer to carry out its servicing and administrative
duties hereunder. The Servicer may engage agents and subservicers to fulfill its
duties hereunder; provided, however, that the Servicer shall remain at all times
personally liable for the acts (and failures to act) of such agents and
subservicers.
On or prior to the Closing Date, the Servicer shall deliver to the
Insurer and the Trustee a list of Servicing Officers of the Servicer involved
in, or responsible for, the administration and servicing of the Contracts, which
list shall from time to time be updated by the Servicer on request of the
Trustee or the Insurer.
On the Closing Date, the Servicer shall deposit in the Collection
Account (i) all installments of Monthly P&I due on or after the Cut-Off Date and
received by the Servicer at least two Business Days prior to the Closing Date;
(ii) the proceeds of each Full Prepayment of any Contract and all partial
prepayments on Simple Interest Contracts received by the Servicer on or after
the Cut-Off Date and at least two Business Days prior to the Closing Date; and
(iii) all Net Liquidation Proceeds and Net Insurance Proceeds received with
respect to a Financed Vehicle to which a Contract relates received on or after
the Cut-Off Date and at least two Business Days prior to the Closing Date.
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Subject to Section 4.2(a) respecting deposits in the Payahead Account,
the Servicer shall deposit in or credit to the Collection Account within two
Business Days of receipt all collections of Monthly P&I due on or after the
Cut-Off Date received by it on the Contracts together with the proceeds of all
Full Prepayments on all Contracts and all partial prepayments on Simple Interest
Contracts, and any accompanying interest. The Servicer shall likewise deposit in
the Collection Account within two Business Days of receipt all Net Liquidation
Proceeds and Net Insurance Proceeds. As of the last day of each Collection
Period, all amounts received in each Collection Period shall be applied by the
Servicer with respect to each Contract, first, to the Servicer as additional
servicing compensation any amounts due for late fees, extension fees or similar
charges, second to the payment of Monthly P&I, and third, in the case of partial
prepayments on Rule of 78's Contracts, to the Payahead Account. The foregoing
requirements for deposit in the Collection Account are exclusive, it being
understood that collections in the nature of late payment charges or extension
fees may, but need not be deposited in the Collection Account and may be
retained by the Servicer as additional servicing compensation.
With respect to payments of Monthly P&I made by Obligors to the
Servicer's lock box, the Servicer shall direct the Person maintaining the lock
box to deposit the amount collected on the Contracts within one Business Day to
the Clearing Account. Such amounts shall be withdrawn from the Clearing Account
and deposited in the Collection Account no later than the next following
Business Day.
In order to facilitate the servicing of the Contracts by the Servicer,
the Servicer shall retain, subject to and only to the extent permitted by the
provisions of this Agreement, all collections on the Contracts prior to the time
they are remitted or credited, in accordance with such provisions, to the
Collection Account or the Payahead Account, as the case may be. The Servicer
acknowledges that the unremitted collections on the Contracts are part of the
Trust Estate and the Servicer agrees to act as custodian and bailee of the
Trustee and the Insurer in holding such monies and collections. The Servicer
agrees, for the benefit of the Trustee, the Trust, the Certificateholders and
the Insurer, to act as such custodian and bailee, and to hold and deal with such
monies and such collections, as custodian and bailee for the Trustee and the
Insurer, in accordance with the provisions of this Agreement.
The Servicer shall retain all data (including, without limitation,
computerized title records) relating directly to or maintained in connection
with the servicing of the Contracts at the address of the Servicer set forth in
Section 11.5, or, upon 15 days' notice to the Insurer and the Trustee, at such
other place where the servicing offices of the Servicer are located, and shall
give the Trustee and the Insurer access to all data (including, without
limitation, computerized title records) at all reasonable times, and, while an
Event of Default shall be continuing, the Servicer shall, on demand of the
Trustee or the Insurer deliver or cause to be delivered to the Trustee on behalf
of the Trust and to the Insurer all data (including, without limitation,
computerized title records and, to the extent transferable, related operating
software) necessary for the servicing of the Contracts and all monies collected
by it and required to be deposited in or credited to the Collection Account or
the Payahead Account, as the case may be.
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SECTION 3.2 Collection of Contract Payments. The Servicer shall use its
best efforts to collect all payments called for under the terms and provisions
of the Contracts as and when the same shall become due and shall use its best
efforts to cause each Obligor to make all payments in respect of his or her
Contract to the Servicer. Consistent with the foregoing, the Servicer may in its
discretion (i) waive any late payment charges in connection with delinquent
payments on a Contract or prepayment charges and (ii) in order to work out a
default or an impending default due to the financial condition of an Obligor,
grant up to three extensions of the Due Date of any payment for periods of 30
days or less, such that the Maturity Date of no Contract shall, under any
circumstances, extend more than 90 days past the originally scheduled date of
the last payment on such Contract and in no event beyond the Final Distribution
Date. The Servicer shall not extend the Maturity Date of a Contract except as
provided in clause (ii) of the preceding sentence. Except as explicitly
permitted by this paragraph, the Servicer shall not change any material term of
a Contract, including but not limited to the interest rate, the payment amounts
or due dates, or the property securing such Contract.
SECTION 3.3 Realization Upon Contracts. The Servicer shall use its best
efforts, consistent with the servicing standard specified in Section 3.1, to
repossess or otherwise convert the ownership of the Financed Vehicle securing
any Contract as to which no satisfactory arrangements can be made for collection
of delinquent payments. Such servicing procedures may include reasonable efforts
to realize upon any recourse to Dealers and selling the Financed Vehicle at
public or private sale. In connection with such repossession or other
conversion, the Servicer shall follow such practices and procedures as it shall
deem necessary or advisable and as shall be normal and usual for prudent holders
of retail installment sales contracts and as shall be in compliance with all
applicable laws, and, in connection with the repossession of any Financed
Vehicle or any contract in default, may commence and prosecute any proceedings
in respect of such Contract in its own name or, if the Servicer deems it
necessary, in the name of the Trust or on behalf of the Trust. The Servicer's
obligations under this Section are subject to the provision that, in the case of
damage to a Financed Vehicle from an uninsured cause, the Servicer shall not be
required to expend its own funds in repairing such motor vehicle unless it shall
determine (i) that such restoration will increase the proceeds of liquidation of
the related Contract, after reimbursement to itself for such expenses and (ii)
that such expenses will be recoverable by it either as Liquidation Expenses or
as expenses recoverable under an applicable insurance policy. The Servicer shall
be responsible for all other costs and expenses incurred by it in connection
with any action taken in respect of a Defaulted Contract; provided, however,
that it shall be entitled to reimbursement of such costs and expenses to the
extent they constitute Liquidation Expenses or expenses recoverable under an
applicable insurance policy. All Net Liquidation Proceeds and Net Insurance
Proceeds shall be deposited directly in or credited to the Collection Account
(without deposit in any intervening account) to the extent required by Section
4.2.
SECTION 3.4 Insurance. The Servicer shall cause to be maintained the
Blanket Insurance Policy with the Trustee as the named payee thereunder with
respect to the Contracts.
SECTION 3.5 Maintenance of Security Interests in Financed Vehicles. The
Servicer shall take such steps as are necessary to maintain continuous
perfection and priority of the security interest
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created by each Contract in the related Financed Vehicle, including but not
limited to, obtaining the execution by the related Obligor and the recording,
registering, filing, re-recording, re-registering, and refiling of all security
agreements, financing statements, continuation statements or other instruments
as are necessary to maintain the security interest granted by such Obligor under
each respective Contract. The Trustee hereby authorizes the Servicer to take
such steps as are necessary to re-perfect such security interest on behalf of
the Trust in the event of the relocation of a Financed Vehicle or for any other
reason. In the event that the assignment of a Contract to the Trust is
insufficient, without a notation on the related Financed Vehicle's certificate
of title (or, in the case of the State of California, the electronic title
record), or without fulfilling any additional administrative requirements under
the laws of the state in which the Financed Vehicle is located, to grant to the
Trust a perfected security interest in the related Financed Vehicle, Onyx hereby
agrees that the identification of Onyx or a subsidiary of Onyx as the secured
party on the certificate of title (or, in the case of the State of California,
the electronic title record) is deemed to be in its capacity as agent of the
Trust and further agrees to hold such certificate of title (or, in the case of
the State of California, the electronic title record) as the Trustee's agent and
custodian; provided that Onyx shall not make, nor shall the Trustee or
Certificateholders have the right to require that Onyx make, any such notation
on the related Financed Vehicles' certificate of title (or, in the case of the
State of California, the electronic title record) or fulfill any such additional
administrative requirement of the laws of the state in which a Financed Vehicle
is located.
SECTION 3.6 Covenants, Representations and Warranties of Servicer. The
Servicer hereby makes the following covenants, representations and warranties on
which the Trustee shall rely accepting the Contracts in trust and authenticating
the Certificates.
(a) The Servicer covenants as to the Contracts:
(i) the Financed Vehicle securing each Contract shall not be
released from the lien granted by the Contract in whole or in part,
except as contemplated herein;
(ii) the Servicer shall not impair the rights of the Trust in
the Contracts;
(iii) the Servicer shall not increase the number of payments
under a Contract, nor increase the amount financed under a Contract, nor
extend or forgive payments on a Contract, except as provided in Section
3.2; and
(iv) the Servicer may consent to the sale or transfer by an
Obligor of any Financed Vehicle if the original Obligor under the
related Contract remains liable under such Contract and the transferee
assumes all of the Obligor's obligations thereunder and upon doing so
the credit profile with respect to such Obligor will not be changed from
adequate to speculative by virtue of the addition of the transferee's
obligation thereunder.
(b) The Servicer represents and warrants as of the Closing Date:
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(i) the Servicer (1) has been duly organized, is validly existing
and in good standing as a corporation organized and existing under the
laws of the State of Delaware, (2) has qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where
the character of its properties or the nature of its activities makes
such qualification necessary, and (3) has full power, authority and
legal right to own its property, to carry on its business as presently
conducted, and to enter into and perform its obligations under this
Agreement;
(ii) the execution and delivery by the Servicer of this Agreement
are within the corporate power of the Servicer and have been duly
authorized by all necessary corporate action on the part of the
Servicer. Neither the execution and delivery of this Agreement, nor the
consummation of the transactions herein contemplated, nor compliance
with the provisions hereof, will conflict with or result in a breach of,
or constitute a default under, any of the provisions of any law,
governmental rule, regulation, judgment, decree or order binding on the
Servicer or its properties or the Certificate of Incorporation or Bylaws
of the Servicer, or any of the provisions of any indenture, mortgage,
contract or other instrument to which the Servicer is a party or by
which it is bound or result in the creation or imposition of any lien,
charge or encumbrance upon any of its property pursuant to the terms of
any such indenture, mortgage, contract or other instrument;
(iii) other than consents that have been obtained prior to the
Closing Date, the Servicer is not required to obtain the consent of any
other party or any consent, license, approval or authorization, or
registration or declaration with, any governmental authority, bureau or
agency in connection with the execution, delivery, performance, validity
or enforceability of this Agreement;
(iv) this Agreement has been duly executed and delivered by the
Servicer and, assuming the due authorization, execution and delivery
thereof by the Trustee, constitutes a legal, valid and binding
obligation of the Servicer enforceable against the Servicer in
accordance with its terms (subject to applicable bankruptcy and
insolvency laws and other similar laws affecting the enforcement of
creditors' rights generally);
(v) there are no actions, suits or proceedings pending or, to the
knowledge of the Servicer, threatened against or affecting the Servicer,
before or by any court, administrative agency, arbitrator or
governmental body with respect to any of the transactions contemplated
by this Agreement, or which will, if determined adversely to the
Servicer, materially and adversely affect it or its business, assets,
operations or condition, financial or otherwise, or adversely affect the
Servicer's ability to perform its obligations under this Agreement. The
Servicer is not in default with respect to any order of any court,
administrative agency, arbitrator or governmental body so as to
materially and adversely affect the transactions contemplated by the
above-mentioned documents; and
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(vi) the Servicer has obtained or made all necessary consents,
approvals, waivers and notifications of creditors, lessors and other
nongovernmental persons, in each case, in connection with the execution
and delivery of this Agreement, and the consummation of all the
transactions herein contemplated.
SECTION 3.7 Purchase of Contracts Upon Breach of Covenant. The Servicer
or the Trustee shall inform the other party and the Insurer promptly, in
writing, upon the discovery of any breach of the representation and warranties
set forth in Section 3.6 or of the covenants set forth in Section 3.5. Unless
the breach shall have been cured within 30 days following such discovery or
receipt of notice of such breach, the Servicer shall purchase any Contract
materially and adversely affected by such breach from the Trust. As
consideration for the Contract, the Servicer shall remit the Repurchase Amount
on the Business Day preceding the Servicer Report Date next succeeding the end
of such 30-day cure period in the manner specified in Section 4.4. The sole
remedy of the Trustee, the Trust, or the Certificateholders with respect to a
breach pursuant to Section 3.5 (other than as specified therein) and Section 3.6
shall be to require the Servicer to purchase Contracts pursuant to this Section
3.7; provided, however, that the Servicer shall indemnify the Trustee and its
officers, directors, agents and employees, the Insurer, the Trust and the
Certificateholders against all costs, expenses, losses damages, claims and
liabilities, including reasonable fees and expenses of counsel, which may be
asserted against or incurred by any of them as a result of third-party claims
arising out of the events or facts giving rise to such breach.
Any successor Servicer appointed pursuant to Section 8.2 shall not be
obligated to purchase Contracts pursuant to this Section 3.7 with respect to any
breaches by any prior Servicer.
SECTION 3.8 Servicing Compensation. As compensation for the performance
of its obligations under this Agreement and subject to the terms of this Section
3.8, the Servicer shall be entitled to receive on each Distribution Date the
Servicing Fee in respect of each Contract that was Outstanding at the beginning
of the Collection Period ending immediately prior to such Distribution Date;
provided, however, that with respect to the first Distribution Date the Servicer
will be entitled to receive the Servicing Fee in respect of each Outstanding
Contract as of the Cut-Off Date. As servicing compensation in addition to the
Servicing Fee, the Servicer shall be entitled (i) to retain all late payment
charges, extension fees and similar items paid in respect of Contracts, (ii) to
receive, in respect of each Rule of 78's Contract that is prepaid in full prior
to its Maturity Date, the amount by which the outstanding principal balance of
such Contract (determined in accordance with the Rule of 78's method) exceeds
the Scheduled Balance of such Contract at the time of such prepayment and (iii)
to receive all investment earnings on funds credited to the Collection Account
and the Payahead Account; provided, however, that the Servicer agrees that each
amount payable to it pursuant to clause (ii) of this Section 3.8 shall be
deposited in the Spread Account and applied in accordance with the Insurance
Agreement. The Servicer shall pay all expenses incurred by it in connection with
its servicing activities hereunder and shall not be entitled to reimbursement of
such expenses except to the extent provided in Section 3.3.
SECTION 3.9 Reporting by the Servicer.
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(a) No later than 3:00 p.m. New York City time on each Servicer Report
Date, the Servicer shall transmit to the Trustee and the Insurer a statement
(the "Distribution Date Statement") setting forth with respect to the next
succeeding Distribution Date:
(i) the Interest Distribution for such Distribution Date;
(ii) the Principal Distribution for such Distribution Date;
(iii) the Certificate Distribution Amount for such Distribution
Date;
(iv) the Premium payable to the Insurer and the amount to be
deposited in the Spread Account;
(v) the aggregate Servicing Fee with respect to the Contracts
for the related Collection Period;
(vi) the number of, and aggregate amount of monthly principal
and interest payments due on, the Contracts which are delinquent as of
the end of the related Collection Period presented on a 30-day, 60-day
and 90-day basis;
(vii) the Collection Account Amount Available and the Policy
Claim Amount, if any, for such Distribution Date;
(viii) the aggregate amount of Liquidation Proceeds received for
Defaulted Contracts;
(ix) the net credit losses for the Collection Period;
(x) the number and net outstanding balance of Contracts for
which the Financed Vehicle has been repossessed; and
(xi) the Pool Balance.
Each such Distribution Date Statement shall be accompanied by an Officers'
Certificate of the Servicer, which Officers' Certificate shall state that the
computations reflected in such statement were made in conformity with the
requirements of this Agreement.
(b) On each Servicer Report Date, the Servicer shall render to the
Trustee and the Insurer a report, in respect of the immediately preceding
Collection Period, setting forth the following:
(i) the aggregate amount, if any, paid by or due from it for the
purchases of Contracts which the Seller or the Servicer has become
obligated to repurchase or purchase pursuant to Sections 2.3 or 3.7;
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(ii) the net amount of funds which have been deposited in or
credited to the Collection Account or the Payahead Account in respect of
such Collection Period (including amounts, if any, collected during the
next preceding Collection Period and deposited in the Payahead Account
pursuant to Section 4.2) after giving effect to all permitted deductions
therefrom pursuant to Section 4.2;
(iii) with respect to each Contract that became a Liquidated
Contract during the Collection Period, the following information:
(A) its Contract Number;
(B) the effective date as of which such Contract became a
Liquidated Contract;
(C) its Monthly P&I and Scheduled Balance as of the close
of business on the last day of the Collection Period relating to
the prior Distribution Date (or as of the Closing Date in the
case of the first Distribution Date); and
(D) the amount of the Net Liquidation Proceeds or Net
Insurance Proceeds;
(iv) with respect to each Contract which was the subject of a
Full Prepayment during such Collection Period, the following
information:
(A) its Contract Number; and
(B) the date of such Full Prepayment;
(v) the Contract Numbers, Monthly P&I, Scheduled Balances and
Maturity Dates of all Contracts which became Defaulted Contracts during
such Collection Period;
(vi) any other information relating to the Contracts reasonably
requested by the Trustee or the Insurer; and
(vii) the amount of Net Liquidation Proceeds and Net Insurance
Proceeds which have been deposited in or credited to the Collection
Account in respect of the Collection Period ending immediately prior to
such Servicer Report Date and the cumulative amount of Net Liquidation
Proceeds and Net Insurance Proceeds deposited in or credited to the
Collection Account during the preceding Collection Periods.
SECTION 3.10 Annual Statement as to Compliance.
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(a) The Servicer shall deliver to the Trustee and the Insurer, on or
before March 15, 1999 and on or before March 15 of each fiscal year thereafter,
an Officers' Certificate of the Servicer stating that (i) a review of the
activities of the Servicer during the preceding fiscal year (since the Closing
Date in the case of the first of such Officers' Certificates required to be
delivered) and of its performance under this Agreement has been made under such
officers' supervision and (ii) to the best of such officers' knowledge, based on
such review, the Servicer has fulfilled all its obligations under this Agreement
throughout such year and that no default under this Agreement has occurred and
is continuing, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default known to such officer and the nature
and status thereof.
(b) The Servicer shall deliver to the Trustee, the Insurer and each
Rating Agency promptly after having obtained knowledge thereof, but in no event
later than five Business Days thereafter, an Officer's Certificate specifying
any event which with the giving of notice or lapse of time, or both, would
become an Event of Default under Section 8.1.
SECTION 3.11 Annual Independent Certified Public Accountant's Report. On
or before March 15, 1999 and on or before March 15 of each fiscal year
thereafter, the Servicer at its expense shall cause a firm of
nationally-recognized independent certified public accountants (who may also
render other services to the Servicer) to furnish a report to the Trustee and
the Insurer to the effect that (i) they have audited the balance sheet of the
Servicer as of the last day of said fiscal year and the related statements of
operations, retained earnings and cash flows for such fiscal year and have
issued an opinion thereon, specifying the date thereof, (ii) they have also
audited the reports delivered by the Servicer pursuant to Section 3.9(b) and
certain other documents and the records relating to the servicing of the
Contracts and the distributions on the Certificates under this Agreement, (iii)
their audit as described under clauses (i) and (ii) above was made in accordance
with generally accepted auditing standards and accordingly included such tests
of the accounting records and such other auditing procedures as they considered
necessary in the circumstances, and (iv) their audits described under clauses
(i) and (ii) above disclosed no exceptions which, in their opinion, were
material, relating to the servicing of such Contracts in accordance with this
Agreement and the making of distributions on the Certificates in accordance with
this Agreement, or, if any such exceptions were disclosed thereby, setting forth
those exceptions which, in their opinion, were material.
SECTION 3.12 Access to Certain Documentation and Information Regarding
Contracts. If the Servicer is acting as Custodian, the Servicer shall provide to
the Certificateholders, the Trustee and the Insurer reasonable access to the
Contract Files. Access shall be afforded without charge, but only upon
reasonable request and during normal business hours at designated offices of the
Servicer. Nothing in this Section shall affect the obligation of the Servicer to
observe any applicable law prohibiting disclosure of information regarding the
Obligors, and the failure of the Servicer to provide access to information as a
result of such obligation shall not constitute a breach of this Section 3.12.
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SECTION 3.13 Fidelity Bond. The Servicer shall maintain a fidelity bond
in such form and amount as is customary for banks acting as custodian of funds
and documents in respect of mortgage loans or consumer contracts on behalf of
institutional investors.
SECTION 3.14 Indemnification; Third Party Claims. The Servicer agrees to
indemnify and hold the Trust, the Trustee and its officers, directors, agents
and employees, and the Certificateholders harmless against any and all claims,
losses, penalties, fines, forfeitures, reasonable legal fees and related costs,
judgments, and any reasonable other costs, fees and expenses that the Trustee or
the Certificateholders may sustain because of the failure of the Servicer to
perform its duties and service the Contracts in compliance with the terms of
this Agreement. The Servicer shall immediately notify the Trustee if a claim is
made by a third party with respect to the Contracts, shall assume, with the
consent of the Trustee, the defense of any such claim and shall pay all expenses
in connection therewith, including counsel fees, and shall promptly pay,
discharge and satisfy any judgment or decree which may be entered with respect
to such claim against it or the Trustee or the Certificateholders.
SECTION 3.15 Reports to Certificateholders and the Rating Agencies.
(a) The Trustee at its own expense shall provide to each
Certificateholder a copy of each Distribution Date Statement described in
Section 3.9(a) concurrently with the delivery of the statement described in
Section 4.5 below.
(b) The Trustee shall provide to any Certificateholder who so requests
in writing (addressed to the Corporate Trust Office) a copy of the annual audit
statement described in Section 3.10, or the annual audit report described in
Section 3.11. The Trustee may require the Certificateholder to pay a reasonable
sum to cover the cost of the Trustee's complying with such request.
(c) The Trustee shall forward to the Rating Agencies and the Insurer the
statement to Certificateholders described in Section 4.5 and any other reports
it may receive pursuant to this Agreement to (i) Standard & Poor's Ratings
Services, Asset-Backed Surveillance Group, 26 Broadway, Fifteenth Floor, New
York, New York 10004, (ii) Moody's Investors Service, Inc., ABS Monitoring
Dept., 99 Church Street, 4th Floor, New York, New York 10007, and (iii) the
address of the Insurer at the address set forth in the Insurance Agreement.
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ARTICLE IV
Accounts; Distributions; Statements to Certificateholders
SECTION 4.1 Accounts.
(a) Prior to the Closing Date, the Servicer shall open, at a depository
institution (which may be the Trustee), the following accounts for the benefit
of the Certificateholders: (i) an account denominated "Collection Account--GT
1998-1, Bankers Trust Company, Trustee" (the "Collection Account") and (ii) an
account denominated "Payahead Account--GT 1998-1, Bankers Trust Company, as
agent" (the "Payahead Account") and, collectively, with the Collection Account,
the "Accounts"). The Accounts shall be Eligible Accounts. The location and
account numbers of the Accounts as of the Closing Date are set forth on Schedule
II. The Servicer shall give the Trustee and the Insurer at least five Business
Days' written notice of any change in the location of any Account and any
related account identification information. All moneys deposited in or credited
to, from time to time, the Collection Account shall be part of the Trust and all
moneys deposited in or credited to, from time to time, the Collection Account
shall be invested by the Trustee, or on behalf of the Trustee by the depository
institution maintaining such account, in Eligible Investments pursuant to
Section 4.1(c).
(b) If as of the last day of a Collection Period a payment in an amount
less than the scheduled payment of Monthly P&I has been made for a Rule of 78's
Contract with respect to which amounts have been deposited in or credited to the
Payahead Account in a preceding Collection Period in accordance with Sections
3.1 and 4.2(a), the Servicer shall withdraw from the Payahead Account and
deposit into the Collection Account by the fifth Business Day preceding the
Distribution Date immediately succeeding such Collection Period the amount equal
to the difference between such scheduled payment of Monthly P&I and such actual
payment, to the extent available from amounts deposited in or credited to the
Payahead Account with respect to such Contract. Amounts on deposit in the
Payahead Account shall be invested by the depository institution maintaining the
Payahead Account upon the written direction of the Servicer in Eligible
Investments which mature not later than the fifth Business Day prior to the
Distribution Date to which such amounts relate, and any earnings on such
Eligible Investments shall be payable to the Servicer monthly. The Payahead
Account and all amounts on deposit therein or credited thereto shall not be
considered part of the Trust Estate.
(c) All funds in the Collection Account shall be invested by the
Trustee, or on behalf of the Trustee by the depository institution maintaining
such account, in Eligible Investments. The Insurer shall direct the Trustee in
writing to invest funds, or cause the depository institution maintaining the
Collection Account in the Trustee's name to invest funds, in the Collection
Account in Eligible Investments; provided that in the absence of such directions
from the Insurer, the Servicer may so direct the Trustee. All such investments
shall be in the name of the Trustee as trustee of the Trust. All income or other
gain from investment of monies deposited in or credited to the Collection
Account shall be paid by the Trustee to the Servicer monthly, unless earlier
requested by the
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Servicer. The maximum permissible maturities of any such investments pursuant to
this Section 4.1(c) on any date shall not be later than the Servicer Report Date
preceding the Distribution Date next succeeding the date of such investment;
provided, however, that such funds may be invested by the Trustee in Eligible
Investments of the entity that is serving as Trustee (or an entity which meets
the criteria in clauses (i)(b) or (i)(c) of the definition of Eligible Account)
that mature on the Business Day prior to such Distribution Date. No such
investment may be sold prior to its maturity.
SECTION 4.2 Collections; Transfer to Payahead Account; Realization Upon
Financial Guarantee Insurance Policy; Net Deposit.
(a) Subject to Section 4.4 below, the Servicer shall remit or credit all
payments on a daily basis, within two Business Days of receipt, by or on behalf
of the Obligors on the Contracts and all Net Liquidation Proceeds and Net
Insurance Proceeds to the Collection Account. Prior to the Servicer Report Date,
amounts with respect to Rule of 78's Contracts which had been deposited in or
credited to the Collection Account pursuant to the next preceding sentence
during the preceding Collection Period shall be deposited in or credited to the
Payahead Account (in accordance with the Distribution Date Statement) to the
extent that such amounts are installments of Monthly P&I which are due in a
Collection Period relating to a Distribution Date subsequent to the Distribution
Date immediately succeeding such Collection Period.
(b) Based upon the report referenced in Section 3.9(b) delivered by the
Servicer to the Trustee on the Servicer Report Date, the Servicer shall
determine the Collection Account Amount Available, compare such amount to the
amounts required to be distributed pursuant to Section 4.3, and determine the
Policy Claim Amount, if any, which exists with respect to the related
Distribution Date.
(c) The Trustee shall, no later than 12:00 p.m. New York time on the
third Business Day prior to each Distribution Date, make a claim under the
Financial Guarantee Insurance Policy for the Policy Claim Amount, if any, for
such Distribution Date by delivering to the Insurer and the Bank, with a copy to
the Servicer, by hand delivery, telex or facsimile transmission, a Deficiency
Notice specifying the Policy Claim Amount. In making any such claim, the Trustee
shall comply with all the terms and conditions of the Financial Guarantee
Insurance Policy. The notice of such claim shall direct the Insurer and Bank to
remit such Policy Claim Amount (no later than 11:00 a.m. on the Business Day
immediately preceding such Distribution Date) to the Trustee for deposit in the
Collection Account.
(d) So long as Onyx is the Servicer, the Servicer may make deposits in
or credits to the Collection Account net of amounts to be paid to the Servicer
under this Agreement. Notwithstanding the foregoing, the Servicer shall maintain
the records and accounts for such deposits and credits on a gross basis.
SECTION 4.3 Distributions.
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(a) On the Business Day immediately preceding each Distribution Date,
the Trustee shall transfer, or cause to be transferred, to the Paying Agent for
deposit in the Distribution Account from the Amount Available in the Collection
Account, the amounts set forth in clauses (ii) and (iii) below, to the extent
that such amounts are available after giving effect to the amount to be
distributed on the Distribution Date set forth in clause (i).
On each Distribution Date, the following amounts shall be distributed
from the Amount Available in the following order of priority in accordance with
the Distribution Date Statement:
(i) by the Trustee from the Collection Account to the Servicer,
the Servicing Fee payable on such Distribution Date pursuant to Section
3.8, to the extent of the Amount Available;
(ii) by the Paying Agent from the Distribution Account, to the
Certificateholders, the Interest Distribution with respect to such
Distribution Date to the extent of the Amount Available remaining after
the distribution made pursuant to clause (i) above;
(iii) by the Paying Agent from the Distribution Account, to the
Certificateholders, the Principal Distribution with respect to such
Distribution Date to the extent of the Amount Available remaining after
the distributions made pursuant to clauses (i) and (ii) above; and
(iv) by the Trustee from the Collection Account, to the Insurer,
the Premium with respect to such Distribution Date to the extent of the
Amount Available remaining after the distributions made pursuant to
clauses (i), (ii) and (iii) above.
Any amounts remaining in the Collection Account after giving effect to
the distributions set forth in items (i) through (iv) above shall be deposited
in the Spread Account and shall be held or distributed in accordance with the
provisions of the Insurance Agreement.
All distributions to Certificateholders shall be made pro rata by check
mailed to each Certificateholder of record on the Record Date next preceding the
Distribution Date for such distribution; provided, that if so directed by the
Servicer in the case of Certificates registered in the name of a Clearing
Agency, such distribution shall be made by wire transfer in immediately
available funds.
SECTION 4.4 Remittance Of Repurchase Amount. The Servicer and the
Seller, as the case may be, each shall remit or credit to the Collection Account
each Repurchase Amount to be remitted by it with respect to Repurchased
Contracts on the Business Day preceding the Servicer Report Date next succeeding
(i) the end of the Collection Period in which the applicable Contract is
repurchased by the Seller pursuant to Section 2.3, in the case of the Seller or
(ii) the last day of the related cure period specified in Section 3.7, in the
case of the Servicer.
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SECTION 4.5 Statements to Certificateholders. On each Distribution Date,
the Trustee shall include with each distribution to each Certificateholder a
statement, based on information set forth in the Distribution Date Statement
furnished pursuant to Section 3.9, setting forth for such Distribution Date the
following information:
(a) the amount of such Certificateholder's distribution allocable to
principal, separately identifying the aggregate amount included therein of any
(i) Full Prepayments of principal on Rule of 78's Contracts, and (ii) Full
Prepayments and partial prepayments of principal on Simple Interest Contracts;
(b) the amount of such Certificateholder's distribution allocable to
interest;
(c) the Certificateholder's pro rata portion of expenses allocable to
the Servicing Fee paid to the Servicer and the Premium paid to the Insurer; and
(d) the Pool Balance and the Pool Factor as of the Distribution Date
(after giving effect to the distribution made on such Distribution Date).
In the case of the information furnished pursuant to clauses (a), (b)
and (c) above, the amounts shall be expressed as a dollar amount per Certificate
evidencing a $1,000 denomination.
Within a reasonable period of time after the end of each calendar year
but not later than the latest date permitted by law, the Servicer shall prepare
and furnish to the Trustee and the Paying Agent and the Paying Agent shall
furnish, to each Person who on any Record Date during such calendar year shall
have been a Certificateholder, a statement containing the sum of the amounts
determined in clauses (a) through (c) and such other information as is
reasonably necessary for the preparation of such Person's federal income tax
return in respect of the Certificates, for such calendar year or, in the event
such Person shall have been a Certificateholder during a portion of such
calendar year, for the applicable portion of such year, for the purposes of such
Certificateholder's preparation of federal income tax returns.
ARTICLE V
The Certificates
SECTION 5.1 The Certificates. Unless otherwise specified in this
Agreement, the Certificates shall be substantially in the form set forth in
Exhibit B and shall be issued in denominations of $1,000 and integral multiples
thereof; provided, however, that one Certificate may be issued in a denomination
that includes any residual portion of the Original Pool Balance. The
Certificates shall be executed on behalf of the Trust by manual or facsimile
signature of a Responsible Officer of the Trustee. Certificates bearing the
manual or facsimile signatures of individuals who were, at the time when such
signatures shall have been affixed, authorized to sign
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on behalf of the Trust, shall be valid and binding obligations of the Trust,
notwithstanding that such individuals or any of them shall have ceased to be so
authorized prior to the authentication and delivery of such Certificates or did
not hold such offices at the date of the issuance of such Certificates. No
Certificate shall entitle its holder to any benefit under this Agreement, or
shall be valid for any purpose, unless there shall appear on such Certificate a
certificate of authentication substantially in the form set forth in Exhibit B
hereto executed by the Trustee by manual signature; such authentication shall
constitute conclusive evidence that such Certificate shall have been duly
authenticated and delivered hereunder. All Certificates shall be dated the date
of their authentication. Upon issuance pursuant to the terms of this Agreement,
the Certificates will be entitled to the benefits of this Agreement.
SECTION 5.2 Execution, Authentication and Delivery of Certificates. In
exchange for the Contracts and the other assets of the Trust as of the Closing
Date, simultaneously with the sale, assignment and transfer to the Trustee of
the Contracts, the delivery to the Trustee of the Contract Documents, the
constructive delivery to the Trust of the Contract Files other than the Contract
Documents and the delivery to the Trustee of the other components of the Trust,
the Trustee shall deliver to, or upon the written order of, the Seller,
Certificates duly executed by the Trustee, on behalf of the Trust, and
authenticated by the Trustee in authorized denominations equaling in the
aggregate the Original Pool Balance, and evidencing the entire ownership of the
Trust.
SECTION 5.3 Registration of Transfer and Exchange of Certificates. The
Trustee shall cause to be kept at the office or agency to be maintained by a
transfer agent and certificate registrar (the "Transfer Agent" and "Certificate
Registrar") and maintain, pursuant to Section 5.7, a Certificate Register in
which, subject to such reasonable regulations as it may prescribe, the Trustee
shall provide for the registration of Certificates and of transfers and
exchanges of Certificates as herein provided. The Trustee shall be the initial
Transfer Agent and Certificate Registrar.
Subject to the other provisions of this Section, upon surrender for
registration or transfer of any Certificate at the Corporate Trust Office, the
Trustee shall execute on behalf of the Trust, authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Certificates
in authorized denominations of a like aggregate amount. At the option of a
Certificateholder, Certificates may be exchanged for other Certificates of
authorized denominations of a like aggregate amount at the Corporate Trust
Office.
Every Certificate presented or surrendered for registration of transfer
or exchange shall be accompanied by a written instrument of transfer in form
satisfactory to the Trustee and the Certificate Registrar duly executed by the
Holder. Each Certificate surrendered for registration of transfer and exchange
shall be canceled and subsequently destroyed by the Trustee.
No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Trustee may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates.
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SECTION 5.4 Mutilated, Destroyed, Lost or Stolen Certificates. If (i)
any mutilated Certificate shall be surrendered to the Certificate Registrar, or
if the Certificate Registrar shall receive evidence to its satisfaction of the
destruction, loss, or theft of any Certificate and (ii) there shall be delivered
to the Certificate Registrar or the Trustee such security or indemnity as may be
required by them to save each of them harmless, then in the absence of notice
that such Certificate shall have been acquired by a bona fide purchaser, the
Trustee on behalf of the Trust shall execute and the Trustee shall authenticate
and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost
or stolen Certificate, a new Certificate of like tenor and denomination. In
connection with the issuance of any new Certificate under this Section 5.4, the
Trustee and the Certificate Registrar may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection therewith. Any duplicate Certificate issued pursuant to this Section
5.4 shall constitute conclusive evidence of ownership in the Trust, as if
originally issued, whether or not the lost, stolen, or destroyed Certificate
shall be found at any time.
SECTION 5.5 Persons Deemed Owners. Prior to due presentation of a
Certificate for registration or transfer, the Trustee or the Certificate
Registrar may treat the Person in whose name any Certificate shall be registered
as the owner of such Certificate for the purpose of receiving distributions
pursuant to Section 4.3 and for all other purposes whatsoever, and neither the
Trustee nor the Certificate Registrar shall be bound by any notice to the
contrary.
SECTION 5.6 Access to List of Certificateholders' Names and Addresses.
The Trustee shall furnish or cause to be furnished to the Servicer, within 15
days after receipt by the Trustee of a request therefor from the Servicer in
writing, a list of the names and addresses of the Certificateholders as of the
most recent Record Date. If three or more Certificateholders, or one or more
Holders of Certificates evidencing in the aggregate not less than 25% of the
Pool Balance (hereinafter referred to as "applicants"), apply in writing to the
Trustee, and such application states that the applicants desire to communicate
with other Certificateholders with respect to their rights under this Agreement
or under the Certificates and such application shall be accompanied by a copy of
the communication that such applicants propose to transmit, then the Trustee
shall, within five Business Days after the receipt of such application, afford
such applicants access during normal business hours to the current list of
Certificateholders. Each Certificateholder, by receiving and holding a
Certificate, shall be deemed to have agreed to hold neither the Servicer nor the
Trustee accountable by reason of the disclosure of its name and address,
regardless of the source from which such information was derived.
SECTION 5.7 Maintenance of Office or Agency. The Trustee shall maintain
in the Borough of Manhattan, the City of New York, an office or offices or
agency or agencies where Certificates may be surrendered for registration of
transfer or exchange and where notices and demands to or upon the Trustee in
respect of the Certificates and this Agreement may be served. The Trustee
initially designated the Corporate Trust Office as specified in this Agreement
as its office for such purposes. The Trustee shall give prompt written notice to
the Servicer and to Certificateholders of any change in the location of the
Certificate Register or any such office or agency.
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SECTION 5.8 Book-Entry Certificates. The Certificates (other than a
Certificate representing any residual portion of the Original Pool Balance),
upon original issuance, shall be issued in the form of typewritten Certificates
representing the Book-Entry Certificates, to be delivered to The Depository
Trust Company, the initial Clearing Agency, by the Seller or on its behalf. The
Certificates shall initially be registered on the Certificate Register in the
name of Cede & Co., the nominee of the initial Clearing Agency, and no
Certificate Owner will receive a definitive certificate representing such
Certificate Owner's interest in the Certificates, except as provided in Section
5.10. Unless and until definitive, fully registered Certificates ("Definitive
Certificates") have been issued to Certificateholders pursuant to Section 5.10:
(i) the provisions of this Section 5.8 shall be in full force
and effect;
(ii) the Seller, the Servicer, the Paying Agent, the Transfer
Agent and Certificate Registrar and the Trustee may deal exclusively
with the Clearing Agency for all purposes (including the making of
distributions in respect of the Certificates and the taking of actions
by the Certificateholders) as the authorized representative of the
Clearing Agency Participants and the Certificate Owners;
(iii) to the extent that the provisions of this Section 5.8
conflict with any other provisions of this Agreement, the provisions of
this Section 5.8 shall control;
(iv) the rights of Certificate Owners shall be exercised only
through the Clearing Agency (or to the extent Certificate Owners are not
Clearing Agency Participants through the Clearing Agency Participants
through which such Certificate Owners own Book-Entry Certificates) and
shall be limited to those established by law and agreements between such
Certificate Owners and the Clearing Agency and/or the Clearing Agency
Participants and all references in this Agreement to actions by
Certificateholders shall refer to actions taken by the Clearing Agency
upon instructions from the Clearing Agency Participants, and all
references in this Agreement to distributions, notices, reports and
statements to Certificateholders shall refer to distributions, notices,
reports and statements to the Clearing Agency or its nominee, as
registered holder of the Certificates, as the case may be, for
distribution to Certificate Owners in accordance with the procedures of
the Clearing Agency; and
(v) pursuant to the Depository Agreement, the initial Clearing
Agency will make book-entry transfers among the Clearing Agency
Participants and receive and transmit distributions of principal and
interest on the Certificates to the Clearing Agency Participants, for
distribution by such Clearing Agency Participants to the Certificate
Owners or their nominees.
The Clearing Agency Participants shall have no rights under this
Agreement under or with respect to any of the Certificates held on their behalf
by the Clearing Agency, and the Clearing
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Agency may be treated by the Trustee, and its agents, employees, officers and
directors, as the absolute owner of the Certificates for all purposes
whatsoever.
SECTION 5.9 Notices to Clearing Agency. Whenever notice or other
communication to the Certificateholders is required under this Agreement, unless
and until Definitive Certificates shall have been issued to Certificate Owners
pursuant to Section 5.10, the Trustee and the Paying Agent shall give all such
notices and communications specified herein to be given by it to
Certificateholders to the Clearing Agency.
SECTION 5.10 Definitive Certificates. If (i)(A) the Seller advises the
Trustee in writing that the Clearing Agency is no longer willing or able to
discharge properly its responsibilities under the Depository Agreement, and (B)
the Trustee and the Seller are unable to locate a qualified successor or (ii)
after the occurrence of an Event of Default, Certificate Owners representing
beneficial interests aggregating more than 50% of the Pool Balance advise the
Clearing Agency and the Trustee (and the Clearing Agency shall notify the
Trustee in writing thereof) through the Clearing Agency Participants in writing
that the continuation of a book-entry system with respect to the Certificates
through a depository is no longer in the best interests of the Certificate
Owners, the Trustee shall notify the Clearing Agency of the occurrence of any
event described in clauses (i) and (ii) above and of the availability of
Definitive Certificates to Certificate Owners requesting the same. Upon
surrender to the Transfer Agent and Certificate Registrar by the Clearing Agency
of Certificates registered in the name of such Clearing Agency or its nominee,
accompanied by re-registration instructions from the Clearing Agency for
registration of the Definitive Certificates, the Trustee shall execute on behalf
of the Trust, authenticate and (if the Transfer Agent and Certificate Registrar
is different than the Trustee, then the Transfer Agent and Certificate Registrar
shall) deliver Definitive Certificates. The Servicer shall arrange for, and will
bear all costs of, the printing and issuance of such Definitive Certificates.
None of the Seller, the Servicer, the Transfer Agent and Certificate Registrar
or the Trustee shall be liable for any delay in delivery of such instructions
and may conclusively rely on, and shall be protected in relying on such
instruction. Upon the issuance of Definitive Certificates, all references herein
to obligations imposed upon or to be performed by the Clearing Agency shall be
deemed to be imposed upon and performed by the Transfer Agent and Certificate
Registrar, to the extent applicable with respect to such Definitive
Certificates, and the Trustee, the Paying Agent and the Transfer Agent and
Certificate Registrar shall recognize the Holders of the Definitive Certificates
as Certificateholders hereunder.
SECTION 5.11 Appointment of Paying Agent.
(a) The Paying Agent shall have the revocable power to withdraw funds
from the Distribution Account and make distributions to the Certificateholders.
The Trustee may revoke such power and remove the Paying Agent, if the Trustee
determines in its sole discretion that the Paying Agent shall have failed to
perform its obligations under this Agreement in any material respect or for
other good cause. The Paying Agent shall initially be Bankers Trust Company.
Bankers Trust Company shall be permitted to resign as Paying Agent upon 30 days'
written notice to the Servicer
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and the Trustee. In the event that Bankers Trust Company shall no longer be the
Paying Agent, the Trustee shall appoint a successor to act as Paying Agent,
which shall be a bank or trust company.
(b) The Trustee shall cause the Paying Agent (if other than itself) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee that such Paying Agent will hold all sums, if any,
held by it for payment to the Certificateholders or any other party entitled
thereto, and the Trustee in trust for the benefit of the Certificateholders or
such other party until such sums shall be paid to such Certificateholders or
such other party and shall agree that it shall comply with all requirements of
the Code regarding the withholding of payments in respect of federal income
taxes due from Certificate Owners.
(c) Bankers Trust Company in its capacity as initial Paying Agent
hereunder agrees that it (i) will hold all sums held by it hereunder for payment
to the Certificateholders or any other party entitled thereto, in trust for the
benefit of the Certificateholders or such other party until such sums shall be
paid to such Certificateholders or such other party and (ii) shall comply with
all requirements of the Code regarding the withholding of payments in respect of
federal income taxes due from Certificate Owners.
SECTION 5.12 Authenticating Agent.
(a) The Trustee may appoint one or more authenticating agents (each an
"Authenticating Agent") with respect to the Certificates which shall be
authorized to act on behalf of the Trustee in authenticating the Certificates in
connection with the issuance, delivery, registration of transfer, exchange or
repayment of the Certificates. Whenever reference is made in this Agreement to
the authentication of Certificates by the Trustee or the Trustee's certificate
of authentication, such reference shall be deemed to include authentication on
behalf of the Trustee by an authenticating agent and a certificate of
authentication executed on behalf of the Trustee by an authenticating agent. Any
authenticating agent appointed by the Trustee shall require the consent of the
Seller, which consent may not be unreasonably withheld.
(b) Any institution succeeding to the corporate agency business of an
authenticating agent shall continue to be an authenticating agent without the
execution or filing of any paper or any further act on the part of the Trustee
or such authenticating agent.
(c) An authenticating agent may at any time resign by giving written
notice of resignation to the Trustee and the Seller. The Trustee may at any time
terminate the agency of an authenticating agent by giving notice of termination
to such authenticating agent and to the Seller. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time an authenticating
agent shall cease to be acceptable to the Trustee or the Seller, the Trustee
promptly may appoint a successor authenticating agent with the consent of the
Seller. Any successor authenticating agent upon acceptance of its appointment
hereunder shall become vested with all the rights, powers and duties of its
predecessor hereunder, with like effect as if originally named as an
authenticating agent.
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Any successor authenticating agent appointed by the Trustee shall require the
consent of the Seller, which consent may not be unreasonably withheld.
(d) The Servicer shall pay the Authenticating Agent from time to time
reasonable compensation for its services under this Section 5.12.
(e) Pursuant to an appointment made under this Section 5.12, the
Certificates may have endorsed thereon, in lieu of the Trustee's certificate of
authentication, an alternate certificate of authentication in substantially the
following form:
This is one of the certificates referred to in the within mentioned
Agreement.
----------------------------------
,
as Trustee
By:
-------------------------------
Authorized Signatory
or
----------------------------------
as Authenticating Agent
for the Trustee,
By:
-------------------------------
Authorized Signatory
SECTION 5.13 Actions of Certificateholders. Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Agreement to be given or taken by Certificateholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Certificateholders in person or by an agent duly appointed in writing; and
except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee on
behalf of the Trust and, when required, to the Seller or the Servicer. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Agreement and conclusive in favor of the
Trustee, the Seller and the Servicer, if made in the manner provided in this
Section 5.13.
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ARTICLE VI
The Seller
SECTION 6.1 Liability of Seller; Indemnities. The Seller shall be liable
in accordance herewith only to the extent of the obligations specifically
undertaken by the Seller under this Agreement.
The Seller shall indemnify, defend, and hold harmless the Trustee and
its officers, directors, agents and employees and the Trust from and against any
taxes that may at any time be asserted against the Trustee or the Trust with
respect to, and as of the date of, the sale of the Contracts to the Trustee or
the issuance and original sale of the Certificates, including any sales, gross
receipts, general corporation, tangible personal property, privilege, or license
taxes (but not, in case of the Trust, including any taxes asserted with respect
to ownership of the Contracts or federal or other income taxes arising out of
the transactions contemplated by this Agreement) and costs and expenses in
defending against the same.
The Seller shall indemnify, defend, and hold harmless the Trustee and
its officers, directors, agents and employees from and against any loss,
liability or expense incurred by reason of the Seller's willful misfeasance, bad
faith, or negligence in the performance of its duties hereunder, or by reason of
reckless disregard of its obligations and duties hereunder.
The Seller shall indemnify, defend and hold harmless the Trustee and its
officers, directors, agents and employees and the Trust from and against all
costs, expenses, losses, claims, damages, and liabilities arising out of or
incurred in connection with the acceptance or performance of the trusts and
duties herein contained, except to the extent that such cost, expense, loss,
claim, damage or liability: (i) shall be due to the willful misfeasance, bad
faith, or negligence (except for errors in judgment) of the Trustee; (ii)
relates to any tax other than the taxes with respect to which either the Seller
or Servicer shall be required to indemnify the Trustee; (iii) shall arise from
the Trustee's breach of any of its representations or warranties set forth in
Section 9.14; or (iv) shall be one as to which the Servicer is required to
indemnify the Trustee.
Indemnification under this Section shall include, without limitation,
reasonable fees and expenses of counsel and expenses of litigation. If the
Seller shall have made any indemnity payments pursuant to this Section and the
recipient thereafter shall collect any of such amounts from others, the
recipient shall promptly repay such amounts to the Seller, without interest.
SECTION 6.2 Merger or Consolidation of, or Assumption of the Obligations
of, Seller. The Seller shall not consolidate with or merge into any other
corporation or convey, transfer or lease substantially all of its assets as an
entirety to any Person unless the corporation formed by such consolidation or
into which the Seller has merged or the Person which acquires by conveyance,
transfer or lease substantially all the assets of the Seller as an entirety, can
lawfully perform the obligations of the Seller hereunder and executes and
delivers to the Insurer and the Trustee an
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agreement in form and substance reasonably satisfactory to the Trustee and the
Insurer, which contains an assumption by such successor entity of the due and
punctual performance and observance of each covenant and condition to be
performed or observed by the Seller under this Agreement.
SECTION 6.3 Limitation on Liability of Seller and Others. The Seller and
any director or officer or employee or agent of the Seller may rely in good
faith on any document of any kind, prima facie properly executed and submitted
by any Person respecting any matters arising hereunder. The Seller shall not be
under any obligation to appear in, prosecute, or defend any legal action that
shall not be incidental to its obligations under this Agreement, and that in its
opinion may involve it in any expense or liability.
SECTION 6.4 Seller Not to Resign. Subject to the provisions of Section
6.2, the Seller shall not resign from the obligations and duties hereby imposed
on it as Seller under this Agreement.
SECTION 6.5 Seller May Own Certificates. The Seller and any Person
controlling, controlled by, or under common control with the Seller may in its
individual or any other capacity become the owner or pledgee of Certificates
with the same rights as it would have if it were not the Seller or an affiliate
thereof, except as otherwise provided in the definition of "Certificateholder"
specified in Section 1.1. Certificates so owned by or pledged to the Seller or
such controlling or commonly controlled Person shall have an equal and
proportionate benefit under the provisions of this Agreement, without
preference, priority, or distinction as among all of the Certificates.
ARTICLE VII
The Servicer
SECTION 7.1 Liability of Servicer; Indemnities. The Servicer shall be
liable in accordance herewith only to the extent of the obligations specifically
undertaken by the Servicer under this Agreement.
Such obligations shall include the following:
(a) the Servicer shall defend, indemnify, and hold harmless the Trustee
and its officers, directors, agents and employees, the Trust, the Insurer and
the Certificateholders from and against any and all costs, expenses, losses,
damages, claims, and liabilities, arising out of or resulting from the use or
operation by the Servicer or any Affiliate thereof of a Financed Vehicle;
(b) the Servicer shall indemnify, defend and hold harmless the Trustee
and its officers, directors, agents and employees, the Insurer and the Trust
from and against any taxes that may at any time be asserted against the Trustee
or the Trust with respect to the transactions contemplated herein, including,
without limitation, any sales, gross receipts, general corporation, tangible
personal property, privilege, or license taxes (but not including any taxes
asserted with respect to, and as of
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the date of, the sale of the Contracts to the Trustee or the issuance and
original sale of the Certificates, or asserted with respect to ownership of the
Contracts, or federal or other income taxes arising out of distributions on the
Certificates) and costs and expenses in defending against the same;
(c) the Servicer shall indemnify, defend and hold harmless the Trustee
and its officers, directors, agents and employees, the Trust, the Insurer and
the Certificateholders from and against any and all costs, expenses, losses,
claims, damages, and liabilities to the extent that such cost, expense, loss,
claim, damage, or liability arose out of, or was imposed upon the Trustee, the
Trust, or the Certificateholders through, the negligence, willful misfeasance,
or bad faith of the Servicer in the performance of its duties under this
Agreement; and
(d) the Servicer shall indemnify, defend, and hold harmless the Trustee
and the Insurer from and against all costs, expenses, losses, claims, damages,
and liabilities arising out of or incurred in connection with the acceptance or
performance of the trusts and duties herein contained, except to the extent that
such cost, expense, loss, claim, damage, or liability: (i) shall be due to the
willful misfeasance, bad faith, or negligence (except for errors in judgment) of
the Trustee or the Insurer; (ii) relates to any tax other than the taxes with
respect to which either the Seller or Servicer shall be required to indemnify
the Trustee; (iii) shall arise from the Trustee's breach of any of its
representations or warranties set forth in Section 9.14; or (iv) shall be one as
to which the Seller is required to indemnify the Trustee.
Indemnification under this Section shall include, without limitation,
reasonable fees and expenses of counsel and expenses of litigation. If the
Servicer shall have made any indemnity payments pursuant to this Section and the
recipient thereafter collects any of such amounts from others, the recipient
shall promptly repay such amounts to the Servicer, without interest.
SECTION 7.2 Corporate Existence; Status as Servicer; Merger.
(a) The Servicer shall keep in full effect its existence, rights and
franchises as a corporation incorporated under the laws of the State of
Delaware, and will obtain and preserve its qualification to do business as a
foreign corporation in each jurisdiction in which such qualification is or shall
be necessary to protect the validity and enforceability of the Contract
Documents and this Agreement.
(b) The Servicer shall not consolidate with or merge into any other
corporation or convey, transfer or lease substantially all of its assets as an
entirety to any Person or engage in any corporate transaction pursuant to which
the surviving or successor entity is not Onyx Acceptance Corporation, unless (i)
such entity is at least rated investment grade by the Rating Agencies, (ii) the
Insurer shall have consented thereto in writing and (iii) such entity executes
and delivers to the Trustee and the Insurer an agreement in form and substance
reasonably satisfactory to the Trustee and the Insurer, which contains an
assumption by such successor entity of the due and punctual performance and
observance of each covenant and condition to be performed or observed by the
Servicer under this Agreement.
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SECTION 7.3 Performance of Obligations.
(a) The Servicer shall punctually perform and observe all of its
obligations and agreements contained in this Agreement.
(b) The Servicer shall not take any action, or permit any action to be
taken by others, which would excuse any person from any of its covenants or
obligations under any of the Contract Documents or under any other instrument
included in the Trust Estate, or which would result in the amendment,
hypothecation, subordination, termination or discharge of, or impair the
validity or effectiveness of, any of the Contract Documents or any such
instrument, except as expressly provided herein and therein.
SECTION 7.4 The Servicer Not to Resign; Assignment.
(a) The Servicer shall not resign from the duties and obligations hereby
imposed on it except upon determination by its Board of Directors that by reason
of change in applicable legal requirements the continued performance by the
Servicer of its duties under this Agreement would cause it to be in violation of
such legal requirements in a manner which would result in a material adverse
effect on the Servicer or its financial condition, said determination to be
evidenced by a resolution of its Board of Directors to such effect accompanied
by an Opinion of Counsel, satisfactory to the Trustee, to such effect. No such
resignation shall become effective unless and until (i) the Trustee assumes all
of the Servicer's obligations under this Agreement or (ii) a new servicer
acceptable to the Trustee and the Insurer is willing to service the Contracts,
enters into a servicing agreement with the Trustee in form and substance
substantially similar to this Agreement and satisfactory to the Trustee and the
Insurer, and each Rating Agency confirms that the selection of such new servicer
will not result in the reduction or withdrawal of the rating of the Certificates
assigned to them by such Rating Agency. No such resignation by the Servicer
shall affect the obligation of the Servicer to repurchase any Contract pursuant
to Section 3.7.
(b) Except as specifically permitted hereunder, the Servicer may not
assign this Agreement or any of its rights, powers, duties or obligations
hereunder, provided that the Servicer may assign this Agreement in connection
with a consolidation, merger, conveyance, transfer or lease made in compliance
with Section 7.2(b).
(c) Except as provided in Sections 7.4(a) and (b), the duties and
obligations of the Servicer under this Agreement shall continue until this
Agreement shall have been terminated as provided in Section 10.1, and shall
survive the exercise by the Trustee or the Insurer of any right or remedy under
this Agreement, or the enforcement by the Trustee, any Certificateholder or the
Insurer of any provision of the Certificates, the Insurance Agreement or this
Agreement.
(d) The resignation of the Servicer in accordance with this Section 7.4
shall not affect the rights of the Seller hereunder.
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SECTION 7.5 Limitation on Liability of Servicer and Others. Neither the
Servicer nor any of the directors or officers or employees or agents of the
Servicer shall be under any liability to the Trust or the Certificateholders,
except as provided under this Agreement, for any action taken or for refraining
from the taking of any action pursuant to this Agreement or for errors in
judgment; provided, however, that this provision shall not protect the Servicer
or any such person against any liability that would otherwise be imposed by
reason of willful misfeasance, bad faith or negligence (except errors in
judgment) in the performance of duties or by reason of reckless disregard of
obligations and duties under this Agreement. The Servicer and any director or
officer or employee or agent of the Servicer may rely in good faith on any
document of any kind prima facie properly executed and submitted by any Person
respecting any matters arising under this Agreement.
Except as provided in this Agreement, the Servicer shall not be under
any obligation to appear in, prosecute, or defend any legal action that shall
not be incidental to its duties to service the Contracts in accordance with this
Agreement and that in its opinion may involve it in any expense or liability;
provided, however, that the Servicer may undertake any reasonable action that it
may deem necessary or desirable in respect of this Agreement and the rights and
duties of the parties to this Agreement and the interests of the
Certificateholders under this Agreement.
ARTICLE VIII
Default
SECTION 8.1 Events of Default. If any one of the following events
("Events of Default") shall occur and be continuing:
(a) any failure by the Servicer to deposit in or credit to the
Collection Account or the Payahead Account any amount required under this
Agreement to be so deposited or credited that shall continue unremedied for a
period of three Business Days after written notice from the Trustee or the
Insurer is received by the Servicer or discovery by an officer of the Servicer;
or
(b) the Insurer or the Trustee shall not have received a report in
accordance with Section 3.9 by the Servicer Report Date with respect to which
such report is due; or
(c) failure on the part of the Seller or the Servicer duly to observe or
to perform in any material respect any other covenants or agreements of the
Seller or the Servicer set forth in this Agreement, which failure shall (x)
materially and adversely affect the rights of Certificateholders, the Insurer or
the Trustee and (y) continue unremedied for a period of 30 days after the date
on which written notice of such failure, requiring the same to be remedied,
shall have been given (i) to the Seller or the Servicer, as the case may be, by
the Trustee or the Insurer, or (ii) to the Seller or the Servicer, as the case
may be, and to the Trustee by the Holders of Certificates evidencing in the
aggregate not less than 25% of the Pool Balance; or
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(d) the entry of a decree or order for relief by a court or regulatory
authority having jurisdiction in respect of the Servicer or the Seller in an
involuntary case under the federal bankruptcy laws, as now or hereafter in
effect, or another present or future, federal or state, bankruptcy, insolvency
or similar law, or appointing a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official of the Servicer or the Seller
or of any substantial part of its property, or ordering the winding up or
liquidation of the affairs of the Servicer or the Seller and the continuance of
any such decree or order unstayed and in effect for a period of 60 consecutive
days or the commencement of an involuntary case under the federal bankruptcy
laws, as now or hereinafter in effect, or another present or future federal or
state bankruptcy, insolvency or similar law and such case is not dismissed
within 60 days; or
(e) the commencement by the Servicer or the Seller of a voluntary case
under the federal bankruptcy laws, as now or hereafter in effect, or any other
present or future, federal or state, bankruptcy, insolvency or similar law, or
the consent by the Servicer to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Servicer or the Seller or of any substantial part of its
property or the making by the Servicer of an assignment for the benefit of
creditors or the failure by the Servicer or the Seller generally to pay its
debts as such debts become due or the taking of corporate action by the Servicer
or the Seller in furtherance of any of the foregoing;
(f) any change of control of the Servicer in violation of the covenant
set forth in Section 7.2 hereof;
(g) the Servicer shall have failed in the reasonable opinion of the
Insurer to service the Contracts in accordance with the Servicing Standards and
such failure shall have continued unremedied for 30 days after written notice of
such failure shall have been delivered to the Servicer by the Insurer; or
(h) any representation, warranty or statement of the Servicer or the
Seller made in this Agreement or any certificate, report or other writing
delivered pursuant hereto shall prove to be incorrect in any material respect as
of the time when the same shall have been made (excluding, however, any
representation or warranty to which Sections 2.2 or 3.6 shall be applicable so
long as the Servicer or the Seller shall be in compliance with Sections 2.3 or
3.7, as the case may be), and the incorrectness of such representation, warranty
or statement has a material adverse effect on the Trust or the Insurer and,
within 30 days after written notice thereof shall have been given to the
Servicer or the Seller by the Trustee or by the Holders of Certificates
evidencing in the aggregate at least 25% of the Pool Balance or by the Insurer,
the circumstance or condition in respect of which such representation, warranty
or statement was incorrect shall not have been eliminated or otherwise cured;
then and in each and every case, so long as an Event of Default shall not have
been remedied, either the Trustee, the Insurer or the Holders of Certificates
evidencing in the aggregate not less than 25% of the Pool Balance, by notice
then given in writing to the Servicer (and to the Trustee and the
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Insurer if given by the Certificateholders) may terminate all of the rights and
obligations of the Servicer under this Agreement. On or after the receipt by the
Servicer of such written notice, all authority and power of the Servicer under
this Agreement, whether with respect to the Certificates or the Contracts or
otherwise, shall pass to and be vested in the Trustee or, if a successor
servicer has been appointed pursuant to Section 8.2, such successor servicer;
and, without limitation, the Trustee is hereby authorized and empowered to
execute and deliver, on behalf of the Servicer, as attorney-in-fact or
otherwise, any and all documents and other instruments, and to do or accomplish
all other acts or things necessary or appropriate to effect the purposes of such
notice of termination, whether to complete the transfer and assignment of the
Contracts and related documents, to show the Trustee as a lienholder or secured
party on Title Documents or financing statements, or otherwise. The Servicer
shall cooperate with the Trustee in effecting the termination of the
responsibilities and rights of the Servicer under this Agreement, including the
transfer to the Trustee for administration by it of all cash amounts that (i)
shall at the time be held by the Servicer for deposit in, or shall have been
deposited by the Servicer in, the Collection Account or Payahead Account or (ii)
shall thereafter be received with respect to a Contract.
SECTION 8.2 Trustee to Act; Appointment of Successor. Upon the
Servicer's receipt of notice of termination pursuant to Section 8.1, or upon
resignation of the Servicer pursuant to Section 7.4, the Trustee shall be the
successor in all respects to the Servicer in its capacity as servicer under this
Agreement, and shall be subject to all the responsibilities, duties and
liabilities relating thereto placed on the Servicer by the terms and provisions
of this Agreement, except that the Trustee shall not be obligated to purchase
Contracts pursuant to Section 3.7. As compensation therefor, the Trustee shall
be entitled to such compensation (whether payable out of the Collection Account
or otherwise) as the Servicer would have been entitled to under this Agreement
if no such notice of termination shall have been given. Notwithstanding the
above, the Trustee may, if it shall be unwilling to act, or shall, if it shall
be legally unable so to act, appoint, or petition a court of competent
jurisdiction to appoint, any established financial institution acceptable to the
Insurer, having a net worth or not less than $50,000,000 and whose regular
business shall include the servicing of automotive retail installment sales
contracts, as the successor to the Servicer under this Agreement. Pending
appointment of any such successor Servicer, the Trustee shall act in such
capacity as provided above. In connection with such appointment, the Trustee may
make such arrangements for the compensation of the successor out of payments on
Contracts as it and such successor shall agree; provided, however, (i) that such
amount shall equal the product of a fixed percentage rate and the Scheduled
Balance, as of the commencement of each Collection Period, of each Contract and
(ii) that no such compensation shall be in excess of that previously permitted
the Servicer under this Agreement. The Trustee and such successor shall take
such action, consistent with this Agreement, as shall be necessary to effectuate
any such succession.
SECTION 8.3 Notification to Certificateholders. Upon any termination of,
or appointment of a successor to, the Servicer pursuant to this Article VIII,
the Trustee shall give prompt written notice thereof to Certificateholders at
their respective addresses appearing in the Certificate Register.
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SECTION 8.4 Waiver of Past Defaults. The Holders of Certificates
evidencing not less than 51% of the Pool Balance (not including Certificates
held by the Seller, the Servicer or any of their respective Affiliates), with
the written consent of the Insurer, may, on behalf of all Certificateholders,
waive any default by the Servicer in the performance of its obligations
hereunder and its consequences, except a default in the failure to make any
required deposits to or payments from the Collection Account in accordance with
this Agreement. Upon any such waiver of a past default, such default shall cease
to exist, and any Event of Default arising therefrom shall be deemed to have
been remedied for every purpose of this Agreement. No such waiver shall extend
to any subsequent or other default or impair any right consequent thereon except
to the extent expressly so waived. The Servicer shall give prompt written notice
of any waiver to each Rating Agency and the Trustee.
SECTION 8.5 Insurer Direction of Insolvency Proceedings. The Trustee,
upon the actual knowledge of a Responsible Officer of the Trustee, shall
promptly notify the Insurer of (i) the commencement of any of the events or
proceedings (individually, an "Insolvency Proceeding") described in Sections
8.1(d) or 8.1(e) hereof or any such event or proceeding applicable to an Obligor
under a Contract and (ii) the making of any claim in connection with any
Insolvency Proceeding seeking the avoidance as a preferential transfer (a
"Preference Claim") of any payment of principal of, or interest on, any Contract
or any Certificate. Each Certificateholder, by its purchase of Certificates, and
the Trustee hereby agree that, so long as neither a default under the Financial
Guarantee Insurance Policy nor an Insurer Insolvency has occurred and is
continuing, the Insurer may at any time during the continuation of an Insolvency
Proceeding direct all matters relating to such Insolvency Proceeding, including,
without limitation, (i) all matters relating to any Preference Claim, (ii) the
direction of any appeal of any order relating to any Preference Claim and (iii)
the posting of any surety or performance bond pending any such appeal. The
Insurer shall be subrogated to the rights of the Trustee and each
Certificateholder in the conduct of any Insolvency Proceeding, including,
without limitation, all rights of any party to an adversary proceeding action
with respect to any court order issued in connection with any such Insolvency
Proceeding.
ARTICLE IX
The Trustee
SECTION 9.1 No Power to Engage in Business or to Vary Investments.
Notwithstanding any provision or agreement to the contrary in this Agreement or
in any other agreement, the Trustee, acting on behalf of the Trust (but not
individually), shall not have any power to engage in any business, commercial or
other activity for profit, and, subject to Section 3.2, the Trustee and the
Servicer shall not have any power to vary the Trust Estate, whether consisting
of a Contract, an Eligible Investment or any other amount (other than cash
payments received with respect to Contracts) in any account maintained for the
benefit of the Trust or the Certificateholders or Certificate Owners, by
disposition of said property, investment or amount and the reinvestment of the
proceeds realized or by any other action calculated to take advantage of any
variation or change
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in the market or in market conditions, for the purpose of improving the
investment or return of the Certificateholders or Certificate Owners.
SECTION 9.2 Duties of Trustee. The Trustee, both prior to and after the
occurrence of an Event of Default, of which a Responsible Officer of the Trustee
has actual knowledge, shall undertake to perform such duties and only such
duties as are specifically set forth in this Agreement. If an Event of Default
shall have occurred and shall not have been cured, the Trustee shall exercise
such of the rights and powers vested in it by this Agreement, and shall use the
same degree of care and skill in its exercise as a prudent person would exercise
or use under the circumstance in the conduct of his own affairs.
The Trustee, upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to the
Trustee that shall be specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they comply
as to form to the requirements of this Agreement.
No provision of this Agreement shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act
(other than errors in judgment), or its own willful misconduct; provided,
however, that:
(a) prior to the occurrence of an Event of Default, and after the curing
of all such Events of Default that may have occurred, the duties and obligations
of the Trustee shall be terminated solely by the express provisions of this
Agreement, the Trustee shall not be liable except for the performance of such
duties and obligations as shall be specifically set forth in this Agreement, no
implied covenants or obligations shall be read into this Agreement against the
Trustee and, in the absence of bad faith on the part of the Trustee, the Trustee
may conclusively rely on the truth of the statements and the correctness of the
opinions expressed upon any certificates or opinions furnished to the Trustee
and conforming to the requirements of this Agreement;
(b) the Trustee shall not be liable for an error of judgment made in
good faith by a Responsible Officer or Responsible Officers of the Trustee,
unless it shall be proved that the Trustee shall have been negligent in
performing its duties in accordance with the terms of this Agreement; and
(c) the Trustee shall not be liable with respect to any action taken,
suffered, or omitted to be taken by it in good faith in accordance with the
written direction of the Insurer or Holders of Certificates evidencing in the
aggregate not less than 25% of the Pool Balance relating to the time, method,
and place of conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred upon the Trustee, under this
Agreement.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if there shall be
reasonable ground for believing that the repayment of such funds or
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adequate indemnity against such risk or liability is not reasonably assured to
it, and none of the provisions contained in this Agreement shall in any event
require the Trustee to perform, or be responsible for the manner of performance
of, any of the obligations of the Servicer under this Agreement unless the
Trustee is then acting as Servicer.
The Trustee shall not be charged with knowledge of an Event of Default
or a failure by the Servicer to comply with any of its obligations unless and
until such time as a Responsible Officer shall have actual knowledge or have
received written notice thereof from the Servicer, the Insurer or the Holders of
Certificates evidencing in the aggregate not less than 10% of the Pool Balance.
In the event the Trustee hereunder is also acting as successor Servicer,
the rights and protections afforded to the Trustee pursuant to this Article IX
shall also be afforded to such successor Servicer.
Except for actions expressly authorized by this Agreement or, based upon
an Opinion of Counsel, in the best interests of Certificateholders, the Trustee
shall take no action reasonably likely to impair the security interest of the
Trust in any Contract or to impair the value of any Contract.
The Trustee shall not be liable for the selection of Eligible
Investments or for any investment losses resulting from Eligible Investments,
nor shall the Trustee be liable for the actions or omissions of any depository
institution maintaining the Accounts.
The Trustee shall have no duty to monitor the performance of the
Servicer, nor shall it have any liability in connection with the malfeasance or
nonfeasance by the Servicer. The Trustee shall have no liability in connection
with compliance of the Servicer or the Seller with statutory or regulatory
requirements related to the Contracts. The Trustee shall not make or be deemed
to have made any representations or warranties with respect to the Contracts or
the validity or sufficiency of any assignment of the Contracts to the Trust or
the Trustee.
All information obtained by the Trustee regarding the Obligors and the
Contracts, whether upon the exercise of its rights under this Agreement or
otherwise, shall be maintained by the Trustee in confidence, provided, however,
that the foregoing shall not be construed to prohibit (i) disclosure of any and
all information that is or becomes publicly known, or information obtained by
the Trustee from sources other than the Seller, Insurer, any Obligor or the
Servicer, (ii) disclosure of any and all information (A) if required to do so by
any applicable statute, law, rule or regulation, (B) to any government agency or
regulatory or self-regulatory body having or claiming authority to regulate or
oversee any aspects of the Trustee's business or that of its Affiliates, (C)
pursuant to any subpoena, civil investigative demand or similar demand or
request of any court, regulatory authority, arbitrator or arbitration to which
the Trustee or an Affiliate or an officer, director, employer or shareholder
thereof is a party, (D) in any preliminary or final offering circular,
registration statement or contract or other document pertaining to the
transactions contemplated by this Agreement approved in advance by the Seller or
(E) to any Affiliate, independent or internal auditor, agent, employee or
attorney of the Trustee having a need to know the same, provided that the
Trustee advises such
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recipient of the confidential nature of the information being disclosed, (iii)
any other disclosure authorized by the Seller or the Servicer or (iv) disclosure
to the other parties to the transactions contemplated by this Agreement.
In the event that the Paying Agent or the Transfer Agent and Certificate
Registrar shall fail to perform any obligation, duty or agreement in the manner
or on the day required to be performed by the Paying Agent or the Transfer Agent
and Certificate Registrar, as the case may be, under this Agreement, the Trustee
shall be obligated promptly upon a Responsible Officer obtaining actual
knowledge thereof to perform such obligation, duty or agreement in the manner so
required to the extent the information necessary to such performance is
reasonably available to the Trustee after the Trustee has made a reasonable
effort to obtain such information. The Trustee shall not be liable for the acts
or omissions of any Paying Agent, any Authenticating Agent or the Transfer Agent
and Certificate Registrar appointed hereunder with due care by the Trustee
hereunder.
SECTION 9.3 Trustee's Assignment of Purchased Contracts. With respect to
all Contracts repurchased by the Seller pursuant to Section 2.3 or purchased by
the Servicer pursuant to Sections 3.7 or 10.2, the Trustee on behalf of the
Trust shall assign, without recourse, representation, or warranty to the Seller
or the Servicer, as the case may be, all the Trust's right, title, and interest
in and to such Contract, and all security and documents relating thereto. The
preparation of documents necessary to consummate such an assignment shall be the
responsibility of the Seller or the Servicer, as the case may be, and not the
responsibility of the Trustee. If in any enforcement suit or legal proceeding it
shall be held that the Servicer may not enforce a Contract on the ground that it
shall not be a real party in interest or a holder entitled to enforce the
Contract, the Trustee shall, at the Servicer's expense, take such steps as
directed in writing by the Servicer to enforce the Contract, including bringing
suit in the Trustee's name or the names of the Certificateholders, provided that
nothing in this Section 9.3 shall require the Trustee to qualify to do business
in a state in which it is not so qualified on the date of this Agreement.
SECTION 9.4 Certain Matters Affecting the Trustee. Except as otherwise
provided in Section 9.1:
(a) the Trustee may conclusively rely and shall be fully protected in
acting or refraining from acting upon any resolution, Officer's Certificate,
certificate of auditors or any other certificate, statement, instrument,
opinion, report, notice, request, consent, order, appraisal, bond, note or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) the Trustee may consult with counsel and any Opinion of Counsel or
any advice of counsel shall be full and complete authorization and protection in
respect of any action taken or suffered or omitted by it under this Agreement in
good faith and in accordance with such Opinion of Counsel or advice. A copy of
any such Opinion of Counsel shall be provided to the Seller, the Servicer and
the Insurer;
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(c) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Agreement, or to institute, conduct or
defend any litigation under this Agreement or in relation to this Agreement, at
the request, order or direction of any of the Certificateholders pursuant to the
provisions of this Agreement, unless such Certificateholders shall have offered
to the Trustee reasonable security or indemnity against the cost, expenses, and
liabilities that may be incurred therein or thereby. Nothing contained in this
Agreement, however, shall relieve the Trustee of the obligations, upon the
occurrence of an Event of Default (that shall not have been cured), to exercise
such of the rights and powers vested in it by this Agreement, and to use the
same degree of care and skill in their exercise as a prudent person would
exercise or use under the circumstances in the conduct of his own affairs;
provided that the Trustee shall not be deemed to have knowledge of the
occurrence of an Event of Default unless and until such knowledge shall be (i)
actual knowledge of a Responsible Officer or (ii) received in writing by a
Responsible Officer;
(d) the Trustee shall not be personally liable for any action taken,
suffered or omitted by it in good faith and believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this Agreement;
(e) prior to the occurrence of an Event of Default and after the curing
of all Events of Default that may have occurred, the Trustee shall not be bound
to make any investigation into the facts of matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
direction, order, approval, bond, note or other paper or document, unless
requested in writing to do so by the Insurer or Holders of Certificates
evidencing in the aggregate not less than 25% of the Pool Balance; provided,
however, that if the payment within a reasonable time to the Trustee of the
costs, expenses, or liabilities likely to be incurred by it in the making of
such investigation shall be, in the opinion of the Trustee, not reasonably
assured to the Trustee by the security afforded to it by the terms of this
Agreement, the Trustee may require reasonable indemnity against such cost,
expense, or liability as a condition to so proceeding. The reasonable expense of
any and every such examination shall be paid by the Seller or, if paid by the
Trustee, shall be reimbursed by the Seller upon demand. Nothing in this clause
(e) shall affect the obligation of the Seller to observe any applicable law
prohibiting disclosure of information regarding the Obligors; provided the
Trustee shall be entitled to make such further inquiry or investigation into
such facts or matters as it may reasonably see fit, and if the Trustee shall
determine to make such further inquiry or investigation, it shall be entitled to
examine the books and records of the Seller, personally or by agent or attorney,
at the sole cost and expense of the Seller;
(f) the Trustee may execute any of the trust powers hereunder or perform
any duties under this Agreement either directly or by or through agents or
attorneys or a custodian or nominee and the Trustee shall not be responsible for
any misconduct or negligence on the part of, or for the supervision of any such
agent, attorney, custodian or nominee appointed with due care by it hereunder;
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(g) except as set forth herein, the Trustee shall not be required to
make any initial or periodic examination of any documents or records related to
the Contracts for the purpose of establishing the presence or absence of
defects, the compliance by the Seller with its representations and warranties or
for any other purpose; and
(h) in the event that the Trustee is also acting as Custodian, Paying
Agent or Transfer Agent and Certificate Registrar hereunder, the rights and
protections afforded to the Trustee pursuant to this Article IX shall also be
afforded to such Custodian, Paying Agent, Transfer Agent and Certificate
Registrar.
SECTION 9.5 Trustee Not Liable for Certificates or Contracts. The
Trustee shall make no representations as to the validity or sufficiency of this
Agreement or of the Certificates (other than its execution of Certificates on
behalf of the Trust and the certificate of authentication on the Certificates)
or of any Contract or related document. The Trustee shall at no time have any
responsibility or liability for or with respect to the legality, validity, and
enforceability of any security interest in any Financed Vehicle or any Contract,
or the perfection and priority of such a security interest or the maintenance of
any such perfection and priority, or for or with respect to the efficacy of the
Trust or its ability to generate the payments to be distributed to
Certificateholders under this Agreement, including: the existence, condition,
location, and ownership of any Financed Vehicle; the existence and
enforceability of any insurance policy thereon; the existence and contents of
any Contract or any computer or other record thereof; the validity of the
assignment of any Contract to the Trust or of any intervening assignment; the
completeness of any Contract; the performance or enforcement of any Contract;
the compliance by the Seller with any warranty or representation made under this
Agreement or in any related document and the accuracy of any such warranty or
representation prior to the Trustee's receipt of written notice of any
noncompliance therewith or any breach thereof; any investment of monies by the
Servicer or any loss resulting therefrom (it being understood that the Trustee
shall remain responsible for any Trust property that it may hold); the acts or
omissions of the Seller or any Obligor; an action of the Servicer taken in the
name of the Trustee; or any action by the Trustee taken at the instruction of
the Servicer; provided, however, that the foregoing shall not relieve the
Trustee of its obligation to perform its duties under this Agreement. Except
with respect to a claim based on the failure of the Trustee to perform its
duties under this Agreement or based on the Trustee's negligence or willful
misconduct in the performance of its duties hereunder, no recourse shall be had
for any claim based on any provision of this Agreement, the Certificates, or any
Contract or assignment thereof against the Trustee in its individual capacity.
The Trustee shall not have any personal obligation, liability, or duty
whatsoever to any Certificateholder or any other Person with respect to any such
claim, and any such claim shall be asserted solely against the Trust or any
indemnitor who shall furnish indemnity as provided in this Agreement. The
Trustee shall not be accountable for the use or application by the Seller of any
of the Certificates or of the proceeds of such Certificates, or for the use or
application of any funds paid to the Seller in respect of the Contracts.
SECTION 9.6 Trustee May Own Certificates. The Trustee in its individual
or any other capacity, and any of its Affiliates, may become the owner or
pledgee of Certificates with the same
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rights as it would have if it were not Trustee, subject to the definition of the
term "Certificateholder" in Section 1.1.
SECTION 9.7 Trustee's Fees and Expenses. The Servicer shall covenant and
agree to pay to the Trustee, and the Trustee shall be entitled to, reasonable
compensation (which shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust) for all services rendered by
it in the execution of the trusts created by this Agreement and in the exercise
and performance of any of the powers and duties under this Agreement of the
Trustee. Other than as included in the Trustee's compensation, the Servicer
shall pay or reimburse the Trustee upon its request for all reasonable expenses
(including, without limitation, expenses incurred in connection with notices or
other communications to Certificateholders), disbursements, and advances
(including the reasonable compensation and the expenses and disbursements of its
counsel and of all persons not regularly in its employ) incurred or made by the
Trustee in accordance with this Agreement or in defense of any action brought
against it in connection with this Agreement except any such expense,
disbursement, or advance as may arise from its negligence (other than errors in
judgment) or bad faith or that is the responsibility of Certificateholders under
this Agreement. Additionally, the Seller, pursuant to Section 6.1, and the
Servicer, pursuant to Section 7.1, respectively, shall have agreed to indemnify
the Trustee with respect to certain matters, and certain Certificateholders,
pursuant to Section 9.4, shall have agreed to indemnify the Trustee under
certain circumstances. Notwithstanding the failure of the Servicer to perform
any of its obligations under this Section, the Trustee shall continue to perform
its obligations under this Agreement. The Servicer's covenant to pay the
expenses, disbursements and advances provided for above shall survive the
termination of this Agreement.
SECTION 9.8 Indemnity of Trustee. The Trustee and its officers,
directors, agents and employees, shall be indemnified by the Servicer and held
harmless against any loss, liability, or expense (other than any amount owing
pursuant to Section 9.7) arising out of or incurred in connection with the
acceptance or performance of the trusts and duties contained in this Agreement
including the costs and expenses of defending against any claim or liability in
connection with the exercise or performance of any of its powers and duties
hereunder to the extent that (i) the Trustee shall not have been indemnified for
such loss, liability, or expense by the Seller pursuant to Section 6.1, the
Servicer pursuant to Section 7.1, or the Certificateholders pursuant to Section
9.4; (ii) such loss, liability, or expense shall not have been incurred by
reason of the Trustee's willful misfeasance, bad faith, or negligence (except
for errors in judgment); and (iii) such loss, liability, or expense shall not
have been incurred by reason of the Trustee's breach of its representations and
warranties pursuant to Section 9.14.
SECTION 9.9 Eligibility Requirements for Trustee. The Trustee under this
Agreement shall at all times be a depository institution or trust company
organized and doing business under the laws of any state or the United States of
America; authorized under such laws to exercise corporate trust powers; and
having a combined capital and surplus of at least $50,000,000 and subject to
supervision or examination by federal or state authorities. If such depository
institution or trust company shall publish reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid
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supervising or examining authority, then for the purpose of this Section 9.9,
the combined capital and surplus of such depository institution or trust company
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. In case at any time the Trustee shall
cease to be eligible in accordance with the provisions of this Section 9.9, the
Trustee shall resign immediately in the manner and with the effect specified in
Section 9.10.
SECTION 9.10 Resignation or Removal of Trustee. The Trustee may at any
time resign and be discharged from the trusts hereby created by giving written
notice thereof to the Servicer. Upon receiving such notice of resignation, the
Servicer shall promptly appoint a successor Trustee acceptable to the Insurer by
written instrument, in duplicate, one copy of which instrument shall be
delivered to the resigning Trustee and one copy to the successor Trustee. If no
successor Trustee shall have been so appointed and have accepted appointment
within 30 days after the giving of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for the appointment of
a successor Trustee.
If at any time the Trustee shall cease to be eligible in accordance with
the provisions of Section 9.9 and shall fail to resign after written request
therefor by the Servicer with the written consent of the Insurer, or if at any
time the Trustee shall be legally unable to act, or shall be adjudged a bankrupt
or insolvent, or a receiver of the Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation, conservation, or
liquidation, then the Servicer may, with the written consent of the Insurer,
remove the Trustee. If it shall remove the Trustee under the authority of the
immediately preceding sentence, the Servicer shall promptly appoint a successor
Trustee acceptable to the Insurer by written instrument, in duplicate, one copy
of which instrument shall be delivered to the Trustee so removed and one copy to
the successor Trustee.
If the Trustee is acting as Custodian, any resignation or removal of the
Trustee will result in the automatic termination of the Trustee's duties as
Custodian effective concurrently with such resignation or removal. Upon such
termination or removal, the Trustee shall, upon the request of the Servicer,
deliver the Contract Documents to the facilities of the successor Trustee.
Any resignation or removal of the Trustee and appointment of a successor
Trustee pursuant to any of the provisions of this Section 9.10 shall not become
effective until acceptance of appointment by the successor Trustee pursuant to
Section 9.11.
SECTION 9.11 Successor Trustee. Any successor Trustee appointed pursuant
to Section 9.10 shall execute, acknowledge, and deliver to the Servicer and to
its predecessor Trustee an instrument accepting such appointment under this
Agreement, and thereupon the resignation or removal of the predecessor Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become fully vested with all the rights, powers, duties,
and obligations of its predecessor under this Agreement, with like effect as if
originally named as Trustee. The predecessor Trustee shall deliver to the
successor Trustee all documents and statements held by it under this Agreement,
or copies thereof, at the expense of the Servicer; and the Servicer
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and the predecessor Trustee shall execute and deliver such instruments and do
such other things as may reasonably be required for fully and certainly vesting
and confirming in the successor Trustee all such rights, powers, duties and
obligations.
No successor Trustee shall accept appointment as provided in this
Section 9.11 unless at the time of such acceptance such successor Trustee shall
be eligible pursuant to Section 9.9.
Upon acceptance of appointment by a successor Trustee pursuant to this
Section 9.11, the Servicer shall mail notice of the successor of such Trustee
under this Agreement to all Holders of Certificates at their addresses as shown
in the Certificate Register. If the Servicer shall fail to mail such notice
within 10 days after acceptance of appointment by the successor Trustee, the
successor Trustee shall cause such notice to be mailed at the expense of the
Servicer.
The respective obligations of the Seller and the Servicer described in
Sections 2.7, 3.14, 6.1, 7.1, 9.5, 9.7 and 9.8 shall survive the removal or
resignation of the Trustee as provided in this Agreement or the termination of
the Trust as provided in Section 10.1.
No Trustee under this Agreement shall be liable for any action or
omission of any successor Trustee.
SECTION 9.12 Merger or Consolidation of Trustee. Any corporation into
which the Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation
resulting from any merger, conversion or consolidation to which the Trustee
shall be a party, or any corporation succeeding to the business of the Trustee,
shall be the successor of the Trustee hereunder, provided such corporation shall
be eligible pursuant to Section 9.9, without the execution or filing of any
instrument or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding.
SECTION 9.13 Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust or any Financed Vehicle may at the time be located, the Servicer
and the Trustee acting jointly shall have the power and shall execute and
deliver all instruments to appoint one or more Persons approved by the Trustee
to act as co-trustee, jointly with the Trustee, or separate trustee or separate
trustees, of all or any part of the Trust, and to vest in such Person, in such
capacity and for the benefit of the Certificateholders, such title to the Trust,
or any part thereof, and, subject to the other provisions of this Section 9.13,
such powers, duties, obligations, rights, and trusts as the Servicer and the
Trustee may consider necessary or desirable. If the Servicer shall not have
joined in such appointment within 15 days after the receipt by it of a written
request so to do, or in case an Event of Default shall have occurred and be
continuing, the Trustee alone shall have the power to make such appointment. No
co-trustee or separate trustee under this Agreement shall be required to meet
the terms of eligibility as a successor trustee pursuant
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to Section 9.9 and no notice to Certificateholders of the appointment of any
co-trustee or separate trustee shall be required pursuant to Section 9.11.
Each and every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or
co-trustee jointly (it being understood that such separate trustee or
co-trustee is not authorized to act separately without the Trustee in
joining in such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed
(whether as Trustee under this Agreement or as successor to the Servicer
under this Agreement), the Trustee shall be incompetent or unqualified
to perform such act or acts, in which event such rights, powers, duties,
and obligations (including the holding of title to the Trust or any
portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate trustee or co-trustee, but solely at
the direction of the Trustee;
(ii) no trustee under this Agreement shall be personally liable
by reason of any act or omission of any other trustee under this
Agreement; and
(iii) the Servicer and the Trustee acting jointly, or the Trustee
acting alone may at any time accept the resignation of or remove any
separate trustee or co-trustee.
Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article IX. Each separate trustee and co-trustee, upon its acceptance of
the trusts conferred, shall be vested with the estates or property specified in
its instrument of appointment, either jointly with the Trustee or separately, as
may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Each
such instrument shall be filed with the Trustee and a copy thereof given to the
Servicer.
Any separate trustee or co-trustee may at any time appoint the Trustee,
its agent or attorney-in-fact with full power and authority, to the extent not
prohibited by law, to do any lawful act under or in respect of this Agreement on
its behalf and in its name. No such appointment shall affect the obligations of
the Trustee hereunder. If any separate trustee or co-trustee shall die, become
incapable of acting, resign or be removed, all of its estates, properties,
rights, remedies and trusts shall vest in and be exercised by the Trustee, to
the extent permitted by law, without the appointment of a new or successor
trustee.
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SECTION 9.14 Representations and Warranties of Trustee. The Trustee
hereby makes the following representations and warranties on which the Seller
and Certificateholders shall rely:
(a) the Trustee is a New York banking corporation duly organized,
validly existing, and in good standing under the laws of New York;
(b) the Trustee has full power, authority and legal right to execute,
deliver, and perform this Agreement, and has taken all necessary action to
authorize the execution, delivery, and performance by it of this Agreement;
(c) the execution and delivery of this Agreement and the performance by
the Trustee of its obligations under this Agreement does not violate any
provision of the Articles of Association or Bylaws of the Trustee; and
(d) this Agreement has been duly authorized, executed and delivered by
the Trustee and shall constitute the legal, valid, and binding agreement of the
Trustee, enforceable in accordance with its terms except that (i) such
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or similar laws now or hereafter in effect relating to creditors' rights
generally and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to certain equitable defenses and to
the discretion of the court before which any proceeding thereof may be brought.
SECTION 9.15 Tax Returns. The Servicer shall prepare or shall cause to
be prepared any tax returns required to be filed by the Trust and furnish to
Certificateholders all information required by the Code or the regulations
thereunder and shall remit such returns to the Trustee for signature at least
five days before such returns are due to be filed. The Trustee, upon request,
will furnish the Servicer with all such information known to the Trustee as may
be reasonably required in connection with the preparation of all tax returns of
the Trust, and shall, upon request, execute such returns. In no event shall the
Trustee in its individual capacity be liable for any liabilities, costs or
expenses of the Trust, the Certificateholders, the Seller or the Servicer
arising under any tax law or regulation, including, without limitation, federal,
state or local income or excise taxes or any other tax imposed on or measured by
income (or any interest or penalty with respect thereto or arising from any
failure to comply therewith).
SECTION 9.16 Trustee May Enforce Claims Without Possession of
Certificates. All rights of action and claims under this Agreement or the
Certificates may be prosecuted and enforced by the Trustee without the
possession of any of the Certificates or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name or in its capacity as Trustee. Any recovery of
judgment shall, after provision for the payment of the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, be
for the ratable benefit of the Certificateholders in respect of which such
judgment has been recovered.
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SECTION 9.17 Suits for Enforcement. In case an Event of Default or other
default by the Servicer or the Seller hereunder shall occur and be continuing,
the Trustee, in its discretion, may proceed to protect and enforce its rights
and the rights of the Certificateholders under this Agreement by a suit, action
or proceeding in equity or at law or otherwise whether for the specific
performance of any covenant or agreement contained in this Agreement or in aid
of the execution of any power granted in this Agreement or the enforcement of
any other legal, equitable or other remedy, as the Trustee, being advised by
counsel, shall deem most effectual to protect and enforce any of the rights of
the Trustee or the Certificateholders.
SECTION 9.18 Maintenance of Office or Agency. The Trustee shall maintain
at its expense in New York, New York, an office or offices or agency or agencies
where notices and demands to or upon the Trustee in respect of the Certificates
and this Agreement may be served. The Trustee initially designates the Corporate
Trust Office as its office for such purposes. The Trustee will give prompt
written notice to the Servicer, the Paying Agent, the Transfer Agent and
Certificate Registrar, the Insurer and to Certificateholders of any change in
the location of such office or agency.
ARTICLE X
Termination
SECTION 10.1 Termination of the Trust. The respective obligations and
responsibilities of the Seller, the Servicer and the Trustee created hereby and
the Trust created by this Agreement shall terminate upon the earlier of (i) the
maturity or other liquidation of the last Contract and the disposition of any
amounts received upon liquidation of any remaining Contracts in the Trust
(including the purchase of the Contracts by the Servicer pursuant to Section
10.2) and (ii) (a) the payment to Certificateholders of all amounts required to
be paid to them pursuant to this Agreement and the disposition of all property
held as part of the Trust, (b) termination of the Financial Guarantee Insurance
Policy in accordance with its terms and surrender of the Financial Guarantee
Insurance Policy to the Insurer for cancellation, (c) the payment of all amounts
owed to the Trustee under this Agreement and (d) the payment of all amounts owed
to the Insurer under the Insurance Agreement; provided, however, that in no
event shall the trust created by this Agreement continue beyond the expiration
of 21 years from the death of the survivor of the descendants, living on the
date of this Agreement, of Joseph P. Kennedy, formerly United States
representative at the Court of St. James. The Servicer shall promptly notify the
Trustee and the Insurer of any prospective termination pursuant to this Section
10.1.
Notice of any termination, specifying the Distribution Date upon which
the Certificateholders may surrender their Certificates to the Trustee for
payment of the final distribution and cancellation, shall be given promptly by
the Trustee by letter to Certificateholders mailed not later than the 10th day
prior to the specified Distribution Date and not earlier than the 15th day of
the month prior to the month of the specified Distribution Date stating the
amount of any such final payment, and that
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the Record Date otherwise applicable to such Distribution Date is not
applicable, payments being made only upon presentation and surrender of the
Certificates at the office or agency of the Trustee therein specified. The
Trustee shall give such notice to the Certificate Registrar at the time such
notice is given to Certificateholders. Upon presentation and surrender of the
Certificates, the Trustee shall cause to be distributed to Certificateholders
amounts distributable on such Distribution Date pursuant to Section 4.3.
In the event that all of the Certificateholders shall not surrender
their Certificates for cancellation within six months after the date specified
in the above-mentioned written notice, the Servicer shall give a second written
notice to the remaining Certificateholders to surrender their Certificates for
cancellation and receive the final distribution with respect thereto. If within
one year after the second notice all the Certificates shall not have been
surrendered for cancellation, the Servicer may take appropriate steps, or may
appoint an agent to take appropriate steps, to contact the remaining
Certificateholders concerning surrender of their Certificates, and the cost
thereof shall be paid out of the funds and other assets that shall remain
subject to this Agreement. Any funds remaining in the Trust after exhaustion of
such remedies and after all payments to be made to the Trustee and the Insurer
shall be distributed by the Trustee to a charity designated by the Servicer.
Notwithstanding any provision to the contrary, the Trustee shall retain
all of its rights and powers and obligations and duties under Section 8.5 in the
event of any Insolvency Proceeding and the Trustee shall be entitled to all the
protections, rights and immunities provided in Article IX in connection with any
such Insolvency Proceeding.
SECTION 10.2 Optional Purchase of All Contracts. On each Distribution
Date as of which the Pool Factor (after giving effect to the Principal
Distribution otherwise to be made on such Distribution Date) shall be less than
.100000, the Servicer shall have the option to purchase the corpus of the Trust
at a price equal to the Repurchase Amount plus all amounts due and owing to the
Insurer under the Insurance Agreement. To exercise such option, the Servicer
shall pay to the Trustee by deposit into the Collection Account: (1) for the
benefit of the Certificateholders, the Repurchase Amount of all Contracts that
were Outstanding at the beginning of the Collection Period ending immediately
prior to such Distribution Date, and (2) for the benefit of the Insurer, all
amounts due and owing to the Insurer pursuant to the Insurance Agreement. Such
purchase shall be deemed to have occurred on the last day of such Collection
Period.
ARTICLE XI
Miscellaneous Provisions
SECTION 11.1 Amendment. This Agreement may be amended by the Seller, the
Servicer and the Trustee, collectively with the prior written consent of the
Insurer, but without the consent of any of the Certificateholders, to cure any
ambiguity, to correct or supplement any provisions in this Agreement, or to add
any other provisions with respect to matters or questions arising under this
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Agreement that shall not be inconsistent with the provisions of this Agreement;
provided, however, that such action shall not materially and adversely affect
the interests of any Certificateholder; provided further, however, that any such
amendment shall not be deemed to materially and adversely affect the interests
of any Certificateholder if the Person requesting the 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 Certificates by
such Rating Agency without regard to the Financial Guarantee Insurance Policy.
This Agreement may also be amended from time to time by the Seller, the
Servicer and the Trustee with the consent of the Holders of Certificates
evidencing in the aggregate not less than 51% of the Pool Balance, and the
Insurer, for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of this Agreement, or of modifying in any
manner the rights of the Holders of Certificates; provided, however, that no
such amendment shall (i) increase or reduce in any manner the amount of, or
accelerate or delay the timing of, collections of payments on Contracts or
distributions that shall be required to be made on any Certificate or (ii)
reduce the aforesaid percentage required to consent to any such amendment,
without the consent of the Holders of all Certificates then outstanding.
Promptly after the execution of any such amendment or consent pursuant
to the next preceding paragraph, the Trustee shall furnish written notification
of the substance of such amendment or consent to each Certificateholder.
It shall not be necessary for the consent of Certificateholders pursuant
to this Section 11.1 to approve the particular form of any proposed amendment or
consent, but it shall be sufficient if such consent shall approve the substance
thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Certificateholders shall be subject to
such reasonable requirements as the Trustee may prescribe. Any consent by the
Holder of a Certificate to an amendment of the Agreement shall be conclusive and
binding on such Holder and upon all future Holders of such Certificate and of
any Certificate issued upon the transfer thereof or in exchange thereof or in
lieu thereof whether or not notation of such consent is made upon such
Certificate.
The Trustee may, but shall not be obligated to, enter into any such
amendment which affects the Trustee's own rights, duties or immunities under
this Agreement or otherwise and any such amendment shall be unenforceable in its
entirety absent the execution of such amendment by the Trustee.
SECTION 11.2 Protection of Title to Trust.
(a) The Servicer shall execute and file such financing statements and
cause to be executed and filed such continuation statements, all in such manner
and in such places as may be required by law fully to preserve, maintain, and
protect the interest of the Certificateholders, the Insurer and the Trustee
under this Agreement in the Contracts and in the proceeds thereof. The
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Servicer shall deliver (or cause to be delivered) to the Trustee file-stamped
copies of, or filing receipts for, any document filed as provided above, as soon
as available following such filing.
(b) Neither the Seller nor the Servicer shall change its name, identity,
or corporate structure in any manner that would, could or might make any
financing statement or continuation statement filed by the Servicer in
accordance with paragraph (a) above seriously misleading within the meaning of
Section 9-402(7) of the UCC, unless it shall have given the Trustee and the
Insurer at least 60 days' prior written notice thereof.
(c) The Seller and the Servicer shall give the Trustee and the Insurer
at least 60 days' prior written notice of any relocation of the principal
executive office of the Seller and the Servicer if, as a result of such
relocation, the applicable provisions of the UCC would require the filing of any
amendment of any previously filed financing or continuation statement or of any
new financing statement. The Servicer shall at all times maintain each office
from which it shall service Contracts, and its principal executive office,
within the United States of America.
(d) The Servicer shall maintain or cause to be maintained accounts and
records as to each Contract accurately and in sufficient detail to permit (i)
the reader thereof to know at any time the status of such Contract, including
payments and recoveries made and payments owing (and the nature of each) and
(ii) reconciliation between payments or recoveries on (or with respect to) each
Contract and the amounts from time to time deposited in or credited to the
Certificate Account and Payahead Account in respect of such Contract.
(e) The Servicer shall maintain or cause to be maintained its computer
systems so that, from and after the time of sale under this Agreement of the
Contracts to the Trust, the Servicer's master computer records (including any
back-up archives) that shall refer to a Contract indicate clearly that such
Contract is owned by the Trustee as trustee of the Trust. Indication of the
Trustee's ownership of a Contract shall be deleted from or modified on the
Servicer's computer systems when, and only when, the Contract shall have been
paid in full or repurchased or shall have become a Liquidated Contract.
(f) If at any time the Seller or the Servicer shall propose to sell,
grant a security interest in, or otherwise transfer any interest in automotive
retail installment sales contracts to any prospective purchaser, lender, or
other transferee, the Servicer shall give or cause to be given to such
prospective purchaser, lender, or other transferee computer tapes, records or
print-outs (including any restored from back-up archives) that, if they shall
refer in any manner whatsoever to any Contract, shall indicate clearly that such
Contract has been sold and is owned by the Trust.
(g) The Servicer shall permit the Trustee, the Insurer and their
respective agents at any time during normal business hours to inspect, audit,
and make copies of and abstracts from the Servicer's records regarding any
Contract.
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(h) Upon request, the Servicer shall furnish to the Trustee and the
Insurer, within five Business Days, a list of all Contracts then held as part of
the Trust, together with a reconciliation of such list to the Schedule of
Contracts and to each of the Servicer's Certificates furnished before such
request indicating removal of Contracts from the Trust.
(i) The Servicer shall deliver to the Trustee and the Insurer:
(i) promptly after the execution and delivery of this Agreement
and of each amendment hereto, an Opinion of Counsel either (A) stating
that, in the opinion of such Counsel, all financing statements and
continuation statements have been executed and filed that are necessary
fully to preserve and protect the interest of the Trustee and the
Insurer in the Contracts, and reciting the details of such filings or
referring to prior Opinions of Counsel in which such details are given
or (B) stating that, in the opinion of such Counsel, no such action
shall be necessary to preserve and protect such interest; and
(ii) within 90 days after the beginning of each calendar year
beginning with the first calendar year beginning more than three months
after the Cut-Off Date an Opinion of Counsel, dated as of a date during
such 90-day period, either (A) stating that, in the opinion of such
counsel, all financing statements and continuation statements have been
executed and filed that are necessary fully to preserve and protect the
interest of the Trustee in the Contracts, and reciting the details of
such filings or referring to prior Opinions of Counsel in which such
details are given or (B) stating that, in the opinion of such counsel,
no such action shall be necessary to preserve and protect such interest.
(j) The Seller shall, to the extent required by applicable law, cause
the Certificates to be registered with the Securities and Exchange Commission
pursuant to Section 12(b) or Section 12(g) of the Securities Exchange Act of
1934, as amended, within the time periods specified in such sections.
(k) For the purpose of facilitating the execution of this Agreement and
for other purposes, this Agreement may be executed simultaneously in any number
of counterparts, each of which counterpart shall be deemed to be an original,
and all of which counterparts shall constitute but one and the same instrument.
SECTION 11.3 Limitation on Rights of Certificateholders. The death or
incapacity of any Certificateholder shall not operate to terminate this
Agreement or the Trust, nor entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
commence any proceeding in any court for a partition or winding up of the Trust,
nor otherwise affect the rights, obligations, and liabilities of the parties to
this Agreement or any of them.
Except as expressly provided herein, no Certificateholder shall have any
right to vote or in any manner otherwise control the operation and management of
the Trust, or the obligations of the parties to this Agreement, nor shall
anything in this Agreement set forth, or contained in the terms
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of the Certificates, be construed so as to constitute the Certificateholders
from time to time as partners or members of an association; nor shall any
Certificateholder be under any liability to any third person by reason of any
action taken pursuant to any provision of this Agreement.
No Certificateholder shall have any right by virtue or by availing
itself of any provisions of this Agreement to institute any suit, action, or
proceeding in equity or at law upon or under or with respect to this Agreement,
unless such Holder previously shall have given to the Trustee a written notice
of default and of the continuance thereof, as hereinbefore provided, and unless
also the Holders of Certificates evidencing in the aggregate not less than 25%
of the Pool Balance with the consent of the Insurer shall have made written
request upon the Trustee to institute such action, suit or proceeding in its own
name as Trustee under this Agreement and shall have offered to the Trustee such
reasonable indemnity as it may require against the costs, expenses, and
liabilities to be incurred therein or thereby, and the Trustee, for 30 days
after its receipt of such notice, request, and offer of indemnity, shall have
neglected or refused to institute any such action, suit or proceeding; no one or
more Holders of Certificates shall have any right in any manner whatever by
virtue or by availing itself or themselves of any provisions of this Agreement
to affect, disturb, or prejudice the rights of the Holders of any other of the
Certificates, or to obtain or seek to obtain priority over or preference to any
other such Holders, or to enforce any right, under this Agreement, except in the
manner provided in this Agreement and for the equal, ratable, and common benefit
of all Certificateholders. For the protection and enforcement of the provisions
of this Section 11.3, each Certificateholder and the Trustee shall be entitled
to such relief as can be given either at law or in equity.
SECTION 11.4 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA AND THE OBLIGATIONS, RIGHTS,
AND REMEDIES OF THE PARTIES UNDER THIS AGREEMENT SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS EXCEPT THAT THE DUTIES OF THE TRUSTEE SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 11.5 Notices. All demands, notices, and communications under
this Agreement shall be in writing, personally delivered or mailed by certified
mail, return receipt requested, and shall be deemed to have been duly given upon
receipt (i) in the case of the Seller, at 8001 Irvine Center Drive, 6th Floor,
Irvine, CA 92618, Attention: President, facsimile 714-450-5530, (ii) in the case
of the Servicer, at 8001 Irvine Center Drive, 5th Floor, Irvine, California
92618, Attention: Regan E. Kelly, Executive Vice President, facsimile
714-450-5530, (iii) in the case of the Insurer, at 885 Third Avenue, New York,
New York 10022, Attention: Managing Director, Credit Enhancement, facsimile
(212) 755-5462, and (iv) in the case of the Trustee, at the Corporate Trust
Office. Any notice required or permitted to be mailed to a Certificateholder
shall be given by first class mail, postage prepaid, at the address of such
Holder as shown in the Certificate Registrar. Any notice so mailed within the
time prescribed in this Agreement shall be conclusively presumed to have been
duly given, whether or not the Certificateholder shall receive such notice.
SECTION 11.6 Severability of Provisions. If any one or more of the
covenants, agreements, provisions, or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions, or
terms shall be deemed severable from the remaining
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covenants, agreements, provisions, or terms of this Agreement and shall in no
way affect the validity or enforceability of the other provisions of this
Agreement or of the Certificates or the rights of the Holders thereof.
SECTION 11.7 Assignment. Notwithstanding anything to the contrary
contained herein, except as provided in Sections 6.2 and 7.2, neither the Seller
nor the Servicer may transfer or assign all, or a portion of, its rights,
obligations and duties under this Agreement unless such transfer or assignment
(i) (A) will not result in a reduction or withdrawal by any Rating Agency of the
rating then assigned by it to the Certificates and (B) the Trustee and the
Insurer have consented to such transfer or assignment, or (ii) the Insurer, the
Trustee and Holders of Certificates evidencing not less than 51% of the Pool
Balance consent thereto. Any transfer or assignment with respect to the Servicer
of all of its rights, obligations and duties will not become effective until a
successor Servicer has assumed the Servicer's rights, duties and obligations
under this Agreement. In the event of a transfer or assignment pursuant to
clause (ii) above, each Rating Agency shall be provided with notice of such
transfer or assignment.
SECTION 11.8 Certificates Nonassessable and Fully Paid.
Certificateholders shall not be personally liable for obligations of the Trust.
The interests represented by the Certificates shall be nonassessable for any
losses or expenses of the Trust or for any reason whatsoever, and, upon
authentication thereof by the Trustee pursuant to Section 5.2, Certificates
shall be deemed fully paid.
SECTION 11.9 Third Party Beneficiaries. Except as otherwise specifically
provided herein with respect to the Certificateholders, the parties to this
Agreement hereby manifest their intent that no third party other than the
Insurer shall be deemed a third party beneficiary of this Agreement, and
specifically that the Obligors are not third party beneficiaries of this
Agreement.
SECTION 11.10 Insurer Default or Insolvency. If a default under the
Financial Guarantee Insurance Policy has occurred and is continuing or an
Insurer Insolvency has occurred, any provision giving the Insurer the right to
direct, appoint or consent to, approve of, or take or cause to be taken any
action (or waive any right to take action) under this Agreement, including but
not limited to the right to terminate or cause the termination of the Servicer
as provided in Section 8.1, shall be inoperative during the period of such
default or the period from and after such Insurer Insolvency and such consent or
approval shall be deemed to have been given for the purpose of such provisions;
provided that the consent of the Insurer shall be required at all times with
respect to any amendment of this Agreement pursuant to Section 11.1.
SECTION 11.11 Tax Matters. The parties hereto intend that the Trust
shall be a grantor trust for federal and state income tax purposes and not an
association taxable as a corporation. All provisions of this Agreement shall be
construed so as to effectuate such intent. For income tax purposes, the Seller,
the Certificateholders, and each Certificate Owner, by accepting a beneficial
interest in a Certificate agree to treat the Certificates as ownership interests
in the Contracts (other than the Retained Strip, which the Seller shall treat as
its property), and any other Trust Property.
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For purposes of this Agreement, "Retained Strip" shall mean the portion of the
interest due on each Contract which has a yield in excess of -%.
This Agreement may be executed in several counterparts, each of which
shall be an original and all of which shall constitute but one and the same
instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of the
day and year first above written.
ONYX ACCEPTANCE FINANCIAL CORPORATION,
as Seller
By:
-------------------------------------
Name:
Title:
ONYX ACCEPTANCE CORPORATION,
as Servicer
By:
-------------------------------------
Name:
Title:
BANKERS TRUST COMPANY,
not in its individual capacity but solely
as Trustee
By:
-------------------------------------
Name:
Title:
75
<PAGE> 1
EXHIBIT 5.1
March 5, 1998
Onyx Acceptance Financial Corporation
on behalf of
Onyx Acceptance Grantor Trust 1998-1
c/o Onyx Acceptance Financial Corporation
8001 Irvine Center Drive, Fifth Floor
Irvine, California 92618
Re: Onyx Acceptance Grantor Trust 1998-1
Registration Statement on Form S-1
Registration No. 333-46359
Ladies and Gentlemen:
We have acted as counsel for Onyx Acceptance Grantor Trust 1998-1 (the
"Trust"), in connection with the proposed issuance by the Trust of its Auto Loan
Pass-Through Certificates, Series 1998-1 (the "Pass-Through Certificates") to be
issued pursuant to a Pooling and Servicing Agreement, among Onyx Acceptance
Financial Corporation, as seller (the "Seller"), Onyx Acceptance Corporation, as
servicer (the "Servicer") and Bankers Trust Company, as trustee (the "Trustee").
The Pooling and Servicing Agreement, in the form filed with the Securities and
Exchange Commission on March 5, 1998 as an exhibit to Amendment No. 1 to the
above-referenced registration statement (as so amended, the "Registration
Statement") on Form S-1 (File No. 333- 46359) under the Securities Act of 1933,
as amended (the "1933 Act"), is herein referred to as the "Agreement."
We have examined originals or copies, certified or otherwise identified
to our satisfaction, the form of Agreement and the form of Pass-Through
Certificates included therein, and such other documents, records, certificates
of the Trust and public officials and other instruments as we have deemed
necessary for the purposes of rendering this opinion. In addition, we have
assumed that the Agreement as completed for the Pass-Through Certificates will
be duly executed and delivered by each of the parties thereto; that the
Pass-Through Certificates as completed will be duly executed and delivered
substantially in the forms contemplated by the Agreement; and that the
Pass-Through Certificates will be sold as described in the Registration
Statement.
<PAGE> 2
Onyx Acceptance Financial Corporation
March 5, 1998
Page 2
Based upon the foregoing and subject to the limitations and
qualifications set forth below, we are of the opinion that the Pass-Through
Certificates are in due and proper form and, assuming the due authorization,
execution and delivery of the Agreement by the Seller, the Servicer and the
Trustee and the due authorization of the Pass-Through Certificates by all
necessary action on the part of the Trustee, when the Pass-Through Certificates
have been validly executed, authenticated and issued in accordance with the
Agreement and delivered against payment therefor, the Pass-Through Certificates
will be legally issued and fully paid and non-assessable.
The opinion expressed above is subject to the qualification that we do
not purport to be experts as to the laws of any jurisdiction other than the
federal laws of the United States of America and the laws of the States of
California, New York and Delaware, and we express no opinion herein as to the
effect that the laws and decisions of courts of any such other jurisdiction may
have upon such opinions.
We consent to the use and filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus contained therein. In giving such consent we do not
imply or admit that we are within the category of persons whose consent is
required under Section 7 of the 1933 Act or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Andrews & Kurth L.L.P.
<PAGE> 1
EXHIBIT 8.1
March 5, 1998
Onyx Acceptance Financial Corporation
on behalf of
Onyx Acceptance Grantor Trust 1998-1
c/o Onyx Acceptance Financial Corporation
8001 Irvine Center Drive, Sixth Floor
Irvine, California 92618
Re: Onyx Acceptance Grantor Trust 1998-1
Registration Statement on Form S-1
Registration No. 333-46359
Ladies and Gentlemen:
We have acted as counsel for Onyx Acceptance Grantor Trust 1998-1 (the
"Trust"), in connection with the proposed issuance by the Trust of its
Pass-Through Certificates (the "Pass-Through Certificates") to be issued
pursuant to a Pooling and Servicing Agreement, by and among the Onyx Acceptance
Financial Corporation, as seller (the "Seller"), Onyx Acceptance Corporation, as
servicer (the "Servicer") and Bankers Trust Company, in its capacity as trustee
of the Trust (the "Trustee"). The Pooling and Servicing Agreement, in the form
filed with the Securities and Exchange Commission on March 5, 1998 as an exhibit
to Amendment No. 1 to the above-referenced registration statement (as so
amended, the "Registration Statement") on Form S-1 (File No. 333-46359) under
the Securities Act of 1933, as amended (the "1933 Act"), is herein referred to
as the "Agreement."
We have examined originals or copies, certified or otherwise identified
to our satisfaction, the form of Agreement and the form of Pass-Through
Certificates included therein, and such other documents, records, certificates
of the Trust and public officials and other instruments as we have deemed
necessary for the purposes of rendering this opinion. In addition, we have
assumed that the Agreement as completed for the Pass-Through Certificates will
be duly executed and delivered by each of the parties thereto; that the
Pass-Through Certificates as completed will be duly executed and delivered
substantially in the forms contemplated by the Agreement; and that the
Pass-Through Certificates will be sold as described in the Registration
Statement.
On the basis of the foregoing and subject to the limitations and
qualifications set forth below, we are of the opinion that the description of
federal income tax consequences appearing under the heading "Certain Federal
Income Tax Consequences" in the prospectus contained in the Registration
<PAGE> 2
Onyx Acceptance Financial Corporation
on behalf of
Onyx Acceptance Grantor Trust 1998-1
March 5, 1998
Page 2
Statement accurately describes the material federal income tax consequences to
holders of Pass-Through Certificates, under existing law and subject to the
qualifications and assumptions stated therein.
The opinion herein is based upon our interpretations of current law,
including court authority and existing Final and Temporary Regulations, which
are subject to change both prospectively and retroactively, and upon the facts
and assumptions discussed herein. This opinion letter is limited to the matters
set forth herein, and no opinions are intended to be implied or may be inferred
beyond those expressly stated herein. Our opinion is rendered as of the date
hereof and we assume no obligation to update or supplement this opinion or any
matter related to this opinion to reflect any change of fact, circumstances, or
law after the date hereof. In addition, our opinion is based on the assumption
that the matter will be properly presented to the applicable court. We must note
that our opinion represents merely our best legal judgment on the matters
presented and that others may disagree with our conclusion. Our opinion is not
binding on the Internal Revenue Services or a court and there can be no
assurance that the Internal Revenue Service will not take a contrary position or
that a court would agree with our opinion if litigated. In the event any one of
the statements, representations or assumptions we have relied upon to issue this
opinion is incorrect, our opinion might be adversely affected and may not be
relied upon.
We consent to the use and filing of this opinion as Exhibit 8.1 to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus contained therein. In giving such consent we do not
imply or admit that we are within the category of persons whose consent is
required under Section 7 of the 1933 Act or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Andrews & Kurth L.L.P.
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the registration statement of ONYX Acceptance
Grantor Corporation Trust 1998-1 on Form S-1, dated March 5, 1998, of our
report dated February 3, 1997, on our audits of the consolidated financial
statements of MBIA Insurance Corporation and Subsidiaries as of December 31,
1996 and 1995 and for each of the three years in the period ended December 31,
1996. We also consent to the reference to our firm under the caption
"Experts."
/s/ COOPERS & LYBRAND L.L.P.
-------------------------------
Coopers & Lybrand L.L.P.
New York, New York
March 5, 1998
