<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 22, 1999
REGISTRATION NO. 333-_______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
--------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------
ONYX ACCEPTANCE AUTO LOAN TRUSTS
(Issuer with respect to the Securities)
ONYX ACCEPTANCE FINANCIAL CORPORATION
(Originator of the Trusts described herein)
(Exact name of Registrant as specified in its charter)
DELAWARE 33-0639768
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
--------------
REGAN E. KELLY, EXECUTIVE VICE PRESIDENT
27051 TOWNE CENTRE DRIVE, SUITE 200 27051 TOWNE CENTRE DRIVE, SUITE 200
FOOTHILL RANCH, CALIFORNIA 92610 FOOTHILL RANCH, CALIFORNIA 92610
(949) 465-3500 (949) 465-3500
(Address, including zip code, and (Name, address, including zip code,
telephone number, including area and telephone number, including
code of Originator's principal area code, of agent for service with
executive offices) respect to the Registrant)
COPIES TO:
DAVID A. ALLEN, ESQ.
ANDREWS & KURTH L.L.P.
1717 MAIN STREET, SUITE 3700
DALLAS, TEXAS 75201
(214) 659-4433
--------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. ________________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==========================================================================================================================
Proposed Maximum Proposed Amount of
Title of Securities to be Offering Price Per Maximum Aggregate Registration
Registered Amount to Be Registered Unit(1) Offering Price (1) Fee(2)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Auto Loan Backed Notes and
Auto Loan Backed Certificates $1,000,000 100% $1,000,000 $295
==========================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee on the
basis of the proposed maximum offering price per unit.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
PROSPECTUS
ONYX ACCEPTANCE AUTO LOAN TRUSTS
AUTO LOAN BACKED NOTES
AUTO LOAN BACKED CERTIFICATES
ONYX ACCEPTANCE FINANCIAL CORPORATION,
SELLER
ONYX ACCEPTANCE CORPORATION,
SERVICER
One or more trusts (each a "TRUST") formed by Onyx Acceptance Financial
Corporation will sell Auto Loan Backed Notes (the "NOTES") and/or Auto Loan
Backed Certificates (the "CERTIFICATES" and, together with the Notes, the
"SECURITIES") described in this prospectus. The Trust may sell the Securities
from time to time in one or more series. We will determine the amounts, prices
and terms of the Securities at the time of sale, and we will describe such
amounts, prices and terms in a supplement to this prospectus. We may issue one
or more classes of Notes and/or one or more classes of Certificates in
connection with each series of Securities.
If a series of Securities includes Notes, the Notes will be issued and
secured pursuant to an indenture between the applicable Trust and the indenture
trustee specified in the related prospectus supplement. The Notes will represent
non-recourse obligations of the related Trust. If a series of Securities
includes Certificates, the Certificates will represent undivided ownership
interests in the related Trust. We will describe, in the related prospectus
supplement, which class or classes of Notes, if any, and which class or classes
of Certificates, if any, are being offered by such prospectus supplement.
EXCEPT AS OTHERWISE SPECIFIED IN THE RELATED PROSPECTUS SUPPLEMENT,
NEITHER THE NOTES NOR THE CERTIFICATES ARE OBLIGATIONS OF OR INTERESTS IN THE
SELLER, THE SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES. FURTHER, NEITHER THE
NOTES NOR THE CERTIFICATES WILL BE GUARANTEED OR INSURED BY THE SELLER, THE
SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES.
To the extent specified in the related prospectus supplement,
distributions of interest and principal on specified Securities of a series may
be subordinated in priority of payment to interest and principal due on other
Securities of such series. Also, the timing and priority of payment, interest
rate or amount of payments or distributions in respect of principal or interest
or both may vary between Securities within the same series.
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 7 OF THIS
PROSPECTUS AND IN THE RELATED PROSPECTUS SUPPLEMENT.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Retain this prospectus for future reference. This prospectus may not be
used to consummate sales of Securities offered hereby unless accompanied by a
prospectus supplement.
The date of this prospectus is _________________, 1999
i
<PAGE> 3
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS
Information about the Notes and the Certificates is contained in two
separate documents that progressively provide more detail: (a) this prospectus,
which provides general information and (b) a prospectus supplement related to
each series of Securities, which describes the specific terms of a series of
Securities. IF THE TERMS OF THE SECURITIES VARY BETWEEN THE RELATED PROSPECTUS
SUPPLEMENT AND THIS PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN THE
RELATED PROSPECTUS SUPPLEMENT.
You should rely only on the information contained in this prospectus and
the related prospectus supplement or that we have referred you to. We have not
authorized anyone to provide you with information that is different. The
information in this prospectus is accurate only as of the date of this
prospectus, and the information in any prospectus supplement is accurate only as
of the date of such prospectus supplement.
In this prospectus, we include cross references to sections in these
materials where you can find further related discussions. The Table of Contents
on the back cover of this document identifies the pages where these sections are
located.
We have defined and used certain capitalized terms in this prospectus to
assist you in understanding the terms of the Securities and this offering. You
can find a listing of the pages where capitalized terms used in this prospectus
are defined under the caption "Index of Terms" beginning on page 55 in this
prospectus.
In this prospectus the terms "Trust", "Issuer", "we", "us" and "our"
refer to the Trusts established by the Seller in connection with the issuance of
a series of Securities, and the terms "you" and "your" refer to the holders of
Notes and/or Certificates.
ii
<PAGE> 4
SUMMARY OF TERMS
The following summary is a short, concise description of the main terms
of the Securities. For this reason, the summary does not contain all of the
information that may be important to you. You will find a detailed description
of the terms of the Securities following this summary and in the related
prospectus supplement to be prepared and delivered in connection with the
offering of Securities of a specified series.
<TABLE>
<S> <C>
ISSUER......................... The Trust to be formed by the Seller with
respect to each series of Securities. The
Seller will form the Trust by entering into
either (i) a trust agreement among the Seller
and the trustee for such Trust or (ii) a
pooling and servicing agreement among the
Seller, the Servicer and the trustee for such
Trust.
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 27051 Towne Centre Drive, Suite 200,
Foothill Ranch, California 92610, and its
telephone number is (949) 465-3500. See "The
Seller".
SERVICER....................... Onyx. The Servicer's principal executive
offices are located at 27051 Towne Centre
Drive, Suite 100, Foothill Ranch, California
92610, and its telephone number is (949)
465-3900. See "The Servicer".
TRUSTEE........................ With respect to each series of Securities, the
trustee specified in the related prospectus
supplement.
INDENTURE TRUSTEE ............. With respect to any series of Securities that
includes one or more classes of Notes, the
indenture trustee specified in the related
prospectus supplement.
DISTRIBUTION DATE.............. Interest and principal on the Notes and the
Certificates will be payable on the date set
forth in the related prospectus supplement.
Each such date will be referred to as a
"DISTRIBUTION DATE".
THE NOTES ..................... A series of Securities may include one or more
classes of Notes. We will issue the Notes of a
series pursuant to an indenture between the
applicable Trust and the related indenture
trustee. We will specify, in the related
prospectus supplement, which class or classes
of Notes, if any, will be offered in connection
with the issuance of a series.
Unless otherwise specified in the related
prospectus supplement, each class of Notes will
have a stated note principal balance specified
in the related prospectus supplement. The Notes
will accrue interest on the stated note
principal balance at a specified rate (the
"INTEREST RATE"). Each class of Notes may have
a different Interest Rate. The Interest Rate
may be fixed, variable or adjustable, or any
combination of fixed, variable and adjustable.
We will specify the Interest Rate for each
class of Notes, or the method for determining
such Interest Rate, in the related prospectus
supplement.
</TABLE>
1
<PAGE> 5
<TABLE>
<S> <C>
If a series includes two or more classes of
Notes, as specified in the related prospectus
supplement, each class may have different
characteristics such as:
- timing and priority of payments;
- seniority of payments;
- allocations of losses;
- calculation or amount of Interest Rate;
amount of payments of principal or
interest; and
- dependence of payments upon the occurrence
of specified events or upon collections
from certain designated Contracts.
In addition, a series may include one or more
classes of Notes ("STRIP NOTES") entitled to
(i) principal payments with disproportionate,
nominal or no interest payments or (ii)
interest payments with disproportionate,
nominal or no principal payments.
Unless otherwise specified in the related
prospectus supplement, the Seller, the Servicer
or a successor to the Seller or the Servicer
may, but is not obligated to, purchase the
Contracts under certain specified conditions.
If any such party exercises this option, all of
the Notes then outstanding will be redeemed as
set forth in the related prospectus supplement.
See "Description of the Transfer and Servicing
Agreements -- Termination".
THE CERTIFICATES .............. A series of Securities may include one or more
classes of Certificates. We will issue the
Certificates of a series pursuant to the
related trust agreement. We will specify, in
the related prospectus supplement, which class
or classes of Certificates, if any, will be
offered in connection with the issuance of a
series.
Unless otherwise specified in the related
prospectus supplement, each class of
Certificates will have a stated principal
balance specified in the related prospectus
supplement. The Certificates will accrue
interest on the applicable stated principal
balance at a specified rate (the "CERTIFICATE
RATE"). Each class of Certificates may have a
different Certificate Rate. The Certificate
Rate may be fixed, variable or adjustable, or
any combination of fixed, variable and
adjustable. We will specify the Certificate
Rate for each class of Certificates or the
method for determining such Certificate Rate in
the related prospectus supplement.
If a series includes two or more classes of
Certificates, as specified in the related
prospectus supplement, each class may have
different characteristics such as:
- timing and priority of payments;
- seniority of payments;
- allocations of losses;
- calculation or amount of Certificate Rate;
amount of distribution of principal or
interest; and
</TABLE>
2
<PAGE> 6
<TABLE>
<S> <C>
- dependence of distributions upon the
occurrence of specified events or upon
collections from certain designated
Contracts.
In addition, a series may include one or more
classes of Certificates ("STRIP CERTIFICATES")
entitled to (i) principal distributions with
disproportionate, nominal or no interest
distributions or (ii) interest distributions
with disproportionate, nominal or no principal
distributions.
If a series of Securities includes classes of
Notes and Certificates, distributions on the
Certificates may be subordinated to payments on
the Notes to the extent specified in the
related prospectus supplement.
If the Seller, the Servicer or a successor to
the Seller or the Servicer exercises its option
to purchase the Contracts of a Trust, the
Certificates then outstanding will be redeemed
as set forth in the related prospectus
supplement. See "Description of the Transfer
and Servicing Agreements -- Termination".
THE TRUST PROPERTY............. Unless otherwise specified in the related
prospectus supplement, each Trust's assets will
include:
- a pool of motor vehicle retail installment
sales contracts and/or installment loan
agreements (the "CONTRACTS"), all of which
are secured by new and/or used
automobiles, light-duty trucks and/or
vans;
- certain documents relating to the
Contracts;
- certain monies received with respect to
the Contracts on or after the Cut-Off Date
for such Contracts specified in the
related prospectus supplement;
- security interests in the related 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;
- all amounts on deposit in specified
accounts, including the related Collection
Account and any other account identified
in the applicable prospectus supplement,
including all Eligible Investments
credited to such accounts (but excluding
any investment income credited to the
Collection Account, which will be paid to
the Servicer or as otherwise specified in
the related prospectus supplement);
- the benefits of any form of credit
enhancement identified in the applicable
prospectus supplement;
- the right of the Seller to cause Onyx to
repurchase certain Contracts under certain
circumstances; and
- all proceeds of the foregoing.
See "The Trusts".
</TABLE>
3
<PAGE> 7
<TABLE>
<S> <C>
On or before the date of initial issuance of a
specified series of Securities (the "CLOSING
DATE") as specified in the related prospectus
supplement, the Seller will sell or transfer
Contracts to the applicable Trust. The Seller
will specify the aggregate principal balance of
the Contracts in the related prospectus
supplement as of the date set forth in the
related prospectus supplement and referred to
as the "CUT-OFF DATE". If the Trust related to
a series of Securities will be treated as an
owner trust for federal income tax purposes,
the Seller will sell the Contracts to the Trust
pursuant to a sale and servicing agreement
among the Seller, the Servicer and the Trust.
Alternatively, if the Trust will be treated as
a grantor trust for federal income tax
purposes, the Seller will transfer the
Contracts to the Trust pursuant to a pooling
and servicing agreement.
CONTRACTS...................... Unless otherwise specified in the related
prospectus supplement, all of the Contracts
included in the property of each Trust will
have been:
- either (i) originated by automobile
dealerships and assigned to Onyx or (ii)
purchased or originated by subsidiaries of
Onyx;
- purchased by the Seller from Onyx or from
a subsidiary of Onyx (each such
subsidiary, a "SELLING SUBSIDIARY"); and
- purchased by the Trust from the Seller.
See "The Onyx Portfolio of Motor Vehicle
Contracts". All of the Contracts included in
the property of each Trust will be selected
based upon the criteria specified in the
related sale and servicing agreement or pooling
and servicing agreement, as applicable.
PREFUNDING ARRANGEMENTS........ With respect to any series of Securities, the
Trust may commit to purchase additional
Contracts from the Seller following the date on
which the Trust is established and the related
Securities are issued. We will set forth any
such prefunding arrangements in the sale and
servicing agreement or the pooling and
servicing agreement related to such series. See
"Prefunding Arrangements". We will also
describe any such prefunding arrangements in
the related prospectus supplement.
CREDIT AND CASH FLOW
ENHANCEMENT .................. We may structure the Securities of any series
to include credit enhancement for one or more
class or classes of Securities. Such credit
enhancement may include any one or more of the
following:
- a surety bond or financial guarantee
insurance policy (a "SECURITY INSURANCE
POLICY") provided by a third-party insurer
(a "SECURITY INSURER");
- subordination of one or more classes of
Securities to one or more other classes of
- Securities;
- a reserve fund;
- a yield maintenance account;
</TABLE>
4
<PAGE> 8
<TABLE>
<S> <C>
- over-collateralization;
- letters of credit;
- credit or liquidity facilities;
- guaranteed investment contracts;
- swaps or other interest rate protection agreements;
- repurchase obligations;
- cash deposits;
- other agreements or arrangements with
respect to third party payments; or
- other support.
We will describe any such credit enhancement,
including any limitations and exclusions from
coverage, in the related prospectus supplement.
See "Description of the Transfer and Security
Agreements--Credit and Cash Flow Enhancement".
TAX STATUS .................... If the prospectus supplement specifies that the
related Trust will be treated as an owner
trust, upon the issuance of a series of
Securities, tax counsel to such Trust will
deliver an opinion to the effect that:
- any Notes of such series will be
characterized as debt for federal income
tax purposes; and
- such Trust will not be characterized as
an association (or a publicly traded
partnership) taxable as a corporation for
federal income tax purposes.
If the prospectus supplement specifies that the
related Trust will be treated as a grantor
trust, upon the issuance of the related series
of Certificates, tax counsel to such Trust will
deliver an opinion to the effect that:
- such Trust will be treated as a grantor
trust for federal income tax purposes;
and
- such Trust will not be subject to federal
income tax.
See "Certain Federal Income Tax Consequences"
for additional information concerning the
application of federal tax laws.
ERISA CONSIDERATIONS .......... Subject to the considerations discussed under
"ERISA Considerations" in this prospectus and
in the related prospectus supplement, the
following Securities will be eligible for
purchase by employee benefit plans (unless
otherwise specified in the related prospectus
supplement):
- any Notes of a series; and
- any Certificates of a series that are
issued by a Trust that is a grantor trust
and are not subordinated to any other
Securities of that series.
Unless otherwise specified in the related
prospectus supplement, the Certificates of any
series that are subordinated to any other
</TABLE>
5
<PAGE> 9
<TABLE>
<S> <C>
Security of that series may not be acquired by
any employee benefit plan subject to ERISA or
by any individual retirement account. See
"ERISA Considerations".
RATING......................... At the Closing Date of each series of
Securities, each class of Securities in such
series will be rated in one of the four highest
generic rating categories established for such
Securities by at least one nationally
recognized statistical rating agency. Each such
rating agency that rates a class of Securities
will be referred to as a "RATING AGENCY").
REGISTRATION OF THE SECURITIES. Unless otherwise specified in the related
prospectus supplement, the Securities of each
series will be available for purchase in a
minimum denomination of $1,000 and in integral
multiples of $1,000, and will be available in
book-entry form only. Except as otherwise
specified in the related prospectus supplement,
you will be able to receive definitive
Securities only in the limited circumstances
described in "Description of the Securities--
Definitive Securities".
</TABLE>
6
<PAGE> 10
RISK FACTORS
CERTAIN LEGAL ASPECTS -- THE CONTRACTS; SECURITY INTERESTS IN FINANCED VEHICLES
After the Contracts are transferred to a Trust (or, if applicable, the
indenture trustee), Onyx may hold the Contracts on behalf of such Trust (or
indenture trustee). If Onyx or the Seller sells and delivers any of the
Contracts to a purchaser other than the Trust (or indenture trustee), such other
purchaser could acquire an interest in the Contracts superior to the interest of
the Trust (or indenture trustee). To mitigate this risk, the transfer of the
Contracts to the related Trust (or indenture trustee) and Onyx's ability to hold
the Contracts on behalf of the Trust (or indenture trustee) will be subject to
certain restrictions and conditions. For instance, for each series of
Securities, the Seller will transfer the Contracts to the related Trust (or
indenture trustee) subject to the perfection requirements of the Uniform
Commercial Code as in effect in the State of California. The Seller will (i)
file UCC-1 financing statements to perfect the Trust's (or indenture trustee's)
security interest in the Contracts and (ii) take, or cause to be taken, all
other actions that are necessary to perfect the Trust's (or indenture trustee's)
rights in the applicable Contracts. The Seller also will warrant that the Trust
has good title, free and clear of liens and encumbrances, to each Contract on
the date such Contract is transferred to the Trust. Further, Onyx will agree to
take all necessary action to preserve and protect each Trust's ownership
interest in the related Contracts. These and any other restrictions and
conditions on the transfer of the Contracts or Onyx's ability to hold the
Contracts will be set forth in the related sale and servicing agreement or
pooling and servicing agreement.
The Seller will represent that each Contract is secured by a financed
vehicle. The certificate of title to the financed vehicle securing each Contract
will show Onyx or a subsidiary of Onyx as the secured party holding a lien on
the financed vehicle (after the appropriate application or computerized title
record 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). When the Contracts are sold to the Seller and then to a Trust,
Onyx, or the subsidiary of Onyx that previously owned the Contract, will remain
the secured party named on the related certificates of title or computerized
title records. Because of the increased administrative burden and expense, we
will not identify the related Trust (or, if applicable, the related indenture
trustee) as the new secured party on the certificate of title or computerized
title record of the financed vehicles securing the Contracts. Further, Onyx will
be able to service the Contracts more efficiently if Onyx's or such subsidiary's
name appears on the certificate of title or computerized title record as the
secured party. Even though the related Trust will not be identified as the
secured party with respect to the financed vehicles, the Trust will have a
security interest in the Contracts and will therefore be the beneficial owner of
the security interests in the related financed vehicles. If a series of
Securities includes one or more classes of Notes, the security interests in the
financed vehicles will be pledged to the related indenture trustee.
The party named on the certificate of title or computerized title
record, acting fraudulently and/or negligently, could cause the security
interest of the Trust (or indenture trustee) in the financed vehicles to be
released. Moreover, statutory liens for repairs or unpaid taxes may have
priority even over perfected security interests in the financed vehicles. See
"Certain Legal Aspects of the Contracts".
CERTAIN LEGAL ASPECTS -- BANKRUPTCY CONSIDERATIONS
Onyx and each Selling Subsidiary will transfer the Contracts to the
Seller in a structure intended to constitute a "true sale". If such a transfer
does constitute a "true sale," the applicable Contracts and the proceeds thereof
would not be part of Onyx's or such Selling Subsidiary's bankruptcy estate
should Onyx or the Selling Subsidiary become the subject of a bankruptcy case.
If Onyx voluntarily or involuntarily applies for relief under the United
States Bankruptcy Code or similar state laws ("INSOLVENCY LAWS"), a court could
determine that the assets and liabilities of the Seller should be consolidated
with those of Onyx. Onyx and the Seller have taken and will take steps to
structure the sale of Contracts so that an action 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 of Onyx. Onyx created the Seller pursuant to a
certificate of incorporation. This certificate of incorporation contains
7
<PAGE> 11
certain limitations which restrict the nature of the Seller's business. Further,
the Seller's certificate of incorporation restricts 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, it is
possible that the Seller's activities could result in a court concluding that
the assets and liabilities of the Seller should be consolidated with those of
Onyx in a proceeding under an Insolvency Law. If a court were to reach this
conclusion, payments or distributions on the Securities may be reduced or
delayed. See "The Seller".
Unless otherwise provided in the related prospectus supplement, any
Security Insurer with respect to a series of Securities will remain
unconditionally and irrevocably obligated under the applicable Security
Insurance Policy to guarantee principal and interest payments and distributions
on each Distribution Date. Such obligations will continue notwithstanding any
holding by a court that the assets and liabilities of the Seller should be
consolidated with those of Onyx in a proceeding under an Insolvency Law.
With respect to the Trust Property, the related trustee, the Seller, the
Servicer and all holders of Securities ("SECURITYHOLDERS") will covenant that
they will not at any time institute against the Seller or the Issuer any
bankruptcy, reorganization or other proceeding under any federal or state
bankruptcy or similar law.
PREPAYMENT CONSIDERATIONS
The rate of payment of principal on the Securities of each series
depends primarily on the rate of payments (including prepayments) on the
principal balance of the related Contracts. As a result, final payment on any
class of Securities could occur significantly earlier than the maturity date set
forth in the related prospectus supplement.
Any full prepayments and repurchases of the Contracts securing a
specified series can reduce the weighted average life of the Contracts and the
aggregate interest received by the Securityholders over the life of the
Securities. The related trustee (or the related indenture trustee) will pay all
full and partial prepayments on Simple Interest Contracts and all full
prepayments on Precomputed Contracts to Securityholders on the Distribution Date
immediately following the calendar month in which such prepayments are received.
Accordingly, such prepayments will shorten the average life of such Contracts,
and, therefore, of the related Securities. The Servicer treats partial
prepayments on Precomputed Contracts as payments in advance. The Servicer will
hold all partial prepayments on Precomputed Contracts in the name of the related
trustee (or, if applicable, the related indenture trustee), acting on behalf of
the related obligors and Securityholders, until such amounts are paid or
distributed in accordance with the original schedule of payments for such
Contracts. Accordingly, partial prepayments on Precomputed Contracts will not
affect the average life of such Contracts or the related Securities.
Onyx has approximately five years of 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
or installment loan agreements similar to the Contracts. Onyx cannot predict the
actual prepayment rates that will occur on the Contracts in either stable or
changing interest rate environments. See "Maturity and Prepayment
Considerations".
SUBORDINATION; LIMITED ASSETS
To the extent specified in the related prospectus supplement, payments
or distributions on certain classes of Securities may be subordinate to payments
or distributions on other classes of Securities.
Moreover, no Trust will have, nor is it permitted or expected to have,
any significant assets or sources of funds other than the related Contracts and
the other assets described in the related prospectus supplement. The Notes of
any series will represent obligations solely of the related Trust. The
Certificates of any series will represent interests solely in the related Trust.
None of the Seller, the Servicer or any of their respective affiliates, the
applicable trustee, any indenture trustee or any other person or entity, will
insure or guarantee the Notes or the Certificates of any series, unless
otherwise specified in the related prospectus supplement. Accordingly, you must
8
<PAGE> 12
rely upon payments on the Contracts and amounts, if any, available from the
other assets specified in the related prospectus supplement for repayment on the
Securities.
CONSUMER PROTECTION LAWS
Federal and state governments have enacted certain consumer protection
laws which apply to the Contracts. Such laws impose requirements with respect to
the making, transfer, acquisition, enforcement and collection of consumer
contracts and loans. These 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. If the originator of the Contracts and/or the Servicer fails to
comply with such consumer protection laws, the Contracts may not be enforceable.
To protect the Securityholders in such an event, the Seller will make
representations and warranties to the Trust stating that (i) the related
Contracts are valid and enforceable and (ii) the Seller has complied with
applicable law in connection with the transfer of the Contracts to the related
Trust (or indenture trustee). Accordingly, the Seller will be obligated to
repurchase each Contract that does not comply with the applicable requirements
of any consumer protection law if the applicable Trust's interest in such
Contract is materially and adversely affected by such noncompliance. The
repurchase obligation of the Seller is the sole remedy if the Contract does not
comply with the representations and warranties of the Seller within the
applicable cure period. See "Description of the Transfer and Servicing
Agreements -- Repurchase of Contracts" and "Certain Legal Aspects of the
Contracts -- Repurchase Obligation".
BOOK-ENTRY REGISTRATION
Unless otherwise specified in the related prospectus supplement, you
will hold your Certificates or Notes, as applicable, through the Depository
Trust Company ("DTC"). Transfers within DTC will be made in accordance with
DTC's usual rules and operating procedures. So long as the Securities are
book-entry securities, the Securities will be evidenced by one or more
certificates registered in the name of a participant of DTC as the nominee of
DTC. You will not be entitled to receive a definitive certificate representing
your interest in the Securities, unless Definitive Securities are issued under
the limited circumstances described in this prospectus or the related prospectus
supplement. Unless and until Definitive Securities for your series are issued,
you will not be recognized by the related trustee (or, if applicable, the
related indenture trustee) as "Certificateholders", "Noteholders" or
"Securityholders", as the case may be. Hence, until Definitive Securities are
issued, you will only be able to exercise your rights as Securityholders
indirectly through DTC and its participants. See "Description of the
Securities--Book-Entry Registration".
Since transactions in the Securities can be effected only through DTC,
its participants and indirect participants, and certain banks, your ability to
pledge your Securities to persons or entities that do not participate in DTC, or
otherwise to take actions in respect of such Securities, may be limited due to
lack of a physical certificate.
You may experience some delay in your receipt of payments or
distributions of interest and principal since the payments or distributions will
be provided by the related trustee (or, if applicable, the related indenture
trustee) to DTC and DTC will credit such payments or distributions to the
accounts of its participants. The participants will then credit such payments or
distributions to your account either directly or indirectly through the DTC's
indirect participants.
THE TRUSTS
With respect to each series of Securities, the Seller will establish a
separate Trust pursuant to the respective trust agreement or pooling and
servicing agreement, as applicable, for the transactions described herein and in
the related prospectus supplement. Unless otherwise specified in the related
prospectus supplement, the property of each Trust (the "TRUST PROPERTY") will
include:
(i) the related Contracts,
9
<PAGE> 13
(ii) certain documents relating to such Contracts,
(iii) certain monies received with respect to such Contracts on or
after the Cut-Off Date specified in the related prospectus
supplement,
(iv) security interests in the related financed vehicles and the
rights to receive proceeds from claims on certain insurance
policies covering such financed vehicles or the individual
obligors under each related Contract,
(v) all amounts on deposit in certain specified accounts,
including the related Collection Account and any other account
identified in the applicable prospectus supplement, including
all Eligible Investments credited to such accounts (but
excluding any investment income credited to the Collection
Account, which will be paid to the Servicer or as otherwise
specified in the related prospectus supplement),
(vi) the benefits of any form of credit enhancement identified in
the applicable prospectus supplement,
(vii) the right of the Seller to cause Onyx to repurchase certain
Contracts under certain circumstances, and
(viii) all proceeds of the foregoing. To the extent specified in the
related prospectus supplement, a Security Insurance Policy,
reserve fund or other form of credit enhancement may be a part
of the property of any given Trust or may be held by the
trustee or an indenture trustee for the benefit of holders of
the related Securities.
Prior to formation, each Trust will have had no assets or obligations.
After formation, each Trust will not engage in any activity other than acquiring
and holding the related Contracts, issuing the related Securities, distributing
payments in respect thereof and as otherwise described herein, in the related
prospectus supplement and in the trust agreement or pooling and servicing
agreement, as applicable. Each Trust will not acquire any Motor Vehicle
Contracts or assets other than the Trust Property.
The principal offices of each Trust that is not a grantor trust and the
related trustee will be specified in the applicable prospectus supplement.
THE TRUSTEE
The trustee for each Trust and, if applicable, the indenture trustee,
will be specified in the related prospectus supplement. The trustee's and, if
applicable, the indenture trustee's liability in connection with the issuance
and sale of the related Securities will be limited solely to the express
obligations of such trustee or indenture trustee set forth in the related trust
agreement, sale and servicing agreement, and indenture or the related pooling
and servicing agreement, as applicable. A trustee or indenture trustee with
respect to a series of Securities may resign or be removed under the
circumstances specified in the related prospectus supplement. Any resignation or
removal of a trustee or indenture trustee and appointment of a successor trustee
will not become effective until acceptance of the appointment by such successor.
10
<PAGE> 14
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/or used automobiles, light-duty trucks
and vans ("MOTOR VEHICLE CONTRACTS"). Onyx targets the prime auto lending market
because it believes that prime lending produces greater origination and
operating efficiency than does sub-prime lending. Onyx focuses on late model
used, rather than new, vehicles, as management believes the risk of loss on used
vehicles is lower due to lower depreciation rates, while interest rates are
typically higher. In addition, Onyx believes that the late model used motor
vehicle finance market is growing at a faster rate than is the finance market
for new motor vehicles. Onyx has three auto lending programs: the "Premier", the
"Preferred" and the "Standard" Programs. The Premier Program allows Onyx to
market lower interest rates in order to capture customers of superior credit
quality. The Preferred Program allows Onyx to offer Motor Vehicle Contracts at
higher interest rates to borrowers with proven credit quality. The Standard
Program allows Onyx to assist qualified borrowers, who may have experienced
previous credit problems or have not yet established a significant credit
history, at interest rates higher than the Premier and Preferred Programs.
Motor Vehicle Contracts in Onyx's portfolio are purchased by Onyx from
automobile dealerships ("DEALERS") that originate such contracts, purchased by a
subsidiary of Onyx from credit unions or others that originate such contracts,
or originated by Onyx or a subsidiary of Onyx. Unless otherwise specified in the
related prospectus supplement (i) substantially all of the Contracts included in
the Trust Property of a Trust will have been purchased by Onyx from new and used
car Dealers unaffiliated with Onyx and the Seller, and a limited number of
Contracts will have been purchased or originated by subsidiaries of Onyx and
(ii) all of such Contracts will have been sold to the Seller and then to such
Trust. Onyx currently has agreements with approximately 5,500 Dealers, of which
approximately 90% are franchised new car dealerships and approximately 10% are
independent used car dealerships. The Dealers are located in metropolitan areas
in which the Motor Vehicle Contracts are or will be originated. Each Dealer,
credit union or other party 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 transaction. The Dealers with whom Onyx has
agreements and Dealers with whom Onyx would like to have agreements are
regularly contacted by Onyx account managers by telephone and in person in an
effort to obtain a continued supply of Motor Vehicle Contracts for Onyx to
purchase. Before purchasing Motor Vehicle Contracts from independent used car
Dealers, Onyx completes a credit review of the Dealer's financial condition
(including a review of financial information provided by the Dealer and a Dun &
Bradstreet report on the Dealer) and a review of the underwriting criteria used
by the Dealer. The payment obligations of the obligor under each Motor Vehicle
Contract are secured by the vehicle purchased with the proceeds provided under
that Motor Vehicle Contract.
Onyx services all of the Motor Vehicle Contracts and initially will
serve as the primary servicer of the Contracts included in the Trust Property of
a Trust after such Contracts are sold by the Seller to such Trust. The servicing
functions performed by Onyx include customer service, document filekeeping,
computerized account record keeping, vehicle title processing and collections.
UNDERWRITING OF MOTOR VEHICLE CONTRACTS
Onyx underwrites Motor Vehicle Contracts purchased from Dealers through
its 15 regional contract purchasing offices ("AUTO FINANCE CENTERS"), five of
which are in California and one in each of the States of Arizona, Florida,
Georgia, Illinois, Michigan, Nevada, New Jersey, North Carolina, Virginia and
Washington. Motor Vehicle Contracts purchased from Dealers in other states are
generally purchased by the Auto Finance Center that is geographically most
proximate to the state of origination. In the case of Motor Vehicle Contracts
originated by a subsidiary of Onyx, such Motor Vehicle Contracts are
underwritten at the Foothill Ranch, California location.
11
<PAGE> 15
Unless otherwise specified in the related prospectus supplement, 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 Actuarial Method, the Rule of 78's Method 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, other party 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.
After review of an application, a credit manager, via an electronic
system, communicates an appropriate decision to the applicable Dealer, credit
union or other party 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, other party 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, other party 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 credit application; (ii) the only
original and a copy of the executed Motor Vehicle Contract; (iii) an agreement
by the obligor to provide insurance; (iv) a report of sale or guarantee of
title; (v) an application for registration; (vi) a co-signer notification (if
applicable); (vii) a copy of any supplemental warranty purchased with respect to
the financed vehicle; (viii) acceptable vehicle valuation documentation; and
(ix) any other required documentation.
Once the appropriate documentation is in hand for funding, the file
relating to the Motor Vehicle Contract is ready to forward to a contract
processor for a pre-funding audit. The contract processor (who is employed by
Onyx or one of its subsidiaries) then audits such documents for completeness and
consistency with the application, providing 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 generally 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 and other insurance (if any), or (ii) for
a used financed vehicle, the value assigned by a nationally recognized used car
value guide, plus taxes, title and license fees, extended warranty (if any), and
credit and other insurance (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
12
<PAGE> 16
assure that the related financed vehicle constitutes adequate collateral to
secure the Motor Vehicle Contract. Under no circumstances is the amount advanced
for a Motor Vehicle Contract greater than the amount payable by the obligor with
respect to the purchase of the related financed vehicle.
Periodically, Onyx makes a detailed analysis of its portfolio of Motor
Vehicle Contracts (including Motor Vehicle Contracts purchased or originated by
its subsidiaries) to evaluate the effectiveness of Onyx's credit guidelines. If
external economic factors, credit delinquencies or credit losses change, Onyx
adjusts its credit guidelines to maintain the asset quality deemed acceptable by
Onyx's management. Onyx reviews, on a daily basis, the quality of its Motor
Vehicle Contracts by conducting audits of certain randomly selected Motor
Vehicle Contracts to ensure compliance with established policies and procedures.
INSURANCE
Each related Motor Vehicle Contract requires the obligor to obtain
comprehensive and collision insurance with respect to the related financed
vehicle with Onyx or a subsidiary of Onyx as a loss payee. Onyx tracks whether
obligors maintain the required insurance.
COLLECTION PROCEDURES
Collection activities with respect to delinquent Motor Vehicle Contracts
are performed by Onyx at its Foothill Ranch Collection Center. Collection
activities include prompt investigation and evaluation of the causes of any
delinquency. An obligor is considered delinquent when he or she has failed to
make at least 90% of a scheduled payment under the Motor Vehicle Contract within
30 days of the related due date (each a "DUE DATE").
To automate its collection procedures, Onyx uses features of the
computer system of its third party service bureau, Online Computer Systems, Inc.
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 maintains a record of an obligor's promise to pay and affords
supervisors the ability to review collection personnel activity and to modify
collection priorities with respect to Contracts. Onyx utilizes a predictive
dialing system located at the Foothill Ranch Collection Center to make phone
calls to obligors whose payments are past due by more than eight days but less
than 30 days. The predictive dialer is a computer-controlled telephone dialing
system which dials phone numbers of obligors from a file of records extracted
from Onyx's database. By eliminating time wasted on attempting to reach
obligors, the system gives a single collector, on average, the ability to speak
with and work 200 to 250 accounts per day. Once a live voice responds to the
automated dialer's call, the system automatically transfers the call to a
collector and the relevant account information to the collector's computer
screen. The system also tracks and notifies collections management of phone
numbers that the system has been unable to reach within a specified number of
days, thereby promptly identifying for management all obligors who cannot be
reached by telephone.
Once an obligor on a Contract is 20 days or more delinquent, the account
is assigned to a specific collector at the Foothill Ranch Collection Center who
will have primary responsibility for such delinquent account until it is
resolved. To expedite collections from late paying obligors, Onyx uses Western
Union "Quick Collect," which allows an obligor to pay at numerous locations any
late payments which are in turn wired daily to Onyx's lockbox account by Western
Union. Onyx also uses a Western Union payment system that allows an obligor to
authorize Onyx to present a draft on the obligor's bank account directly to the
obligor's bank for payment to Onyx.
Generally, after a scheduled payment under a Motor Vehicle Contract
continues to be past due for between 45 and 60 days, Onyx will initiate
repossession of the financed vehicle. However, if the applicable Motor Vehicle
Contract is deemed uncollectible, if the related financed vehicle is deemed by
collection personnel to be in danger of being damaged, destroyed or made
unavailable for repossession, or if the related obligor voluntarily surrenders
the related financed vehicle, Onyx may repossess the related financed vehicle
without regard to the length or existence of payment delinquency. Repossessions
are conducted by third parties who are engaged in the business of repossessing
vehicles for secured parties. Under the laws of California and most other states
in which Motor Vehicle Contracts
13
<PAGE> 17
are originated, after repossession, the obligor generally has an additional
period of 10 to 15 days to redeem a financed vehicle before it may be resold by
Onyx in an effort to recover the balance due under the Motor Vehicle Contract.
Losses may occur in connection with delinquent Motor Vehicle Contracts
and can arise in several ways, including inability to locate the related
financed vehicle or the obligor, or because of a discharge of the obligor in a
bankruptcy proceeding. The current policy of Onyx is to recognize losses at the
time a Motor Vehicle Contract is deemed uncollectible or during the month a
scheduled payment under a Motor Vehicle Contract becomes 120 days or more past
due, whichever occurs first.
Upon repossession and sale of a financed vehicle, any deficiency
remaining is pursued against the obligor to the extent deemed practical by Onyx
and to the extent permitted by law. The loss recognition and collection policies
and practices of Onyx may change over time in accordance with Onyx's business
judgment. However, the sale and servicing agreement or pooling and servicing
agreement, as applicable, will require that Onyx service the Contracts and
collect all amounts due using reasonable care and in at least the same manner as
it services and collects amounts due with respect to Motor Vehicle Contracts
serviced by it for its own account.
MODIFICATIONS AND EXTENSIONS
Onyx offers certain credit-related extensions to obligors. Generally,
these extensions are offered only when (i) Onyx believes that the obligor's
financial difficulty has been resolved or will no longer impair the obligor's
ability to make future payments, (ii) the extension will result in the obligor's
payments being brought current, (iii) the total number of credit-related
extensions granted on the Motor Vehicle Contract will not exceed three and the
total credit-related extensions granted on the Motor Vehicle Contract will not
exceed three months in the aggregate, (iv) there has been no more than one
credit-related extension granted on the Motor Vehicle Contract in the
immediately preceding twelve months, and (v) Onyx (or its assignee) had held the
Motor Vehicle Contract for at least six months. Any deviation from this policy
requires the concurrence of a collection supervisor and Onyx's collection
manager and the Executive Vice President, Collections.
DELINQUENCY AND LOAN LOSS INFORMATION
Certain information concerning the experience of Onyx pertaining to
delinquencies, loan losses and recoveries with respect to its portfolio of Motor
Vehicle Contracts (including receivables previously sold which Onyx continues to
service) will be set forth in each prospectus supplement. There can be no
assurance that the delinquency, loan loss and recovery experience on any
Contracts related to a series of Securities will be comparable to prior
experience or to such information.
THE CONTRACTS
Unless otherwise specified in the related prospectus supplement (i) all
of the Contracts will have been purchased by the Seller from Onyx or a Selling
Subsidiary and (ii) substantially all of the Contracts will have been purchased
by Onyx from new and used car Dealers unaffiliated with Onyx or the Seller, and
a limited number of Contracts will have been purchased or originated by
subsidiaries of Onyx. See "The Onyx Portfolio of Motor Vehicle Contracts".
Unless otherwise specified in the related prospectus supplement, each of the
Contracts included in the Trust Property of a Trust will be a fixed rate
contract where the allocation of each payment between interest and principal is
calculated using the Actuarial Method (the "ACTUARIAL CONTRACTS"), the Rule of
78's Method (the "RULE OF 78'S CONTRACTS") or the Simple Interest Method (the
"SIMPLE INTEREST CONTRACTS"). Actuarial Contracts and Rule of 78's Contracts are
sometimes collectively referred to as "PRECOMPUTED CONTRACTS".
Actuarial Contracts provide for amortization of a Contract over a series
of fixed level payment monthly installments, whereby each monthly installment,
including the monthly installment representing the final payment on the
Contract, consists of an amount of interest equal to 1/12 of the APR of the
Contract multiplied by the unpaid
14
<PAGE> 18
principal balance of the Contract, and an amount of principal equal to the
remainder of the monthly payment (the "ACTUARIAL METHOD").
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
("APR") as set forth in the Contract (the "RULE OF 78'S METHOD"). Under the Rule
of 78's Method, the amount of each payment allocable to interest on a Contract
is determined by multiplying the total amount of add-on interest payable over
the term of the Contract by a fraction derived as described below. The fraction
used in the calculation of add-on interest earned each month under a Rule of
78's Contract has as its denominator a number equal to the sum of a series of
numbers representing the total number of monthly payments due under such
Contract. For example, with a Rule of 78's Contract providing for 12 payments,
the denominator of each month's fraction will be 78, the sum of the series of
numbers from 1 to 12. The numerator of the fraction for a given month is the
number of payments remaining before giving effect to the payment to which the
fraction is being applied. Accordingly, in the example of a twelve-payment Rule
of 78's Contract, the fraction for the first payment is 12/78, for the second
payment 11/78, for the third payment 10/78, and so on through the final payment,
for which the fraction is 1/78. The applicable fraction is then multiplied by
the total add-on interest payment over the entire term of such Contract, and the
resulting amount is the amount of add-on interest earned that month. The
difference between the amount of the monthly payment by the obligor and the
amount of earned add-on interest calculated for the month is applied to
principal reduction.
For Simple Interest Contracts, interest due is calculated on the Due
Date based on the actual principal balance of the Contract on that date (the
"SIMPLE INTEREST METHOD"). For such Contracts, interest accrued as of the Due
Date is paid first, and then the remaining payment is applied to the unpaid
principal balance. Accordingly, if an obligor pays the fixed monthly installment
in advance of the Due Date, the portion of the payment allocable to interest for
the period since the preceding payment will be less than it would be if the
payment were made on the Due Date, and the portion of the payment allocable to
reduce the principal balance will be correspondingly greater. Conversely, if an
obligor pays the fixed monthly installment after its Due Date, the portion of
the payment allocable to interest for the period since the preceding payment
will be greater than it would be if the payment were made on the Due Date, and
the portion of the payment allocable to reduce the principal balance will be
correspondingly smaller. When necessary, an adjustment is made at the maturity
of the Contract to the scheduled final payment to reflect the larger or smaller,
as the case may be, allocations of payments to the amount financed under the
Contract as a result of early or late payments, as the case may be.
Unless otherwise specified in the related prospectus supplement, the
purchase price paid by each Trust for each Contract included in the Trust
Property of such Trust will reflect the principal balance of such Contract as of
the Cut-Off Date, calculated under the Actuarial Method, the Rule of 78's Method
or the Simple Interest Method. For each of the Contracts the term "CUT-OFF DATE
SCHEDULED BALANCE" means the principal balance of such Contract as of the
Cut-Off Date. For Rule of 78's Contracts a greater portion of the early payments
under a Contract is allocated to interest than would be the case using the
Actuarial Method. Therefore, the Cut-Off Date Scheduled Balance of each Rule of
78's Contract will exceed the amount that would have been its principal balance
as of the Cut-Off Date if each such Rule of 78's Contract had been amortized
from origination under the Actuarial Method. The related trustee (or, if
applicable, indenture trustee) and the Servicer will account for interest and
principal on the Rule of 78's Contracts using the Actuarial Method, but based on
the Cut-Off Date Scheduled Balance. The remaining payments due on a Rule of 78's
Contract will not be sufficient to amortize the Cut-Off Date Scheduled Balance
of such Contract at a yield equal to its APR. Accordingly, in order to amortize
the Cut-Off Date Scheduled Balance over the remaining term of the Rule of 78's
Contract using the Actuarial Method, the Servicer will recompute the effective
yield of such Contract based on the remaining payments due and the Cut-Off Date
Scheduled Balance (such yield, stated as a per annum rate, the "RECOMPUTED
YIELD") and will allocate each scheduled payment of principal and interest
("MONTHLY P&I") between principal and interest on each Rule of 78's Contract
based on the Cut-Off Date Scheduled Balance and the Recomputed Yield for such
Contract (such method, the "RECOMPUTED ACTUARIAL METHOD").
15
<PAGE> 19
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 Monthly P&I paid 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 or an Actuarial 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 or the Actuarial Method,
respectively.
Additional information with respect to the Contracts related to any
series of Securities will be set forth in the related prospectus supplement,
including, to the extent appropriate, the composition, the distribution by APR
and by the states of origination, the portion of such Contracts consisting of
Precomputed Contracts or Simple Interest Contracts (unless otherwise specified
in the related prospectus supplement), and the portion of such Contracts secured
by new vehicles and by used vehicles.
PREFUNDING ARRANGEMENTS
To the extent provided in the related prospectus supplement for a series
of Securities, the related trust agreement, sale and servicing agreement and
indenture or the related pooling and servicing agreement, as applicable, may
provide for a commitment by the related Trust to subsequently purchase
additional Contracts ("SUBSEQUENT CONTRACTS") from the Seller following the date
on which the Trust is established and the related Securities are issued (a
"PREFUNDING ARRANGEMENT"). With respect to a series of Securities, the
Prefunding Arrangement will require that any Subsequent Contracts transferred to
the Trust conform to the requirements and conditions provided in the related
sale and servicing agreement or pooling and servicing agreement, as applicable.
If a Prefunding Arrangement is utilized in connection with the issuance of a
series of Securities, the Servicer will establish an account in the name of the
related trustee or indenture trustee, as applicable, for the benefit of the
Securityholders into which all or a portion of the net proceeds received from
the sale of the Securities will be deposited and from which monies will be
released during a specified period to purchase Subsequent Contracts from the
Seller (the "PREFUNDING ACCOUNT"). Upon each conveyance of Subsequent Contracts
to the applicable Trust, an amount equal to the purchase price paid by the
Seller to Onyx, or a Selling Subsidiary, for such Subsequent Contracts will be
released from the Prefunding Account and paid to the Seller.
The utilization of a Prefunding Arrangement for a series of Securities
is intended to improve the efficiency of the issuance of such Securities and the
sale of the Contracts to the related Trust through the incremental delivery of
the applicable Contracts on the Closing Date and during a specified period
following the Closing Date for such series of Securities, which allows for a
more even accumulation of the Contracts by the Seller and by Onyx and the
Selling Subsidiaries and the issuance of a larger principal amount of Securities
than would be the case without a Prefunding Arrangement.
MATURITY AND PREPAYMENT CONSIDERATIONS
The Contracts will be prepayable in full by the obligors at any time
without penalty. Full and partial prepayments on Simple Interest Contracts and
full prepayments on Precomputed Contracts included in the Trust Property of a
Trust will be paid or distributed to the related Securityholders on the
Distribution Date following the Collection Period in which they are received.
Partial prepayments on Precomputed Contracts however will be treated as
Payaheads and will not be paid or distributed until the Collection Period in
which such payments are due or until the amount of such partial prepayment
equals the amount the obligor would be required to pay in order to prepay the
Contract in full. See "Description of the Transfer and Servicing Agreements --
Payahead Account". To the extent that any Contract included in the Trust
Property of a Trust is prepaid in full, whether by the obligor, or as the result
of a purchase by the Servicer or a repurchase by the Seller or otherwise, the
actual weighted average life of the Contracts included in the Trust Property of
such Trust will be shorter than a weighted average life calculation based on the
assumptions that payments will be made on schedule and that no prepayments will
be made. Weighted average life means the average amount of time in which each
dollar of principal on a Contract is repaid. Full prepayments may also result
from liquidations due to default, receipt of proceeds from theft, physical
damage, credit life and credit disability insurance policies, repurchases by the
Seller as a result of the failure of a Contract to meet certain criteria set
forth in the related sale and servicing agreement or pooling and servicing
agreement, as applicable, or purchases by the Servicer as a result of a breach
of certain of its covenants with respect to the Contracts made by it in the
related sale and servicing agreement or pooling and servicing agreement, as
applicable. In addition, early retirement of the Securities may be effected by
the option of the Servicer to purchase the remaining Contracts included in the
Trust Property of the Trust on any Distribution Date as of which the related
Pool Balance
16
<PAGE> 20
(after giving effect to the principal payments and distributions otherwise to be
made on such Distribution Date) has declined to the percentage of the Original
Pool Balance specified in the related prospectus supplement. See "Description of
the Transfer and Servicing Agreements -- Repurchase of Contracts".
The rate of full prepayments by obligors on the Contracts may be
influenced by a variety of economic, social and other factors, including the
fact that an obligor may not sell or transfer the financed vehicle securing a
Contract without the consent of the Servicer. These factors may also include
unemployment, servicing decisions, seasoning of the Contracts, 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 and installment loan agreements 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 approximately five years of 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
and installment loan agreements similar to the Contracts. Onyx can make no
prediction as to the actual prepayment rates that will be experienced on the
Contracts included in the Trust Property of any Trust in either stable or
changing interest rate environments. Securityholders of each series will bear
all reinvestment risk resulting from the rate of prepayment of the Contracts
included in the Trust Property of the related Trust.
POOL FACTOR AND POOL INFORMATION
The "Pool Factor" will be a six-digit decimal which the Servicer will
compute each month indicating the Pool Balance at the end of the month as a
fraction of the aggregate principal balance of the Contracts as of the CutOff
Date (the "ORIGINAL POOL BALANCE"). The Pool Factor will be 1.000000 as of the
Closing Date; thereafter, the Pool Factor will decline to reflect reductions in
the aggregate principal balance of the related Contracts (the "POOL BALANCE").
The amount of a Securityholder's pro rata share of the Pool Balance for a given
month can be determined by multiplying the original denomination of such
holder's Security by the Pool Factor for that month.
With respect to each Trust, unless otherwise provided in the related
prospectus supplement, the related Securityholders will receive monthly reports
from the trustee concerning payments received on the Contracts, the Pool
Balance, the Pool Factor, and various other items of information.
Securityholders of record during any calendar year will be furnished information
for tax reporting purposes not later than the latest date permitted by law. See
"Description of the Securities--Statements to Securityholders".
USE OF PROCEEDS
Unless otherwise provided in the related prospectus supplement, the net
proceeds to be received by the Seller from the sale of Securities of a given
series will be used to repay certain indebtedness incurred in connection with
its acquisition of the Contracts and to pay certain other expenses in connection
with the pooling of the Contracts and the issuance of such Securities.
THE SELLER
The Seller is a wholly-owned, limited purpose finance subsidiary of Onyx
which was incorporated under the laws of the State of Delaware on July 28, 1994
and has a limited operating history. The principal office of the Seller
17
<PAGE> 21
is located at 27051 Towne Centre Drive, Suite 200, Foothill Ranch, California
92610. The telephone number of such office is (949) 465-3500.
The Seller was organized principally for the purpose of purchasing
retail installment sales contracts from Onyx in connection with its activities
as a finance subsidiary of Onyx. The Seller was organized for limited purposes,
and its certificate of incorporation limits its activities to purchasing Motor
Vehicle Contracts from Onyx and transferring such Motor Vehicle Contracts to
third parties and any activities incidental to and necessary or convenient for
the accomplishment of such purposes.
Onyx and the Seller have taken and will take steps in structuring the
transactions contemplated hereby that are intended to ensure that the voluntary
or involuntary application for relief by Onyx under any Insolvency Law will not
result in consolidation of the assets and liabilities of the Seller with those
of Onyx. These steps include the creation of the Seller as a separate, limited
purpose subsidiary pursuant to a certificate of incorporation containing certain
limitations (including restrictions on the nature of the Seller's business and a
restriction on the Seller's ability to commence a voluntary case or proceeding
under any Insolvency Law without the unanimous affirmative vote of all of its
directors). However, there can be no assurance that the activities of the Seller
would not result in a court concluding that the assets and liabilities of the
Seller should be consolidated with those of Onyx in a proceeding under any
Insolvency Law.
The Seller has received the advice of counsel to the effect that,
subject to certain facts, assumptions and qualifications, it would not be a
proper exercise by a court of its equitable discretion to disregard the separate
corporate existence of the Seller and to require the consolidation of the assets
and liabilities of the Seller with the assets and liabilities of Onyx in the
event of the application of any Insolvency Law to Onyx. However, there can be no
assurance that a court would not conclude that the assets and liabilities of the
Seller should be consolidated with those of Onyx. If a court were to reach such
a conclusion, or a filing were made under any Insolvency Law by or against the
Seller, or if an attempt were made to litigate any of the foregoing issues,
delays in payments or distributions on any outstanding series of Securities
could occur or reductions in the amounts of such payments or distributions could
result.
Unless otherwise specified in the related prospectus supplement, the
Contracts included in the Trust Property of each Trust will have been sold by
Onyx and/or a Selling Subsidiary to the Seller pursuant to a purchase agreement
between Onyx or such Selling Subsidiary and the Seller (each, a "PURCHASE
AGREEMENT"). The Contracts included in the Trust Property of each Trust will be
sold by the Seller to such Trust pursuant to a sale and servicing agreement or
pooling and servicing agreement, as applicable. Onyx, each Selling Subsidiary
and the Seller intend that each transfer of Contracts by Onyx or such Selling
Subsidiary to the Seller under the applicable Purchase Agreement or otherwise
will constitute a "true sale" of the Contracts to the Seller. If a transfer of
Contracts constitutes such a "true sale," such Contracts and the proceeds
thereof would not be part of the bankruptcy estate of Onyx or such Selling
Subsidiary under Section 541 of the United States Bankruptcy Code (the
"BANKRUPTCY CODE") should Onyx or such Selling Subsidiary become the subject of
a bankruptcy case subsequent to the transfer of such Contracts to the Seller.
The Seller has received the advice of counsel to the effect that,
subject to certain facts, assumptions and qualifications, in the event Onyx were
to become the subject of a voluntary or involuntary case under the Bankruptcy
Code subsequent to the transfer of Contracts to the Seller, the transfer of such
Contracts by Onyx to the Seller would be characterized as a "true sale" of the
Contracts from Onyx to the Seller and the Contracts and the proceeds thereof
would not form part of Onyx's bankruptcy estate pursuant to Section 541 of the
Bankruptcy Code.
THE SERVICER
The Contracts included in the Trust Property of each Trust initially
will be serviced by Onyx. Onyx was incorporated in California in 1993 and
reincorporated in Delaware in 1996 in connection with its initial public
offering of Common Stock, which was successfully completed in March 1996. Onyx
is engaged principally in the
18
<PAGE> 22
business of providing indirect automobile financing to new car dealerships and
selected used car dealerships in California and in other states across the
country. Onyx is headed by a management team with extensive experience in the
origination and servicing of indirect and direct automobile loans, and who, from
1985 to present, have actively participated in a number of public
securitizations of Motor Vehicle Contracts. The Common Stock of Onyx is listed
on the NASDAQ. Onyx's principal executive offices are located at 27051 Towne
Centre Drive, Suite 100, Foothill Ranch, California 92610.
Onyx acquires individual Motor Vehicle Contracts from Dealers, and to a
lesser extent subsidiaries of Onyx purchase such contracts from credit unions or
other parties 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 $1.9 billion from commencement of operations through September 30,
1998. As of September 30, 1998, Onyx had amassed a servicing portfolio of
approximately $1.176 billion. As of September 30, 1998, approximately 80% of
Onyx's servicing portfolio consisted of retail installment sale contracts and
installment loan agreements secured by used motor vehicles, and 20% secured by
new motor vehicles. As of September 30, 1998, Onyx had total assets of
approximately $244.3 million and stockholders' equity of $44.7 million.
Onyx finances acquisitions and originations of Motor Vehicle Contracts
on a short term basis through two separate warehouse facilities and has
previously financed acquisitions and originations of motor vehicle installment
contracts on a long term basis through sales of Motor Vehicle Contracts to
grantor and owner trusts and periodically through whole loan sales.
DESCRIPTION OF THE SECURITIES
GENERAL
With respect to each Trust that issues Notes, one or more classes of
Notes of the related series will be issued pursuant to the terms of an
indenture, a form of which has been filed as an exhibit to the registration
statement of which this prospectus forms a part. With respect to each Trust that
issues Certificates, one or more classes of Certificates of the related series
will be issued pursuant to the terms of a trust agreement or a pooling and
servicing agreement, a form of each of which has been filed as an exhibit to the
registration statement of which this prospectus forms a part. The following
summary does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Notes, Certificates,
indenture, trust agreement and pooling and servicing agreement, as applicable,
and the related prospectus supplement.
The Securities of each series will be issued in the denominations
specified in the related prospectus supplement. Unless otherwise specified in
the related prospectus supplement, the Securities of each series will be issued
in book-entry form. See "--Book-Entry Registration" and "--Definitive
Securities". All Securities offered pursuant to this prospectus and the related
prospectus supplement will be rated in one of the four highest rating categories
by one or more nationally recognized statistical rating agencies.
PRINCIPAL AND INTEREST ON THE SECURITIES
The timing and priority of payment, seniority, allocations of losses,
Interest Rate or Certificate Rate, as applicable, and amount of or method of
determining payments or distributions of principal and interest on each class of
Securities of a given series will be described in the related prospectus
supplement. The right of holders of any class of Securities to receive payments
or distributions of principal and interest may be senior or subordinate to the
rights of holders of any other class or classes of Securities of such series, as
described in the related prospectus supplement. Unless otherwise provided in the
related prospectus supplement, payments of interest on the Securities of such
series will be made prior to payments of principal thereon. To the extent
provided in the related prospectus supplement, a series may include one or more
classes of Strip Notes or Strip Certificates entitled to (i) principal payments
or distributions with disproportionate, nominal or no interest payments or
distributions or (ii) interest
19
<PAGE> 23
payments or distributions with disproportionate, nominal or no principal
payments or distributions. Each class of Securities may have a different
Interest Rate or Certificate Rate, as applicable, which may be a fixed, variable
or adjustable Interest Rate or Certificate Rate, as applicable (and which may be
zero for certain classes of Strip Notes or Strip Certificates), or any
combination of the foregoing. The related prospectus supplement will specify the
Interest Rate or Certificate Rate, as applicable, for each class of Securities
of a given series or the method for determining such Interest Rate or
Certificate Rate, as applicable. One or more classes of Securities of a series
may be redeemable in whole or in part under the circumstances specified in the
related prospectus supplement, including as a result of the Servicer's
exercising its option to purchase the remaining related Contracts.
In the case of a series of Securities which includes two or more classes
of Securities, the sequential order and priority of payments or distributions in
respect of principal and interest, and any schedule or formula or other
provisions applicable to the determination thereof, of each such class will be
set forth in the related prospectus supplement. Payments or distributions in
respect of principal and interest of any class of Securities will be made on a
pro rata basis among all the Securityholders of such class.
BOOK-ENTRY REGISTRATION
Unless otherwise specified in the related prospectus supplement, each
class of Securities offered hereby will be represented by one or more
certificates registered in the name of Cede, as nominee of DTC. Unless otherwise
specified in the related prospectus supplement, Securityholders may hold
beneficial interests in Securities through DTC directly if they are participants
in DTC ("PARTICIPANTS") or indirectly through Participants.
Cede, as nominee for DTC, will hold the global Securities of each
series. Transfers between Participants will occur in the ordinary way in
accordance with DTC rules.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to Section 17A of the Securities and Exchange Act of
1934, as amended. DTC was created to hold securities for its Participants and to
facilitate the clearance and settlement of securities transactions between
Participants through electronic book-entry changes in accounts of its
Participants, thereby eliminating the need for physical movement of notes or
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations which may include underwriters, agents or
dealers with respect to the Securities of any class or series. Indirect access
to the DTC system also is available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (the "INDIRECT PARTICIPANTS").
Unless otherwise specified in the related prospectus supplement, owners
of beneficial interests in Securities that are in book-entry form ("SECURITY
OWNERS") that are not Participants or Indirect Participants but desire to
purchase, sell or otherwise transfer ownership of, or other interests in,
Securities may do so only through Participants and Indirect Participants. In
addition, Securityholders of a given series will receive all distributions of
principal and interest in respect of the Securities from the indenture trustee
or trustee through the Participants who in turn will receive them from DTC.
Under a book-entry format, Security Owners of a given series may experience some
delay in their receipt of payments, since such payments will be forwarded by the
indenture trustee or trustee, as applicable, to Cede, as nominee of DTC. DTC
will forward such payments to its Participants which thereafter will forward
them to Indirect Participants or such Security Owners, it is anticipated that
the only "Securityholder" in respect of any series will be Cede, as nominee of
DTC. Security Owners of a given series will not be recognized as Securityholders
of such Series, and such Security Owners will be permitted to exercise the
rights of Securityholders only indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers of Securities
of a given series among Participants on whose behalf it acts with respect to
such Securities and is required to receive and transmit distributions of
principal of, and interest on, such
20
<PAGE> 24
Securities. Participants and Indirect Participants with which Security Owners of
a given series have accounts with respect to the Securities of such series
similarly are required to make book-entry transfers and receive and transmit
such payments on behalf of their respective Security Owners of such series.
Accordingly, although Security Owners will not possess Securities, Security
Owners will receive payments and will be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Security
Owner of a given series to pledge Securities of such series to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of such Securities, may be limited due to the lack of a physical
certificate for such Securities.
DTC will advise the trustee in respect of each Series that it will take
any action permitted to be taken by a Securityholder of such series only at the
direction of one or more Participants to whose account with DTC the Securities
of such series are credited. Additionally, DTC has advised the Seller that it
will take such actions with respect to specified percentages of the
Securityholder's interest only at the direction of and on behalf of Participants
whose holdings include undivided interests that satisfy such percentages. DTC
may take conflicting actions with respect to other undivided interests to the
extent that such actions are taken on behalf of Participants whose holdings
include such undivided interests.
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of Securities among participants of DTC, they are under no
obligation to perform or continue to perform such procedures and such procedures
may be discontinued at any time.
DEFINITIVE SECURITIES
Unless otherwise specified in the related prospectus supplement, the
Securities of a given series will be issued in fully registered, certificated
form ("DEFINITIVE SECURITIES") to Security Owners or their nominees rather than
to DTC or its nominee, only if (i) the Seller, the related trustee or the
Administrator, as applicable, advises the trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as depositary
with respect to the Securities, and the Seller, the related trustee or the
Administrator are unable to locate a qualified successor, or (ii) after the
occurrence of an Indenture Event of Default under the related indenture, if
applicable, or an event of default under the related sale and servicing
agreement or pooling and servicing agreement, as applicable, Security Owners
representing in the aggregate more than 50% of the outstanding principal balance
of such Securities advise the applicable trustee through Participants in writing
that the continuation of a book-entry system with respect to the Securities
through depositary is no longer in the best interest of the Security Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the applicable trustee and/or the related indenture trustee
will be required to notify all Security Owners, through Participants, of the
availability through DTC of Definitive Securities. Upon surrender by DTC of the
definitive securities representing the Securities and instructions for
re-registration, the applicable trustee and, if applicable, the related
indenture trustee will reissue the Securities as Definitive Securities, and
thereafter the applicable trustee will recognize the holders of such Definitive
Securities as Securityholders.
Payments or distributions of principal of and interest on the Securities
will be made by the paying agent directly to holders of Definitive Securities in
accordance with the procedures set forth herein and in the related indenture or
the related trust agreement or pooling and servicing agreement, as applicable.
Such payments or distributions on each Distribution Date and on the final
Distribution Date (as specified in the related prospectus supplement) will be
made to holders in whose names the Definitive Securities were registered at the
close of business on the related Record Date. Payments or distributions will be
made by check mailed to the address of such holder as it appears on the register
maintained by the applicable trustee or indenture trustee. The final payment or
distribution on any Security (whether Definitive Securities or the Securities
registered in the name of DTC's nominee), however, will be made only upon
presentation and surrender of such Security at the office or agency specified in
the notice of final payment or distribution to Securityholders.
21
<PAGE> 25
Definitive Securities will be transferable and exchangeable at the
offices of the applicable trustee or indenture trustee, or at the offices of a
transfer agent or registrar named in a notice delivered to holders of such
Definitive Securities, which shall initially be the applicable trustee or
indenture trustee. No service charge will be imposed for any registration of
transfer or exchange, but the applicable trustee, indenture trustee, transfer
agent or registrar may require payment of a sum sufficient to cover any tax or
other governmental charge imposed in connection therewith.
LIST OF SECURITYHOLDERS
Unless otherwise specified in the related prospectus supplement with
respect to the Notes of any series, upon written request of the Servicer, the
related indenture trustee will provide to the Servicer within 15 days after
receipt of such request a list of the names and addresses of all holders of
Notes ("NOTEHOLDERS") of record as of the most recent Record Date. Upon written
request by three or more Noteholders of such series or by Noteholders evidencing
not less than 25% of the aggregate outstanding principal balance of such Notes,
the indenture trustee will afford such Noteholders access during business hours
to the current list of Noteholders for purposes of communicating with other
Noteholders with respect to their rights under the indenture or under such
Notes.
Unless otherwise specified in the related prospectus supplement with
respect to the Certificates of any series upon written request of the Servicer,
the related trustee will provide to the Servicer within 15 days after receipt of
such request a list of the names and addresses of all holders of Certificates
("CERTIFICATEHOLDERS") of record as of the most recent Record Date. Upon written
request by three or more Certificateholders of such series or by
Certificateholders evidencing not less than 25% of the aggregate outstanding
principal balance of such Certificates, the related trustee will afford such
Certificateholders access during business hours to the current list of
Certificateholders for purposes of communicating with other Certificateholders
with respect to their rights under the related trust agreement or pooling and
servicing agreement or under such Certificates.
The pooling and servicing agreement, trust agreement and indenture will
not provide for the holding of annual or other meetings of Securityholders.
STATEMENTS TO SECURITYHOLDERS
Unless otherwise specified in the related prospectus supplement, with
respect to each series of Securities, on each Distribution Date, the applicable
trustee or indenture trustee will include with each payment or distribution to
each Securityholder a Distribution Date Statement setting forth for such
Distribution Date the following information (and any other information so
specified in the related prospectus supplement):
(i) the amount of the distribution on or with respect to each class
of such Securities allocable to principal;
(ii) the amount of the distribution on or with respect to each class
of such Securities allocable to interest;
(iii) the aggregate distribution amount for such Distribution Date;
(iv) the premiums payable to the related Security Insurer, if any, the
balance of any fund or account with respect to any credit or
liquidity enhancement on such date, after giving effect to
changes thereto on such date and the amount to be deposited in
the spread account, if any;
(v) the aggregate Servicing Fee paid to the Servicer with respect to
the related Contracts for the related Collection Period;
(vi) the number of, and aggregate amount of monthly principal and
interest payments due on, the related Contracts which are
delinquent as of the end of the related collection period (as
defined in the related prospectus supplement, the "COLLECTION
PERIOD") presented on a 30-day, 60-day and 90-day basis;
22
<PAGE> 26
(vii) the amount available in the Collection Account for payment of the
aggregate amount payable or distributable on such Securities, the
amount of the Servicing Fee, the amount of any principal or
interest shortfall with respect to each class of Securities and
the amount required from any applicable Security Insurer pursuant
to the related Security Insurance Policy to pay any shortfall;
(viii) the aggregate amount of proceeds received by the Servicer, net of
recoverable out-of-pocket expenses, received for a Contract which
is a "DEFAULTED CONTRACT" (as such term is defined in the related
prospectus supplement).
(ix) the net credit losses for the Collection Period;
(x) the number and net outstanding balance of Contracts for which the
financed vehicle has been repossessed; and
(xi) the Pool Balance.
Within a reasonable period of time after the end of each calendar year
during the term of each Trust, but not later than the latest date permitted by
law, the applicable trustee or indenture trustee and the paying agent shall
furnish to each person who on any Record Date during such calendar year shall
have been a registered Securityholder a statement containing certain information
for the purposes of such Securityholder's preparation of federal income tax
returns. See "Certain Federal Income Tax Consequences".
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of (i) each sale and
servicing agreement or pooling and servicing agreement pursuant to which a Trust
will purchase Contracts from the Seller and the Servicer will agree to service
such Contracts, (ii) each trust agreement (in the case of a grantor trust, the
pooling and servicing agreement) pursuant to which a Trust will be created and
Certificates will be issued and (iii) each Administration Agreement pursuant to
which Onyx or another party specified in the related prospectus supplement will
undertake certain administrative duties with respect to a Trust that issues
Notes (collectively, the "TRANSFER AND SERVICING AGREEMENTS"). Forms of the
Transfer and Servicing Agreements have been filed as exhibits to the
registration statement of which this prospectus forms a part. This summary does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, all the provisions of each applicable Transfer and Servicing
Agreement and the related prospectus supplement.
SALE AND ASSIGNMENT OF THE CONTRACTS
At the time of issuance of a series of Securities, the Seller will sell
and assign to the applicable trustee, without recourse, pursuant to a sale and
servicing agreement or a pooling and servicing agreement, as applicable, the
Seller's entire interest in the Contracts and the proceeds thereof, including
its security interests in the related financed vehicles. Each Contract will be
identified in a schedule appearing as an exhibit to such sale and servicing
agreement or pooling and servicing agreement. The applicable trustee will,
concurrently with such sale and assignment, execute, authenticate and deliver
the definitive certificates representing the related Securities. Unless
otherwise provided in the related prospectus supplement, the net proceeds
received from the sale of the Securities of a given series will be applied to
the purchase of the related Contracts from the Seller and, to the extent
specified in the related prospectus supplement, to make the required initial
deposit into any reserve fund, spread account or with respect to any other
credit or liquidity enhancement. Unless otherwise specified in the related
prospectus supplement, pursuant to the applicable Purchase Agreement, prior to
sale of the Contracts to the trustee and the issuance of the Securities, Onyx
and each Selling Subsidiary will sell and assign to the Seller Onyx's and such
Selling Subsidiary's entire interest in the Contracts.
23
<PAGE> 27
Pursuant to each sale and servicing agreement or pooling and servicing
agreement, the Seller will represent to the applicable trustee and the Trust for
the benefit of holders of the Securities and any applicable Security Insurer
that, except as otherwise provided in the related prospectus supplement:
(i) each Contract to be included in the Trust Property of such Trust
contains customary and enforceable provisions such that the
rights and remedies of the holder thereof shall be adequate for
realization against the collateral of the benefits of the
security;
(ii) each such Contract and the sale of the related financed vehicle
complied at the time it was made in all material respects with
all requirements of applicable federal, state, and local laws,
and regulations thereunder, including usury laws, the Federal
Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair
Credit Reporting Act, the Federal Trade Commission Act, the Fair
Debt Collection Practices Act, the Fair Credit Billing Act, the
Magnuson-Moss Warranty Act, the Federal Reserve Board's
Regulations B and Z, the Soldiers' and Sailors' Civil Relief Act
of 1940, state adaptations of the National Consumer Act and of
the Uniform Consumer Credit Code, and any other consumer credit,
equal opportunity and disclosure laws applicable to such Contract
and sale;
(iii) each such Contract constitutes the legal, valid, and binding
payment obligation in writing of the obligor, enforceable by the
holder thereof in all respects in accordance with its terms,
subject, as to enforcement, to applicable bankruptcy, insolvency,
reorganization, liquidation and other similar laws and equitable
principles relating to or affecting the enforcement of creditors'
rights;
(iv) as of the Closing Date, each such Contract was secured by a
validly perfected first priority security interest in the
financed vehicle in favor of the Seller as secured party or all
necessary action with respect to such Contract has been taken to
perfect a first priority security interest in the related
financed vehicle in favor of the Seller as secured party, which
security interest is assignable and has been so assigned by the
Seller to the Trust;
(v) as of the Closing Date, the Seller had good and marketable title
to and was the sole owner of each such Contract, free of liens,
claims, encumbrances and rights of others;
(vi) as of the Closing Date, there are no rights of rescission,
offset, counterclaim, or defense, and the Seller has no knowledge
of the same being asserted or threatened, with respect to any
such Contract;
(vii) as of the Closing Date, the Seller had no knowledge of any liens
or claims that have been filed, including liens for work, labor,
materials or unpaid taxes relating to a financed vehicle, that
would be liens prior to, or equal or coordinate with, the lien
granted by such Contract;
(viii) except for payment defaults continuing for a period of not more
than 30 days as of the Cut-Off Date, the Seller has no knowledge
that a default, breach, violation, or event permitting
acceleration under the terms of any such Contract exists, and the
Seller has no knowledge that a continuing condition that with
notice or lapse of time would constitute a default, breach,
violation or event permitting acceleration under the terms of any
such Contract exists, and the Seller has not waived any of the
foregoing;
(ix) each such Contract requires that the obligor thereunder obtain
comprehensive and collision insurance covering the financed
vehicle;
(x) each such Contract was acquired from a Dealer with whom Onyx
ordinarily does business (except for Contracts purchased or
originated by a subsidiary of Onyx);
24
<PAGE> 28
(xi) no adverse selection procedures were utilized in selecting such
Contracts;
(xii) scheduled payments under each such Contract have been applied in
accordance with the method for allocating principal and interest
set forth in such Contract (unless otherwise specified in the
related prospectus supplement, one of the Actuarial Method, the
Rule of 78's Method or the Simple Interest Method); and
(xiii) there is only one original of each such Contract and such
original is being held by the applicable trustee or another
entity as custodian on behalf of the Trust and any applicable
Security Insurer.
As of the last day of the Collection Period following the Collection Period (or,
if the Seller elects, the last day of such Collection Period) during which the
Seller becomes aware or receives written notice from the applicable trustee or
the Servicer that a Contract does not meet any of the criteria in the sale and
servicing agreement or pooling and servicing agreement, as applicable, and such
failure materially and adversely affects the interests of the Securityholders or
any applicable Security Insurer in a Contract, the Seller, unless it cures the
failed criterion, will repurchase the Contract from the applicable trustee at
the price specified in the related prospectus supplement. The repurchase
obligation will constitute the sole remedy available to the Securityholders or
the applicable trustee for the failure of a Contract to meet any of the criteria
set forth in the sale and servicing agreement or pooling and servicing
agreement, as applicable.
THE COLLECTION ACCOUNT AND ELIGIBLE INVESTMENTS
Unless otherwise specified in the related prospectus supplement, with
respect to each Trust, the Servicer will establish and maintain an account (the
"COLLECTION ACCOUNT") in the name of the related trustee (or, in the case of a
series of Securities that includes Notes, the related indenture trustee), into
which all collections made on the related Contracts will be deposited. Funds in
the Collection Account will be invested in Eligible Investments by the
applicable trustee or indenture trustee, acting at the direction of any
applicable Security Insurer. "ELIGIBLE INVESTMENTS" are generally limited to
investments acceptable to each Rating Agency rating the applicable Securities as
being consistent with the rating of such Securities. Except as otherwise
described in the related prospectus supplement, Eligible Investments made with
respect to the Collection Account will mature no later than the next following
Distribution Date and income from amounts on deposit in the Collection Account
which are invested in Eligible Investments will be paid to the Servicer monthly
unless earlier directed by the Servicer.
PAYAHEAD ACCOUNT
Unless otherwise provided in the related prospectus supplement, payments
made by an obligor in excess of the Monthly P&I due on the current Due Date and
any other amount currently due on a Precomputed Contract (other than full
prepayments) ("PAYAHEADS") will be initially deposited in the Collection Account
and subsequently transferred from the Collection Account, as of a specified
periodic date set forth in the related prospectus supplement (the "SERVICER
REPORT DATE") (as defined with respect to each series of Securities in the
related prospectus supplement), to an account established in the name of the
related trustee or indenture trustee for the benefit of the obligors and the
Securityholders as their interests may appear (the "PAYAHEAD ACCOUNT") and shall
be held in such account until distributed in accordance with the original
schedule of payments for the related Contract or until the amount of such
partial prepayment equals the amount the obligor would be required to pay in
order to prepay the Contract in full. Unless otherwise provided in the related
prospectus supplement, amounts on deposit in the Payahead Account will be
invested in Eligible Investments with maturity dates such that on each
Distribution Date Monthly P&I for each Precomputed Contract with respect to
which a partial prepayment had been made will be available to be paid or
distributed to Securityholders. Unless otherwise specified in the related
prospectus supplement, the Payahead Account will not be part of the applicable
Trust and the related trustee and, if applicable, the related indenture trustee
will not have a security interest in the Payahead Account. Unless otherwise
provided in the related prospectus supplement, earnings on Eligible Investments
credited to the Payahead Account will be paid to the Servicer.
25
<PAGE> 29
OTHER ACCOUNTS
Any other accounts to be established with respect to a Trust, including
any reserve fund, will be described in the related prospectus supplement
(together with the Collection Account and the Payahead Account, the "TRUST
ACCOUNTS"). For any series of Securities, funds in any related reserve fund and
such other Trust Account as may be identified in the related prospectus
supplement will be invested as provided in the related sale and servicing
agreement, pooling and servicing agreement or indenture in Eligible Investments.
PAYMENTS ON CONTRACTS
With respect to each Trust, unless otherwise specified in the related
prospectus supplement, all collections on the Contracts will be deposited in or
credited to the Collection Account within two Business Days of the receipt by
the Servicer of payments from obligors. Unless otherwise specified in the
related prospectus supplement, such collections will include: full prepayments
and partial prepayments (pending transfer of Payaheads on Precomputed Contracts
to any Payahead Account), Net Liquidation Proceeds and Net Insurance Proceeds,
any amounts deposited by Onyx or the Seller in the Collection Account to
repurchase 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 sale and servicing agreement or the
pooling and servicing agreement, as applicable, that materially and adversely
affect the interests of the Securityholders or any applicable Security Insurer,
any amounts deposited by the Servicer in the Collection Account to purchase
Contracts as to which the Servicer has breached certain servicing covenants, and
any amounts deposited by the Servicer in the Collection Account as a result of
such entity exercising its right under certain circumstances to purchase all or
a portion of the Contracts. "NET LIQUIDATION PROCEEDS" are proceeds received by
the Servicer (net of Liquidation Expenses) upon liquidation of any Defaulted
Contract. "LIQUIDATION EXPENSES" are the reasonable out-of-pocket expenses
(exclusive of overhead expenses) incurred by the Servicer in realizing upon a
Defaulted Contract which are not recoverable under any insurance policy. "NET
INSURANCE PROCEEDS" are proceeds paid by any insurer under a comprehensive and
collision or vendor's single interest insurance policy related to a Contract
(other than funds used for the repair of the related financed vehicle or
otherwise released to the related obligor in accordance with normal servicing
procedures), after reimbursement to the Servicer of expenses recoverable under
such policy. Partial prepayments of Precomputed Contracts are initially
deposited in the Collection Account and are transferred to the Payahead Account,
if any, on the Servicer Report Date.
PAYMENTS AND DISTRIBUTIONS
With respect to each series of Securities, beginning on the Distribution
Date specified in the related prospectus supplement, payments and distributions
of principal and interest (or, where applicable, of principal or interest only)
on each class of such Securities entitled thereto will be made by the applicable
indenture trustee to the Noteholders and by the applicable trustee to the
Certificateholders of such series. The timing, calculation, allocation, order,
source, priorities of and requirements for all payments and distributions to
each class of Securities of such series will be set forth in the related
prospectus supplement.
With respect to each Trust, on each Distribution Date collections on the
related Contracts will be withdrawn from the related Collection Account and will
be paid and distributed to the Noteholders and/or Certificateholders as provided
in the related prospectus supplement. Credit enhancement will be available to
cover any shortfalls in the amount available for payment or distribution to the
Securityholders on such date to the extent specified in the related prospectus
supplement. If specified in the related prospectus supplement, payments or
distributions in respect of one or more classes of Securities of the applicable
series may be subordinate to payments or distributions in respect of one or more
other classes of Securities of such series.
CREDIT AND CASH FLOW ENHANCEMENT
The amounts and types of credit and cash flow enhancement arrangements
and the provider thereof, if applicable, with respect to each class of
Securities of a given series, if any, will be set forth in the related
prospectus
26
<PAGE> 30
supplement. If and to the extent provided in the related prospectus supplement,
credit and cash flow enhancement may be in the form of subordination of one or
more classes of Securities, one or more Security Insurance Policies, reserve
funds, over-collateralization, letters of credit, credit or liquidity
facilities, guaranteed investment contracts, swaps or other interest rate
protection agreements, repurchase obligations, yield supplement agreements,
other agreements with respect to third party payments or other support, cash
deposits or such other arrangements as may be described in the related
prospectus supplement or any combination of two or more of the foregoing. If
specified in the applicable prospectus supplement, credit or cash flow
enhancement for a class of Securities may cover one or more other classes of
Securities of the same series, and credit or cash flow enhancement for a series
of Securities may cover one or more other series of Securities.
The presence of credit enhancement for the benefit of any class or
series of Securities is intended to enhance the likelihood of receipt by the
Securityholders of such class or series of the full amount of principal and
interest due thereon and to decrease the likelihood that such Securityholders
will experience losses. Unless otherwise specified in the related prospectus
supplement, the credit enhancement for a class or series of Securities will not
provide protection against all risks of loss and will not guarantee repayment of
the entire principal balance and interest thereon. If losses occur which exceed
the amount covered by any credit enhancement or which are not covered by any
credit enhancement, Securityholders of any class or series will bear their
allocable share of deficiencies, as described in the related prospectus
supplement. In addition, if a form of credit enhancement covers more than one
class or series of Securities, Securityholders of any such series will be
subject to the risk that such credit enhancement will be exhausted by the claims
of Securityholders of other classes or series.
INSURANCE ON FINANCED VEHICLES
Each obligor on a Contract will be required to maintain insurance
covering physical damage to the financed vehicle of such obligor in an amount
not less than the lesser of its maximum insurable value or the unpaid principal
balance under such Contract. Onyx or the applicable Onyx subsidiary will be
required to be named as a loss payee under the policy of insurance obtained by
the obligor. Each financed vehicle will be required to be insured against loss
and damage due to fire, theft, transportation, collision and other risks covered
by comprehensive coverage. Since obligors may choose their own insurers to
provide the required coverage, the specific terms and conditions of their
policies vary.
SERVICER REPORTS TO THE TRUSTEES AND SECURITY INSURER
The Servicer will perform certain monitoring and reporting functions for
the applicable indenture trustee, if any, the applicable trustee, and any
applicable Security Insurer, including the preparation and delivery on the
Servicer Report Date of a statement (the "DISTRIBUTION DATE STATEMENT") setting
forth the amounts on deposit in the Collection Account, the sources of such
amounts and the amounts to be paid to Securityholders. The Distribution Date
Statement shall also include information regarding Contracts purchased by the
Servicer or repurchased by the Seller.
REPURCHASE OF CONTRACTS
Each sale and servicing agreement and pooling and servicing agreement
will provide that the Servicer will have the option to purchase the remaining
Contracts included in the Trust Property of a Trust on any Distribution Date as
of which the related Pool Balance (after giving effect to the principal payments
and distributions otherwise to be made on such Distribution Date) has declined
to the percentage of the Original Pool Balance specified in the related
prospectus supplement. Any such purchase must be effected at the price specified
in the related prospectus supplement, if applicable, plus all amounts due to any
applicable Security Insurer. In addition, Onyx or the Seller will be required to
purchase or repurchase, respectively, Contracts under certain circumstances if
certain representations and warranties made by Onyx or the Seller respectively
are incorrect in any manner that materially and adversely affects the interest
of the Securityholders. Additionally, the Servicer will be required to purchase
Contracts as to which the Servicer has breached certain servicing covenants.
27
<PAGE> 31
SERVICING FEE
The Servicer will be entitled to compensation for the performance of its
obligations under each sale and servicing agreement and pooling and servicing
agreement. Unless otherwise specified in the related prospectus supplement, the
Servicer shall be entitled to receive on each Distribution Date an amount (the
"SERVICING FEE") equal to the product of a specified percentage per annum (as
set forth in the related prospectus supplement, the "SERVICING FEE RATE")
multiplied by the Pool Balance as of the end of the Collection Period preceding
the related Collection Period. Unless otherwise specified in the related
prospectus supplement, the Servicer or its designee shall be entitled to retain,
as additional compensation, all late payment charges, extension fees and similar
items paid in respect of the Contracts. The Servicer or its designee may also be
entitled to receive as servicing compensation reinvestment earnings on Eligible
Investments and the amount, if any, by which the outstanding principal balance
of a Rule of 78's Contract based on the Rule of 78's Method that is subject to a
full prepayment exceeds the Scheduled Balance of such Contract. Unless otherwise
specified in the related prospectus supplement, the Servicer shall pay all
expenses incurred by it in connection with its servicing activities under the
Agreement and shall not be entitled to reimbursement of such expenses except to
the extent they constitute Liquidation Expenses or expenses recoverable under an
applicable insurance policy.
WAIVERS AND EXTENSIONS
Each sale and servicing agreement and pooling and servicing agreement
will require the Servicer to use its best efforts to collect all payments called
for under the terms and provisions of the related Contracts. Unless otherwise
specified in the related prospectus supplement, and subject to any limitations
set forth therein, the Servicer, consistent with the foregoing, will be
permitted, in its discretion, to (i) waive any late payment charges in
connection with delinquent payments on a Contract, (ii) waive prepayment charges
and (iii) grant up to three extensions of thirty (30) days or less in order to
work out a default or an impending default.
REALIZATION UPON DEFAULTED CONTRACTS
The Servicer will liquidate any Contract that comes into and continues
in default and as to which no satisfactory arrangements can be made for
collection of delinquent payments. Such liquidation may be through repossession
or sale of the financed vehicle securing such Contract or otherwise. In
connection with such repossession or other conversion, the Servicer will follow
such procedures as are normal and usual for holders of motor vehicle retail
installment sales contracts or installment loan agreements. In this regard, the
Servicer may sell the financed vehicle at an auction or other sale.
EVIDENCE AS TO COMPLIANCE
Each sale and servicing agreement and pooling and servicing agreement
will provide that a firm of independent public accountants will furnish to the
related trustee or indenture trustee, as applicable, and, if applicable, the
related Security Insurer, on or before each March 15 after the end of each
fiscal year of the Servicer, a statement as to compliance by the Servicer during
the preceding fiscal year with certain standards relating to the servicing of
the applicable Contracts.
Each sale and servicing agreement and pooling and servicing agreement
will also provide for delivery to the related trustee or indenture trustee, as
applicable, and, if applicable, the related Security Insurer, on each March 15
after the end of each fiscal year of the Servicer, of a certificate signed by an
authorized officer of the Servicer stating that the Servicer has fulfilled its
obligations under the sale and servicing agreement or pooling and servicing
agreement, as applicable, throughout the preceding fiscal year or, if there has
been a default in the fulfillment of any such obligation, describing each such
default.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the applicable trustee or
indenture trustee.
28
<PAGE> 32
CERTAIN MATTERS REGARDING THE SERVICER
Each sale and servicing agreement and pooling and servicing agreement
will provide that the Servicer may not resign from its obligations and duties as
Servicer thereunder except upon determination that the Servicer's performance of
such duties is no longer permissible under applicable law. No such resignation
will become effective until the related trustee or indenture trustee, as
applicable, or a successor servicer, has assumed the Servicer's servicing
obligations and duties under the sale and servicing agreement or pooling and
servicing agreement, as applicable. See "-- The Trustee and Indenture Trustee".
Each sale and servicing agreement and pooling and servicing agreement
will further provide that neither the Servicer nor any of its directors,
officers, employees, and agents shall be under any liability to the related
Trust or the related Securityholders for taking any action or for refraining
from taking any action pursuant to the sale and servicing agreement or pooling
and servicing agreement, as applicable, or for errors in judgment; provided,
however, that neither the Servicer nor any such person will be protected against
any liability that would otherwise be imposed by reason of willful misfeasance,
bad faith or negligence (except errors in judgment) in the performance of duties
or by reason of reckless disregard of obligations and duties thereunder. In
addition, the sale and servicing agreement or pooling and servicing agreement,
as applicable, will provide that the Servicer is under no obligation to appear
in, prosecute or defend any legal action that is not incidental to the
Servicer's servicing responsibilities under the sale and servicing agreement or
pooling and servicing agreement, as applicable, and that, in its opinion, may
cause it to incur any expense or liability. The Servicer may, however, undertake
any reasonable action that it may deem necessary or desirable in respect of the
sale and servicing agreement or pooling and servicing agreement, as applicable,
and the rights and duties of the parties thereto and the interests of the
Securityholders thereunder. In such event, the legal expenses and costs of such
action and any liability resulting therefrom will be expenses, costs and
liabilities of the related Trust, and the Servicer will be entitled to be
reimbursed therefor out of the Collection Account. Any such indemnification or
reimbursement could reduce the amount otherwise available for distribution to
Securityholders.
Any corporation into which the Servicer may be merged or consolidated,
or any corporation resulting from any merger, conversion or consolidation to
which the Servicer is a party or any corporation succeeding to the business of
the Servicer, or, with respect to the Servicer's obligation as the Servicer,
will be the successor of the Servicer under the sale and servicing agreement or
pooling and servicing agreement, as applicable.
SERVICER DEFAULT
Except as otherwise provided in the related prospectus supplement,
"SERVICER DEFAULT" under the sale and servicing agreement or pooling and
servicing agreement, as applicable, will consist of: (i) any failure by the
Servicer to deposit in or credit to the Collection Account or the Payahead
Account, if any, any amount required to be so deposited or credited, which
failure continues unremedied for three Business Days after written notice from
the applicable trustee or indenture trustee, or, if applicable, the related
Security Insurer, is received by the Servicer or discovery by the Servicer; (ii)
any failure by the Servicer to deliver to such trustee or indenture trustee, or,
if applicable, the related Security Insurer, certain reports required by such
sale and servicing agreement or pooling and servicing agreement, as applicable,
by the Servicer Report Date or to perform certain other covenants under such
sale and servicing agreement or pooling and servicing agreement, as applicable;
(iii) any failure by the Servicer or the Seller duly to observe or perform in
any material respect any other covenants or agreements of the Servicer or the
Seller in such sale and servicing agreement or pooling and servicing agreement,
which failure materially and adversely affects the rights of Securityholders or
the applicable trustee or indenture trustee, or, if applicable, the related
Security Insurer, and which continues unremedied for 30 days after the giving of
written notice of such failure (A) to the Servicer or the Seller as the case may
be, by the applicable trustee or indenture trustee, or, if applicable, the
related Security Insurer, or (B) to the Servicer or the Seller, as the case may
be, and to the applicable trustee or indenture trustee by holders of Securities
evidencing not less than 25% in principal amount of such Securities, acting
together as a single class, or, if applicable, the related Security Insurer;
(iv) certain events of insolvency, readjustment of debt, marshalling of assets
and liabilities, or similar proceedings and certain actions by the Servicer or
Seller indicating its insolvency, reorganization pursuant to bankruptcy or
similar proceedings or inability to pay its
29
<PAGE> 33
obligations; (v) any breach of any of the representations and warranties of the
Servicer or the Seller (except for any breaches relating to Contracts
repurchased by the Seller or the Servicer) which breach has a material adverse
effect on the related Trust and which continues for 30 days after the giving of
notice of such breach to the Seller or the Servicer, as the case may be, by the
applicable trustee or indenture trustee or the holders of Securities evidencing
not less than 25% in principal amount of such Securities, acting together as a
single class, or, if applicable, the related Security Insurer; (vi) any change
in control of the Servicer in violation of the covenants set forth in such sale
and servicing agreement or pooling and servicing agreement; and (vii) if
applicable, the determination by the Security Insurer that the quality of
performance of the Servicer is not in compliance with either the terms of the
sale and servicing agreement or pooling and servicing agreement, as applicable,
or that the Servicer's performance is not adequate, as measured in accordance
with industry standards, in respect of all Motor Vehicle Contracts serviced by
the Servicer.
RIGHTS UPON SERVICER DEFAULT
In the case of any Trust that has issued Notes, unless otherwise
provided in the related prospectus supplement, as long as a Servicer Default
under a sale and servicing agreement remains unremedied, the related indenture
trustee, the related Security Insurer, if any, or holders of Notes of the
related series evidencing not less than 25% of principal amount of such Notes
then outstanding, acting together as a single class, may terminate all the
rights and obligations of the Servicer under such sale and servicing agreement,
whereupon such indenture trustee or a successor servicer appointed by such
indenture trustee will succeed to all the responsibilities, duties and
liabilities of the Servicer under such sale and servicing agreement and will be
entitled to similar compensation arrangements; provided, however, that such
indenture trustee will not be obligated to purchase Contracts if certain
representations and warranties of Onyx as Servicer prove incorrect or if certain
covenants of Onyx as Servicer are breached. In the case of any Trust that has
not issued Notes, unless otherwise provided in the related prospectus
supplement, as long as a Servicer Default under the related sale and servicing
agreement or pooling and servicing agreement remains unremedied, the related
trustee, the related Security Insurer, if any, or holders of Certificates of the
related series evidencing not less than 25% of the principal amount of such
Certificates then outstanding, acting together as a single class, may terminate
all the rights and obligations of the Servicer under such sale and servicing
agreement or pooling and servicing agreement, whereupon such trustee or a
successor servicer appointed by such trustee will succeed to all the
responsibilities, duties and liabilities of the Servicer under such sale and
servicing agreement or pooling and servicing agreement and will be entitled to
similar compensation arrangements; provided, however, that such trustee will not
be obligated to purchase Contracts if certain representations and warranties of
Onyx as Servicer prove incorrect or if certain covenants of Onyx as Servicer are
breached. In the event that such indenture trustee or trustee is unwilling or
unable to so act, it may appoint, or petition a court of competent jurisdiction
for the appointment of, a successor with a net worth of at least $50,000,000 and
whose regular business includes the servicing of automobile and/or light duty
truck receivables.
With respect to each Trust that has issued Notes, unless otherwise
provided in the related prospectus supplement, the holders of Notes of the
related series evidencing not less than 51% of the principal amount of such
Notes then outstanding, acting together as a single class, with the consent of
the related Security Insurer, if any, may, on behalf of all Securityholders of
the related series, waive any default by the Servicer in the performance of its
obligations under the related sale and servicing agreement and its consequences,
except a Servicer Default in making any required deposits to or payments from
any of the Trust Accounts in accordance with such sale and servicing agreement.
With respect to each Trust that has not issued Notes, holders of Certificates of
the related series evidencing not less than 51% of the principal amount of such
Certificates then outstanding, acting together as a single class, with the
consent of the related Security Insurer, if any, may, on behalf of all such
Certificateholders, waive any default by the Servicer in the performance of its
obligations under the related sale and servicing agreement or pooling and
servicing agreement, except a Servicer Default in making any required deposits
to or payments from the related Trust Accounts in accordance with such sale and
servicing agreement or pooling and servicing agreement. No such waiver will
impair such Noteholders' or Certificateholders' rights with respect to
subsequent defaults.
With respect to each Trust, unless otherwise provided in the related
prospectus supplement, the applicable trustee or indenture trustee will be under
no obligation to exercise any of the trusts or powers vested in it by the sale
30
<PAGE> 34
and servicing agreement or pooling and servicing agreement, as applicable, or to
make any investigation of matters arising thereunder or to institute, conduct,
or defend any litigation thereunder or in relation thereto at the request,
order, or direction of any of the Securityholders, unless such Securityholders
have offered to such trustee or indenture trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby. Unless otherwise specified in the related prospectus
supplement, no Securityholder will have any right under the sale and servicing
agreement or the pooling and servicing agreement to institute any proceeding
with respect thereto, unless such holder previously has given to such trustee or
indenture trustee, as applicable, written notice of default and unless (i) in
the case of a Trust that has issued Notes, holders of Notes of the related
Series evidencing not less than 25% of the principal amount of such Notes then
outstanding, or (ii) in the case of a Trust that has not issued Notes, holders
of Certificates of the related series evidencing not less than 25% of the
principal amount of such Certificates then outstanding, in either case with the
consent of the related Security Insurer, if any, have made written request upon
such trustee or indenture trustee to institute such proceeding in its own name
as trustee or indenture trustee thereunder and have offered to such trustee or
indenture trustee reasonable indemnity and such trustee or indenture trustee for
30 days has neglected or refused to institute any such proceedings.
AMENDMENT
Unless otherwise provided in the related prospectus supplement, each of
the Transfer and Servicing Agreements may be amended by the parties thereto,
without the consent of the related Securityholders, but with the consent of the
related Security Insurer, if any, to cure any ambiguity, correct or supplement
any provisions therein which may be inconsistent with any other provisions
therein, or make any other provisions with respect to matters or questions
arising thereunder which are not inconsistent with the provisions of such
Transfer and Servicing Agreement; provided that such action will not materially
and adversely affect the interest of any such Securityholder. Any amendment
shall be deemed not to materially and adversely affect the interest of any
Securityholder 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 applicable Securities by such
Rating Agency. Unless otherwise specified in the related prospectus supplement,
the Transfer and Servicing Agreements may also be amended by the parties thereto
with the consent of (i) in the case of a Trust that has issued Notes, the
holders of Notes of the related series evidencing not less than 51% of the
principal amount of such Notes then outstanding, acting together as a single
class, or (ii) in the case of a Trust that has not issued Notes, the holders of
Certificates of the related series evidencing not less than 51% of the principal
amount of such Certificates then outstanding, acting together as a single class,
and in either case with the consent of the related Security Insurer, if any, for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of such Transfer and Servicing Agreements or of modifying
in any manner the rights of such Noteholders or Certificateholders; provided,
however, that no such amendment may (i) increase or reduce in any manner the
amount of, or accelerate or delay the timing of, collections of payments on the
related Contracts or distributions that are required to be made for the benefit
of such Noteholders or Certificateholders or (ii) reduce the aforesaid
percentage of the Notes or Certificates of such series which are required to
consent to any such amendment, without the consent of the holders of all the
outstanding Notes or Certificates, as the case may be, of such series.
TERMINATION
With respect to each Trust, except as otherwise set forth in the related
prospectus supplement, the obligations of the Seller, the Servicer, the related
trustee and the related indenture trustee, if any, pursuant to the Transfer and
Servicing Agreements will terminate upon the earlier of (i) the maturity or
other liquidation of the last related Contract and the disposition of any
amounts received upon liquidation of any remaining Contracts that are part of
the related Trust Property and (ii) (a) the payment to Noteholders, if any, and
Certificateholders of the related series of all amounts required to be paid to
them pursuant to the Transfer and Servicing Agreements and the disposition of
all property held as part of the related Trust, (b) if applicable, the
termination of the related Security Insurance Policy in accordance with its
terms and the surrender of such policy to the related Security Insurer for
cancellation, (c) the payment of all amounts owed to such trustee or indenture
trustee under the Transfer and Servicing Agreements and (d) if applicable, the
payment of all amounts owed to the related Security Insurer in connection with
the related Security Insurance Policy. Unless otherwise specified in the related
prospectus
31
<PAGE> 35
supplement, in order to avoid excessive administrative expense, the Servicer
will be permitted at its option to purchase the remaining Contracts included in
the Trust Property of a Trust on any Distribution Date as of which the related
Pool Balance (after giving effect to the principal payments and distributions
otherwise to be made on such Distribution Date) has declined to the percentage
of the Original Pool Balance specified in the related prospectus supplement at
the price specified in the related prospectus supplement and, if applicable, all
amounts due to the related Security Insurer in connection with the related
Security Insurance Policy. The applicable trustee or indenture trustee will give
written notice of termination to each Securityholder of record. The final
payment or distribution to any Securityholder will be made only upon surrender
and cancellation of such Securityholder's Security at an office or agency of the
applicable trustee or indenture trustee specified in the notice of termination.
Any funds remaining in the applicable Trust, after the applicable trustee or
indenture trustee has taken certain measures to locate a Securityholder and such
measures have failed, will be distributed to a charity designated by the
Servicer.
THE TRUSTEE AND INDENTURE TRUSTEE
With respect to each Trust, the applicable trustee or indenture trustee
will not make any representations as to the validity or sufficiency of the
related Transfer and Servicing Agreements, the related indenture, if any, the
Securities, or any related Contracts or related documents, or the investment of
any monies by the Servicer before such monies are deposited in or credited to
the related Collection Account. At the applicable Closing Date, such trustee or
indenture trustee will not have examined the Contracts. If no event of default
has occurred, such trustee or indenture trustee will be required to perform only
those duties specifically required of it under the related Transfer and
Servicing Agreements or the related indenture, if applicable. Generally, those
duties are limited to the receipt of the various certificates, reports or other
instruments required to be furnished to such trustee or indenture trustee under
the related Transfer and Servicing Agreements or the related indenture, if
applicable, the making of payments or distributions to Securityholders in the
amounts specified in certificates provided by the Servicer and, if applicable,
drawing on the related Security Insurance Policy if required to make payments or
distributions to Securityholders.
Each trustee and indenture trustee, and any of its affiliates, may hold
Securities in their own names. In addition, for the purpose of meeting the legal
requirements of certain local jurisdictions, each trustee and indenture trustee
(in certain circumstances, acting jointly with the Servicer) shall have the
power to appoint co-trustees or separate trustees of all or any part of the
related Trust Property. In the event of such appointment, all rights, powers,
duties and obligations conferred or imposed upon such trustee or indenture
trustee by the related Transfer and Servicing Agreement or indenture, as
applicable, shall be conferred or imposed upon such trustee or indenture trustee
and such separate trustee or co-trustee jointly, or, in any jurisdiction in
which such trustee or indenture trustee shall be incompetent or unqualified to
perform certain acts, singly upon such separate trustee or co-trustee who shall
exercise and perform such rights, powers, duties and obligations solely at the
direction of such trustee or indenture trustee.
Unless otherwise specified in the related prospectus supplement, each
applicable trustee and indenture trustee may resign at any time, in which event
a successor trustee will be appointed pursuant to the terms of the related
Transfer and Servicing Agreement or indenture, as applicable. Each applicable
trustee and indenture trustee may be removed if it ceases to be eligible to
continue as such under the related Transfer and Servicing Agreement or
indenture, as applicable, or if such trustee or indenture trustee becomes
insolvent. Any resignation or removal of such trustee or indenture trustee and
appointment of a successor does not become effective until acceptance of the
appointment by the successor trustee.
Each applicable trustee or indenture trustee shall be entitled to a fee
which, unless otherwise specified in the related prospectus supplement, will be
payable on an annual basis by the Servicer. Unless otherwise specified in the
related prospectus supplement, the related Transfer and Servicing Agreement or
indenture, as applicable, will further provide that such trustee or indenture
trustee will be entitled to indemnification by the Servicer for, and will be
held harmless against, any loss, liability, or expense incurred by such trustee
or indenture trustee not resulting from such trustee's or indenture trustee's
own willful misfeasance, bad faith, or negligence (other than errors in
judgment) or by reason of breach of any of their respective representations or
warranties set forth in the related Transfer and Servicing Agreement or
indenture, as applicable, except to the extent that such loss, liability, or
expense relates to a
32
<PAGE> 36
specific Contract or Contracts or certain taxes that could be asserted against
such trustee or indenture trustee, the related Trust or the related Contracts,
in which case such trustee or indenture trustee would be entitled to be
indemnified by the applicable Trust.
Onyx and the Seller may maintain other banking relationships with each
applicable trustee or indenture trustee in the ordinary course of business.
ADMINISTRATION AGREEMENT
With respect to a Trust that issues Notes, Onyx or another party
specified in the related prospectus supplement, in its capacity as administrator
(the "ADMINISTRATOR"), may enter into an agreement (as amended and supplemented
from time to time, an "ADMINISTRATION AGREEMENT") with such Trust and the
related indenture trustee pursuant to which the Administrator will agree, to the
extent provided in such Administration Agreement, to provide the notices and to
perform other administrative obligations required by the related indenture.
Unless otherwise specified in the related prospectus supplement with respect to
any such Trust, as compensation for the performance of the Administrator's
obligations under the applicable Administration Agreement and as reimbursement
for its expenses related thereto, the Administrator will be entitled to a
monthly administration fee of such amount as may be set forth in the related
prospectus supplement, which fee will be paid by the Servicer.
THE INDENTURE
The following summary describes certain terms of each indenture pursuant
to which the Notes, if any, of a series will be issued. A form of indenture has
been filed as an exhibit to the registration statement of which this prospectus
is a part. This summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all the provisions of each applicable
indenture and the related prospectus supplement.
MODIFICATION OF INDENTURE
With respect to each Trust that has issued Notes pursuant to an
indenture, unless otherwise provided in the related prospectus supplement, the
Trust and the indenture trustee may, with the consent of the holders of Notes of
the related series evidencing not less than 51% of the principal amount of such
Notes then outstanding, acting as a single class, and with the consent of the
related Security Insurer, if any, execute a supplemental indenture to add
provisions to, change in any manner or eliminate any provisions of, the related
indenture, or modify (except as provided below) in any manner the rights of the
related Noteholders.
Unless otherwise specified in the related prospectus supplement with
respect to a series that includes Notes, without the consent of the holder of
each such outstanding Note affected thereby no supplemental indenture will: (i)
change the due date of any installment of principal of or interest on any such
Note or reduce the principal amount thereof, the interest rate specified thereon
or the redemption price with respect thereto or change any place of payment
where or the coin or currency in which any such Note or any interest thereon is
payable; (ii) impair the right to institute suit for the enforcement of certain
provisions of the related indenture regarding payment; (iii) reduce the
percentage of the aggregate amount of the outstanding Notes of such series, the
consent of the holders of which is required for any such supplemental indenture
or the consent of the holders of which is required for any waiver of compliance
with certain provisions of the related indenture or of certain defaults
thereunder and their consequences as provided for in such indenture; (iv) modify
or alter the provisions of the related indenture regarding the voting of Notes
held by the applicable Trust, any other obligor on such Notes, the Seller or an
affiliate of any of them; (v) reduce the percentage of the aggregate outstanding
amount of such Notes, the consent of the holders of which is required to direct
the related indenture trustee to sell or liquidate the Contracts if the proceeds
of such sale would be insufficient to pay the principal amount and accrued but
unpaid interest on the outstanding Notes of such series; (vi) decrease the
percentage of the aggregate principal amount of such Notes required to amend the
sections of the related indenture which specify the applicable percentage of
aggregate principal amount of the Notes of such series necessary to amend such
indenture or certain other related agreements; or (vii) permit the creation of
any lien
33
<PAGE> 37
ranking prior to or on a parity with the lien of the related indenture with
respect to any of the collateral for such Notes or, except as otherwise
permitted or contemplated in such indenture, terminate the lien of such
indenture on any such collateral or deprive the holder of any such Note of the
security afforded by the lien of such indenture.
Unless otherwise provided in the applicable prospectus supplement with
respect to a series that includes Notes, the related Trust and the applicable
indenture trustee may also enter into supplemental indentures, without obtaining
the consent of the Noteholders of the related series, but with the consent of
the related Security Insurer, if any, for the purpose of, among other things,
adding any provisions to or changing in any manner or eliminating any of the
provisions of the related indenture or of modifying in any manner the rights of
such Noteholders; provided that such action will not materially and adversely
affect the interest of any such Noteholder.
INDENTURE EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
With respect to the Notes of a given series, unless otherwise specified
in the related prospectus supplement, "INDENTURE EVENTS OF DEFAULT" under the
related indenture will consist of: (i) a default for five days or more in the
payment of any interest on any such Note; (ii) a default in the payment of the
principal of or any installment of the principal of any such Note when the same
becomes due and payable; (iii) a default in the observance or performance of any
covenant or agreement of the applicable Trust made in the related indenture and
the continuation of any such default for a period of 90 days after notice
thereof is given to such Trust by the applicable indenture trustee or if
applicable, the related Security Insurer, or to such Trust and such indenture
trustee by the holders of at least 25% in principal amount of such Notes then
outstanding acting together as a single class; (iv) any representation or
warranty made by such Trust in the related indenture or in any certificate
delivered pursuant thereto or in connection therewith having been incorrect in a
material respect as of the time made, and such breach not having been cured
within 30 days after notice thereof is given to such Trust by the applicable
indenture trustee or, if applicable, the related Security Insurer, or to such
Trust and such indenture trustee by the holders of at least 25% in principal
amount of such Notes then outstanding acting together as a single class; or (v)
certain events of bankruptcy, insolvency, receivership or liquidation of the
applicable Trust. Unless otherwise specified in the related prospectus
supplement, the failure to pay principal on a class of Notes generally will not
result in the occurrence of an Indenture Event of Default until the final
scheduled Distribution Date for such class of Notes.
With respect to each series that includes Notes, the rights and remedies
of the related indenture trustee, the related holders of such Notes, and the
related Security Insurer, if any, will be described in the related prospectus
supplement.
CERTAIN COVENANTS
Unless otherwise specified in a prospectus supplement with respect to a
series that includes Notes, each indenture will provide that the related Trust
may not consolidate with or merge into any other entity, unless (i) the entity
formed by or surviving such consolidation or merger is organized under the laws
of the United States, any state or the District of Columbia, (ii) such entity
expressly assumes such Trust's obligation to make due and punctual payments upon
the Notes of the related series and the performance or observance of every
agreement and covenant of such Trust under the indenture, (iii) no Indenture
Event of Default shall have occurred and be continuing immediately after such
merger or consolidation, (iv) such Trust has been advised that the rating of the
Securities of such series then in effect would not be reduced or withdrawn by
any Rating Agency as a result of such merger or consolidation and (v) such Trust
has received an opinion of counsel to the effect that such consolidation or
merger would have no material adverse tax consequence to the Trust or to any
holder of the Securities of such series.
Each Trust that has issued Notes will not, among other things, (i)
except as expressly permitted by the applicable indenture, the applicable
Transfer and Servicing Agreements or certain related documents with respect to
such Trust (collectively, the "RELATED DOCUMENTS"), sell, transfer, exchange or
otherwise dispose of any of the assets of such Trust, (ii) claim any credit on
or make any deduction from the principal and interest payable in respect of the
Notes of the related series (other than amounts withheld under the Code or
applicable state law) or assert any claim against any present or former holder
of such Notes because of the payment of taxes levied or assessed upon
34
<PAGE> 38
such Trust, (iii) dissolve or liquidate in whole or in part, (iv) permit the
validity or effectiveness of the related indenture to be impaired or permit any
person to be released from any covenants or obligations with respect to such
Notes under such indenture except as may be expressly permitted thereby or (v)
permit any lien, charge, excise, claim, security interest, mortgage or other
encumbrance to be created on or extend to or otherwise arise upon or burden the
assets of such Trust or any part thereof, or any interest therein or the
proceeds thereof.
No Trust that has issued Notes will incur, assume or guarantee any
indebtedness other than indebtedness incurred pursuant to the related Notes and
the related indenture, or otherwise in accordance with the Related Documents.
ANNUAL COMPLIANCE STATEMENT
Each Trust that has issued Notes will be required to file annually with
the related indenture trustee a written statement as to the fulfillment of its
obligations under the indenture.
INDENTURE TRUSTEE'S ANNUAL REPORT
The indenture trustee for each Trust that has issued Notes will be
required to mail each year to all related Noteholders a brief report relating to
its eligibility and qualification to continue as indenture trustee under the
related indenture, any amounts advanced by it under the indenture, the amount,
interest rate and maturity date of certain indebtedness owing by such Trust to
the applicable indenture trustee in its individual capacity, the property and
funds physically held by such indenture trustee as such and any action taken by
it that materially affects the related Notes and that has not been previously
reported.
SATISFACTION AND DISCHARGE OF INDENTURE
An indenture will be discharged with respect to the collateral securing
the related Notes upon the delivery to the related indenture trustee for
cancellation of all such Notes or, with certain limitations, upon deposit with
such indenture trustee of funds sufficient for the payment in full of all such
Notes.
THE INDENTURE TRUSTEE
Certain matters relating to the indenture trustee for each series that
includes Notes are described under "Description of the Transfer and Servicing
Agreements--The Trustee and Indenture Trustee".
CERTAIN LEGAL ASPECTS OF THE CONTRACTS
GENERAL
The transfer of Contracts by Onyx and any Selling Subsidiary to the
Seller, and by the Seller to the applicable Trust, and, if applicable, the
pledge thereof to an indenture trustee, the perfection of the security interests
in the Contracts and the enforcement of rights to realize on the related
financed vehicles as collateral for the Contracts are subject to a number of
federal and state laws, including the Uniform Commercial Code (the "UCC") as in
effect in various states. The Servicer and the Seller will take the action
described below to perfect the rights of the applicable Trust and, if
applicable, the indenture trustee in the Contracts. If, through inadvertence or
otherwise, another party purchases (including the taking of a security interest
in) a Contract for new value in the ordinary course of its business, without
actual knowledge of the Trust's interest therein and, if applicable, the
indenture trustee's interest therein, and takes possession of such Contract,
such purchaser would acquire an interest in the Contracts superior to the
interest of the Trust and, if applicable, the interest of such indenture
trustee.
Unless otherwise specified in the related prospectus supplement, under
each sale and servicing agreement, pooling and servicing agreement or indenture,
as applicable, the applicable trustee or indenture trustee initially will
35
<PAGE> 39
have custody of the Contracts included in the Trust Property of a Trust
following the sale of the Contracts to the related Trust and, if applicable, the
pledge thereof to the related indenture trustee, and will hold the Contracts as
bailee for the benefit of such Trust or as secured party. The Servicer may be
appointed by the applicable trustee or indenture trustee to act as the custodian
of the Contracts. Upon such appointment physical possession of the Contracts
would shift from such trustee or indenture trustee to the Servicer. While the
Contracts will not be physically marked to indicate the ownership interest
thereof by the Trust, appropriate UCC-1 financing statements will be filed to
perfect by filing and give notice of the Trust's ownership interest in, and, if
applicable, the indenture trustee's security interest in, the Contracts. If,
through inadvertence or otherwise, any of the Contracts were sold to another
party who purchased such Contracts in the ordinary course of its business and
took possession of such Contracts, the purchaser would acquire an interest in
the Contracts superior to the interests of the Trust and, if applicable, the
interests of the indenture trustee, if the purchaser acquired the Contracts in
good faith, for value and without actual knowledge of the Trust's and, if
applicable, the indenture trustee's, interests in the Contracts.
SECURITY INTERESTS IN THE FINANCED VEHICLES
General. Retail installment sale contracts and installment loan
agreements such as the Contracts evidence the credit sale of automobiles, light
duty trucks and vans. The contracts also constitute personal property security
agreements and include grants of security interests in the vehicles under the
applicable UCC. In most states, a security interest in automobiles, light duty
trucks and/or vans is perfected by obtaining the certificate of title to the
financed vehicle or notation of the secured party's lien on the vehicle's
certificate of title. The Seller will warrant to the related Trust in the sale
and servicing agreement or pooling and servicing agreement, as applicable, that
Onyx or a subsidiary of Onyx has taken all steps necessary to obtain a perfected
first priority security interest with respect to all financed vehicles securing
the Contracts and that such security interest has been assigned to such Trust.
If Onyx fails, because of clerical errors or otherwise, to effect or maintain
the notation of such security interest on the certificate of title relating to a
financed vehicle, such Trust may not have a first priority security interest in
such financed vehicle.
Perfection. The Seller will sell the Contracts and assign the security
interest in each financed vehicle to the related Trust. However, because of the
administrative burden and expense, such Trust will not amend the certificates of
title to identify such Trust as the new secured party. Accordingly, Onyx or a
subsidiary of Onyx will continue to be named as the secured party on the
certificates of title relating to the financed vehicles. Under the law of
California and most other states, the assignment of the Contracts is an
effective conveyance of the security interests in the financed vehicles without
amendment of the lien noted on the related certificate of title and the new
secured party succeeds to the assignor's rights as the secured party. However,
there exists a risk in not identifying the related Trust as the new secured
party on the certificate of title that, through fraud or negligence, the
security interest of such Trust could be released.
In the absence of fraud or forgery by the financed vehicle owner or
administrative error by state recording officials, notation of the lien of Onyx
or a subsidiary of Onyx will be sufficient to protect the related Trust against
the rights of subsequent purchasers of a financed vehicle or subsequent lenders
who take a security interest in a financed vehicle. If there are any financed
vehicles as to which Onyx or a subsidiary of Onyx has failed to perfect the
security interest assigned to the related Trust, such security interest would be
subordinate to, among others, subsequent purchasers of the financed vehicles and
holders of perfected security interests.
In the event that the owner of a financed vehicle relocates to a state
other than the state in which the financed vehicle was registered at the
inception of the Contract, under the laws of most states the perfected security
interest in the financed vehicle would continue for four months after such
relocation and thereafter, in most instances, until the owner re-registers the
financed vehicle in such state. A majority of states generally require surrender
of a certificate of title to re-register a vehicle. Therefore, the Servicer will
provide the department of motor vehicles or other appropriate state or county
agency of the state of relocation with the certificate of title so that the
owner can effect the re-registration. If the financed vehicle owner moves to a
state that provides for notation of lien on the certificate of title to perfect
the security interests in the financed vehicle, Onyx or a subsidiary of Onyx,
absent clerical errors or fraud, would receive notice of surrender of the
certificate of title if its lien is noted thereon.
36
<PAGE> 40
Each subsidiary of Onyx named as the secured party on a certificate of title
will agree to promptly forward to Onyx any such notice received by such
subsidiary. Accordingly, Onyx will have notice and the opportunity to re-perfect
the security interest in the financed vehicle in the state of relocation. If the
financed vehicle owner moves to a state which does not require surrender of a
certificate of title for registration of a motor vehicle, re-registration could
defeat perfection. In the ordinary course of servicing its portfolio of Motor
Vehicle Contracts, Onyx takes steps to effect such re-perfection upon receipt of
notice of registration or information from the obligor as to relocation.
Similarly, when an obligor under a Contract sells a financed vehicle, the
Servicer must provide the owner with the certificate of title, or the Servicer
will receive notice as a result of its lien or its subsidiary's lien noted
thereon and accordingly will have an opportunity to require satisfaction of the
related Contract before release of the lien. Under the sale and servicing
agreement or pooling and servicing agreement, as applicable, Onyx, at its cost,
will be obligated to maintain the continuous perfection of the security interest
of Onyx or its subsidiary in the financed vehicle.
Under the laws of most states (including California), certain statutory
liens such as liens for unpaid taxes, liens for towing and storage of and
repairs performed on a motor vehicle, motor vehicle accident liens, and liens
arising under various state and federal criminal statutes take priority even
over a perfected security interest. The Internal Revenue Code of 1986, as
amended, also grants priority to certain federal tax liens over the lien of a
secured party. The laws of most states and federal law permit the confiscation
of motor vehicles by governmental authorities under certain circumstances if
used in or acquired with the proceeds of unlawful activities, which may result
in the loss of a secured party's perfected security interest in a confiscated
vehicle. The Seller will represent in each sale and servicing agreement or
pooling and servicing agreement, as applicable, that, as of the initial issuance
of the Securities of the related series, no such state or federal liens exist
with respect to any financed vehicle securing payment on any related Contract.
However, such liens could arise, or such a confiscation could occur, at any time
during the term of a Contract. It is possible that no notice will be given to
the Servicer in the event such a lien arises or such a confiscation occurs, and
any such lien arising or confiscation occurring after the related Closing Date
would not give rise to the Seller's repurchase obligations under the related
sale and servicing agreement or pooling and servicing agreement, as applicable.
REPOSSESSION
In the event of default by an obligor, the holder of the related retail
installment sale contract or installment loan agreement has all the remedies of
a secured party under the UCC, except where specifically limited by other state
laws. Among the UCC remedies, the secured party has the right to perform
repossession by self-help means, unless such means would constitute a breach of
the peace or is otherwise limited by applicable state law. Unless a financed
vehicle is voluntarily surrendered, self-help repossession is accomplished
simply by retaking possession of the financed vehicle. In cases where the
obligor objects or raises a defense to repossession, or if otherwise required by
applicable state law, a court order must be obtained from the appropriate state
court, and the financed vehicle must then be recovered in accordance with that
order. In some jurisdictions, the secured party is required to notify the
obligor of the default and the intent to repossess the collateral and to give
the obligor a time period within which to cure the default prior to
repossession. Generally, this right of cure may only be exercised on a limited
number of occasions during the term of the related contract. Other jurisdictions
permit repossession without prior notice if it can be accomplished without a
breach of the peace (although in some states, a course of conduct in which the
creditor has accepted late payments has been held to create a right by the
obligor to receive prior notice). In many states, under certain circumstances
after the financed vehicle has been repossessed, the obligor may reinstate the
related contract by paying the delinquent installments and other amounts due.
NOTICE OF SALE; REDEMPTION RIGHTS
The UCC and other state laws require the secured party to provide the
obligor with reasonable notice of the date, time and place of any public sale
and/or the date after which any private sale of the collateral may be held. In
addition, some states also impose substantive timing requirements on the sale of
repossessed vehicles in certain circumstances and/or various substantive timing
and content requirements on such notices. In some states, under certain
circumstances after a financed vehicle has been repossessed, the obligor may
redeem the collateral by paying
37
<PAGE> 41
the delinquent installments and other amounts due. The obligor has the right to
redeem the collateral prior to actual sale or entry by the secured party into a
contract for sale of the collateral by paying the secured party the unpaid
principal balance of the obligation, accrued interest thereon, reasonable
expenses for repossessing, holding, and preparing the collateral for disposition
and arranging for its sale, plus, in some jurisdictions, reasonable attorneys'
fees and legal expenses or in some other states, by payment of delinquent
installments on the unpaid principal balance of the related obligation.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of the vehicles generally will be applied first
to the expenses of resale and repossession and then to the satisfaction of the
indebtedness. While some states impose prohibitions or limitations on deficiency
judgments if the net proceeds from resale do not cover the full amount of the
indebtedness, a deficiency judgment can be sought in those states that do not
prohibit or limit such judgments. In addition to the notice requirement, the UCC
requires that every aspect of the sale or other disposition, including the
method, manner, time, place and terms, be "commercially reasonable". Generally,
courts have held that when a sale is not "commercially reasonable", the secured
party loses its right to a deficiency judgment.
In addition, the UCC permits the debtor or other interested party to
recover for any loss caused by noncompliance with the provisions of the UCC.
Also, prior to a sale, the UCC permits the debtor or other interested person to
prohibit the secured party from disposing of the collateral if it is established
that the secured party is not proceeding in accordance with the "default"
provisions under the UCC. Any deficiency judgment would be a personal judgment
against the obligor for the shortfall, and a defaulting obligor can be expected
to have very little capital or sources of income available following
repossession. Therefore, in many cases, it may not be useful to seek a
deficiency judgment or, if one is obtained, it may be settled at a significant
discount or be uncollectible.
Occasionally, after resale of a repossessed vehicle and payment of all
expenses and indebtedness, there is a surplus of funds. In that case, the UCC
requires the creditor to remit the surplus to any holder of a subordinate lien
with respect to such vehicle or if no such lienholder exists, the UCC requires
the creditor to remit the surplus to the obligor.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related
regulations impose substantial requirements upon lenders and servicers involved
in consumer finance. These laws include the Truth-in-Lending Act, the Equal
Credit Opportunity Act, the Federal Trade Commission Act, the Fair Credit
Billing Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices
Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B
and Z, the Soldiers' and Sailors' Civil Relief Act of 1940, state adoptions of
the National Consumer Act and of the Uniform Consumer Credit Code, state motor
vehicle retail installment sales acts, state "lemon" laws and other similar
laws. Also, state laws impose finance charge ceilings and other restrictions on
consumer transactions and require contract disclosures in addition to those
required under federal law. These requirements impose specific statutory
liabilities upon creditors who fail to comply with their provisions. In some
cases, this liability could affect an assignee's ability to enforce consumer
finance contracts such as the Contracts.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade
Commission (the "FTC RULE") has the effect of subjecting any assignee of the
seller in a consumer credit transaction (and certain related creditors and their
assignees) to all claims and defenses which the obligor in the transaction could
assert against the seller. Liability under the FTC Rule is limited to the
amounts paid by the obligor under the contract, and the holder of the contract
may also be unable to collect any balance remaining due thereunder from the
obligor. The FTC Rule is generally duplicated by the Uniform Consumer Credit
Code, other state statutes or the common law in certain states.
Most of the Contracts will be subject to the requirements of the FTC
Rule. Accordingly, each Trust, as holder of the related Contracts, will be
subject to any claims or defenses that the purchaser of the applicable financed
vehicle may assert against the seller of the financed vehicle. As to each
obligor, such claims are limited to a
38
<PAGE> 42
maximum liability equal to the amounts paid by the obligor on the related
Contract. The Seller will represent in each sale and servicing agreement or
pooling and servicing agreement, as applicable, that each of the Contracts, and
the sale of the related financed vehicle thereunder, complied with all material
requirements of such laws and the regulations issued pursuant thereto.
Any shortfalls or losses arising in connection with the matters
described in the two preceding paragraphs, to the extent not covered by amounts
payable to the Securityholders from amounts available under a credit enhancement
mechanism, could result in losses to the Securityholders.
Courts have applied general equitable principles to secured parties
pursuing repossession and litigation involving deficiency balances. These
equitable principles may have the effect of relieving an obligor from some or
all of the legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. Courts have generally upheld the notice provisions of the UCC and
related laws as reasonable or have found that the repossession and resale by the
creditor do not involve sufficient state action to afford constitutional
protection to borrowers.
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a secured party
to realize upon collateral or to enforce a deficiency judgment. For example, in
a Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
creditor from repossessing a vehicle, and, as part of the rehabilitation plan,
reduce the amount of the secured indebtedness to the market value of the vehicle
at the time of bankruptcy (as determined by the court), leaving the creditor as
a general unsecured creditor for the remainder of the indebtedness. A bankruptcy
court may also reduce the monthly payments due under a contract or change the
rate of interest and time of repayment of the indebtedness.
Under the terms of the Soldiers' and Sailors' Relief Act of 1940, an
obligor who enters the military service after the origination of such obligor's
Contract (including an obligor who is a member of the National Guard or is in
reserve status at the time of the origination of the obligor's Contract and is
later called to active duty) may not be charged interest above an annual rate of
6% during the period of such obligor's active duty status, unless a court orders
otherwise upon application of the lender. In addition, pursuant to the Military
Reservist Relief Act, under certain circumstances, California residents called
into active duty with the reserves can delay payments on retail installment
sales contracts, including the Contracts, for a period, not to exceed 180 days,
beginning with the order to active duty and ending 30 days after release. It is
possible that the foregoing could have an effect on the ability of the Servicer
to collect the full amount of interest owing on certain of the Contracts. In
addition, the Relief Acts impose limitations that would impair the ability of
the Servicer to repossess an affected Contract during the obligor's period of
active duty status. Thus, in the event that such a Contract goes into default,
there may be delays and losses occasioned by the inability to exercise the
Trust's rights with respect to the related financed vehicle in a timely fashion.
Any shortfalls or losses arising in connection with the matters
described in the two preceding paragraphs, to the extent not covered by amounts
payable to the Securityholders from amounts available under a credit enhancement
mechanism, could result in losses to the Securityholders.
REPURCHASE OBLIGATION
Under each sale and servicing agreement or pooling and servicing
agreement, the Seller will make representations and warranties relating to
validity, existence, perfection and priority of the security interest in each
related financed vehicle as of the related Closing Date. See "Description of the
Transfer and Servicing
39
<PAGE> 43
Agreements-- Sale and Assignment of the Contracts". Accordingly, if any
defect exists in the perfection of the security interest in any financed vehicle
as of the Closing Date and such defect adversely affects the related Trust's
interest in the related Contract, such defect would constitute a breach of a
warranty under the sale and servicing agreement or pooling and servicing
agreement, as applicable, and would create an obligation of the Seller to
repurchase such Contract unless the breach is cured. Additionally, in the sale
and servicing agreement or pooling and servicing agreement, as applicable, the
Servicer will make certain representations, warranties and affirmative covenants
regarding, among other things, the maintenance of the security interest in each
financed vehicle, the breach of which would create an obligation of the Servicer
to purchase any affected Contract from the related Trust unless the breach is
cured.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of the Notes
and the Certificates of any series, to the extent it relates to matters of law
or legal conclusions with respect thereto, represents the opinion of tax counsel
to each Trust with respect to the related series on the material matters
associated with such consequences, subject to the qualifications set forth
herein. "Tax Counsel" with respect to each Trust will be Andrews & Kurth L.L.P.
The summary does not purport to deal with federal income tax consequences
applicable to all categories of investors, some of which may be subject to
special rules. For example, it does not discuss the tax treatment of Noteholders
or Certificateholders that are insurance companies, regulated investment
companies or dealers in securities. Moreover, there are no cases or Internal
Revenue Service ("IRS") rulings on similar transactions involving both debt and
equity interests issued by a trust with terms similar to those of the Notes and
the Certificates. As a result, the IRS may disagree with all or a part of the
discussion below. Prospective investors are urged to consult their own tax
advisors in determining the federal, state, local, foreign and any other tax
consequences to them of the purchase, ownership and disposition of the Notes and
the Certificates.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "CODE"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. Each Trust will be provided
with an opinion of Tax Counsel regarding certain federal income tax matters
discussed below. An opinion of Tax Counsel, however, is not binding on the IRS
or the courts. No ruling on any of the issues discussed below will be sought
from the IRS. For purposes of the following summary, references to the Trust,
the Notes, the Certificates and related terms, parties and documents shall be
deemed to refer, unless otherwise specified herein, to each Trust and the Notes,
Certificates and related terms, parties and documents applicable to such Trust.
The federal income tax consequences to Certificateholders will vary depending on
whether an election is made to treat the Trust as a partnership under the Code
or whether the Trust will be treated as a grantor trust. The prospectus
supplement for each series of Certificates will specify whether a partnership
election will be made or the Trust will be treated as a grantor trust.
TRUSTS FOR WHICH A PARTNERSHIP ELECTION IS MADE
TAX CHARACTERIZATION OF THE TRUST AS A PARTNERSHIP
The following general discussion of the anticipated federal income tax
consequences of the purchase, ownership and disposition of the Notes and the
Certificates of a Trust for which a partnership election will be made, to the
extent it relates to matters of law or legal conclusions with respect thereto,
represents the opinion of Tax Counsel to each Trust with respect to the related
series on the material matters associated with such consequences, subject to the
qualifications set forth herein. In addition, Tax Counsel has prepared or
reviewed the statements in the prospectus under the heading "Certain Federal
Income Tax Consequences--Trusts for Which a Partnership Election is Made", and
is of the opinion that such statements are correct in all material respects.
Such statements are intended as an explanatory discussion of the related tax
matters affecting investors generally, but do not purport to furnish information
in the level of detail or with the attention to an investor's specific tax
circumstances that would be
40
<PAGE> 44
provided by an investor's own tax advisor. Accordingly, each investor is advised
to consult its own tax advisors with regard to the tax consequences to it of
investing in Notes or Certificates.
Tax Counsel will deliver its opinion that a Trust for which a
partnership election is made will not be an association (or publicly traded
partnership) taxable as a corporation for federal income tax purposes. This
opinion will be based on the assumption that the terms of the trust agreement
and related documents will be complied with, and on counsel's conclusions that
the nature of the income of the Trust will exempt it from the rule that certain
publicly traded partnerships are taxable as corporations.
If the Trust were taxable as a corporation for federal income tax
purposes, the Trust would be subject to corporate income tax on its taxable
income. The Trust's taxable income would include all its income on the
Contracts, possibly reduced by its interest expense on the Notes. Any such
corporate income tax could materially reduce cash available to make payments on
the Notes and distributions on the Certificates, and Certificateholders could be
liable for any such tax that is unpaid by the Trust.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
Treatment of the Notes as Indebtedness. The Seller will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for federal income tax purposes. Tax Counsel will, except as otherwise provided
in the related prospectus supplement, advise the Trust that the Notes will be
classified as debt for federal income tax purposes. The discussion below assumes
this characterization of the Notes is correct.
OID, Indexed Securities, etc. The discussion below assumes that all
payments on the Notes are denominated in U.S. dollars, and that the Notes are
not Strip Notes. Moreover, the discussion assumes that the interest formula for
the Notes meets the requirements for "qualified stated interest" under Treasury
regulations (the "OID REGULATIONS") relating to original issue discount ("OID"),
and that any OID on the Notes (i.e., any excess of the principal amount of the
Notes over their issue price) does not exceed a de minimis amount (i.e., 1/4% of
their principal amount multiplied by the number of full years included in their
term), all within the meaning of the OID regulations. If these conditions are
not satisfied with respect to any given series of Notes, additional tax
considerations with respect to such Notes will be disclosed in the applicable
prospectus supplement.
Interest Income on the Notes. Based on the above assumptions, except as
discussed in the following paragraph, the Notes will not be considered issued
with OID. The stated interest thereon will be taxable to a Noteholder as
ordinary interest income when received or accrued in accordance with such
Noteholder's method of tax accounting. Under the OID regulations, a holder of a
Note issued with a de minimis amount of OID must include such OID in income, on
a pro rata basis, as principal payments are made on the Note. A purchaser who
buys a Note for more or less than its principal amount will generally be
subject, respectively, to the premium amortization or market discount rules of
the Code.
A holder of a Note that has a fixed maturity date of not more than one
year from the issue date of such Note (a "SHORT-TERM NOTE") may be subject to
special rules. An accrual basis holder of a Short-Term Note (and certain cash
method holders, including regulated investment companies, as set forth in
Section 1281 of the Code) generally would be required to report interest income
as interest accrues on a straight-line basis over the term of each interest
period. Other cash basis holders of a Short-Term Note would, in general, be
required to report interest income as interest is paid (or, if earlier, upon the
taxable disposition of the Short-Term Note). However, a cash basis holder of a
Short-Term Note reporting interest income as it is paid may be required to defer
a portion of any interest expense otherwise deductible on indebtedness incurred
to purchase or carry the Short-Term Note until the taxable disposition of the
Short-Term Note. A cash basis taxpayer may elect under Section 1281 of the Code
to accrue interest income on all nongovernment debt obligations with a term of
one year or less, in which case the taxpayer would include interest on the
Short-Term Note in income as it accrues, but would not be subject to the
interest expense deferral rule referred to in the preceding sentence. Certain
special rules apply if a Short-Term Note is purchased for more or less than its
principal amount.
41
<PAGE> 45
Sale or Other Disposition. If a Noteholder sells a Note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the holder's
cost for the Note, increased by any market discount, acquisition discount, OID
and gain previously included by such Noteholder in income with respect to the
Note and decreased by the amount of bond premium, if any, previously amortized
and by the amount of principal payments previously received by such Noteholder
with respect to such Note. Any such gain or loss will be capital gain or loss if
the Note was held as a capital asset, except for gain representing accrued
interest and accrued market discount not previously included in income. Capital
losses generally may be used only to offset capital gains.
Foreign Holders. Interest payments made (or accrued) to a Noteholder who
is a nonresident alien, foreign corporation or other non-United States person (a
"FOREIGN PERSON") generally will be considered "portfolio interest", and
generally will not be subject to United States federal income tax and
withholding tax, if the interest is not effectively connected with the conduct
of a trade or business within the United States by the foreign person and the
foreign person (i) is not actually or constructively a "10 percent shareholder"
of the Trust or the Seller (including a holder of 10% of the outstanding
Certificates) or a "controlled foreign corporation" with respect to which the
Trust or the Seller is a "related person" within the meaning of the Code and
(ii) provides the owner trustee or other person who is otherwise required to
withhold U.S. tax with respect to the Notes with an appropriate statement (on
Form W-8 or a similar form), signed under penalties of perjury, certifying that
the beneficial owner of the Note is a foreign person and providing the foreign
person's name and address. If a Note is held through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide the relevant signed statement to the withholding agent;
in that case, however, the signed statement must be accompanied by a Form W-8 or
substitute form provided by the foreign person that owns the Note. If such
interest is not portfolio interest, then it will be subject to United States
federal income and withholding tax at a rate of 30 percent, unless reduced or
eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
Final regulations dealing with withholding tax on income paid to foreign
persons and related matters (the "NEW WITHHOLDING REGULATIONS") were issued by
the Treasury Department on October 6, 1997. The New Withholding Regulations will
generally be effective for payments made after December 31, 1999, subject to
certain transition rules. Prospective investors who are foreign persons are
strongly urged to consult their own tax advisors with respect to the New
Withholding Regulations.
Backup Withholding. Each holder of a Note (other than an exempt holder
such as a corporation, tax-exempt organization, qualified pension and
profit-sharing trust, individual retirement account or nonresident alien who
provides certification as to status as a nonresident) will be required to
provide, under penalties of perjury, a certificate containing the holder's name,
address, correct federal taxpayer identification number and a statement that the
holder is not subject to backup withholding. Should a nonexempt Noteholder fail
to provide the required certification, the Trust will be required to withhold 31
percent of the amount otherwise payable to the holder, and remit the withheld
amount to the IRS as a credit against the holder's federal income tax liability.
Possible Alternative Treatments of the Notes. If, contrary to the
opinion of Tax Counsel, the IRS successfully asserted that one or more of the
Notes did not represent debt for federal income tax purposes, the Notes might be
treated as equity interests in the Trust. If so treated, the Trust might be
taxable as a corporation with the adverse consequences described above (and the
taxable corporation would not be able to reduce its taxable income by deductions
for interest expense on Notes recharacterized as equity). Alternatively, and
more likely in the view of Tax Counsel, the Trust might be treated as a publicly
traded partnership that would not be taxable as a corporation because it would
meet certain qualifying income tests. Nonetheless, treatment of the Notes as
equity interests in such a publicly traded partnership could have adverse tax
consequences to certain holders. For example, income to
42
<PAGE> 46
certain tax-exempt entities (including pension funds) would be "unrelated
business taxable income", income to foreign holders generally would be subject
to U.S. tax and U.S. tax return filing and withholding requirements, and
individual holders might be subject to certain limitations on their ability to
deduct their share of Trust expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
Treatment of the Trust as a Partnership. The Seller and the Servicer
will agree, and the Certificateholders will agree by their purchase of
Certificates, to treat the Trust as a partnership for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income, with the assets of the partnership being the assets held by the
Trust, the partners of the partnership being the Certificateholders (including
the Seller or other entity in its capacity as recipient of distributions with
respect to the residual interest, if any) and the Notes being debt of the
partnership. However, the proper characterization of the arrangement involving
the Trust, the Certificates, the Notes, the Seller and the Servicer is not clear
because there is no authority on transactions closely comparable to that
contemplated herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Seller or the Trust. Any such
characterization would not result in materially adverse tax consequences to
Certificateholders as compared to the consequences from treatment of the
Certificates as equity in a partnership, described below. The following
discussion assumes that the Certificates represent equity interests in a
partnership.
Partnership Taxation. As a partnership, the Trust will not be subject to
federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. The Trust's income will consist
primarily of interest and finance charges earned on the Contracts (including
appropriate adjustments for market discount, OID and bond premium) and any gain
upon collection or disposition of Contracts. The Trust's deductions will consist
primarily of interest accruing with respect to the Notes, servicing and other
fees, and losses or deductions upon collection or disposition of Contracts.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the trust agreement and related documents). The trust agreement will
provide, in general, that the Certificateholders will be allocated taxable
income of the Trust for each month equal to the sum of (i) the interest that
accrues on the Certificates in accordance with their terms for such month,
including interest accruing at the Certificate Rate for such month and interest
on amounts previously due on the Certificates but not yet distributed; (ii) any
Trust income attributable to discount on the Contracts that corresponds to any
excess of the principal amount of the Certificates over their initial issue
price; (iii) prepayment premium payable to the Certificateholders for such
month; and (iv) any other amounts of income payable to the Certificateholders
for such month. Such allocation will be reduced by any amortization by the Trust
of premium on Contracts that corresponds to any excess of the issue price of
Certificates over their principal amount. All remaining taxable income of the
Trust will be allocated to the Seller. Based on the economic arrangement of the
parties, this approach for allocating Trust income should be permissible under
applicable Treasury regulations, although no assurance can be given that the IRS
would not require a greater amount of income to be allocated to
Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be allocated income equal to the entire Certificate Rate
plus the other items described above even though the Trust might not have
sufficient cash to make current cash distributions of such amount. Thus, cash
basis holders will in effect be required to report income from the Certificates
on the accrual basis and Certificateholders may become liable for taxes on Trust
income even if they have not received cash from the Trust to pay such taxes. In
addition, because tax allocations and tax reporting will be done on a uniform
basis for all Certificateholders but Certificateholders may be purchasing
Certificates at different times and at different prices, Certificateholders may
be required to report on their tax returns taxable income that is greater or
less than the amount reported to them by the Trust.
43
<PAGE> 47
All of the taxable income allocated to a Certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will constitute "unrelated business
taxable income" generally taxable to such a holder under the Code.
An individual taxpayer's share of expenses of the Trust (including fees
to the Servicer but not interest expense) would be miscellaneous itemized
deductions and thus allowable as a deduction only to the extent that in the
aggregate all such expenses exceed two percent of such individual tax payer's
adjusted gross income. Furthermore, certain otherwise allowable itemized
deductions will be reduced, but not by more than 80%, by an amount equal to 3%
of the individual's adjusted gross income in excess of a statutorily defined
threshold. Therefore, such deductions might be disallowed to the individual in
whole or in part and might result in such holder being taxed on an amount of
income that exceeds the amount of cash actually distributed to such holder over
the life of the Trust.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Contact, the Trust
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on Certificateholders.
Discount and Premium. It is believed that the Contracts were not issued
with OID, and, therefore, the Trust should not have OID income. However, the
purchase price paid by the Trust for the Contracts may be greater or less than
the remaining principal balance of the Contracts at the time of purchase. If so,
the Contracts will have been acquired at a premium or discount, as the case may
be. (As indicated above, the Trust will make this calculation on an aggregate
basis, but might be required to recompute it on a Contract-by-Contract basis.)
If the Trust acquires the Contracts at a market discount or premium, the
Trust will elect to include any such discount in income currently as it accrues
over the life of the Contracts or to offset any such premium against interest
income on the Contracts. As indicated above, a portion of such market discount
income or premium deduction may be allocated to Certificateholders.
Section 708 Termination. Under Section 708 of the Code, the Trust will
be deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the Trust will be considered to
contribute its assets to a new partnership and, immediately thereafter, the
terminated partnership distributes interests in the new partnership to the
partners in liquidation of the terminated partnership. The Trust will not comply
with certain technical requirements that might apply when such a constructive
termination occurs. As a result, the Trust may be subject to certain tax
penalties and may incur additional expenses if it is required to comply with
those requirements. Furthermore, the Trust might not be able to comply due to
lack of data.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust income (includible in
income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
realized on a sale of a Certificate would include the holder's share of the
Notes and other liabilities of the Trust. A holder acquiring Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's share
of unrecognized accrued market discount on the Contracts would generally be
treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Trust does not expect to have any other assets that
would give rise to such special reporting requirements. Thus, to avoid those
special reporting requirements, the Trust will elect to include market discount
in income as it accrues.
44
<PAGE> 48
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the close
of the last day of such month. As a result, a holder purchasing Certificates may
be allocated tax items (which will affect its tax liability and tax basis)
attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificateholders. The Seller is
authorized to revise the Trust's method of allocation between transferors and
transferees to conform to a method permitted by future regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder had.
The tax basis of the Trust's assets will not be adjusted to reflect that higher
(or lower) basis unless the Trust were to file an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As a
result, Certificateholders might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
Administrative Matters. The owner trustee is required to keep or have
kept complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust will be set forth in the related prospectus supplement. The owner
trustee will file a partnership information return (IRS Form 1065) with the IRS
for each taxable year of the Trust and will report each Certificateholder's
allocable share of items of Trust income and expense to holders and the IRS on
Schedule K-1. The Trust will provide the Schedule K-1 information to nominees
that fail to provide the Trust with the information statement described below
and such nominees will be required to forward such information to the beneficial
owners of the Certificates. Generally, holders must file tax returns that are
consistent with the information return filed by the Trust or be subject to
penalties unless the holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and taxpayer identification number of the nominee and (ii) as to each beneficial
owner (x) the name, address and identification number of such person, (y)
whether such person is a United States person, a tax-exempt entity or a foreign
government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust information as
to themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Securities and Exchange Act of 1934, as amended, is not
required to furnish any such information statement to the Trust. The information
referred to above for any calendar year must be furnished to the Trust on or
before the following January 31. Nominees, brokers and financial institutions
that fail to provide the Trust with the information described above may be
subject to penalties.
The Seller will be designated as the tax matters partner in the related
trust agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Trust by the
45
<PAGE> 49
appropriate taxing authorities could result in an adjustment of the returns of
the Certificateholders, and, under certain circumstances, a Certificateholder
may be precluded from separately litigating a proposed adjustment to the items
of the Trust. An adjustment could also result in an audit of a
Certificateholder's returns and adjustments of items not related to the income
and losses of the Trust.
Tax Consequences to Foreign Certificateholders. It is not clear whether
the Trust would be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes with respect to non-U.S.
persons because there is no clear authority dealing with that issue under facts
substantially similar to those described herein. Although it is not expected
that the Trust would be engaged in a trade or business in the United States for
such purposes, the Trust will withhold as if it were so engaged in order to
protect the Trust from possible adverse consequences of a failure to withhold.
The Trust expects to withhold on the portion of its taxable income that is
allocable to foreign Certificateholders pursuant to Section 1446 of the Code, as
if such income were effectively connected to a U.S. trade or business, at a rate
of 35% for foreign holders that are taxable as corporations and 39.6% for all
other foreign holders. The New Withholding Regulations or subsequent adoption of
Treasury regulations or the issuance of other administrative pronouncements may
require the Trust to change its withholding procedures. In determining a
holder's withholding status, the Trust may rely on IRS Form W-8, IRS Form W-9 or
the holder's certification of nonforeign status signed under penalties of
perjury.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the branch
profits tax) on its share of the Trust's income. Each foreign holder must obtain
a taxpayer identification number from the IRS and submit that number to the
Trust on Form W-8 in order to assure appropriate crediting of the taxes
withheld. A foreign holder generally would be entitled to file with the IRS a
claim for refund with respect to taxes withheld by the Trust, taking the
position that no taxes were due because the Trust was not engaged in a U.S.
trade or business. However, interest payments made (or accrued) to a
Certificateholder who is a foreign person generally will be considered
guaranteed payments to the extent such payments are determined without regard to
the income of the Trust. If these interest payments are properly characterized
as guaranteed payments, then the interest will not be considered "portfolio
interest." As a result, Certificateholders will be subject to United States
federal income tax and withholding tax at a rate of 30 percent, unless reduced
or eliminated pursuant to an applicable treaty. In such case, a foreign holder
would only be entitled to claim a refund for that portion of the taxes in excess
of the taxes that should be withheld with respect to the guaranteed payments.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
TRUSTS TREATED AS GRANTOR TRUSTS
TAX CHARACTERIZATION OF THE TRUST AS A GRANTOR TRUST
The following general discussion of the anticipated federal income tax
consequences of the purchase, ownership and disposition of the Certificates of a
Trust for which a partnership election will not be made, to the extent it
relates to matters of law or legal conclusions with respect thereto, represents
the opinion of Tax Counsel to each Trust with respect to the related series on
the material matters associated with such consequences, subject to the
qualifications set forth herein. In addition, Tax Counsel has prepared or
reviewed the statements in the prospectus under the heading "Certain Federal
Income Tax Consequences--Trusts Treated as Grantor Trusts", and is of the
opinion that such statements are correct in all material respects. Such
statements are intended as an explanatory discussion of the possible effects of
the classification of any Trust as a grantor trust for federal income tax
purposes on investors generally and of related tax matters affecting investors
generally, but do not purport to furnish information in the level of detail or
with the attention to an investor's specific tax circumstances that would
be provided by an investor's own tax advisor. Accordingly, each investor is
advised to consult its own tax advisors with regard to the tax consequences to
it of investing in Certificates.
46
<PAGE> 50
If a partnership election is not made, Tax Counsel will deliver its
opinion that the Trust will not be classified as an association taxable as a
corporation and that such Trust will be classified as a grantor trust under
subpart E, Part I of subchapter J of Chapter 1 of Subtitle A of the Code. In
this case, owners of Certificates (referred to herein as "GRANTOR TRUST
CERTIFICATEHOLDERS") will be treated for federal income tax purposes as owners
of a portion of the Trust's assets as described below. The Certificates issued
by a Trust that is treated as a grantor trust are referred to herein as "GRANTOR
TRUST CERTIFICATES".
Characterization. Each Grantor Trust Certificateholder will be treated
as the owner of a pro rata undivided interest in the interest and principal
portions of the Trust represented by the Grantor Trust Certificates and will be
considered the equitable owner of a pro rata undivided interest in each of the
Contracts in the Trust. Any amounts received by a Grantor Trust
Certificateholder in lieu of amounts due with respect to any Contract because of
a default or delinquency in payment will be treated for federal income tax
purposes as having the same character as the payments they replace.
Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire income
from the Contracts in the Trust represented by Grantor Trust Certificates,
including interest, OID, if any, prepayment fees, assumption fees, any gain
recognized upon an assumption and late payment charges received by the Servicer.
Under Sections 162 or 212, each Grantor Trust Certificateholder will be entitled
to deduct its pro rata share of servicing fees, prepayment fees, assumption
fees, any loss recognized upon an assumption and late payment charges retained
by the Servicer, provided that such amounts are reasonable compensation for
services rendered to the Trust. Grantor Trust Certificateholders that are
individuals, estates or trusts will be entitled to deduct their share of
expenses only to the extent such expenses plus all other Section 212 expenses
exceed two percent of its adjusted gross income. A Grantor Trust
Certificateholder using the cash method of accounting must take into account its
pro rata share of income and deductions as and when collected by or paid to the
Servicer. A Grantor Trust Certificateholder using an accrual method of
accounting must take into account its pro rata share of income and deductions as
they become due or are paid to the Servicer, whichever is earlier. If the
servicing fees paid to the Servicer are deemed to exceed reasonable servicing
compensation, the amount of such excess could be considered as an ownership
interest retained by the Servicer (or any person to whom the Servicer assigned
for value all or a portion of the servicing fees) in a portion of the interest
payments on the Contracts. The Contracts would then be subject to the "coupon
stripping" rules of the Code discussed below.
Premium. The price paid for a Grantor Trust Certificate by a holder will
be allocated to such holder's undivided interest in each Contract based on each
Contract's relative fair market value, so that such holder's undivided interest
in each Contract will have its own tax basis. A Grantor Trust Certificateholder
that acquires an interest in Contracts at a premium may elect to amortize such
premium under a constant interest method. Amortizable bond premium will be
treated as an offset to interest income on such Grantor Trust Certificate. The
basis for such Grantor Trust Certificate will be reduced to the extent that
amortizable premium is applied to offset interest payments. It is not clear
whether a reasonable prepayment assumption should be used in computing
amortization of premium allowable under Section 171. A Grantor Trust
Certificateholder that makes this election for a Grantor Trust Certificate that
is acquired at a premium will be deemed to have made an election to amortize
bond premium with respect to all debt instruments having amortizable bond
premium that such Grantor Trust Certificateholder acquires during the year of
the election or thereafter.
If a premium is not subject to amortization using a reasonable
prepayment assumption, the holder of a Grantor Trust Certificate acquired at a
premium should recognize a loss if a Contract prepays in full, equal to the
difference between the portion of the prepaid principal amount of such Contract
that is allocable to the Grantor Trust Certificate and the portion of the
adjusted basis of the Grantor Trust Certificate that is allocable to such
Contract. If a reasonable prepayment assumption is used to amortize such
premium, it appears that such a loss would be available, if at all, only if
prepayments have occurred at a rate faster than the reasonable assumed
prepayment rate. It is not clear whether any other adjustments would be required
to reflect differences between an assumed prepayment rate and the actual rate of
prepayments.
47
<PAGE> 51
STRIPPED BONDS AND STRIPPED COUPONS
Although the tax treatment of stripped bonds is not entirely clear,
based on guidance issued by the IRS, each purchaser of a Grantor Trust
Certificate will be treated as the purchaser of a stripped bond which generally
should be treated as a single debt instrument issued on the day it is purchased
for purposes of calculating any original issue discount. Generally, under
applicable Treasury regulations (the "SECTION 1286 TREASURY REGULATIONS"), if
the discount on a stripped bond is larger than a de minimis amount (as
calculated for purposes of the OID rules of the Code) such stripped bond will be
considered to have been issued with OID. See "Original Issue Discount". Based on
the preamble to the Section 1286 Treasury Regulations, Tax Counsel is of the
opinion that, although the matter is not entirely clear, the interest income on
the Certificates at the sum of the Certificate Rate and the portion of the
Servicing Fee Rate that does not constitute excess servicing will be treated as
"qualified stated interest" within the meaning of the Section 1286 Treasury
Regulations and such income will be so treated in the trustee's tax information
reporting.
Original Issue Discount. The IRS has stated in published rulings that,
in circumstances similar to those described herein, the special rules of the
Code relating to "original issue discount" (currently Sections 1271 through 1273
and 1275) will be applicable to a Grantor Trust Certificateholder's interest in
those Contracts meeting the conditions necessary for these sections to apply.
Generally, a Grantor Trust Certificateholder that acquires an undivided interest
in a Contract issued or acquired with OID must include in gross income the sum
of the "daily portions," as defined below, of the OID on such Contract for each
day on which it owns a Certificate, including the date of purchase but excluding
the date of disposition. In the case of an original Grantor Trust
Certificateholder, the daily portions of OID with respect to a Contract
generally would be determined as follows. A calculation will be made of the
portion of OID that accrues on the Contract during each successive monthly
accrual period (or shorter period in respect of the date of original issue or
the final Distribution Date). This will be done, in the case of each full
monthly accrual period, by adding (i) the present value of all remaining
payments to be received on the Contract under the prepayment assumption used in
respect of the Contracts and (ii) any payments received during such accrual
period, and subtracting from that total the "adjusted issue price" of the
Contract at the beginning of such accrual period. No representation is made that
the Contracts will prepay at any prepayment assumption. The "adjusted issue
price" of a Contract at the beginning of the first accrual period is its issue
price (as determined for purposes of the OID rules of the Code) and the
"adjusted issue price" of a Contract at the beginning of a subsequent accrual
period is the "adjusted issue price" at the beginning of the immediately
preceding accrual period plus the amount of OID allocable to that accrual period
and reduced by the amount of any payment (other than "qualified stated
interest") made at the end of or during that accrual period. The OID accruing
during such accrual period will then be divided by the number of days in the
period to determine the daily portion of OID for each day in the period. With
respect to an initial accrual period shorter than a full monthly accrual period,
the daily portions of OID must be determined according to a reasonable method,
provided that such method is consistent with the method used to determine the
yield to maturity of the Contracts.
With respect to the Contracts, the method of calculating OID as
described above will cause the accrual of OID to either increase or decrease
(but never below zero) in any given accrual period to reflect the fact that
prepayments are occurring at a faster or slower rate than the prepayment
assumption used in respect of the Contracts. Subsequent purchasers that purchase
Contracts at more than a de minimis discount should consult their tax advisors
with respect to the proper method to accrue such OID.
The Taxpayer Relief Act of 1997 requires the use of a prepayment
assumption to accrue OID with respect to "any pool of debt instruments the yield
on which may be affected by reason of prepayments (or to the extent provided in
regulation, by reason of other events)." Unless otherwise provided in the
related prospectus supplement, the trustee will deem the prepayment assumption
to be that the Contracts will not prepay. If the IRS were to require that OID be
computed using a different prepayment assumption, the character and timing of a
Certificateholder's income could be adversely affected.
Market Discount. A Grantor Trust Certificateholder that acquires an
undivided interest in Contracts may be subject to the market discount rules of
Sections 1276 through 1278 to the extent an undivided interest in a Contract is
48
<PAGE> 52
considered to have been purchased at a "market discount." Generally, the amount
of market discount is equal to the excess of the portion of the principal amount
of such Contract allocable to such holder's undivided interest over such
holder's tax basis in such interest. Market discount with respect to a Grantor
Trust Certificate will be considered to be zero if the amount allocable to the
Grantor Trust Certificate is less than 0.25% of the Grantor Trust Certificate's
stated redemption price at maturity multiplied by the weighted average maturity
remaining after the date of purchase. Treasury regulations implementing the
market discount rules have not yet been issued; therefore, investors should
consult their own tax advisors regarding the application of these rules and the
advisability of making any of the elections allowed under Code Sections 1276
through 1278.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount bond
shall be treated as ordinary income to the extent that it does not exceed the
accrued market discount at the time of such payment. The amount of accrued
market discount for purposes of determining the tax treatment of subsequent
principal payments or dispositions of the market discount bond is to be reduced
by the amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
While the Treasury Department has not yet issued regulations, rules described in
the relevant legislative history will apply. Under those rules, the holder of a
market discount bond may elect to accrue market discount either on the basis of
a constant interest rate or according to one of the following methods. If a
Grantor Trust Certificate is issued with OID, the amount of market discount that
accrues during any accrual period would be equal to the product of (i) the total
remaining market discount and (ii) a fraction, the numerator of which is the OID
accruing during the period and the denominator of which is the total remaining
OID at the beginning of the accrual period. For Grantor Trust Certificates
issued without OID, the amount of market discount that accrues during a period
is equal to the product of (i) the total remaining market discount and (ii) a
fraction, the numerator of which is the amount of stated interest paid during
the accrual period and the denominator of which is the total amount of stated
interest remaining to be paid at the beginning of the accrual period. For
purposes of calculating market discount under any of the above methods in the
case of instruments (such as the Grantor Trust Certificates) that provide for
payments that may be accelerated by reason of prepayments of other obligations
securing such instruments, the same prepayment assumption applicable to
calculating the accrual of OID will apply. Because the regulations described
above have not been issued, it is impossible to predict what effect those
regulations might have on the tax treatment of a Grantor Trust Certificate
purchased at a discount or premium in the secondary market.
A holder who acquired a Grantor Trust Certificate at a market discount
also may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or continued to purchase
or carry such Grantor Trust Certificate purchased with market discount. For
these purposes, the de minimis rule referred above applies. Any such deferred
interest expense would not exceed the market discount that accrues during such
taxable year and is, in general, allowed as a deduction not later than the year
in which such market discount is includible in income. If such holder elects to
include market discount in income currently as it accrues on all market discount
instruments acquired by such holder in that taxable year or thereafter, the
interest deferral rule described above will not apply.
Premium. To the extent a Grantor Trust Certificateholder is considered
to have purchased an undivided interest in a Contract for an amount that is
greater than its stated redemption price at maturity of such Contract, such
Grantor Trust Certificateholder will be considered to have purchased the
Contract with "amortizable bond premium" equal in amount to such excess. A
Grantor Trust Certificateholder (who does not hold the Certificate for sale to
customers or in inventory) may elect under Section 171 of the Code to amortize
such premium. Under the Code, premium is allocated among the interest payments
on the Contracts to which it relates and is considered as an offset against (and
thus a reduction of) such interest payments. With certain exceptions, such an
election would apply to all debt instruments held or subsequently acquired by
the electing holder. Absent such an election, the premium will be deductible as
an ordinary loss only upon disposition of the Certificate or pro rata as
principal is paid on the Contracts.
49
<PAGE> 53
Election to Treat All Interest as OID. The OID regulations permit a
Grantor Trust Certificateholder to elect to accrue all interest, discount
(including de minimis market or original issue discount) and premium in income
as interest, based on a constant yield method. If such an election were to be
made with respect to a Grantor Trust Certificate with market discount, the
Certificateholder would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that such Grantor Trust Certificateholder acquires during the
year of the election or thereafter. Similarly, a Grantor Trust Certificateholder
that makes this election for a Grantor Trust Certificate that is acquired at a
premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
Grantor Trust Certificateholder owns or acquires. See "--Premium" herein. The
election to accrue interest, discount and premium on a constant yield method
with respect to a Grantor Trust Certificate is irrevocable.
Sale or Exchange of a Grantor Trust Certificate. Sale or exchange of a
Grantor Trust Certificate prior to its maturity will result in gain or loss
equal to the difference, if any, between the amount received and the owner's
adjusted basis in the Grantor Trust Certificate. Such adjusted basis generally
will equal the seller's purchase price for the Grantor Trust Certificate,
increased by the OID included in the seller's gross income with respect to the
Grantor Trust Certificate, and reduced by principal payments on the Grantor
Trust Certificate previously received by the seller. Such gain or loss will be
capital gain or loss to an owner for which a Grantor Trust Certificate is a
"capital asset" within the meaning of Section 1221, and will be long-term or
short-term depending on whether the Grantor Trust Certificate has been owned for
the long-term capital gain holding period (currently more than one year).
Grantor Trust Certificates will be "evidences of indebtedness" within
the meaning of Section 582(c)(1), so that gain or loss recognized from the sale
of a Grantor Trust Certificate by a bank or a thrift institution to which such
section applies will be treated as ordinary income or loss.
Non-U.S. Persons. Generally, interest or OID paid by the person required
to withhold tax under Section 1441 or 1442 to (i) an owner that is not a U.S.
Person (as defined below) or (ii) a Grantor Trust Certificateholder holding on
behalf of an owner that is not a U.S. Person and accrued OID recognized by the
owner on the sale or exchange of such a Grantor Trust Certificate will not be
subject to withholding to the extent that a Grantor Trust Certificate evidences
ownership in Contracts issued after July 18, 1984 by natural persons if such
Grantor Trust Certificateholder complies with certain identification
requirements (including delivery of a statement, signed by the Grantor Trust
Certificateholder under penalties of perjury, certifying that such Grantor Trust
Certificateholder is not a U.S. Person and providing the name and address of
such Grantor Trust Certificateholder). Additional restrictions apply to
Contracts where the obligor is not a natural person in order to qualify for the
exemption from withholding.
As used herein, a "U.S. PERSON" means a citizen or resident of the
United States, a corporation, a partnership, or other entity created or
organized in or under the laws of the United States or any political subdivision
thereof (except, in the case of a partnership as otherwise provided by
regulations), an estate, the income of which is includible in gross income for
United States federal income tax purposes regardless of its source or a trust
whose administration is subject to the primary supervision of a United States
court and which has one or more United States persons who have authority to
control all substantial decisions of the trust.
Information Reporting and Backup Withholding. The Servicer will furnish
or make available, within a reasonable time after the end of each calendar year,
to each person who was a Grantor Trust Certificateholder at any time during such
year, such information as may be deemed necessary or desirable to assist Grantor
Trust Certificateholders in preparing their federal income tax returns, or to
enable holders to make such information available to beneficial owners or
financial intermediaries that hold Grantor Trust Certificates as nominees on
behalf of beneficial owners. If a holder, beneficial owner, financial
intermediary or other recipient of a payment on behalf of a beneficial owner
fails to supply a certified taxpayer identification number or if the Secretary
of the Treasury determines that such person has not reported all interest and
dividend income required to be shown on its federal income tax return, 31%
backup withholding may be required with respect to any payments. Any amounts
deducted and withheld from a distribution to a recipient would be allowed as a
credit against such recipient's federal income tax liability.
50
<PAGE> 54
THE FEDERAL TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A NOTEHOLDER'S OR
CERTIFICATEHOLDER'S PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES AND CERTIFICATES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code prohibit a pension, profit-sharing or other employee
benefit plan, as well as individual retirement accounts and certain types of
Keogh Plans (each a "BENEFIT PLAN"), from engaging in certain transactions
involving "plan assets" with persons that are "parties in interest" under ERISA
or "disqualified persons" under the Code with respect to such Benefit Plan.
ERISA also imposes certain duties on persons who are fiduciaries of Benefit
Plans subject to ERISA and prohibits certain transactions between a Benefit Plan
and parties in interest with respect to such Benefit Plans. Under ERISA, any
person who exercises any authority or control with respect to the management or
disposition of the assets of a Benefit Plan is considered to be a fiduciary of
such Benefit Plan (subject to certain exceptions not here relevant). A violation
of these "prohibited transaction" rules may result in an excise tax or other
penalties and liabilities under ERISA and the Code for such persons.
Certain transactions involving a Trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Benefit Plan
that purchased Notes or Certificates if assets of the Trust were deemed to be
assets of the Benefit Plan. Under a regulation issued by the United States
Department of Labor (the "PLAN ASSETS REGULATION"), the assets of a Trust would
be treated as plan assets of a Benefit Plan for the purposes of ERISA and the
Code if the Benefit Plan acquired an "equity interest" in the Trust and none of
the exceptions contained in the Plan Assets Regulation was applicable. An equity
interest is defined under the Plan Assets Regulation as an interest other than
an instrument which is treated as indebtedness under applicable local law and
which has no substantial equity features. The likely treatment in this context
of Notes and Certificates of a given series will be discussed in the related
prospectus supplement.
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements. Due to the complexities of the
"prohibited transaction" rules and the penalties imposed upon persons involved
in prohibited transactions, it is important that the fiduciary of any Benefit
Plan considering the purchase of Securities consult with its tax and/or legal
advisors regarding whether the assets of the related Trust would be considered
plan assets, the possibility of exemptive relief from the prohibited transaction
rules and other issues and their potential consequences.
PLAN OF DISTRIBUTION
Unless otherwise specified in the related prospectus supplement, on the
terms and conditions set forth in one or more underwriting agreements with
respect to the Securities of a series (collectively, the "UNDERWRITING
AGREEMENT"), the Seller will agree to cause the related Trust to sell to the
underwriter(s) named therein and in the related prospectus supplement, and each
of such underwriters will severally agree to purchase, the principal amount of
each class of Securities, as the case may be, of the related series set forth
therein and in the related prospectus supplement.
Unless otherwise specified in the related prospectus supplement, in the
Underwriting Agreement with respect to any given series of Securities, the
applicable underwriter(s) will agree, subject to the terms and conditions
51
<PAGE> 55
set forth therein, to purchase all the Securities described therein which are
offered hereby and by the related prospectus supplement if any of such
Securities are purchased.
Each prospectus supplement will either (i) set forth the price at which
each class of Securities being offered thereby will be offered to the public and
any concessions that may be offered to certain dealers participating in the
offering of such Securities or (ii) specify that the related Securities are to
be resold by the underwriter(s) in negotiated transactions at varying prices to
be determined at the time of such sale. After the initial public offering of any
such Securities, such public offering prices and such concessions may be
changed.
Unless otherwise specified in the related prospectus supplement, each
Underwriting Agreement will provide that Onyx and the Seller will indemnify the
underwriters against certain civil liabilities, including liabilities under the
Securities Act of 1933, as amended, or contribute to payments the several
underwriters may be required to make in respect thereof.
Unless otherwise specified in the related prospectus supplement,
pursuant to each Underwriting Agreement with respect to a given series of
Securities, the closing of the sale of any class of Securities subject to such
Underwriting Agreement will be conditioned on the closing of the sale of all
other such classes of Securities of that series.
The place and time of delivery for the Securities in respect of which
this prospectus is delivered will be set forth in the related prospectus
supplement.
LEGAL OPINIONS
Certain legal matters relating to the Securities of any series will be
passed upon for the related Trust, the Seller and the Servicer by Andrews &
Kurth L.L.P. In addition, certain United States federal tax and other matters
will be passed upon for the related Trust by Andrews & Kurth L.L.P.
AVAILABLE INFORMATION
The Seller, as originator of each Trust, has filed with the SEC a
registration statement under the Securities Act of 1933, as amended, with
respect to the Notes and the Certificates offered pursuant to this prospectus.
This prospectus, which forms a part of the registration statement, does not
contain all of the information included in the registration statement and the
exhibits thereto. You may inspect and copy the registration statement and other
information filed by the Seller at the public reference facilities maintained by
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's
regional offices located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New York
10048. You may also obtain copies of the registration statement at prescribed
rates from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The SEC also maintains a web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC, including the Servicer and each Trust.
The address of the SEC's web site is http://www.sec.gov.
The Servicer, on behalf of each Trust, will also file or cause to be
filed with the SEC any periodic reports required under the Securities Exchange
Act of 1934, as amended, and the rules and regulations of the SEC thereunder.
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 related Trust, including the Distribution Date Statement which
will be furnished monthly to Securityholders. The Servicer will not file or
cause to be filed reports on Form 8-K and Form 10-K with respect to a Trust and
the Securities issued by such Trust for any period which ends after December 31
of the year in which the Securities are issued; however, the related
Securityholders will continue to receive the Distribution Date Statement
monthly.
52
<PAGE> 56
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Seller, as originator of any Trust, pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended, subsequent to the date of this prospectus and prior to the termination
of the offering of the Securities, shall be deemed to be incorporated by
reference in this prospectus. Any statement contained in this prospectus or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this prospectus to the
extent that a statement contained herein or in any subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
prospectus.
The Seller will provide without charge to each person, including any
beneficial owner of Securities, to whom a copy of this prospectus is delivered,
on the written or oral request of any such person, a copy of any or all of the
documents incorporated herein or in any related prospectus supplement by
reference, not including exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Requests for such
copies should be directed to the Seller at 27051 Towne Centre Drive, Suite 200,
Foothill Ranch, California 92610 (Telephone: (949) 465-3500).
53
<PAGE> 57
INDEX OF TERMS
"Actuarial Contracts"..................................................14
"Actuarial Method".....................................................15
"Administration Agreement".............................................33
"Administrator"........................................................33
"APR"..................................................................15
"Auto Finance Centers".................................................11
"Bankruptcy Code"......................................................18
"Benefit Plan".........................................................52
"Certificate Rate"......................................................2
"Certificateholders"................................................9, 22
"Certificates"..........................................................i
"Closing Date"..........................................................4
"Code".................................................................41
"Collection Account"...................................................25
"Collection Period"....................................................23
"Contracts".............................................................3
"Cut-Off Date"..........................................................4
"Cut-Off Date Scheduled Balance".......................................15
"Dealers"..............................................................11
"Defaulted Contract"...................................................23
"Definitive Securities"................................................21
"Distribution Date".....................................................1
"Distribution Date Statement"..........................................28
"DTC"...................................................................9
"Due Date".............................................................13
"Eligible Investments".................................................25
"ERISA"................................................................52
"foreign person".......................................................43
"FTC Rule".............................................................39
"Grantor Trust Certificateholders".....................................48
"Grantor Trust Certificates"...........................................48
"Indenture Events of Default"..........................................35
"Indirect Participants"................................................20
"Insolvency Laws".......................................................7
"Interest Rate".........................................................1
"IRS"..................................................................41
"Issuer"...............................................................ii
"Liquidation Expenses".................................................26
"Monthly P&I"..........................................................16
"Motor Vehicle Contracts"..............................................11
"Net Insurance Proceeds"...............................................26
"Net Liquidation Proceeds".............................................26
"New Withholding Regulations"..........................................43
"Noteholders".......................................................9, 22
"Notes".................................................................i
"OID"..................................................................42
"OID regulations" .....................................................42
"Onyx"..................................................................1
"Original Pool Balance"................................................17
"Participants".........................................................20
"Payahead Account".....................................................26
"Payaheads"............................................................26
"Plan Assets Regulation"...............................................52
"Pool Balance".........................................................17
"Precomputed Contracts"................................................14
"Prefunding Account"...................................................16
"Prefunding Arrangement"...............................................16
"Purchase Agreement"...................................................18
"Rating Agency".........................................................6
"Recomputed Actuarial Method"..........................................16
"Recomputed Yield".....................................................15
"Related Documents"....................................................35
"Rule of 78's Contracts"...............................................14
"Rule of 78's Method"..................................................15
"Scheduled Balance"....................................................16
"Section 1286 Treasury Regulations"....................................49
"Securities"............................................................i
"Security Insurance Policy".............................................5
"Security Insurer"......................................................5
"Security Owners"......................................................21
"Securityholders"....................................................8, 9
"Seller"................................................................1
"Selling Subsidiary"....................................................4
"Servicer"..............................................................1
"Servicer Default".....................................................30
"Servicer Report Date".................................................26
"Servicing Fee"........................................................28
"Servicing Fee Rate"...................................................28
"Short-Term Note"......................................................42
"Simple Interest Contracts"............................................14
"Simple Interest Method"...............................................15
"Strip Certificates"....................................................3
"Strip Notes"...........................................................2
"Subsequent Contracts".................................................16
"Transfer and Servicing Agreements"....................................24
"Trust".............................................................i, ii
"Trust Accounts".......................................................26
"Trust Property"........................................................9
"U.S. Person"..........................................................51
"UCC"..................................................................36
"Underwriting Agreement"...............................................53
54
<PAGE> 58
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
The following is an itemized list of the estimated expenses to be
incurred in connection with the offering of the securities being offered
hereunder other than underwriting discounts and commissions.
Registration Fee.....................................................$ 295
Blue Sky Fees and Expenses..............................................**
Printing Expenses.......................................................**
Trustee Fees and Expenses...............................................**
Legal Fees and Expenses.................................................**
Accounting Fees and Expenses............................................**
Rating Agencies' Fees...................................................**
Miscellaneous....................................................... **
------
Total.....................................................$ **
======
* All amounts except registration fee are estimates.
** To be provided by amendment.
ITEM 15. 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") 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 or officer 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")
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 or officer to repay such
advances if it is ultimately determined that the director or officer 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
II-1
<PAGE> 59
(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 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 is contained in this prospectus or included as
part of this Registration Statement.
[Remainder of Page Intentionally Left Blank]
II-2
<PAGE> 60
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS
a. Exhibits:
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement (1)
4.1 Form of Trust Agreement between the Registrant, the Servicer and the Owner Trustee (1)
4.2 Form of Indenture between the Trust and the Indenture Trustee (1)
4.3 Form of Sale and Servicing Agreement among the Registrant, the Servicer and the Owner
Trustee (2)
4.4 Form of Pooling and Servicing Agreement among the Registrant, the Servicer and the
Trustee (1)
4.5 Form of Administration Agreement among the Trust, the Administrator and the Indenture
Trustee (1)
*5.1 Opinion of Andrews & Kurth L.L.P. with respect to legality of Notes
*5.2 Opinion of Andrews & Kurth L.L.P. with respect to legality of Certificates
*8.1 Opinion of Andrews & Kurth L.L.P. with respect to tax matters
*23.1 Consent of Andrews & Kurth L.L.P. (included as part of Exhibits 5.1, 5.2 and 8.1)
*24.1 Power of Attorney of Directors and Officers of the Registrant (included on Page II-5)
*99.1 Form of Prospectus Supplement (Owner Trust)
*99.2 Form of Prospectus Supplement (Grantor Trust)
</TABLE>
- --------------
* Filed herewith.
(1) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement No. 333-51239 on April 28, 1998 and incorporated
herein by reference.
(2) Previously filed with the Commission as an exhibit to the Registrant's
Amendment No. 2 to Registration Statement No. 333-51239 on June 3, 1998
and incorporated herein by reference.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made of the securities registered hereby, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of this registration statement
(or the most recent post-effective amendment hereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in this registration statement; and
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in this
registration statement or any material change to such
information in this registration statement.
Provided, however, that the undertakings set forth in clauses
(i) and (ii) above do not apply if the information required to
be included in a post-effective amendment by those clauses is
contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this registration statement.
II-4
<PAGE> 61
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) 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 provisions described under Item 15
above, 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 Securities Act of 1933 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
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-3
<PAGE> 62
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Foothill Ranch, State of California, on January 22, 1999.
Onyx Acceptance Financial Corporation
By: /s/ JOHN W. HALL
-------------------------------------------
John W. Hall
Director, President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints Regan E. Kelly and Don P. Duffy his true and lawful attorney-in-fact
and agent, with full powers of substitution, for him and in his name, place and
stead, in any and all capacities, to sign and to file any and all amendments,
including post-effective amendments, to this registration statement with the
Securities and Exchange Commission granting to said attorney-in-fact power and
authority to perform any other act on behalf of the undersigned required to be
done in connection therewith.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JOHN W. HALL
- ---------------------------------------- Chief Executive Officer and Director January 22, 1999
John W. Hall (Principal Executive Officer)
/s/ DON P. DUFFY
- ---------------------------------------- Executive Vice President, Chief January 22, 1999
Don P. Duffy Financial Officer and Director
(Principal Financial Officer and
Principal Accounting Officer
/s/ REGAN E. KELLY
- ---------------------------------------- Executive Vice President January 22, 1999
Regan E. Kelly and Director
/s/ KURT C. BICKNELL
- ---------------------------------------- Director January 22, 1999
Kurt C. Bicknell
/s/ STEVE M. BOND
- ---------------------------------------- Director January 22, 1999
Steve M. Bond
</TABLE>
II-5
<PAGE> 63
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
INDEX DESCRIPTION
- --------- -----------
<S> <C>
1.1 Form of Underwriting Agreement (1)
4.1 Form of Trust Agreement between the Registrant, the Servicer and the
Owner Trustee (1)
4.2 Form of Indenture between the Trust and the Indenture Trustee (1)
4.3 Form of Sale and Servicing Agreement among the Registrant, the
Servicer and the Owner Trustee (2)
4.4 Form of Pooling and Servicing Agreement among the Registrant, the
Servicer and the Trustee (1)
4.5 Form of Administration Agreement among the Trust, the Administrator
and the Indenture Trustee (1)
*5.1 Opinion of Andrews & Kurth L.L.P. with respect to legality of Notes
*5.2 Opinion of Andrews & Kurth L.L.P. with respect to legality of
Certificates
*8.1 Opinion of Andrews & Kurth L.L.P. with respect to tax matters
*23.1 Consent of Andrews & Kurth L.L.P. (included as part of Exhibits 5.1,
5.2 and 8.1)
*24.1 Power of Attorney of Directors and Officers of the Registrant
(included on Page II-5)
*99.1 Form of Prospectus Supplement (Owner Trust)
*99.2 Form of Prospectus Supplement (Grantor Trust)
</TABLE>
- --------------
* Filed herewith.
(1) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement No. 333-51239 on April 28, 1998 and incorporated
herein by reference.
(2) Previously filed with the Commission as an exhibit to the Registrant's
Amendment No. 2 to Registration Statement No. 333-51239 on June 3, 1998
and incorporated herein by reference.
<PAGE> 1
EXHIBIT 5.1
January 22, 1999
Onyx Acceptance Financial Corporation
27051 Towne Centre Drive
Foothill Ranch, California 96210
Re: Onyx Acceptance Financial Corporation
Registration Statement on Form S-3 (the "Registration Statement")
Ladies and Gentlemen:
We have acted as special counsel for Onyx Acceptance Financial
Corporation, a corporation organized under the laws of the State of Delaware
(the "Company"), and certain trusts, all of the beneficial ownership of which
will be initially owned by the Company (together with the Company, each an
"Issuer"), in connection with the proposed issuance by each Issuer of its Auto
Loan Backed Notes (the "Notes"). The Notes are to be issued pursuant to the
Indenture for each series, each between the applicable Issuer and the Indenture
Trustee (as defined therein). The Indenture, in the form filed with the
Securities and Exchange Commission as an exhibit to the Registration Statement,
is herein referred to as the "Indenture."
We have examined originals or copies, certified or otherwise to our
satisfaction, of the Issuer's organizational documents, the form of Indenture
and form of Notes included therein and such other documents, records,
certificates of the Company 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 Indenture as completed for each series will be duly
executed and delivered by each of the parties thereto; that the Notes as
completed for each series will be duly executed and delivered substantially in
the forms contemplated by the Indenture; and that the Notes for each series will
be sold as described in the Registration Statement.
Based upon the foregoing and subject to the limitations and
qualifications set forth below, we are of the opinion that the Notes are in due
and proper form and, assuming the due authorization, execution and delivery of
the Indenture of each series by the applicable Issuer and the Indenture Trustee
and the due authorization of the Notes for each series by all necessary action
on the part of the applicable Issuer, when the Notes for each series have been
validly executed, authenticated and issued in accordance with the applicable
Indenture and delivered against payment therefor, the Notes for each series will
be valid and binding obligations of the applicable Issuer,
<PAGE> 2
Onyx Acceptance Financial Corporation
January 22, 1999
Page 2
enforceable against the applicable Issuer in accordance with their terms, except
that the enforceability thereof may be subject to (a) bankruptcy, insolvency,
reorganization, arrangement, moratorium, fraudulent or preferential conveyance
or other similar laws now or hereinafter in effect relating to creditors' rights
generally, and (b) general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law) and to the
discretion of the court before which any proceeding therefor may be brought.
The opinion expressed above is subject to the qualification that we
do not purport to be experts as to the laws of any jurisdiction other than the
federal laws of the United States of America and the laws of the State of New
York, and we express no opinion herein as to the effect that the laws and
decisions of courts of any such other jurisdiction may have upon such opinions.
We consent to the use and filing of this opinion as Exhibit 5.1 to
the Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Prospectus Supplement and 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 5.2
January 22, 1999
Onyx Acceptance Financial Corporation
27051 Towne Centre Drive
Foothill Ranch, California 92610
Re: Onyx Acceptance Financial Corporation
Registration Statement on Form S-3 (the "Registration Statement")
Ladies and Gentlemen:
We have acted as special counsel for Onyx Acceptance Financial
Corporation, a corporation organized under the laws of the State of Delaware
(the "Company"), and certain trusts, all of the beneficial ownership of which
will be initially owned by the Company (together with the Company, each an
"Issuer"), in connection with the proposed issuance by the Issuer of its Auto
Loan Pass-Through Certificates (the "Pass-Through Certificates"). The
Pass-Through Certificates of a series are to be issued pursuant to either a
Pooling and Servicing Agreement or a Trust Agreement between the Issuer, the
trustee (the "Trustee"), and, in the case of a Pooling and Servicing Agreement,
an administrator (the "Administrator"). The Pooling and Servicing Agreement and
the Trust Agreement, each in the form filed with the Securities and Exchange
Commission as an exhibit to the Registration Statement, are each referred to
herein as an "Agreement".
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of the Issuer's organizational documents, the
form of each Agreement and the form of Pass-Through Certificates included
therein and such other documents, records, certificates of the Issuer and public
officials and other instruments as we have deemed necessary for the purposes of
rendering this opinion. In addition, we have assumed that each Agreement as
completed for each series will be duly executed and delivered by each of the
parties thereto; that the Pass-Through Certificates as completed for each series
will be duly executed and delivered substantially in the forms contemplated by
the related Agreement; and that the Pass-Through Certificates for each series
will be sold as described in the Registration Statement.
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
<PAGE> 2
Onyx Acceptance Financial Corporation
January 22, 1999
Page 2
the due authorization, execution and delivery of the related Agreement for each
series by the applicable Issuer, the Trustee, and the Administrator (if
applicable) and the due authorization of the Pass-Through Certificates for each
series by all necessary action on the part of the applicable Issuer, when the
Pass-Through Certificates for each series have been validly executed,
authenticated and issued in accordance with the applicable Agreement and
delivered against payment therefor, the Pass-Through Certificates for each
series will be validly issued and outstanding, fully paid and non-assessable,
and entitled to the benefits of the related Agreement in accordance with their
terms.
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 State of New
York, and we express no opinion herein as to the effect that the laws and
decisions of courts of any such other jurisdiction may have upon such opinions.
We consent to the use and filing of this opinion as Exhibit 5.2 to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus Supplement and 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
January 22, 1999
Onyx Acceptance Financial Corporation
27051 Towne Centre Drive
Foothill Ranch, California 92610
Re: Onyx Acceptance Financial Corporation
Registration Statement on Form S-3 (the "Registration Statement")
Ladies and Gentlemen:
We have acted as counsel for Onyx Acceptance Financial Corporation, a
corporation organized under the laws of the State of Delaware (the "Company"),
and certain trusts, all of the beneficial ownership of which will be initially
owned by the Company (together with the Company, each an "Issuer"), in
connection with the proposed issuance by the Issuer of its Auto Loan
Pass-Through Certificates (the "Pass-Through Certificates") or its Auto Loan
Backed Notes (the "Notes"). The Pass-Through Certificates of a series are to be
issued pursuant to either a Pooling and Servicing Agreement or a Trust
Agreement, between the Issuer, the trustee (the "Trustee"), and, in the case of
a Pooling and Servicing Agreement, an administrator. The Pooling and Servicing
Agreement and the Sale and Servicing Agreement, each in the form filed with the
Securities and Exchange Commission as an exhibit to the Registration Statement,
are each referred to herein as an "Agreement." The Notes are to be issued
pursuant to the Indenture for each series, each between the applicable Issuer
and the Indenture Trustee (as defined therein). The form of the Indenture filed
as an exhibit to the Registration Statement is herein referred to as the
"Indenture."
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of the Issuer's organizational documents, the
form of each Agreement and the form of Pass-Through Certificates included
therein, the form of Indenture and form of Notes included therein and such other
documents, records, certificates of the Issuer and public officials and other
instruments as we have deemed necessary for the purposes of rendering this
opinion. In addition, we have assumed that each Agreement as completed for each
series will be duly executed and delivered by each of the parties thereto; that
the Pass-Through Certificates as completed for each series will be duly executed
and delivered substantially in the forms contemplated by the related Agreement;
and that the Pass-Through Certificates for each series will be sold as described
in the Registration Statement. We have also assumed that the Indenture as
completed for each series will be duly executed and delivered by each of the
parties thereto; that the Notes as completed for each series will be duly
executed and
<PAGE> 2
Onyx Acceptance Financial Corporation
January 22, 1999
Page 2
delivered substantially in the forms contemplated by the Indenture; and that the
Notes for each series 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
Statement accurately describes the material federal income tax consequences to
holders of Pass-Through Certificates or Notes, as applicable, under existing law
and subject to the qualifications and assumptions stated therein.
The opinion herein is based upon our interpretations of current law,
including court authority and existing Final and Temporary Regulations, which
are subject to change both prospectively and retroactively, and upon the facts
and assumptions discussed herein. This opinion letter is limited to the matters
set forth herein, and no opinions are intended to be implied or may be inferred
beyond those expressly stated herein. Our opinion is rendered as of the date
hereof and we assume no obligation to update or supplement this opinion or any
matter related to this opinion to reflect any change of fact, circumstances, or
law after the date hereof. In addition, our opinion is based on the assumption
that the matter will be properly presented to the applicable court. Furthermore,
our opinion is not binding on the Internal Revenue Service or a court. In
addition, we must note that our opinion represents merely our best legal
judgment on the matters presented and that others may disagree with our
conclusion. There can be no assurance that the Internal Revenue Service will not
take a contrary position or that a court would agree with our opinion if
litigated.
We consent to the use and filing of this opinion as Exhibit 8.1 to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus Supplement and 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 99.1
PROSPECTUS SUPPLEMENT
(To Prospectus dated ______________, 1999)
ONYX LOGO
$______________________
ONYX ACCEPTANCE OWNER TRUST 1999-___
$_____________ ____% AUTO LOAN BACKED NOTES, CLASS A-1
$_____________ ____% AUTO LOAN BACKED NOTES, CLASS A-2
$_____________ ____% AUTO LOAN BACKED NOTES, CLASS A-3
$_____________ ____% AUTO LOAN BACKED NOTES, CLASS A-4
$_____________ ____% AUTO LOAN BACKED CERTIFICATES
ONYX ACCEPTANCE FINANCIAL CORPORATION,
Seller
ONYX ACCEPTANCE CORPORATION,
Servicer
----------
Onyx Acceptance Owner Trust 1999-___ will issue the above securities to
obtain funds for the purchase of a pool of motor vehicle retail installment
contracts. The Notes are non-recourse obligations of the Trust, and the
Certificates represent beneficial ownership interests in the Trust. NEITHER THE
NOTES NOR THE CERTIFICATES ARE OBLIGATIONS OF OR INTERESTS IN THE SELLER, THE
SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES.
Interest and principal on the Notes and the Certificates will be payable
on the 15th day of each month. If the 15th day of a month is not a business day,
then the payment will be made on the next business day. The first payment will
be due on __________________________.
Principal on the Notes will be paid in sequence, beginning with the
Class A-1 Notes. Principal on the Certificates will be paid only after the Notes
have been paid in full. Accordingly, all principal will be paid on the Class A-1
Notes until they are fully paid; then, all principal will be paid on the Class
A-2 Notes until they are fully paid; then, all principal will be paid on the
Class A-3 Notes until they are fully paid; then, all principal will be paid on
the Class A-4 Notes until they are fully paid; and finally, all principal will
be paid on the Certificates until they are fully paid.
[Insurer] will unconditionally and irrevocably guarantee, to the extent
described in this Prospectus Supplement, the Notes and the Certificates.
[INSURER LOGO]
----------
TOTAL SECURITIES ISSUED:
<TABLE>
<CAPTION>
=======================================================================================================================
Price to Underwriting Proceeds to the
Public(1) Discount Seller(1)(2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Class A-1 Note....................................
Per Class A-2 Note....................................
Per Class A-3 Note....................................
Per Class A-4 Note....................................
Per Certificate.......................................
Total.................................................
=======================================================================================================================
</TABLE>
(1) Plus accrued interest, if any, calculated from the Closing Date.
(2) Before deducting expenses payable by the Seller estimated to be
$___________.
----------
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-10 OF THIS
PROSPECTUS SUPPLEMENT AND PAGE 6 OF THE ACCOMPANYING PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
We expect that delivery of the Notes and the Certificates will be made
in book-entry form only through the facilities of The Depository Trust Company
against payment in immediately available funds on or about ____________________.
[UNDERWRITERS]
The date of this Prospectus Supplement is _____________________.
<PAGE> 2
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
Information about the Notes and the Certificates is contained in two
separate documents that progressively provide more detail: (a) the accompanying
Prospectus, which provides general information, some of which may not apply to
the Notes or Certificates; and (b) this Prospectus Supplement, which describes
the specific terms of the Notes and Certificates. In this Prospectus Supplement
and in the Prospectus, the Notes and Certificates are sometimes referred to
together as the "SECURITIES". IF THE TERMS OF THE SECURITIES VARY BETWEEN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, YOU SHOULD RELY ON THE
INFORMATION IN THIS PROSPECTUS SUPPLEMENT.
You should rely only on the information contained in this Prospectus
Supplement and the accompanying Prospectus or that we have referred you to. We
have not authorized anyone to provide you with information that is different.
The information in this Prospectus Supplement is accurate only as of the date of
this Prospectus Supplement, and the information in the Prospectus is accurate
only as of the date of the Prospectus.
In this Prospectus Supplement and the accompanying Prospectus, we
include cross references to sections in these materials where you can find
further related discussions. The Tables of Contents on the back cover of this
document identify the pages where these sections are located.
We have defined and used certain capitalized terms in this Prospectus
Supplement and the Prospectus to assist you in understanding the terms of the
Securities and this offering. You can find a listing of the pages where
capitalized terms used in this Prospectus Supplement are defined under the
caption "Index of Terms" beginning on page S-44 in this Prospectus Supplement
and under the caption "Index of Terms" beginning on page 63 of the Prospectus.
In this Prospectus Supplement, the terms "Trust", "Issuer", "we", "us"
and "our" refer to Onyx Acceptance Owner Trust 1999-__.
REPORTS TO SECURITYHOLDERS
Unless definitive securities are issued (which will occur under the
limited circumstances described in this Prospectus Supplement and in the
Prospectus), the Servicer will send unaudited monthly and annual reports
concerning the Trust to the Indenture Trustee to be delivered to Cede & Co. as
the nominee of The Depository Trust Company and the registered holder of the
Securities. See "Description of the Transfer and Servicing Agreements --
Statements to Securityholders" in this Prospectus Supplement and "Certain
Information Regarding the Securities -- Statements to Securityholders" in the
Prospectus. Such reports will not constitute financial statements prepared in
accordance with generally accepted accounting principles. The Depository Trust
Company will supply such reports to you in accordance with its procedures. See
"Description of the Securities -- Book-Entry Registration" in the Prospectus.
None of the Seller, the Servicer, or [Insurer] intends to send any of its
financial reports to you.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
In addition to the documents described in the Prospectus under
"Incorporation of Certain Documents by Reference," the consolidated financial
statements of [Insurer] included in, or as exhibits to, the following documents
which have been filed with the Securities and Exchange Commission by [Insurer],
are hereby incorporated by reference in this Prospectus Supplement:
(a) Annual Report on Form 10-K for the year ended December 31, 1998; and
(b) Quarterly Report on Form 10-Q for the period ended ________________.
All financial statements of [Insurer] included in documents filed by
[Insurer] pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus Supplement and prior to the
termination of the offering of the Securities shall be deemed to be incorporated
by reference into this Prospectus Supplement and to be a part hereof from the
respective dates of filing of such documents.
ii
<PAGE> 3
SUMMARY OF TERMS
The following summary is a short, concise description of the main terms
of the Securities. For this reason, the summary does not contain all of the
information that may be important to you. You will find a detailed description
of the terms of the Notes and Certificates following this summary and in the
Prospectus.
ISSUER: Onyx Acceptance Owner Trust 1999-__ a Delaware business
trust. The Trust will be established by a trust
agreement among the Seller, the Owner Trustee and the
Trust Agent. The trust agreement is referred to in this
Prospectus Supplement as the "TRUST AGREEMENT".
SELLER: Onyx Acceptance Financial Corporation, a wholly-owned,
limited purpose subsidiary of Onyx Acceptance
Corporation.
SERVICER: Onyx Acceptance Corporation ("ONYX").
INDENTURE TRUSTEE: The Chase Manhattan Bank, as trustee under the
Indenture.
OWNER TRUSTEE: Bankers Trust (Delaware), as trustee under the Trust
Agreement.
TRUST AGENT: The Chase Manhattan Bank, as agent of the Owner Trustee
under the Trust Agreement.
CLOSING DATE: On or about _____________________.
THE NOTES: The Trust will issue the Class A-1 Notes, the Class A-2
Notes, the Class A-3 Notes and the Class A-4 Notes, as
described on the cover page, pursuant to an indenture
between the Trust and the Indenture Trustee. The
indenture is referred to in this Prospectus Supplement
as the "INDENTURE". The Notes will be non-recourse
obligations of the Trust and will be secured by certain
assets of the Trust pursuant to the Indenture.
THE CERTIFICATES: The Trust will issue the Certificates, as described on
the cover page, pursuant to the Trust Agreement. The
Certificates will represent undivided beneficial
ownership interests in the Trust.
THE RESIDUAL INTERESTS: The Trust will issue certificates representing the
Residual Interests in the Trust. The Residual Interests
are not offered for sale by this Prospectus Supplement.
TRUST PROPERTY: The Trust's assets will include:
- a pool of fixed rate motor vehicle retail
installment sales contracts (the "CONTRACTS"), all
of which were purchased from the Seller, and
secured by new and used automobiles and light-duty
trucks;
- certain documents relating to the Contracts;
- certain monies received with respect to the
Contracts on or after the Cut-Off Date for such
Contracts;
- 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;
S-1
<PAGE> 4
- all amounts on deposit in specified accounts
(excluding any investment income credited to the
Collection Account, which will be paid to the
Servicer);
- the right of the Seller to cause Onyx to
repurchase certain Contracts under specified
circumstances; and
- all proceeds of the foregoing.
See "The Trust" in this Prospectus Supplement and "The
Trusts" in the Prospectus.
Pursuant to the Indenture, the Trust will grant a
security interest in the Trust Property (excluding the
Certificate Distribution Account) in favor of the
Indenture Trustee, on behalf of the Noteholders, and
for the benefit of [Insurer] in support of the
obligations owing to [Insurer] under the Insurance
Agreement.
CONTRACTS: The Trust's main source of funds for making payments on
the Securities will be collections on the Contracts.
The Trust will acquire certain Contracts with a total
principal balance of $___________ as of
_____________________. Such Contracts are referred to
in this Prospectus Supplement as the "INITIAL
CONTRACTS" and _____________________ is referred to as
the "INITIAL CUT-OFF DATE". The total principal
balance of the Initial Contracts as of the Initial
Cut-Off Date is referred to as the "INITIAL CUT-OFF
POOL BALANCE".
The Trust will acquire certain additional Contracts
that have been or will be originated or purchased after
the Initial Cut-Off Date but before
_____________________. Such Contracts are referred to
in this Prospectus Supplement as the "SUBSEQUENT
CONTRACTS" and _____________________ is referred to as
the "FINAL CUT-OFF DATE". The total principal balance
of the Initial Contracts as of the Initial Cut-Off Date
and the Subsequent Contracts as of the Final Cut-Off
Date, which will be approximately $___________, is
referred to as the "ORIGINAL POOL BALANCE".
The Trust will acquire the Contracts from the Seller
pursuant to a Sale and Servicing Agreement dated as of
_____________________ (the "SALE AND SERVICING
AGREEMENT").
The term "CUT-OFF DATE" as used in this Prospectus
Supplement refers to the Initial Cut-Off Date for the
Initial Contracts and the Final Cut-Off Date for the
Subsequent Contracts.
S-2
<PAGE> 5
As of the Initial Cut-Off Date, the Initial Contracts
had the following characteristics:
<TABLE>
<C> <S>
Weighted average annual percentage rate: ______%
Weighted average remaining term: ______ months
Contracts that allocate interest and
principal by the rule of 78's method
or the actuarial method: ____% (by Initial Cut-Off Pool Balance)
Contracts that allocate interest and
principal by the simple interest method ____% (by Initial Cut-Off Pool Balance)
Contracts secured by new vehicles: ____% (by Initial Cut-Off Pool Balance)
Contracts secured by used vehicles: ____% (by Initial Cut-Off Pool Balance)
Contracts originated in California:* ____% (by Initial Cut-Off Pool Balance)
Contracts originated in Florida:* ____% (by Initial Cut-Off Pool Balance)
</TABLE>
* As of the Initial Cut-Off Date, the aggregate
principal balances of Initial Contracts originated in
any other single state did not exceed ____%.
No Initial Contract has, and no Subsequent Contract
will have, a scheduled maturity date later than
________________.
Although the financial and other data for the
Subsequent Contracts will differ somewhat from the
descriptions of the Initial Contracts set forth above,
the characteristics of the Contracts as a whole will
not vary materially from the characteristics of the
Initial Contracts. See "The Contracts" in this
Prospectus Supplement and in the Prospectus.
DISTRIBUTION DATE: Interest and principal on the Notes and the
Certificates will be payable on the 15th day of each
month. If the 15th day of a month is not a business
day, then the payment for that month will be made on
the next business day. The first payment will be due on
_____________________.
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 required to be
closed.
TERMS OF THE NOTES:
A. INTEREST: Class A-1 Rate: ______% per annum.
Class A-2 Rate: ______% per annum.
Class A-3 Rate: ______% per annum.
Class A-4 Rate: ______% per annum.
Interest on the Notes will accrue monthly, as described
under "Description of the Notes -- Payments of
Interest" in this Prospectus Supplement.
B. PRINCIPAL: The Trust will make payments of principal on the Notes
monthly, on each Distribution Date, as described under
"Description of the Notes-- Payments of Principal" and
"Description of the Transfer and Servicing Agreements -
Distributions" in this Prospectus Supplement. No
principal payments will be made on the Class A-2 Notes
until the Class A-1 Notes have been paid in full; no
principal payments will be made on the Class A-3 Notes
until the Class A- 2 Notes have been paid in full; and
no principal payments will be made on the Class A-4
Notes until the Class A-3 Notes have been paid in full.
S-3
<PAGE> 6
The Trust must pay the outstanding principal amount of
each class of Notes, to the extent not previously paid,
by the following dates:
CLASS FINAL SCHEDULED DISTRIBUTION DATE
----- ---------------------------------
A-1
A-2
A-3
A-4
The final scheduled Distribution Dates set forth above
are referred to in this Prospectus Supplement as the
"FINAL SCHEDULED DISTRIBUTION DATES" for the Notes. We
expect that the outstanding principal balance of each
class of Notes will be paid in full earlier, and could
be paid significantly earlier, than the Final Scheduled
Distribution Date for such class, depending on a
variety of factors.
C. MANDATORY PARTIAL
REDEMPTION: If the proceeds from the sale of the Securities is
greater than the Original Pool Balance, we will
partially redeem the Class A-1 Notes on the first
Distribution Date in an amount equal to the excess of
the proceeds over the Original Pool Balance.
TERMS OF THE CERTIFICATES:
A. INTEREST: Certificate Rate: ______% per annum.
Interest on the Certificates will accrue monthly, as
described under "Description of the Certificates --
Distributions of Interest" in this Prospectus
Supplement. Distributions of interest on the
Certificates will be subordinated to payments of
interest on the Notes on each Distribution Date. On the
Final Scheduled Distribution Date for a class of Notes,
interest on the Certificates will be subordinated to
payments of principal then due on such class of Notes.
See "Description of the Certificates" in this
Prospectus Supplement.
B. PRINCIPAL: We will not pay principal on the Certificates until all
of the Notes have been paid in full. On the
Distribution Date that the Notes are paid in full, and
on each succeeding Distribution Date, the Trust will
make payments of principal on the Certificates monthly,
as described under "Description of the Certificates--
Distributions of Principal" and "Description of the
Transfer and Servicing Agreements-- Distributions" in
this Prospectus Supplement.
The Trust must pay the outstanding principal amount of
the Certificates, to the extent not previously paid, by
________________. This date is referred to in this
Prospectus Supplement as the "FINAL SCHEDULED
DISTRIBUTION DATE" for the Certificates. We expect that
the outstanding principal balance of the Certificates
will be paid in full earlier, and could be paid
significantly earlier, than the Final Scheduled
Distribution Date for the Certificates, depending on a
variety of factors.
OPTIONAL PURCHASE: The Servicer may, but is not obligated to, purchase the
Contracts on any Distribution Date on which the
principal balance of the Contracts has declined
S-4
<PAGE> 7
to 10% or less of the Original Pool Balance. If the
Servicer exercises this purchase option, all of the
Notes then outstanding will be redeemed, and all of the
Certificates then outstanding will be prepaid. See
"Description of the Notes -- Optional Redemption",
"Description of the Certificates -- Optional
Prepayment" and "Description of the Transfer and
Servicing Agreements -- Termination" in this Prospectus
Supplement.
THE SPREAD ACCOUNT: The Indenture Trustee will establish a segregated trust
account, entitled "Spread Account - OT 1999-__, The
Chase Manhattan Bank, Indenture Trustee", for the
benefit of the Securityholders and [Insurer] (the
"SPREAD ACCOUNT"). The Spread Account will be an asset
of the Trust. The Securityholders will be afforded
certain limited protection against losses on the
Contracts by the establishment of the Spread Account.
On each Distribution Date, the Indenture Trustee will
deposit funds in the Spread Account up to a specified
maximum amount, as described under "Description of the
Transfer and Servicing Agreements -- Distributions" in
this Prospectus Supplement. On each Distribution Date,
funds will be withdrawn from the Spread Account to
cover any shortfalls in amounts available to pay (i)
the Servicing Fee and certain fees of the Indenture
Trustee, the Owner Trustee and the Trust Agent, and
(ii) interest and principal on the Securities. See
"Description of the Transfer and Servicing Agreements
-- Payment Priorities of the Notes and the
Certificates; The Spread Account" in this Prospectus
Supplement.
THE INSURANCE POLICY: On the Closing Date, [Insurer] will issue an insurance
policy in favor of the Indenture Trustee, for the
benefit of the Securityholders. The insurance policy
issued by [Insurer] is referred to in this Prospectus
Supplement as the "POLICY", and the insurance agreement
pursuant to which the Policy is issued is referred to
as the "INSURANCE AGREEMENT". Further, the Policy is a
"SECURITY INSURANCE POLICY" as referred to in the
Prospectus.
Pursuant to the Policy, [Insurer] will irrevocably and
unconditionally guarantee payment of interest and
ultimate payment of principal due on the Notes and the
Certificates, as described under "The Policy" in this
Prospectus Supplement. [Insurer]'s obligations under
the Policy will be discharged to the extent that
amounts due under the Policy are received by the
Indenture Trustee, whether or not such amounts are
properly applied by the Indenture Trustee.
For a description of [Insurer], see "Description of the
Insurer" in this Prospectus Supplement.
SERVICING FEE: The Servicer will be responsible for managing,
administering, servicing, and collecting on the
Contracts. As compensation for its services, the
Servicer will receive a Servicing Fee and other
amounts, as described in this Prospectus Supplement
under "Description of the Transfer and Servicing
Agreements -- Servicing Fee".
FEDERAL INCOME TAX
STATUS: In the opinion of Andrews & Kurth L.L.P., for federal
income tax purposes, the Notes will be characterized as
debt, and the Trust will not be characterized as an
association (or a publicly traded partnership) taxable
as a corporation.
S-5
<PAGE> 8
See "Certain Federal Income Tax Consequences" in the
Prospectus for additional information concerning the
application of federal income tax laws to the Trust and
the Securities.
ERISA CONSIDERATIONS: Subject to the considerations discussed under "ERISA
Considerations" in this Prospectus Supplement and in
the Prospectus, the Notes are eligible for purchase by
employee benefit plans that are subject to ERISA.
However, neither an employee benefit plan subject to
ERISA or Section 4975 of the Internal Revenue Code of
1986 nor an individual retirement account is eligible
to purchase the Certificates. See "ERISA
Considerations" in this Prospectus Supplement and in
the Prospectus.
LEGAL INVESTMENT: The Class A-1 Notes will be eligible securities for
purchase by money market funds under Rule 2a-7 under
the Investment Company Act of 1940, as amended.
RATING: At the Closing Date, Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies,
Inc., and Moody's Investors Service, Inc. will rate the
Notes and the Certificates in the highest rating
category for such securities. The ratings of the Notes
and the Certificates will be based substantially on the
issuance of the Policy by [Insurer]. See "Risk
Factors-- Rating" in this Prospectus Supplement.
REGISTRATION OF THE
SECURITIES: Initially, the Securities will be in the form of one or
more certificates registered in the name of Cede & Co.,
as the nominee of The Depository Trust Company. If you
acquire an interest in the Notes or the Certificates
through The Depository Trust Company, you will not be
entitled to receive a definitive security, except in
the event that definitive securities are issued in
certain limited circumstances. See "Description of the
Securities -- Book-Entry Registration" and "--
Definitive Securities" in the Prospectus.
S-6
<PAGE> 9
RISK FACTORS
You should consider the following risk factors (as well as the other
factors described under the heading "Risk Factors" in the Prospectus) before
deciding to purchase the Securities.
LIMITED OPERATING HISTORY OF ONYX
Onyx purchased the majority of the Contracts from dealers. Onyx, or a
subsidiary of Onyx, originated the remainder of the Contracts. In the
origination of Contracts, Onyx and its subsidiaries applied credit underwriting
criteria established by Onyx. In February 1994, Onyx began its operations as a
purchaser and servicer of motor vehicle retail installment sales contracts.
Thus, Onyx has performance data for only a relatively short period with respect
to the motor vehicle retail installment sales contracts it purchases and
originates. As the portfolio of contracts purchased and originated by Onyx and
its subsidiaries matures, delinquency percentages and loan losses may increase.
With its limited operating history, Onyx is subject to all of the risks
inherent in a relatively new business enterprise. As Onyx expands its operations
in the United States, it must, among other things, continue to attract, retain
and motivate qualified personnel, support and grow its auto lending and contract
servicing business, maintain its existing relationships with automobile dealers,
and develop new relationships with dealers.
Onyx experienced operating losses from its inception through December
31, 1995. Onyx's operating losses and net income for the years ended December
31, 1994 through December 31, 1998 are set forth below:
YEAR ENDED (OPERATING LOSS)/NET INCOME
----------------- ---------------------------
December 31, 1994 $(3.5 million)
December 31, 1995 (3.2 million)
December 31, 1996 7.7 million
December 31, 1997 2.6 million
December 31, 1998 ___.__ million
Onyx's net income for the period ended _____________________ was $___ million.
LIMITED LIQUIDITY
There is currently no secondary market for the Securities. Each of
[Underwriters] currently intends to participate in making a secondary market in
the Securities, but neither is under any obligation to do so. We cannot assure
you that a secondary market for the Securities will develop. If a secondary
market does develop, we cannot assure you that it will continue or that you will
be able to resell your Securities.
MATURITY AND PREPAYMENT CONSIDERATIONS
Any full prepayments and repurchases of the Contracts can reduce the
weighted average life of the Contracts and the aggregate interest received by
the Securityholders over the life of the Securities. All full and partial
prepayments on Simple Interest Contracts and all full prepayments on Precomputed
Contracts will be paid to Securityholders on the Distribution Date immediately
following the calendar month in which such prepayments are received.
Accordingly, such prepayments will shorten the average life of such Contracts,
and, therefore, of the Securities. Partial prepayments on Precomputed Contracts
are treated as payments in advance and, accordingly, will not affect the average
life of the Contracts. The obligors can prepay the Contracts in full at any time
without penalty. See "Maturity and Prepayment Considerations" in this Prospectus
Supplement and in the Prospectus regarding the effects of prepayments on the
weighted average life of the Contracts.
S-7
<PAGE> 10
The rate of payment of principal on each class of Notes and the
Certificates depends primarily on the rate of payments (including prepayments)
on the principal balance of the Contracts. As a result, final payment on any
class of Notes could occur significantly earlier than the applicable Final
Scheduled Distribution Date.
Onyx cannot predict the actual prepayment rates that will occur on the
Contracts in either stable or changing interest rate environments. See "--
Limited Operating History of Onyx". Moreover, many other factors will affect the
amount and timing of payments of principal on each class of Securities. The
factors include:
- the level of delinquencies, defaults and losses on the Contracts;
- the payment of any principal on the Notes on an accelerated
basis; and
- the payment of any accelerated amounts on the Notes or the
Certificates following an event of default under the Indenture.
You will bear all the reinvestment risks resulting from prepayment on the
Contracts. Such reinvestment risks include the possibility that you may not be
able to reinvest such prepayments in alternative comparable investments having
similar yields. See "Maturity and Prepayment Considerations" in this Prospectus
Supplement and in the Prospectus.
ADEQUACY OF CREDIT ENHANCEMENT
The Policy provided by [Insurer] will provide credit enhancement for the
Notes and the Certificates. Additional credit enhancement, which will be used
prior to the Policy, will be provided by the following:
- in the case of the Notes, the subordination of the Certificates
to the Notes;
- the excess, if any, of (i) the amount of interest collected on
the Contracts in each collection period over (ii) the amount of
interest accruing and payable on the Notes and the Certificates
on the related Distribution Date (plus certain fees of the
Servicer, the Indenture Trustee, the Owner Trustee and the Trust
Agent payable on such Distribution Date);
- the overcollateralization feature which results from the limited
acceleration of the principal amortization of the Notes by the
accelerated payment of principal on the Notes as described under
"Description of the Transfer and Servicing Agreements --
Distributions" in this Prospectus Supplement; and
- amounts available in the Spread Account, as described under
"Description of the Transfer and Servicing Agreements -- Payment
Priorities of the Notes and Certificates; The Spread Account" and
"-- Withdrawals from the Spread Account" in this Prospectus
Supplement.
If the Contracts experience higher rates of delinquencies, defaults and
losses than initially anticipated in connection with the rating of the
Securities, amounts available from the additional credit enhancement may not be
adequate to cover the delays or shortfalls in distributions to you that result
from such higher rates of delinquencies, defaults and losses. If the amounts
available from the additional credit enhancement are inadequate, you will bear
the risk of any delays and losses resulting from the delinquencies, defaults and
losses on the Contracts, unless such delays or losses are covered by the Policy
and paid by [Insurer] as described herein. The Policy guarantees payment of
principal of each class of Notes and of the Certificates only on the applicable
Final Scheduled Distribution Date.
In addition, the amount required to be maintained in the Spread Account
is subject to change as described under "Description of the Transfer and
Servicing Agreements -- Payment Priorities of the Notes and Certificates; The
Spread Account" in this Prospectus Supplement.
S-8
<PAGE> 11
PRIORITY OF PAYMENTS; SUBORDINATION
No principal will be distributed to the holders of Class A-2 Notes, the
Class A-3 Notes or the Class A-4 Notes until the principal amount of the Class
A-1 Notes has been reduced to zero, with the exceptions noted herein if an event
of default under the Indenture occurs. No principal will be distributed to the
holders of the Class A-3 Notes or the Class A-4 Notes until the principal amount
of the Class A-2 Notes has been reduced to zero, with the exceptions noted
herein if an event of default under the Indenture occurs. No principal will be
distributed to the holders of the Class A-4 Notes until the principal amount of
the Class A-3 Notes has been reduced to zero, with the exceptions noted herein
if an event of default under the Indenture occurs. Because payments of principal
will be applied first to the Class A-1 Notes, then to the Class A-2 Notes, then
to the Class A-3 Notes, and then to the Class A-4 Notes, in the event [Insurer]
defaults under the Policy after one or more classes of Notes have been fully or
partially repaid and before other classes of Notes with a higher numerical
designation have been fully repaid, delinquencies, defaults and losses
experienced on the Contracts will have a disproportionately greater effect on
the Notes with a higher numerical designation.
Distributions of interest on the Certificates will be subordinated in
priority of payment to interest due on the Notes and, on the Final Scheduled
Distribution Date for a class of Notes, to principal then due on such class of
Notes. Distributions of principal on the Certificates will be subordinated to
payment of interest and principal due on the Notes. Consequently, the
Certificateholders will not receive any interest on a Distribution Date until
the full amount of interest on the Notes due on such Distribution Date has been
paid and, if such Distribution Date is on or after the Final Scheduled
Distribution Date for a class of Notes, until all principal of such class of
Notes has been paid in full. No principal will be distributed on the
Certificates until all of the Notes have been paid in full.
In the event of a default by [Insurer], the Certificates will be more
sensitive than the Notes to delinquencies, defaults and losses experienced on
the Contracts. See "Description of the Notes - Payments of Principal" in this
Prospectus Supplement.
GEOGRAPHIC CONCENTRATION
Economic conditions in the states where the obligors under the Contracts
live and work may affect the delinquency, loan loss and repossession experience
of the Trust with respect to the Contracts. Initial Contracts representing
approximately ______% of the Initial Cut-Off Pool Balance were originated in
California, and Initial Contracts representing approximately ______% of the
Initial Cut-Off Pool Balance were originated in Florida. As of the Initial
Cut-Off Date, the aggregate principal balances of Initial Contracts originated
in any other single state did not exceed ______%. The geographic concentration
of all of the Contracts as of the Closing Date will be substantially similar to
that of the Initial Contracts. Adverse economic conditions or other factors
particularly affecting California, Florida or other states in which the
Contracts are geographically concentrated might adversely affect the performance
of the Contracts. See "The Contracts -- Geographic Concentration of the Initial
Contracts" in this Prospectus Supplement.
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. You must rely
upon payments on the Contracts, amounts, if any, on deposit in the Spread
Account, and payments of claims made under the Policy for repayment of the
Securities.
The Policy will guarantee (i) shortfalls in the payment of accrued
interest on each Distribution Date and (ii) the ultimate repayment of principal
on the Final Scheduled Distribution Date with respect to each Security. However,
if [Insurer] defaults in its obligations under the Policy, the Trust will have
to depend solely on collections on the Contracts and amounts, if any, on deposit
in the Spread Account to make payments on the Notes or the Certificates. See
"Description of the Insurer" and "The Policy" herein.
S-9
<PAGE> 12
RATING
A security rating is not a recommendation to buy, sell or hold
securities and may be revised or withdrawn at any time by the assigning rating
agency. Any rating agency rating the Notes or Certificates may lower or withdraw
its rating if, in the sole judgment of the rating agency, circumstances in the
future so warrant. For example, the downgrading of the rating of [Insurer] may
affect the ratings on the Securities. We cannot predict with certainty what
effect any revision or withdrawal of a rating of the Notes or Certificates may
have on the liquidity or market value of the Notes or Certificates. The ratings
of the Notes and Certificates address the likelihood of timely payment of
accrued interest, and ultimate payment of principal on the applicable Final
Scheduled Distribution Dates, which are guaranteed by [Insurer] pursuant to the
Policy. The ratings of the Notes and the Certificates are substantially based on
the issuance of the Policy by [Insurer], and are dependent on the rating of
[Insurer]. See "Description of the Insurer" herein for a description of
[Insurer]'s rating.
INDENTURE EVENTS OF DEFAULT; CONTROL BY [INSURER] AND NOTEHOLDERS
Either the Indenture Trustee or the Noteholders can declare an event of
default under the Indenture if [Insurer] has defaulted in its obligations under
the Policy and continues to be in default. Prior to a default by [Insurer], only
[Insurer] can declare an event of default under the Indenture. [Insurer] can
only declare an event of default under the Indenture by delivery of notice of
the default to the Indenture Trustee.
If an event of default under the Indenture occurs and [Insurer] is not
in default under the Policy, [Insurer] may, but is not obligated to, cause the
Indenture Trustee to liquidate the property of the Trust, in whole or in part,
on any date or dates following the acceleration of the Notes due to such event
of default. Such liquidation will result in redemption, in whole or in part, of
the Securities. [Insurer] may not, however, cause the Indenture Trustee to
liquidate the property of the Trust, in whole or in part, if the proceeds of
such liquidation would not be enough to pay all outstanding principal and
accrued interest on the Notes, unless such event of default arose from a claim
being made on the Policy or from certain events of bankruptcy, insolvency,
receivership or liquidation of the Trust. Following an event of default under
the Indenture, the Indenture Trustee and the Owner Trustee will continue to
submit claims under the Policy for any shortfalls in amounts needed to make
payments or distributions of guaranteed amounts on the Notes and the
Certificates. However, in such event, [Insurer], at its sole option, may elect
to pay all or any portion of the outstanding amount of the Securities, plus
accrued interest to the date of payment.
If an event of default under the Indenture occurs (other than an event
of default occurring solely because of a draw on the Policy) and [Insurer] is in
default under the Policy, the holders of at least 66% of the principal amount of
the Notes then outstanding will be able to declare the principal of the Notes to
be immediately due and payable. In such instance, the holders of at least 66% of
the principal amount of the Notes will have the right to control the exercise of
remedies available with respect to such event of default, including the right to
direct the Indenture Trustee to liquidate the property of the Trust. However,
the Noteholders may not direct the Indenture Trustee to liquidate the property
of the Trust, in whole or in part, unless either:
(a) [Insurer] has failed to make a payment required under the
Policy and the event of default under the Indenture is a result of (i)
a default in the payment of any principal on the Final Scheduled
Distribution Date for a class of Notes or a default of at least five
days in the payment of any interest on any Notes (a "PAYMENT DEFAULT")
or (ii) certain events of bankruptcy, insolvency, receivership or
liquidation of the Trust (a "TRUST BANKRUPTCY EVENT"); or
(b) [Insurer] has made all required payments under the Policy,
the event of default is not a Payment Default or a Trust Bankruptcy
Event and either:
(i) the proceeds of a liquidation of the Trust Property will
be sufficient to pay all principal of the Notes and the
Certificates, together with accrued interest, and all amounts
due to [Insurer] under the Insurance Agreement; or
S-10
<PAGE> 13
(ii) holders of Certificates evidencing 100% of the
outstanding principal amount of the Certificates consent to such
liquidation of the Trust Property and all amounts owing to
[Insurer] under the Insurance Agreement will be paid in
connection with such liquidation.
In the event of a sale of the Contracts as described in clause (b) above, the
Policy will not be available to cover losses to Securityholders resulting from
the liquidation of the Trust Property. The Policy will be terminated, and
[Insurer] will have no further obligation to make any payment thereunder.
If (i) an event of default under the Indenture occurs because of a
Payment Default or a Trust Bankruptcy Event and (ii) [Insurer] is in default
under the Policy because of a failure to make a payment under the Policy, then
holders of at least 66% of the principal amount of the Notes then outstanding
may cause a sale of the Contracts without the consent of any of the holders of
Certificates. In determining whether or not to cause a sale of the Contracts,
the Noteholders do not need to consider whether the proceeds of such sale will
be sufficient to pay any portion of the principal and interest payable with
respect to the Certificates. Upon such a sale of the Contracts by the Indenture
Trustee, if the proceeds from such sale and any amounts on deposit in the Spread
Account and the Collection Account are not sufficient to pay all the Notes in
full, then:
- the amount of principal paid to Noteholders will be reduced;
- no proceeds or amounts will be distributed to the
Certificateholders; and
- the Noteholders and the Certificateholders will incur a loss on
their investment.
If the proceeds from the sale and amounts available in the Spread Account and
the Collection Account are sufficient to pay all the Notes in full but are not
sufficient to pay both the Notes and the Certificates in full, then:
- the amount of principal distributed to Certificateholders
will be reduced; and - the Certificateholders will incur a
loss on their investment.
See "Description of the Notes -- Indenture Events of Default" in this Prospectus
Supplement.
SERVICER DEFAULT
If the Servicer is in default under the Sale and Servicing Agreement,
only [Insurer] may terminate the Servicer for such default, unless [Insurer] is
in default under the Policy. If the Servicer is in default under the Sale and
Servicing Agreement and [Insurer] is in default under the Policy, the holders of
at least 25% of the principal amount of the Notes then outstanding, or the
Indenture Trustee acting only on behalf of the Noteholders (and without regard
to interests of the Seller or the Certificateholders), may terminate the
Servicer. In such circumstances, the Certificateholders will not have the
ability to remove the Servicer if the Servicer is in default until the Notes
have been paid in full. In addition, if [Insurer] is in default under the
Policy, the holders of at least 51% of the principal amount of the Notes then
outstanding may waive certain defaults by the Servicer. The Noteholders are not
required to consider the effect any such waiver would have on the
Certificateholders. See "-- Certain Matters Regarding the Insurer" and
"Description of the Transfer and Servicing Agreements -- Servicer Default;
Rights Upon Servicer Default" in this Prospectus Supplement.
CERTAIN MATTERS REGARDING [INSURER]
So long as [Insurer] is not in default under the Policy, it will have
the right to exercise all rights, including voting rights, which the
Securityholders are entitled to exercise pursuant to the Sale and Servicing
Agreement, the Indenture and the Trust Agreement, without any consent of such
Securityholders. However, [Insurer] cannot exercise such rights to amend the
Sale and Servicing Agreement, the Indenture or the Trust Agreement, without the
consent of each holder of a class of Notes or Certificates affected by such an
amendment, in any manner that would:
- reduce the amount of, or delay the timing of, collections of
payments of monthly principal and interest on the Contracts or
distributions required to be made on any Security;
S-11
<PAGE> 14
- adversely affect in any material respect the interests of the
holders of any class of Notes or the Certificates; or
- alter the rights of any such Securityholder to consent to such
amendment.
If [Insurer] is in default under the Policy, it cannot take any action
under the Sale and Servicing Agreement, the Indenture or the Trust Agreement, to
terminate the Servicer, or to control or direct the actions of the Trust, the
Seller, the Servicer, the Indenture Trustee, the Owner Trustee or the Trust
Agent pursuant to the terms of the Sale and Servicing Agreement, the Indenture
or the Trust Agreement. Furthermore, the consent of [Insurer] will not be
required with respect to any action (or waiver of a right to take action) to be
taken by the Trust, the Seller, the Servicer, the Indenture Trustee, the Owner
Trustee, the Trust Agent or the Securityholders; except that, the consent of
[Insurer] is required at all times to amend the Sale and Servicing Agreement,
the Indenture and the Trust Agreement.
S-12
<PAGE> 15
THE TRUST
GENERAL
The Issuer, Onyx Acceptance Owner Trust 1999-__, is a business trust
formed under the laws of the State of Delaware pursuant to the Trust Agreement
for the transactions described in this Prospectus Supplement. The Trust will not
engage in any activity other than (i) acquiring, holding and managing the
Contracts and the other assets of the Trust and proceeds therefrom, (ii) issuing
the Notes and the Certificates, (iii) making payments and distributions on the
Notes and the Certificates and (iv) engaging in other activities that are
necessary, suitable or convenient to accomplish the foregoing or are incidental
thereto or connected therewith.
The Trust's principal offices are in Wilmington, Delaware, in care of
Bankers Trust (Delaware), as Owner Trustee, at the address listed below under
"--The Owner Trustee."
THE OWNER TRUSTEE AND TRUST AGENT
Bankers Trust (Delaware) is the Owner Trustee under the Trust Agreement,
is a Delaware banking corporation and its principal offices are located at E.A.
Delle Donne Corporate Center, 1011 Centre Road, Suite 200, Wilmington, Delaware
19805-1266, Attention: Corporate Trust Administration Department.
Certain functions of the Owner Trustee under the Trust Agreement and the
Sale and Servicing Agreement will be performed by The Chase Manhattan Bank, a
New York banking corporation, in its capacity as Trust Agent under the Trust
Agreement and the Sale and Servicing Agreement, including maintaining the
Certificate Distribution Account and making distributions therefrom. However,
upon the occurrence and continuation of an Insurer Default (as defined herein),
the Trust Agent will resign and the Owner Trustee will assume the duties of the
Trust Agent under the Trust Agreement and the Sale and Servicing Agreement.
The liability of the Owner Trustee and the Trust Agent in connection
with the issuance and sale of the Notes and the Certificates is limited solely
to the express obligations of the Owner Trustee and the Trust Agent set forth in
the Trust Agreement and the Sale and Servicing Agreement.
TRUST PROPERTY
The Trust Property will include, among other things, the following: (i)
the Contracts, all of which will have been purchased from the Seller and are
secured by financed vehicles, (ii) certain documents relating to the Contracts,
including all servicing records in hard or electronic form, (iii) certain monies
received with respect to the Initial Contracts on or after the Initial Cut-Off
Date, (iv) certain monies received with respect to the Subsequent Contracts on
or after the Final Cut-Off Date, (v) 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, (vi) all amounts on deposit in
the Collection Account, the Payment Account, the Note Distribution Account, the
Certificate Distribution Account and the Spread Account, including all Eligible
Investments credited to the Collection Account and the Spread Account (but
excluding any investment income from Eligible Investments of funds credited to
the Collection Account, which will be paid to the Servicer), (vii) the right of
the Seller to cause Onyx to repurchase certain Contracts under certain
circumstances and (viii) all proceeds of the foregoing.
Pursuant to the Indenture, the Trust will grant a security interest in
the Trust Property (excluding the Certificate Distribution Account) in favor of
the Indenture Trustee on behalf of the Noteholders and for the benefit of
[Insurer] Insurance Corporation ("[INSURER]" or the "INSURER") in support of the
obligations owing to it under the Insurance Agreement.
S-13
<PAGE> 16
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 the Contracts have been purchased or
originated by subsidiaries of Onyx. All of the Contracts will have been sold to
the Seller and then to the Trust. See "The Onyx Portfolio of Motor Vehicle
Contracts -- Purchase and Origination of Motor Vehicle Contracts" in the
Prospectus.
DELINQUENCY AND LOAN LOSS INFORMATION
The following tables set forth information with respect to the
experience of Onyx relating to delinquencies, loan losses and recoveries for the
portfolio of Motor Vehicle Contracts owned and serviced by Onyx on an annual
basis commencing December 31, 1995. The tables include delinquency information
relating to those Motor Vehicle Contracts that were purchased, originated, sold
and serviced by Onyx. All of the Motor Vehicle Contracts were originally
purchased by Onyx from dealers, or originated by Onyx or a subsidiary of Onyx,
in accordance with credit underwriting criteria established by Onyx. In February
1994, Onyx commenced its operations as a purchaser and servicer of motor vehicle
retail installment sales contracts. Thus, Onyx has historical performance for
only a limited time period with respect to the Motor Vehicle Contracts it
purchases and originates and thus delinquencies and loan losses may increase
from existing levels in the portfolio with the passage of time. Delinquency and
loan loss experience may be influenced by a variety of economic, social and
other factors. See "Risk Factors" herein and in the Prospectus.
With the continued expansion of Onyx in the eastern United States and
the significant growth in Onyx's existing branches, Onyx undertook a project to
centralize and improve its servicing and collection process. Onyx believes that
a centralized group is efficient and effective, and assures that collection
practices and policies are applied consistently throughout the company.
Management continues to rely on the use of current technology such as predictive
dialers utilizing an automated processing system for contacting delinquent
borrowers. Onyx also has a payment system that allows electronic payment on
delinquent accounts to be applied the same day as payment is sent or initiated
by the borrower. Over the past few quarters, management has focused on the
hiring, training and retention of a centralized collection staff. During 1998
Onyx realized some of the benefits of the centralization and training of its
collection department. At December 31, 1998, delinquencies for the servicing
portfolio represented ______% of the amount of Motor Vehicle Contracts in Onyx'
servicing portfolio or $______ million as compared to 2.51% at December 31, 1997
or $19.0 million. Loan losses for the servicing portfolio as a percentage of
average serviced loans outstanding decreased to ______% for the year ended
December 31, 1998 compared to 2.03% for the year ended December 31, 1997.
S-14
<PAGE> 17
DELINQUENCY EXPERIENCE OF ONYX MOTOR VEHICLE CONTRACT PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31, AT DECEMBER 31,
1996 1997 1998
----------------------- ------------------------ --------------------
AMOUNT NO AMOUNT NO AMOUNT NO
-------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C>
Servicing portfolio ...... $400,665 38,275 $757,277 73,502
Delinquencies
30-59 Days(1)(2) ....... $ 5,022 478 $ 11,902 1,211
60-89 Days(1)(2) ....... 1,816 162 3,370 346
90+ Days(1)(2) ......... 1,279 111 3,742 316
Total delinquencies as
a percent of servicing
portfolio ............ 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 0.48%,
1.17% and _____ at December 31, 1996, 1997 and 1998, 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 DECEMBER 31,
------------------------------------
1996 1997 1998
-------- --------- -------
<S> <C> <C> <C>
Number of Motor Vehicle Contracts 38,275 73,502
outstanding.................................
Period end outstanding...................... $400,665 $ 757,277
Average outstanding......................... $311,340 $ 563,343
Number of gross charge-offs................. 987 2,161
Gross charge-offs........................... $5,789.2 $13,076.1
Net charge-offs(1).......................... $5,066.1 $11,433.9
Net charge-offs as a percent of average
outstanding............................... 1.63% 2.03%
</TABLE>
- ----------
(1) Net charge-offs are gross charge-offs minus recoveries of Motor Vehicle
Contracts previously charged off.
THE CONTRACTS
All of the Contracts will have been purchased by the Seller from Onyx.
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 will have been purchased or originated by subsidiaries of Onyx (each
such subsidiary, a "SELLING SUBSIDIARY"). See "The Onyx Portfolio of Motor
Vehicle Contracts" herein and in the Prospectus. Each of the Contracts in the
Trust will be a fixed rate contract where the allocation of each payment between
interest and principal is calculated using the rule of 78's, actuarial or the
simple interest method. Initial Contracts representing approximately _______% of
the Initial Cut-Off Pool Balance allocate interest and principal in accordance
with the rule of 78's or the actuarial method (the "PRECOMPUTED CONTRACTS"), and
Initial Contracts representing
S-15
<PAGE> 18
approximately ______% of the Initial Cut-Off Pool Balance allocate interest in
accordance with the simple interest method (the "SIMPLE INTEREST CONTRACTS").
See "The Contracts" in the Prospectus.
The Contracts will have been selected from the Motor Vehicle Contracts
in the portfolio of Onyx using the following criteria (the "ELIGIBILITY
REQUIREMENTS"). No selection procedures will have been used with respect to the
Contracts that are believed by Onyx or the Seller to be adverse to the
Securityholders or [Insurer]. Initial Contracts representing approximately
______% of the Initial Cut-Off Pool Balance are secured by new vehicles, and
Initial Contracts representing approximately ______% of the Initial Cut-Off Pool
Balance are secured by used vehicles. The Seller may not substitute other Motor
Vehicle Contracts for the Contracts at any time during the term of the Sale and
Servicing Agreement.
The Seller will represent that each Contract included in the Trust
satisfies the following Eligibility Requirements:
(a) Such Contract is secured by a new or used automobile or light-duty
truck;
(b) Such Contract has a remaining maturity as of the Cut-Off Date of not
more than ___ months;
(c) Such Contract has an original maturity of not more than ___ months;
(d) Such Contract is a fully-amortizing fixed rate contract which
provides for level scheduled monthly payments determined on the basis of the
rule of 78's, actuarial or the simple interest method (except for the last
payment, which may be minimally different from the level payments);
(e) Such Contract is secured by a vehicle that as of the Cut-Off Date
has not been repossessed without reinstatement;
(f) Such Contract has no payment more than ___ days past due as of the
Cut-Off Date;
(g) Such Contract has a remaining principal balance as of the Cut-Off
Date of at least $___________; and
(h) As of the Cut-Off Date, the Seller has not received notice that the
related obligor has filed for bankruptcy.
Set forth below is certain data concerning the Initial Contracts as of
the Initial Cut-Off Date which had an Initial Cut-Off Pool Balance of
$___________. Data concerning all of the Contracts (both the Initial Contracts
and the Subsequent Contracts) will be available to purchasers of the Securities
at or before the initial delivery of the Securities and will be filed with the
Securities and Exchange Commission on Form 8-K within 15 days after the initial
delivery of the Securities. While the financial and other data for the
Subsequent Contracts will differ somewhat from the data for the Initial
Contracts, the characteristics of the Contracts as a whole will not vary
materially from the characteristics of the Initial Contracts described below.
S-16
<PAGE> 19
COMPOSITION OF THE INITIAL CONTRACTS
Aggregate principal balance......................................$___________
Number of Contracts...............................................___________
Average principal balance outstanding............................$___________
Average original amount financed.................................$___________
Original amount financed (range)...................___________ to ___________
Weighted average apr..................................................______%
Apr (range)................................................______% to ______%
Weighted average original term....................................___________
Original term (range).......................................____ to ____ mos.
Weighted average remaining term........................................______
Remaining term (range)........................................___ to ___ mos.
DISTRIBUTION BY APRS OF THE INITIAL CONTRACTS
<TABLE>
<CAPTION>
NUMBER
OF % OF % OF INITIAL CUT-
INITIAL INITIAL PRINCIPAL OFF
APR RANGE CONTRACTS CONTRACTS BALANCE POOL BALANCE
--------- --------- --------- --------- -----------------
<S> <C> <C> <C> <C>
0.000% to 7.000%...............
7.001% TO 8.000%...............
8.001% TO 9.000%...............
9.001% TO 10.000%..............
10.001% TO 11.000%..............
11.001% TO 12.000%..............
12.001% TO 13.000%..............
13.001% TO 14.000%..............
14.001% TO 15.000%..............
15.001% TO 16.000%..............
16.001% TO 17.000%..............
17.001% TO 18.000%..............
18.001% TO 19.000%..............
19.001% TO 20.000%..............
20.001% TO 21.000%..............
21.001% AND OVER................
TOTALS................ 100.00%* 100.00%*
</TABLE>
- ----------------
* Percentages may not add to 100% because of rounding.
S-17
<PAGE> 20
GEOGRAPHIC CONCENTRATION OF THE INITIAL CONTRACTS
<TABLE>
<CAPTION>
NUMBER % OF % OF
OF INITIAL INITIAL PRINCIPAL INITIAL CUT-OFF
CONTRACTS CONTRACTS BALANCE POOL BALANCE
---------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Alabama.................
Arizona.................
California..............
Colorado................
Florida.................
Georgia.................
Idaho...................
Illinois................
Indiana.................
Iowa....................
Kansas..................
Kentucky................
Maryland................
Maine...................
Michigan................
Missouri................
Montana.................
Nevada..................
New Jersey..............
New York................
North Carolina..........
Ohio....................
Oklahoma................
Oregon..................
South Carolina..........
Tennessee...............
Texas...................
Utah....................
Virginia................
Washington..............
TOTALS........ 100.00%* 100.00%*
</TABLE>
- ----------------
* Percentages may not add to 100% because of rounding.
MATURITY AND PREPAYMENT CONSIDERATIONS
The Contracts are or will be prepayable in full by the obligors at any
time without penalty. See "Maturity and Prepayment Considerations" in the
Prospectus regarding the effects of prepayments on the weighted average life of
the Contracts. As the rate of payment of principal of each class of Notes and
the Certificates depends primarily on the rate of payment (including
prepayments) of the principal of the Contracts, final payment of any class of
Notes or of the Certificates is expected to occur earlier, and could occur
significantly earlier, than the respective Final Scheduled Distribution Date for
such Securities.
Onyx can make no prediction as to the actual prepayment rates that will
be experienced on the Contracts in either stable or changing interest rate
environments. In addition, the rate of payment of principal of each class of
Securities will be affected by the incidence of delinquencies, defaults and
losses, by the application of the Accelerated Principal Distributable Amount to
pay the principal of the Notes, and by any accelerated payments made on the
Securities following an Indenture Event of Default. See "Risk Factors --
Maturity and Prepayment Considerations" herein.
S-18
<PAGE> 21
USE OF PROCEEDS
The net proceeds of the initial sale of the Securities will be used by
the Trust to purchase the Contracts from the Seller pursuant to the Sale and
Servicing Agreement and to fund the deposits in certain collateral accounts
maintained for the benefit of the Securityholders and the Insurer. The net
proceeds to be received by the Seller from the sale of the Contracts to the
Trust will be used by the Seller to repay certain indebtedness incurred, or to
pay other amounts owed, in connection with its acquisition of the Contracts and
to pay certain other expenses in connection with the pooling of the Contracts
and the issuance of the Securities.
DESCRIPTION OF THE NOTES
The Notes will be issued pursuant to the terms of the Indenture, a form
of which will be filed with the Securities and Exchange Commission following the
issuance of the Notes. The following summaries of certain terms of the Notes and
the Indenture do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the provisions of the Notes and the Indenture.
Where particular provisions of or terms used in the Indenture are referred to,
the actual provisions (including definitions of terms) are incorporated by
reference as part of such summaries. The following summaries of certain terms of
the Indenture supplement, and to the extent inconsistent therewith replace, the
description of the general terms and provisions of the Indenture set forth under
the heading "The Indenture" in the Prospectus, to which description reference is
hereby made.
GENERAL
The Notes of each class will be offered for purchase in minimum
denominations of $1,000 and integral multiples thereof, except that one Note of
each class may be issued in a different denomination. The Notes will initially
be represented by one or more certificates registered in the name of Cede & Co.
("CEDE"), as nominee of The Depository Trust Company ("DTC"), except as set
forth below. The interests of holders of beneficial interests in the Notes (each
a "NOTE OWNER") will be available for purchase in book-entry form only. The
Seller has been informed by DTC that DTC's nominee will be Cede. Accordingly,
Cede is expected to be the holder of record of the Notes. Unless and until the
Notes are issued in the form of Definitive Securities ("DEFINITIVE NOTES"),
under the limited circumstances described herein, no Note Owner will be entitled
to receive a certificate representing such person's interest in the Notes. All
references herein to actions by Noteholders shall refer to actions taken by DTC
upon instructions from its participating organizations and all references herein
to payments, distributions, notices, reports and statements to Noteholders shall
refer to distributions, notices, reports and statements to DTC or Cede, as the
registered holder of the Notes, as the case may be, for distribution to Note
Owners in accordance with DTC procedures. See "Description of the Securities --
Book-Entry Registration" and "--Definitive Securities" in the Prospectus.
Unless and until Definitive Notes have been issued, payments on each
Distribution Date will be made through the facilities of DTC and the related
"RECORD DATE" will be the business day prior to such Distribution Date. If
Definitive Notes are issued, the related "RECORD DATE" will be the last day of
the calendar month preceding such Distribution Date. The final payment of
principal of and interest on each Note will be made only upon presentation and
surrender of such Note at the office or agency of the Indenture Trustee
maintained for that purpose.
PAYMENTS OF INTEREST
Interest on the outstanding principal amount of each class of the Notes
will accrue during the period from and including the prior Distribution Date (or
in the case of the first Distribution Date from and including the Closing Date)
to but excluding the applicable Distribution Date (each, an "INTEREST ACCRUAL
PERIOD") at ______% per annum for the Class A-1 Notes, ______% per annum for the
Class A-2 Notes, ______% per annum for the Class A-3 Notes and ______% per annum
for the Class A-4 Notes (respectively, the "INTEREST RATES"). Interest will be
payable to the Noteholders monthly on each related Distribution Date commencing
____________________. Interest accrued but not paid on any Distribution Date
will be due on the immediately succeeding Distribution Date,
S-19
<PAGE> 22
together with, to the extent permitted by applicable law, interest on such
shortfall at the related Interest Rate. Interest on the Notes will be calculated
on the basis of a 360-day year of twelve 30-day months, with the exception of
the Class A-1 Notes, with respect to which interest will be calculated on the
basis of a 360-day year and the actual number of days in the related Interest
Accrual Period. Interest payments on the Notes will be made as described below
under "Description of the Transfer and Servicing Agreements -- Distributions"
herein.
PAYMENTS OF PRINCIPAL
Principal payments will be made to the Noteholders, to the extent
described below, on each Distribution Date in an amount equal to the Note
Principal Distributable Amount, in each case calculated as described under
"Description of the Transfer and Servicing Agreements - Distributions" herein.
Principal payments on the Notes will be made as described below under
"Description of the Transfer and Servicing Agreements - Distributions" herein.
Principal payments on the Notes will be applied on each Distribution
Date from the Note Distribution Account first to the holders of the Class A-1
Notes until the principal amount of the Class A-1 Notes has been reduced to
zero, second to the holders of the Class A-2 Notes until the principal amount of
the Class A-2 Notes has been reduced to zero, third to the holders of the Class
A-3 Notes until the principal amount of the Class A-3 Notes has been reduced to
zero, and fourth to the holders of the Class A-4 Notes until the principal
amount of the Class A- 4 Notes has been reduced to zero. The Note Principal
Distributable Amount for each Distribution Date will include an amount equal to
the Accelerated Principal Distributable Amount for such Distribution Date, if
any. See "Description of the Transfer and Servicing Agreements - Distributions"
herein.
After the principal amount of the Class A-4 Notes has been reduced to
zero, the Regular Principal Distributable Amount will be allocated to the
Certificates.
The principal amount of each class of Notes, to the extent not
previously paid, will be due on the related Final Scheduled Distribution Date
for that class of Notes. The actual date on which the outstanding principal
amount of any class of Notes is paid is expected to be earlier, and could be
significantly earlier, than the Final Scheduled Distribution Date for such class
based on a variety of factors, including the factors described under "Maturity
and Prepayment Considerations" herein and in the Prospectus.
MANDATORY PARTIAL REDEMPTION
The Class A-1 Notes will be subject to mandatory partial redemption on
the first Distribution Date if and to the extent that the amount of proceeds
from the sale of the Securities exceeds the Original Pool Balance. In such
event, the holders of Class A-1 Notes will receive, on the first Distribution
Date, an amount paid in respect of principal equal to such excess.
OPTIONAL REDEMPTION
Each class of outstanding Notes will be subject to redemption in whole,
but not in part, on any Distribution Date relating to an Optional Purchase. The
redemption price for each class of Notes will equal the unpaid principal amount
of such class of Notes plus accrued and unpaid interest thereon at the
applicable Interest Rate. Any such redemption will effect early retirement of
each class of Notes. See "Description of the Transfer and Servicing Agreements
- -- Termination" herein.
THE INDENTURE TRUSTEE
The Chase Manhattan Bank will be the Indenture Trustee. The Indenture
Trustee is a New York banking corporation and its Corporate Trust Office is
located at 450 West 33rd Street, New York, New York 10001-2697, Attention:
Structured Finance Services.
S-20
<PAGE> 23
The Indenture Trustee will have the rights and duties set forth under
"Description of the Transfer and Servicing Agreements - The Trustee and the
Indenture Trustee" in the Prospectus.
INDENTURE EVENTS OF DEFAULT
"INDENTURE EVENTS OF DEFAULT" under the Indenture will consist of (i) a
draw on the Policy; (ii) a default for five days or more in the payment of any
interest on any Note; (iii) a default in the payment of any principal on the
Final Scheduled Distribution Date for a class of Notes; (iv) a default in the
observance or performance of any covenant or agreement of the Trust made in the
Indenture and the continuation of any such default for a period of 90 days after
notice thereof is given to the Trust by the Indenture Trustee or the Insurer, or
to the Trust and the Indenture Trustee by the holders of at least 25% in
principal amount of the Notes then outstanding acting together as a single
class; (v) any representation or warranty made by the Trust in the Indenture or
in any certificate delivered pursuant thereto or in connection therewith having
been incorrect in a material respect as of the time made, and such breach not
having been cured within 30 days after notice thereof is given to the Trust by
the Indenture Trustee or the Insurer, or to the Trust and the Indenture Trustee
by the holders of at least 25% in principal amount of such Notes then
outstanding acting together as a single class; or (vi) certain events of
bankruptcy, insolvency, receivership or liquidation with respect to the Trust;
provided, however that so long as no Insurer Default shall have occurred and be
continuing, neither the Indenture Trustee nor the Noteholders may declare an
Indenture Event of Default under the Indenture. So long as an Insurer Default
shall not have occurred and be continuing, an Indenture Event of Default will
occur only upon delivery by the Insurer to the Indenture Trustee of notice of
the occurrence of an Indenture Event of Default. The failure to pay principal on
a class of Notes will not result in the occurrence of an Indenture Event of
Default until the Final Scheduled Distribution Date for such class of Notes.
Upon the occurrence of an Indenture Event of Default, so long as an
Insurer Default shall not have occurred and be continuing, the Insurer will have
the right, but not the obligation, to cause the Indenture Trustee to liquidate
the Trust Property in whole or in part, on any date or dates following the
acceleration of the Notes due to such Indenture Event of Default as the Insurer,
in its sole discretion, shall elect. The Insurer may not, however, cause the
Indenture Trustee to liquidate the Trust Property in whole or in part if the
proceeds of such liquidation would not be sufficient to pay all outstanding
principal of and accrued interest on the Notes, unless such Indenture Event of
Default arose from a claim being made on the Policy or from a Trust Bankruptcy
Event. Following the occurrence of any Indenture Event of Default, the Indenture
Trustee and the Owner Trustee will continue to submit claims under the Policy
for any shortfalls in amounts available to make payments or distributions of
guaranteed amounts on the Notes and the Certificates. However, following the
occurrence of an Indenture Event of Default (so long as an Insurer Default shall
not have occurred and be continuing), the Insurer, at its sole option, may elect
to pay all or any portion of the outstanding amount of the Notes, plus accrued
interest thereon to the date of payment. See "The Policy" herein.
If an Insurer Default has occurred and is continuing, upon the
occurrence of an Indenture Event of Default (other than an Indenture Event of
Default occurring solely because of a draw on the Policy), the holders of at
least 662/3% of the principal amount of the Notes then outstanding may declare
the principal of the Notes to be immediately due and payable. If an Indenture
Event of Default shall have occurred and be continuing (other than an Indenture
Event of Default occurring solely because of a draw on the Policy), the holders
of at least 662/3% of the principal amount of the Notes will have the right to
control the exercise of remedies available with respect to such Indenture Event
of Default, including the right to direct the Indenture Trustee to maintain
possession of the Trust Property or to liquidate the Trust Property in whole or
in part; provided, however, that such Noteholders may not direct the Indenture
Trustee to liquidate the Trust Property in whole or in part unless (a) the
Indenture Event of Default has occurred because of a Payment Default or a Trust
Bankruptcy Event, and in either case the Insurer shall have failed to make a
payment required under the Policy in accordance with its terms or (b)(i) an
Indenture Event of Default has occurred other than as described in clause (a),
(ii) the Insurer shall not have failed to make a payment required under the
Policy in accordance with its terms and (iii) either (x) the proceeds of such
sale will be sufficient to pay all principal of the Notes and the Certificates,
together with accrued interest thereon, and all amounts owing to the Insurer
under the Insurance Agreement or (y) holders of Certificates evidencing 100% of
the outstanding principal amount of the Certificates consent to such sale and
all amounts owing to the Insurer under the Insurance Agreement will be paid in
connection with such sale. In the event of a sale of the Contracts as described
in clause
S-21
<PAGE> 24
(b) of the preceding sentence, the Policy will not be available to cover losses
to Securityholders resulting from such sale and will be terminated and the
Insurer will have no further obligation to make any payment thereunder. See
"Risk Factors -- Indenture Events of Default; Control by Insurer and
Noteholders" herein.
"INSURER DEFAULT" shall mean the occurrence and continuance of any of
the following events:
(a) the Insurer shall have failed to make a payment required under the
Policy in accordance with its terms;
(b) the Insurer shall have (i) filed a petition or commenced any case or
proceeding under any provision or chapter of the United States Bankruptcy Code
or any other similar federal or state law relating to insolvency, bankruptcy,
rehabilitation, liquidation or reorganization, (ii) made a general assignment
for the benefit of its creditors, or (iii) had an order for relief entered
against it under the United States Bankruptcy Code or any other similar federal
or state law relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization which is final and nonappealable; or
(c) a court of competent jurisdiction, the New York Department of
Insurance or other competent regulatory authority shall have entered a final and
nonappealable order, judgment or decree (i) appointing a custodian, trustee,
agent or receiver for the Insurer or for all or any material portion of its
property or (ii) authorizing the taking of possession by a custodian, trustee,
agent or receiver of the Insurer (or the taking of possession of all or any
material portion of the property of the Insurer).
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Trust Agreement, a form
of which will be filed with the Securities and Exchange Commission following the
issuance of the Certificates. The following summaries of certain terms of the
Certificates and the Trust Agreement do not purport to be complete and are
subject to, and qualified in their entirety by reference to, the provisions of
the Certificates and the Trust Agreement. Where particular provisions of or
terms used in the Trust Agreement are referred to, the actual provisions
(including definitions of terms) are incorporated by reference as part of such
summaries.
GENERAL
The "CERTIFICATE PRINCIPAL BALANCE" will equal $___________ (the
"ORIGINAL CERTIFICATE BALANCE") on the Closing Date and on any date thereafter
will equal the Original Certificate Balance reduced by all distributions of
principal previously made in respect of the Certificates.
The Certificates will be offered for purchase in minimum denominations
of $1,000 and integral multiples thereof, except that one Certificate may be
issued in a different denomination. The Certificates will initially be
represented by one or more certificates registered in the name of Cede, as
nominee of DTC, except as set forth below. The interests of holders of
beneficial interests in the Certificates (each, a "CERTIFICATE OWNER") will be
available for purchase in book-entry form only. The Seller has been informed by
DTC that DTC's nominee will be Cede. Accordingly, Cede is expected to be the
holder of record of the Certificates. Unless and until the Certificates are
issued in the form of Definitive Securities ("DEFINITIVE CERTIFICATES"), under
the limited circumstances described herein, no Certificate Owner will be
entitled to receive a certificate representing such person's interest in the
Certificates. All references herein to actions by Certificateholders shall refer
to actions taken by DTC upon instructions from its participating organizations
and all references herein to payments, distributions, notices, reports and
statements to Certificateholders shall refer to distributions, notices, reports
and statements to DTC or Cede, as the registered holder of the Certificates, as
the case may be, for distribution to Certificate Owners in accordance with DTC
procedures. See "Description of the Securities - Book-Entry Registration" and "-
Definitive Securities" in the Prospectus.
S-22
<PAGE> 25
Unless and until Definitive Certificates have been issued, distributions
on each Distribution Date will be made through the facilities of DTC and the
related "RECORD DATE" will be the business day prior to such Distribution Date.
If Definitive Certificates are issued, the related "RECORD DATE" will be the
last day of the calendar month preceding such Distribution Date. The final
distribution of principal of and interest on each Certificate will be made only
upon presentation and surrender of such Certificate at the office or agency of
the Owner Trustee maintained for that purpose.
DISTRIBUTIONS OF INTEREST
Interest on the Certificate Principal Balance will accrue during each
Interest Accrual Period at the Certificate Rate and will be payable to
Certificateholders monthly on each related Distribution Date commencing
____________________. Interest accrued but not paid on any Distribution Date
will be due on the immediately succeeding Distribution Date, together with, to
the extent permitted by applicable law, interest on such amount at the
Certificate Rate. Interest on the Certificates will be calculated on the basis
of a 360-day year of twelve 30-day months. Interest distributions with respect
to the Certificates will be made as described below under "Description of the
Transfer and Servicing Agreements - Distributions" herein.
DISTRIBUTIONS OF PRINCIPAL
No principal will be paid on the Certificates until the principal amount
of all of the Notes have been paid in full. On each Distribution Date on and
after the Notes have been paid in full, the Certificateholders will be entitled
to distributions in an amount equal to the Certificate Percentage of the Regular
Principal Distributable Amount, in each case calculated as described under
"Description of the Transfer and Servicing Agreements - Distributions" herein.
Distributions with respect to principal payments on the Certificates will be
made as described below under "Description of the Transfer and Servicing
Agreements -- Distributions" herein. The Accelerated Principal Distributable
Amount will not be included in the Certificate Principal Distributable Amount.
The remaining Certificate Principal Balance, to the extent not
previously paid, will be payable on the Final Scheduled Distribution Date for
the Certificates. The actual date on which the Certificate Principal Balance is
reduced to zero is expected to be earlier, and could be significantly earlier,
than the Final Scheduled Distribution Date for the Certificates based on a
variety of factors, including the factors described under "Maturity and
Prepayment Considerations" herein and in the Prospectus.
OPTIONAL PREPAYMENT
The Certificates will be subject to prepayment in whole, but not in
part, on any Distribution Date relating to an Optional Purchase.
Certificateholders will receive an amount in respect of the Certificates equal
to the Certificate Principal Balance plus accrued and unpaid interest at the
Certificate Rate. Any such distribution will effect early retirement of the
Certificates. See "Description of the Transfer and Servicing Agreements -
Termination" herein.
PAYING AGENT
Distributions of principal of and interest on the Certificates will be
made by the Trust Agent or any paying agent or paying agents (each, a "PAYING
AGENT") as the Owner Trustee may designate from time to time. The Chase
Manhattan Bank will be designated as the initial Paying Agent with respect to
the Certificates.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of the Sale and Servicing
Agreement and the Trust Agreement (collectively, the "TRANSFER AND SERVICING
AGREEMENTS"). Forms of the Transfer and Servicing Agreements will be filed with
the Securities and Exchange Commission following the issuance of the Securities.
The summary does not purport to be complete and is subject to, and qualified in
its entirety by reference to, all the provisions of the Transfer and Servicing
Agreements. The following summary supplements, and to the extent
S-23
<PAGE> 26
inconsistent therewith replaces, the description of the general terms and
provisions of the Transfer and Servicing Agreements set forth under the headings
"Description of the Transfer and Servicing Agreements" in the Prospectus, to
which description reference is hereby made.
SALE AND ASSIGNMENT OF THE CONTRACTS
At the time of issuance of the Securities, the Seller will sell and
assign to the Trust, without recourse, the Seller's entire interest in the
Contracts and the proceeds thereof, including its security interests in the
financed vehicles. Each Contract will be identified in a schedule appearing as
an exhibit to the Sale and Servicing Agreement. Concurrently with such sale and
assignment, the Trust will pledge the assets acquired by it to the Indenture
Trustee pursuant to the Indenture, and definitive certificates representing the
Notes and the Certificates will be delivered to the Underwriters against payment
to the Seller of the net purchase price of the sale of the Securities. Pursuant
to the applicable respective Purchase Agreements (as defined in the Prospectus),
prior to the sale of the Contracts to the Trust and the issuance of the
Securities, each Selling Subsidiary will sell and assign to Onyx such Selling
Subsidiaries' entire interest in the Contracts, and Onyx will sell and assign to
the Seller its entire interest in the Contracts. The Trust will pledge its
rights under the Sale and Servicing Agreement to the Indenture Trustee as
collateral for the Notes, and such rights may be enforced directly by the
Indenture Trustee. See "Description of the Transfer and Servicing Agreements -
Sale and Assignment of the Contracts" in the Prospectus.
THE ACCOUNTS
THE COLLECTION, PAYAHEAD AND PAYMENT ACCOUNTS. The Collection Account
and the Payahead Account referred to in the Prospectus under "Description of the
Transfer and Servicing Agreements - The Collection Account and Eligible
Investments" and "- Payahead Account" will be established by the Servicer and
maintained by a financial institution acceptable to the Indenture Trustee and
the Insurer in the name of the Indenture Trustee. The Indenture Trustee will
establish and maintain an account, in the name of the Indenture Trustee (the
"PAYMENT ACCOUNT"), into which amounts released from the Collection Account for
distribution to Securityholders will be deposited prior to transfer of such
amounts to the Distribution Accounts (as defined below).
THE DISTRIBUTION ACCOUNTS. The Servicer will establish and maintain with
the Indenture Trustee (i) an account, in the name of the Indenture Trustee on
behalf of the Noteholders, in which amounts released from the Payment Account
for distribution to Noteholders will be deposited and from which all
distributions to Noteholders will be made (the "NOTE DISTRIBUTION ACCOUNT") and
(ii) an account, in the name of the Trust Agent on behalf of the
Certificateholders, in which amounts released from the Payment Account for
distribution to Certificateholders will be deposited and from which all
distributions to Certificateholders will be made (the "CERTIFICATE DISTRIBUTION
ACCOUNT" and, together with the Note Distribution Account, the "DISTRIBUTION
ACCOUNTS").
THE SPREAD ACCOUNT. The Spread Account will be established and
maintained as described under "Description of the Transfer and Servicing
Agreements -- Payment Priorities of the Notes and Certificates; The Spread
Account" and "-- Withdrawals from the Spread Account" herein.
PAYMENTS ON CONTRACTS
Net Collections on the Contracts will be deposited in or credited to the
Collection Account within two business days of the receipt by the Servicer of
payments from obligors. "NET COLLECTIONS" with respect to a Distribution Date
and the related Collection Period will include: amounts received with respect to
the Contracts in such Collection Period representing Monthly P&I, Full
Prepayments and partial prepayments (pending transfer of partial prepayments on
any Precomputed 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 of representations or
warranties regarding the Contracts made by the Seller in the Sale and Servicing
Agreement that materially and adversely affect the interests of the
Securityholders or the Insurer, any amounts deposited by the Servicer in the
Collection Account to purchase Contracts as to which the Servicer has breached
certain servicing covenants, and any amounts deposited by the Servicer in the
Collection Account pursuant to an Optional Purchase. "NET LIQUIDATION
S-24
<PAGE> 27
PROCEEDS" are proceeds received by the Servicer (net of Liquidation Expenses)
upon liquidation of any Defaulted Contract. "LIQUIDATION EXPENSES" are the
reasonable out-of-pocket expenses (exclusive of overhead expenses) incurred by
the Servicer in realizing upon a Defaulted Contract which are not recoverable
under any insurance policy. "NET INSURANCE PROCEEDS" are proceeds paid by any
insurer under a comprehensive and collision insurance policy related to a
Contract (other than funds used for the repair of the related financed vehicle
or otherwise released to the related obligor in accordance with normal servicing
procedures), after reimbursement to the Servicer of expenses recoverable under
such policy. Partial prepayments of Precomputed Contracts are initially
deposited in the Collection Account and are transferred to the Payahead Account
on the Servicer Report Date.
DISTRIBUTIONS
On the business day immediately preceding each Distribution Date, the
Servicer will cause funds equal to the amount of Net Collections available with
respect to such Distribution Date to be withdrawn from the Collection Account
and deposited into the Payment Account. On each Distribution Date, the Indenture
Trustee will apply the Net Collections on deposit in the Payment Account
available with respect to the related Collection Period together with amounts,
if any, withdrawn from the Spread Account or representing payment of the Policy
Claim Amount as described herein, to make the following deposits and
distributions in the following amounts and order of priority:
(i) to the Servicer, from Net Collections, the Servicing Fee, including
any unpaid Servicing Fees with respect to one or more prior Collection Periods;
(ii) to the Indenture Trustee, the Owner Trustee and the Trust Agent,
from Net Collections (after giving effect to the reduction in Net Collections
described in clause (i) above), any accrued and unpaid fees of the Indenture
Trustee, the Owner Trustee and the Trust Agent, in each case to the extent such
fees have not been previously paid by the Servicer;
(iii) to the Note Distribution Account, from Net Collections (after
giving effect to the reduction in Net Collections described in clauses (i) and
(ii) above), the Note Interest Distributable Amount to be paid to the holders of
the Notes at their respective Interest Rates;
(iv) to the Note Distribution Account, if such Distribution Date is a
Final Scheduled Distribution Date for any class of Notes, the Note Principal
Distributable Amount to the extent of the remaining principal amount of such
class of Notes, from Net Collections (after giving effect to the reduction in
Net Collections described in clauses (i) through (iii) above), to be paid to the
holders of such class of Notes;
(v) to the Certificate Distribution Account, from Net Collections (after
giving effect to the reduction in Net Collections described in clauses (i)
through (iv) above), the Certificate Interest Distributable Amount, to be
distributed to the holders of the Certificates;
(vi) to the Note Distribution Account, from Net Collections (after
giving effect to the reduction in Net Collections described in clauses (i)
through (v) above), the remaining Note Principal Distributable Amount (after
giving effect to the payment, if any, described in clause (iv) above), to be
paid first to the holders of the Class A-1 Notes until the principal amount of
the Class A-1 Notes has been reduced to zero, second to the holders of the Class
A-2 Notes until the principal amount of the Class A-2 Notes has been reduced to
zero, third to the holders of the Class A-3 Notes until the principal amount of
the Class A-3 Notes has been reduced to zero, and fourth to the holders of the
Class A-4 Notes until the principal amount of the Class A-4 Notes has been
reduced to zero;
(vii) to the Certificate Distribution Account, if such Distribution Date
is the Final Scheduled Distribution Date for the Certificates, from Net
Collections (after giving effect to the reduction in Net Collections described
in clauses (i) through (vi) above), the Certificate Principal Distributable
Amount to the extent of the Certificate Principal Balance, to be distributed to
the holders of the Certificates;
(viii) to the Certificate Distribution Account, if such Distribution
Date is not the Final Scheduled Distribution Date for the Certificates, from Net
Collections (after giving effect to the reduction in Net Collections
S-25
<PAGE> 28
described in clauses (i) through (vi) above), the remaining Certificate
Principal Distributable Amount to the extent of the Certificate Principal
Balance, to be distributed to the holders of the Certificates;
(ix) to the Insurer, from Net Collections (after giving effect to the
reduction in Net Collections described in clauses (i) through (viii) above), any
amounts, including the Premium (as defined in the Insurance Agreement), owing to
the Insurer under the Insurance Agreement;
(x) to the Spread Account, from Net Collections (after giving effect to
the reduction in Net Collections described in clauses (i) through (ix) above),
the amount, if any, required to increase the amount therein to the Spread
Account Maximum; and
(xi) any Net Collections remaining after distribution of the Accelerated
Principal Distributable Amount as part of the Note Principal Distributable
Amount will be deposited into the Spread Account and will be applied as
described in the second paragraph under "Description of the Transfer and
Servicing Agreements Withdrawals from the Spread Account" herein.
If the Notes are accelerated following an Indenture Event of Default, amounts
collected will be applied first, to pay any unpaid Servicing Fee; second, to pay
any accrued and unpaid fees of the Indenture Trustee, Owner Trustee and Trust
Agent; third, to pay accrued interest on each class of Notes on a pro rata basis
based on the interest accrued (including interest accrued on past-due interest)
on each class of Notes; fourth, to pay principal on each class of Notes, on a
pro rata basis based on the aggregate principal balance of each class of Notes,
until the aggregate principal balance of each class of Notes is reduced to zero;
fifth, to pay accrued interest on the Certificates (including interest on past
due interest); sixth, to pay principal on the Certificates until the Certificate
Principal Balance is reduced to zero; seventh, to pay amounts owing the Insurer
under the Insurance Agreement; and eighth, to the Spread Account, to be applied
in accordance with the Insurance Agreement.
Amounts on deposit in the Spread Account on a Distribution Date will be
available to make payments and distributions on such Distribution Date as
described under "-- Withdrawals from the Spread Account" herein. Under the
Policy, the Insurer is obligated to provide for payment to the Indenture Trustee
on each Distribution Date of any Policy Claim Amount. In addition, on any
Distribution Date, the Insurer may elect, in its sole discretion, to pay all or
a portion of any shortfalls in the amount of Net Collections available to
distribute the amounts described in clauses (vi) and (viii) of the preceding
paragraph. See "The Policy" herein.
For the purposes hereof, the following terms will have the following
meanings:
The "ACCELERATED PRINCIPAL COMMENCEMENT DATE" means the first
Distribution Date on which the amount on deposit in the Spread Account is equal
to or greater than the Spread Account Maximum (after giving effect to the
distribution pursuant to clause (x) above on such Distribution Date).
The "ACCELERATED PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect to
any Distribution Date occurring on or after the Accelerated Principal
Commencement Date, an amount equal to the lesser of (i) one-twelfth of 2% of the
Pool Balance as of such Distribution Date, (ii) the amount, if any, by which (a)
the Accelerated Principal Target Level as of such Distribution Date (after
giving effect to the distribution of the Regular Principal Distributable Amount
on such Distribution Date) exceeds (b) the Pool Balance as of such Distribution
Date, and (iii) amounts which would remain on deposit in the Payment Account for
such Distribution Date after giving effect to distributions pursuant to clauses
(i) through (x) above without regard to the inclusion of such amount as part of
the Note Principal Distributable Amount. The Accelerated Principal Distributable
Amount shall only be included in the Note Principal Distributable Amount until
all of the Notes have been paid in full, and shall not be included in the
Certificate Principal Distributable Amount at any time.
The "ACCELERATED PRINCIPAL TARGET LEVEL" means, with respect to any
Distribution Date, an amount equal to the product of (i) 102% multiplied by (ii)
the outstanding aggregate principal amount of the Notes and the Certificates as
of such Distribution Date (after giving effect to the distribution of the
Regular Principal Distributable Amount on such Distribution Date).
S-26
<PAGE> 29
The "AMOUNT FINANCED" means, with respect to a Contract, the aggregate
amount advanced under such Contract toward the purchase price of the related
financed vehicle and related costs, including amounts advanced in respect of
accessories, insurance premiums, extended service and warranty contracts, and
other items customarily financed as part of retail automobile installment sales
contracts.
The "CERTIFICATE DISTRIBUTABLE AMOUNT" means, with respect to any
Distribution Date, the sum of the Certificate Principal Distributable Amount and
the Certificate Interest Distributable Amount for such Distribution Date.
The "CERTIFICATE INTEREST CARRYOVER SHORTFALL" means, with respect to
any Distribution Date, the excess of the Certificate Interest Distributable
Amount for the immediately preceding Distribution Date over the amount in
respect of interest on the Certificates that is actually deposited in the
Certificate Distribution Account on such preceding Distribution Date, plus
interest on such excess, to the extent permitted by law, at the Certificate Rate
for the Interest Accrual Period with respect to the Distribution Date for which
such Certificate Interest Carryover Shortfall is being calculated; provided,
however, that the Certificate Interest Carryover Shortfall for the first
Distribution Date shall be zero.
The "CERTIFICATE INTEREST DISTRIBUTABLE AMOUNT" means, with respect to
any Distribution Date, the sum of (i) an amount equal to the interest accrued
during the related Interest Accrual Period at the Certificate Rate on the
Certificate Principal Balance on the immediately preceding Distribution Date,
after giving effect to all distributions of principal on or prior to such
Distribution Date (or, in the case of the first Distribution Date, the original
Certificate Principal Balance) and (ii) the Certificate Interest Carryover
Shortfall for such Distribution Date.
The "CERTIFICATE PERCENTAGE" means (i) for each Distribution Date prior
to the Distribution Date on which the principal amount of the Class A-4 Notes is
reduced to zero, 0%, (ii) on the Distribution Date on which the principal amount
of the Class A-4 Notes is reduced to zero, (a) 0% until the principal amount of
the Class A-4 Notes has been reduced to zero and (b) with respect to any
remaining portion of the Regular Principal Distributable Amount, 100%; and (iii)
for each Distribution Date after the Distribution Date on which the principal
amount of the Class A-4 Notes is reduced to zero, 100%.
The "CERTIFICATE PRINCIPAL CARRYOVER SHORTFALL" means, as of the close
of any Distribution Date, the excess of the Certificate Principal Distributable
Amount for such Distribution Date over the amount in respect of principal that
is actually deposited in the Certificate Distribution Account on such
Distribution Date.
The "CERTIFICATE PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect to
any Distribution Date, the sum of (i) the Certificate Percentage of the Regular
Principal Distributable Amount for such Distribution Date and (ii) any
outstanding Certificate Principal Carryover Shortfall for the immediately
preceding Distribution Date; provided, however, that the Certificate Principal
Distributable Amount shall not exceed the Certificate Principal Balance.
Notwithstanding the foregoing, the Certificate Principal Distributable Amount on
the Final Scheduled Distribution Date for the Certificates shall not be less
than the amount that is necessary to reduce the outstanding principal amount of
the Certificates to zero.
A "COLLECTION PERIOD" with respect to a Distribution Date will be the
calendar month preceding the month in which such Distribution Date occurs;
provided, that with respect to Liquidated Contracts, the Collection Period will
be the period from but excluding the sixth business day preceding the
immediately preceding Distribution Date to and including the sixth business day
preceding such Distribution Date. With respect to the first Distribution Date,
the "COLLECTION PERIOD" for Liquidated Contracts will be the period from and
including the Cut-Off Date to and including the sixth business day preceding
such first Distribution Date.
A "CRAM DOWN LOSS" means, with respect to a Contract, if a court of
appropriate jurisdiction in an insolvency proceeding shall have issued an order
reducing the amount owed on such Contract or otherwise modifying or
restructuring the scheduled payments to be made on such Contract, an amount
equal to (i) the excess of the Principal Balance of such Contract immediately
prior to such order over the Principal Balance of such Contract
S-27
<PAGE> 30
as so reduced and/or (ii) if such court shall have issued an order reducing the
effective rate of interest on such Contract, the excess of the Principal Balance
of such Contract immediately prior to such order over the net present value
(using as the discount rate the higher of the annual percentage rate on such
Contract or the rate of interest, if any, specified by the court in such order)
of the scheduled payments as so modified or restructured. A Cram Down Loss shall
be deemed to have occurred on the date of issuance of such order.
A "DEFAULTED CONTRACT" with respect to any Collection Period is a
Contract (i) which is, at the end of such Collection Period, delinquent in the
amount of at least two monthly installments of Monthly P&I or (ii) with respect
to which the related financed vehicle has been repossessed or repossession
efforts with respect to the related financed vehicle have been commenced.
A "LIQUIDATED CONTRACT" is a Contract that (i) is the subject of a Full
Prepayment; (ii) is a Defaulted Contract with respect to which liquidation
proceeds constituting, in the Servicer's reasonable judgment, the final amounts
recoverable have been received and deposited in the Collection Account; (iii) is
paid in full on or after its maturity date; or (iv) has been a Defaulted
Contract for four or more Collection Periods and as to which liquidation
proceeds have not been deposited in the Collection Account; provided, however,
that in any event a Contract that is delinquent in the amount of five monthly
installments of Monthly P&I at the end of a Collection Period shall be deemed to
be a Liquidated Contract and shall be deemed to have a balance of zero.
The "NOTE DISTRIBUTABLE AMOUNT" will mean, with respect to any
Distribution Date, the sum of the Note Principal Distributable Amount and the
Note Interest Distributable Amount for such Distribution Date.
The "NOTE INTEREST CARRYOVER SHORTFALL" will mean, with respect to any
Distribution Date and a class of Notes, the excess, if any, of the Note Interest
Distributable Amount for such class for the immediately preceding Distribution
Date over the amount in respect of interest that is actually deposited in the
Note Distribution Account with respect to such class on such preceding
Distribution Date, plus, to the extent permitted by applicable law, interest on
the amount of interest due but not paid to Noteholders of such class on such
preceding Distribution Date at the related Interest Rate for the related
Interest Accrual Period; provided, however, that the Note Interest Carryover
Shortfall for the first Distribution Date shall be zero.
The "NOTE INTEREST DISTRIBUTABLE AMOUNT" will mean, with respect to any
Distribution Date and a class of Notes, the sum of (i) an amount equal to the
interest accrued during the related Interest Accrual Period at the related
Interest Rate for such class of Notes on the outstanding principal amount of
such class of Notes on the immediately preceding Distribution Date, after giving
effect to all payments of principal to Noteholders of such class on or prior to
such Distribution Date (or, in the case of the first Distribution Date, on the
original principal amount of such class of Notes) and (ii) the Note Interest
Carryover Shortfall for such class of Notes for such Distribution Date.
The "NOTE PERCENTAGE" means (i) for each Distribution Date prior to the
Distribution Date on which the principal amount of all of the Notes is reduced
to zero, 100%; (ii) on the Distribution Date on which the principal amount of
all of the Notes is reduced to zero, (a) 100% until the principal amount of all
of the Notes has been reduced to zero and (b) with respect to any remaining
portion of the Regular Principal Distributable Amount, 0%; and (iii) for each
Distribution Date after the principal amount of all of the Notes has been
reduced to zero, 0%.
The "NOTE PRINCIPAL CARRYOVER SHORTFALL" means, as of the close of any
Distribution Date, the excess of the Note Principal Distributable Amount for
such Distribution Date over the amount in respect of principal that is actually
deposited in the Note Distribution Account on such Distribution Date.
The "NOTE PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect to any
Distribution Date, the sum of (i) the Note Percentage of the Regular Principal
Distributable Amount for such Distribution Date, (ii) the Accelerated Principal
Distributable Amount, if any, for such Distribution Date and (iii) any
outstanding Note Principal Carryover Shortfall for the immediately preceding
Distribution Date; provided, however, that the Note Principal Distributable
Amount shall not exceed the aggregate outstanding principal amount of the Notes.
Notwithstanding the foregoing, the Note Principal Distributable Amount on the
Final Scheduled Distribution Date for each class of Notes shall not
S-28
<PAGE> 31
be less than the amount that is necessary to reduce the outstanding principal
amount of the related class of Notes to zero.
The "PRINCIPAL BALANCE" means, with respect to a Contract, as of any
date, the Amount Financed under the terms of such Contract minus (i) that
portion of Monthly P&I in respect of such Contract received on or prior to the
end of the most recently ended Collection Period and allocable to principal as
determined by the Servicer and (ii) any Cram Down Loss incurred in respect of
such Contract on or prior to the end of the most recently ended Collection
Period. For purposes of this definition, allocations of Monthly P&I on each
Contract by the Servicer shall be made in accordance with the terms of such
Contract, in the case of a Simple Interest Contract, or in accordance with the
Recomputed Actuarial Method, in the case of a Precomputed Contract.
The "PURCHASE AMOUNT" means, with respect to a Purchased Contract, the
Principal Balance of such Contract as of the date of purchase of such Contract
plus accrued interest.
A "PURCHASED CONTRACT" means a Contract that (i) has been purchased by
Onyx or the Seller because of certain material defects in documents related to
such Contract or certain breaches of representations and warranties regarding
such Contract made by the Seller in the Sale and Servicing Agreement that
materially and adversely affect the interests of the Securityholders or the
Insurer, (ii) has been purchased by the Servicer because of certain breaches of
servicing covenants or (iii) has been purchased by the Servicer in the event of
an Optional Purchase.
The "REGULAR PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect to any
Distribution Date, the amount equal to the sum of the following amounts with
respect to the related Collection Period: (i) collections received on Contracts
(other than Liquidated Contracts and Purchased Contracts) allocable to principal
as determined by the Servicer, including full and partial principal prepayments
(other than partial prepayments on Precomputed Contracts, representing payments
not due in such Collection Period, which will be deposited into the Payahead
Account), (ii) the Principal Balance of all Contracts (other than Purchased
Contracts) that became Liquidated Contracts during the related Collection
Period, (iii) the Principal Balance as of the date of purchase of all Contracts
that became Purchased Contracts as of the immediately preceding Record Date and
(iv) the aggregate amount of Cram Down Losses incurred during the related
Collection Period.
PAYMENT PRIORITIES OF THE NOTES AND THE CERTIFICATES; THE SPREAD ACCOUNT
The rights of the Securityholders to receive distributions with respect
to the Contracts will be subordinated to the rights of the Servicer (to the
extent that the Servicer has not been paid all Servicing Fees), the Indenture
Trustee, the Owner Trustee and the Trust Agent (to the extent the Indenture
Trustee, the Owner Trustee and the Trust Agent have not received all fees due
and payable to them from the Servicer). In addition, the rights of the
Noteholders to receive distributions with respect to the Contracts will be
subject to the priorities set forth under "Description of the Transfer and
Servicing Agreements - Distributions" herein and the rights of the
Certificateholders to receive distributions with respect to the Contracts will
be subordinated to the rights of the Noteholders, in each case to the extent
described above. Such priorities and subordination are intended to enhance the
likelihood of timely receipt by the Noteholders of the full amount of interest
and principal required to be paid to them, and to afford the Noteholders limited
protection against losses in respect of the Contracts.
The foregoing protection will be effected both by the preferential right
of the Noteholders to receive, to the extent described herein, current
distributions with respect to the Contracts, and by the establishment of the
Spread Account. The Spread Account will be a part of the Trust and will be a
segregated trust account in the name of the Indenture Trustee and the Indenture
Trustee will have a perfected security interest therein and in all amounts
deposited in or credited to the Spread Account as well as all Eligible
Investments made with such deposits and earnings. The Spread Account will be
funded by the deposit therein of amounts pursuant to clauses (x) and (xi) under
"-- Distributions" above.
Amounts held from time to time in the Spread Account will continue to be
held for the benefit of holders of the Securities and the Insurer and may be
invested in Eligible Investments. Investment income on monies on deposit
S-29
<PAGE> 32
in the Spread Account will be credited to the Spread Account. Any loss on such
investment will be charged to the Spread Account.
The "SPREAD ACCOUNT MAXIMUM" means an amount calculated pursuant to a
formula agreed to by the parties to the Insurance Agreement and the Rating
Agencies. Such parties have agreed that, as of the Closing Date, such formula
will yield a Spread Account Maximum that will not be less than the lesser of (a)
2% of the initial outstanding principal amount of the Securities and (b) the
outstanding principal amount of the Securities. The foregoing notwithstanding,
the Spread Account Maximum may be calculated pursuant to any other formula as
the parties to the Insurance Agreement and the Rating Agencies may agree, and
may include any other provisions or contain any additional requirements as the
parties to the Insurance Agreement may agree, which the Rating Agencies may
require to maintain the ratings of the Securities, and to maintain the rating of
the transactions contemplated in the Insurance Agreement and the Sale and
Servicing Agreement, without consideration of the Policy, at not less than
investment grade, as defined by the Rating Agencies.
WITHDRAWALS FROM THE SPREAD ACCOUNT
Amounts held from time to time in the Spread Account will continue to be
held for the benefit of the Noteholders, the Certificateholders and the Insurer.
On each Distribution Date funds will be withdrawn from the Spread Account to the
extent that the sum of the amounts set forth in clauses (i) though (v) and (vii)
under " -- Distributions" above with respect to such Distribution Date exceeds
the amount of Net Collections available with respect to such Distribution Date.
Funds will also be withdrawn from the Spread Account to reimburse the Insurer
for any draws under the Policy with respect to any Preference Amount.
If the amount on deposit in the Spread Account on any Distribution Date
(after giving effect to all deposits thereto or withdrawals therefrom on such
Distribution Date) is greater than the Spread Account Maximum, the Indenture
Trustee will distribute any excess first, to the Insurer, to the extent of any
amounts owing to the Insurer pursuant to the Insurance Agreement, then to the
holders of the Residual Interests in the Trust. Upon any such distributions to
the Insurer or the holders of the Residual Interests, the Securityholders will
have no further rights in, or claims to, such amounts.
None of the Securityholders, the Indenture Trustee, the Owner Trustee,
the Trust Agent, the Seller, the Insurer or the holders of the Residual
Interests will be required to refund any amounts properly distributed to them,
whether or not there are sufficient funds on any subsequent Distribution Date to
make full distributions to the Securityholders. The obligations of the Insurer
under the Policy will not be diminished or otherwise affected by any amounts
distributed to the Insurer as described in the preceding paragraph.
STATEMENTS TO SECURITYHOLDERS
On each Distribution Date, the Indenture Trustee and the Trust Agent
will include with each distribution to a Noteholder or a Certificateholder, as
the case may be, a Distribution Date Statement setting forth for such
Distribution Date the information described in the Prospectus under "Description
of the Securities --Statements to Securityholders" and the following
information:
(i) the amount on deposit in the Spread Account on such Distribution
Date, before and after giving effect to deposits thereto and
withdrawals therefrom to be made in respect of such Distribution
Date; and
(ii) the amount of the withdrawal, if any, required to be made from
the Spread Account by the Indenture Trustee, as described above
under "-- Withdrawals from the Spread Account".
SERVICING FEE
The Servicer will be entitled to compensation for the performance of its
obligations under the Sale and Servicing Agreement. The Servicer shall be
entitled to receive on each Distribution Date an amount equal to the
S-30
<PAGE> 33
product of one-twelfth of 1% per annum (the "SERVICING FEE RATE") multiplied by
the Pool Balance as of the end of the Collection Period preceding the related
Collection Period (the "SERVICING FEE"). 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 of funds credited to the Collection Account.
The Servicer shall pay all expenses incurred by it in connection with its
servicing activities under the Sale and Servicing Agreement and shall not be
entitled to reimbursement of such expenses except to the extent they constitute
Liquidation Expenses or expenses recoverable under an applicable insurance
policy.
The Sale and Servicing Agreement requires the Servicer to use its best
efforts to collect all payments called for under the terms and provisions of the
Contracts. The Servicer, consistent with the foregoing, will be permitted, in
its discretion, to waive certain charges and grant extensions as described under
"Description of the Transfer and Servicing Agreements - Waivers and Extensions"
in the Prospectus. The maturity date of a Contract, however, may not be extended
more than 120 days past the originally scheduled maturity date, and in no event
beyond the latest Final Scheduled Distribution Date for the Securities.
SERVICER DEFAULT; RIGHTS UPON SERVICER DEFAULT
The events which constitute a "SERVICER DEFAULT" under the Sale and
Servicing Agreement will be those events described in the accompanying
Prospectus under "Description of the Transfer and Servicing Agreements --
Servicer Default".
Notwithstanding anything to the contrary set forth in the Prospectus
under "Description of the Transfer and Servicing Agreements -- Rights Upon
Servicer Default", upon the occurrence of a Servicer Default, unless an Insurer
Default shall have occurred and be continuing, only the Insurer (and not the
Indenture Trustee or the Noteholders) may terminate the Servicer under the Sale
and Servicing Agreement, whereupon a successor servicer appointed by the Insurer
will succeed to all the responsibilities, duties and liabilities of the Servicer
under the Sale and Servicing Agreement and will be entitled to similar
compensation arrangements.
If an Insurer Default has occurred and is continuing, upon the
occurrence of a Servicer Default, (i) if the Notes have not been paid in full,
the holders of Notes evidencing not less than 25% of the outstanding principal
amount of the Notes, acting together as a single class, or the Indenture
Trustee, may terminate the Servicer under the Sale and Servicing Agreement
without consideration of the effect such termination would have on the
Certificateholders and (ii) if the Notes have been paid in full, the holders of
Certificates evidencing not less than 25% of the outstanding principal amount of
the Certificates may terminate the Servicer under the Sale and Servicing
Agreement. The Certificateholders will not have the ability to remove the
Servicer in the event both a Servicer Default and an Insurer Default have
occurred and are continuing unless the Notes have been paid in full. Upon the
termination of the Servicer by the Indenture Trustee, the Noteholders or the
Certificateholders, as the case may be, the Indenture Trustee (or, if the Notes
have been paid in full, a successor servicer appointed by the Owner Trustee
acting at the direction of holders of Certificates evidencing not less than 51%
of the outstanding principal amount of the Certificates) or a successor servicer
appointed by the Indenture Trustee will succeed to all the responsibilities,
duties and liabilities of the Servicer under the Sale and Servicing Agreement
and will be entitled to similar compensation arrangements; provided, however,
that the Indenture Trustee or Owner Trustee, as the case may be, will not be
obligated to assume Onyx's obligations to purchase Contracts if certain
representations and warranties of Onyx as Servicer prove incorrect or if certain
covenants of Onyx as Servicer are breached. In the event that the Indenture
Trustee is unwilling or unable to so act, it may appoint, or petition a court of
competent jurisdiction for the appointment of, a successor with a net worth of
at least $50,000,000 and whose regular business includes the servicing of
automobile and/or light duty truck receivables.
Notwithstanding anything to the contrary set forth under "Description of
the Transfer and Servicing Agreements -- Rights Upon Servicer Default" in the
Prospectus, unless an Insurer Default shall have occurred and be continuing, the
Insurer may, on behalf of the Securityholders, waive any default by the Servicer
in the performance of its obligations under the Sale and Servicing Agreement and
its consequences. The rights of the
S-31
<PAGE> 34
Noteholders and the Certificateholders, as the case may be, to waive Servicer
Defaults are as described under "Description of the Transfer and Servicing
Agreements -- Rights Upon Servicer Default" in the Prospectus.
AMENDMENT
The Sale and Servicing Agreement may be amended as described under
"Description of the Transfer and Servicing Agreement -- Amendment" in the
Prospectus.
The Trust Agreement may be amended by the parties thereto, without the
consent of the Securityholders, but with the consent of the Insurer, to cure any
ambiguity, correct or supplement any provisions therein which may be
inconsistent with any other provisions therein, or make any other provisions
with respect to matters or questions arising thereunder which are not
inconsistent with the provisions of the Trust Agreement; provided that such
action will not materially and adversely affect the interest of any such
Securityholder or the holder of a Residual Interest (a "RESIDUAL
INTERESTHOLDER"). Any amendment shall be deemed not to materially and adversely
affect the interest of any Securityholder if the person requesting the amendment
(i) 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 Securities by such Rating Agency or (ii) an opinion of counsel to such
effect. Any amendment shall be deemed not to materially and adversely affect the
interest of any Residual Interestholder if the person requesting such amendment
obtains an opinion of counsel to such effect, or 100% of the Residual
Interestholders consent to such amendment. Subject to the rights of the Insurer
described under "Risk Factors -- Certain Matters Regarding the Insurer", the
Trust Agreement may also be amended by the parties thereto with the consent of
(i) for so long as the Notes are outstanding, the holders of Notes evidencing
not less than 51% of the principal amount of such Notes then outstanding, acting
together as a single class, (ii) if no Notes are outstanding, the holders of
Certificates evidencing not less than 51% of the principal amount of such
Certificates then outstanding, acting together as a single class and (iii) if
such amendment materially and adversely affects the interests of the Residual
Interestholders, with the consent of 51% of the Percentage Interests (as defined
in the Trust Agreement) of the Residual Interests, and in any case with the
consent of the Insurer, for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of the Trust Agreement or of
modifying in any manner the rights of such Noteholders, Certificateholders or
Residual Interestholders; provided, however, that no such amendment may (i)
increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on the related Contracts or distributions
that are required to be made for the benefit of the Noteholders,
Certificateholders or Residual Interestholders or (ii) reduce the aforesaid
percentage of the Notes, Certificates, or Residual Interestholders which are
required to consent to any such amendment, without the consent of the holders of
all the outstanding Notes, Certificates or Residual Interests, as the case may
be.
TERMINATION
The obligations of the Servicer, the Seller, the Owner Trustee and
Indenture Trustee with respect to the related Securityholders pursuant to the
Trust Agreement, Sale and Servicing Agreement or Indenture will terminate as
described under "Description of the Transfer and Servicing Agreements -
Termination" in the Prospectus, and as set forth below.
In order to avoid excessive administrative expenses, the Servicer will
be permitted at its option to purchase (an "OPTIONAL PURCHASE") the remaining
Contracts from the Trust on any Distribution Date as of which the Pool Balance
has declined to 10% or less of the Original Pool Balance at a price equal to the
greater of (i) the sum of (x) the Pool Balance on the date of repurchase plus
(y) accrued and unpaid interest on the Contracts and (ii) the sum of (x) the
aggregate unpaid principal amount of the Securities, plus (y) accrued and unpaid
interest thereon, plus (z) all amounts due to the Insurer under the Insurance
Agreement.
The Owner Trustee and Indenture Trustee will give written notice of
termination to each Securityholder of record. The final distribution to each
Securityholder will be made only upon surrender and cancellation of such
holder's Securities at the office or agency of the related Trustee specified in
the notice of termination. Any funds remaining in the Trust, after such Trustee
has taken certain measures to locate a Securityholder and such measures have
failed, will be distributed to a charity designated by the Servicer.
S-32
<PAGE> 35
Any outstanding Notes will be redeemed concurrently with any Optional
Purchase described above, and the subsequent distribution to the related
Certificateholders of all amounts required to be distributed to them pursuant to
the Trust Agreement will effect early retirement of the Certificates.
PAYMENT IN FULL OF NOTES
Upon the payment in full of all outstanding Notes and the satisfaction
and discharge of the Indenture, the Owner Trustee will succeed to all the rights
of the Indenture Trustee, and the Certificateholders will succeed to all the
rights of the Noteholders, under the Sale and Servicing Agreement, except as
otherwise provided therein.
THE POLICY
The Insurer, in consideration of the payment of the premium and subject
to the terms of the Policy, thereby unconditionally and irrevocably guarantees
to any Owner (as defined below) that an amount equal to each Policy Claim Amount
will be received by the Indenture Trustee, or its successors, as trustee for the
Owners, on behalf of the Owners from the Insurer, for distribution by the
Indenture Trustee, to each Owner of each Owner's proportionate share of the
Policy Claim Amount. The Insurer's obligations under the Policy with respect to
a particular Policy Claim Amount will be discharged to the extent funds equal to
the applicable Policy Claim Amount are received by the Indenture Trustee,
whether or not such funds are properly applied by the Indenture Trustee.
Payments of Policy Claim Amounts will be made only at the time set forth in the
Policy. The Policy will not guarantee payments of principal on any class of
Notes or on the Certificates other than the payment of the outstanding principal
amount of a class of Notes or of the Certificates on the Final Scheduled
Distribution Date for such class of Notes or the Certificates, and will not
guarantee payment of any Accelerated Principal Distributable Amount or any
amounts which become due on an accelerated basis as a result of (a) a default by
the Trust, (b) the occurrence of an Indenture Event of Default under the
Indenture, or (c) any other cause. The Insurer may elect, in its sole
discretion, to pay in whole or in part such principal due upon acceleration. The
Insurer may elect, in its sole discretion, to pay all or a portion of certain
shortfalls of funds available to make distributions of principal on the Notes or
the Certificates on a Distribution Date, as described under "Description of the
Transfer and Servicing Agreements" herein.
The Insurer will pay any Policy Claim Amount that is a Preference Amount
(as defined below) on the business day following receipt by the fiscal agent of
the Insurer (the "FISCAL AGENT") of (i) a certified copy of the order requiring
the return of a preference payment, (ii) an opinion of counsel satisfactory to
the Insurer that such order is final and not subject to appeal, (iii) an
assignment in such form as is reasonably required by the Insurer, irrevocably
assigning to the Insurer all rights and claims of each Owner relating to or
arising under the Securities against the debtor which made such preference
payment or otherwise with respect to such preference payment and (iv)
appropriate instruments to effect the appointment of the Insurer as agent for
such Owner in any legal proceeding related to such preference payment, such
instruments being in a form satisfactory to the Insurer, provided that if such
documents are received after 12:00 noon New York City time on such business day,
they will be deemed to be received on the following business day. Such payments
will be disbursed to the receiver or the trustee in bankruptcy named in the
final order of the court exercising jurisdiction on behalf of the Owner and not
to any Owner directly unless such Owner has returned principal or interest paid
on such Securities to such receiver or trustee in bankruptcy, in which case such
payment will be disbursed to such Owner.
The Insurer will pay any other amount payable under the Policy no later
than 12:00 noon New York City time on the later of the Distribution Date on
which the related Note Interest Distributable Amount, Certificate Interest
Distributable Amount, or outstanding principal amount in respect of a class of
Notes or of the Certificates for which such Distribution Date is the Final
Scheduled Distribution Date is due or the second business day following receipt
in New York, New York on a business day by the Fiscal Agent, of a notice
specifying the Policy Claim Amount which will be due and owing on such
Distribution Date; provided, that if such notice is received after 12:00 noon
New York City time on such business day, it will be deemed to be received on the
following business day. If any such notice received by the Fiscal Agent is not
in proper form or is otherwise insufficient for the purpose of making a claim
under the Policy it will be deemed not to have been received by the Fiscal
Agent, and the Insurer or
S-33
<PAGE> 36
the Fiscal Agent, as the case may be, will promptly so advise the Indenture
Trustee and the Indenture Trustee may submit an amended notice.
Policy Claim Amounts due under the Policy, unless otherwise stated
therein, will be disbursed by the Fiscal Agent to the Indenture Trustee on
behalf of the Owners by wire transfer of immediately available funds in the
amount of the Policy Claim Amount less, in respect of Policy Claim Amounts
including Preference Amounts, any amount held by the Indenture Trustee for the
payment of such Policy Claim Amount and legally available therefor.
The Fiscal Agent is the agent of the Insurer only and the Fiscal Agent
will in no event be liable to Owners for any acts of the Fiscal Agent or any
failure of the Insurer to deposit or cause to be deposited sufficient funds to
make payments due under the Policy.
Subject to the terms of the Indenture, the Insurer shall be subrogated
to the rights of each Owner to receive payments under the Securities to the
extent of any payment by the Insurer under the Policy.
As used herein, the following terms have the following meanings:
"DEFICIENCY AMOUNT" means as of any Distribution Date, the amount by
which (i) the sum of the amounts set forth in clauses (i) though (v) and (vii)
under "Description of the Transfer and Servicing Agreements -- Distributions"
with respect to such Distribution Date exceeds (ii) the amount of Net
Collections available with respect to such Distribution Date and the amount on
deposit in the Spread Account as of such Distribution Date.
"OWNER" means (i) each Noteholder who, on the applicable Distribution
Date, is entitled under the terms of the related Note to distribution thereunder
and (ii) each Certificateholder who, on the applicable Distribution Date, is
entitled under the terms of the related Certificate to distribution thereunder.
"POLICY CLAIM AMOUNT" means, with respect to each Distribution Date, the
sum of (i) the Deficiency Amount for such Distribution Date and (ii) the
Preference Amount for such Distribution Date.
"PREFERENCE AMOUNT" means any amount previously distributed to an Owner
in respect of the Securities that is recoverable and sought to be recovered as a
voidable preference by a trustee in bankruptcy with respect to Onyx, the Seller
or the Trust pursuant to the United Stated Bankruptcy Code (11 U.S.C.), as
amended from time to time, in accordance with a final nonappealable order of a
court having competent jurisdiction.
The Policy is being issued under and pursuant to, and shall be construed
under, the laws of the State of New York, without giving effect to the conflict
of law principles thereof. THE POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY
INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
The Policy is not cancelable for any reason. The premium on the Policy
is not refundable for any reason including payment, or provision being made for
payment, prior to the latest Final Scheduled Distribution Date of the
Securities.
DESCRIPTION OF THE INSURER
The Insurer is domiciled in the State of ________________ 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. State laws 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.
S-34
<PAGE> 37
The consolidated financial statements of the Insurer and its
subsidiaries as of December 31, 199__ and December 31, 199__ and for each of the
three years in the period ended December 31, 199__, prepared in accordance with
generally accepted accounting principles, included in the Annual Report on Form
10-K of [Insurer] for the year ended December 31, 1997 and the consolidated
financial statements of the Insurer and its subsidiaries as of
___________________ and for the ______ month periods ended __________________
and ____________________ included in the Quarterly Report on Form 10-Q of
[Insurer] for the period ended ____________________, are hereby incorporated by
reference into this Prospectus Supplement and shall be deemed to be a part
hereof. Any statement contained in a document incorporated by reference herein
shall be modified or superseded for purposes of this Prospectus Supplement to
the extent that a statement contained herein or in any other subsequently filed
document which also is incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus
Supplement.
All financial statements of the Insurer and its subsidiaries included in
documents filed by [Insurer] pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended, subsequent to the date of this
Prospectus Supplement and prior to the termination of the offering of the
Securities shall be deemed to be incorporated by reference into this Prospectus
Supplement and to be a part hereof from the respective dates of filing such
documents.
The tables below present selected financial information of the Insurer
determined in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities ("SAP") and generally accepted
accounting principles ("GAAP"):
<TABLE>
<CAPTION>
SAP GAAP
----------------------- ----------------------
December 31,199 December 31, 199
---------------- ---------------- ------------------ --------------
(Audited) (Unaudited) (Audited) (Unaudited)
(In Millions) (In Millions)
<S> <C> <C> <C> <C> <C>
Admitted Assets....... Assets.............
Liabilities........... Liabilities........
Capital and Surplus... Shareholder's
Equity.............
</TABLE>
Copies of the financial statements of the Insurer incorporated by
reference herein and copies of the Insurer's 199__ year-end audited financial
statements prepared in accordance with statutory accounting practices are
available, without charge, from the Insurer. The address of the Insurer is
______________________________. The telephone number of the Insurer is
_________________.
The Insurer does not accept any responsibility for the accuracy or
completeness of this Prospectus Supplement or any information or disclosure
contained herein, or omitted herefrom, other than with respect to the accuracy
of the information regarding the Insurer set forth under the heading
"Description of the Insurer". Additionally, the Insurer makes no representation
regarding the Securities or the advisability of investing in the Securities.
THE POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY
FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
Moody's Investors Service, Inc. rates the financial strength of the
Insurer "_____".
S-35
<PAGE> 38
Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc., rates the financial strength of the Insurer "_____".
Fitch IBCA, Inc. (formerly known as Fitch Investors Service, L.P.) rates
the financial strength of the Insurer "_____".
Each rating of the Insurer should be evaluated independently. The
ratings reflect the respective rating agency's current assessment of the
creditworthiness of the Insurer and its ability to pay claims on its policies of
insurance. Any further explanation of the significance of the above ratings may
be obtained only from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the
Securities 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 Securities. The
Insurer does not guarantee the market price of the Securities nor does it
guarantee that the ratings on the Securities will not be revised or withdrawn.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Andrews & Kurth L.L.P. for federal income tax purposes
the Notes will be characterized as debt, and the Trust will not be characterized
as an association (or a publicly traded partnership) taxable as a corporation.
Each Noteholder, by the acceptance of a Note, will agree to treat the Notes as
indebtedness, and each Certificateholder, by the acceptance of a Certificate,
will agree to treat the Trust as a partnership in which the Certificateholders
are partners for federal income tax purposes. Alternative characterizations of
the Trust and the Certificates are possible, but would not result in materially
adverse tax consequences to Certificateholders. See "Certain Federal Income Tax
Consequences" in the Prospectus for additional information concerning the
application of federal income tax laws to the Trust and the Securities.
Certificateholders who are tax-exempt entities or non-U.S. persons will
have tax consequences that may be considered adverse by such holders. See
"Certain Federal Income Tax Consequences -- Trusts for Which a Partnership
Election is Made -- Tax Consequences to Holders of the Certificates --
Partnership Taxation" and "-- Tax Consequences to Foreign Certificateholders" in
the Prospectus.
ERISA CONSIDERATIONS
THE NOTES
Subject to the considerations set forth below and under "ERISA
Considerations" in the Prospectus, the Notes may be purchased by an employee
benefit plan or an individual retirement account (a "BENEFIT PLAN") subject to
ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended (the
"CODE"). A fiduciary of a Benefit Plan must determine that the purchase of a
Note is consistent with its fiduciary duties under ERISA and does not result in
a nonexempt prohibited transaction as defined in Section 406 of ERISA or Section
4975 of the Code. Section 406 of ERISA prohibits parties in interest or
disqualified persons ("PARTIES IN INTEREST") with respect to a Benefit Plan from
engaging in certain transactions (including loans) involving a Benefit Plan and
its assets unless a statutory or administrative exemption applies to the
transaction. Section 4975 of the Code imposes certain excise taxes (or, in some
cases, a civil penalty may be assessed pursuant to section 502(i) of ERISA) on
Parties in Interest which engage in non-exempt prohibited transactions.
The United States Department of Labor has issued a regulation (29 CFR
Section 2510.3-101) concerning the definition of what constitutes the assets of
a Benefit Plan (the "PLAN ASSET REGULATION"). This regulation provides that, as
a general rule, the underlying assets and properties of corporations,
partnerships, trusts and certain other entities in which a Benefit Plan
purchases an "equity interest" will be deemed for purposes of ERISA to be assets
of
S-36
<PAGE> 39
the investing Benefit Plan unless certain exceptions apply. The Plan Asset
Regulation defines an "equity interest" as any interest in an entity other than
an instrument that is treated as indebtedness under applicable local law and
which has no substantial equity features. Although the issue is not free from
doubt, the Seller believes that the Notes offered hereby should not be treated
as "equity interests" for purposes of the Plan Asset Regulation. Accordingly,
the acquisition of the Notes by benefit plan investors should not cause the
assets of the Trust to be treated as Plan Assets for purposes of Title I of
ERISA. However, the Notes may not be purchased with the assets of a Benefit Plan
if the Seller, the Servicer, the Indenture Trustee, the Owner Trustee or any of
their affiliates (a) has investment or administrative discretion with respect to
such Benefit Plan assets; (b) has authority or responsibility to give, or
regularly gives, investment advice with respect to such Benefit Plan assets, for
a fee and pursuant to an agreement or understanding that such advice (i) will
serve as a primary basis for investment decisions with respect to such Benefit
Plan assets and (ii) will be based on the particular investment needs for such
Benefit Plan; or (c) is an employer maintaining or contributing to such Benefit
Plan.
Certain affiliates of the Issuer or the Servicer might be considered or
might become Parties in Interest with respect to a Benefit Plan. In either case,
the acquisition or holding of Notes by or on behalf of such a Benefit Plan could
be considered to give rise to an indirect prohibited transaction within the
meaning of ERISA and the Code, unless it is subject to one or more exemptions
such as Prohibited Transaction Class Exemption ("PTCE") 84-14, which exempts
certain transactions effected on behalf of a Benefit Plan by a "qualified
professional asset manager", PTCE 90-1, which exempts certain transactions
involving insurance company pooled separate accounts, PTCE-91- 38, which exempts
certain transactions involving bank collective investment funds, PTCE 95-60,
which exempts certain transactions involving insurance company general accounts,
or PTCE 96-23, which exempts certain transactions effected on behalf of a
Benefit Plan by certain "in-house asset managers". Each purchaser or transferee
of a Note that is a Benefit Plan shall be deemed to have represented that the
relevant conditions for exemptive relief under at least one of the foregoing
exemptions (or other applicable exemption providing substantially similar
relief) have been satisfied.
THE CERTIFICATES
The Seller believes that the Certificates offered hereby should be
treated as "equity interests" for purposes of the Plan Asset Regulation.
Accordingly, the Certificates may not be acquired by (a) a Benefit Plan subject
to ERISA or Section 4975 of the Code or (b) any entity whose underlying assets
include plan assets by reason of a Benefit Plan's investment in the entity or
which uses plan assets to acquire Certificates. By its acceptance of a
Certificate, each Certificateholder will be deemed to have represented and
warranted that it is not subject to the foregoing limitation. In this regard,
purchasers that are insurance companies should consult with their counsel with
respect to the United States Supreme Court case interpreting the fiduciary
responsibility rules of ERISA, John Hancock Mutual Life Insurance Co. v. Harris
Bank and Trust (decided December 12, 1993). In John Hancock, the Supreme Court
ruled that assets held in an insurance company's general account may be deemed
to be "plan assets" for ERISA purposes under certain circumstances. Prospective
purchasers should determine whether the decision affects their ability to make
purchases of the Certificates. For additional information regarding treatment of
the Certificates under ERISA, see "ERISA Considerations" in the Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement dated ____________________ (the "UNDERWRITING AGREEMENT") between the
Seller and the Underwriters named below (the "UNDERWRITERS"), the Seller has
agreed to cause the Trust to sell to each of the Underwriters, and each of the
Underwriters has severally agreed to purchase, the principal amount of the Notes
and Certificates set forth opposite its name in the table below:
S-37
<PAGE> 40
CLASS A-1 NOTES
Principal Amount
-----------------
[Underwriter]............................................... $
[Underwriter]............................................... $
-----------------
Total.............................................. $
=================
CLASS A-2 NOTES
Principal Amount
-----------------
[Underwriter]............................................... $
[Underwriter]............................................... $
-----------------
Total.............................................. $
=================
CLASS A-3 NOTES
Principal Amount
-----------------
[Underwriter]............................................... $
[Underwriter]............................................... $
-----------------
Total.............................................. $
=================
CLASS A-4 NOTES
Principal Amount
-----------------
[Underwriter]............................................... $
[Underwriter]............................................... $
-----------------
Total.............................................. $
=================
CERTIFICATES
Principal Amount
-----------------
[Underwriter]............................................... $
[Underwriter]............................................... $
-----------------
Total.............................................. $
=================
The Seller has been advised by the Underwriters that they propose
initially to offer the Notes to the public at the prices set forth herein, and
to certain dealers at such price less the initial concession not in excess of
______% of the denominations of the Notes per Class A-1 Note, ______% per Class
A-2 Note, ______% per Class A-3 Note and ______% per Class A-4 Note. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of ______% per Class A-1 Note, ______% per Class A-2 Note, ______% per Class A-3
Note and ______% per Class A-4 Note to certain other dealers. After the initial
public offering of the Notes, the public offering price and such concessions may
be changed. The Underwriters are obligated to purchase and pay for all of the
Notes if any Notes are purchased. The Underwriters currently intend, but are not
obligated, to make a market in the Notes.
S-38
<PAGE> 41
The Seller has been advised by the Underwriters that they propose
initially to offer the Certificates to the public at the prices set forth
herein, and to certain dealers at such price less the initial concession not in
excess of ______% of the principal amount thereof. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of ______% per
Certificate. After the initial public offering of the Certificates, the public
offering price and such concessions may be changed. The Underwriters are
obligated to purchase and pay for all of the Certificates if any Certificates
are purchased. The Underwriters currently intend, but are not obligated, to make
a market in the Certificates.
The Seller and Onyx have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under applicable securities laws, or
contribute to payments the Underwriters may be required to make in respect
thereof.
LEGAL MATTERS
Certain legal matters with respect to the Securities and with respect to
the federal income tax matters discussed under "Certain Federal Income Tax
Consequences" in the Prospectus will be passed upon for the Seller by Andrews &
Kurth L.L.P., Dallas, Texas. Certain legal matters with respect to the
Securities will be passed upon for the Underwriters by _______________________.
Certain legal matters relating to the Policy will be passed upon for the
Insurer by ___________________________________________.
EXPERTS
The consolidated balance sheets of the Insurer and its subsidiaries as
of December 31, 199__ and 199__ 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, 199__, incorporated by reference in this
Prospectus Supplement, have been incorporated herein in reliance on the report
of _________________________________, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
S-39
<PAGE> 42
INDEX OF TERMS
"Accelerated Principal Commencement Date"...................................S-28
"Accelerated Principal Distributable Amount"................................S-29
"Accelerated Principal Target Level"........................................S-29
"Amount Financed"...........................................................S-29
"Benefit Plan"..............................................................S-39
"Cede"......................................................................S-21
"Certificate Distributable Amount"..........................................S-29
"Certificate Distribution Account"..........................................S-26
"Certificate Interest Carryover Shortfall"..................................S-29
"Certificate Interest Distributable Amount".................................S-29
"Certificate Owner".........................................................S-24
"Certificate Percentage"....................................................S-29
"Certificate Principal Balance".............................................S-24
"Certificate Principal Carryover Shortfall".................................S-29
"Certificate Principal Distributable Amount"................................S-29
"Certificate Rate"...........................................................S-6
"Certificates"...............................................................S-3
"Closing Date"...............................................................S-3
"Code"......................................................................S-39
"Collection Period".........................................................S-30
"Contracts"..................................................................S-3
"Cram Down Loss"............................................................S-30
"Cut-Off Date"...............................................................S-4
"Defaulted Contract"........................................................S-30
"Deficiency Amount".........................................................S-36
"Definitive Certificates"...................................................S-24
"Definitive Notes"..........................................................S-21
"Distribution Accounts".....................................................S-26
"Distribution Date"..........................................................S-5
"DTC".......................................................................S-21
"Eligibility Requirements"..................................................S-18
"Final Cut-Off Date".........................................................S-4
"Final Scheduled Distribution Date"..........................................S-6
"Final Scheduled Distribution Dates".........................................S-6
"Fiscal Agent"..............................................................S-35
"GAAP"......................................................................S-38
"Indenture"..................................................................S-3
"Indenture Trustee"..........................................................S-3
"Indenture Events of Default"...............................................S-23
"Initial Contracts"..........................................................S-4
"Initial Cut-Off Pool Balance"...............................................S-4
"Insurance Agreement"........................................................S-7
"Insurer"...................................................................S-15
"Insurer Default" ..........................................................S-24
"Interest Accrual Period"...................................................S-21
"Interest Rates"............................................................S-22
"Issuer".....................................................................S-2
"Liquidated Contract".......................................................S-30
"Liquidation Expenses"......................................................S-27
"Motor Vehicle Contracts"...................................................S-16
"Net Collections"...........................................................S-27
"Net Insurance Proceeds"....................................................S-27
"Net Liquidation Proceeds"..................................................S-27
"Note Distributable Amount".................................................S-30
"Note Distribution Account".................................................S-26
"Note Interest Carryover Shortfall".........................................S-30
S-40
<PAGE> 43
"Note Interest Distributable Amount"........................................S-30
"Note Owner"................................................................S-21
"Note Percentage"...........................................................S-31
"Note Principal Carryover Shortfall"........................................S-31
"Note Principal Distributable Amount".......................................S-31
"Notes"......................................................................S-3
"Onyx".......................................................................S-3
"Optional Purchase".........................................................S-35
"Original Certificate Balance"..............................................S-24
"Original Pool Balance"......................................................S-4
"Owner".....................................................................S-36
"Owner Trustee"..............................................................S-3
"Parties in Interest".......................................................S-39
"Paying Agent"..............................................................S-25
"Payment Account"...........................................................S-26
"Payment Default"...........................................................S-12
"Plan Asset Regulation".....................................................S-39
"Policy".....................................................................S-7
"Policy Claim Amount".......................................................S-36
"Precomputed Contracts".....................................................S-18
"Preference Amount".........................................................S-36
"Principal Balance".........................................................S-31
"PTCE"......................................................................S-39
"Purchase Amount" ..........................................................S-31
"Purchased Contract"........................................................S-31
"Record Date".........................................................S-21, S-25
"Regular Principal Distributable Amount"....................................S-31
"Residual Interestholder"...................................................S-34
"Residual Interests".........................................................S-3
"Sale and Servicing Agreement"...............................................S-4
"SAP".......................................................................S-38
"Securities".................................................................S-2
"Security Insurance Policy"..................................................S-7
"Seller".....................................................................S-3
"Selling Subsidiary"........................................................S-17
"Servicer"...................................................................S-3
"Servicer Default"..........................................................S-33
"Servicing Fee".............................................................S-33
"Servicing Fee Rate"........................................................S-33
"Simple Interest Contracts".................................................S-18
"Spread Account".............................................................S-7
"Spread Account Maximum"....................................................S-32
"Subsequent Contracts".......................................................S-4
"Transfer and Servicing Agreements".........................................S-26
"Trust"......................................................................S-2
"Trust Agent"................................................................S-3
"Trust Agreement"............................................................S-3
"Trust Bankruptcy Event"....................................................S-12
"Trust Property".............................................................S-3
"Underwriters"..............................................................S-40
"Underwriting Agreement"....................................................S-40
S-41
<PAGE> 44
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE SELLER OR THE UNDERWRITER. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF A TIME SUBSEQUENT TO THE DATE OF
SUCH INFORMATION. NEITHER THIS PROSPECTUS SUPPLEMENT NOR THE PROSPECTUS
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
----------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT PAGE
----
Available Information................................
Reports to Securityholders...........................
Incorporation of Certain Documents by Reference...... S-4
Summary of Terms..................................... S-5
Risk Factors......................................... S-12
The Trust............................................ S-16
The Onyx Portfolio of Motor Vehicle Contracts........ S-17
The Contracts........................................ S-18
Maturity and Prepayment Considerations............... S-21
Use of Proceeds...................................... S-21
Description of the Notes............................. S-22
Description of the Certificates...................... S-24
Description of the Transfer and Servicing S-26
Agreements...........................................
The Policy........................................... S-35
Description of the Insurer........................... S-37
Certain Federal Income Tax Consequences.............. S-38
ERISA Considerations................................. S-39
Underwriting......................................... S-40
Legal Matters........................................ S-41
Experts.............................................. S-41
Index of Terms....................................... S-42
PROSPECTUS
Available Information................................ iii
Incorporation of Certain Documents by Reference...... iii
Summary of Terms..................................... 1
Risk Factors......................................... 6
The Trusts........................................... 8
The Trustee.......................................... 9
The Onyx Portfolio of Motor Vehicle Contracts........ 9
The Contracts........................................ 12
Prefunding Arrangements.............................. 14
Maturity and Prepayment Considerations............... 14
Pool Factor and Pool Information..................... 15
Use of Proceeds...................................... 15
The Seller........................................... 15
The Servicer......................................... 16
Description of the Securities........................ 17
Description of the Transfer and Servicing
Agreements......................................... 21
The Indenture........................................ 29
Certain Legal Aspects of the Contracts............... 32
Certain Federal Income Tax Consequences.............. 36
Trusts for Which a Partnership Election is Made...... 36
Trusts Treated as Grantor Trusts..................... 42
ERISA Considerations................................. 46
Plan of Distribution................................. 47
Legal Opinions....................................... 47
Index of Terms....................................... 48
UNTIL ___________________ (90 DAYS AFTER THE DATE OF THIS PROSPECTUS
SUPPLEMENT) ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
DEALERS' OBLIGATIONS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
================================================================================
$_________________
ONYX ACCEPTANCE
OWNER TRUST 1999-__
$______________ _____%
AUTO LOAN BACKED NOTES, CLASS A-1
$______________ _____%
AUTO LOAN BACKED NOTES, CLASS A-2
$______________ _____%
AUTO LOAN BACKED NOTES, CLASS A-3
$______________ _____%
AUTO LOAN BACKED NOTES, CLASS A-4
$______________ _____%
AUTO LOAN BACKED CERTIFICATES
[ONYX LOGO]
ONYX ACCEPTANCE FINANCIAL CORPORATION,
Seller
ONYX ACCEPTANCE CORPORATION,
Servicer
--------------------------------------------
P R O S P E C T U S S U P P L E M E N T
--------------------------------------------
[UNDERWRITER]
[DATE]
<PAGE> 1
EXHIBIT 99.2
PROSPECTUS SUPPLEMENT
(To Prospectus dated _________, 1999)
LOGO
$_____________
ONYX ACCEPTANCE GRANTOR TRUST 1999-_
____% AUTO LOAN PASS-THROUGH CERTIFICATES, SERIES 1999-_
ONYX ACCEPTANCE FINANCIAL CORPORATION,
Seller
ONYX ACCEPTANCE CORPORATION,
Servicer
______________
Onyx Acceptance Grantor Trust 1999-__ will issue the above securities
to obtain funds for the purchase of a pool of motor vehicle retail installment
contracts. The Certificates represent undivided fractional interests in the
Trust. THE CERTIFICATES ARE NOT INSURED OR GUARANTEED BY THE SELLER, ONYX OR
EITHER OF THEIR RESPECTIVE AFFILIATES.
Interest and principal on the Certificates will be distributed to you
on the 15th day of each month. If the 15th day of a month , then the
distribution will be made on the next business day. The first payment will be
due on ____________________________.
[Insurer] will unconditionally and irrevocably guarantee distribution
on the Certificates, to the extent described in this prospectus supplement.
[INSURER LOGO]
______________
<TABLE>
<CAPTION>
==============================================================================
PRICE TO UNDERWRITING PROCEEDS TO THE
PUBLIC(1) DISCOUNT SELLER(1)(2)
------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Certificate....... ____% ____% ____%
Total ................ $_______ $______ $_______
==============================================================================
</TABLE>
(1) Plus accrued interest, if any, calculated from _____, 1999.
(2) Before deducting expenses payable by the Seller estimated to be $______.
---------------
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-___ OF THIS
PROSPECTUS SUPPLEMENT AND PAGE ___ OF THE ACCOMPANYING PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
We expect that delivery of the Certificates will be made in
book-entry form only through the facilities of The Depository Trust Company
against payment in immediately available funds on or about___________________.
______________
[UNDERWRITERS]
The date of this Prospectus Supplement is _____________________.
<PAGE> 2
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
Information about the Certificates is contained in two separate
documents that progressively provide more detail: (a) the accompanying
Prospectus, which provides general information, some of which may not apply to
the Certificates; and (b) this Prospectus Supplement, which describes the
specific terms of the Certificates. IF THE TERMS OF THE CERTIFICATES VARY
BETWEEN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, YOU SHOULD
RELY ON THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT.
You should rely only on the information contained in this Prospectus
Supplement and the accompanying Prospectus or that we have referred you to. We
have not authorized anyone to provide you with information that is different.
The information in this Prospectus Supplement is accurate only as of the date of
this Prospectus Supplement, and the information in the Prospectus is accurate
only as of the date of the Prospectus.
In this Prospectus Supplement and the accompanying Prospectus, we
include cross references to sections in these materials where you can find
further related discussions. The Tables of Contents on the back cover of this
document identify the pages where these sections are located.
We have defined and used certain capitalized terms in this Prospectus
Supplement and the Prospectus to assist you in understanding the terms of the
Securities and this offering. You can find a listing of the pages where
capitalized terms used in this Prospectus Supplement are defined under the
caption "Index of Terms" beginning on page S-___ in this Prospectus Supplement
and under the caption "Index of Terms" beginning on page ___ of the Prospectus.
In this Prospectus Supplement, the terms "Trust", "Issuer", "we",
"us" and "our" refer to Onyx Acceptance Grantor Trust 1999-__.
REPORTS TO SECURITYHOLDERS
Unless definitive securities are issued (which will occur under the
limited circumstances described in this Prospectus Supplement and in the
Prospectus), the Servicer will send unaudited monthly and annual reports
concerning the Trust to the Trustee to be delivered to Cede & Co. as the nominee
of The Depository Trust Company and the registered holder of the Securities. See
"Certain Information Regarding the Securities -- Statements to Securityholders"
in the Prospectus. Such reports will not constitute financial statements
prepared in accordance with generally accepted accounting principles. The
Depository Trust Company will supply such reports to you in accordance with its
procedures. See "Description of the Securities -- Book-Entry Registration" in
the Prospectus. None of the Seller, the Servicer, or [Insurer] intends to send
any of its financial reports to you.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
In addition to the documents described in the Prospectus under
"Incorporation of Certain Documents by Reference," the consolidated financial
statements of [Insurer] included in, or as exhibits to, the following documents
which have been filed with the Securities and Exchange Commission by [Insurer],
are hereby incorporated by reference in this Prospectus Supplement:
(a) Annual Report on Form 10-K for the year ended December 31, 199__;
and
(b) Quarterly Report on Form 10-Q for the period ended
________________.
All financial statements of [Insurer] included in documents filed by
[Insurer] pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended, subsequent to the date of this Prospectus
Supplement and prior to the termination of the offering of the Securities shall
be deemed to be incorporated by reference into this Prospectus Supplement and to
be a part hereof from the respective dates of filing of such documents.
-ii-
<PAGE> 3
SUMMARY OF TERMS
The following summary is a short, concise description of the main
terms of the Securities. For this reason, the summary does not contain all of
the information that may be important to you. You will find a detailed
description of the terms of the Notes and Certificates following this summary
and in the Prospectus.
<TABLE>
<S> <C>
ISSUER............................................... Onyx Acceptance Grantor Trust 1999-__. The Trust will be
established pursuant to a pooling and servicing
agreement, among the Seller, the Servicer and the
Trustee. The pooling and servicing is referred to in this
Prospectus Supplement as the "AGREEMENT".
SELLER............................................... Onyx Acceptance Financial Corporation, a wholly-owned,
limited purpose subsidiary of Onyx Acceptance
Corporation.
SERVICER............................................. Onyx Acceptance Corporation ("ONYX").
TRUSTEE.............................................. ____________________.
CLOSING DATE......................................... ____________________.
THE CERTIFICATES..................................... The Trust will issue the Certificates, as described on the
cover page, pursuant to the Agreement. The Certificates
will represent fractional undivided interests in the
Trust.
TRUST PROPERTY....................................... The Trust's assets will include:
a pool of fixed rate motor vehicle retail
installment sales contracts (the "CONTRACTS"), all
of which were purchased from the Seller, and secured
by new and used automobiles and light-duty trucks;
certain documents relating to the Contracts;
certain monies received with respect to the
Contracts on or after the Cut-Off Date for such
Contracts;
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;
all amounts on deposit in specified accounts
(excluding any investment income credited to the
Collection Account, which will be paid to the
Servicer);
the right of the Seller to cause Onyx to repurchase
certain Contracts under specified circumstances; and
all proceeds of the foregoing.
See "The Trust" in this Prospectus Supplement and "The
Trusts" in the Prospectus.
CONTRACTS............................................ The Trust's main source of funds for making payments
on the Securities will be collections on the Contracts.
The Trust will acquire certain Contracts with a total
principal balance of $___________ as of
_____________________. Such Contracts are referred to in
this Prospectus Supplement as the "INITIAL CONTRACTS" and
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
_____________________ is referred to as the "INITIAL
CUT-OFF DATE". The Trust will acquire certain additional
Contracts that have been or will be originated or
purchased after the Initial Cut-Off Date but before
_____________________. Such Contracts are referred to in
this Prospectus Supplement as the "SUBSEQUENT CONTRACTS"
and _____________________ is referred to as the "FINAL
CUT-OFF DATE".
The Trust will acquire the Contracts from the Seller
pursuant to the Agreement.
The term "CUT-OFF DATE" as used in this Prospectus
Supplement refers to the Initial Cut-Off Date for the
Initial Contracts and the Final Cut-Off Date for the
Subsequent Contracts.
As of the Initial Cut-Off Date, the Initial Contracts had
the following characteristics:
Weighted average annual
percentage rate: _____ %
Weighted average remaining term: ______ months
Contracts that allocate interest and
principal by the rule of 78's method
or the actuarial method: ____% (by Aggregate Scheduled
Balance)
Contracts that allocate interest
and principal by the simple
interest method: ____% (by Aggregate Scheduled
Balance)
Contracts secured by new vehicles: ____% (by Aggregate Scheduled
Balance)
Contracts secured by used vehicles: ____% (by Aggregate
Scheduled Balance)
Contracts originated in California:* ____% (by Aggregate
Scheduled Balance)
Contracts originated in Florida:* ____% (by Aggregate
Scheduled Balance)
* As of the Initial Cut-Off Date, the aggregate
Scheduled Balances of Initial Contracts originated
in any other single state did not exceed ____%.
No Initial Contract has, and no Subsequent Contract will
have, a scheduled maturity date later than
________________.
Although the financial and other data for the Subsequent
Contracts will differ somewhat from the descriptions of
the Initial Contracts set forth above, the
characteristics of the Contracts as a whole will not vary
materially from the characteristics of the Initial
Contracts. See "The Contracts" in this Prospectus
Supplement and in the Prospectus.
DISTRIBUTION DATE.................................... Interest and principal on the Certificates will be
distributable on the 15th day of each month. If the 15th
day of a month is not a business day, then the
distribution for that month will be made on the next
business day. The first distribution will be due on
______________.
</TABLE>
S-2
<PAGE> 5
<TABLE>
<S> <C>
TERMS OF THE CERTIFICATES:
A. INTEREST...................................... Pass-Through Rate: ____% per annum.
We will distribute interest (the "INTEREST DISTRIBUTION")
on the Certificates monthly, as described under "THE
CERTIFICATES AND THE AGREEMENT -- Distributions of
Principal and Interest".
B. PRINCIPAL..................................... We will distribute principal (the "PRINCIPAL DISTRIBUTION")
on the Certificates monthly, as described under "THE
CERTIFICATES AND THE AGREEMENT-- Distributions of
Principal and Interest". The Trust must pay the
outstanding principal amount of the Certificates, to the
extent not previously paid, by _________________. this
date is referred to in this Prospectus Supplement as the
"FINAL DISTRIBUTION DATE").
C. OPTIONAL TERMINATION.......................... The Servicer may, but is not obligated to, purchase all
of the Contracts on any Distribution Date on which the
principal balance of the Contracts has declined to 10% or
less of the Aggregate Scheduled Balance of the Contracts
as of the applicable Cut-Off Date. If the Servicer
exercises this purchase option, all of the Certificates
then outstanding will be prepaid. See "The Certificates
and the Agreement-- Optional Redemption" in this
Prospectus Supplement and "Description of the Transfer
and Servicing Agreements-- Repurchase of Contracts" in
the Prospectus.
THE INSURANCE POLICY................................. On the Closing Date, [Insurer] will issue an insurance
policy in favor of the Trustee, for the benefit of the
Certificateholders. [Insurer] is referred to in this
Prospectus Supplement as the "INSURER"); the insurance
policy issued by the Insurer is referred to as the
"POLICY", and the insurance agreement pursuant to which
the Policy is issued is referred to as the "INSURANCE
AGREEMENT". Further, the Policy is a "Security Insurance
Policy" as referred to in the Prospectus.
Pursuant to the Policy, the Insurer will unconditionally
and irrevocably guarantee payment of the Interest
Distribution and Principal Distribution on each
Distribution Date as described under "The Certificates
and the Agreement -- The Financial Guarantee Insurance
Policy" in this Prospectus Supplement. The Insurer's
obligations under the Policy will be discharged to the
extent that amounts due under the Policy are received by
the Trustee, whether or not such amounts are properly
applied by the Trustee.
For a description of the Insurer, see "Description of the
Insurer" in this Prospectus Supplement".
SERVICING FEE........................................ The Servicer will be responsible for managing,
administering, servicing, and collecting on the
Contracts. As compensation for its services, the Servicer
will receive a monthly fee (the "SERVICING FEE") and
other amounts, as described in this Prospectus Supplement
under "The Certificates and the Agreement - Servicing
Fee".
</TABLE>
S-3
<PAGE> 6
<TABLE>
<S> <C>
FEDERAL INCOME TAX
STATUS............................................... In the opinion of Andrews & Kurth L.L.P.,for federal
income tax purposes, the Trust will be treated as a
grantor trust and will not be subject to federal income
tax. You will be required to report your pro rata share
of all income earned on the Contracts (other than
amounts, if any, treated as "stripped coupons") and,
subject to certain limitations in the case of
individuals, trusts, or estates, you may deduct your pro
rata share of reasonable servicing and other fees. See
"Certain Federal Income Tax Consequences" in the
Prospectus for additional information concerning the
application of federal income tax laws to the Trust and
the Certificates.
ERISA CONSIDERATIONS................................. Subject to the considerations discussed under "ERISA
Considerations" in this Prospectus Supplement and in the
Prospectus, the Certificates are eligible for purchase by
employee benefit plans that are subject to ERISA. See
"ERISA Considerations" in this Prospectus Supplement and
in the Prospectus.
RATING............................................... At the Closing Date, Standard & Poor's Ratings Services,
a division of The McGraw-Hill Companies, Inc., and
Moody's Investors Service, Inc. will rate the
Certificates in the highest rating category for such
securities. The ratings of the Certificates will be based
substantially on the issuance of the Policy by the
Insurer. See "Risk Factors-- Rating" in this Prospectus
Supplement.
REGISTRATION OF THE CERTIFICATES..................... Initially, the Certificates will be in the form of one or
more certificates registered in the name of Cede & Co.,
as the nominee of The Depository Trust Company. If you
acquire an interest in the Certificates through The
Depository Trust Company, you will not be entitled to
receive a definitive security, except in the event that
definitive securities are issued in certain limited
circumstances. See "Description of the Securities--
Book-Entry Registration" and "-- Definitive Securities"
in the Prospectus.
</TABLE>
S-4
<PAGE> 7
RISK FACTORS
You should consider the following risk factors (as well as the other
factors described under the heading "Risk Factors" in the Prospectus) before
deciding to purchase the Certificates.
LIMITED OPERATING HISTORY OF ONYX
Onyx purchased the majority of the Contracts from dealers. Onyx, or a
subsidiary of Onyx, originated the remainder of the Contracts. In the
origination of Contracts, Onyx and its subsidiaries applied credit underwriting
criteria established by Onyx. In February 1994, Onyx began its operations as a
purchaser and servicer of motor vehicle retail installment sales contracts.
Thus, Onyx has performance data for only a relatively short period with respect
to the motor vehicle retail installment sales contracts it purchases and
originates. As the portfolio of contracts purchased and originated by Onyx and
its subsidiaries matures, delinquency percentages and loan losses may increase.
With its limited operating history, Onyx is subject to all of the
risks inherent in a relatively new business enterprise. As Onyx expands its
operations in the United States, it must, among other things, continue to
attract, retain and motivate qualified personnel, support and grow its auto
lending and contract servicing business, maintain its existing relationships
with automobile dealers, and develop new relationships with dealers.
Onyx experienced operating losses from its inception through December
31, 1995. Onyx's operating losses and net income for the years ended December
31, 1994 through December 31, 1998 are set forth below:
<TABLE>
<CAPTION>
YEAR ENDED (OPERATING LOSS)/NET INCOME
<S> <C>
December 31, 1994 $(3.5 million)
December 31, 1995 (3.2 million)
December 31, 1996 7.7 million
December 31, 1997 2.6 million
December 31, 1998 ___.__ million
</TABLE>
Onyx's net income for the period ended _____________________ was $___ million.
LIMITED LIQUIDITY
There is currently no secondary market for the Certificates. Each of
[Underwriters] currently intends to participate in making a secondary market in
the Certificates, but neither is under any obligation to do so. We cannot assure
you that a secondary market for the Certificates will develop. If a secondary
market does develop, we cannot assure you that it will continue or that you will
be able to resell your Certificates.
MATURITY AND PREPAYMENT CONSIDERATIONS
Any full prepayments and repurchases of the Contracts can reduce the
weighted average life of the Contracts and the aggregate interest received by
the Certificateholders over the life of the Certificates. All full and partial
prepayments on Simple Interest Contracts and all full prepayments on Precomputed
Contracts will be paid to Certificateholders on the Distribution Date
immediately following the calendar month in which such prepayments are received.
Accordingly, such prepayments will shorten the average life of such Contracts,
and, therefore, of the Certificates. Partial prepayments on Precomputed
Contracts are treated as payments in advance and, accordingly, will not affect
the average life of the Contracts. The obligors can prepay the Contracts in full
at any time without penalty. See "Maturity and Prepayment Considerations" in
this Prospectus Supplement and in the Prospectus regarding the effects of
prepayments on the weighted average life of the Contracts.
The rate of distributions of principal on the Certificates depends
primarily on the rate of payments (including prepayments) on the principal
balance of the Contracts. As a result, final distribution on the Certificates
could occur significantly earlier than the Final Distribution Date.
S-5
<PAGE> 8
Onyx cannot predict the actual prepayment rates that will occur on
the Contracts in either stable or changing interest rate environments. See "--
Limited Operating History of Onyx". Moreover, many other factors will affect the
amount and timing of distributions of principal on the Certificates. The factors
include:
- the level of delinquencies, defaults and losses on
the Contracts; and
- the payment of any accelerated amounts on the
Certificates following an event of default under the
Agreement.
You will bear all the reinvestment risks resulting from prepayment on the
Contracts. Such reinvestment risks include the possibility that you may not be
able to reinvest such prepayments in alternative comparable investments having
similar yields. See "Maturity and Prepayment Considerations" in this Prospectus
Supplement and in the Prospectus.
GEOGRAPHIC CONCENTRATION
Economic conditions in the states where the obligors under the
Contracts live and work may affect the delinquency, loan loss and repossession
experience of the Trust with respect to the Contracts. Initial Contracts
representing approximately ______% of the Aggregate Scheduled Balance as of the
Initial Cut-Off Date were originated in California, and Initial Contracts
representing approximately ______% of the Aggregate Scheduled Balance as of the
Initial Cut-Off Date were originated in Florida. As of the Initial Cut-Off Date,
the aggregate Scheduled Balances of Initial Contracts originated in any other
single state did not exceed ______%. The geographic concentration of all of the
Contracts as of the Closing Date will be substantially similar to that of the
Initial Contracts. Adverse economic conditions or other factors particularly
affecting California, Florida or other states in which the Contracts are
geographically concentrated might adversely affect the performance of the
Contracts. See "The Contracts --Geographic Concentration of the Initial
Contracts" in this Prospectus Supplement.
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. You must rely
upon payments on the Contracts and payments of claims made under the Policy for
repayment of the Certificates.
The Policy will guarantee Interest Distributions and Principal
Distributions on each Distribution Date. However, if the Insurer defaults in its
obligations under the Policy, the Trust will have to depend solely on
collections on the Contracts to make distributions on the Certificates. See
"Description of the Insurer" and "The Certificates and the Agreement -- The
Financial Guarantee Insurance Policy" in this Prospectus Supplement.
RATING
A security rating is not a recommendation to buy, sell or hold
securities and may be revised or withdrawn at any time by the assigning rating
agency. Any rating agency rating the Certificates may lower or withdraw its
rating if, in the sole judgment of the rating agency, circumstances in the
future so warrant. For example, the downgrading of the rating of the Insurer may
affect the ratings on the Certificates. We cannot predict with certainty what
effect any revision or withdrawal of a rating of the Certificates may have on
the liquidity or market value of the Certificates. The ratings of the
Certificates address the likelihood of timely payment of scheduled Interest
Distribution and Principal Distribution, which are guaranteed by the Insurer
pursuant to the Policy. The ratings of the Certificates are substantially based
on the issuance of the Policy by the Insurer, and are dependent on the rating of
the Insurer. See "Description of the Insurer" in this Prospectus Supplement for
a description of the Insurer's rating.
THE TRUST
Pursuant to the Agreement, the Seller will establish the Onyx
Acceptance Grantor Trust 1999-__ (the "TRUST") by selling and assigning the
following property to _____________ in its capacity as trustee of the Trust (the
"TRUSTEE"):
(i) the Contracts, all of which were purchased from the Seller
and will be secured by financed vehicles,
S-6
<PAGE> 9
(ii) certain documents relating to the Contracts,
(iii) certain monies received with respect to the Contracts on or
after the Cut-Off Date for such Contracts,
(iv) security interests in the financed vehicles and the rights
to receive proceeds from claims on certain insurance
policies covering the financed vehicles or the individual
obligors under each related Contract,
(v) all amounts on deposit in the Collection Account, including
all Eligible Investments credited thereto (but excluding
any investment income from Eligible Investments credited to
the Collection Account, which will be paid to the
Servicer),
(vi) the benefits of the Policy issued by the Insurer,
(vii) the right of the Seller to cause Onyx to repurchase certain
Contracts under specified circumstances, and
(viii) all proceeds of the foregoing (collectively, the ("TRUST
PROPERTY").
In exchange for the Trust Property, the Trustee will execute and authenticate
the Certificates. 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 described herein 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 the Contracts
have been purchased or originated by subsidiaries of Onyx. All of the Contracts
will have been sold to the Seller and then to the Trust. See "The Onyx Portfolio
of Motor Vehicle Contracts -- Purchase and Origination of Motor Vehicle
Contracts" in the Prospectus.
DELINQUENCY AND LOAN LOSS INFORMATION
The following tables set forth information with respect to the
experience of Onyx relating to delinquencies, loan losses and recoveries for the
portfolio of Motor Vehicle Contracts owned and serviced by Onyx on an annual
basis commencing December 31, 1995. The tables include delinquency information
relating to those Motor Vehicle Contracts that were purchased, originated, sold
and serviced by Onyx. All of the Motor Vehicle Contracts were originally
purchased by Onyx from dealers, or originated by Onyx or a subsidiary of Onyx,
in accordance with credit underwriting criteria established by Onyx. In February
1994, Onyx commenced its operations as a purchaser and servicer of motor vehicle
retail installment sales contracts. Thus, Onyx has historical performance for
only a limited time period with respect to the Motor Vehicle Contracts it
purchases and originates and thus delinquencies and loan losses may increase
from existing levels in the portfolio with the passage of time. Delinquency and
loan loss experience may be influenced by a variety of economic, social and
other factors. See "Risk Factors" herein and in the Prospectus.
S-7
<PAGE> 10
With the continued expansion of Onyx in the eastern United States and
the significant growth in Onyx's existing branches, Onyx undertook a project to
centralize and improve its servicing and collection process. Onyx believes that
a centralized group is efficient and effective, and assures that collection
practices and policies are applied consistently throughout the company.
Management continues to rely on the use of current technology such as predictive
dialers utilizing an automated processing system for contacting delinquent
borrowers. Onyx also has a payment system that allows electronic payment on
delinquent accounts to be applied the same day as payment is sent or initiated
by the borrower. Over the past few quarters, management has focused on the
hiring, training and retention of a centralized collection staff. During 1998
Onyx realized some of the benefits of the centralization and training of its
collection department. At December 31, 1998, delinquencies for the servicing
portfolio represented ______% of the amount of Motor Vehicle Contracts in Onyx'
servicing portfolio or $______ million as compared to 2.51% at December 31, 1997
or $19.0 million. Loan losses for the servicing portfolio as a percentage of
average serviced loans outstanding decreased to ______% for the year ended
December 31, 1998 compared to 2.03% for the year ended December 31, 1997.
DELINQUENCY EXPERIENCE OF ONYX MOTOR VEHICLE CONTRACT PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31, AT DECEMBER 31,
1996 1997 1998
------------------------ ------------------------ ----------------------
AMOUNT NO AMOUNT NO AMOUNT NO
-------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Servicing portfolio .......... $400,665 38,275 $757,277 73,502
DELINQUENCIES
30-59 DAYS(1)(2) ........... $ 5,022 478 $ 11,902 1,211
60-89 DAYS(1)(2) ........... 1,816 162 3,370 346
90+ DAYS(1)(2) ............. 1,279 111 3,742 316
TOTAL DELINQUENCIES AS
A PERCENT OF SERVICING
PORTFOLIO 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 0.48%, 1.17% AND _____ AT DECEMBER 31, 1996, 1997 AND
1998, RESPECTIVELY.
(2) THE PERIOD OF DELINQUENCY IS BASED ON THE NUMBER OF DAYS PAYMENTS ARE
CONTRACTUALLY PAST DUE.
S-8
<PAGE> 11
LOAN LOSS EXPERIENCE OF ONYX MOTOR VEHICLE CONTRACT PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Number of Motor Vehicle Contracts
outstanding ........................... 38,275 73,502
Period end outstanding ................ $400,665 $757,277
Average outstanding ................... $311,340 $563,343
Number of gross charge-offs ........... 987 2,161
Gross charge-offs ..................... $5,789.2 $13,076.1
Net charge-offs(1) .................... $5,066.1 $11,433.9
Net charge-offs as a percent of average
outstanding ......................... 1.63% 2.03%
</TABLE>
- ----------
(1) Net Charge-Offs Are Gross Charge-Offs Minus Recoveries of Motor
Vehicle Contracts Previously Charged Off.
THE CONTRACTS
All of the Contracts will have been purchased by the Seller from
Onyx. 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 will have been purchased or originated by subsidiaries of Onyx
(each such subsidiary, a "SELLING SUBSIDIARY"). See "The Onyx Portfolio of Motor
Vehicle Contracts" herein and in the Prospectus. Each of the Contracts in the
Trust will be a fixed rate contract where the allocation of each payment between
interest and principal is calculated using the rule of 78's, actuarial or the
simple interest method. Approximately _______% of the Aggregate Scheduled
Balance of the Initial Contracts as of the Initial Cut-Off Date allocate
interest and principal in accordance with the rule of 78's or the actuarial
method (the "PRECOMPUTED CONTRACTS"), and approximately ______% of the Aggregate
Scheduled Balance of the Initial Contracts as of the Initial Cut-Off Date
allocate interest in accordance with the simple interest method (the "SIMPLE
INTEREST CONTRACTS"). See "The Contracts" in the Prospectus.
The Contracts will have been selected from the Motor Vehicle
Contracts in the portfolio of Onyx using the following criteria (the
"ELIGIBILITY REQUIREMENTS"). No selection procedures will have been used with
respect to the Contracts that are believed by Onyx or the Seller to be adverse
to the Certificateholders or the Insurer. Initial Contracts representing
approximately ______% of the Aggregate Scheduled Balance as of the Initial
Cut-Off Date are secured by new vehicles, and Initial Contracts representing
approximately ______% of the Aggregate Scheduled Balance as of the Initial
Cut-Off Date are secured by used vehicles. The Seller may not substitute other
Motor Vehicle Contracts for the Contracts at any time during the term of the
Sale and Servicing Agreement.
The Seller will represent that each Contract included in the Trust
satisfies the following Eligibility Requirements:
(a) Such Contract is secured by a new or used automobile or
light-duty truck;
(b) Such Contract has a remaining maturity as of the Cut-Off
Date of not more than ___ months;
(c) Such Contract has an original maturity of not more than
___months;
S-9
<PAGE> 12
(d) Such Contract is a fully-amortizing fixed rate contract
which provides for level scheduled monthly payments determined on the basis of
the rule of 78's, actuarial or the simple interest method (except for the last
payment, which may be minimally different from the level payments);
(e) Such Contract is secured by a vehicle that as of the
Cut-Off Date has not been repossessed without reinstatement;
(f) Such Contract has no payment more than ___ days past due as
of the Cut-Off Date;
(g) Such Contract has a remaining principal balance as of the
Cut-Off Date of at least $___________; and
(h) As of the Cut-Off Date, the Seller has not received notice
that the related obligor has filed for bankruptcy.
Set forth below is certain data concerning the Initial Contracts as
of the Initial Cut-Off Date which had an Aggregate Scheduled Balance of
$___________. Data concerning all of the Contracts (both the Initial Contracts
and the Subsequent Contracts) will be available to purchasers of the Securities
at or before the initial delivery of the Securities and will be filed with the
Securities and Exchange Commission on Form 8-K within 15 days after the initial
delivery of the Securities. While the financial and other data for the
Subsequent Contracts will differ somewhat from the data for the Initial
Contracts, the characteristics of the Contracts as a whole will not vary
materially from the characteristics of the Initial Contracts described below.
COMPOSITION OF THE INITIAL CONTRACTS
<TABLE>
<S> <C>
Aggregate principal balance.......................................$___________
Number of contracts................................................___________
Average principal balance outstanding.............................$___________
Average original amount financed..................................$___________
Original amount financed (range).....................___________to ___________
Weighted average APR...................................................______%
APR (range).................................................______% to ______%
Weighted average original term.....................................___________
Original term (range).........................................____to ____ mos.
Weighted average remaining term.........................................______
Remaining term (range).........................................___ to ___ mos.
</TABLE>
S-10
<PAGE> 13
DISTRIBUTION BY APRS OF THE INITIAL CONTRACTS
<TABLE>
<CAPTION>
NUMBER OF % OF
INITIAL INITIAL PRINCIPAL % OF AGGREGATE
APR RANGE CONTRACTS CONTRACTS BALANCE SCHEDULED BALANCE
--------- --------- --------- --------- -----------------
<S> <C> <C> <C> <C>
0.000% to 7.000%................
7.001% TO 8.000%................
8.001% TO 9.000%................
9.001% TO 10.000%...............
10.001% TO 11.000%...............
11.001% TO 12.000%...............
12.001% TO 13.000%...............
13.001% TO 14.000%...............
14.001% TO 15.000%...............
15.001% TO 16.000%...............
16.001% TO 17.000%...............
17.001% TO 18.000%...............
18.001% TO 19.000%...............
19.001% TO 20.000%...............
20.001% TO 21.000%...............
21.001% AND OVER.................
TOTALS..................... 100.00%* 100.00%*
</TABLE>
- ----------------
* Percentages may not add to 100% because of rounding.
S-11
<PAGE> 14
GEOGRAPHIC CONCENTRATION OF THE INITIAL CONTRACTS
<TABLE>
<CAPTION>
NUMBER % OF % OF
OF INITIAL INITIAL PRINCIPAL AGGREGATE
CONTRACTS CONTRACTS BALANCE SCHEDULED BALANCE
---------- --------- --------- -----------------
<S> <C> <C> <C> <C>
Alabama.....................
Arizona.....................
California..................
Colorado....................
Florida.....................
Georgia.....................
Idaho.......................
Illinois....................
Indiana.....................
Iowa........................
Kansas......................
Kentucky....................
Maryland....................
Maine.......................
Michigan....................
Missouri....................
Montana.....................
Nevada......................
New Jersey..................
New York....................
North Carolina..............
Ohio........................
Oklahoma....................
Oregon......................
South Carolina..............
Tennessee...................
Texas.......................
Utah........................
Virginia....................
Washington..................
Totals............ 100.00%* 100.00%*
</TABLE>
- --------------
* Percentages may not add to 100% because of rounding.
MATURITY AND PREPAYMENT CONSIDERATIONS
The Contracts are or will be prepayable in full by the obligors at
any time without penalty. See "Maturity and Prepayment Considerations" in the
Prospectus regarding the effects of prepayments on the weighted average life of
the Contracts. As the rate of distribution of principal of the Certificates
depends primarily on the rate of payment (including prepayments) of the
principal of the Contracts, final distribution of the Certificates is expected
to occur earlier, and could occur significantly earlier, than the Final
Distribution Date for the Certificates.
Onyx can make no prediction as to the actual prepayment rates that
will be experienced on the Contracts in either stable or changing interest rate
environments. In addition, the rate of distributions of principal of the
Certificates will be affected by the incidence of delinquencies, defaults and
losses and by any accelerated payments made on the Certificates following an
Event of Default under the Agreement. See "Risk Factors -- Maturity and
Prepayment Considerations" herein.
S-12
<PAGE> 15
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 Aggregate Scheduled Balance of the Contracts as of the applicable
Cut-Off Date, in the case of the first Distribution Date). In the event of a
principal prepayment on a Contract during a Collection Period,
Certificateholders will receive interest for the full month on the related
Distribution Date. See "The Certificates and the Agreement -- Distributions of
Principal and Interest" herein.
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.
USE OF PROCEEDS
The net proceeds of the initial sale of Certificates will be used by
the Trust to purchase the Contracts from the Seller pursuant to the Agreement
and to fund the deposits in the certain collateral accounts maintained for the
benefit of the Certificateholders and the Insurer. The net proceeds to be
received by the Seller from the sale of the Contracts to the Trust will be used
by the Seller to repay certain indebtedness incurred, or to pay other amounts
owed, in connection with its acquisition of the Contracts and to pay certain
other expenses in connection with the pooling of the Contracts and the issuance
of the Certificates.
THE CERTIFICATES AND THE AGREEMENT
The Certificates will be issued pursuant to the Agreement, a form of
which will be filed with the Securities and Exchange Commission following the
issuance of the Certificates. The following summaries of certain provisions of
the Agreement do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the provisions of the Agreement. Where
particular provisions of or terms used in the Agreement are referred to, the
actual provisions (including definitions of terms) are incorporated by reference
as part of such summaries.
GENERAL
The Certificates of each class 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 Aggregate Scheduled Balance of the Contracts as of the applicable Cut-Off
Date. Each Certificate will rank pari passu with each other Certificate. The
Certificates will initially be represented by one or more Certificates
registered in the name of Cede & Co. ("CEDE"), as nominee of The Depository
Trust Company ("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 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 "Description of the Securities - Book-Entry Registration" and "Definitive
Securities" in the Prospectus.
S-13
<PAGE> 16
INITIAL CERTIFICATE BALANCE
The initial principal balance of the Certificates is approximately
equal to $_________________, the aggregate principal balance of the Contracts as
of the Cut-Off Date calculated in accordance with the Rule of 78's Method, the
Actuarial Method or the Simple Interest Method. The term "CUT-OFF DATE SCHEDULED
BALANCE" means, with respect to each Contract, the principal balance thereof as
of the Cut-Off Date, in each case calculated in accordance with the Rule of 78's
Method, the Actuarial Method or the Simple Interest Method. See "The Contracts"
herein and in the Prospectus.
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 to the extent of the
portion of the Pool Balance represented by Contracts, 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 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 will be the amount by which the Aggregate Scheduled
Balance of the Contracts as of the beginning of the related Collection Period
exceeds the Aggregate Scheduled Balance of such Contracts as of the end of the
related Collection Period. The "AGGREGATE SCHEDULED BALANCE" of the Contracts is
the sum of the Scheduled Balances of each Contract. The "SCHEDULED BALANCE" of a
Contract is determined as follows:
(i) The Scheduled Balance for 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") paid on or prior to the date of
calculation that is allocable to principal under the
Recomputed Actuarial Method;
(ii) The Scheduled Balance for an Actuarial 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 allocable to
principal under the Actuarial Method;
S-14
<PAGE> 17
(iii) 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; and
(iv) 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 be approximately equal to the sum of the
Aggregate Scheduled Balance of all the Contracts as of the Cut-Off Date.
OPTIONAL REDEMPTION
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 Aggregate Scheduled Balance of the Contracts as
of the applicable Cut-Off Date 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 payment 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 FINANCIAL GUARANTEE INSURANCE POLICY
If on the fifth business day prior 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 Policy shall demand payment under
the 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 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
S-15
<PAGE> 18
Collection Account and on the Final Distribution Date, the Trustee shall
withdraw from the Collection Account and shall pay such amount to the
Certificateholders.
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 [Underwriters] against payment to the Seller of
the net purchase price of the sale of the Certificates. Pursuant to the
applicable respective Purchase Agreements, prior to sale of the Contracts to the
Trustee and the issuance of the Certificates, Onyx and each Selling Subsidiary
will sell and assign to the Seller Onyx's and such Selling Subsidiaries' entire
interest in the Contracts.
Pursuant to 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 or will contain 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
at the date of origination complied or will comply 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 or will constitute 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 or will be 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 or
will be assignable and has been or will be so assigned by
the Seller to the Trust;
(v) as of the Closing Date, the Seller had or will have good
and marketable title to and was or will be 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 had or
will have had no knowledge of the same being asserted or
threatened, with respect to any Contract;
(vii) as of the Closing Date, the Seller had or will have 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;
S-16
<PAGE> 19
(viii) except for payment defaults continuing for a period of not
more than 30 days as of the Cut-Off Date , the Seller has
or will have had no knowledge that a default, breach,
violation, or event permitting acceleration under the
terms of any Contract exists, and the Seller has or will
have had 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 or will require that the obligor
thereunder obtain comprehensive and collision insurance
covering the related financed vehicle;
(x) each Contract was or will be acquired from a dealer with
whom Onyx ordinarily does business (except for Contracts
originated by Onyx);
(xi) no adverse selection procedures were utilized in selecting
the Contracts;
(xii) scheduled payments under each Contract have been or will
be applied in accordance with the method for allocating
principal and interest set forth in the Contract (either
the Rule of 78's Method, the Actuarial Method or the
Simple Interest Method); and
(xiii) there is or will be only one original of each Contract and
such original is or will be 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 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.
DISTRIBUTIONS
Subject to the last sentence of this paragraph, distributions on the
Certificates generally 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. Such amount
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 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 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 Certificate-holders on the current or any future
Distribution Date. Under the 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
S-17
<PAGE> 20
for distribution from the net collections on Contracts and amounts payable from
the Payahead Account, is less than the sum of the Servicing Fee, the Interest
Distribution and the Principal Distribution due to the Certificateholders for
such Distribution Date. 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 Policy or cause to be paid the amount of such shortfall. In addition,
on the Final Distribution Date, to the extent the amount on deposit and
available in the Collection Account, including from the Payahead Account, is
less than all remaining unpaid interest and principal on the Certificates, the
Insurer is obligated to pay under the Policy or cause to be paid the amount of
such shortfall. See "--Distributions of Principal and Interest" herein.
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-twelfth of ____%
per annum 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 of a Precomputed 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, will be permitted, in its
discretion, to waive certain changes and grant extensions as described under
"Description of the Transfer and Servicing Agreements -- Waivers and Extensions"
in the Prospectus. The maturity date of a Contract, however, may not be extended
more than ____ days past the originally scheduled maturity date, and in no event
beyond the Final Distribution Date.
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 information described under "Description of
the Securities -- Statements to Securityholders" in the Prospectus and the
amount, if any, required from the Insurer pursuant to the Policy to pay any
shortfall in the amount available in the Collection Account for payment.
CERTAIN MATTERS RELATING TO THE INSURER
Notwithstanding any provision in the Prospectus to the contrary, in
the event an Insurer Default shall have occurred and be continuing, the Insurer
shall not have the right to take any action under the Agreement, 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, the Trustee or the
Certificateholders; provided, that the consent of the Insurer shall be required
at all times with respect to any amendment of the Agreement.
DESCRIPTION OF THE INSURER
The Insurer is domiciled in the State of ________________ 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.
S-18
<PAGE> 21
State laws 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.
The consolidated financial statements of the Insurer and its
subsidiaries as of December 31, 199__ and December 31, 199__ and for each of the
three years in the period ended December 31, 199__, prepared in accordance with
generally accepted accounting principles, included in the Annual Report on Form
10-K of the Insurer for the year ended December 31, 1997 and the consolidated
financial statements of the Insurer and its subsidiaries as of
___________________ and for the ______ month periods ended __________________
and __________________ included in the Quarterly Report on Form 10-Q of
[Insurer] for the period ended ____________________, are hereby incorporated by
reference into this Prospectus Supplement and shall be deemed to be a part
hereof. Any statement contained in a document incorporated by reference herein
shall be modified or superseded for purposes of this Prospectus Supplement to
the extent that a statement contained herein or in any other subsequently filed
document which also is incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus
Supplement.
All financial statements of the Insurer and its subsidiaries included
in documents filed by [Insurer] pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended, subsequent to the date of this
Prospectus Supplement and prior to the termination of the offering of the
Securities shall be deemed to be incorporated by reference into this Prospectus
Supplement and to be a part hereof from the respective dates of filing such
documents.
The tables below present selected financial information of the
Insurer determined in accordance with statutory accounting practices prescribed
or permitted by insurance regulatory authorities ("SAP") and generally accepted
accounting principles ("GAAP"):
<TABLE>
<CAPTION>
SAP GAAP
---------------------------------------- --------------------------------------
December 31,199 December 31, 199
--------------- --------------- ---------------- ---------------
(Audited) (Unaudited) (Audited) (Unaudited)
(In Millions) (In Millions)
<S> <C> <C> <C> <C> <C>
Admitted Assets........... Assets.............
Liabilities............... Liabilities........
Capital Shareholder's
and Surplus............... Equity.............
</TABLE>
Copies of the financial statements of the Insurer incorporated by
reference herein and copies of the Insurer's 199__ year-end audited financial
statements prepared in accordance with statutory accounting practices are
available, without charge, from the Insurer. The address of the Insurer is
______________________________. The telephone number of the Insurer is
_________________.
The Insurer does not accept any responsibility for the accuracy or
completeness of this Prospectus Supplement or any information or disclosure
contained herein, or omitted herefrom, other than with respect to the accuracy
of the information regarding the Insurer set forth under the heading
"Description of the Insurer". Additionally, the Insurer makes no representation
regarding the Securities or the advisability of investing in the Securities.
THE POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY
FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
S-19
<PAGE> 22
Moody's Investors Service, Inc. rates the financial strength of the
Insurer "_____".
Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc., rates the financial strength of the Insurer "_____".
Fitch IBCA, Inc. (formerly known as Fitch Investors Service, L.P.)
rates the financial strength of the Insurer "_____".
Each rating of the Insurer should be evaluated independently. The
ratings reflect the respective rating agency's current assessment of the
creditworthiness of the Insurer and its ability to pay claims on its policies of
insurance. Any further explanation of the significance of the above ratings may
be obtained only from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the
Securities 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 Securities. The
Insurer does not guarantee the market price of the Securities nor does it
guarantee that the ratings on the Securities will not be revised or withdrawn.
ERISA CONSIDERATIONS
Subject to the considerations set forth below and under "ERISA
Considerations" in the Prospectus, the Certificates may be purchased by an
employee benefit plan or an individual retirement account (a "BENEFIT PLAN")
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA") or Section 4975 of the Internal Revenue Code of 1986, as amended (the
"CODE"). A fiduciary of a Benefit Plan must determine that the purchase of a
Certificate is consistent with its fiduciary duties under ERISA and does not
result in a nonexempt prohibited transaction as defined in Section 406 of ERISA
or Section 4975 of the Code.
The DOL has granted to [Underwriter] an administrative exemption
(Prohibited Transaction Exemption __-__ (the "EXEMPTION")) from certain of the
prohibited transaction rules of ERISA with respect to the initial purchase, the
holding and the subsequent resale by Benefit Plans of certificates representing
interests in asset backed pass-through trusts that consist of certain
receivables, loans and other obligations that meet the conditions and
requirements of the Exemption. On July 21, 1997, the DOL adopted an Amendment to
Prohibited Transaction Exemptions (Prohibited Transaction Exemption 97-34) that
modified the Exemption with respect to transactions, that utilize prefunding.
The receivables covered by the Exemption include motor vehicle installment
obligations such as the Contracts.
Among the conditions that must be satisfied for the Exemption to
apply to the acquisition by a Benefit Plan of the Certificates are the
following:
(i) The acquisition of the Certificates by a Benefit Plan
is on terms (including the price for the Certificates) that are at
least as favorable to the Benefit Plan as they would be in an
arm's-length transaction with an unrelated party.
(ii) The rights and interests evidenced by the
Certificates acquired by the Benefit Plan are not subordinated to the
rights and interests evidenced by other certificates of the Trust.
(iii) The Certificates acquired by the Benefit Plan have
received a rating at the time of such acquisition that is in one of
the three highest generic rating categories from Standard & Poor's,
Moody's, Duff & Phelps Inc. or Fitch Investors Service, Inc.
(iv) The Trustee is not an affiliate of any member of the
Restricted Group (as defined below).
S-20
<PAGE> 23
(v) 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.
(vi) The Benefit Plan investing in the Certificates is an
"ACCREDITED INVESTOR" as defined in Rule 501(a)(1) of Regulation D
under the Securities Act of 1933, as amended.
(vii) The principal amount of obligations added to the
Trust after the Closing Date does not exceed 25% of the principal
balance of the Certificates being offered as of the Closing Date.
(viii) All such additional obligations meet the same terms
and conditions for eligibility as the obligations originally included
in the Trust (which terms and conditions have been approved by one of
the above-named rating agencies) except that such terms and
conditions may be modified with the prior approval of a rating agency
or of a majority of the holders of the certificates offered.
(ix) The addition of the obligations during the funding
period does not result in a ratings downgrade.
(x) The weighted average annual percentage rate of all
obligations in the Trust at the end of the funding period is not more
than 100 basis points lower than such weighted average as of the
closing date.
(xi) The characteristics of the additional obligations are
monitored by a third party credit enhancer or certificate insurer
which is independent of the sponsor of the Trust, or an independent
accountant delivers a letter (with copies to the relevant rating
agencies, underwriters and trustee) stating that the characteristics
of the additional obligations conform to the characteristics with
respect thereto specified in the offering documents;
(xii) The funding period ends no later than 90 days after
the Closing Date.
(xiii) Amounts on deposit in a prefunding account and/or
related capitalized interest account are invested only in investments
permitted by the relevant rating agencies that are (i) direct
obligations of or fully guaranteed by the United States or any agency
or instrumentality thereof or (ii) rated (or issued by an issuer
rated) in one of the three highest generic rating categories by the
relevant rating agencies.
The Trust must also meet the following requirements:
(a) The corpus of the Trust must consist solely of assets
of the type that have been included in other investment pools.
(b) Certificates in such other investment pools must have
been rated in one of the three highest rating categories of Standard
& Poor's, Moody's, Duff & Phelps Inc. or Fitch Investors Service,
Inc. for at least one year prior to the Benefit Plan's acquisition of
certificates.
(c) Certificates evidencing interests in such other
investment pools must have been purchased by investors other than
Benefit Plans for at least one year prior to any Benefit Plan's
acquisition of certificates.
The Exemption provides relief from certain self-dealing/conflict of
interest prohibited transactions that may occur when the Benefit Plan fiduciary
causes a Benefit 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:
S-21
<PAGE> 24
(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 Benefit 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 Benefit 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 Benefit Plan are invested in certificates
representing an interest in one or more trusts containing assets sold
or serviced by the same entity.
The Exemption does not apply to Plans sponsored by the Seller, the Underwriter,
the Trustee, the Servicer, the Insurer, any obligor with respect to Contracts
included in the Trust constituting more than 5% of the aggregate unamortized
principal balance of the assets in the Trust, or any affiliate of such parties
(the "RESTRICTED GROUP").
The Seller believes that the Exemption will apply to the acquisition,
holding and resale of the Certificates by a Benefit Plan and that all conditions
of the Exemption other than those within the control of investors will be met.
However, there can be no assurance that the DOL or the Internal Revenue Service
will not take a contrary position, nor that such position will be sustained. One
or more alternative exemptions may be available with respect to certain
prohibited transactions to which the Exemption is not applicable, depending in
part upon the type of Benefit Plan's fiduciary making the decision to acquire
the Certificates and the circumstances under which such decision is made,
including, but not limited to, (a) Prohibited Transactions Class Exemption
("PTCE") 91-38, regarding investments by bank collective investment funds or (b)
PTCE 90-1, regarding investments by insurance company pooled separate accounts.
Before purchasing the Certificates, a Benefit Plan's fiduciary should consult
with its counsel to determine whether the conditions of the Exemption or any
other exemption would be met. A purchaser of the Certificates should be aware,
however, that even if the conditions specified in one or more exemptions are
met, the scope of the relief provided by the applicable exemption or exemptions
might not cover all acts that might be construed as prohibited transactions.
As described above, the acquisition of a Certificate by a Benefit
Plan could result in various unfavorable consequences for the Benefit Plan or
its fiduciaries under the regulations unless one of the exceptions in the
regulations or an exemption is available. See "ERISA Considerations" in the
Prospectus.
Prospective Benefit Plan investors should consult with their legal
advisors concerning the impact of ERISA and the Code, the applicability of the
Exemption or any other exemptions, and the potential consequences of any
purchase in their specific circumstances, prior to making an investment in a
Certificate. Any Benefit Plan which acquires a beneficial ownership interest in
Certificates will be deemed, by virtue of the acceptance and acquisition of such
ownership interest, to have represented to the Seller and the Trustee that such
Benefit Plan is an "ACCREDITED INVESTOR" for purposes of Rule 501(a)(1) of
Regulation D under the Securities Act.
A governmental plan as defined in Section 3(32) of ERISA is not
subject to ERISA or Code Section 4975. However, such a governmental plan may be
subject to federal, state or local law which is to a material extent similar to
the provisions of ERISA or Code Section 4975. A fiduciary of a governmental plan
should make its own determination as to the need for and availability of any
exemptive relief under such laws.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement dated _______________ between the Seller and the Underwriters named
below (the "UNDERWRITERS"), the Seller has agreed to sell to each of
S-22
<PAGE> 25
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>
$
$
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" in the Prospectus will be passed upon for the Seller by
Andrews & Kurth L.L.P., Dallas, Texas. Certain legal matters with respect to the
Certificates will be passed upon for the Underwriters by
___________________________. Certain legal matters relating to the Policy will
be passed upon for the Insurer by _________________________.
EXPERTS
The consolidated financial statements of _____________________ and
subsidiaries as of December 31, 199__ and 199__ and for each of the years in the
three-year period ended December 31, 199__ are included herein beginning on page
F-1 and have been audited by ________________________________, 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.
S-23
<PAGE> 26
INDEX OF TERMS
<TABLE>
<S> <C>
"accredited investor".......................................................................S-21, S-23
"Aggregate Scheduled Balance".....................................................................S-14
"Aggregate Scheduled Balance Decline".............................................................S-14
"Agreement"........................................................................................S-1
"Benefit Plan"....................................................................................S-20
"Cede"............................................................................................S-13
"Certificate Owner"...............................................................................S-13
"Certificates".....................................................................................S-1
"Closing Date......................................................................................S-1
"Code"............................................................................................S-20
"Collection Period"...............................................................................S-14
"Contracts"........................................................................................S-1
"Cut-Off Date".....................................................................................S-2
"Cut-Off Date Scheduled Balance"..................................................................S-14
"Defaulted Contract"..............................................................................S-15
"Distribution Date"................................................................................S-3
"DTC".............................................................................................S-13
"Eligibility Requirements".........................................................................S-9
"ERISA"...........................................................................................S-20
"Exemption".......................................................................................S-20
"Final Cut-Off Date"...............................................................................S-2
"Final Distribution Date"..........................................................................S-3
"Initial Contracts"................................................................................S-2
"Initial Cut-Off Date".............................................................................S-2
"Insurance Agreement"..............................................................................S-3
"Insurer"..........................................................................................S-3
"Interest Distribution"......................................................................S-3, S-14
"Liquidated Contract".............................................................................S-15
"Monthly P&I".....................................................................................S-14
"Motor Vehicle Contracts"..........................................................................S-7
"Onyx".............................................................................................S-1
"Policy"...........................................................................................S-3
"Pool Balance"....................................................................................S-14
"Principal Distribution".....................................................................S-3, S-14
"PTCE"............................................................................................S-22
"Record Date".....................................................................................S-14
"Restricted Group"................................................................................S-22
"Scheduled Balance"...............................................................................S-14
"Security Insurance Policy"........................................................................S-3
"Seller"...........................................................................................S-1
"Selling Subsidiary"...............................................................................S-9
"Servicer".........................................................................................S-1
"Servicing Fee"....................................................................................S-4
"Simple Interest Contracts"........................................................................S-9
"Subsequent Contracts".............................................................................S-2
"Trust"........................................................................................ii, S-7
"Trust Property"...................................................................................S-7
"Trustee".....................................................................................S-1, S-7
"Underwriters"....................................................................................S-23
</TABLE>
S-24
<PAGE> 27
================================================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE SELLER OR THE UNDERWRITER. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF A TIME SUBSEQUENT TO THE DATE OF
SUCH INFORMATION. NEITHER THIS PROSPECTUS SUPPLEMENT NOR THE PROSPECTUS
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT PAGE
<S> <C>
Available Information ................................................. ii
Reports to Certificateholders ......................................... iii
Summary of Terms ...................................................... S-1
Risk Factors .......................................................... S-9
The Trust ............................................................. S-11
The Onyx Portfolio of Motor Vehicle Contracts ......................... S-11
The Contracts ......................................................... S-13
Maturity and Prepayment Considerations ................................ S-16
Yield Considerations .................................................. S-16
Use of Proceeds ....................................................... S-16
The Certificates and the Agreement .................................... S-16
Description of the Insurer ............................................ S-23
Erisa Considerations .................................................. S-24
Underwriting .......................................................... S-27
Legal Matters ......................................................... S-27
Index of Terms ........................................................ S-28
</TABLE>
<TABLE>
<CAPTION>
PROSPECTUS PAGE
<S> <C>
Available Information .................................................... iii
Incorporation of Certain Documents by Reference .......................... iii
Summary of Terms ......................................................... 2
Risk Factors ............................................................. 6
The Trusts ............................................................... 8
The Trustee .............................................................. 9
The Onyx Portfolio of Motor Vehicle Contracts ............................ 9
The Contracts ............................................................ 13
Prefunding Arrangements .................................................. 14
Maturity and Prepayment Assumptions ...................................... 14
Pool Factor and Pool Information ......................................... 15
Use of Proceeds .......................................................... 15
The Seller ............................................................... 15
The Servicer ............................................................. 16
Description of Securities ................................................ 17
Description of the Transfer and Servicing Agreements ..................... 21
The Indenture ............................................................ 30
Certain Legal Aspects of the Contracts ................................... 33
Certain Federal Income Tax Consequences .................................. 37
Trusts for Which a Partnership Election is Made .......................... 38
Trusts Treated as Grantor Trusts ......................................... 44
Certain State Tax Consequences with Respect
to Trusts for Which a Partnership Election is Made .................. 48
Erisa Considerations ..................................................... 49
Plan of Distribution ..................................................... 50
Legal Opinions ........................................................... 50
Index of Terms ........................................................... 51
</TABLE>
UNTIL ______________ (90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT) ALL
DEALERS EFFECTING TRANSACTIONS IN THE CERTIFICATES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
$__________
ONYX ACCEPTANCE
GRANTOR TRUST 199_-_
____% AUTO LOAN
PASS-THROUGH CERTIFICATES,
SERIES 199_-_
[ONYX LOGO]
ONYX ACCEPTANCE FINANCIAL CORPORATION,
Seller
ONYX ACCEPTANCE CORPORATION,
Servicer
_________________________________________
P R O S P E C T U S S U P P L E M E N T
_________________________________________
[UNDERWRITERS]
[DATE]
================================================================================
