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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 12, 1999
REGISTRATION NO. 333-71045
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SECURITIES AND EXCHANGE COMMISSION
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AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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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.)
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<TABLE>
<S> <C>
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 telephone number, (Name, address, including zip code, and
including area code, of Originator's principal telephone number, including
executive offices) area code, of agent for service with respect to
the Registrant)
</TABLE>
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COPIES TO:
DAVID A. ALLEN, ESQ.
ANDREWS & KURTH L.L.P.
1717 MAIN STREET, SUITE 3700
DALLAS, TEXAS 75201
(214) 659-4433
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If 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. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed Maximum Proposed Amount of
Title of Securities to be Amount Offering Price Maximum Aggregate Registration
Registered to Be Registered(3) Per Unit(1) Offering Price (1) Fee (2) (3)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Auto Loan Backed Notes and
Auto Loan Backed Certificates $1,500,000,000 100% $1,500,000,000 $344,375.17
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee on the
basis of the proposed maximum offering price.
(2) $295.00 of which was previously paid to the Commission on January 22, 1999
in connection with the filing of the Registration Statement.
(3) Pursuant to Rule 429 under the Securities Act of 1933, $261,240,400 of Auto
Loan Backed Notes and Auto Loan Backed Certificates are being carried
forward from the Registrant's Registration Statement No. 333-51239.
Accordingly, the registration fee of $77,065.92 associated with such
securities was previously paid upon the filing of said Registration
Statement.
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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.
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT, THE PROSPECTUS WHICH IS A
PART OF THIS REGISTRATION STATEMENT IS A COMBINED PROSPECTUS THAT ALSO RELATES
TO $261,240,400 OF AUTO LOAN BACKED NOTES AND AUTO LOAN BACKED CERTIFICATES
REGISTERED UNDER THE COMPANY'S REGISTRATION STATEMENT NO. 333-51239 AND
REMAINING UNISSUED AS OF THE DATE HEREOF.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED FEBRUARY 12, 1999
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
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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.
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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.
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.
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If a series includes two or more classes
of Notes, as specified in the related
prospectus supplement, each class may
differ as to:
- 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 differ as to:
- 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
- dependence of distributions upon
the occurrence of specified events
or upon collections from certain
designated Contracts.
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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"), each of which is
secured by a new or used
automobile, light-duty truck or
van;
- 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".
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
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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. See "Prefunding
Arrangements". We will 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 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;
- 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.
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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 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
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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".
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RISK FACTORS
CERTAIN LEGAL ASPECTS -- THE CONTRACTS; SECURITY INTERESTS IN FINANCED VEHICLES
In connection with each transfer of Contracts to a Trust (and, if
applicable, the pledge of such Contracts to an indenture trustee), the Seller
will take or cause to be taken certain steps to perfect the Trust's (and, if
applicable, the indenture trustee's) interest in the Contracts. However, unless
otherwise provided in the related prospectus supplement, after the Contracts are
transferred to a Trust (and, if applicable, pledged to an indenture trustee),
Onyx will hold the Contracts as custodian on behalf of such Trust (or indenture
trustee). In addition, the Contracts will not be stamped or marked to indicate
the Trust's (and, if applicable, the indenture trustee's) interest in the
Contracts. As a result, there is a risk that, 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).
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. To avoid certain administrative burdens and expenses, the related
Trust (and, if applicable, the related indenture trustee) will not be identified
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 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 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".
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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, 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 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.
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 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 or the Servicer fails to comply
with such consumer protection laws, the Contracts may not be enforceable. The
Seller will make representations and warranties to the Trust stating that (i)
the related Contracts are valid and enforceable and (ii) the related Contracts
complied at the time they were made with applicable law. Accordingly, the Seller
will be obligated to repurchase each Contract that does not comply with the
applicable requirements of any consumer
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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,
(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),
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(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 AND THE INDENTURE 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.
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, 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 5,400 Dealers, of which
approximately 90% are franchised new car dealerships and approximately 10% are
independent used car
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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. 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.
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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 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
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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 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.
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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 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
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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").
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 and/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
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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 (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 can make no prediction as to the actual prepayment rates that will
be experienced on the Contracts included in the Trust Property of any Trust in
either stable or changing interest rate environments. Securityholders of each
series will bear all reinvestment risk resulting from the rate of prepayment of
the Contracts included in the Trust Property of the related Trust.
POOL FACTOR AND POOL INFORMATION
The "Pool Factor" will be a six-digit decimal which the Servicer will
compute each month indicating the Pool Balance at the end of the month as a
fraction of the aggregate principal balance of the Contracts as of the Cut-Off
Date (the "ORIGINAL POOL BALANCE"). The Pool Factor will be 1.000000 as of the
Closing Date; thereafter, the Pool Factor will decline to reflect reductions in
the aggregate principal balance of the related Contracts (the "POOL
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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 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
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servicing agreement or pooling and servicing agreement, as applicable. Onyx,
each Selling Subsidiary and the Seller intend that each transfer of Contracts by
Onyx or such Selling Subsidiary to the Seller under the applicable Purchase
Agreement or otherwise will constitute a "true sale" of the Contracts to the
Seller. If a transfer of Contracts constitutes such a "true sale," such
Contracts and the proceeds thereof would not be part of the bankruptcy estate of
Onyx or such Selling Subsidiary under Section 541 of the United States
Bankruptcy Code (the "BANKRUPTCY CODE") should Onyx or such Selling Subsidiary
become the subject of a bankruptcy case subsequent to the transfer of such
Contracts to the Seller.
The Seller has received the advice of counsel to the effect that,
subject to certain facts, assumptions and qualifications, in the event Onyx were
to become the subject of a voluntary or involuntary case under the Bankruptcy
Code subsequent to the transfer of Contracts to the Seller, the transfer of such
Contracts by Onyx to the Seller would be characterized as a "true sale" of the
Contracts from Onyx to the Seller and the Contracts and the proceeds thereof
would not form part of Onyx's bankruptcy estate pursuant to Section 541 of the
Bankruptcy Code.
THE SERVICER
The Contracts included in the Trust Property of each Trust initially
will be serviced by Onyx. Onyx was incorporated in California in 1993 and
reincorporated in Delaware in 1996 in connection with its initial public
offering of Common Stock, which was successfully completed in March 1996. Onyx
is engaged principally in the business of providing indirect automobile
financing to new car dealerships and selected used car dealerships in California
and in other states across the country. Onyx is headed by a management team with
extensive experience in the origination and servicing of indirect and direct
automobile loans, and who, from 1985 to present, have actively participated in a
number of public securitizations of Motor Vehicle Contracts. The Common Stock of
Onyx is listed on the NASDAQ. Onyx's principal executive offices are located at
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 $2.2 billion from commencement of operations through December 31,
1998. As of December 31, 1998, Onyx had amassed a servicing portfolio of
approximately $1.346 billion. As of December 31, 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 December 31, 1998, Onyx had total assets of
approximately $275.4 million and stockholders' equity of $43.8 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.
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The Securities of each series will be issued in the denominations
specified in the related prospectus supplement. Unless otherwise specified in
the related prospectus supplement, the Securities of each series will be issued
in book-entry form. See "--Book-Entry Registration" and "--Definitive
Securities". All Securities offered pursuant to this prospectus and the related
prospectus supplement will be rated in one of the four highest rating categories
by one or more nationally recognized statistical rating agencies.
PRINCIPAL AND INTEREST ON THE SECURITIES
The timing and priority of payment, seniority, allocations of losses,
Interest Rate or Certificate Rate, as applicable, and amount of or method of
determining payments or distributions of principal and interest on each class of
Securities of a given series will be described in the related prospectus
supplement. The right of holders of any class of Securities to receive payments
or distributions of principal and interest may be senior or subordinate to the
rights of holders of any other class or classes of Securities of such series, as
described in the related prospectus supplement. Unless otherwise provided in the
related prospectus supplement, payments of interest on the Securities of such
series will be made prior to payments of principal thereon. To the extent
provided in the related prospectus supplement, a series may include one or more
classes of Strip Notes or Strip Certificates entitled to (i) principal payments
or distributions with disproportionate, nominal or no interest payments or
distributions or (ii) interest payments or distributions with disproportionate,
nominal or no principal payments or distributions. Each class of Securities may
have a different Interest Rate or Certificate Rate, as applicable, which may be
a fixed, variable or adjustable Interest Rate or Certificate Rate, as applicable
(and which may be zero for certain classes of Strip Notes or Strip
Certificates), or any combination of the foregoing. The related prospectus
supplement will specify the Interest Rate or Certificate Rate, as applicable,
for each class of Securities of a given series or the method for determining
such Interest Rate or Certificate Rate, as applicable. One or more classes of
Securities of a series may be redeemable in whole or in part under the
circumstances specified in the related prospectus supplement, including as a
result of the Servicer's exercising its option to purchase the remaining related
Contracts.
In the case of a series of Securities which includes two or more classes
of Securities, the sequential order and priority of payments or distributions in
respect of principal and interest, and any schedule or formula or other
provisions applicable to the determination thereof, of each such class will be
set forth in the related prospectus supplement. Payments or distributions in
respect of principal and interest of any class of Securities will be made on a
pro rata basis among all the Securityholders of such class.
BOOK-ENTRY REGISTRATION
Unless otherwise specified in the related prospectus supplement, each
class of Securities offered hereby will be represented by one or more
certificates registered in the name of Cede, as nominee of DTC. Unless otherwise
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 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").
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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 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
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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.
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;
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(iii) the aggregate distribution amount for such Distribution Date;
(iv) the premiums payable to the related Security Insurer, if any, the
balance of any fund or account with respect to any credit or
liquidity enhancement on such date, after giving effect to
changes thereto on such date and the amount to be deposited in
the spread account, if any;
(v) the aggregate Servicing Fee paid to the Servicer with respect to
the related Contracts for the related Collection Period;
(vi) the number of, and aggregate amount of monthly principal and
interest payments due on, the related Contracts which are
delinquent as of the end of the related collection period (as
defined in the related prospectus supplement, the "COLLECTION
PERIOD") presented on a 30-day, 60-day and 90-day basis;
(vii) the amount available in the Collection Account for payment of the
aggregate amount payable or distributable on such Securities, the
amount of the Servicing Fee, the amount of any principal or
interest shortfall with respect to each class of Securities and
the amount required from any applicable Security Insurer pursuant
to the related Security Insurance Policy to pay any shortfall;
(viii) the aggregate amount of proceeds received by the Servicer, net of
recoverable out-of-pocket expenses, received for a Contract which
is a "DEFAULTED CONTRACT" (as such term is defined in the related
prospectus supplement).
(ix) the net credit losses for the Collection Period;
(x) the number and net outstanding balance of Contracts for which the
financed vehicle has been repossessed; 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
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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.
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
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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);
(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 Onyx, the applicable trustee or
indenture trustee, or the custodian of the Contracts specified in
the related prospectus supplement.
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
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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.
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 in Eligible Investments as provided in the related
sale and servicing agreement, pooling and servicing agreement or indenture.
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
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distributions in respect of one or more classes of Securities of the applicable
series may be subordinate to payments or distributions in respect of one or more
other classes of Securities of such series.
CREDIT AND CASH FLOW ENHANCEMENT
The amounts and types of credit and cash flow enhancement arrangements
and the provider thereof, if applicable, with respect to each class of
Securities of a given series, if any, will be set forth in the related
prospectus supplement. If and to the extent provided in the related prospectus
supplement, credit and cash flow enhancement may be in the form of subordination
of one or more classes of Securities, one or more Security Insurance Policies,
reserve funds, over-collateralization, letters of credit, credit or liquidity
facilities, guaranteed investment contracts, swaps or other interest rate
protection agreements, repurchase obligations, yield supplement agreements,
other agreements with respect to third party payments or other support, cash
deposits or such other arrangements as may be described in the related
prospectus supplement or any combination of two or more of the foregoing. If
specified in the applicable prospectus supplement, credit or cash flow
enhancement for a class of Securities may cover one or more other classes of
Securities of the same series, and credit or cash flow enhancement for a series
of Securities may cover one or more other series of Securities.
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
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will be required to purchase or repurchase, respectively, Contracts under
certain circumstances if certain representations and warranties made by Onyx or
the Seller respectively are incorrect in any manner that materially and
adversely affects the interest of the Securityholders. Additionally, the
Servicer will be required to purchase Contracts as to which the Servicer has
breached certain servicing covenants.
SERVICING FEE
The Servicer will be entitled to compensation for the performance of its
obligations under each sale and servicing agreement and pooling and servicing
agreement. Unless otherwise specified in the related prospectus supplement, the
Servicer shall be entitled to receive on each Distribution Date an amount (the
"SERVICING FEE") equal to the product of a specified percentage per annum (as
set forth in the related prospectus supplement, the "SERVICING FEE RATE")
multiplied by the Pool Balance as of the end of the Collection Period preceding
the related Collection Period. Unless otherwise specified in the related
prospectus supplement, the Servicer or its designee shall be entitled to retain,
as additional compensation, all late payment charges, extension fees and similar
items paid in respect of the Contracts. The Servicer or its designee will also
be entitled to receive such other servicing compensation as may be specified in
the related prospectus supplement. 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.
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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 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
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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
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
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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 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
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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 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.
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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 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
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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 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.
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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, Onyx will have custody of the Contracts included in the Trust
Property of a Trust following the sale of the Contracts to the related Trust
and, if applicable, the pledge thereof to the related indenture trustee, and
will hold the Contracts as custodian for the benefit of such Trust or, if
applicable, such indenture trustee. While the Contracts will not be physically
marked to indicate the ownership interest thereof by the Trust (or, if
applicable, the pledge of such Contracts to the related indenture trustee),
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
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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 an automobile, light duty
truck or van 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. 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
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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 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 repossessed financed 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,
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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 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.
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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 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.
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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 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
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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.
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
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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 trustee or other person who is otherwise required to withhold
U.S. tax with respect to the Notes with an appropriate statement (on Form W-8 or
a similar form), signed under penalties of perjury, certifying that the
beneficial owner of the Note is a foreign person and providing the foreign
person's name and address. If a Note is held through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide the relevant signed statement to the withholding agent;
in that case, however, the signed statement must be accompanied by a Form W-8 or
substitute form provided by the foreign person that owns the Note. If such
interest is not portfolio interest, then it will be subject to United States
federal income and withholding tax at a rate of 30 percent, unless reduced or
eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
Final regulations dealing with withholding tax on income paid to foreign
persons and related matters (the "NEW WITHHOLDING REGULATIONS") were issued by
the Treasury Department on October 6, 1997. The New Withholding Regulations will
generally be effective for payments made after December 31, 1999, subject to
certain transition rules. Prospective investors who are foreign persons are
strongly urged to consult their own tax advisors with respect to the New
Withholding Regulations.
Backup Withholding. Each holder of a Note (other than an exempt holder
such as a corporation, tax-exempt organization, qualified pension and
profit-sharing trust, individual retirement account or nonresident alien who
provides certification as to status as a nonresident) will be required to
provide, under penalties of perjury, a certificate containing the holder's name,
address, correct federal taxpayer identification number and a statement that the
holder is not subject to backup withholding. Should a nonexempt Noteholder fail
to provide the required certification, the Trust will be required to withhold 31
percent of the amount otherwise payable to the holder, and remit the withheld
amount to the IRS as a credit against the holder's federal income tax liability.
Possible Alternative Treatments of the Notes. If, contrary to the
opinion of Tax Counsel, the IRS successfully asserted that one or more of the
Notes did not represent debt for federal income tax purposes, the Notes might be
treated as equity interests in the Trust. If so treated, the Trust might be
taxable as a corporation with the adverse consequences described above (and the
taxable corporation would not be able to reduce its taxable income by deductions
for interest expense on Notes recharacterized as equity). Alternatively, and
more likely in the view of Tax Counsel, the Trust might be treated as a publicly
traded partnership that would not be taxable as a corporation because it would
meet certain qualifying income tests. Nonetheless, treatment of the Notes as
equity interests in such a publicly traded partnership could have adverse tax
consequences to certain holders. For example, income to certain tax-exempt
entities (including 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.
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A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Seller or the Trust. Any such
characterization would not result in materially adverse tax consequences to
Certificateholders as compared to the consequences from treatment of the
Certificates as equity in a partnership, described below. The following
discussion assumes that the Certificates represent equity interests in a
partnership.
Partnership Taxation. As a partnership, the Trust will not be subject to
federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. The Trust's income will consist
primarily of interest and finance charges earned on the Contracts (including
appropriate adjustments for market discount, OID and bond premium) and any gain
upon collection or disposition of Contracts. The Trust's deductions will consist
primarily of interest accruing with respect to the Notes, servicing and other
fees, and losses or deductions upon collection or disposition of Contracts.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the trust agreement and related documents). The trust agreement will
provide, in general, that the Certificateholders will be allocated taxable
income of the Trust for each month equal to the sum of (i) the interest that
accrues on the Certificates in accordance with their terms for such month,
including interest accruing at the Certificate Rate for such month and interest
on amounts previously due on the Certificates but not yet distributed; (ii) any
Trust income attributable to discount on the Contracts that corresponds to any
excess of the principal amount of the Certificates over their initial issue
price; (iii) prepayment premium payable to the Certificateholders for such
month; and (iv) any other amounts of income payable to the Certificateholders
for such month. Such allocation will be reduced by any amortization by the Trust
of premium on Contracts that corresponds to any excess of the issue price of
Certificates over their principal amount. All remaining taxable income of the
Trust will be allocated to the Seller. Based on the economic arrangement of the
parties, this approach for allocating Trust income should be permissible under
applicable Treasury regulations, although no assurance can be given that the IRS
would not require a greater amount of income to be allocated to
Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be allocated income equal to the entire Certificate Rate
plus the other items described above even though the Trust might not have
sufficient cash to make current cash distributions of such amount. Thus, cash
basis holders will in effect be required to report income from the Certificates
on the accrual basis and Certificateholders may become liable for taxes on Trust
income even if they have not received cash from the Trust to pay such taxes. In
addition, because tax allocations and tax reporting will be done on a uniform
basis for all Certificateholders but Certificateholders may be purchasing
Certificates at different times and at different prices, Certificateholders may
be required to report on their tax returns taxable income that is greater or
less than the amount reported to them by the Trust.
All of the taxable income allocated to a Certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will constitute "unrelated business
taxable income" generally taxable to such a holder under the Code.
An individual taxpayer's share of expenses of the Trust (including fees
to the Servicer but not interest expense) would be miscellaneous itemized
deductions and thus allowable as a deduction only to the extent that in the
aggregate 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.
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Discount and Premium. It is believed that the Contracts were not issued
with OID, and, therefore, the Trust should not have OID income. However, the
purchase price paid by the Trust for the Contracts may be greater or less than
the remaining principal balance of the Contracts at the time of purchase. If so,
the Contracts will have been acquired at a premium or discount, as the case may
be. (As indicated above, the Trust will make this calculation on an aggregate
basis, but might be required to recompute it on a Contract-by-Contract basis.)
If the Trust acquires the Contracts at a market discount or premium, the
Trust will elect to include any such discount in income currently as it accrues
over the life of the Contracts or to offset any such premium against interest
income on the Contracts. As indicated above, a portion of such market discount
income or premium deduction may be allocated to Certificateholders.
Section 708 Termination. Under Section 708 of the Code, the Trust will
be deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the Trust will be considered to
contribute its assets to a new partnership and, immediately thereafter, the
terminated partnership distributes interests in the new partnership to the
partners in liquidation of the terminated partnership. The Trust will not comply
with certain technical requirements that might apply when such a constructive
termination occurs. As a result, the Trust may be subject to certain tax
penalties and may incur additional expenses if it is required to comply with
those requirements. Furthermore, the Trust might not be able to comply due to
lack of data.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust income (includible in
income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
realized on a sale of a Certificate would include the holder's share of the
Notes and other liabilities of the Trust. A holder acquiring Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's share
of unrecognized accrued market discount on the Contracts would generally be
treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Trust does not expect to have any other assets that
would give rise to such special reporting requirements. Thus, to avoid those
special reporting requirements, the Trust will elect to include market discount
in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the close
of the last day of such month. As 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
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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 trustee is required to keep or have kept
complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust will be set forth in the related prospectus supplement. The trustee
will file a partnership information return (IRS Form 1065) with the IRS for each
taxable year of the Trust and will report each Certificateholder's allocable
share of items of Trust income and expense to holders and the IRS on Schedule
K-1. The Trust will provide the Schedule K-1 information to nominees that fail
to provide the Trust with the information statement described below and such
nominees will be required to forward such information to the beneficial owners
of the Certificates. Generally, holders must file tax returns that are
consistent with the information return filed by the Trust or be subject to
penalties unless the holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and taxpayer identification number of the nominee and (ii) as to each beneficial
owner (x) the name, address and identification number of such person, (y)
whether such person is a United States person, a tax-exempt entity or a foreign
government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust information as
to themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Securities 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 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
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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.
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
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deduct their share of expenses only to the extent such expenses plus all other
Section 212 expenses exceed two percent of its adjusted gross income. A Grantor
Trust Certificateholder using the cash method of accounting must take into
account its pro rata share of income and deductions as and when collected by or
paid to the Servicer. A Grantor Trust Certificateholder using an accrual method
of accounting must take into account its pro rata share of income and deductions
as they become due or are paid to the Servicer, whichever is earlier. If the
servicing fees paid to the Servicer are deemed to exceed reasonable servicing
compensation, the amount of such excess could be considered as an ownership
interest retained by the Servicer (or any person to whom the Servicer assigned
for value all or a portion of the servicing fees) in a portion of the interest
payments on the Contracts. The Contracts would then be subject to the "coupon
stripping" rules of the Code discussed below.
Premium. The price paid for a Grantor Trust Certificate by a holder will
be allocated to such holder's undivided interest in each Contract based on each
Contract's relative fair market value, so that such holder's undivided interest
in each Contract will have its own tax basis. A Grantor Trust Certificateholder
that acquires an interest in Contracts at a premium may elect to amortize such
premium under a constant interest method. Amortizable bond premium will be
treated as an offset to interest income on such Grantor Trust Certificate. The
basis for such Grantor Trust Certificate will be reduced to the extent that
amortizable premium is applied to offset interest payments. It is not clear
whether a reasonable prepayment assumption should be used in computing
amortization of premium allowable under Section 171. A Grantor Trust
Certificateholder that makes this election for a Grantor Trust Certificate that
is acquired at a premium will be deemed to have made an election to amortize
bond premium with respect to all debt instruments having amortizable bond
premium that such Grantor Trust Certificateholder acquires during the year of
the election or thereafter.
If a premium is not subject to amortization using a reasonable
prepayment assumption, the holder of a Grantor Trust Certificate acquired at a
premium should recognize a loss if a Contract prepays in full, equal to the
difference between the portion of the prepaid principal amount of such Contract
that is allocable to the Grantor Trust Certificate and the portion of the
adjusted basis of the Grantor Trust Certificate that is allocable to such
Contract. If a reasonable prepayment assumption is used to amortize such
premium, it appears that such a loss would be available, if at all, only if
prepayments have occurred at a rate faster than the reasonable assumed
prepayment rate. It is not clear whether any other adjustments would be required
to reflect differences between an assumed prepayment rate and the actual rate of
prepayments.
STRIPPED BONDS AND STRIPPED COUPONS
Although the tax treatment of stripped bonds is not entirely clear,
based on guidance issued by the IRS, each purchaser of a Grantor Trust
Certificate will be treated as the purchaser of a stripped bond which generally
should be treated as a single debt instrument issued on the day it is purchased
for purposes of calculating any original issue discount. Generally, under
applicable Treasury regulations (the "SECTION 1286 TREASURY REGULATIONS"), if
the discount on a stripped bond is larger than a de minimis amount (as
calculated for purposes of the OID rules of the Code) such stripped bond will be
considered to have been issued with OID. See "Original Issue Discount". Based on
the preamble to the Section 1286 Treasury Regulations, Tax Counsel is of the
opinion that, although the matter is not entirely clear, the interest income on
the Certificates at the sum of the Certificate Rate and the portion of the
Servicing Fee Rate that does not constitute excess servicing will be treated as
"qualified stated interest" within the meaning of the Section 1286 Treasury
Regulations and such income will be so treated in the trustee's tax information
reporting.
Original Issue Discount. The IRS has stated in published rulings that,
in circumstances similar to those described herein, the special rules of the
Code relating to "original issue discount" (currently Sections 1271 through 1273
and 1275) will be applicable to a Grantor Trust Certificateholder's interest in
those Contracts meeting the 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
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<PAGE> 50
full monthly accrual period, by adding (i) the present value of all remaining
payments to be received on the Contract under the prepayment assumption used in
respect of the Contracts and (ii) any payments received during such accrual
period, and subtracting from that total the "adjusted issue price" of the
Contract at the beginning of such accrual period. No representation is made that
the Contracts will prepay at any prepayment assumption. The "adjusted issue
price" of a Contract at the beginning of the first accrual period is its issue
price (as determined for purposes of the OID rules of the Code) and the
"adjusted issue price" of a Contract at the beginning of a subsequent accrual
period is the "adjusted issue price" at the beginning of the immediately
preceding accrual period plus the amount of OID allocable to that accrual period
and reduced by the amount of any payment (other than "qualified stated
interest") made at the end of or during that accrual period. The OID accruing
during such accrual period will then be divided by the number of days in the
period to determine the daily portion of OID for each day in the period. With
respect to an initial accrual period shorter than a full monthly accrual period,
the daily portions of OID must be determined according to a reasonable method,
provided that such method is consistent with the method used to determine the
yield to maturity of the Contracts.
With respect to the Contracts, the method of calculating OID as
described above will cause the accrual of OID to either increase or decrease
(but never below zero) in any given accrual period to reflect the fact that
prepayments are occurring at a faster or slower rate than the prepayment
assumption used in respect of the Contracts. Subsequent purchasers that purchase
Contracts at more than a de minimis discount should consult their tax advisors
with respect to the proper method to accrue such OID.
The Taxpayer Relief Act of 1997 requires the use of a prepayment
assumption to accrue OID with respect to "any pool of debt instruments the yield
on which may be affected by reason of prepayments (or to the extent provided in
regulation, by reason of other events)." Unless otherwise provided in the
related prospectus supplement, the trustee will deem the prepayment assumption
to be that the Contracts will not prepay. If the IRS were to require that OID be
computed using a different prepayment assumption, the character and timing of a
Certificateholder's income could be adversely affected.
Market Discount. A Grantor Trust Certificateholder that acquires an
undivided interest in Contracts may be subject to the market discount rules of
Sections 1276 through 1278 to the extent an undivided interest in a Contract is
considered to have been purchased at a "market discount." Generally, the amount
of market discount is equal to the excess of the portion of the principal amount
of such Contract allocable to such holder's undivided interest over such
holder's tax basis in such interest. Market discount with respect to a Grantor
Trust Certificate will be considered to be zero if the amount allocable to the
Grantor Trust Certificate is less than 0.25% of the Grantor Trust Certificate's
stated redemption price at maturity multiplied by the weighted average maturity
remaining after the date of purchase. Treasury regulations implementing the
market discount rules have not yet been issued; therefore, investors should
consult their own tax advisors regarding the application of these rules and the
advisability of making any of the elections allowed under Code Sections 1276
through 1278.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount bond
shall be treated as ordinary income to the extent that it does not exceed the
accrued market discount at the time of such payment. The amount of accrued
market discount for purposes of determining the tax treatment of subsequent
principal payments or dispositions of the market discount bond is to be reduced
by the amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
While the Treasury Department has not yet issued regulations, rules described in
the relevant legislative history will apply. Under those rules, the holder of a
market discount bond may elect to accrue market discount either on the basis of
a constant interest rate or according to one of the following methods. If a
Grantor Trust Certificate is issued with OID, the amount 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
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<PAGE> 51
paid at the beginning of the accrual period. For purposes of calculating market
discount under any of the above methods in the case of instruments (such as the
Grantor Trust Certificates) that provide for payments that may be accelerated by
reason of prepayments of other obligations securing such instruments, the same
prepayment assumption applicable to calculating the accrual of OID will apply.
Because the regulations described above have not been issued, it is impossible
to predict what effect those regulations might have on the tax treatment of a
Grantor Trust Certificate purchased at a discount or premium in the secondary
market.
A holder who acquired a Grantor Trust Certificate at a market discount
also may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or continued to purchase
or carry such Grantor Trust Certificate purchased with market discount. For
these purposes, the de minimis rule referred above applies. Any such deferred
interest expense would not exceed the market discount that accrues during such
taxable year and is, in general, allowed as a deduction not later than the year
in which such market discount is includible in income. If such holder elects to
include market discount in income currently as it accrues on all market discount
instruments acquired by such holder in that taxable year or thereafter, the
interest deferral rule described above will not apply.
Premium. To the extent a Grantor Trust Certificateholder is considered
to have purchased an undivided interest in a Contract for an amount that is
greater than its stated redemption price at maturity of such Contract, such
Grantor Trust Certificateholder will be considered to have purchased the
Contract with "amortizable bond premium" equal in amount to such excess. A
Grantor Trust Certificateholder (who does not hold the Certificate for sale to
customers or in inventory) may elect under Section 171 of the Code to amortize
such premium. Under the Code, premium is allocated among the interest payments
on the Contracts to which it relates and is considered as an offset against (and
thus a reduction of) such interest payments. With certain exceptions, such an
election would apply to all debt instruments held or subsequently acquired by
the electing holder. Absent such an election, the premium will be deductible as
an ordinary loss only upon disposition of the Certificate or pro rata as
principal is paid on the Contracts.
Election to Treat All Interest as OID. The OID regulations permit a
Grantor Trust Certificateholder to elect to accrue all interest, discount
(including de minimis market or original issue discount) and premium in income
as interest, based on a constant yield method. If such an election were to be
made with respect to a Grantor Trust Certificate with market discount, the
Certificateholder would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that such Grantor Trust Certificateholder acquires during the
year of the election or thereafter. Similarly, a Grantor Trust Certificateholder
that makes this election for a Grantor Trust Certificate that is acquired at a
premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
Grantor Trust Certificateholder owns or acquires. See "--Premium" herein. The
election to accrue interest, discount and premium on a constant yield method
with respect to a Grantor Trust Certificate is irrevocable.
Sale or Exchange of a Grantor Trust Certificate. Sale or exchange of a
Grantor Trust Certificate prior to its maturity will result in gain or loss
equal to the difference, if any, between the amount received and the owner's
adjusted basis in the Grantor Trust Certificate. Such adjusted basis generally
will equal the seller's purchase price for the Grantor Trust Certificate,
increased by the OID included in the seller's gross income with respect to the
Grantor Trust Certificate, and reduced by principal payments on the Grantor
Trust Certificate previously received by the seller. Such gain or loss will be
capital gain or loss to an owner for which a Grantor Trust Certificate is a
"capital asset" within the meaning of Section 1221, and will be long-term or
short-term depending on whether the Grantor Trust Certificate has been owned for
the long-term capital gain holding period (currently more than one year).
Grantor Trust Certificates will be "evidences of indebtedness" within
the meaning of Section 582(c)(1), so that gain or loss recognized from the sale
of a Grantor Trust Certificate by a bank or a thrift institution to which such
section applies will be treated as ordinary income or loss.
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
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<PAGE> 52
holding on behalf of an owner that is not a U.S. Person and accrued OID
recognized by the owner on the sale or exchange of such a Grantor Trust
Certificate will not be subject to withholding to the extent that a Grantor
Trust Certificate evidences ownership in Contracts issued after July 18, 1984 by
natural persons if such Grantor Trust Certificateholder complies with certain
identification requirements (including delivery of a statement, signed by the
Grantor Trust Certificateholder under penalties of perjury, certifying that such
Grantor Trust Certificateholder is not a U.S. Person and providing the name and
address of such Grantor Trust Certificateholder). Additional restrictions apply
to Contracts where the obligor is not a natural person in order to qualify for
the exemption from withholding.
As used herein, a "U.S. PERSON" means a citizen or resident of the
United States, a corporation, a partnership, or other entity created or
organized in or under the laws of the United States or any political subdivision
thereof (except, in the case of a partnership as otherwise provided by
regulations), an estate, the income of which is includible in gross income for
United States federal income tax purposes regardless of its source or a trust
whose administration is subject to the primary supervision of a United States
court and which has one or more United States persons who have authority to
control all substantial decisions of the trust.
Information Reporting and Backup Withholding. The Servicer will furnish
or make available, within a reasonable time after the end of each calendar year,
to each person who was a Grantor Trust Certificateholder at any time during such
year, such information as may be deemed necessary or desirable to assist Grantor
Trust Certificateholders in preparing their federal income tax returns, or to
enable holders to make such information available to beneficial owners or
financial intermediaries that hold Grantor Trust Certificates as nominees on
behalf of beneficial owners. If a holder, beneficial owner, financial
intermediary or other recipient of a payment on behalf of a beneficial owner
fails to supply a certified taxpayer identification number or if the Secretary
of the Treasury determines that such person has not reported all interest and
dividend income required to be shown on its federal income tax return, 31%
backup withholding may be required with respect to any payments. Any amounts
deducted and withheld from a distribution to a recipient would be allowed as a
credit against such recipient's federal income tax liability.
THE FEDERAL TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A NOTEHOLDER'S OR
CERTIFICATEHOLDER'S PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES AND CERTIFICATES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
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
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<PAGE> 53
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 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.
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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.
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).
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INDEX OF TERMS
<TABLE>
<S> <C>
"Actuarial Contracts" ............................................... 14
"Actuarial Method" .................................................. 14
"Administration Agreement" .......................................... 32
"Administrator" ..................................................... 32
"APR" ............................................................... 14
"Auto Finance Centers" .............................................. 11
"Bankruptcy Code" ................................................... 18
"Benefit Plan" ...................................................... 49
"Certificate Rate" .................................................. 2
"Certificateholders" ................................................ 9, 21
"Certificates" ...................................................... i
"Closing Date" ...................................................... 3
"Code" .............................................................. 39
"Collection Account" ................................................ 24
"Collection Period" ................................................. 22
"Contracts" ......................................................... 3
"Cut-Off Date Scheduled Balance" .................................... 15
"Cut-Off Date" ...................................................... 3
"Dealers" ........................................................... 10
"Defaulted Contract" ................................................ 22
"Definitive Securities" ............................................. 20
"Distribution Date Statement" ....................................... 26
"Distribution Date" ................................................. 1
"DTC" ............................................................... 9
"Due Date" .......................................................... 12
"Eligible Investments" .............................................. 24
"ERISA" ............................................................. 49
"foreign person" .................................................... 40
"FTC Rule" .......................................................... 37
"Grantor Trust Certificateholders" .................................. 45
"Grantor Trust Certificates" ........................................ 45
"Indenture Events of Default" ....................................... 33
"Indenture Trustee" ................................................. 1
"Indirect Participants" ............................................. 19
"Insolvency Laws" ................................................... 7
"Interest Rate" ..................................................... 1
"IRS" ............................................................... 39
"Issuer" ............................................................ ii, 1
"Liquidation Expenses" .............................................. 25
"Monthly P&I" ....................................................... 15
"Motor Vehicle Contracts" ........................................... 10
"Net Insurance Proceeds" ............................................ 25
"Net Liquidation Proceeds" .......................................... 25
"New Withholding Regulations" ....................................... 41
"Noteholders" ....................................................... 9, 21
"Notes" ............................................................. i
"OID regulations" ................................................... 40
"OID" ............................................................... 40
"Onyx" .............................................................. 1
"Original Pool Balance" ............................................. 16
"Participants" ...................................................... 19
"Payahead Account" .................................................. 24
"Payaheads" ......................................................... 24
"Plan Assets Regulation" ............................................ 49
"Pool Balance" ...................................................... 17
"Precomputed Contracts" ............................................. 14
"Prefunding Account" ................................................ 15
"Prefunding Arrangement" ............................................ 15
"Purchase Agreement" ................................................ 17
"Rating Agency" ..................................................... 5
"Recomputed Actuarial Method" ....................................... 15
"Recomputed Yield" .................................................. 15
"Related Documents" ................................................. 33
"Rule of 78's Contracts" ............................................ 14
"Rule of 78's Method" ............................................... 14
"Scheduled Balance" ................................................. 15
"Section 1286 Treasury Regulations" ................................. 46
"Securities" ........................................................ i
"Security Insurance Policy" ......................................... 4
"Security Insurer" .................................................. 4
"Security Owners" ................................................... 20
"Securityholders" ................................................... 8, 9
"Seller" ............................................................ 1
"Selling Subsidiary" ................................................ 4
"Servicer" .......................................................... 1
"Servicer Default" .................................................. 28
"Servicer Report Date" .............................................. 24
"Servicing Fee Rate" ................................................ 27
"Servicing Fee" ..................................................... 27
"Simple Interest Contracts" ......................................... 14
"Simple Interest Method" ............................................ 14
"Strip Certificates" ................................................ 3
"Strip Notes" ....................................................... 2
"Subsequent Contracts" .............................................. 15
"Transfer and Servicing Agreements" ................................. 22
"Trust Accounts" .................................................... 25
"Trust Property" .................................................... 9
"Trust" ............................................................. i, ii
"Trustee" ........................................................... 1
"U.S. Person" ....................................................... 49
"UCC" ............................................................... 34
"Underwriting Agreement" ............................................ 50
</TABLE>
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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.
<TABLE>
<S> <C>
Registration Fee .......................................... $ 344,375.17
Blue Sky Fees and Expenses ................................ 100,000
Printing Expenses ......................................... 180,000
Trustee Fees and Expenses ................................. 100,000
Legal Fees and Expenses ................................... 400,000
Accounting Fees and Expenses .............................. 140,000
Rating Agencies' Fees ..................................... 500,000
Miscellaneous ............................................. 95,000
-------------
Total ........................................... $1,859,375.17
=============
</TABLE>
* All amounts except registration fee are estimates.
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 (as defined by the policy) in his or her capacity as a director or officer.
The policy reimburses the Company for
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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]
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<PAGE> 58
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS
a. Exhibits:
1.1 Form of Underwriting Agreement(2)
4.1 Form of Trust Agreement between the Registrant, the
Servicer and the Owner Trustee(2)
4.2 Form of Indenture between the Trust and the Indenture
Trustee(2)
4.3 Form of Sale and Servicing Agreement among the Registrant,
the Servicer and the Owner Trustee(3)
4.4 Form of Pooling and Servicing Agreement among the
Registrant, the Servicer and the Trustee(2)
4.5 Form of Administration Agreement among the Trust, the
Administrator and the Indenture Trustee(2)
5.1 Opinion of Andrews & Kurth L.L.P. with respect to legality
of Notes(1)
5.2 Opinion of Andrews & Kurth L.L.P. with respect to legality
of Certificates(1)
8.1 Opinion of Andrews & Kurth L.L.P. with respect to tax
matters(1)
23.1 Consent of Andrews & Kurth L.L.P. (included as part of
Exhibits 5.1, 5.2 and 8.1)(1)
24.1 Power of Attorney of Directors and Officers of the
Registrant(1)
99.1 Form of Prospectus Supplement (Owner Trust)(1)
99.2 Form of Prospectus Supplement (Grantor Trust)(1)
- ----------
(1) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement No. 333-71045 on January 22, 1999 and incorporated
herein by reference.
(2) 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.
(3) 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.
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<PAGE> 59
(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.
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<PAGE> 60
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 Amendment
No. 1 to Registration Statement No. 71045 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Foothill Ranch, State of
California, on February 12, 1999.
Onyx Acceptance Financial Corporation
By: John W. Hall*
-------------------------------------
John W. Hall
Director, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement No. 71045 has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
John W. Hall* Chief Executive Officer and Director February 12, 1999
- ------------------------------------- (Principal Executive Officer)
John W. Hall
Don P. Duffy* Executive Vice President, Chief February 12, 1999
- ------------------------------------- Financial Officer and Director
Don P. Duffy (Principal Financial Officer and
Principal Accounting Officer)
/s/ Regan E. Kelly Executive Vice President February 12, 1999
- ------------------------------------- and Director
Regan E. Kelly
Kurt C. Bicknell* Director February 12, 1999
- -------------------------------------
Kurt C. Bicknell
Steve M. Bond* Director February 12, 1999
- -------------------------------------
Steve M. Bond
*By: /s/ Regan E. Kelly
---------------------------------
Regan E. Kelly
Attorney-in-fact
</TABLE>
II-5
