<PAGE> 1
As filed with the Securities and Exchange Commission on January 12, 2001
REGISTRATION NO. 333-51636
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SECURITIES AND EXCHANGE COMMISSION
-----------
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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27051 TOWNE CENTRE DRIVE, SUITE 200
FOOTHILL RANCH, CALIFORNIA 92610
(949) 465-3500
(Address, including zip code, and telephone number,
including area code, of Originator's principal executive offices)
-----------
DON P. DUFFY
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
27051 TOWNE CENTRE DRIVE, SUITE 200
FOOTHILL RANCH, CALIFORNIA 92610
(949) 465-3500
(Name, address, including zip code, and telephone number,
including area code, of agent for service with respect to
the Registrant)
-----------
COPIES TO:
JASON C. WILEY, ESQ.
ANDREWS & KURTH L.L.P.
1717 MAIN STREET, SUITE 3700
DALLAS, TEXAS 75201
(214) 659-4588
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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. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================================
Proposed Maximum Proposed Amount of
Title of Securities to be Offering Price Per Maximum Aggregate Registration
Registered Amount to Be Registered Unit(1) Offering Price(1) Fee(2)
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<S> <C> <C> <C> <C>
Auto Loan Backed Notes and
Auto Loan Backed Certificates $1,720,000,000 100% $1,720,000,000 $430,000
=======================================================================================================================
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee on the
basis of the proposed maximum offering price per unit.
(2) $264.00 of which was previously paid to the commission on December 11, 2000
in connection with the filing of the Registration Statement.
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
PART OF THIS REGISTRATION STATEMENT IS A COMBINED PROSPECTUS THAT ALSO RELATES
TO $280,000,000 OF AUTO LOAN BACKED NOTES AND AUTO LOAN BACKED CERTIFICATES
REGISTERED UNDER THE COMPANY'S REGISTRATION STATEMENT NO. 333-92245 AND
REMAINING UNISSUED AS OF THE DATE HEREOF.
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<PAGE> 2
INTRODUCTORY NOTE
This registration statement contains:
- a form of prospectus relating to the offering of one or
more series of auto loan backed notes and/or auto loan
backed certificates; and
- two forms of prospectus supplement relating to the offering
by a separate trust of a particular series of auto loan
backed notes and/or auto loan backed certificates.
Each form of prospectus supplement relates only to the securities
described in that prospectus supplement and is a form which may be used, among
others, to offer auto loan backed notes and/or auto loan backed certificates
under this registration statement.
<PAGE> 3
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 JANUARY 12, 2001
PROSPECTUS
ONYX ACCEPTANCE AUTO LOAN TRUSTS
ISSUER
AUTO LOAN BACKED NOTES
AUTO LOAN BACKED CERTIFICATES
ONYX ACCEPTANCE FINANCIAL CORPORATION,
SELLER
ONYX ACCEPTANCE CORPORATION,
SERVICER
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 6 OF THIS PROSPECTUS AND
THE RISK FACTORS SET FORTH IN THE RELATED PROSPECTUS SUPPLEMENT.
The notes and the certificates will represent interest in or obligations of the
trust only and will not represent interests in or obligations of Onyx Acceptance
Corporation, Onyx Acceptance Financial Corporation or any of their affiliates.
This prospectus may be used to offer and sell any of the notes and/or
certificates only if accompanied by the prospectus supplement for the related
trust.
THE TRUSTS -
- may sell auto loan backed notes and/or certificates from time to
time in one or more series; and
- may issue one or more classes of notes and/or one or more classes
of certificates in connection with each series of notes and
certificates.
THE NOTES -
- will represent non-recourse obligations of a trust and will be
paid only from the assets of that trust;
- may have one or more forms of enhancement; and
- will be issued in one or more classes of notes.
THE CERTIFICATES -
- will represent undivided ownership interests in a trust and will
be paid only from the assets of that trust;
- may have one or more forms of enhancement; and
- will be issued in one or more classes of certificates.
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.
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The date of this prospectus is _________, 2001
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
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IMPORTANT NOTICE ABOUT INFORMATION
PRESENTED IN THIS PROSPECTUS...................................................................iii
SUMMARY OF TERMS......................................................................................1
RISK FACTORS..........................................................................................6
THE TRUSTS............................................................................................9
THE TRUSTEE AND THE INDENTURE TRUSTEE................................................................10
THE ONYX PORTFOLIO OF MOTOR VEHICLE CONTRACTS........................................................10
Purchase, Origination and Servicing of Motor Vehicle Contracts.................................10
Underwriting....................................................................................11
Insurance.......................................................................................14
Collection Procedures...........................................................................14
Modifications and Extensions....................................................................15
Delinquency and Loan Loss Information...........................................................15
Allocation of Payments on Contracts to Interest and Principal...................................16
We Will Provide More Specific Information About the Contracts in the Prospectus Supplement......17
PREFUNDING ARRANGEMENTS..............................................................................18
MATURITY AND PREPAYMENT CONSIDERATIONS...............................................................19
POOL FACTOR AND POOL INFORMATION.....................................................................20
USE OF PROCEEDS......................................................................................20
THE SELLER...........................................................................................21
THE SERVICER.........................................................................................22
DESCRIPTION OF THE SECURITIES........................................................................23
General.........................................................................................23
Principal and Interest on the Securities........................................................23
Book-Entry Registration.........................................................................24
Definitive Securities...........................................................................29
List of Securityholders.........................................................................30
Statements to Securityholders ..................................................................30
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS.................................................32
Sale and Assignment of the Contracts............................................................33
The Collection Account and Eligible Investments.................................................35
Payahead Account................................................................................35
Other Accounts..................................................................................36
Collections.....................................................................................36
Payments and Distributions .....................................................................37
Credit and Cash Flow Enhancement................................................................37
Insurance on Financed Vehicles..................................................................38
Servicer Reports to the Trustees and Security Insurer...........................................38
Repurchase of Contracts.........................................................................39
Servicing Fee...................................................................................39
Waivers and Extensions..........................................................................39
Realization Upon Defaulted Contracts............................................................39
Evidence as to Compliance.......................................................................40
Certain Matters Regarding the Servicer..........................................................40
Servicer Default................................................................................41
Rights Upon Servicer Default....................................................................42
Waiver of Servicer Default......................................................................43
Nonpetition Covenant............................................................................44
Amendment.......................................................................................44
Termination.....................................................................................46
The Trustee and Indenture Trustee...............................................................47
Administration Agreement........................................................................48
THE INDENTURE........................................................................................48
Modification of Indenture.......................................................................48
Indenture Events of Default.....................................................................50
Rights Upon Indenture Event of Default..........................................................51
Covenants.......................................................................................52
Annual Compliance Statement.....................................................................53
Indenture Trustee's Annual Report...............................................................53
Satisfaction and Discharge of Indenture.........................................................54
The Indenture Trustee...........................................................................54
CERTAIN LEGAL ASPECTS OF THE CONTRACTS...............................................................54
General.........................................................................................54
Security Interests in the Financed Vehicles.....................................................55
Repossession ...................................................................................56
Notice of Sale; Redemption Rights ..............................................................57
Deficiency Judgments and Excess Proceeds .......................................................57
Consumer Protection Laws .......................................................................58
Other Limitations ..............................................................................59
Repurchase Obligation...........................................................................59
CERTAIN FEDERAL INCOME TAX CONSEQUENCES..............................................................60
TRUSTS FOR WHICH A PARTNERSHIP ELECTION IS MADE .....................................................60
Tax Characterization of the Trust as a Partnership..............................................60
Tax Consequences to Holders of the Notes........................................................61
Tax Consequences to Holders of the Certificates.................................................63
TRUSTS TREATED AS GRANTOR TRUSTS ....................................................................68
Tax Characterization of the Trust as a Grantor Trust ...........................................68
Stripped Bonds and Stripped Coupons ............................................................70
ERISA CONSIDERATIONS.................................................................................74
PLAN OF DISTRIBUTION.................................................................................79
LEGAL OPINIONS ......................................................................................80
AVAILABLE INFORMATION................................................................................80
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE......................................................81
</TABLE>
ii
<PAGE> 5
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:
- this prospectus, which provides general information; and
- a prospectus supplement related to each series of securities,
which describes the specific terms of a series of securities.
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.
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 preceding page also identifies the pages where these sections are
located.
iii
<PAGE> 6
SUMMARY OF TERMS
The following summary is a short, concise description of the information
contained elsewhere in this prospectus. For this reason, the summary does not
contain all of the information that may be important to you. To fully understand
the terms of the offering of the securities, you will need to read both this
prospectus and the related prospectus supplement, each in its entirety.
THE ISSUER
A separate trust will be formed with respect to each series of securities. The
seller will form each trust by entering into either:
- a trust agreement among the Seller and the trustee for the trust;
or
- a pooling and servicing agreement among the seller, the servicer
and the trustee for the trust.
THE SELLER
Onyx Acceptance Financial Corporation, a Delaware corporation and a
wholly-owned, limited purpose subsidiary of Onyx Acceptance Corporation. 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" in this prospectus.
THE SERVICER
Onyx Acceptance Corporation, a Delaware corporation. 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" in this prospectus.
THE TRUSTEE
Each prospectus supplement will specify the trustee of the trust for that series
of securities.
THE INDENTURE TRUSTEE
With respect to any series of securities that includes one or more classes of
notes, the prospectus supplement will specify the indenture trustee for that
series of securities in the related prospectus supplement.
THE DISTRIBUTION DATE
Interest and principal on the notes and the certificates will be payable on the
date set forth in the related prospectus supplement.
THE NOTES
A series of securities may include one or more classes of notes. The notes
issued by each trust will be governed by an indenture between the trust and an
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.
Principal and Interest on the Notes
Except as described below with respect to strip notes, 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 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
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interest rate, in the related prospectus supplement.
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 the interest rate;
- amount of payments of principal or interest;
- whether or not payments of principal and interest will be delayed
or not made at all upon the occurrence of specified events; and
- whether payments of principal and interest may or may not be made
from designated portions of the pool of contracts.
THE CERTIFICATES
A series of securities may include one or more classes of certificates. The
certificates will be governed by a 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.
Principal and Interest on the Certificates
Except as described below with respect to strip certificates, 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 interest rate. Each class of
certificates 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 certificates or the method for
determining such certificate rate in the related prospectus supplement.
Subordination to Notes
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.
OPTIONAL REDEMPTION
If the servicer or a successor to the servicer exercises its option to purchase
the contracts of the trust, the notes and certificates then outstanding will be
redeemed as set forth in the related prospectus supplement. See "Description of
the Transfer and Servicing Agreements-Termination" in this prospectus.
A TRUST MAY ISSUE MULTIPLE CLASSES OF SECURITIES WITH DIFFERENT CHARACTERISTICS
Each trust may issue more than one class of notes and certificates. In these
cases, the characteristics of the securities in each class may differ from one
another. Some of these characteristics are:
- timing and priority of payments;
- seniority of payments;
- allocations of losses;
- calculation or amount of the interest rate;
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<PAGE> 8
- amount of distribution of principal or interest;
- whether or not distributions of principal and interest will be
delayed or not made at all upon the occurrence of specified
events; and
- whether distributions of principal and interest may or may not be
made from designated portions of the pool of contracts.
Any differences in characteristics will be specified in the prospectus
supplement.
STRIP SECURITIES MAY BE ISSUED
In addition, a trust might issue one or more classes of notes or certificates
providing for distributions of interest which are disproportionately large or
small in comparison to principal distributions, including:
- principal distributions with disproportionate, nominal or no
interest payments; or
- interest distributions with disproportionate, nominal or no
principal payments.
THE TRUST PROPERTY
The contracts supporting the securities of each trust will consist of a pool of
motor vehicle retail installment sale contracts and/or installment loan
agreements, each of which is secured by a new or used automobile, light-duty
truck or van, and other property, including:
- documents relating to the contracts;
- monies received with respect to the contracts on or after the
applicable cut-off date specified in the related prospectus
supplement;
- security interests in the vehicles financed by the contracts;
- the rights to receive proceeds from claims on various insurance
policies covering the financed vehicles or the individual obligors
under each related contract;
- all amounts on deposit in specified accounts identified in the
related prospectus supplement, including, to the extent described
in the related prospectus supplement, eligible investments
credited to those accounts;
- the benefits of any form of credit enhancement identified in the
applicable prospectus supplement;
- the right of the seller to cause Onyx to repurchase contracts in
particular circumstances; and
- all proceeds of the foregoing.
See "The Trusts" in this prospectus.
The seller will sell or transfer contracts to the trust on or before the closing
date on which a specified series of securities is issued, as set forth in the
related prospectus supplement. The prospectus supplement will specify the
aggregate principal balance of the contracts initially transferred to the trust.
If the trust related to a series of securities will be treated as an owner
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<PAGE> 9
trust for federal income tax purposes, the seller will sell the contracts to the
trust under 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
under a pooling and servicing agreement among the seller, the servicer and the
trustee.
Other Property of the Trust
In addition to the contracts, each trust will own amounts on deposit in various
trust accounts, which may include:
- an account into which collections are deposited;
- an account to fund post-closing purchases of additional contracts;
- a spread account, reserve account or other account relating to
credit enhancement; and
- any other account identified in the related prospectus supplement.
THE CONTRACTS
The contracts included in the property of each trust will have been:
- originated by automobile dealerships and assigned to Onyx, or
purchased and/or originated by subsidiaries of Onyx;
- purchased by the seller from Onyx or from a subsidiary of Onyx;
and
- purchased by the trust from the seller.
See "The Onyx Portfolio of Motor Vehicle Contracts" in this prospectus. 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. Any contracts purchased by
the trust following the date on which the trust is established and the related
securities are issued will be purchased solely from funds on deposit in the
prefunding account. See "Prefunding Arrangements" in this prospectus. 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 provided by
a third-party 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;
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- swaps or other interest rate protection agreements;
- repurchase obligations;
- cash deposits;
- other agreements or arrangements with respect to third party
payments; or
- other support.
We will describe any such credit enhancement, including any limitations and
exclusions from coverage, in the related prospectus supplement. See "Description
of the Transfer and Servicing Agreements - Credit and Cash Flow Enhancement" in
this prospectus.
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 the
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
- the 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 the trust will deliver an opinion to the effect that:
- the trust will be treated as a grantor trust for federal income
tax purposes; and
- the trust will not be subject to federal income tax.
See "Certain Federal Income Tax Consequences" in this prospectus for additional
information concerning the application of federal tax laws.
ERISA CONSIDERATIONS
Administrators of employee benefit plans should review the matters discussed
under "ERISA Considerations" in this prospectus and the related prospectus
supplement.
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.
REGISTRATION OF THE SECURITIES
The securities may be available only in book-entry form. Each investor's
interest in the securities would be represented through an agent, rather than by
a physical note or certificate held by the investor. A trust will not issue
physical securities to investors unless specific events occur which make it
necessary or desirable to do so. See "Description of the Securities - Definitive
Securities" in this prospectus.
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RISK FACTORS
INTERESTS OF OTHER PERSONS IN THE CONTRACTS COULD REDUCE THE FUNDS AVAILABLE TO
MAKE PAYMENTS ON THE SECURITIES.
In connection with the sale of contracts to a trust, the seller will
assign the security interests in the financed vehicles securing those contracts
to the trust at the time of sale. If a series of securities includes one or more
classes of notes, the trust will pledge the security interests in the financed
vehicles to the related indenture trustee. Due to the administrative burden and
expense, the certificates of title to the financed vehicles will not be amended
to reflect the assignment to the trust or the indenture trustee. In the absence
of such an amendment, the trust and the indenture trustee may not have perfected
security interests in the financed vehicles securing the contracts in some
states. If the trust or the indenture trustee does not have a perfected security
interest in a financed vehicle, the collections on that contract and the
proceeds from the sale of the financed vehicle securing that contract may not be
available to make payment on the securities.
The security interest of the trust and, if applicable, the indenture
trustee, could be impaired for one or more of the following reasons:
- Onyx or one of its subsidiaries might fail to perfect its
security interest in a contract;
- Onyx or one of its subsidiaries might fail to perfect its
security interest in a financed vehicle;
- the trust may not have a security interest in the financed
vehicles in all states because the certificates of title to
the financed vehicles will not be amended to reflect
assignment to the trust;
- holders of some types of liens, such as tax liens or
mechanics liens, may have priority over the trust's
security interest;
- the trust could lose its priority to a person who obtains
physical possession of a contract without knowledge of the
assignment of the contract to the trust; and
- the trust could lose its security interest or its priority
through fraud or negligence.
BANKRUPTCY OF ONYX COULD RESULT IN DELAYS IN PAYMENT OR LOSSES ON THE SECURITIES
If Onyx or a subsidiary of Onyx becomes subject to bankruptcy
proceedings, you could experience losses or delays in payments on your
securities. Onyx and, if applicable, each selling subsidiary of Onyx will
transfer contracts to the seller in a structure intended to constitute a "true
sale." If the transfer does constitute a "true sale," the applicable contracts
and the proceeds thereof would not be part of Onyx's or its subsidiary's
bankruptcy estate should Onyx or its subsidiary become the subject of a
bankruptcy case. However, if Onyx or a selling subsidiary of Onyx becomes
subject to a bankruptcy proceeding, a court in bankruptcy could conclude that
Onyx or its subsidiary still owns the
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<PAGE> 12
contracts by concluding that the sale to the seller was not a "true sale" or
that the seller should be consolidated with Onyx. If a court were to reach this
conclusion, you could experience losses or delays in payments on your
securities.
Onyx and the seller have taken and will take steps to structure the sale
of contracts to minimize the risk that a court would consolidate the seller with
Onyx for bankruptcy purposes or conclude that the sale of contracts to the
seller was not a "true sale." These steps include the creation of the seller as
a separate, limited purpose subsidiary of Onyx. The seller's certificate of
incorporation contains 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 in bankruptcy
without the prior unanimous affirmative vote of all of its directors. See "The
Seller" in this prospectus.
The trustee, the indenture trustee, the seller, the servicer and all
holders of securities will covenant that they will not at any time institute
against the seller or the trust any bankruptcy, reorganization or other
proceeding under any federal or state bankruptcy or similar law.
PREPAYMENTS MAY ADVERSELY AFFECT THE AVERAGE LIFE AND YIELDS OF THE SECURITIES.
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.
All of the contracts may be prepaid at any time. Prepayments may include
all of the following:
- an obligor on a contract makes payments, in whole or in
part, earlier than scheduled;
- the servicer liquidates a defaulted contract; and
- the servicer or seller is required to purchase or
repurchase, as the case may be, a contract from the trust.
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" in this prospectus and in the prospectus
supplement.
SUBORDINATION MAY CAUSE SOME CLASSES OF SECURITIES TO BEAR ADDITIONAL CREDIT
RISK.
Payments of interest and principal on one or more classes of securities
of a series may be subordinated to one or more other classes of securities of
the same series. Subordination of a class of securities has the effect of
increasing the likelihood of payment on the senior classes in that series and
decreasing the likelihood of payment on the subordinated classes of that series.
A class of securities may be subordinated to another class of securities in that
series with respect to timing and priority of payment, seniority and allocations
of losses, among other things. Any subordination will be described in the
related prospectus supplement.
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ONLY THE ASSETS OF THE TRUST ARE AVAILABLE TO MAKE PAYMENTS ON THE SECURITIES.
No trust will have, nor is a trust 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 trustee, or any
indenture trustee will insure or guarantee the notes or the certificates of any
series. 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.
FAILURE TO COMPLY WITH CONSUMER PROTECTION LAWS MAY AFFECT THE ENFORCEABILITY OF
THE CONTRACTS.
Federal and state governments have enacted consumer protection laws which
apply to the contracts. These 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 these consumer
protection laws, the contracts may not be enforceable. The seller will make
representations and warranties to the trust stating that the related contracts
are valid and enforceable and that the related contracts complied with
applicable law at the time they were made. Accordingly, the seller will be
obligated to repurchase each contract that does not comply with the applicable
requirements of any consumer protection law if the applicable trust's interest
in that 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" in this prospectus.
IF BOOK-ENTRY REGISTRATION IS USED, YOU MAY BE ABLE TO EXERCISE YOUR RIGHTS AS A
SECURITYHOLDER ONLY THROUGH THE CLEARING AGENCY.
If the prospectus supplement specifies that securityholders of the trust
will hold their interests through a clearing agency or one of its participating
organizations, the securities will be registered in the name of a nominee of the
clearing agency and physical certificates will not be issued to individual
securityholders. You will not be recognized as a securityholder directly by the
trustee of the trust or the indenture trustee and must exercise all of your
rights and receive any payments through the clearing agency or the participating
organization, unless physical certificates are issued. Your ability to pledge
your securities to persons or entities that are not participating organizations
of the clearing agency may be limited due to lack of a physical certificate.
Physical certificates will only be issued in limited circumstances. See
"Description of the Securities--Book-Entry Registration" in this prospectus.
Additionally, 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 trustee or indenture trustee to the clearing agency and
the clearing agency will credit the payments or distributions to the accounts of
its participants. The participants will then credit the payments or
distributions to your
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account either directly or indirectly through the clearing agency's indirect
participants. The clearing agency in the United States is expected to be DTC,
and in Europe either Clearstream or Euroclear.
THE TRUSTS
With respect to each series of securities, the seller will establish a
separate trust under either a trust agreement or a pooling and servicing
agreement, as applicable, to issue each series of notes and certificates. A
trust will be established for the transactions described in this prospectus and
the related prospectus supplement. The property of the trust will include:
- the related contracts,
- documents relating to the contracts,
- monies received with respect to the contracts on or after
the cut-off date specified in the related prospectus
supplement,
- security interests in the related financed vehicles and the
rights to receive proceeds from claims on insurance
policies covering such financed vehicles or the individual
obligors under each related contract,
- amounts on deposit in certain specified accounts,
including, to the extent described in the related
prospectus supplement, eligible investments credited to
such accounts;
- the benefits of any form of credit enhancement identified
in the related prospectus supplement;
- the right of the seller to cause Onyx to repurchase
contracts under some circumstances, and
- 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 the trust or may be held by the trustee or an indenture
trustee for the benefit of holders of the related securities.
Prior to formation, the trust will have had no assets or obligations.
After formation, the 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 in this prospectus, in
the related prospectus supplement and in the trust agreement or pooling and
servicing agreement, as applicable. The trust will not acquire any contracts or
assets other than the trust property.
The principal offices of each trust that is not a grantor trust and the
related trustee will be specified in the applicable prospectus supplement.
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THE TRUSTEE 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 the 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, ORIGINATION AND SERVICING OF MOTOR VEHICLE CONTRACTS
Onyx's portfolio of motor vehicle contracts consists of retail
installment sales contracts and installment loan agreements secured by new and
used automobiles, light-duty trucks and vans. 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.
Onyx has the following primary auto lending programs:
- the "premier" program;
- the "preferred" program; and
- the "standard" and "standard plus" 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 contracts at higher interest rates to borrowers with proven credit
quality. The standard and standard plus programs allow 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
premium and preferred programs.
Onyx generally acquires the contracts in its portfolio through one or
more of the following methods:
- Onyx purchases contracts from automobile dealers that
originate the contracts;
- a subsidiary of Onyx purchases contracts from entities that
originate the contracts; and
- a subsidiary of Onyx originates the contracts.
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Onyx anticipates that 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, with a limited number of
contracts having been purchased or originated by subsidiaries of Onyx. All of
the contracts will have been sold to the seller and then to the trust. Each
dealer or other party from which Onyx or a subsidiary of Onyx purchases
contracts has entered into an agreement with Onyx or its subsidiary under which
the dealer or other seller represents that:
- it will comply with federal and state laws regarding motor
vehicle financing;
- it will obtain the requisite financial information required
of the obligor in order to extend credit; and
- it will truthfully disclose to Onyx or Onyx's 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 contracts for Onyx to
purchase. Before purchasing contracts from an independent, non-franchised used
car dealer, Onyx completes a credit review of the dealer's financial condition,
which includes a review of financial information provided by the dealer and a
Dun & Bradstreet report on the dealer, and also completes a review of the
underwriting criteria used by the dealer. The payment obligations of the obligor
under each contract are secured by the vehicle purchased with the proceeds
provided under that contract.
Onyx services all of the contracts and initially will serve as the
primary servicer of the contracts included in the trust property of a trust
after they are sold by the seller to the trust. The servicing functions
performed by Onyx include:
- customer service;
- document filekeeping;
- computerized account record keeping;
- vehicle title processing; and
- collections.
UNDERWRITING
Onyx underwrites contracts purchased from dealers through its regional
auto finance centers located throughout the United States. 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 contracts originated by a subsidiary of Onyx, such contracts are underwritten
at Onyx's Foothill Ranch, California location. Generally, each contract is fully
amortizing and provides for level
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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" in this prospectus.
In determining whether to purchase a contract originated by a dealer or
another party, or whether to directly originate a contract, Onyx or a subsidiary
of Onyx reviews an application package concerning the applicant and the proposed
contract. The application package sets forth information concerning the
applicant, including:
- the applicant's income;
- the applicant's liabilities;
- the applicant's credit and employment history;
- other personal information about the applicant; and
- a description of the financed vehicle that secures or will
secure the 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 its subsidiary.
Each proposed contract is evaluated using uniform underwriting standards
developed by Onyx. These underwriting standards are intended to assess the
applicant's ability to repay all amounts due under the contract and the adequacy
of the related financed vehicle as collateral, based upon a review of the
information contained in the contract application. Among the criteria considered
by credit managers of Onyx and its subsidiaries in evaluating the individual
applications are:
- stability of the applicant with specific regard to the
applicant's occupation, length of employment and length of
residency;
- the applicant's payment history, based on information known
directly by Onyx or as provided by various credit reporting
agencies with respect to present and past debt;
- a debt service-to-gross monthly income ratio test; and
- the principal amount of the contract taking into account
the age, type and market value of the related financed
vehicle.
After review of an application, a credit manager, via an electronic
system, communicates an appropriate decision to the dealer or other appropriate
party specifying approval, denial or a counter- offer on the proposed contract.
If the response requires stipulations to the approval, these are
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communicated concurrently to the dealer or other party and become a condition of
the approval. After approval, if Onyx or a subsidiary of Onyx is the chosen
source of financing, Onyx or its subsidiary will obtain the necessary
documentation for processing, which consists of the following:
- a signed credit application;
- the only original and a copy of the executed contract;
- an agreement by the applicant to provide insurance;
- a report of sale or guarantee of title;
- an application for registration;
- a co-signer notification, if applicable;
- a copy of any supplemental warranty purchased with respect
to the financed vehicle;
- acceptable vehicle valuation documentation; and
- any other required documentation.
Once the appropriate documentation is in hand for funding, the file
relating to the 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 the documents for completeness and consistency with
the application, providing final approval for purchase of the contract once
these requirements have been satisfied.
The amount advanced by Onyx or a subsidiary of Onyx under any contract
generally does not exceed the manufacturer's suggested retail price for a new
financed vehicle, or the value assigned by a nationally recognized used car
value guide for a used financed vehicle, in either case plus taxes, title and
license fees, any extended warranty and any credit and other insurance. However,
the actual amount advanced for a contract is often less than the maximum
permissible amount depending on a number of factors, including the length of the
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 contract. Under no circumstances is the amount
advanced for a contract greater than the amount payable by the applicant with
respect to the purchase of the related financed vehicle.
Periodically, Onyx makes a detailed analysis of its portfolio of
contracts to evaluate the effectiveness of Onyx's credit guidelines. If external
economic factors, credit delinquencies or credit losses change, Onyx adjusts its
credit guidelines to maintain the asset quality deemed acceptable by Onyx's
management. Onyx reviews, on a regular basis, the quality of its contracts by
conducting audits of randomly selected contracts to ensure compliance with
established policies and procedures.
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INSURANCE
Each 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
Onyx performs collection activities with respect to delinquent contracts
at its Foothill Ranch, California and Hazelwood, Missouri collection centers.
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 contract within 30
days of the 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 and records of all contracts. The system
also maintains a record of an obligor's promise to pay and affords supervisors
the ability to review collection personnel activity and to modify collection
priorities with respect to contracts. Onyx utilizes a predictive dialing system
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 who will have primary responsibility for the
delinquent account until it is resolved. To expedite collections from late
paying obligors, Onyx uses Western Union "Quick Collect," which allows an
obligor to make late payments at numerous locations, 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 contract continues to be
past due for between 45 and 60 days, Onyx will initiate repossession of the
financed vehicle. However, if the applicable 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 contracts are
originated, after repossession, the obligor generally has an
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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 contract.
Losses may occur in connection with delinquent 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 contract is
deemed uncollectible or during the month a scheduled payment under a 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 contracts serviced by it
for its own account.
MODIFICATIONS AND EXTENSIONS
Onyx offers credit-related extensions to obligors. Generally, these
extensions are offered only when:
- Onyx believes that the obligor's financial difficulty has
been resolved or will no longer impair the obligor's
ability to make future payments;
- the extension will result in the obligor's payments being
brought current;
- the total number of credit-related extensions granted on
the contract will not exceed three;
- the total of credit-related extensions granted on the
contract will not exceed three months in the aggregate;
- there has been no more than one credit-related extension
granted on the contract in the immediately preceding twelve
months; and
- Onyx or its assignee has held the contract for at least six
months.
Any deviation from this policy requires the concurrence of a collection
supervisor and Onyx's collection manager and the Executive Vice President,
Collections.
DELINQUENCY AND LOAN LOSS INFORMATION
Certain information concerning the experience of Onyx pertaining to
delinquencies, loan losses and recoveries with respect to its portfolio of
contracts, including receivables previously sold which Onyx continues to
service, will be set forth in each prospectus supplement. There can be no
assurance
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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 that
information.
ALLOCATION OF PAYMENTS ON CONTRACTS TO INTEREST AND PRINCIPAL
If so provided in the prospectus supplement, each of the contracts 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 one of the three
methods described below - the simple interest method, the actuarial method or
the rule of 78's method.
SIMPLE INTEREST METHOD. Under the simple interest method, interest due is
calculated on the scheduled due date based on the actual principal balance of
the contract on that date. For simple interest contracts, interest accrued as of
the scheduled 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 scheduled 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 as scheduled; 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 scheduled
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 as scheduled; and
- the portion of the payment allocable to reduce the
principal balance will be correspondingly smaller.
When necessary, an adjustment is made at the maturity of the contract to
the scheduled final payment to reflect the larger or smaller, as the case may
be, allocations of payments to interest and principal under the contract as a
result of early or late payments, as the case may be.
ACTUARIAL METHOD. Under the actuarial method, contracts provide for
amortization 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 annual
percentage rate, or 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.
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RULE OF 78'S METHOD. Under the rule of 78's method, 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 the contract were a
self-amortizing, level-yield contract bearing interest at an APR equal to the
stated APR set forth in the contract. 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 the 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 the contract, and the resulting amount is the amount of add-on interest
earned that month. The difference between the amount of the monthly payment by
the obligor and the amount of earned add-on interest calculated for the month is
applied to principal reduction.
The purchase price paid by a trust for each contract included in the
trust property of the trust will reflect the principal balance of the contract
as of the cut-off date. The cut-off date principal balance of the contract will
be calculated under the simple interest method, the actuarial method or the rule
of 78's method, as appropriate, or otherwise as described in the related
prospectus supplement. 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 principal balance of
each rule of 78's contract will exceed the amount that would have been its
cut-off date principal balance under the actuarial method. The trustee or, if
applicable, indenture trustee, and the servicer will account for interest and
principal on rule of 78's contracts using the actuarial method, but based on the
cut-off date principal balance. The remaining payments due on a rule of 78's
contract will not be sufficient to amortize the cut-off date principal balance
of the contract at a yield equal to its APR. Accordingly, in order to amortize
the cut-off date principal balance over the remaining term of the rule of 78's
contract using the actuarial method, the servicer will:
- recompute the effective yield of the contract based on the
remaining payments due and the cut-off date principal
balance; and
- will allocate each scheduled payment of principal and
interest between principal and interest on each rule of
78's contract based on the cut-off date principal balance
and the recomputed yield for the contract.
WE WILL PROVIDE MORE SPECIFIC INFORMATION ABOUT THE CONTRACTS IN THE PROSPECTUS
SUPPLEMENT
We will provide information about each contracts pool in the related
prospectus supplement, including, to the extent appropriate:
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- the portion of the contracts pool consisting of simple
interest contracts, actuarial contracts and rule of 78's
contracts;
- the portion of the contracts pool secured by new vehicles
and by used vehicles;
- the aggregate principal balance of all of the contracts;
- the number of contracts;
- the average outstanding principal balance of the contracts;
- the average original amount financed and the range of
original amount financed;
- the weighted average APR and the range of APR's;
- the weighted average original term and the range of
original terms;
- the weighted average remaining term and the range of
remaining terms; and
- the distribution of the contracts by APR and by state of
origination.
PREFUNDING ARRANGEMENTS
If so provided in the related prospectus supplement for a series of
securities, a trust may be required to purchase additional contracts from the
seller following the date on which the trust is established and the related
securities are issued. With respect to a series of securities, the prefunding
arrangement will require that any additional 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 a prefunding 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 additional contracts from the
seller. Upon each conveyance of additional contracts to the trust, an amount
equal to the purchase price paid by the seller to Onyx, or a subsidiary of Onyx,
for the additional contracts will be released from the prefunding account and
paid to the seller.
The use of a prefunding arrangement for a series of securities is
intended to improve the efficiency of the issuance of the securities and the
sale of the contracts to the related trust through the incremental delivery of
the contracts on the closing date and during a specified period following the
closing date. This allows for a more even accumulation of the contracts by the
seller and by Onyx and its subsidiaries and the issuance of a larger principal
amount of securities than would be the case without a prefunding arrangement.
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MATURITY AND PREPAYMENT CONSIDERATIONS
The weighted average life of the securities of any trust will generally
be influenced by the rate at which the principal balances of the related
contracts are paid, which payment may be in the form of scheduled amortization
or prepayments. "Weighted average life" means the average amount of time in
which each dollar of principal on a contract is repaid. "Prepayments" for these
purposes include the following circumstances:
- prepayments in full;
- repurchases by the seller as a result of the failure of a
contract to meet the criteria set forth in the related sale
and servicing agreement or pooling and servicing agreement;
- purchases by the servicer as a result of a breach of
certain of its covenants with respect to the contracts made
by it in the related sale and servicing agreement or
pooling and servicing agreement;
- partial prepayments;
- liquidations of the contracts due to default;
- receipts of proceeds from theft, physical damage, credit
life and credit disability insurance policies; and
- optional repurchase by the servicer for administrative
reasons.
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 actuarial and rule of 78's contracts 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
actuarial and rule of 78's contracts, however, will be treated as "payaheads"
and will not be paid or distributed until the collection period in which the
payaheads are due or until the amount of the 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".
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;
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- destruction of vehicles by accident;
- sales of vehicles; and
- market interest rates.
California law, and the law of some other states, requires 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 may permit the sale or other
transfer of a financed vehicle without accelerating the maturity of the related
contract if the 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. The related prospectus supplement may set forth additional
information with respect to the maturity and prepayment considerations
applicable to the particular contracts pool and the related securities of the
trust.
POOL FACTOR AND POOL INFORMATION
The "pool factor" will be a six-digit decimal which the servicer will
compute each month indicating the aggregate outstanding principal balance of the
related pool of contracts at the end of the month as a fraction of the aggregate
principal balance of the contracts as of the cut-off date specified in the
related prospectus supplement. 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 amount of a
securityholder's pro rata share of the aggregate outstanding principal balance
of the pool of contracts for a given month can be determined by multiplying the
original denomination of the holder's security by the pool factor for that
month.
With respect to each trust, the related securityholders will receive
monthly reports from the trustee concerning payments received on the contracts,
the aggregate outstanding principal balance of the pool of contracts, 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
The net proceeds from the sale of securities of a given trust will be
applied by the trust:
- to the purchase of the contracts from the seller;
- to make the initial deposit into any prefunding account;
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- to make the initial deposit into any yield supplement
account;
- to make the initial deposit, if any, into any reserve
account, spread account or other similar account;
- for any other purposes specified in the related prospectus
supplement.
The seller will use the net proceeds to be received by the seller from
the sale of securities of a given series to repay indebtedness incurred in
connection with its acquisition of the contracts and to pay other expenses in
connection with the pooling of the contracts and the issuance of the securities.
THE SELLER
The seller is a wholly-owned, limited purpose finance subsidiary of Onyx
that 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 the seller at its principal 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, transferring the contracts to third parties and any
activities incidental to and necessary or convenient for the accomplishment of
these purposes.
Onyx and the seller have taken and will take steps in structuring the
transactions contemplated in this prospectus and the related prospectus
supplement that are intended to ensure that the voluntary or involuntary
application for relief by Onyx under any bankruptcy or 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 with a certificate of incorporation containing 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
bankruptcy or 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
bankruptcy or 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 bankruptcy or 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 bankruptcy or
insolvency law by or against the seller, or if an attempt were made to litigate
any of the foregoing issues, delays in payments
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or distributions on any outstanding series of securities could occur or
reductions in the amounts of the payments or distributions could result.
Onyx, each selling subsidiary of Onyx and the seller intend that each
transfer of contracts by Onyx or a subsidiary of Onyx to the seller under the
sale and servicing agreement or pooling and servicing agreement, as applicable,
or otherwise, will constitute a "true sale" of the contracts to the seller. If a
transfer of contracts constitutes a "true sale," the contracts and their
proceeds would not be part of the bankruptcy estate of Onyx or a subsidiary of
Onyx under Section 541 of the bankruptcy code should Onyx or a subsidiary of
Onyx become the subject of a bankruptcy case subsequent to the transfer of the
contracts to the seller.
The seller has received the advice of counsel to the effect that, subject
to certain facts, assumptions and qualifications, in the event Onyx were to
become the subject of a voluntary or involuntary case under the bankruptcy code
subsequent to the transfer of contracts to the seller, the transfer of those
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 under Section 541 of the
bankruptcy code.
THE SERVICER
Onyx will initially service the contracts included in the trust property
of each trust. 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 contracts from dealers, and to a lesser extent
subsidiaries of Onyx purchase the contracts from other parties or directly
originate the contracts, after reviewing and approving the customer's credit
application in accordance with its underwriting policies and procedures. See
"The Onyx Portfolio of Motor Vehicle Contracts." Onyx finances acquisitions and
originations of contracts on a short term basis through warehouse facilities and
has previously financed acquisitions and originations of motor vehicle
installment contracts on a long term basis through sales of contracts to grantor
and owner trusts and periodically through whole loan sales.
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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 under 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 under 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 is a
summary of the material terms of the securities, but does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the notes, certificates, indenture, trust agreement and
pooling and servicing agreement, as applicable, and the related prospectus
supplement.
The securities of each series will be issued in the denominations
specified in the related prospectus supplement. The securities of each series
are expected to be issued in book-entry form. See "- Book-Entry Registration"
and "- Definitive Securities". All securities offered by 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 and amount of or method of determining payments or distributions
of principal and interest on each class of securities of a given trust 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 that series, as described in the related
prospectus supplement. Payments of interest on the securities of that series may
be made prior to payments of principal thereon.
STRIP SECURITIES AND RESIDUAL INTEREST INSTRUMENTS. If so provided in the
related prospectus supplement, a series may include one or more classes
securities that are:
- strip notes or strip certificates entitled to principal
payments with disproportionate, nominal or no interest
payments;
- strip notes or strip certificates entitled to interest
payments with disproportionate, nominal or no principal
payments; and
- residual interest instruments entitled to all or a portion
of any remaining payments of principal and interest on the
related contracts after making all other distributions on
each distribution date.
INTEREST RATES. Each class of securities may have a different interest
rate, which may be a fixed, variable or adjustable rate, or any combination
thereof. For certain classes of strip securities, the interest
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rate may be zero. The related prospectus supplement will specify the interest
rate for each class of securities of a given series or the method for
determining the interest rate.
PREPAYMENT OF SECURITIES. 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.
PRIORITY. 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 of principal and interest, and any schedule or formula or other
provisions applicable to the determination thereof, will be set forth in the
related prospectus supplement. Payments or distributions of principal and
interest of any class of securities will be made on a pro rata basis among all
the securityholders of that class.
BOOK-ENTRY REGISTRATION
We expect that the securities of each series will be issued in
uncertificated book-entry form, and will be registered in the name of Cede &
Co., as nominee of The Depository Trust Company, commonly known as DTC in the
United States and Clearstream, Luxembourg or the Euroclear System in Europe. The
securities will be tradeable as home market instruments in both the European and
U.S. domestic markets. Initial settlement and all secondary trades will settle
in same-day funds.
INITIAL SETTLEMENT OF THE SECURITIES. Investors' interests in the
securities will be represented through financial institutions acting on their
behalf as direct and indirect participants in DTC. As a result, Clearstream and
Euroclear will hold positions on behalf of their customers or participants
through their respective depositaries, which in turn will hold such positions in
accounts as DTC participants.
Investors electing to hold their securities through DTC will follow the
settlement practices applicable to U.S. corporate debt obligations. Investor
securities custody accounts will be credited with their holdings against payment
in same-day funds on the settlement date.
Investors electing to hold their securities through Clearstream or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
Unless and until definitive securities are issued under the limited
circumstances described in this prospectus or in the related prospectus
supplement, no securityholder will be entitled to receive a physical certificate
representing a security. All references in this prospectus and in the related
prospectus supplement to actions by securityholders shall refer to actions taken
by DTC upon instructions from its participants, and all references in this
prospectus and in the related prospectus supplement to distributions, notices,
reports and statements to securityholders shall refer to distributions, notices,
reports and statements to DTC or its nominee as the registered holder of the
securities, as the case may be, for distribution to holders of securities in
accordance with DTC's procedures with respect thereto.
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In the event that any of DTC, Clearstream or Euroclear should discontinue
its services, the related administrator of each trust would seek an alternative
depository, if available, or cause the issuance of definitive securities to
securityholders or their nominees in the manner described under "Definitive
Securities" below.
Except as required by law, none of the administrator, if any, the
applicable trustee or the applicable indenture trustee, if any, will have any
liability for any aspect of the records relating to payments made on account of
beneficial ownership interests of the securities of any trust held by DTC's
nominee, or for maintaining, supervising or reviewing any records relating to
the beneficial ownership interests.
SECONDARY MARKET TRADING OF THE SECURITIES. Since the purchaser
determines the place of delivery, it is important to establish at the time of
the trade where both the purchaser's and seller's accounts are located to ensure
that settlement can be made on the desired value date.
Trading between DTC participants. Secondary market trading between DTC
participants will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
Trading between Clearstream customers and/or Euroclear participants.
Secondary market trading between Clearstream customers or Euroclear participants
will be settled using the procedures applicable to conventional eurobonds in
same-day funds.
Trading between DTC seller and Clearstream or Euroclear purchaser. When
securities are to be transferred from the account of a DTC participant to the
account of a Clearstream customer or a Euroclear participant, the purchaser will
send instructions to Clearstream or Euroclear through a Clearstream customer or
Euroclear participant at least one business day prior to settlement. Clearstream
or Euroclear will instruct the respective depositary, as the case may be, to
receive the securities against payment. Payment will include interest accrued on
the securities from and including the last coupon payment date to and excluding
the settlement date. Payment will then be made by the respective depositary to
the DTC participant's account against delivery of the securities. After
settlement has been completed, the securities will be credited to the respective
clearing system and by the clearing system, in accordance with its usual
procedures, to the Clearstream customer's or Euroclear participant's account.
The securities credit will appear the next day (European time) and the cash
debit will be back-valued to, and the interest on the securities will accrue
from, the value date, which would be the preceding day when settlement occurred
in New York. If settlement is not completed on the intended value date, that is,
the trade fails, the Clearstream or Euroclear cash debit will be valued instead
as of the actual settlement date.
Clearstream customers and Euroclear participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to pre-position
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Clearstream or Euroclear. Under
this approach, they may take on credit exposure to Clearstream or Euroclear
until the securities are credited to their accounts one day later.
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As an alternative, if Clearstream or Euroclear has extended a line of
credit to them, Clearstream customers or Euroclear participants can elect not to
pre-position funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, Clearstream customers or Euroclear
participants purchasing securities would incur overdraft charges for one day,
assuming they cleared the overdraft when the securities were credited to their
accounts. However, interest on the securities would accrue from the value date.
Therefore, in many cases the investment income on the securities earned during
that one-day period may substantially reduce or offset the amount of the
overdraft charges, although this result will depend on each Clearstream
customer's or Euroclear participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending securities to the
respective depositary for the benefit of Clearstream customers or Euroclear
participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC participant a cross-market transaction will
settle no differently than a trade between two DTC participants.
Trading between Clearstream or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, Clearstream customers and Euroclear
participants may employ their customary procedures for transactions in which
securities are to be transferred by the respective clearing system, through the
respective depositary, to a DTC participant. The seller will send instructions
to Clearstream or Euroclear through a Clearstream customer or Euroclear
participant at least one business day prior to settlement. In these cases,
Clearstream or Euroclear will instruct the respective depositary, as
appropriate, to deliver the bonds to the DTC participant's account against
payment. Payment will include interest accrued on the securities from and
including the last coupon payment date to and excluding the settlement date. The
payment will then be reflected in the account of the Clearstream customer or
Euroclear participant the following day, and receipt of the cash proceeds in the
Clearstream customer's or Euroclear participant's account would be back-valued
to the value date, which would be the preceding day, when settlement occurred in
New York. Should the Clearstream customer or Euroclear participant have a line
of credit with its respective clearing system and elect to be in debit in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft charges incurred over that one-day period. If
settlement is not completed on the intended value date, that is, the trade
fails, receipt of the cash proceeds in the Clearstream customer's or Euroclear
participant's account would instead be valued as of the actual settlement date.
Finally, day traders that use Clearstream or Euroclear and that purchase
securities from DTC participants for delivery to Clearstream customers or
Euroclear participants should note that these trades would automatically fail on
the sale side unless affirmative action were taken. At least three techniques
should be readily available to eliminate this potential problem:
- borrowing through Clearstream or Euroclear for one day,
until the purchase side of the day trade is reflected in
their Clearstream or Euroclear accounts, in accordance with
the clearing system's customary procedures;
- borrowing the securities in the U.S. from a DTC participant
no later than one day prior to settlement, which would give
the securities sufficient time to be reflected
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in their Clearstream or Euroclear account in order to
settle the sale side of the trade; or
- staggering the value dates for the buy and sell sides of
the trade so that the value date for the purchase from the
DTC participant is at least one day prior to the value date
for the sale to the Clearstream customer or Euroclear
participant.
The securityholders who are not participants, either directly or
indirectly, but who desire to purchase, sell or otherwise transfer ownership of,
or other interest in, securities may do so only through direct and indirect
participants. In addition, securityholders will receive all distributions of
principal and interest from the indenture trustee or the applicable trustee
through the participants who in turn will receive them from DTC. Under a
book-entry format, securityholders may experience some delay in their receipt of
payments, since the payments will be forwarded by the applicable trustee to
DTC's nominee. DTC will forward the payments to its participants which
thereafter will forward them to indirect participants or securityholders. To the
extent the related prospectus supplement provides that book-entry securities
will be issued, the only "noteholder" or "certificateholder," as applicable,
will be DTC's nominee. Securityholders will not be recognized by the applicable
trustee as "noteholders" or "certificateholders" and securityholders 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
among participants on whose behalf it acts with respect to the securities and is
required to receive and transmit distributions of principal and interest on the
securities. Participants and indirect participants with which securityholders
have accounts with respect to their respective securities similarly are required
to make book-entry transfers and receive and transmit the payments on behalf of
their respective securityholders. Accordingly, although securityholders will not
possess their respective securities, the rules provide a mechanism by which
participants 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
securityholder to pledge securities to persons or entities that do not
participate in the DTC system, or otherwise take actions with respect to the
securities, may be limited due to the lack of a physical certificate for the
securities.
DTC will advise the related administrator of each trust that it will take
any action permitted to be taken by a securityholder under the related indenture
or trust agreement only at the direction of one or more participants to whose
accounts with DTC the securities are credited. DTC may take conflicting actions
with respect to other undivided interests to the extent that the actions are
taken on behalf of participants whose holdings include the undivided interests.
Non-U.S. holders of securities will be subject to U.S. withholding taxes
unless the holders meet certain requirements and deliver appropriate U.S. tax
documents to the securities clearing organizations or their participants.
THE DEPOSITORIES. DTC is a limited-purpose trust company organized under
the laws of the State of New York, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of
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the New York Uniform Commercial Code, and a "clearing agency" registered under
the provisions of Section 17A of the Securities Exchange Act of 1934, as
amended. DTC was created to hold securities for its participants and facilitate
the clearance and settlement of securities transactions between participants
through electronic book-entries, thereby eliminating the need for physical
movement of certificates. Participants include securities brokers and dealers,
who may include any of the underwriters of securities of the trust, banks, trust
companies and clearing corporations and may include other organizations.
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.
Clearstream is incorporated under the laws of Luxembourg as a
professional depository. Clearstream holds securities for its customers and
facilitates the clearance and settlement of securities transactions between
Clearstream customers through electronic book-entry changes in accounts of
Clearstream customers, thereby eliminating the need for physical movement of
certificates. Transactions may be settled by Clearstream in any of 36
currencies, including United States dollars. Clearstream provides to its
Clearstream customers, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Clearstream interfaces with domestic
markets in several countries. As a professional depository, Clearstream is
subject in Luxembourg to regulation by and supervision by the Commission for the
Supervision of the Financial Sector. Clearstream customers are recognized
financial institutions around the world, including underwriters, securities
brokers and dealers, banks, trust companies, clearing corporations and other
organizations and may include any of the underwriters of any trust securities.
Indirect access to Clearstream is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Clearstream customer, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its participants and
to clear and settle transactions between Euroclear participants through
simultaneous electronic book-entry delivery against payment, thereby eliminating
the need for physical movement of certificates and the risk from transfers of
securities and cash that are not simultaneous.
The Euroclear system has subsequently been extended to clear and settle
transactions between Euroclear participants and counterparties both in
Clearstream and in many domestic securities markets. Transactions may be settled
in any of 34 currencies. In addition to safekeeping (custody) and securities
clearance and settlement, the Euroclear system includes securities lending and
borrowing and money transfer services. The Euroclear system is operated by the
Brussels, Belgium office of Morgan Guaranty Trust Company of New York under
contract with Euroclear Clearance System, S.C., a Belgian cooperative
corporation that establishes policy on behalf of Euroclear participants. The
Euroclear operator is the Belgian branch of a New York banking corporation which
is a member bank of the Federal Reserve System. As such, it is regulated and
examined by the Board of Governors of the Federal Reserve System and the New
York State Banking Department, as well as the Belgian Banking Commission.
All operations are conducted by the Euroclear operator and all Euroclear
securities clearance accounts and cash accounts are accounts with the Euroclear
operator. They are governed by the Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of the Euroclear
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system and applicable Belgian law. These govern all transfers of securities and
cash, both within the Euroclear system, and receipts and withdrawals of
securities and cash. All securities in the Euroclear system are held on a
fungible basis without attribution of specific certificates to specific
securities clearance accounts.
Euroclear participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries
and may include any of the underwriters of any trust securities. Indirect access
to the Euroclear system is also available to other firms that clear through or
maintain a custodial relationship with a Euroclear participant, either directly
or indirectly. The Euroclear operator acts under the Terms and Conditions, the
Operating Procedures of the Euroclear system and Belgian law only on behalf of
Euroclear participants and has no record of or relationship with persons holding
through Euroclear participants.
DEFINITIVE SECURITIES
With respect to any class of notes and any class of certificates issued
in book-entry form, the notes and certificates will be issued as definitive
securities in fully registered, certificated form to noteholders or certificate
holders or their respective nominees, rather than to DTC or its nominee, only
if:
- the seller, the related trustee or the administrator, as
the case may be, 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 is unable to locate a qualified successor;
- the seller, the related trustee or the administrator, as
the case may be, at its option, elects to terminate the
book-entry system through DTC; or
- after the occurrence of an event of default under the
indenture, if applicable, or an event of default under the
related sale and servicing agreement or pooling and
servicing agreement, as applicable, holders representing at
least a majority of the outstanding principal balance of
the notes or certificates of a class, as the case may be,
advise the applicable trustee through participants in
writing that the continuation of a book-entry system
through DTC, or a successor thereto, with respect to the
notes or certificates is no longer in the best interest of
the holders of those securities.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the applicable trustee will be required to notify all
applicable securityholders of a given class, through participants, of the
availability of definitive securities. Upon surrender by DTC of the definitive
certificates representing the corresponding securities and receipt of
instructions for re-registration, the applicable trustee will reissue the
securities as definitive securities, and thereafter the applicable trustee will
recognize the holders of the 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 in this
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prospectus 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 the 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 the
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 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
With respect to the notes of any series, the related indenture trustee
will provide to the servicer, the seller and the security insurer, if any,
within 15 days after receipt of the request from the servicer, seller or
security insurer, if any, a list of the names and addresses of all holders of
record of notes as of the most recent record date. Upon written request by three
or more noteholders of the series or by noteholders evidencing not less than 25%
of the aggregate outstanding principal balance of the notes or a specified class
of the notes, as set forth in the related prospectus supplement, the indenture
trustee will afford the 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 the notes.
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 the request a list of the names and addresses of all holders of
record of certificates as of the most recent record date. Upon written request
by three or more certificateholders of the series or by certificateholders
evidencing not less than 25% of the aggregate outstanding principal balance of
the certificates, the related trustee will afford the 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 the
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
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 statement setting forth for the
distribution date the following information:
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- the amount of the distribution on or with respect to each
class of securities allocable to principal;
- the amount of the distribution on or with respect to each
class of securities allocable to interest;
- the aggregate distribution amount for the distribution
date;
- 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 the distribution date,
after giving effect to changes thereto on the distribution
date and the amount to be deposited in the spread account,
if any;
- the aggregate servicing fee paid to the servicer with
respect to the related contracts for the related collection
period;
- 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 presented on a 30-day, 60-day and 90-day basis;
- the amount available in the collection account for payment
of the aggregate amount payable or distributable on the
securities;
- the amount of the servicing fee;
- the amount of any principal or interest shortfall with
respect to each class of securities;
- the amount of the draw, if any, required to be made from
any spread account, reserve account, yield supplement
account, under any security insurance policy or payments in
respect of any other credit or cash flow enhancement
arrangement, and the application of the draw;
- the amount on deposit in any spread account, reserve
account or other similar account on the distribution date,
before and after giving effect to changes in the accounts
on that date;
- the amount on deposit in any yield supplement account or
other similar account on the distribution date, before and
after giving effect to changes in the accounts on that
date;
- the amount on deposit in any prefunding account,
capitalized interest account, or other similar account on
the distribution date before and after giving effect to
changes to the accounts on that date;
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- Under a prefunding arrangement, the amount of earnings and
other amounts transferred from the prefunding account and
the amounts transferred from the capitalized interest
account to the payment account on the Distribution Date;
- for the first distribution date following the end of a
funding period under a prefunding arrangement, the amount
remaining on deposit in the prefunding account that has not
been used to fund the purchase of additional contracts and
is being passed through as payments of principal on the
securities of the trust;
- 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 that term is
defined in the related prospectus supplement;
- the net credit losses for the collection period;
- the number and net outstanding balance of contracts for
which the financed vehicle has been repossessed;
- the pool balance; and
- any other matters specified in the related prospectus
supplement.
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 will
furnish to each person who on any record date during the calendar year shall
have been a registered securityholder a statement containing information for the
purposes of the securityholder's preparation of federal income tax returns. See
"Certain Federal Income Tax Consequences".
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary, together with the information set forth in the
related prospectus supplement, describes the material terms of the following
transfer and servicing agreements:
- each sale and servicing agreement or pooling and servicing
agreement under which a trust will purchase contracts from
the seller and the servicer will agree to service the
contracts;
- each trust agreement or, in the case of a grantor trust,
the pooling and servicing agreement, under which a trust
will be created and certificates will be issued; and
- each administration agreement under which Onyx or another
party specified in the related prospectus supplement will
undertake particular administrative duties with respect to
a trust that issues notes.
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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
SALE AND ASSIGNMENT BY ONYX AND ITS SUBSIDIARIES. Before each trust
issues the related securities, Onyx and its participating subsidiaries will sell
and assign to the seller under a purchase agreement, without recourse, their
entire interest in the related contracts, including their security interests in
the related financed vehicles.
SALE AND ASSIGNMENT BY THE SELLER. At the time of issuance of a series of
securities, the seller will sell and assign to the applicable trustee, without
recourse, under a sale and servicing agreement or a pooling and servicing
agreement, as applicable, the seller's entire interest in the contracts and the
proceeds thereof, including its security interests in the related financed
vehicles. Each contract will be identified in a schedule appearing as an exhibit
to the sale and servicing agreement or pooling and servicing agreement. The
applicable trustee will, concurrently with the sale and assignment, execute,
authenticate and deliver the definitive certificates representing the related
securities.
SALE AND ASSIGNMENT OF CONTRACTS UNDER A PREFUNDING ARRANGEMENT. The
related prospectus supplement for the trust will specify whether, and the terms,
conditions and manner under which, additional contracts will be sold by Onyx and
its participating subsidiaries to the seller and by the seller to the applicable
trust under any prefunding arrangement.
REPRESENTATIONS AND WARRANTIES. In each sale and servicing agreement or
pooling and servicing agreement, the seller will represent and warrant to the
applicable trustee and the trust, among other things, for the benefit of holders
of the securities and any applicable security insurer that:
- each contract to be included in the trust property of the
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;
- each contract and the sale of the related financed vehicle
complied at the time it was made in all material respects
with all requirements of applicable federal, state, and
local laws, and regulations thereunder, including usury
laws, the Federal Truth-in-Lending Act, the Equal Credit
Opportunity Act, the Fair Credit Reporting Act, the Federal
Trade Commission Act, the Fair Debt Collection Practices
Act, the Fair Credit Billing Act, the Magnuson-Moss
Warranty Act, the Federal Reserve Board's Regulations B and
Z, the Soldiers' and Sailors' Civil Relief Act of 1940,
state adaptations of the National Consumer Act and of the
Uniform Consumer Credit Code, and any other consumer
credit, equal opportunity and disclosure laws applicable to
the contract and sale;
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- each contract constitutes the legal, valid, and binding
payment obligation in writing of the obligor, enforceable
by the holder thereof in all respects in accordance with
its terms, subject, as to enforcement, to applicable
bankruptcy, insolvency, reorganization, liquidation and
other similar laws and equitable principles relating to or
affecting the enforcement of creditors' rights;
- as of the closing date, each contract was secured by a
validly perfected first priority security interest in the
financed vehicle in favor of the seller as secured party or
all necessary action with respect to the 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;
- as of the closing date, the seller had good and marketable
title to and was the sole owner of each contract, free of
liens, claims, encumbrances and rights of others;
- as of the closing date, there are no rights of rescission,
offset, counterclaim, or defense, and the seller has no
knowledge of the same being asserted or threatened, with
respect to any contract;
- 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 any contract;
- except for payment defaults continuing for a period of not
more than 30 days as of the cut-off date, the seller has no
knowledge that a default, breach, violation, or event
permitting acceleration under the terms of any contract
exists, and the seller has no knowledge that a continuing
condition that with notice or lapse of time would
constitute a default, breach, violation or event permitting
acceleration under the terms of any contract exists, and
the seller has not waived any of the foregoing;
- each contract requires that the obligor thereunder obtain
comprehensive and collision insurance covering the financed
vehicle;
- each contract was acquired from a dealer with whom Onyx
ordinarily does business, except for contracts purchased or
originated by a subsidiary of Onyx;
- no adverse selection procedures were utilized in selecting
the contracts;
- scheduled payments under each contract have been applied in
accordance with the method for allocating principal and
interest set forth in the contract; and
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- there is only one original of each contract and the
original is being held by Onyx, the applicable trustee or
indenture trustee, or the custodian of the contracts
specified in the related prospectus supplement.
SELLER MUST REPURCHASE THE CONTRACTS RELATING TO A BREACH OF A
REPRESENTATION OR WARRANTY. As of the last day of the collection period
following the collection period (or, if the seller elects, the last day of the
collection period) during which the seller becomes aware or receives written
notice from the applicable trustee or the servicer of a breach of any
representation or warranty of the seller that materially and adversely affects
the interests of the securityholders or any applicable security insurer in a
contract, the seller, unless the breach has been cured, will repurchase the
contract from the trust 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 any uncured breach.
THE COLLECTION ACCOUNT AND ELIGIBLE INVESTMENTS
With respect to each trust, the servicer will establish and maintain a
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 the securities. Eligible investments made
with respect to the collection account will generally 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
If so provided in the related prospectus supplement, the servicer will
establish for each trust a payahead account in the name of the related trustee
or indenture trustee, as applicable. Payaheads will initially be deposited in
the collection account and subsequently transferred from the collection account
to the payahead account on the servicer report date defined in the related
prospectus supplement. "Payaheads" are payments made by an obligor, other than
full prepayments, in excess of the sum of:
- the scheduled payment of principal and interest due on the
current due date; and
- any other amount currently due on an actuarial or rule of
78's contract.
Deposits of payaheads into the payahead account will be held in the account
until distributed in accordance with the original schedule of payments for the
related contract or until the amount of the payahead equals the amount the
obligor would be required to pay in order to prepay the contract in full. Unless
otherwise provided in the related prospectus supplement, amounts on deposit in
the payahead account will be invested in eligible investments with maturity
dates so that, on each distribution date, the amount of principal and interest
scheduled to be collected for each actuarial or rule of 78's contract with
respect to which a payahead has been made will be available to be paid or
distributed to securityholders. The payahead account will not be part of the
applicable trust and neither the related trustee nor the
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related indenture trustee, if applicable, will have a security interest in the
payahead account. Earnings on eligible investments credited to the payahead
account will be paid to the servicer.
OTHER ACCOUNTS
Any other trust accounts to be established with respect to a trust,
including any reserve fund, will be described in the related prospectus
supplement. For any series of securities, funds in any related reserve fund and
the 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.
COLLECTIONS
With respect to each trust, to the extent set forth in the related
prospectus supplement, net collections on the contracts will be deposited in or
credited to the collection account within two business days of the receipt by
the servicer of payments from obligors. Net collections with respect to a
distribution date and the related collection period will include:
- amounts received with respect to the related contracts in
the collection period representing monthly installments of
principal and interest;
- full prepayments and partial prepayments, pending transfer
of payaheads on actuarial and rule of 78's contracts to any
payahead account;
- net liquidation proceeds - proceeds received by the
servicer upon liquidation of any defaulted contract, net of
the reasonable out-of-pocket expenses, other than overhead
expenses, incurred by the servicer in realizing upon a
defaulted contract that are not recoverable under any
insurance policy;
- net insurance proceeds - proceeds paid by any insurer under
a comprehensive and collision insurance policy related to a
contract after reimbursement to the servicer of expenses
recoverable under the policy, but not including funds used
for the repair of the related financed vehicle or otherwise
released to the related obligor in accordance with normal
servicing procedures;
- any amounts deposited by Onyx or the seller in the
collection account to purchase contracts because of
breaches of representations or warranties regarding the
contracts made by the seller in the pooling and servicing
agreement or sale and servicing agreement that materially
and adversely affect the interests of the securityholders
or any security insurer;
- any amounts deposited by the servicer in the collection
account to purchase contracts as to which the servicer has
breached servicing covenants; and
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- any amounts deposited by the servicer in the collection
account as a result of that entity exercising its right
under particular circumstances to purchase all or a portion
of the contracts.
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 the securities entitled thereto will be made by the applicable
trustee to the securityholders of the series. The related prospectus supplement
will set forth the timing, calculation, allocation, order, source, priorities of
and requirements for all payments and distributions to each class of securities
of the series.
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 securityholders 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 the distribution date to the extent specified in the related
prospectus supplement. If specified in the related prospectus supplement,
payments or distributions in respect of one or more classes of securities of the
applicable series may be subordinate to payments or distributions in respect of
one or more other classes of securities of the series.
CREDIT AND CASH FLOW ENHANCEMENT
The amounts and types of any 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 one or more of the
following forms:
- 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;
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- 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.
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 that 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 of those series will be
subject to the risk that the 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 his or her financed vehicle in an amount not less
than the lesser of its maximum insurable value or the unpaid principal balance
under the 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 set forth in the related prospectus supplement of a
statement setting forth substantially the same information as is required to be
provided in the periodic reports provided to securityholders of the trust
described under "Description of the Securities - Statements to Securityholders".
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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 aggregate principal balance of the related contracts, after giving
effect to the principal payments and distributions otherwise to be made on that
distribution date, has declined to the percentage of the original aggregate
cut-off date principal balance of the contracts specified in the related
prospectus supplement. Any such purchase must be effected at the price specified
in the related prospectus supplement, if applicable, plus all amounts due to any
applicable security insurer. In addition, Onyx or the seller will be required to
purchase or repurchase, respectively, contracts under particular circumstances
if 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 servicing covenants.
SERVICING FEE
The servicer will be entitled to compensation as described in the related
prospectus supplement for the performance of its obligations under each sale and
servicing agreement and pooling and servicing agreement.
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. The related
prospectus supplement may provide otherwise, but if it does not, the servicer
will be permitted, in its discretion, to:
- waive any late payment charges in connection with
delinquent payments on a contract;
- waive prepayment charges; and
- grant up to three extensions of 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. Liquidation may be through repossession or sale of the
financed vehicle securing the contract or otherwise. In connection with the
repossession or other conversion, the servicer will follow procedures that 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.
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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 31 after the end of each
fiscal year of the servicer, a statement as to compliance by the servicer during
the preceding fiscal year with particular standards relating to the servicing of
the related 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 31
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
default.
Copies of these statements and certificates may be obtained by
securityholders by a request in writing addressed to the applicable trustee or
indenture trustee.
CERTAIN MATTERS REGARDING THE SERVICER
Each sale and servicing agreement and pooling and servicing agreement
will provide that the servicer may not resign from its obligations and duties as
servicer thereunder except upon determination that the servicer's performance of
its duties is no longer permissible under applicable law. No 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" in this
prospectus.
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 under 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 this event, the legal expenses and costs of this
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. This indemnification or
reimbursement could reduce the amount otherwise available for distribution to
securityholders.
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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
The related prospectus supplement may provide for other events of default
by the servicer, but if it does not, a servicer default under the sale and
servicing agreement or pooling and servicing agreement, as applicable, will
consist of:
- 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 a period of three business
days after written notice is received by the servicer from
the trust, the applicable trustee or indenture trustee, or,
if applicable, the related security insurer, or after
discovery of the failure by an officer of the servicer;
- any failure by the servicer to timely deliver to the trust,
the applicable trustee or indenture trustee, or, if
applicable, the related security insurer, reports required
by the sale and servicing agreement or pooling and
servicing agreement, as applicable;
- any failure by the servicer or the seller, duly to observe
or perform in any material respect any other covenants or
agreements of the servicer or the seller in the sale and
servicing agreement or pooling and servicing agreement,
which failure materially and adversely affects the rights
of securityholders, the trust 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 the failure:
- to the servicer or the seller, as the case
may be, by the applicable trustee or
indenture trustee, the trust, or, if
applicable, the related security insurer, or
- to the servicer or the seller, as the case
may be, and to the trust and the applicable
trustee or indenture trustee, by:
- the holders of notes evidencing
not less than 25% of the
outstanding principal amount of
the notes;
- if there are no notes
outstanding, the holders of
certificates evidencing not less
than 25% of the outstanding
principal balance of the
certificates; or
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- if applicable, the related
security insurer;
- events of insolvency, readjustment of debt,
marshalling of assets and liabilities, or
similar proceedings and actions by the
servicer or the seller, indicating its
insolvency, reorganization through bankruptcy
or similar proceedings or inability to pay
its obligations, as more particularly
described in the pooling and servicing
agreement or sale and servicing agreement;
- any breach of any of the representations and warranties of
the servicer or the seller, except for any breaches
relating to contracts repurchased by the seller or the
servicer, which breach has a material adverse effect on the
related securityholders or, if applicable, the related
security insurer, and which continues for 30 days after the
giving of notice of the breach to the seller or the
servicer, as the case may be, by:
- the trust, the applicable trustee or the
indenture trustee;
- the holders of notes evidencing not less than
25% of the outstanding principal amount of
the notes;
- if there are no notes outstanding, the
holders of certificates evidencing not less
than 25% of the outstanding principal balance
of the certificates; or
- if applicable, the related security insurer;
- any change in control of the servicer in violation of the
covenants set forth in the sale and servicing agreement or
pooling and servicing agreement.
References to the seller in the foregoing list of events which constitute
servicer defaults are effective only so long as Onyx is the servicer. If Onyx is
no longer the servicer, then no act of the seller will constitute a servicer
default.
RIGHTS UPON SERVICER DEFAULT
The related prospectus supplement may specify other rights in the event
of a servicer default under a sale and servicing agreement or pooling and
servicing agreement, but if it does not, then the trustee, the indenture
trustee, if applicable, the security holders and the security insurer, if any,
will have the rights described below.
In the case of any trust that has issued notes, 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 the notes
then outstanding, acting together as a single class, may terminate all the
rights and obligations of the servicer under the sale and servicing agreement.
Upon termination of the servicer, the indenture trustee or a successor servicer
appointed by the indenture trustee will succeed to all the responsibilities,
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duties and liabilities of the servicer under the sale and servicing agreement
and will be entitled to similar compensation arrangements; provided, however,
that the indenture trustee will not be obligated to purchase contracts if
specific representations and warranties of Onyx as servicer prove incorrect or
if specific covenants of Onyx as servicer are breached.
In the case of any trust that has not issued notes or with respect to
which no notes are outstanding, 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 the certificates then outstanding, acting together as a
single class, may terminate all the rights and obligations of the servicer under
the sale and servicing agreement or pooling and servicing agreement. Upon
termination of the servicer, the trustee or a successor servicer appointed by
the trustee will succeed to all the responsibilities, duties and liabilities of
the servicer under the sale and servicing agreement or pooling and servicing
agreement and will be entitled to similar compensation arrangements; provided,
however, that the trustee will not be obligated to purchase contracts if
specific representations and warranties of Onyx as servicer prove incorrect or
if specific covenants of Onyx as servicer are breached.
In the event that the 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.
WAIVER OF SERVICER DEFAULT
The related prospectus supplement may specify other waiver provisions,
but if it does not, then with respect to each trust that has issued notes, the
holders of notes of the related series evidencing not less than 51% of the
principal amount of the 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 the
sale and servicing agreement.
The related prospectus supplement may specify other waiver provisions,
but if it does not, then with respect to each trust that has not issued notes or
with respect to which no notes are then outstanding, holders of certificates of
the related series evidencing not less than 25% of the principal amount of the
certificates then outstanding, acting together as a single class, with the
consent of the related security insurer, if any, may, on behalf of all the
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 the sale and
servicing agreement or pooling and servicing agreement. No waiver will impair
the noteholders' or certificateholders' rights with respect to subsequent
defaults.
The related prospectus supplement may specify other waiver provisions,
but if it does not, then a servicer default in making any required deposits to
or payment from the related trust accounts in accordance with the sale and
servicing agreement or pooling and servicing agreement, as applicable,
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may only be waived with the consent of the holders of 100% of the outstanding
principal amount of the notes or, if the notes have been paid in full or there
are no notes in that series of securities, the holders of 100% of the
outstanding principal amount of the certificates.
NONPETITION COVENANT
With respect to each trust, 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 the
securityholders have offered to the trustee or indenture trustee reasonable
security or indemnity against the costs, expenses and liabilities which they may
incur under those agreements. No securityholder will have any right under the
sale and servicing agreement or the pooling and servicing agreement to institute
any proceeding with respect the agreement unless:
- the holder previously has given to the trustee or indenture
trustee, as applicable, written notice of default; and
- 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 the notes then outstanding have made written request
upon the trustee or indenture trustee to institute the proceeding
in its own name as trustee or indenture trustee thereunder and
have offered to the trustee or indenture trustee reasonable
indemnity;
- in the case of a trust that has not issued notes or with respect
to which no notes are then outstanding, holders of certificates of
the related series evidencing not less than 25% of the principal
amount of the certificates then outstanding have made written
request upon the trustee or indenture trustee to institute the
proceeding in its own name as trustee or indenture trustee
thereunder and have offered to the trustee or indenture trustee
reasonable indemnity; and
- the related security insurer, if any, consents to the institution
of the proceeding.
AMENDMENT
The related prospectus supplement may provide other provisions for the
amendment of the transfer and servicing agreements, but if it does not, then
each of the transfer and servicing agreements may be amended by the parties to
those agreements, 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 in the agreement which may be inconsistent
with any other provisions in the agreement, or make any other provisions with
respect to matters or questions arising thereunder which are not inconsistent
with the provisions of the transfer and servicing agreement being amended;
provided that the amendment will not materially and adversely affect the
interest of any securityholder, including, in the case of a trust agreement, any
residual interestholder. Any amendment will be deemed not to materially and
adversely affect the interest of any securityholder if the person requesting the
amendment obtains:
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- 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 the rating agency;
or
- an opinion of counsel to that effect.
In the case of a trust agreement, any amendment will be deemed not to
materially and adversely affect the interest of any residual interestholder if:
- the person requesting the amendment obtains an opinion of counsel
to the effect that the amendment will not materially and adversely
affect the interest of any residual interestholder; or
- 100% of the residual interestholders consent to the amendment.
The related prospectus supplement may provide other amendment provisions,
but if it does not, then the transfer and servicing agreements may also be
amended, for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of the transfer and servicing agreements or
of modifying in any manner the rights of the noteholders, certificateholders or
residual interestholders, by the parties to those agreements with the consent of
the related security insurer, if any, and the consent of:
- 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 the notes then outstanding, acting together as
a single class; or
- in the case of a trust that has not issued notes or with respect
to which no notes are then outstanding, the holders of
certificates of the related series evidencing not less than 51% of
the principal amount of the certificates then outstanding, acting
together as a single class; and
- if the amendment materially and adversely affects the interests of
the residual interestholders, the holders of 51% of the residual
interest in the trust.
However, without the consent of the holders of all of the outstanding
notes or certificates of the related series, as the case may be, no amendment
may:
- increase or reduce in any manner the amount of, or accelerate or
delay the timing of, collections of payments on the related
contracts or distributions that are required to be made for the
benefit of the noteholders, certificateholders or, in the case of
an amendment to a trust agreement, the residual interestholders;
or
- reduce the percentage of the notes, certificates or, in the case
of an amendment to a trust agreement, the residual interests of
that series which are required to consent to any amendment.
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TERMINATION
The related prospectus supplement may specify other termination
provisions, but if it does not, then with respect to each trust, the obligations
of the seller, the servicer, the related trustee and the related indenture
trustee, if any, under the transfer and servicing agreements will terminate upon
the earlier of:
- 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
- the occurrence of all of the following:
- the payment to noteholders, if any, and
certificateholders of the related series of
all amounts required to be paid to them under
the transfer and servicing agreements and the
disposition of all property held as part of
the related trust;
- if applicable, the termination of the related
security insurance policy in accordance with
its terms and the surrender of the policy to
the related security insurer for
cancellation;
- the payment of all amounts owed to the
trustee or indenture trustee under the
transfer and servicing agreements; and
- if applicable, the payment of all amounts
owed to the related security insurer in
connection with the related security
insurance policy.
If so provided 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 aggregate outstanding principal balance of
the related contracts, after giving effect to the principal payments and
distributions otherwise to be made on that date, has declined to the percentage
of the aggregate cut-off date principal balance of the contracts 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 the
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 measures to locate a securityholder and these measures have failed, will
be distributed to a charity designated by the servicer.
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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 being deposited in or credited to the related
collection account. At the applicable closing date, the trustee or indenture
trustee will not have examined the contracts. If no event of default has
occurred, the 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 the 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 local jurisdictions, each trustee and indenture trustee, in some
circumstances acting jointly with the servicer, will have the power to appoint
co-trustees or separate trustees of all or any part of the related trust
property. In this event, all rights, powers, duties and obligations conferred or
imposed upon the trustee or indenture trustee by the related transfer and
servicing agreement or indenture, as applicable, will be conferred or imposed
upon the trustee or indenture trustee and the separate trustee or co-trustee
jointly, or, in any jurisdiction in which the trustee or indenture trustee is
incompetent or unqualified to perform certain acts, singly upon the separate
trustee or co-trustee who will exercise and perform these rights, powers, duties
and obligations solely at the direction of the trustee or indenture trustee.
The related prospectus supplement may specify other resignation and
removal provisions, but if it does not, then each applicable trustee and
indenture trustee may resign at any time, in which event a successor trustee
will be appointed under 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 the
trustee or indenture trustee becomes insolvent. Any resignation or removal of
the trustee or indenture trustee and appointment of a successor does not become
effective until acceptance of the appointment by the successor trustee.
If so provided by the related prospectus supplement, each applicable
trustee or indenture trustee will be entitled to a fee which will be payable on
an annual basis by the servicer. The related prospectus supplement may specify
other indemnification provisions, but if it does not, then the related transfer
and servicing agreement or indenture, as applicable, will further provide that
the trustee or indenture trustee will be entitled to indemnification by the
servicer for, and will be held harmless against, any loss,
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liability, or expense incurred by the trustee or indenture trustee not resulting
from the 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. However, the servicer will
not be obligated to indemnify the applicable trustee or indenture trustee to the
extent that the loss, liability, or expense relates to a specific contract or
contracts or certain taxes that could be asserted against the trustee or
indenture trustee, the related trust or the related contracts, in which case the
trustee or indenture trustee would be entitled to be indemnified by the
applicable trust.
Onyx and the seller may maintain other banking relationships with each
applicable trustee or indenture trustee in the ordinary course of business.
ADMINISTRATION AGREEMENT
With respect to a trust that issues notes, Onyx or another party
specified in the related prospectus supplement, in its capacity as
administrator, may enter into an administration agreement with the trust and the
related indenture trustee under which Onyx, or such other party, as the
administrator will agree, to the extent provided in the administration
agreement, to provide the notices and to perform other administrative
obligations required by the related indenture. The related prospectus supplement
may specify other compensation arrangements for the administrator, but if it
does not, then as compensation for the performance of the administrator's
obligations under the applicable administration agreement and as reimbursement
for its related expenses, the administrator will be entitled to a monthly
administration fee of an amount to be set forth in the related prospectus
supplement, which fee will be paid by the servicer.
THE INDENTURE
The following summary describes some of the terms of each indenture under
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
The related prospectus supplement may provide other provisions for
modification of the related indenture, but if it does not, then the related
indenture may be modified as described below.
With respect to each trust that has issued notes under an indenture, 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 the
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.
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With respect to a series that includes notes, without the consent of the
holder of each outstanding note affected by a supplemental indenture, no
supplemental indenture may:
- change the due date of any installment of principal of or
interest on a note;
- reduce the principal amount of a note;
- reduce the interest rate of a note;
- reduce the redemption price of a note;
- change any place of payment where a note or interest on a
note is payable;
- change the coin or currency in which a note or any interest
on a note is payable;
- impair the right to institute suit for the enforcement of
certain provisions of the related indenture regarding
payment;
- reduce the percentage of the aggregate amount of the
outstanding notes of the series, the consent of the holders
of which is required for any 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 under the related
indenture and their consequences as provided for in the
related indenture;
- modify or alter the provisions of the related indenture
regarding the voting of notes held by the applicable trust,
any other obligor on the notes, the seller or an affiliate
of any of them;
- reduce the percentage of the aggregate outstanding amount
of the 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 the sale would
be insufficient to pay the principal amount and accrued but
unpaid interest on the outstanding notes of the series;
- decrease the percentage of the aggregate principal amount
of the notes required to amend the sections of the related
indenture which specify the applicable percentage of
aggregate principal amount of the notes required to amend
the related indenture or certain other related agreements;
or
- 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 the notes or, except as
otherwise permitted or contemplated in the indenture,
terminate the lien of the indenture on any of the
collateral or deprive the holder of any note of the
security afforded by the lien of the indenture.
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With respect to a series that includes notes, the related trust and the
applicable indenture trustee may also enter into supplemental indentures,
without obtaining the consent of the noteholders of the related series, but with
the consent of the related security insurer, if any, for the purpose of, among
other things, adding any provisions to or changing in any manner or eliminating
any of the provisions of the related indenture or of modifying in any manner the
rights of the noteholders; provided that this action will not materially and
adversely affect the interest of any noteholder.
INDENTURE EVENTS OF DEFAULT
The related prospectus supplement may specify other events of default
under the related indenture, but if it does not, then, with respect to the notes
of a given series, the following will constitute indenture events of default:
- a draw on any security insurance policy;
- a default for five days or more in the payment of any
interest on any note;
- a default in the payment of the principal of or any
installment of the principal of any note when the same
becomes due and payable;
- 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 the default for a period
of 90 days after notice is given to the trust by the
applicable indenture trustee or the related security
insurer, if any, or to the trust and the indenture trustee
by the holders of at least 25% in principal amount of the
notes then outstanding acting together as a single class;
- any representation or warranty made by the trust in the
related indenture or in any certificate delivered under or
in connection with the indenture having been incorrect in a
material respect as of the time made, and the breach not
having been cured within 30 days after notice thereof is
given to the trust by the applicable indenture trustee or
the related security insurer, if any, or to the trust and
the indenture trustee by the holders of at least 25% in
principal amount of the notes then outstanding acting
together as a single class; or
- events of bankruptcy, insolvency, receivership or
liquidation of the applicable trust.
The related prospectus supplement may specify other default provisions,
but if it does not, and if a security insurance policy is in effect with respect
to the notes, then so long as a default by the insurer shall not have occurred
and be continuing, an indenture event of default will occur only upon delivery
by the security insurer to the indenture trustee of notice of the occurrence of
an indenture event of default. The failure to pay principal on a class of notes
generally will not result in the occurrence of an indenture event of default
until the final scheduled distribution date for that class of notes.
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RIGHTS UPON INDENTURE EVENT OF DEFAULT
The related prospectus supplement may specify other rights upon the
occurrence of an indenture event of default, but if it does not, then the
trustee, the securityholders and the security insurer, if any, will have the
rights described below. The related prospectus supplement will specify those
events which constitute a default by the security insurer, if any.
NO SECURITY INSURANCE POLICY OR SECURITY INSURER IN DEFAULT. If there is
no security insurance policy with respect to a series of notes, or if a default
by the related security insurer has occurred and is continuing, then upon the
occurrence of an indenture event of default, the holders of at least 66 2/3% of
the principal amount of the notes then outstanding may declare that the notes
become immediately due and payable. Also, in this event, the holders of at least
66 2/3% of the principal amount of the notes then outstanding will have the
right to control the exercise of remedies available with respect to the
indenture event of default, including the right to direct the indenture trustee
to maintain possession of the trust property or to liquidate the trust property
in whole or in part. However, the noteholders may not direct the indenture
trustee to liquidate the trust property in whole or in part unless either:
- the security insurer, if any, has failed to make a payment
required under the security insurance policy, and the
indenture event of default has occurred because of:
- a default in the payment of any principal on
the final scheduled distribution date for a
class of notes or a default of at least five
days in the payment of any interest on any
notes; or
- events of bankruptcy, insolvency,
receivership or liquidation of the trust; or
- the security insurer, if any, has not failed to make a
payment required under the security insurance policy, and
an indenture event of default has occurred other than as
described above, and either:
- the proceeds of the sale will be sufficient
to pay all outstanding principal and accrued
interest of the notes and the certificates,
and all amounts owing to the security
insurer, if any; or
- holders of certificates evidencing 100% of
the outstanding principal amount of the
certificates consent to the sale and all
amounts owing to the security insurer, if
any, will be paid in connection with the
sale.
In the event of a sale of the contracts as described in the second
alternative above when the security insurer has not failed to make a payment
required under a security insurance policy, the security insurance policy will
not be available to cover losses to securityholders resulting from the sale and
will be terminated and the security insurer will have no further obligation to
make any payment thereunder.
SECURITY INSURANCE POLICY AND NO SECURITY INSURER DEFAULT. Upon the
occurrence of an indenture event of default, so long as a default by the
security insurer shall not have occurred and be
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continuing, the security insurer will have the right, but not the obligation, to
declare by written notice to the trust and the indenture trustee that the notes
become immediately due and payable. Upon the occurrence of an indenture event of
default, so long as a default by the security insurer shall not have occurred
and be continuing, the security insurer will have the right to control the
exercise of remedies available with respect to the indenture event of default,
including the right to direct the indenture trustee to maintain possession of
the trust property or to liquidate the trust property in whole or in part, on
any date or dates following the acceleration of the notes due to the indenture
event of default as the security insurer, in its sole discretion, shall elect.
The security insurer may not, however, cause the indenture trustee to liquidate
the trust property in whole or in part if the proceeds of the liquidation would
not be sufficient to pay all outstanding principal of and accrued interest on
the notes. Following the occurrence of any indenture event of default, the
trustee and the indenture trustee will continue to submit claims under the
security insurance policy for any shortfalls in amounts available to make
payments or distributions of guaranteed amounts on the notes and the
certificates. However, following the occurrence of an indenture event of
default, so long as a default by the security insurer shall not have occurred
and be continuing, the security insurer, at its sole option, may elect to pay
all or any portion of the outstanding amount of the notes, plus accrued interest
thereon to the date of payment.
COVENANTS
RESTRICTIONS ON CONSOLIDATION OR MERGER. The related prospectus
supplement may specify other covenants, but if it does not, then, 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:
- the entity formed by or surviving the consolidation or
merger is organized under the laws of the United States,
any state or the District of Columbia;
- the surviving entity expressly assumes the 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 the trust under the
indenture;
- no event of default under the indenture shall have occurred
and be continuing immediately after the merger or
consolidation;
- the trust has been advised that the rating of the
securities of the related series then in effect would not
be reduced or withdrawn by any rating agency as a result of
the merger or consolidation; and
- the trust has received an opinion of counsel to the effect
that the consolidation or merger would have no material
adverse tax consequence to the trust or to any holder of
the securities of the related series.
OTHER NEGATIVE COVENANTS. Each trust that has issued notes will not,
among other things:
- except as expressly permitted by the applicable indenture,
the applicable transfer and servicing agreements or certain
related documents with respect to the trust, sell,
transfer, exchange or otherwise dispose of any of the
assets of the trust;
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- 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
tax code or applicable state law, or assert any claim
against any present or former holder of the notes because
of the payment of taxes levied or assessed upon the trust;
- dissolve or liquidate in whole or in part;
- 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
the notes under the indenture except as may be expressly
permitted thereby; or
- 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 the trust
or any part of the trust, or any interest in the trust or
the proceeds of the trust.
No trust that has issued notes will incur, assume or guarantee any
indebtedness other than indebtedness incurred under the related notes and the
related indenture, or otherwise in accordance with the applicable transfer and
servicing agreements and other 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 indebtedness
owing by the trust to the applicable indenture trustee in
its individual capacity; and
- the property and funds physically held by the indenture
trustee as such and any action taken by it that materially
affects the related notes and that has not been previously
reported.
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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 of the related notes or, with certain limitations, upon
deposit with the indenture trustee of funds sufficient for the payment in full
of all of the related notes.
THE INDENTURE TRUSTEE
The indenture trustee, if applicable, will be specified in the related
prospectus supplement. Under the Trust Indenture Act of 1939, as amended, the
indenture trustee may have a "conflicting interest" if any event of default
under the indenture occurs with respect to a series that includes one or more
classes of notes that are subordinated to any other class of notes. In this
event, the indenture trustee may be required to resign with respect to one or
more classes of notes and the successor indenture trustee would be appointed for
such class or classes of notes. 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" in this
prospectus.
CERTAIN LEGAL ASPECTS OF THE CONTRACTS
GENERAL
The transfer of contracts by Onyx and any of its subsidiaries to the
seller, and by the seller to the applicable trust, and, if applicable, the
pledge of those contracts 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, or 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 in the contract, and, if applicable,
the indenture trustee's interest in the contract, and takes possession of the
contract, the purchaser would acquire an interest in the contract superior to
the interest of the trust and, if applicable, the interest of the indenture
trustee.
The related prospectus supplement may specify other information
concerning the custody of the contracts, but if it does not, then 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 of those contracts to the related indenture
trustee, and will hold the contracts as custodian for the benefit of the trust
or, if applicable, the 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 the 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 the contracts in the ordinary course of its business and took
possession of the contracts,
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the purchaser would acquire an interest in the contracts superior to the
interests of the trust and, if applicable, the interests of the indenture
trustee, if the purchaser acquired the contracts in good faith, for value and
without actual knowledge of the trust's and, if applicable, the indenture
trustee's, interests in the contracts.
SECURITY INTERESTS IN THE FINANCED VEHICLES
GENERAL. Retail installment sale contracts and installment loan
agreements like 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 the security interest has been assigned to the trust. If Onyx
fails, because of clerical errors or otherwise, to effect or maintain the
notation of the security interest on the certificate of title relating to a
financed vehicle, the trust may not have a first priority security interest in
the 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, the trust will not amend the certificates of
title to identify the trust as the new secured party. Accordingly, Onyx or a
subsidiary of Onyx will continue to be named as the secured party on the
certificates of title relating to the financed vehicles. Under the law of
California and most other states, the assignment of the contracts is an
effective conveyance of the security interests in the financed vehicles without
amendment of the lien noted on the related certificate of title and the new
secured party succeeds to the assignor's rights as the secured party. However,
there exists a risk in not identifying the related trust as the new secured
party on the certificate of title that, through fraud or negligence, the
security interest of the trust could be released.
In the absence of fraud or forgery by the financed vehicle owner or
administrative error by state recording officials, notation of the lien of Onyx
or a subsidiary of Onyx will be sufficient to protect the 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, the 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 the
relocation and thereafter, in most instances, until the owner re-registers the
financed vehicle in that 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
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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 notice received by the
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
contracts, Onyx takes steps to effect the re-perfection upon receipt of notice
of registration or information from the obligor as to relocation. Similarly,
when an obligor under a contract sells a financed vehicle, the servicer must
provide the owner with the certificate of title, or the servicer will receive
notice as a result of its lien or its subsidiary's lien noted thereon and
accordingly will have an opportunity to require satisfaction of the related
contract before release of the lien. Under the sale and servicing agreement or
pooling and servicing agreement, as applicable, Onyx, at its cost, will be
obligated to maintain the continuous perfection of the security interest of Onyx
or its subsidiary in the financed vehicle.
Under the laws of most states, including California, certain statutory
liens such as liens for unpaid taxes, liens for towing and storage of and
repairs performed on a motor vehicle, motor vehicle accident liens, and liens
arising under various state and federal criminal statutes take priority even
over a perfected security interest. The tax code 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, these 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 one of these liens arises or a confiscation occurs, and any 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 this 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
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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 the 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 also 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.
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, a deficiency judgment can be sought in
those states that do not prohibit or limit deficiency 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 the repossessed vehicle or if no subordinate lienholder exists,
the UCC requires the creditor to remit the surplus to the obligor.
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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, commonly referred to as 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, these 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 the laws and the
regulations issued under the FTC Rule.
Any shortfalls or losses arising in connection with the matters described
in the two preceding paragraphs, to the extent not covered by amounts payable to
the securityholders from amounts available under a credit enhancement mechanism,
could result in losses to the securityholders.
Courts have applied general equitable principles to secured parties
pursuing repossession and litigation involving deficiency balances. These
equitable principles may have the effect of relieving an obligor from some or
all of the legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. Courts have generally upheld the notice provisions of the UCC and
related laws as reasonable or have found that the repossession and resale by the
creditor do not involve sufficient state action to afford constitutional
protection to borrowers.
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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 debtor's 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 the 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, under most circumstances, be charged
interest above an annual rate of 6% during the period of his or her active duty
status, unless a court orders otherwise upon application of the lender. In
addition, under 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 this 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 the financed vehicle under
an affected contract during the obligor's period of active duty status. Thus, in
the event that an affected 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 the defect adversely affects the
related trust's interest in the related contract, the 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 the 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 in
this section of this prospectus. "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 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 tax code -
the Internal Revenue Code of 1986, as amended, 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 the 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 tax
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 in this section of this prospectus. 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 the statements are
correct in all material respects. Those statements are intended as an
explanatory discussion of the related tax matters affecting investors generally,
but do
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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 some 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 corporate
income tax could materially reduce cash available to make payments on the notes
and distributions on the certificates, and certificateholders could be liable
for any corporate income 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 relating to original issue discount - or 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 the 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 the
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 the 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 tax
code.
A holder of a short-term note - one that has a fixed maturity date of not
more than one year from the issue date of the note - may be subject to special
rules. An accrual basis holder of a short-term note,
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and specific cash method holders, including regulated investment companies, as
set forth in Section 1281 of the tax 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 tax code to accrue interest income on all non-government
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 the 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 the noteholder
with respect to that note. This 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 foreign person a nonresident alien, foreign corporation or other non-United
States person - generally will be considered "portfolio interest," and generally
will not be subject to United States federal income tax and withholding tax, if
the interest is not effectively connected with the conduct of a trade or
business within the United States by the foreign person and the foreign person:
- 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 tax
code; and
- 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 the 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 under an
applicable tax treaty.
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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:
- the gain is not effectively connected with the conduct of a
trade or business in the United States by the foreign
person; and
- 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 were issued by the Treasury Department on October 6,
1997. These new withholding regulations will generally be effective for payments
made after December 31, 2000, subject to 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 applicable qualifying income tests. Nonetheless, treatment of the notes as
equity interests in such a publicly traded partnership could have adverse tax
consequences to some holders. For example, income to some 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
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
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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 by this prospectus.
A variety of alternative characterizations are possible. For example,
because the certificates have 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 the 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 tax 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:
- the interest that accrues on the certificates in accordance
with their terms for the month, including interest accruing
at the interest rate for the certificates for the month and
interest on amounts previously due on the certificates but
not yet distributed;
- 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;
- prepayment premium payable to the certificateholders for
the month; and
- any other amounts of income payable to the
certificateholders for the month.
This 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 interest rate of the certificates plus
the other items described above even though the trust might not have sufficient
cash to make current cash distributions of this 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
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even if they have not received cash from the trust to pay these 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 the certificateholder under the tax 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 of the expenses exceed two percent of the individual tax payer's
adjusted gross income. Furthermore, some 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, these deductions might be disallowed to the individual in whole or in
part and might result in the holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to the 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 these calculations be made separately for each contract, the trust
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on certificateholders.
DISCOUNT AND PREMIUM. It is believed that the contracts were not issued
with OID, and, therefore, the trust should not have OID income. However, the
purchase price paid by the trust for the contracts may be greater or less than
the remaining principal balance of the contracts at the time of purchase. If so,
the contracts will have been acquired at a premium or discount, as the case may
be. As indicated above, the trust will make this calculation on an aggregate
basis, but might be required to recompute it on a contract-by-contract basis.
If the trust acquires the contracts at a market discount or premium, the
trust will elect to include the market discount in income currently as it
accrues over the life of the contracts or to offset any market premium against
interest income on the contracts. As indicated above, a portion of the market
discount income or premium deduction may be allocated to certificateholders.
SECTION 708 TERMINATION. Under Section 708 of the tax 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 this type of 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 technical requirements that might apply when a
constructive termination occurs. As a result, the trust may be subject to 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.
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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 the
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 the certificates, and, upon sale or other disposition of some of the
certificates, allocate a portion of the 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 special tax 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, the 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 the 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 this type of 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 or loss, the purchasing certificateholder will have a
higher or lower basis, respectively, in the certificates than the selling
certificateholder had. The tax basis of the trust's assets will not be adjusted
to reflect that higher or lower basis unless the trust were to file an election
under Section 754 of the tax 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 an election under Section 754. 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. The 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
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will file a partnership information return on 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 the 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 inconsistencies.
Under Section 6031 of the tax 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 information on the nominee, the beneficial owners
and the certificates so held. This information includes
- the name, address and taxpayer identification number of the
nominee; and
- as to each beneficial owner:
- the beneficial owner's name, address and
identification number;
- whether the beneficial owner 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
- information on certificates that were held,
bought or sold on behalf of the beneficial
owner 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 an 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 tax 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
some 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.
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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 in this prospectus. Although it is not
expected that the trust would be engaged in a trade or business in the United
States for these 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 under Section 1446 of the tax
code, as if the income were effectively connected to a U.S. trade or business,
at a rate of 35% for foreign holders that are taxable as corporations and 39.6%
for all other foreign holders. The new withholding regulations or subsequent
adoption of Treasury regulations or the issuance of other administrative
pronouncements may require the trust to change its withholding procedures. In
determining a holder's withholding status, the trust may rely on IRS Form W-8,
IRS Form W-9 or the holder's certification of nonforeign status signed under
penalties of perjury.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return, including, in the case of a corporation, the branch
profits tax, on its share of the trust's income. Each foreign holder must obtain
a taxpayer identification number from the IRS and submit that number to the
trust on Form W-8 in order to assure appropriate crediting of the taxes
withheld. A foreign holder generally would be entitled to file with the IRS a
claim for refund with respect to taxes withheld by the trust, taking the
position that no taxes were due because the trust was not engaged in a U.S.
trade or business. However, interest payments made, or accrued, to a
certificateholder who is a foreign person generally will be considered
guaranteed payments to the extent the 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 under an applicable treaty. In this 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 applicable
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the tax 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 these consequences, subject to the
qualifications set forth in this section of this prospectus. 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
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that the statements are correct in all material respects. The 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 the trust will be classified as a grantor trust under
subpart E, Part I of subchapter J of Chapter 1 of Subtitle A of the tax code. In
this case, owners of certificates issued by a trust that is treated as a grantor
trust - grantor trust certificates - will be treated for federal income tax
purposes as owners of a portion of the trust's assets as described below.
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 the 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 the amounts are reasonable compensation for
services rendered to the trust. Grantor trust certificateholders that are
individuals, estates or trusts will be entitled to deduct their share of
expenses only to the extent these 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 this 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 tax code discussed below.
PREMIUM. The price paid for a grantor trust certificate by a holder will
be allocated to the holder's undivided interest in each contract based on each
contract's relative fair market value, so that the 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 the
premium under a constant interest method. Amortizable bond premium will be
treated as an offset to interest
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income on the grantor trust certificate. The basis for the 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 the 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 the 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 the contract. If a
reasonable prepayment assumption is used to amortize the 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 OID. Generally, under applicable Treasury
regulations promulgated under Section 1286 of the tax code, if the discount on a
stripped bond is larger than a de minimis amount, as calculated for purposes of
the OID rules of the tax code, the stripped bond will be considered to have been
issued with OID. See "- Original Issue Discount" below. 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 interest rate of the certificates 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 this 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 in this prospectus, the special rules
of the tax code relating to OID - 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 the contract for each
day on which it owns a certificate, including the date of purchase but excluding
the date of disposition. In the case of an original grantor trust
certificateholder, the daily portions of OID with respect to a contract
generally would be determined as follows. A calculation will be made of the
portion of OID that accrues on the contract during each successive monthly
accrual period, or shorter period in respect of the date of original issue or
the final distribution date. This will be done, in the case of each full monthly
accrual period, by adding:
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- the present value of all remaining payments to be received
on the contract under the prepayment assumption used in
respect of the contracts; and
- any payments received during the accrual period, and
subtracting from that total the "adjusted issue price" of
the contract at the beginning of the 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 tax 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 that 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 the 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 this 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 the contract allocable to the holder's undivided interest over the 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 Sections 1276 through
1278 of the tax code.
The tax 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
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the extent that it does not exceed the accrued market discount at the time of
this 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 tax 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:
- the total remaining market discount; and
- 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:
- the total remaining market discount; and
- a fraction, the numerator of which is the amount of stated
interest paid during the accrual period and the denominator
of which is the total amount of stated interest remaining
to be paid at the beginning of the accrual period.
For purposes of calculating market discount under any of the above methods in
the case of instruments, such as the grantor trust certificates, that provide
for payments that may be accelerated by reason of prepayments of other
obligations securing these 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 the grantor trust certificate purchased with market discount. For these
purposes, the de minimis rule referred above applies. Any deferred interest
expense would not exceed the market discount that accrues during the taxable
year and is, in general, allowed as a deduction not later than the year in which
the market discount is includible in income. If the holder elects to include
market discount in income currently as it accrues on all market discount
instruments acquired by the 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
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of the contract, the grantor trust certificateholder will be considered to have
purchased the contract with "amortizable bond premium" equal in amount to the
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 tax code to
amortize the premium. Under the tax 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, the interest payments. With certain
exceptions, such an election would apply to all debt instruments held or
subsequently acquired by the electing holder. Absent this type of 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 OID, and premium in income as interest, based on
a constant yield method. If this 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 the
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 the grantor trust
certificateholder owns or acquires. See "- Premium" above. 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. The 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. The 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 this
section applies will be treated as ordinary income or loss.
NON-U.S. PERSONS. Generally, interest or OID paid by the person required
to withhold tax under Section 1441 or 1442 to (i) an owner that is not a "U.S.
person," as defined below, or (ii) a grantor trust certificateholder holding on
behalf of an owner that is not a U.S. person and accrued OID recognized by the
owner on the sale or exchange of such a grantor trust certificate will not be
subject to withholding to the extent that a grantor trust certificate evidences
ownership in contracts issued after July 18, 1984 by natural persons if the
grantor trust certificateholder complies with applicable identification
requirements, including delivery of a statement, signed by the grantor trust
certificateholder under penalties of perjury, certifying that the grantor trust
certificateholder is not a U.S. person and providing the name and address of the
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.
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As used in this prospectus, a "U.S. person" means:
- a citizen or resident of the United States;
- a corporation, partnership, or other entity created or
organized in or under the laws of the United States or any
political subdivision thereof, except, in the case of a
partnership, as otherwise provided by regulations;
- an estate, the income of which is includible in gross
income for United States federal income tax purposes
regardless of its source; or
- a trust whose administration is subject to the primary
supervision of a United States court and which has one or
more United States persons who have authority to control
all substantial decisions of the trust.
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 the
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 the 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 the 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 the 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
ERISA and the tax code prohibit a pension, profit-sharing or other
employee benefit plan, as well as individual retirement accounts and some 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 tax code with respect to the benefit plan.
ERISA also imposes 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 the 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
the benefit plan, subject to certain
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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 tax code for such persons.
Certain transactions involving a trust might be deemed to constitute
prohibited transactions under ERISA and the tax 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 assets of a trust would be treated as plan assets of a
benefit plan for the purposes of ERISA and the tax code if the benefit plan
acquired an "equity interest" in the trust and none of the exceptions contained
in the regulation was applicable. An equity interest is defined under the
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.
UNDERWRITER EXEMPTIONS
The Department of Labor has granted to certain underwriters individual
administrative exemptions (the "Underwriter Exemptions") from certain of the
prohibited transaction rules of ERISA and the related excise tax provisions of
Section 4975 of the tax code with respect to the initial purchase, the holding
and the subsequent resale by employee benefit plans of securities, including
certificates issued by entities that hold investment pools consisting of certain
receivables, loans and other obligations and the servicing, operation and
management of such investment pools, provided the conditions and requirements of
the Underwriter Exemptions are met.
While each Underwriter Exemption is an individual exemption separately
granted to a specific underwriter, the terms and conditions which generally
apply to the Underwriter Exemptions are substantially identical, and include the
following:
(1) the acquisition of the securities by a employee benefit plan
is on terms (including the price for the securities) that are at least as
favorable to the employee benefits plan as they would be in an
arm's-length transaction with an unrelated party;
(2) the rights and interests evidenced by the securities acquired
by the employee benefit plan are not subordinated to the rights and
interests evidenced by other securities of the issuer unless the entity
holds only certain types of assets, including motor vehicle receivables
(a "Designated Transaction);
(3) the securities acquired by the employee benefit plan have
received a rating at the time of such acquisition that is one of the
three highest generic rating categories (four, in a
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Designated Transaction) from Standard & Poor's Ratings Group, a Division
of The McGraw-Hill Companies ("S&P"), Moody's Investors Service, Inc.
("Moody's"), or Fitch Inc. ("Fitch") (each, a "Rating Agency");
(4) the trustee must not be an affiliate of any other member of
the Restricted Group, as defined below;
(5) the sum of all payments made to and retained by the
underwriters in connection with the distribution of the securities
represents not more than reasonable compensation for underwriting the
securities, the sum of all payments made to and retained by the seller
pursuant to the assignment of the loans to the issuer represents not more
than the fair market value of such loans; the sum of all payments made to
and retained by the servicer and any other servicer represents not more
than reasonable compensation for such person's services under the
agreement pursuant to which the loans are pooled and reimbursements of
such person's reasonable expenses in connection therewith;
(6) the employee benefit plan investing in the certificates is an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of 1933 as
amended; and
(7) for certain types of issuers, the documents establishing the
issuer and governing the transaction must contain certain provisions
needed to protect the assets of the issuer from creditors of the sponsor.
The issuer must also meet the following requirements:
(i) the corpus of the issuer must consist solely of assets of a
type that have been included in other investment pools;
(ii) securities in such other investment pools must have been
rated in one of the three highest rating categories (four, in a
Designated Transaction) of S&P, Moody's or Fitch for at least one year
prior to the employee benefit plan's acquisition of securities; and
(iii) securities evidencing interests in such other investment
pools must have been purchased by investors other than employee benefit
plans for at least one year prior to any employee benefit plan's
acquisition of securities.
Moreover, the Underwriter Exemptions generally provide relief from
certain self-dealing/conflict of interest prohibited transactions that may occur
when an employee benefit plan fiduciary causes such employee benefit plan to
acquire securities of an issuer holding receivables as to which the fiduciary
(or its affiliate) is an obligor, provided that, among other requirements:
- in the case of an acquisition in connection with the initial
issuance of securities, at least fifty percent (50%) of each class
of securities in which employee benefit plans have invested is
acquired by persons independent of the Restricted Group;
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<PAGE> 82
- such fiduciary (or its affiliate) is an obligor with respect to
five percent (5%) or less of the fair market value of the
obligations contained in the investment pool;
- the employee benefit plan's investment in securities of any class
does not exceed twenty-five percent (25%) of all of the securities
of that class outstanding at the time of the acquisition; and
- immediately after the acquisition, no more than twenty-five
percent (25%) of the assets of any employee benefit plan with
respect to which such person is a fiduciary is invested in
securities representing an interest in one or more issuers
containing assets sold or serviced by the same entity.
The Underwriter Exemptions generally do not apply to employee benefit plans
sponsored by the seller, the related underwriter, the trustee, the master
servicer, any insurer with respect to the loans, any obligor with respect to
loans included in the investment pool constituting more than five percent (5%)
of the aggregate unamortized principal balance of the assets in the trust fund,
or any affiliate of such parties (the "Restricted Group").
The Underwriter Exemptions provide exemptive relief to certain motor
vehicle receivable-backed securities transactions using pre-funding accounts.
Secured receivables (the "obligations") supporting payments to securityholders,
and having a value equal to no more than twenty-five percent (25%) of the total
principal amount of the securities being offered by the issuer, may be
transferred to the issuer within a 90-day or three-month period following the
closing date (the "Pre-Funding Period"), instead of requiring that all such
obligations be either identified or transferred on or before the closing date.
The relief is available when the following conditions are met:
(1) The ratio of the amount allocated to the pre-funding account
to the total principal amount of the securities being offered (the
"Pre-Funding Limit") must not exceed twenty-five percent (25%).
(2) All obligations transferred after the closing date (the
"additional obligations") must meet the same terms and conditions for
eligibility as the original obligations used to create the issuer, which
terms and conditions have been approved by a Rating Agency.
(3) The transfer of such additional obligations to the issuer
during the Pre-Funding Period must not result in the securities to be
covered by the Underwriter Exemption receiving a lower credit rating from
a Rating Agency upon termination of the Pre-Funding Period than the
rating that was obtained at the time of the initial issuance of the
securities by the issuer.
(4) Solely as a result of the use of pre-funding, the weighted
average annual percentage interest rate for all of the obligations in the
trust at the end of the Pre-Funding Period must not be more than 100
basis points lower than the average annual percentage interest rate for
the obligations transferred to the trust on the closing date.
(5) In order to insure that the characteristics of the additional
obligations are substantially similar to the original obligations which
were transferred to the issuer:
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<PAGE> 83
(i) the characteristics of the additional obligations
must be monitored by an insurer or other credit support provider
that is independent of the depositor; or
(ii) an independent accountant retained by the depositor
must provide the depositor with a letter (with copies provided
to each Rating Agency rating the securities, the related
underwriter and the related trustee) stating whether or not the
characteristics of the additional obligations conform to the
characteristics described in the related prospectus or
prospectus supplement and/or pooling and servicing agreement. In
preparing such letter, the independent accountant must use the
same type of procedures as were applicable to the obligations
transferred to the issuer as of the closing date.
(6) The Pre-Funding Period must end no later than three months
or 90 days after the closing date or earlier in certain circumstances if
the pre-funding account falls below the minimum level specified in the
pooling and servicing agreement or an event of default occurs.
(7) Amounts transferred to any pre-funding account and/or
capitalized interest account used in connection with the pre-funding may
be invested only in certain permitted investments ("permitted
investments").
(8) The related prospectus or prospectus supplement must
describe:
(i) any pre-funding account and/or capitalized interest
account used in connection with a pre-funding account;
(ii) the duration of the Pre-Funding Period;
(iii) the percentage and/or dollar amount of the
Pre-Funding Limit for the issuer; and
(iv) that the amounts remaining in the pre-funding
account at the end of the Pre-Funding Period will be remitted to
certain or all of the securityholders as repayments of
principal.
(9) The related pooling and servicing agreement or indenture
must describe the permitted investments for the pre-funding account
and/or capitalized interest account and, if not disclosed in the related
prospectus or prospectus supplement, the terms and conditions for
eligibility of additional obligations.
The rating of a security may change. If the rating of a security
declines below the lowest permitted level, the security will no longer
be eligible for relief under the Underwriter Exemption, and consequently
may not be purchased by or sold to a employee benefit plan (although a
employee benefit plan that had purchased the security when it had a
permitted rating would not be required by the Underwriter Exemption to
dispose of it).
The prospectus supplement for each series of notes or
certificates will indicate the classes of notes or certificates, if any,
offered thereby as to which it is expected that an Underwriter Exemption
will apply.
78
<PAGE> 84
OTHER EXEMPTIONS
One or more other prohibited transaction exemptions issued by the
Department of Labor may be available to an employee benefit plan investing in
the notes or certificates, depending in part upon the type of employee benefit
plan fiduciary making the decision to acquire notes or certificates and the
circumstances under which the decision is made, including but not limited to PTE
84-14, regarding investments effected by "qualified plan asset managers," PTE
90-1, regarding investments by insurance company pooled separate accounts, PTE
91-38, regarding investments by bank collective investment funds, PTE 95-60,
regarding investments by insurance company general accounts, and PTE 96-23,
regarding investments effected by "in-house asset managers." However, even if
the conditions specified in one or more of these other exemptions are met, the
scope of the relief provided might or might not cover all acts which might be
construed as prohibited transactions.
CONSULTATION WITH COUNSEL
Any employee benefit plan fiduciary which proposes to cause an employee
benefit plan to purchase notes or certificates is encouraged to consult with its
counsel concerning the impact of ERISA and the tax code, the availability and
applicability of any Underwriter Exemption or any other exemptions from the
prohibited transaction provisions of ERISA and the tax code and the potential
consequences in their specific circumstances, before investing in the
certificates. Moreover, each employee benefit plan fiduciary should determine
whether under the general fiduciary standards of investment prudence and
diversification an investment in the notes or certificates is appropriate for
the employee benefit plan, taking into account the overall investment policy of
the employee benefit plan and the composition of the employee benefit plan's
investment portfolio.
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, the seller will agree to cause the
related trust to sell to the underwriter or underwriters named in the
underwriting agreement and in the related prospectus supplement, and each of the
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 in the
underwriting agreement and in the related prospectus supplement.
The related prospectus supplement may provide that the underwriters are
not obligated to purchase all of the securities, but if it does not, then the
applicable underwriter or underwriters will agree in the underwriting agreement
with respect to any given series of securities, subject to the terms and
conditions set forth in the underwriting agreement, to purchase all the
securities described in the agreement which are offered by this prospectus and
the related prospectus supplement if any of the 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 the securities or (ii) specify that the related securities are to be
79
<PAGE> 85
resold by the underwriter(s) in negotiated transactions at varying prices to be
determined at the time of the sale. After the initial public offering of any
securities, the public offering prices and concessions may be changed.
The related prospectus supplement may specify other indemnification
provisions, but if it does not, each underwriting agreement will provide that
Onyx 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.
The related prospectus supplement may specify otherwise, but if it does
not, then, under each underwriting agreement with respect to a given series of
securities, the closing of the sale of any class of securities subject to the
underwriting agreement will be conditioned on the closing of the sale of all
other classes of securities of that series.
The place and time of delivery for the securities in respect of which
this prospectus is delivered will be set forth in the related prospectus
supplement.
LEGAL OPINIONS
Certain legal matters relating to the securities of any series will be
passed upon for the related trust, the seller and the servicer by Andrews &
Kurth L.L.P. In addition, certain United States federal tax and other matters
will be passed upon for the related trust by Andrews & Kurth L.L.P.
AVAILABLE INFORMATION
The seller, as originator of each trust, has filed with the SEC a
registration statement under the Securities Act of 1933, as amended, with
respect to the notes and the certificates offered by 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.
The reports can be obtained as described above. The reports will include Current
Reports on Form 8-K filed after each Distribution Date, and an Annual Report on
Form 10-K. The reports will contain certain financial information regarding the
related trust, including the statement which will be furnished monthly to
securityholders. The servicer will not file or cause to be filed reports
80
<PAGE> 86
on Form 8-K and Form 10-K with respect to a trust and the securities issued by
the 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 monthly statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the seller, as originator of any trust, under
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 in this
prospectus shall be deemed to be modified or superseded for purposes of this
prospectus to the extent that a statement contained in this prospectus or in any
subsequently filed document which also is or is deemed to be incorporated by
reference in this prospectus modifies or supersedes the statement. Any 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 in this prospectus or in any related prospectus
supplement by reference, not including exhibits to the documents, unless the
exhibits are specifically incorporated by reference in the documents. Requests
for 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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<PAGE> 87
The information in this prospectus supplement 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
supplement 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 JANUARY 12, 2001
Prospectus supplement to prospectus dated ________, 2001
ONYX LOGO
$____________
ONYX ACCEPTANCE OWNER TRUST 2001-__
Issuer
ONYX ACCEPTANCE FINANCIAL CORPORATION,
Seller
ONYX ACCEPTANCE CORPORATION,
Servicer
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-10 IN THIS PROSPECTUS
SUPPLEMENT AND PAGE 6 IN THE ACCOMPANYING PROSPECTUS.
The notes are auto loan backed notes issued by the trust. The certificates
represent interests in the trust. Neither the notes nor the certificates
represent interests in or obligations of Onyx Acceptance Corporation
or any of its affiliates.
The trust will issue the following securities being offered by this prospectus
supplement:
<TABLE>
<CAPTION>
Principal Interest Price to Underwriting Proceeds to the
Balance Rate Public(1) Discount Seller(1)(2)
--------- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Class A-1 Notes.
Class A-2 Notes.
Class A-3 Notes.
Class A-4 Notes.
Certificates....
Total...........
</TABLE>
(1) Plus accrued interest, if any, calculated from the closing date.
(2) Before deducting expenses payable by the Seller estimated to be $______.
Interest and principal on the notes and the certificates will be payable on the
15th day of each month. If the 15th day of a month is not a business day, then
the payment will be made on the next business day. The first payment will be due
on _______________.
[Insurer] will unconditionally and irrevocably guarantee, to the extent
described in this prospectus supplement, the timely payment of interest and the
ultimate payment of principal on the notes and the certificates.
[INSURER LOGO]
--------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
We expect that delivery of the notes and the certificates will be made in
book-entry form only through the facilities of The Depository Trust Company and
Clearstream, Luxembourg and the Euroclear System against payment in immediately
available funds on or about _________________.
--------------
[UNDERWRITERS]
The date of this prospectus supplement is __________.
<PAGE> 88
TABLE OF CONTENTS
<TABLE>
<S> <C>
IMPORTANT NOTICE ABOUT
INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS....................................................................S-3
SUMMARY OF TERMS...........................................................................S-4
RISK FACTORS..............................................................................S-10
THE TRUST.................................................................................S-18
General..............................................................................S-18
The Owner Trustee and Trust
Agent...............................................................................S-18
Trust Property.......................................................................S-19
THE ONYX PORTFOLIO OF MOTOR
VEHICLE CONTRACTS.........................................................................S-19
Purchase, Origination and Servicing
of Motor Vehicle Contracts..........................................................S-19
Delinquency and Loan Loss
Information.........................................................................S-19
THE CONTRACTS.............................................................................S-21
MATURITY AND PREPAYMENT
CONSIDERATIONS............................................................................S-26
USE OF PROCEEDS...........................................................................S-26
DESCRIPTION OF THE NOTES..................................................................S-26
Payments of Interest......................................................................S-27
Payments of Principal.....................................................................S-27
Mandatory Partial Redemption..............................................................S-28
Optional Redemption.......................................................................S-28
The Indenture Trustee.....................................................................S-28
Indenture Events of Default...............................................................S-28
CERTIFICATES..............................................................................S-29
Distributions of Interest.................................................................S-29
Distributions of Principal................................................................S-29
Optional Prepayment.......................................................................S-29
Paying Agent..............................................................................S-30
DESCRIPTION OF THE TRANSFER AND
SERVICING AGREEMENTS......................................................................S-30
Sale and Assignment of the
Contracts...........................................................................S-30
The Accounts.........................................................................S-30
Payments on Contracts................................................................S-31
Distributions........................................................................S-32
Payment Priorities of the Notes and
the Certificates; The Spread
Account.............................................................................S-34
Withdrawals from the Spread
Account.............................................................................S-35
Servicing Fee........................................................................S-35
Servicer Default.....................................................................S-36
Rights Upon Servicer Default.........................................................S-36
Waiver of Servicer Default...........................................................S-36
Termination..........................................................................S-37
Payment in Full of Notes.............................................................S-38
Certain Matters Relating to the
Insurer.............................................................................S-38
THE POLICY................................................................................S-38
Insurer Default......................................................................S-40
DESCRIPTION OF THE INSURER................................................................S-41
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES..............................................................................S-43
ERISA CONSIDERATIONS......................................................................S-43
The Notes............................................................................S-43
The Certificates.....................................................................S-45
UNDERWRITING..............................................................................S-45
LEGAL MATTERS.............................................................................S-47
EXPERTS...................................................................................S-47
REPORTS TO SECURITYHOLDERS................................................................S-48
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE ...................................................................S-48
GLOSSARY OF TERMS.........................................................................S-49
</TABLE>
S-2
<PAGE> 89
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
Information about the securities is contained in two separate documents
that progressively provide more detail:
- the accompanying prospectus, which provides general
information, some of which may not apply to the
securities; and
- this prospectus supplement, which describes the specific
terms of the securities.
You should rely only on the information contained in this prospectus
supplement and the accompanying prospectus or that we have referred you to. We
have not authorized anyone to provide you with information that is different.
In this prospectus supplement and the accompanying prospectus, we
include cross references to sections in these materials where you can find
further related discussions. The Table of Contents on page S-2 of this
prospectus supplement and on page ii of the prospectus identify the pages where
these sections are located.
We have defined and used capitalized terms in this prospectus supplement
and the prospectus to assist you in understanding the terms of the securities
and this offering. Capitalized terms are defined in a Glossary beginning on page
S-49 of this prospectus supplement.
S-3
<PAGE> 90
SUMMARY OF TERMS
The following summary is a short, concise description of the main terms
of the offering of the securities. For this reason, the summary does not contain
all of the information that may be important to you. To fully understand the
terms of the offering of the securities, you will need to read both this
prospectus supplement and the attached prospectus, each in its entirety.
THE TRUST
Onyx Acceptance Owner Trust 2001-__, a Delaware business trust, will issue and
sell the securities. The trust will be established by a trust agreement among
the seller, the owner trustee and the trust agent.
THE SELLER
Onyx Acceptance Financial Corporation, a Delaware corporation and a
wholly-owned, limited purpose subsidiary of Onyx Acceptance Corporation. 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" in the prospectus.
THE SERVICER
Onyx Acceptance Corporation, a Delaware corporation. 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" in the prospectus.
THE INDENTURE TRUSTEE
[________________], as indenture trustee under the indenture.
THE OWNER TRUSTEE
[___________], as owner trustee under the trust agreement.
THE TRUST AGENT
[________________], as agent of the trust and the owner trustee under the trust
agreement.
CLOSING DATE
The trust expects to issue the securities on or about _________, 2001.
THE NOTES
The trust will issue the class A-1 notes, the class A-2 notes, the class A-3
notes and the class A-4 notes, as described on the cover page, under an
indenture between the trust and the indenture trustee. The notes will be
non-recourse obligations of the trust and will be secured by the trust property
described below in this Summary of Terms.
THE CERTIFICATES
The trust will issue the certificates, as described on the cover page, under the
trust agreement. The certificates will represent undivided beneficial ownership
interests in the trust.
S-4
<PAGE> 91
THE RESIDUAL INTERESTS
The trust will issue certificates representing the residual interests in the
trust. The residual interests are not offered for sale by this prospectus
supplement.
TRUST PROPERTY
The trust's assets will include:
- a pool of fixed rate motor vehicle retail installment sales
contracts and/or installment loan agreements, each of which was
purchased from the seller and each of which is secured by a new
or used automobile, light-duty truck or van;
- documents relating to the contracts;
- monies received with respect to the contracts on or after the
cut-off date applicable to such contracts;
- security interests in the financed vehicles and the rights to
receive proceeds from claims under insurance policies covering
the financed vehicles or the individual obligors under each
related contract;
- all amounts on deposit in specified accounts (including the
prefunding account, if any), excluding any investment income
credited to the collection account, which will be paid to the
servicer
- the right of the seller to cause Onyx to repurchase contracts
under specified circumstances; and
- all proceeds of the foregoing.
See "The Trust" in this prospectus supplement and "The Trusts" in the
prospectus.
Under the indenture, the trust will grant a security interest in the trust
property, excluding the certificate distribution account, in favor of the
indenture trustee, on behalf of the noteholders, and for the benefit of
[insurer] in support of the obligations owing to [insurer] under the insurance
agreement.
On the closing date, the seller will deposit approximately $_________ into a
segregated trust account, referred to as the prefunding account, for the
purchase of additional fixed rate motor vehicle retail installment sales
contracts and/or installment loan agreements.
THE CONTRACTS
The trust's main source of funds for making payments on the securities will be
collections on a pool of fixed rate motor vehicle retail installment sales
contracts and/or installment loan agreements included in the trust property. The
trust will acquire initial contracts with a total principal balance of
$___________ as of ___________, 2001, the cut-off date for these initial
contracts.
The trust will acquire additional motor vehicle retail installment sales
contracts and/or installment loan agreements that have been or will be
originated or purchased after the cut-off date for the initial contracts but
before _________, 2001, the cut-off date for these additional contracts. The
total principal balance of the initial contracts as of _______, 2001 and the
additional contracts as of _______, 2001 will be approximately
$__________.
After the closing date, the trust will use funds solely from the prefunding
account to acquire additional motor vehicle retail installment sales contracts
and/or installment loan agreements.
The trust will acquire the contracts from the seller under a sale and servicing
agreement dated as of ________, 2001.
S-5
<PAGE> 92
CHARACTERISTICS OF THE CONTRACTS
The initial contracts had the following characteristics as of ________, 2001:
WEIGHTED AVERAGE ANNUAL PERCENTAGE RATE:
_____%
WEIGHTED AVERAGE REMAINING TERM:
_____ months
CONTRACTS THAT ALLOCATE INTEREST AND
PRINCIPAL BY THE RULE OF 78'S METHOD OR THE
ACTUARIAL METHOD:
____% of the aggregate principal balance of the initial contracts
CONTRACTS THAT ALLOCATE INTEREST AND
PRINCIPAL BY THE SIMPLE INTEREST METHOD:
____% of the aggregate principal balance of the initial contracts
CONTRACTS SECURED BY NEW VEHICLES:
____% of the aggregate principal balance of the initial contracts
CONTRACTS SECURED BY USED VEHICLES:
____% of the aggregate principal balance of the initial contracts
CONTRACTS ORIGINATED IN CALIFORNIA:
____% of the aggregate principal balance of the initial contracts
As of _________, 2001, the aggregate principal balance of the initial
contracts originated in any single state other than California did not
exceed ____% of the aggregate principal balance of the initial contracts
as of that date.
None of the contracts has or will have a scheduled maturity date later than
___________.
Because the financial and other data for the additional contracts that the trust
will acquire after ________, 2001 will differ somewhat from the descriptions of
the initial contracts set forth above, the characteristics of the contracts as a
whole are likely to vary from the characteristics of the initial contracts. See
"The Contracts" in this prospectus supplement and in the prospectus.
DISTRIBUTION DATES
Interest and principal on the securities will be payable on the 15th day of each
month. If the 15th day of a month is not a business day, then the payment for
that month will be made on the next succeeding business day. The first payment
will be due on __________, 2001.
A business day is a day other than a Saturday, Sunday or any other day on which
commercial banks located in California or New York are authorized or required to
be closed.
TERMS OF THE NOTES
INTEREST RATES:
The trust will pay interest on each class of notes at the rates specified on the
cover of this prospectus supplement.
Interest on the notes will accrue monthly, as described under "Description of
the Notes -
S-6
<PAGE> 93
Payments of Interest" in this prospectus supplement. Interest on the notes will
be calculated on the basis of a 360-day year of twelve 30-day months, with the
exception of the class A-1 notes, with respect to which interest will be
calculated on the basis of a 360-day year and the actual number of days in the
related accrual period.
PRINCIPAL:
The trust will make payments of principal on the notes monthly, on each
distribution date, as described under "Description of the Notes - Payments of
Principal" and "Description of the Transfer and Servicing Agreements
Distributions" in this prospectus supplement. No principal payments will be made
on the class A-2 notes until the class A-1 notes have been paid in full; no
principal payments will be made on the class A-3 notes until the class A-2 notes
have been paid in full; and no principal payments will be made on the class A-4
notes until the class A-3 notes have been paid in full.
The trust must pay the outstanding principal amount of each class of notes, to
the extent not previously paid, by the final scheduled distribution date for
that class of notes, which occurs in the following months:
class A-1 notes - ________, 200__
class A-2 notes - ________, 200__
class A-3 notes - ________, 200__
class A-4 notes - ________, 200__
We expect that the outstanding principal balance of each class of notes will be
paid in full earlier, and could be paid significantly earlier, than the final
scheduled distribution date for that class, depending on a variety of factors.
MANDATORY PARTIAL REDEMPTION
We will partially redeem the Class A-1 Notes on the first distribution date to
the extent, if any, that the proceeds from the sale of the securities exceeds
the aggregate principal balance of all of the contracts as of their applicable
cut-off date.
TERMS OF THE CERTIFICATES
INTEREST RATE:
The trust will pay interest on the certificates at the rate specified on the
cover of this prospectus supplement.
Interest on the certificates will accrue monthly, as described under
"Description of the Certificates - Distributions of Interest" in this prospectus
supplement. Distributions of interest on the certificates will be subordinated
to payments of interest on the notes on each distribution date. On the final
scheduled distribution date for a class of notes, interest on the certificates
will be subordinated to payments of principal then due on that class of Notes.
See "Description of the Certificates" in this prospectus supplement.
PRINCIPAL:
We will not pay principal on the certificates until all of the notes have been
paid in full. On the distribution date that the notes are paid in full, and on
each succeeding distribution date, the trust will make payments of principal on
the certificates monthly, as described under "Description of the Certificates -
Distributions of Principal" and "Description of the Transfer and Servicing
Agreements - Distributions" in this prospectus supplement.
S-7
<PAGE> 94
The trust must pay the outstanding principal amount of the certificates, to the
extent not previously paid, by the final scheduled distribution date for the
certificates, occurring in ______________. We expect that the outstanding
principal balance of the certificates will be paid in full earlier, and could be
paid significantly earlier, than the final scheduled distribution date for the
certificates, depending on a variety of factors.
OPTIONAL PURCHASE
The servicer may, but is not obligated to, purchase the contracts on any
distribution date on which the principal balance of the contracts has declined
to 10% or less of the original pool balance. If the servicer exercises this
purchase option, all of the notes then outstanding will be redeemed, and all of
the certificates then outstanding will be prepaid. See "Description of the Notes
- Optional Redemption", "Description of the Certificates -- Optional Prepayment"
and "Description of the Transfer and Servicing Agreements -- Termination" in
this prospectus supplement.
THE SPREAD ACCOUNT
The indenture trustee will establish a segregated trust account, entitled
"Spread Account - OT 2001-__, [________________], Indenture Trustee", for the
benefit of the securityholders and [insurer]. The spread account will be an
asset of the trust. The securityholders will be afforded limited protection
against losses on the contracts by the establishment of the spread account.
On each distribution date, the indenture trustee will deposit funds in the
spread account up to a specified maximum amount, as described under "Description
of the Transfer and Servicing Agreements Distributions" in this prospectus
supplement. On each distribution date, funds will be withdrawn from the spread
account to cover any shortfalls in amounts available to pay:
- the servicing fee and applicable fees of the indenture trustee,
the owner trustee and the trust agent; and
- interest and principal due on the securities.
See "Description of the Transfer and Servicing Agreements - Payment Priorities
of the Notes and the Certificates; The Spread Account" in this prospectus
supplement.
THE INSURANCE POLICY
On the closing date, [insurer] will issue a insurance policy, under the terms of
an insurance agreement, in favor of the indenture trustee, for the benefit of
the securityholders. The policy is a "security insurance policy" as referred to
in the prospectus.
Under the policy, [insurer] will irrevocably and unconditionally guarantee
timely payment of interest and ultimate payment of principal due on then Notes
and the certificates, as described under "The Policy" in this prospectus
supplement. [Insurer]'s obligations under the policy will be discharged to the
extent that amounts are deposited by the servicer into the collection account
and to the extent that amounts due under the policy are received by the
indenture trustee, whether or not the amounts are properly applied by the
indenture trustee.
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For a description of [insurer], see "Description of the Insurer" in this
prospectus supplement.
SERVICING FEE
The servicer will be responsible for managing, administering, servicing, and
collecting on the contracts. As compensation for its services, the servicer will
receive a servicing fee and other amounts, as described in this prospectus
supplement under "Description of the Transfer and Servicing Agreements Servicing
Fee".
FEDERAL INCOME TAX STATUS
In the opinion of Andrews & Kurth L.L.P., for federal income tax purposes, the
notes will be characterized as debt, and the trust will not be characterized as
an association or a publicly traded partnership taxable as a corporation. See
"Certain Federal Income Tax Consequences" in this prospectus supplement and in
the accompanying prospectus for additional information concerning the
application of federal income tax laws to the trust and the securities.
ERISA CONSIDERATIONS
Subject to the considerations discussed under "ERISA Considerations" in this
prospectus supplement and in the prospectus, the notes are eligible for purchase
by employee benefit plans that are subject to ERISA. However, neither an
employee benefit plan subject to ERISA or Section 4975 of the tax code nor an
individual retirement account is eligible to purchase the certificates. See
"ERISA Considerations" in this prospectus supplement and in the prospectus.
LEGAL INVESTMENT
The class A-1 notes will be eligible securities for purchase by money market
funds under Rule 2a-7 under the Investment Company Act of 1940, as amended.
RATING
On the closing date, Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., and Moody's Investors Service, Inc. will rate the
notes and the certificates in the highest rating category available for the
securities. The ratings of the notes and the certificates will be based
substantially on the issuance of the policy by [insurer]. See "Risk Factors -
Downgrading of the rating of [insurer] or the securities may have an adverse
effect on the liquidity and market value of the securities" in this prospectus
supplement.
REGISTRATION OF THE SECURITIES
Initially, the securities will be in the form of one or more certificates
registered in the name of Cede & Co., as the nominee of The Depository Trust
Company. If you acquire an interest in the notes or the certificates through
DTC, you will not be entitled to receive a definitive security, except in the
event that definitive securities are issued in limited circumstances. See
"Description of the Securities - Book-Entry Registration" and "- Definitive
Securities" in the Prospectus.
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RISK FACTORS
You should consider the following risk factors, as well as the other
factors described under the heading "Risk Factors" in the prospectus, before
deciding to purchase the securities.
ONYX IS SUBJECT TO ALL OF THE RISKS INHERENT IN A RELATIVELY NEW BUSINESS
ENTERPRISE BECAUSE OF ITS LIMITED OPERATING HISTORY.
Onyx began its operations in February 1994 as a purchaser and servicer
of motor vehicle retail installment sales contracts. Accordingly, Onyx has
performance data for only a relatively short period with respect to the
contracts it purchases and originates. As the portfolio of contracts purchased
and originated by Onyx and its subsidiaries matures, delinquency percentages and
loan losses may increase.
As Onyx expands its operations in the United States, it must, among
other things, continue to attract, retain and motivate qualified personnel,
support and grow its auto lending and contract servicing business, maintain its
existing relationships with automobile dealers, and develop new relationships
with dealers.
Onyx experienced operating losses from its inception through December
31, 1995. Onyx's operating losses and net income for the years ended December
31, 1994 through December 31, 1999, and for the ___ months ended ________, are
set forth below:
<TABLE>
<CAPTION>
YEAR ENDED (OPERATING LOSS)/NET
---------- --------------------
<S> <C>
December 31, 1994 $(3.5 million)
December 31, 1995 (3.2 million)
December 31, 1996 6.1 million
December 31, 1997 1.3 million
December 31, 1998 6.1 million
December 31, 1999 9.8 million
___ Months Ended __.__ million
</TABLE>
*The asterisked amounts above reflect the fact that, as required by the
Financial Accounting Standards Board's Special Report, "A Guide to
Implementation of Statement 125 on Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, Second Edition," dated
December 1998, and related guidance set forth in statements made by the staff of
the Securities and Exchange Commission on December 8, 1998, Onyx retroactively
changed its practice of measuring and accounting for credit enhancement assets
on its securitization transactions to the cash-out method from the cash-in
method. As a result, Onyx, on January 26, 1999, announced a restatement of its
financial statements for the years ended December 31, 1996 and 1997, and for the
first three quarters of 1998. Onyx had previously reported net income of $7.7
million and $2.6 million for the years ended December 31, 1996 and 1997,
respectively.
On January 25, 2000, a putative class action complaint was filed, and
has since been amended, against Onyx and certain of its officers and directors
alleging, among other matters, violations of Section 10(b) and 20(a) of the
Securities Exchange Act of 1934 arising from this restatement. Onyx is
vigorously defending against this matter and believes the resolution of this
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litigation will not have a material adverse effect on Onyx's consolidated
financial position, results of operations or liquidity or Onyx's ability to
perform its obligations under the sale and servicing agreement.
THE ABSENCE OF A SECONDARY MARKET COULD LIMIT YOUR ABILITY TO RESELL YOUR
SECURITIES.
The absence of a secondary market for the notes and certificates could
limit your ability to resell them. This means that if in the future you want to
sell any of your notes or certificates before they mature, you may be unable to
find a buyer or, if you find a buyer, the selling price may be less than it
would have been if a market existed for the securities. There is currently no
secondary market for the securities. The underwriters currently intend to
participate in making a secondary market in the securities, but they are not
under any obligation to do so. We cannot assure you that a secondary market for
the securities will develop. If a secondary market does develop, we cannot
assure you that it will continue for any period of time or for the duration of
the securities or that you will be able to resell your securities.
PREPAYMENTS ON CONTRACTS WILL CAUSE PREPAYMENTS ON YOUR SECURITIES RESULTING IN
REINVESTMENT RISK TO YOU.
You may receive payment of principal on your securities earlier than you
expect for the reasons set forth below. You may not be able to reinvest any
prepayments of principal paid on your securities at a rate of return that is
equal to or greater than the rate of return on your securities.
Prepayments on the contracts by the related obligors and purchases of
the contracts by the seller and the servicer will shorten the life of the
securities to an extent that cannot be fully predicted. The contracts included
in the trust may be prepaid, in full or in part, voluntarily or as a result of
defaults, theft of or damage to the related vehicles or other reasons. Onyx will
be required to repurchase a contract from the seller, and the seller will be
required to repurchase a contract from the trust, if Onyx breached its
representations and warranties with respect to the contract in the sale and
servicing agreement with the seller. Onyx, in its capacity as servicer, will
also be required to purchase a contract from the trust if it breaches its
servicing obligations with respect to the contract and the contract is
materially and adversely affected by the breach. The purchase will also be
entitled to purchase all of the remaining contracts from the trust once the
aggregate principal balance of the contracts is 10% or less than the aggregate
principal balance of the contracts as of their applicable cut-off date.
The rate of payment of principal on each class of notes and the
certificates depends primarily on the rate of payments, including prepayments,
on the principal balance of the contracts. As a result, final payment on any
class of securities could occur significantly earlier than the applicable final
scheduled distribution date.
Onyx cannot predict the actual prepayment rates that will occur on the
contracts in either stable or changing interest rate environments. See "- Onyx
is subject to all the risks inherent in a relatively new business enterprise
because of its limited operating history". Moreover, many
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other factors will affect the amount and timing of payments of principal on each
class of securities. The factors include:
- the level of delinquencies, defaults and losses on the
contracts;
- the payment of any principal on the notes on an
accelerated basis; and
- the payment of any accelerated amounts on the notes or
the certificates following an event of default under the
indenture.
You will bear all the reinvestment risks relating to prepayments on the
Contracts and resulting from distributions of principal on the securities. These
reinvestment risks include the possibility that you may not be able to reinvest
distributions of principal in alternative comparable investments having similar
yields. See "Maturity and Prepayment Considerations" in this prospectus
supplement and in the prospectus.
YOU MAY SUFFER LOSSES IF THE CREDIT ENHANCEMENT PROVIDED FOR THE SECURITIES IS
NOT ADEQUATE.
If the contracts experience higher rates of delinquencies, defaults and
losses than initially anticipated in connection with the rating of the
securities, amounts available from credit enhancement may not be adequate to
cover the resulting delays or shortfalls in distributions to you.
The policy provided by [insurer] will provide credit enhancement for the
securities. Additional credit enhancement, which will be used prior to the
policy, will be provided by the following:
- in the case of the notes, the subordination of the
certificates to the notes;
- the excess, if any, of -
- the amount of interest collected on the contracts in
each collection period
over
- the amount of interest accruing and payable on the notes
and the certificates and the amount of the fees of the
servicer, the indenture trustee, the owner trustee and
the trust agent payable on the related distribution
date; and
- amounts available in the spread account, as described under
"Description of the Transfer and Servicing Agreements - Payment
Priorities of the Notes and Certificates; The Spread Account"
and "- Withdrawals from the Spread Account" in this prospectus
supplement.
If the amounts available from this additional credit enhancement are
inadequate, you will bear the risk of any delays and losses resulting from the
delinquencies, defaults and losses on the
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contracts, unless the shortfalls are covered by the policy and paid by
[insurer]. The policy guarantees payment of principal of each class of notes and
of the certificates only on the applicable final scheduled distribution date.
The amount required to be maintained in the spread account is subject to
change as described under "Description of the Transfer and Servicing Agreements
- Payment Priorities of the Notes and Certificates; The Spread Account" in this
prospectus supplement.
PRIORITY OF PAYMENT AND SUBORDINATION INCREASE THE RISK OF LOSS OR DELAY IN
PAYMENT FOR HOLDERS OF THE CLASS A-2 NOTES, CLASS A-3 NOTES, CLASS A-4 NOTES AND
CERTIFICATES.
Because payments of principal will be applied first to the class A-1
notes, then to the class A-2 notes, then to the class A-3 notes, and then to the
class A-4 notes, in the event [insurer] defaults under the policy after one or
more classes of notes have been fully or partially repaid and before the other
classes of notes with lower priority of payment have been fully repaid,
delinquencies, defaults and losses experienced on the contracts will have a
disproportionately greater effect on the notes with lower priority of payment.
Other than in the case of an event of default under the indenture:
- no principal will be paid to the holders of class A-2
notes, the class A-3 notes or the class A-4 notes until
the principal amount of the class A-1 notes has been
reduced to zero;
- no principal will be paid to the holders of the class
A-3 notes or the class A-4 notes until the principal
amount of the class A-2 notes has been reduced to zero;
and
- no principal will be paid to the holders of the class
A-4 notes until the principal amount of the class A-3
notes has been reduced to zero.
Distributions of interest on the certificates will be subordinated in
priority of payment to interest due on the notes and, on the final scheduled
distribution date for a class of notes, to principal then due on that class of
notes. Distributions of principal on the certificates will be subordinated to
payment of interest and principal due on the notes. Consequently, the
certificateholders will not receive any interest on a distribution date until
the full amount of interest on the notes due on the distribution date has been
paid and, if the distribution date is on or after the final scheduled
distribution date for a class of notes, until all principal of that class of
notes has been paid in full. No principal will be distributed on the
certificates until all of the notes have been paid in full.
In the event of a default by [insurer], the certificates will be more
sensitive than the notes to delinquencies, defaults and losses experienced on
the contracts. See "Description of the Notes - Payments of Principal" in this
prospectus supplement.
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GEOGRAPHIC CONCENTRATION MAY ADVERSELY AFFECT THE PERFORMANCE OF THE CONTRACTS.
Economic conditions in the states where the obligors under the contracts
live and work may affect the delinquency, loan loss and repossession experience
of the trust with respect to the contracts. Initial contracts representing
approximately ___% of the initial contracts as of _______, 2001 were originated
in California. As of ________, 2001, the aggregate principal balances of initial
contracts originated in any single state other than California did not exceed
____% of the aggregate principal balance of the initial contracts on that date.
The geographic concentration of all of the contracts as of the closing date,
including both the initial contracts and the additional contracts purchased by
the trust, will be substantially similar to that of the initial contracts.
Adverse economic conditions or other factors particularly affecting California
or other states in which the contracts are geographically concentrated might
adversely affect the performance of the contracts. See "The Contracts --
Geographic Concentration of the Initial Contracts" in this prospectus
supplement.
YOU MAY SUFFER LOSSES DUE TO THE LIMITED ASSETS OF THE TRUST.
You may suffer a loss on your securities if the assets of the trust are
insufficient to pay fully the principal amount of the securities. The trust does
not have, nor is it permitted or expected to have, any significant assets or
sources of funds other than the contracts. You must rely upon payments on the
contracts, amounts, if any, on deposit in the spread account, and payments of
claims made under the policy for repayment of the securities.
The policy will guarantee:
- shortfalls in the payment of accrued interest on each
distribution date; and
- the ultimate repayment of principal on the final
scheduled distribution date with respect to each
security.
However, if [insurer] defaults in its obligations under the policy, the trust
will have to depend solely on collections on the contracts and amounts, if any,
on deposit in the spread account to make payments then due on the securities.
See "Description of the Insurer" and "The Policy" in this prospectus supplement.
DOWNGRADING OF THE RATING OF THE [INSURER] OR THE SECURITIES MAY HAVE AN ADVERSE
AFFECT ON THE LIQUIDITY AND MARKET VALUE OF THE SECURITIES.
On the closing date, the securities will be rated "AAA" by Standard &
Poor's and "Aaa" by Moody's. A security rating is not a recommendation to buy,
sell or hold securities and may be revised or withdrawn at any time by the
assigning rating agency. Any rating agency rating the securities may lower or
withdraw its rating if, in the sole judgment of the rating agency, circumstances
in the future so warrant. The ratings of the securities address the likelihood
of timely payment of accrued interest, and ultimate payment of principal on the
applicable final scheduled distribution dates, which are guaranteed by [insurer]
under the policy. The ratings of the securities are substantially based on the
issuance of the policy by [insurer], and are dependent on the rating of
[insurer]. The downgrading of the rating of [insurer], therefore, may lead to a
change in the ratings of the securities. We cannot predict with certainty what
effect any revision
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or withdrawal of the rating of the securities may have on the liquidity or
market value of the securities. See "Description of the Insurer" in this
prospectus supplement for a description of [insurer]'s rating.
PREPAYMENTS, POTENTIAL LOSSES AND CHANGES THE OF PRIORITY OF PRINCIPAL PAYMENTS
MAY RESULT FROM AN EVENT OF DEFAULT UNDER THE INDENTURE.
PAYMENTS ON THE SECURITIES MAY BE ACCELERATED. An event of default under
the indenture may result in payments on the notes being accelerated. As a
result -
- you may suffer losses on your notes or certificates if the
assets of the trust are insufficient to pay the amounts owed on
the notes and certificates;
- payments on your notes or certificates may be delayed until more
senior classes of notes are repaid; and
- your notes or certificates may be repaid earlier than as
scheduled, which may require you to reinvest your principal at a
lower rate of return.
ONLY THE INSURER CAN DECLARE AN EVENT OF DEFAULT IF THE INSURER IS NOT
IN DEFAULT. Prior to a default by [insurer], only [insurer] can declare an event
of default under the indenture. If [insurer] has defaulted in its obligations
under the policy and continues to be in default, then either the indenture
trustee or the noteholders can declare an event of default under the indenture.
INSURER CONTROLS REMEDIES IF THE INSURER IS NOT IN DEFAULT. If an event
of default under the indenture occurs and [insurer] is not in default under the
policy, [insurer] may, but is not obligated to, declare that the notes become
immediately due and payable. In this event, [insurer] will have the right to
control the exercise of remedies available with respect to the event of default,
including the right to direct the indenture trustee to liquidate the property of
the trust on any date or dates following the acceleration of the notes due to
the event of default. Liquidation will result in redemption, in whole or in
part, of the securities. [Insurer] may not, however, cause the indenture trustee
to liquidate the property of the trust, in whole or in part, if the proceeds of
the liquidation would not be enough to pay all outstanding principal and accrued
interest on the notes. Following an event of default under the indenture, the
indenture trustee and the owner trustee will continue to submit claims under the
policy for any shortfalls in amounts needed to make payments or distributions of
guaranteed amounts on the securities. In addition, [insurer], at its sole
option, may elect to pay all or any portion of the outstanding amount of the
securities, plus accrued interest to the date of payment.
THE ABILITY OF NOTEHOLDERS TO LIQUIDATE THE TRUST MAY BE LIMITED. If an
event of default under the indenture occurs and [insurer] is in default under
the policy, the noteholders will be able to declare that the notes become
immediately due and payable. In this instance, the noteholders will have the
right to control the exercise of remedies available, including the right to
direct the indenture trustee to liquidate the property of the trust. However, no
noteholders may direct the indenture trustee to liquidate the property of the
trust, in whole or in part, unless -
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(1) [insurer] has failed to make a payment required under the policy
and the event of default under the indenture is a result of
either -
- a default in the payment of any principal on the
final scheduled distribution date for a class of
notes or a default of at least five days in the
payment of any interest on any notes; or
- certain events of bankruptcy, insolvency,
receivership or liquidation of the trust;
or
(2) [insurer] has not failed to make a payment required under the
policy, the event of default has occurred other than as
described above, and either --
- the proceeds of a liquidation of the trust
property will be sufficient to pay all
outstanding principal of the notes and the
certificates, together with accrued interest,
and all amounts due to [insurer] under the
insurance agreement; or
- holders of certificates evidencing 100% of the
outstanding principal amount of the certificates
consent to the liquidation of the trust property
and all amounts owing to [insurer] under the
insurance agreement will be paid in connection
with the liquidation.
In the event of a sale of the contracts as described in alternative (2)
above, the policy will not be available to cover losses to securityholders
resulting from the liquidation of the trust property. The policy will be
terminated, and [insurer] will have no further obligation to make any payment
thereunder.
NOTEHOLDERS MAY BE ABLE TO CAUSE LIQUIDATION OF THE TRUST WITHOUT
CONSIDERATION OF THE CERTIFICATEHOLDERS. If an event of default under the
indenture occurs as described in alternative (2) above, then the noteholders may
cause a sale of the contracts without the consent of any of the
certificateholders. In determining whether or not to cause a sale of the
contracts, the noteholders do not need to consider whether the proceeds of the
sale will be sufficient to pay any portion of the principal and accrued interest
payable on the certificates. Upon a sale of the contracts by the indenture
trustee in this situation, if the proceeds from the sale and any amounts on
deposit in the spread account and the collection account are not sufficient to
pay all the notes in full, then:
- the amount of principal paid to noteholders will be reduced;
- no proceeds or amounts will be distributed to the
certificateholders; and
- the noteholders and the certificateholders will incur a loss on
their investment.
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If the proceeds from the sale and amounts available in the spread
account and the collection account are sufficient to pay all the notes in full
but are not sufficient to pay both the notes and the certificates in full, then:
- the amount of principal distributed to certificateholders will
be reduced; and
- the certificateholders will incur a loss on their investment.
See "The Indenture - Indenture Events of Default" in the prospectus.
IF THERE IS A SERVICER DEFAULT, THE SERVICER MAY BE REMOVED ONLY BY THE INSURER
OR THE INDENTURE TRUSTEE AND THE NOTEHOLDERS.
If the servicer is in default under the sale and servicing agreement,
only [insurer] may terminate the servicer for the default, unless [insurer] is
in default under the policy. If the servicer is in default under the sale and
servicing agreement and [insurer] is in default under the policy, the
noteholders, or the indenture trustee acting only on behalf of the noteholders,
without regard to the interests of the seller or the certificateholders, may
terminate the servicer. In these circumstances, the certificateholders will not
have the ability to remove the servicer if the servicer is in default until the
notes have been paid in full. In addition, if [insurer] is in default under the
policy, the noteholders may waive certain defaults by the servicer. The
noteholders are not required to consider the effect any waiver would have on the
certificateholders. See "- Certain Matters Regarding the Insurer" and
"Description of the Transfer and Servicing Agreements - Servicer Default; Rights
Upon Servicer Default" in this prospectus supplement.
THE INSURER HAS THE RIGHT TO EXERCISE ALL RIGHTS OF THE SECURITYHOLDERS UNDER
THE SALE AND SERVICING AGREEMENT, THE INDENTURE AND THE TRUST AGREEMENT.
So long as [insurer] is not in default under the policy, it will have
the right to exercise all rights, including voting rights, which the
securityholders are entitled to exercise under the sale and servicing agreement,
the indenture and the trust agreement. However, [insurer] cannot exercise the
securityholders' rights to amend the sale and servicing agreement, the indenture
or the trust agreement, without the consent of each holder of a note,
certificate or residual interest affected by the amendment, in any manner that
would:
- reduce the amount of, or delay the timing of, collections of
payments of monthly principal and interest on the contracts or
distributions required to be made on any security;
- adversely affect in any material respect the interests of the
holders of any class of notes or the certificates; or
- alter the rights of any such securityholder to consent to an
amendment.
If [insurer] is in default under the policy, it cannot take any action
under the sale and servicing agreement, the indenture or the trust agreement, to
terminate the servicer, or to control
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or direct the actions of the trust, the seller, the servicer, the indenture
trustee, the owner trustee or the trust agent under the terms of the sale and
servicing agreement, the indenture or the trust agreement. Furthermore, the
consent of [insurer] will not be required with respect to any action, or waiver
of a right to take action, to be taken by the trust, the seller, the servicer,
the indenture trustee, the owner trustee, the trust agent or the
securityholders; except that, the consent of [insurer] is required at all times
to amend the sale and servicing agreement, the indenture and the trust
agreement.
THE TRUST
GENERAL
The trust is a business trust formed under the laws of the State of
Delaware under the trust agreement for the transactions described in this
prospectus supplement. The trust will not engage in any activity other than:
- acquiring, holding and managing the contracts and the other
assets of the trust and proceeds therefrom;
- issuing the notes and the certificates;
- making payments and distributions on the notes and the
certificates; and
- engaging in other activities that are necessary, suitable or
convenient to accomplish the foregoing or are incidental thereto
or connected therewith.
The trust's principal offices are in Wilmington, Delaware, in care of
[___________], as owner trustee, at the address listed below under "- The Owner
Trustee and Trust Agent."
THE OWNER TRUSTEE AND TRUST AGENT
[______________] is the owner trustee under the trust agreement, and is
a [___________] banking corporation and its principal offices are located at
[__________________].
Some functions of the owner trustee under the trust agreement and the
sale and servicing agreement will be performed by [________________], a New York
banking corporation, in its capacity as trust agent under the trust agreement
and the sale and servicing agreement, including maintaining the certificate
distribution account and making distributions therefrom. However, upon the
occurrence and continuation of an insurer default, the trust agent will resign
and the owner trustee will assume the duties of the trust agent under the trust
agreement and the sale and servicing agreement.
The liability of the owner trustee and the trust agent in connection
with the issuance and sale of the notes and the certificates is limited solely
to the express obligations of the owner trustee and the trust agent set forth in
the trust agreement and the sale and servicing agreement.
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TRUST PROPERTY
The trust property will include the items specified under the heading
"The Trusts" in the prospectus. The trust property will also include the rights
of the indenture trustee under the policy.
Under the indenture, the trust will grant a security interest in the
trust property, other than the certificate distribution account, in favor of the
indenture trustee on behalf of the noteholders and for the benefit of [insurer]
in support of the obligations owing to it under the insurance agreement.
THE ONYX PORTFOLIO OF MOTOR VEHICLE CONTRACTS
PURCHASE, ORIGINATION AND SERVICING OF MOTOR VEHICLE CONTRACTS
Onyx's purchase and origination of motor vehicle contracts are described
under the heading "The Onyx Portfolio of Motor Vehicle Contracts - Purchase,
Origination and Servicing of Motor Vehicle Contracts" in the prospectus. At
______, 200__, Onyx had agreements with approximately ___ dealers, of which
approximately ___% are franchised new car dealerships and approximately ___% are
independent used car dealerships. All of the contracts will have been sold to
the seller and then to the trust.
Onyx, together with its subsidiaries, had acquired or originated motor
vehicle contracts totaling approximately $___ billion from commencement of
operations through _________. As of _________, Onyx had amassed a servicing
portfolio of approximately $___ billion. As of _______, approximately ____% of
Onyx's servicing portfolio consisted of motor vehicle contracts secured by used
motor vehicles, and ___% secured by new motor vehicles. As of ________, Onyx had
total assets of approximately $____ million and stockholder's equity of $___
million.
DELINQUENCY AND LOAN LOSS INFORMATION
The following tables set forth information with respect to the
experience of Onyx relating to delinquencies, loan losses and recoveries for the
portfolio of motor vehicle contracts owned and serviced by Onyx on an annual
basis commencing December 31, 1997. The tables include delinquency information
relating to those motor vehicle contracts that were purchased, originated, sold
and serviced by Onyx. All of the motor vehicle contracts were originally
purchased by Onyx from dealers, or purchased or originated by a subsidiary of
Onyx, in accordance with credit underwriting criteria established by Onyx. In
February 1994, Onyx commenced its operations as a purchaser and servicer of
motor vehicle retail installment sales contracts. Accordingly, Onyx has
historical performance for only a limited time period with respect to the motor
vehicle contracts it purchases and originates and, consequently, delinquencies
and loan losses may increase from existing levels in the portfolio with the
passage of time. Delinquency and loan loss experience
S-19
<PAGE> 106
may be influenced by a variety of economic, social and other factors. See "Risk
Factors" in this prospectus supplement and in the prospectus.
With the continued expansion of Onyx in the eastern United States and
the significant growth in Onyx's existing branches, Onyx has centralized and
improved its servicing and collection process. Onyx believes that a centralized
group is efficient and effective, and assures that collection practices and
policies are applied consistently throughout the company. Management continues
to rely on the use of current technology such as predictive dialers utilizing an
automated processing system for contacting delinquent borrowers. Onyx also has a
payment system that allows electronic payment on delinquent accounts to be
applied the same day as payment is sent or initiated by the borrower.
DELINQUENCY EXPERIENCE OF ONYX MOTOR VEHICLE CONTRACT PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31, AT DECEMBER 31,
1997 1998 1999
---- ---- ----
AMOUNT NO AMOUNT NO AMOUNT NO
---------- ------ ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Servicing portfolio ..... $ 757,277 73,502 $1,345,961 131,862 $2,133,460 209,745
Delinquencies
30-59 days(1)(2) ...... $ 11,902 1,211 $ 26,410 2,766 $ 38,376 3,963
60-89 days(1)(2) ...... 3,370 346 $ 6,876 691 $ 16,596 1,671
90+ days(1)(2) ........ $ 3,743 316 $ 4,790 455 $ 14,203 1,383
Total delinquencies as
a percent of servicing
portfolio 2.51% 2.55% 2.83% 2.97% 3.24% 3.35%
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, AT JUNE 30,
1999 2000
---- ----
AMOUNT NO AMOUNT NO
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Servicing portfolio ..... $1,729,338 169,309 $2,500,207 248,006
Delinquencies
30-59 days(1)(2) ...... $ 21,800 2,294 $ 37,600 3,933
60-89 days(1)(2) ...... $ 7,891 783 $ 14,097 1,440
90+ days(1)(2) ........ $ 7,130 673 $ 12,634 1,216
Total delinquencies as
a percent of servicing
portfolio 2.13% 2.21% 2.57% 2.66%
</TABLE>
----------
(1) Delinquencies include principal amounts only, net of repossessed
inventory. Repossessed inventory as a percent of the servicing portfolio
was 1.17%, 0.62% and 0.83% at December 31, 1997, 1998 and 1999,
respectively and 0.65% and 0.62% at June 30, 1999 and 2000,
respectively.
(2) The period of delinquency is based on the number of days payments are
contractually past due.
S-20
<PAGE> 107
LOAN LOSS EXPERIENCE OF ONYX MOTOR VEHICLE CONTRACT PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------------- ---------------------------
1997 1998 1999 1999 2000
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Number of Motor Vehicle Contracts
outstanding ........................... 73,502 131,862 209,745 169,309 248,006
Period end outstanding ................ $ 757,277 $1,345,961 $2,133,460 $1,729,338 $2,500,207
Average outstanding ................... $ 563,343 $1,023,237 $1,728,875 $1,532,269 $2,326,900
Number of gross charge-offs ........... 2,161 3,761 6,398 2,862 4,912
Gross charge-offs ..................... $ 13,076 $ 20,640 $ 37,024 $ 15,102 $ 30,950
Net charge-offs(1) .................... $ 11,434 $ 17,618 $ 31,963 $ 13,175 $ 26,491
Net charge-offs as a percent of average
outstanding ......................... 2.03% 1.72% 1.85% 1.72% 2.28%
</TABLE>
----------
(1) Net charge-offs are gross charge-offs minus recoveries on Motor Vehicle
Contracts previously charged off.
THE CONTRACTS
All of the contracts will have been purchased by the seller from Onyx.
Substantially all of the contracts have been purchased by Onyx from new and used
car dealers unaffiliated with Onyx or the seller, and a limited number of
contracts will have been purchased or originated by subsidiaries of Onyx. See
"The Onyx Portfolio of Motor Vehicle Contracts" in this prospectus supplement
and in the prospectus. Each of the contracts in the trust will be a fixed rate
contract where the allocation of each payment between interest and principal is
calculated using the rule of 78's method, the actuarial method or the simple
interest method. Each of these methods is explained under the heading "The Onyx
Portfolio of Motor Vehicle Contracts - Allocation of Payments on Contracts to
Interest and Principal" in the prospectus. Initial contracts representing
approximately _______% of the aggregate principal balance of the initial
contracts as of the Initial Cut-Off Date allocate interest and principal in
accordance with the rule of 78's or the actuarial method, and initial contracts
representing approximately ______% of the aggregate principal balance of the
initial contracts as of the Initial Cut-Off Date allocate interest in accordance
with the simple interest method.
The contracts will have been selected from the motor vehicle contracts
in the portfolio of Onyx using the following criteria. No selection procedures
will have been used with respect to the contracts that are believed by Onyx or
the seller to be adverse to the securityholders or [insurer]. Initial contracts
representing approximately ______% of the aggregate principal balance of the
initial contracts as of the Initial Cut-Off Date are secured by new vehicles,
and initial contracts representing approximately ______% of the aggregate
principal balance of the initial contracts as of the Initial Cut-Off Date are
secured by used vehicles. The seller may not substitute other motor vehicle
contracts for the contracts at any time during the term of the sale and
servicing agreement.
S-21
<PAGE> 108
The seller will represent that each contract included in the trust
satisfies the following eligibility requirements:
- the contract is secured by a new or used automobile, light-duty
truck or van;
- the contract has a remaining maturity as of the applicable
Cut-Off Date of not more than ___ months;
- the contract has an original maturity of not more than ___
months;
- the contract is a fully-amortizing fixed rate contract which
provides for level scheduled monthly payments determined on the
basis of the rule of 78's, actuarial or the simple interest
method, except for the last payment, which may be minimally
different from the level payments;
- the contract is secured by a vehicle that as of the applicable
Cut-Off Date has not been repossessed without reinstatement;
- the contract has no payment more than ___ days past due as of
the applicable Cut-Off Date;
- the contract has a remaining principal balance as of the
applicable Cut-Off Date of at least $___________; and
- as of the applicable Cut-Off Date, the seller has not received
notice that the related obligor has filed for bankruptcy.
Set forth below is data concerning the initial contracts as of the
Initial Cut-Off Date which had an aggregate principal balance as of the Initial
Cut-Off Date of $___________. Data concerning all of the contracts (including
the initial contracts and the Subsequent Contracts) will be available to
purchasers of the securities at or before the initial delivery of the securities
and will be filed with the SEC on Form 8-K within 15 days after the initial
delivery of the securities. Because the financial and other data for the
subsequent contracts will differ somewhat from the data for the initial
contracts, the characteristics of the contracts as a whole are likely to vary
from the characteristics of the initial contracts described below.
COMPOSITION OF THE INITIAL CONTRACTS
<TABLE>
<S> <C>
Aggregate principal balance........................$___________
Number of contracts................................ ___________
Average principal balance outstanding..............$___________
Average original amount financed...................$___________
Original amount financed (range) .................. ___ to ____
Weighted average APR................................... ______%
</TABLE>
S-22
<PAGE> 109
<TABLE>
<S> <C>
APR (range)..................................______% to ______%
Weighted average original term......................___________
Original term (range).........................____ to ____ mos.
Weighted average remaining term..........................______
Remaining term (range)........................____ to ____ mos.
</TABLE>
S-23
<PAGE> 110
DISTRIBUTION BY APRs OF THE INITIAL CONTRACTS
<TABLE>
<CAPTION>
NUMBER OF % OF % OF INITIAL
INITIAL INITIAL PRINCIPAL CUT-OFF
APR RANGE CONTRACTS CONTRACTS BALANCE POOL BALANCE
--------- --------- --------- --------- ------------
<S> <C> <C> <C> <C>
0.000% to 7.000%...............
7.001% to 8.000%...............
8.001% to 9.000%...............
9.001% to 10.000%..............
10.001% to 11.000%..............
11.001% to 12.000%..............
12.001% to 13.000%..............
13.001% to 14.000%..............
14.001% to 15.000%..............
15.001% to 16.000%..............
16.001% to 17.000%..............
17.001% to 18.000%..............
18.001% to 19.000%..............
19.001% to 20.000%..............
20.001% to 21.000%..............
21.001% and over................
Totals................ 100.00%* 100.00%*
</TABLE>
----------
* Percentages may not add to 100% because of rounding.
S-24
<PAGE> 111
GEOGRAPHIC CONCENTRATION OF THE INITIAL CONTRACTS
<TABLE>
<CAPTION>
NUMBER OF % OF % OF
INITIAL INITIAL PRINCIPAL INITIAL CUT-OFF
CONTRACTS CONTRACTS BALANCE POOL BALANCE
--------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Arizona...................
California................
Colorado..................
Connecticut...............
Delaware..................
District Of Columbia......
Florida...................
Georgia...................
Idaho.....................
Illinois..................
Indiana...................
Iowa......................
Kansas....................
Kentucky..................
Massachusetts.............
Michigan..................
Minnesota.................
Mississippi...............
Missouri..................
Montana...................
Nevada....................
New Jersey................
New Mexico................
New York..................
North Carolina............
Ohio......................
Oklahoma..................
Oregon....................
South Carolina............
Tennessee.................
Texas.....................
Utah......................
Virginia..................
Washington................
Wisconsin.................
Totals.......... 100.00%* 100.00%*
</TABLE>
----------
* Percentages may not add to 100% because of rounding.
S-25
<PAGE> 112
MATURITY AND PREPAYMENT CONSIDERATIONS
The contracts are or will be prepayable in full by the obligors at any
time without penalty. See "Maturity and Prepayment Considerations" in the
prospectus regarding the effects of prepayments on the weighted average life of
the contracts. As the rate of payment of principal of each class of notes and
the certificates depends primarily on the rate of payment, including
prepayments, of the principal of the contracts, final payment of any class of
notes or of the certificates is expected to occur earlier, and could occur
significantly earlier, than the respective final scheduled distribution date for
the securities.
All full and partial prepayments on simple interest contracts and all
full prepayments on rule of 78's and actuarial contracts will be paid to
securityholders on the distribution date immediately following the calendar
month in which the prepayments are received. Accordingly, the prepayments will
shorten the average life of those contracts, and, therefore, of the securities.
Partial prepayments on rule of 78's and actuarial contracts are treated as
payments in advance and, accordingly, will not affect the average life of the
contracts. The obligors can prepay the contracts in full at any time without
penalty.
Onyx can make no prediction as to the actual prepayment rates that will
be experienced on the contracts in either stable or changing interest rate
environments. In addition, the rate of payment of principal of each class of
securities will be affected by the incidence of delinquencies, defaults and
losses, by the application of the Accelerated Principal Distributable Amount to
pay the principal of the notes, and by any accelerated payments made on the
securities following an event of default under the indenture. See "Risk Factors
- Maturity and Prepayment Considerations" in this prospectus supplement.
USE OF PROCEEDS
The net proceeds of the initial sale of the securities will be used by
the trust to purchase the contracts from the seller under the sale and servicing
agreement and to fund the deposits in the collateral accounts maintained for the
benefit of the securityholders and the insurer. The net proceeds to be received
by the seller from the sale of the contracts to the trust will be used by the
seller to repay some or all of the indebtedness incurred, or to pay other
amounts owed, in connection with its acquisition of the contracts and to pay
other expenses in connection with the pooling of the contracts and the issuance
of the securities.
DESCRIPTION OF THE NOTES
The notes will be issued under the terms of the indenture, a form of
which will be filed with the SEC following the issuance of the notes. The
following summaries describe the material terms of the notes and the indenture,
but do not purport to be complete and are subject to, and qualified in their
entirety by reference to, the provisions of the notes and the indenture. Where
particular provisions of or terms used in the indenture are referred to, the
actual provisions, including definitions of terms, are incorporated by reference
as part of the summaries. The
S-26
<PAGE> 113
following summaries of terms of the indenture supplement, and to the extent
inconsistent therewith replace, the description of the general terms and
provisions of the indenture set forth under the heading "The Indenture" in the
prospectus, to which description reference is hereby made.
PAYMENTS OF INTEREST
Interest on the outstanding principal amount of each class of notes will
accrue during the Interest Accrual Period at the respective per annum interest
rates for the various classes of notes and will be payable to the noteholders on
each distribution date, commencing ________, 2000. Interest accrued but not paid
on any distribution date will be due on the immediately succeeding distribution
date, together with, to the extent permitted by applicable law, interest on the
shortfall at the related interest rate. Interest on the notes will be calculated
on the basis of a 360-day year of twelve 30-day months, with the exception of
the class A-1 notes, with respect to which interest will be calculated on the
basis of a 360-day year and the actual number of days in the related Interest
Accrual Period. Interest payments on the notes will be made as described below
under "Description of the Transfer and Servicing Agreements - Distributions" in
this prospectus supplement.
PAYMENTS OF PRINCIPAL
Principal payments will be made to the noteholders, to the extent
described below, on each distribution date in an amount equal to the Note
Principal Distributable Amount as described below under "Description of the
Transfer and Servicing Agreements - Distributions" in this prospectus
supplement.
Principal payments on the notes will be applied on each distribution
date from the Note Distribution Account -
- first, to the holders of the class A-1 notes until the principal
amount of the class A-1 notes has been reduced to zero;
- second, to the holders of the class A-2 notes until the
principal amount of the class A-2 notes has been reduced to
zero;
- third, to the holders of the class A-3 notes until the principal
amount of the class A-3 notes has been reduced to zero; and
- fourth, to the holders of the class A-4 notes until the
principal amount of the class A-4 notes has been reduced to
zero.
The Note Principal Distributable Amount for each distribution date will include
an amount equal to the Accelerated Principal Distributable Amount for that
distribution date, if any. See "Description of the Transfer and Servicing
Agreements - Distributions" in this prospectus supplement.
S-27
<PAGE> 114
After the principal amount of the Class A-4 Notes has been reduced to
zero, the Regular Principal Distributable Amount will be allocated to the
certificates.
The principal amount of each class of notes, to the extent not
previously paid, will be due on the final scheduled distribution date for that
class of notes. The actual date on which the outstanding principal amount of any
class of notes is paid is expected to be earlier, and could be significantly
earlier, than the final scheduled distribution date for that class based on a
variety of factors, including the factors described under "Maturity and
Prepayment Considerations" in this prospectus supplement and in the prospectus.
MANDATORY PARTIAL REDEMPTION
The Class A-1 Notes will be subject to mandatory partial redemption on
the first distribution date if and to the extent that the amount of proceeds
from the sale of the securities exceeds the Original Pool Balance. In this
event, the holders of Class A-1 Notes will receive, on the first distribution
date, an amount paid in respect of principal equal to the excess.
OPTIONAL REDEMPTION
Each class of outstanding notes will be subject to redemption in whole,
but not in part, on any distribution date on which the aggregate outstanding
principal balance of the contracts has declined to 10% or less of the Original
Pool Balance. The redemption price for each class of notes will equal the unpaid
principal amount of that class of notes plus accrued and unpaid interest thereon
at the applicable interest rate. Any redemption will effect early retirement of
each class of notes. See "Description of the Transfer and Servicing Agreements -
Termination" in this prospectus supplement.
THE INDENTURE TRUSTEE
[________________] will be the indenture trustee. The indenture trustee
is a New York banking corporation and its Corporate Trust Office is located at
________________.
The indenture trustee will have the rights and duties set forth under
"Description of the Transfer and Servicing Agreements - The Trustee and the
Indenture Trustee" in the prospectus.
INDENTURE EVENTS OF DEFAULT
Those events which constitute a default by the indenture trustee under
the indenture are set forth under "The Indenture - Indenture Events of Default"
in the prospectus. Upon an event of default under the indenture, the insurer and
the noteholders will have the rights set forth in the prospectus under "The
Indenture - Rights Upon Indenture Event of Default."
S-28
<PAGE> 115
DESCRIPTION OF THE CERTIFICATES
The certificates will be issued under the trust agreement, a form of
which will be filed with the SEC following the issuance of the certificates. The
following summaries, together with the referenced sections of the prospectus,
describe the material terms of the certificates and the trust agreement, but do
not purport to be complete and are subject to, and qualified in their entirety
by reference to, the provisions of the certificates and the trust agreement.
Where particular provisions of or terms used in the trust agreement are referred
to, the actual provisions, including definitions of terms, are incorporated by
reference as part of the summaries.
DISTRIBUTIONS OF INTEREST
Interest on the outstanding principal balance of the certificates will
accrue during the Interest Accrual Period at the per annum interest rate for
certificates and will be payable to the certificateholders on each distribution
date, commencing ________, 2001. Interest accrued but not paid on any
distribution date will be due on the immediately succeeding distribution date,
together with, to the extent permitted by applicable law, interest on the
shortfall at the related interest rate. Interest on the certificates will be
calculated on the basis of a 360-day year of twelve 30-day months. Interest
distributions with respect to the certificates will be made as described below
under "Description of the Transfer and Servicing Agreements - Distributions" in
this prospectus supplement.
DISTRIBUTIONS OF PRINCIPAL
No principal will be paid on the certificates until the principal amount
of all of the notes have been paid in full. On each distribution date on and
after the notes have been paid in full, the certificateholders will be entitled
to distributions in an amount equal to the Certificate Principal Distributable
Amount as described below under "Description of the Transfer and Servicing
Agreements - Distributions" in this prospectus supplement. The Accelerated
Principal Distributable Amount will not be included in the Certificate Principal
Distributable Amount.
The remaining outstanding principal balance of the certificates, to the
extent not previously paid, will be payable on the final scheduled distribution
date for the certificates. The actual date on which the principal balance of the
certificates is reduced to zero is expected to be earlier, and could be
significantly earlier, than the final scheduled distribution date for the
certificates based on a variety of factors, including the factors described
under "Maturity and Prepayment Considerations" in this prospectus supplement and
in the prospectus.
OPTIONAL PREPAYMENT
The certificates will be subject to prepayment in whole, but not in
part, on any distribution date on which the principal balance of the contracts
has declined to 10% or less of the Original Pool Balance. Certificateholders
will receive an amount in respect of the certificates equal to the outstanding
principal balance of the certificates plus accrued and unpaid interest thereon
at the interest rate for the certificates. This prepayment will effect early
retirement of the certificates.
S-29
<PAGE> 116
See "Description of the Transfer and Servicing Agreements - Termination" in this
prospectus supplement.
PAYING AGENT
Distributions of principal of and interest on the certificates will be
made by the trust agent or any paying agent or paying agents as the owner
trustee may designate from time to time. The trust agent will be designated as
the initial paying agent with respect to the certificates.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary, together with the information set forth in the
accompanying prospectus, includes a description of the material terms of the
sale and servicing agreement and the trust agreement. Forms of the sale and
servicing agreement and the trust agreement will be filed with the SEC following
the issuance of the securities. This summary does not purport to be complete and
is subject to, and qualified in its entirety by reference to, all the provisions
of those agreements. The following summary supplements the description of the
general terms and provisions of the transfer and servicing agreements set forth
under the heading "Description of the Transfer and Servicing Agreements" in the
prospectus, to which description reference is hereby made.
SALE AND ASSIGNMENT OF THE CONTRACTS
At the time of issuance of the securities, the seller will sell and
assign to the trust, without recourse, the seller's entire interest in the
contracts and the proceeds thereof, including its security interests in the
financed vehicles. Each contract will be identified in a schedule appearing as
an exhibit to the sale and servicing agreement. Concurrently with this sale and
assignment, the trust will pledge the assets acquired by it to the indenture
trustee under the indenture, and the notes and the certificates will be
delivered to the underwriters against payment to the seller of the net purchase
price of the sale of the securities. Before the sale of the contracts to the
trust and the issuance of the securities, each of Onyx's participating
subsidiaries will sell and assign to Onyx under a purchase agreement, without
recourse, its entire interest in the contracts, and Onyx will sell and assign to
the seller its entire interest in the contracts. See "Description of the
Transfer and Servicing Agreements - Sale and Assignment of the Contracts" in the
prospectus.
THE ACCOUNTS
THE COLLECTION, PAYAHEAD AND PAYMENT ACCOUNTS. The collection account
and the payahead account referred to in the prospectus under "Description of the
Transfer and Servicing Agreements - The Collection Account and Eligible
Investments" and "- Payahead Account" will be established by the servicer and
maintained by a financial institution acceptable to the indenture trustee and
the insurer in the name of the indenture trustee. The indenture trustee will
establish and maintain a payment account, in the name of the indenture trustee,
into which amounts released from the collection account for distribution to
securityholders will be deposited prior to transfer of those amounts to the
distribution accounts described below.
S-30
<PAGE> 117
THE DISTRIBUTION ACCOUNTS. The servicer will establish and maintain with
the indenture trustee the following distribution accounts:
- a note distribution account, in the name of the indenture
trustee on behalf of the noteholders, in which amounts released
from the payment account for distribution to noteholders will be
deposited and from which all distributions to noteholders will
be made; and
- a certificate distribution account, in the name of the trust
agent on behalf of the certificateholders, in which amounts
released from the payment account for distribution to
certificateholders will be deposited and from which all
distributions to certificateholders will be made.
THE SPREAD ACCOUNT. The spread account will be established and
maintained as described under "Description of the Transfer and Servicing
Agreements - Payment Priorities of the Notes and Certificates; The Spread
Account" and "- Withdrawals from the Spread Account" in this prospectus
supplement.
PAYMENTS ON CONTRACTS
Net collections on the contracts will be deposited in or credited to the
collection account within two business days of the receipt by the servicer of
payments from obligors. Net collections with respect to a distribution date and
the related Collection Period will include:
- amounts received with respect to the contracts in the Collection
Period representing monthly installments of principal and
interest;
- full prepayments and partial prepayments, pending transfer of
partial prepayments on any rule of 78's or actuarial contracts
to the payahead account;
- Net Liquidation Proceeds and Net Insurance Proceeds;
- any amounts deposited by Onyx or the seller in the collection
account to purchase contracts because of material defects in
documents related to the contracts or breaches of
representations or warranties regarding the contracts made by
the seller in the sale and servicing agreement that materially
and adversely affect the interests of the securityholders or the
insurer;
- any amounts deposited by the servicer in the collection account
to purchase contracts as to which the servicer has breached its
servicing covenants; and
- any amounts deposited by the servicer in the collection account
as a result of the servicer exercising its right to purchase all
of the remaining contracts.
Partial prepayments of rule of 78's and actuarial contracts are
initially deposited in the collection account and are transferred to the
payahead account on the Servicer Report Date.
S-31
<PAGE> 118
DISTRIBUTIONS
On the business day immediately preceding each distribution date, the
servicer will cause funds equal to the amount of net collections available with
respect to that distribution date to be withdrawn from the collection account
and deposited into the payment account. On each distribution date, the indenture
trustee, based solely on the distribution date statement provided to the
indenture trustee by the servicer, will apply the net collections on deposit in
the payment account available with respect to the related Collection Period
together with amounts, if any, withdrawn from the spread account or representing
payment of the Policy Claim Amount, to make the following deposits and
distributions in the following amounts and order of priority:
(1) to the servicer, the servicing fee, including any accrued and
unpaid servicing fees with respect to one or more prior
Collection Periods;
(2) to the indenture trustee, the owner trustee and the trust agent,
any accrued and unpaid fees of the indenture trustee, the owner
trustee and the trust agent, in each case to the extent the fees
have not been previously paid by the servicer;
(3) to the note distribution account, the Note Interest
Distributable Amount to be paid pro rata to the holders of the
notes at their respective interest rates;
(4) to the Note Distribution Account, if the distribution date is a
final scheduled distribution date for any class of notes, the
Note Principal Distributable Amount to the extent of the
remaining principal amount of that class of notes, to be paid to
the holders of that class of notes;
(5) to the certificate distribution account, the Certificate
Interest Distributable Amount, to be distributed to the holders
of the certificates;
(6) to the note distribution account, from net collections remaining
after giving effect to the reduction in net collections
described in clauses (1) through (5) above, the remaining Note
Principal Distributable Amount, after giving effect to the
payment, if any, described in clause (4) above, to be paid -
- first, to the holders of the class A-1 notes
until the principal amount of the class A-1
notes has been reduced to zero;
- second, to the holders of the class A-2 notes
until the principal amount of the class A-2
notes has been reduced to zero;
- third, to the holders of the class A-3 notes
until the principal amount of the class A-3
notes has been reduced to zero; and
- fourth, to the holders of the class A-4 notes
until the principal amount of the class A-4
notes has been reduced to zero;
S-32
<PAGE> 119
(7) to the certificate distribution account, if the distribution
date is the final scheduled distribution date for the
certificates, the Certificate Principal Distributable Amount to
the extent of the outstanding principal balance of the
certificates, to be distributed to the holders of the
certificates;
(8) to the certificate distribution account, if the distribution
date is not the final scheduled distribution date for the
certificates, after giving effect to the distributions described
in clauses (1) through (6) above, the remaining Certificate
Principal Distributable Amount to the extent of the outstanding
principal balance of the certificates, to be distributed to the
holders of the certificates;
(9) to the insurer, after giving effect to the distributions
described in clauses (1) through (8) above, any amounts,
including the premium set forth in the insurance agreement,
owing to the insurer under the insurance agreement;
(10) to the spread account, after giving effect to the distributions
described in clauses (1) through (10) above, the amount, if any,
required to increase the amount in the spread account to the
Spread Account Maximum for that distribution date; and
(11) any amounts remaining after distribution of the Accelerated
Principal Distributable Amount as part of the Note Principal
Distributable Amount, if applicable, will be deposited into the
spread account and will be applied as described in the second
paragraph under "Description of the Transfer and Servicing
Agreements Withdrawals from the Spread Account" in this
prospectus supplement.
If the notes are accelerated following an event of default under the
indenture, amounts collected will be applied -
- first, to pay any unpaid servicing fee;
- second, to pay any accrued and unpaid fees of the indenture
trustee, owner trustee and trust agent without preference or
priority of any kind;
- third, to pay accrued interest on each class of notes on a pro
rata basis based on the interest accrued, including interest
accrued on past-due interest, on each class of Notes;
- fourth, to pay principal on the notes, on a pro rata basis based
on the aggregate principal balance of each class of notes, until
the aggregate principal balance of each such class of notes is
reduced to zero;
- fifth, to pay accrued interest on the certificates, including
interest on past due interest;
S-33
<PAGE> 120
- sixth, to pay principal on the certificates until the
outstanding principal balance of the certificates is reduced to
zero;
- seventh, to pay amounts owing the insurer under the insurance
agreement; and
- eighth, to the spread account, to be applied in accordance with
the insurance agreement.
Amounts on deposit in the spread account on a distribution date will be
available to make payments and distributions on that distribution date as
described under "- Withdrawals from the Spread Account" in this prospectus
supplement.
Under the policy, the insurer is obligated to provide for payment to the
indenture trustee on each distribution date of any Policy Claim Amount. In
addition, on any distribution date, the insurer may elect, in its sole
discretion, to pay all or a portion of any shortfalls in the amount of net
collections available to distribute the amounts described in clauses (6) and (8)
above. See "The Policy" in this prospectus supplement.
PAYMENT PRIORITIES OF THE NOTES AND THE CERTIFICATES; THE SPREAD ACCOUNT
The rights of the securityholders to receive distributions with respect
to the contracts will be subordinated to the rights of -
- the servicer, to the extent that the servicer has not been paid
all servicing fees; and
- the indenture trustee, the owner trustee and the trust agent, to
the extent any of them has not received accrued and unpaid fees.
In addition, the rights of the noteholders to receive distributions with
respect to the contracts will be subject to the priorities set forth under
"Description of the Transfer and Servicing Agreements - Distributions" in this
prospectus supplement and the rights of the certificateholders to receive
distributions with respect to the contracts will be subordinated to the rights
of the noteholders, in each case to the extent described above. These priorities
and subordination are intended to enhance the likelihood of timely receipt by
the noteholders of the full amount of interest and principal required to be paid
to them, and to afford the noteholders limited protection against losses in
respect of the contracts.
The foregoing protection will be effected both by the preferential right
of the noteholders to receive, to the extent described in this prospectus
supplement, current distributions with respect to the contracts, and by the
establishment of the spread account. The spread account will be a part of the
trust and will be a segregated trust account in the name of the indenture
trustee. The indenture trustee will have a perfected security interest in all
amounts deposited in or credited to the spread account as well as all Eligible
Investments. The spread account will be funded by the deposit therein of amounts
under clauses (10) and (11) under "- Distributions" above.
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<PAGE> 121
Amounts held from time to time in the spread account will continue to be
held for the benefit of holders of the securities and the insurer and may be
invested in Eligible Investments. Investment income on monies on deposit in the
spread account will be credited to the spread account. Any loss on the
investment will be charged to the spread account.
The Spread Account Maximum may increase or decrease over time, without
the consent of any of the securityholders, as a result of floors, caps and
triggers set forth in the insurance agreement. In addition, there can be no
assurance that the Spread Account Maximum will be reached at any given time.
Consequently, securityholders should not rely on amounts on deposit or to be
deposited in the spread account in evaluating the likelihood that the securities
will be repaid.
WITHDRAWALS FROM THE SPREAD ACCOUNT
Amounts held from time to time in the spread account will continue to be
held for the benefit of the noteholders, the certificateholders and the insurer.
On each distribution date funds will be withdrawn from the spread account and
deposited into the payment account to the extent that the sum of the amounts set
forth in clauses (1) though (5) and (7) under "- Distributions" above with
respect to that distribution date exceeds the amount of net collections
available with respect to that distribution date. Funds will also be withdrawn
from the spread account to reimburse the insurer for any draws under the policy
with respect to any Preference Amount.
If the amount on deposit in the spread account on any distribution date,
after giving effect to all deposits to and withdrawals from the spread account
on that distribution date, is greater than the Spread Account Maximum for that
distribution date, then the indenture trustee will distribute any excess -
- first, to the insurer, to the extent of any amounts owing to the
insurer under the insurance agreement;
- second, to the holders of the residual interests in the trust.
Upon any distributions to the insurer or the holders of the residual interests,
the securityholders will have no further rights in, or claims to, such amounts.
None of the securityholders, the indenture trustee, the owner trustee,
the trust agent, the seller, the insurer or the holders of the residual
interests will be required to refund any amounts properly distributed to them,
whether or not there are sufficient funds on any subsequent distribution date to
make full distributions to the securityholders. The obligations of the insurer
under the policy will not be diminished or otherwise affected by any amounts
distributed to the insurer as described in the preceding paragraph.
SERVICING FEE
The servicer will be entitled to compensation for the performance of its
obligations under the sale and servicing agreement. The servicer will be
entitled to receive as its servicing fee on
S-35
<PAGE> 122
each distribution date an amount equal to the product of one-twelfth of 1% per
annum multiplied by the aggregate outstanding balance of the contracts as of the
end of the Collection Period preceding the related Collection Period. As
additional compensation, the servicer or its designee shall be entitled to
retain all late payment charges, extension fees and similar items paid in
respect of the contracts. The servicer or its designee will also receive as
servicing compensation reinvestment earnings on Eligible Investments of funds
credited to the collection account and the payahead account. The servicer will
pay all expenses incurred by it in connection with its servicing activities
under the sale and servicing agreement and will not be entitled to reimbursement
of the expenses except to the extent they constitute Liquidation Expenses or
expenses recoverable under an applicable insurance policy.
The sale and servicing agreement requires the servicer to use its best
efforts to collect all payments called for under the terms and provisions of the
contracts. The servicer, consistent with the foregoing, will be permitted, in
its discretion, to waive charges and grant extensions as described under
"Description of the Transfer and Servicing Agreements - Waivers and Extensions"
in the prospectus. The maturity date of a contract, however, may not be extended
more than 120 days past the originally scheduled maturity date, and in no event
beyond the latest final scheduled distribution date for the securities.
SERVICER DEFAULT
The events which constitute a servicer default under the sale and
servicing agreement are described under "Description of the Transfer and
Servicing Agreements - Servicer Default" in the prospectus. Additionally, the
occurrence of trigger events set forth in the insurance agreement will
constitute a servicer default.
RIGHTS UPON SERVICER DEFAULT
If a default by the insurer has occurred and is continuing, then upon
the occurrence of a servicer default, the indenture trustee, owner trustee,
noteholders and certificateholders will have the rights described under
"Description of the Transfer and Servicing Agreement - Rights Upon Servicer
Default" in the prospectus. However, if an insurer default shall not have
occurred and be continuing, then only the insurer, and not the indenture
trustee, the noteholders, the owner trustee or the certificateholders, may
terminate the servicer. If the insurer terminates the servicer, the insurer will
appoint a successor servicer who will succeed to all the responsibilities,
duties and liabilities of the servicer under the sale and servicing agreement
and will be entitled to similar compensation arrangements.
WAIVER OF SERVICER DEFAULT
If a default by the insurer has occurred and is continuing, then upon
the occurrence of a servicer default, the noteholders and the certificateholders
will have the right to waive defaults by the servicer as described under
"Description of the Transfer and Servicing Agreement - Waiver of Servicer
Default" in the prospectus. However, if an insurer default shall not have
occurred and be continuing, then only the insurer, and not the noteholders or
the certificateholders, may waive any default by the servicer in the performance
of its obligations under the sale and servicing
S-36
<PAGE> 123
agreement and its consequences, except a servicer default in making any required
deposits to or payments from the trust accounts in accordance with the sale and
servicing agreement. No waiver by the insurer will impair the insurer's or the
noteholders' or certificateholders' rights with respect to subsequent servicer
defaults. If an insurer default shall not have occurred and be continuing, then
a servicer default in making any required deposits to or payments from the trust
accounts in accordance with the sale and servicing agreement may only be waived
with the consent of both the insurer and the holders of 100% of the outstanding
principal amount of the notes or, if the notes have been paid in full, the
holders of 100% of the outstanding principal amount of the certificates.
TERMINATION
The obligations of the servicer, the seller, the owner trustee and
indenture trustee with respect to the related securityholders under the trust
agreement, sale and servicing agreement or indenture will terminate as described
under "Description of the Transfer and Servicing Agreements - Termination" in
the prospectus, and as set forth below.
In order to avoid excessive administrative expenses, the servicer will
be permitted at its option to purchase the remaining contracts from the trust on
any distribution date as of which the aggregate outstanding principal balance of
the contracts has declined to 10% or less of the Original Pool Balance, at a
price equal to the greater of -
- the sum of:
- the aggregate outstanding principal balance of
the contracts on the date of repurchase, plus
- accrued and unpaid interest on the contracts;
and
- the sum of:
- the aggregate unpaid principal amount of the
securities, plus
- accrued and unpaid interest thereon, plus
- all amounts due to the insurer under the
insurance agreement.
The trust agent and indenture trustee will give written notice of
termination to each securityholder of record. The final distribution to each
securityholder will be made only upon surrender and cancellation of the holder's
securities at the office or agency of the related trustee specified in the
notice of termination. Any funds remaining in the trust, after the trustee has
taken measures to locate a securityholder and those measures have failed, will
be distributed to a charity designated by the servicer.
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<PAGE> 124
Any outstanding notes will be redeemed concurrently with any purchase
described above, and the subsequent distribution to the related
certificateholders of all amounts required to be distributed to them under the
trust agreement will effect early retirement of the certificates.
PAYMENT IN FULL OF NOTES
Upon the payment in full of all outstanding notes and the satisfaction
and discharge of the indenture, the owner trustee will succeed to all the rights
of the indenture trustee, and the certificateholders will succeed to all the
rights of the noteholders, under the sale and servicing agreement, except as
otherwise provided therein.
CERTAIN MATTERS RELATING TO THE INSURER
In the event an insurer default shall have occurred and be continuing,
the insurer shall not have the right to take any action under the sale and
servicing agreement, the indenture or the trust agreement, to terminate the
servicer, or to control or direct the actions of the seller, the servicer, the
owner trustee or the indenture trustee under the terms of the sale and servicing
agreement, the indenture or the trust agreement, nor shall the consent of the
insurer be required with respect to any action, or waiver of a right to take
action, to be taken by the seller, the servicer, the indenture trustee, the
owner trustee, the noteholders, the certificateholders or the residual
interestholders; provided, that the consent of the insurer shall be required at
all times with respect to any amendment of the sale and servicing agreement, the
indenture or the trust agreement.
THE POLICY
The insurer, in consideration of the payment of the premium and subject
to the terms of the policy, thereby unconditionally and irrevocably guarantees
to any Owner that an amount equal to each Policy Claim Amount will be received
by the indenture trustee, or its successors, as trustee for the Owners, on
behalf of the Owners from the insurer, for distribution by the indenture
trustee, to each Owner of each Owner's proportionate share of the Policy Claim
Amount. The insurer's obligations under the policy shall be discharged to the
extent funds to pay the securities are deposited by the servicer in accordance
with the sale and servicing agreement or disbursed by the insurer as provided in
the policy, whether or not such funds are properly applied by the indenture
trustee. Payments of Policy Claim Amounts will be made only at the time set
forth in the policy. The policy will not guarantee payments of principal on any
class of notes or on the certificates other than the payment of the outstanding
principal amount of a class of notes or of the certificates on the final
scheduled distribution date for that class of notes or the certificates, and
will not guarantee payment of any Accelerated Principal Distributable Amount or
any amounts which become due on an accelerated basis as a result of a default by
the trust, the occurrence of an event of default under the indenture, or any
other cause. The insurer may elect, in its sole discretion, to pay in whole or
in part the principal due upon acceleration. The insurer may elect, in its sole
discretion, to pay all or a portion of shortfalls of funds available to make
distributions of principal on the notes or the certificates on a distribution
date, as described under "Description of the Transfer and Servicing Agreements"
in this prospectus supplement. The policy does not cover
S-38
<PAGE> 125
shortfalls, if any, attributable to the liability of the trust for withholding
taxes (including interest and penalties in respect of such liability.
The insurer will pay any Policy Claim Amount that is a Preference Amount
on the business day following receipt by the fiscal agent of the insurer, with a
copy to the insurer, of:
- a certified copy of the order requiring the return of a
preference payment;
- an opinion of counsel satisfactory to the insurer that the order
is final and not subject to appeal;
- an assignment in such form as is reasonably required by the
insurer, irrevocably assigning to the insurer all rights and
claims of each Owner relating to or arising under the securities
against the debtor which made the preference payment or
otherwise with respect to the preference payment; and
- appropriate instruments, in form satisfactory to the insurer, to
effect the appointment of the insurer as agent for the Owner in
any legal proceeding related to the preference payment.
If the above documents are received after 12:00 noon New York City time on a
business day, they will be deemed to be received on the following business day,
payments of the Policy Claim Amount will be disbursed to the receiver or the
trustee in bankruptcy named in the final order of the court exercising
jurisdiction on behalf of the Owner and not to any Owner directly unless the
Owner has returned principal or interest paid on the securities to the receiver
or trustee in bankruptcy, in which case the payment will be disbursed to the
Owner.
The insurer will pay any other amount payable under the policy no later
than 12:00 noon New York City time on the later of:
- the distribution date on which the related Note Interest
Distributable Amount, Certificate Interest Distributable Amount
or outstanding principal amount in respect of a class of notes
or of the certificates for which that distribution date is the
final scheduled distribution date is due; or
- the second business day following receipt in New York, New York
on a business day by the fiscal agent, with a copy to the
insurer, of a notice specifying the Policy Claim Amount which
will be due and owing on the following distribution date;
provided, that if the notice is received after 12:00 noon New
York City time on that business day, it will be deemed to be
received on the following business day.
If any notice received by the fiscal agent is not in proper form or is otherwise
insufficient for the purpose of making a claim under the policy it will be
deemed not to have been received by the fiscal agent, and the insurer or the
fiscal agent, as the case may be, will promptly so advise the indenture trustee
and the indenture trustee may submit an amended notice.
S-39
<PAGE> 126
Policy Claim Amounts due under the policy, unless otherwise stated
therein, will be disbursed by the fiscal agent to the indenture trustee on
behalf of the Owners by wire transfer of immediately available funds in the
amount of the Policy Claim Amount less, in respect of Policy Claim Amounts
including Preference Amounts, any amount held by the indenture trustee for the
payment of the Policy Claim Amount and legally available therefor.
The fiscal agent is the agent of the insurer only and the fiscal agent
will in no event be liable to Owners for any acts of the fiscal agent or any
failure of the insurer to deposit or cause to be deposited sufficient funds to
make payments due under the policy.
Subject to the terms of the indenture, the insurer shall be subrogated
to the rights of each Owner to receive payments under the securities to the
extent of any payment by the insurer under the policy.
The policy is being issued under, and shall be construed under, the laws
of the State of New York, without giving effect to the conflict of law
principles thereof. THE POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE
SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
The policy is not cancelable for any reason. The premium on the policy
is not refundable for any reason including payment, or provision being made for
payment, prior to the latest final scheduled distribution date of the
securities.
INSURER DEFAULT
All references in the prospectus and in this prospectus supplement to a
default by the insurer shall mean the occurrence and continuance of any of the
following events:
- the insurer shall have failed to make a payment required under
the policy in accordance with its terms;
- the insurer shall have:
- filed a petition or commenced any case or
proceeding under any provision or chapter of the
United States Bankruptcy Code or any other
similar federal or state law relating to
insolvency, bankruptcy, rehabilitation,
liquidation or reorganization;
- made a general assignment for the benefit of its
creditors; or
- had an order for relief entered against it under
the United States Bankruptcy Code or any other
similar federal or state law relating to
insolvency, bankruptcy, rehabilitation,
liquidation or reorganization which is final and
nonappealable; or
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<PAGE> 127
- a court of competent jurisdiction, the New York Department of
Insurance or other competent regulatory authority shall have
entered a final and nonappealable order, judgment or decree:
- appointing a custodian, trustee, agent or
receiver for the insurer or for all or any
material portion of its property; or
- authorizing the taking of possession by a
custodian, trustee, agent or receiver of the
insurer, or the taking of possession of all or
any material portion of the property of the
insurer.
DESCRIPTION OF THE INSURER
The insurer is domiciled in the State of ________________ and licensed
to do business in and subject to regulation under the laws of all 50 states, the
District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the
Northern Mariana Islands, the Virgin Islands of the United States and the
Territory of Guam. State laws regulate the amount of both the aggregate and
individual risks that may be insured, the payment of dividends by the insurer,
changes in control and transactions among affiliates. Additionally, the insurer
is required to maintain contingency reserves on its liabilities in certain
amounts and for certain periods of time.
The consolidated financial statements of the Insurer and its
subsidiaries as of December 31, 199__ and December 31, 199__ and for each of the
three years in the period ended December 31, 199__, prepared in accordance with
generally accepted accounting principles, included in the Annual Report on Form
10-K of [insurer] for the year ended December 31, 199__ and the consolidated
financial statements of the insurer and its subsidiaries as of
___________________ and for the ______ month periods ended __________________
and ____________________ included in the Quarterly Report on Form 10-Q of
[insurer] for the period ended ____________________, are hereby incorporated by
reference into this prospectus supplement and shall be deemed to be a part
hereof. Any statement contained in a document incorporated by reference in this
prospectus supplement shall be modified or superseded for purposes of this
prospectus supplement to the extent that a statement contained in this
prospectus supplement or in any other subsequently filed document which also is
incorporated by reference in this prospectus supplement modifies or supersedes
the statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this prospectus
supplement.
All financial statements of the insurer and its subsidiaries included in
documents filed by [insurer] under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, subsequent to the date of this
prospectus supplement and prior to the termination of the offering of the
securities shall be deemed to be incorporated by reference into this prospectus
supplement and to be a part hereof from the respective dates of filing such
documents.
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<PAGE> 128
The tables below present selected financial information of the insurer
determined in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities, or SAP, and generally accepted
accounting principles, or GAAP:
<TABLE>
<CAPTION>
SAP
-----------------------------
December 31,199
---------------- ---------
(Audited) (Unaudited)
(In Millions)
<S> <C> <C>
Admitted
Assets............
Liabilities.......
Capital
and Surplus.......
</TABLE>
<TABLE>
<CAPTION>
GAAP
------------------------------
December 31, 199
----------------- ---------
(Audited) (Unaudited)
(In Millions)
<S> <C> <C>
Assets..........
Liabilities.....
Shareholder's
Equity..........
</TABLE>
Copies of the financial statements of the insurer incorporated by
reference in this prospectus supplement and copies of the insurer's 199__
year-end audited financial statements prepared in accordance with statutory
accounting practices are available, without charge, from the insurer. The
address of the insurer is ______________________________. The telephone number
of the insurer is _________________.
The insurer does not accept any responsibility for the accuracy or
completeness of this prospectus supplement or any information or disclosure
contained in this prospectus supplement, or omitted herefrom, other than with
respect to the accuracy of the information regarding the insurer set forth under
the heading "Description of the Insurer" in this prospectus supplement.
Additionally, the insurer makes no representation regarding the securities or
the advisability of investing in the securities.
THE POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY
FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
Moody's Investors Service, Inc. rates the financial strength of the
insurer "Aaa".
Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc., rates the financial strength of the insurer "AAA".
Fitch IBCA, Inc., formerly known as Fitch Investors Service, L.P., rates
the financial strength of the insurer "AAA".
Each rating of the insurer should be evaluated independently. The
ratings reflect the respective rating agency's current assessment of the
creditworthiness of the insurer and its ability
S-42
<PAGE> 129
to pay claims on its policies of insurance. Any further explanation of the
significance of the above ratings may be obtained only from the applicable
rating agency.
The above ratings are not recommendations to buy, sell or hold the
securities and the ratings may be subject to revision or withdrawal at any time
by the rating agencies. Any downward revision or withdrawal of any of the above
ratings may have an adverse effect on the market price of the securities. The
insurer does not guarantee the market price of the securities nor does it
guarantee that the ratings on the securities will not be revised or withdrawn.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Andrews & Kurth L.L.P. for federal income tax purposes
the notes will be characterized as debt, and the trust will not be characterized
as an association, or a publicly traded partnership, taxable as a corporation.
Each noteholder, by the acceptance of a note, will agree to treat the notes as
indebtedness, and each certificateholder, by the acceptance of a certificate,
will agree to treat the trust as a partnership in which the certificateholders
are partners for federal income tax purposes. Alternative characterizations of
the trust and the certificates are possible, but would not result in materially
adverse tax consequences to certificateholders. See "Certain Federal Income Tax
Consequences" in the prospectus for additional information concerning the
application of federal income tax laws to the trust and the securities.
Certificateholders who are tax-exempt entities or non-U.S. persons will
have tax consequences that may be considered adverse by those holders. See
"Certain Federal Income Tax Consequences - Trusts for Which a Partnership
Election is Made - Tax Consequences to Holders of the Certificates - Partnership
Taxation" and "- Tax Consequences to Foreign Certificateholders" in the
prospectus.
ERISA CONSIDERATIONS
THE NOTES
Subject to the considerations set forth below and under "ERISA
Considerations" in the prospectus, the notes may be purchased by an employee
benefit plan or an individual retirement account subject to ERISA or Section
4975 of the tax code. A fiduciary of a benefit plan or IRA must determine that
the purchase of a note is consistent with its fiduciary duties under ERISA and
does not result in a nonexempt prohibited transaction as defined in Section 406
of ERISA or Section 4975 of the tax code. Section 406 of ERISA prohibits parties
in interest or disqualified persons with respect to a benefit plan or IRA from
engaging in certain transactions, including loans, involving a benefit plan or
IRA and its assets unless a statutory, regulatory or administrative exemption
applies to the transaction. Section 4975 of the tax code imposes certain excise
taxes or, in some cases, a civil penalty may be assessed under section 502(i) of
ERISA, on parties in interest and disqualified persons which engage in
non-exempt prohibited transactions.
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<PAGE> 130
The United States Department of Labor has issued a regulation (29 CFR
Section 2510.3-101) the "plan asset regulation" - concerning the definition of
what constitutes the assets of a benefit plan or IRA. This regulation provides
that, as a general rule, the underlying assets and properties of corporations,
partnerships, trusts and certain other entities in which a benefit plan or IRA
purchases an "equity interest" will be deemed for purposes of ERISA to be assets
of the investing benefit plan or IRA unless certain exceptions apply. The plan
asset regulation defines an "equity interest" as any interest in an entity other
than an instrument that is treated as indebtedness under applicable local law
and which has no substantial equity features. Although the issue is not free
from doubt, the seller believes that the notes offered hereby should not be
treated as "equity interests" for purposes of the regulation. Accordingly, the
acquisition of the notes by benefit plan or IRA investors should not cause the
assets of the trust to be treated as "plan assets" for purposes of Title I of
ERISA. However, the notes may not be purchased with the assets of a benefit plan
or IRA if the seller, the servicer, the indenture trustee, the owner trustee or
any of their affiliates -
- has investment or administrative discretion with respect to the
assets of the benefit plan or IRA;
- has authority or responsibility to give, or regularly gives,
investment advice with respect to the assets of the benefit plan
or IRA, for a fee and under an agreement or understanding that
the advice (1) will serve as a primary basis for investment
decisions with respect to the assets of the benefit plan or IRA
and (2) will be based on the particular investment needs for the
benefit plan or IRA; or
- is an employer maintaining or contributing to the benefit plan
or IRA.
Each purchaser and transferee of the securities shall be deemed to represent
that it satisfies the foregoing conditions.
Affiliates of the trust or the servicer might be considered or might
become parties in interest or disqualified persons with respect to a benefit
plan or IRA. In either case, the acquisition or holding of notes by or on behalf
of such a benefit plan or IRA could be considered to give rise to an indirect
prohibited transaction within the meaning of ERISA and the tax code, unless the
acquisition and holding of the notes is covered by one or more exemptions such
as Prohibited Transaction Class Exemption 84-14, which exempts certain
transactions effected on behalf of a benefit plan or IRA by a "qualified
professional asset manager", PTCE 90-1, which exempts certain transactions
involving insurance company pooled separate accounts, PTCE-91- 38, which exempts
certain transactions involving bank collective investment funds, PTCE 95-60,
which exempts certain transactions involving insurance company general accounts,
or PTCE 96- 23, which exempts certain transactions effected on behalf of a
benefit plan or IRA by certain "in-house asset managers". Each purchaser or
transferee of a note that is a benefit plan or IRA will be deemed to have
represented that the relevant conditions for exemptive relief under at least one
of the foregoing exemptions, or other applicable exemption providing
substantially similar relief, have been satisfied.
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<PAGE> 131
THE CERTIFICATES
The seller believes that the certificates offered hereby should be
treated as "equity interests" for purposes of the plan asset regulation.
Accordingly, the certificates may not be acquired by -
- a benefit plan or IRA subject to ERISA or Section 4975 of the
tax code; or
- any entity whose underlying assets include plan assets by reason
of a benefit plan's or IRA's investment in the entity or which
uses plan assets to acquire certificates.
By its acceptance of a certificate, each certificateholder will be
deemed to have represented and warranted that it is not subject to the foregoing
limitation. In this regard, purchasers that are insurance companies should
consult with their counsel with respect to the United States Supreme Court case
interpreting the fiduciary responsibility rules of ERISA, John Hancock Mutual
Life Insurance Co. v. Harris Bank and Trust, decided December 12, 1993. In John
Hancock, the Supreme Court ruled that assets held in an insurance company's
general account may be deemed to be "plan assets" for ERISA purposes under
certain circumstances. Prospective purchasers should determine whether the
decision affects their ability to make purchases of the certificates. For
additional information regarding treatment of the certificates under ERISA, see
"ERISA Considerations" in the prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement dated ____________________ between the seller and the underwriters
named below, the seller has agreed to cause the trust to sell to each of the
underwriters, and each of the underwriters has severally agreed to purchase, the
principal amount of the notes and certificates set forth opposite its name in
the table below:
CLASS A-1 NOTES
<TABLE>
<CAPTION>
Principal Amount
----------------
<S> <C>
[Underwriter]..................................... $
[Underwriter]..................................... $
---------------
Total...................................... $
===============
</TABLE>
S-45
<PAGE> 132
CLASS A-2 NOTES
<TABLE>
<CAPTION>
Principal Amount
----------------
<S> <C>
[Underwriter]..................................... $
[Underwriter]..................................... $
---------------
Total...................................... $
===============
</TABLE>
CLASS A-3 NOTES
<TABLE>
<CAPTION>
Principal Amount
----------------
<S> <C>
[Underwriter]..................................... $
[Underwriter]..................................... $
---------------
Total...................................... $
===============
</TABLE>
CLASS A-4 NOTES
<TABLE>
<CAPTION>
Principal Amount
----------------
<S> <C>
[Underwriter]..................................... $
[Underwriter]..................................... $
---------------
Total...................................... $
===============
</TABLE>
CERTIFICATES
<TABLE>
<CAPTION>
Principal Amount
----------------
<S> <C>
[Underwriter]..................................... $
[Underwriter]..................................... $
---------------
Total...................................... $
===============
</TABLE>
The seller has been advised by the underwriters that they propose
initially to offer the notes to the public at the prices set forth in this
prospectus supplement, and to certain dealers at such price less the initial
concession not in excess of ______% of the denominations of the notes per class
A-1 note, ______% per class A-2 note, ______% per class A-3 note and ______% per
class A-4 note. The underwriters may allow, and the dealers may reallow, a
concession not in excess of ______% per class A-1 note, ______% per class A-2
note, ______% per class A-3 note and ______% per class A-4 note to certain other
dealers. After the initial public offering of the notes, the public offering
price and the concessions may be changed. The underwriters are
S-46
<PAGE> 133
obligated to purchase and pay for all of the notes if any notes are purchased.
The underwriters currently intend, but are not obligated, to make a market in
the notes.
The seller has been advised by the underwriters that they propose
initially to offer the certificates to the public at the prices set forth in
this prospectus supplement, and to certain dealers at that price less the
initial concession not in excess of ______% of the principal amount thereof. The
underwriters may allow, and the dealers may reallow, a concession not in excess
of ______% per certificate. After the initial public offering of the
certificates, the public offering price and concessions may be changed. The
underwriters are obligated to purchase and pay for all of the certificates if
any certificates are purchased. The underwriters currently intend, but are not
obligated, to make a market in the certificates.
Onyx has agreed to indemnify the underwriters against certain
liabilities, including liabilities under applicable securities laws, or
contribute to payments the underwriters may be required to make in respect
thereof.
Onyx or its affiliates may apply all or any portion of the net proceeds
of the sale of the contracts to the trust to the repayment of debt, including
"warehouse" debt secured by the contracts. One or more of the underwriters (or
(i) their respective affiliates or (ii) entities for which their respective
affiliates act as administrator and/or provide liquidity lines) may have acted
as a "warehouse" lender or purchaser to Onyx or its affiliates and may receive a
portion of such proceeds as repayment of such "warehouse" debt.
LEGAL MATTERS
Certain legal matters with respect to the securities and with respect to
the federal income tax matters discussed under "Certain Federal Income Tax
Consequences" in the prospectus will be passed upon for the seller by Andrews &
Kurth L.L.P., Dallas, Texas. Certain legal matters with respect to the
securities will be passed upon for the underwriters by ______________________.
Certain legal matters relating to the policy will be passed upon for the insurer
by ___________________________________________.
EXPERTS
The consolidated balance sheets of the insurer and its subsidiaries as
of December 31, 199__ and 199__ and the related consolidated statements of
income, changes in shareholder's equity, and cash flows for each of the three
years in the period ended December 31, 199__, incorporated by reference in this
prospectus supplement, have been incorporated in this prospectus supplement in
reliance on the report of _________________________________, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
S-47
<PAGE> 134
REPORTS TO SECURITYHOLDERS
Unless definitive securities are issued, which will occur under the
limited circumstances described in this prospectus supplement and in the
prospectus, the servicer will send unaudited monthly and annual reports
concerning the trust to the indenture trustee to be delivered to Cede & Co. as
the nominee of DTC and the registered holder of the securities. See "Description
of the Transfer and Servicing Agreements - Statements to Securityholders" in the
prospectus. The reports will not constitute financial statements prepared in
accordance with generally accepted accounting principles. DTC will supply the
reports to you in accordance with its procedures. See "Description of the
Securities - Book-Entry Registration" in the prospectus. None of the seller, the
servicer, or [insurer] intends to send any of its financial reports to you.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
In addition to the documents described in the prospectus under
"Incorporation of Certain Documents by Reference," the consolidated financial
statements of [insurer] included in, or as exhibits to, the following documents
which have been filed with the SEC by [insurer], are hereby incorporated by
reference in this prospectus supplement:
(1) Annual Report on Form 10-K for the year ended December 31, 199_;
and
(2) Quarterly Report on Form 10-Q for the period ended
________________.
All financial statements of [insurer] included in documents filed by
[insurer] under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent
to the date of this prospectus supplement and prior to the termination of the
offering of the securities shall be deemed to be incorporated by reference into
this prospectus supplement and to be a part hereof from the respective dates of
filing of such documents.
S-48
<PAGE> 135
GLOSSARY OF TERMS
"ACCELERATED PRINCIPAL COMMENCEMENT DATE" means the first distribution
date on which:
- the aggregate outstanding principal balance of the contracts on
that distribution date is equal to or less than 15% of the
Original Pool Balance; and
- the Spread Account Maximum, after giving effect to any
distribution from the payment account to the spread account on
that distribution date, has been reached.
"ACCELERATED PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect to any
distribution date occurring on or after the Accelerated Principal Commencement
Date, the amount which would remain on deposit in the payment account for that
distribution date after giving effect to distributions under clauses (1) through
(10) under "Description of the Transfer and Servicing Agreements -
Distributions" in this prospectus supplement, without regard to the inclusion of
that amount as part of the Note Principal Distributable Amount. The Accelerated
Principal Distributable Amount shall only be included in the Note Principal
Distributable Amount until all of the notes have been paid in full, and shall
not be included in the Certificate Principal Distributable Amount at any time.
"AMOUNT FINANCED" means, with respect to a contract, the aggregate
amount advanced under the contract toward the purchase price of the related
financed vehicle and related costs, including amounts advanced in respect of
accessories, insurance premiums, extended service and warranty contracts, and
other items customarily financed as part of retail automobile installment sales
contracts.
"CERTIFICATE DISTRIBUTABLE AMOUNT" means, with respect to any
distribution date, the sum of the Certificate Principal Distributable Amount and
the Certificate Interest Distributable Amount for that distribution date.
"CERTIFICATE INTEREST CARRYOVER SHORTFALL" means, with respect to any
Distribution Date, the excess of the Certificate Interest Distributable Amount
for the immediately preceding distribution date over the amount in respect of
interest on the certificates that is actually deposited in the Certificate
Distribution Account on that preceding distribution date, plus interest on the
excess, to the extent permitted by law, at the interest rate of the certificates
for the Interest Accrual Period with respect to the distribution date for which
the Certificate Interest Carryover Shortfall is being calculated; provided,
however, that the Certificate Interest Carryover Shortfall for the first
distribution date shall be zero.
"CERTIFICATE INTEREST DISTRIBUTABLE AMOUNT" means, with respect to any
distribution date, the sum of:
- an amount equal to the interest accrued during the related
Interest Accrual Period at the interest rate of the certificates
on the outstanding principal balance of the certificates on the
immediately preceding distribution date, after giving effect to
all distributions of principal on or prior to that distribution
date or, in the case of the first distribution date, the
original outstanding principal balance of the certificates; and
S-49
<PAGE> 136
- the Certificate Interest Carryover Shortfall for that
Distribution Date.
"CERTIFICATE PERCENTAGE" means:
- for each distribution date prior to the distribution date on
which the principal amount of the Class A-4 Notes is reduced to
zero, 0%;
- on the distribution date on which the principal amount of the
Class A-4 Notes is reduced to zero -
- 0% until the principal amount of the Class A-4
Notes has been reduced to zero; and
- with respect to any remaining portion of the
Regular Principal Distributable Amount, 100%;
and
- for each distribution date after the distribution date on which
the principal amount of the Class A-4 Notes is reduced to zero,
100%.
"CERTIFICATE PRINCIPAL CARRYOVER SHORTFALL" means, as of the close of
any distribution date, the excess of the Certificate Principal Distributable
Amount for that distribution date over the amount in respect of principal that
is actually deposited in the Certificate Distribution Account on that
distribution date.
"CERTIFICATE PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect to any
distribution date, the sum of:
- the Certificate Percentage of the Regular Principal
Distributable Amount for that distribution date; and
- any outstanding Certificate Principal Carryover Shortfall for
the immediately preceding distribution date;
provided, however, that the Certificate Principal Distributable Amount shall not
exceed the outstanding principal balance of the certificates. Notwithstanding
the foregoing, the Certificate Principal Distributable Amount on the final
scheduled distribution date for the certificates shall not be less than the
amount that is necessary to reduce the outstanding principal amount of the
certificates to zero.
"COLLECTION PERIOD" means with respect to a distribution date will be
the calendar month preceding the month in which that distribution date occurs;
provided, that with respect to Liquidated Contracts, the Collection Period will
be the period from but excluding the sixth business day preceding the
immediately preceding distribution date to and including the sixth business day
preceding that distribution date. With respect to the first distribution date,
the Collection Period for Liquidated Contracts will be the period from and
including the related CutOff Date to and including the sixth business day
preceding the first distribution date.
S-50
<PAGE> 137
"CRAM DOWN LOSS" means, with respect to a contract, if a court of
appropriate jurisdiction in an insolvency proceeding shall have issued an order
reducing the amount owed on the contract or otherwise modifying or restructuring
the scheduled payments to be made on the contract, an amount equal to:
- the excess of the Principal Balance of the contract immediately
prior to the order over the Principal Balance of the contract as
so reduced; and/or
- if the court shall have issued an order reducing the effective
rate of interest on the contract, the excess of the Principal
Balance of the contract immediately prior to the order over the
net present value, using as the discount rate the higher of the
annual percentage rate on the contract or the rate of interest,
if any, specified by the court in the order, of the scheduled
payments as so modified or restructured.
A Cram Down Loss shall be deemed to have occurred on the date of issuance of the
order.
"CUT-OFF DATE" means the Initial Cut-Off Date for the initial contracts
and the Final Cut-Off Date for the subsequent contracts.
"DEFAULTED CONTRACT" with respect to any Collection Period is a
contract:
- which is, at the end of that Collection Period, delinquent in
the amount of at least two monthly installments of principal and
interest; or
- with respect to which the related financed vehicle has been
repossessed or repossession efforts with respect to the related
financed vehicle have been commenced.
"DEFICIENCY AMOUNT" means, as of any distribution date, the amount by
which -
- the sum of the amounts set forth in clauses (1) though (5) and
(7) under "Description of the Transfer and Servicing Agreements
- Distributions" in this prospectus supplement with respect to
that distribution date
exceeds
- the amount of net collections available with respect to that
distribution date and the amount on deposit in the spread
account as of that distribution date.
"ELIGIBLE INVESTMENTS" means investments acceptable to each rating
agency rating the securities as being consistent with the rating of the
securities.
"FINAL CUT-OFF DATE" means ___________, 2001.
"INITIAL CONTRACTS" means the contracts acquired by the trust that have
been or will be originated or purchased on or before the Initial Cut-Off Date.
"INITIAL CUT-OFF DATE" means ___________, 2001.
S-51
<PAGE> 138
"INSURANCE AGREEMENT" means the agreement under which the policy of the
insurer is issued.
"INTEREST ACCRUAL PERIOD" means, with respect to a distribution date,
the period from and including the prior distribution date to but excluding the
applicable distribution date; provided, that in the case of the first
distribution period, the Interest Accrual Period will begin on and include the
closing date.
"LIQUIDATED CONTRACT" means a contract that:
- is the subject of a full prepayment;
- is a Defaulted Contract with respect to which liquidation
proceeds constituting, in the servicer's reasonable judgment,
the final amounts recoverable have been received and deposited
in the collection account;
- is paid in full on or after its maturity date; or
- has been a Defaulted Contract for four or more Collection
Periods and as to which liquidation proceeds have not been
deposited in the Collection Account;
provided, however, that in any event a contract that is delinquent in the amount
of five monthly installments of principal and interest at the end of a
Collection Period shall be deemed to be a Liquidated Contract and shall be
deemed to have a balance of zero.
"LIQUIDATION EXPENSES" means 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" means the proceeds paid by any insurer under a
comprehensive and collision insurance policy related to a contract, other than
funds used for the repair of the related financed vehicle or otherwise released
to the related obligor in accordance with normal servicing procedures, after
reimbursement to the servicer of expenses recoverable under that policy.
"NET LIQUIDATION PROCEEDS" means the proceeds received by the servicer,
net of Liquidation Expenses, upon liquidation of any Defaulted Contract.
"NOTE DISTRIBUTABLE AMOUNT" means, with respect to any distribution
date, the sum of the Note Principal Distributable Amount and the Note Interest
Distributable Amount for that distribution date.
"NOTE INTEREST CARRYOVER SHORTFALL" means, with respect to any
distribution date and a class of notes, the excess, if any, of the Note Interest
Distributable Amount for that class for the immediately preceding distribution
date over the amount in respect of interest that is actually deposited in the
note distribution account with respect to that class on such preceding
distribution date, plus, to the extent permitted by applicable law, interest on
the amount of interest due but not paid to noteholders of the class on the
preceding distribution date at the related interest rate for the
S-52
<PAGE> 139
related Interest Accrual Period; provided, however, that the Note Interest
Carryover Shortfall for the first distribution date shall be zero.
"NOTE INTEREST DISTRIBUTABLE AMOUNT" means, with respect to any
distribution date and a class of notes, the sum of:
- an amount equal to the interest accrued during the related
Interest Accrual Period at the related interest rate for that
class of notes on the outstanding principal amount of that class
of notes on the immediately preceding distribution date, after
giving effect to all payments of principal to noteholders of
that class on or prior to that distribution date, or, in the
case of the first distribution date, on the original principal
amount of that class of notes; and
- the Note Interest Carryover Shortfall for that class of notes
for that distribution date.
"NOTE PERCENTAGE" means:
- for each distribution date prior to the distribution date on
which the principal amount of the class A-4 notes is reduced to
zero, 100%;
- on the distribution date on which the principal amount of the
class A-4 notes is reduced to zero -
- 100% until the principal amount of the class A-4
notes has been reduced to zero; and
- with respect to any remaining portion of the
Regular Principal Distributable Amount, 0%; and
- for each distribution date after the principal amount of the
class A-4 notes has been reduced to zero, 0%.
"NOTE PRINCIPAL CARRYOVER SHORTFALL" means, as of the close of any
distribution date, the excess of the Note Principal Distributable Amount for
that distribution date over the amount in respect of principal that is actually
deposited in the note distribution account on that distribution date.
"NOTE PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect to any
distribution date, the sum of:
- the Note Percentage of the Regular Principal Distributable
Amount for that distribution date;
- the Accelerated Principal Distributable Amount, if any, for that
distribution date; and
- any outstanding Note Principal Carryover Shortfall for the
immediately preceding distribution date;
S-53
<PAGE> 140
provided, however, that the Note Principal Distributable Amount shall not exceed
the aggregate outstanding principal amount of the notes. Notwithstanding the
foregoing, the Note Principal Distributable Amount on the final scheduled
distribution date for each class of notes shall not be less than the amount that
is necessary to reduce the outstanding principal amount of the related class of
notes to zero.
"ONYX" means Onyx Acceptance Corporation.
"ORIGINAL POOL BALANCE" means the sum of :
- the total principal balance of the initial contracts as of the
Initial Cut-Off Date; and
- the total principal balance of the Subsequent Contracts as of
the Final Cut-Off Date.
"OWNER" means:
- each noteholder who, on the applicable distribution date, is
entitled under the terms of the related note to distribution
thereunder; and
- each certificateholder who, on the applicable distribution date,
is entitled under the terms of the related certificate to
distribution thereunder.
"POLICY CLAIM AMOUNT" means, with respect to each distribution date, the
sum of:
- the Deficiency Amount for that distribution date; and
- the Preference Amount for that distribution date.
"PREFERENCE AMOUNT" means any amount previously distributed to an Owner
in respect of the securities that is recoverable and sought to be recovered as a
voidable preference by a trustee in bankruptcy with respect to Onyx, the seller
or the trust under the United States Bankruptcy Code, in accordance with a final
nonappealable order of a court having competent jurisdiction.
"PRINCIPAL BALANCE" means, with respect to a contract, as of any date,
the Amount Financed under the terms of the contract minus:
- that portion of monthly installments of principal and interest
in respect of that contract received on or prior to the end of
the most recently ended Collection Period and allocable to
principal as determined by the servicer; and
- any Cram Down Loss incurred in respect of the contract on or
prior to the end of the most recently ended Collection Period.
For purposes of this definition, allocations of monthly installments of
principal and interest on each contract by the servicer shall be made as
described under "The Onyx Portfolio of Motor Vehicle Contracts - Allocation of
Payments on Contracts to Interest and Principal" in the prospectus.
S-54
<PAGE> 141
"PURCHASE AMOUNT" means, with respect to a Purchased Contract, the
Principal Balance of the contract as of the date of purchase of the contract
plus accrued and unpaid interest.
"PURCHASED CONTRACT" means a contract that:
- has been purchased by Onyx or the seller because of certain
material defects in documents related to the contract or certain
breaches of representations and warranties regarding the
contract made by the seller in the sale and servicing agreement
that materially and adversely affect the interests of the
securityholders or the insurer;
- has been purchased by the servicer because of certain breaches
of servicing covenants; or
- has been purchased by the servicer at its option after the
aggregate outstanding principal balance of the contracts has
declined to 10% or less of the Original Pool Balance.
"REGULAR PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect to any
distribution date, the amount equal to the sum of the following amounts with
respect to the related Collection Period:
- collections received on contracts, other than Liquidated
Contracts and Purchased Contracts, allocable to principal as
determined by the servicer, including full and partial principal
prepayments, other than partial prepayments on rule of 78's and
actuarial contracts, representing amounts not due in that
Collection Period, which will be deposited into the payahead
account;
- the Principal Balance of all contracts, other than Purchased
Contracts, that became Liquidated Contracts during the related
Collection Period;
- the Principal Balance as of the date of purchase of all
contracts that became Purchased Contracts as of the immediately
preceding record date; and
- the aggregate amount of Cram Down Losses incurred during the
related Collection Period.
"SERVICER REPORT DATE" means, with respect to any distribution date, the
fifth business day prior to such distribution date.
"SPREAD ACCOUNT MAXIMUM" for a distribution date means an amount
calculated under the insurance agreement.
"SUBSEQUENT CONTRACTS" means the additional contracts acquired by the
trust that have been or will be originated or purchased after the Initial
Cut-Off Date but before the Final Cut-Off Date.
S-55
<PAGE> 142
================================================================================
WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH ADDITIONAL OR DIFFERENT
INFORMATION FROM THAT CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
NEITHER THIS PROSPECTUS SUPPLEMENT NOR THE PROSPECTUS IS AN OFFER TO SELL OR A
SOLICITATION TO BUY THESE SECURITIES IN ANY CIRCUMSTANCES UNDER WHICH THE OFFER
OR SOLICITATION IS UNLAWFUL.
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT ALL DEALERS EFFECTING
TRANSACTIONS IN THE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECT SUPPLEMENT AND PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS AN UNDERWRITER AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
$_________________
ONYX ACCEPTANCE OWNER TRUST 2001-__
Issuer
$______________ _____% AUTO LOAN BACKED NOTES, CLASS A-1
$______________ _____% AUTO LOAN BACKED NOTES, CLASS A-2
$______________ _____% AUTO LOAN BACKED NOTES, CLASS A-3
$______________ _____% AUTO LOAN BACKED NOTES, CLASS A-4
$______________ _____% AUTO LOAN BACKED CERTIFICATES
[ONYX LOGO]
ONYX ACCEPTANCE FINANCIAL CORPORATION,
Seller
ONYX ACCEPTANCE CORPORATION,
Servicer
------------------------------------
P R O S P E C T U S S U P P L E M E N T
------------------------------------
[UNDERWRITER]
[DATE]
================================================================================
<PAGE> 143
The information in this prospectus supplement 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
supplement 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 JANUARY 12, 2001
Prospectus supplement to prospectus dated _________, 2001
ONYX LOGO
$_____________
ONYX ACCEPTANCE GRANTOR TRUST 2001-__
Issuer
___% AUTO LOAN PASS-THROUGH CERTIFICATES, SERIES 2001-__
ONYX ACCEPTANCE FINANCIAL CORPORATION,
Seller
ONYX ACCEPTANCE CORPORATION,
Servicer
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-8 IN THIS PROSPECTUS
SUPPLEMENT AND PAGE 6 IN THE ACCOMPANYING PROSPECTUS.
The certificates represent undivided fractional interests in the trust. The
certificates do not represent interests in or obligations of Onyx Acceptance
Corporation or any of its affiliates.
The trust will issue the following securities being offered by this prospectus
supplement:
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to the
Public(1) Discount Seller(1)(2)
--------- ------------- ---------------
<S> <C> <C> <C>
Per Certificate....
Total..............
</TABLE>
(1) Plus accrued interest, if any, calculated from the closing date.
(2) Before deducting expenses payable by the seller estimated to be
$_______.
-------------
Interest and principal on the certificates will be payable on the 15th
day of each month. If the 15th day of a month is not a business
day, then the payment will be made on the next business day. The
first payment will be due on ____________.
[Insurer] will unconditionally and irrevocably guarantee, to the extent
described in this prospectus supplement, the timely payment of interest and the
ultimate payment of principal on the certificates.
[INSURER LOGO]
-------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
We expect that delivery of the certificates will be made in book-entry form only
through the facilities of The Depository Trust Company and Cedelbank and the
Euroclear System against payment in immediately available funds on or about
______________.
-------------
[UNDERWRITERS]
The date of this prospectus supplement is __________.
<PAGE> 144
TABLE OF CONTENTS
<TABLE>
<S> <C>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS......................................S-3
SUMMARY OF TERMS...........................................................................S-4
RISK FACTORS...............................................................................S-8
THE TRUST.................................................................................S-11
THE ONYX PORTFOLIO OF MOTOR VEHICLE CONTRACTS.............................................S-12
Purchase, Origination and Servicing of Motor Vehicle Contracts....................S-12
Delinquency and Loan Loss Information.............................................S-12
THE CONTRACTS.............................................................................S-14
MATURITY AND PREPAYMENT CONSIDERATIONS....................................................S-18
YIELD CONSIDERATIONS......................................................................S-18
USE OF PROCEEDS...........................................................................S-18
THE CERTIFICATES AND THE AGREEMENT........................................................S-19
Initial Certificate Balance.......................................................S-19
Distributions of Principal and Interest...........................................S-19
Optional Redemption...............................................................S-20
The Financial Guarantee Insurance Policy..........................................S-20
Sale and Assignment of the Contracts..............................................S-21
Distributions.....................................................................S-21
Servicing Fee.....................................................................S-22
Waivers and Extensions............................................................S-22
Statements to Certificateholders..................................................S-22
Certain Matters Relating to the Insurer...........................................S-22
DESCRIPTION OF THE INSURER................................................................S-23
ERISA CONSIDERATIONS......................................................................S-25
UNDERWRITING..............................................................................S-26
LEGAL MATTERS.............................................................................S-27
EXPERTS ..................................................................................S-27
REPORTS TO SECURITYHOLDERS................................................................S-27
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...........................................S-28
GLOSSARY..................................................................................S-29
</TABLE>
S-2
<PAGE> 145
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
Information about the securities is contained in two separate documents
that progressively provide more detail:
- the accompanying prospectus, which provides general information,
some of which may not apply to the certificates; and
- this prospectus supplement, which describes the specific terms
of the certificates.
You should rely only on the information contained in this prospectus
supplement and the accompanying prospectus or that we have referred you to. We
have not authorized anyone to provide you with information that is different.
In this prospectus supplement and the accompanying prospectus, we
include cross references to sections in these materials where you can find
further related discussions. The Table of Contents on page S-2 of this
prospectus supplement and on page ii of the prospectus identify the pages where
these sections are located.
We have defined and used capitalized terms in this prospectus supplement
and the prospectus to assist you in understanding the terms of the securities
and this offering. Capitalized terms are defined in a Glossary beginning on page
S-29 of this prospectus supplement.
S-3
<PAGE> 146
SUMMARY OF TERMS
The following summary is a short, concise description of the main terms
of the offering of the securities. For this reason, the summary does not contain
all of the information that may be important to you. To fully understand the
terms of the offering of the securities, you will need to read both this
prospectus supplement and the attached prospectus, each in its entirety.
THE TRUST
Onyx Acceptance Grantor Trust 2001-__. The trust will be established under a
pooling and servicing agreement, among the seller, the servicer and the trustee.
THE SELLER
Onyx Acceptance Financial Corporation, a Delaware corporation and a
wholly-owned, limited purpose subsidiary of Onyx Acceptance Corporation. 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" in the prospectus.
THE SERVICER
Onyx Acceptance Corporation, a Delaware corporation. 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" in the prospectus.
TRUSTEE
--------------------.
CLOSING DATE
---------------------.
THE CERTIFICATES
The trust will issue the certificates, as described on the cover page, under the
pooling and servicing agreement. The certificates will represent fractional
undivided interests in the trust.
TRUST PROPERTY
The trust's assets will include:
- a pool of fixed rate motor vehicle retail installment sales contracts
and/or installment loan agreements, each of which was purchased from the
seller, and each of which is secured by a new or used automobile,
light-duty truck or van;
- documents relating to the contracts;
- monies received with respect to the contracts on or after the cut-off
date applicable to such contracts;
- security interests in the financed vehicles and the rights to receive
proceeds from claims under insurance policies covering the financed
vehicles or the individual obligors under each related contract;
- all amounts on deposit in specified accounts (including the prefunding
account, if any) excluding any investment income credited to the
collection
S-4
<PAGE> 147
account, which will be paid to the
servicer;
- the right of the seller to cause Onyx to repurchase contracts under
specified circumstances; and
- all proceeds of the foregoing.
See "The Trust" in this prospectus supplement and "The Trusts" in the
prospectus.
On the closing date, the seller will deposit approximately $________ into a
segregated trust account, referred to as the prefunding account, for the
purchase of additional fixed rate motor vehicle retail installment sales
contracts and/or installment loan agreements.
THE CONTRACTS
The trust's main source of funds for making payments on the securities will be
collections on a pool of fixed rate motor vehicle retail installment sales
contracts and/or installment loan agreements included in the trust property. The
trust will acquire initial contracts with a total principal balance of
$___________ as of ________, 2001, the cut-off date for these initial contracts.
The trust will acquire additional motor vehicle retail installment sales
contracts and/or installment loan agreements that have been or will be
originated or purchased after the cut-off date for the initial contracts but
before __________, 2001, the cut-off date for these additional contracts. The
total principal balance of the initial contracts as of ___________, 2001 and the
additional contracts as of __________, 2001 will be approximately $__________.
After the closing date, the trust will use funds solely from the prefunding
account to acquire additional motor vehicle retail installment sales contracts
and/or installment loan agreements.
The trust will acquire the contracts from the seller under a pooling and
servicing agreement dated as of ___________, 2001.
CHARACTERISTICS OF THE CONTRACTS
The initial contracts had the following characteristics as of _________, 2001:
WEIGHTED AVERAGE ANNUAL PERCENTAGE RATE:
----- %
WEIGHTED AVERAGE REMAINING TERM:
______ months
CONTRACTS THAT ALLOCATE INTEREST AND PRINCIPAL BY THE RULE OF 78'S
METHOD OR THE ACTUARIAL METHOD:
____% of the aggregate principal balance of the initial contracts
CONTRACTS THAT ALLOCATE INTEREST AND
PRINCIPAL BY THE SIMPLE INTEREST METHOD:
____% of the aggregate principal balance of the initial contracts
CONTRACTS SECURED BY NEW VEHICLES:
____% of the aggregate principal balance of the initial contracts
CONTRACTS SECURED BY USED VEHICLES:
____% of the aggregate principal balance of the initial contracts
CONTRACTS ORIGINATED IN CALIFORNIA:
____% of the aggregate principal balance of the initial contracts
As of ________, 2001, the aggregate principal balance of the initial contracts
originated in any single state other than California did not exceed ____% of the
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aggregate principal balance of the initial contracts as of that date.
None of the contracts has or will have a scheduled maturity date later than
_______________.
Because the financial and other data for the additional contracts that the trust
will acquire after _________, 2001 will differ somewhat from the descriptions of
the initial contracts set forth above, the characteristics of the contracts as a
whole are likely to vary from the characteristics of the initial contracts. See
"The Contracts" in this prospectus supplement and in the prospectus.
DISTRIBUTION DATE
Interest and principal on the certificates will be distributable on the 15th day
of each month. If the 15th day of a month is not a business day, then the
distribution for that month will be made on the next succeeding business day.
The first distribution will be due on ______________, 2001.
A business day is a day other than a Saturday, Sunday or any other day on which
commercial banks located in California or New York are authorized or required to
be closed.
TERMS OF THE CERTIFICATES
INTEREST:
The trust will pay interest on the certificates at the rate specified on the
cover of this prospectus supplement.
We will distribute interest on the certificates monthly, as described under "The
Certificates and the Agreement Distributions of Principal and Interest".
PRINCIPAL:
The trust will distribute principal on the certificates monthly, as described
under "The Certificates and the Agreement Distributions of Principal and
Interest". The trust must pay the outstanding principal amount of the
certificates, to the extent not previously paid, by the final scheduled
distribution date for the certificates, which occurs in ______________.
OPTIONAL TERMINATION:
The servicer may, but is not obligated to, purchase all of the contracts on any
distribution date on which the aggregate principal balance of the contracts has
declined to 10% or less of the aggregate principal balance of the contracts as
of the applicable cut-off date. If the servicer exercises this purchase option,
all of the certificates then outstanding will be prepaid. See "The Certificates
and the Agreement Optional Redemption" in this prospectus supplement and
"Description of the Transfer and Servicing Agreements - Repurchase of Contracts"
in the prospectus.
THE INSURANCE POLICY
On the closing date, under the terms of an insurance agreement, the [insurer]
will issue an insurance policy in favor of the trustee, for the benefit of the
certificateholders.
Under the policy, the insurer will unconditionally and irrevocably guarantee
timely payment of the interest distribution and principal distribution on each
distribution date as described under "The
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Certificates and the Agreement - The Financial Guarantee Insurance Policy" in
this prospectus supplement. The insurer's obligations under the policy will be
discharged to the extent that amounts due under the policy are received by the
trustee, whether or not those amounts are properly applied by the trustee.
For a description of the insurer, see "Description of the Insurer" in this
prospectus supplement.
SERVICING FEE
The servicer will be responsible for managing, administering, servicing, and
collecting on the contracts. As compensation for its services, the servicer will
receive a monthly servicing fee and other amounts, as described in this
prospectus supplement under "The Certificates and the Agreement - Servicing
Fee".
FEDERAL INCOME TAX STATUS
In the opinion of Andrews & Kurth L.L.P.,for federal income tax purposes, the
trust will be treated as a grantor trust and will not be subject to federal
income tax. You will be required to report your pro rata share of all income
earned on the contracts, other than amounts, if any, treated as "stripped
coupons," and, subject to limitations in the case of individuals, trusts, or
estates, you may deduct your pro rata share of reasonable servicing and other
fees. See "Certain Federal Income Tax Consequences" in the prospectus for
additional information concerning the application of federal income tax laws to
the trust and the certificates.
ERISA CONSIDERATIONS
Subject to the considerations discussed under "ERISA Considerations" in this
prospectus supplement and in the prospectus, the certificates are eligible for
purchase by employee benefit plans that are subject to ERISA. See "ERISA
Considerations" in this prospectus supplement and in the prospectus.
RATING
On the closing date, Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., and Moody's Investors Service, Inc. will rate the
certificates in the highest rating category for the securities. The ratings of
the certificates will be based substantially on the issuance of the policy by
the insurer. See "Risk Factors - Downgrading of the rating of the [insurer] or
the certificate may have an adverse effect on the liquidity and market value of
the certificates" in this prospectus supplement.
REGISTRATION OF THE CERTIFICATES
Initially, the certificates will be in the form of one or more certificates
registered in the name of Cede & Co., as the nominee of DTC. If you acquire an
interest in the certificates through DTC, you will not be entitled to receive a
definitive security, except in the event that definitive securities are issued
in limited circumstances. See "Description of the Securities - Book-Entry
Registration" and "- Definitive Securities" in the prospectus.
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RISK FACTORS
You should consider the following risk factors, as well as the other
factors described under the heading "Risk Factors" in the prospectus, before
deciding to purchase the certificates.
ONYX IS SUBJECT TO ALL OF THE RISKS INHERENT IN A RELATIVELY NEW BUSINESS
ENTERPRISE BECAUSE OF ITS LIMITED OPERATING HISTORY.
Onyx began its operations in February 1994 as a purchaser and servicer
of motor vehicle retail installment sales contracts. Accordingly, Onyx has
performance data for only a relatively short period with respect to the
contracts it purchases and originates. As the portfolio of contracts purchased
and originated by Onyx and its subsidiaries matures, delinquency percentages and
loan losses may increase.
As Onyx expands its operations in the United States, it must, among
other things, continue to attract, retain and motivate qualified personnel,
support and grow its auto lending and contract servicing business, maintain its
existing relationships with automobile dealers, and develop new relationships
with dealers.
Onyx experienced operating losses from its inception through December
31, 1995. Onyx's operating losses and net income for the years ended December
31, 1994 through December 31, 1999, and for the ___ months ended ________, are
set forth below:
<TABLE>
<CAPTION>
YEAR ENDED (OPERATING LOSS)/NET INCOME
---------- ---------------------------
<S> <C>
December 31, 1994 $(3.5 million)
December 31, 1995 (3.2 million)
December 31, 1996 6.1 million*
December 31, 1997 1.3 million*
December 31, 1998 6.1 million*
December 31, 9.8 million
___ Months Ended __.__ million
</TABLE>
_______________
*The asterisked amounts above reflect the fact that, as required by the
Financial Accounting Standards Board's Special Report, "A Guide to
Implementation of Statement 125 on Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, Second Edition," dated
December 1998, and related guidance set forth in statements made by the staff of
the Securities and Exchange Commission on December 8, 1998, Onyx retroactively
changed its practice of measuring and accounting for credit enhancement assets
on its securitization transactions to the cash-out method from the cash-in
method. As a result, Onyx, on January 26, 1999, announced a restatement of its
financial statements for the years ended December 31, 1996 and 1997, and for the
first three quarters of 1998. Onyx had previously reported net income of $7.7
million and $2.6 million for the years ended December 31, 1996 and 1997,
respectively.
On January 25, 2000, a putative class action complaint was filed, and
has since been amended, against Onyx and certain of its officers and directors
alleging, among other matters,
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violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934
arising from this restatement. Onyx is vigorously defending against this matter
and believes the resolution of this litigation will not have a material adverse
effect on Onyx's consolidated financial position, results of operations or
liquidity or Onyx's ability to perform its obligations under the sale and
servicing agreement.
THE ABSENCE OF A SECONDARY MARKET COULD LIMIT YOUR ABILITY TO RESELL YOUR
CERTIFICATES.
The absence of a secondary market for the certificates could limit your
ability to resell them. This means that if in the future you want to sell any of
your certificates before they mature, you may be unable to find a buyer or, if
you find a buyer, the selling price may be less than it would have been if a
market existed for the certificates. There is currently no secondary market for
the certificates. The underwriters currently intend to participate in making a
secondary market in the certificates, but they are not under any obligation to
do so. We cannot assure you that a secondary market for the certificates will
develop. If a secondary market does develop, we cannot assure you that it will
continue for any period of time or for the duration of the certificates or that
you will be able to resell your certificates.
PREPAYMENTS ON CONTRACTS WILL CAUSE PREPAYMENTS ON YOUR SECURITIES RESULTING IN
REINVESTMENT RISK TO YOU.
You may receive payment of principal on your certificates earlier than
you expect for the reasons set forth below. You may not be able to reinvest any
prepayments of principal on your certificates at a rate of return that is equal
to or greater than the rate of return on your certificates.
Prepayments on the contracts by the related obligors and purchases of
the contracts by the seller and the servicer will shorten the life of the
certificates to an extent that cannot be fully predicted. The contracts included
in the trust may be prepaid, in full or in part, voluntarily or as a result of
defaults, theft of or damage to the related vehicles or other reasons. Onyx will
be required to repurchase a contract from the seller, and the seller will be
required to repurchase a contract from the trust, if Onyx breached its
representations and warranties with respect to the contract in the pooling and
servicing agreement with the seller. Onyx, in its capacity as servicer, will
also be required to purchase a contract from the trust if it breaches its
servicing obligations with respect to the contract and the contract is
materially and adversely affected by the breach. The purchase will also be
entitled to purchase all of the remaining contracts from the trust once the
aggregate principal balance of the contracts is 10% or less than the aggregate
principal balance of the contracts as of their applicable cut-off date.
The rate of distributions of principal on the certificates depends
primarily on the rate of payments, including prepayments, on the principal
balance of the contracts. As a result, final distribution on the certificates
could occur significantly earlier than the final distribution date.
Onyx cannot predict the actual prepayment rates that will occur on the
contracts in either stable or changing interest rate environments. See "- Onyx
is subject to all the risks inherent in a relatively new business enterprise
because of its limited operating history". Moreover, many
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other factors will affect the amount and timing of distributions of principal on
the certificates. The factors include:
- the level of delinquencies, defaults and losses on the
contracts; and
- the payment of any accelerated amounts on the certificates
following an event of default under the pooling and servicing
agreement.
You will bear all the reinvestment risks relating to prepayments on the
contracts and resulting from distributions of principal on the certificates.
These reinvestment risks include the possibility that you may not be able to
reinvest the distributions of principal in alternative comparable investments
having similar yields. See "Maturity and Prepayment Considerations" in this
prospectus supplement and in the prospectus.
GEOGRAPHIC CONCENTRATION MAY ADVERSELY AFFECT THE PERFORMANCE OF THE CONTRACTS.
Economic conditions in the states where the obligors under the contracts
live and work may affect the delinquency, loan loss and repossession experience
of the trust with respect to the contracts. Initial contracts representing
approximately___% of the initial contracts as of __________, 2001 were
originated in California. As of ____________, 2001, the aggregate principal
balances of initial contracts originated in any single state other than
California did not exceed ______% of the aggregate principal balance of the
initial contracts on that date. The geographic concentration of all of the
contracts as of the closing date, including both the initial contracts and the
additional contracts purchased by the trust, will be substantially similar to
that of the initial contracts. Adverse economic conditions or other factors
particularly affecting California or other states in which the contracts are
geographically concentrated might adversely affect the performance of the
contracts. See "The Contracts - Geographic Concentration of the Initial
Contracts" in this prospectus supplement.
YOU MAY SUFFER LOSSES DUE TO THE LIMITED ASSETS OF THE TRUST.
You may suffer a loss on your securities if the assets of the trust are
insufficient to pay fully the principal amount of the certificates. The trust
does not have, nor is it permitted or expected to have, any significant assets
or sources of funds other than the contracts. You must rely upon payments on the
contracts and payments of claims made under the policy for repayment of the
certificates.
The policy will guarantee interest distributions and principal
distributions on each distribution date. However, if the insurer defaults in its
obligations under the policy, the trust will have to depend solely on
collections on the contracts to make distributions then due on the certificates.
See "Description of the Insurer" and "The Certificates and the Agreement - The
Financial Guarantee Insurance Policy" in this prospectus supplement.
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DOWNGRADING OF THE RATING OF THE [INSURER] OR THE CERTIFICATE MAY HAVE AN
ADVERSE AFFECT ON THE LIQUIDITY AND MARKET VALUE OF THE CERTIFICATES.
On the closing date, the certificates will be rated "AAA" by Standard &
Poor's and "Aaa" by Moody's. A security rating is not a recommendation to buy,
sell or hold securities and may be revised or withdrawn at any time by the
assigning rating agency. Any rating agency rating the certificates may lower or
withdraw its rating if, in the sole judgment of the rating agency, circumstances
in the future so warrant. The ratings of the certificates address the likelihood
of timely payment of scheduled interest distributions and principal
distributions, which are guaranteed by the [insurer] under the policy. The
ratings of the certificates are substantially based on the issuance of the
policy by the [insurer], and are dependent on the rating of the [insurer]. The
downgrading of the rating of the [insurer], therefore, may lead to a change in
the ratings of the certificates. We cannot predict with certainty what effect
any revision or withdrawal of the rating of the certificates may have on the
liquidity or market value of the certificates. See "Description of the Insurer"
in this prospectus supplement for a description of the [insurer's] rating.
THE TRUST
The seller will establish the Onyx Acceptance Grantor Trust 2001-___
under the pooling and servicing agreement by selling and assigning to
[____________], in its capacity as trustee of the trust, the property described
under the heading "The Trusts" in the prospectus. In exchange for the trust
property, the trustee will execute and authenticate the certificates. Each
certificate will represent a fractional undivided interest in the trust.
The trust will be formed for this transaction under the pooling and
servicing agreement and, prior to formation, will have had no assets or
obligations. After formation, the trust will not engage in any activity other
than:
- acquiring and holding the contracts;
- issuing the Certificates;
- distributing payments on the certificates; and
- as otherwise described in this prospectus supplement and as
provided in the pooling and servicing agreement.
The trust will not acquire any motor vehicle contracts or assets other than the
trust property described in the prospectus and will not have any need for
additional capital resources.
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THE ONYX PORTFOLIO OF MOTOR VEHICLE CONTRACTS
PURCHASE, ORIGINATION AND SERVICING OF MOTOR VEHICLE CONTRACTS
Onyx's purchase and origination of motor vehicle contracts are described
under the heading "The Onyx Portfolio of Motor Vehicle Contracts - Purchase,
Origination and Servicing of Motor Vehicle Contracts" in the prospectus. At
______, 200__, Onyx had agreements with approximately ___ dealers, of which
approximately ___% are franchised new car dealerships and approximately ___% are
independent used car dealerships. All of the contracts will have been sold to
the seller and then to the trust.
Onyx, together with its subsidiaries, had acquired or originated motor
vehicle contracts totaling approximately $___ billion from commencement of
operations through _________. As of _________, Onyx had amassed a servicing
portfolio of approximately $___ billion. As of _______, approximately ____% of
Onyx's servicing portfolio consisted of retail installment sale contracts and
installment loan agreements secured by used motor vehicles, and ___% secured by
new motor vehicles. As of ________, Onyx had total assets of approximately $____
million and stockholder's equity of $___ million.
DELINQUENCY AND LOAN LOSS INFORMATION
The following tables set forth information with respect to the
experience of Onyx relating to delinquencies, loan losses and recoveries for the
portfolio of motor vehicle contracts owned and serviced by Onyx on an annual
basis commencing December 31, 1997. The tables include delinquency information
relating to those motor vehicle contracts that were purchased, originated, sold
and serviced by Onyx. All of the Motor Vehicle Contracts were originally
purchased by Onyx from dealers, or purchased or originated by a subsidiary of
Onyx, in accordance with credit underwriting criteria established by Onyx. In
February 1994, Onyx commenced its operations as a purchaser and servicer of
motor vehicle retail installment sales contracts. Accordingly, Onyx has
historical performance for only a limited time period with respect to the motor
vehicle contracts it purchases and originates and, consequently, delinquencies
and loan losses may increase from existing levels in the portfolio with the
passage of time. Delinquency and loan loss experience may be influenced by a
variety of economic, social and other factors. See "Risk Factors" in this
prospectus supplement and in the prospectus.
With the continued expansion of Onyx in the eastern United States and
the significant growth in Onyx's existing branches, Onyx has centralized and
improved its servicing and collection process. Onyx believes that a centralized
group is efficient and effective, and assures that collection practices and
policies are applied consistently throughout the company. Management continues
to rely on the use of current technology such as predictive dialers utilizing an
automated processing system for contacting delinquent borrowers. Onyx also has a
payment system that allows electronic payment on delinquent accounts to be
applied the same day as payment is sent or initiated by the borrower.
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DELINQUENCY EXPERIENCE OF ONYX MOTOR VEHICLE CONTRACT PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31, AT DECEMBER 31,
1997 1998 1999
---- ---- ----
Amount No Amount No Amount No
---------- ------ ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Servicing portfolio .. $ 757,277 73,502 $1,345,961 131,862 $2,133,460 209,745
Delinquencies
30-59 days(1)(2) ... $ 11,902 1,211 $ 26,410 2,766 $ 38,376 3,963
60-89 days(1)(2) ... $ 3,370 346 $ 6,876 691 $ 16,596 1,671
90+ days(1)(2) ..... $ 3,743 316 $ 4,790 455 $ 14,203 1,383
Total delinquencies as
a percent of servicing
portfolio ..... 2.51% 2.55% 2.83% 2.97% 3.24% 3.35%
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, AT JUNE 30,
1999 2000
---- ----
Amount No Amount No
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Servicing portfolio .. $1,729,338 169,309 $2,500,207 248,006
Delinquencies
30-59 days(1)(2) ... $ 21,800 2,294 $ 37,600 3,933
60-89 days(1)(2) ... $ 7,891 783 $ 14,097 1,440
90+ days(1)(2) ..... $ 7,130 673 $ 12,634 1,216
Total delinquencies as
a percent of servicing
portfolio ..... 2.13% 2.21% 2.57% 2.66%
</TABLE>
----------
(1) Delinquencies include principal amounts only, net of repossessed
inventory. Repossessed inventory as a percent of the servicing portfolio
was 1.17%, 0.62% and 0.83% at December 31, 1997, 1998 and 1999,
respectively and 0.65% and 0.62% at June 30, 1999 and 2000,
respectively.
(2) The period of delinquency is based on the number of days payments are
contractually past due.
LOAN LOSS EXPERIENCE OF ONYX MOTOR VEHICLE CONTRACT PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------------- ---------------------------
1997 1998 1999 1999 2000
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Number of Motor Vehicle Contracts
outstanding ........................... 73,502 131,862 209,745 169,309 248,006
Period end outstanding ................ $ 757,277 $1,345,961 $2,133,460 $1,729,338 $2,500,207
Average outstanding ................... $ 563,343 $1,023,237 $1,728,875 $1,532,269 $2,326,900
Number of gross charge-offs ........... 2,161 3,761 6,398 2,862 4,912
Gross charge-offs ..................... $ 13,076 $ 20,640 $ 37,024 $ 15,102 $ 30,950
Net charge-offs(1) .................... $ 11,434 $ 17,618 $ 31,963 $ 13,175 $ 26,491
Net charge-offs as a percent of average
outstanding ......................... 2.03% 1.72% 1.85% 1.72% 2.28%
</TABLE>
----------
(1) Net charge-offs are gross charge-offs minus recoveries on Motor Vehicle
Contracts previously charged off.
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THE CONTRACTS
All of the contracts will have been purchased by the seller from Onyx.
Substantially all of the contracts have been purchased by Onyx from new and used
car dealers unaffiliated with Onyx or the seller, and a limited number of
contracts will have been purchased or originated by subsidiaries of Onyx. See
"The Onyx Portfolio of Motor Vehicle Contracts" in this prospectus supplement
and in the prospectus. Each of the contracts in the trust will be a fixed rate
contract where the allocation of each payment between interest and principal is
calculated using the rule of 78's method, actuarial method or the simple
interest method. Each of these methods is explained under the heading "The Onyx
Portfolio of Motor Vehicle Contracts - Allocation of Payments on Contracts to
Interest and Principal" in the prospectus. Initial contracts representing
approximately _______% of the Aggregate Scheduled Balance allocate interest and
principal in accordance with the rule of 78's or the actuarial method, and
initial contracts representing approximately ______% of the Aggregate Scheduled
Balance allocate interest in accordance with the simple interest method.
The contracts will have been selected from the motor vehicle contracts
in the portfolio of Onyx using the following criteria. No selection procedures
will have been used with respect to the contracts that are believed by Onyx or
the seller to be adverse to the securityholders or [insurer]. Initial contracts
representing approximately ______% of the Aggregate Scheduled Balance are
secured by new vehicles, and initial contracts representing approximately
______% of the Aggregate Scheduled Balance are secured by used vehicles. The
seller may not substitute other motor vehicle contracts for the contracts at any
time during the term of the sale and servicing agreement.
The seller will represent that each contract included in the trust
satisfies the following eligibility requirements:
- the contract is secured by a new or used automobile, light-duty
truck or van;
- the contract has a remaining maturity as of the Cut-Off Date of
not more than ___ months;
- the contract has an original maturity of not more than ___
months;
- the contract is a fully-amortizing fixed rate contract which
provides for level scheduled monthly payments determined on the
basis of the rule of 78's, actuarial or the simple interest
method, except for the last payment, which may be minimally
different from the level payments;
- the contract is secured by a vehicle that as of the Cut-Off Date
has not been repossessed without reinstatement;
- the contract has no payment more than ___ days past due as of
the Cut-Off Date;
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- the contract has a remaining principal balance as of the Cut-Off
Date of at least $___________; and
- as of the Cut-Off Date, the seller has not received notice that
the related obligor has filed for bankruptcy.
Set forth below is data concerning the initial contracts as of the
Initial Cut-Off Date which had an Aggregate Scheduled Balance of $___________.
Data concerning all of the contracts (including the initial contracts and the
subsequent contracts) will be available to purchasers of the securities at or
before the initial delivery of the securities and will be filed with the SEC on
Form 8-K within 15 days after the initial delivery of the securities. Because
the financial and other data for the subsequent contracts will differ somewhat
from the data for the initial contracts, the characteristics of the contracts as
a whole are likely to vary from the characteristics of the initial contracts
described below.
COMPOSITION OF THE INITIAL CONTRACTS
<TABLE>
<S> <C>
aggregate principal balance................. $___________
number of contracts......................... ___________
average principal balance outstanding....... $___________
average original amount financed............ $___________
original amount financed (range)............ _____ to ____
weighted average apr........................ ______%
apr (range).................................______% to ______%
weighted average original term.............. ___________
original term (range)....................... ____ to ____ mos.
weighted average remaining term............. ______
remaining term (range)...................... ___ to ___ mos.
</TABLE>
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DISTRIBUTION BY APRS OF THE INITIAL CONTRACTS
<TABLE>
<CAPTION>
NUMBER
OF % OF % OF INITIAL
INITIAL INITIAL PRINCIPAL CUT-OFF
APR RANGE CONTRACTS CONTRACTS BALANCE POOL BALANCE
--------- --------- --------- --------- ------------
<S> <C> <C> <C> <C>
0.000% to 7.000%..............
7.001% TO 8.000%..............
8.001% TO 9.000%..............
9.001% TO 10.000%.............
10.001% TO 11.000%.............
11.001% TO 12.000%.............
12.001% TO 13.000%.............
13.001% TO 14.000%.............
14.001% TO 15.000%.............
15.001% TO 16.000%.............
16.001% TO 17.000%.............
17.001% TO 18.000%.............
18.001% TO 19.000%.............
19.001% TO 20.000%.............
20.001% TO 21.000%.............
21.001% AND OVER...............
TOTALS............... 100.00%* 100.00%*
</TABLE>
----------
* PERCENTAGES MAY NOT ADD TO 100% BECAUSE OF ROUNDING.
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GEOGRAPHIC CONCENTRATION OF THE INITIAL CONTRACTS
<TABLE>
<CAPTION>
NUMBER OF % OF % OF
INITIAL INITIAL PRINCIPAL INITIAL CUT-OFF
CONTRACTS CONTRACTS BALANCE POOL BALANCE
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
ARIZONA................
CALIFORNIA.............
COLORADO...............
CONNECTICUT............
DELAWARE...............
DISTRICT OF COLUMBIA...
FLORIDA................
GEORGIA................
IDAHO..................
ILLINOIS...............
INDIANA................
IOWA...................
KANSAS.................
KENTUCKY...............
MASSACHUSETTS..........
MICHIGAN...............
MINNESOTA..............
MISSISSIPPI............
MISSOURI...............
MONTANA................
NEVADA.................
NEW JERSEY.............
NEW MEXICO.............
NEW YORK...............
NORTH CAROLINA.........
OHIO...................
OKLAHOMA...............
OREGON.................
SOUTH CAROLINA.........
TENNESSEE..............
TEXAS..................
UTAH...................
VIRGINIA...............
WASHINGTON.............
WISCONSIN..............
TOTALS....... 100.00%* 100.00%*
</TABLE>
----------
* PERCENTAGES MAY NOT ADD TO 100% BECAUSE OF ROUNDING.
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MATURITY AND PREPAYMENT CONSIDERATIONS
The contracts are or will be prepayable in full by the obligors at any
time without penalty. See "Maturity and Prepayment Considerations" in the
prospectus regarding the effects of prepayments on the weighted average life of
the contracts. As the rate of distribution of principal of the certificates
depends primarily on the rate of payment, including prepayments, of the
principal of the contracts, final distribution of the certificates is expected
to occur earlier, and could occur significantly earlier, than the Final
distribution date for the certificates.
Onyx can make no prediction as to the actual prepayment rates that will
be experienced on the contracts in either stable or changing interest rate
environments. In addition, the rate of distributions of principal of the
certificates will be affected by the incidence of delinquencies, defaults and
losses and by any accelerated payments made on the certificates following an
event of default under the pooling and servicing agreement. See "Risk Factors -
Maturity and Prepayment Considerations" in this prospectus supplement.
YIELD CONSIDERATIONS
Interest due will be passed through on each distribution date in an
amount equal to the product of one-twelfth of the pass-through rate and the Pool
Balance as of the end of the Collection Period preceding the related Collection
Period, or the Aggregate Scheduled Balance of the contracts as of the applicable
Cut-Off Date, in the case of the first distribution date. In the event of a
principal prepayment on a contract during a Collection Period,
certificateholders will receive interest for the full month on the related
distribution date. See "The Certificates and the Agreement - Distributions of
Principal and Interest" in this prospectus supplement.
Although the contracts have different APRs, the yield on each individual
contract, using the recomputed yield for rule of 78's contracts, will equal or
exceed ____%. Therefore, disproportionate rates of prepayments between contracts
with higher and lower APRs will not affect the yield to certificateholders.
USE OF PROCEEDS
The net proceeds of the initial sale of certificates will be used by the
trust to purchase the contracts from the seller under the pooling and servicing
agreement and to fund the deposits in the collateral accounts maintained for the
benefit of the certificateholders and the insurer. The net proceeds to be
received by the seller from the sale of the contracts to the trust will be used
by the seller to repay indebtedness incurred, or to pay other amounts owed, in
connection with its acquisition of the contracts and to pay other expenses in
connection with the pooling of the contracts and the issuance of the
certificates.
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THE CERTIFICATES AND THE AGREEMENT
The certificates will be issued under the pooling and servicing
agreement, a form of which will be filed with the SEC following the issuance of
the certificates. The following summaries of the pooling and servicing
agreement, together with the information set forth in the prospectus, describe
the material terms of the pooling and servicing agreement. However, these
summaries do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the provisions of the pooling and servicing
agreement. Where particular provisions of or terms used in the pooling and
servicing agreement are referred to, the actual provisions, including
definitions of terms, are incorporated by reference as part of those summaries.
INITIAL CERTIFICATE BALANCE
The initial principal balance of the certificates is approximately equal
to $_________________, the aggregate principal balance of the contracts as of
the Cut-Off Date calculated in accordance with the rule of 78's method, the
actuarial method or the simple interest method. Each of these methods is
explained under the heading "The Onyx Portfolio of Motor Vehicle Contracts -
Allocation of Payments on Contracts to Interest and Principal" in the
prospectus. See "The Contracts" in this prospectus supplement and in the
prospectus.
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
On each distribution date, monthly interest in an amount equal to the
product of one-twelfth of the pass-through rate and the Pool Balance as of the
end of the Collection Period preceding the related Collection Period will be
distributed on a pro rata basis to the certificateholders of record as of the
related record date; provided that the interest distribution with respect to the
first distribution date will include an additional $____ per $1,000 of initial
principal balance of the certificates. Interest will be paid to the extent of
the portion of the Pool Balance represented by contracts, from collections
received on the contracts on deposit in the collection account or previously
collected and available for distribution. Each interest distribution will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
Unless and until definitive certificates have been issued, distributions
on each distribution date will be made through the facilities of DTC and the
related record date will be the business day prior to that distribution date. If
definitive certificates are issued, the related record date will be the last day
of the calendar month preceding that distribution date. The final distribution
of principal of and interest on each certificate will be made only upon
presentation and surrender of the certificate on or after the final scheduled
distribution date, or any earlier termination date as is provided by the pooling
and servicing agreement, at the office or agency of the trustee maintained for
that purpose.
On each distribution date, the Principal Distribution for the related
Collection Period will be passed through to the certificateholders.
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The amount of the monthly installments of principal and interest for a
contract due on each due date under that contracts is substantially equal for
the term of the contract. The Scheduled Balance of each contract as of the
Cut-Off Date, which will be treated as being equal to the Cut-Off Date Scheduled
Balance, will be set forth in a schedule to the pooling and servicing agreement.
At the issuance of the certificates, the initial aggregate principal
amount of the certificates will be approximately equal to the sum of the
Aggregate Scheduled Balance of all the contracts as of the Cut-Off Date.
OPTIONAL REDEMPTION
In order to avoid excessive administrative expense, the servicer is
permitted at its option to purchase the remaining contracts from the trust on
any distribution date as of which the Pool Balance, after giving effect to the
Principal Distribution otherwise to be made on that distribution date, has
declined to 10% or less of the Aggregate Scheduled Balance of the contracts as
of the applicable Cut-Off Date. This purchase may be made by the servicer at a
price equal to the Aggregate Scheduled Balance of the contracts on the date of
repurchase plus accrued interest on the contracts and all amounts due to the
insurer under the insurance agreement. The trustee will give written notice of
termination to each certificateholder of record. The final payment to any
certificateholder will be made only upon surrender and cancellation of the
certificateholder's certificate at an office or agency of the trustee specified
in the notice of termination. Any funds remaining in the trust, after the
trustee has taken measures to locate a certificateholder and those measures have
failed, will be distributed to a charity designated by the servicer.
THE FINANCIAL GUARANTEE INSURANCE POLICY
If on the fifth business day prior to any distribution date the amount
on deposit in the collection account after giving effect to all amounts
deposited to or payable from the payahead account with respect to the
distribution date, is less than the sum of the servicing fee, Principal
Distribution, and Interest Distribution for that distribution date, then the
trustee, by delivering a notice in accordance with the policy, will demand
payment under the policy in an amount equal to the deficiency. The insurer will
pay or cause to be paid the deficiency amount to the trustee for credit to the
collection account. The trustee will withdraw from the collection account and
will pay the deficiency amount to the certificateholders on the related
distribution date.
If on the business day preceding the final scheduled distribution date,
any principal amount of certificates is still outstanding, then the trustee will
demand payment on the policy in an amount equal to the amount by which the
outstanding principal amount of the certificates, plus interest thereon at the
pass-through rate, exceeds the amount on deposit in the collection account which
is available for distribution on the final scheduled distribution date. The
insurer will pay or cause to be paid the deficiency amount to the trustee under
the trustee's instructions for credit to the collection account and on the final
scheduled distribution date, the trustee will withdraw from the collection
account and shall pay that amount to the certificateholders.
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SALE AND ASSIGNMENT OF THE CONTRACTS
At the time of issuance of the certificates, the seller will sell and
assign to the trustee, without recourse, the seller's entire interest in the
contracts and the proceeds thereof, including its security interests in the
financed vehicles. Each contract will be identified in a schedule appearing as
an exhibit to the pooling and servicing agreement. The trustee will,
concurrently with this sale and assignment, execute, authenticate and deliver
the certificates to [underwriters] against payment to the seller of the net
purchase price of the sale of the certificates. Prior to sale of the contracts
to the trustee and the issuance of the certificates, Onyx and each of its
participating subsidiaries will sell and assign to the seller their entire
interest in the contracts. See "Description of the Transfer and Servicing
Agreements - Sale and Assignment of the Contracts" in the prospectus.
DISTRIBUTIONS
Subject to the last sentence of this paragraph, distributions on the
certificates generally will be made on each distribution date by the paying
agent out of net collections on the contracts, exclusive of amounts representing
payments due in the collection period in which the distribution date occurs and
any future Collection Periods, for the Collection Period preceding the
distribution date, plus amounts payable from the payahead account. This amount
will be applied -
- first, to the servicer in payment of the servicing fee;
- second, to payment of the interest distribution and the
Principal Distribution to the certificateholders on that
distribution date in accordance with the pooling and servicing
agreement;
- third, to the insurer, the premium for the policy; and
- fourth, any balance will be distributed to a separate spread
account trust to be applied in accordance with the spread
account trust agreement and the insurance agreement, which
provide that to the extent funds are not required to reimburse
the insurer for draws on the policy, to satisfy obligations
owing to the insurer or to reserve against the possibility of
future draws, amounts remaining will be released to the
beneficiaries of the spread account trust.
Any amounts distributed under clause fourth above will not be available to make
distributions to the certificate-holders on the current or any future
distribution date. Under the policy, the insurer is obligated to provide for
payment to the trustee on each distribution date of the amount, if any, by which
the amount available for distribution from the net collections on contracts and
amounts payable from the payahead account, is less than the sum of the servicing
fee, the interest distribution and the Principal Distribution due to the
certificateholders for that Distribution Date. In addition, on the final
scheduled distribution date, to the extent the amount on deposit and available
in the collection account, including amounts payable from the payahead account,
is less
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than all remaining unpaid interest and principal on the certificates, the
insurer is obligated to pay under the policy or cause to be paid the amount of
the shortfall. In addition, on the final scheduled distribution date, to the
extent the amount on deposit and available in the collection account, including
from the payahead account, is less than all remaining unpaid interest and
principal on the certificates, the insurer is obligated to pay under the policy
or cause to be paid the amount of the shortfall. See "- Distributions of
Principal and Interest" in this prospectus supplement.
SERVICING FEE
The servicer will be entitled to compensation for the performance of its
obligations under the pooling and servicing agreement. The servicer will be
entitled to receive on each distribution date an amount equal to the product of
one-twelfth of ____% per annum multiplied by the Pool Balance as of the end of
the Collection Period preceding the related Collection Period. As additional
compensation, the servicer or its designee will be entitled to retain all late
payment charges, extension fees and similar items paid in respect of the
contracts. The servicer or its designee will also receive as servicing
compensation reinvestment earnings on Eligible Investments and the amount, if
any, by which the outstanding principal balance of a rule of 78's or actuarial
contract that is subject to a Full Prepayment exceeds the Scheduled Balance of
the contract. The servicer will pay all expenses incurred by it in connection
with its servicing activities under the pooling and servicing agreement and will
not be entitled to reimbursement of those expenses except to the extent they
constitute Liquidation Expenses or expenses recoverable under an applicable
insurance policy.
WAIVERS AND EXTENSIONS
The pooling and servicing agreement requires the servicer to use its
best efforts to collect all payments called for under the terms and provisions
of the contracts. The servicer, consistent with the foregoing, will be
permitted, in its discretion, to waive changes and grant extensions as described
under "Description of the Transfer and Servicing Agreements - Waivers and
Extensions" in the prospectus. The maturity date of a contract, however, may not
be extended more than ____ days past the originally scheduled maturity date, and
in no event beyond the final scheduled distribution date.
STATEMENTS TO CERTIFICATEHOLDERS
On each distribution date, the trustee will include with each
distribution to each certificateholder a statement setting forth for that
distribution date the information described under "Description of the Securities
- Statements to Securityholders" in the prospectus.
CERTAIN MATTERS RELATING TO THE INSURER
Notwithstanding any provision in the prospectus to the contrary, in the
event an insurer default shall have occurred and be continuing, the insurer will
not have the right to take any action under the pooling and servicing agreement,
to terminate the servicer, or to control or direct
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the actions of the seller, the servicer or the trustee under the terms of the
pooling and servicing agreement. In this event, the consent of the insurer will
not be required with respect to any action, or waiver of a right to take action,
to be taken by the seller, the servicer, the trustee or the certificateholders;
provided, that the consent of the insurer will be required at all times with
respect to any amendment of the pooling and servicing agreement.
DESCRIPTION OF THE INSURER
The insurer is domiciled in the State of ________________ and licensed
to do business in and subject to regulation under the laws of all 50 states, the
District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the
Northern Mariana Islands, the Virgin Islands of the United States and the
Territory of Guam. State laws regulate the amount of both the aggregate and
individual risks that may be insured, the payment of dividends by the insurer,
changes in control and transactions among affiliates. Additionally, the insurer
is required to maintain contingency reserves on its liabilities in certain
amounts and for certain periods of time.
The consolidated financial statements of the insurer and its
subsidiaries as of December 31, 199__ and December 31, 199__ and for each of the
three years in the period ended December 31, 199__, prepared in accordance with
generally accepted accounting principles, included in the Annual Report on Form
10-K of the Insurer for the year ended December 31, 199_ and the consolidated
financial statements of the Insurer and its subsidiaries as of
___________________ and for the ______ month periods ended __________________
and __________________ included in the Quarterly Report on Form 10-Q of
[Insurer] for the period ended ____________________, are incorporated by
reference into this prospectus supplement and shall be deemed to be a part
hereof. Any statement contained in a document incorporated by reference in this
prospectus supplement will be modified or superseded for purposes of this
prospectus supplement to the extent that a statement contained in this
prospectus supplement or in any other subsequently filed document which also is
incorporated by reference in this prospectus supplement modifies or supersedes
the statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this prospectus
supplement.
All financial statements of the insurer and its subsidiaries included in
documents filed by [insurer] under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, subsequent to the date of this
prospectus supplement and prior to the termination of the offering of the
securities will be deemed to be incorporated by reference into this prospectus
supplement and to be a part hereof from the respective dates of filing those
documents.
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The tables below present selected financial information of the Insurer
determined in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities, or SAP, and generally accepted
accounting principles, or GAAP:
<TABLE>
<CAPTION>
SAP
---------------------------
December 31,199
---------------- ---------
(Audited) (Unaudited)
(In Millions)
<S> <C> <C>
Admitted
Assets............
Liabilities.......
Capital
and Surplus.......
</TABLE>
<TABLE>
<CAPTION>
GAAP
----------------------------
December 31, 199
----------------- ---------
(Audited) (Unaudited)
(In Millions)
<S> <C> <C>
Assets.........
Liabilities....
Shareholder'
s Equity.......
</TABLE>
Copies of the financial statements of the insurer incorporated by
reference in this prospectus supplement and copies of the insurer's 199__
year-end audited financial statements prepared in accordance with statutory
accounting practices are available, without charge, from the insurer. The
address of the insurer is ______________________________. The telephone number
of the insurer is _________________.
The insurer does not accept any responsibility for the accuracy or
completeness of this prospectus supplement or any information or disclosure
contained in this prospectus supplement, or omitted herefrom, other than with
respect to the accuracy of the information regarding the insurer set forth under
the heading "Description of the Insurer". Additionally, the insurer makes no
representation regarding the certificates or the advisability of investing in
the certificates.
THE POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY
FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
Moody's Investors Service, Inc. rates the financial strength of the
insurer "Aaa".
Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc., rates the financial strength of the insurer "AAA".
Fitch IBCA, Inc., formerly known as Fitch Investors Service, L.P., rates
the financial strength of the insurer "AAA".
Each rating of the insurer should be evaluated independently. The
ratings reflect the respective rating agency's current assessment of the
creditworthiness of the Insurer and its ability
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to pay claims on its policies of insurance. Any further explanation of the
significance of the above ratings may be obtained only from the applicable
rating agency.
The above ratings are not recommendations to buy, sell or hold the
certificates and the ratings may be subject to revision or withdrawal at any
time by the rating agencies. Any downward revision or withdrawal of any of the
above ratings may have an adverse effect on the market price of the
certificates. The insurer does not guarantee the market price of the
certificates nor does it guarantee that the ratings on the certificates will not
be revised or withdrawn.
ERISA CONSIDERATIONS
Subject to the considerations set forth below and under "ERISA
Considerations" in the prospectus, the certificates may be purchased by an
employee benefit plan or an individual retirement account subject to ERISA or
Section 4975 of the tax code. A fiduciary of a benefit plan or IRA must
determine that the purchase of a certificate is consistent with its fiduciary
duties under ERISA and does not result in a nonexempt prohibited transaction as
defined in Section 406 of ERISA or Section 4975 of the tax code.
The DOL has granted to [underwriter] an administrative exemption from
certain of the prohibited transaction rules of ERISA with respect to the initial
purchase, the holding and the subsequent resale by benefit plans and IRA's of
certificates representing interests in asset backed pass-through trusts that
consist of receivables, loans and other obligations that meet the conditions and
requirements of the exemption.
The seller believes that the exemption will apply to the acquisition,
holding and resale of the certificates by a benefit plan or IRA and that all
conditions of the exemption other than those within the control of investors
will be met. However, there can be no assurance that the DOL or the IRS will not
take a contrary position, nor that the position will be sustained. One or more
alternative exemptions may be available with respect to certain prohibited
transactions to which the exemption is not applicable, depending in part upon
the type of benefit plan's or IRA's fiduciary making the decision to acquire the
certificates and the circumstances under which the decision is made, including,
but not limited to:
- Prohibited Transactions Class Exemption 91-38, regarding
investments by bank collective investment funds; or
- PTCE 90-1, regarding investments by insurance company pooled
separate accounts.
Before purchasing the certificates, a benefit plan's or IRA's fiduciary should
consult with its counsel to determine whether the conditions of the exemption or
any other exemption would be met. A purchaser of the certificates should be
aware, however, that even if the conditions specified in one or more exemptions
are met, the scope of the relief provided by the applicable
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<PAGE> 168
exemption or exemptions might not cover all acts that might be construed as
prohibited transactions.
As described above, the acquisition of a certificate by a benefit plan
or IRA could result in various unfavorable consequences for the benefit plan or
IRA or its fiduciaries under the regulations unless one of the exceptions in the
regulations or an exemption is available. See "ERISA Considerations" in the
prospectus.
Prospective benefit plan and IRA investors should consult with their
legal advisors concerning the impact of ERISA and the tax code, the
applicability of the exemption or any other exemptions, and the potential
consequences of any purchase in their specific circumstances, prior to making an
investment in a certificate. Any benefit plan or IRA which acquires a beneficial
ownership interest in certificates will be deemed, by virtue of the acceptance
and acquisition of the ownership interest, to have represented to the seller and
the trustee that the benefit plan or IRA is an "accredited investor" for
purposes of Rule 501(a)(1) of Regulation D under the Securities Act.
A governmental plan as defined in Section 3(32) of ERISA is not subject
to ERISA or Section 4975 of the tax code. However, such a governmental plan may
be subject to federal, state or local law which is to a material extent similar
to the provisions of ERISA or Section 4975 of the tax code. A fiduciary of a
governmental plan should make its own determination as to the need for and
availability of any exemptive relief under such laws.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement dated _______________ between the seller and the underwriters named
below, the seller has agreed to sell to each of the underwriters, and each of
the underwriters has severally agreed to purchase, the principal amount of the
certificates set forth opposite its name in the table below:
<TABLE>
<CAPTION>
Principal
Amount of
UNDERWRITER Certificates
----------- ------------
<S> <C>
$
$
Total......................................... $
============
</TABLE>
The seller has been advised by the underwriters that they propose
initially to offer the certificates to the public at the public offering price
set forth on the cover page of this prospectus and to certain dealers at that
price less a concession not in excess of ____% of the principal amount thereof.
The underwriters may allow, and the dealers may reallow, a discount not in
excess of ____% of the principal amount of the certificates on sales to certain
other dealers. After the initial public offering, the public offering price of
the certificates and the concession
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<PAGE> 169
and discount may be changed. The underwriters are obligated to purchase and pay
for all of the certificates if any certificates are purchased. The underwriters
currently intend, but are not obligated, to make a market in the certificates.
During and after the offering, the underwriters may purchase and sell
the certificates in the open market in transactions in the United States. These
transactions may include overallotment and stabilizing transactions and
purchases to cover short positions created in connection with the offering. The
underwriters also may impose a penalty bid, whereby selling concessions allowed
to broker-dealers in respect of the certificates sold in the offering for their
account may by reclaimed by the underwriters if the certificates are repurchased
by the underwriters in stabilizing or covering transactions. These activities
may stabilize, maintain or otherwise affect the market price of the
certificates, which may be higher than the price that might otherwise prevail in
the open market. These transactions may be effected in the over-the-counter
market or otherwise, and these activities, if commenced, may be discontinued at
any time.
Onyx has agreed to indemnify the underwriters against certain
liabilities, including liabilities under applicable securities laws, or
contribute to payments the underwriters may be required to make in respect
thereof.
LEGAL MATTERS
Certain matters with respect to the legality of the certificates and
with respect to the federal income tax matters discussed under "Certain Federal
Income Tax Consequences" in the prospectus will be passed upon for the seller by
Andrews & Kurth L.L.P., Dallas, Texas. Certain legal matters with respect to the
certificates will be passed upon for the underwriters by
___________________________. Certain legal matters relating to the policy will
be passed upon for the insurer by _________________________.
EXPERTS
The consolidated balance sheets of _____________________ and
subsidiaries as of December 31, 199__ and 199__ and the related consolidated
statements of income, changes in shareholder's equity, and cash flows for each
of the three years in the period ended December 31, 199__, incorporated by
reference in this prospectus supplement, have been incorporated in this
prospectus supplement in reliance on the report of __________, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
REPORTS TO SECURITYHOLDERS
Unless definitive securities are issued, which will occur under the
limited circumstances described in this prospectus supplement and in the
prospectus, the servicer will send unaudited monthly and annual reports
concerning the trust to the trustee to be delivered to Cede & Co. as
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<PAGE> 170
the nominee of DTC and the registered holder of the securities. See "Description
of the Transfer and Servicing Agreements - Statements to Securityholders" in the
prospectus. The reports will not constitute financial statements prepared in
accordance with generally accepted accounting principles. DTC will supply the
reports to you in accordance with its procedures. See "Description of the
Securities - Book-Entry Registration" in the prospectus. None of the seller, the
servicer, or [insurer] intends to send any of its financial reports to you.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
In addition to the documents described in the prospectus under
"Incorporation of Certain Documents by Reference," the consolidated financial
statements of [insurer] included in, or as exhibits to, the following documents
which have been filed with the SEC by [insurer], are hereby incorporated by
reference in this prospectus supplement:
(1) Annual Report on Form 10-K for the year ended December 31, 199_;
and
(2) Quarterly Report on Form 10-Q for the period ended
________________.
All financial statements of [insurer] included in documents filed by
[insurer] under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent
to the date of this prospectus supplement and prior to the termination of the
offering of the securities shall be deemed to be incorporated by reference into
this prospectus supplement and to be a part hereof from the respective dates of
filing of such documents.
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<PAGE> 171
GLOSSARY
"AGGREGATE SCHEDULED BALANCE" of the contracts means the sum of the
Scheduled Balances of each contract.
"AGGREGATE SCHEDULED BALANCE DECLINE" means, for any distribution date,
the amount by which the Aggregate Scheduled Balance of the contracts as of the
beginning of the related Collection Period exceeds the Aggregate Scheduled
Balance of the contracts as of the end of the related Collection Period.
"CUT-OFF DATE" means __________, 2001.
"COLLECTION PERIOD" means, with respect to a distribution date, the
calendar month preceding the month in which the distribution date occurs;
provided, that with respect to Liquidated Contracts the Collection Period will
be the period from but excluding the sixth business day preceding the
immediately preceding distribution date to and including the sixth business day
preceding the distribution date. With respect to the first distribution date the
Collection Period for Liquidated Contracts will be the period from and including
the Cut-Off Date to and including the sixth business day preceding the first
distribution date.
"CUT-OFF DATE SCHEDULED BALANCE" means, with respect to each contract,
the principal balance thereof as of the Cut-Off Date, in each case calculated in
accordance with the rule of 78's method, the actuarial method or the simple
interest method.
"DEFAULTED CONTRACT" means, with respect to any Collection Period, a
Contract -
- which is, at the end of the Collection Period, delinquent in the
amount of two monthly installments of principal and interest; or
- with respect to which the related financed vehicle has been
repossessed or repossession efforts with respect to the related
financed vehicle have been commenced.
"ELIGIBLE INVESTMENTS" means investments acceptable to each rating
agency rating the certificates as being consistent with the rating of the
certificates.
"LIQUIDATED CONTRACT" means a contract that -
- is the subject of a Full Prepayment;
- is a Defaulted Contract with respect to which Liquidation
Proceeds constituting, in the servicer's reasonable judgment,
the final amounts recoverable have been received and deposited
in the collection account;
- is paid in full on or after its maturity date; or
- has been a Defaulted Contract for four or more Collection
Periods and as to which Liquidation Proceeds have not been
deposited in the Collection Account;
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<PAGE> 172
provided, however, that in any event a contract that is delinquent in the amount
of five monthly installments of principal and interest at the end of a
Collection Period is a Liquidated Contract.
"POOL BALANCE" means, as of any date, the Aggregate Scheduled Balance of
the contracts as of that date, excluding those contracts which as of that date
have become Liquidated Contracts or have been repurchased by the seller or
purchased by the servicer.
"PRINCIPAL DISTRIBUTION" on any distribution date is the Aggregate
Scheduled Balance Decline for the distribution date. The Principal Distribution
on the final scheduled distribution date will include the Aggregate Scheduled
Balance of all contracts that are outstanding at the end of the Collection
Period immediately prior to the final scheduled distribution date.
"RESTRICTED GROUP" means the seller, the underwriter, the trustee, the
servicer, the insurer, any obligor with respect to contracts included in the
trust constituting more than 5% of the aggregate unamortized principal balance
of the assets in the trust, or any affiliate of those parties.
"SCHEDULED BALANCE" of a contract is determined as follows:
- for a rule of 78's contract at any date, an amount equal to the
Cut-Off Date Scheduled Balance of the contract reduced by the
portion of each scheduled payment of principal and interest due
on the contract paid on or prior to the date of calculation that
is allocable to principal under the rule of 78's method;
- for an actuarial contract at any date, an amount equal to the
Cut-Off Date Scheduled Balance of the contract reduced by the
portion of each scheduled payment of principal and interest paid
on or prior to the date of calculation that is allocable to
principal under the actuarial method;
- for a simple interest contract at any date, an amount equal to
the Cut-Off Date Scheduled Balance of the contract reduced by
the portion of each scheduled payment of principal and interest
paid on or prior to the date of calculation that is allocated to
principal under the simple interest method; and
- for a Liquidated Contract or a contract that has been purchased
by the servicer or repurchased by the seller, zero.
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================================================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS
AND, IF GIVEN OR MADE, THE INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE SELLER OR THE UNDERWRITER. NEITHER THIS
PROSPECTUS SUPPLEMENT NOR THE PROSPECTUS CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH THE OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE THE OFFER OR SOLICITATION.
------------------
$----------
ONYX ACCEPTANCE GRANTOR TRUST 2001-_
ISSUER
____% AUTO LOAN PASS-THROUGH CERTIFICATES,
SERIES 2001-_
[ONYX LOGO]
ONYX ACCEPTANCE FINANCIAL CORPORATION,
Seller
ONYX ACCEPTANCE CORPORATION,
Servicer
------------------------------------
P R O S P E C T U S S U P P L E M E N T
------------------------------------
[UNDERWRITERS]
[DATE]
<PAGE> 174
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
The following is an itemized list of the estimated expenses to be
incurred in connection with the offering of the securities being offered
hereunder other than underwriting discounts and commissions.
<TABLE>
<S> <C>
Registration Fee....................................$ 430,000
Blue Sky Fees and Expenses.......................... 130,000
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............................... 670,000
Miscellaneous ...................................... 130,000
----------
Total.....................................$2,180,000
==========
</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 amounts which the Company lawfully
indemnifies or for which it is required or permitted by law to indemnify its
directors and officers.
II-1
<PAGE> 175
In addition, the Company has entered into agreements to indemnify
certain of its directors and certain of its officers in addition to
indemnification provided for in the Certificate of Incorporation and Bylaws.
These agreements will, among other things, indemnify the Company's directors and
certain of its officers for certain expenses (including attorneys' fees),
judgments, fines and settlement amounts incurred by such person in any action or
proceeding, including any action by or in the right of the Company, on account
of services as a director or officer of the Company or as a director or officer
of any subsidiary of the Company, or as a director or officer of any other
company or enterprise that the person provides services to at the request of the
Company.
The Underwriting Agreement provides for indemnification by the Company
of the Underwriter, for certain liabilities rising under the Securities Act or
otherwise. It also provides, in certain limited instances, for indemnification
by the Underwriter of the Company with respect to information furnished by or on
behalf of the Underwriter that is contained in this prospectus or included as
part of this Registration Statement.
[Remainder of Page Intentionally Left Blank]
II-2
<PAGE> 176
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS
a. Exhibits:
1.1 Form of Underwriting Agreement (1)
4.1 Form of Trust Agreement between the Registrant, the
Servicer and the Owner Trustee (1)
4.2 Form of Indenture between the Trust and the Indenture
Trustee (1)
4.3 Form of Sale and Servicing Agreement among the
Registrant, the Servicer and the Owner Trustee (2)
4.4 Form of Pooling and Servicing Agreement among the
Registrant, the Servicer and the Trustee (1)
4.5 Form of Administration Agreement among the Trust, the
Administrator and the Indenture Trustee (1)
*5.1 Opinion of Andrews & Kurth L.L.P. with respect to
legality of Notes
*5.2 Opinion of Andrews & Kurth L.L.P. with respect to
legality of Certificates
*8.1 Opinion of Andrews & Kurth L.L.P. with respect to tax
matters
*23.1 Consent of Andrews & Kurth L.L.P. (included as part of
Exhibits 5.1, 5.2 and 8.1)
*24.1 Power of Attorney of Directors and Officers of the
Registrant
--------------
* Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement No. 333-51636 on December 11, 2000 and
incorporated herein by reference.
(1) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement No. 333-51239 on April 28, 1998 and incorporated
herein by reference.
(2) Previously filed with the Commission as an exhibit to the Registrant's
Amendment No. 2 to Registration Statement No. 333-51239 on June 3, 1998
and incorporated herein by reference.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, 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.
Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar
value of securities offered would not exceed that which
was registered) and any deviation from the low or high
end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a
20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(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 the registration
statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1(ii) do
not apply if the registration statement is on Form S-3 or Form
S-8, and the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13
or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this registration statement.
II-3
<PAGE> 177
(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.
(4) If the registrant is a foreign private issuer, to
file a post-effective amendment to the registration statement to
include any financial statements required by Item 8.A of Form
20-F at the start of any delayed offering or throughout a
continuous offering. Financial statements and information
otherwise required by Section 10(a)(3) of the Act need not be
furnished, provided that the registrant includes in the
prospectus, by means of a post-effective amendment, financial
statements required pursuant to this paragraph (a)(4) and other
information necessary to ensure that all other information in
the prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, with
respect to registration statements on Form F-3, a post effective
amendment need not be filed to include financial statements and
information required by Section 10(a)(3) of the Act or
ss.210.3-19 of this chapter if such financial statements and
information are contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to
section 13 of section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the Form F-3.
(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 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to 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 therein, 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 foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person is
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-4
<PAGE> 178
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Foothill Ranch, State of California, on January 12, 2001.
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
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
JOHN W. HALL* President, Chief Executive Officer January 12, 2001
------------------------------- and Director
John W. Hall (Principal Executive Officer)
/s/ DON P. DUFFY Executive Vice President, Chief January 12, 2001
------------------------------- Financial Officer and Director
Don P. Duffy (Principal Financial Officer and
Principal Accounting Officer)
JAMES M. CANTY* Director January 12, 2001
-------------------------------
James M. Canty
MICHAEL A. KRAHELSKI* Director January 12, 2001
-------------------------------
Michael A. Krahelski
BRIAN D. RODGERS* Director January 12, 2001
-------------------------------
Brian D. Rodgers
By: /s/ DON P. DUFFY
---------------------------
Don P. Duffy
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 179
EXHIBIT INDEX
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
1.1 Form of Underwriting Agreement (1)
4.1 Form of Trust Agreement between the Registrant, the
Servicer and the Owner Trustee (1)
4.2 Form of Indenture between the Trust and the Indenture
Trustee (1)
4.3 Form of Sale and Servicing Agreement among the
Registrant, the Servicer and the Owner Trustee (2)
4.4 Form of Pooling and Servicing Agreement among the
Registrant, the Servicer and the Trustee (1)
4.5 Form of Administration Agreement among the Trust, the
Administrator and the Indenture Trustee (1)
*5.1 Opinion of Andrews & Kurth L.L.P. with respect to
legality of Notes
*5.2 Opinion of Andrews & Kurth L.L.P. with respect to
legality of Certificates
*8.1 Opinion of Andrews & Kurth L.L.P. with respect to tax
matters
*23.1 Consent of Andrews & Kurth L.L.P. (included as part of
Exhibits 5.1, 5.2 and 8.1)
*24.1 Power of Attorney of Directors and Officers of the
Registrant
</TABLE>
----------
* Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement No. 333-51636 on December 11, 2000 and
incorporated herein by reference.
(1) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement No. 333- 51239 on April 28, 1998 and incorporated
herein by reference.
(2) Previously filed with the Commission as an exhibit to the Registrant's
Amendment No. 2 to Registration Statement No. 333-51239 on June 3, 1998
and incorporated herein by reference.
